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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
FOODMAKER, INC.
and other Registrants
(See Table of Other Registrants Below)
(Exact name of registrant as specified in its charter)
---------------------------
Delaware 5812 95-2698708
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
9330 Balboa Avenue
San Diego, California 92123
(619) 571-2121
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------------
ROBERT J. NUGENT
President and Chief Executive Officer
Foodmaker, Inc.
9330 Balboa Avenue
San Diego, California 92123
(619) 571-2121
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
ANDREW E. BOGEN, ESQ. BRYANT EDWARDS, ESQ.
Gibson, Dunn & Crutcher LLP Latham & Watkins
333 South Grand Avenue 633 West Fifth Street, Suite 4000
Los Angeles, CA 90071 Los Angeles, CA 90071
(213) 229-7000 (213) 485-1234
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Security Offering Price(1) Fee(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8 3/8% Senior Subordinated Notes Due 2008 $125,000,000 100% $125,000,000 $36,875
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f) of the Securities Act of 1933, as amended.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
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OTHER REGISTRANTS
<TABLE>
<CAPTION>
EXACT NAME OF REGISTRANT AS STATE OR OTHER JURISDICTION OF PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER IDENTIFICATION
SPECIFIED IN ITS CHARTER INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NUMBERS NUMBER
- --------------------------- ------------------------------ --------------------------- ------------------------------
<S> <C> <C> <C>
CP Distribution Co. Delaware 5812 92-2700133
CP Wholesale Co. Delaware 5812 33-0021904
Jack in the Box, Inc. New Jersey 5812 33-0381727
Foodmaker International Delaware 5812 13-2601316
Franchising Inc.
</TABLE>
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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 LAW OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE , 1998
PROSPECTUS
[LOGO] FOODMAKER, INC.
OFFER TO EXCHANGE ITS
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
($125,000,000 AGGREGATE PRINCIPAL AMOUNT)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON ___________________, 1998, UNLESS EXTENDED.
Foodmaker, Inc., a Delaware corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (the "Letter of Transmittal"), to
exchange its 8 3/8% Senior Subordinated Notes Due 2008 (the "Exchange Notes"),
in an offering which has been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement of which
this Prospectus constitutes a part, for an equal principal amount of its
outstanding 8 3/8% Senior Subordinated Notes Due 2008 (the "Old Notes"), of
which an aggregate of $125,000,000 in principal amount is outstanding as of the
date hereof (the "Exchange Offer"). The Exchange Notes and the Old Notes are
sometimes referred to herein collectively as the "Notes." The form and terms of
the Exchange Notes will be the same as the form and terms of the Old Notes
except that the Exchange Notes will not bear legends restricting the transfer
thereof. The Exchange Notes will be obligations of the Company entitled to the
benefits of the Indenture, dated as of April 14, 1998 (the "Indenture"),
relating to the Notes. See "Description of the Exchange Notes."
----------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS
IN DECIDING WHETHER TO TENDER OLD NOTES IN THE EXCHANGE OFFER, SEE "RISK
FACTORS" BEGINNING ON PAGE 16.
----------------
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
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The Company will accept for exchange any and all Old Notes that are
validly tendered on or prior to 5:00 p.m., New York City time, on the date the
Exchange Offer expires, which will be ____________, 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. The Company has not entered into any arrangement or
understanding with any person to distribute the Exchange Notes to be received in
the Exchange Offer.
The Old Notes initially sold to Qualified Institutional Buyers (as
defined in Rule 144A) in reliance on Rule 144A under the Securities Act of 1933
("Rule 144A") were initially represented by a single, permanent global note in
definitive, fully registered form, registered in the name of Cede & Co., as
nominee of The Depository Trust Company ("DTC"), which was deposited with First
Union National Bank, the trustee (the "Trustee"), as custodian under the
Indenture (as defined herein). The Exchange Notes exchanged for the Old Notes
that are represented by the global note will continue to be represented by a
permanent global note (collectively, the "Global Notes," and individually, a
"Global Note") in definitive, fully registered form, registered in the name of a
nominee of DTC and deposited with the Trustee as custodian, unless the
beneficial holders thereof request otherwise. See "Description of the Exchange
Notes -- Book Entry, Delivery and Form." Old Notes may be tendered only in
denominations of $1,000 and any integral multiple thereof.
Interest on the Exchange Notes will be payable semi-annually in arrears
on April 15 and October 15 of each year (each an "Interest Payment Date"),
commencing on the first such date following their date of issuance. Interest on
the Exchange Notes will accrue from the last Interest Payment Date on which
interest was paid on the Old Notes that are accepted for exchange or, if no
interest has been paid, from April 14, 1998. Accordingly, interest which has
accrued since the last Interest Payment Date on the Old Notes accepted for
exchange will cease to be payable upon issuance of the Exchange Notes.
Untendered Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain outstanding and bear interest at a rate of 8 3/8%
per annum after the Expiration Date but will not retain any rights under the
Registration Rights Agreement dated as of April 14, 1998 among the Company, the
Subsidiary Guarantors (as defined therein) and the Placement Agents (as defined
therein) (the "Registration Rights Agreement").
The Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after April 15, 2003. The Exchange Notes will be, and
the Old Notes currently are, unsecured obligations of the Company ranking pari
passu with all other unsecured and subordinated indebtedness of the Company.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes to be issued pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by a holder thereof (other than (i)
a broker-dealer who acquires such Exchange Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act of 1933, as amended (the "Securities Act") or (ii) a person that
is an affiliate of the Company (within the meaning of Rule 405 under the
Securities Act)) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the holder is acquiring
the Exchange Notes in the ordinary course of such holder's business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Old Notes
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met. Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
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Prior to the Exchange Offer, there has been no public market for the Old
Notes. The Company does not intend to list the Exchange Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the Exchange Notes
will develop. To the extent that a market for the Exchange Notes develops, the
market value of the Exchange Notes will depend on market conditions, the
Company's financial condition and operating results and the market for similar
securities. Such conditions might cause the Exchange Notes, to the extent that
they are actively traded, to trade at a significant discount from the face
value. See "Risk Factors -- Absence of Public Market."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
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AVAILABLE INFORMATION
The Company has 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 with respect to the Exchange
Notes offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Exchange Notes offered
hereby, reference is made to the Registration Statement. Any statements made in
this Prospectus concerning the provisions of certain documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. The
Registration Statement, the exhibits forming a part thereof and 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.,
Washington, D.C. 20549, and at the following Regional offices of the Commission:
New York Regional office, Seven World Trade Center, 13th Floor, New York, New
York 10048, and Chicago Regional Office, Citicorp Center, 500 West Madison
Street, 14th Floor, Chicago, Illinois 60601. Copies of such material can be
obtained from the Public Reference Section of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains an Internet Web Site at http://www.sec.gov that
contains reports and other information. The Company's Common Stock, $.01 par
value per share, is listed on the New York Stock Exchange. Reports, proxy and
informational statements and other information concerning the Company can be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST AS PROVIDED BELOW. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE.
The following reports have been filed by the Company with the Commission
and are specifically incorporated herein by reference: (i) the Company's Annual
Report on Form 10-K for the year ended September 28, 1997, (ii) the Company's
Quarterly Reports on Form 10-Q for the 16 weeks ended January 18, 1998 and the
28 weeks ended April 12, 1998 and (iii) the Company's Current Reports on Form
8-K dated February 24, 1998 and February 25, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Exchange Offer contemplated hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for all purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is incorporated or 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 undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, on written or oral request, a copy of any and all of the documents
incorporated in this Prospectus by reference, other than exhibits to such
documents not incorporated by reference therein. Requests for such copies should
be directed to Treasurer, Foodmaker, Inc., 9330 Balboa Avenue, San Diego,
California 92123, telephone: (619) 571-2121.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of management
as well as assumptions made by and information currently available to
management. Such forward-looking statements are principally contained in the
sections "Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" and include,
without limitation, the Company's expectation and estimates as to its business
operations following the Exchange Offer, including but not limited to, future
financial performance, including growth in net sales and earnings and cash flows
from operations, the Company's expectations regarding its effective tax rate,
its continuing investment in new restaurants and refurbishment of existing
facilities, Year 2000 compliance and sources of liquidity. In addition, in those
and other portions of this Prospectus, the words "anticipates," "believes,"
"estimates," "seeks," "expects," "plans," "intends" and similar expressions, as
they relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company, with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in this
Prospectus. The Company wishes to caution readers that forward-looking
statements made by or on behalf of the Company are subject to known and unknown
risks and uncertainties which may cause the Company's actual results to be
materially different from future results expressed or implied by any
forward-looking statements. In connection with the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995, the Company provides the
following cautionary statements which identify important factors that could
cause the Company's actual results to differ materially from those expressed in
any forward-looking statements. No inference should be drawn that the factors
referred to below are the only factors which could give rise to such
differences. In addition to factors discussed in this Prospectus under "Risk
Factors," among the other factors that could cause the Company's results to
differ materially are: the effectiveness and cost of advertising and promotional
efforts; the degree of success of the Company's product offerings; weather
conditions; difficulties in obtaining ingredients and variations in ingredient
costs; the Company's ability to control operating, general and administrative
costs and to raise prices sufficiently to offset cost increases; competitive
products and pricing and promotions; the impact of any wide-spread negative
publicity; the impact on consumer eating habits of new scientific information
regarding diet, nutrition and health; competition for labor; general economic
conditions; changes in consumer tastes and in travel and dining-out habits; the
impact on operations and the costs to comply with laws and regulations and other
activities of governing entities; the costs and other effects of legal claims by
franchisees, customers, vendors and others, including settlement of those
claims; and the effectiveness of management strategies and decisions. The
Company does not intend to update these forward-looking statements.
------------------------
JACK IN THE BOX (R), Jumbo Jack(TM) and Sourdough Jack(TM) are
trademarks and service marks of Foodmaker, Inc. All rights are fully reserved.
All other trademarks and trade names appearing in this Prospectus are the
property of their respective holders
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THIS PROSPECTUS, NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR
BOTH TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF
TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION.................................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................................... 4
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS.......................................... 5
SUMMARY ................................................................................. 7
RISK FACTORS............................................................................. 16
THE EXCHANGE OFFER....................................................................... 22
USE OF PROCEEDS.......................................................................... 30
CAPITALIZATION........................................................................... 31
SELECTED CONSOLIDATED FINANCIAL DATA..................................................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.... 34
BUSINESS ................................................................................ 40
MANAGEMENT............................................................................... 48
DESCRIPTION OF THE EXCHANGE NOTES........................................................ 51
DESCRIPTION OF CERTAIN INDEBTEDNESS...................................................... 81
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.................................. 83
PLAN OF DISTRIBUTION..................................................................... 85
LEGAL MATTERS............................................................................ 86
EXPERTS.................................................................................. 86
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SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial data,
including the consolidated financial statements and notes thereto, included
elsewhere in this Prospectus or incorporated by reference herein. All references
herein to "Foodmaker" or "the Company" refer to Foodmaker, Inc. and include its
subsidiaries, unless the context otherwise requires. The Company's fiscal year
is the 52- or 53-week period ending on the Sunday closest to September 30. For
example, references to "fiscal 1997" refer to the 52-week period ended September
28, 1997. Each of fiscal years 1994 through 1997 was 52 weeks and fiscal 1993
was 53 weeks.
THE COMPANY
The Company owns, operates and franchises the JACK IN THE BOX
quick-service hamburger restaurant chain. As of April 12, 1998, the JACK IN THE
BOX system included 1,345 restaurants, of which 1,002 were Company-operated and
343 were franchised. In fiscal 1997, the Company generated revenues of $1.07
billion. JACK IN THE BOX restaurants are located primarily in the western United
States with a leading market presence in each of the major markets they serve.
Based on the number of units, JACK IN THE BOX is the third largest quick-service
hamburger chain in each of California, Texas, Arizona and Washington, its major
markets. Pro forma for the redemption of the Existing Senior Subordinated Notes
(as defined herein), the Company will have reduced its long-term indebtedness by
approximately $200 million from the end of fiscal 1993 to $301.3 million as of
April 12, 1998.
JACK IN THE BOX restaurants offer a broad selection of distinctive,
innovative products targeted at the adult fast-food consumer. JACK IN THE BOX
seeks to differentiate its restaurants by focusing on product quality and
innovation. The JACK IN THE BOX menu features a variety of hamburgers, specialty
sandwiches, salads, Mexican food, finger foods and side items. The core of the
JACK IN THE BOX menu is its hamburger products, which represent approximately
25% of sales, including its signature hamburgers, the Jumbo Jack, Ultimate
Cheeseburger and Sourdough Jack. In addition, the Company has been a leader in
new product innovation and offers such unique products as the Teriyaki Chicken
Bowl and Chicken Fajita Pita. JACK IN THE BOX restaurants also offer
value-priced product alternatives, known as "Jack's Value Menu," to compete
against price-oriented competitors. The Company believes that its distinctive
menu has been instrumental in developing brand loyalty and appealing to
customers with a broader range of food preferences.
The Company's operating strategy includes: (i) offering quality
innovative products with high perceived value, (ii) providing fast and friendly
customer service, (iii) maintaining a strong brand image, (iv) targeting an
attractive demographic segment and (v) focusing on Company-operated restaurants.
Beginning in 1994, the Company began a series of operating initiatives to
improve food quality and guest service. These initiatives include product
innovations and reformulations, improvements in food preparation and service
methods and improved training and retention of employees. In addition, the
Company launched its award-winning, irreverent advertising campaign featuring
its fictional founder "Jack" which has been instrumental in delivering the
message of product innovation, quality and value to customers. The Company
believes its menu and marketing campaign appeal to a broad segment of the
population, particularly its primary target market of men aged 18-34, the
demographic group with the highest incidence of fast-food consumption. The
Company operates approximately 74% of its restaurants, one of the highest
percentages in the quick-service restaurant industry, which the Company believes
enables it to implement its operating strategy and introduce product innovations
consistently across the entire system better than other quick-service restaurant
chains.
The Company's principal executive offices are located at 9330 Balboa
Avenue, San Diego, California 92123; telephone: (619) 571-2121.
BUSINESS STRATEGY
The Company's business strategy is to (i) increase same store sales and
profitability through the continued implementation of its successful operating
strategy and (ii) capitalize on its strong brand name and proven operating
strategy by developing new restaurants.
Continue to Implement Successful Operating Strategy. The Company
believes that its strategy of focusing on food quality and product innovation
has allowed it to differentiate itself from competitors and increase its
restaurant level
7
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margins to among the highest in the industry. The Company intends to continue to
increase same store sales and profitability through improvements in food quality
and guest service, product innovations and creative marketing. For example, the
Company recently began remodeling its restaurant kitchens to allow for more
efficient operations and to improve food quality and has recently introduced new
and reformulated products, such as its successful improved french fries and real
ice cream shakes. The Company has also begun to implement improved food
preparation techniques, such as its assemble-to-order sandwich initiative, and
to improve guest service with its new menu boards. The Company's new drive-thru
menu boards feature an electronic order confirmation system that allows
customers to read their order on an electronic screen, which the Company
believes will reduce errors and increase customer satisfaction.
Develop New Restaurants. The Company intends to capitalize on its strong
brand name and proven operating strategy and achieve attractive returns on
investment by developing new Company-operated restaurants and, to a lesser
extent, franchised restaurants. The Company opened 75 new Company-operated
restaurants in fiscal 1997 and intends to open and operate approximately 100 new
restaurants in fiscal 1998 and in each of the next several years. Newly-opened
restaurants typically have sales levels similar to existing restaurants. The
Company believes that its brand is underpenetrated in many of its existing
markets and intends to leverage media and food delivery costs by increasing its
market penetration. In addition, the Company believes that it can further
leverage the JACK IN THE BOX brand name by expanding to contiguous and selected
high growth new markets. The Company has also begun opening a limited number of
restaurants on nontraditional sites, such as adjacent to convenience stores and
gas stations, and intends to continue to add nontraditional sites to increase
its penetration of existing markets.
RECENT DEVELOPMENTS
In September 1997, the Company redeemed $50.0 million of its 9-1/4%
Senior Notes due 1999 (the "Senior Notes") with available cash (the "1997 Senior
Notes Redemption"). The 1997 Senior Notes Redemption and a series of
transactions described below (collectively, the "Refinancing" or "Refinancing
Transactions") reduced the Company's indebtedness by approximately $95.2 million
and interest expense by approximately $12.9 million from $40.4 million in fiscal
1997 to $27.5 million on a pro forma basis. As described in more detail below
and under "Use of Proceeds," the Company funded the Refinancing Transactions
principally from three sources: (i) available cash, (ii) proceeds of the Old
Offering (defined below) and (iii) bank borrowings under the Credit Facility.
- Old Notes Offering. The Company issued on April 14, 1998 an
aggregate of $125 million principal amount of the Old Notes in
an offering (the "Old Offering"), pursuant to a Placement
Agreement, dated as of April 8, 1998, by and among the Company,
CP Distribution Co., CP Wholesale Co., Foodmaker International
Franchising, Inc., JACK IN THE BOX , Inc. (collectively, the
"Subsidiary Guarantors"), and Morgan Stanley & Co. Incorporated,
NationsBanc Montgomery Securities LLC, Salomon Brothers Inc and
Jeffries & Company, Inc. (collectively "Placement Agents").
- Credit Facility. On April 1, 1998, the Company entered into a
revolving bank credit agreement, which provides for a credit
facility (the "Credit Facility") expiring in 2003 of up to $175
million, including letters of credit of up to $25 million.
- Redemption of Senior Notes. The Company redeemed $75 million of
its Senior Notes on April 15, 1998 and the remaining $50 million
on May 15, 1998.
- Redemption of Existing Senior Subordinated Notes. On June 1,
1998, the Company redeemed all $125 million of its 9-3/4% Senior
Subordinated Notes due 2002 (the "Existing Senior Subordinated
Notes").
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THE EXCHANGE OFFER
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The Exchange Offer........... Up to $125,000,000 aggregate principal amount of Exchange
Notes are being offered in exchange for a like principal
amount of Old Notes. The terms of the Exchange Notes and the
Old Notes are substantially identical. Old Notes may be
tendered for exchange in whole or in part in any integral
multiple of $1,000. The Company and the Subsidiary
Guarantors are making the Exchange Offer in order to satisfy
their obligations under the Registration Rights Agreement
relating to the Old Notes. For a description of the
procedures for tendering the Old Notes, see "The Exchange
Offer -- Procedures for Tendering."
Expiration Date.............. 5:00 p.m., New York City time, ______________, 1998, unless
the Exchange Offer is extended by the Company (in which case
the Expiration Date will be the latest date and time to which
the Exchange Offer is extended). See "The Exchange Offer --
Terms of the Exchange Offer."
Conditions to the Exchange The Exchange Offer is subject to certain customary
Offer...................... conditions, certain of which may be waived by the Company in
its sole discretion. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered. See "The
Exchange Offer -- Conditions to Exchange Offer." The Company
reserves the right in its sole and absolute discretion, subject to
applicable law, at any time and from time to time, (i) to delay the
acceptance of the Old Notes for exchange, (ii) to terminate the
Exchange Offer if certain specified conditions have not been
satisfied, (iii) to extend the Expiration Date of the Exchange
Offer and retain all Old Notes tendered pursuant to the Exchange
Offer, subject, however, to the right of holders of Old Notes to
withdraw their tendered Old Notes, or (iv) to waive any condition
or otherwise amend the terms of the Exchange Offer in any respect.
See "The Exchange Offer -- Terms of the Exchange Offer."
Withdrawal Rights............ Tenders of Old Notes may be withdrawn at any time on or prior
to the Expiration Date by delivering a written notice of such
withdrawal to the Exchange Agent in conformity with certain
procedures set forth under "The Exchange Offer -- Withdrawal
of Tenders."
Procedures for Tendering
Old Notes.................. Tendering holders of Old Notes must complete and sign a
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. 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. See "The Exchange Offer -- Procedures for
Tendering."
Letters of Transmittal and certificates representing Old Notes
should not be sent to the Company or the Subsidiary Guarantors.
Such documents should be sent only to the Exchange Agent.
Resales of Exchange Notes.... The Company is making the Exchange Offer in reliance on the
position of the staff of the Division of Corporation Finance
of the Commission as set forth in certain interpretive
letters addressed to third parties in other transactions.
</TABLE>
9
<PAGE> 12
<TABLE>
<S> <C>
However, neither the Company nor the Subsidiary Guarantors has
sought its own interpretive letter and there can be no assurance
that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the
Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff of the
Division of Corporation Finance of the Commission, and subject to
the two immediately following sentences, the Company and the
Subsidiary Guarantors believe that Exchange Notes issued pursuant
to this Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other
than a holder who is a broker-dealer) without further compliance
with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Notes are acquired in
the ordinary course of such holder's business 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 Exchange Notes. However, any holder of
Old Notes who is an "affiliate" of the Company or the Subsidiary
Guarantors or who intends to participate in the Exchange Offer for
the purpose of distributing the Exchange Notes, or any
broker-dealer who purchased the Old Notes from the Company to
resell pursuant to Rule 144A or any other available exemption under
the Securities Act, (a) will not be able to rely on the
interpretations of the staff of the Division of Corporation Finance
of the Commission set forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to tender such Old
Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities
Act in connection with any sale or other transfer of such Old Notes
unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer
holds Old Notes acquired for its own account as a result of
market-making or other trading activities and exchanges such Old
Notes for Exchange Notes, then such broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in
connection with any resales of such Exchange Notes. See "Plan of
Distribution."
Each holder of Old Notes who wishes to exchange Old Notes for
Exchange Notes in the Exchange Offer will be required to represent
that (i) it is not an "affiliate" of the Company, (ii) any Exchange
Notes to be received by it are being acquired in the ordinary
course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Notes,
and (iv) if such holder is not a broker-dealer, such holder is not
engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such Exchange Notes.
Each broker-dealer that receives Exchange 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 must agree that it will
deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." 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. Based on
the position taken by the staff of the Division of Corporation
Finance of the Commission in the interpretive letters referred to
above, the Company and the Subsidiary Guarantors believe that
Participating Broker-Dealers (as defined herein) who acquired Old
Notes for their own accounts as a result of market-making
activities or other trading activities may fulfill their prospectus
delivery requirements with respect to the
</TABLE>
10
<PAGE> 13
<TABLE>
<S> <C>
Exchange Notes received upon exchange of such Old Notes (other than
Old Notes which represent an unsold allotment from the initial sale
of the Old Notes) with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an
exchange offer so long as it contains a description of the plan of
distribution with respect to the resale of such Exchange Notes.
Accordingly, this Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes received in exchange for
Old Notes where such Old Notes were acquired by such Participating
Broker-Dealer for its own account as a result of market-making or
other trading activities, subject to certain provisions set forth
in the Registration Rights Agreement and to the limitations
described below under "The Exchange Offer -- Resales of Exchange
Notes." Any Participating Broker-Dealer who is an "affiliate" of
the Company may not rely on such interpretive letters and must
comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
See "The Exchange Offer -- Resales of Exchange Notes."
Exchange Agent............... The exchange agent with respect to the Exchange Offer is
First Union National Bank (the "Exchange Agent"). The addresses,
and telephone and facsimile numbers, of the Exchange Agent are set
forth in "The Exchange Offer -- Exchange Agent" and in the Letter
of Transmittal.
Use of Proceeds.............. Neither the Company nor the Subsidiary Guarantors will
receive any cash proceeds from the issuance of the Exchange Notes
offered hereby. See "Use of Proceeds."
Certain United States Federal
Income Tax Considerations.. Holders of Old Notes should review the information set forth
under "Certain United States Federal Income Tax Considerations" prior
to tendering Old Notes in the Exchange Offer.
</TABLE>
TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to an aggregate principal amount of
$125,000,000 of the Old Notes. The form and terms of the Exchange Notes will be
the same as the form and terms of the Old Notes except that the Exchange Notes
will not bear legends restricting the transfer thereof. The Exchange Notes will
be obligations of the Company entitled to the benefits of the Indenture. See
"Description of the Exchange Notes."
<TABLE>
<S> <C>
Exchange Notes Offered....... $125 million aggregate principal amount of 8 3/8% Senior
Subordinated Notes Due 2008.
Maturity..................... April 15, 2008.
Interest..................... Interest on the Exchange Notes is payable semi-annually in
cash on April 15 and October 15 of each year, commencing
October 15, 1998. For a description of the requirement to
offer to exchange the Exchange Notes and the possible effect
on the interest rate, see "-- Registration Rights" below.
</TABLE>
11
<PAGE> 14
<TABLE>
<S> <C>
Optional Redemption.......... The Exchange Notes are redeemable, at the option of the Company, in
whole or in part, at any time on or after April 15, 2003, initially
at 104.188% of their principal amount, plus accrued interest,
declining ratably to 100% of their principal amount, plus accrued
interest, on or after April 15, 2006.
In addition, at any time prior to April 15, 2001, the Company may
redeem up to 35% of the principal amount of the Exchange Notes with
the proceeds of one or more sales by the Company of its Capital
Stock (other than Disqualified Stock), at any time or from time to
time in part, at a redemption price (expressed as a percentage of
principal amount) of 108.375%, plus accrued interest; provided that
at least $81.25 million aggregate principal amount of Exchange
Notes remains outstanding after each such redemption; and provided
further, that such redemption occurs within 90 days of the date of
the closing of each such sale of Capital Stock. See "Description of
Exchange Notes - Optional Redemption."
Change of Control............ Upon a Change of Control (as defined in "Description of the
Exchange Notes - Certain Definitions"), each holder of Exchange
Notes will have the right to require the Company to purchase such
holder's Exchange Notes at a price of 101% of the principal amount
thereof plus accrued interest, if any, to the date of purchase.
There can be no assurance that the Company will have the financial
resources necessary to purchase the Exchange Notes upon a Change of
Control. See "Description of the Exchange Notes - Repurchase of
Notes upon a Change of Control."
Subsidiary Guarantees........ The Exchange Notes will be guaranteed (the "Subsidiary Guarantees")
on a senior subordinated basis by all of the Company's current and
future Restricted Subsidiaries (the "Subsidiary Guarantors") which
as of the Expiration Date will consist of all of the Company's
subsidiaries other than the CRC Subsidiaries and Foreign
Subsidiaries. The Subsidiary Guarantees may be released under
certain circumstances. See "Description of the Exchange Notes -
Subsidiary Guarantees."
Ranking...................... The Exchange Notes will be unsecured, senior subordinated indebtedness
of the Company and will be subordinated to all Senior Indebtedness
of the Company, including borrowings under the Credit Facility. The
Subsidiary Guarantees will be subordinated in right of payment to
all existing and future Senior Indebtedness of the Subsidiary
Guarantors, including guarantees of the Credit Facility. The Credit
Facility provides the Company with $175 million of total borrowing
availability, all of which would constitute Senior Indebtedness. At
April 12, 1998, on a pro forma basis after giving effect to the Old
Offering and the other Refinancing Transactions, the Company and
the Subsidiary Guarantors would have had approximately $180.6
million of Senior Indebtedness, including approximately $80 million
of borrowings under the Credit Facility. See "Risk Factors -
Leverage."
Certain Covenants............ The Indenture contains certain covenants for the benefit of the
holders of the Exchange Notes which, among other things, restrict
the ability of the Company and its Restricted Subsidiaries to:
incur additional indebtedness; pay dividends and make investments
and other restricted payments; create restrictions on the ability
of Restricted Subsidiaries to make certain payments; issue or sell
stock of Restricted Subsidiaries; enter into transactions with
affiliates; create liens; sell assets; and consolidate, merge, or
sell all or substantially all of its assets. See "Description of
the Exchange Notes."
</TABLE>
12
<PAGE> 15
<TABLE>
<S> <C>
Book Entry, Delivery
and Form .................. Exchange Notes originally sold in reliance on Rule 144A will be
represented by one or more permanent Global Notes in definitive,
fully registered form without interest coupons, deposited with the
Trustee as custodian for, and registered in the name of, a nominee
of DTC. Notes originally sold in offshore transactions in reliance
on Regulation S under the Securities Act ("Regulation S") will be
represented by one or more permanent Global Notes in definitive,
fully registered form deposited with the Trustee as custodian for,
and registered in the name of, a nominee of DTC, for the accounts
of Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear System ("Euroclear"); and Cedel Bank,
societe anonyme ("Cedel Bank"). Institutional Accredited Investors
that are not Qualified Institutional Buyers will receive
certificates for the Exchange Notes owned by them, which cannot
then be traded through the facilities of DTC, except in connection
with a transfer to a Qualified Institutional Buyer or a transfer
pursuant to Regulation S. See "Description of the Exchange Notes -
Book Entry, Delivery and Form."
</TABLE>
RISK FACTORS
For a discussion of certain factors that should be considered in
evaluating an investment in the Notes, see "Risk Factors," beginning on page 16.
13
<PAGE> 16
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary financial data of the Company for the 53 weeks
ended October 3, 1993 and each of the four 52-week periods ended September 28,
1997 are extracted or derived from financial statements which have been audited
by KPMG Peat Marwick LLP, independent auditors. The summary financial data of
the Company for the 28 weeks ended April 12, 1998 and April 13, 1997 are
extracted or derived from the unaudited Consolidated Financial Statements of the
Company, and the notes thereto, included herein, which, in the opinion of the
Company's management, include all adjustments necessary for a fair presentation
of the financial position and results of operations for such periods. The
summary financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto of the
Company included elsewhere in this Prospectus. Results of operations for
Chi-Chi's, Inc. ("Chi-Chi's") are included through January 27, 1994, when
Chi-Chi's was sold. The Company's fiscal year is 52 or 53 weeks, ending the
Sunday closest to September 30.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues(1) .................................... $ 1,240,727 $ 1,053,326 $ 1,018,716 $ 1,062,822 $ 1,071,742
Costs of revenues(2) ........................... 1,147,157 950,952 903,479 919,211 905,742
Equity in loss of FRI(3) ....................... -- 2,108 57,188 -- --
Selling, general and administrative
expenses(4) ................................. 102,183 78,323 78,044 72,134 80,438
Interest expense ............................... 57,586 55,201 48,463 46,126 40,359
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes
(benefit), extraordinary item, and
cumulative effect ........................... (66,199) (33,258) (68,458) 25,351 45,203
of changes in accounting principles
Income taxes (benefit) ......................... (22,071) 3,010 500 5,300 9,900
------------ ------------ ------------ ------------ ------------
Earnings (loss) before extraordinary item
and cumulative effect of changes in
accounting principles ....................... (44,128) (36,268) (68,958) 20,051 35,303
Extraordinary item -- loss on early
extinguishment of debt, net of income
taxes ....................................... -- (3,302) -- -- (1,252)
Cumulative effect on prior years of
adopting SFAS 106 and SFAS 109 .............. (53,980) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net earnings (loss) ............................ $ (98,108) $ (39,570) $ (68,958) $ 20,051 $ 34,051
============ ============ ============ ============ ============
OTHER FINANCIAL DATA:
Pro forma interest expense(5) .................. $ 27,465
Ratio of earnings to fixed charges(6) .......... -- -- -- 1.3x 1.6x
Capital expenditures ........................... $ 46,269 $ 92,037 $ 27,033 $ 33,232 $ 59,660
JACK IN THE BOX RESTAURANT
OPERATING AND OTHER DATA:
Restaurants open (at end of period):
Company-operated restaurants ................. 725 810 863 879 963
Franchised and licensed restaurants .......... 447 414 389 391 360
------------ ------------ ------------ ------------ ------------
Total .................................. 1,172 1,224 1,252 1,270 1,323
============ ============ ============ ============ ============
Percentage increase (decrease) in
comparable Company-operated restaurant
sales ....................................... (7.4)% 2.7% 3.5% 7.2% 6.5%
General and administrative expenses as a
percentage of revenues(4) ................... 3.2% 2.8% 3.3% 2.3% 2.7%
</TABLE>
<TABLE>
<CAPTION>
28 WEEKS ENDED
---------------------
4/13/97 4/12/98
-------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
<S> <C> <C>
Revenues(1) ........................................................ $570,476 $653,683
Costs of revenues(2) ............................................... 485,206 514,053
Equity in loss of FRI(3) ........................................... -- --
Selling, general and administrative
expenses(4) ..................................................... 43,030 52,803
Interest expense ................................................... 22,018 19,206
-------- --------
Earnings (loss) before income taxes
(benefit), extraordinary item, and
cumulative effect ............................................... 20,222 67,621
of changes in accounting principles
Income taxes (benefit) ............................................. 4,500 21,600
-------- --------
Earnings (loss) before extraordinary item
and cumulative effect of changes in
accounting principles ........................................... 15,722 46,021
Extraordinary item -- loss on early
extinguishment of debt, net of income
taxes ........................................................... -- --
Cumulative effect on prior years of
adopting SFAS 106 and SFAS 109 .................................. -- --
-------- --------
Net earnings (loss) ................................................ $ 15,722 $ 46,021
======== ========
OTHER FINANCIAL DATA:
Pro forma interest expense(5) ...................................... $ 14,754
Ratio of earnings to fixed charges(6) .............................. 1.5x 2.9x
Capital expenditures ............................................... $ 15,092 $ 27,953
JACK IN THE BOX RESTAURANT
OPERATING AND OTHER DATA:
Restaurants open (at end of period):
Company-operated restaurants ..................................... 895 1,002
Franchised and licensed restaurants .............................. 367 343
-------- --------
Total ...................................................... 1,262 1,345
======== ========
Percentage increase (decrease) in
comparable Company-operated restaurant
sales ........................................................... 7.0% 2.4%
General and administrative expenses as a
percentage of revenues(4) ....................................... 2.7% 3.4%
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
At April 12, 1998
-------------------------
Actual Pro Forma(7)
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets.................................... $157,195 $104,208
Current liabilities............................... 208,610 208,610
Total assets...................................... 750,471 700,535
Long-term debt.................................... 346,524 301,314
Stockholders' equity.............................. 135,067 130,341
</TABLE>
- ----------
(1) Includes the recognition of a $45.8 million Litigation Settlement in the
28 weeks ended April 12, 1998 as described in Note 4 to the Unaudited
Consolidated Financial Statements of the Company.
(2) Reflects a provision of $44.5 million for the year ended October 3, 1993
to cover franchisee settlements and associated costs related to the
outbreak of food-borne illness.
(3) Reflects the complete write-off of the Company's $57.2 million investment
in Family Restaurants, Inc. ("FRI") for the year ended October 1, 1995.
See Note 2 to the Consolidated Financial Statements for fiscal 1997 for
information concerning the Company's prior ownership of Chi-Chi's and
investment in FRI.
(4) Includes the recognition of an $8.0 million stockholders' lawsuit
settlement for the year ended October 1, 1995.
(5) Reflects interest expense on the Notes and borrowings under the Credit
Facility, amortization of debt issuance costs, and interest savings on the
Senior Notes and Existing Senior Subordinated Notes to be repaid with the
proceeds from the Old Offering, as if the Refinancing Transactions had
been consummated at the beginning of the periods presented and for the
fiscal 1997 amount as if the 1997 Senior Note Redemption had been
consummated at the beginning of the period. The interest rates on the
Notes and the Credit Facility are 8 3/8% and 7%, respectively.
(6) For purposes of determining the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes plus fixed charges. Fixed
charges consist of interest on indebtedness, including amortization of
debt issuance costs and debt discount, and that portion of operating lease
expenses representative of the interest factor. The deficiency of earnings
to fixed charges was $66.5 million, $34.0 million and $68.6 million in
fiscal years 1993, 1994 and 1995, respectively. The deficiencies in 1993
and 1995 reflect the items described in footnotes (2), (3) and (4) above.
(7) Reflects (i) the issuance of the Old Notes, (ii) borrowings under the
Credit Facility, (iii) redemption of the Senior Notes and the Existing
Senior Subordinated Notes and related redemption premiums, and (iv) fees
and expenses of the Old Offering, as described in "Use of Proceeds"
included elsewhere in this Prospectus.
15
<PAGE> 18
RISK FACTORS
In evaluating an investment in the Exchange Notes, prospective
purchasers should carefully consider the specific factors set forth below as
well as the other information set forth in this Prospectus.
LEVERAGE
The Company is highly leveraged. As of April 12, 1998, after giving pro
forma effect to the Old Offering and the other Refinancing Transactions, the
Company would have had total indebtedness of approximately $301.3 million,
stockholders' equity of approximately $130.3 million and tangible net worth of
$26.3 million. In addition, the Indenture and the Company's other debt
instruments will permit the Company and its subsidiaries to incur certain
additional indebtedness, including Senior Indebtedness, in the future. See
"Capitalization" and "Description of the Exchange Notes -- Covenants --
Limitation on Indebtedness."
The Company's ability to make scheduled payments of principal of, or to
pay the interest on, or to refinance, its Indebtedness (including the Exchange
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 and other factors that are beyond its
control. Based upon the current level of operations and anticipated revenue
growth, management believes that cash flows from operations and available cash,
together with available borrowings under the Credit Facility, will be adequate
to meet the Company's liquidity needs for the foreseeable future, although there
can be no assurances thereof.
The degree to which the Company is leveraged could have important
consequences to holders of the Exchange Notes, including, but not limited to:
(i) limiting the Company's ability to satisfy its obligations with respect to
the Exchange 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 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 to less
leveraged competitors.
The Indenture and the instruments governing the Company's other
indebtedness, including the Credit Facility, contain certain covenants limiting,
among other things, the incurrence of additional indebtedness, the payment of
dividends, the making of certain investments, the creation of liens and asset
sales and certain mergers and consolidations. The degree of the Company's
indebtedness and the restrictions included in the Company's debt instruments
could impair the Company's ability to obtain additional financing, reduce the
funds available to the Company for its operations, expose the Company to the
risk of greater interest rates, place the Company at a relative competitive
disadvantage and make the Company more vulnerable to changing economic
conditions. See "Description of the Exchange Notes -- Certain Covenants" and
"Description of Certain Indebtedness."
SUBORDINATION
The Exchange Notes will be subordinated in right of payment to all
current and future Senior Indebtedness of the Company and the Subsidiary
Guarantees will be subordinated in right of payment to all current and future
Senior Indebtedness of the Subsidiary Guarantors. Upon any distribution to
creditors of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to be paid in full in cash before any payment may be made with
respect to the Exchange Notes. In addition, the subordination provisions of the
Indenture will provide that payments with respect to the Exchange Notes will be
blocked in the event of a payment default on Senior Indebtedness and may be
blocked for up to 179 days each year in the event of certain non-payment
defaults on Senior Indebtedness. In the event of a bankruptcy, liquidation or
reorganization of the Company, holders of the Exchange Notes will participate
ratably with all holders of subordinated indebtedness of the
16
<PAGE> 19
Company that is deemed to be of the same class as the Exchange 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 Exchange Notes.
As of April 12, 1998, the aggregate amount of Senior Indebtedness of the
Company and the Subsidiary Guarantors (including borrowings under the Credit
Facility) was approximately $180.6 million, and approximately $88.5 million
(after deducting outstanding letters of credit) would have been available for
additional borrowing under the Credit Facility. The Indenture permits the
incurrence of substantial additional indebtedness, including Senior
Indebtedness, by the Company and its subsidiaries in the future. See
"Description of Certain Indebtedness -- Credit Facility."
COMPETITION
The restaurant industry is highly competitive with respect to price,
service, location and food quality, and there are many well-established
competitors. Certain of the Company's competitors have engaged in substantial
price discounting in recent years and may continue to do so in the future. In
addition, factors such as increased food, labor and benefits costs and the
availability of experienced management and hourly employees may adversely affect
the restaurant industry in general and the Company's restaurants in particular.
Each JACK IN THE BOX restaurant competes directly and indirectly with a large
number of national and regional restaurant chains as well as with locally-owned
fast-food restaurants and coffee shops. In selling franchises, JACK IN THE BOX
competes with many other restaurant franchisors, and some of its competitors
have substantially greater financial resources and higher total sales volume.
Any changes in these factors could adversely affect the profitability of the
Company. See "Business -- Competition."
RISKS RELATED TO INCREASED LABOR COSTS
The Company has a substantial number of employees who are paid wage
rates at or slightly above the minimum wage. Recent legislation increasing the
minimum wage has resulted in higher labor costs to the Company and its
franchisees. As federal and/or state minimum wage rates increase, the Company
may need to increase not only the wages of its minimum wage employees but also
the wages paid to the employees at wage rates which are above minimum wage. The
Company anticipates that increases in the minimum wage may be offset through
pricing and other cost control efforts; however, there can be no assurance that
the Company or its franchisees will be able to do so. In addition, various
proposals which would require employers to provide health insurance for all of
their employees are being considered from time to time in Congress and various
states. The imposition of any requirement that the Company provide health
insurance to all employees would have a material adverse impact on the
consolidated operations and financial condition of the Company and the
restaurant industry. See "Business -- Government Regulations."
RISKS RELATED TO THE FOOD SERVICE INDUSTRY
Food service businesses are often affected by changes in consumer
tastes, national, regional and local economic conditions and demographic trends.
The performance of individual restaurants may be adversely affected by factors
such as traffic patterns, demographics and the type, number and location of
competing restaurants.
Multi-unit food service businesses such as the Company's can also be
materially and adversely affected by publicity resulting from poor food quality,
illness, injury or other health concerns or operating issues stemming from one
restaurant or a limited number of restaurants or from consumer concerns with
respect to the nutritional value of certain food. In early 1993 the Company's
business was severely disrupted as a result of an outbreak of food-borne illness
attributed to hamburgers served in JACK IN THE BOX restaurants, principally in
the state of Washington. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." To
minimize the risk of any such occurrence in the future, the Company has
implemented a comprehensive, restaurant-based Hazard Analysis & Critical Control
Points system for managing food safety and quality. Nevertheless, the risk of
food-borne illness cannot be completely eliminated. Any outbreak of such illness
17
<PAGE> 20
attributed to JACK IN THE BOX restaurants or within the food service industry or
the perception of such outbreak could have a material adverse effect on the
financial condition and results of operations of the Company.
Dependence on frequent deliveries of fresh produce and groceries
subjects food service businesses such as the Company's to the risk that
shortages or interruptions in supply, caused by adverse weather or other
conditions, could adversely affect the availability, quality and cost of
ingredients. In addition, unfavorable trends or developments concerning factors
such as inflation, increased food, labor and employee benefit costs (including
increases in hourly wage and unemployment tax rates), increases in the number
and locations of competing restaurants, regional weather conditions and the
availability of experienced management and hourly employees may also adversely
affect the food service industry in general and the Company's financial
condition and results of operations in particular. Changes in economic
conditions affecting the Company's customers could reduce traffic in some or all
of the Company's restaurants or impose practical limits on pricing, either of
which could have a material adverse effect on the Company's financial condition
and results of operations. The continued success of the Company will depend in
part on the ability of the Company's management to anticipate, identify and
respond to changing conditions.
RELIANCE ON CERTAIN MARKETS
The Company's business is regional, with approximately 75% of its
Company-operated and franchised restaurants located in the states of California
and Texas. The Company has been adversely affected from time to time by economic
downturns experienced in its geographic markets, and future economic downturns
in such regions could adversely affect the Company. The Company is also subject
to other regional risks, including those related to or arising out of weather
conditions and state and local government regulations. The occurrence of any of
the events described above may have a material adverse effect on the Company's
results of operations and financial condition and expansion program.
RISKS ASSOCIATED WITH GROWTH
The Company's development plans will require the implementation of
enhanced operational and financial systems and will require additional
management, operation, and financial resources. For example, the Company will be
required to recruit and train managers and other personnel for each new
Company-owned restaurant as well as additional development and accounting
personnel. There can be no assurance that the Company will be able to manage its
expanding operations effectively. The failure to implement such systems and add
such resources on a cost-effective basis could have a material adverse effect on
the Company's results of operations and financial condition.
RISKS ASSOCIATED WITH DEVELOPMENT
The Company intends to grow primarily by developing additional
Company-owned restaurants. Development involves substantial risks, including the
risk (i) that development costs will exceed budgeted or contracted amounts, (ii)
of delays in completion of construction, (iii) of failing to obtain all
necessary zoning and construction permits, (iv) of the inability to identify or
the unavailability of suitable sites, both traditional and nontraditional, on
acceptable leasing or purchase terms, (v) that developed properties will not
achieve desired revenue or cash flow levels once opened, (vi) of competition for
suitable development sites from competitors (some of which have greater
financial resources than the Company), (vii) of incurring substantial
unrecoverable costs in the event a development project is abandoned prior to
completion, (viii) changes in governmental rules, regulations, and
interpretations (including interpretations of the requirements of the Americans
with Disabilities Act) and (ix) general economic and business conditions.
Although the Company intends to manage its development to reduce such
risks, there can be no assurance that present or future developments will
perform in accordance with the Company's expectations. The Company plans to
develop approximately 400-500 new restaurants over the next five years. There
can be no assurance, however, that the Company will complete the development and
construction of the facilities or that any such developments will be completed
in a timely manner or within budget or that such restaurants will generate the
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Company's expected returns on investment. The Company's inability to expand in
accordance with its plans or to manage its growth could have a material adverse
effect on its results of operations and financial condition.
