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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1999
OR
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 0-21660
PAPA JOHN'S INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 61-1203323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2002 PAPA JOHN'S BOULEVARD
LOUISVILLE, KENTUCKY 40299-2334
(Address of principal executive offices)
(502) 261-7272
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
(Name of each exchange
(Title of Each Class) on which registered)
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value The NASDAQ Stock Market
- -------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days:
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
As of March 13, 2000 there were 25,766,938 shares of the
Registrant's Common Stock outstanding. The aggregate market value of the
shares of Registrant's Common Stock held by non-affiliates of the Registrant
at such date was $478,421,048 based on the last sale price of the Common
Stock on March 13, 2000 as reported by The NASDAQ Stock Market. For purposes
of the foregoing calculation only, all directors and executive officers of
the Registrant have been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Part III are incorporated by reference to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held May 24, 2000.
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TABLE OF CONTENTS
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PART I
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Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
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PART I
ITEM 1. BUSINESS
GENERAL
Papa John's International, Inc. (referred to as "the Company", "Papa John's"
or in the first person notations of "we", "us" and "our") operates and
franchises pizza delivery and carry-out restaurants under the trademark "Papa
John's" domestically in 47 states, the District of Columbia and five
international markets, and under the trademark "Perfect Pizza" in the United
Kingdom. The first Company-owned Papa John's restaurant opened in 1985 and
the first franchised restaurant opened in 1986. We acquired Perfect Pizza
Holdings Limited ("Perfect Pizza") in 1999 (see Business - Expansion). At
December 26, 1999, there were 2,280 Papa John's restaurants in operation,
consisting of 573 Company-owned and 1,707 franchised restaurants.
Additionally, there were 206 Perfect Pizza restaurants in operation,
consisting of 12 Company-owned and 194 franchised-owned restaurants.
STRATEGY
Our goal is to build the strongest brand loyalty of all pizzerias
internationally. To accomplish this goal, we have developed a strategy
designed to achieve high levels of customer satisfaction and repeat business,
as well as to establish recognition and acceptance of the Papa John's brand.
The key elements of our strategy include:
FOCUSED, HIGH QUALITY MENU. Papa John's restaurants offer a focused menu of
high quality pizza, breadsticks and cheesesticks. Papa John's traditional
crust pizza is prepared using fresh dough (never frozen), cheese made from
100% real mozzarella, fresh-packed pizza sauce made from vine-ripened
tomatoes (not from concentrate) and a proprietary mix of savory spices, and a
choice of high quality meat and vegetable toppings. Papa John's thin crust
pizza is made with a prepared crust and the same high quality toppings. We
believe our focused menu creates a strong identity in the marketplace and
simplifies operations.
EFFICIENT OPERATING SYSTEM. We believe our operating and distribution
systems, restaurant layout and designated delivery areas result in lower
restaurant operating costs and improved food quality, and promote superior
customer service. Our commissary system takes advantage of volume purchasing
of food and supplies, and provides consistency and efficiencies of scale in
dough production. This eliminates the need for each restaurant to order food
from multiple vendors and commit substantial labor and other resources to
dough preparation. Because Papa John's restaurants have a focused menu and
specialize in delivery and carry-out services, each team member can
concentrate on a well-defined function in preparing and delivering the
customer's order.
COMMITMENT TO TEAM MEMBER TRAINING AND DEVELOPMENT. We are committed to the
development and motivation of our team members through on going training
programs, incentive compensation and opportunities for advancement. Team
member training programs are conducted for corporate team members, as well as
franchise team members located at training centers across the United States.
We offer performance-based financial incentives and stock option awards to
restaurant team members at various levels. Our growth also provides
significant opportunities for advancement. We believe these factors create an
entrepreneurial spirit throughout Papa John's, resulting in a positive work
environment and motivated, customer-oriented team members.
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TARGETED, COST-EFFECTIVE MARKETING. Our restaurant-level marketing programs
target the delivery area of each restaurant, making extensive use of
distinctive print materials in direct mail and store-to-door couponing. Local
marketing efforts also include a variety of community-oriented activities
with schools, sports teams and other organizations. In markets in which we or
our franchisees have a significant presence, local marketing efforts are
supplemented with radio and television advertising. Three national television
campaigns aired in 1999.
FRANCHISE SYSTEM. We are committed to developing a strong franchise system by
attracting experienced operators, allowing them to expand in a controlled
manner and monitoring their compliance with our high standards. We seek to
attract franchisees with experience in multi-unit restaurant operations and
with the financial resources and management capability to open multiple
locations. To ensure consistent food quality, each domestic franchisee is
required to purchase dough and spice mix from us and purchase all other
supplies from us or our approved suppliers. Commissaries outside the U.S. may
be operated by franchisees pursuant to license agreements. We devote
significant resources to provide Papa John's franchisees with assistance in
restaurant operations, management training, team member training, marketing,
site selection and restaurant design.
UNIT ECONOMICS
We believe our unit economics are exceptional. In 1999, the 492 restaurants
that were Company-owned and that are included in the most recent comparable
restaurant base generated average sales of $754,000, average cash flow
(operating income plus depreciation) of $154,000 and average restaurant
operating income of $128,000 (or 17.0% of average sales).
The average cash investment for the 36 Company-owned restaurants opened
during the 1999 fiscal year, exclusive of land, was approximately $224,000.
We expect the average cash investment for Company-owned restaurants opening
in 2000 to be approximately $244,000.
EXPANSION
A total of 401 Papa John's restaurants were opened during 1999, consisting of
36 Company-owned and 365 franchised restaurants. During 1999, we acquired
Perfect Pizza, an operator and franchisor of 205 delivery and carry-out pizza
restaurants in the United Kingdom (See "Note 3" of "Notes to Consolidated
Financial Statements"). One Perfect Pizza franchised restaurant was opened in
1999 subsequent to our acquisition. During 2000, we plan to open
approximately 35 restaurants and acquire an additional 60 restaurants from
our franchisees and expect franchisees to open approximately 375 restaurants.
Newer domestic market expansion is planned for the upper Northeast Coast,
West Coast and Rocky Mountain regions, in addition to building out existing
markets throughout the country. International expansion is planned primarily
in Mexico, Puerto Rico, Venezuela, Costa Rica, Guatemala, Saudi Arabia,
Canada, Iceland and the United Kingdom. New restaurants in the United Kingdom
may be opened as either Papa John's or Perfect Pizza units. We expect that
substantially all existing or new Perfect Pizza units will be converted to
Papa John's over a three-year period.
Our ability and the ability of our franchisees to open new restaurants is
affected by a number of factors, many of which are beyond our control and the
control of our franchisees. These factors include, among other things,
selection and availability of suitable restaurant and commissary locations,
increases in food, paper or labor costs, negotiation of suitable lease or
financing terms, constraints on permitting and construction of restaurants
and the hiring, training and retention of management and other personnel.
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Accordingly, there can be no assurance that we or our franchisees will be
able to meet planned growth targets or open restaurants in markets now
targeted for expansion.
Our expansion strategy is to cluster restaurants in targeted markets, thereby
increasing consumer awareness and enabling us to take advantage of
operational, distribution and advertising efficiencies. Our experience in
developing markets indicates that market penetration through the opening of
multiple restaurants within a particular market results in increased average
restaurant sales in that market. We have co-developed markets with some
franchisees or divided markets among franchisees, and will continue to
utilize market co-development in the future. In determining which new markets
to develop, we consider many factors, including the size of the market,
demographics and population trends, competition, and availability and costs
of real estate. Before entering a new market, we analyze detailed information
concerning these factors and each market is toured and evaluated by a member
of our Development department.
MENU
Papa John's restaurants offer a focused menu of high quality pizza,
breadsticks and cheesesticks, as well as canned or bottled soft drinks. Papa
John's traditional crust pizza is prepared using fresh dough (never frozen),
and our thin crust pizza is made with a prepared crust. Papa John's pizzas
are made from hard wheat flour, cheese made from 100% real mozzarella,
freshed-packed pizza sauce made with vine-ripened tomatoes (not from
concentrate) and a proprietary mix of savory spices, and a choice of high-
quality meat (no artificial fillers) and vegetable toppings. Fresh onions and
green peppers are purchased from local produce suppliers and sliced daily in
the restaurants. Fresh baby portabella mushrooms are purchased from the
commissary system, which delivers twice weekly. Each traditional crust pizza
is served with a container of our special garlic sauce and two pepperoncinis,
and each thin crust pizza is served with a container of special seasonings
and two pepperoncinis. We believe our focused menu helps create a strong
identity among consumers and simplifies operations, resulting in lower
restaurant operating costs, improved food quality and consistency and
superior customer service.
RESTAURANT DESIGN AND SITE SELECTION
The exterior of most Papa John's restaurants is characterized by backlit
awnings, neon window designs and other visible signage. A typical domestic
Papa John's restaurant averages 1,100 to 1,800 square feet and a typical
international Papa John's restaurant averages 800 to 1,400 square feet. Papa
John's restaurants are designed to facilitate a smooth flow of food orders
through the restaurant. The layout includes specific areas for order taking,
pizza preparation and routing, resulting in simplified operations, lower
training and labor costs, increased efficiency and improved consistency and
quality of food products. The typical interior of a Papa John's restaurant
has a vibrant red and white color scheme with green striping, and includes a
bright menu board, custom counters and a carry-out customer area. The
counters are designed to allow customers to watch the team members slap out
the dough and put sauce and toppings on pizzas.
We consider the location of a restaurant to be important and therefore devote
significant resources to the investigation and evaluation of potential sites.
The site selection process includes a review of trade area demographics,
target population density, household income levels and competitive factors. A
member of our development team inspects each potential domestic Company-owned
or franchised restaurant location and the surrounding market before a site is
approved. Our restaurants are typically located in strip shopping centers or
free-standing buildings that provide visibility, curb appeal and
accessibility. Our
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restaurant design may be configured to fit a wide variety of building shapes
and sizes, which increases the number of suitable locations for our
restaurants.
Since 1994, an increasing number of free-standing restaurants have been
opened in the Papa John's system. We seek either existing buildings suitable
for conversion, or locations suitable for the construction of our prototype
restaurant. Free-standing buildings generally provide more signage and better
visibility, accessibility and parking. We believe that these locations
improve Papa John's image and brand awareness. At year-end, free-standing
units represented approximately 24% of Company-owned restaurants. We expect
this ratio to remain fairly consistent in future years. During 1997, we
constructed our first multi-bay unit, housing a Company-owned restaurant in
addition to third party tenants. Management believes that improved site
selection may result from maintaining control of the multi-bay development
process. We have seven multi-bay units open and this strategy will continue
to be evaluated as additional operational and financial results for these
types of units become available for analysis.
All of the equipment, fixtures and smallwares needed to open a Papa John's
restaurant are available for purchase through us. We also provide layout and
design services and recommend subcontractors, signage installers and
telephone systems to Papa John's franchisees. Although not required to do so,
substantially all of Papa John's franchisees purchase most of their equipment
from us.
COMMISSARY SYSTEM; PURCHASING
Our domestic commissary system, comprised of eleven regional quality control
centers, supplies pizza dough, food products, paper products, smallwares and
cleaning supplies twice weekly to each restaurant. Our system enables us to
monitor and control product quality and consistency, while lowering food
costs. We relocated our full service commissary in Louisville, Kentucky and
opened a full-service commissary in Dallas, Texas (replacing the distribution
center) in 1999. A full-service commissary was opened in Pittsburgh,
Pennsylvania in January 2000. A full-service commissary is expected to open
in Phoenix, Arizona in the second quarter of 2000 (to replace our current
distribution center). Our other full-service commissaries are in Orlando,
Florida; Raleigh, North Carolina; Jackson, Mississippi; Denver, Colorado;
Rotterdam, New York; Portland, Oregon and Des Moines, Iowa. The primary
difference between a full-service commissary and a distribution center is
that full-service commissaries produce dough. The commissary system capacity
is continually evaluated in relation to planned restaurant growth, and
facilities are developed or upgraded as operational or economic conditions
warrant.
Four international franchised commissaries located in Costa Rica, Venezuela,
Guatemala and Mexico were opened in 1999. Other international franchised
commissaries are located in Mexico and Puerto Rico. We expect that future
international commissaries will be licensed to franchisees; however, we may
open Company-owned commissaries at our discretion. Perfect Pizza is currently
relocating and expanding its distribution center and the new facility will
accommodate a full-service commissary as the conversion to Papa John's takes
place in the future.
We set quality standards for all products used in our restaurants and
designate approved outside suppliers of food and paper products which must
meet our quality standards. In order to ensure product quality and
consistency, all of our restaurants are required to purchase proprietary
spice mix and dough from our commissaries. Franchisees may purchase other
goods directly from approved suppliers or our commissaries. National
purchasing agreements with most of our suppliers generally result in volume
discounts to us, allowing us to sell products to our restaurants at prices
which we believe are below those generally available in the marketplace.
Within our domestic commissary system, products are distributed
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to restaurants by refrigerated trucks leased and operated by us or transported
by a dedicated logistics company.
Effective December 27, 1999, the commissary entered into a purchasing
arrangement with a third-party entity formed at the direction of the
Franchise Advisory Council (see Franchise Program - Franchise Advisory
Council) for the sole purpose of reducing cheese price volatility. Under this
arrangement, the commissary will purchase cheese at a fixed quarterly price
based in part on historical average cheese prices. Gains and losses incurred
by the selling entity will be passed to the commissary via adjustments to the
selling price over time. Ultimately the commissary will purchase cheese at a
price approximating the actual average market price, but with more
predictability and less volatility than the previous purchasing method.
MARKETING PROGRAMS
Our restaurant-level marketing programs target the delivery area of each
restaurant, making extensive use of distinctive print materials in direct
mail and store-to-door couponing. The local marketing efforts also include a
variety of community-oriented activities with schools, sports teams and other
organizations. In markets in which we or Papa John's franchisees have a
significant presence, local marketing efforts are supplemented with radio and
television advertising.
In addition to extensive local store marketing, all Company-owned and
franchised Papa John's restaurants within a developed market are required to
join an advertising cooperative ("Co-op"). Each member restaurant contributes
a percentage of sales to the Co-op for market wide programs, such as radio,
television and billboards. The rate of contribution and uses of the monies
collected are determined by a majority vote of the Co-op's members. The
restaurant-level and Co-op marketing efforts are supported by print and
electronic advertising materials that are produced by the Papa John's
Marketing Fund, Inc., a non-profit corporation (the "Marketing Fund"), for
use by us and our franchisees. The Marketing Fund produces Papa John's
national television commercials.
We provide both Company-owned and franchised restaurants with catalogs for
the purchase of uniforms and promotional items and pre-approved print
marketing materials. We also provide direct marketing services to
Company-owned and franchised restaurants utilizing customer information
gathered by our proprietary point-of-sale technology.
COMPANY OPERATIONS
RESTAURANT PERSONNEL. A typical Papa John's restaurant employs a restaurant
manager, two assistant managers and approximately 20 - 25 hourly team
members, most of whom work part-time. The manager is responsible for the
day-to-day operation of the restaurant and for maintaining
Company-established operating standards. The operating standards and other
resources are contained in a comprehensive operations manual supplied to each
restaurant and updated regularly. We seek to hire experienced restaurant
managers and staff, provide comprehensive training on operations and
managerial skills, and motivate and retain them by providing opportunities
for advancement and performance-based financial incentives and stock option
grants.
We employ area supervisors, each of whom has responsibility for overseeing
three to six Company-owned restaurants. We also employ regional vice
presidents and district managers who oversee area supervisors and managers
within their respective markets. These team members are also eligible to earn
performance-based financial incentives, including stock option grants.
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TRAINING AND EDUCATION. We have a department dedicated to training and
developing team members, as well as assisting new restaurant openings. We
have at least one full-time training coordinator in each of our markets and
regional training directors located strategically across the country. We
provide an on-site training team three days before and three days after the
opening of any Company-owned or franchised restaurant requesting assistance.
Each regional vice president, district manager, area supervisor and
restaurant manager completes our management training program and on-going
development programs in which instruction is given on all aspects of our
systems and operations. The programs include classroom instruction and
hands-on training at an operating Papa John's restaurant or at
Company-certified training centers. Our training includes: new team member
orientation, in-store and delivery training, core management skills training,
new product or program implementation and ongoing developmental programs.
POINT OF SALE TECHNOLOGY. Point of sale technology (our proprietary PROFIT
System-TM-) is in place in substantially all Company-owned and franchised
restaurants. We believe this technology facilitates faster and more accurate
order taking and pricing, reduces paperwork and allows the restaurant manager
to better monitor and control food and labor costs. We believe the PROFIT
System enhances restaurant-level marketing capabilities through the
development of a data base containing information on customers and their
buying habits with respect to our products. Polling capabilities allow us to
obtain restaurant operating information, thereby improving the speed,
accuracy and efficiency of restaurant-level reporting.
REPORTING. Managers at Company-owned restaurants evaluate daily reports of
sales, cash deposits and operating costs. Physical inventories of all food
and beverage items are taken nightly. Our area supervisors prepare weekly
operating projections for each of the restaurants under their supervision.
HOURS OF OPERATIONS. Our restaurants are open seven days a week, typically
from 11:00 a.m. to 12:30 a.m. Monday through Thursday, 11:00 a.m. to 1:30
a.m. on Friday and Saturday and 12:00 noon to 11:30 p.m. on Sunday.
FRANCHISE PROGRAM
GENERAL. We continue to attract many franchisees with significant restaurant
experience. We consider our franchisees to be a vital part of our system's
continued growth and believe our relationship with our franchisees is
excellent. As of December 26, 1999, there were 1,707 franchised Papa John's
restaurants operating in 46 states, the District of Columbia, and five
international markets, and 194 franchised Perfect Pizza restaurants operating
in the United Kingdom. We had development agreements for approximately 1,321
additional franchised restaurants committed to open through 2009. There can
be no assurance that all of these restaurants will be opened or that the
development schedule set forth in the development agreements will be
achieved. Formal development agreements for franchised Perfect Pizza
restaurants do not exist, although a pipeline of qualified franchisees
interested in expansion is maintained. During the 1999 fiscal year, 365 (345
domestic and 20 international) franchised Papa John's restaurants were
opened, and one Perfect Pizza franchised restaurant was opened subsequent to
our acquisition.
APPROVAL. Franchisees are approved on the basis of the applicant's business
background, restaurant operating experience and financial resources. We
generally seek franchisees who will enter into development agreements for
multiple restaurants. We seek franchisees who have restaurant experience or,
in the case of franchisees who do not have restaurant experience, we require
the franchisee to hire a
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full-time operator who has either an equity interest or the right to acquire
an equity interest in the franchise operation. We have recently added small
towns and non-traditional locations in our franchising program. These venues
are often sold as a single restaurant location.
DEVELOPMENT AND FRANCHISE AGREEMENTS. We enter into development agreements
with our domestic franchisees for the opening of a specified number of
restaurants within a defined period of time and specified geographic area.
Under our current standard development agreement, the franchisee is required
to pay, at the time of signing the agreement, a non-refundable fee of $5,000
per restaurant covered by the development agreement. This amount is credited
against the standard $20,000 franchise fee payable to us upon signing the
franchise agreement for a specific location. Generally, a franchise agreement
is executed when a franchisee secures a location.
Our current standard domestic franchise agreement provides for a term of 10
years (with one ten-year renewal option) and payment to us of a royalty fee
of 4% of sales. The current agreement, as well as substantially all existing
franchise agreements, permit us to increase the royalty fee up to 5% of sales
after the agreement has been in effect for three years. However, the royalty
fee cannot be increased to an amount greater than the percentage royalty fee
then in effect for new franchisees.
We have the right to terminate a franchise agreement for a variety of
reasons, including a franchisee's failure to make payments when due or
failure to adhere to our policies and standards. Many state franchise laws
limit the ability of a franchisor to terminate or refuse to renew a franchise.
In 1997, we began developing an international department and opened our first
franchised restaurant outside the U.S. in July 1998. In international
markets, we enter into either a development agreement or a master franchise
agreement with a franchisee for the opening of a specified number of
restaurants within a defined period of time and specified geographic area.
Under a master franchise agreement, the franchisee has the right to
subfranchise a portion of the development to one or more subfranchisees
approved by us. Under our current standard international development
agreement, the franchisee is required to pay total fees of $25,000 per
restaurant, $10,000 at the time of signing the agreement, $10,000 ninety days
before the scheduled opening date of each restaurant and $5,000 upon signing
the franchise agreement for a specific location. Under our current master
franchise agreement, the master franchisee is required to pay total fees of
$25,000 per restaurant owned and operated by the master franchisee, under the
same terms as for the development agreement, and $15,000 for each
subfranchised restaurant, $10,000 upon signing of the master franchise
agreement and $5,000 on or prior to the date the subfranchised restaurant
opens for business.
Our current standard international master franchise and development
agreements provide for payment to us of a royalty fee of 5% of sales
(including sales by subfranchised restaurants), with no provision for
increase. The remaining terms applicable to the operation of individual
restaurants are substantially equivalent to the terms of our standard
domestic franchise agreement.
As a result of our acquisition, we franchise restaurants in the United
Kingdom under Perfect Pizza franchise agreements, which were in effect at the
time of our acquisition. These franchise agreements differ from our standard
international franchise agreements in many respects, with few material
differences. A principal difference is the term of the agreement, which is
five years. The franchisee fee is L8,000 (approximately $13,000 at
current exchange rates), and the royalty rate of 5% is the same as our
standard international agreements. The Perfect Pizza system has been
developed principally through franchising of individual restaurants to single
location franchisees. Thus, the system has no equivalent to our development
agreements or master franchise agreements. It is expected that future
development in
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the United Kingdom will take place pursuant to standard Papa John's
international development and franchise agreements.
We have entered into a limited number of development and franchise agreements
for non-traditional restaurant units. These agreements generally cover venues
or areas not originally targeted for development and have terms differing
from the standard agreement. Although we expect an increase in the number of
franchised units in non-traditional venues in 2000, we do not believe these
contracts will have a significant impact on 2000 revenues or earnings.
FRANCHISE RESTAURANT DEVELOPMENT. We provide assistance to Papa John's
franchisees in selecting sites, developing restaurants and evaluating the
physical specifications for typical restaurants. Each franchisee is
responsible for selecting the location for its restaurants but must obtain
our approval of restaurant design and location based on accessibility and
visibility of the site and targeted demographic factors, including
population, density, income, age and traffic. We provide design plans,
fixtures and equipment for most franchisee locations at competitive prices.
FRANCHISEE LOAN PROGRAM. In 1996, we established a program under which
selected franchisees could borrow funds for use in the construction and
development of their restaurants. Loans made under the program typically bear
interest at fixed or floating rates (ranging from 5.5% to 12.0% at December
26, 1999), and are secured by the fixtures, equipment and signage (and where
applicable, the land) of the restaurant and the ownership interests in the
franchisee. In limited cases, we have obtained a purchase option with respect
to the financed restaurants. At December 26, 1999, loans outstanding under
the franchise loan program totaled $11.7 million, with commitments to lend up
to an additional $2.5 million. We do not expect to significantly expand the
franchise loan program beyond current commitment levels.
FRANCHISE TRAINING AND SUPPORT. Every franchisee is required to have a
principal operator approved by us who satisfactorily completes our required
training program and who devotes his or her full business time and efforts to
the operation of the franchisee's restaurants. Each franchised restaurant
manager is also required to complete our Company-certified management
training program. We provide an on-site training crew three days before and
three days after the opening of a franchisee's first two restaurants. Ongoing
supervision of training is monitored by the corporate franchise training
team. Multi-unit franchisees are encouraged to hire a full-time training
coordinator certified to deliver Company approved programs in order to train
new team members and management candidates for their restaurants. Our
franchise consultants, reporting to the Vice President of Franchise Sales and
Operations, maintain open communication with the franchise community,
relaying operating and marketing information and new ideas between us and
franchisees.