RISKS RELATED TO GOVERNMENT REGULATIONS
The restaurant industry is subject to extensive federal, state and local
governmental regulations, including those relating to the preparation and sale
of food and those relating to building and zoning requirements. The Company and
its franchisees are also subject to laws governing their relationships with
employees, including minimum wage requirements, overtime, working and safety
conditions and citizenship requirements. See " -- Risks Related to Increased
Labor Costs." The Company is also subject to federal regulation and certain
state laws which govern the offer and sale of franchises. Many state franchise
laws impose substantive requirements on franchise agreements, including
limitations on noncompetition provisions and on provisions concerning the
termination or nonrenewal of a franchise. Some states require that certain
materials be registered before franchises can be offered or sold in that state.
The failure to obtain or retain licenses or approvals to sell franchises could
adversely affect the Company and its franchisees. Changes in government
regulations could have a material adverse effect on the Company.
RISKS RELATED TO FRANCHISE OPERATIONS
At April 12, 1998, the Company had 343 franchised JACK IN THE BOX
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 franchised
restaurants 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.
In addition, certain federal and state laws govern the Company's
relationships with its franchisees. See " -- Risks Related to Government
Regulations." In November 1996, an action was filed by the National JIB
Franchisee Association, Inc. and several of the franchisees against the Company
and others. See "Business -- Legal Proceedings."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend in part on the
continuing services of its key executives, including Robert J. Nugent, President
and Chief Executive Officer, Charles W. Duddles, Executive Vice President, Chief
Financial Officer and Chief Administrative Officer and Kenneth R. Williams,
Executive Vice President, Marketing and Operations, none of whom are employed
pursuant to an employment agreement. The loss of the services of any of such
executives could have a material adverse effect on the Company's business, and
there can be no assurance that qualified replacements would be available. The
Company's continued growth will also depend in part on its ability to attract
and retain additional skilled management personnel.
ENVIRONMENTAL RISKS AND REGULATIONS
As is the case with any owner or operator of real property, the Company
is subject to a variety of federal, state and local governmental regulations
relating to the use, storage, discharge, emission and disposal of hazardous
materials. Failure to comply with environmental laws could result in the
imposition of severe penalties or restrictions on operations by governmental
agencies or courts of law which could adversely affect operations. The Company
does not have environmental liability insurance, nor does it maintain a reserve,
to cover such events. The Company has engaged and may engage in real estate
development projects and owns or leases several parcels of real estate on which
its restaurants are located. The Company is unaware of any significant
environmental hazards on properties it owns or has owned, or operates or has
operated. In the event of the determination of contamination on such properties,
the Company, as owner or operator, can be held liable for severe penalties and
costs of remediation. The
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Company also operates motor vehicles and warehouses and handles various
petroleum substances and hazardous substances but is not aware of any current
material liability related thereto.
RISKS ASSOCIATED WITH YEAR 2000 COMPUTER COMPLIANCE
The Company has made substantial progress to ensure that all hardware
and software serving critical internal functions in Company-operated restaurants
and in the Company's corporate offices will accurately handle data involving the
transition of dates from 1999 to 2000. The Company has advised its franchisees
that they are required to ensure that all computer hardware and software used in
connection with franchised JACK IN THE BOX restaurants be "Year 2000 compliant"
by December 31, 1999. The Company has urged vendors who supply significant
amounts of vital supplies and services to the Company to develop and implement
Year 2000 compliance plans. However, any failure on the part of the Company, its
franchisees, or the Company's vendors to ensure compliance with Year 2000
requirements could have a material adverse effect on the financial condition and
results of operations of the Company after January 1, 2000.
POSSIBLE INABILITY TO FUND A 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 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 Exchange Notes tendered or that
restrictions in the Credit Facility or other Senior Indebtedness will allow the
Company to make such required repurchases. 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 the
Exchange Notes -- Covenants -- Repurchase of Exchange Notes upon a Change of
Control" and "Description of Certain Indebtedness -- Credit Facility."
EXPOSURE TO COMMODITY PRICING
Although the Company may take hedging positions in certain commodities
from time to time and opportunistically contract for some of these items in
advance of a specific need, there can be no assurances that the Company will not
be 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.
FRAUDULENT CONVEYANCE
Various fraudulent conveyance and similar laws have been enacted for the
protection of creditors and may be utilized by a court of competent jurisdiction
to avoid or limit the Subsidiary Guarantees. The requirements for establishing a
fraudulent conveyance vary depending on the law of the jurisdiction that is
being applied. Generally, if in a bankruptcy, reorganization or other judicial
proceeding, a court were to find that (i) a guarantor incurred indebtedness in
connection with the Exchange Notes (including the Subsidiary Guarantees) with
the intent of hindering, delaying or defrauding current or future creditors of
the guarantor, or (ii) the guarantor received less than reasonably equivalent
value or fair consideration for incurring such indebtedness (including the
Subsidiary Guarantees), and either (a) was insolvent at the time of the
incurrence of such indebtedness (including the Subsidiary Guarantees), (b) was
rendered insolvent by reason of incurring such indebtedness (including the
Subsidiary Guarantees), (c) was at such time engaged or about to engage in a
business or transaction for which its assets constituted unreasonably small
capital or (d) intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they matured, such court could, with respect to
the guarantor, declare void in whole or in part the obligations of such
guarantor in connection with the Exchange Notes (including the Subsidiary
Guarantees). Generally, an entity will be considered insolvent if the sum of its
respective debts was greater than the fair saleable value of all of its property
at a fair valuation or if the present fair saleable value of its assets is less
than the amount that will be required to pay its probable liability on its
existing debts, as they become absolute and mature.
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ABSENCE OF PUBLIC MARKET
There is no existing market for the Exchange Notes and, although the
Exchange Notes are eligible for trading in PORTAL, there can be no assurance as
to the liquidity of any markets that may develop for the Exchange Notes, the
ability of holders of the Exchange Notes to sell their Exchange Notes, or the
prices at which holders would be able to sell their Exchange Notes. The Company
does not intend to list the Exchange Notes on any securities exchange or to seek
approval for quotation through any automated quotation system. To the extent
that a market for the Exchange Notes does develop, the market value of the
Exchange Notes will depend on market conditions (such as yields on alternative
investments), general economic conditions, the Company's financial condition and
operating results and the market for similar securities. Such conditions might
cause the Exchange Notes, to the extent they are actively traded, to trade at a
significant discount from face value.
CONSEQUENCES OF FAILURE TO EXCHANGE
Untendered Old Notes that are not exchanged for Exchange Notes pursuant
to the Exchange Offer will remain subject to the existing restrictions on
transfer of such Old Notes. Additionally, holders of any Old Notes not tendered
in the Exchange Offer will not have any rights under the Registration Rights
Agreement to cause the Company to register the Old Notes, and the interest rate
on the Old Notes will remain at its initial rate of 8 3/8% per annum.
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THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Notes, the Company entered into
the Registration Rights Agreement, which requires the Company to file with the
Commission a registration statement (the "Exchange Offer Registration
Statement") under the Securities Act with respect to an issue of senior notes of
the Company with terms identical to the Old Notes (except with respect to
restrictions on transfer) and to use its best efforts to cause such registration
statement to become effective under the Securities Act and, upon the
effectiveness of such registration statement, to offer to the holders of the Old
Notes the opportunity, for a period of 20 days from the date the notice of the
Exchange Offer is mailed to holders of the Old Notes, to exchange their Old
Notes for a like principal amount of Exchange Notes (the "Exchange Dates"). The
Exchange Offer is being made pursuant to the Registration Rights Agreement to
satisfy the Company's obligations thereunder. The Company has not entered into
any arrangement or understanding with any person to distribute the Exchange
Notes to be received in the Exchange Offer.
Under existing interpretations of the staff of the Commission, the
Exchange Notes would, in general, be freely transferable after the Exchange
Offer without further registration under the Securities Act by holders thereof
(other than (i) a broker-dealer who acquires such Exchange Notes directly from
the Company to resell pursuant to Rule 144A or any other available exemption
under the Securities Act or (ii) a person that is an affiliate of the Company
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangements with any person to
participate in the distribution of such Exchange Notes. Eligible holders wishing
to accept the Exchange Offer must represent to the Company that such conditions
have been met. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
In the event that applicable interpretations of the staff of the
Commission would not permit the Company to effect the Exchange Offer or for any
other reason the Exchange Offer is not consummated on or prior to October 15,
1998, the Company has agreed to use its best efforts to cause to become
effective a shelf registration statement (the "Shelf Registration Statement")
with respect to the resale of the Old Notes and to keep the Shelf Registration
Statement effective until three years after the date of the initial sale of the
Old Notes or until all the Old Notes covered by the Shelf Registration Statement
have been sold pursuant to such Shelf Registration Statement.
TERMS OF THE EXCHANGE OFFER
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including that (i) it is neither an affiliate of the Company nor a broker-dealer
tendering Old Notes acquired directly from the Company for its own account, (ii)
any Exchange Notes to be received by it were acquired in the ordinary course of
its business and (iii) at the time of commencement of the Exchange Offer, it has
no arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes. In addition, in connection
with any resales of Exchange Notes, any broker-dealer (a "Participating
Broker-Dealer") who acquired Old Notes for its own account as a result of
market-making activities or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
the Exchange Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sales of Old Notes) with the prospectus contained in the Exchange Offer
Registration Statement. Under the Registration Rights Agreement, the Company is
required to allow Participating Broker-Dealers (and other persons, if any,
subject to similar prospectus delivery requirements) to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such Exchange Notes, provided, however, the Company shall not be
required to amend or supplement such prospectus for a period exceeding 90 days
after the last Exchange Date. The Company has also agreed that in the event that
either the Exchange Offer is not consummated or a Shelf Registration Statement
is not declared effective on or prior to October 15, 1998, the interest rate
borne by the Old Notes will be increased by one-half of one percent (1/2%) per
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annum until the earlier of the consummation of the Exchange Offer or the
effectiveness of the Shelf Registration Statement, as the case may be.
In the event an exchange offer is consummated on or before October 15,
1998, the Company will not be required to file a Shelf Registration Statement to
register any outstanding Old Notes, and the interest rate on such Old Notes will
remain at its initial level of 8 3/8% per annum. The Exchange Offer shall be
deemed to have been consummated upon the Company having exchanged, pursuant to
the Exchange Offer, Exchange Notes for all Old Notes that have been properly
tendered and not withdrawn by the Expiration Date. In such event, holders of Old
Notes not participating in the Exchange Offer who are seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act.
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal, the Company will
accept all Old Notes validly tendered prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 in principal amount of
Exchange Notes (and any integral multiple thereof) in exchange for an equal
principal amount of outstanding Old Notes tendered and accepted in the Exchange
Offer. Holders may tender some or all of their Old Notes pursuant to the
Exchange Offer in any denomination of $1,000 or in integral multiples thereof.
Based on no-action letters issued by the staff of the Commission to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangement with any person to participate in the distribution of such
Exchange Notes. Any holder of Old Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes cannot rely
on such interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
The form and terms of the Exchange Notes will be the same as the form
and terms of the Old Notes except that the Exchange Notes will not bear legends
restricting the transfer thereof. The Exchange Notes will evidence the same debt
as the Old Notes. The Exchange Notes will be issued under and entitled to the
benefits of the Indenture.
As of the date of this Prospectus, $125,000,000 aggregate principal
amount of the Old Notes are outstanding and there is one registered holder
thereof. In connection with the issuance of the Old Notes, the Company arranged
for the Old Notes to be eligible for trading in the Private Offering, Resale and
Trading through Automated Linkages ("PORTAL") Market, the National Association
of Securities Dealers' screen based, automated market trading of securities
eligible for resale under Rule 144A and to be issued and transferable in
book-entry form through the facilities of DTC. The Exchange Notes will also be
issuable and transferable in book-entry form through DTC.
This Prospectus, together with the accompanying Letter of Transmittal,
is being sent to all registered holders as of ____________, 1998 (the "Record
Date").
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. See " -- Exchange Agent." The Exchange Agent will act as agent
for the tendering holders of Old Notes for the purpose of receiving Exchange
Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
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Holders of Old Notes who tender in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See " -- Fees and Expenses."
Holders of Old Notes do not have any appraisal or dissenters' rights
under the California Corporations Code or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder. Old Notes that are not tendered for exchange in the Exchange Offer
will remain outstanding and continue to accrue interest, but will not be
entitled to any rights or benefits under the Registration Rights Agreement.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m. New York City time, on
__________, 1998 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old Notes,
to extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "Termination" shall have occurred and shall not have been waived by
the Company (if permitted to be waived by the Company), by giving oral or
written notice of such delay, extension or termination to the Exchange Agent,
and (ii) to amend the terms of the Exchange Offer in any manner deemed by it to
be advantageous to the holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform the
holders of the Old Notes of such amendment.
Without limiting the manner in which the Company may choose to make
public announcements of any delay in acceptance, extension, termination or
amendment of the Exchange Offer, the Company shall have no obligation to
publish, advertise, or otherwise communicate any such public announcement, other
than by making a timely release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from the last Interest Payment
Date on which interest was paid on the Old Notes, or if interest has not yet
been paid on the Old Notes, from April 14, 1998. Such interest will be paid with
the first interest payment on the Exchange Notes. Interest on the Old Notes
accepted for exchange will cease to accrue upon issuance of the Exchange Notes.
The Exchange Notes will bear interest at a rate of 8 3/8% per annum.
Interest on the Exchange Notes will be payable semi-annually, in arrears, on
each Interest Payment Date following the consummation of the Exchange Offer.
Untendered Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will bear interest at a rate of 8 3/8% per annum after the
Expiration Date.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or
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otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes (unless the book-entry transfer procedures described below are
used) and any other required documents, to the Exchange Agent for receipt prior
to 5:00 p.m., New York City time, on the Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account via the
ATOP system in accordance with DTC's procedure for such transfer. Although
delivery of Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, 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 or confirmed by the
Exchange Agent at its addresses set forth in this Prospectus prior to 5:00 p.m.,
New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its
address set forth herein. Holders may also request that their respective
brokers, dealers, commercial banks, trust companies or nominees effect such
tender for such holders.
The method of delivery of Old Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal should be sent to
the Company.
Only a holder of Old Notes may tender such Old Notes in the Exchange
Offer. The term "holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder or any person whose Old Notes are held of record by DTC who desires to
deliver such Old Notes by book-entry transfer at DTC.
Any beneficial holder whose Old Notes are registered in the name of such
holder's broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on such holder's behalf. If such beneficial
holder wishes to tender on such holder's own behalf, such beneficial holder
must, prior to completing and executing the Letter of Transmittal and delivering
such holder's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or obtain a properly completed
bond power from the registered holder. The transfer of record ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") that is a participant
in a recognized medallion signature guarantee program unless the Old Notes
tendered pursuant thereto are tendered (i) by a registered holder 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.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Old Notes.
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If the Letter of Transmittal or any Old Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
submit evidence satisfactory to the Company of their authority to so act with
the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Old Notes nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holder of such Old Notes unless otherwise provided in the Letter of
Transmittal as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
(a) purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date, or, as set forth under "Termination," to terminate the
Exchange Offer and (b) to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers may differ from the terms of the Exchange
Offer.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available, or (ii) who cannot deliver their Old Notes, the
Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, or if such holder cannot complete the procedure
for book-entry transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the holder
of the Old Notes, the certificate number or numbers of such Old
Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby, and guaranteeing that,
within three business days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Old Notes (unless the book-entry
transfer procedures are to be used) to be tendered in proper form
for transfer and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificates) representing
all tendered Old Notes in proper form for transfer (or
confirmation of a book-entry transfer into the Exchange Agent's
account at DTC of Old Notes delivered electronically) and all
other documents required by the Letter of Transmittal are
received by the Exchange Agent within three business days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will
be sent to holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
26
<PAGE> 29
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Trustee with respect to the Old Notes to register the transfer of
such Old Notes into the name of the Depositor withdrawing the tender and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, 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 purposes of the Exchange Offer, and no Exchange Notes will be
issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes that have been tendered but which are not accepted for
exchange will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described above under "Procedures for Tendering" at any time
prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will
not be required to accept for exchange, or exchange Exchange Notes for any Old
Notes not theretofore accepted for exchange, and may terminate or amend the
Exchange Offer as provided herein before the acceptance of such Old Notes if:
(i) any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the Exchange Offer, which, in the
Company's judgment, might materially impair the Company's ability to proceed
with the Exchange Offer or (ii) any law, statute, rule or regulation is
proposed, adopted or enacted, or any existing law, statute, rule or regulation
is interpreted by the staff of the Commission in a manner, which, in the
Company's judgment, might materially impair the Company's ability to proceed
with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as
set forth above, the Company may (i) refuse to accept any Old Notes and return
any Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes, or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the Old Notes, if the Exchange Offer
would otherwise expire during such period.
Notwithstanding any other provisions of the Exchange Offer, and subject
to its obligations pursuant to the Registration Rights Agreement, the Company
shall not be required to accept for exchange, or to issue Exchange Notes in
exchange for, any Old Notes, and may terminate or amend the Exchange Offer, if,
at any time before the acceptance of such Exchange Notes for exchange, any of
the following events shall occur:
(i) any injunction, order or decree shall have been issued by any court
or any governmental agency that would prohibit, prevent or otherwise materially
impair the ability of the Company to proceed with the Exchange Offer; or
27
<PAGE> 30
(ii) the Exchange Offer will violate any applicable law or any
applicable interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company in whole or in part at any time and from time to time
in its sole discretion. The failure by the Company at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for any such Old
Notes, if at such time any stop order is threatened by the Commission or in
effect with respect to the Registration Statement of which this Prospectus is a
part or with respect to the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended.
The Exchange Offer is not conditioned on any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
First Union National Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
BY MAIL, HAND OR OVERNIGHT COURIER:
First Union National Bank
1525 West W.T. Harris Boulevard
Charlotte, North Carolina 28288
Attention: Reorg. Dept. 3C3-NC1153
Telephone number: (704) 590-7408
Facsimile transmission: (704) 590-7628
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will
be borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or by telephone.
The Company will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may 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, Letters of Transmittal
and related documents to the beneficial owners of the Old Notes and in handling
or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such
28
<PAGE> 31
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Old Notes, which is face value, as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Company upon the consummation of the Exchange
Offer. The expenses of the Exchange Offer will be amortized by the Company over
the term of the Exchange Notes under generally accepted accounting principles.
29
<PAGE> 32
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange the Old
Notes in like principal amount, the terms of which are identical to the Exchange
Notes. The Old Notes surrendered in exchange for the Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase in the indebtedness of the
Company.
The gross proceeds received by the Company from the sale of the Old
Notes was approximately $125 million before deducting commissions and estimated
expenses. The proceeds were used to fund the redemption of the Senior Notes, the
Existing Senior Subordinated Notes and the other Refinancing Transactions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Certain
Indebtedness." The following table sets forth the Company's approximate sources
and uses of funds for the Refinancing.
<TABLE>
<CAPTION>
Amount
--------------
(in thousands)
<S> <C>
SOURCES OF FUNDS:
Old Notes ................................................. $124,790
Credit Facility ........................................... 80,000
Cash and cash equivalents ................................. 55,210
--------
$260,000
========
USES OF FUNDS:
Redemption of Senior Notes ................................ $125,000
Redemption premium on Senior Notes ........................ 1,651
Redemption of Existing Senior
Subordinated Notes ...................................... 125,000
Redemption premium on Existing Senior
Subordinated Notes ...................................... 3,048
Fees and expenses ......................................... 5,301
--------
$260,000
========
</TABLE>
30
<PAGE> 33
CAPITALIZATION
The following table sets forth the unaudited consolidated cash and cash
equivalents and capitalization of the Company at April 12, 1998 on a pro forma
basis to give effect to the use of proceeds of the Old Offering and the other
Refinancing Transactions. The table should be read in conjunction with "Recent
Developments," "Use of Proceeds" and "Description of Certain Indebtedness" and
the consolidated financial statements of the Company and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT APRIL 12, 1998
-------------------------
ACTUAL PRO FORMA
---------- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(1) ..................... $ 81,590 $ 26,380
========== ==========
Long-term debt:
Credit Facility(2) ............................. $ -- $ 80,000
Senior Notes ................................... 125,000 --
Existing Senior Subordinated Notes ............. 125,000 --
Old Notes ...................................... -- 124,790
Financing lease obligations .................... 68,032 68,032
Capitalized lease obligations .................. 12,282 12,282
Other .......................................... 17,757 17,757
Less: Current portion .......................... (1,547) (1,547)
---------- ----------
Total long-term debt ........................ 346,524 301,314
---------- ----------
Total stockholders' equity (3) ................... 135,067 130,341
---------- ----------
Total capitalization ............................. $ 481,591 $ 431,655
========== ==========
</TABLE>
- ----------
(1) The Company funded a portion of the Refinancing Transactions with
approximately $55 million of available cash.
(2) On April 1, 1998, the Company entered into the Credit Facility which
provides for borrowings of up to $175 million. As adjusted for the
Refinancing, the Company would have had $88.5 million, after deducting
outstanding letters of credit, available under the Credit Facility.
(3) Total stockholders' equity reflects an extraordinary charge of
approximately $7.0 million, less income tax benefit of $2.3 million, for
early extinguishment of debt consisting of $4.7 million of premiums
associated with the redemption of the Senior Notes and Existing Senior
Subordinated Notes, and the associated write-off of $2.3 million of
unamortized deferred finance costs related to the early extinguishment of
such indebtedness.
31
<PAGE> 34
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data of the Company for the 53 weeks
ended October 3, 1993 and each of the four 52-week periods ended September 28,
1997 are extracted or derived from financial statements which have been audited
by KPMG Peat Marwick LLP, independent auditors. The selected financial data of
the Company for the 28 weeks ended April 12, 1998 and April 13, 1997 are
extracted or derived from the unaudited Consolidated Financial Statements of the
Company, and the notes thereto, included herein, which, in the opinion of the
Company's management, include all adjustments necessary for a fair presentation
of the financial position and results of operations for such periods. The
summary financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto of the
Company included elsewhere in this Memorandum. Results of operations for
Chi-Chi's are included through January 27, 1994, when Chi-Chi's was sold. The
Company's fiscal year is 52 or 53 weeks, ending the Sunday closest to September
30.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues(1) ................................... $ 1,240,727 $ 1,053,326 $ 1,018,716 $ 1,062,822 $ 1,071,742
Costs of revenues(2) .......................... 1,147,157 950,952 903,479 919,211 905,742
Equity in loss of FRI(3) ...................... -- 2,108 57,188 -- --
Selling, general and administrative
expenses(4) ................................ 102,183 78,323 78,044 72,134 80,438
Interest expense .............................. 57,586 55,201 48,463 46,126 40,359
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes
(benefit), extraordinary item, and
cumulative effect of changes in ............ (66,199) (33,258) (68,458) 25,351 45,203
accounting principles
Income taxes (benefit) ........................ (22,071) 3,010 500 5,300 9,900
------------ ------------ ------------ ------------ ------------
Earnings (loss) before extraordinary item
and cumulative effect of changes in
accounting principles ...................... (44,128) (36,268) (68,958) 20,051 35,303
Extraordinary item -- loss on early
extinguishment of debt, net of income
taxes ...................................... -- (3,302) -- -- (1,252)
Cumulative effect on prior years of
adopting SFAS 106 and SFAS 109 ............. (53,980) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net earnings (loss) ........................... $ (98,108) $ (39,570) $ (68,958) $ 20,051 $ 34,051
============ ============ ============ ============ ============
Earnings (loss) per share before
extraordinary item and cumulative effect
of changes in accounting principles(5):
Basic ...................................... $ (1.16) $ (0.94) $ (1.78) $ 0.52 $ 0.91
Diluted .................................... $ (1.16) $ (0.94) $ (1.78) $ 0.51 $ 0.89
OTHER FINANCIAL DATA:
Pro forma interest expense(6) ................. $ 27,465
Ratio of earnings to fixed charges(7) ......... -- -- -- 1.3x 1.6x
Capital expenditures .......................... $ 46,269 $ 92,037 $ 27,033 $ 33,232 $ 59,660
JACK IN THE BOX RESTAURANT
OPERATING AND OTHER DATA:
Restaurants open (at end of period):
Company-operated restaurants ................ 725 810 863 879 963
Franchised and licensed restaurants ......... 447 414 389 391 360
------------ ------------ ------------ ------------ ------------
Total ................................. 1,172 1,224 1,252 1,270 1,323
============ ============ ============ ============ ============
Percentage increase (decrease) in
comparable Company-operated restaurant ..... (7.4)% 2.7% 3.5% 7.2% 6.5%
sales
General and administrative expenses as a
percentage of revenues(4) .................. 3.2% 2.8% 3.3% 2.3% 2.7%
</TABLE>
<TABLE>
28 WEEKS ENDED
---------------------
4/13/97 4/12/98
-------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues(1) ........................................................ $570,476 $653,683
Costs of revenues(2) ............................................... 485,206 514,053
Equity in loss of FRI(3) ........................................... -- --
Selling, general and administrative
expenses(4) ..................................................... 43,030 52,803
Interest expense ................................................... 22,018 19,206
-------- --------
Earnings (loss) before income taxes
(benefit), extraordinary item, and
cumulative effect of changes in ................................. 20,222 67,621
accounting principles
Income taxes (benefit) ............................................. 4,500 21,600
-------- --------
Earnings (loss) before extraordinary item
and cumulative effect of changes in
accounting principles ........................................... 15,722 46,021
Extraordinary item -- loss on early
extinguishment of debt, net of income
taxes ........................................................... -- --
Cumulative effect on prior years of
adopting SFAS 106 and SFAS 109 .................................. -- --
-------- --------
Net earnings (loss) ................................................ $ 15,722 $ 46,021
======== ========
</TABLE>
<PAGE> 35
<TABLE>
28 WEEKS ENDED
---------------------
4/13/97 4/12/98
-------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Earnings (loss) per share before
extraordinary item and cumulative effect
of changes in accounting principles(5):
Basic ........................................................... $ 0.40 $ 1.17
Diluted ......................................................... $ 0.40 $ 1.14
OTHER FINANCIAL DATA:
Pro forma interest expense(6) ...................................... $ 14,754
Ratio of earnings to fixed charges(7) .............................. 1.5x 2.9x
Capital expenditures ............................................... $ 15,092 $ 27,953
JACK IN THE BOX RESTAURANT
OPERATING AND OTHER DATA:
Restaurants open (at end of period):
Company-operated restaurants ..................................... 895 1,002
Franchised and licensed restaurants .............................. 367 343
-------- --------
Total ...................................................... 1,262 1,345
======== ========
Percentage increase (decrease) in
comparable Company-operated restaurant .......................... 7.0% 2.4%
sales
General and administrative expenses as a
percentage of revenues(4) ....................................... 2.7% 3.4%
</TABLE>
32
<PAGE> 36
<TABLE>
<CAPTION>
FISCAL YEAR AT
---------------------------------------------------------------- APRIL 12,
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Current assets ................................. $ 93,534 $107,486 $ 97,889 $ 96,476 $100,162 $157,195
Current liabilities ............................ 202,194 140,238 132,017 147,063 193,213 208,610
Total assets ................................... 897,280 740,285 662,674 653,638 681,758 750,471
Long-term debt ................................. 500,460 447,822 440,219 396,340 346,191 346,524
Stockholders' equity ........................... 139,132 100,051 31,253 51,384 87,879 135,067
</TABLE>
- ----------
(1) Includes the recognition of a $45.8 million Litigation Settlement in the
28 weeks ended April 12, 1998 as described in Note 4 to the Unaudited
Consolidated Financial Statements of the Company.
(2) Reflects a provision of $44.5 million for the year ended October 3, 1993
to cover franchisee settlements and associated costs related to the
outbreak of food-borne illness.
(3) Reflects the complete write-off of the Company's $57.2 million investment
in FRI for the year ended October 1, 1995. See Note 2 to the Consolidated
Financial Statements for fiscal 1997 for information concerning the
Company's prior ownership of Chi-Chi's and investment in FRI.
(4) Includes the recognition of an $8.0 million stockholders' lawsuit
settlement for the year ended October 1, 1995.
(5) Restated to conform with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings Per Share, issued by the
Financial Accounting Standards Board ("FASB") and adopted by the Company
beginning with its quarter ended January 18, 1998.
(6) Reflects interest expense on the Notes and borrowings under the Credit
Facility, amortization of debt issuance costs, and interest savings on the
Senior Notes and Existing Senior Subordinated Notes to be repaid with the
proceeds from the Old Offering, as if the Refinancing Transactions had
been consummated at the beginning of the periods presented and for the
fiscal 1997 amount as if the 1997 Senior Note Redemption had been
consummated at the beginning of the period. The interest rates on the
Notes and the Credit Facility are 8 3/8% and 7%, respectively.
(7) For purposes of determining the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes plus fixed charges. Fixed
charges consist of interest on indebtedness, including amortization of
debt issuance costs and debt discount, and that portion of operating lease
expenses representative of the interest factor. The deficiency of earnings
to fixed charges was $66.5 million, $34.0 million and $68.6 million in
fiscal years 1993, 1994 and 1995, respectively. The deficiencies in 1993
and 1995 reflect the unusual items described in footnotes (2), (3) and (4)
above.
33
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the "Selected Consolidated Financial Data" and the Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
Memorandum.
OVERVIEW
The Company owns, operates and franchises the JACK IN THE BOX
quick-service hamburger restaurant chain. As of April 12, 1998, the JACK IN THE
BOX system included 1,345 restaurants, of which 1,002 were Company-operated and
343 were franchised. In fiscal 1997, the Company generated revenues of $1.07
billion. JACK IN THE BOX restaurants are located primarily in the western United
States with a leading market presence in each of the major markets they serve.
Based on the number of units, JACK IN THE BOX is the third largest quick-service
hamburger chain in each of California, Texas, Arizona and Washington, its major
markets. Pro forma for the redemption of the Existing Senior Subordinated Notes
(as defined herein), the Company will have reduced its long-term indebtedness by
approximately $200 million from the end of fiscal 1993 to $301.3 million as of
April 12, 1998.
JACK IN THE BOX restaurants offer a broad selection of distinctive,
innovative products targeted at the adult fast-food consumer. JACK IN THE BOX
seeks to differentiate its restaurants by focusing on product quality and
innovation. The JACK IN THE BOX menu features a variety of hamburgers, specialty
sandwiches, salads, Mexican food, finger foods and side items. The core of the
JACK IN THE BOX menu is its hamburger products, which represent approximately
25% of sales, including its signature hamburgers, the Jumbo Jack, Ultimate
Cheeseburger and Sourdough Jack. In addition, the Company has been a leader in
new product innovation and offers such unique products as the Teriyaki Chicken
Bowl and Chicken Fajita Pita. JACK IN THE BOX restaurants also offer
value-priced product alternatives, known as "Jack's Value Menu", to compete
against price-oriented competitors. The Company believes that its distinctive
menu has been instrumental in developing brand loyalty and appealing to
customers with a broader range of food preferences.
RESULTS OF OPERATIONS
TWELVE AND TWENTY-EIGHT WEEK PERIODS ENDED APRIL 12, 1998 AND APRIL 13, 1997
All comparisons under this heading between 1998 and 1997 refer to the
12-week and 28-week periods ended April 12, 1998 and April 13, 1997,
respectively, unless otherwise indicated.
Restaurant sales increased $25.7 million and $59.8 million,
respectively, to $249.5 million and $574.8 million in 1998 from $223.8 million
and $515.0 million in 1997, as both the number of Company-operated restaurants
and per store average sales increased from a year ago. The average number of
Company-operated restaurants for the 28-week period increased to 975 in 1998
from 886 in 1997, through the addition of new units and the acquisition of
restaurants from franchisees. Per store average ("PSA") sales for comparable
restaurants, which are calculated for only those restaurants open for all
periods being compared, increased 2.0% and 2.4%, respectively, in 1998 compared
to the same periods in 1997. PSA sales improved due to increases in both the
number of transactions and the average transaction amounts. Restaurant sales
improvements are attributed to the Company's two-tier marketing strategy
featuring both premium sandwiches and value-priced alternatives, as well as to a
popular brand-building advertising campaign that features the Company's
fictional founder, "Jack".
Distribution sales of food and supplies declined $8.8 million and $22.6
million, respectively, to $5.5 million and $12.3 million in 1998 from $14.3
million and $34.9 million in 1997. A distribution contract with Chi-Chi's, Inc.
("Chi-Chi's") was not renewed when it expired in May 1997; sales to Chi-Chi's
restaurants were $12.5 million and $30.1 million, respectively, in 1997. Because
distribution is a low-margin business, the loss of distribution revenues did not
have a material impact on the results of operations or financial condition of
the Company. Distribution sales
34
<PAGE> 38
to franchisees and others increased $3.7 million and $7.5 million, respectively,
to $5.5 million and $12.3 million in 1998 from $1.8 million and $4.8 million in
1997.
Franchise rents and royalties were consistent with a year ago at $8.0
million in the 12-week period. There was a slight increase in the 28-week period
to $19.0 million in 1998 from $18.7 million in 1997. The Company receives rents
and royalties averaging approximately 10% of sales at franchise-operated
restaurants.
In 1998, other revenues, typically interest income from investments and
notes receivable, also include the net Litigation Settlement of $45.8 million as
described in "Business -- Legal Proceedings". Excluding this unusual item, other
revenues in 1998 were $1.0 million in the 12-week period and $1.8 million in the
28-week period and varied only slightly from the $.9 million and $1.9 million in
the comparable 1997 periods.
Restaurant costs of sales, which include food and packaging costs,
increased with restaurant sales growth and the addition of Company-operated
restaurants to $80.6 million and $187.3 million, respectively, in 1998 from
$74.6 million and $172.8 million in 1997. As a percent of restaurant sales,
restaurant costs of sales declined to 32.3% and 32.6%, respectively, in 1998
from 33.3% and 33.5% in 1997 primarily due to favorable ingredient costs,
principally beef, pork and cheese, offset partially by increased produce costs.
Restaurant operating costs increased principally with restaurant sales
growth and the addition of Company-operated restaurants to $132.4 million and
$302.4 million, respectively, in 1998 from $115.4 million and $265.7 million in
1997. As a percent of restaurant sales, such costs increased to 53.1% and 52.6%,
respectively, in 1998 from 51.6% in both periods in 1997 primarily reflecting
higher labor costs due to increases in the minimum wage and other operations
administrative costs.
Costs of distribution sales decreased to $5.4 million and $11.9 million,
respectively, in 1998 from $14.3 million and $34.7 million in 1997 reflecting
the decline in distribution sales. Costs of distribution sales for the 28-week
period decreased as a percent of sales to 96.9% in 1998 from 99.4% in 1997,
primarily due to the loss of the lower margin Chi-Chi's distribution business.
In 1997 costs of distribution sales include $.4 million in expenses related to
the closure of a distribution center which had been used primarily to distribute
to Chi-Chi's.
Franchised restaurant costs, which include rents and depreciation on
properties leased to franchisees and other miscellaneous costs, were flat year
to year at $5.5 million in the 12-week periods in 1998 and 1997. Costs increased
slightly in the 28-week period to $12.5 million in 1998 from $12.0 million in
1997 reflecting higher international franchise-related legal expense.
Selling, general and administrative expenses increased $8.3 million and
$9.8 million, respectively, to $27.4 million and $52.8 million in 1998 from
$19.1 million and $43.0 million in 1997. The increases were primarily caused by
a non-cash charge of approximately $8 million principally resulting from the
write-down of underperforming restaurants and asset write-offs associated with
customer service enhancements. Advertising and local promotion costs, which were
maintained at 5.3% and 5.4% in the 1998 and 1997 periods, respectively,
increased with the higher restaurant sales. The Company received from suppliers
cooperative advertising funds of approximately .5% of restaurant sales in each
period. General, administrative and other expenses, excluding the write-offs,
declined to 2.7% and 2.8% of revenues, excluding the Litigation Settlement, in
1998 from 3.3% and 3.1%, respectively, in 1997 primarily due to a decrease in
legal costs and the increase in revenues.
Interest expense declined $1.2 million and $2.8 million, respectively,
to $8.2 million and $19.2 million in 1998 from $9.4 million and $22.0 million in
1997, principally due to a reduction in total debt outstanding. In September
1997, the Company repaid $50 million of the Senior Notes.
The 1998 tax provision reflects the expected annual tax rate of 32% of
earnings before income taxes. The income tax provision for 1997 was 22% of
pretax earnings. The low effective income tax rates in each year result from the
Company's ability to realize previously unrecognized tax benefits. The Company
cannot determine the actual 1998 annual effective tax rate until the end of the
fiscal year, thus the rate could differ from expectations.
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<PAGE> 39
Net earnings in the 12-week period increased $27.6 million or $.68 per
share on a diluted basis, to $34.3 million, or $.85 per share, from $6.7
million, or $.17 per share. Net earnings in the 28-week period improved $30.3
million to $46.0 million, or $1.14 per share, in 1998 from $15.7 million, or
$.40 per share, in 1997. These increases include approximately $25.6 million,
after income taxes, of unusual net earnings resulting from the Litigation
Settlement offset by the aforementioned write-offs. Excluding these unusual
items, earnings in 1998 were $8.7 million, or $.22 per share on a diluted basis,
and $20.4 million, or $.51 per share, respectively. The increases in these
earnings compared to similar periods in 1997 reflect the impact of sales growth
and lower interest expense, offset by the higher effective tax rate in 1998.
YEARS ENDED SEPTEMBER 28, 1997, SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
All comparisons under this heading between 1997, 1996 and 1995 refer to
the 52-week periods ended September 28, 1997, September 29, 1996 and October 1,
1995, respectively, unless otherwise indicated.
Company-operated restaurant sales were $986.6 million, $892.0 million
and $804.1 million in 1997, 1996 and 1995, respectively. The sales improvements
from the prior year of $94.6 million, or 10.6%, in 1997 and $87.9 million, or
10.9%, in 1996 reflect increases in both PSA sales and in the average number of
Company-operated restaurants. PSA sales for comparable restaurants increased
6.5% in 1997 and 7.2% in 1996 compared to the respective prior year. Sales also
improved as a result of the increase in the average number of Company-operated
restaurants which grew to 900 in 1997 from 868 in 1996 and 839 in 1995. Sales
continued to improve under the Company's two-tier marketing strategy featuring
premium sandwiches, such as the Sourdough Jack and Spicy Crispy Chicken
sandwiches, and value-priced product alternatives from "Jack's Value Menu." The
strategy recognizes that value pricing is an ongoing part of the quick-serve
industry's competitive environment. At the same time, the Company continues to
build its brand through a popular advertising campaign that features its
fictional founder, "Jack." The Company believes this brand-building effort will
continue to attract customers to JACK IN THE BOX restaurants for its distinctive
food.
Distribution sales of food and supplies were $45.2 million, $132.4
million and $179.7 million in 1997, 1996 and 1995, respectively. The decline in
distribution sales is a result of two factors. In 1996 JACK IN THE BOX
franchisees formed a purchasing cooperative and contracted with another supplier
for distribution services. Most franchisees elected to participate in the
cooperative, resulting in sales to franchisees declining to $9.8 million in 1997
from $67.3 million in 1996 and $98.6 million in 1995. In addition, the
distribution contract with Chi-Chi's was not renewed when it expired in May
1997. Distribution sales to Chi-Chi's and others declined to $35.4 million in
1997 from $65.1 million in 1996 and $81.1 million in 1995. Ongoing distribution
sales, which relate principally to franchisees who continue to use Foodmaker
distribution services, are expected to be approximately $4 million per quarter.
Because distribution is a low-margin business, the loss of distribution revenues
did not have a material impact on the results of operations or financial
condition of the Company.
Franchise rents and royalties were $35.4 million, $34.0 million and
$32.5 million in 1997, 1996 and 1995, respectively, slightly more than 10% of
sales at franchise-operated restaurants in each of those years. Franchise
restaurant sales increased to $352.2 million in 1997 from $337.0 million in 1996
and $319.6 million in 1995. Franchise restaurant sales growth was primarily
attributed to PSA sales increases at domestic franchise-operated restaurants,
which were impacted by marketing initiatives that favorably influenced sales
systemwide.
Other revenues, which include interest income on investments and notes,
as well as franchise development fees, were $4.5 million, $4.3 million and $2.4
million in 1997, 1996 and 1995, respectively. Other revenues were greater in
1997 and 1996 principally due to increased interest income from investments.
Restaurant costs of sales, which include food and packaging costs, were
$327.2 million, $291.0 million and $258.6 million in 1997, 1996 and 1995,
respectively. As a percent of restaurant sales, cost of sales were 33.2% in
1997, 32.6% in 1996 and 32.2% in 1995. The restaurant costs of sales percentage
increased in 1997 compared to 1996, principally due to the cost of improved
french fries, higher food costs of certain discount promotions and commodity
cost increases, primarily pork and dairy. The restaurant costs of sales
percentage increased in 1996 compared to 1995 principally due to higher
packaging costs.
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<PAGE> 40
Restaurant operating costs were $510.2 million, $478.0 million and
$447.2 million in 1997, 1996 and 1995, respectively. As a percent of restaurant
sales, operating costs were 51.7% in 1997, 53.6% in 1996 and 55.6% in 1995,
declining each year primarily due to labor efficiencies and lower percentages of
occupancy and other operating expenses. While occupancy and other operating
expenses increase with the addition of each new restaurant, such expenses for
existing restaurants have increased at a slower rate than the increase in PSA
restaurant sales.
Costs of distribution sales were $44.8 million in 1997, $130.2 million
in 1996 and $175.7 million in 1995, reflecting the changes in distribution
sales. Costs of distribution sales have increased as a percent of distribution
sales to 99.0% in 1997 from 98.4% in 1996 and 97.8% in 1995. The decline in
distribution margins are due primarily to the effect of the loss of franchise
and Chi-Chi's distribution sales. In 1997 such costs include expenses of $.4
million, or .9% of distribution sales, related to the closure of a distribution
center which had been used principally to distribute to Chi-Chi's restaurants.
Franchised restaurant costs, which consist principally of rents and
depreciation on properties leased to franchisees and other miscellaneous costs,
were $23.6 million, $20.0 million and $21.9 million in 1997, 1996 and 1995,
respectively. The increase in such costs reflect higher international
franchise-related legal expense.
Selling, general and administrative expenses were $80.4 million, $72.1
million and $78.0 million in 1997, 1996 and 1995, respectively. Advertising and
promotion costs represented $51.9 million, $47.2 million and $44.9 million in
1997, 1996 and 1995, respectively. As a percent of restaurant sales, advertising
and promotion costs were 5.3% in 1997 and 1996, declining from 5.6% in 1995, as
the Company reduced its extra contributions to the marketing fund and its use of
local promotions. The Company received from suppliers cooperative advertising
funds of $5.2 million and $4.8 million, respectively, in 1997 and 1996, or .5%
of restaurant sales, which formerly had been contributed directly to the
marketing fund. In 1995 general, administrative and other costs include an $8.0
million litigation settlement with stockholders and a $1.9 million gain on the
curtailment of post-retirement benefits, a net increase to such expenses of $6.1
million, or .6% of revenues. Excluding the above items, general, administrative
and other costs as a percent of revenues were approximately 3.1% of revenues in
1997 and 2.8% of revenues in 1996 and 1995. General and administrative expenses
in 1997 reflect higher legal costs, expenses and write-offs related to tests of
dual brand concepts (two brands operating in the same restaurant facility) and
other general increases, offset in part by a reduction in bad debt expense
related to decreased accounts and notes receivable.
Interest expense was $40.4 million, $46.1 million and $48.5 million in
1997, 1996 and 1995, respectively. Interest expense declined from the prior year
by $5.7 million in 1997 and $2.4 million in 1996, principally due to a reduction
in total debt outstanding and lower other financing costs. Total debt at
September 28, 1997 was $347.7 million compared to $449.2 million at the
beginning of fiscal year 1995. Interest expense in 1997 and 1996 reflects
interest savings associated with the early retirement in May 1996 of $42.8
million of the Company's 14-1/4% senior subordinated notes.
The tax provision reflects the effective annual tax rate of 22% and 21%
of pretax earnings in 1997 and 1996, respectively. The low effective annual
income tax rates result from the Company's ability to realize previously
unrecognized tax benefits as the Company's profitability has improved. Although
the Company incurred a loss in 1995, income taxes of $.5 million were provided
due to required minimum taxes and the Company's inability to recognize the
benefit from the carryover of losses to future years under SFAS No. 109,
Accounting for Income Taxes.
In 1997 the Company incurred an extraordinary loss of $1.6 million, less
income tax benefits of $.3 million, on the early retirement of $50 million of
the Senior Notes.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $53.1 million to $81.6 million at
April 12, 1998 from $28.5 million at the beginning of the fiscal year. The cash
increase reflects, among other things, cash flows from operations of $85.2
million including the $45.8 million net Litigation Settlement received in 1998
less capital expenditures and
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<PAGE> 41
other investing activities of $33.5 million. A significant portion of this cash
will be used to reduce long-term debt in the refinancing plan described
hereafter.
The Company's working capital deficit decreased $41.7 million to $51.4
million at April 12, 1998 from $93.1 million at September 28, 1997, primarily
due to the increase in cash and cash equivalents which was partially offset by
an increase in current liabilities. The Company and the restaurant industry in
general maintain relatively low levels of receivables and inventories and
vendors grant trade credit for purchases such as food and supplies. The Company
also continually invests in its business through the addition of new units and
refurbishment of existing units, which are reflected as long-term assets and not
as part of working capital.
On April 1, 1998, the Company entered into a new revolving bank credit
agreement, which provides for the Credit Facility. At April 12, 1998, the
Company had no borrowings and approximately $168.5 million of unused credit
under the agreement.
Total debt outstanding increased slightly to $348.1 million at April 12,
1998 from $347.7 million at the beginning of the fiscal year and declined from
$397.2 million at this time last year.
Beginning in September 1997, the Company initiated a refinancing plan to
reduce and restructure its debt. In September 1997, the Company prepaid $50
million of the Senior Notes using available cash. The Company redeemed another
$75 million of its Senior Notes on April 15, 1998 and the remaining $50 million
on May 15, 1998. On June 1, 1998, the Company redeemed all $125 million of its
Existing Senior Subordinated Notes.
In order to fund these repayments, the Company completed on April 14,
1998, the Old Offering. Additional funding sources included available cash, as
well as bank borrowings under the Credit Facility, as necessary. Upon completion
of the Refinancing Transactions, the Company will incur an extraordinary pretax
charge of approximately $7 million relating to the debt prepaid in the
refinancing plan. However, annual interest expense will be reduced by over $10
million from 1997 levels due principally to the $50 million debt repayment in
September 1997 coupled with the additional net reduction in debt subsequent to
April 12, 1998 of approximately $45 million and the lower interest rates on the
new debt.
The Company is subject to a number of covenants under its various debt
instruments including limitations on additional borrowings, capital
expenditures, lease commitments and dividend payments, and requirements to
maintain certain financial ratios, cash flows and net worth. The Credit Facility
is secured by a first priority security interest in certain assets and
properties of the Company. In addition, certain of the Company's real estate and
equipment secure other indebtedness.
SEASONALITY
The Company's restaurant sales and profitability are subject to seasonal
fluctuations and are traditionally higher during the spring and summer months
because of factors such as increased travel and improved weather conditions
which affect the public's dining habits.
HISTORY
The first JACK IN THE BOX restaurant, which offered only drive-thru
service, opened in 1950, and the JACK IN THE BOX chain expanded its operations
to approximately 300 restaurants in 1968. After Ralston Purina Company purchased
the Company in 1968, JACK IN THE BOX underwent a major expansion program in an
effort to penetrate the eastern and midwestern markets, and the business grew to
over 1,000 units by 1979. In 1979, the Company's management decided to
concentrate its efforts and resources in the western and southwestern markets,
which it believed offered the greatest growth and profit potential. Accordingly,
the Company sold 232 restaurants in the eastern and midwestern markets and
redeployed the sale proceeds in its western and southwestern markets where the
Company had a well-established market position and better growth prospects. In
1985, the Company was acquired by a group of private investors and, in 1987,
completed a public offering of common stock. In 1988, the
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<PAGE> 42
outstanding publicly-held shares were acquired by private investors through a
tender offer. In 1992, the Company completed a recapitalization that included a
public offering of common stock and indebtedness.
YEAR 2000 COMPLIANCE
The Company has performed an assessment of its major information
technology systems and expects that all necessary modifications and/or
replacements will be completed prior to December 1999. Based on current
expenditures and estimates, the costs of addressing this issue are not expected
to have a material adverse effect on the Company's financial position, results
of operations or liquidity. The potential impact of the Year 2000 issue in
regards to significant vendors and suppliers cannot be reasonably estimated at
this time. However, the Company could be adversely impacted if its suppliers and
franchisees do not ensure Year 2000 compliance in their own systems in a timely
manner.
NEW ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No. 129, Disclosure of
Information about Capital Structure. This Statement shall be effective for
fiscal years ending after December 15, 1997. This Statement, requiring only
additional informational disclosures, is effective for the Company's fiscal year
ending September 27, 1998.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This Statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purposes financial statements. This Statement shall be
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required. This Statement, requiring only additional informational disclosures,
is effective for the Company's fiscal year ending October 3, 1999.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. This Statement established standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. This Statement shall be effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This Statement,
requiring only additional informational disclosures, is effective for the
Company's fiscal year ending October 3, 1999.
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<PAGE> 43
BUSINESS
The Company owns, operates and franchises the JACK IN THE BOX
quick-service hamburger restaurant chain. As of April 12, 1998, the JACK IN THE
BOX system included 1,345 restaurants, of which 1,002 were Company-operated and
343 were franchised. In fiscal 1997, the Company generated revenues of $1.07
billion. JACK IN THE BOX restaurants are located primarily in the western United
States with a leading market presence in each of the major markets they serve.
Based on the number of units, JACK IN THE BOX is the third largest quick-service
hamburger chain in each of California, Texas, Arizona and Washington, its major
markets. Pro forma for the redemption of the Existing Senior Subordinated Notes
(as defined herein), the Company will have reduced its long-term indebtedness by
approximately $200 million from the end of fiscal 1993 to $301.3 million as of
April 12, 1998.
JACK IN THE BOX restaurants offer a broad selection of distinctive,
innovative products targeted at the adult fast-food consumer. JACK IN THE BOX
seeks to differentiate its restaurants by focusing on product quality and
innovation. The JACK IN THE BOX menu features a variety of hamburgers, specialty
sandwiches, salads, Mexican food, finger foods and side items. The core of the
JACK IN THE BOX menu is its hamburger products, which represent approximately
25% of sales, including its signature hamburgers, the Jumbo Jack, Ultimate
Cheeseburger and Sourdough Jack. In addition, the Company has been a leader in
new product innovation and offers such unique products as the Teriyaki Chicken
Bowl and Chicken Fajita Pita. JACK IN THE BOX restaurants also offer
value-priced product alternatives, known as "Jack's Value Menu," to compete
against price-oriented competitors. The Company believes that its distinctive
menu has been instrumental in developing brand loyalty and appealing to
customers with a broader range of food preferences.
The Company's operating strategy includes: (i) offering quality
innovative products with high perceived value, (ii) providing fast and friendly
customer service, (iii) maintaining a strong brand image, (iv) targeting an
attractive demographic segment and (v) focusing on Company-operated restaurants.
Beginning in 1994, the Company began a series of operating initiatives to
improve food quality and guest service. These initiatives include product
innovations and reformulations, improvements in food preparation and service
methods and improved training and retention of employees. In addition, the
Company launched its award-winning, irreverent advertising campaign featuring
its fictional founder "Jack" which has been instrumental in delivering the
message of product innovation, quality and value to customers. The Company
believes its menu and marketing campaign appeal to a broad segment of the
population, particularly its primary target market of men aged 18-34, the
demographic group with the highest incidence of fast-food consumption. The
Company operates approximately 74% of its restaurants, one of the highest
percentages in the quick-service restaurant industry, which the Company believes
enables it to implement its operating strategy and introduce product innovations
consistently across the entire system better than other quick-service restaurant
chains.
BUSINESS STRATEGY
The Company's business strategy is to (i) increase same store sales and
profitability through the continued implementation of its successful operating
strategy and (ii) capitalize on its strong brand name and proven operating
strategy by developing new restaurants.
Continue to Implement Successful Operating Strategy. The Company
believes that its strategy of focusing on food quality and product innovation
has allowed it to differentiate itself from competitors and increase its
restaurant level margins to among the highest in the industry. The Company
intends to continue to increase same store sales and profitability through
improvements in food quality and guest service, product innovations and creative
marketing. For example, the Company recently began remodeling its restaurant
kitchens to allow for more efficient operations and to improve food quality and
has recently introduced new and reformulated products, such as its successful
improved french fries and real ice cream shakes. The Company has also begun to
implement improved food preparation techniques, such as its assemble-to-order
sandwich initiative, and to improve guest service with its new menu boards. The
Company's new drive-thru menu boards feature an electronic order confirmation
system that allows customers to read their order on an electronic screen, which
the Company believes will reduce errors and increase customer satisfaction.
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<PAGE> 44
Develop New Restaurants. The Company intends to capitalize on its strong
brand name and proven operating strategy and achieve attractive returns on
investment by developing new Company-operated restaurants and, to a lesser
extent, franchised restaurants. The Company opened 75 new Company-operated
restaurants in fiscal 1997 and intends to open and operate approximately 100 new
restaurants in fiscal 1998 and each of the next several years. Newly opened
restaurants typically have sales levels similar to existing restaurants. The
Company believes that its brand is underpenetrated in many of its existing
markets and intends to leverage media and food delivery costs by increasing its
market penetration. In addition, the Company believes that it can further
leverage the JACK IN THE BOX brand name by expanding to contiguous and selected
high growth new markets. The Company has also begun opening a limited number of
restaurants on nontraditional sites, such as adjacent to convenience stores and
gas stations, and intends to continue to add nontraditional sites to increase
its penetration of existing markets.
Site selections for all new JACK IN THE BOX restaurants are made after
an extensive review of demographic data and other information relating to
population density, restaurant visibility and access, available parking,
surrounding businesses and opportunities for market concentration.
JACK IN THE BOX restaurants developed by franchisees are built to Company
specifications onsites which have been approved by the Company.
The Company currently uses several configurations in building new
JACK IN THE BOX restaurants. The largest restaurants seat 90 customers and
require a larger customer base to justify the cost of approximately $1.3
million, including land. The Company seeks to use lease financing and other
means to lower its cash investment in a typical leased restaurant to
approximately $300,000. The smallest restaurants seat 44 customers, require less
land, and cost slightly less to build and equip than do the largest restaurants.
Management believes that the flexibility provided by the alternative
configurations enables the Company to match the restaurant configuration with
specific demographic, economic and geographic characteristics of the site.
RESTAURANT LOCATIONS
The following table sets forth the growth in Company-operated and
franchised JACK IN THE BOX restaurants since the beginning of fiscal 1993, as of
the end of each period indicated:
<TABLE>
<CAPTION>
28 WEEKS
ENDED
FISCAL YEAR APRIL 12,
-------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Company-operated restaurants:
Opened ............................ 10 54 21 26 75 28
Sold to franchisees ............... (11) (4) (6) 0 (8) 0
Closed ............................ (4) (9) (4) (15) (6) (1)
Acquired from franchisees ......... 10 44 42 5 23 12
End of period total ............... 725 810 863 879 963 1,002
Franchised restaurants:
Opened ............................ 13 8 12 10 5 0
Acquired from Company ............. 11 4 6 0 8 0
Closed ............................ (2) (1) (1) (3) (21) (5)
Sold to Company ................... (10) (44) (42) (5) (23) (12)
End of period total ............... 447 414 389 391 360 343
System end of period total ............. 1,172 1,224 1,252 1,270 1,323 1,345
</TABLE>
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The following table summarizes the geographical locations of
JACK IN THE BOX restaurants at April 12, 1998:
<TABLE>
<CAPTION>
COMPANY-OPERATED FRANCHISED TOTAL
---------------- ---------- -----
<S> <C> <C> <C>
Arizona ..................... 67 45 112
California .................. 415 242 657
Hawaii ...................... 26 1 27
Idaho ....................... 15 -- 15
Illinois .................... 12 -- 12
Missouri .................... 39 3 42
Nevada ...................... 23 10 33
New Mexico .................. -- 2 2
Oregon ...................... 4 2 6
Texas ....................... 324 32 356
Washington .................. 77 -- 77
Hong Kong ................... -- 6 6
----- ----- -----
Total ..................... 1,002 343 1,345
===== ===== =====
</TABLE>
RESTAURANT OPERATIONS
Significant resources are devoted to ensure that all JACK IN THE BOX
restaurants offer the highest quality food and service. Emphasis is placed on
ensuring that quality ingredients are delivered to the restaurants, restaurant
food production systems are continuously developed and improved, and all
employees are dedicated to delivering consistently high quality food and
service. Through its network of corporate quality assurance, facilities services
and restaurant management personnel, including regional vice presidents, area
managers and restaurant managers, the Company standardizes specifications for
the preparation and service of its food, the conduct and appearance of its
employees, and the maintenance and repair of its premises. Operating
specifications and procedures are documented in a series of manuals and video
presentations. Most restaurants, including franchised units, receive
approximately four full inspections and 26 mystery guest reviews each year.
Each JACK IN THE BOX restaurant is operated by a Company-employed
manager or franchisee who normally receives a minimum of eight weeks of
management training. Foodmaker's management training program involves a
combination of classroom instruction and on-the-job training in specially
designated training restaurants. Restaurant managers and supervisory personnel
train other restaurant employees in accordance with detailed procedures and
guidelines prescribed by Foodmaker, utilizing training aids including video
equipment available at each location. The restaurant managers are directly
responsible for the operation of the restaurants, including product quality,
food handling safety, cleanliness, service, inventory, cash control and the
conduct and appearance of employees.
Restaurant managers are supervised by approximately 50 area managers,
each of whom is responsible for an average of 20 restaurants. The area managers
are under the supervision of seven regional vice presidents who are supervised
in turn by a vice president of operations. Under the Company's performance
system, area and restaurant managers are eligible for quarterly bonuses based on
a percentage of location operating profit and regional vice presidents are
eligible for bonuses based on profit improvement and achievement of established
goals and objectives.
The Company's "farm-to-fork" food safety and quality assurance program
is designed to maintain high standards for the food and materials and food
preparation procedures used by Company-operated and franchised restaurants.
Foodmaker maintains product specifications and approves sources for obtaining
such products. The Company has developed a comprehensive, restaurant-based
Hazard Analysis & Critical Control Points ("HACCP") system for managing food
safety and quality. HACCP combines employee training, testing by suppliers, and
detailed attention to product quality at every stage of the food preparation
cycle. The Company's HACCP program has been recognized as a leader in the
industry by the USDA, FDA and the Center for Science in the Public Interest.
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Foodmaker provides purchasing, warehouse and distribution services for
both Company-operated and some franchised restaurants. Prior to 1996, most
JACK IN THE BOX franchisees used these services to the full extent available
even though they were permitted to purchase products directly from any approved
source. In 1996, JACK IN THE BOX franchisees formed a purchasing cooperative and
contracted with another supplier for distribution services. This transition by
most franchisees resulted in a substantial decline in distribution sales. Some
products, primarily dairy and bakery items, are delivered directly by approved
suppliers to both Company-operated and franchised restaurants.
The primary commodities purchased by JACK IN THE BOX restaurants are
beef, poultry and produce. The Company monitors the current and future prices
and availability of the primary commodities purchased by the Company in order to
minimize the impact of fluctuations in price and availability, and makes advance
purchases of commodities when considered to be advantageous. However, the
Company remains subject to price fluctuations in certain commodities. All
essential food and beverage products are available, or upon short notice can be
made available, from alternative qualified suppliers.
Foodmaker maintains centralized financial and accounting controls for
Company-operated JACK IN THE BOX restaurants which it believes are important in
analyzing profit margins. JACK IN THE BOX uses a specially designed computerized
reporting and cash register system. The system provides point-of-sale
transaction data and accumulates marketing information. Sales data is collected
and analyzed on a weekly basis by management.
FRANCHISING PROGRAM
The JACK IN THE BOX franchising strategy is directed toward franchisee
development of restaurants in existing non-primary markets and selected primary
markets. The Company offers development agreements for construction of one or
more new restaurants over a defined period of time and in a defined geographic
area. Developers are required to prepay one-half of the franchise fees for
restaurants to be opened in the future and may forfeit such fees and lose their
rights to future developments if they do not maintain the required schedule of
openings.
The current JACK IN THE BOX franchise agreement provides for an initial
franchise fee of $50,000 per restaurant. This agreement generally provides for
royalties of 5% of gross sales (4% for agreements executed prior to February 23,
1996), a marketing fee of 5% of gross sales (although approximately half of the
existing agreements provide for a 4% rate) and approximately a 20-year term. In
connection with the conversion of a Company-operated restaurant, the restaurant
equipment and the right to do business at that location, known as "Trading Area
Rights," are sold to the franchisee, in most cases for cash. The aggregate price
is equal to the negotiated fair market value of the restaurant as a going
concern, which depends on various factors including the history of the facility,
its location and its cash flow potential. In addition, the land and building are
leased or subleased to the franchisee at a negotiated rent, generally equal to
the greater of a minimum base rent or a percentage of gross sales (typically
8-1/2%). The franchisee is required to pay property taxes, insurance and
maintenance costs. The Company's franchise agreement also provides the Company a
right of first refusal on each proposed sale of a franchised restaurant, which
it exercises from time to time, when the proposed sale price and terms are
acceptable to the Company.
The Company views its non-franchised JACK IN THE BOX units as a
potential resource which, on a selected basis, can be sold to a franchisee to
generate additional immediate cash flow and revenues while still maintaining
future cash flows and earnings through franchise rents and royalties. Although
franchised units totaled 343 of the 1,345 JACK IN THE BOX restaurants at April
12, 1998, the ratio of franchised to Company-operated restaurants is low
relative to the Company's major competitors.
ADVERTISING AND PROMOTION
JACK IN THE BOX engages in substantial marketing programs and
activities. Advertising costs are paid from a fund comprised of (i) an amount
contributed each year by the Company equal to at least 5% of the gross sales of
its Company-operated JACK IN THE BOX restaurants and (ii) the marketing fees
paid by domestic franchisees.
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The Company's use of advertising media is limited to regional and local
campaigns both on television and radio spots and in print media. JACK IN THE BOX
does not advertise nationally. JACK IN THE BOX spent approximately $66 million
on advertising and promotions in fiscal 1997, including franchisee contributions
of $15.5 million. The current advertising campaign relies on a series of
television and radio spot advertisements to promote individual products and
develop the JACK IN THE BOX brand. The Company also spent $1.1 million in fiscal
1997 for local marketing purposes. Franchisees are encouraged to, and generally
do, spend funds in addition to those expended by the Company for local marketing
programs.
COMPETITION
In general, the restaurant business is highly competitive and is
affected by competitive changes in a geographic area, changes in the public's
eating habits and preferences, local and national economic conditions affecting
consumer spending habits, population trends, and traffic patterns. Key elements
of competition in the industry are the quality and value of the food products
offered, quality and speed of service, advertising, name identification,
restaurant location, and attractiveness of facilities.
Each JACK IN THE BOX restaurant competes directly and indirectly with a
large number of national and regional restaurant chains as well as with
locally-owned fast-food restaurants and coffee shops. In selling franchises, the
Company competes with many other restaurant franchisors, and some of its
competitors have substantially greater financial resources and higher total
sales volume.
GOVERNMENT REGULATION
Each Company-operated and franchised restaurant is subject to regulation
by federal agencies and to licensing and regulation by state and local health,
sanitation, safety, fire and other departments. Difficulties or failures in
obtaining any required licensing or approval could result in delays or
cancellations in the opening of new restaurants.
The Company is also subject to federal and a substantial number of state
laws regulating the offer and sale of franchises. Such laws impose registration
and disclosure requirements on franchisors in the offer and sale of franchises
and may also apply substantive standards to the relationship between franchisor
and franchisee, including limitations on the ability of franchisors to terminate
franchisees and alter franchise arrangements. The Company believes it is
operating in substantial compliance with applicable laws and regulations
governing its operations.
The Company is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wages, overtime and other working
conditions. A significant number of the Company's food service personnel are
paid at rates related to the federal and state minimum wage, and accordingly,
increases in the minimum wage increase the Company's labor costs.
In addition, various proposals which would require employers to provide
health insurance for all of their employees are being considered from
time-to-time in Congress and various states. The imposition of any requirement
that the Company provide health insurance to all employees would have a material
adverse impact on the consolidated operations and financial condition of the
Company and the restaurant industry.
The Company is subject to certain guidelines under the Americans with
Disabilities Act of 1990 and various state codes and regulations which require
restaurants to provide full and equal access to persons with physical
disabilities. To comply with such laws and regulations, the cost of remodeling
and developing restaurants has increased, principally due to the need to provide
certain older restaurants with ramps, wider doors, enlarged restrooms and other
conveniences.
The Company is also subject to various federal, state and local laws
regulating the discharge of materials into the environment. The cost of
developing restaurants has increased as a result of the Company's compliance
with such laws. Such costs relate primarily to the necessity of obtaining more
land, landscaping and below surface storm
44
<PAGE> 48
drainage and the cost of more expensive equipment necessary to decrease the
amount of effluent emitted into the air and ground.
FACILITIES
At April 12, 1998, Foodmaker owned 567 JACK IN THE BOX restaurant
buildings, including 333 located on land covered by ground leases. In addition,
it leased 692 restaurants where both the land and building are leased, including
148 restaurants operated by franchisees. The remaining lease terms of ground
leases range from approximately one year to 48 years, including renewal option
periods. The remaining lease terms of Foodmaker's other leases range from
approximately one year to 39 years, including renewal option periods. In
addition, at April 12, 1998, franchisees directly owned or leased 86
restaurants.
<TABLE>
<CAPTION>
COMPANY- FRANCHISE-
OPERATED OPERATED TOTAL
-------- --------- -----
<S> <C> <C> <C>
Company-owned restaurant buildings:
On Company-owned land .................................... 174 60 234
On ground-leased land .................................... 284 49 333
----- ----- -----
Subtotal ................................................. 458 109 567
Company-leased restaurant buildings on leased land ......... 544 148 692
Franchise directly-owned or directly-leased
restaurant buildings ..................................... -- 86 86
----- ----- -----
Total restaurant buildings ............................ 1,002 343 1,345
===== ===== =====
</TABLE>
The Company's leases generally provide for fixed rental payments (with
cost-of-living index adjustments) plus real estate taxes, insurance and other
expenses; in addition, many of the leases provide for contingent rental payments
of between 2% and 10% of the restaurant's gross sales. The Company has generally
been able to renew its restaurant leases as they expire at then current market
rates. At April 12, 1998, the leases had initial terms expiring as follows:
<TABLE>
<CAPTION>
NUMBER OF RESTAURANTS
------------------------------
YEARS INITIAL LAND AND
LEASE TERM EXPIRES GROUND LEASES BUILDING LEASES
------------------ ------------- ---------------
<S> <C> <C>
1998 -- 2002............... 102 101
2003 -- 2007............... 135 221
2008 -- 2012............... 69 245
2013 and later............. 27 125
--- ---
333 692
=== ===
</TABLE>
In addition, the Company owns its principal executive offices in San
Diego, California, consisting of approximately 150,000 square feet. The Company
owns one warehouse and leases an additional five with remaining terms ranging
from 2 to 20 years, including renewal option periods. Substantially all the
Company's real and personal property are pledged as collateral for various
components of the Company's long-term debt.
EMPLOYEES
At April 12, 1998, the Company had approximately 29,000 employees, of
whom approximately 27,300 were restaurant employees, 450 were corporate
personnel, 250 were distribution employees and 1,000 were field management and
administrative personnel. Employees are paid on an hourly basis, except
restaurant managers, corporate and field management, and administrative
personnel. A majority of the Company's restaurant employees are employed on a
part-time, hourly basis to provide services necessary during peak periods of
restaurant operations. The Company has not experienced any significant work
stoppages and believes its labor relations are good.
45
<PAGE> 49
The Company competes in the job market for qualified employees and
believes its wage rates are comparable to those of its competitors.
TRADEMARKS AND SERVICE MARKS
The JACK IN THE BOX name is of material importance to the Company and is
a registered trademark and service mark in the United States and in certain
foreign countries. In addition, the Company has registered numerous service
marks and trade names for use in its business, including the JACK IN THE BOX
logo and various product names and designs.
ENVIRONMENTAL LIABILITY
The Company is subject to various evolving federal, state and local
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous and non-hazardous substances and wastes.
These laws and regulations provide for substantial fees and sanctions for
violations and, in many cases, could require the Company to remediate a site to
meet applicable legal requirements. The Company believes, although there can be
no assurance, that its liabilities relating to environmental matters will not
have a material adverse effect on its future financial position or results of
operations. The Company does not have environmental liability insurance nor does
it maintain a reserve for environmental liabilities.
LEGAL PROCEEDINGS
The Company is routinely involved in legal proceedings related to the
ordinary course of its business. Management does not believe any such matters
will have a material adverse effect on the Company. The Company maintains
property, general liability and product liability insurance in amounts which it
believes are consistent with industry practices and adequate for its operations.
The Company settled the litigation it filed against the Vons Companies,
Inc. ("Vons") and various suppliers seeking reimbursement for all damages, costs
and expenses incurred in connection with food-borne illness attributed to
hamburgers served at Jack in the Box restaurants in 1993. The initial litigation
was filed by the Company on February 4, 1993. Vons filed cross-complaints
against the Company and others alleging certain contractual, indemnification and
tort liabilities; seeking damages in unspecified amounts and a declaration of
the rights and obligations of the parties. The claims of the parties were
settled on February 24, 1998. The Company received in its second quarter
approximately $58.5 million in the settlement, of which a net of approximately
$45.8 million was realized after litigation costs and before income taxes (the
"Litigation Settlement").
On February 2, 1995, an action by Concetta Jorgensen was filed against
the Company in the U.S. District Court in San Francisco, California alleging
that restrooms at a JACK IN THE BOX restaurant failed to comply with laws
regarding disabled persons and seeking damages in unspecified amounts, punitive
damages, injunctive relief, attorneys fees and prejudgment interest. In an
amended complaint, damages were also sought on behalf of all physically disabled
persons who were allegedly denied access to restrooms at the restaurant. In
February 1997, the court ordered that the action for injunctive relief proceed
as a nationwide class action on behalf of all persons in the United States with
mobility disabilities. The Company has reached agreement on settlement terms
both as to the individual plaintiff Concetta Jorgensen and the claims for
injunctive relief, and the settlement agreement has been approved by the U.S.
District Court. The settlement requires the Company to make access improvements
at Company-operated restaurants to comply with the standards set forth in the
Americans with Disabilities Act Access Guidelines. The settlement requires
compliance at 85% of the Company-operated restaurants by April 2001 and for the
balance of Company-operated restaurants by October 2005. The Company has agreed
to make modifications to its restaurants to improve accessibility and
anticipates investing an estimated $11 million in capital improvements over the
next seven years. Foodmaker has been notified by attorneys for plaintiffs that
claims may be made against JACK IN THE BOX franchisees and Foodmaker relating to
locations that franchisees lease from Foodmaker which may not be in compliance
with the Americans with Disabilities Act.
46
<PAGE> 50
On April 6, 1996, an action was filed by one of the Company's
international franchisees, Wolsey, Ltd., in the United States District Court in
San Diego, California against the Company and its directors, its international
franchising subsidiary, and certain officers of the Company and others. The
complaint alleges certain contractual, tort and law violations related to the
franchisees' development rights in the Far East and seeks damages in excess of
$38.5 million, injunctive relief, attorneys fees and costs. The Company has
successfully dismissed portions of the complaint, including the single claim
alleging wrongdoing by the Company's outside directors, and the claims against
its current officers. Management believes the remaining allegations are without
foundation and intends to vigorously defend the action.
On November 5, 1996, an action was filed by the National JIB Franchisee
Association, Inc. and several of the Company's franchisees in the Superior Court
of California, County of San Diego in San Diego, California, against the Company
and others. The lawsuit alleges that certain Company policies are unfair
business practices and violate sections of the California Corporations Code
regarding material modifications of franchise agreements and interfere with
franchisees' right of association. It seeks injunctive relief, a declaration of
the rights and duties of the parties, unspecified damages and recision of
alleged material modifications of plaintiffs' franchise agreements. The
complaint also alleges fraud, breach of a fiduciary duty and breach of a third
party beneficiary contract in connection with certain payments that the Company
received from suppliers and seeks unspecified damages, interest, punitive
damages and an accounting. Management believes that its policies are lawful and
that it has satisfied any obligation to its franchisees in regard to such
supplier payments.
On December 10, 1996, a suit was filed by the Company's Mexican
licensee, Foodmex, Inc., in the United States District Court in San Diego,
California against the Company and its international franchising subsidiary.
Foodmex formerly operated several JACK IN THE BOX franchise restaurants in
Mexico, but its licenses were terminated by the Company for, among other
reasons, chronic insolvency and failure to meet operational standards. The
Foodmex suit alleges wrongful termination of its master license, breach of
contract and unfair competition and seeks an injunction to prohibit termination
of its license as well as unspecified monetary damages. The Company and its
subsidiary counterclaimed and sought a preliminary injunction against Foodmex.
On March 28, 1997, the court granted the Company's request for an injunction,
held that the Company was likely to prevail in its suit, and ordered Foodmex to
immediately cease using the JACK IN THE BOX marks and proprietary operating
systems. On June 30, 1997, the court held Foodmex and its president in contempt
of court for failing to comply with the March 28, 1997 order. On February 24,
1998, the Court issued an order dismissing Foodmex's complaint without
prejudice. In March 1998, Foodmex filed a Second Amended Complaint in the United
States District Court in San Diego, California alleging contractual, tort and
law violations arising out of the same business relationship and seeking damages
in excess of $10 million, attorneys fees and costs. The Company believes such
allegations are without merit and will defend the action vigorously.
On May 23, 1997, an action by Ralston Purina Company was filed against
the Company in the U.S. District Court for the Eastern District of Missouri in
St. Louis, Missouri alleging the Company's breach of a tax sharing agreement and
unjust enrichment and seeking an accounting and damages in an amount not less
than $11 million plus attorneys' fees and costs. The Company believes it has
meritorious defenses and intends to vigorously defend the lawsuit.
The Company is also subject to normal and routine litigation. The amount
of liability from the claims and actions described above cannot be determined
with certainty, but in the opinion of management, the ultimate liability from
all pending legal proceedings, asserted legal claims and known potential legal
claims which are probable of assertion should not materially affect the results
of operations and liquidity of the Company.
47
<PAGE> 51
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age (as of January 1, 1998) and
position of each person who is a director or executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Robert J. Nugent(1)(4) 56 President, Chief Executive Officer and Director
Charles W. Duddles(1) 57 Executive Vice President, Chief Financial Officer,
Chief Administrative Officer and Director
Kenneth R. Williams 55 Executive Vice President, Marketing and Operations
Lawrence E. Schauf 52 Executive Vice President and Secretary
Donald C. Blough 49 Vice President, Management Information Systems
Bruce N. Bowers 51 Vice President, Logistics
Carlo E. Cetti 53 Vice President, Human Resources and Strategic Planning
Bradford R. Haley 39 Vice President, Marketing Communications
William F. Motts 54 Vice President, Restaurant Development
Paul L. Schultz 43 Vice President, Operations and Domestic Franchising
David M. Theno, Ph.D 47 Vice President, Quality Assurance, Research and
Development and Product Safety
Linda A. Vaughan 39 Vice President, New Products, Promotions and Consumer
Research
Charles E. Watson 42 Vice President, Real Estate and Construction
Darwin J. Weeks 51 Vice President, Controller and Chief Accounting Officer
Jack W. Goodall(1)(4)(5)(6) 59 Chairman of the Board
Michael E. Alpert(5)(6) 55 Director
Jay W. Brown(2)(3) 52 Director
Paul T. Carter(2)(3)(5) 75 Director
Edward Gibbons(3)(4)(6) 61 Director
L. Robert Payne(2)(5) 64 Director
</TABLE>
- ----------
(1) Member of the Administrative Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Executive Committee.
(5) Member of the Finance Committee.
(6) Member of the Nominating Committee.
Mr. Nugent has been President and Chief Executive Officer of the Company
since April 1996. He was Executive Vice President of the Company from February
1985 to April 1996 and President and Chief Operating
48
<PAGE> 52
Officer of the JACK IN THE BOX Division of the Company from May 1988 to April
1996. He has been a director since February 1988. Mr. Nugent has 18 years of
experience with the Company in various executive and operations positions.
Mr. Duddles has been Executive Vice President and Chief Administrative
Officer of the Company since May 1988. He has been Chief Financial Officer of
the Company since October 1985 and was Senior Vice President from October 1985
to May 1988. He has been a director since February 1988. Mr. Duddles has 18
years of experience with the Company in various finance positions.
Mr. Williams has been Executive Vice President of the Company since May
1996. He was Senior Vice President of the Company from January 1993 to May 1996
and Executive Vice President of Marketing and Operations, JACK IN THE BOX
Division from November 1994 to May 1996. He was Executive Vice President of
Operations, JACK IN THE BOX Division from May 1988 until November 1994. Mr.
Williams has 32 years of experience with the Company in various operations
positions.
Mr. Schauf has been Executive Vice President and Secretary of the
Company since August 1996. Prior to joining Foodmaker he was Senior Vice
President, General Counsel and Secretary of Wendy's International, Inc. from
February 1991 to August 1996. He was previously Vice President, General Counsel
and Secretary of Wendy's International, Inc. from September 1987 to February
1991.
Mr. Blough has been Vice President, Management Information Systems of
the Company since August 1993 and was previously Division Vice President,
Systems Development from June 1990 to August 1993. Mr. Blough has 19 years of
experience with the Company in various management information systems positions.
Mr. Bowers has been Vice President, Logistics (formerly Purchasing and
Distribution) of the Company, since April 1982. Mr. Bowers has 28 years of
experience with the Company in various manufacturing, purchasing and
distribution positions.
Mr. Cetti has been Vice President, Human Resources and Strategic
Planning of the Company since March 1994. He was previously Vice President,
Training and Risk Management, from December 1992 to March 1994. Mr. Cetti has 17
years of experience with the Company in various human resources and training
positions.
Mr. Haley has been Vice President of the Company and Vice President of
Marketing Communications of JACK IN THE BOX Division since February 1995. He was
previously Division Vice President, Marketing Communications from October 1992
until February 1995. Prior to joining the Company, he was a marketing
consultant, principally on the development of new retail food products, from
November 1991 to October 1992.
Mr. Motts has been Vice President of the Company and Vice President of
Restaurant Development of JACK IN THE BOX Division since September 1988. Mr.
Motts has 15 years of experience with the Company in various restaurant
development positions.
Mr. Schultz has been Vice President of the Company since May 1988 and
Vice President of Operations and Domestic Franchising, JACK IN THE BOX Division
since November 1994. He was Vice President of Domestic Franchising,
JACK IN THE BOX Division from October 1993 until November 1994. He was
previously Vice President of JACK IN THE BOX Operations-Division I from May 1988
to October 1993. Mr. Schultz has 26 years of experience with the Company in
various operations positions.
Dr. Theno has been Vice President, Quality Assurance, Research and
Development and Product Safety of the Company since April 1994. He was Vice
President, Quality Assurance and Product Safety from March 1993 to April 1994.
Prior to joining Foodmaker, he was previously Managing Director and Chief
Executive Officer of Theno & Associates, Inc., an agribusiness consulting firm,
from January 1990 to March 1993 and Director of Technical Services for Foster
Farms from March 1982 to December 1989.
49
<PAGE> 53
Ms. Vaughan has been Vice President, New Products, Promotions and
Consumer Research of the Company since February 1996. She was Division Vice
President, New Products and Promotions from November 1994 until February 1996.
Previously, she was Manager, Product Marketing from October 1993 until November
1994 and Manager Franchise Analysis from November 1992 to October 1993. She was
Senior Financial Analyst, Franchise Analysis, from October 1991 until November
1992.
Mr. Watson has been Vice President, Real Estate and Construction of the
Company since April 1997. From July 1995 to March 1997, he was Vice President,
Real Estate and Construction of Boston Chicken, Inc. He was Division Vice
President, Real Estate and Construction of the Company from November 1991
through June 1995. Mr. Watson has 12 years of experience with the Company in
various real estate and construction positions.
Mr. Weeks has been Vice President, Controller and Chief Accounting
Officer of the Company since August 1995 and was previously Division Vice
President and Assistant Controller for the Company from April 1982 through July
1995. Mr. Weeks has been employed by the Company in various finance positions
for 21 years.
Mr. Goodall has been Chairman of the Board since October 1985. For more
than five years prior to his retirement in April 1996, he was President and
Chief Executive Officer of the Company. Mr. Goodall is a director of Ralcorp
Holdings, Inc.
Mr. Alpert has been a director of the Company since August 1992. Mr.
Alpert was a partner in the San Diego office of the law firm of Gibson, Dunn &
Crutcher LLP for more than 5 years prior to his retirement on August 1, 1992. He
is currently Advisory Counsel to Gibson, Dunn & Crutcher LLP. Gibson, Dunn &
Crutcher LLP provides legal services to the Company from time to time.
Mr. Brown has been a director of the Company since February 1996. Since
1995, Mr. Brown has been President and CEO of Protein Technologies
International, Inc., the world's leading supplier of soy-based proteins to the
food and paper processing industries. He was Chairman and CEO of Continental
Baking Company from October 1984 to July 1995 and President of Van Camp Seafood
Company from August 1983 to October 1984. From July 1981 through July 1983, he
served as Vice President of Marketing for JACK IN THE BOX .
Mr. Carter has been a director of the Company since June 1991. Mr.
Carter has been an insurance consultant for the Government Division of Corroon &
Black Corporation since February 1987. From February 1987 until December 1990,
he was also a consultant to the San Diego Unified School District on insurance
matters. He retired in February 1987 as Chairman and Chief Executive Officer of
Corroon & Black Corporation, Southwestern Region and as Director and Senior Vice
President of Corroon & Black Corporation, New York. Mr. Carter is a director of
Borrego Springs National Bank.
Mr. Gibbons has been a director of the Company since October 1985 and
has been a general partner of Gibbons, Goodwin, van Amerongen ("GGvA"), an
investment banking firm for more than five years preceding the date hereof. Mr.
Gibbons is also a director of Robert Half International, Inc.
Mr. Payne has been a director of the Company since August 1986. He has
been President and Chief Executive Officer of Multi-Ventures, Inc. since
February 1976 and was Chairman of the Board of Grossmont Bank, a wholly-owned
subsidiary of Bancomer, S.A., from February 1974 until October 1995.
Multi-Ventures, Inc. is a real estate development and investment company that is
also the managing partner of the San Diego Mission Valley Hilton and the Hanalei
Hotel. He was a principal in the Company prior to its acquisition by its former
parent, Ralston Purina Company, in 1968.
50
<PAGE> 54
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes, like the Old Notes, will be issued pursuant to an
Indenture (the "Indenture") dated April 14, 1998 between the Company and First
Union National Bank, as trustee (the "Trustee"), in exchange for the Old Notes.
No Exchange Notes are currently outstanding. The terms of the Exchange Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The
terms of the Exchange Notes are substantially identical to the Old Notes in all
material respects (including interest rate and maturity), except that (i) the
Exchange Notes will not be subject to the restrictions on transfer and (ii) the
Registration Rights Agreement covenants regarding registration. The Old Notes
are subject to all such terms, and holders of the Old Notes 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. Copies of the
Indenture and Registration Rights Agreement are available as set forth below
under "-- Available Information". 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 Foodmaker, Inc. and
not to any of its Subsidiaries.
GENERAL
The Exchange Notes will be general unsecured obligations of the Company
and will be subordinated in right of payment to all current and future Senior
Indebtedness. The Exchange Notes will be guaranteed on a senior subordinated
basis by all of the Company's current and future Restricted Subsidiaries. See
"-- Subsidiary Guarantees." The Subsidiary Guarantees will be general unsecured
obligations of the Subsidiary Guarantors and will be subordinated in right of
payment to all current and future Senior Indebtedness of the Subsidiary
Guarantors. As of April 12, 1998, on a pro forma basis giving effect to the Old
Offering and the other Refinancing Transactions, the Company and the Subsidiary
Guarantors would have had Senior Indebtedness of approximately $180.6 million.
The Indenture permits the incurrence of additional Senior Indebtedness by the
Company and its Restricted Subsidiaries in the future.
As of the date of the Indenture, all of the Company's Subsidiaries are
Restricted Subsidiaries other than the CRC Subsidiaries and the Foreign
Subsidiaries. Under certain circumstances, the Company will be able to designate
other current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants set forth
in the Indenture.
If by October 15, 1998, the Company has not consummated a registered
exchange offer for the Exchange Notes or caused a shelf registration statement
with respect to resales of the Exchange Notes to be declared effective, the
interest rate on the Exchange Notes will increase by 0.5% per annum from October
15, 1998 until the consummation of a registered exchange offer or the
effectiveness of a shelf registration statement. See "-- Registration Rights."
Subject to the covenants described below under "Covenants" and
applicable law, the Company may issue additional Exchange Notes under the
Indenture. The Exchange Notes offered hereby and any additional Exchange Notes
subsequently issued would be treated as a single class for all purposes under
the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be initially limited in aggregate principal
amount to $125.0 million and will mature on April 15, 2008. Interest on the
Exchange Notes will accrue at the rate of 8 3/8% per annum and will be payable
semi-annually in arrears on April 15 and October 15, commencing on October 15,
1998, to Holders of record on the immediately preceding April 1 and October 1.
Interest on the Exchange Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from April 14, 1998.
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 Additional Interest
(as defined herein), if any,
51
<PAGE> 55
may be made by check mailed to the Holders of the Exchange Notes at their
respective addresses set forth in the register of Holders of Exchange Notes. The
Exchange Notes will be issued in denominations of $1,000 and integral multiples
thereof.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in
part, at any time or from time to time, on or after April 15, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days prior notice mailed by
first class mail to each Holder's last registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest and Additional Interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant regular record date
that is on or prior to the redemption date to receive interest due on an
interest payment date), if redeemed during the 12-month period commencing April
15, of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003 ................................................................ 104.188%
2004 ................................................................ 102.792
2005 ................................................................ 101.396
2006 and thereafter ................................................. 100.000%
</TABLE>
In addition, at any time prior to April 15, 2001, the Company may redeem
up to 35% of the principal amount of the Notes with the proceeds of one or more
sales by the Company of its Capital Stock (other than Disqualified Stock), at
any time or from time to time in part, at a redemption price (expressed as a
percentage of principal amount) of 108.375%, plus accrued and unpaid interest
and Additional Interest, if any, to the redemption date (subject to the rights
of Holders of record on the relevant regular record date that is prior to the
redemption date to receive interest due on an interest payment date); provided
that at least $81.25 million aggregate principal amount of Notes remains
outstanding after each such redemption; and provided further, that such
redemption occurs within 90 days of the date of the closing of each such sale of
Capital Stock.
In the case of any partial redemption, selection of the 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 listed on a national securities exchange, by lot
or by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate; provided that no Note of $1,000 in principal amount or
less shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating 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.
SINKING FUND
There will be no sinking fund payments for the Notes.
REGISTRATION RIGHTS
The Company and the Subsidiary Guarantors have agreed with the Placement
Agents, for the benefit of the Holders, that the Company and the Subsidiary
Guarantors will use their best efforts, at their cost, to file and cause to
become effective a registration statement with respect to a registered offer
(the "Exchange Offer") to exchange the Old Notes for an issue of senior
subordinated notes of the Company (the "Exchange Notes") with terms identical to
the Old Notes (except that the Exchange Notes will not bear legends restricting
the transfer thereof). Upon such registration statement being declared
effective, the Company shall offer the Exchange Notes in return for surrender of
the Old Notes. Such offer shall remain open for not less than 20 business days
after the date notice of the Exchange Offer is mailed to Holders. For each Old
Note surrendered to the Company under the Exchange Offer, the Holder will
receive an Exchange Note of equal principal amount. Interest on each Exchange
Note shall accrue from the last interest payment date on which interest was paid
on the Exchange Notes so surrendered or, if no interest has
52
<PAGE> 56
been paid on such Exchange Notes, from April 14, 1998. In the event that
applicable interpretations of the staff of the Securities and Exchange
Commission (the "Commission") do not permit the Company to effect the Exchange
Offer, or under certain other circumstances, the Company shall, at its cost, use
its best efforts to cause to become effective a shelf registration statement
(the "Shelf Registration Statement") with respect to resales of the Exchange
Notes and to keep the Shelf Registration Statement effective until the
expiration of the time period referred to in Rule 144(k) under the Securities
Act after April 14, 1998, or such shorter period that will terminate when all
Exchange Notes covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement. The Company shall, in the event of
such a shelf registration, provide to each Holder copies of the prospectus,
notify each Holder when the Shelf Registration Statement for the Old Notes has
become effective and take certain other actions as are required to permit
resales of the Old Notes. A Holder that sells its Old Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
Holder (including certain indemnification obligations).
In the event that the Exchange Offer is not consummated and the Shelf
Registration Statement is not declared effective on or prior to October 15,
1998, the annual interest rate borne by the Old Notes will be increased by .5%
from October 15, 1998 until the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective ("Additional Interest").
If the Company effects the Exchange Offer, the Company will be entitled
to close the Exchange Offer 20 business days after the commencement thereof,
provided that it has accepted all Old Notes theretofore validly surrendered in
accordance with the terms of the Exchange Offer. Old Notes not tendered in the
Exchange Offer shall bear interest at the rate set forth on the cover page of
this Prospectus and be subject to all of the terms and conditions specified in
the Indenture and to the transfer restrictions described in "Transfer
Restrictions."