FRANCHISE OPERATIONS. All franchisees are required to operate their Papa
John's restaurants in compliance with our policies, standards and
specifications, including matters such as menu items, ingredients, materials,
supplies, services, fixtures, furnishings, decor and signs. Each franchisee
has full discretion to determine the prices to be charged to its customers.
FRANCHISE ADVISORY COUNCIL. We have a Franchise Advisory Council that
consists of Company and franchisee representatives. The Advisory Council
holds quarterly meetings to discuss new marketing ideas, operations, growth
and other relevant issues.
REPORTING. We collect weekly and monthly sales and other operating
information from Papa John's franchisees. We have agreements with most Papa
John's franchisees permitting us to electronically debit the franchisees'
bank accounts for the payment of royalties, Marketing Fund contributions and
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commissary purchases from Papa John's. This system significantly reduces the
resources needed to process receivables, improves cash flow and virtually
eliminates past-due accounts related to these items. Franchisees generally
are required to purchase and install the Papa John's PROFIT System in their
restaurants. See "Company Operations -- Point of Sale Technology."
COMPETITION
The restaurant industry is intensely competitive with respect to price,
service, location and food quality, and there are many well-established
competitors with substantially greater financial and other resources than
Papa John's. Competitors include a large number of international, national
and regional restaurant chains, as well as local pizza operators. Some of our
competitors have been in existence for a substantially longer period than us
and may be better established in the markets where our restaurants are, or
may be, located. Within the pizza segment of the restaurant industry, we
believe that our primary competitors are the international pizza chains,
including Pizza Hut, Domino's and Little Caesars, and several regional chains
(Papa Murphy's, Donatos, etc.). A change in the pricing or other marketing
strategies of one or more of these competitors could have an adverse impact
on our sales and earnings.
The restaurant business is often affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends, traffic
patterns and the type, number and location of competing restaurants. In
addition, factors such as inflation, increased cheese and other commodity
costs, labor and benefits costs and the lack of experienced management and
hourly team members may adversely affect the restaurant industry in general
and our restaurants in particular.
With respect to the sale of franchises, we compete with many franchisors of
restaurants and other business concepts. In general, there is also active
competition for management personnel, capital and attractive commercial real
estate sites suitable for our restaurants.
GOVERNMENT REGULATION
We, along with our franchisees, are subject to various federal, state and
local laws affecting the operation of our respective businesses. Each Papa
John's restaurant is subject to licensing and regulation by a number of
governmental authorities, which include health, safety, sanitation, building
and fire agencies in the state or municipality in which the restaurant is
located. Difficulties in obtaining, or the failure to obtain, required
licenses or approvals can delay or prevent the opening of a new restaurant in
a particular area. Our commissary and distribution facilities are licensed
and subject to regulation by state and local health and fire codes, and the
operation of our trucks is subject to Department of Transportation
regulations. We are also subject to federal and state environmental
regulations.
We are subject to Federal Trade Commission ("FTC") regulation and various
state laws regulating the offer and sale of franchises. Several state laws
also regulate substantive aspects of the franchisor-franchisee relationship.
The FTC requires us to furnish to prospective franchisees a franchise
offering circular containing prescribed information. A number of states in
which we might consider franchising also regulate the sale of franchises and
require registration of the franchise offering circular with state
authorities. Substantive state laws that regulate the franchisor-franchisee
relationship presently exist in a substantial number of states, and bills
have been introduced in Congress from time to time (some of which are now
pending) which would provide for federal regulation of the
franchisor-franchisee relationship in certain respects. The state laws often
limit, among other things, the duration and scope of non-competition
provisions and the ability of a franchisor to terminate or refuse to renew a
franchise. Some foreign countries also have disclosure requirements and other
laws regulating franchising and the
10
<PAGE>
franchisor-franchisee relationship. As we expand internationally we will be
subject to applicable laws in each jurisdiction where franchised units are
established.
We are also subject to the Americans With Disabilities Act of 1990, which,
among other things, may require renovations to restaurants to meet
federally-mandated requirements. The cost of these renovations is not
expected to be material. Further government initiatives, if enacted, for
example, a proposed system of mandated health insurance, could adversely
affect us and our franchisees as well as the restaurant industry in general.
TRADEMARKS
Our rights in principal trademarks and service marks are a significant part
of our business. We are the owner of the federal registration of the
trademark "Papa John's." We have also registered "Pizza Papa John's and
design" (our logo), "Better Ingredients. Better Pizza." and "Pizza Papa
John's Better Ingredients. Better Pizza. and design" as trademarks and
service marks. We also own federal registrations for several ancillary marks,
principally advertising slogans. We have also applied to register our primary
trademark, "Pizza Papa John's and design," in 76 foreign countries and the
European Community. The "Perfect Pizza" trademark is also registered in the
United Kingdom. We are aware of the use by other persons in certain
geographical areas of names and marks which are the same as or similar to our
marks. It is our policy to pursue registration of our marks whenever possible
and to oppose vigorously any infringement of our marks.
On August 12, 1998, Pizza Hut, Inc. filed suit against us in the United
States District Court for the Northern District of Texas, claiming that our
"Better Ingredients. Better Pizza." slogan constitutes false and deceptive
advertising in violation of the Lanham Trademark Act. Pizza Hut also filed
petitions for cancellation in the trademark Trial and Appeal Board of the
United States Department of Commerce Patent and Trademark Office against our
registrations for "Better Ingredients. Better Pizza." and "Pizza Papa John's
Better Ingredients. Better Pizza. and design" as trademarks and service
marks. Proceedings on both of these cancellation petitions were stayed by the
Trademark Trial and Appeal Board pending the outcome of the lawsuit filed by
Pizza Hut, as the issues are substantially the same (see "Legal Proceedings"
and "Note 14" of "Notes to Consolidated Financial Statements").
EMPLOYEES
As of December 26, 1999, we employed 16,619 persons, of whom approximately
14,439 were restaurant team members, 762 were restaurant management and
supervisory personnel, 593 were corporate personnel and 825 were commissary
and support services personnel. Most restaurant team members work part-time
and are paid on an hourly basis. None of our team members are covered by a
collective bargaining agreement. We consider our team member relations to be
excellent.
FORWARD LOOKING STATEMENTS
This Form 10-K contains forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Act"), including
information within Management's Discussion and Analysis of Financial
Condition and Results of Operations. The following cautionary statements are
being made pursuant to the provisions of the Act and with the intention of
obtaining the benefits of the "safe harbor" provisions of the Act. Although
we believe that our expectations are based on reasonable assumptions, actual
results may differ materially from those in the forward looking statements as
a result of various factors, including but not limited to, the following:
11
<PAGE>
1. Our ability and the ability of our franchisees to continue to expand
through the opening of new restaurants is affected by a number of factors,
many of which are beyond our control and our franchisees' control. These
factors include, among other things, selection and availability of suitable
restaurant locations, increases in food, paper and labor costs, negotiation
of suitable lease or financing terms, constraints on permitting and
construction of other restaurants, higher than anticipated construction
costs, and the hiring, training and retention of management and other
personnel. Accordingly, there can be no assurance that we or the Papa John's
franchisees will be able to meet planned growth targets or open restaurants
in markets now targeted for expansion.
2. The restaurant industry is intensely competitive with respect to price,
service, location and food quality, and there are many well-established
competitors with substantially greater financial and other resources than
Papa John's and our franchisees. Some of these competitors have been in
existence for a substantially longer period than us or our franchisees and
may be better established in the markets where restaurants operated by Papa
John's or our franchisees are, or may be, located. A change in the pricing or
other marketing or promotional strategies of one or more of our major
competitors could have an adverse impact on sales and earnings at restaurants
operated by us and our franchisees.
3. An increase in the cost of cheese or other commodities could adversely
affect the profitability of our restaurant operations. Cheese, representing
approximately 40% of our food cost, and other commodities are subject to
seasonal fluctuations, weather, demand and other factors that are beyond our
control. During the third quarter of 1999, cheese prices reached an all time
high, but have since returned to more normal levels. Additionally, sustained
increases in fuel costs could adversely affect profitability of our
restaurant and commissary businesses.
4. Changes in consumer taste, demographic trends, traffic patterns and the
type, number and location of competing restaurants could adversely affect our
restaurant business.
5. Our restaurant operations are subject to federal and state laws governing
such matters as wages, working conditions, citizenship requirements and
overtime. A significant number of hourly personnel employed by us and our
franchisees are paid at rates related to the federal minimum wage.
Accordingly, further increases in the minimum wage will increase labor costs
for us and our franchisees. Additionally, labor shortages in various markets
could result in higher required wage rates.
6. Our international operations are subject to a number of additional
factors, including international economic and political conditions, currency
regulations and fluctuations, differing cultures and consumer preferences,
diverse government regulations and structures, availability and cost of land
and construction, and differing interpretation of the obligations established
in franchise agreements with international franchisees. Accordingly, there
can be no assurance that our international operations will achieve or
maintain profitability or meet planned growth rates.
7. Our acquisition of Perfect Pizza and planned conversion of Perfect Pizza
restaurants to Papa John's restaurants over the next three years represents
the first time we have attempted to expand the Papa John's brand in this
manner. There can be no assurance that all conversion issues will be
identified and successfully addressed in a timely and cost-effective manner
or that the existing Perfect Pizza market share can be successfully converted
to Papa John's.
12
<PAGE>
ITEM 2. PROPERTIES
As of December 26, 1999, there were 2,280 Papa John's restaurants and 206
Perfect Pizza restaurants systemwide.
COMPANY-OWNED PAPA JOHN'S RESTAURANTS
<TABLE>
<CAPTION>
NUMBER OF
RESTAURANTS
-----------
<S> <C>
Colorado...................................................... 49
Delaware...................................................... 11
Florida....................................................... 47
Georgia....................................................... 68
Illinois...................................................... 3
Indiana....................................................... 36
Kentucky...................................................... 34
Maryland...................................................... 54
Minnesota..................................................... 41
Missouri...................................................... 20
New Jersey.................................................... 1
New Mexico.................................................... 10
North Carolina................................................ 48
Ohio.......................................................... 18
Pennsylvania ................................................. 1
South Carolina................................................ 3
Tennessee..................................................... 27
Texas......................................................... 86
Virginia...................................................... 16
----------
Total Company-owned Papa John's Restaurants............... 573
==========
</TABLE>
13
<PAGE>
DOMESTIC FRANCHISED PAPA JOHN'S RESTAURANTS
<TABLE>
<CAPTION>
NUMBER OF
RESTAURANTS
-------------
<S> <C>
Alabama....................................................... 53
Arkansas...................................................... 12
Arizona....................................................... 45
California.................................................... 126
Colorado...................................................... 3
Connecticut................................................... 10
Florida....................................................... 165
Georgia....................................................... 44
Hawaii........................................................ 7
Idaho......................................................... 7
Illinois...................................................... 69
Indiana....................................................... 76
Iowa.......................................................... 19
Kansas........................................................ 24
Kentucky...................................................... 53
Louisiana..................................................... 45
Maryland...................................................... 18
Massachusetts................................................. 10
Michigan...................................................... 44
Minnesota..................................................... 3
Mississippi................................................... 21
Missouri...................................................... 30
Montana....................................................... 6
Nebraska...................................................... 13
Nevada........................................................ 13
New Hampshire................................................. 7
New Jersey.................................................... 22
New Mexico.................................................... 5
New York...................................................... 30
North Carolina................................................ 49
North Dakota.................................................. 2
Ohio.......................................................... 134
Oklahoma...................................................... 22
Oregon........................................................ 15
Pennsylvania.................................................. 67
Rhode Island.................................................. 6
South Carolina................................................ 39
South Dakota.................................................. 4
Tennessee..................................................... 59
Texas......................................................... 114
Utah.......................................................... 21
Virginia...................................................... 82
Washington.................................................... 24
West Virginia................................................. 18
Wisconsin..................................................... 36
Wyoming....................................................... 3
Washington, D.C............................................... 6
-------------
Total Domestic Franchised Papa John's Restaurants......... 1,681
=============
</TABLE>
14
<PAGE>
INTERNATIONAL FRANCHISED PAPA JOHN'S RESTAURANTS
<TABLE>
<CAPTION>
NUMBER OF
RESTAURANTS
------------
<S> <C>
Costa Rica................................................... 5
Central America.............................................. 2
Mexico ....................................................... 10
Puerto Rico................................................... 4
Venezula...................................................... 5
----------
Total International Franchised Papa John's Restaurants ....... 26
==========
</TABLE>
Most Papa John's restaurants are located in leased space. The initial term of
most restaurant leases is five years or less with most leases providing for
one or more options to renew for at least one additional term. Virtually all
of our leases specify a fixed annual rent. Generally, the leases are triple
net leases which require us to pay all or a portion of the cost of insurance,
taxes and utilities. Certain leases further provide that the lease payments
may be increased annually, with a small number of escalations based on
changes in the Consumer Price Index.
Approximately 134 Company-owned restaurants are located in buildings we own
on land either owned or leased by us. These restaurants range from 1,200 to
1,800 square feet. Seven of the restaurants are located in multi-bay
facilities we own. These multi-bay facilities contain from 2,800 to 5,000
square feet, and the space not utilized by the Papa John's restaurants in
each facility is leased or held for lease to third party tenants.
All 194 franchised and 12 Company-owned Perfect Pizza restaurants are located
in the United Kingdom. In addition to leasing the 12 Company-owned restaurant
sites, we lease and sublease to franchisees 148 of the 194 franchised
restaurant sites. The initial lease terms on the Company and franchised sites
are generally 10 to 15 years. The initial lease terms of the franchisee
subleases are generally 5 to 10 years.
Information with respect to our leased commissaries and other facilities as
of December 26, 1999, is set forth below.
<TABLE>
<CAPTION>
FACILITY SQUARE FOOTAGE
-------- --------------
<S> <C>
Jackson, MS Commissary 30,000
Raleigh, NC Commissary 27,000
Denver, CO Commissary 32,000
Phoenix, AZ Distribution Center
(terminating in 2000) 26,000
Phoenix, AZ Commissary
(opening in 2000) 57,000
Des Moines, IA Commissary 31,000
Rotterdam, NY Commissary 45,000
Portland, OR Commissary 37,000
Pittsburgh, PA Commissary 52,000
</TABLE>
We own approximately five acres in Orlando on which our 63,000 square foot
full-service commissary is located, and eight acres in Dallas on which our
77,500 square foot full-service commissary is located. In
15
<PAGE>
addition, the Company owns approximately 72 acres in Louisville, Kentucky
with a 42,000 square foot building housing our printing operations and a
247,000 square foot building, approximately 30-40% of which accommodated the
relocation and expansion of the Louisville commissary operation and
promotional division in 1999. The remainder of the building accommodated the
relocation and consolidation of our corporate offices in 1999.
The Perfect Pizza management team is located in 6,000 square feet of leased
office space in London with a remaining lease term of 16 years. We expanded
and relocated the Perfect Pizza distribution center into a 30,000 square foot
owned facility in March 2000. This new facility will accommodate a
full-service commissary as the conversion to Papa John's restaurants occurs.
ITEM 3. LEGAL PROCEEDINGS
On August 12, 1998, Pizza Hut, Inc. filed suit against us in the United
States District Court for the Northern District of Texas, claiming that our
"Better Ingredients. Better Pizza." slogan constitutes false and deceptive
advertising in violation of the Lanham Trademark Act. The trial began on
October 25, 1999. On November 18, 1999, the jury returned a verdict that our
"Better Ingredients. Better Pizza." slogan is false and deceptive. On January
3, 2000, the court announced its judgment, awarding Pizza Hut $468,000 in
damages and ordering us to cease all use of the "Better Ingredients. Better
Pizza." slogan. Under the judge's order, we were to cease using the slogan in
print and broadcast advertising by January 24, 2000, phase out printed
promotional materials and other items containing the slogan (except signage)
by March 3, 2000 and remove the slogan from restaurant signage by April 3,
2000. We have estimated that the pre-tax costs of complying with the court's
order and certain related costs could approximate $12.0 to $15.0 million, of
which $6.1 million was recorded as a pre-tax charge against 1999 earnings.
However, we filed an appeal of the verdict and the court's order and a motion
for stay of the court's order pending outcome of the appeal. On January 21,
2000, the United States Court of Appeals for the Fifth Circuit granted a stay
of the District Court judgment pending our appeal. Oral arguments related to
the appeal are scheduled to be held in April 2000 (see "Note 14" of "Notes to
Consolidated Financial Statements"). If our appeal is successful, the timing
and possibly the amount of costs to be incurred could be favorably impacted.
We are also subject to claims and legal actions in the ordinary course of our
business. We believe that all such claims and actions currently pending
against us are either adequately covered by insurance or would not have a
material adverse effect on us if decided in a manner unfavorable to us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the current executive officers of Papa John's, together
with their ages, their positions and the years in which they first became an
officer:
<TABLE>
<CAPTION>
FIRST ELECTED
NAME AGE POSITION EXECUTIVE OFFICER
- ---- ----- ---------- -----------------
<S> <C> <C> <C>
John H. Schnatter 38 Founder, Chairman of the Board and 1985
Chief Executive Officer
Blaine E. Hurst 43 Vice Chairman and President 1995
Charles W. Schnatter 37 Senior Vice President, General 1991
Counsel and Secretary
E. Drucilla Milby 46 Senior Vice President, Chief Financial 1991
Officer and Treasurer
Robert J. Wadell 44 President - PJ Food Service, Inc. 1990
Barry M. Barron 43 Senior Vice President - International 1999
Richard J. Emmett 44 Senior Vice President and Senior Counsel 1992
Lou DiFazio, Jr. 42 Vice President - Corporate Operations 1999
J. David Flanery 43 Vice President and Corporate Controller 1994
Thomas C. Kish 34 Vice President - Information and Support 1999
Services
Mary Ann Palmer 42 Vice President - People Department 1999
Syl J. Sosnowski 58 Vice President - Marketing 1995
Hart Boesel 53 Vice President - Franchise Sales & Operations 1999
</TABLE>
John Schnatter created the Papa John's concept and founded Papa John's in
1985. He has served as Chairman of the Board and Chief Executive Officer
since 1990, and from 1985 to 1990, served as President. John Schnatter has
also been a franchisee since 1986.
Blaine Hurst has served as Vice Chairman since 1998 and President since 1996.
From 1995 to 1996, Mr. Hurst served as Chief Information Officer after having
joined Papa John's in January 1995 as Vice President of Information Systems.
From 1993 to 1995, Mr. Hurst was Vice President of Information Systems for
Boston Chicken, Inc. From 1989 to 1993, Mr. Hurst was a consulting partner
with Ernst & Young LLP. Mr. Hurst has been a franchisee since 1996.
Charles Schnatter has served as General Counsel and Secretary since 1991 and
has been a Senior Vice President since 1993. From 1988 to 1991, he was an
attorney with Greenebaum Doll & McDonald
17
<PAGE>
PLLC, Louisville, Kentucky, a law firm which provides legal services to us.
Charles Schnatter has been a franchisee since 1989.
Dru Milby has served as Senior Vice President since 1996, Chief Financial
Officer since 1995 and Treasurer since 1993. Ms. Milby held the position of
Vice President - Finance from 1991 to 1995. From 1990 to 1991, Ms. Milby was
Director of Financial Planning for American Air Filter. From 1987 to 1990,
Ms. Milby was Manager of Financial Reporting and Systems Support for KFC
International, the operator and franchisor of KFC restaurants. From 1983 to
1987, Ms. Milby held various positions with KFC International and KFC USA in
the areas of general accounting, financial reporting and financial systems.
Ms. Milby is a licensed Certified Public Accountant and Certified Management
Accountant.
Robert Wadell has served as President of PJ Food Service, Inc. since 1995,
after having served as Vice President of Commissary Operations from 1990 to
1995. From 1988 to 1990, Mr. Wadell was employed with Mr. Gatti's in the
position of Regional Franchise Director, responsible for overseeing the
operations of 65 franchised restaurants in an eight-state area. From 1983 to
1988, Mr. Wadell was an Area Supervisor for Mr. Gatti's, and from 1979 to
1983, was a store operator for Mr. Gatti's.
Barry Barron has served as Senior Vice President of International since 1998.
Mr. Barron also served as Regional Vice President, Southwest Region from 1995
to 1998. The Southwest Region he served included restaurants in Texas, New
Mexico, Colorado, Missouri and Illinois. Prior to joining Papa John's, Mr.
Barron was employed by a major competitor for more than 10 years where he
held various positions overseeing operations and delivery business
development.
Richard Emmett was appointed Senior Vice President and Senior Counsel in
March 1997, after having served as Senior Vice President-Development from
August 1996 to March 1997. From 1992 to 1996, Mr. Emmett held the position of
Vice President and Senior Counsel. From 1983 to 1992, Mr. Emmett was an
attorney with the law firm of Greenebaum Doll & McDonald PLLC, having become
a partner of such firm in 1989. Mr. Emmett has been a franchisee since 1992.
Lou DiFazio has served as Vice President, Corporate Operations since January
1999. From 1994 to 1999, Mr. DiFazio served as Regional Vice President,
Southeast Region, where he was responsible for the operation of 125
restaurants. From 1993 to 1994, Mr. DiFazio served as both a district manager
and senior district manager for the Atlanta and Charlotte markets. A pizza
industry veteran for more than twelve years, Mr. DiFazio started his career
as a supervisor for a major competitor. In addition to his experience as a
supervisor, he has worked in various marketing, real estate and store
development positions in the pizza industry. We announced that Mr. DiFazio
will be resigning this position effective in the second quarter of 2000 to
focus on his Papa John's franchised restaurants.
David Flanery has served as Vice President since 1995 after having joined
Papa John's in 1994 as Corporate Controller. From 1979 to 1994, Mr. Flanery
was with Ernst & Young LLP in a variety of positions, most recently as Audit
Senior Manager. Mr. Flanery is a licensed Certified Public Accountant.
Tom Kish has served as Vice President, Information Services since October
1996 and Vice President, Support Services, since March 1998. From 1995 to
1996, Mr. Kish served as Director of Store Systems. Prior to joining Papa
John's, Mr. Kish held several consulting positions, many of them with Fortune
500 companies. Mr. Kish has been a franchisee since 1998.
Mary Ann Palmer has served as Vice President, People Department since the
department was created in January 1999. Ms. Palmer served as Vice President
of Education and Training from 1997 to 1999. From
18
<PAGE>
1996 to 1997, Ms. Palmer held the position of Senior Counsel in our legal
department. Prior to joining Papa John's, Ms. Palmer practiced law as a
partner in the area's largest regional law firm, Wyatt, Tarrant & Combs.
Syl Sosnowski has served as Vice President of Marketing since 1995. Mr.
Sosnowski also served as Vice President of Support Services from 1997 to
1998. From 1990 to 1995, Mr. Sosnowski served as Vice President of Marketing
and Sales for Carvel Corporation.
Hart Boesel has served as Vice President of Franchise Sales and Operations
since 1999. Mr. Boesel held the position of Vice President of Franchise
Operations from 1995 to 1999. In his capacity as Vice President, Mr. Boesel
serves as the primary corporate contact for the Papa John's franchise family.
Prior to joining Papa John's, Mr. Boesel had 17 years of experience in
corporate, franchise and international operations for a major quick service
restaurant chain.
John and Charles Schnatter are brothers. There are no other family
relationships among the executive officers and other key personnel.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the NASDAQ National Market tier of The NASDAQ
Stock Market under the symbol PZZA. As of March 13, 2000, there were
approximately 932 record holders of common stock. The following table sets
forth for the quarters indicated the high and low sale prices of our common
stock, as reported by The NASDAQ Stock Market.
<TABLE>
<CAPTION>
1999 High Low
------------- ------------
<S> <C> <C>
First Quarter $ 47.38 $ 38.88
Second Quarter 44.13 35.25
Third Quarter 44.88 37.81
Fourth Quarter 44.50 23.31
<CAPTION>
1998
<S> <C> <C>
First Quarter $ 38.88 $ 31.25
Second Quarter 44.00 37.50
Third Quarter 39.91 26.50
Fourth Quarter 42.25 29.25
</TABLE>
Since our initial public offering of common stock in 1993, we have not paid
dividends on our common stock, and have no plans to do so in the foreseeable
future.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for each of the years in the
five-year period ended December 26, 1999 was derived from our audited
consolidated financial statements, restated for the acquisition of Minnesota
Pizza (see "Note 3" of "Notes to Consolidated Financial Statements"). The
selected financial data 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 included in Item 7
and Item 8, respectively, of this Form 10-K.
<TABLE>
<CAPTION>
(In thousands, except per share data) Year Ended (1)
---------------------------------------------------------------------
Dec. 26, Dec. 27, Dec. 28, Dec. 29, Dec. 31,
1999 1998 1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SYSTEMWIDE RESTAURANT SALES
Company-owned $ 394,636 $ 344,089 $ 262,272 $ 171,457 $ 111,755
Franchised 1,038,080 812,182 605,337 447,739 346,995
Perfect Pizza: Company-owned 455 - - - -
Perfect Pizza: franchised 5,175 - - - -
=====================================================================
Total $ 1,438,346 $ 1,156,271 $ 867,609 $ 619,196 $ 458,750
=====================================================================
INCOME STATEMENT DATA
Revenues:
Restaurant sales $ 395,091 $ 344,089 $ 262,272 $ 171,457 $ 111,755
Franchise royalties 41,270 32,126 23,875 17,688 13,561
Franchise and development fees 6,871 5,450 5,162 4,061 3,385
Commissary sales 309,015 255,083 184,407 141,654 105,874
Equipment and other sales 53,078 45,404 39,952 26,959 18,665
---------------------------------------------------------------------
Total revenues 803,325 682,152 515,668 361,819 253,240
Operating income 72,333 53,045 35,141 22,573 15,610
Investment income 3,384 4,100 4,196 3,484 1,659
---------------------------------------------------------------------
Income before income taxes and cumulative effect
of a change in accounting principle 75,717 57,145 39,337 26,057 17,269
Income tax expense 28,431 22,181 15,772 10,932 6,525
---------------------------------------------------------------------
Income before cumulative effect of a change in
accounting principle 47,286 34,964 23,565 15,125 10,744
Cumulative effect of accounting change,
net of tax (2) - (2,603) - - -
---------------------------------------------------------------------
Net income $ 47,286 $ 32,361 $ 23,565 $ 15,125 $ 10,744
=====================================================================
Basic earnings per share:
Income before cumulative effect of a change in
accounting principle $ 1.57 $ 1.18 $ .81 $ .54 $ .43
Cumulative effect of accounting change,
net of tax (2) - (.09) - - -
---------------------------------------------------------------------
Basic earnings per share $ 1.57 $ 1.09 $ .81 $ .54 $ .43
=====================================================================
Diluted earnings per share:
Income before cumulative effect of a change in
accounting principle $ 1.52 $ 1.15 $ .79 $ .53 $ .42
Cumulative effect of accounting change,
net of tax (2) - (.09) - - -
---------------------------------------------------------------------
Diluted earnings per share $ 1.52 $ 1.06 $ .79 $ .53 $ .42
=====================================================================
Basic weighted average shares outstanding 30,195 29,537 29,044 28,138 25,267
=====================================================================
Diluted weighted average shares outstanding 31,080 30,455 29,720 28,798 25,680
=====================================================================
BALANCE SHEET DATA
Total assets $ 372,051 $ 319,724 $ 253,413 $ 214,392 $ 129,484
Debt 6,233 8,420 5,905 5,230 2,510
Stockholders' equity 292,133 254,170 206,996 178,194 106,822
</TABLE>
21
<PAGE>
(1) We operate on a 52-53 week fiscal year ending on the last Sunday of
December of each year. The 1999, 1998, 1997 and 1996 fiscal years consisted
of 52 weeks and the 1995 fiscal year consisted of 53 weeks.
(2) Reflects the cumulative effect on income and earnings per share of a
change in accounting principle, net of tax, as required by Statement of
Position 98-5 "Reporting the Costs of Start-Up Activities" (see "Note 2" of
"Notes to Consolidated Financial Statements").
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Papa John's International, Inc. (referred to as "the Company," "Papa John's"
or in the first person notations of "we," "us" and "our") began operations in
1985 with the opening of the first Papa John's restaurant in Jeffersonville,
Indiana. At December 26, 1999, there were 2,280 Papa John's restaurants in
operation, consisting of 573 Company-owned and 1,707 franchised and 206
Perfect Pizza restaurants in the United Kingdom (consisting of 12
Company-owned and 194 franchised). Our revenues are principally derived from
retail sales of pizza to the general public by Company-owned restaurants,
franchise royalties, sales of franchise and development rights, sales to
franchisees of food and paper products, restaurant equipment, printing and
promotional items, risk management services, and information systems and
related services used in their operations.
We intend to continue to expand the number of Company-owned and franchised
restaurants. Our expansion strategy is to cluster restaurants in targeted
markets, thereby increasing consumer awareness and enabling us to take
advantage of operational, distribution and advertising efficiencies. We
believe that our expansion strategy has contributed to increases in
comparable annual sales for Company-owned restaurants of 3.5% in 1999, 9.0%
in 1998, and 9.3% in 1997. We anticipate that future comparable sales
increases, if any, will be at a lesser rate than those achieved in the past.
Average sales for the Company's most recent comparable base restaurants
increased to $754,000 for 1999 from $750,000 for 1998. This increase is
attributable to continuing strong sales of maturing restaurants. Average
sales volumes in new markets are generally lower than in those markets in
which we have established a significant market position.
Approximately 45% of our revenues for 1999 and 44% for 1998 were derived from
the sale to franchisees of food and paper products, restaurant equipment,
printing and promotional items, risk management services and information
systems equipment and software and related services by us, our commissary
subsidiary, PJ Food Service, Inc., and our support services subsidiary, Papa
John's Support Services, Inc. We believe that, in addition to supporting both
Company and franchised growth, these subsidiaries contribute to product
quality and consistency throughout the Papa John's system.
We continually strive to obtain high quality sites with good access and
visibility, and to enhance the appearance and quality of our restaurants. We
believe that these factors improve our image and brand awareness. The average
cash investment for the 36 Company-owned restaurants opened during 1999,
exclusive of land, decreased to approximately $224,000 from $252,000 for the
70 units opened in 1998. This decrease was primarily due to a change in the
mix of store types built in 1999. In 1999, we built fewer freestanding
restaurants which have a higher cost. We also opened more non-traditional
units in 1999, which have a lower cost than traditional units. We expect the
average cash investment for restaurants opening in 2000 to be approximately
$244,000.
22
<PAGE>
We defer certain costs incurred in connection with the development of our
information systems and amortize such costs over periods of up to five years
from the date of completion.
Our fiscal year ends on the last Sunday in December of each year. All fiscal
years presented consist of 52 weeks. Our 2000 fiscal year will consist of 53
weeks.
RESULTS OF OPERATIONS
The following tables set forth the percentage relationship to total revenues,
unless otherwise indicated, of certain income statement data, and certain
restaurant data for the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
DEC. 26, DEC. 27, DEC. 28,
1999 1998 (1) 1997 (1)
-----------------------------------
INCOME STATEMENT DATA:
Revenues:
<S> <C> <C> <C>
Restaurant sales 49.1% 50.4% 50.9%
Franchise royalties 5.1 4.7 4.6
Franchise and development fees 0.8 0.8 1.0
Commissary sales 38.4 37.4 35.8
Equipment and other sales 6.6 6.7 7.7
-----------------------------------
Total revenues 100.0 100.0 100.0
Costs and expenses:
Restaurant cost of sales (2) 25.4 26.9 26.5
Restaurant operating expenses (2) 54.7 53.5 55.1
Commissary, equipment and other expenses (3) 90.5 91.7 91.6
General and administrative expenses (4) 6.8 7.8 7.5
Advertising litigation expense (5) 0.8 - -
Pre-opening and other general expenses (4) 0.4 0.5 0.3
Depreciation and amortization (4) 3.1 3.0 4.0
Total costs and expenses 91.0 92.2 93.2
-----------------------------------
Operating income 9.0 7.8 6.8
Investment income 0.4 0.6 0.8
-----------------------------------
Income before income taxes and cumulative effect of a
change in accounting principle 9.4 8.4 7.6
Income tax expense 3.5 3.3 3.0
-----------------------------------
Income before cumulative effect of a change in
accounting principle 5.9 5.1 4.6
Cumulative effect of accounting change, net of tax (4) - (0.4) -
-----------------------------------
Net income 5.9% 4.7% 4.6%
===================================
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
Dec. 26, Dec. 27, Dec. 28,
1999 1998 (1) 1997 (1)
----------------------------------------
<S> <C> <C> <C> <C>
Restaurant Data:
Percentage increase in comparable Company-owned
restaurant sales (6) 3.5% 9.0% 9.3%
Number of Company-owned restaurants included in the
respective years' most recent comparable restaurant base 492 407 278
Average sales for Company-owned restaurants included in
the respective years' most recent comparable restaurant base $ 754,000 $ 750,000 $ 717,000
PAPA JOHN'S RESTAURANT PROGRESSION:
Number of Company-owned restaurants:
Beginning of period 514 427 318
Opened 36 70 87
Closed (1) (1) (1)
Acquired from franchisees 28 21 23
Sold to franchisees (6) (3) --
Restated (7) 2 -- --
----------------------------------------
End of period 573 514 427
Number of U.S. franchised restaurants:
Beginning of period 1,365 1,090 842
Opened 345 296 277
Closed (8) (3) (6)
Sold to Company (28) (21) (23)
Acquired from Company 6 3 --
Restated (7) 1 -- --
----------------------------------------
End of period 1,681 1,365 1,090
Number of international franchised restaurants:
Beginning of period 6 -- --
Opened 20 6 --
----------------------------------------
End of period 26 6 --
----------------------------------------
Total restaurants end of period 2,280 1,885 1,517
========================================
PERFECT PIZZA RESTAURANT PROGRESSION: Company-owned Franchised Total
----------------------------------------
Number of restaurants at November 29, 1999 date of acquisition 15 190 205
Opened -- 1 1
Sold to franchisees (3) 3 --
----------------------------------------
End of period 12 194 206
========================================
</TABLE>
(1) Restated for the March 1999 acquisition of Minnesota Pizza (see "Note 3" of
"Notes to Consolidated Financial Statements").
(2) As a percentage of Restaurant sales.
(3) As a percentage of Commissary sales and Equipment and other sales on a
combined basis.
(4) The 1998 operating results reflect the adoption of an accounting standard
related to the costs of start-up activities (see "Note 2" of "Notes to
Consolidated Financial Statements") which impacts the amount of
depreciation and amortization, general and administrative expenses, and
pre-opening and other general expenses reflected above.
(5) Represents estimated 1999 costs related to complying with the Court's order
in the Pizza Hut litigation (see "Item 3. Legal Proceedings" and "Note 14"
of "Notes to Consolidated Financial Statements").
(6) Includes only Company-owned restaurants open throughout the periods being
compared.
(7) Non-traditional units previously opened but not included in restaurant
progression.
24
<PAGE>
1999 COMPARED TO 1998
On March 28, 1999, we acquired Minnesota Pizza Company, LLC ("Minnesota
Pizza"), a franchisee which operated 37 Papa John's restaurants in the
Minneapolis/St. Paul market (see "Note 3" of "Notes to Consolidated Financial
Statements"). The transaction was accounted for as a pooling of interests.
Our operating results for the first quarter of 1999 and previously reported
results of operations and balance sheets have been restated to include
Minnesota Pizza.
On November 29, 1999, we acquired Perfect Pizza Holdings Limited ("Perfect
Pizza"), a company located in the United Kingdom operating 205 restaurants
(See "Note 3" of "Notes to Consolidated Financial Statements"). The
Consolidated Statements of Income contain financial results for the month of
December 1999 for Perfect Pizza, which reflect total revenues of $2.9 million
and net income of $228,000. Due to the immateriality of these operating
results, the discussion below does not include comments related to the impact
of Perfect Pizza.
REVENUES. Total revenues increased 18.1% to $805.3 million in 1999, from
$682.2 million in 1998.
Restaurant sales increased 14.8% to $395.1 million in 1999, from $344.1
million in 1998. This increase was primarily due to a 12.6% increase in the
number of equivalent Company-owned restaurants open during 1999 as compared
to 1998. "Equivalent restaurants" represents the number of restaurants open
at the beginning of a given period, adjusted for restaurants opened or
acquired during the period on a weighted average basis. Also, comparable
sales increased 3.5% in 1999 over 1998 for Company-owned restaurants open
throughout both years in large part due to reduced price discounting.
Franchise royalties increased 28.5% to $41.3 million in 1999, from $32.1
million in 1998. This increase was primarily due to a 25.6% increase in the
number of equivalent franchised restaurants open during 1999 as compared to
1998. Also, comparable sales increased 6.4% in 1999 over 1998 for franchised
restaurants open throughout both years.
Franchise and development fees increased 26.1% to $6.9 million in 1999, from
$5.5 million in 1998. This increase was primarily due to the 365 franchised
restaurants opened during 1999, as compared to 302 opened during 1998, an
increase of 21%. The average dollar amount of fees per franchised restaurant
may vary from period to period, depending on the mix of restaurants opened
pursuant to older development agreements (including "Hometown restaurants"
which generally had lower required fees than traditional restaurants opened
pursuant to standard development agreements) and those opened pursuant to
international development agreements (which may have higher or lower required
fees). Hometown restaurants are located in smaller markets, generally with
less than 9,000 households. Hometown restaurant development agreements
entered into subsequent to March 1998, generally provide for fees equivalent
to those under standard development agreements. The standard international
development agreement requires total fees of $25,000 per restaurant, while
subfranchised restaurants opened pursuant to a master franchise agreement
require total fees of $15,000 per restaurant. This is compared to the
standard domestic development and franchise fee of $20,000 per restaurant.
Commissary sales increased 21.1% to $309.0 million in 1999, from $255.1
million in 1998. This increase was primarily due to the increases in
equivalent franchised restaurants and comparable sales for franchised
restaurants noted above, partially offset by the impact of lower 1999 cheese
costs which resulted in lower cheese pricing and sales relative to 1998
levels.
25
<PAGE>
Equipment and other sales increased 16.9% to $53.1 million in 1999, from
$45.4 million in 1998. This increase was primarily due to ongoing equipment,
smallwares, uniforms and print materials related to the increase in
equivalent franchised restaurants open during 1999 as compared to 1998, and
the increase in the number of new restaurant equipment packages sold to
franchisees that opened restaurants in 1999 as compared to 1998.
COSTS AND EXPENSES. Restaurant cost of sales, which consists of food,
beverage and paper costs, decreased as a percentage of restaurant sales to
25.4% in 1999, from 26.9% in 1998. The primary reason for the decrease is
attributable to reduced restaurant menu price discounting and a decrease in
the average cheese block price. The cost of cheese, representing
approximately 40% of food cost, and other commodities are subject to
significant price fluctuations caused by weather, demand and other factors.
Most of the factors affecting the cost of cheese are beyond our control (see
"Item 1. Business - Commissary System; Purchasing" and "Note 9" of "Notes to
Consolidated Financial Statements").
Restaurant salaries and benefits increased as a percentage of restaurant
sales to 27.0% in 1999, from 26.8% in 1998. This increase was primarily due
to higher staffing levels after our 14th Anniversary promotion to support the
demands of new customers and enhanced employee benefits to select restaurant
personnel. Occupancy costs as a percentage of restaurant sales remained
consistent at 5.0% for both 1999 and 1998.
Restaurant advertising and related costs increased as a percentage of
restaurant sales to 9.1% in 1999, from 8.7% in 1998. The increase in 1999 was
primarily the result of increased promotional activities in the second
quarter in response to significant promotional activities by our competitors
and increased activities in the fourth quarter in response to overall market
conditions and sales trends.
Other restaurant operating expenses increased as a percentage of restaurant
sales to 13.6% in 1999, from 13.0% in 1998. Other operating expenses include
an allocation of commissary operating expenses equal to 3% of Company-owned
restaurant sales in order to assess a portion of the costs of dough
production and food and equipment purchasing and storage to Company-owned
restaurants. The increase in other operating expenses as a percentage of
restaurant sales was primarily due to increased costs associated with our
14th Anniversary promotion and increased repair and maintenance costs. Repair
and maintenance costs are expected to increase as existing units mature.
Commissary, equipment and other expenses include cost of sales, salaries and
benefits, and other operating expenses associated with sales of food, paper,
equipment, information systems and printing and promotional items to
franchisees and other customers. These costs decreased as a percentage of
combined commissary sales and equipment and other sales to 90.5% in 1999 from
91.7% in 1998. Cost of sales as a percentage of combined commissary sales and
equipment and other sales decreased to 76.2% in 1999 from 78.5% in 1998,
principally due to the timing of certain favorable commodity price changes
(primarily cheese) and the change in classification of certain expenses to
salaries and benefits previously reported as cost of sales. Salaries and
benefits increased to 6.6% in 1999 from 5.7% in 1998 due to the change in
classification of certain expenses previously reported in cost of sales and
general and administrative expenses. Other operating expenses increased to
7.7% in 1999 compared to 7.5% in 1998 due primarily to higher delivery costs
related to the transition to a new distribution vendor and higher costs
related to the 14th Anniversary promotion, partially offset by a reduction in
rent expense due to the opening of the Dallas, Texas and Louisville, Kentucky
commissaries. Additionally, delivery costs as a percentage of sales will
fluctuate with cheese prices. Although the change in cheese price has an
effect on sales, the costs to deliver remain relatively consistent regardless
of cheese prices.
26
<PAGE>
General and administrative expenses decreased as a percentage of total
revenues to 6.8% in 1999 from 7.8% in 1998. This decrease was due to the
following: (1) leveraging expenses on a higher sales base; (2) the resolution
of certain economic incentives related to the construction of the new
corporate headquarters facility; (3) reduction in payroll processing fees due
to bringing payroll processing in-house; and (4) the change in classification
of certain expenses to commissary, equipment and other salaries and benefits
previously reported as general and administrative expenses. The change in
classification represented approximately 0.2% of the total improvement.
Advertising litigation expense represents costs associated with the lawsuit
filed against us by Pizza Hut, Inc. claiming that our "Better Ingredients.
Better Pizza." slogan is false and deceptive advertising. The $6.1 million in
advertising litigation expense consists primarily of legal costs and costs to
discontinue the "Better Ingredients. Better Pizza." slogan. See "Item 3.
Legal Proceedings" and "Note 14" of "Notes to Consolidated Financial
Statements" for additional information.
Pre-opening and other general expenses remained fairly consistent at $3.6
million in 1999, compared to $3.5 million in 1998. Depreciation and
amortization expense as a percentage of total revenues remained consistent at
3.1% in 1999, compared to 3.0% in 1998.
INVESTMENT INCOME. Investment income decreased to $3.4 million in 1999 from
$4.1 million in 1998 due to a lower average balance of franchise loans and a
decrease in our average investment portfolio balance.
INCOME TAX EXPENSE. Income tax expense (exclusive of the cumulative effect of
accounting change and related taxes) reflects a combined federal, state and
local effective tax rate of 37.6% for 1999, compared to 38.8% in 1998. The
effective income tax rate for 1998, including an income tax benefit for the
treatment of Minnesota Pizza as a C Corporation (see "Note 3" of "Notes to
Consolidated Financial Statements"), was 37.0%. The effective income tax rate
in 1999 increased as compared to the 1998 pro forma rate as a result of a
continued decrease in the relative level of tax-exempt investment income to
total pre-tax income.
1998 COMPARED TO 1997
As noted above, our previously reported results of operations and balance
sheets have been restated to include Minnesota Pizza and the following
discussion reflects this restatement.
REVENUES. Total revenues increased 32.3% to $682.2 million in 1998, from
$515.7 million in 1997.
Restaurant sales increased 31.2% to $344.1 million in 1998, from $262.3
million in 1997. This increase was primarily due to a 24.0% increase in the
number of equivalent Company-owned restaurants open during 1998 as compared
to 1997. "Equivalent restaurants" represents the number of restaurants open
at the beginning of a given period, adjusted for restaurants opened or
acquired during the period on a weighted average basis. Also, comparable
sales increased 9.0% in 1998 over 1997 for Company-owned restaurants open
throughout both years.
Franchise royalties increased 34.6% to $32.1 million in 1998, from $23.9
million in 1997. This increase was primarily due to a 26.9% increase in the
number of equivalent franchised restaurants open during 1998 as compared to
1997. Also, comparable sales increased 10.1% in 1998 over 1997 for franchised
restaurants open throughout both years.
27
<PAGE>
Franchise and development fees increased 5.6% to $5.5 million in 1998, from
$5.2 million in 1997. This increase was primarily due to the 302 franchised
restaurants opened during 1998, as compared to 277 opened during 1997, an
increase of 9.0%. The average dollar amount of fees per franchised restaurant
may vary from period to period, depending on the mix of restaurants opened
pursuant to older development agreements including "Hometown restaurants."
Commissary sales increased 38.3% to $255.1 million in 1998, from $184.4
million in 1997. This increase was primarily due to the increases in
equivalent franchised restaurants and comparable sales for franchised
restaurants noted above. There was an additional impact of higher cheese
prices in 1998 compared to 1997 in response to increased cheese costs during
1998.
Equipment and other sales increased 13.6% to $45.4 million in 1998, from
$40.0 million in 1997. This increase was primarily due to ongoing equipment
and smallwares orders related to the increase in equivalent franchised
restaurants open during 1998 as compared to 1997, and the increase in the
number of new restaurant equipment packages sold to franchisees that opened
restaurants in 1998 as compared to 1997. A portion of the equipment and other
sales increase was also attributable to an increase in sales of the Papa
John's PROFIT system, a proprietary point of sale system.
COSTS AND EXPENSES. Restaurant cost of sales, which consists of food,
beverage and paper costs, increased as a percentage of restaurant sales to
26.9% in 1998, from 26.5% in 1997. The primary reason for the increase is
attributable to increases in the average cheese block market prices,
partially offset by a decrease in the average cost of certain other
commodities.
Restaurant salaries and benefits decreased as a percentage of restaurant
sales to 26.8% in 1998, from 27.1% in 1997. The decrease is primarily due to
increased efficiencies in relation to higher sales volumes, partially offset
by the 1998 full year impact of increases in the federal minimum wage in
September 1997. Occupancy costs decreased as a percentage of restaurant sales
to 5.0% in 1998 from 5.2% in 1997 as a result of leveraging against a higher
sales base.
Restaurant advertising and related costs decreased as a percentage of
restaurant sales to 8.7% in 1998, from 9.4% in 1997. The decrease in 1998 was
primarily the result of efficiencies related to increased market penetration
and higher sales volume. Our advertising often varies based on the timing of
national or market-level promotions.
Other restaurant operating expenses decreased as a percentage of restaurant
sales to 13.0% for 1998 from 13.4% for 1997. The decrease in other operating
expenses as a percentage of restaurant sales was primarily due to a reduction
in worker's compensation costs.
Commissary, equipment and other expenses include cost of sales, salaries and
benefits, and other operating expenses associated with sales of food, paper,
equipment, information systems and printing and promotional items to
franchisees and other customers. These costs were relatively consistent as a
percentage of combined commissary sales and equipment and other sales at
91.7% in 1998 and 91.6% in 1997. Cost of sales as a percentage of combined
commissary sales and equipment and other sales increased to 78.5% in 1998
from 77.7% in 1997, due to the timing of certain unfavorable commodity price
changes (primarily cheese). The increase was offset by a decrease in salaries
and benefits and other operating expenses to 13.2% in 1998 compared to 13.9%
in 1997, due primarily to efficiencies related to an increased number of
restaurants serviced by the overall commissary system without significant
expansion in 1998.