This summary 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 available from the Company upon request as set
forth below in "-- Available Information."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed (the "Subsidiary Guarantees") by the Subsidiary Guarantors.
The Subsidiary Guarantee of each Subsidiary Guarantor will be subordinated to
the prior payment in full of all Senior Indebtedness of the Subsidiary
Guarantors on the same basis as the Notes are subordinated to Senior
Indebtedness of the Company. The obligations of each Subsidiary Guarantor under
its Subsidiary Guarantee will be limited so as not to constitute a fraudulent
conveyance under applicable law. See, however, "Risk Factors -- Fraudulent
Conveyance."
The Indenture provides that no Subsidiary Guarantor may consolidate with
or merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary 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 Subsidiary Guarantor) assumes all the obligations of such
Subsidiary Guarantor under the Subsidiary Guarantee and the Indenture pursuant
to a supplemental indenture in form and substance reasonably satisfactory to the
Trustee; (ii) immediately after giving effect to such transaction, no Default or
Event of Default exists; and (iii) 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 "-- Covenants -- Limitation on Indebtedness."
The Indenture provides that in the event of a sale or other disposition
of all of the assets of any Subsidiary Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the capital
stock of any Subsidiary Guarantor, then such Subsidiary Guarantor (in the event
of a sale or other disposition, by way of such
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a merger, consolidation or otherwise, of all of the capital stock of such
Subsidiary Guarantor) or the corporation acquiring the property (in the event of
a sale or other disposition of all of the assets of such Subsidiary 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 "-- Covenants
- -- Limitation on Asset Sales."
RANKING
The payment of principal of, premium, if any, and interest on the Notes
will be subordinated in right of payment, as set forth in the Indenture, to the
prior payment in full in cash of all Senior Indebtedness, whether outstanding on
the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full in cash of all Obligations due in respect of such Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Indebtedness whether or not such
interest is an allowed claim in such proceeding) before the Holders of Notes
will be entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Indebtedness are paid in full in cash, any
distribution to which the Holders of Notes would be entitled shall be made to
the holders of Senior Indebtedness (except that Holders of Notes may receive
Permitted Junior Securities and payments made from the trust described under
"-- Legal Defeasance and Covenant Defeasance" so long as the funding of such
trust did not violate the subordination provisions of the Indenture).
The Company also may not make any payment upon or in respect of the
Notes (except in Permitted Junior Securities or from the trust described under
"-- Legal Defeasance and Covenant Defeasance" so long as the funding of such
trust did not violate the subordination provisions of the Indenture) if (i) a
default in the payment of the principal of, premium, if any, or interest on
Designated Senior Indebtedness occurs and is continuing beyond any applicable
period of grace or (ii) any other default occurs and is continuing with respect
to Designated Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
Company or the holders of any Designated Senior Indebtedness or a representative
acting on behalf of such holders. Payments on the Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which such default is
cured or waived in writing and (b) in case of a nonpayment default, the earlier
of the date on which such nonpayment default is cured or waived in writing or
179 days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Indebtedness has been
accelerated. No new period of payment blockage under clause (ii) above may be
commenced unless and until 360 days have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice
unless such default has been cured or waived for a period of 90 consecutive
days.
The Indenture further requires that the Company promptly notify holders
of Senior Indebtedness if payment of the Notes is accelerated because of an
Event of Default.
As a result of the subordination provisions described above, in the
event of a liquidation or insolvency, Holders of Notes may recover less ratably
than creditors of the Company who are holders of Senior Indebtedness. On a pro
forma basis, after giving effect to the Old Offering and the other Refinancing
Transactions, the amount of Senior Indebtedness outstanding at April 12, 1998
would have been approximately $180.6 million. The Indenture limits, subject to
certain financial tests, the amount of additional Indebtedness, including Senior
Indebtedness, that the Company and its Restricted Subsidiaries can incur. See
"-- Covenants -- Limitation on Indebtedness."
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection with
an Asset Acquisition from such Person by a Restricted Subsidiary and not
Incurred by such Person in connection with, or in anticipation of, such Person
becoming a Restricted Subsidiary or such Asset Acquisition; provided that
Indebtedness of such Person which is redeemed, defeased, retired or otherwise
repaid at the time of or immediately upon consummation of the transactions by
which such Person becomes a Restricted Subsidiary or such Asset Acquisition
shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate
net income (or loss) of the Company and its Restricted Subsidiaries for such
period determined on a consolidated basis in conformity with GAAP; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income of any Person (other than the
Company or a Restricted Subsidiary), except to the extent of the amount of
dividends or other distributions actually paid to the Company or any of its
Restricted Subsidiaries by such Person during such period; (ii) solely for the
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the "Limitation on Restricted
Payments" covenant described below (and in such case, except to the extent
includable pursuant to clause (i) above), the net income (or loss) of any Person
accrued prior to the date it becomes a Restricted Subsidiary or is merged into
or consolidated with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by the
Company or any of its Restricted Subsidiaries; (iii) the net income of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of such net income to the
Company or any Restricted Subsidiary is not at the time of such determination
permitted by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary; (iv) any gains or losses (on an
after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on Restricted Payments"
covenant described below, any amount paid as dividends on Preferred Stock of the
Company or paid or accrued as dividends on Preferred Stock of any Restricted
Subsidiary, in each case owned by Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items and Indebtedness having a maturity of
less than 12 months from the date of the most recent quarterly or annual
consolidated balance sheet of the Company but which by its terms is renewable or
extendible beyond 12 months from such date at the option of the borrower) and
(ii) all goodwill, trade names, trademarks, patents, unamortized debt discount
and expense and other like intangibles, all as set forth on the most recent
quarterly or annual consolidated balance sheet of the Company, prepared in
conformity with GAAP and filed with the Commission or provided to the Trustee
pursuant to the "Commission Reports and Reports to Holders" covenant.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
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"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition and provided further
that the acquisition of two or fewer restaurants from a single franchisee will
not constitute an Asset Acquisition.
"Asset Disposition" means the sale or other disposition by the Company
or any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary of the Company or (ii) all or substantially all of the
assets that constitute a division or line of business of the Company or any of
its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of a
division or line of business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and assets of the Company or any of its
Restricted Subsidiaries (other than the Capital Stock or other Investment in an
Unrestricted Subsidiary) outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
assets of the Company; provided that "Asset Sale" shall not include (a) sales or
other dispositions of inventory, receivables and other current assets, (b)
sales, transfers or other dispositions of assets with a fair market value not in
excess of $2.0 million in any transaction or series of related transactions, (c)
sales, transfers or other dispositions of assets constituting a Restricted
Payment permitted to be made under the "Limitation on Restricted Payments"
covenant, (d) sales or other dispositions of assets for consideration at least
equal to the fair market value of the assets sold or disposed of, to the extent
that the consideration received would satisfy clause (B) of the "Limitation on
Asset Sales" covenant, (e) sales, transfers or other dispositions of property or
equipment that has become worn out, obsolete or damaged or otherwise unsuitable
for use in connection with the business of the Company or its Restricted
Subsidiaries, (f) the sale, transfer or other disposition of any property or
assets by any Restricted Subsidiary to the Company or any Subsidiary Guarantor,
(g) the sale, transfer or other disposition of real property on which a
restaurant is located in exchange for other real property on which a restaurant
will be located, which acquired real property has a fair market value at least
equal to the fair market value of the real property being sold, transferred or
disposed of, (h) the sale, transfer or other disposition to a franchisee of the
Company, within 12 months of the acquisition thereof, of any restaurant that has
been acquired by the Company from a franchisee of the Company, if the
consideration received in such sale, transfer or other disposition is at least
equal to the consideration paid to acquire such restaurant and (j) the sale of
property acquired or constructed after the date of the Indenture for cash
consideration equal to or greater than the fair market value of such property in
a sale and leaseback transaction in which such property is leased by the Company
or the Restricted Subsidiary that sold such property; provided, that to the
extent that the proceeds from such sale are not invested in property or assets
of a nature or type that are used in a business similar or related to the nature
or type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries on or before the date that is 12 months following such
sale, such sale shall be deemed to constitute an "Asset Sale" occurring as of
such date.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on April 14,
1998 or issued thereafter, including, without limitation, all Common Stock and
Preferred Stock.
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"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of
the rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 40% of the total voting power of the Voting Stock of the Company on a
fully diluted basis; or (ii) individuals who on April 14, 1998 constitute the
Board of Directors (together with any new or replacement directors whose
election by the Board of Directors or whose nomination by the Board of Directors
for election by the Company's stockholders was approved by a vote of at least a
majority of the members of the Board of Directors then still in office who
either were members of the Board of Directors on April 14, 1998 or whose
election or nomination for election was so approved) cease for any reason to
constitute a majority of the members of the Board of Directors then in office.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, whether outstanding on April 14,
1998 or issued thereafter, including, without limitation, all series and classes
of common stock.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary gains or losses or sales of assets),
(iii) depreciation expense, (iv) amortization expense and (v) all other non-cash
items reducing Adjusted Consolidated Net Income less all non-cash items
increasing Adjusted Consolidated Net Income, provided, that if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the percentage
ownership interest in the income of such Restricted Subsidiary not owned on the
last day of such period by the Company or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes or the establishment of the Credit Agreement, all
as determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 135 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries
except as investments), less any amounts attributable to Disqualified Stock or
any equity security convertible into or exchangeable for Indebtedness, the cost
of treasury stock and the principal amount of any promissory notes receivable
from the sale of the Capital Stock of the Company or any of its Restricted
Subsidiaries, each item to be determined in conformity with GAAP (excluding the
effects of foreign currency
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exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"CRC Leases" means (i) the Master Lease between CRC-1 Limited
Partnership, a Massachusetts limited partnership, and the Company, dated
December 15, 1993, as amended and supplemented from time to time, and (ii) the
Master Lease between CRC-II Limited Partnership, a Massachusetts limited
partnership, and the Company, dated December 15, 1993, as amended and
supplemented from time to time.
"CRC Obligations" means any Obligations of the Company or any Restricted
Subsidiary (i) under the CRC Leases, and (ii) with respect to any Indebtedness
of the CRC Subsidiaries, CRC-I Limited Partnership, a Massachusetts limited
partnership, CRC-II Limited Partnership, a Massachusetts limited partnership, or
FM 1993A Corp., a Delaware corporation.
"CRC Subsidiaries" means FM 1997 Limited Partnership, a Delaware limited
partnership and FM 1997 Corp., a Delaware corporation.
"Credit Agreement" means the credit agreement dated as of April 1, 1998,
among the Company and certain Subsidiaries, various financial institutions,
NationsBanc Montgomery Securities LLC, as arranger, Credit Lyonnais, Los Angeles
Branch, as documentation agent, and NationsBank of Texas, N.A., as
administrative agent, together with any agreements, instruments and documents
executed or delivered pursuant to or in connection with such credit agreement
(including without limitation any Guarantees and security documents), in each
case as such credit agreement or such agreements, instruments or documents may
be amended (including any amendment and restatement thereof), supplemented,
extended, renewed, replaced or otherwise modified from time to time, and
including any agreement extending the maturity of, refinancing or otherwise
restructuring (including, but not limited to, the inclusion of additional
borrowers thereunder that are Subsidiaries of the Company) all or any portion of
the Indebtedness or commitments or letters of credit under such agreement or any
successor agreement, as such agreement may be amended, renewed, extended,
substituted, replaced, restated and otherwise modified from time to time,
whether or not with the same agent or lenders and irrespective of any change in
the terms and conditions thereof, including increasing the amount of
Indebtedness incurred thereunder or available to be borrowed thereunder;
provided that such Indebtedness may be incurred under all of the provisions of
the Indenture.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) any Indebtedness under the
Credit Agreement and (ii) any other Indebtedness constituting Senior
Indebtedness that, at the date of determination, has commitments for or an
aggregate principal amount outstanding of at least $25 million and that is
specifically designated by the Issuer, in the instrument creating or evidencing
such Senior Indebtedness as "Designated Senior Indebtedness."
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below.
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"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors, whose determination shall
be conclusive if evidenced by a Board Resolution.
"Foreign Subsidiaries" means Foodmaker International (Hong Kong), Ltd.
and Foodmaker Franchise Overseas, Ltd.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of April 14, 1998, including, without
limitation, those 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 approved by a significant segment
of the accounting profession. All ratios and computations contained or referred
to in the Indenture shall be computed in conformity with GAAP applied on a
consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indenture shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the offering of the Notes or the
establishment of the Credit Agreement (including the write-off of debt issuance
costs in connection therewith), and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles Board
Opinion Nos. 16 and 17.
"Government Securities" means direct obligations of, obligations fully
guaranteed by, or participations in pools consisting solely of obligations of or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at the option of the
issuer thereof.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingent or otherwise, such
Indebtedness, including an "Incurrence" of Acquired Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all Capitalized
Lease Obligations, (vi) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided that
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the amount of such Indebtedness shall be the lesser of (A) the fair market value
of such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person
to the extent such Indebtedness is Guaranteed by such Person and (viii) to the
extent not otherwise included in this definition, the CRC Obligations and
obligations under Currency Agreements and Interest Rate Agreements. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided (A) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with GAAP, (B) that money borrowed and set aside at the time of
the Incurrence of any Indebtedness in order to prefund the payment of the
interest on such Indebtedness shall not be deemed to be "Indebtedness" so long
as such money is held to secure the payment of such interest, and (C) that
Indebtedness shall not include any liability for federal, state, local or other
taxes.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters prior to such Transaction Date for which reports have been filed
with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant (the "Four Quarter Period") to (ii) the
aggregate Consolidated Interest Expense during such Four Quarter Period. In
making the foregoing calculation, (A) pro forma ,effect shall be given to any
Indebtedness Incurred or repaid during the period (the "Reference Period")
commencing on the first day of the Four Quarter Period and ending on the
Transaction Date (other than Indebtedness Incurred under a revolving credit or
similar arrangement to the extent of the commitment thereunder (or under any
predecessor revolving credit or similar arrangement) in effect on the last day
of such Four Quarter Period except to the extent any portion of such
Indebtedness is projected, in the reasonable judgment of the senior management
of the Company, to remain outstanding for a period in excess of 12 months from
the date of the Incurrence thereof), in each case as if such Indebtedness had
been Incurred or repaid on the first day of such Reference Period (and pro forma
effect shall be given to the purchase of any U.S. government securities required
to be purchased with the proceeds of any such Indebtedness and set aside to
prefund the payment of interest on such Indebtedness at the time such
Indebtedness is Incurred); (B) Consolidated Interest Expense attributable to
interest on any Indebtedness (whether existing or being Incurred) computed on a
pro forma basis and bearing a floating interest rate shall be computed as if the
rate in effect on the Transaction Date (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months or, if shorter, at least equal to the
remaining term of such Indebtedness) had been the applicable rate for the entire
period; (C) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving pro forma effect to the application of proceeds
of any Asset Disposition and to any discharge of or other relief from
Indebtedness to which the Company and its continuing Restricted Subsidiaries are
not liable following any Asset Disposition) and the designation of Unrestricted
Subsidiaries as Restricted Subsidiaries that occur during such Reference Period
as if they had occurred and such proceeds had been applied and such discharge or
relief has occurred on the first day of such Reference Period; and (D) pro forma
effect shall be given to asset dispositions and asset acquisitions (including
giving pro forma effect to the application of proceeds of any asset disposition
and to any discharge of or other relief from Indebtedness to which the Company
and its continuing Restricted Subsidiaries are not liable following any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; provided that to the extent that clause (C)
or (D) of this sentence requires that pro forma effect be given to an Asset
Acquisition or Asset Disposition, such pro forma calculation shall be based upon
the four full fiscal quarters immediately preceding the Transaction Date of the
Person, or division or line of business of the Person, that is acquired or
disposed for which financial information is available.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
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"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers, suppliers or
contractors in the ordinary course of business that are, in conformity with
GAAP, recorded as accounts receivable, prepaid expenses or deposits on the
balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Company
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant; provided that the
fair market value of the Investment remaining in any Person that has ceased to
be a Restricted Subsidiary shall not exceed the aggregate amount of Investments
previously made in such Person valued at the time such Investments were made
less the net reduction of such Investments. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant
described below, (i) "Investment" shall include the fair market value of the
assets (net of liabilities (other than liabilities to the Company or any of its
Restricted Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary shall be considered a reduction in outstanding Investments and (iii)
any property transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer. Notwithstanding the
foregoing, in no event shall any issuance of Capital Stock (other than
Disqualified Stock) of the Company in exchange for Capital Stock, property or
assets of another Person or any redemption or repurchase of the Notes or other
Indebtedness of the Company or any Restricted Subsidiary for cash constitute an
Investment by the Company in such other Person.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof or any agreement
to give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
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"Obligations" means any principal, interest, premium, if any, penalties,
fees, indemnifications, reimbursements, damages or other liabilities payable
under the documentation governing or otherwise in respect of any Indebtedness.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, the Company shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with 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 the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase. To the extent that the provisions of any securities laws or
regulations conflict with the provisions for such Offer to Purchase, the Company
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations with respect to such Offer to Purchase
by virtue thereof.
"Old Senior Notes" means the 9-1/4% Senior Notes due 1999 of the
Company.
"Old Senior Subordinated Notes" means the 9-3/4% Senior Subordinated
Notes due 2002 of the Company.
"Pari Passu Indebtedness" means all Indebtedness of the Company ranking
pari passu in right of payment with the Notes.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) stock, obligations or securities received in
satisfaction of judgments or good faith settlement of litigation, disputes or
other debts; (v) Interest Rate Agreements and Currency Agreements designed
solely to protect the Company or its Restricted Subsidiaries against
fluctuations in interest rates or foreign currency exchange rates; (vi)
Investments in any Person the primary business of which is related, ancillary or
complementary to the businesses of the Company and its Restricted Subsidiaries;
provided that the aggregate amount of such
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Investments does not exceed $25.0 million plus the net reduction in such
Investments; (vii) Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility, workers' compensation and other similar
deposits; (viii) Investments made as a result of the receipt of non-cash
consideration from an Asset Sale that was made in compliance with the covenant
"Limitation on Asset Sales;" and (ix) documented loans on commercially
reasonable terms to the Company's franchisees in the ordinary course of business
of the Company and its Restricted Subsidiaries in an aggregate principal amount
not to exceed $5.0 million at any time outstanding.
"Permitted Junior Securities" means Capital Stock of the Company or any
Subsidiary Guarantor or debt securities of the Company or any Subsidiary
Guarantor that are subordinated to all Senior Indebtedness (and any debt
securities issued in exchange for Senior Indebtedness) to substantially the same
extent as, or to a greater extent than, the Notes are subordinated to Senior
Indebtedness pursuant to the Indenture.
"Permitted Lien" means (i) Liens existing on the date of such Indenture;
(ii) Liens for taxes, assessments or governmental charges or claims which are
not yet delinquent or which are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if a reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor, (iii) statutory Liens or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provisions, if any, as shall
be required by generally accepted accounting principles shall have been made
therefor; (iv) Liens (other than any Lien imposed by the Employee Retirement
Income Security Act of 1974, as amended) incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (v) Liens incurred or
deposits made to secure the performance of tenders, bids, leases, statutory
obligations, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of like nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (vi) attachment or judgment Liens not giving rise to a Default
or an Event of Default; (vii) easements, rights-of-way, restrictions and other
similar charges or encumbrances not interfering with the ordinary conduct of the
business of the Company or any of its Subsidiaries; (viii) leases or subleases
granted to others not interfering with the ordinary conduct of the business of
the Company or any of its Subsidiaries; (ix) purchase money Liens incurred to
secure the purchase price of property, which Lien shall not cover any property
other than that being acquired, purchased, improved or constructed, and shall
not cover property purchased, acquired, constructed or improved more than 18
months before the creation of such Lien; (x) title defects or irregularities
which do not in the aggregate materially impair the use of the property; (xi)
any interest or title of a lessor under Capitalized Lease Obligations otherwise
permitted under the Indenture; (xii) Liens securing obligations under the Credit
Agreement and the other documents entered into in connection therewith,
including, without limitation, Interest Rate Agreements and Currency Agreements
relating thereto or otherwise in respect thereof; (xiii) Liens securing Acquired
Indebtedness created prior to (and not in connection with or in contemplation
of) the incurrence of such Indebtedness by the Company or any Restricted
Subsidiary; provided that such Lien does not extend to any property or assets of
the Company or any Subsidiary other than the assets acquired in connection with
the incurrence of such Acquired Indebtedness; (xiv) extensions, renewals or
refunding of any Liens referred to in clauses (i) through (xiii) above, provided
that the renewal, extension or refunding is limited to all or part of the
property securing the original Lien; (xiv) Liens in addition to the foregoing
provided that the amount of the obligations secured by such Liens does not
exceed in the aggregate $1.0 million.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference stock, whether
outstanding on April 14, 1998 or issued thereafter, including, without
limitation, all series and classes of such preferred or preference stock.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Senior Indebtedness" means the following obligations of the Company or
the Subsidiary Guarantors, whether outstanding on April 14, 1998 or thereafter
Incurred: (i) all Indebtedness and all other monetary obligations (including,
without limitation, expenses, fees, principal, interest, reimbursement
obligations under letters of credit and indemnities payable in connection
therewith) of the Company or the Subsidiary Guarantors under (or in respect
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of) the Credit Agreement or any Interest Rate Agreement or Currency Agreement
relating to or otherwise in respect of the Indebtedness under the Credit
Agreement and (ii) all other Indebtedness and all other monetary obligations of
the Company or the Subsidiary Guarantors (other than the Notes, but including
the CRC Obligations), including principal and interest on such Indebtedness,
unless such Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such Indebtedness is issued, is pari passu with, or
subordinated in right of payment to, the Notes or the Subsidiary Guarantees, as
the case may be; provided that the term "Senior Indebtedness" shall not include
(a) any Indebtedness of the Company or the Subsidiary Guarantors that, when
Incurred, was without recourse to the Company or the Subsidiary Guarantor, as
the case may be, (b) any Indebtedness of the Company to a Subsidiary of the
Company, or to a joint venture in which the Company has an interest, (c) any
Indebtedness of the Company or a Subsidiary Guarantor, as the case may be, to
the extent not permitted by the "Limitation on Indebtedness" covenant or the
"Limitation on Senior Subordinated Indebtedness" covenant described below, (d)
any repurchase, redemption or other obligation in respect of Disqualified Stock,
(e) any Indebtedness to any employee of the Company or any of its Subsidiaries,
(f) any liability for taxes owed or owing by the Company or any of its
Subsidiaries, (g) any Trade Payables or (h) the Old Senior Subordinated Notes.
Senior Indebtedness will also include interest accruing subsequent to events of
bankruptcy of the Company and its Subsidiaries at the rate provided for in the
document governing such Senior Indebtedness, whether or not such interest is an
allowed claim enforceable against the debtor in a bankruptcy case under
bankruptcy law.
"Senior Subordinated Obligations" means any principal of, premium, if
any, interest, or other amounts due, on the Notes payable pursuant to the terms
of the Notes or upon acceleration, including any amounts received upon the
exercise of rights of rescission or other rights of action (including claims for
damages) or otherwise, to the extent relating to the purchase price of the Notes
or amounts corresponding to such principal, premium, if any, or interest on the
Notes.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association, business trust or other business entity of which more than 50% of
the voting power of the outstanding Voting Stock is owned, directly or
indirectly, by such Person and one or more other Subsidiaries of such Person.
"Subsidiary Guarantors" means (i) each of the following Wholly Owned
Restricted Subsidiaries of the Company: CP Distribution Co., a Delaware
corporation; CP Wholesale Co., a Delaware corporation; Foodmaker International
Franchising, Inc., a Delaware corporation; and JACK IN THE BOX , Inc., a New
Jersey corporation; and (ii) any other Subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
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foreign currency equivalent thereof) and (unless such accounts, certificates or
deposits are fully insured by the FDIC) has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according
to S&P or maturing not more than 90 days after the date of execution, with a
rating at the time of any investment therein of "P-2" (or higher) according to
Moody's or "A-2" (or higher) by S&P, (v) securities with maturities of one year
or less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or Moody's and (vi) other dollar denominated securities
issued by any Person incorporated in the United States rated at least "A" or the
equivalent by S&P or at least "A2" or the equivalent by Moody's and in each case
either (A) maturing not more than one year after the date of acquisition or (B)
which are subject to a repricing arrangement (such as a Dutch auction) not more
than one year after the date of acquisition (and reprices at least yearly
thereafter) which the Person making the investment believes in good faith will
permit such Person to sell such security at par in connection with such
repricing mechanism.
"Trade Payables" means, with respect to any Person, any accounts payable
or any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Restricted Subsidiaries
arising in the ordinary course of business in connection with the acquisition of
goods or services, including without limitation, obligations under (or in
respect of) construction contracts (to the extent such obligations do not
constitute Indebtedness for borrowed money).
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below; (ii) any Subsidiary of an
Unrestricted Subsidiary; (iii) the CRS Subsidiaries; and (iv) the Foreign
Subsidiaries. The Board of Directors may designate any Restricted Subsidiary
(including any newly acquired or newly formed Subsidiary of the Company) to be
an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary; provided that (A) any Guarantee by the Company or any Restricted
Subsidiary of any Indebtedness of the Subsidiary being so designated shall be
deemed an "Incurrence" of such Indebtedness and an "Investment" by the Company
or such Restricted Subsidiary (or both, if applicable) at the time of such
designation; (B) either (I) the Subsidiary to be so designated has total assets
of $1,000 or less or (II) if such Subsidiary has assets greater than $1,000,
such designation would be permitted under the "Limitation on Restricted
Payments" covenant described below; and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under the "Limitation on Indebtedness" and "Limitation on
Restricted Payments" covenants described below. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that (i) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the Indenture.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
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"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and the Subsidiary
Guarantees and Indebtedness existing on April 14, 1998, including the Old Senior
Notes and the Old Senior Subordinated Notes until redeemed); provided that the
Company or any Restricted Subsidiary may Incur Indebtedness if, after giving
effect to the Incurrence of such Indebtedness and the receipt and application of
the proceeds therefrom, the Interest Coverage Ratio would be greater than
2.25:1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following:
(i) Indebtedness outstanding at any time in an aggregate
principal amount not to exceed $185.0 million, less any amount of such
Indebtedness permanently repaid as provided under the "Limitation on
Asset Sales" covenant described below;
(ii) Indebtedness owed (A) by a Restricted Subsidiary to the
Company; provided that if such Indebtedness exceeds $500,000 it shall be
evidenced by a promissory note or (B) by the Company or a Restricted
Subsidiary to any Restricted Subsidiary; provided that any event which
results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than
to the Company or another Restricted Subsidiary) shall be deemed, in
each case, to constitute an Incurrence of such Indebtedness not
permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness
(other than Indebtedness Incurred under clause (i), (ii) or (iv) of this
paragraph) and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, fees
and expenses); provided that Indebtedness the proceeds of which are used
to refinance or refund the Notes or Indebtedness that is pari passu
with, or subordinated in right of payment to, the Notes shall only be
permitted under this clause (iii) if (A) in case the Notes are
refinanced in part or the Indebtedness to be refinanced is pari passu
with the Notes, such new Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right
of payment to, the remaining Notes, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the
Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes and (C) such new Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, does not mature
prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such new Indebtedness is at least
equal to the remaining Average Life of the Indebtedness to be refinanced
or refunded; and provided further that in no event may Indebtedness of
the Company that is pari passu with or subordinated in right of payment
to the Notes be refinanced by means of any Indebtedness of any
Restricted Subsidiary pursuant to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements
(a) are designed solely to protect the Company or its Restricted
Subsidiaries against fluctuations in foreign currency exchange rates or
interest rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder; and (C) arising
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from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from Guarantees or letters of credit,
surety bonds or performance bonds securing any obligations of the
Company or any of its Restricted Subsidiaries pursuant to such
agreements, in any case Incurred in connection with the disposition of
any business, assets or Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing
such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary
in connection with such disposition;
(v) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase Notes tendered in an Offer to
Purchase made as a result of a Change in Control or (B) deposited to
defease the Notes as described below under "-- Legal Defeasance and
Covenant Defeasance";
(vi) purchase money Indebtedness and Capitalized Lease
Obligations secured by Liens described in clauses (ix) or (xi) of the
definition of "Permitted Liens," provided, that the aggregate principal
amount thereof incurred in any fiscal year (other than Capitalized Lease
Obligations permitted under clause (vii) below), shall not exceed $15.0
million;
(vii) Capitalized Lease Obligations incurred in connection with
the sale of any property or assets in any sale and leaseback transaction
with any Person providing for the leasing by the Company or any of its
Restricted Subsidiaries of real or personal property which has been sold
by the Company or such Restricted Subsidiary for fair market value in an
aggregate amount not to exceed $15.0 million in any fiscal year;
(viii) Indebtedness of a franchisee assumed by the Company or any
Restricted Subsidiary in connection with the purchase by the Company or
such Restricted Subsidiary of restaurants operated by such franchisee
and all franchise rights of such franchisee related to the purchased
restaurants, provided that the aggregate principal amount of all
Indebtedness permitted under this clause shall not exceed $5.0 million
at any time outstanding;
(ix) Indebtedness evidenced by letters of credit issued in the
ordinary course of business of the Company and/or any Restricted
Subsidiary to secure workers' compensation and other insurance coverage;
and
(x) Indebtedness, in addition to Indebtedness permitted under
clauses (i) through (ix) above, in an aggregate principal amount
outstanding at any time not to exceed $20.0 million less any amount of
such Indebtedness permanently repaid as provided under the "Limitation
on Asset Sales" covenant described below.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness, due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred
under the Credit Agreement first shall be treated as Incurred pursuant to clause
(i) of the second paragraph of this "Limitation on Indebtedness" covenant to the
full extent of Indebtedness permitted under such clause (it being understood
that additional Indebtedness under the Credit Agreement may be incurred to the
full extent permitted under any other provision of the Indenture), (2)
Guarantees, Liens or obligations with respect to letters of credit supporting
Indebtedness otherwise included in the determination of such particular amount
shall not be included and (3) any Liens granted pursuant to the equal and
ratable provisions referred to in the "Limitation on Liens" covenant described
below shall not be treated as Indebtedness. For purposes of determining
compliance with this "Limitation on Indebtedness" covenant, in the event that an
item of Indebtedness meets the criteria of more than one of the types of
Indebtedness described in the above clauses (other
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than Indebtedness referred to in clause (1) of the preceding sentence), the
Company, in its sole discretion, shall classify, and from time to time may
reclassify, such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses.
Limitation on Senior Subordinated Indebtedness
The Company shall not Incur any Indebtedness that is subordinate in
right of payment to any Senior Indebtedness unless such Indebtedness is pari
passu with, or subordinated in right of payment to, the Notes and the Subsidiary
Guarantors shall not Incur any Indebtedness that is subordinate in right of
payment to any Senior Indebtedness unless such Indebtedness is pari passu with,
or subordinated in right of payment to, the Subsidiary Guarantees; provided that
the foregoing limitation shall not apply to distinctions between categories of
Senior Indebtedness of the Company or the Subsidiary Guarantors that exist by
reason of any Liens or Guarantees arising or created in respect of some but not
all such Senior Indebtedness.
Limitation on Liens
The Indenture will provide that the Company will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Liens other than Permitted Liens unless the Indebtedness under the Notes and
the Subsidiary Guarantees is secured on an equal and ratable basis with the
Indebtedness secured.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (A) the
Company or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person or (B) a
Restricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Affiliate of the Company (other than a
Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate of such
holder) of 5% or more of the Capital Stock of the Company, (iii) make any
voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, of
Indebtedness of the Company that is subordinated in right of payment to the
Notes or (iv) make any Investment, other than a Permitted Investment, in any
Person (such payments or any other actions described in clauses (i) through (iv)
above being collectively "Restricted Payments") if, at the time of, and after
giving effect to, the proposed Restricted Payment: (A) a Default or Event of
Default shall have occurred and be continuing, (B) the Company could not Incur
at least $1.00 of Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant or (C) the aggregate amount of all Restricted Payments
(the amount, if other than in cash, to be determined in good faith by the Board
of Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) made after April 14, 1998 shall exceed the sum of (1) 50% of the
aggregate amount of the Adjusted Consolidated Net Income (or, if the Adjusted
Consolidated Net Income is a loss, minus 100% of the amount of such loss)
(determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
January 19, 1998 and ending on the last day of the last fiscal quarter preceding
the Transaction Date for which reports have been filed with the Commission or
provided to the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant plus (2) the aggregate Net Cash Proceeds received by the
Company after April 14, 1998 from the issuance and sale permitted by the
Indenture of its Capital Stock (other than Disqualified Stock) to a Person who
is not a Subsidiary of the Company, including an issuance or sale permitted by
the Indenture of Indebtedness of the Company for cash subsequent to April 14,
1998 upon the conversion of such Indebtedness into Capital Stock (other than
Disqualified Stock) of the Company, or from the issuance to a Person who is not
a Subsidiary of the Company of any options, warrants or other rights to acquire
Capital Stock of the Company (in each case, exclusive of any Disqualified Stock
or any options, warrants or other rights that are redeemable at the option of
the holder, or are required to be redeemed, prior to the Stated Maturity of
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the Notes), plus (3) an amount equal to the net reduction in Investments (other
than reductions in Permitted Investments) in any Person resulting from payments
of interest on Indebtedness, dividends, repayments of loans or advances, or
other transfers of assets, in each case to the Company or any Restricted
Subsidiary or from the Net Cash Proceeds from the sale of any such Investment
(except, in each case, to the extent any such payment or proceeds are included
in the calculation of Adjusted Consolidated Net Income), or from redesignations
of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments"), not to exceed, in each case, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment to
the Notes including premium, if any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of the
second paragraph of part (a) of the "Limitation on Indebtedness" covenant; (iii)
the repurchase, redemption or other acquisition of Capital Stock of the Company
or an Unrestricted Subsidiary (or options, warrants or other rights to acquire
such Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock (other than Disqualified Stock)
of the Company (or options, warrants or other rights to acquire such Capital
Stock); (iv) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of the
Company which is subordinated in right of payment to the Notes in exchange for,
or out of the proceeds of, a substantially concurrent offering of, shares of the
Capital Stock (other than Disqualified Stock) of the Company (or options,
warrants or other rights to acquire such Capital Stock); (v) payments or
distributions, to dissenting stockholders pursuant to applicable law, pursuant
to or in connection with a consolidation, merger or transfer of assets that
complies with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of the Company; (vi) Investments acquired in exchange for Capital Stock
(other than Disqualified Stock) of the Company; (vii) payments of amounts
required for any repurchase, redemption, retirement or other acquisition of any
Capital Stock of the Company or any options or rights to acquire such Capital
Stock of the Company owned by any director, officer or employee of the Company
or its Subsidiaries pursuant to any management equity subscription agreement,
stock option agreement or similar agreement, or otherwise upon the death,
disability, retirement or termination of employment or departure from the Board
of Directors of the Company; provided that the aggregate price paid for all such
repurchased, redeemed, retired or acquired Capital Stock of the Company or
options shall not exceed in the aggregate $1.0 million; or (viii) Restricted
Payments in an aggregate amount not to exceed $5.0 million; provided that,
except in the case of clauses (i) and (iii), no Default or Event of Default
shall have occurred and be continuing or occur as a consequence of the actions
or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (vi)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii) and (iv), shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is pari passu with the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
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The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on April 14, 1998 in the Credit Agreement, the
Indenture or any other agreements in effect on April 14, 1998, and any
modifications, extensions, refinancings, renewals, substitutions or replacements
of such agreements; provided that the encumbrances and restrictions in any such
modifications, extensions, refinancings, renewals, substitutions or replacements
are no less favorable in any material respect to the Holders than those
encumbrances or restrictions that are then in effect and that are being
modified, extended, refinanced, renewed, substituted or replaced; (ii) existing
under or by reason of applicable law; (iii) existing with respect to any Person
or the property or assets of such Person acquired by the Company or any
Restricted Subsidiary, existing at the time of such acquisition and not incurred
in contemplation thereof, which encumbrances or restrictions are not applicable
to any Person or the property or assets of any Person other than such Person or
the property or assets of such Person so acquired; (iv) in the case of clause
(iv) of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary; or (vi)
contained in the terms of any Indebtedness or any agreement pursuant to which
such Indebtedness was issued if (A) the encumbrance or restriction applies only
in the event of a payment default or a default with respect to a financial
covenant contained in such Indebtedness or agreement, (B) the encumbrance or
restriction is not materially more disadvantageous to the Holders of the Notes
than is customary in comparable financings (as determined by the Company) and
(C) the Company determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or interest payments
on the Notes. Nothing contained in this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent
the Company or any Restricted Subsidiary from (1) creating, incurring, assuming
or suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant or (2) restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Company will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to the Company or a Wholly
Owned Restricted Subsidiary; (ii) issuances of director's qualifying shares or
sales to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been permitted
to be made under the "Limitation on Restricted Payments" covenant if made on the
date of such issuance or sale; or (iv) issuances or sales of Common Stock of a
Restricted Subsidiary, provided that the Company or such Restricted Subsidiary
applies the Net Cash Proceeds, if any, of any such sale in accordance with
clause (A) or (B) of the "Limitation on Asset Sales" covenant described below.
Additional Subsidiary Guarantees
The Indenture will provide that if the Company or any of its Restricted
Subsidiaries shall acquire or create another Restricted Subsidiary after the
date of the Indenture, then such newly acquired or created Restricted Subsidiary
shall execute a Subsidiary Guarantee and deliver an opinion of counsel, in
accordance with the terms of the Indenture.
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Limitation on Transactions with Affiliates and Certain Stockholders
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if such transaction
is pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries; (iii) customary
directors' fees, indemnification and similar arrangements, employee salaries and
bonuses, employment agreements and arrangements or compensation or employee
benefit arrangements (including options) in the ordinary course of business;
(iv) any payments or other transactions pursuant to any tax-sharing agreement
between the Company and any other Person with which the Company files a
consolidated tax return or with which the Company is part of a consolidated
group for tax purposes; (v) loans or advances to officers or employees of the
Company or any Restricted Subsidiary made in the ordinary course of business of
the Company or such Restricted Subsidiary to pay business related travel
expenses or reasonable relocation costs of such officers or employees in
connection with their employment by the Company or such Restricted Subsidiary;
(vi) leases or repurchases of property, in each case on terms set forth in
agreements as in effect on the date hereof, by the Company or any Restricted
Subsidiary from CRC-I Limited Partnership, CRC-II Limited Partnership or any
transferee of an estate for years from such Persons; or (vii) any Restricted
Payments not prohibited by the "Limitation on Restricted Payments" covenant.
Notwithstanding the foregoing, any transaction or series of related transactions
covered by the first paragraph of this "Limitation on Transactions with
Shareholders and Affiliates" covenant and not covered by clauses (ii) through
(vii) of this paragraph, (a) the aggregate amount of which exceeds $1.0 million
in value, must be approved or determined to be fair in the manner provided for
in clause (i)(A) or (B) above and (b) the aggregate amount of which exceeds $3.0
million in value, must be determined to be fair in the manner provided for in
clause (i)(B) above.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 85% of the consideration (excluding
contingent liabilities assumed by the transferee of any such assets) received
consists of cash or Temporary Cash Investments or the assumption of Senior
Indebtedness of the Company or a Subsidiary Guarantor, provided that the Company
or such Restricted Subsidiary is irrevocably released from all liability under
such Indebtedness. In the event and to the extent that the Net Cash Proceeds
received by the Company or any of its Restricted Subsidiaries from one or more
Asset Sales occurring on or after April 14, 1998 in any period of 12 consecutive
months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of
the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Subsidiaries has been filed
with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant), then the Company shall or shall cause
the relevant Restricted Subsidiary to (i) within twelve months after the date
Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets (A) apply an amount equal to such excess Net Cash Proceeds to permanently
repay Senior Indebtedness of the Company or a Subsidiary Guarantor or (B) invest
an equal amount, or the amount not so applied pursuant to clause (A) (or enter
into a definitive agreement committing to so invest within 12 months after the
date of such agreement), in property or assets (other than current assets) of a
nature or type or that are used in a business (or in a company having property
and assets of a nature or type, or engaged in a business) similar or related to
the nature or type of the property and assets of, or the business of, the
Company and its Restricted Subsidiaries existing on the date of such investment
and (ii) apply (no later than the end
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of the 12-month period referred to in clause (i)) such excess Net Cash Proceeds
(to the extent not applied pursuant to clause (i)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5.0 million, the Company
must commence, not later than the fifteenth Business Day of such month, an Offer
to Purchase to the Holders of the Notes and, to the extent required by the terms
of any Pari Passu Indebtedness, an Offer to Purchase to all holders of such Pari
Passu Indebtedness, the maximum principal amount of Notes and any such Pari
Passu Indebtedness that may be purchased out of the Excess Proceeds, at an offer
price equal to 100% of the principal amount thereof, plus, in each case, accrued
and unpaid interest and Additional Interest, if any, to the Payment Date. If the
aggregate principal amount of Notes and any such Pari Passu Indebtedness
tendered by holders thereof exceeds the amount of Excess Proceeds, the Notes and
Pari Passu Indebtedness shall be purchased on a pro rata basis. Upon the
completion of any such Offers to Purchase, the amount of Excess Proceeds shall
be reset at zero.
Repurchase of Notes upon a Change of Control
The Company must commence, within 30 days of the occurrence of a Change
of Control, and consummate an Offer to Purchase for all Notes then outstanding,
at a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
The Company will not be required to make an Offer to Purchase pursuant
to this covenant if a third party makes an Offer to Purchase in compliance with
this covenant and repurchases all Notes validly tendered and not withdrawn under
such Offer to Purchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
The Indenture provides that, whether or not required by the rules and
regulations of 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" 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 addition, 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 (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 Subsidiary 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 following events are defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon
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acceleration, redemption or otherwise, whether or not such payment is prohibited
by the provisions described above under "-- Ranking"; (b) default in the payment
of interest on any Note when the same becomes due and payable, and such default
continues for a period of 30 days, whether or not such payment is prohibited by
the provisions described above under "-- Ranking"; (c) default in the
performance or breach of the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the assets of the
Company or the failure to make or consummate an Offer to Purchase in accordance
with the "Limitation on Asset Sales" or "Repurchase of Notes upon a Change of
Control" covenant; (d) the Company or any Subsidiary Guarantor defaults in the
performance of or breaches any other covenant or agreement of the Company or any
Subsidiary Guarantor in the Indenture or under the Notes (other than a default
specified in clause (a), (b) or (c) above) and such default or breach continues
for a period of 30 consecutive days after written notice by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Notes; (e) there
occurs with respect to any issue or issues of Indebtedness of the Company or any
Significant Subsidiary having an outstanding principal amount of $5.0 million or
more in the aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of default
that has caused the holder thereof to declare such Indebtedness to be due and
payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $5.0 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 60 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $5.0 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; (g)
except as permitted by the Indenture, any Subsidiary Guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect in any material respect or any Subsidiary
Guarantor, or any Person acting on behalf of any Subsidiary Guarantor, shall
deny or disaffirm its obligations under its Subsidiary Guarantee; (h) a court
having jurisdiction in the premises enters a decree or order for (A) relief in
respect of the Company or any Significant Subsidiary in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; and (i) the Company or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in
clause (h) or (i) above that occurs with respect to the Company or a Significant
Subsidiary) occurs and is continuing under the Indenture, the Trustee or the
Holders of at least 25% in aggregate principal amount of the Notes, then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the Holders), may, and the Trustee at the request of such Holders
shall, declare the principal of, premium, if any, and accrued interest on the
Notes to be immediately due and payable. Upon a declaration of acceleration,
such principal of, premium, if any, and accrued interest shall be immediately
due and payable; provided that any such declaration of acceleration shall not
become effective until the earlier of (A) five Business Days after receipt of
the acceleration notice by the Bank Agent and the Company or (B) acceleration of
the Indebtedness under the Credit Agreement; provided further that such
acceleration shall automatically be rescinded and annulled without any further
action required on the part of the Holders in the event that any and all Events
of Default specified in the acceleration notice under the Indenture shall have
been cured, waived or otherwise remedied as provided in the Indenture prior to
the expiration of the period referred to in the preceding clauses (A) and (B).