28
<PAGE>
General and administrative expenses increased slightly as a percentage of
total revenues to 7.8% in 1998 from 7.5% in 1997. This increase is primarily
due to the adoption of the AICPA Statement of Position 98-5 ("SOP") which
required the expensing of certain start-up costs effective in 1998 (see "Note
2" of "Notes to Consolidated Financial Statements"). Certain of these costs
had previously been deferred and, accordingly, were not previously included
in general and administrative costs. Even though the adoption resulted in
significant changes to the amounts reported on individual line items (general
and administrative expenses, pre-opening and other general expenses, and
depreciation and amortization), the effect of the adoption of the SOP did not
have a material impact on 1998 consolidated net income, excluding the one
time cumulative effect adjustment of $2.6 million, net of taxes of $1.5
million. This increase was partially offset by the recognition of $2.0
million in incentives under the Kentucky Jobs Development Act (the "KJDA
incentives") related to the development of a new corporate headquarters
facility and associated employment increases.
Pre-opening and other general expenses increased to $3.5 million in 1998,
compared to $1.5 million in 1997. Pre-opening and other general expenses
consisted primarily of relocation costs in 1997 and of both relocation costs
and pre-opening expenses in 1998 as a result of the adoption of the SOP (see
"Note 2" of "Notes to Consolidated Financial Statements").
Depreciation and amortization decreased as a percentage of total revenues to
3.0% in 1998, from 4.0% in 1997. This decrease was due to the elimination of
pre-opening deferrals and related amortization in 1998 as a result of the
adoption of the SOP (see "Note 2" of "Notes to Consolidated Financial
Statements").
INVESTMENT INCOME. Investment income remained relatively consistent at $4.1
million in 1998 and $4.2 million in 1997 as average invested and loaned
balances and yields were also fairly consistent between years.
INCOME TAX EXPENSE. Income tax expense (exclusive of the cumulative effect of
accounting change and related taxes) reflects a combined federal, state and
local effective tax rate of 38.8% in 1998, compared to 40.1% in 1997. The
effective income tax rates for 1998 and 1997, including an income tax benefit
for the treatment of Minnesota Pizza as a C Corporation (see "Note 3" of
"Notes to Consolidated Financial Statements"), was 37.0% in both years.
LIQUIDITY AND CAPITAL RESOURCES
We require capital primarily for the development and acquisition of
restaurants, the addition of new commissary and support services facilities
and equipment, the enhancement of corporate systems and facilities and the
funding of franchisee loans. Additionally, we began a share repurchase
program in 1999. Capital expenditures of $81.2 million, acquisitions of $32.7
million, loans to franchisees of $6.6 million and share repurchases of $31.7
million for 1999, were primarily funded by cash flow from operations, cash
generated from the exercise of stock options and the liquidation of available
cash and investments.
Total 2000 capital expenditures are expected to be approximately $50.0
million, primarily for the development or relocation of restaurants,
construction of commissary facilities, and the completion of the Louisville
corporate offices. During 2000, we plan to open approximately 35 new
Company-owned restaurants and relocate an additional 15 to 20 restaurants.
In addition to restaurant development and potential acquisitions, significant
capital projects for the next 12 months are expected to include the
completion of the 247,000 square foot commissary and corporate
29
<PAGE>
office facility in Louisville, Kentucky. In mid-1999, the Louisville
commissary operations and the majority of the team members in the corporate
offices were relocated to the new facility, which is expected to be completed
in early 2000. A full-service commissary was opened in Pittsburgh,
Pennsylvania in January 2000, and we expect to complete the expansion and
relocation of the Phoenix, Arizona distribution center to a full-service
commissary in mid-2000.
Subsequent to year-end, we acquired an additional $87.4 million of common
stock under our share repurchase program. These purchases have primarily been
funded with short-term bank financing. The Board of Directors has authorized
up to $150.0 million for the share repurchase program through 2000 year-end,
and $30.9 million remains available under this authorization. Also subsequent
to year-end, we acquired PJNJ Foods, Inc., a franchisee of 19 Papa John's
restaurants in New Jersey, for $7.9 million ($6.6 million in cash and $1.3
million of assumed net liabilities).
Through December 1999, we earned approximately $4.9 million of an
expected $13.0 million in incentives under the Kentucky Jobs Development Act
in connection with the relocation of the corporate offices. We expect to earn
the remaining $8.1 million of such incentives through 2007.
Additionally, during 2000 we expect to fund up to $2.5 million in additional
loans under existing franchisee loan program commitments. Approximately $11.7
million was outstanding under this program as of December 26, 1999. At this
time, we do not expect to significantly expand the program beyond existing
commitments.
Substantially all capital resources available at December 26, 1999 were
expended in connection with the $87.4 million share repurchase subsequent to
year-end. Total bank financing of approximately $83.0 million has been
utilized to complete these subsequent repurchases. We expect to fund repayment
of short-term bank financing, planned capital expenditures, acquisitions of
franchised restaurants, disbursements under the franchise loan program and
additional share repurchases for the next twelve months from operating cash
flows and the $67.0 million remaining borrowing capacity under a $150.0
million, three-year, unsecured revolving line of credit agreement entered
into in March 2000.
IMPACT OF YEAR 2000
In prior years, we discussed the nature and progress of our plans to become
Year 2000-ready. In late 1999, we completed testing of our systems and made
modifications as deemed necessary. As a result of our planning and
implementation efforts, we experienced no significant disruptions in business
critical information technology and non-information technology systems and
believe these systems successfully responded to the Year 2000 date change.
The costs incurred during 1999 in connection with necessary modifications of
our systems were not material to our financial position. We are not aware of
any material problems resulting from Year 2000 issues regarding our internal
systems, the products and services of third parties, or the businesses
operated by our franchisees. We will continue to monitor our business
critical computer applications and those of our suppliers and franchisees
throughout the year 2000 to ensure that any Year 2000 matters that may arise
are addressed promptly.
IMPACT OF INFLATION
We do not believe inflation has materially affected earnings during the past
three years. Substantial increases in costs, particularly labor, benefits,
food and fuel costs, could have a significant impact on us.
30
<PAGE>
FORWARD LOOKING STATEMENTS
Certain information contained in this annual report, particularly information
regarding future financial performance and plans and objectives of
management, is forward looking. Certain factors could cause actual results to
differ materially from those expressed in forward looking statements. These
factors include, but are not limited to, our ability and the ability of our
franchisees to obtain suitable locations and financing for new restaurant
development; the hiring, training, and retention of management and other
personnel; competition in the industry with respect to price, service,
location, and food quality; an increase in food cost due to seasonal
fluctuations, weather, and demand; changes in consumer tastes and demographic
trends; changes in federal and state laws, such as increases in minimum wage;
and risks inherent to international development, including operational or
market risks associated with the planned conversion of Perfect Pizza
restaurants to Papa John's in the United Kingdom.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We had no significant holdings of derivative financial or commodity
instruments at December 26, 1999.
Our principal exposure to financial market risks in the past has been the
impact that interest rate changes could have on the income from our
investment portfolio. Going forward, our principal exposure is the impact
that interest rate changes could have on the interest expense incurred on
borrowings under our revolving credit agreement (see "Note 8" of "Notes to
Consolidated Financial Statements"). All such borrowings (none at December
26, 1999) bear interest at a variable rate based on the prime rate, the
London Interbank Offered Rate (LIBOR), or certain alternative short-term
rates. A change in interest rates of 100 basis points would not significantly
affect our net income. Furthermore, in connection with our $150.0 million,
three-year revolving credit agreement, we entered into a $100.0 million,
three-year interest rate collar effective March, 2000. The collar establishes
a 6.36% floor and 9.50% ceiling on the LIBOR base rate on a no-fee basis.
Substantially all of our business is transacted in U.S. dollars. Accordingly,
foreign exchange rate fluctuations have not had a significant impact on us,
and are not expected to during 2000.
Cheese, representing approximately 40% of our food cost, is subject to
seasonal fluctuations, weather, demand and other factors that are beyond our
control. Effective December 27, 1999, the commissary entered into a
purchasing arrangement with a third-party entity formed at the direction of
the Franchise Advisory Council for the sole purpose of reducing cheese price
volatility. Under this arrangement, the commissary will purchase cheese at a
fixed quarterly price based, in part, on historical average cheese prices.
Gains and losses incurred by the selling entity will be passed to the
commissary via adjustments to the selling price over time. Ultimately the
commissary will purchase cheese at a price approximating the actual average
market price, but with more predictability and less volatility than the
previous purchasing method.
31
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands, except per share amounts) YEAR ENDED
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 28,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
(RESTATED - (RESTATED -
SEE NOTE) SEE NOTE)
<S> <C> <C> <C>
REVENUES:
Restaurant sales $ 395,091 $ 344,089 $ 262,272
Franchise royalties 41,270 32,126 23,875
Franchise and development fees 6,871 5,450 5,162
Commissary sales 309,015 255,083 184,407
Equipment and other sales 53,078 45,404 39,952
- ------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 805,325 682,152 515,668
COSTS AND EXPENSES:
Restaurant expenses:
Cost of sales 100,412 92,612 69,554
Salaries and benefits 106,851 92,372 71,124
Advertising and related costs 36,014 29,846 24,542
Occupancy costs 19,560 17,138 13,687
Other operating expenses 53,591 44,685 35,247
- ------------------------------------------------------------------------------------------------------------------------
316,428 276,653 214,154
Commissary, equipment and other expenses:
Cost of sales 276,079 235,934 174,336
Salaries and benefits 23,794 16,981 13,091
Other operating expenses 27,809 22,560 18,181
- ------------------------------------------------------------------------------------------------------------------------
327,682 275,475 205,608
General and administrative expenses 54,386 53,008 38,841
Advertising litigation expense 6,104 - -
Pre-opening and other general expenses 3,565 3,481 1,486
Depreciation and amortization 24,827 20,490 20,438
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 732,992 629,107 480,527
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 72,333 53,045 35,141
Investment income 3,384 4,100 4,196
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE 75,717 57,145 39,337
Income tax expense 28,431 22,181 15,772
- ------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a change in accounting principle 47,286 34,964 23,565
Cumulative effect of accounting change, net of tax - (2,603) -
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 47,286 $ 32,361 $ 23,565
========================================================================================================================
BASIC EARNINGS PER SHARE:
Income before cumulative effect of a change in accounting principle $ 1.57 $ 1.18 $ .81
Cumulative effect of accounting change, net of tax - (.09) -
- ------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.57 $ 1.09 $ .81
========================================================================================================================
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of a change in accounting principle $ 1.52 $ 1.15 $ .79
Cumulative effect of accounting change, net of tax - (.09) -
- ------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.52 $ 1.06 $ .79
========================================================================================================================
Basic weighted average shares outstanding 30,195 29,537 29,044
========================================================================================================================
Diluted weighted average shares oustanding 31,080 30,455 29,720
========================================================================================================================
Supplemental data:
Revenues - affiliates $ 102,863 $ 85,137 $ 62,986
Other income - affiliates 314 570 514
</TABLE>
Note: The Consolidated Statements of Income for the years ended December 27,
1998 and December 28, 1997 have been restated to reflect the acquisition of
Minnesota Pizza Company, LLC, a business combination accounted for as a
pooling of interests (see "Note 3" of "Notes to Consolidated Financial
Statements").
SEE ACCOMPANYING NOTES.
32
<PAGE>
PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 26, DECEMBER 27,
(Dollars in thousands, except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(RESTATED -
ASSETS SEE NOTE)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,698 $ 33,814
Accounts receivable 18,113 15,147
Accounts receivable-affiliates 3,302 2,273
Inventories 10,637 9,808
Prepaid expenses and other current assets 7,378 4,891
Deferred income taxes 2,977 2,090
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 46,105 68,023
Investments 22,086 47,355
Net property and equipment 227,813 172,872
Notes receivable-franchisees 8,153 4,249
Notes receivable-affiliates 3,590 4,741
Intangibles 47,669 9,397
Other assets 16,635 13,087
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 372,051 $ 319,724
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 24,947 $ 18,389
Accrued expenses 38,516 26,916
Current portion of debt 5,308 190
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 68,771 45,495
Unearned franchise and development fees 6,222 6,561
Long-term debt, net of current portion 925 8,230
Deferred income taxes 2,109 5,066
Other long-term liabilities 1,891 202
STOCKHOLDERS' EQUITY:
Preferred stock ($.01 par value per share; authorized 5,000,000 shares,
no shares issued) - -
Common stock ($.01 par value per share; authorized 50,000,000 shares,
issued 30,504,185 in 1999 and 29,866,832 in 1998) 305 298
Additional paid-in capital 189,920 166,209
Accumulated other comprehensive income (loss) (390) 688
Retained earnings 134,492 87,456
Treasury stock (1,298,495 shares in 1999 and 36,572 shares in 1998, at cost) (32,194) (481)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 292,133 254,170
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 372,051 $ 319,724
============================================================================================================================
</TABLE>
Note: The Consolidated Balance Sheet at December 27, 1998 has been restated to
reflect the acquisition of Minnesota Pizza Company, LLC, a business combination
accounted for as a pooling of interests (see "Note 3" of "Notes to Consolidated
Financial Statements").
SEE ACCOMPANYING NOTES.
33
<PAGE>
PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED TREASURY STOCKHOLDERS'
(In thousands) STOCK CAPITAL INCOME (LOSS) EARNINGS STOCK EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 29, 1996 $ 288 $ 143,978 $ 977 $35,882 $ (482) $ 180,643
AS PREVIOUSLY REPORTED
Restatement for acquisition (see Note) 1 1,499 - (3,949) - (2,449)
----------------------------------------------------------------------------------
BALANCE AT DECEMBER 29, 1996
AS RESTATED 289 145,477 977 31,933 (482) 178,194
Comprehensive income:
Net income - - - 23,565 - 23,565
Unrealized loss on investments,
net of tax of $424 - - (656) - - (656)
------------
Comprehensive income 22,909
Exercise of stock options 3 3,533 - - 1 3,537
Tax benefit related to exercise of
non-qualified stock options - 2,339 - - - 2,339
Other - - - 17 - 17
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 28, 1997 292 151,349 321 55,515 (481) 206,996
Comprehensive income:
Net income - - - 32,361 - 32,361
Unrealized gain on investments,
net of tax of $354 - - 367 - - 367
------------
Comprehensive income 32,728
Exercise of stock options 5 11,668 - - - 11,673
Tax benefit related to exercise of
non-qualified stock options - 2,953 - - - 2,953
Other 1 239 - (420) - (180)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 27, 1998 298 166,209 688 87,456 (481) 254,170
Comprehensive income:
Net income - - - 47,286 - 47,286
Unrealized loss on investments,
net of tax of $357 - - (553) - - (553)
Other - - (525) - - (525)
------------
Comprehensive income 46,208
Exercise of stock options 7 14,452 - - - 14,459
Tax benefit related to exercise of
non-qualified stock options - 3,945 - - - 3,945
Deferred tax asset - pooling of interests
business combination - 5,245 - - - 5,245
Stock repurchase - - - - (31,713) (31,713)
Other - 69 - (250) - (181)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 26, 1999 $ 305 $ 189,920 $ (390) $134,492 $(32,194) $ 292,133
=================================================================================================================================
</TABLE>
Note: The Consolidated Statements of Stockholders' Equity for the years ended
December 27, 1998 and December 28, 1997 have been restated to reflect the
acquisition of Minnesota Pizza Company, LLC, a business combination accounted
for as a pooling of interests (see "Note 3" of "Notes to Consolidated
Financial Statements").
SEE ACCOMPANYING NOTES.
34
<PAGE>
PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) YEAR ENDED
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 28,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
(RESTATED - (RESTATED -
SEE NOTE) SEE NOTE)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 47,286 $ 32,361 $ 23,565
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 25,156 21,009 21,141
Deferred income taxes 1,757 (1,443) 528
Other 2,580 903 (601)
Changes in operating assets and liabilities:
Accounts receivable (1,802) (2,125) (2,184)
Inventories (275) (551) (2,292)
Deferred pre-opening costs - 3,827 (5,823)
Prepaid expenses and other current assets (2,343) (2,382) (883)
Other assets and liabilities (1,574) (1,324) (911)
Accounts payable 4,784 2,265 2,243
Accrued expenses 10,406 7,632 5,962
Unearned franchise and development fees (339) 1,873 1,195
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 85,636 62,045 41,940
INVESTING ACTIVITIES
Purchase of property and equipment (81,161) (70,861) (44,547)
Purchase of investments (22,908) (34,107) (41,445)
Proceeds from sale or maturity of investments 46,632 44,289 46,696
Loans to franchisees (6,614) (4,834) (8,848)
Loan repayments from franchisees 2,955 5,265 2,321
Deferred systems development costs (1,399) (1,208) (1,989)
Acquisitions (32,703) (1,902) (6,168)
Other (19) 403 316
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (95,217) (62,955) (53,664)
FINANCING ACTIVITIES
Payments on long-term debt (9,815) (6,450) (3,995)
Proceeds from issuance of long-term debt 2,510 7,720 4,670
Proceeds from exercise of stock options 14,459 11,673 3,537
Tax benefit related to exercise of non-qualified
stock options 3,945 2,953 2,339
Acquisition of treasury stock (31,713) - -
Other 79 (7) (27)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (20,535) 15,889 6,524
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (30,116) 14,979 (5,200)
Cash and cash equivalents at beginning of year 33,814 18,835 24,035
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,698 $ 33,814 $ 18,835
===========================================================================================================================
</TABLE>
Note: The Consolidated Statements of Cash Flows for the years ended December
27, 1998 and December 28, 1997 have been restated to reflect the acquisition
of Minnesota Pizza Company, LLC, a business combination accounted for as a
pooling of interests (see "Note 3" of "Notes to Consolidated Financial
Statements").
SEE ACCOMPANYING NOTES.
35
<PAGE>
PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Papa John's International, Inc. (referred to as the "Company," "Papa John's"
or in the first person notations of "we," "us" and "our") operates and
franchises pizza delivery and carry-out restaurants under the trademark "Papa
John's," currently in 47 states, the District of Columbia, and five
international markets. We also operate and franchise pizza delivery and
carry-out restaurants under the trademark "Perfect Pizza" in the United
Kingdom. Substantially all revenues are derived from retail sales of pizza to
the general public by Company-owned restaurants, franchise royalties, sales
of franchise and development rights, and sales to franchisees of food and
paper products, restaurant equipment, printing and promotional items, risk
management services, and information systems and related services used in
their operations.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Papa John's and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
FISCAL YEAR
Our fiscal year ends on the last Sunday in December of each year. All fiscal
years presented consist of 52 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
REVENUE RECOGNITION
Franchise fees are recognized when a franchised restaurant begins operations,
at which time we have performed our obligations related to such fees. Fees
received pursuant to development agreements which grant the right to develop
franchised restaurants in future periods in specific geographic areas are
deferred and recognized on a pro rata basis as the franchised restaurants
subject to the development agreements begin operations. Both franchise and
development fees are nonrefundable. Franchise royalties, which are based on a
percentage of franchised restaurants' sales, are recognized as earned.
CASH EQUIVALENTS
Cash equivalents consist of all highly liquid investments with a maturity of
three months or less at date of purchase. These investments are carried at
cost which approximates fair value.
36
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
Substantially all accounts receivable are due from franchisees for purchases
of food and paper products, restaurant equipment, printing and promotional
items, risk management services, information systems and related services,
and for royalties from December sales. Credit is extended based on an
evaluation of the franchisee's financial condition and, generally, collateral
is not required. We consider substantially all amounts to be collectible.
INVENTORIES
Inventories, which consist of food products, paper goods and supplies,
smallwares, store equipment and printing and promotional items, are stated at
the lower of cost, determined under the first-in, first-out (FIFO) method, or
market.
INVESTMENTS
We determine the appropriate classification of investment securities at
the time of purchase and reevaluate such designation as of each balance sheet
date. All investment securities held at December 26, 1999, have been
classified as available-for-sale. Available-for-sale securities are stated at
fair value as determined primarily through quoted market prices. Unrealized
gains and losses, net of tax, are reported as a separate component of
stockholders' equity and are included in comprehensive income. The cost of
debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization and accretion, along with interest
and dividends earned and realized gains and losses, are included in
investment income. The cost of securities sold is based on the specific
identification method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets (generally
five to ten years for restaurant, commissary and other equipment, and 20 to
40 years for buildings and improvements). Leasehold improvements are
amortized over the terms of the respective leases, including the first
renewal period (generally five to ten years).
Depreciation expense was $22.3 million in 1999, $18.4 million in 1998 and
$13.9 million in 1997.
INTANGIBLE ASSETS
Intangible assets principally represents costs in excess of net assets of
companies acquired (i.e., goodwill). Goodwill is amortized on a straight-line
basis ranging from 15 to 25 years. Accumulated amortization was $3.6 million
at December 26, 1999 and $2.6 million at December 27, 1998.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived and intangible assets are periodically reviewed for recoverability
when impairment indicators are present. Recorded values that are not expected
to be recovered through undiscounted future cash flows are written down to
current fair value, which is generally determined from estimated discounted
future net cash flows (assets held for use) or net realizable value (assets
held for sale).
37
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SYSTEMS DEVELOPMENT COSTS
We defer certain systems development and related costs which meet established
criteria. Amounts deferred are amortized over periods not exceeding five
years beginning in the month subsequent to completion of the related systems
project. Total costs deferred were approximately $1.4 million in 1999, $1.2
million in 1998, and $2.0 million in 1997. Unamortized deferred systems
development costs were $4.3 million at December 26, 1999 and December 27,
1998, and are reported in other assets in the accompanying consolidated
balance sheets.
ADVERTISING AND RELATED COSTS
Advertising and related costs include the costs of Company-owned restaurant
activities such as mail coupons, door hangers and promotional items and
contributions to the Papa John's Marketing Fund, Inc. (the "Marketing Fund")
and local market cooperative advertising funds. Contributions by
Company-owned and franchised restaurants to the Marketing Fund and the
cooperative advertising funds are based on an established percentage of
monthly restaurant revenues. The Marketing Fund is responsible for developing
and conducting marketing and advertising for the Papa John's system. The
local market cooperative advertising funds are responsible for developing and
conducting advertising activities in a specific market, including the
placement of electronic and print materials developed by the Marketing Fund.
Such funds are accounted for separately and are not included in our
consolidated financial statements, except as described below beginning with
the first quarter of 1998.
Effective December 29, 1997, we began recognizing Company-owned restaurant
contributions to the Marketing Fund and to those local market cooperative
advertising funds deemed to be controlled by us (collectively, the
"Controlled Funds"), as advertising and related costs at the time the
Controlled Funds actually incurred such expenses. Through December 28, 1997,
Company-owned restaurant contributions to the Marketing Fund and local market
cooperative advertising funds were expensed as incurred. The Controlled Funds
generally incurred expenses as contributions were received; therefore, the
impact of this change was not material.
FOREIGN CURRENCY TRANSLATION
The local currency is the functional currency for our foreign subsidiary,
Perfect Pizza. Earnings are translated into U.S. dollars using monthly
average exchange rates, while balance sheet accounts are translated using
year-end exchange rates. The resulting translation adjustments are included
as a component of accumulated other comprehensive income.
EARNINGS PER SHARE
The calculations of basic and diluted earnings per share before the
cumulative effect of a change in accounting principle for the years ended
December 26, 1999, December 27, 1998 and December 28, 1997 are as follows (in
thousands, except per share data):
38
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share:
Income before cumulative effect of a change in
accounting principle $ 47,286 $ 34,964 $ 23,565
Weighted average shares outstanding 30,195 29,537 29,044
- ---------------------------------------------------------------------------------------------
Basic earnings per share $ 1.57 $ 1.18 $ 0.81
=============================================================================================
Diluted earnings per share:
Income before cumulative effect of a change in
accounting principle $ 47,286 $ 34,964 $ 23,565
Weighted average shares outstanding 30,195 29,537 29,044
Dilutive effect of outstanding common stock options 885 918 676
- ---------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 31,080 30,455 29,720
- ---------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.52 $ 1.15 $ 0.79
=============================================================================================
</TABLE>
Options to purchase common stock with an exercise price greater than the
average market price were not included in the computation of the dilutive
effect of common stock options because the effect would have been
antidilutive. The number of antidilutive options was 986,000 in 1999, 213,000
in 1998, and 695,000 in 1997.
ACCOUNTING CHANGES
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
(the "SOP"), which requires that costs related to start-up activities be
expensed as incurred. Prior to 1998, we capitalized our start-up costs
incurred primarily in connection with opening new restaurant and commissary
locations and amortized these costs on a straight line basis over a period of
one year from the facility's opening date. We adopted the provisions of the
SOP in our financial statements for the year ended December 27, 1998. The
adoption resulted in a charge in the first quarter of 1998 for the cumulative
effect of an accounting change of $2.6 million, net of taxes of $1.5 million,
to expense costs that had been previously capitalized prior to 1998.
Excluding the one-time cumulative effect, the adoption of the new accounting
standard did not have a material impact on 1998 operating results.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 2000. Because of Papa John's minimal use of
derivatives, management does not anticipate that its adoption of SFAS 133
will have a significant effect on our earnings or financial position.
PRIOR YEAR DATA
Certain prior year data has been reclassified to conform to the 1999
presentation.
39
<PAGE>
3. BUSINESS COMBINATIONS
On March 28, 1999, we acquired Minnesota Pizza Company, LLC ("Minnesota
Pizza"), a franchisee that operated 37 Papa John's restaurants in the
Minneapolis/St. Paul, Minnesota market. We issued 128,119 shares of our
common stock having a value of $5.4 million in exchange for all of the issued
and outstanding ownership interests of Minnesota Pizza. The transaction was
accounted for as a pooling of interests for financial reporting purposes and
as a taxable transaction for income tax purposes. Our previously reported
results of operations and balance sheets have been restated to include
Minnesota Pizza. Intercompany transactions between the Company and Minnesota
Pizza have been eliminated in the accompanying consolidated financial
statements. The operating results previously reported by the Company and
Minnesota Pizza separately are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 27, 1998 DECEMBER 28, 1997
(In thousands) Papa John's Minnesota Pizza Papa John's Minnesota Pizza
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $787,347 $19,196 $601,341 $11,119
Eliminations (117,541) (6,850) (92,557) (4,235)
-------------------------------------------------------------------------
Net combined revenue 669,806 12,346 508,784 6,884
Net income (loss) 35,165 (2,804) 26,853 (3,288)
Pro forma net income (loss) 35,165 (1,767) 26,853 (2,071)
</TABLE>
The Minnesota Pizza pro forma net income (loss) includes an income tax
benefit for the treatment of Minnesota Pizza as a C Corporation rather
than a limited liability company taxed as a partnership, with an assumed
effective income tax rate of 37%, assuming Minnesota Pizza would be able to
record the tax benefit on such losses.
On August 23, 1999, we acquired Great American Pizza, Inc., a franchisee
which operated 18 Papa John's restaurants in the Cleveland, Ohio market for
total consideration of $6.5 million, consisting of $1.5 million in cash and a
$5.0 million short-term note payable due January 2000.
On November 29, 1999, we acquired Perfect Pizza Holdings Limited ("Perfect
Pizza"), a Company located in the United Kingdom, for $32.3 million in cash.
The preliminary Perfect Pizza allocation for this acquisition resulted in
goodwill of $30.9 million, which is being amortized over 20 years. At
December 26, 1999, Perfect Pizza operated and franchised 206 restaurants (12
Company-owned and 194 franchised).
During 1999, we acquired an additional 10 Papa John's restaurants from
franchisees for $4.5 million in cash.
On December 27, 1999, subsequent to year-end, we acquired PJNJ Foods, Inc., a
franchisee of 19 Papa John's restaurants in New Jersey, for $7.9 million
($6.6 million in cash and $1.3 million of assumed net liabilities).
The business combinations in the previous four paragraphs were each accounted
for by the purchase method of accounting, whereby operating results
subsequent to the acquisition date are included in our financial statements.
Also see Note 12, Related Party Transactions, for a discussion of other
business combinations involving related parties.
40
<PAGE>
4. INVESTMENTS
A summary of our available-for-sale securities as of December 26, 1999 and
December 27, 1998 follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
December 26, 1999 COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal bonds $15,187 $ - $ (189) $ 14,998
Mortgage-backed securities 83 8 - 91
Fixed income mutual funds 5,712 - (346) 5,366
Equity securities - 956 - 956
Other 442 - - 442
Interest receivable 233 - - 233
- ----------------------------------------------------------------------------------------------------
Total $21,657 $ 964 $ (535) $ 22,086
====================================================================================================
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
December 27, 1998 COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate debt securities $ 500 $ - $ (1) $ 499
Municipal bonds 32,011 158 - 32,169
Mortgage-backed securities 239 8 - 247
Fixed income mutual funds 10,822 - (375) 10,447
Equity securities 1,998 1,549 - 3,547
Interest receivable 446 - - 446
- ----------------------------------------------------------------------------------------------------
Total $46,016 $1,715 $ (376) $ 47,355
====================================================================================================
</TABLE>
The amortized cost and estimated fair value of securities at December 26,
1999, by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because the issuers of
securities may have the right to prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 7,490 $ 7,412
Due after one year through three years 7,697 7,586
Mortgage-backed securities 83 91
Fixed income mutual funds 5,712 5,366
Equity securities - 956
Other 442 442
Interest receivable 233 233
- ----------------------------------------------------------------------------
Total $21,657 $22,086
============================================================================
</TABLE>
41
<PAGE>
5. NET PROPERTY AND EQUIPMENT
Net property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 25,798 $ 18,200
Buildings and improvements 66,494 18,871
Leasehold improvements 60,763 47,999
Equipment and other 121,414 91,148
Construction in progress 23,089 46,642
- ------------------------------------------------------------------------------------------
297,558 222,860
Less accumulated depreciation and amortization (69,745) (49,988)
- ------------------------------------------------------------------------------------------
Net property and equipment $ 227,813 $172,872
==========================================================================================
</TABLE>
6. FRANCHISEE LOAN PROGRAM
During 1996, we established a program under which selected franchisees may
borrow funds for use in the construction and development of their restaurants.
Loans outstanding to franchisees were approximately $11.7 million as of December
26, 1999 and $9.0 million as of December 27, 1998. As of December 26, 1999,
commitments to lend up to an additional $2.5 million had been made. Such loans
bear interest at fixed or floating rates (ranging from 5.5% to 12.0% at December
26, 1999), and are generally secured by the fixtures, equipment, signage and,
where applicable, land of each restaurant and the ownership interests in the
franchisee. Interest earned on franchisee loans was approximately $762,000 in
1999, $986,000 in 1998 and $815,000 in 1997, and is reported in investment
income in the accompanying consolidated statements of income. Approximately $3.6
million of the loans outstanding as of December 26, 1999 and $4.7 million as of
December 27, 1998 were to franchisees in which we or certain of our directors or
officers had an ownership interest.
7. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Salaries, wages and bonuses $ 3,236 $ 2,748
Taxes other than income 5,498 5,093
Insurance 4,451 3,733
Income taxes 9,205 5,027
Facility costs 1,335 3,494
Rent 1,360 1,081
Advertising litigation 4,083 -
Other 9,348 5,740
- ------------------------------------------------------------------------------------------
Total $ 38,516 $ 26,916
==========================================================================================
</TABLE>
42
<PAGE>
8. DEBT AND CREDIT ARRANGEMENTS
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Economic development loan $ 1,130 $ 1,320
Note payable from acquisition 5,103 -
Bank debt - Minnesota Pizza (pre-acquisition) - 7,100
- -----------------------------------------------------------------------------------------------
6,233 8,420
Current portion of debt (5,308) (190)
- -----------------------------------------------------------------------------------------------
Long-term debt $ 925 $ 8,230
===============================================================================================
</TABLE>
As of December 26, 1999, we had a $20.0 million committed line of credit
agreement expiring on June 30, 2000. Subsequent to year-end, in connection
with the authorization of a share repurchase program (see Note 15), available
credit was extended to $100.0 million on an interim basis. Effective March
17, 2000, we entered into a new $150.0 million unsecured revolving line of
credit facility with an expiration date of March 17, 2003. Outstanding
balances for this facility accrue interest at 50.0 to 87.5 basis points over
LIBOR or other bank developed rates at our option. The committed fee on the
unused balance ranges from 12.5 to 20.0 basis points. The increment over
LIBOR and the commitment fee are determined quarterly based upon the ratio of
total indebtedness to earnings before interest, taxes, depreciation and
amortization (EBITDA). On March 17, 2000, $85.0 million was outstanding under
this facility.
In connection with the new line of credit facility, Papa John's entered into
a no-fee interest rate collar ("Collar") with a notional amount of $100.0
million, a 30-day LIBOR rate range of 6.36% (floor) to 9.50% (ceiling) and an
expiration date of March, 2003. The purpose of the Collar is to provide a
hedge against the effects of rising interest rates. Papa John's will make
payments under the terms of the Collar when the 30-day LIBOR rate is below
the floor to raise the effective rate to 6.36%, and will receive payments
when the 30-day LIBOR rate is above the ceiling, to lower the effective rate
to 9.50%, thus assuring that Papa John's effective 30-day LIBOR rate is
always within the above stated range. When the 30-day LIBOR rate is within
the range, no payments are made or received under the Collar. Amounts payable
or receivable under the Collar will be accounted for as an adjustment to
interest expense.
9. CHEESE PRICING ARRANGEMENT
Papa John's Franchise Advisory Council has initiated a program that allows
the cost of cheese to Papa John's restaurants to be established on a
quarterly basis. An independent franchisee-owned corporation, BIBP
Commodities, Inc. ("BIBP"), was established effective December 27, 1999
through which the program will be administered. BIBP will purchase cheese at
the market price and sell it to our distribution subsidiary, PJ Food Service,
Inc. (PJFS), at a fixed quarterly price based in part upon historical average
market prices. PJFS in turn sells cheese to Papa John's restaurants
(Company-owned and franchised) at a set quarterly price. Gains or losses
incurred by BIBP due to differences in the actual market price of cheese
purchased and the established quarterly sales price are factored into
determining the price for the following quarter. We have agreed to provide a
$17.6 million loan facility to BIBP to fund cash deficits that may arise. No
amounts were advanced under this facility as of December 26, 1999.
43
<PAGE>
10. INCOME TAXES
A summary of the provision for income taxes (exclusive of the tax effect
related to the cumulative effect of accounting change) follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 22,893 $ 18,849 $ 13,061
State and local 3,781 3,247 2,183
Deferred (federal and state) 1,757 85 528
- ---------------------------------------------------------------------------------------------
Total $ 28,431 $ 22,181 $ 15,772
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Significant deferred tax assets (liabilities) follow (in thousands):
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Unearned development fees $ 2,324 $ 2,387
Unrealized loss on investments 200 142
Accrued expenses 4,069 2,485
Acquired franchise rights 5,245 -
Other 5 304
- ----------------------------------------------------------------------------------------
Total deferred tax assets 11,843 5,318
Valuation allowance related to unrealized
loss on investments (131) (142)
- ----------------------------------------------------------------------------------------
Net deferred tax asset 11,712 5,176
Deferred expenses (3,696) (1,976)
Accelerated depreciation (5,599) (5,101)
Unrealized gain on warrant (341) (588)
Other (1,208) (487)
- ----------------------------------------------------------------------------------------
Total deferred tax liabilities (10,844) (8,152)
- ----------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 868 $ (2,976)
- ----------------------------------------------------------------------------------------
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory rate to
income tax expense (exclusive of the tax effect related to the cumulative effect
of accounting change) for the years ended December 26, 1999, December 27, 1998
and December 28, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate $ 26,501 $ 20,001 $ 13,768
State and local income taxes 2,450 1,845 1,393
Tax exempt investment income (551) (761) (783)
Losses on pooled entity - 1,037 1,217
Other 31 59 177
- ---------------------------------------------------------------------------------------------
Total $ 28,431 $ 22,181 $ 15,772
=============================================================================================
</TABLE>
Income taxes paid were $19.4 million in 1999, $15.9 million in 1998 and $11.0
million in 1997.
44
<PAGE>
11. PJ AMERICA, INC. STOCK WARRANT
PJ America, Inc. ("PJ America"), a franchisee of Papa John's, completed an
initial public offering ("IPO") of its common stock in October, 1996. In
connection with the IPO, PJ America issued a warrant to us to purchase
225,000 shares of its common stock. The warrant is exercisable in whole or in
part at any time within five years from the closing date of the IPO, and the
purchase price of each share of common stock pursuant to the warrant is
$11.25 per share (90% of the IPO price of $12.50 per share). The warrant was
issued by PJ America to Papa John's in consideration for the grant of rights
to enter into development agreements for certain specified territories and
the waiver by us of certain market transfer fees. Our agreement with PJ
America anticipates that PJ America will pay standard development and
franchise fees in connection with opening restaurants in the specified
territories.
We did not recognize income in connection with receipt of the warrant. The
warrant is classified as an available-for-sale security, and accordingly, is
stated at fair value in the consolidated balance sheets, with unrealized
gains, net of tax, reported within comprehensive income.
The fair value of the warrant was $956,000 on December 26, 1999 and $1.5
million on December 27, 1998, based upon the closing price per share of
$15.50 and $18.13 for PJ America common stock on those respective dates, and
is reported in investments in the accompanying consolidated balance sheets.
The intrinsic value of the warrant (market value of PJ America common stock
less the exercise price of the warrant) is considered a reasonable
approximation of the fair value of the warrant.
Certain of our officers and/or directors are also officers and/or directors
of PJ America.
12. RELATED PARTY TRANSACTIONS
Certain of our officers and directors own equity interests in entities that
operate and/or have rights to develop franchised restaurants. Certain of
these affiliated entities have agreements to acquire area development rights
at reduced development fees and also pay reduced initial franchise fees when
restaurants are opened. All such entities pay royalties at the same rate as
other franchisees. Following is a summary of transactions and balances with
affiliated entities (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from affiliates:
Commissary sales $ 80,336 $ 64,977 $ 47,153
Equipment and other sales 10,423 10,721 8,187
Franchise royalties 10,530 8,067 6,265
Franchise and development fees 1,574 1,372 1,381
- ---------------------------------------------------------------------------------------------
Total $102,863 $ 85,137 $ 62,986
=============================================================================================
Other income from affiliates $ 314 $ 570 $ 514
=============================================================================================
Accounts receivable-affiliates $ 3,302 $ 2,273 $ 2,454
=============================================================================================
Notes receivable-affiliates $ 3,590 $ 4,741 $ 7,997
=============================================================================================
</TABLE>
We paid $1.3 million in 1999, $966,000 in 1998 and $689,000 in 1997 for
charter aircraft services provided by entities owned by certain directors and
officers, including the Chief Executive Officer of Papa John's.
45
<PAGE>
12. RELATED PARTY TRANSACTIONS (CONTINUED)
We advanced $198,000 in 1999, $183,000 in 1998 and $197,000 in 1997, in
premiums for split-dollar life insurance coverage on the Chief Executive
Officer for the purpose of funding estate tax obligations. Papa John's and
the officer share the cost of the premiums. The premiums advanced by us will
be repaid out of the cash value or proceeds of the policies.
During the fourth quarter of 1999, we sold five restaurants to Capital Pizza,
Inc., for total consideration of $1.6 million ($1.4 million in cash and
$200,000 as a note receivable) and acquired one restaurant from Capital
Pizza, Inc. for total consideration of $190,000, in which we forgave a note
payable to us. Capital Pizza, Inc. is owned by certain of our officers,
including our Vice Chairman and President.
During the fourth quarter of 1997, we acquired a 49% equity ownership
interest in Mountain Pizza Group, L.L.C. ("MPG"), for $150,000 in cash. In
July 1998, we acquired the remaining 51% for $565,000 in cash. In connection
with the 1998 acquisition, we also assumed $2.4 million in MPG debt. MPG, an
entity which operated seven Papa John's restaurants in Denver, Colorado, was
owned by our Vice Chairman and President. The operating results of MPG were
accounted for by the equity method until the remaining 51% was acquired in
1998. Also, during the fourth quarter of 1997, we acquired three Papa John's
restaurants near Denver, Colorado, for $720,000 in cash. These restaurants
were owned by our Chief Executive Officer and his wife.
During the second quarter of 1997, we acquired 16 Papa John's restaurants in
North Carolina for $5.0 million (consisting of $4,960,000 in cash and a
credit of $40,000 towards future development fees). A majority ownership
interest in the franchisee of the North Carolina restaurants was held by
certain of our directors and officers, including our Chief Executive Officer.
The above acquisitions were accounted for by the purchase method of
accounting, whereby operating results subsequent to the acquisition date are
included in our financial statements.
13. LEASE COMMITMENTS
We lease office, retail and commissary space under operating leases with
terms generally ranging from three to five years and providing for at least
one renewal. Certain leases further provide that the lease payments may be
increased annually based on the Consumer Price Index. We also lease certain
equipment under operating leases with terms ranging from three to seven
years. Future minimum lease payments are as follows: 2000 - $16.8 million;
2001 - $14.6 million; 2002 - $12.1 million; 2003 - $10.2 million; 2004 - $8.4
million and thereafter - $30.7 million. Total rent expense was $12.4 million
in 1999, $11.2 million in 1998, and $8.5 million in 1997.
14. ADVERTISING LITIGATION
On August 12, 1998, Pizza Hut, Inc. filed suit against us in the United
States District Court for the Northern District of Texas, claiming that our
"Better Ingredients. Better Pizza." slogan constitutes false and deceptive
advertising in violation of the Lanham Trademark Act. The trial began on
October 25, 1999. On November 18, 1999, the jury returned a verdict that our
"Better Ingredients. Better Pizza." slogan is false and deceptive. On January
3, 2000, the court announced its judgment, awarding Pizza Hut $468,000 in
damages and ordering us to cease all use of the "Better Ingredients. Better
Pizza." slogan. Under the judge's order, we were to cease using the slogan in
print and broadcast advertising by January 24, 2000, phase out printed
46
<PAGE>
14. ADVERTISING LITIGATION (CONTINUED)
promotional materials and other items containing the slogan (except signage)
by March 3, 2000 and remove the slogan from restaurant signage by April 3,
2000. However, we filed an appeal of the verdict and the court's order and a
motion for stay of the court's order pending outcome of the appeal. On
January 21, 2000, the United States Court of Appeals for the Fifth Circuit
granted a stay of the District Court judgment pending our appeal. Oral
arguments related to the appeal are scheduled to begin in April 2000.
We estimated that the pre-tax costs of complying with the court's order and
certain related costs could approximate $12.0 to $15.0 million, of which $6.1
million was recorded as a pre-tax charge against 1999 earnings. If our appeal
is successful, the timing, and possibly the amount, of costs to be incurred
could be favorably impacted.
15. SHARE REPURCHASE
The Papa John's Board of Directors has authorized the repurchase of up to
$150.0 million of common stock under a share repurchase program that began
December 9, 1999, and runs through December 31, 2000. Funding for the share
repurchase program will be provided through a combination of our existing
cash and investments, $150.0 million credit facility and operating cash flows.
Through December 26, 1999, a total of 1.3 million shares with an aggregate
cost of $31.7 million were repurchased under this program and placed in
treasury. Subsequent to year-end through March 17, 2000, an additional 3.4
million shares with an aggregate cost of $87.4 million had been repurchased.
16. STOCKHOLDER PROTECTION RIGHTS AGREEMENT
On February 14, 2000, the Board of Directors of the Company adopted a
Stockholder Protection Rights Agreement (the "Rights Plan"). Under the terms
of the Rights Plan, one preferred stock purchase right was distributed as a
dividend on each outstanding share of Papa John's common stock held of record
as of the close of business on March 1, 2000. The rights generally will not
become exercisable until a person or group acquires beneficial ownership of
15% or more of the Company's common stock in a transaction that is not
approved in advance by the Board of Directors. The Company's Founder and CEO,
John Schnatter, who currently owns more than 25% of the outstanding common
stock will be excluded from operation of the Rights Plan unless (together
with his affiliates and family members) he acquires more than 40% of the
Company's common stock.
If the rights are triggered, then each right owned by a stockholder other
than the unapproved acquirer entitles its holder to purchase shares of
Company common stock at 50% of its market price. In addition, after the
rights are triggered, if the Company is acquired by an unapproved acquirer in
a merger or other business combination transaction, each right that has not
previously been exercised will entitle its holder to purchase, at the right's
current exercise price, common shares of such other entity having a value of
twice the right's exercise price. The Company may redeem the rights for a
nominal amount at any time prior to an event that causes the rights to become
exercisable.
47
<PAGE>
17. STOCK OPTIONS
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123), we have elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for our employee stock options because, as
discussed below, the alternative fair value accounting provided for under
SFAS 123 requires the use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of our employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
We award stock options under the Papa John's International, Inc. 1993 Stock
Ownership Incentive Plan (the "1993 Plan"), the Papa John's International,
Inc. 1993 Non-Employee Directors Stock Option Plan (the "Directors Plan") and
the Papa John's International, Inc. 1999 Team Member Stock Ownership Plan
(the "1999 Plan"). Shares of common stock authorized for issuance are
6,400,000 under the 1993 Plan, 370,000 under the Directors Plan and 1,000,000
under the 1999 Plan. Options granted under all plans generally expire ten
years from the date of grant and vest over one to five year periods, except
for certain options awarded under a previous multi-year operations
compensation program that vested immediately upon grant.
Pro forma information regarding net income and earnings per share is required
by SFAS 123, which also requires that the information be determined as if we
have accounted for our employee stock options granted subsequent to December
25, 1994 under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model, which was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable.
Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because our employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of our employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Our pro
forma information follows, along with the indicated weighted average
assumptions used:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income before cumulative effect
of a change in accounting principle (in thousands) $ 39,349 $ 26,457 $ 16,815
Pro forma earnings per share:
Basic $ 1.30 $ .90 $ .58
Diluted $ 1.27 $ .87 $ .57
Assumptions (weighted average):
Risk-free interest rate 6.0% 4.8% 5.7%
Expected dividend yield 0.0% 0.0% 0.0%
Expected volatility 0.47 0.47 0.47
Expected life (in years) 4.0 4.0 3.6
</TABLE>
The pro forma net income before cumulative effect of a change in
accounting principle for 1998 and 1997 has been restated for the March 1999
acquisition of Minnesota Pizza (see Note 3).
48
<PAGE>
17. STOCK OPTIONS (CONTINUED)
Because SFAS 123 is applicable only to options granted subsequent to December
25, 1994, our pro forma effect will not be fully reflected until a complete
five years of vesting occurs for 1995 option awards in 2000.
Information pertaining to options for 1999, 1998 and 1997 is as follows (number
of options in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
Number of Weighted-Average Number of Weighted-Average Number of Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding-beginning of year 5,782 $ 28.54 5,197 $25.28 3,532 $20.98
Granted 1,216 26.68 1,535 37.90 2,259 29.30
Exercised 636 22.72 545 21.41 351 10.09
Cancelled 622 32.83 405 29.53 243 25.91
--------------------------------------------------------------------------------------------------
Outstanding-end of year 5,740 $ 28.55 5,782 $28.54 5,197 $25.28
==================================================================================================
Exercisable-end of year 2,638 $ 27.30 2,232 $25.64 1,567 $21.96
==================================================================================================
Weighted-average fair value
of options granted during
the year $ 9.22 $ 13.43 $ 10.22
======= ======== =======
</TABLE>
The number, weighted-average exercise price and weighted-average remaining
contractual life of options outstanding as of December 26, 1999, and the
number and weighted average exercise price of options exercisable as of
December 26, 1999 follow (number of options in thousands):
<TABLE>
<CAPTION>
RANGE OF NUMBER OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES OPTIONS EXERCISE PRICE REMAINING LIFE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding options: $ 5.78 - $9.99 71 $ 6.36 3.60
10.00 - 19.99 633 16.33 5.72
20.00 - 29.99 2,427 25.37 8.15
30.00 - 45.56 2,609 35.08 8.12
- -----------------------------------------------------------------------------------------------------------------------
Total 5,740 $ 28.55 7.81
=======================================================================================================================
Exercisable options: $ 5.78 - $9.99 71 $ 6.36
10.00 - 19.99 483 15.92
20.00 - 29.99 955 26.20
30.00 - 45.56 1,129 34.41
- -----------------------------------------------------------------------------------------------------------------------
Total 2,638 $ 27.30
=======================================================================================================================
</TABLE>
Plan provisions provide that excess available shares under the 1993 Plan may
be transferred to the 1999 Plan. As of December 26, 1999, 477,000 shares were
available for future issuance under the 1993 and 1999 plans and 106,750
shares under the Directors Plan.