In the event of a declaration of acceleration because an Event of Default set
forth in clause (e) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (e) shall be
remedied or cured
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by the Company or the relevant Significant Subsidiary or waived by the holders
of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(h) or (i) above occurs with respect to the Company or a Significant Subsidiary,
the principal of, premium, if any, and accrued interest on the Notes then
outstanding shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder. The
Holders of at least a majority in principal amount of the outstanding Notes by
written notice to the Company and to the Trustee, may waive all past defaults
and rescind and annul a declaration of acceleration and its consequences if (i)
all existing Events of Default, other than the nonpayment of the principal of,
premium, if any, and interest on the Notes that have become due solely by such
declaration of acceleration, have been cured or waived and (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see " -- Amendment,
Supplement, and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
The Indenture requires certain officers of the Company to certify, on or
before a date not more than 105 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company is also obligated to notify the Trustee of any default or defaults in
the performance of any covenants or agreements under the Indenture.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company unless: (i) the Company shall be the
continuing Person, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that acquired or leased
such property and assets of the Company shall be a corporation organized and
validly existing under the laws of the United States of America or any state or
jurisdiction thereof and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, all of the obligations of the Company on
all of the Notes and under the Indenture; (ii) immediately after giving effect
to such transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Company or any Person becoming the successor obligor of the
Notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis
the Company, or any Person becoming the successor obligor of the Notes, as the
case may be, could Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant; provided that this
clause (iv) shall not apply to a consolidation, merger or sale of all (but not
less than all) of the assets of the Company if all Liens and Indebtedness of the
Company or any Person becoming the successor obligor on the Notes, as the case
may be, and its Restricted Subsidiaries outstanding immediately after such
transaction
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would, if Incurred at such time, have been permitted to be Incurred (and all
such Liens and Indebtedness, other than Liens and Indebtedness of the Company
and its Restricted Subsidiaries outstanding immediately prior to the
transaction, shall be deemed to have been Incurred) for all purposes of the
Indenture; and (v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with clauses
(iii) and (iv)) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies with
this provision and that all conditions precedent provided for herein relating to
such transaction have been complied with; provided, however, that clauses (iii)
and (iv) above do not apply if, in the good faith determination of the Board of
Directors of the Company, whose determination shall be evidenced by a Board
Resolution, the principal purpose of such transaction is to change the state of
incorporation of the Company and that any such transaction shall not have as one
of its purposes the evasion of the foregoing limitations.
Upon the occurrence of any transaction described in the immediately
preceding paragraph in which the Company is not the continuing corporation, the
successor corporation formed by such a consolidation or into which the Company
is merged or to which such transfer is made will succeed to, and be substituted
for, and may exercise every right and power of, the Company under the Indenture
and the Notes with the same effect as if such successor corporation had been
named as the Company therein.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes and Subsidiary Guarantees ("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 Additional
Interest, if any, 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 and the Subsidiary Guarantors 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 Additional Interest,
if any, 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 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
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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 or
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,
the Notes or the Subsidiary Guarantees 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, the Notes or
the Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a 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 relating to the covenants described above under the captions
"Repurchase of Notes Upon a Change of Control" and "Covenants -- Limitation on
Asset Sales," which may be amended with the consent of the Holders of at least a
majority in principal amount of Notes then outstanding), (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 captions "Repurchase of Notes upon a Change of
Control" and "Covenants -- Limitation on Asset Sales,") 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, the
Notes or the Subsidiary Guarantees 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, to provide for
additional Subsidiary Guarantors or for the release or assumption of a
Subsidiary Guarantee in compliance with the
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Indenture, 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.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes, 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.
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 in case 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.
AVAILABLE INFORMATION
Anyone who receives this Offering Circular may obtain a copy of the
Indenture and Registration Rights Agreement without charge by writing to
Foodmaker, Inc. 9330 Balboa Avenue, San Diego, California 92123.
BOOK-ENTRY, DELIVERY AND FORM
Old Notes offered and sold to Qualified Institutional Buyers ("QIBs") in
reliance on Rule 144A under the Securities Act are represented by a single,
permanent Global Note in definitive, fully registered book-entry form (the "Rule
144A Global Note") and are registered in the name of Cede & Co., as nominee of
DTC on behalf of purchasers of the Old Notes represented thereby for credit to
the respective accounts of such purchasers (or to such other accounts as they
may direct) at DTC.
Old Notes originally offered and sold in reliance on Regulation S under
the Securities Act, if any, are initially represented by a single, permanent
Global Note in definitive, fully registered book-entry form (the "Regulation S
Global Note") registered in the name of Cede & Co., as nominee of DTC and
deposited on behalf of the purchasers of the Old Notes represented thereby with
a custodian for DTC for credit to the respective accounts of such purchasers (or
to such other accounts as they directed) at the Euroclear System ("Euroclear")
or Cedel Bank, societe anonyme ("Cedel"). Prior to the 40th day after the later
of the commencement of the issuance of the Original Notes and the Issue Date,
interests in the Regulation S Global Note may only be held through Euroclear or
Cedel.
Old Notes held by QIBs who elected to take physical delivery of their
certificates instead of holding their interest through the Rule 144A Global Note
(and which are thus ineligible to trade through DTC) (the "Series A Non-Global
Purchasers") are issued in fully registered form ("Certificated Notes"). Upon
the transfer of such Certificated Notes to a QIB or in an offshore transaction
under Rule 903 or 904 of Regulation S under the Securities
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Act, such Certificated Notes will, unless such Rule 144A Global Note has
previously been exchanged in whole for Certificated Notes, be exchanged for an
interest in the Rule 144A Global Note and/or the Regulation S Global Note upon
delivery of appropriate certifications to the Trustee. Transfers of Certificated
Notes, any interest in the Rule 144A Global Note and any interest in the
Regulation S Global Note are subject to certain restrictions.
Exchange Notes
Exchange Notes issued in exchange for Old Notes originally offered and
sold (i) to QIBs in reliance on Rule 144A under the Securities Act or (ii) in
reliance on Regulation S under the Securities Act will be represented by a
single, permanent Global Note in definitive, fully registered book-entry form
(the "Exchange Global Note" and together with the Rule 144A Global Note and the
Regulation S Global Note, the "Global Notes"), which will be registered in the
name of Cede & Co., as nominee of DTC on behalf of persons who receive Exchange
Notes represented thereby for credit to the respective accounts of such persons
(or to such other accounts as they may direct) at DTC.
Exchange Notes issued in exchange for Old Notes will be issued, upon
request, in fully registered form (together with the Certificated Notes, the
"Certificated Notes"), but otherwise such holders will only be entitled to
registration of their respective Exchange Notes in book-entry form under the
Exchange Global Note.
The Global Notes
The Company expects that pursuant to procedures established by DTC (a)
upon deposit of the Global Notes, DTC or its custodian will credit on its
internal system portions of the Global Notes, which shall be comprised of the
corresponding respective amount of the Global Notes to the respective accounts
of persons who have accounts with such depository and (b) ownership of the Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
Participants (as defined below) and the records of Participants (with respect to
interests of persons other than Participants)). Ownership of beneficial
interests in the Global Notes will be limited to persons who have accounts with
DTC ("Participants") or persons who hold interests through Participants. Holders
may hold their interests in the Global Notes directly through DTC if they are
Participants in such system, or indirectly through organizations which are
Participants in such system.
So long as DTC or its nominee is the registered owner or holder of any
of the Notes, DTC or such nominee will be considered the sole owner or holder of
such Notes represented by the Global Notes for all purposes under the Indenture
and under the Notes represented thereby. No beneficial owner of an interest in
the Global Notes will be able to transfer such interest except in accordance
with the applicable procedures of DTC in addition to those provided for under
the Indenture.
Payments of the principal of, premium, if any, and interest on the
Global Notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee or any Paying Agent
under the Indenture will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment
of the principal of, premium, if any, and interest on the Global Notes will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of DTC or its nominee. The Company also expects that
payments by Participants to owners of beneficial interests in the Global Notes
held through such Participants will be governed by standing instructions and
customary practice as is now the case with Notes held for the accounts of
customers registered in the names of nominees for such customers. Such payment
will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in accordance
with DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Note for any reason, including
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to sell Senior Notes to persons in states which require physical delivery of
such Notes or to pledge such Senior Notes, such holder must transfer its
interest in the Global Notes in accordance with the normal procedures of DTC and
in accordance with the procedures set forth in the Indenture.
Before the 40th day after the later of the commencement of the issuance
of the Notes and the Issue Date, transfers by an owner of a beneficial interest
in the Regulation S Global Note to a transferee who takes delivery of such
interest through the Rule 144A Global Note will be made only in accordance with
the applicable procedures and upon receipt by the Trustee and the Company of a
written certification from the transferor of the beneficial interest in the form
provided in the Indenture to the effect that such transfer is being made to a
person whom the transferor reasonably believes is a QIB within the meaning of
Rule 144A in a transaction meeting the requirements of Rule 144A and as
permitted consistent with Regulation S.
Transfers by an owner of a beneficial interest in the Rule 144A Global
Note to a transferee who takes delivery of such interest through the Regulation
S Global Note, whether before, on or after the 40th day after the later of the
commencement of the issuance of the Notes and the Issue Date, will be made only
upon receipt by the Trustee and the Company of a certification to the effect
that such transfer is being made in accordance with Regulation S. Transfers of
Certificated Notes held by institutional Accredited Investors to persons who
will hold beneficial interests in the Rule 144A Global Note or the Regulation S
Global Note will be subject to certifications provided by the Trustee.
Any beneficial interest in one of the Global Notes that is transferred
to a person who takes delivery in the form of an interest in the other Global
Note will, upon transfer, cease to be an interest in such Global Note and become
an interest in the other Global Note and, accordingly, will thereafter be
subject to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such an
interest.
DTC has advised the Company that DTC will take any action permitted to
be taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of the aggregate principal amount as to which such Participant or Participants
has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will
exchange the Global Notes for Certificated Notes, which it will distribute to
its Participants and which, in the case of Certificated Notes, will be legended.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global Notes
among Participants of DTC, Euroclear and Cedel, as applicable, they are under no
obligation to perform such procedures, and such procedures may be discontinued
at any time. None of the Company, the Trustee, Registrar or the Paying Agent
will have any responsibility for the performance by DTC, Euroclear or Cedel or
their respective direct or indirect Participants of their respective obligations
under the rules and procedures governing their operations.
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Certificated Notes
Interests in Global Notes will be exchanged for Certificated Notes if
(i) DTC notifies the Company that it is unwilling or unable to continue as
depository for the Global Notes, or DTC ceases to be a "Clearing Agency"
registered under the Exchange Act, and a successor depository is not appointed
by the Company within 90 days, or (ii) an Event of Default has occurred and is
continuing with respect to the Notes. Upon the occurrence of any of the events
described in the preceding sentence, the Company will cause the appropriate
Certificated Notes to be delivered.
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<PAGE> 84
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of important terms of certain indebtedness of
the Company.
CREDIT FACILITY
On April 1, 1998, the Company entered into the Credit Facility with
NationsBank of Texas, N.A., as agent ("NationsBank"). The following description
summarizes the principal terms of the Credit Facility and is qualified in its
entirety by reference to the terms of the Credit Facility.
The Credit Facility provides for a revolving credit facility with an
aggregate principal amount of up to $175 million (including a $25 million
sublimit for letters of credit) and has a term of five years (the "Credit
Facility Termination Date"). Subject to the satisfaction of customary
conditions, advances under the Credit Facility may be made at any time prior to
the Credit Facility Termination Date and may be used for working capital,
capital expenditures and other lawful corporate purposes, including the
refinancing of certain existing debt of the Company.
At the Company's election, amounts advanced under the Credit Facility
bear interest at (i) the Base Rate plus the Applicable Base Rate Margin or (ii)
the Eurodollar Rate plus the Applicable Eurodollar Margin. The "Base Rate" is
equal to the highest of (a) the rate of interest announced publicly by
NationsBank from time to time as NationsBank's prime rate and (b) the federal
funds rate plus .5%, in each case as in effect from time to time. The
"Eurodollar Rate" is the rate for eurodollar deposits for one, two, three or six
months (as selected by the Company) in the interbank eurodollar market. The
Applicable Base Rate Margin in effect at any time will range from zero to .5%,
based on the Company's Total Funded Debt to EBITDA Ratio (as defined in the
Credit Facility). The Applicable Eurodollar Rate Margin in effect at any time
will range from .625% to 1.625%, based on the Company's Total Funded Debt to
EBITDA Ratio (as defined in the Credit Facility). Interest payments on advances
which bear interest based upon the Base Rate are due quarterly in arrears and on
the Credit Facility Termination Date, and interest payments on advances which
bear interest based upon the Eurodollar Rate are due on the last day of each
relevant interest period (or if such period exceeds three months, on each three
month anniversary of the first day of such interest period) and on the Credit
Facility Termination Date.
The Credit Facility is secured by a first priority security interest in
certain assets and properties of the Company, including the capital stock of
certain of the Company's subsidiaries. The Company has an option to convert the
Credit Facility into an unsecured facility upon the Company receiving an
investment grade rating on its senior unsecured debt or if it achieves a Total
Funded Debt to EBITDA Ratio (as defined in the Credit Facility) less than or
equal to 2.0 to 1 as of the end of any two consecutive fiscal quarters.
Additionally, the Credit Facility provides for certain mandatory
prepayments in the event the Company sells certain assets or issues certain
indebtedness. The Credit Facility contains customary representations and
warranties. The Credit Facility contains extensive affirmative and negative
covenants, including among others covenants relating to leverage, net worth and
fixed charge coverage and certain limits on, among other things, the ability of
the Company to incur indebtedness, make capital expenditures, create liens,
engage in mergers and consolidations, enter into sale and leaseback
transactions, make dividends or other restricted payments in excess of $10.0
million per fiscal year, make investments and acquisitions or engage in
transactions with affiliates. The Credit Facility also contains customary events
of default, including upon a change in control.
SENIOR NOTES
At April 12, 1998, the Company had outstanding an aggregate principal
amount of $125 million of its Senior Notes. The Senior Notes are due March 1,
1999 and provide for interest payments on March 1 and September 1 of each year.
The Senior Notes are senior unsecured obligations of the Company and rank pari
passu with other senior indebtedness of the Company. The Senior Notes are
subject to optional redemption by the Company, in whole or in part, currently at
101.321% of their principal amount, plus accrued interest, and declining to 100%
of such principal amount, plus accrued interest, at maturity. The Company
redeemed $75 million of its
81
<PAGE> 85
Senior Notes on April 15, 1998, and the remaining $50 million on May 15, 1998.
The Company incurred a prepayment premium of approximately $1.7 million.
EXISTING SENIOR SUBORDINATED NOTES
At April 12, 1998, the Company had outstanding an aggregate principal
amount of $125 million of its Existing Senior Subordinated Notes. The Existing
Senior Subordinated Notes are due June 1, 2002 and provide for interest payments
on June 1 and December 1 of each year. The Existing Senior Subordinated Notes
are subject to optional redemption by the Company, in whole or in part, at
102.438% of their principal amount as of June 1, 1998, plus accrued interest,
declining to 100% of such principal amount, plus accrued interest, on and after
June 1, 1999. The Existing Senior Subordinated Notes are subordinated to, among
other things, the Senior Notes and the Company's obligations under the Credit
Facility. The indenture governing the Existing Senior Subordinated Notes limits
the Company's ability to incur indebtedness, pay dividends, issue preferred
stock of certain subsidiaries, engage in transactions with stockholders and
affiliates, create liens, sell assets, enter into sale and leaseback
transactions, engage in mergers and consolidations, and make investments in
unrestricted subsidiaries. On June 1, 1998, the Company redeemed all $125
million of its Existing Senior Subordinated Notes and incurred a prepayment
premium of approximately $3.0 million in connection therewith.
FINANCING LEASE ARRANGEMENTS
In early January 1994, the Company entered into financing lease
arrangements with two limited partnerships (the "CRC Partnerships"), in which
the Company sold estate for years interests in 76 restaurants to the CRC
Partnerships and leased such restaurants back from the CRC Partnerships pursuant
to two separate leases (the "CRC Leases"). The Company retained the fee
interests in the 76 restaurants. The acquisition of the estates for years
interests by the CRC Partnerships, including costs and expenses, was funded
through the issuance by a special purpose corporation acting as agent for the
CRC Partnerships of $70 million in senior secured notes. The Company and its
Restricted Subsidiaries are not obligors on such notes, although the Company's
fee interests in the respective properties are pledged to secure such notes and
the Company is obligated to make the rejectable offers described below. The
transactions are reflected as financings with the properties remaining in the
Company's consolidated financial statements.
In October 1997, FM 1997 Limited Partnership, a Delaware limited
partnership in which the Company is the sole limited partner ("FM 1997 Limited
Partnership," and, collectively with the CRC Partnerships, the "Partnerships"),
repurchased from one of the CRC Partnerships 31 of the estates for years
interests sold to such CRC Partnership as part of the 1994 transactions. The
general partner of FM 1997 Limited Partnership is FM 1997 Corp., a Delaware
corporation that is wholly-owned by the Company. As part of the purchase, FM
1997 Limited Partnership succeeded to certain rights of the CRC Partnerships
with respect to the 31 purchased estates for years, including the rights of the
CRC Partnerships to make the decisions as they relate to such 31 purchased
estates for years with respect to the reacquisition offers described below. Both
FM 1997 Limited Partnership and FM 1997 Corp. are Unrestricted Subsidiaries.
On January 1, 2003 and November 1, 2003, the Company must make offers to
reacquire 50% of the estates for years at each date at a price which is
sufficient, in conjunction with previous sinking fund deposits, to retire the
notes. If the Partnerships reject the offers, the Company may purchase the
estates for years interests or cause the Partnerships to fund the remaining
principal payments on the notes and, at the Company's option, cause the
Partnerships to acquire the Company's residual fee interest in the properties.
If the Partnerships are allowed to retain their interests, the Company has
available options to extend the leases for total terms of up to 35 years, at
which time the estates for years interests will expire.
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<PAGE> 86
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the purchase, ownership and disposition of the
Exchange Notes but does not purport to be a complete analysis of all the
potential tax effects of such purchase, ownership, and disposition. Moreover,
the discussion below deals only with initial purchasers who hold the Notes as
capital assets, and it does not deal with persons who may be subject to special
treatment under the U.S. tax laws (including, without limitation, insurance
companies, tax-exempt organizations, individual retirement accounts and other
tax-deferred accounts, financial institutions, certain U.S. expatriates, persons
subject to the alternative minimum tax, broker-dealers, or persons holding
Exchange Notes as part of a hedging or conversion transaction or a straddle) and
persons whose functional currency is not U.S. dollars. This summary is based on
the U.S. Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations promulgated thereunder, and judicial and administrative
interpretations thereof, all as in effect on the date hereof and all of which
arc subject to change, which change may be retroactive. This summary does not
discuss tax consequences under state, local, or foreign tax laws. Persons
considering the purchase of the Exchange Notes should consult with their own tax
advisors concerning the application of United States federal income tax laws, as
well as the laws of any state, local, or foreign taxing jurisdictions, to their
particular situations.
As used herein, the term "U.S. Holder" means a beneficial owner who for
United States federal income tax purposes is a citizen or resident of the United
States, a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, an
estate the income of which is includable in gross income for U.S. federal income
tax purposes regardless of its source, or a trust the administration over which
a court within the United States is able to exercise primary supervision and for
which one or more United States persons have the authority to control all
substantial decisions.
Interest on the Notes. A U.S. Holder of an Note is required to include
in ordinary income the stated interest on the Note generally when received or
accrued, in accordance with the holder's method of tax accounting.
Failure of the Company to consummate an Exchange Offer or have the Shelf
Registration Statement declared effective as described under "Description of the
Exchange Notes -- Registration Rights" will cause additional interest to accrue
on the Notes in the manner described therein. According to Treasury regulations,
the possibility of a change in the interest rate will not affect the amount of
interest income recognized by a U.S. Holder (or the timing of such recognition)
if the likelihood of the change, as of the date the Notes are issued, is remote.
The Company believes that the likelihood of a change in the interest rate on the
Notes is remote and does not intend to treat the possibility of a change in the
interest rate as affecting the yield to maturity of any Note. In the unlikely
event that the interest rate on the Notes is increased, then such increased
interest may be treated as original issue discount, includable by a holder in
income as such interest accrues, in advance of receipt of any cash payment
thereof. If, as anticipated, the issue price of the Notes will equal their
stated principal amount, and because the likelihood of a change in the interest
rate is remote, the Notes will not have original issue discount.
Sale, Exchange, or Retirement. Upon a redemption, sale, exchange
retirement or other disposition of a Note, a U.S. Holder will recognize gain or
loss measured by the difference between the amount received in exchange therefor
(other than the portion received for accrued but unpaid interest, which portion
is treated as interest received) and such U.S. Holder's adjusted tax basis in
the Note. Except to the extent the market discount rules described above apply,
any gain or loss recognized on the redemption, sale, exchange, retirement, or
other disposition of a Note will be long-term capital gain or loss if such Note
is held as a capital asset for the applicable long-term holding period at the
time of such redemption, sale, exchange, retirement, or other disposition. The
recently enacted 20% maximum tax rate on long term capital gains applies only to
assets held by individuals for more than 18 months, although capital assets held
by individuals for more than one year will continue to qualify for the 28%
maximum tax rate.
A U.S. Holder's initial tax basis in a Note will be equal to the price
paid for such Note and may be subject to adjustment as described above under
market discount and bond premium. The deductibility of capital losses is subject
to limitations.
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<PAGE> 87
The exchange of an Old Note by a U.S. Holder for an Exchange Note
pursuant to the Exchange Offer should not be considered a taxable event.
Backup Withholding and Information Reporting. In general, a U.S. Holder
will be subject to information reporting and backup withholding at a rate of 31%
of certain amounts paid or deemed paid to the holder unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
provides proof of such exemption or (b) provides a correct taxpayer
identification number, certifies that he has not lost exemption from backup
withholding, and has met the requirements for the reporting of previous income
set forth in the backup withholding rules. U.S. Holders of Notes should consult
their tax advisors as to their qualification for exemption from withholding and
the procedure for obtaining such an exemption. Amounts paid as backup
withholding do not constitute an additional tax and will be credited against the
holder's U.S. federal income tax liability.
U.S. FEDERAL INCOME TAXATION OF FOREIGN HOLDERS
As used herein, the term "Foreign Holder" means a holder of a Note that
is not a U.S. Holder. The following discussion assumes that income from Notes
held by a Foreign Holder is not effectively connected with the conduct by the
Foreign Holder of a trade or business within the United States (and, if an
income tax treaty applies, the Foreign Holder does not maintain a U.S.
"permanent establishment" to which the income is generally attributable). If the
income is effectively connected (and, if an income tax treaty applies, is
attributable to a U.S. permanent establishment), the Foreign Holder, although
exempt from withholding tax (provided that such holder furnishes a properly
executed IRS Form 4224 or successor form on or before any payment date to claim
such exemption), may be taxed under the same rules applicable to U.S. Holders
(as described above). In addition, if such Foreign Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or such
lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments.
Payment of Interest on Notes. In general, payments of interest received
by a Foreign Holder will not be subject to U.S. federal withholding tax,
provided that (i) the Foreign Holder does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company entitled to vote, (ii) the Foreign Holder is not a controlled foreign
corporation that is related to the Company actually or constructively through
stock ownership, (iii) the Foreign Holder is not a bank receiving interest
described in Section 881(c)(3)(A) of the Code, and (iv) either (A) the
beneficial owner of the Note, under penalties of perjury, provides the Company
or its agent with such beneficial owner's name and address and certifies on IRS
Form W-8 (or a suitable substitute form) that it is not a U.S. Holder or (B) a
securities clearing organization, bank, or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
"financial institution") holds the Note and provides a statement to the Company
or its agent under penalties of perjury in which it certifies that such an IRS
Form W-8 (or a suitable substitute) has been received by it from the beneficial
owner of the Notes or qualifying intermediary and furnishes the Company or its
agent a copy thereof. Payments of interest not exempt from U.S. federal
withholding tax as described above will be subject to such withholding tax at
the rate of 30% (subject to reduction or elimination under an applicable income
tax treaty and the Foreign Holder or such Foreign Holder's agent provides a
properly executed IRS Form 1001 claiming the exemption).
Recently finalized Treasury regulations pertaining to U.S. federal
withholding tax, generally effective for payments made after December 31, 1998
(the "Final Withholding Tax Regulations"), will provide, among other things,
alternative methods for satisfying the certification requirement described in
clause (iv) above and will require a Foreign Holder which provides an IRS Form
4224 or successor form (as discussed above) to also provide its U.S. taxpayer
identification number. The Final Withholding Tax Regulations generally also will
require, in the case of a Note held by a foreign partnership, that (x) the
certification described in clause (iv) above be provided by the partners and (y)
the partnership provide certain information, including a U.S. taxpayer
identification number. A look-through rule will apply in the case of tiered
partnerships.
Sale, Exchange, or Retirement of the Notes. A Foreign Holder generally
will not be subject to U.S. federal income tax with respect to gain realized on
the sale, exchange, redemption, retirement at maturity, or other disposition of
a Note unless (i) the Foreign Holder is an individual who is present in the
United States for a period or
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<PAGE> 88
periods aggregating 183 or more days in the taxable year of disposition and
certain other conditions are met or (ii) the gain is effectively connected with
a U.S. trade or business of the holder, and if an income tax treaty applies, is
generally attributable to a U.S. "permanent establishment" maintained by the
holder.
Backup Withholding and Information Reporting. Under current Treasury
regulations, backup withholding and information reporting requirements do not
apply to payments of interest made by the Company or a paying agent to Foreign
Holders if the certification described above under " -- U.S. Federal Income
Taxation of Foreign Holders -- Payment of Interest on Notes" is received,
provided that the payor does not have actual knowledge that the holder is a U.S.
Holder. If any payments of the proceeds from the disposition of a Note are made
to the beneficial owner of a Note by or through the foreign office of a foreign
"broker" (as defined in applicable Treasury regulations), backup withholding and
information reporting will not apply. Information reporting requirements (but
not backup withholding) may apply, however, to a payment by a foreign office of
a broker that is a U.S. person, or is a foreign person that derives 50% or more
of its gross income for certain periods from the conduct of a trade or business
in the United States, or that is a "controlled foreign corporation" (generally,
a foreign corporation controlled by certain U.S. shareholders) with respect to
the United States. Payment by a U.S. office of a broker is subject to both
backup withholding at a rate of 31% and information reporting unless the holder
certifies under penalties of perjury that it is a Foreign Holder or otherwise
establishes an exemption.
In general, the Final Withholding Tax Regulations do not significantly
alter the current substantive backup withholding and information reporting
requirements but unify current certification procedures and clarify reliance
standards. Under the Final Withholding Tax Regulations, special rules will apply
which permit the shifting of primary responsibility for withholding to certain
financial intermediaries acting on behalf of beneficial owners. A holder of a
Note should consult with its tax advisor regarding the application of the backup
withholding rules to its particular situation, the availability of an exemption
therefrom, the procedure for obtaining such an exemption, if available, and the
impact of the Final Withholding Tax Regulations on payments made with respect to
Notes after December 31, 1998.
Any amounts withheld under the backup withholding rules from a payment
to a holder will be allowed as a refund or a credit against such holder's U.S.
federal income tax liability, provide the required information is furnished to
the IRS.
EXCEPT AS DISCUSSED ABOVE, NO INFORMATION IS PROVIDED HEREIN AS TO THE
TAX TREATMENT OF HOLDERS OF THE NOTES UNDER APPLICABLE UNITED STATES OR OTHER
TAX LAWS. THE DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE
APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. THEREFORE,
PROSPECTIVE PURCHASERS OF NOTES ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE PARTICULAR TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING, AND
DISPOSING OF THE NOTES, INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL, AND
FOREIGN AND OTHER TAX LAWS AND POSSIBLE FUTURE CHANGES IN SUCH TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities.
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or
85
<PAGE> 89
concessions from any such broker-dealer or the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
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.
The Company will promptly send additional copies of this Prospectus and
any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal. The Company has agreed to
pay all expenses incident to the Exchange Offer (including the expenses of one
counsel for the holders of the Notes) other than commissions or concessions of
any brokers or dealers and will indemnify holders of the Original Notes
(including any broker-dealers) against certain liabilities, including certain
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company
by Gibson, Dunn & Crutcher LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of Foodmaker, Inc. as of September
28, 1997 and September 29, 1996, and for the fifty-two weeks ended September 28,
1997, September 29, 1996 and October 1, 1995 have been included herein this
Prospectus and the Registration Statement on Form S-4, in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
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<PAGE> 90
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................................................... F-2
Consolidated Balance Sheets as of September 28, 1997 and September 29, 1996.................... F-3
Consolidated Statements of Operations for fiscal years 1997, 1996 and 1995..................... F-4
Consolidated Statements of Cash Flows for fiscal years 1997, 1996 and 1995..................... F-5
Consolidated Statements of Stockholders' Equity for fiscal years 1997, 1996 and 1995........... F-6
Notes to Consolidated Financial Statements..................................................... F-7
Unaudited Consolidated Balance Sheets at April 12, 1998 and September 28, 1997................. F-22
Unaudited Consolidated Statements of Operations for the 12-week and 28-week periods ended
April 12, 1998 and April 13, 1997........................................................... F-23
Unaudited Statements of Cash Flows for the 28-week periods ended April 12, 1998 and
April 13, 1997 ............................................................................. F-24
Notes to Unaudited Consolidated Financial Statements........................................... F-25
</TABLE>
F-1
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Foodmaker, Inc.:
We have audited the accompanying consolidated balance sheets of Foodmaker,
Inc. and subsidiaries as of September 28, 1997 and September 29, 1996, and the
related consolidated statements of operations, cash flows and stockholders'
equity for the fifty-two weeks ended September 28, 1997, September 29, 1996 and
October 1, 1995. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Foodmaker,
Inc. and subsidiaries as of September 28, 1997 and September 29, 1996, and the
results of their operations and their cash flows for the fifty-two weeks ended
September 28, 1997, September 29, 1996 and October 1, 1995 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Diego, California
November 3, 1997
F-2
<PAGE> 92
FOODMAKER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 28,527 $ 41,983
Accounts receivable, net.................................. 10,482 12,482
Inventories............................................... 18,300 20,850
Prepaid expenses.......................................... 42,853 21,161
--------- ---------
Total current assets.............................. 100,162 96,476
--------- ---------
Property and equipment:
Land...................................................... 91,317 90,890
Buildings................................................. 302,125 293,690
Restaurant and other equipment............................ 231,736 213,159
Construction in progress.................................. 34,898 13,017
--------- ---------
660,076 610,756
Less accumulated depreciation and amortization............ 201,289 177,817
--------- ---------
458,787 432,939
--------- ---------
Other assets, net........................................... 122,809 124,223
--------- ---------
$ 681,758 $ 653,638
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 1,470 $ 1,812
Accounts payable.......................................... 39,575 29,293
Accrued liabilities....................................... 152,168 115,958
--------- ---------
Total current liabilities......................... 193,213 147,063
--------- ---------
Long-term debt, net of current maturities................... 346,191 396,340
Other long-term liabilities................................. 54,093 51,561
Deferred income taxes....................................... 382 7,290
Stockholders' equity:
Preferred stock........................................... -- --
Common stock, $.01 par value, 75,000,000 authorized,
40,509,469 and 40,253,179 issued, respectively......... 405 403
Capital in excess of par value............................ 283,517 281,075
Accumulated deficit....................................... (181,580) (215,631)
Treasury stock, at cost, 1,412,654 shares................. (14,463) (14,463)
--------- ---------
Total stockholders' equity........................ 87,879 51,384
--------- ---------
$ 681,758 $ 653,638
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 93
FOODMAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
------------- ------------- ----------
<S> <C> <C> <C>
Revenues:
Restaurant sales................................... $ 986,583 $ 892,029 $ 804,084
Distribution sales................................. 45,233 132,421 179,689
Franchise rents and royalties...................... 35,426 34,048 32,530
Other.............................................. 4,500 4,324 2,413
---------- ---------- ----------
1,071,742 1,062,822 1,018,716
---------- ---------- ----------
Costs and expenses:
Costs of revenues:
Restaurant costs of sales....................... 327,188 290,955 258,627
Restaurant operating costs...................... 510,176 477,976 447,235
Distribution costs of sales..................... 44,759 130,241 175,688
Franchised restaurants costs.................... 23,619 20,039 21,929
Selling, general and administrative................ 80,438 72,134 78,044
Equity in loss of FRI.............................. -- -- 57,188
Interest expense................................... 40,359 46,126 48,463
---------- ---------- ----------
1,026,539 1,037,471 1,087,174
---------- ---------- ----------
Earnings (loss) before income taxes and extraordinary
item............................................... 45,203 25,351 (68,458)
Income taxes......................................... 9,900 5,300 500
---------- ---------- ----------
Earnings (loss) before extraordinary item............ 35,303 20,051 (68,958)
Extraordinary item -- loss on early extinguishment of
debt, net of taxes................................. (1,252) -- --
---------- ---------- ----------
Net earnings (loss).................................. $ 34,051 $ 20,051 $ (68,958)
========== ========== ==========
Earnings (loss) per share -- primary and fully
diluted:
Earnings (loss) before extraordinary item.......... $ .89 $ .51 $ (1.77)
Extraordinary item................................. (.03) -- --
---------- ---------- ----------
Net earnings (loss) per share...................... $ .86 $ .51 $ (1.77)
========== ========== ==========
Weighted average shares outstanding.................. 39,776 39,301 38,915
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 94
FOODMAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
------------- ------------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) before extraordinary item........ $ 35,303 $ 20,051 $(68,958)
Non-cash items included in operations:
Depreciation and amortization..................... 37,922 36,491 35,837
Deferred finance cost amortization................ 2,036 2,499 2,467
Deferred income taxes............................. (7,017) (2,296) 4,524
Equity in loss of FRI............................. -- -- 57,188
Decrease in receivables.............................. 2,000 12,790 5,895
Decrease in inventories.............................. 2,550 1,535 2,934
Increase in prepaid expenses......................... (22,818) (7,421) (985)
Increase (decrease) in accounts payable.............. 10,282 (2,722) (4,900)
Increase (decrease) in other accrued liabilities..... 39,218 20,121 (953)
-------- -------- --------
Cash flows provided by operating activities....... 99,476 81,048 33,049
-------- -------- --------
Cash flows from investing activities:
Additions to property and equipment.................. (59,660) (33,232) (27,033)
Disposition of property and equipment................ 3,357 4,597 4,416
Increase in trading area rights...................... (5,553) (1,086) (9,745)
Other................................................ (1,401) (1,012) 6,538
-------- -------- --------
Cash flows used in investing activities........... (63,257) (30,733) (25,824)
-------- -------- --------
Cash flows from financing activities:
Principal payments on long-term debt, including
current maturities................................ (51,817) (44,677) (8,385)
Proceeds from issuance of long-term debt............. 950 400 900
Borrowings under revolving bank loans................ -- -- 29,000
Principal repayments under revolving bank loans...... -- -- (29,000)
Extraordinary loss on retirement of debt, net of
taxes............................................. (1,252) -- --
Proceeds from issuance of common stock............... 2,444 80 160
-------- -------- --------
Cash flows used in financing activities........... (49,675) (44,197) (7,325)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents... $(13,456) $ 6,118 $ (100)
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized.............. $ 38,759 $ 46,712 $ 46,491
Income tax payments............................... 7,179 9,013 493
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 95
FOODMAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- CAPITAL IN
NUMBER OF EXCESS OF ACCUMULATED TREASURY
SHARES AMOUNT PAR VALUE DEFICIT STOCK TOTAL
----------- ------ ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 2, 1994....... 40,080,854 $401 $280,837 $(166,724) $(14,463) $100,051
Exercise of stock options and
warrants....................... 133,995 1 159 -- -- 160
Net loss of the Company.......... -- -- -- (68,958) -- (68,958)
----------- ---- -------- --------- -------- --------
Balance at October 1, 1995....... 40,214,849 402 280,996 (235,682) (14,463) 31,253
Exercise of stock options and
warrants....................... 38,330 1 79 -- -- 80
Net earnings of the Company...... -- -- -- 20,051 -- 20,051
----------- ---- -------- --------- -------- --------
Balance at September 29, 1996.... 40,253,179 403 281,075 (215,631) (14,463) 51,384
Exercise of stock options and
warrants....................... 256,290 2 1,711 -- -- 1,713
Tax benefit associated with
exercise of stock options...... -- -- 731 -- -- 731
Net earnings of the Company...... -- -- -- 34,051 -- 34,051
----------- ---- -------- --------- -------- --------
Balance at September 28, 1997.... 40,509,469 $405 $283,517 $(181,580) $(14,463) $ 87,879
=========== ==== ======== ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 96
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations -- Foodmaker, Inc. (the "Company" or "Foodmaker")
operates and franchises JACK IN THE BOX quick-serve restaurants with operations
principally in the western and southwestern United States.
Basis of presentation and fiscal year -- The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions are eliminated. Certain
prior year amounts in the consolidated financial statements have been
reclassified to conform with the 1997 presentation. The Company's fiscal year is
52 or 53 weeks ending the Sunday closest to September 30.
Fair value of financial instruments -- The Company invests cash in excess
of operating requirements in short term, highly liquid investments with original
maturities of three months or less, which are considered as cash equivalents.
The fair value of these financial instruments approximate the carrying amounts
due to their short duration. The fair values of each of the Company's long-term
debt instruments are based on quoted market values, where available, or on the
amount of future cash flows associated with each instrument discounted using the
Company's current borrowing rate for similar debt instruments of comparable
maturity. The carrying values and the estimated fair values of the Company's
long-term debt at September 28, 1997 and September 29, 1996 approximate carrying
values.
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Preopening costs are those typically associated with the opening of a new
restaurant and consist primarily of labor and food costs relating to preopening
training activities. Preopening costs, included in prepaid expenses, are
amortized over a one-year period commencing on the date a restaurant opens.
Property and equipment at cost -- Expenditures for new facilities and those
that substantially increase the useful lives of the property are capitalized.
Facilities leased under capital leases are stated at the present value of
minimum lease payments at the beginning of the lease term, not to exceed fair
value. Maintenance, repairs, and minor renewals are expensed as incurred. When
properties are retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and gains or losses on
the dispositions are reflected in results of operations.
Buildings, equipment and leasehold improvements are depreciated using the
straight-line method based on the estimated useful lives of the assets or over
the lease term for certain capital leases (buildings 15 to 33 years and
equipment 3 to 30 years).
Trading area rights represent the amount allocated under purchase
accounting to reflect the value of operating existing restaurants within their
specific trading area. These rights are amortized on a straight-line basis over
the period of control of the property, not exceeding 40 years, and are retired
when a restaurant is franchised or sold.
Lease acquisition costs represent the acquired values of existing lease
contracts having lower contractual rents than fair market rents and are
amortized over the remaining lease term.
Other assets primarily include deferred franchise contract costs, deferred
finance costs and goodwill. Deferred franchise contract costs represent the
acquired value of franchise contracts which were in existence at the time the
Company was acquired in 1988 and are amortized over the term of the franchise
agreement, usually 20 years. Deferred finance costs are amortized on the
interest method over the terms of the respective loan agreements, from 4 to 10
years. Goodwill represents excess of purchase price over the fair value of net
assets acquired and is amortized on a straight-line basis over 40 years. The
Company assesses the recoverability of intangible assets by determining whether
the amortization of the balance over its remaining life can be recovered through
projected undiscounted future cash flows. Based on these calculations, the
F-7
<PAGE> 97
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Company has determined that these intangible assets were not impaired and no
reduction in the related estimated useful lives are warranted.
Impairment of Long-Lived Assets -- The Company adopted Statement of
Financial Accounting Standards ("SFAS") 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in 1997. SFAS 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The statement also addresses the accounting for long-lived
assets that are held for disposal. The adoption of SFAS 121 did not result in a
material impact on the financial position or results of operations of the
Company.
Franchise operations -- Franchise arrangements generally provide for
initial license fees of approximately $50 (formerly $25) per restaurant and
continuing payments to the Company based on a percentage of sales. Among other
things, the franchisee may be provided the use of land and building, generally
for a period of 20 years, and is required to pay negotiated rent, property
taxes, insurance and maintenance. Franchise fees are recorded as revenue when
the Company has substantially performed all of its contractual obligations.
Expenses associated with the issuance of the franchise are expensed as incurred.
Franchise rents and royalties are recorded as income on an accrual basis. Gains
on sales of restaurant businesses to franchisees, which have not been material,
are recorded as other revenues when the sales are consummated and certain other
criteria are met.
Income taxes -- Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and tax loss and credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
Net earnings (loss) per share for each year is computed based on the
weighted average number of common and common equivalent shares outstanding. When
dilutive, stock options and warrants are included as share equivalents using the
treasury stock method. For all years presented, primary and fully diluted
earnings (loss) per share are not materially different.
Stock options -- The Company accounts for stock options under the intrinsic
value based method, as prescribed by Accounting Principles Board ("APB") Opinion
No. 25, whereby compensation expense is recognized for the excess, if any, of
the quoted market price of the Company stock at the date of grant over the
option price. The Company's policy is to grant stock options at fair value at
the date of grant. The Company has included pro forma information in Note 8 to
the consolidated financial statements, as permitted by SFAS 123, Accounting for
Stock-Based Compensation.
Advertising costs -- The Company maintains a marketing fund consisting of
funds contributed by the Company equal to at least 5% of gross sales of all
Company-operated JACK IN THE BOX restaurants and contractual marketing fees paid
monthly by franchisees for restaurants operated in the United States. Production
costs of commercials, programming and other marketing activities are expensed to
the marketing fund when the advertising is first used and the costs of
advertising are charged to operations as incurred. The Company's contributions
to the marketing fund and other marketing expenses, which are included in
selling, general and administrative expenses in the accompanying consolidated
statements of operations, were $51,870, $47,183 and $44,871 in 1997, 1996 and
1995, respectively.
Estimations -- Management is required to make certain assumptions and
estimates in conformity with generally accepted accounting principles that
affect reported amounts of assets, liabilities, disclosure of contingencies,
revenues and expenses. Actual amounts could differ from these estimates.
F-8
<PAGE> 98
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. FAMILY RESTAURANTS, INC.
On January 27, 1994, Foodmaker, Apollo FRI Partners, L.P. ("Apollo") and
Green Equity Investors, L.P. acquired Restaurant Enterprises Group, Inc.
("REGI"), a company that owned, operated and franchised various restaurant
chains including El Torito, Carrows and Coco's. Contemporaneously, REGI changed
its name to Family Restaurants, Inc. ("FRI"). Concurrently, Foodmaker
contributed its entire Chi-Chi's Mexican restaurant chain to FRI in exchange for
a 39% equity interest in FRI, cash and other considerations. Subsequently, as a
result of substantial sales declines, FRI wrote off the goodwill attributable to
Chi-Chi's in its quarter ended December 25, 1994. The Company then wrote off its
remaining investment in FRI in its fiscal year 1995.
Because of FRI's continuing substantial losses and resulting increased
borrowing requirements, the major FRI stockholders were required to purchase a
participation in any additional advances by the banks to FRI. Rather than become
liable for these advances, the Company, by an agreement dated November 20, 1995,
transferred all of its stock and warrants to Apollo. Since the Company's
investment in FRI was previously written off in fiscal 1995, the consummation of
this agreement had no further effect on the consolidated financial condition or
results of operations of the Company.
The Company provided distribution services to a portion of FRI's Mexican
restaurants, principally those operated under the Chi-Chi's name, through May
1997. Distribution sales to those restaurants during the period the Company held
an investment in FRI was $10,453 and $78,195 in 1996 and 1995, respectively.
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
The detail of long-term debt follows:
Senior notes, 9 1/4% interest, due March 1, 1999,
redeemable beginning March 1, 1997................... $125,000 $175,000
Senior subordinated notes, 9 3/4% interest, due June 1,
2002, redeemable beginning June 1, 1997.............. 125,000 125,000
Financing lease obligations, net of discounts of $2,172
and $2,548 reflecting a 10.3% effective interest
rate, semi-annual payments of $3,413 and $747 to
cover interest and sinking fund requirements and due
in equal installments January 1, 2003 and November 1,
2003, respectively................................... 67,828 67,452
Secured notes, 11 1/2% interest, due in monthly
installments through May 1, 2005..................... 8,684 9,356
Secured notes, 9 1/2% interest, due in monthly
installments through August 1, 2017.................. 8,320 8,456
Capitalized lease obligations, 11% average interest
rate................................................. 11,519 11,043
Other notes, principally unsecured, 10% average interest
rate................................................. 1,310 1,845
-------- --------
347,661 398,152
Less current portion.................................... 1,470 1,812
-------- --------
$346,191 $396,340
======== ========
</TABLE>
In September 1997, the Company repaid $50 million of its 9 1/4% senior
notes. The retirement of these notes resulted in an extraordinary loss of
$1,602, net of income tax benefits of $350 on the early extinguishment of the
debt.
F-9
<PAGE> 99
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company's revolving bank credit agreement which was amended and
restated March 15, 1996, expires December 31, 1998, and provides for a credit
facility of up to $60 million, including letters of credit of up to $25 million.
The credit agreement requires the payment of an annual commitment fee of either
1/2% or 3/8% of the unused credit line depending on the Company's leverage
ratio. The Company had no borrowings under the agreement at the end of fiscal
years 1997 or 1996.
The Company is subject to a number of covenants under its various credit
agreements including limitations on additional borrowings, capital expenditures,
lease commitments and dividend payments, and requirements to maintain certain
financial ratios, cash flows and net worth. The secured notes and bank loans are
secured by substantially all the Company's real and personal property.
In early January 1994, the Company entered into financing lease
arrangements with two limited partnerships (the "Partnerships"), in which an
interest in 76 restaurants for a specified period of time were sold. The
acquisition of the properties, including costs and expenses, was funded through
the issuance by a special purpose corporation acting as agent for the
Partnerships of $70 million senior secured notes. On January 1, 2003 and
November 1, 2003, the Company must make offers to reacquire 50% of the
properties at each date at a price which is sufficient, in conjunction with
previous sinking fund deposits, to retire the notes. If the Partnerships reject
the offers, the Company may purchase the properties at less than fair market
value or cause the Partnerships to fund the remaining principal payments on the
notes and, at the Company's option, cause the Partnerships to acquire the
Company's residual interest in the properties. If the Partnerships are allowed
to retain their interests, the Company has available options to extend the
leases for total terms of up to 35 years, at which time the ownership of the
property will revert to the Company. The transactions are reflected as
financings with the properties remaining in the Company's consolidated financial
statements.
Aggregate maturities and sinking fund requirements on all long-term debt
are $128,087, $3,249, $3,433 and $128,656 for the years 1999 through 2002,
respectively.
Interest capitalized during the construction period of restaurants was
$683, $200 and $161 in 1997, 1996 and 1995, respectively.
4. LEASES
As Lessee -- The Company leases restaurant and other facilities under
leases having terms expiring at various dates through 2046. The leases generally
have renewal clauses of 5 to 20 years exercisable at the option of the Company
and in some instances have provisions for contingent rentals based upon a
percentage of defined revenues. Total rent expense for all operating leases was
$84,964, $81,006 and $75,680, including contingent rentals of $4,513, $3,903 and
$2,843 in 1997, 1996 and 1995, respectively.
F-10
<PAGE> 100
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Future minimum lease payments under capital and operating leases are as
follows:
<TABLE>
<CAPTION>
FISCAL CAPITAL OPERATING
YEAR LEASES LEASES
------ ------- ---------
<S> <C> <C>
1998........................................................ $ 1,753 $ 74,456
1999........................................................ 1,728 71,916
2000........................................................ 1,706 66,249
2001........................................................ 1,690 62,215
2002........................................................ 1,688 59,373
Thereafter.................................................. 15,650 388,064
------- --------
Total minimum lease payments................................ 24,215 $722,273
========
Less amount representing interest........................... 12,696
-------
Present value of obligations under capital leases........... 11,519
Less current portion........................................ 456
-------
Long-term capital lease obligations......................... $11,063
=======
</TABLE>
Building assets recorded under capital leases were $10,403 and $9,642, net
of accumulated depreciation of $4,228 and $3,639, as of September 28, 1997 and
September 29, 1996, respectively.
As Lessor -- The Company leases or subleases restaurants to certain
franchisees and others under agreements which generally provide for the payment
of percentage rentals in excess of stipulated minimum rentals, usually for a
period of 20 years. Total rental revenue was $22,624, $21,497 and $21,309,
including contingent rentals of $6,744, $5,469 and $4,763 in 1997, 1996 and
1995, respectively.
The minimum rents receivable under these non-cancelable leases are as
follows:
<TABLE>
<CAPTION>
FISCAL SALES-TYPE OPERATING
YEAR LEASES LEASES
------ ----------- ---------
<S> <C> <C>
1998........................................................ $ 44 $ 16,911
1999........................................................ 44 16,325
2000........................................................ 44 15,842
2001........................................................ 44 15,487
2002........................................................ 45 14,789
Thereafter.................................................. 174 78,526
---- --------
Total minimum future rentals................................ 395 $157,880
========
Less amount representing interest........................... 144
----
Net investment (included in other assets)................... $251
====
</TABLE>
Land and building assets held for lease were $58,288 and $65,156, net of
accumulated depreciation of $18,508 and $17,038, as of September 28, 1997 and
September 29, 1996, respectively.
F-11
<PAGE> 101
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. INCOME TAXES
The fiscal year income taxes consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Federal -- current................................... $12,222 $ 7,179 $ (388)
-- deferred.................................. (6,248) (2,680) 345
State -- current..................................... 4,345 737 256
-- deferred.................................... (769) 64 287
------- ------- --------
Subtotal............................................. 9,550 5,300 500
Income tax benefit of extraordinary item............. 350 -- --
------- ------- --------
Income taxes......................................... $ 9,900 $ 5,300 $ 500
======= ======= ========
</TABLE>
A reconciliation of fiscal year income taxes with the amounts computed at
the statutory federal rate of 35% follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Computed at federal statutory rate................... $15,821 $ 8,874 $(23,960)
State income taxes, net of federal effect............ 2,324 521 353
Jobs tax credit wages................................ (180) -- (733)
Addition (reduction) to valuation allowance.......... (10,816) (4,295) 26,280
Adjustment of tax loss, contribution and tax credit
carryforwards...................................... 1,986 -- --
Benefit of reattributed net operating loss
carryback.......................................... -- -- (1,420)
Other, net........................................... 765 200 (20)
------- ------- --------
$ 9,900 $ 5,300 $ 500
======= ======= ========
</TABLE>
F-12
<PAGE> 102
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Tax loss, contribution and tax credit carryforwards..... $ 50,261 $ 57,698
Insurance reserves...................................... 18,938 16,569
Accrued pension and postretirement benefits............. 9,759 8,775
Accrued vacation pay expense............................ 6,446 6,257
Other reserves and allowances........................... 5,671 5,049
Deferred income......................................... 3,763 3,840
Other, net.............................................. 4,335 3,352
-------- --------
Total gross deferred tax assets......................... 99,173 101,540
Less valuation allowance................................ 34,396 45,212
-------- --------
Net deferred tax assets................................. 64,777 56,328
-------- --------
Deferred tax liabilities:
Property and equipment, principally due to differences
in depreciation...................................... 50,405 47,707
Intangible assets....................................... 14,435 15,592
Other, net.............................................. 319 319
-------- --------
Total gross deferred tax liabilities.................... 65,159 63,618
-------- --------
Net deferred tax liability.............................. $ 382 $ 7,290
======== ========
</TABLE>
The valuation allowance of $34,396 as of September 28, 1997 and $45,212 as
of September 29, 1996 represents deferred tax assets that may not be realized by
the reversal of future taxable differences. The net change in the valuation
allowance was a decrease of $10,816 for fiscal year 1997 and a decrease of
$4,295 for fiscal year 1996. These decreases related to the expected future use
of tax loss, tax credit and charitable contribution carryforwards. Management
believes it is more likely than not that the net deferred tax assets will be
realized through future taxable income or alternative tax strategies.
At September 28, 1997, the Company had tax loss carryforwards and general
business credit carryforwards which expire in 2000 through 2012. The Company has
alternative minimum tax credit carryforwards which have no expiration date;
however, they may only be utilized to reduce any regular tax liability the
Company may have in the future.
From time to time the Company may take positions for filing its tax returns
which may differ from the treatment of the same item for financial reporting
purposes. The ultimate outcome of these items will not be known until such time
as the Internal Revenue Service has completed its examination or until the
statute of limitation has passed. The Internal Revenue Service has completed its
examinations of the Company's federal income tax returns through fiscal year
1993.
6. RETIREMENT, SAVINGS AND BONUS PLANS
The Company has non-contributory defined benefit pension plans covering
substantially all salaried and hourly employees meeting certain eligibility
requirements. These plans are subject to modification at any time. The plans
provide retirement benefits based on years of service and compensation. It is
the Company's practice to fund retirement costs as necessary.
F-13
<PAGE> 103
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The components of the fiscal year net defined benefit pension expense are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- -------- -------------
<S> <C> <C> <C> <C>
Present value of benefits earned during the
year.............................................. $ 3,069 $ 2,634 $ 2,303
Interest cost on projected benefit obligations.... 4,337 3,659 3,355
Actual return on plan assets...................... (7,993) (3,630) (3,300)
Net amortization.................................. 4,913 978 1,431
-------- -------- -------
Net pension expense for the period................ $ 4,326 $ 3,641 $ 3,789
======== ======== =======
</TABLE>
The funded status of the plans is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
------------------------- -------------------------
QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED
PLANS PLAN PLANS PLAN
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits....................... $(38,264) $ (7,448) $(29,021) $(5,204)
Nonvested benefits.................... (3,668) (1,398) (6,859) (715)
-------- -------- -------- -------
Accumulated benefit obligation........ (41,932) (8,846) (35,880) (5,919)
Effect of future salary increases..... (10,796) (3,984) (8,374) (2,780)
-------- -------- -------- -------
Projected benefit obligation............ (52,728) (12,830) (44,254) (8,699)
Plan assets at fair value............... 50,916 -- 39,677 --
-------- -------- -------- -------
Projected benefit obligations in excess
of plan assets........................ (1,812) (12,830) (4,577) (8,699)
Unrecognized prior service cost......... (208) 5,366 (243) 2,774
Unrecognized net transition
obligation............................ 37 112 47 139
Unrecognized net (gain) loss............ 2,180 254 4,046 (534)
-------- -------- -------- -------
Pension liability....................... $ 197 $ (7,098) $ (727) $(6,320)
======== ======== ======== =======
</TABLE>
In determining the present values of benefit obligations at each year end,
a 7.75% discount rate and a 5% rate of increase in compensation levels were
assumed. The long-term rate of return on assets was 8.5% in both years. Assets
of the qualified plans consist primarily of listed stocks and bonds.
The Company maintains a savings plan pursuant to Section 401(k) of the
Internal Revenue Code, which allows administrative and clerical employees who
have satisfied the service requirements and reached age 21 to defer from 2% to
12% of their pay on a pre-tax basis. The Company contributes an amount equal to
50% of the first 4% of compensation that is deferred by the participant. The
Company's contributions under this plan were $1,138, $1,067 and $498 in 1997,
1996 and 1995, respectively. The Company also maintains an unfunded,
non-qualified deferred compensation plan, which was created in 1990 for key
executives and other members of management who were then excluded from
participation in the qualified savings plan. This plan allows participants to
defer up to 15% of their salary on a pre-tax basis. The Company contributes an
amount equal to 100% of the first 3% contributed by the employee. The Company's
contributions under the non-qualified deferred compensation plan were $324, $233
and $212 in 1997, 1996 and 1995, respectively. In each plan, a participant's
right to Company contributions vests at a rate of 25% per year of service.
The Company maintains a bonus plan that allows certain officers and
employees of the Company to earn annual cash bonuses based upon achievement of
certain financial and performance goals approved by the compensation committee
of the Company's Board of Directors. Under this plan, $3,493, $3,172 and $710
was expensed in 1997, 1996 and 1995, respectively.
F-14
<PAGE> 104
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company adopted a deferred compensation plan for non-management
directors in the second quarter of 1995. Under the plan's equity option, those
who are eligible to receive directors' fees or retainers may choose to defer
receipt of their compensation. The amounts deferred are converted into stock
equivalents at the then current market price of the Company's common stock. The
Company provides a credit equal to 25% of the compensation initially deferred.
Under this plan, a total of $835, $186 and $116 was expensed in 1997, 1996 and
1995, respectively, for both the deferment credit and the stock appreciation on
the deferred compensation.
7. POSTRETIREMENT BENEFIT PLAN
The Company sponsors a health care plan that provides postretirement
medical benefits for employees who meet minimum age and service requirements.
The plan is contributory, with retiree contributions adjusted annually, and
contains other cost-sharing features such as deductibles and coinsurance. The
Company's policy is to fund the cost of medical benefits in amounts determined
at the discretion of management.
The normal net periodic postretirement benefit cost was $1,323, $1,201 and
$1,440 in 1997, 1996 and 1995, respectively. The plan was amended to eliminate
retiree medical benefits coverage for those under age 45 at September 30, 1995,
resulting in a curtailment gain of $1,900.
The components of the fiscal year net periodic postretirement benefit cost
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Service cost............................................ $ 530 $ 505 $ 675
Interest cost........................................... 913 816 854
Net amortization and deferral........................... (120) (120) (89)
Curtailment gain........................................ -- -- (1,900)
------ ------ -------
Net periodic postretirement benefit cost (gain)......... $1,323 $1,201 $ (460)
====== ====== =======
</TABLE>
The plan's funded status reconciled with amounts recognized in the
Company's consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................... $ (1,577) $ (1,343)
Fully eligible active plan participants................ (3,183) (2,777)
Other active plan participants......................... (8,441) (7,684)
-------- --------
(13,201) (11,804)
Plan assets at fair value................................ -- --
-------- --------
Accumulated postretirement benefit obligation in excess
of plan assets......................................... (13,201) (11,804)
Unrecognized prior service cost.......................... -- --
Unrecognized net gain.................................... (1,939) (2,062)
-------- --------
Accrued postretirement benefit cost included in other
long-term liabilities.................................. $(15,140) $(13,866)
======== ========
</TABLE>
In determining the above information, the Company's actuaries assumed a
discount rate of 7.75% as of September 28, 1997 and September 29, 1996.
F-15
<PAGE> 105
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
For measurement purposes, a 9.0% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed for
1997 for plan participants under age 65; the rate was assumed to decrease 1/2%
per year to 4.5% by the year 2006 and remain at that level thereafter. For plan
participants age 65 years or older, a 7.0% annual health care cost trend rate
was assumed for 1997; the rate was assumed to decrease 1/2% per year to 3.5% by
the year 2004. The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of September 28, 1997 by
$2,758, or 21%, and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year ended September 28, 1997
by $336 or 25%.
8. STOCK OPTIONS
The Company offers stock option plans to attract, retain and motivate key
officers, non-employee directors and employees by providing for or increasing
the proprietary interests of such persons to work toward the future financial
success of the Company.
In January 1992, the Company adopted the 1992 Employee Stock Incentive Plan
(the "1992 Plan") and, as part of a merger, assumed outstanding options to
employees under its predecessor's 1990 Stock Option Plan and assumed
contractually the options to purchase 42,750 shares of common stock granted to
two non-employee directors of the Company. Under the 1992 Plan, employees are
eligible to receive stock options, restricted stock and other various
stock-based awards. Subject to certain adjustments, up to a maximum of 3,775,000
shares of common stock may be sold or issued under the 1992 Plan. No awards
shall be granted after January 16, 2002, although stock may be issued
thereafter, pursuant to awards granted prior to such date.
In August 1993, the Company adopted the 1993 Stock Option Plan (the "1993
Plan"). Under the 1993 Plan, employees who do not participate in the 1992 Plan
are eligible to receive annually stock options with an aggregate exercise price
equivalent to a maximum of 10% of their eligible earnings. Subject to certain
adjustments, up to a maximum of 3,000,000 shares of common stock may be sold or
issued under the 1993 Plan. No awards shall be granted after December 11, 2003,
although common stock may be issued thereafter, pursuant to awards granted prior
to such date.
In February 1995, the Company adopted the Non-Employee Director Stock
Option Plan (the "Director Plan"). Under the Director Plan, any eligible
director of the Company who is not an employee of the Company or a subsidiary of
the Company is granted annually an option to purchase 10,000 shares of common
stock at fair market value. Subject to certain adjustments, up to a maximum of
250,000 shares of common stock may be sold or issued under the Director Plan.
Unless sooner terminated, no awards shall be granted after February 17, 2005,
although common stock may be issued thereafter, pursuant to awards granted prior
to such date.
The terms and conditions of the stock-based awards under the plans are
determined by a committee of the Board of Directors on each award date and may
include provisions for the exercise price, expirations, vesting, restriction on
sales and forfeiture, as applicable. Options granted under the plans have terms
not exceeding 11 years and provide for an option exercise price no less than
100% of the fair market value of the common stock at the date of grant.
F-16
<PAGE> 106
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following is a summary of stock option activity for the three fiscal
years ended September 28, 1997:
<TABLE>
<CAPTION>
OPTION EXERCISE PRICE PER SHARE
--------------------------------
WEIGHTED
SHARES RANGE AVERAGE
--------- ----------------- -----------
<S> <C> <C> <C>
Balance at October 2, 1994..................... 1,810,591 $ .96 - 12.25 $ 6.72
Granted...................................... 812,098 4.18 - 6.50 6.04
Exercised.................................... (42,900) .96 - 1.13 1.09
Cancelled.................................... (267,818) 1.13 - 12.25 8.37
---------
Balance at October 1, 1995..................... 2,311,971 .96 - 12.25 6.37
Granted...................................... 540,891 6.75 - 9.13 7.22
Exercised.................................... (10,880) 1.13 - 6.50 4.73
Cancelled.................................... (129,395) 1.13 - 11.00 8.07
---------
Balance at September 29, 1996.................. 2,712,587 .96 - 12.25 6.52
Granted...................................... 807,165 10.13 - 12.63 12.35
Exercised.................................... (251,640) .96 - 12.25 6.76
Cancelled.................................... (111,078) 5.75 - 12.63 8.77
---------
Balance at September 28, 1997.................. 3,157,034 .96 - 12.63 7.90
=========
</TABLE>
The following is a summary of stock options outstanding at September 28,
1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ .96 - 4.19 548,170 3.88 $ 1.28 548,170 $ 1.28
5.00 - 7.13 885,229 8.03 6.26 540,795 6.20
7.50 - 11.00 930,393 6.79 9.57 671,876 10.09
12.13 - 12.63 793,242 10.00 12.35 74,500 12.25
--------- ---------
.96 - 12.63 3,157,034 7.44 7.90 1,835,341 6.40
========= =========
</TABLE>
At September 28, 1997, September 29, 1996 and October 1, 1995, the number
of options exercisable were 1,835,341, 1,732,899 and 1,513,330, respectively and
the weighted average exercise price of those options were $6.40, $6.12 and
$6.05, respectively.
Effective fiscal year 1997, the Company adopted the disclosure requirements
of SFAS 123. As permitted under this Statement, the Company will continue to
measure stock-based compensation cost using its current "intrinsic value"
accounting method.
For purposes of the following pro forma disclosures required by SFAS 123,
the fair value of each option granted after fiscal 1995 has been estimated on
the date of grant using the Black-Scholes option-pricing model. Such models
require the input of highly subjective assumptions, including the expected
volatility of the stock price. Therefore, in management's opinion, the existing
models do not provide a reliable single measure of the value of employee stock
options. The following weighted average assumptions were used for grants: risk
free interest rates of 6.38% in 1997 and 6.17% in 1996; expected volatility of
35% in 1997 and 37% in 1996; and in both 1997 and 1996 an expected life of 6
years. The company has not paid any cash or other dividends and does not
anticipate paying dividends in the foreseeable future, therefore the expected
dividend yield is zero. The weighted average fair value of options granted was
$5.80 in 1997 and $3.45 in 1996. Had compensation expense been recognized for
stock-based compensation plans in accordance with provisions of SFAS 123, the
F-17
<PAGE> 107
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Company would have recorded net earnings of $33,211, or $0.83 per share, in 1997
and $19,854, or $0.51 per share, in 1996.
For the pro forma disclosures, the options' estimated fair values were
amortized over their vesting periods. The pro forma disclosures do not include a
full five years of grants since SFAS 123 does not apply to grants before 1995.
Therefore, these pro forma amounts are not indicative of anticipated future
disclosures.
9. STOCKHOLDERS' EQUITY
The Company has 15,000,000 shares of preferred stock authorized for
issuance at a par value of $.01 per share. No shares have been issued.
On July 26, 1996, the Board of Directors declared a dividend of one
preferred stock purchase right (a "Right") for each outstanding share of the
Company's common stock, which Rights expire on July 26, 2006. Each Right
entitles a stockholder to purchase for an exercise price of $40, subject to
adjustment, one one-hundredth of a share of Series A Junior Participating
Cumulative Preferred Stock of the Company, or, under certain circumstances,
shares of common stock of the Company or a successor company with a market value
equal to two times the exercise price. The Rights would only become exercisable
for all other persons when any person has acquired or commences to acquire a
beneficial interest of at least 20% of the Company's outstanding common stock.
The Rights have no voting privileges and may be redeemed by the Board of
Directors at a price of $.001 per Right at any time prior to the acquisition of
a beneficial ownership of 20% of the outstanding common shares. There are
390,968 shares of Series A Junior Participating Cumulative Preferred Stock
reserved for issuance upon exercise of the Rights.
In conjunction with the December 1988 acquisition of the Company, warrants
for the purchase of 1,584,573 shares of common stock were issued and are
exercisable at $.93 per share, as adjusted. As of September 29, 1997, warrants
for 1,482,726 shares had been exercised.
At September 28, 1997, the Company had 6,542,007 shares of common stock
reserved for issuance upon the exercise of stock options and 101,847 shares
reserved for issuance upon exercise of warrants.
10. AVERAGE SHARES OUTSTANDING
Fiscal year net earnings (loss) per share is based on the weighted average
number of shares outstanding during the year, determined as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Shares outstanding, beginning of fiscal year... 38,840,525 38,802,195 38,668,200
Effect of common stock issued.................. 92,081 16,071 29,566
Assumed additional shares issued upon exercise
of stock options and warrants, net of shares
reacquired at the average market price....... 843,638 482,510 216,874
---------- ---------- ----------
Weighted average shares outstanding............ 39,776,244 39,300,776 38,914,640
========== ========== ==========
</TABLE>
11. CONTINGENT LIABILITIES
The legal proceedings that were pending against the Company in federal and
state courts in the state of Washington, relating to food-borne illness (the
"Outbreak") attributed to hamburgers served at JACK IN THE BOX restaurants in
1993, have been concluded, with the exception of one case of immaterial
financial impact, which is currently on appeal. The total liability on all such
lawsuits and claims did not exceed the coverage available under the Company's
applicable insurance policies.
F-18
<PAGE> 108
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company is engaged in litigation with the Vons Companies, Inc. ("Vons")
and various suppliers seeking reimbursement for all damages, costs and expenses
incurred in connection with the Outbreak. The initial litigation was filed by
the Company on February 4, 1993. Vons has filed cross-complaints against the
Company and others alleging certain contractual, indemnification and tort
liabilities; seeking damages in unspecified amounts and a declaration of the
rights and obligations of the parties. The claims of the parties arise out of
two separate lawsuits which have been consolidated and are now set for trial in
the Los Angeles Superior Court, Los Angeles, California in January 1998.
On April 6, 1996 an action was filed by one of the Company's international
franchisees, Wolsey, Ltd., in the United States District Court in San Diego,
California against the Company and its directors, its international franchising
subsidiary, and certain officers of the Company and others. The complaint
alleges certain contractual, tort and law violations related to the franchisees'
development rights in the Far East and seeks damages in excess of $38.5 million,
injunctive relief, attorneys fees and costs. The Company has successfully
dismissed portions of the complaint, including the single claim alleging
wrongdoing by the Company's outside directors. Management believes the remaining
allegations are without foundation and intends to vigorously defend the action.
On November 5, 1996, an action was filed by the "National JIB Franchisee
Association, Inc." and several of the Company's franchisees in the Superior
Court of California, County of San Diego in San Diego, California, against the
Company and others. The lawsuit alleges that certain Company policies are unfair
business practices and violate sections of the California Corporations Code
regarding material modifications of franchise agreements and interfere with
franchisees' right of association. It seeks injunctive relief, a declaration of
the rights and duties of the parties, unspecified damages and recision of
alleged material modifications of plaintiffs' franchise agreements. The
complaint also alleges fraud, breach of a fiduciary duty and breach of a third
party beneficiary contract in connection with certain payments that the Company
received from suppliers and seeks unspecified damages, interest, punitive
damages and an accounting. Management believes that its policies are lawful and
that it has satisfied any obligation to its franchisees in regard to such
supplier payments.
On December 10, 1996, a suit was filed by the Company's Mexican licensee,
Foodmex, Inc., in the United States District Court in San Diego, California
against the Company and its international franchising subsidiary. Foodmex
formerly operated several JACK IN THE BOX franchise restaurants in Mexico, but
its licenses were terminated by the Company for, among other reasons, chronic
insolvency and failure to meet operational standards. The Foodmex suit alleges
wrongful termination of its master license, breach of contract and unfair
competition and seeks an injunction to prohibit termination of its license as
well as unspecified monetary damages. In January 1997 Foodmex amended its
complaint to name several individual defendants and to allege additional causes
of action. The Company and its subsidiary counterclaimed and sought a
preliminary injunction against Foodmex. On March 28, 1997 the court granted the
Company's request for an injunction, held that the Company was likely to prevail
in its suit, and ordered Foodmex to immediately cease using the JACK IN THE BOX
marks and proprietary operating systems. On June 30, 1997, the court held
Foodmex and its president in contempt of court for failing to comply with the
March 28, 1997 order.
On February 2, 1995, an action by Concetta Jorgensen was filed against the
Company in the U.S. District Court in San Francisco, California alleging that
restrooms at a JACK IN THE BOX restaurant failed to comply with laws regarding
disabled persons and seeking damages in unspecified amounts, punitive damages,
injunctive relief, attorneys fees and prejudgment interest. In an amended
complaint, damages were also sought on behalf of all physically disabled persons
who were allegedly denied access to restrooms at the restaurant. In February
1997, the court ordered that the action for injunctive relief proceed as a
nationwide class action on behalf of all persons in the United States with
mobility disabilities. The Company has reached tentative agreement on settlement
terms both as to the individual plaintiff Concetta Jorgensen and the claims for
F-19
<PAGE> 109
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
injunctive relief, but a settlement agreement has not yet been signed or
presented to the U.S. District Court for approval. During the course of
settlement discussions, Foodmaker was notified by attorneys for plaintiffs that
claims may be made against JACK IN THE BOX franchisees and Foodmaker relating to
locations that franchisees lease from Foodmaker which may not be in compliance
with the Americans With Disabilities Act.
On May 23, 1997, an action by Ralston Purina Company was filed against the
Company in the U.S. District court for the Eastern District of Missouri in St.
Louis, Missouri alleging the Company's breach of a tax sharing agreement and
unjust enrichment and seeking an accounting and damages in an amount not less
than $11 million and attorneys' fees and costs. The Company believes it has
meritorious defenses and intends to vigorously resist the lawsuit.
The Company is also subject to normal and routine litigation. The amount of
liability from the claims and actions described above cannot be determined with
certainty, but in the opinion of management, the ultimate liability from all
pending legal proceedings, asserted legal claims and known potential legal
claims which are probable of assertion should not materially affect the results
of operations and liquidity of the Company.
12. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
Accounts receivable:
Trade................................................... $ 4,349 $ 7,489
Notes................................................... 1,444 2,010
Other................................................... 7,714 6,476
Allowance for doubtful accounts......................... (3,025) (3,493)
-------- --------
$ 10,482 $ 12,482
======== ========
Other Assets:
Trading area rights, net of amortization of $21,880 and
$18,669, respectively................................ $ 69,921 $ 67,663
Lease acquisition costs, net of amortization of $21,469
and $20,896, respectively............................ 18,788 22,299
Other assets, net of amortization of $18,503 and
$18,259, respectively................................ 34,100 34,261
-------- --------
$122,809 $124,223
======== ========
Accrued liabilities:
Payroll and related taxes............................... $ 32,948 $ 29,889
Sales and property taxes................................ 11,413 10,125
Advertising............................................. 11,801 12,294
Insurance............................................... 45,343 41,494
Interest................................................ 6,916 7,352
Income tax liabilities.................................. 17,208 347
Other................................................... 26,539 14,457
-------- --------
$152,168 $115,958
======== ========
</TABLE>
F-20
<PAGE> 110
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
12 WEEKS ENDED
16 WEEKS ENDED -----------------------------------------------
JAN. 21, 1996 APR. 14, 1996 JULY 7, 1996 SEPT. 29, 1996
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues........................ $330,630 $249,975 $243,147 $239,070
Gross profit.................... 43,047 29,870 36,134 34,560
Net earnings.................... 4,690 4,013 5,515 5,833
Net earnings per share.......... .12 .10 .14 .15
</TABLE>
<TABLE>
<CAPTION>
12 WEEKS ENDED
16 WEEKS ENDED -----------------------------------------------
JAN. 19, 1997 APR. 13, 1997 JULY 6, 1997 SEPT. 28, 1997
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues........................ $323,483 $246,993 $251,681 $249,585
Gross profit.................... 48,219 37,051 41,771 38,959
Earnings before extraordinary
item.......................... 9,027 6,695 9,995 9,586
Net earnings.................... 9,027 6,695 9,995 8,334
Earnings per share before
extraordinary item............ .23 .17 .25 .24
Net earnings per share.......... .23 .17 .25 .21
</TABLE>
F-21
<PAGE> 111
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
APRIL 12, SEPTEMBER 28,
1998 1997
--------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 81,590 $ 28,527
Receivables .................................... 13,801 10,482
Inventories .................................... 18,974 18,300
Prepaid expenses ............................... 42,830 42,853
--------- ---------
Total current assets ................... 157,195 100,162
--------- ---------
Trading area rights .............................. 73,092 69,921
--------- ---------
Lease acquisition costs .......................... 17,621 18,788
--------- ---------
Other assets ..................................... 35,556 34,100
--------- ---------
Property at cost ................................. 683,293 660,076
Accumulated depreciation and amortization ...... (216,286) (201,289)
--------- ---------
467,007 458,787
--------- ---------
$ 750,471 $ 681,758
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ........... $ 1,547 $ 1,470
Accounts payable ............................... 33,261 39,575
Accrued expenses ............................... 147,504 134,960
Income tax liabilities ......................... 26,298 17,208
--------- ---------
Total current liabilities .............. 208,610 193,213
--------- ---------
Deferred income taxes ............................ 3,782 382
--------- ---------
Long-term debt, net of current maturities ........ 346,524 346,191
--------- ---------
Other long-term liabilities ...................... 56,488 54,093
--------- ---------
Stockholders' equity:
Common stock ................................... 407 405
Capital in excess of par value ................. 284,682 283,517
Accumulated deficit ............................ (135,559) (181,580)
Treasury stock ................................. (14,463) (14,463)
--------- ---------
Total stockholders' equity ............. 135,067 87,879
--------- ---------
$ 750,471 $ 681,758
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-22
<PAGE> 112
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWENTY-EIGHT
TWELVE WEEKS ENDED WEEKS ENDED
----------------------- -----------------------
APRIL 12, APRIL 13, APRIL 12, APRIL 13,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales .......................... $249,505 $223,820 $574,838 $515,032
Distribution sales ........................ 5,546 14,285 12,319 34,860
Franchise rents and royalties ............. 8,029 8,035 18,963 18,705
Other ..................................... 46,829 853 47,563 1,879
-------- -------- -------- --------
309,909 246,993 653,683 570,476
-------- -------- -------- --------
Costs and expenses:
Costs of revenues:
Restaurant costs of sales .............. 80,592 74,596 187,265 172,793
Restaurant operating costs ............. 132,431 115,415 302,393 265,744
Costs of distribution sales ............ 5,368 14,299 11,940 34,650
Franchised restaurant costs ............ 5,480 5,540 12,455 12,019
Selling, general and administrative ....... 27,431 19,136 52,803 43,030
Interest expense .......................... 8,160 9,412 19,206 22,018
-------- -------- -------- --------
259,462 238,398 586,062 550,254
-------- -------- -------- --------
Earnings before income taxes ................ 50,447 8,595 67,621 20,222
Income taxes ................................ 16,100 1,900 21,600 4,500
-------- -------- -------- --------
Net earnings ................................ $ 34,347 $ 6,695 $ 46,021 $ 15,722
======== ======== ======== ========
Net earnings per share:
Basic ..................................... $ .88 $ .17 $ 1.17 $ .40
Diluted ................................... $ .85 $ .17 $ 1.14 $ .40
Weighted average shares outstanding:
Basic ..................................... 39,226 38,877 39,178 38,859
Diluted ................................... 40,327 39,580 40,252 39,531
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-23
<PAGE> 113
FOODMAKER, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
------------------------
APRIL 12, APRIL 13,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operations:
Net earnings ....................................................... $ 46,021 $ 15,722
Non-cash items included above:
Depreciation and amortization ................................... 22,686 21,274
Deferred income taxes ........................................... 3,400 (2,000)
(Increase) decrease in receivables ................................. (3,319) (427)
Increase in inventories ............................................ (674) 99
Increase in prepaid expenses ....................................... (850) (6,556)
Increase (decrease) in accounts payable ............................ (6,314) 5,772
Decrease in other accrued liabilities .............................. 24,222 10,990
-------- --------
Cash flows provided by operations .......................... 85,172 44,874
-------- --------
Cash flows from investing activities:
Additions to property and equipment ................................ (28,953) (15,629)
Dispositions of property and equipment ............................. 3,397 1,442
Increase in trading area rights .................................... (5,114) (1,510)
Increase in other assets ........................................... (2,813) (868)
-------- --------
Cash flows used in investing activities .................... (33,483) (16,565)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ........................... 1,000 --
Principal payments on long-term debt, including current
maturities ...................................................... (793) (1,174)
Proceeds from issuance of common stock ............................. 1,167 372
-------- --------
Cash flows provided by (used in) financing activities ...... 1,374 (802)
-------- --------
Net increase in cash and cash equivalents ................. $ 53,063 $ 27,507
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-24
<PAGE> 114
FOODMAKER, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements of Foodmaker, Inc. (the
"Company") do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, considered necessary for a fair presentation of financial condition
and results of operations for the interim periods have been included. Operating
results for any interim period are not necessarily indicative of the results for
any other interim period or for the full year. The Company reports results
quarterly with the first quarter having 16 weeks and each remaining quarter
having 12 weeks. Certain financial statement reclassifications have been made in
the prior year to conform to the current year presentation. These financial
statements should be read in conjunction with the 1997 financial statements.
2. In 1998, the Company adopted Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), Earnings per Share. SFAS 128 requires the presentation of
basic earnings per share, computed using the weighted average number of shares
outstanding during the period, and diluted earnings per share, computed using
the additional dilutive effect of all common stock equivalents. The dilutive
impact of stock options and warrants account for the additional weighted average
shares of common stock outstanding for the Company's diluted earnings per share
computation. All prior periods have been restated to conform with the provisions
of SFAS 128.
3. The income tax provisions reflect the expected annual tax rate of 32% of
pretax earnings in 1998 and the actual tax rate of 22% in 1997. The low
effective income tax rates in each year result from the Company's ability to
realize previously unrecognized tax benefits. The Company cannot determine the
actual 1998 annual effective tax rate until the end of the fiscal year, thus the
rate could differ from expectations.
4. Contingent Liabilities
The Company has settled the litigation it filed against the Vons Companies,
Inc. ("Vons") and various suppliers seeking reimbursement for all damages, costs
and expenses incurred in connection with food-borne illness attributed to
hamburgers served at JACK IN THE BOX restaurants in 1993. The initial litigation
was filed by the Company on February 4, 1993. Vons filed cross-complaints
against the Company and others alleging certain contractual, indemnification and
tort liabilities; seeking damages in unspecified amounts and a declaration of
the rights and obligations of the parties. The claims of the parties were
settled on February 24, 1998. Foodmaker received in its second quarter
approximately $58.5 million in the settlement of which a net of approximately
$45.8 million was realized after litigation costs and before income taxes (the
"Litigation Settlement").
On February 2, 1995, an action by Concetta Jorgensen was filed against the
Company in the U.S. District Court in San Francisco, California alleging that
restrooms at a JACK IN THE BOX restaurant failed to comply with laws regarding
disabled persons and seeking damages in unspecified amounts, punitive damages,
injunctive relief, attorneys fees and prejudgment interest. In an amended
complaint, damages were also sought on behalf of all physically disabled persons
who were allegedly denied access to restrooms at the restaurant. In February
1997, the court ordered that the action for injunctive relief proceed as a
nationwide class action on behalf of all persons in the United States with
mobility disabilities. The Company has reached agreement on settlement terms
both as to the individual plaintiff Concetta Jorgensen and the claims for
injunctive relief, and the settlement agreement has been approved by the U.S.
District Court. The settlement requires the Company to make access improvements
at Company-operated restaurants to comply with the standards set forth in the
Americans with Disability Act Access Guidelines. The settlement requires
compliance at 85% of Company-operated restaurants by April 2001 and for the
balance of Company-operated restaurants by October 2005. The Company has agreed
to make modifications to its restaurants to improve accessibility and
anticipates investing an estimated $11 million in capital improvements over the
next seven years. Foodmaker has been notified by attorneys for plaintiffs that
claims may be made against JACK IN THE BOX franchisees and Foodmaker relating to
locations that franchisees lease from Foodmaker which may not be in compliance
with the Americans with Disabilities Act.
F-25
<PAGE> 115
On April 6, 1996, an action was filed by one of the Company's international
franchisees, Wolsey, Ltd., in the United States District Court in San Diego,
California against the Company and its directors, its international franchising
subsidiary, and certain officers of the Company and others. The complaint
alleges certain contractual, tort and law violations related to the franchisees'
development rights in the Far East and seeks damages in excess of $38.5 million,
injunctive relief, attorneys fees and costs. The Company has successfully
dismissed portions of the complaint, including the single claim alleging
wrongdoing by the Company's outside directors, and the claims against its
current officers. Management believes the remaining allegations are without
foundation and intends to vigorously defend the action.
On November 5, 1996, an action was filed by the National JIB Franchisee
Association, Inc. and several of the Company's franchisees in the Superior Court
of California, County of San Diego in San Diego, California, against the Company
and others. The lawsuit alleges that certain Company policies are unfair
business practices and violate sections of the California Corporations Code
regarding material modifications of franchise agreements and interfere with
franchisees' right of association. It seeks injunctive relief, a declaration of
the rights and duties of the parties, unspecified damages and recision of
alleged material modifications of plaintiffs' franchise agreements. The
complaint also alleges fraud, breach of a fiduciary duty and breach of a third
party beneficiary contract in connection with certain payments that the Company
received from suppliers and seeks unspecified damages, interest, punitive
damages and an accounting. Management believes that its policies are lawful and
that it has satisfied any obligation to its franchisees in regard to such
supplier payments.
On December 10, 1996, a suit was filed by the Company's Mexican licensee,
Foodmex, Inc., in the United States District Court in San Diego, California
against the Company and its international franchising subsidiary. Foodmex
formerly operated several JACK IN THE BOX franchise restaurants in Mexico, but
its licenses were terminated by the Company for, among other reasons, chronic
insolvency and failure to meet operational standards. The Foodmex suit alleges
wrongful termination of its master license, breach of contract and unfair
competition and seeks an injunction to prohibit termination of its license as
well as unspecified monetary damages. The Company and its subsidiary
counterclaimed and sought a preliminary injunction against Foodmex. On March 28,
1997, the court granted the Company's request for an injunction, held that the
Company was likely to prevail in its suit, and ordered Foodmex to immediately
cease using the JACK IN THE BOX marks and proprietary operating systems. On June
30, 1997, the court held Foodmex and its president in contempt of court for
failing to comply with the March 28, 1997 order. On February 24, 1998, the Court
issued an order dismissing Foodmex's complaint without prejudice. In March 1998,
Foodmex filed a Second Amended Complaint in the United States District Court in
San Diego, California alleging contractual, tort and law violations arising out
of the same business relationship and seeking damages in excess of $10 million,
attorneys fees and costs. The Company believes such allegations are without
merit and will defend the action vigorously.
On May 23, 1997, an action by Ralston Purina Company was filed against the
Company in the U.S. District Court for the Eastern District of Missouri in St.
Louis, Missouri alleging the Company's breach of a tax sharing agreement and
unjust enrichment and seeking an accounting and damages in an amount not less
than $11 million plus interest and attorneys' fees and costs. The Company
believes it has meritorious defenses and intends to vigorously defend the
lawsuit.
The Company is also subject to normal and routine litigation. The amount of
liability from the claims and actions described above cannot be determined with
certainty, but in the opinion of management, the ultimate liability from all
pending legal proceedings, asserted legal claims and known potential legal
claims which are probable of assertion should not materially affect the results
of operations and liquidity of the Company.
F-26
<PAGE> 116
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law ("DGCL") makes
provision for the indemnification of officers and directors in terms
sufficiently broad to indemnify officers and directors of Foodmaker, Inc. (the
"Registrant") under certain circumstances from liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933.
The Registrant's Certificate of Incorporation ("Certificate") and Bylaws
provide, in effect, that, to the fullest extent and under the circumstances
permitted by Section 145 of the DGCL, the Registrant will 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, by reason of the fact that the person is a
director or officer of the Registrant or is or was serving at the request or the
Registrant as a director or officer of another corporation or enterprise. The
Registrant has also entered into indemnification agreements with its officers
and directors. The Registrant may, in its discretion, similarly indemnify its
employees and agents. The Registrant's Certificate relieves its directors from
monetary damages to the Registrant or its stockholders for breach of such
director's fiduciary duty as a director to the fullest extent permitted by the
DGCL. Under Section 102(b)(7) of the DGCL, a corporation may relieve its
directors from personal liability to such corporation or its stockholders for
monetary damages for any breach of their fiduciary duty as directors except (i)
for a breach of the duty of loyalty, (ii) for failure to act in good faith,
(iii) for intentional misconduct or knowing violation of law, (iv) for willful
or negligent violations of certain provisions in the DGCL imposing certain
requirements with respect to stock repurchases, redemptions and dividends, or
(v) for any transactions from which the director derived an improper personal
benefit. Depending upon the character of the proceeding, under Delaware law, the
Registrant may indemnify against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding if the person indemnified
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, had no cause to believe his or her conduct was
unlawful. To the extent that a director or officer of the Registrant has been
successful in the defense of any action, suit or proceeding referred to above,
the Registrant would have the right to indemnify him or her against expenses
(including attorneys' fees) actually and reasonably incurred in connection
therewith.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF
NUMBER EXHIBIT
------ -------
<S> <C>
1.1 Placement Agreement, dated April 8, 1998, by and among
the Registrant, the Subsidiary Guarantors and Placement
Agents.
3.1 Restated Certificate of Incorporation, previously filed
and incorporated herein by reference from Company's
Annual Report on Form 10-K for the fiscal year ended
September 29, 1996.
3.2 Restated Bylaws, previously filed and incorporated
herein by reference from Company's Current Report on
Form 8-K as of July 26, 1996
4.1 Indenture for the 8 3/8% Senior Subordinated Notes
due 2008, dated April 14, 1998, by and between the
Company and the Banks and Agent named therein,
previously filed and incorporated herein by reference
from the Company's Quarterly Report on Form 10-Q for
the quarter ended April 12, 1998.
</TABLE>
II-1
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF
NUMBER EXHIBIT
------ -------
<S> <C>
4.2 Form of Note (included in Exhibit 4.1 hereto).
4.3 Registration Rights Agreement, dated as of April 14,
1998 between the Registrant, the Subsidiary Guarantors
and the Placement Agents.
5.1* Opinion of Gibson, Dunn & Crutcher LLP.
10.1 Revolving Credit Agreement dated as of April 1, 1998,
between the Registrant, NationsBank of Texas, N.A. and
several financial institutions from time to time, previously
filed and incorporated herein by reference from the
Company's Quarterly Report on Form 10-Q for the quarter
ended April 12, 1998.
12.1 Statements re computation of ratios.
23.1* Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.1).
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (contained on signature page hereto).
25.1 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 on Form T-1.
* To be filed later by amendment.
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
ITEM 22. UNDERTAKINGS
The undersigned 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 registration statement 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.
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
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of 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 counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that (1) for the purposes
of determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance on Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective and (2) for the purpose of determining any liability under
the Securities Act of 1933,
II-2
<PAGE> 118
each post-effective amendment that contains a form of prospectus 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.
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.
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.
II-3
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Diego, State of
California, on June 12, 1998.
Foodmaker, Inc.
By: /s/ ROBERT J. NUGENT
----------------------------------------
Robert J. Nugent
Chief Executive Officer and President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert J. Nugent and Charles W. Duddles,
and each of them, his attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, including a registration statement pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully as to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that each of said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JACK GOODALL Chairman of the Board
- ----------------------------
Jack Goodall
/s/ ROBERT J. NUGENT Chief Executive Officer, President
- ---------------------------- and Director
Robert J. Nugent
/s/ CHARLES W. DUDDLES Executive Vice President, Chief
- ---------------------------- Financial Officer, Chief
Charles W. Duddles Administrative Officer and Director
/s/ PAUL T. CARTER Director
- ----------------------------
Paul T. Carter
/s/ L. ROBERT PAYNE Director
- ----------------------------
L. Robert Payne
</TABLE>
II-4
<PAGE> 120
Pursuant to the requirements of the Securities Act of 1933, CP
Distribution Co. has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San Diego,
State of California, on June 12, 1998.
CP Distribution Co.
By: /s/ CHARLES W. DUDDLES
--------------------------------
Charles W. Duddles
Vice President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Bruce N. Bowers and Charles W. Duddles,
and each of them, his attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, including a registration statement pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully as to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that each of said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE
--------- -----
/s/ BRUCE N. BOWERS President and Director
------------------------
Bruce N. Bowers
/s/ CHARLES W. DUDDLES Vice President and Director
------------------------
Charles W. Duddles
/s/ LAWRENCE E. SCHAUF Secretary, Treasurer and Director
------------------------
Lawrence E. Schauf
II-5
<PAGE> 121
Pursuant to the requirements of the Securities Act of 1933, CP Wholesale
Co. has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the city of San Diego, State of
California, on June 12, 1998.