49
<PAGE>
18. DEFINED CONTRIBUTION BENEFIT PLAN
We have established the Papa John's International, Inc. 401(k) Plan (the
"Plan"), as a defined contribution benefit plan, in accordance with Section
401(k) of the Internal Revenue Code. The Plan is open to all employees who
meet certain eligibility requirements and allows participating employees to
defer receipt of a portion of their compensation and contribute such amount
to one or more investment funds. Effective July 1, 1999, we began
contributing up to 1.5% of a participating employee's earnings. Our
contributions for 1999 were $220,000 and will vest based upon a participants'
service date. Administrative costs of the Plan are paid by us and are not
significant.
19. SEGMENT INFORMATION
We have defined three reportable segments: restaurants, commissaries, and
franchising. The restaurant segment consists of the operations of all
Company-owned restaurants and derives its revenues from retail sales of
pizza, breadsticks, cheesesticks and soft drinks to the general public. The
commissary segment consists of the operations of our regional dough
production and product distribution centers and derives its revenues from the
sale and distribution of food and paper products to Company-owned and
franchised restaurants. The franchising segment consists of our franchise
sales and support activities and derives its revenues from sales of franchise
and development rights and collection of royalties from our franchisees. All
other business units that do not meet the quantitative thresholds for
determining reportable segments consist of operations that derive revenues
from the sale of restaurant equipment, printing and promotional items, risk
management services, and information systems and related services used in
restaurant operations principally to Company-owned and franchised restaurants.
Generally, we evaluate performance and allocate resources based on profit or
loss from operations before income taxes and eliminations. Certain
administrative and capital costs are allocated to segments based upon
predetermined rates or actual estimated resource usage. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. We account for intercompany sales and
transfers as if the sales or transfers were to third parties and eliminate
the related profit in consolidation.
Our reportable segments are business units that provide different products or
services. Separate management of each segment is required because each
business unit is subject to different operational issues and strategies.
Through December 26, 1999, substantially all revenues for each business
segment were derived from business activities conducted with customers
located in the United States. No single external customer accounted for 10%
or more of our consolidated revenues.
50
<PAGE>
19. SEGMENT INFORMATION (CONTINUED)
Segment information is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 (1) 1997 (1)
- ------------------------------------------------------------------------------------------------------------------
REVENUES FROM EXTERNAL CUSTOMERS:
<S> <C> <C> <C>
Restaurants $ 395,091 $ 344,089 $ 262,272
Commissaries 309,015 255,083 184,407
Franchising 48,141 37,576 29,037
All others 53,078 45,404 39,952
- ------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES FROM EXTERNAL CUSTOMERS $ 805,325 $ 682,152 $ 515,668
==================================================================================================================
INTERSEGMENT REVENUES:
Commissaries $ 118,507 $ 108,218 $ 81,223
Franchising 139 128 107
All others 15,431 15,570 14,869
- ------------------------------------------------------------------------------------------------------------------
TOTAL INTERSEGMENT REVENUES $ 134,077 $ 123,916 $ 96,199
==================================================================================================================
DEPRECIATION AND AMORTIZATION:
Restaurants $ 13,900 $ 12,001 $ 8,940
Commissaries 4,192 3,296 3,199
Franchising 177 44 26
All others 693 839 783
Unallocated corporate expenses 5,865 4,310 7,490
- ------------------------------------------------------------------------------------------------------------------
TOTAL DEPRECIATION AND AMORTIZATION $ 24,827 $ 20,490 $ 20,438
==================================================================================================================
INCOME BEFORE INCOME TAXES:
Restaurants $ 15,014 $ 9,549 $ 2,636
Commissaries 22,078 17,893 14,260
Franchising 42,252 32,143 24,689
All others 5,185 5,033 3,422
Unallocated corporate expenses (8,577) (7,191) (5,405)
Elimination of intersegment profits (235) (282) (265)
- ------------------------------------------------------------------------------------------------------------------
TOTAL INCOME BEFORE INCOME TAXES $ 75,717 $ 57,145(2) $ 39,337
==================================================================================================================
FIXED ASSETS:
Restaurants $ 145,176 $124,390 $ 95,095
Commissaries 56,715 42,503 27,673
All others 5,153 4,368 4,110
Unallocated corporate assets 90,514 51,599 22,292
Accumulated depreciation and amortization (69,745) (49,988) (33,561)
- ------------------------------------------------------------------------------------------------------------------
NET FIXED ASSETS $ 227,813 $172,872 $ 115,609
==================================================================================================================
EXPENDITURES FOR FIXED ASSETS:
Restaurants $ 24,822 $ 30,401 $ 30,480
Commissaries 15,296 14,873 7,877
All others 777 290 269
Corporate 40,266 25,297 5,921
- ------------------------------------------------------------------------------------------------------------------
TOTAL EXPENDITURES FOR FIXED ASSETS $ 81,161 $ 70,861 $ 44,547
==================================================================================================================
</TABLE>
(1) Restated for the March 1999 acquisition of Minnesota Pizza (see Note 3).
(2) Excludes the cumulative effect of a change in accounting principle.
51
<PAGE>
20. QUARTERLY DATA (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER 1ST 2ND 3RD 4TH
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues:
As previously reported $187,351 $152,928 $200,384 $162,273 $202,080 $166,428 $215,510 $188,177
As restated 187,351 155,493 200,384 165,204 202,080 169,432 215,510 192,023
Operating income:
As previously reported 17,500 12,024 18,898 13,418 18,955 14,234 16,980 15,841
As restated 17,500 11,374 18,898 12,935 18,955 13,342 16,980 15,394
Income before cumulative effect of
a change in accounting principle:
As previously reported 11,383 8,243 12,334 9,197 12,366 9,675 11,203 10,653
As restated 11,383 7,509 12,334 8,631 12,366 8,699 11,203 10,125
Net income:
As previously reported 11,383 5,640 12,334 9,197 12,366 9,675 11,203 10,653
As restated 11,383 4,906 12,334 8,631 12,366 8,699 11,203 10,125
Basic earnings per share:
Income before cumulative effect of
a change in accounting principle
As previously reported $ .38 $ .28 $ .41 $ .31 $ .41 $ .33 $ .37 $ .36
As restated .38 .26 .41 .29 .41 .29 .37 .34
Net income:
As previously reported .38 .19 .41 .31 .41 .33 .37 .36
As restated .38 .17 .41 .29 .41 .29 .37 .34
Diluted earnings per share:
Income before cumulative effect of
a change in accounting principle
As previously reported $ .37 $ .28 $ .40 $ .30 $ .40 $ .32 $ .36 $ .35
As restated .37 .25 .40 .28 .40 .29 .36 .33
Net income:
As previously reported .37 .19 .40 .30 .40 .32 .36 .35
As restated .37 .16 .40 .28 .40 .29 .36 .33
</TABLE>
All quarterly information above is presented in 13 week periods. Quarterly
amounts for 1998 previously reported have been restated to reflect the March
1999 acquisition of Minnesota Pizza, a business combination accounted for as
a pooling of interests (see Note 3).
52
<PAGE>
REPORT OF MANAGEMENT
The consolidated financial statements appearing in this Annual Report have
been prepared by management, which is responsible for their preparation,
integrity and fair presentation. The statements have been prepared in
accordance with generally accepted accounting principles in the United States
and necessarily include some amounts that are based on management's best
estimates and judgments.
Management is responsible for the system of internal controls over financial
reporting at Papa John's International, Inc. and its subsidiaries, a system
designed to provide reasonable assurance regarding the preparation of
reliable published financial statements. This system is augmented by written
policies and procedures and the selection and training of qualified
personnel. Management believes that its system of internal controls over
financial reporting provides reasonable assurance that the financial records
are reliable for preparing financial statements.
The Audit Committee of the Board of Directors meets with the independent
auditors and management periodically to discuss internal controls over
financial reporting and other auditing and financial reporting matters. The
Committee reviews with the independent auditors the scope and results of the
audit effort. The Committee also meets with the independent auditors without
management present to ensure that the independent auditors have free access
to the Committee. The independent auditors are recommended by the Audit
Committee of the Board of Directors and selected by the Board of Directors.
Based upon their audit of the consolidated financial statements, the
independent auditors, Ernst & Young LLP, have issued their Report of
Independent Auditors, which follows.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Papa John's International, Inc.
We have audited the accompanying consolidated balance sheets of Papa John's
International, Inc. and subsidiaries as of December 26, 1999 and December 27,
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 26,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position
of Papa John's International, Inc. and subsidiaries at December 26, 1999 and
December 27, 1998, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 26, 1999,
in conformity with accounting principles generally accepted in the United
States.
As discussed in Note 2 to the consolidated financial statements, effective
for fiscal year 1998, the Company adopted SOP 98-5, "Reporting on the Costs
of Start-Up Activities."
/s/ Ernst & Young LLP
Louisville, Kentucky
March 17, 2000
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND OFFICERS OF THE REGISTRANT; EXECUTIVE
COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The information required by these items, other than the information set forth
in this Report under Part I, "Executive Officers of the Registrant," is
omitted because we are filing a definitive proxy statement pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year
covered by this Report which includes the required information. Such
information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Consolidated Financial Statements:
The following consolidated financial statements, notes related thereto and
report of independent auditors are included in Item 8 of this Report:
Consolidated Statements of Income for the years ended December 26,
1999, December 27, 1998 and December 28, 1997
Consolidated Balance Sheets as of December 26, 1999 and December 27,
1998
Consolidated Statements of Stockholders' Equity for the years ended
December 26, 1999, December 27, 1998 and December 28, 1997
Consolidated Statements of Cash Flows for the years ended December 26,
1999, December 27, 1998 and December 28, 1997
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a)(2) Consolidated Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are not applicable and therefore have been
omitted.
(a)(3) Exhibits:
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3.1 Our Amended and Restated Certificate of Incorporation. Exhibit
3.1 to our Registration Statement on Form S-1 (Registration No.
33-61366) is incorporated herein by reference.
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<CAPTION>
<S> <C>
3.2 Our Restated By-Laws. Exhibit 3.2 to our Registration Statement
on Form S-1 (Registration No. 33-61366) is incorporated herein
by reference.
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Papa John's International, Inc. Exhibit 3 to
our Quarterly Report on Form 10-Q for the quarterly period ended
ended June 29, 1997, is incorporated herein by reference.
4.1 Specimen Common Stock Certificate. Exhibit 4.1 to our Annual
Report on Form 10-K for the fiscal year ended December 31, 1995
(Commission File No. 0-21660) is incorporated herein by
reference.
4.2 Amended and Restated Certificate of Incorporation and Restated
By-Laws (See 3.1, 3.2 and 3.3 above) is incorporated herein by
reference.
*10.1 Consulting Agreement dated March 29, 1991, between Papa John's
and Richard F. Sherman. Exhibit 10.4 to our Registration
Statement on Form S-1 (Registration No. 33-61366) is
incorporated herein by reference.
*10.2 1996 Papa John's International, Inc. Executive Option Program.
Exhibit 10.26 to our Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 is incorporated herein by
reference.
*10.3 Papa John's International, Inc. 1993 Stock Ownership Incentive
Plan. Exhibit 10.2 to our quarterly report on Form 10-Q for the
quarter ended September 29, 1996 is incorporated herein
by reference.
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55
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<TABLE>
<CAPTION>
<S> <C>
*10.4 Amendment to Papa John's International, Inc. 1993 Stock
Ownership Incentive Plan. Exhibit 10 to our quarterly report on
Form 10-Q for the quarter ended June 29, 1997 is incorporated
herein by reference.
*10.5 Amendment to Papa John's International, Inc. 1993 Stock
Ownership Incentive Plan. Exhibit 10 to our quarterly report on
Form 10-Q for the quarter ended June 28, 1998 is incorporated
herein by reference.
*10.6 Amendment to Papa John's International, Inc. 1993 Stock
Ownership Incentive Plan. Exhibit 10.1 to our quarterly
report on Form 10-Q for the quarter ended June 27, 1999 is
incorporated herein by reference.
*10.7 Papa John's International, Inc. 1993 Stock Option Plan for
Non-Employee Directors. Exhibit 10.3 to our quarterly report on
Form 10-Q for the quarter ended September 29, 1996 is
incorporated herein by reference.
*10.8 Amendment to Papa John's International, Inc. 1993
Non-Employee Directors Stock Option Plan. Exhibit 10.2 to
our quarterly report on Form 10-Q for the quarter ended
June 27, 1999 is incorporated herein by reference.
*10.9 Papa John's International, Inc. 1999 Team Member Stock
Ownership Plan, Amended and Restated as of October 20, 1999.
10.10 Loan Agreement among Mississippi Business Finance Corporation
(acting for and on behalf of the State of Mississippi), Bank of
Mississippi (as Servicing Trustee) and PJFS of Mississippi, Inc.
Exhibit 10.1 to our quarterly report on Form 10-Q for the
quarter ended March 27, 1994 is incorporated herein by
reference.
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<CAPTION>
<S> <C>
10.11 Lease dated November 9, 1990, including amendments thereto,
between Papa John's and Crow-Kessler, a Texas limited
partnership, relating to our commissary and distribution
facility in Louisville, Kentucky. Exhibit 10.6 to our
Registration Statement on Form S-1 (Registration No. 33-61366)
is incorporated herein by reference.
10.12 Amendment II to Lease dated November 9, 1990 between the Company
and Crow-Kessler, a Texas limited partnership, relating to our
commissary and distribution facility in Louisville, Kentucky.
Exhibit 10.32 to our annual report on Form 10-K for the fiscal
year ended December 28, 1997 is incorporated herein by
reference.
10.13 Amendment III to Lease dated November 9, 1990 between Papa
John's and Crow-Kessler, a Texas limited partnership, relating
to our commissary and distribution facility in Louisville,
Kentucky. Exhibit 10.37 to our annual report on Form 10-K for
the fiscal year ended December 28, 1997 is incorporated herein
by reference.
10.14 Lease dated May 14, 1993, between PJ Food Service, Inc. and
Sample Properties relating to our commissary facility in
Raleigh, North Carolina. Exhibit 10.16 to our Registration
Statement on Form S-1 (Registration No. 33-61366) is
incorporated herein by reference.
10.15 Lease dated November 1, 1993, between PJ Food Service, Inc. and
Jackson Developers, LLC, a Missouri limited liability company,
relating to our commissary and distribution facility in Jackson,
Mississippi. Exhibit 10.18 to our Registration Statement on Form
S-1 (Registration No. 33-73530) is incorporated herein by
reference.
10.16 Lease dated January 3, 1996, between PJ Food Service, Inc. and
Fraser, L.L.C. relating to the Company's commissary and
distribution facility in Denver, Colorado. Exhibit 10.29 to our
Annual Report on Form 10-K for the fiscal year ended December
31, 1995 is incorporated herein by reference.
10.17 Lease dated September 30, 1996, between PJ Food Service, Inc.
and Opus Southwest Corporation relating to our commissary and
distribution facility opened in Tempe, Arizona. Exhibit 10.27 to
our annual report on Form 10-K for the fiscal year ended
December 29, 1996 is incorporated herein by reference.
</TABLE>
57
<PAGE>
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<CAPTION>
<S> <C>
10.18 Sublease dated January 16, 1997, between PJ Food Service, Inc.
and Distribution Unlimited, Inc. relating to the Company's
commissary and distribution facility opened in Rotterdam, New
York. Exhibit 10.26 to our annual report on Form 10-K for the
fiscal year ended December 28, 1997 is incorporated herein by
reference.
10.19 Lease dated August 30, 1996, between PJ Food Service, Inc. and
A. Terry Moss and Ira E. White relating to the Company's
commissary and distribution facility opened in Des Moines, Iowa.
Exhibit 10.29 to our annual report on Form 10-K for the fiscal
year ended December 29, 1996 is incorporated herein by
reference.
10.20 Lease dated November 27, 1997 by and between Papa John's and SF
Property Investments, LLC, an Oregon limited liability
corporation, relating to our commissary and distribution
facility in Portland, Oregon. Exhibit 10.31 to our annual report
on Form 10-K for the fiscal year ended December 28, 1997 is
incorporated herein by reference.
10.21 First Lease Modification Agreement to Lease dated May 14, 1993
between PJ Food Service, Inc., and Sample Properties relating to
our commissary and distribution facility in Raleigh, North
Carolina. Exhibit 10.34 to our annual report on Form 10-K for
the fiscal year ended December 28, 1997 is incorporated herein
by reference.
10.22 Lease dated December 6, 1998, between PJ Food Service, Inc. and
The Buncher Company relating to our commissary and distribution
facility to be opened in Pittsburgh, Pennsylvania. Exhibit
10.38 to our annual report on Form 10-K for the Fiscal Year
ended December 27, 1998, is incorporated herein by reference.
10.23 Acquisition Agreement dated March 29, 1999, with the Minnesota
Pizza Company. Exhibit 10.1 to our quarterly report on Form
10-Q for the quarter ended March 28, 1999 is incorporated
herein by reference.
10.24 Agreement for the Sale and Purchase of the Entire Issued Share
Capital of Perfect Pizza Holdings Limited Between Geoffrey
Street and Others and Papa John's (UK) Limited and Papa John's
International, Inc. dated November 29, 1999.
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58
<PAGE>
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<CAPTION>
<S> <C>
10.25 Credit Agreement by and among Papa John's International, Inc.
and The Banks Party Hereto and Bank One, Indiana, NA.
As Syndication Agent and PNC Bank, National Association, As
Lender Arranger and Administrative Agent dated as of March 17,
2000.
10.26 Letter between Papa John's International, Inc. and Bank One,
Indiana, N.A. governed by the International Swaps and
Derivatives Association, Inc. Master Agreement dated February
22, 2000.
10.27 Stockholder Protection Rights Agreement dated February 14, 2000,
by and between Papa John's International, Inc. and National City
Bank, as Rights Agent (including the form of Certificate of
Designation of Preferences and Rights and the form of Rights
Certificate). Exhibit 4 of our Form 8-A dated February 16, 2000
is incorporated herein by reference.
21 Subsidiaries of the Company:
(a) PJ Food Service, Inc., a Kentucky corporation
(b) Papa John's USA, Inc., a Kentucky corporation
(c) Papa John's Support Services, Inc., a Kentucky corporation
(d) PJFS of Mississippi, Inc., a Mississippi corporation
(e) Risk Services Corp., a Kentucky corporation
(f) Capital Delivery, Ltd., a Kentucky corporation
(g) Papa John's (U.K.) Ltd., a United Kingdom corporation
(h) Perfect Pizza Ltd., a United Kingdom corporation
23 Consent of Ernst & Young LLP
27.1 Financial Data Schedule for year ended December 26, 1999, which
is submitted electronically to the Securities and Exchange
Commission for information only and not deemed to be filed with
the Commission.
27.2 Restated Financial Data Schedule for year ended December 28,
1997, which is submitted electronically to the Securities and
Exchange Commission for information only and is not deemed to be
filed with the Commission.
99.1 Cautionary Statements.
</TABLE>
- ------------------
*Compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of
Form 10-K.
(b) Reports on Form 8-K
1. We filed a Current Report on Form 8-K dated December 10, 1999
attaching a press release dated December 9, 1999 announcing
revised fourth quarter 1999 comparable sales estimates and a
$50 million stock repurchase authorization.
2. We filed a Current Report on Form 8-K dated December 10, 1999
attaching a press release dated November 29, 1999 announcing a
205-unit acquisition in the United Kingdom.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Consolidated Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are not applicable and therefore have
been omitted.
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 23, 2000 PAPA JOHN'S INTERNATIONAL, INC.
By: /s/ John H. Schnatter
------------------------------
John H. Schnatter, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
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SIGNATURE TITLE DATE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ John H. Schnatter Founder, Chairman of the Board, Chief March 23, 2000
- ------------------------- Executive Officer, and Director (Principal
John H. Schnatter Executive Officer)
/s/ Blaine E. Hurst Vice Chairman, President and Director March 23, 2000
- -------------------------
Blaine E. Hurst
/s/ Charles W. Schnatter Senior Vice President, General Counsel March 23, 2000
- ------------------------- and Secretary and Director
Charles W. Schnatter
/s/ O. Wayne Gaunce Director March 23, 2000
- -------------------------
O. Wayne Gaunce
/s/ Jack A. Laughery Director March 23, 2000
- -------------------------
Jack A. Laughery
/S/ Michael W. Pierce Director March 23, 2000
- -------------------------
Michael W. Pierce
/S/ Wade S. Oney Director March 23, 2000
- -------------------------
Wade S. Oney
</TABLE>
60
<PAGE>
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<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Richard F. Sherman Director March 23, 2000
- ---------------------------
Richard F. Sherman
/s/ E. Drucilla Milby Senior Vice President, Chief Financial March 23, 2000
- --------------------------- Officer and Treasurer (Principal Financial
E. Drucilla Milby Officer)
/s/ J. David Flanery Vice President and Corporate Controller March 23, 2000
- ---------------------------- (Principal Accounting Officer)
J. David Flanery
</TABLE>
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EXHIBIT INDEX
<TABLE>
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----------------------------------------------------------------------------------------
<S> <C>
*10.9 Papa John's International, Inc. 1999 Team Member Stock
Ownership Plan Amended and Restated as of October 20, 1999.
10.24 Agreement for the Sale and Purchase of the Entire Issued
Share Capital of Perfect Pizza Holdings Limited Between
Geoffrey Street and Others and Papa John's (UK) Limited and
Papa John's International, Inc. dated November 29, 1999.
10.25 Credit Agreement by and among Papa John's International, Inc.
and The Banks Party Hereto and Bank One, Indiana, NA, As
Syndication Agent and PNC Bank, National Association, As
Lender Arranger and Administrative Agent dated as of March
17, 2000.
10.26 Letter between Papa John's International, Inc. and Bank One,
Indiana, N.A. governed by the International Swaps and
Derivatives Association, Inc. Master Agreement dated February
22, 2000.
21 Subsidiaries of the Company
23 Consent of Ernst & Young LLP
27.1 Financial Data Schedule for the year ended December 26,
1999, which is submitted electronically to the Securities
and Exchange Commission for information only and is not
deemed to be filed with the Commission.
27.2 Restated Financial Data Schedule for the year ended December
28, 1997, which is submitted electronically to the Securities
and Exchange Commission for information only and is not
deemed to be filed with the Commission.
99.1 Cautionary Statements
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EXHIBIT 10.9
PAPA JOHN'S INTERNATIONAL, INC.
1999 TEAM MEMBER STOCK OWNERSHIP PLAN
AMENDED AND RESTATED AS OF OCTOBER 20, 1999
ARTICLE 1. PURPOSE
The purpose of the 1999 Team Member Stock Ownership Plan (the "Plan") is
to enhance the ability of Papa John's International, Inc. and its subsidiaries
to secure and retain the services of persons eligible to participate in the Plan
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by such
definitions, and the terms set forth below shall have the following meanings (in
either case, such meanings shall apply equally to both the singular and plural
forms of the terms defined):
(a) "Award" shall mean, individually or collectively, a grant under the
Plan of Options, Restricted Stock or Performance Units.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean (i) the failure by a Participant to render services
to the Company, which failure amounts to gross neglect or gross insubordination,
(ii) the commission by a Participant of an act of fraud or embezzlement against
the Company, or (iii) a Participant being convicted of a felony, or failing to
contest a felony prosecution.
(d) A "Change in Control" shall mean (i) the acquisition by any person
after the date hereof of beneficial ownership of 50% or more of the voting power
of the Company's outstanding voting stock, (ii) three or more of the current
members of the Board ceasing to be members of the Board (unless any replacement
director is elected by a vote of either at least 75% of the remaining directors,
or of at least 75% of the shares entitled to vote on such replacement) or (iii)
approval by the stockholders of the Company of (a) a merger or consolidation of
the Company with another corporation if the stockholders of the Company
immediately before such vote will not, as a result of such merger or
consolidation, own more than 50% of the voting stock of the corporation
resulting from such merger or consolidation, or (b) a complete liquidation of
the Company or sale of all, or substantially all, of the assets of the Company.
Notwithstanding
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the foregoing, a Change in Control shall not occur solely because 50% or more of
the voting stock of the Company is acquired by (i) a trust which is part of an
employee benefit plan maintained by the Company or its Subsidiaries or (ii) a
corporation which, immediately following such acquisition, is owned directly or
indirectly by the stockholders of the Company in the same proportion as their
ownership of stock in the Company immediately prior to such acquisition.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
(f) "Committee" shall mean the committee described in Section 3.1.
(g) "Common Stock" shall mean shares of the Company's common stock, par
value $.01 per share.
(h) "Company" shall mean Papa John's International, Inc., a Delaware
corporation.
(i) "Disability" shall mean a physical or mental infirmity which the
Committee determines impairs the Participant's ability to perform substantially
his or her duties for a period of 180 consecutive days.
(j) "Effective Date" shall mean February 25, 1999, the date the Plan was
adopted by the Board.
(k) "Employee" shall mean an individual who is a full-time or part-time
employee of the Company or a Subsidiary.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(m) "Fair Market Value" of a share of Common Stock shall mean, as of any
applicable date, the closing sale price of the Common Stock on the NASDAQ
National Market System or any national or regional stock exchange on which the
Common Stock is then traded. If no such reported sale of the Common Stock shall
have occurred on such date, Fair Market Value shall mean the closing sale price
of the Common Stock on the next preceding date on which there was a reported
sale. If the Common Stock is not listed on the NASDAQ National Market System or
a national or regional stock exchange, the Fair Market Value of a share of
Common Stock as of a particular date shall be determined by such method as shall
be determined by the Committee.
(n) "ISOs" shall have the meaning given such term in Section 6.1.
(o) "NQSOs" shall have the meaning given such term in Section 6.1.
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<PAGE>
(p) "Option" shall mean an option to purchase shares of Common Stock
granted pursuant to Article 6.
(q) "Option Agreement" shall mean an agreement evidencing the grant of an
Option as described in Section 6.2.
(r) "Option Exercise Price" shall mean the purchase price per share of
Common Stock subject to an Option, which shall not be less than the Fair Market
Value on the date of grant.
(s) "Participant" shall mean any Employee or any consultant or advisor
providing services to the Company or a Subsidiary selected by the Committee to
receive an Award under the Plan.
(t) "Performance Goals" shall have the meaning given such term in Section
8.4.
(u) "Performance Period" shall have the meaning given such term in Section
8.3.
(v) "Performance Unit" shall mean the right to receive a payment from the
Company upon the achievement of specified Performance Goals as set forth in a
Performance Unit Agreement.
(w) "Performance Unit Agreement" shall mean an agreement evidencing a
Performance Unit Award, as described in Section 8.2.
(x) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
(y) "Plan" shall mean this Papa John's International, Inc. 1999 Team
Member Stock Ownership Plan as the same may be amended from time to time.
(z) "Restriction Period" shall mean the period determined by the Committee
during which the transfer of shares of Common Stock is limited in some way or
such shares are otherwise restricted or subject to forfeiture as provided in
Article 7.
(aa) "Restricted Stock" shall mean shares of Common Stock granted pursuant
to Article 7 as to which the restrictions have not lapsed.
(ab) "Restricted Stock Agreement" shall mean an agreement evidencing a
Restricted Stock Award, as described in Section 7.2.
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<PAGE>
(ac) "Retirement" shall mean retirement by a Participant in accordance
with the terms of the Company's retirement or pension plans, if any, or, if the
Company has no such plans, then retirement after reaching age 65.
(ad) "Subsidiary" shall mean, with respect to any company, any corporation
or other Person of which a majority of its voting power, equity securities, or
equity interest is owned, directly or indirectly, by such company.
2.2 GENDER AND NUMBER. Unless otherwise indicated by the context,
reference to the masculine gender shall include the feminine gender, the plural
shall include the singular and the singular shall include the plural.
2.3 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board, or by any other committee (the "Committee") appointed by
the Board consisting of two or more directors of the Company. It is intended
that each Committee member shall be a "non-employee director" within the meaning
of Rule 16b-3 under the Exchange Act and an "outside director" within the
meaning of Section 162(m) of the Code. The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of, the Board.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have full authority to:
(a) select Participants to whom Awards are granted;
(b) determine the size, type and frequency of Awards granted under the
Plan;
(c) determine the terms and conditions of Awards, including any
restrictions, conditions or forfeiture provisions relating to the Award, which
need not be identical;
(d) determine whether and the extent to which Performance Goals have been
met:
(e) determine whether and when a Participant's status as an Employee,
consultant, or advisor has terminated for purposes of the Plan;
(f) cancel or modify, with the consent of the Participant, outstanding
Awards and grant new Awards in substitution therefor, provided, however, that
(without limitation of the
-4-
<PAGE>
provisions of Section 4.1 with respect to lapsed, expired, terminated or
forfeited Awards) the Committee may not, without approval of the Company's
stockholders, reduce the Option Exercise Price of a previously granted Award, or
effect such a reduction through the cancellation and replacement or regrant of
any Award.
(g) accelerate the exercisability of, and accelerate or waive any or all
the restrictions and conditions applicable to, any Award, for any reason;
(h) extend the duration of an Option exercise period or term of an Award;
(i) construe and interpret the Plan and any agreement or instrument
entered into under the Plan;
(j) establish, amend and rescind rules and regulations for the Plan's
administration; and
(k) amend the terms and conditions of any outstanding Award to the extent
such terms and conditions are within the discretion of the Committee as provided
in the Plan.
The Committee shall have sole discretion to make all other determinations which
may be necessary or advisable for the administration of the Plan. To the extent
permitted by law and Rule 16b-3 promulgated under the Exchange Act, the
Committee may delegate its authority. Notwithstanding the foregoing, the
Committee may not delegate its responsibilities hereunder if such delegation
would jeopardize compliance with the "outside directors" requirement or any
other applicable requirement under Section 162(m) of the Code.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan, and all related orders or
resolutions of the Board, shall be final, conclusive and binding upon all
persons, including the Company, its stockholders, Employees, Participants and
their estates and beneficiaries.
3.4 SECTION 16 COMPLIANCE; BIFURCATION OF PLAN. It is the intention of the
Company that the Plan and the administration of the Plan comply in all respects
with Section 16(b) of the Exchange Act and the rules and regulations promulgated
thereunder. If any Plan provision, or any aspect of the administration of the
Plan, is found not to be in compliance with Section 16(b) of the Exchange Act,
the provision or administration shall be deemed null and void, and in all events
the Plan shall be construed in favor of its meeting the requirements of Rule
16b-3 promulgated under the Exchange Act. Notwithstanding anything in the Plan
to the contrary, the Board or the Committee, in its discretion, may bifurcate
the Plan so as to restrict, limit or condition the use of any provision of the
Plan to Participants who are subject to Section 16 of the Exchange Act without
so restricting, limiting or conditioning the Plan with respect to other
Participants.
ARTICLE 4. SHARES AVAILABLE UNDER THE PLAN
-5-
<PAGE>
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3,
the number of shares of Common Stock reserved for issuance under the Plan is
1,000,000 shares. Shares as to which options or other Awards granted under the
Plan lapse, expire, terminate, are forfeited or are canceled shall again become
available for Awards under the Plan. In addition, any shares of Common Stock
reserved for issuance under the Company's 1993 Stock Ownership Incentive Plan
("1993 Plan") in excess of the number of shares as to which options or other
benefits are awarded thereunder, plus any shares as to which options or other
benefits granted under the 1993 Plan may lapse, expire, terminate or be
canceled, shall also be reserved and available for issuance or reissuance under
the Plan. Any Common Stock issued under the Plan may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
4.2 SHARES OF RESTRICTED STOCK AVAILABLE UNDER THE PLAN. Subject to
adjustment as provided in Section 4.3, the number of shares of Common Stock
which may be the subject of Awards granted in the form of Restricted Stock is
limited to 100,000 shares.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES AND OUTSTANDING AWARDS. In the event
of any change in the corporate structure of the Company affecting the Common
Stock, including a merger, reorganization, consolidation, recapitalization,
reclassification, split-up, spin-off, separation, liquidation, stock dividend,
stock split, reverse stock split, share repurchase, share combination, share
exchange, issuance of warrants or debentures, the Committee may substitute or
adjust the total number and class of shares of Common Stock or other stock or
securities which may be issued under the Plan, and the number, class and price
of shares subject to outstanding Awards, as it, in its discretion, determines to
be appropriate and equitable to prevent dilution or enlargement of the rights of
Participants and to preserve, without exceeding, the value of any outstanding
Awards; provided, however, that the number of shares subject to any Award shall
always be a whole number. In the case of ISOs, such adjustment shall be made so
as not to result in a "modification" within the meaning of Section 424(h) of the
Code.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
All Employees of the Company and its Subsidiaries and consultants or other
advisors providing services to the Company or a Subsidiary are eligible to
receive Awards under the Plan. In selecting Employees, consultants or advisors
to receive Awards under the Plan, as well as in determining the number of shares
subject to, and the other terms and conditions applicable to, each Award, the
Committee shall take into consideration such factors as it deems relevant in
promoting the purposes of the Plan, including the duties and responsibilities of
such persons, their present and potential contribution to the success of the
Company and their anticipated number of years of active service or contribution
remaining with the Company or a Subsidiary.
ARTICLE 6. STOCK OPTIONS
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<PAGE>
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, the
Committee may grant Options to Participants at any time and from time to time,
in the form of options which are intended to qualify as incentive stock options
within the meaning of Section 422 of the Code ("ISOs"), Options which are not
intended to so qualify ("NQSOs") or a combination thereof. Notwithstanding the
foregoing, ISOs may only be granted to Employees of the Company and its
subsidiaries (within the meaning of Section 424(f) of the Code). The maximum
number of shares in respect of which Options may be granted to a Participant
during any calendar year shall be 250,000 shares.
6.2 OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement that shall specify the Option Exercise Price, the duration of the
Option, the number of shares to which the Option relates, forfeiture provisions
as deemed appropriate by the Committee and such other provisions as the
Committee may determine or which are required by the Plan. The Option Agreement
shall also specify whether the Option is intended to be an ISO or a NQSO and
shall include provisions applicable to the particular type of Option granted.
6.3 DURATION OF OPTIONS. Subject to the provisions of Section 6.7, each
Option shall expire at such time as is determined by the Committee at the time
of grant; provided, however, that no Option shall at the time of grant be
exercisable later than the tenth anniversary of its grant.
6.4 EXERCISE OF OPTIONS. Options shall be exercisable at such times and be
subject to such restrictions and conditions, including forfeiture provisions,
as the Committee shall approve at the time of grant, which need not be the
same for each grant or for each Participant. Options shall be exercised by
delivery to the Company of a written notice of exercise, setting forth the
number of shares with respect to which the Option is to be exercised and
accompanied by full payment of the Option Exercise Price and all applicable
withholding taxes.
6.5 PAYMENT OF OPTION EXERCISE PRICE. The Option Exercise Price for shares
of Common Stock as to which an Option is exercised shall be paid to the Company
in full at the time of exercise either (a) in cash in the form of currency or
other cash equivalent acceptable to the Company, (b) by tendering Common Stock
having a Fair Market Value (at the close of business on the date the Company
receives the notice of exercise) equal to the Option Exercise Price, (c) any
other reasonable consideration that the Committee may deem appropriate or (d) by
a combination of the forms of consideration described in (a), (b) and (c) of
this Section. The Committee may permit the cashless exercise of Options as
described in Regulation T promulgated by the Federal Reserve Board, subject to
applicable securities law restrictions, or by any other means which the
Committee determines to be consistent with the Plan's purpose and applicable
law.
6.6 VESTING UPON CHANGE IN CONTROL. Upon a Change in Control, any then
outstanding Options held by Participants shall become fully vested and
immediately exercisable.
6.7 TERMINATION OF EMPLOYMENT. If the Participant's status as an Employee,
consultant or advisor is terminated for Cause, all then outstanding Options of
such Participant, whether or
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<PAGE>
not exercisable, shall terminate immediately. If the Participant's status as an
Employee, consultant or advisor is terminated for any reason other than for
Cause, death, Disability or Retirement, to the extent then outstanding Options
of such Participant are exercisable and subject to the provisions of the
relevant Option Agreement, such Options may be exercised by such Participant or
his personal representative at any time prior to the earlier of (a) the
expiration date of the Options or (b) the date which is 60 days after the date
of such termination of employment. In the event of the Retirement of a
Participant, to the extent then outstanding Options of such Participant are
exercisable, such Options may be exercised by the Participant (c) in the case of
NQSOs, within one year after the date of Retirement and (d) in the case of ISOs,
within 90 days after Retirement; provided, however, that no such Options may be
exercised on a date subsequent to their expiration. In the event of the death or
Disability of a Participant while employed by the Company or a Subsidiary or
while the Participant is serving as a consultant or advisor to the Company or a
Subsidiary, all then outstanding Options of such Participant shall become fully
vested and immediately exercisable, and may be exercised at any time within one
year after the date of death or determination of Disability; provided however
that no such Options may be exercised on a date subsequent to their expiration.
Options may be exercised as provided in this Section (a) in the event of the
death of a Participant, by the person or persons to whom rights pass by will or
by the laws of descent and distribution, or if appropriate, the legal
representative of the decedent's estate and (b) in the event of the Disability
of a Participant, by the Participant, or if such Participant is incapacitated,
by the Participant's legal representative.
ARTICLE 7. RESTRICTED STOCK
7.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee may grant shares of Restricted Stock to Participants at any
time and from time to time and upon such terms and conditions as it may
determine. The purchase price for shares of Restricted Stock shall be determined
by the Committee, but shall not be less than the par value of the Common Stock,
except in the case of treasury shares, for which no payment need be required.
7.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement which shall specify the Restriction
Period, the number of shares of Restricted Stock granted and such other
provisions as the Committee may determine and which are required by the Plan.
7.3 NON-TRANSFERABILITY OF RESTRICTED STOCK. Except as provided in this
Article 7 or the applicable Restricted Stock Agreement, shares of Restricted
Stock may not be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated until the end of the applicable Restriction Period as specified in
the Restricted Stock Agreement and the satisfaction of any other conditions
determined at the time of grant specified in the Restricted Stock Agreement.
Except as provided in Section 7.9, however, in no event may any Restricted Stock
become vested in a Participant subject to Section 16(b) of the Exchange Act
prior to six months following the date of its grant.
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<PAGE>
7.4 OTHER RESTRICTIONS. The Committee shall impose such other restrictions
on shares of Restricted Stock as it may deem advisable, including, without
limitation, restrictions based upon the achievement of specific performance
goals (relating to the Company, a Subsidiary or regional or other operating
division of the Company), years of service and/or restrictions under applicable
Federal or state securities laws. The Committee may provide that any share of
Restricted Stock shall be held (together with a stock power executed in blank by
the Participant) in custody by the Company until any or all restrictions thereon
shall have lapsed.
7.5 FORFEITURE. The Committee shall determine and set forth in a
Participant's Restricted Stock Agreement such events upon which a Participant's
shares of Restricted Stock (or the proceeds of a sale thereof) shall be
forfeitable, which may include, without limitation, the termination of a
Participant's employment and certain other activities.
7.6 CERTIFICATE LEGEND. In addition to any legends placed on certificates
pursuant to Section 7.4, each certificate representing shares of Restricted
Stock shall bear the following legend:
"The sale or other transfer of the shares represented by this Certificate,
whether voluntary, involuntary or by operation of law, is subject to
certain restrictions on transfer as set forth in the Papa John's
International, Inc. 1999 Team Member Stock Ownership Plan, and in the
related Restricted Stock Agreement. A copy of the Plan and such Restricted
Stock Agreement may be obtained from the Secretary of Papa John's
International, Inc."
7.7 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this Article
7 or the Restricted Stock Agreement, shares of Restricted Stock shall become
freely transferable by the Participant and no longer subject to forfeiture after
the last day of the Restriction Period. Once the shares of Restricted Stock are
released from their restrictions (including forfeiture provisions), the
Participant shall be entitled to have the legend required by Section 7.6 removed
from the Participant's share certificate, which certificate shall thereafter
represent freely transferable and nonforfeitable shares of Common Stock free
from any and all restrictions under the Plan.
7.8 VOTING RIGHTS; DIVIDENDS AND OTHER DISTRIBUTIONS. Unless the Committee
exercises its discretion as provided in Section 7.10, during the Restriction
Period, Participants holding shares of Restricted Stock may exercise full voting
rights, and shall be entitled to receive all dividends and other distributions
paid with respect to such Restricted Stock. If any dividends or distributions
are paid in Common Stock, such Common Stock shall be subject to the same
restrictions as the shares of Restricted Stock with respect to which they were
paid.
7.9 LAPSE OF RESTRICTIONS UPON CHANGE IN CONTROL. Upon a Change in
Control, any restrictions and other conditions pertaining to then outstanding
shares of Restricted Stock held by
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Participants, including, but not limited to, vesting requirements, shall lapse
and such shares shall thereafter be immediately transferable and nonforfeitable.
7.10 TREATMENT OF DIVIDENDS. At the time shares of Restricted Stock are
granted to a Participant, the Committee may, in its discretion, determine that
the payment of dividends, or a specified portion thereof, declared or paid on
such shares shall be deferred until the lapse of the restrictions with respect
to such shares, such deferred dividends to be held by the Company for the
account of the Participant. In the event of such deferral, there may be credited
at the end of each year (or portion thereof) interest on the amount of the
account during the year at a rate per annum as the Committee, in its discretion,
may determine. Deferred dividends, together with interest accrued thereon, if
any, shall be (a) paid to the Participant upon the lapse of restrictions on the
shares of Restricted Stock as to which the dividends related or (ii) forfeited
to the Company upon the forfeiture of such shares by the Participant.
7.11 TERMINATION OF EMPLOYMENT. If the Participant's status as an
Employee, consultant or advisor is terminated for any reason other than death or
Disability prior to the expiration of the Restriction Period applicable to any
shares of Restricted Stock then held by the Participant, such shares shall
thereupon be forfeited immediately by the Participant and returned to the
Company, and the Participant shall only receive the amount, if any, paid by the
Participant for such Restricted Stock. If the Participant's status as an
Employee, consultant or advisor is terminated as a result of death or Disability
prior to the expiration of the Restriction Period applicable to any shares of
Restricted Stock then held by the Participant, any restrictions and other
conditions pertaining to such shares then held by the Participant, including,
but not limited to, vesting requirements, shall immediately lapse and such
shares shall thereafter be immediately transferable and nonforfeitable.
Notwithstanding anything in the Plan to the contrary, the Committee may
determine, in its sole discretion, in the case of any termination of a
Participant's status as an Employee, consultant or advisor other than for Cause,
that the restrictions on some or all of the shares of Restricted Stock awarded
to a Participant shall immediately lapse and, to the extent the Committee deems
appropriate, such shares shall thereafter be immediately transferable and
nonforfeitable.
ARTICLE 8. PERFORMANCE UNITS
8.1 GRANT OF PERFORMANCE UNITS. The Committee may, from time to time and
upon such terms and conditions as it may determine, grant Performance Units
which will become payable to a Participant upon achievement of specified
Performance Goals. The maximum payment that can be made pursuant to Performance
Units granted to any one Participant in any calendar year shall be $1,000,000.
8.2 PERFORMANCE UNIT AGREEMENT. Each Performance Unit grant shall be
evidenced by a Performance Unit Agreement that shall specify the Performance
Goals, the Performance Period and the number of Performance Units to which it
pertains.
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<PAGE>
8.3 PERFORMANCE PERIOD. The period of performance ("Performance Period")
with respect to each Performance Unit shall be such period of time, which shall
not be less than one year, nor more than five years, as determined by the
Committee, for the measurement of the extent to which Performance Goals are
attained. The Performance Period may commence prior to the date of grant of the
Performance Unit to which it relates, provided that at such time the attainment
of the Performance Goal is substantially uncertain and not more than 25% of the
Performance Period has expired.
8.4 PERFORMANCE GOALS. The goals ("Performance Goals") that are to be
achieved with respect to each Performance Unit shall be those objectives
established by the Committee as it deems appropriate, and which may relate to
the net income, growth in net income, earnings per share, growth of earnings per
share, return on equity or return on capital, of the Company, or any other
performance objectives relating to the Company, a Subsidiary or regional or
other operating unit of the Company, or the individual Participant. Each
Performance Unit Agreement shall specify a minimum acceptable level of
achievement with respect to the Performance Goals below which no payment will be
made and shall set forth a formula for determining the payment to be made if
performance is at or above such minimum based upon a range of performance levels
relating to the Performance Goals. The Committee shall certify that the
Performance Goals for Awards of Performance Units under the Plan have been
satisfied prior to the determination and payment of any such incentive in
accordance with the Plan.
8.5 ADJUSTMENT OF PERFORMANCE GOALS. The Committee may adjust Performance
Goals and the related minimum acceptable level of achievement if, in the sole
judgment of the Committee, events or transactions occur subsequent to the date
of grant which are unrelated to the performance of the Participant and which the
Committee expects to have a substantial effect on the ability of the Participant
to attain the Performance Goals. If a Participant is promoted, demoted or
transferred to a Subsidiary or different operating division of the Company
during a Performance Period, then, to the extent that the Committee determines
the Performance Goals or Performance Period are no longer appropriate, the
Committee may, but shall not be required to, adjust, change or eliminate the
Performance Goals or the applicable Performance Period as it deems appropriate
in order to make them appropriate and comparable to the initial Performance
Goals or Performance Period. Notwithstanding the foregoing, the Committee shall
not be entitled to adjust, change or eliminate any Performance Goals or
Performance Period if the exercise of such discretion would cause the related
compensation to fail to qualify as performance-based compensation within the
meaning of Section 162(m) of the Code.
8.6 TERMINATION OF EMPLOYMENT. If the employment of a Participant shall
terminate prior to the expiration of the Performance Period for any reason other
than for death, Disability or Retirement, the Performance Units then held by the
Participant shall terminate. In the case of termination of employment by reason
of death, Disability or Retirement of a Participant prior to the expiration of
the Performance Period, any then outstanding Performance Units of such
Participant shall be payable in an amount equal to the maximum amount payable
under the Performance Unit multiplied by a percentage equal to the percentage
that would have been
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<PAGE>
earned under the terms of the Performance Unit Agreement assuming that the rate
at which the Performance Goals have been achieved as of the date of such
termination of employment would have continued until the end of the Performance
Period; provided, however, that if no maximum amount payable is specified in the
Performance Unit Agreement, the amount payable shall be such amount as the
Committee shall determine is reasonable.
8.7 PAYMENT UPON CHANGE IN CONTROL. Upon a Change in Control, any then
outstanding Performance Units shall become fully vested and immediately payable
in an amount which is equal to the greater of (a) the maximum amount payable
under the Performance Unit multiplied by a percentage equal to the percentage
that would have been earned under the terms of the Performance Unit Agreement
assuming that the rate at which the Performance Goals have been achieved as of
the date of such Change in Control would have continued until the end of the
Performance Period or (b) the maximum amount payable under the Performance Unit
multiplied by the percentage of the Performance Period completed by the
Participant at the time of the Change in Control; provided, however, that if no
maximum amount payable is specified in the Performance Unit Agreement, the
amount payable shall be such amount as the Committee shall determine is
reasonable.