CP Wholesale Co.
By: /s/ BRUCE N. BOWERS
--------------------------------
Bruce N. Bowers
President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert J. Nugent and Bruce N. Bowers, and
each of them, his attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, including a registration statement pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully as to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that each of said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE
--------- -----
/s/ BRUCE N. BOWERS President and Director
------------------------
Bruce N. Bowers
/s/ LAWRENCE E. SCHAUF Secretary, Treasurer and Director
------------------------
Lawrence E. Schauf
II-6
<PAGE> 122
Pursuant to the requirements of the Securities Act of 1933, Jack in the
Box, Inc. has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of San Diego, State
of California, on June 12, 1998.
Jack in the Box, Inc.
By: /s/ CHARLES W. DUDDLES
--------------------------------
Charles W. Duddles
Vice President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert J. Nugent and Charles W. Duddles,
and each of them, his attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, including a registration statement pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully as to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that each of said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE
--------- -----
/s/ CHARLES W. DUDDLES Vice President and Director
------------------------
Charles W. Duddles
/s/ LAWRENCE E. SCHAUF Secretary, Treasurer and Director
------------------------
Lawrence E. Schauf
II-7
<PAGE> 123
Pursuant to the requirements of the Securities Act of 1933, Foodmaker
International Franchising Inc. has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of San Diego, State of California, on June 12, 1998.
Foodmaker International Franchising Inc.
By: /s/ CHARLES W. DUDDLES
--------------------------------
Charles W. Duddles
Vice President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert J. Nugent and Charles W. Duddles,
and each of them, his attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, including a registration statement pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully as to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that each of said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE
--------- -----
/s/ CHARLES W. DUDDLES Vice President and Director
------------------------
Charles W. Duddles
/s/ LAWRENCE E. SCHAUF Director
------------------------
Lawrence E. Schauf
II-8
<PAGE> 124
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
------- -------------- ------------
<S> <C>
1.1 Placement Agreement, dated April 8, 1998, by and among
the Registrant, the Subsidiary Guarantors and Placement
Agents.
3.1 Restated Certificate of Incorporation, previously filed
and incorporated herein by reference from Company's
Annual Report on Form 10-K for the fiscal year ended
September 29, 1996.
3.2 Restated Bylaws, previously filed and incorporated
herein by reference from Company's Current Report on
Form 8-K as of July 26, 1996.
4.1 Indenture for the 8-3/8% Senior Subordinated Notes due
2008, dated April 14, 1998, by and between the Company
and the Banks and Agent named therein, previously filed
and incorporated herein by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
April 12, 1998.
4.2 Form of Note (included in Exhibit 4.1 hereto).
4.3 Registration Rights Agreement, dated as of April 14,
1998 between the Registrant, the Subsidiary Guarantors
and the Placement Agents.
5.1* Opinion of Gibson, Dunn & Crutcher LLP.
10.1 Revolving Credit Agreement dated as of April 1, 1998,
between the Registrant, NationsBank of Texas, N.A. and
several financial institutions from time to time, previously
filed and incorporated herein by reference from the
Company's Quarterly Report on Form 10-Q for the quarter
ended April 12, 1998.
12.1 Statements re computation of ratios.
23.1* Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (contained on signature page hereto).
25.1 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 on Form T-1.
* To be filed later by amendment.
</TABLE>
II-9
<PAGE> 1
EXHIBIT 1.1
$125,000,000
FOODMAKER, INC.
8 3/8 % SENIOR SUBORDINATED NOTES DUE 2008
PLACEMENT AGREEMENT
April 8, 1998
<PAGE> 2
April 8, 1998
Morgan Stanley & Co. Incorporated
NationsBanc Montgomery Securities LLC
Salomon Brothers Inc
Jefferies & Company, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Foodmaker, Inc., a Delaware corporation (the "COMPANY"), proposes to
issue and sell to the several purchasers named in Schedule I hereto (the
"PLACEMENT AGENTS") $125,000,000 principal amount of its 8 3/8 % Senior
Subordinated Notes due 2008 (the "SECURITIES") to be issued pursuant to the
provisions of an Indenture dated as of April 14, 1998 (the "INDENTURE") among
the Company and CP Distribution Co., CP Wholesale Co., Foodmaker International
Franchising, Inc. and Jack in the Box, Inc. (collectively, the "SUBSIDIARY
GUARANTORS") and First Union National Bank, as Trustee (the "TRUSTEE"). The
Securities will be guaranteed (the "SUBSIDIARY GUARANTEES") by each of the
Subsidiary Guarantors.
The Securities will be offered without being registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), to qualified
institutional buyers in compliance with the exemption from registration provided
by Rule 144A under the Securities Act, in offshore transactions in reliance on
Regulation S under the Securities Act ("REGULATION S") and to institutional
accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) that deliver a letter in the form annexed to the Final
Memorandum (as defined below).
The Placement Agents and their direct and indirect transferees will be
entitled to the benefits of a Registration Rights Agreement dated the date
hereof between the Company and the Placement Agents (the "REGISTRATION RIGHTS
AGREEMENT").
In connection with the sale of the Securities, the Company has prepared
a preliminary offering memorandum (the "PRELIMINARY MEMORANDUM") and will
prepare a final offering memorandum (the "FINAL MEMORANDUM" and, with the
2
<PAGE> 3
Preliminary Memorandum, each a "MEMORANDUM") including or incorporating by
reference a description of the terms of the Securities, the terms of the
offering and a description of the Company. As used herein, the term "Memorandum"
shall include in each case the documents incorporated by reference therein. The
terms "SUPPLEMENT", "AMENDMENT" and "AMEND" as used herein with respect to a
Memorandum shall include all documents deemed to be incorporated by reference in
the Preliminary Memorandum or Final Memorandum that are filed subsequent to the
date of such Memorandum with the Securities and Exchange Commission (the
"COMMISSION") pursuant to the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT").
1. Representations and Warranties. The Company and the Subsidiary
Guarantors represent and warrant to, and agree with, you that:
(a) (i) Each document, if any, to be filed pursuant to the
Exchange Act and incorporated by reference in either Memorandum complied
or will comply when so filed in all material respects with the Exchange
Act and the applicable rules and regulations of the Commission
thereunder and (ii) the Preliminary Memorandum as of its date did not
contain and the Final Memorandum, in the form used by the Placement
Agents to confirm sales and on the Closing Date (as defined in Section
4), as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto, will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or
omissions in either Memorandum based upon information relating to any
Placement Agent furnished to the Company in writing by such Placement
Agent through you expressly for use therein.
(b) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of Delaware, has the
corporate power and authority to own its property and to conduct its
business as described in each Memorandum and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be
so qualified or
3
<PAGE> 4
be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(c) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority
to own its property and to conduct its business as described in each
Memorandum and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances,
equities or claims (other than liens, encumbrances, equities or claims
pursuant to the New Credit Facility, as defined in the Final
Memorandum).
(d) This Agreement has been duly authorized, executed and
delivered by the Company and the Subsidiary Guarantors.
(e) The Securities have been duly authorized and, when executed
and authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Placement Agents in accordance with the
terms of this Agreement, will be the valid and binding obligation of the
Company, enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally and general principles of equity, and will be entitled
to the benefits of the Indenture and the Registration Rights Agreement
pursuant to which such Securities are to be issued.
(f) The Subsidiary Guarantees to be endorsed on the Securities by
each Subsidiary Guarantor have been duly authorized, executed and
delivered and, when the Securities have been executed and authenticated
in accordance with the provisions of the Indenture and delivered to and
paid for by the Placement Agents in accordance with the terms of this
Agreement, the Subsidiary Guarantee of each Subsidiary Guarantor thereon
will be the valid and binding obligation of each Subsidiary Guarantor,
enforceable in accordance with their terms, subject to
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<PAGE> 5
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally and general principles of equity, and will be entitled
to the benefits of the Indenture and the Registration Rights Agreement
pursuant to which such Securities are to be issued.
(g) Each of the Indenture and the Registration Rights Agreement
has been duly authorized, executed and delivered by, and is a valid and
binding agreement of, the Company and the Subsidiary Guarantors,
enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity and except as rights to
indemnification and contribution under the Registration Rights Agreement
may be limited under applicable law.
(h) The execution and delivery by the Company and the Subsidiary
Guarantors of, and the performance by the Company and the Subsidiary
Guarantors of their respective obligations under, this Agreement, the
Indenture, the Securities, the Subsidiary Guarantees and the
Registration Rights Agreement, as applicable, will not contravene any
provision of applicable law or the certificate of incorporation or
by-laws of the Company or any of its subsidiaries or any agreement or
other instrument binding upon the Company or any of its subsidiaries
that is material to the Company and its subsidiaries, taken as a whole,
or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company or the Subsidiary Guarantors of their respective obligations
under this Agreement, the Indenture, the Securities, the Subsidiary
Guarantees or the Registration Rights Agreement, as applicable, except
such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Securities
and by Federal and state securities laws with respect to the Company's
and each Subsidiary Guarantor's obligations under the Registration
Rights Agreement.
(i) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations
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<PAGE> 6
of the Company and its subsidiaries, taken as a whole, from that set
forth in the Final Memorandum.
(j) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any of its subsidiaries
is subject other than proceedings accurately described in all material
respects in each Memorandum and proceedings that would not reasonably be
expected to have a material adverse effect on the Company and its
subsidiaries, taken as a whole, or have a material effect on the power
or ability of the Company or the Subsidiary Guarantors to perform their
respective obligations under this Agreement, the Indenture, the
Securities, the Subsidiary Guarantees or the Registration Rights
Agreement or to consummate the transactions contemplated by the Final
Memorandum.
(k) The Company and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(l) To the best knowledge of the Company, there are no costs or
liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would,
singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(m) The Company and its subsidiaries have good and marketable fee
simple title to all real property owned by them which is
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<PAGE> 7
material to the business of the Company and its subsidiaries, free and
clear of all liens and defects other than (i) those described in the
Final Memorandum, (ii) such liens as do not materially affect the value
of such property and do not interfere with the use made and proposed to
be made of such property by the Company and its subsidiaries and (iii)
such liens as are contemplated or referenced in the New Credit Facility
(as defined in the Final Memorandum). The Company and each subsidiary
have a valid leasehold interest in all leases of real property and
buildings held by them under lease, free and clear of all liens, other
than (i) such liens as are not material and do not interfere with the
use made and proposed to be made of such real property and buildings by
the Company and its subsidiaries, (ii) such liens as are described in
the Final Memorandum and (iii) such liens as are contemplated or
referenced in the New Credit Facility.
(n) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names
("INTELLECTUAL PROPERTY") currently employed by them in connection with
the business now operated by them except where the failure to own or
possess or otherwise be able to acquire such intellectual property would
not, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole; and, neither the Company
nor any of its subsidiaries has received any notice of infringement of
or conflict with asserted rights of others with respect to any of such
intellectual property which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would reasonably be
expected to have a material adverse effect.
(o) The Company is not, and after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Final Memorandum, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.
(p) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act, an "AFFILIATE") of the
Company has directly, or through any agent (other than the Placement
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<PAGE> 8
Agents, as to whom the Company makes no representation), (i) sold,
offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the Securities Act) which is or
will be integrated with the sale of the Securities in a manner that
would require the registration under the Securities Act of the
Securities or the Subsidiary Guarantees or (ii) engaged in any form of
general solicitation or general advertising in connection with the
offering of the Securities, (as those terms are used in Regulation D
under the Securities Act) or in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act.
(q) None of the Company, its Affiliates or any person acting on
its or their behalf has engaged or will engage in any directed selling
efforts (within the meaning of Regulation S) with respect to the
Securities and the Company and its Affiliates and any person acting on
its or their behalf have complied and will comply with the offering
restrictions requirement of Regulation S, except no representation,
warranty or agreement is made by the Company in this paragraph with
respect to the Placement Agents.
(r) Subject to compliance by the Placement Agents with the
representations and warranties and the procedures set forth in Section
7, it is not necessary in connection with the offer, sale and delivery
of the Securities to the Placement Agents in the manner contemplated by
this Agreement to register the Securities or the Subsidiary Guarantees
under the Securities Act or to qualify the Indenture under the Trust
Indenture Act of 1939, as amended.
(s) The Securities satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act.
(t) The Company will use the net proceeds of this offering in the
manner set forth in each Memorandum under the caption "Use of Proceeds".
2. Agreements to Sell and Purchase. The Company hereby agrees to sell to
the several Placement Agents, and each Placement Agent, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective principal amount Securities set forth in Schedule I
hereto opposite
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<PAGE> 9
its name at a purchase price of 97.207% of the principal amount thereof (the
"Purchase Price") plus accrued interest, if any, to the Closing Date.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Placement Agents, it will
not, during the period beginning on the date hereof and continuing to and
including the Closing Date, offer, sell, contract to sell or otherwise dispose
of any debt of the Company or warrants to purchase debt of the Company
substantially similar to the Securities (other than the sale of the Securities
under this Agreement).
3. Terms of Offering. You have advised the Company that the Placement
Agents will make an offering of the Securities purchased by the Placement Agents
hereunder on the terms to be set forth in the Final Memorandum, as soon as
practicable after this Agreement is entered into as in your judgment is
advisable.
4. Payment and Delivery. Payment for the Securities shall be made to the
Company in Federal or other funds immediately available in New York City against
delivery of such Securities for the respective accounts of the several Placement
Agents at 10:00 a.m., New York City time, on April 14, 1998, or at such other
time on the same or such other date, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the "Closing
Date."
Certificates for the Securities shall be in definitive form or global
form, as specified by you, and registered in such names and in such
denominations as you shall request in writing not later than one full business
day prior to the Closing Date. The certificates evidencing the Securities shall
be delivered to you on the Closing Date for the respective accounts of the
several Placement Agents, with any transfer taxes payable in connection with the
transfer of the Securities to the Placement Agents duly paid, against payment of
the Purchase Price therefor plus accrued interest, if any, to the date of
payment and delivery.
5. Conditions to the Placement Agents' Obligations. The several
obligations of the Placement Agents to purchase and pay for the Securities on
the Closing Date are subject to the following conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
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<PAGE> 10
(i) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating
accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act;
and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole,
from that set forth in the Final Memorandum (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the
Securities on the terms and in the manner contemplated in the
Final Memorandum.
(b) The Placement Agents shall have received on the Closing Date
a certificate, dated the Closing Date and signed by an executive officer
of the Company and each of the Subsidiary Guarantors, to the effect set
forth in Section 5(a)(i) and to the effect that the representations and
warranties of the Company and each of the Subsidiary Guarantors
contained in this Agreement are true and correct as of the Closing Date
and that the Company and each of the Subsidiary Guarantors has complied
with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied hereunder on or before the Closing
Date.
The officer signing and delivering such certificate may rely upon
the best of his or her knowledge as to proceedings threatened.
(c) The Placement Agents shall have received on the Closing Date
an opinion of Gibson, Dunn & Crutcher LLP, outside counsel for the
Company, dated the Closing Date, to the effect set forth in Exhibit A.
Such opinion shall be rendered to the Placement Agents at the request of
the Company and shall so state therein.
(d) The Placement Agents shall have received on the Closing Date
a reliance letter from Gibson, Dunn & Crutcher LLP addressed to the
Placement Agents and the Trustee allowing them to rely on the opinion of
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<PAGE> 11
Gibson, Dunn & Crutcher LLP dated April 1, 1998 issued in connection
with the New Credit Facility.
(e) The Placement Agents shall have received on the Closing Date
an opinion (satisfactory to the Placement Agents and counsel for the
Placement Agents) of Lawrence E. Schauf, Executive Vice President and
Secretary of the Company, dated the Closing Date, (i) to the effect that
the statements in the Final Memorandum under the caption "Legal
Proceedings," insofar as such statements constitute summaries of the
legal matters or documents referred to therein, fairly summarize the
matters referred to therein and (ii) containing a statement
substantially similar to the last paragraph set forth in Exhibit A.
(f) The Placement Agents shall have received on the Closing Date
an opinion of Latham & Watkins, counsel for the Placement Agents, dated
the Closing Date, to the effect set forth in Exhibit B.
(g) The Placement Agents shall have received on each of the date
hereof and the Closing Date a letter, dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Placement Agents, from KPMG Peat Marwick, LLP, independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Final Memorandum; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier
than the date hereof.
6. Covenants of the Company and the Subsidiary Guarantors. In further
consideration of the agreements of the Placement Agents contained in this
Agreement, the Company and the Subsidiary Guarantors, jointly and severally,
covenant with each Placement Agent as follows:
(a) To furnish to you in New York City, without charge, prior to
3:00 p.m. New York City time on the business day next succeeding the
date of this Agreement and during the period mentioned in Section 6(c),
as many copies of the Final Memorandum, any documents incorporated by
reference therein and any supplements and amendments thereto as you may
reasonably request.
(b) Before amending or supplementing either Memorandum, to
furnish to you a copy of each such proposed amendment or supplement
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<PAGE> 12
and not to use any such proposed amendment or supplement to which you
reasonably object.
(c) If, during such period after the date hereof and prior to the
date on which all of the Securities shall have been sold by the
Placement Agents, any event shall occur or condition exist as a result
of which it is necessary to amend or supplement the Final Memorandum in
order to make the statements therein, in the light of the circumstances
when the Final Memorandum is delivered to a purchaser, not misleading,
or if, in the opinion of counsel for the Placement Agents, it is
necessary to amend or supplement the Final Memorandum to comply with
applicable law, forthwith to prepare and furnish, at its own expense, to
the Placement Agents, either amendments or supplements to the Final
Memorandum so that the statements in the Final Memorandum as so amended
or supplemented will not, in the light of the circumstances when the
Final Memorandum is delivered to a purchaser, be misleading or so that
the Final Memorandum, as amended or supplemented, will comply with
applicable law.
(d) To endeavor to qualify the Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Company's counsel and the Company's accountants in
connection with the issuance and sale of the Securities and all other
fees or expenses in connection with the preparation of each Memorandum
and all amendments and supplements thereto, including all printing costs
associated therewith, and the delivering of copies thereof to the
Placement Agents, in the quantities herein above specified, (ii) all
costs and expenses related to the transfer and delivery of the
Securities to the Placement Agents, including any transfer or other
taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or legal investment memorandum in connection with the offer and sale
of the Securities under state securities laws and all expenses in
connection with the qualification of the Securities for offer and sale
under state securities laws as provided in Section 6(d) hereof,
including filing fees and the reasonable fees and disbursements of
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<PAGE> 13
counsel for the Placement Agents in connection with such qualification
and in connection with the Blue Sky or legal investment memorandum, (iv)
any fees charged by rating agencies for the rating of the Securities,
(v) the fees and expenses, if any, incurred in connection with the
admission of the Securities for trading in PORTAL or any appropriate
market system, (vi) the costs and charges of the Trustee and any
transfer agent, registrar or depositary, (vii) the cost of the
preparation, issuance and delivery of the Securities, (viii) the costs
and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the offering
of the Securities, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses
of any consultants engaged in connection with the road show
presentations with the prior approval of the Company, travel and lodging
expenses of the representatives and officers of the Company and any such
consultants, and the cost of any aircraft chartered in connection with
the road show, and (ix) all other cost and expenses incident to the
performance of the obligations of the Company hereunder for which
provision is not otherwise made in this Section. It is understood,
however, that except as expressly provided in this Section, Section 8,
and the last paragraph of Section 10, the Placement Agents will pay all
of their costs and expenses, including fees and disbursements of their
counsel, transfer taxes payable on resale of any of the Securities by
them and any advertising expenses connected with any offers they may
make.
(f) Neither the Company nor any Affiliate will sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner which would require the
registration under the Securities Act of the Securities.
(g) Not to solicit any offer to buy or offer or sell the
Securities by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act.
(h) While any of the Securities remain "restricted securities"
within the meaning of the Securities Act, to make available, upon
request, to any seller of such Securities the information specified in
Rule
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144A(d)(4) under the Securities Act, unless the Company is then subject
to Section 13 or 15(d) of the Exchange Act.
(i) If requested by you, to use its best efforts to permit the
Securities to be designated PORTAL securities in accordance with the
rules and regulations adopted by the National Association of Securities
Dealers, Inc. relating to trading in the PORTAL Market.
(j) None of the Company, its Affiliates or any person acting on
its or their behalf (other than the Placement Agents) will engage in any
directed selling efforts (as that term is defined in Regulation S) with
respect to the Securities, and the Company and its Affiliates and each
person acting on its or their behalf (other than the Placement Agents)
will comply with the offering restrictions requirement of Regulation S.
(k) During the period of two years after the Closing Date, the
Company will not, and will not permit any of its affiliates (as defined
in Rule 144A under the Securities Act) to resell any of the Securities
which constitute "restricted securities" under Rule 144A that have been
reacquired by any of them.
7. Offering of Securities; Restrictions on Transfer. (a) Each Placement
Agent, severally and not jointly, represents and warrants that such
Placement Agent is a qualified institutional buyer as defined in Rule
144A under the Securities Act (a "QIB"). Each Placement Agent, severally
and not jointly, agrees with the Company that (i) it will not solicit
offers for, or offer or sell, such Securities by any form of general
solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a
public offering within the meaning of Section 4(2) of the Securities Act
and (ii) it will solicit offers for such Securities only from, and will
offer such Securities only to, persons that it reasonably believes to be
(A) in the case of offers inside the United States, (I) QIBs or (2)
other institutional accredited investors (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act ("INSTITUTIONAL ACCREDITED
INVESTORS") that, prior to their purchase of the Securities, deliver to
such Initial Purchaser a letter containing the representations and
agreements set forth in Appendix A to the Memorandum and (B) in the case
of offers outside the United States, to persons other than U.S. persons
("FOREIGN PURCHASERS"), which term shall include dealers or other
professional fiduciaries in the United States acting
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<PAGE> 15
on a discretionary basis for foreign beneficial owners (other than an
estate or trust)) in reliance upon Regulation S under the Securities Act
that, in each case, in purchasing such Securities are deemed to have
represented and agreed as provided in the Final Memorandum under the
caption "Transfer Restrictions".
(b) Each Placement Agent, severally and not jointly, represents,
warrants, and agrees with respect to offers and sales outside the United
States that:
(i) such Placement Agent understands that no action has
been or will be taken in any jurisdiction by the Company that
would permit a public offering of the Securities, or possession
or distribution of either Memorandum or any other offering or
publicity material relating to the Securities, in any country or
jurisdiction where action for that purpose is required;
(ii) such Placement Agent will comply with all applicable
laws and regulations in each jurisdiction in which it acquires,
offers, sells or delivers Securities or has in its possession or
distributes either Memorandum or any such other material, in all
cases at its own expense;
(iii) the Securities have not been registered under the
Securities Act and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons
except in accordance with Rule 144A or Regulation S under the
Securities Act or pursuant to another exemption from the
registration requirements of the Securities Act;
(iv) such Placement Agent has offered the Securities and
will offer and sell the Securities (A) as part of their
distribution at any time and (B) otherwise until 40 days after
the later of the commencement of the offering and the Closing
Date, only in accordance with Rule 903 of Regulation S or as
otherwise permitted in Section 7(a); accordingly, neither such
Placement Agent, its Affiliates nor any persons acting on its or
their behalf have engaged or will engage in any directed selling
efforts (within the meaning of Regulation S) with respect to the
Securities, and any such Placement Agent, its Affiliates and any
such persons have
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complied and will comply with the offering restrictions
requirement of Regulation S;
(v) such Placement Agent has (A) not offered or sold and,
prior to the date six months after the Closing Date, will not
offer or sell any Securities to persons in the United Kingdom
except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995; (B)
complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it
in relation to the Securities in, from or otherwise involving the
United Kingdom, and (C) only issued or passed on and will only
issue or pass on in the United Kingdom any document received by
it in connection with the issue of the Securities to a person who
is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or
is a person to whom such document may otherwise lawfully be
issued or passed on;
(vi) such Placement Agent understands that the Securities
have not been and will not be registered under the Securities and
Exchange Law of Japan, and represents that it has not offered or
sold, and agrees not to offer or sell, directly or indirectly,
any Securities in Japan or for the account of any resident
thereof except pursuant to any exemption from the registration
requirements of the Securities and Exchange Law of Japan and
otherwise in compliance with applicable provisions of Japanese
law; and
(vii) such Placement Agent agrees that, at or prior to
confirmation of sales of the Securities, it will have sent to
each distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases Securities
from it during the restricted period a confirmation or notice to
substantially the following effect:
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<PAGE> 17
"The Securities covered hereby have not been registered under the
U.S. Securities Act of 1933 (the "Securities Act") and may not be
offered and sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of their distribution at any time
or (ii) otherwise until 40 days after the later of the commencement of
the offering and the closing date, except in either case in accordance
with Regulation S (or Rule 144A if available) under the Securities Act.
Terms used above have the meaning given to them by Regulation S."
Terms used in this Section 7(b) have the meanings given to them by Regulation S.
8. Indemnity and Contribution. (a) The Company and each Subsidiary
Guarantor agrees to indemnify and hold harmless each Placement Agent and
each person, if any, who controls any Placement Agent within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement of
a material fact contained in either Memorandum (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact necessary to make the statements therein
in the light of the circumstances under which they were made not
misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to
any Placement Agent furnished to the Company in writing by such
Placement Agent through you expressly for use therein; provided,
however, that the foregoing indemnity agreement with respect to any
Preliminary Memorandum shall not inure to the benefit of any Placement
Agent from whom the person asserting any such losses, claims, damages or
liabilities purchased Securities, or any person controlling such
Placement Agent, if a copy of the Final Memorandum (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Placement Agent to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Securities to such person, and if the Final Memorandum (as so amended or
supplemented) would have cured the defect giving rise to such losses,
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claims, damages or liabilities, unless such failure is the result of
noncompliance by the Company with Section 6(a) hereof.
(b) Each Placement Agent agrees, severally and not jointly, to
indemnify and hold harmless the Company and each of the Subsidiary
Guarantors, its directors, its officers and each person, if any, who
controls the Company and each of the Subsidiary Guarantors within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the
Company and each of the Subsidiary Guarantors to such Placement Agent,
but only with reference to information relating to such Placement Agent
furnished to the Company in writing by such Placement Agent through you
expressly for use in either Memorandum or any amendments or supplements
thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Section 8(a) or 8(b), such
person (the "INDEMNIFIED PARTY") shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the indemnifying
party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including
any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests
between them. It is understood that the indemnifying party shall not, in
respect of the legal expenses of any indemnified party in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm (in
addition to any local counsel) for all such indemnified parties and that
all such fees and expenses shall be reimbursed as they are incurred.
Such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated, in the case of parties indemnified
18
<PAGE> 19
pursuant to Section 8(a), and by the Company, in the case of parties
indemnified pursuant to Section 8(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify
the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying
party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this
paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with
such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party,
effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such proceeding.
(d) To the extent the indemnification provided for in Section
8(a) or 8(b) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to
therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
each of the Subsidiary Guarantors on the one hand and the Placement
Agents on the other hand from the offering of the Securities or (ii) if
the allocation provided by clause 8(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause 8(d)(i) above but also the
relative fault of the Company and the Subsidiary Guarantors on the one
hand and of the Placement Agents on the other hand in connection with
the statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Subsidiary Guarantors on the one hand and the Placement Agents
19
<PAGE> 20
on the other hand in connection with the offering of the Securities
shall be deemed to be in the same respective proportions as the net
proceeds from the offering of the Securities (before deducting expenses)
received by the Company and the total discounts and commissions received
by the Placement Agents, in each case as set forth in the Final
Memorandum, bear to the aggregate offering price of the Securities. The
relative fault of the Company and the Subsidiary Guarantors on the one
hand and of the Placement Agents on the other hand shall be determined
by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company
and the Subsidiary Guarantors, on the one hand, or by the Placement
Agents, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. The Placement Agents' respective obligations to
contribute pursuant to this Section 8 are several in proportion to the
respective principal amount of Securities they have purchased hereunder,
and not joint.
(e) The Company and the Subsidiary Guarantors, and the Placement
Agents agree that it would not be just or equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation (even
if the Placement Agents were treated as one entity for such purpose) or
by any other method of allocation that does not take account of the
equitable considerations referred to in Section 8(d). The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in Section 8(d) shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Placement Agent
shall be required to contribute any amount in excess of the amount by
which the total price at which the Securities resold by it in the
initial placement of such Securities were offered to investors exceeds
the amount of any damages that such Placement Agent has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for
in this Section 8 are not exclusive and shall not
20
<PAGE> 21
limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 8 and the representations, warranties and other statements of
the Company and the Subsidiary Guarantors contained in this Agreement
shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on
behalf of any Placement Agent or any person controlling any Placement
Agent or by or on behalf of the Company and the Subsidiary Guarantors,
its officers or directors or any person controlling the Company and the
Subsidiary Guarantors and (iii) acceptance of and payment for any of the
Securities.
9. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Securities on the terms and in the manner contemplated in the Final
Memorandum.
10. Effectiveness; Defaulting Placement Agents. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date, any one or more of the Placement Agents shall
fail or refuse to purchase Securities that it or they have agreed to purchase
hereunder on such date, and the aggregate principal amount of Securities which
such defaulting Placement Agent or Placement Agents agreed but failed or refused
to purchase is not more than one-tenth of the aggregate principal amount of
Securities to be purchased on such date, the other Placement Agents shall be
obligated severally in the proportions that the principal amount of Securities
set
21
<PAGE> 22
forth opposite their respective names in Schedule I bears to the aggregate
principal amount of Securities set forth opposite the names of all such
non-defaulting Placement Agents, or in such other proportions as you may
specify, to purchase the Securities which such defaulting Placement Agent or
Placement Agents agreed but failed or refused to purchase on such date; provided
that in no event shall the principal amount of Securities that any Placement
Agent has agreed to purchase pursuant to this Agreement be increased pursuant to
this Section 10 by an amount in excess of one-ninth of such principal amount of
Securities without the written consent of such Placement Agent. If, on the
Closing Date any Placement Agent or Placement Agents shall fail or refuse to
purchase Securities which it or they have agreed to purchase hereunder on such
date and the aggregate principal amount of Securities with respect to which such
default occurs is more than one-tenth of the aggregate principal amount of
Securities to be purchased on such date, and arrangements satisfactory to you
and the Company for the purchase of such Securities are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Placement Agent or of the Company. In any such case either
you or the Company shall have the right to postpone the Closing Date, but in no
event for longer than seven days, in order that the required changes, if any, in
the Final Memorandum or in any other documents or arrangements may be effected.
Any action taken under this paragraph shall not relieve any defaulting Placement
Agent from liability in respect of any default of such Placement Agent under
this Agreement.
If this Agreement shall be terminated by the Placement Agents, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company and the Subsidiary Guarantors will reimburse the
Placement Agents or such Placement Agents as have so terminated this Agreement
with respect to themselves, severally, for all out-of-pocket expenses (including
the fees and disbursements of their counsel) reasonably incurred by such
Placement Agents in connection with this Agreement or the offering contemplated
hereunder.
11. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
22
<PAGE> 23
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
13. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
FOODMAKER, INC.
By: /s/ Charles W. Duddles
----------------------------------
Name: Charles W. Duddles
Title: Executive Vice President and
Chief Financial Officer
CP DISTRIBUTION CO.
By: /s/ Charles W. Duddles
----------------------------------
Name: Charles W. Duddles
Title: Vice President
CP WHOLESALE CO.
By: /s/ Charles W. Duddles
----------------------------------
Name: Charles W. Duddles
Title: Controller
FOODMAKER INTERNATIONAL FRANCHISING, INC.
By: /s/ Charles W. Duddles
----------------------------------
Name: Charles W. Duddles
Title: Vice President
23
<PAGE> 24
JACK IN THE BOX, INC.
By: /s/ Charles W. Duddles
----------------------------------
Name: Charles W. Duddles
Title: Vice President
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
NationsBanc Montgomery Securities LLC
Salomon Brothers Inc
Jefferies & Company, Inc.
Acting severally on behalf of themselves and
the several Placement Agents named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
---------------------------------
Name: David J. Frey
Title: Vice President
24
<PAGE> 25
JACK IN THE BOX, INC.
By:
----------------------------------
Name: Charles W. Duddles
Title: Vice President
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
NationsBanc Montgomery Securities LLC
Salomon Brothers Inc
Jefferies & Company, Inc.
Acting severally on behalf of themselves and
the several Placement Agents named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By: /s/ David J. Frey
---------------------------------
Name: David J. Frey
Title: Vice President
24
<PAGE> 26
SCHEDULE I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PLACEMENT PRINCIPAL AMOUNT OF
SECURITIES TO BE PURCHASED
<S> <C>
Morgan Stanley & Co. Incorporated................. $ 75,000,000
NationsBanc Montgomery Securities LLC............. $ 25,000,000
Salomon Brothers Inc.............................. $ 18,750,000
Jefferies & Company, Inc.......................... $ 6,250,000
------------
$125,000,000
Total:.................................... ============
</TABLE>
<PAGE> 27
EXHIBIT A
OPINION OF COUNSEL FOR THE COMPANY
The opinion of the counsel for the Company, to be delivered
pursuant to Section 5(c) of the Placement Agreement shall be to the effect that:
A. The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of Delaware, has the corporate
power and authority to own its property and to conduct its business as described
in the Final Memorandum and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole.
B. Each Subsidiary Guarantor of the Company has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described in the
Final Memorandum and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole;
all of the issued shares of capital stock of each Subsidiary Guarantor have been
duly and validly authorized and issued, are fully paid and non-assessable, and
are owned directly by the Company, free and clear of all liens, encumbrances,
equities or claims (other than liens, encumbrances, equities or claims pursuant
to the New Credit Facility, as defined in the Final Memorandum).
C. The Placement Agreement has been duly authorized, executed and
delivered by the Company and each of the Subsidiary Guarantors.
D. The Securities have been duly authorized by the Company and,
when executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Placement Agents in accordance
A-1
<PAGE> 28
with the terms of the Placement Agreement, will be valid and binding obligation
of the Company, enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity, and will be entitled to the benefits
of the Indenture and the Registration Rights Agreement pursuant to which such
Securities are to be issued.
E. The Subsidiary Guarantees to be endorsed on the Securities by
each Subsidiary Guarantor have been duly authorized, executed and delivered and,
when the Securities have been executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Placement
Agents in accordance with the terms of this Agreement, the Subsidiary Guarantee
of each Subsidiary Guarantor thereon will be valid and binding obligations of
each Subsidiary Guarantor, enforceable in accordance with their terms, subject
to applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity, and will be entitled to the benefits
of the Indenture and the Registration Rights Agreement pursuant to which such
Securities are to be issued.
F. Each of the Indenture and Registration Rights Agreement has
been duly authorized, executed and delivered by, and is a valid and binding
agreement of, the Company and each of the Subsidiary Guarantors, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally and general principles of
equity and except as rights to indemnification and contribution under the
Registration Rights Agreement may be limited under applicable law.
G. The execution and delivery by the Company and each of the
Subsidiary Guarantors of, and the performance by the Company and each of the
Subsidiary Guarantors of its respective obligations under, the Placement
Agreement, the Indenture, the Registration Rights Agreement, the Securities and
the Subsidiary Guarantees, as applicable, will not contravene (i) any of (a)
that certain Credit Agreement dated as of April 1, 1998 by and among the
Company, certain lenders, NationsBank of Texas, N.A., as agent and Nationsbanc
Montgomery Securities, LLC as arranger, (b) the Indenture with respect to the
Senior Notes, (c) the Indenture with respect to the Existing Senior Subordinated
Notes, (d) the Master Lease by and between CRC-I Limited Partnership, as lessor,
and the Company, as lessee, dated as of December 15, 1993, (e) the Deed of
A-2
<PAGE> 29
Trust, Security Agreement and Fixture Filing, dated December 15, 1993, by and
between the Company, as trustor, and Chicago Title Insurance Company, as
trustee, in favor of FM 1993A Corp., as beneficiary, (f) the Purchase Agreements
dated as of January 22, 1987 between the Company and FFCA/IIP 1985 Property
Company and FFCA/IIP 1986 Property Company and (g) the Land Purchase Agreements
dated as of February 18, 1987, by and between the Company and FFCA/IPI 1984
Property Company and FFCA/IPI 1985 Property Company and Letter Agreement
relating thereto, or (ii) the charter documents or bylaws of any of the Company
of any of the Subsidiary Guarantors, or (iii) any statute or regulation of the
United States, California or New York law or the General Corporation law of the
State of Delaware or any judgment, decree or order of any court or other
governmental authority or any arbitrator known to such counsel and applicable to
the Company or any of the Subsidiary Guarantors, except with respect to clauses
(i) and (iii), for such matters that would not, individually or in the
aggregate, have a material adverse effect on the Company and its subsidiaries,
taken as a whole, and would not adversely affect the ability of the Company and
the Subsidiary Guarantors to perform their obligations under the Placement
Agreement, the Indenture, the Registration Rights Agreement and the Securities;
and no consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Company and
each of the Subsidiary Guarantors of its respective obligations under the
Placement Agreement, the Indenture, the Registration Rights Agreement, the
Securities or the Subsidiary Guarantees, as applicable, except such as may be
required by the securities or Blue Sky laws of the various states in connection
with the offer and sale of the Securities and by Federal and state securities
laws with respect to the Company's and each Subsidiary Guarantor's obligations
under the Registration Rights Agreement.
H. To the best of knowledge of such counsel there are no legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject other than proceedings summarized in the
Final Memorandum and proceedings which such counsel believes are not likely to
have a material adverse effect on the Company and its subsidiaries, taken as a
whole, or on the power or ability of the Company and the Subsidiary Guarantors
to perform their respective obligations under the Placement Agreement, the
Indenture, the Registration Rights Agreement, the Securities or the Subsidiary
Guarantees, as
A-3
<PAGE> 30
applicable, or to consummate the transactions contemplated by the Final
Memorandum.
I. The Company is not, and after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof as
described in the Final Memorandum, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
J. The statements in the Final Memorandum under the captions
"Description of Notes", "Private Placement" and "Transfer Restrictions," insofar
as such statements constitute summaries of the legal matters or documents
referred to therein, fairly summarize the matters referred to therein.
K. The statements in the Final Memorandum under the caption
"Certain Federal Income Tax Considerations," insofar as such statements
constitute a summary of the United States federal tax laws referred to therein,
are accurate and fairly summarize in all material respects the United States
federal tax laws referred to therein.
L. Based upon the representations, warranties and agreements of
the Company in Sections 1(p), 1(q), 1(s), 6(f), 6(g) and 6(j) of the Placement
Agreement and of the Placement Agents in Section 7 of the Placement Agreement,
it is not necessary in connection with the offer, sale and delivery of the
Securities to the Placement Agents under the Placement Agreement or in
connection with the initial resale of such Securities by the Placement Agents in
accordance with Section 7 of the Placement Agreement to register the Securities
under the Securities Act of 1933 or to qualify the Indenture under the Trust
Indenture Act of 1939, it being understood that no opinion is expressed as to
any subsequent resale of any Security.
In addition, such counsel shall state that they have participated
in conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company,
representatives of the Placement Agents and counsel for the Placement Agents, at
which conferences the contents of the Final Memorandum and related matters were
discussed. Because the purpose of such counsel's professional engagement was not
to establish or confirm factual matters and because the scope of such counsel's
examination of the affairs of the Company is not designed to verify the
A-4
<PAGE> 31
accuracy, completeness or fairness of the statements set forth in the Final
Memorandum, such counsel need not pass upon, and need not assume any
responsibility for the accuracy, completeness or fairness of the statements set
forth in the Final Memorandum (except to the extent set forth in paragraphs J
and K above). Such counsel shall state that, on the basis of the foregoing, no
facts have come to the attention of such counsel which lead such counsel to
believe that the Final Memorandum, on the date thereof or the date hereof,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading (it being
understood that such counsel need not express a view with respect to the
financial statements and the notes thereto and the other financial, accounting
and statistical data included in the Memorandum).
A-5
<PAGE> 32
EXHIBIT B
OPINION OF LATHAM & WATKINS
The opinion of Latham & Watkins to be delivered pursuant to Section 5(f)
of the Placement Agreement shall be to the effect that:
A. The Placement Agreement has been duly authorized, executed and
delivered by the Company and each of the Subsidiary Guarantors.
B. The Securities have been duly authorized by the Company and, when
executed and authenticated in accordance with the provisions of the Indenture
and delivered to and paid for by the Placement Agents in accordance with the
terms of the Placement Agreement, will be valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
general principles of equity, and will be entitled to the benefits of the
Indenture and the Registration Rights Agreement pursuant to which such
Securities are to be issued.
C. The Subsidiary Guarantees to be endorsed on the Securities have been
duly authorized, executed and delivered by each Subsidiary Guarantor and, when
the Securities have been executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Placement
Agents in accordance with the terms of this Agreement, the Subsidiary Guarantee
of each Subsidiary Guarantor thereon will be valid and binding obligations of
each Subsidiary Guarantor, enforceable in accordance with their terms, subject
to applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity, and will be entitled to the benefits
of the Indenture and the Registration Rights Agreement pursuant to which such
Securities are to be issued.
D. Each of the Indenture and Registration Rights Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company and each of the Subsidiary Guarantors, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally and general principles of equity and
B-1
<PAGE> 33
except as rights to indemnification and contribution under the Registration
Rights Agreement may be limited under applicable law.
E. The statements in the Final Memorandum under the captions
"Description of Notes", "Private Placement" and "Transfer Restrictions", insofar
as such statements constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly summarize the matters referred to
therein.
F. Based upon the representations, warranties and agreements of the
Company in Sections 1(p), 1(q), 1(s), 6(f), 6(g) and 6(j) of the Placement
Agreement and of the Placement Agents in Section 7 of the Placement Agreement,
it is not necessary in connection with the offer, sale and delivery of the
Securities to the Placement Agents under the Placement Agreement or in
connection with the initial resale of such Securities by the Placement Agents in
accordance with Section 7 of the Placement Agreement to register the Securities
under the Securities Act of 1933 or to qualify the Indenture under the Trust
Indenture Act of 1939, it being understood that no opinion is expressed as to
any subsequent resale of any Security.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company, counsel to
the Company, representatives of the independent public accountants for the
Company, and representatives of the Placement Agents, at which the contents of
the Offering Memorandum and related matters were discussed and, although they
are not passing upon, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Offering Memorandum
(except as specified in paragraph E) and have not made any independent check or
verification thereof, during the course of such participation, no facts came to
their attention that caused them to believe that the Offering Memorandum, as of
its date, contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, it being understood
that they express no belief with respect to the financial statements or other
financial data included or incorporated by reference in, or omitted from, the
Offering Memorandum.
B-2
<PAGE> 1
EXHIBIT 4.3
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated April 14, 1998
among
FOODMAKER, INC.
CP DISTRIBUTION CO.
CP WHOLESALE CO.
FOODMAKER INTERNATIONAL FRANCHISING, INC.
JACK IN THE BOX, INC.
and
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON BROTHERS INC
JEFFERIES & COMPANY, INC.
- --------------------------------------------------------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is
made and entered into April 14, 1998, among FOODMAKER, INC., a Delaware
corporation (the "Company") and CP DISTRIBUTION CO., a Delaware corporation, CP
WHOLESALE CO., a Delaware corporation, FOODMAKER INTERNATIONAL FRANCHISING,
INC., a Delaware corporation, JACK IN THE BOX, INC., a New Jersey corporation
(collectively, the "Subsidiary Guarantors") and MORGAN STANLEY & CO.
INCORPORATED, NATIONSBANC MONTGOMERY SECURITIES LLC, SALOMON BROTHERS INC and
JEFFERIES & COMPANY, INC. (collectively, the "Placement Agents").
This Agreement is made pursuant to the Placement Agreement
dated April 8, 1998, by and among the Company, the Subsidiary Guarantors and the
Placement Agents (the "Placement Agreement"), which provides for the sale by the
Company to the Placement Agents of an aggregate of $125,000,000 principal amount
of the Company's 8 3/8% Senior Subordinated Notes due 2008 (the "Securities").
In order to induce the Placement Agents to enter into the Placement Agreement,
the Company and the Subsidiary Guarantors have agreed to provide to the
Placement Agents and their direct and indirect transferees the registration
rights set forth in this Agreement. The execution of this Agreement is a
condition to the closing under the Placement Agreement.
In consideration of the foregoing, the parties hereto agree
as follows:
1. Definitions.
As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as
amended from time to time.
"1934 Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Closing Date" shall mean the Closing Date as defined in
the Placement Agreement.
"Company" shall have the meaning set forth in the preamble
and shall also include the Company's successors.
"Exchange Offer" shall mean the exchange offer by the
Company of Exchange Securities for Registrable Securities pursuant to
Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration
under the 1933 Act effected pursuant to Section 2(a) hereof.
2
<PAGE> 3
"Exchange Offer Registration Statement" shall mean an
exchange offer registration statement on Form S-4 (or, if applicable,
on another appropriate form) and all amendments and supplements to
such registration statement, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Exchange Securities" shall mean securities issued by the
Company under the Indenture containing terms identical to the
Securities (except that (i) interest thereon shall accrue from the
last date on which interest was paid on the Securities or, if no such
interest has been paid, from April 15, 1998 and (ii) the Exchange
Securities will not contain restrictions on transfer) and to be
offered to Holders of Securities in exchange for Securities pursuant
to the Exchange Offer.
"Holder" shall mean the Placement Agents, for so long as
they own any Registrable Securities, and each of their successors,
assigns and direct and indirect transferees who become registered
owners of Registrable Securities under the Indenture; provided that
for purposes of Sections 4 and 5 of this Agreement, the term "Holder"
shall include Participating Broker-Dealers (as defined in Section
4(a)).
"Indenture" shall mean the Indenture relating to the
Securities dated as of April 14, 1998 among the Company, the
Subsidiary Guarantors and First Union National Bank, as trustee, and
as the same may be amended from time to time in accordance with the
terms thereof.
"Majority Holders" shall mean the Holders of a majority of
the aggregate principal amount of outstanding Registrable Securities;
provided that whenever the consent or approval of Holders of a
specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or any of its affiliates
(as such term is defined in Rule 405 under the 1933 Act) (other than
the Placement Agents or subsequent Holders of Registrable Securities
if such subsequent holders are deemed to be such affiliates solely by
reason of their holding of such Registrable Securities) shall not be
counted in determining whether such consent or approval was given by
the Holders of such required percentage or amount.
"Person" shall mean an individual, partnership, limited
liability company, corporation, trust or unincorporated organization,
or a government or agency or political subdivision thereof.
"Placement Agents" shall have the meaning set forth in the
preamble.
"Placement Agreement" shall have the meaning set forth in
the preamble.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any
such prospectus as amended or supplemented by any prospectus
supplement, including a prospectus supplement with respect to the
terms of the offering of any portion of the Registrable Securities
covered by a Shelf Registration Statement, and by all other
amendments and supplements to such prospectus, and in each case
including all material incorporated by reference therein.
"Registrable Securities" shall mean the Securities;
provided, however, that the Securities shall cease to be Registrable
Securities (i) when a Registration Statement with respect
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<PAGE> 4
to such Securities shall have been declared effective under the 1933
Act and such Securities shall have been disposed of pursuant to such
Registration Statement, (ii) when such Securities have been sold to
the public pursuant to Rule 144(k) (or any similar provision then in
force, but not Rule 144A) under the 1933 Act or (iii) when such
Securities shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Company or the
Subsidiary Guarantors with this Agreement, including without
limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees
and expenses incurred in connection with compliance with state
securities or blue sky laws (including reasonable fees and
disbursements of counsel for any underwriters or Holders in
connection with blue sky qualification of any of the Exchange
Securities or Registrable Securities), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing,
printing and distributing any Registration Statement, any Prospectus,
any amendments or supplements thereto, any underwriting agreements,
securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating
agency fees, (v) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vi)
the reasonable fees and disbursements of the Trustee and its counsel,
(vii) the fees and disbursements of counsel for the Company and the
Subsidiary Guarantors and, in the case of a Shelf Registration
Statement, the reasonable fees and disbursements of one counsel for
the Holders (which counsel shall be selected by the Majority Holders
and which counsel may also be counsel for the Placement Agent) and
(viii) the fees and disbursements of the independent public
accountants of the Company and the Subsidiary Guarantors, including
the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, but excluding fees
and expenses of counsel to the underwriters (other than fees and
expenses set forth in clause (ii) above) or the Holders and
underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Registrable Securities by a
Holder.
"Registration Statement" shall mean any registration
statement of the Company and the Subsidiary Guarantors that covers
any of the Exchange Securities or Registrable Securities pursuant to
the provisions of this Agreement and all amendments and supplements
to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company and the Subsidiary Guarantors
pursuant to the provisions of Section 2(b) of this Agreement which
covers all of the Registrable Securities (but no other securities
unless approved by the Holders whose Registrable Securities are
covered by such Shelf Registration Statement) on an appropriate form
under Rule 415 under the 1933 Act, or any similar rule that may be
adopted by the SEC, and all amendments and supplements to such
registration statement,
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<PAGE> 5
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the
Securities under the Indenture.
"Underwriter" shall have the meaning set forth in Section 3
hereof.
"Underwritten Registration" or "Underwritten Offering"
shall mean a registration in which Registrable Securities are sold to
an Underwriter for reoffering to the public.
2. Registration Under the 1933 Act.
(a) To the extent not prohibited by any applicable
law or applicable interpretation of the staff of the SEC, the Company and the
Subsidiary Guarantors shall use their best efforts to cause to be filed an
Exchange Offer Registration Statement covering the offer by the Company and the
Subsidiary Guarantors to the Holders to exchange all of the Registrable
Securities for Exchange Securities and to have such Registration Statement
remain effective until the closing of the Exchange Offer. The Company and the
Subsidiary Guarantors shall commence the Exchange Offer promptly after the
Exchange Offer Registration Statement has been declared effective by the SEC and
use their best efforts to have the Exchange Offer consummated not later than six
months after the Closing Date. The Company and the Subsidiary Guarantors shall
commence the Exchange Offer by mailing the related exchange offer Prospectus and
accompanying documents to each Holder stating, in addition to such other
disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Agreement and that all Registrable Securities validly tendered will
be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a
period of at least 20 business days from the date such notice is
mailed) (the "Exchange Dates");
(iii) that any Registrable Security not tendered will
remain outstanding and continue to accrue interest, but will not
retain any rights under this Agreement;
(iv) that Holders electing to have a Registrable Security
exchanged pursuant to the Exchange Offer will be required to
surrender such Registrable Security, together with the enclosed
letters of transmittal, to the institution and at the address
(located in the Borough of Manhattan, The City of New York) specified
in the notice prior to the close of business on the last Exchange
Date; and
(v) that Holders will be entitled to withdraw their
election, not later than the close of business on the last Exchange
Date, by sending to the institution and at the address (located in
the Borough of Manhattan, The City of New York) specified in the
notice a telegram, telex, facsimile transmission or letter setting
forth the name of such Holder, the principal amount of Registrable
Securities delivered for exchange and a statement that such Holder is
withdrawing its election to have such Securities exchanged.
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<PAGE> 6
As soon as practicable after the last Exchange Date, the
Company and the Subsidiary Guarantors shall:
(i) accept for exchange all Registrable Securities or
portions thereof tendered and not validly withdrawn pursuant to the
Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so
accepted for exchange and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Security equal in
principal amount to the principal amount of the Registrable
Securities surrendered by such Holder.
The Company and the Subsidiary Guarantors shall use their best efforts to
complete the Exchange Offer as provided above and shall comply with the
applicable requirements of the 1933 Act, the 1934 Act and other applicable laws
and regulations in connection with the Exchange Offer. The Exchange Offer shall
not be subject to any conditions, other than that the Exchange Offer does not
violate applicable law or any applicable interpretation of the staff of the SEC.
The Company shall inform the Placement Agents, if requested by the Placement
Agents, of the names and addresses of the Holders to whom the Exchange Offer is
made, and the Placement Agents shall have the right, subject to applicable law,
to contact such Holders and otherwise facilitate the tender of Registrable
Securities in the Exchange Offer.
(b) In the event that (i) the Company and the Subsidiary
Guarantors determine that the Exchange Offer Registration provided for in
Section 2(a) above is not available or may not be consummated as soon as
practicable after the last Exchange Date because it would violate applicable law
or the applicable interpretations of the staff of the SEC, (ii) the Exchange
Offer is not for any other reason consummated by October 15, 1998 or (iii) in
the opinion of counsel for the Placement Agents a Registration Statement must be
filed and a Prospectus must be delivered by the Placement Agents in connection
with any offering or sale of Registrable Securities, the Company and the
Subsidiary Guarantors shall cause to be filed as soon as practicable after such
determination, date or notice of such opinion of counsel is given to the
Company, as the case may be, a Shelf Registration Statement providing for the
sale by the Holders of all of the Registrable Securities and to have such Shelf
Registration Statement declared effective by the SEC. In the event the Company
and the Subsidiary Guarantors are required to file a Shelf Registration
Statement solely as a result of the matters referred to in clause (iii) of the
preceding sentence, the Company and the Subsidiary Guarantors shall use their
best efforts to file and have declared effective by the SEC both an Exchange
Offer Registration Statement pursuant to Section 2(a) with respect to all
Registrable Securities and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration Statement)
with respect to offers and sales of Registrable Securities held by the Placement
Agents after completion of the Exchange Offer. The Company and the Subsidiary
Guarantors agree to use their best efforts to keep the Shelf Registration
Statement continuously effective until the expiration of the period referred to
in Rule 144(k) with respect to the Registrable Securities or such shorter period
that will terminate when all of the Registrable Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement. The Company and the Subsidiary Guarantors further agree to supplement
or amend the Shelf Registration Statement if required by the rules, regulations
or instructions applicable to the registration form used for such Shelf
Registration Statement or by the 1933 Act or by any other rules and regulations
thereunder for shelf registration or if reasonably requested by a Holder with
respect to information relating to such Holder, and to use their best efforts to
cause any such amendment to become
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<PAGE> 7
effective and such Shelf Registration Statement to become usable as soon as
thereafter practicable. The Company and the Subsidiary Guarantors agree to
furnish to the Holders of Registrable Securities copies of any such supplement
or amendment promptly after its being used or filed with the SEC.
(c) The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) and Section 2(b). Each
Holder shall pay all underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to
Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b)
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that, if, after it has been declared
effective, the offering of Registrable Securities pursuant to a Shelf
Registration Statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume. In the event the
Exchange Offer is not consummated and the Shelf Registration Statement is not
declared effective on or prior to October 15, 1998, the interest rate on the
Securities will be increased by 0.5% per annum until the Exchange Offer is
consummated or the Shelf Registration Statement is declared effective by the
SEC.
(e) Without limiting the remedies available to the
Placement Agents and the Holders, the Company and the Subsidiary Guarantors
acknowledge that any failure by the Company and the Subsidiary Guarantors to
comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Placement Agents or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Placement Agents or any Holder may obtain such relief as may be
required to specifically enforce the Company's and the Subsidiary Guarantors'
obligations under Section 2(a) and Section 2(b) hereof.
3. Registration Procedures.
In connection with the obligations of the Company and the
Subsidiary Guarantors with respect to the Registration Statements pursuant to
Section 2(a) and Section 2(b) hereof, the Company and each Subsidiary Guarantor
shall promptly:
(a) prepare and file with the SEC a Registration Statement
on the appropriate form under the 1933 Act, which form (x) shall be
selected by the Company and (y) shall, in the case of a Shelf
Registration, be available for the sale of the Registrable Securities
by the selling Holders thereof and (z) shall comply as to form in all
material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed
therewith, and use its best efforts to cause such Registration
Statement to become effective and remain effective in accordance with
Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement
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<PAGE> 8
effective for the applicable period and cause each Prospectus to be
supplemented by any required prospectus supplement and, as so
supplemented, to be filed pursuant to Rule 424 under the 1933 Act;
to keep each Prospectus current during the period described under
Section 4(3) and Rule 174 under the 1933 Act that is applicable to
transactions by brokers or dealers with respect to the Registrable
Securities or Exchange Securities;
(c) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities, to counsel for the Placement
Agents, to counsel for the Holders and to each Underwriter of an
Underwritten Offering of Registrable Securities, if any, without
charge, as many copies of each Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other
documents as such Holder or Underwriter may reasonably request, in
order to facilitate the public sale or other disposition of the
Registrable Securities; and the Company consents to the use of such
Prospectus and any amendment or supplement thereto in accordance with
applicable law by each of the selling Holders of Registrable
Securities and any such Underwriters in connection with the offering
and sale of the Registrable Securities covered by and in the manner
described in such Prospectus or any amendment or supplement thereto
in accordance with applicable law;
(d) use its reasonable best efforts to register or qualify
the Registrable Securities under all applicable state securities or
"blue sky" laws of such jurisdictions as any Holder of Registrable
Securities covered by a Registration Statement shall reasonably
request in writing by the time the applicable Registration Statement
is declared effective by the SEC, to cooperate with such Holders in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. and do any and all other acts
and things which may be reasonably necessary or advisable to enable
such Holder to consummate the disposition in each such jurisdiction
of such Registrable Securities owned by such Holder; provided,
however, that neither the Company nor any Subsidiary Guarantor shall
be required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) file any general
consent to service of process or (iii) subject itself to taxation in
any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder
of Registrable Securities, counsel for the Holders and counsel for
the Placement Agents promptly and, if requested by any such Holder or
counsel, confirm such advice in writing (i) when a Registration
Statement has become effective and when any post-effective amendment
thereto has been filed and becomes effective, (ii) of any request by
the SEC or any state securities authority for amendments and
supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become
effective, (iii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company
and the Subsidiary Guarantors contained in any underwriting
agreement, securities sales agreement or other similar agreement, if
any, relating to the offering cease to be true and correct in all
material respects or if the Company and the Subsidiary Guarantors
receive any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any
jurisdiction or the initiation of any proceeding for
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<PAGE> 9
such purpose, (v) of the happening of any event during the period a
Shelf Registration Statement is effective which makes any statement
made in such Registration Statement or the related Prospectus untrue
in any material respect or which requires the making of any changes
in such Registration Statement or Prospectus in order to make the
statements therein not misleading and (vi) of any determination by
the Company and the Subsidiary Guarantors that a post-effective
amendment to a Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of a Registration Statement
at the earliest possible moment and provide immediate notice to each
Holder of the withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities, without charge, at least one
conformed copy of each Registration Statement and any post-effective
amendment thereto (without documents incorporated therein by
reference or exhibits thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends and
enable such Registrable Securities to be in such denominations
(consistent with the provisions of the Indenture) and registered in
such names as the selling Holders may reasonably request at least two
business days prior to the closing of any sale of Registrable
Securities;
(i) in the case of a Shelf Registration, upon the
occurrence of any event contemplated by Section 3(e)(v) hereof,
prepare and file with the SEC a supplement or post-effective
amendment to a Registration Statement or the related Prospectus or
any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers
of the Registrable Securities, such Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
agrees to notify the Holders to suspend use of the Prospectus as
promptly as practicable after the occurrence of such an event, and
the Holders hereby agree to suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such
misstatement or omission;
(j) a reasonable time prior to the filing of any
Registration Statement, any Prospectus, any amendment to a
Registration Statement or amendment or supplement to a Prospectus or
any document which is to be incorporated by reference into a
Registration Statement or a Prospectus after initial filing of a
Registration Statement, provide copies of such document to the
Placement Agents and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) and make such
of the representatives of the Company and the Subsidiary Guarantors
as shall be reasonably requested by the Placement Agents or their
counsel (and, in the case of a Shelf Registration Statement, the
Holders or their counsel) available for discussion of such document,
and shall not at any time file or make any amendment to the
Registration Statement, any Prospectus or any amendment of or
supplement to a Registration Statement or a Prospectus or any
document which is to be incorporated by reference
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<PAGE> 10
into a Registration Statement or a Prospectus, of which the
Placement Agents and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) shall not
have previously been advised and furnished a copy or to which the
Placement Agents or their counsel (and, in the case of a Shelf
Registration Statement, the Holders or their counsel) shall
reasonably object;
(k) obtain a CUSIP number for all Exchange Securities or
Registrable Securities, as the case may be, not later than the
effective date of a Registration Statement;
(l) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Securities or Registrable Securities, as
the case may be, cooperate with the Trustee and the Holders to effect
such changes to the Indenture as may be required for the Indenture to
be so qualified in accordance with the terms of the TIA and execute,
and use its best efforts to cause the Trustee to execute, all
documents as may be required to effect such changes and all other
forms and documents required to be filed with the SEC to enable the
Indenture to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant
to such Shelf Registration Statement, and attorneys and accountants
designated by the Holders, at reasonable times and in a reasonable
manner, all financial and other records, pertinent documents and
properties of the Company and the Subsidiary Guarantors, and cause
the respective officers, directors and employees of the Company and
the Subsidiary Guarantors to supply all relevant information
reasonably requested by any such representative, Underwriter,
attorney or accountant in connection with a Shelf Registration
Statement as is customary for similar due diligence examinations;
provided, however, that any information that is designated in writing
by the Company, in good faith, as confidential at the time of
delivery of such information shall be kept confidential by the
Holders or any such Underwriter, attorney, accountant or agent,
unless such disclosure is made in connection with a court proceeding
or required by law, or such information becomes available to the
public generally or through a third party without an accompanying
obligation of confidentiality;
(n) in the case of a Shelf Registration, use its best
efforts to cause all Registrable Securities to be listed on any
securities exchange or any automated quotation system on which
similar securities issued by the Company are then listed if requested
by the Majority Holders, to the extent such Registrable Securities
satisfy applicable listing requirements;
(o) use its best efforts to cause the Exchange Securities
or Registrable Securities, as the case may be, to be rated by two
nationally recognized statistical rating organizations (as such term
is defined in Rule 436(g)(2) under the 1933 Act);
(p) if reasonably requested in writing by any Holder of
Registrable Securities covered by a Registration Statement, (i)
promptly incorporate in a Prospectus supplement or post-effective
amendment such information with respect to such Holder as such Holder
reasonably requests to be included therein and (ii) make all required
filings of such Prospectus
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<PAGE> 11
supplement or such post-effective amendment as soon as the Company
has received notification of the matters to be incorporated in such
filing; and
(q) in the case of a Shelf Registration, enter into such
customary agreements and take all such other actions in connection
therewith (including those requested by the Holders of a majority of
the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities including,
but not limited to, an Underwritten Offering and in such connection,
(i) to the extent possible, make such representations and warranties
to the Holders and any Underwriters of such Registrable Securities
with respect to the business of the Company and its subsidiaries, the
Registration Statement, Prospectus and documents incorporated by
reference or deemed incorporated by reference, if any, in each case,
in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and
when requested, (ii) obtain opinions of counsel to the Company and
the Subsidiary Guarantors (which counsel and opinions, in form, scope
and substance, shall be reasonably satisfactory to such Underwriters
and their counsel) addressed to each selling Holder and Underwriter
of Registrable Securities, covering the matters customarily covered
in opinions requested in underwritten offerings, (iii) obtain "cold
comfort" letters from the independent certified public accountants of
the Company (and, if necessary, any other certified public accountant
of any subsidiary of the Company, or of any business acquired by the
Company for which financial statements and financial data are or are
required to be included in the Registration Statement) addressed to
each selling Holder and Underwriter of Registrable Securities, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings, and (iv) deliver such documents and
certificates as may be reasonably requested by the Majority Holders
or the Underwriters, and which are customarily delivered in
underwritten offerings, to evidence the continued validity of the
representations and warranties of the Company and the Subsidiary
Guarantors made pursuant to clause (i) above and to evidence
compliance with any customary conditions contained in an underwriting
agreement.
In the case of a Shelf Registration Statement, the Company
and the Subsidiary Guarantors may require each Holder of Registrable Securities
to furnish to the Company such relevant information regarding the Holder and the
proposed distribution by such Holder of such Registrable Securities as the
Company or Subsidiary Guarantor may from time to time reasonably request in
writing.
In the case of a Shelf Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(e)(v) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if
so directed by the Company, such Holder will deliver to the Company all copies
in its possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Securities current at
the time of receipt of such notice. If the Company shall give any such notice to
suspend the disposition of Registrable Securities pursuant to a Registration
Statement, the Company shall extend the period during which the Registration
Statement shall be maintained effective pursuant to this Agreement by the number
of days during the period from and including the date of the giving of such
notice to and including the date when the Holders shall have received copies of
the supplemented or amended Prospectus necessary to resume
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<PAGE> 12
such dispositions. The Company may give any such notice only twice during any
365-day period and any such suspensions may not exceed 60 days for each
suspension and there may not be more than two suspensions in effect during any
365-day period.
The Holders of Registrable Securities covered by a Shelf
Registration Statement who desire to do so may sell such Registrable Securities
in an Underwritten Offering. In any such Underwritten Offering, the investment
banker or investment bankers and manager or managers (the "Underwriters") that
will administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering.
4. Participation of Broker-Dealers in Exchange Offer.
(a) The staff of the SEC has taken the position that
any broker-dealer that receives Exchange Securities for its own account in the
Exchange Offer in exchange for Securities that were acquired by such
broker-dealer as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), may be deemed to be an "underwriter" within the
meaning of the 1933 Act and must deliver a prospectus meeting the requirements
of the 1933 Act in connection with any resale of such Exchange Securities.
The Company and the Subsidiary Guarantors understand that
it is the position of the staff of the SEC that if the Prospectus contained in
the Exchange Offer Registration Statement includes a plan of distribution
containing a statement to the above effect and the means by which Participating
Broker-Dealers may resell the Exchange Securities, without naming the
Participating Broker-Dealers or specifying the amount of Exchange Securities
owned by them, such Prospectus may be delivered by Participating Broker-Dealers
to satisfy their prospectus delivery obligation under the 1933 Act in connection
with resales of Exchange Securities for their own accounts, so long as the
Prospectus otherwise meets the requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other
provisions of this Agreement, the Company and the Subsidiary Guarantors agree
that the provisions of this Agreement as they relate to a Shelf Registration
shall also apply to an Exchange Offer Registration to the extent, and with such
reasonable modifications thereto as may be, reasonably requested by the
Placement Agents or by one or more Participating Broker-Dealers, in each case as
provided in clause (ii) below, in order to expedite or facilitate the
disposition of any Exchange Securities by Participating Broker-Dealers
consistent with the positions of the staff of the SEC recited in Section 4(a)
above; provided that:
(i) the Company shall not be required to amend or
supplement the Prospectus contained in the Exchange Offer
Registration Statement, as would otherwise be contemplated by Section
3(i), for a period exceeding 90 days after the last Exchange Date (as
such period may be extended pursuant to the penultimate paragraph of
Section 3 of this Agreement) and Participating Broker-Dealers shall
not be authorized by the Company to deliver and shall not deliver
such Prospectus after such period in connection with the resales
contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures
set forth in Section 3 of this Agreement to an Exchange Offer
Registration, to the extent not required by the positions of the
staff of the SEC or the 1933 Act and the rules and regulations
thereunder, will be in conformity
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<PAGE> 13
with the reasonable request to the Company by the Placement Agents
or with the reasonable request in writing to the Company by one or
more broker-dealers who certify to the Placement Agents and the
Company in writing that they anticipate that they will be
Participating Broker-Dealers; and provided further that, in
connection with such application of the Shelf Registration
procedures set forth in Section 3 to an Exchange Offer Registration,
the Company shall be obligated (x) to deal only with one entity
representing the Participating Broker-Dealers, which shall be Morgan
Stanley & Co. Incorporated unless it elects not to act as such
representative, (y) to pay the fees and expenses of only one counsel
representing the Participating Broker-Dealers, which shall be
counsel to the Placement Agents unless such counsel elects not to so
act and (z) to cause to be delivered only one, if any, "cold
comfort" letter with respect to the Prospectus in the form existing
on the last Exchange Date and with respect to each subsequent
amendment or supplement, if any, effected during the period
specified in clause (i) above.
(c) The Placement Agents shall have no liability to the
Company and the Subsidiary Guarantors or any Holder with respect to any request
that it may make pursuant to Section 4(b) above.
5. Indemnification and Contribution.
(a) The Company and the Subsidiary Guarantors agree,
jointly and severally, to indemnify and hold harmless the Placement Agents, each
Holder and each Person, if any, who controls any Placement Agent or any Holder
within the meaning of either Section 15 of the 1933 Act or Section 20 of the
1934 Act, from and against all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
by the Placement Agent, any Holder or any such controlling Person in connection
with defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto), any preliminary prospectus or
any Prospectus (as amended and supplemented if the Company shall have furnished
any amendments or supplements thereto) pursuant to which Exchange Securities or
Registrable Securities were registered under the 1933 Act, including all
documents incorporated therein by reference, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to the Placement Agents or any Holder furnished to the
Company in writing by any Placement Agent or any selling Holder expressly for
use therein. In connection with any Underwritten Offering permitted by Section
3, the Company and the Subsidiary Guarantors will, jointly and severally, also
indemnify the Underwriters, if any, selling brokers, dealers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of the 1933 Act and the 1934 Act) to the same extent as provided above
with respect to the indemnification of the Holders, if requested in connection
with any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Subsidiary Guarantors, the
Placement Agents and the other selling Holders, and each of their respective
directors, officers of the Company who sign the Registration Statement and each
Person, if any, who controls the Company or any of the Subsidiary Guarantors,
any Placement Agent and any other selling Holder within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent as
the foregoing indemnity from the Company and the Subsidiary
13
<PAGE> 14
Guarantors to the Placement Agents and the Holders, but only with reference to
information relating to such Holder furnished to the Company in writing by such
Holder expressly for use in any Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above,
such Person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Placement Agents and all
Persons, if any, who control any Placement Agent within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company and the Subsidiary Guarantors, their respective directors, their
respective officers who sign the Registration Statement and each Person, if any,
who controls the Company or any of the Subsidiary Guarantors within the meaning
of either such Section and (c) the fees and expenses of more than one separate
firm (in addition to any local counsel) for all Holders and all Persons, if any,
who control any Holders within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In such case
involving the Placement Agents and Persons who control the Placement Agents,
such firm shall be designated in writing by Morgan Stanley & Co. Incorporated.
In such case involving the Holders and such Persons who control Holders, such
firm shall be designated in writing by the Majority Holders. In all other cases,
such firm shall be designated by the Company. The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent but, if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party for such fees and expenses of
counsel in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which such indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
14
<PAGE> 15
(d) If the indemnification provided for in paragraph (a) or
paragraph (b) of this Section 5 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company and the Subsidiary Guarantors, on the one hand, and the Holders, on the
other hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
and the Subsidiary Guarantors, on the one hand, or by the Holders, on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this Section 5(d) are several
in proportion to the respective principal amount of Registrable Securities of
such Holder that were registered pursuant to a Registration Statement.
(e) The Company, the Subsidiary Guarantors and each Holder
agree that it would not be just or equitable if contribution pursuant to this
Section 5 were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to in paragraph (d) above. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages and liabilities referred to in paragraph
(d) above shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5, no Holder shall be required to
indemnify or contribute any amount in excess of the amount by which the total
price at which Registrable Securities were sold by such Holder exceeds the
amount of any damages that such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 5 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any indemnified party at law or
in equity.
The indemnity and contribution provisions contained in this
Section 5 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Placement Agents, any Holder or any Person controlling any Placement
Agent or any Holder, or by or on behalf of the Company and the Subsidiary
Guarantors, their officers or directors or any Person controlling the Company or
any of the Subsidiary Guarantors, (iii) acceptance of any of the Exchange
Securities and (iv) any sale of Registrable Securities pursuant to a Shelf
Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company and the
Subsidiary Guarantors have not entered into, and on or after the date of this
Agreement will not enter into, any agreement which is
15
<PAGE> 16
inconsistent with the rights granted to the Holders of Registrable Securities in
this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's and the
Subsidiary Guarantors' other issued and outstanding securities under any such
agreements.
(b) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company has obtained the written
consent of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or consent; provided, however, that no amendment,
modification, supplement, waiver or consent to any departure from the provisions
of Section 5 hereof shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder.
(c) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with respect to the Placement Agents,
the address set forth in the Placement Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Placement Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(c).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next business day if timely delivered to a courier guaranteeing overnight
delivery.
Copies of all such notices, demands, or other
communications shall be concurrently delivered by the Person giving the same to
the Trustee, at the address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Placement Agreement. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such Person shall be entitled to receive the benefits hereof. The
Placement Agents (in their capacity as Placement Agents) shall have no liability
or obligation to the Company or the Subsidiary Guarantors with respect to any
failure by a Holder to comply with, or any breach by any Holder of, any of the
obligations of such Holder under this Agreement.
16
<PAGE> 17
(e) Purchases and Sales of Securities. The Company and each
Subsidiary Guarantor shall not, and shall use its best efforts to cause its
affiliates (as defined in Rule 405 under the 1933 Act) not to, purchase and then
resell or otherwise transfer any Securities.
(f) Third Party Beneficiary. The Holders shall be third
party beneficiaries to the agreements made hereunder between the Company and the
Subsidiary Guarantors, on the one hand, and the Placement Agents, on the other
hand, and shall have the right to enforce such agreements directly to the extent
it deems such enforcement necessary or advisable to protect its rights or the
rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. This Agreement shall be governed by the
laws of the State of New York.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
FOODMAKER, INC.
By: /s/ CHARLES W. DUDDLES
--------------------------------------
Name: Charles W. Duddles
Title: Executive Vice President and
Chief Financial Officer
CP DISTRIBUTION CO.
By: /s/ CHARLES W. DUDDLES
--------------------------------------
Name: Charles W. Duddles
Title: Vice President
CP WHOLESALE CO.
By: /s/ CHARLES W. DUDDLES
--------------------------------------
Name: Charles W. Duddles
Title: Controller
FOODMAKER INTERNATIONAL FRANCHISING, INC.
By: /s/ CHARLES W. DUDDLES
--------------------------------------
Name: Charles W. Duddles
Title: Vice President
JACK IN THE BOX, INC.
By: /s/ CHARLES W. DUDDLES
--------------------------------------
Name: Charles W. Duddles
Title: Vice President
<PAGE> 19
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON BROTHERS INC
JEFFERIES & COMPANY, INC.
By: MORGAN STANLEY & CO. INCORPORATED
By: /s/ DAVID J. FREY
--------------------------
Name: David J. Frey
Title: Vice President
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR (1) 28 WEEKS ENDED
------------------------------------------------------ ------------------
1993 1994 1995 1996 1997 4/13/97 4/12/98
-------- -------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Earnings (loss) before
income taxes .................... $(66,199) $(33,258) $(68,458) $25,351 $ 45,203 $20,222 $ 67,621
Add:
Portion of rents
representative of Interest ...... 29,282 25,765 25,227 27,002 28,321 14,978 16,413
Interest expense ................. 57,586 55,201 48,463 46,126 40,359 22,018 19,206
-------- -------- -------- ------- -------- ------- --------
Earnings as adjusted .......... $ 20,669 $ 47,708 $ 5,232 $98,479 $113,883 $57,218 $103,240
======== ======== ======== ======= ======== ======= ========
Fixed charges:
Interest expense ................. $ 57,586 $ 55,201 $ 48,463 $46,126 $ 40,359 $22,018 $ 19,206
Capitalized interest ............. 255 727 161 200 683 134 349
Portion of rents
representative of Interest ...... 29,282 25,765 25,227 27,002 28,321 14,978 16,413
-------- -------- -------- ------- -------- ------- --------
Total fixed charges ........... $ 87,123 $ 81,693 $ 73,851 $73,328 $ 69,363 $37,130 $ 35,968
======== ======== ======== ======= ======== ======= ========
Ratio of earnings to fixed charges.. 0.2 0.6 0.1 1.3 1.6 1.5 2.9
======== ======== ======== ======= ======== ======= ========
</TABLE>
(1)The Company's fiscal year is 52 or 53 weeks, ending the Sunday closest to
September 30
<PAGE> 1
EXHIBIT 23.2
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Foodmaker, Inc.:
We consent to the use of our report included herein and to the references to
our firm under the headings "Summary Consolidated Financial Data," "Selected
Consolidated Financial Data" and "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
San Diego, California
June 11, 1998
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2)
------------------
FIRST UNION NATIONAL BANK
(Name of Trustee)
22-1147033
(Jurisdiction of Incorporation or (I.R.S. Employer
Organization if not a U.S. National Bank) Identification No.)
301 SOUTH COLLEGE STREET, CHARLOTTE, NORTH CAROLINA 28288-0630
(Address of Principal Executive Offices) (Zip Code)
------------------
FOODMAKER, INC.
(Name of Obligor)
DELAWARE 95-2698708
(State of Incorporation) (I.R.S. Employer
Identification No.)
9330 BALBOA AVE, SAN DIEGO, CA 92123
(Address of Principal Executive Offices) (Zip Code)
SENIOR SUBORDINATED NOTES
(Title of Indenture Securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT:
Comptroller of the Currency, Washington, D.C.
Board of Governors of the Federal Reserve System, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
ITEM 3. VOTING SECURITIES OF THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF VOTING SECURITIES
OF THE TRUSTEE:
COL. A COL. B
TITLE OF CLASS AMOUNT OUTSTANDING
Not applicable
ITEM 4. TRUSTEESHIP UNDER OTHER INDENTURES:
IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH ANY
OTHER SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY OTHER
SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, FURNISH THE FOLLOWING INFORMATION:
(a) TITLE OF THE SECURITIES OUTSTANDING UNDER EACH SUCH OTHER INDENTURE.
Not Applicable
(b) A BRIEF STATEMENT OF THE FACTS RELIED UPON AS A BASIS FOR THE CLAIM
THAT NO CONFLICTING INTEREST WITHIN THE MEANING OF SECTION 310(b)(1) OF THE ACT
ARISES AS A RESULT OF THE TRUSTEESHIP UNDER ANY SUCH OTHER INDENTURE, INCLUDING
A STATEMENT AS TO HOW THE INDENTURE SECURITIES WILL RANK AS COMPARED WITH THE
SECURITIES ISSUED UNDER SUCH OTHER INDENTURE.
Not Applicable.
ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.
IF THE TRUSTEE OR ANY OF THE DIRECTORS OR EXECUTIVE OFFICERS OF THE
TRUSTEE IS A DIRECTOR, OFFICER, PARTNER, EMPLOYEE, APPOINTEE, OR REPRESENTATIVE
OF THE OBLIGOR OR OF ANY UNDERWRITER FOR THE OBLIGOR, IDENTIFY EACH SUCH PERSON
HAVING ANY SUCH CONNECTION AND STATE THE NATURE OF EACH SUCH CONNECTION.
Not Applicable
<PAGE> 3
ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE
TRUSTEE OWNED BENEFICIALLY BY THE OBLIGOR AND EACH DIRECTOR, PARTNER AND
EXECUTIVE OFFICER OF THE OBLIGOR.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D.
------ ------ ------ -------
<S> <C> <C> <C>
Percentage of Voting
Amount owned securities represented
Name of Owner Title of Class beneficially by amount given in Col. C
Not Applicable
</TABLE>
ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR
OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE
TRUSTEE OWNED BENEFICIALLY BY EACH UNDERWRITER FOR THE OBLIGOR AND EACH
DIRECTOR, PARTNER, AND EXECUTIVE OFFICER OF EACH SUCH UNDERWRITER.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D.
- ------ ------ ------ -------
<S> <C> <C> <C>
Percentage of Voting
Amount owned securities represented
Name of Owner Title of Class beneficially by amount given in Col. C
Not Applicable
</TABLE>
ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO SECURITIES OF THE OBLIGOR OWNED
BENEFICIALLY OR HELD AS COLLATERAL SECURITY FOR THE OBLIGATIONS IN DEFAULT BY
THE TRUSTEE.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D.
- ------ ------ ------ -------
<S> <C> <C> <C>
Whether the Amount owned beneficially Percent of class
securities are or held as collateral represented by
voting or non voting obligations in default by amt given in Col C
Not Applicable Trustee
</TABLE>
ITEM 9. SECURITIES OF THE UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT ANY SECURITIES OF AN UNDERWRITER FOR THE OBLIGOR, FURNISH
THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OF SUCH UNDERWRITER ANY
OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE.
2
<PAGE> 4
<TABLE>
<CAPTION>
COL. A. COL. B. COL. C. COL. D.
------- ------- ------- -------
<S> <C> <C> <C>
AMOUNT OWNED BENEFICIALLY PERCENT OF CLASS
NAME OF OR HELD AS COLLATERAL REPRESENTED BY
ISSUER AND AMOUNT SECURITY FOR OBLIGATIONS AMOUNT GIVEN IN
TITLE OF CLASS OUTSTANDING IN DEFAULT BY TRUSTEE COL. C.
Not applicable
</TABLE>
ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT VOTING SECURITIES OF A PERSON WHO, TO THE KNOWLEDGE OF
THE TRUSTEE (1) OWNS 10 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR
OR (2) IS AN AFFILIATE, OTHER THAN A SUBSIDIARY, OF THE OBLIGOR, FURNISH THE
FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF SUCH PERSON.
<TABLE>
<CAPTION>
COL. A. COL. B. COL. C. COL. D.
------- ------- ------- -------
<S> <C> <C> <C>
AMOUNT OWNED BENEFICIALLY PERCENT OF VOTING
NAME OF OR HELD AS COLLATERAL SECURITIES
ISSUER AND AMOUNT SECURITY FOR OBLIGATIONS REPRESENTED BY AMOUNT
TITLE OF CLASS OUTSTANDING IN DEFAULT BY TRUSTEE GIVEN IN COL. C.
Not Applicable
</TABLE>
ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT ANY SECURITIES OF A PERSON WHO, TO THE KNOWLEDGE OF THE
TRUSTEE, OWNS 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR,
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OF SUCH PERSON
ANY OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE.
<TABLE>
<CAPTION>
COL. A. COL. B. COL. C. COL. D.
------- ------- ------- -------
<S> <C> <C> <C> <C>
AMOUNT OWNED BENEFICIALLY PERCENT OF CLASS
NAME OF OR HELD AS COLLATERAL REPRESENTED BY
ISSUER AND AMOUNT SECURITY FOR OBLIGATIONS AMOUNT GIVEN IN
TITLE OF CLASS OUTSTANDING IN DEFAULT BY TRUSTEE COL. C.
Not Applicable
</TABLE>
ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
EXCEPT AS NOTED IN THE INSTRUCTIONS, IF THE OBLIGOR IS INDEBTED TO THE
TRUSTEE, FURNISH THE FOLLOWING INFORMATION:
<TABLE>
<CAPTION>
COL.A COL.B COL.C
----- ----- -----
<S> <C> <C>
NATURE OF INDEBTEDNESS AMOUNT OUTSTANDING DATE DUE
Not Applicable
</TABLE>
3
<PAGE> 5
ITEM 13. DEFAULTS BY THE OBLIGOR.
(a) STATE WHETHER THERE IS OR HAS BEEN A DEFAULT WITH RESPECT TO THE
SECURITIES UNDER THIS INDENTURE. EXPLAIN THE NATURE OF ANY SUCH DEFAULT.
None
(b) IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH ANY
OTHER SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY OTHER
SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, OR IS TRUSTEE FOR MORE THAN ONE
OUTSTANDING SERIES OF SECURITIES UNDER THE INDENTURE, STATE WHETHER THERE HAS
BEEN DEFAULT UNDER ANY SUCH INDENTURE OR SERIES, IDENTIFY THE INDENTURE OR
SERIES AFFECTED, AND EXPLAIN THE NATURE OF ANY SUCH DEFAULT.
None
ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.
IF ANY UNDERWRITER IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
Not Applicable
ITEM 15. FOREIGN TRUSTEE.
IDENTIFY THE ORDER OR RULE PURSUANT TO WHICH THE FOREIGN TRUSTEE IS
AUTHORIZED TO ACT AS SOLE TRUSTEE UNDER INDENTURES QUALIFIED OR TO BE QUALIFIED
UNDER THE ACT.
Not Applicable
ITEM 16. LISTS OF EXHIBITS.
1* -COPY OF ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
2 -NO CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE BUSINESS
IS FURNISHED SINCE THIS AUTHORITY IS CONTAINED IN THE ARTICLES
OF ASSOCIATION OF THE TRUSTEE.
3* -COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS.
4* -COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, AS NOW IN EFFECT.
5 -NOT APPLICABLE.
6 -THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE
ACT.
7 -A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE
PUBLISHED PURSUANT TO THE LAW OR THE REQUIREMENTS OF ITS
SUPERVISING OR EXAMINING AUTHORITY.
8 -NOT APPLICABLE
9 -NOT APPLICABLE
- -------------
*EXHIBITS THUS DESIGNATED HAVE HERETOFORE BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, HAVE NOT BEEN AMENDED SINCE FILING AND ARE INCORPORATED
HEREIN BY REFERENCE (SEE EXHIBIT T-1 REGISTRATION NUMBER 333-43241).
IN ANSWERING ANY ITEM IN THIS STATEMENT OF ELIGIBILITY AND QUALIFICATION
WHICH RELATES TO MATTERS PECULIARLY WITHIN THE KNOWLEDGE OF THE OBLIGOR OR OF
ITS DIRECTORS OR OFFICERS, OR AN UNDERWRITER FOR THE OBLIGOR, THE UNDERSIGNED,
FIRST UNION NATIONAL BANK, HAS RELIED UPON INFORMATION FURNISHED TO IT BY THE
OBLIGOR OR SUCH UNDERWRITER.
4
<PAGE> 6
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939 THE
TRUSTEE, FIRST UNION NATIONAL BANK, A NATIONAL BANKING ASSOCIATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE UNITED STATES, HAS DULY CAUSED THIS STATEMENT OF
ELIGIBILITY TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, ALL IN THE CITY OF NEWARK, AND STATE OF NEW JERSEY, ON THE 9TH DAY
OF JUNE, 1998.
FIRST UNION NATIONAL BANK
(TRUSTEE)
(CORPORATE SEAL)
BY: /s/ STEPHANIE ROCHE
-----------------------------------------
VICE PRESIDENT
5
<PAGE> 7
EXHIBIT T-6
CONSENT OF TRUSTEE
PURSUANT TO THE REQUIREMENTS OF SECTION 321(b) OF THE TRUST INDENTURE
ACT OF 1939, AND IN CONNECTION WITH THE PROPOSED ISSUE OF FOODMAKER, INC., WE
HEREBY CONSENT THAT REPORTS OF EXAMINATIONS BY FEDERAL, STATE, TERRITORIAL OR
DISTRICT AUTHORITIES MAY BE FURNISHED BY SUCH AUTHORITIES TO THE SECURITIES AND
EXCHANGE COMMISSION UPON REQUEST THEREFOR.
FIRST UNION NATIONAL BANK
BY: /s/ STEPHANIE ROCHE
---------------------------------
VICE PRESIDENT
NEWARK, NJ
JUNE 9, 1998
<PAGE> 8
EXHIBIT T-7
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the First Fidelity Bank,
National Association , at the close of business on March 31, 1998, published in
response to call made by Comptroller of the Currency, under title 12, United
States Code, Section 161. Charter Number 33869 Comptroller of the Currency
Northeastern District. STATEMENT OF RESOURCES AND LIABILITIES
<TABLE>
<CAPTION>
ASSETS
Thousand of Dollars
-------------------
<S> <C>
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin ................... 7,346,667
Interest-bearing balances ............................................ 12,481
Securities ............................................................ /////////
Hold-to-maturity securities .......................................... 1,937,159
Available-for-sale securities ........................................ 31,508,601
Federal funds sold and securities purchased under agreements
to resell ...................................................... 4,501,133
Loans and lease financing receivables:
Loan and leases, net of unearned income ........................ 98,043,231
LESS: Allowance for loan and lease losses ...................... 1,213,121
LESS: Allocated transfer risk reserve .......................... 0
Loans and leases, net of unearned income, allowance, and
reserve ........................................................ 96,830,110
Assets held in trading accounts ........................................ 3,818,431
Premises and fixed assets (including capitalized leases) ............... 2,660,908
Other real estate owned ................................................ 112,869
Investment in unconsolidated subsidiaries and associated
companies .............................................................. 269,234
Customer's liability to this bank on acceptances outstanding ........... 575,447
Intangible assets ...................................................... 2,896,263
Other assets ........................................................... 7,274,331
Total assets ........................................................... 159,743,634
LIABILITIES
Deposits:
In domestic offices ............................................ 101,438,219
Noninterest-bearing .......................................... 19,061,893
Interest-bearing ............................................. 82,376,326
In foreign offices, Edge and Agreement subsidiaries,
and IBFs ....................................................... 5,487,257
Noninterest-bearing .................................................... 29,619
Interest-bearing ............................................. 5,457,638
Federal funds purchased and securities sold under agreements
to repurchase .................................................. 24,525,123
Demand notes issued to the U.S. Treasury ............................... 426,758
Trading liabilities .................................................... 4,547,787
Other borrowed money (includes mortgage indebtness and obligations under
capitalized leases)
With original maturity of one year or less ..................... 3,391,194
With original maturity of more than one year ................... 635,109
With original maturity of more than three years ................ 416,618
Bank's liability on acceptances executed and outstanding ............... 575,222
Subordinated notes and debentures ...................................... 2,797,773
Other liabilities ...................................................... 3,662,892
Total liabilities ...................................................... 147,903,952
Limited-life preferred stock and related surplus ....................... 0
EQUITY CAPITAL
Perpetual preferred stock and related surplus .......................... 160,540
Common Stock ........................................................... 82,795
Surplus ................................................................ 8,532,323
Undivided profits and capital reserves ................................. 2,823,904
Net unrealized holding gains (losses) on available-for-sale ............ /////////
securities ............................................................ 240,120
Cumulative foreign currency translation adjustments .................... 0
Total equity capital ................................................... 11,839,682
Total liabilities, limited-life preferred stock and equity ............. //////////
capital .............................................................. 159,743,634
</TABLE>