8.8 PAYMENT OF PERFORMANCE UNITS. Subject to such terms and conditions as
the Committee may impose, and unless otherwise provided in the Performance Unit
Agreement, Performance Units shall be payable within 90 days following the end
of the Performance Period during which the Participant attained at least the
minimum acceptable level of achievement under the Performance Goals, or 90 days
following a Change in Control, as applicable. The Committee, in its discretion,
may determine at the time of payment required in connection with a Performance
Unit whether such payment shall be made (a) solely in cash or (b) up to 50% in
shares of Common Stock (valued at their Fair Market Value as of the close of
business on the date preceding the date of payment) with the balance in cash;
provided, however, that if a Performance Unit becomes payable upon a Change in
Control, the Performance Unit shall be paid solely in cash.
8.9 DESIGNATION OF BENEFICIARY. Each Participant may, from time to time,
name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom the right to receive payments under a Performance Unit is
to be paid in case of the Participant's death before receiving any or all such
payments. Each such designation shall revoke all prior designations by the
Participant, shall be in a form prescribed by the Company and shall be effective
only when filed by the Participant in writing with the Committee during the
Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate.
ARTICLE 9. AMENDMENT, MODIFICATION AND TERMINATION
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9.1 TERMINATION DATE. The Plan shall terminate on the earliest to occur of
(a) the tenth anniversary of the Effective Date, (b) the date when all shares of
Common Stock available under the Plan shall have been acquired and the payment
of all benefits in connection with Performance Unit Awards has been made or (c)
such other date as the Board may determine in accordance with Section 9.2.
9.2 AMENDMENT, MODIFICATION AND TERMINATION. The Board may, at any time,
amend, suspend, modify or terminate the Plan provided that (a) no amendment
shall be made without stockholder approval if such approval is necessary to
satisfy any applicable tax or regulatory law or regulation and the Board
determines it is appropriate to seek stockholder approval, and (b) upon or
following the occurrence of a Change in Control no amendment may adversely
affect the rights of any Person in connection with an Award previously granted.
The Committee may amend the terms of any Award, prospectively or retroactively,
but no such amendment shall impair the rights of any Participant without such
Participant's consent. Each Option and certain Performance Units granted under
the Plan are intended to be performance-based compensation within the meaning of
Section 162(m) of the Code. The Committee shall not be entitled to exercise any
discretion otherwise authorized hereunder with respect to such Options or
Performance Units if the ability to exercise such discretion or the exercise of
such discretion itself would cause the compensation attributable to such Options
or Performance Units to fail to qualify as performance-based compensation.
9.3 AWARDS PREVIOUSLY GRANTED. No amendment, modification or termination
of the Plan shall in any manner adversely affect any outstanding Award without
the written consent of the Participant holding such Award.
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<PAGE>
ARTICLE 10. NON-TRANSFERABILITY
A Participant's rights under this Plan may not be assigned, pledged or
otherwise transferred other than by will or the laws of descent and
distribution, except that upon a Participant's death, the Participant's rights
to payment pursuant to a Performance Unit may be transferred to a beneficiary
designated in accordance with Section 8.9. Notwithstanding anything herein to
the contrary, in the case of NQSOs, the Committee may, in its sole discretion,
by appropriate provisions in the Participant's Option Agreement, permit the
Participant to transfer all or a portion of the Option, without consideration,
to (i) the Participant's spouse or lineal descendants ("Family Members"), (ii) a
trust for the exclusive benefit of Family Members, (iii) a charitable remainder
trust of which the Participant and/or Family Members are the exclusive
beneficiaries (other than the charitable beneficiary), or (iv) a partnership or
a limited liability company in which the Participant and Family Members are the
sole partners or members, as applicable. In the event that any Option is
transferred by a Participant in accordance with the provisions of the
immediately preceding sentence, then subsequent transfers of the Option by the
transferee shall be prohibited. For purposes of the Option Agreement and the
Plan, the term "Optionee" shall be deemed to refer to the transferee wherever
applicable, and the provisions of Section 6.7 regarding termination of
employment shall refer to the Participant, not the transferee, but the
transferee shall be permitted to exercise the Option during the period provided
for in Section 6.7 and the Participant's Option Agreement following the
Participant's termination of employment.
ARTICLE 11. NO GRANTING OF EMPLOYMENT RIGHTS
Neither the Plan, nor any action taken under the Plan, shall be construed
as giving any person the right to become a Participant, nor shall participation
in, or any grant of an Award under, the Plan be construed as giving a
Participant any right with respect to continuance of employment or service by or
to the Company. The Company expressly reserves the right to terminate, whether
by dismissal, discharge or otherwise, a Participant's employment or consulting
or other business relationship at any time, with or without Cause, except as may
otherwise be expressly provided by any written agreement between the Company and
the Participant.
ARTICLE 12. WITHHOLDING
12.1 TAX WITHHOLDING. A Participant shall remit to the Company an amount
sufficient to satisfy Federal, state and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any grant, exercise or lapse of restrictions made under, or occurring as a
result of, the Plan.
12.2 SHARE WITHHOLDING. If the Company has a withholding obligation upon
the issuance of Common Stock under the Plan, a Participant may, subject to the
discretion of the Committee, elect to satisfy the withholding requirement, in
whole or in part, by having the Company
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withhold shares of Common Stock having a Fair Market Value on the date the
withholding tax is to be determined equal to the amount required to be withheld
under applicable law. Notwithstanding the foregoing, the Committee may, by the
adoption of rules or otherwise, modify the provisions of this Section 12.2 or
impose such other restrictions or limitations on such elections as may be
necessary to insure that such elections will be exempt transactions under
Section 16(b) of the Exchange Act.
ARTICLE 13. INDEMNIFICATION
No member of the Board or the Committee, nor any officer or Employee
acting on behalf of the Board or the Committee, shall be personally liable for
any action, determination or interpretation taken or made with respect to the
Plan, and all members of the Board, the Committee and each and any officer or
Employee of the Company acting on their behalf shall, to the extent permitted by
law, be fully indemnified and protected by the Company with respect to any such
action, determination or interpretation.
ARTICLE 14. SUCCESSORS
All obligations of the Company with respect to Awards granted under the
Plan shall be binding on any successor to the Company, whether the existence of
such successor is a result of a direct or indirect purchase, merger,
consolidation or otherwise, of all or substantially all of the business or
assets of the Company.
ARTICLE 15. GOVERNING LAW
The Plan shall be governed by, and construed in accordance with, the laws
of the State of Delaware without regard to its conflict of laws rules; provided,
however, that with respect to ISOs, the Plan and all agreements under the Plan
shall be construed so that they qualify as incentive stock options within the
meaning of Section 422 of the Code.
* * *
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Exhibit 10.24
DATED 29 NOVEMBER 1999
(1) GEOFFREY STREET AND OTHERS
(2) PAPA JOHN'S (UK) LIMITED
(3) PAPA JOHN'S INTERNATIONAL, INC.
AGREEMENT
FOR THE SALE AND PURCHASE OF THE
ENTIRE ISSUED SHARE CAPITAL OF
PERFECT PIZZA HOLDINGS LIMITED
EVERSHEDS
SOLICITORS
Senator House, 85 Queen Victoria Street
London EC4V 4JL
Tel: 0171 919 4500 Fax: 0171 919 4919
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C>
1. INTERPRETATION.............................................................1
2. SALE AND PURCHASE..........................................................7
3. CONSIDERATION..............................................................7
4. WARRANTIES.................................................................8
5. CAPACITY AND SHARES.......................................................14
6. RESTRICTIVE COVENANTS.....................................................15
7. COMPLETION................................................................17
8. GUARANTEE.................................................................20
9. ANNOUNCEMENTS AND COSTS...................................................20
10. NOTICES...................................................................20
11. GENERAL...................................................................21
SCHEDULE 1....................................................................29
The Vendors
SCHEDULE 2....................................................................27
Details Of The Company
SCHEDULE 3
The Property..................................................................32
SCHEDULE 4....................................................................33
Non-Taxation Warranties
SCHEDULE 5....................................................................68
Taxation
SCHEDULE 6....................................................................81
Provision Regarding Retention Fund
SCHEDULE 7....................................................................81
Adjustment of Consideration
</TABLE>
<PAGE>
THIS AGREEMENT is made on November 29, 1999
BETWEEN
(1) The persons whose names and addresses are set out in column (1) of
SCHEDULE 1 ("the Vendors"); and
(2) PAPA JOHN'S (UK) LIMITED (registered number 3872801) whose registered
office is at Perfect Pizza House, The Forum, Hanworth Lane, Chertsey,
Surrey KT16 9JX ("THE PURCHASER"); and
(3) PAPA JOHN'S INTERNATIONAL, INC., a company incorporated in the State
of Delaware, U.S.A. and whose principal place of business is at P O
Box 99900, Louisville, Kentucky, U.S.A. ("THE GUARANTOR").
RECITAL
A. Barrington House Nominees Limited is the registered holder of, in
aggregate, 139,314 Cumulative Participating Preferred Ordinary Shares
and 2,500,000 Cumulative Redeemable Preference Shares in the Company,
as bare nominee for Wren Investments Limited and Eagle Star Insurance
Company Limited, in respect of such number of shares as are set
opposite its name in SCHEDULE 1.
B. The parties have agreed to effect the sale and purchase of the Shares
on and subject to the terms set out below.
OPERATIVE CLAUSES
1. INTERPRETATION
In this Agreement:-
1.1 the following expressions have the following meanings unless
inconsistent with the context:-
"THE ACT" The Companies Act 1985
"AFFILIATE" In the case of the Purchaser, any
holding company or subsidiary of the
Purchaser or subsidiary of such holding
company from time to time, in each case
as defined in Section 736 Companies Act
1985
1
<PAGE>
"A ORDINARY SHARES" The 408,300 A ordinary shares of 10
pence each in the Company registered in
the name of Geoffrey Street, further
details of whom appear in SCHEDULE 1
"B ORDINARY SHARES" The 46,000 B ordinary shares of 10 pence
each in the Company registered in the
name of the Trustees
"BUSINESS DAY" Any day (other than Saturday or Sunday)
on which clearing banks in the City of
London are open for a full range of
banking transactions
"THE CASH COLLATERAL DEPOSIT" The deposit by the Purchase with
National Westminster Bank plc, to be
held in a designated deposit account,
of the sum of L1,622,960, such monies
constituting collateral security to
such bank in respect of the Loan Note
Guarantee
"C ORDINARY SHARES" The 206,000 C ordinary shares of 10
pence each in the Company registered in
the name of Nicholas Miller, further
details of whom appear in SCHEDULE 1
"THE COMPANY" Perfect Pizza Holdings Limited,
registered number 03331853 whose
registered office is at Perfect Pizza
House, The Forum, Hanworth Lane,
Chertsey, Surrey KT169JX
"COMPLETION" Completion of the sale and purchase in
accordance with CLAUSE 7
"THE CONSIDERATION" The consideration for the sale of the
Shares as stated in CLAUSE 3.1
"THE CUMULATIVE PARTICIPATING The 139,314 cumulative participating
PREFERRED SHARES" preferred ordinary shares of 10 pence
each in the capital of the Company
registered in the name of Barrington
House Nominees Limited as set out in
column (2) of SCHEDULE 1
"THE CUMULATIVE REDEEMABLE The 2,500,000 8% cumulative redeemable
2
<PAGE>
PREFERENCE SHARES" preference shares of 50 pence each in
the capital of the Company registered in
the name of Barrington House Nominees
Limited as bare nominee for Wren
Investments and Eagle Star as referred
to in Recital A
"D ORDINARY SHARES" The 67,000 D ordinary shares of 10 pence
each in the Company registered in the
name of Christopher Dyson, further
details of whom appear in SCHEDULE 1
"THE DISCLOSURE LETTER" The letter having the same date as this
Agreement from the Warrantors to the
Purchaser qualifying the Warranties
"THE DIVIDENDS" The Preference Dividends and the Stock
Dividend
"E ORDINARY SHARES" The 79,700 E ordinary shares of 10 pence
each in the Company registered in the
name of Alan Cotterill, further details
of whom appear in SCHEDULE 1
"EAGLE STAR" Eagle Star Insurance Limited further
details of which are set out in SCHEDULE
1
"ESCROW ACCOUNT" The escrow account to be established
jointly between the Purchaser's
Solicitors and the Vendors' Solicitors
pursuant to CLAUSE 3 and SCHEDULE 6
"F ORDINARY SHARES" The 27,500 F ordinary shares of 10 pence
each in the Company registered in the
name of Martin Clayton, further details
of whom appear in SCHEDULE 1
"FINAL SALARY SCHEME" The Perfect Pizza Limited Pension Scheme
established with effect from January
1996
3
<PAGE>
"FURTHER LOAN NOTES" The L93,316 floating rate guaranteed
loan notes 2005 of the Purchaser to be
constituted by the Further Loan Note
Instrument
"FURTHER LOAN NOTE The loan note instrument in the agreed
INSTRUMENT" terms to be executed by the Purchaser
creating the Further Loan Notes
"GPP" The Perfect Pizza Group Personal Pension
Plan established with Royal & Sun
Alliance with effect from 6 April 1998
"THE GROUP" Together the Company and each other
company details of which are set out in
SCHEDULE 2
"GROUP MEMBER" Any company which is a member of the
Group
"THE LOAN NOTES" The L1,529,644 floating rate guaranteed
loan notes 2005 of the Purchaser to be
constituted by the Loan Note Instrument
"THE LOAN NOTE GUARANTEE" The guarantee in respect of the Loan
Notes and the Further Loan Notes in the
agreed terms executed by National
Westminster Bank plc guaranteeing the
Loan Notes and delivered at Completion
"THE LOAN NOTE INSTRUMENT" The loan note instrument in the agreed
terms to be executed by the Purchaser
creating the Loan Notes
"MRS STREET" Mrs. Renee Street, further details of
whom are set out in SCHEDULE 1
"THE ORDINARY SHARES" The Original Ordinary Shares, the A
Ordinary Shares, the B Ordinary Shares,
the C Ordinary Shares, the D Ordinary
Shares, the E Ordinary Shares and the F
Ordinary Shares
"THE ORIGINAL ORDINARY The 71,550 ordinary shares of 10 pence
SHARES" each in the capital of the Company
registered in the names of the
Warrantors and Mrs Street as set out in
column
4
<PAGE>
(2) of SCHEDULE 1
"THE PENSION SCHEMES" The Final Salary Scheme, the Perfect
Pizza Limited Life Assurance Scheme and
the GPP. References to "the Pension
Scheme" shall where the context admits
mean each of them
"THE PREFERENCE DIVIDENDS" The aggregate of L116,712.33 paid to
Barrington House Nominees Limited on
29 November 1999 in respect of the
period from 1 April 1999 to 29
November 1999
"THE PURCHASER'S SOLICITORS" Eversheds of Senator House, 85 Queen
Victoria Street, London EC4V 4JL
"RESTRICTED BUSINESS" The selling of, or licensing or
franchising of third parties to sell,
pizza on a dine-in, take-away or
delivery basis
"RETENTION FUND" The sums to be paid into the Escrow
Account pursuant to CLAUSE 3.3.3 and to
be applied pursuant to SCHEDULE 6
"THE SCOTT'S ACQUISITION The agreement between Scott's
AGREEMENT" Hospitality Limited, the Company and
Perfect Pizza Limited dated 7 July 1997
in relation to the acquisition by the
Company of the entire issued share
capital of Perfect Pizza Limited
"THE SHARES" The entire issued share capital of the
Company comprising the Ordinary Shares,
the Cumulative Redeemable Preference
Shares and the Cumulative Participating
Preferred Shares
"THE STOCK DIVIDEND" The dividend of L75,105 with scrip
dividend alternative declared by the
Company on 17 November 1999
"THE TRUSTEES" Geoffrey Street and Mrs Street (as
trustees of the Street Family
Settlement)
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"THE VENDORS' SOLICITORS" Berwin Leighton Solicitors of Adelaide
House, London Bridge, London EC4R 9HA
"THE WARRANTIES" The warranties set out or referred to in
CLAUSE 4, SCHEDULE 4 and PART 3 of
SCHEDULE 5
"THE WARRANTORS" The Vendors, excluding Barrington House
Nominees Limited, the Trustees (in their
capacity as trustees) and Mrs Street
"THE WARRANTY INSURANCE" The insurance policy (in the agreed
terms) taken out by the Warrantors with
HSBC Insurance Brokers Limited, with the
Purchaser and its Affiliates (in
accordance with the terms of the
Warranty Insurance) named as loss
payee(s) thereunder, providing insurance
cover against claims of up to L10
million
"WREN INVESTMENTS" Wren Investments Limited, further
details of which are set out in SCHEDULE
1
1.2 references to any statute or statutory provisions will, unless the
context otherwise requires, be construed as including references to any
subsequent statute or the corresponding statute or provisions of any
subsequent statute in force at any time prior to Completion directly or
indirectly amending, consolidating, extending, replacing or re-enacting
the same, and will include any orders, regulations, instruments or other
subordinate legislation made under the relevant statute or statutory
provisions which are in force prior to Completion;
1.3 references to persons will be construed so as to include bodies
corporate, unincorporated associations and partnerships;
1.4 references to a document being "in the agreed terms" will be construed as
references to that document in the form agreed and initialled by or on
behalf of the Vendors and the Purchaser;
1.5 all covenants, agreements, undertakings, indemnities and warranties on
the part of two or more persons are given or made by such persons
severally and not jointly and severally unless the contrary is expressly
stated;
1.6 references to a "customer" or "customers" shall be deemed to include a
reference to a franchisee or franchisees;
1.7 the only Warranties in relation to matters referred to in PARAGRAPH 38
of SCHEDULE 4 shall be those contained in such PARAGRAPH 38;
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1.8 references to clauses and Schedules are to clauses of an Schedules to
this Agreement, and references to paragraphs are to paragraphs in the
Schedule in which such references appear;
1.9 the Schedules form part of this Agreement and will have the same force
and effect as if expressly set out in the body of this Agreement; and
1.10 the headings and the clauses of this Agreement and to the paragraphs
of the Schedules (save for the headings in SCHEDULES 1 and 3) will not
affect its construction.
2. SALE AND PURCHASE
2.1 Each of the Vendors will sell with full title guarantee, and the
Purchaser will buy, the number of Shares specified opposite that
Vendor's name in SCHEDULE 1.
2.2 Each of the Shares will be sold and bought free of any claim, charge,
lien, encumbrance, equity or third party right, and with all rights
attached or accruing to it including any rights to any dividends or
other distributions declared, made or paid after the execution of this
Agreement.
2.3 Each of the Vendors waives all rights of pre-emption over any of the
Shares conferred by the articles of association of the Company or
otherwise.
2.4 The Purchaser will not be obliged to complete the purchase of any of
the Shares unless the purchase of all the Shares is completed
simultaneously.
3. CONSIDERATION
3.1 The Consideration for the sale of the Shares shall be the sum of
L19,892,063 subject to adjustment pursuant to SCHEDULE 7.
3.2 The Consideration shall be applied as between the shares as follows:
3.2.1 L2,500,000 shall be paid to the Barrington House Nominees Limited
in respect of the purchase of the Cumulative Redeemable
Preference Shares (the "Preference Share Consideration"); and
3.2.2 the balance (the "Ordinary Share Consideration") shall be paid
(subject to the said adjustment):
3.2.2.1 as to L10,435,238 in respect of the purchase of the
Cumulative Redeemable participating Preferred Shares; and
3.2.2.2 as to L6,956,825 in respect of the purchase of the
Ordinary Shares in accordance with CLAUSE 3.3
3.3 The Ordinary Share Consideration shall be paid as follows:
3.3.1 by payment of cash to the Vendors at Completion of the
aggregate sum of L14,862,419 to be applied amongst the Vendors in
the amounts set opposite their respective names in column (3) of
SCHEDULE 1;
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<PAGE>
3.3.2 by the issue and allotment of L1,529,644 of Loan Notes to
the Vendors at Completion in the amounts set opposite their
respective names in column (4) of SCHEDULE 1:
3.3.3 by payment of L906,684 in cash to the Vendors' Solicitors
(who are hereby irrevocable instructed to pay such sum to the
Escrow Account to be established with Barclays Bank PLC, Pall
Mall Business Centre, 1 Pall Mall East, London SW1Y 5AX), such
amount to be adjusted and released from the Escrow Account and be
paid to the Vendors (subject to SCHEDULE 7) in the proportions
set opposite their respective names in column (5) of SCHEDULE 1
as determined by SCHEDULE 7.
3.3.4 by the issue and allotment of L93,316 of Further Loan Notes
to the Vendors at Completion in the amounts set opposite their
respective names in column (6) of SCHEDULE 1, such Further Loan
Notes to be cancellable pursuant to SCHEDULE 7.
3.4 The Consideration payable in cash to the Vendors on Completion or in
accordance with the provisions set out in SCHEDULES 6 AND 7 shall be
paid by way of a CHAPS transfer from a clearing bank to the client
account of the Vendors' Solicitors with Barclays Bank Plc, Pall Mall
Business Centre, 1 Pall Mall East, London SW1Y 5AX, sort code 20-65-82,
account number or by such other method as may be agreed
between the parties.
3.5 The Vendors' Solicitors are authorised to receive the Consideration
payable in cash on behalf of the Vendors and payment to them will be a
good and sufficient discharge to the Purchaser and the Purchaser will
not be further concerned as to the application of the moneys so paid.
4. WARRANTIES
4.1 Each of the Warrantors:
4.1.1 subject to the remaining provisions of this CLAUSE 4, severally
warrants to the Purchaser that, save as fairly and accurately
disclosed in the Disclosure Letter, the Warranties are true as
at the date of this Agreement;
4.1.2 undertakes to disclose to the Purchaser as soon as reasonably
practicable after becoming aware of the same (so that the
implications of the issue are readily apparent from such
knowledge) anything which comes to the notice of such Warrantor
which is a breach of any of the Warranties; and
4.1.3 undertakes that, in the event of any claim being made against
any of them whether under the Warranties or otherwise in
connection with the sale of the Shares to the Purchaser, they
will not save in the case of fraud or wilful non-disclosure in
relation to a claim against a director or an employee, make any
claim against any Group Member, or against any director or
employee of any Group Member, on which or on whom any of them
may have relied before agreeing to any term of this Agreement
or authorising any statement in the Disclosure Letter, but so
that this undertaking will not preclude any Warrantor from
claiming against any other Warrantor under
8
<PAGE>
any right of contribution or indemnity to which such Warrantor
may be entitled.
4.2 Each of the Warranties will be construed as a separate Warranty and
will not be limited or restricted by reference to, or inference from,
the terms of any other Warranty or any other term of this Agreement.
4.3 In this Agreement, unless otherwise specified, where any Warranty
refers to the knowledge, information, belief or awareness of the
Warrantors (or similar expression), each Warrantor will be deemed to
have such knowledge, information, belief or awareness as such
Warrantor would have obtained had such Warrantor made reasonable and
careful enquiries of Andrew Stride (in relation to matters relating to
insurance and purchasing) into the subject matter of that Warranty and
the knowledge, information, belief and awareness of any one of the
Warrantors shall be imputed to the remaining Warrantors.
4.4 In this CLAUSE 4.4 and CLAUSE 4.5 "claim" means any claim which would
(disregarding the provisions of this CLAUSE 4.4) be capable of being
made against the Warrantors (or any of them) for breach of the Warranties
(save those contained in Part 3 of SCHEDULE 5) or under Parts 2 or 3
of SCHEDULE 5 at any time after the execution of this Agreement.
Notwithstanding the foregoing provisions of CLAUSE 4:
4.4.1 subject to CLAUSE 4.4.7, in the event of any liability for a
claim being established, each Warrantor shall only be liable
for such proportion of the liability as is equal to the
proportion that the Shares sold by the relevant Warrantors
(Shares sold by the Trustees being deemed to be sold by Geoff
Street for these purposes) bears to the total number of Shares
sold by all the Warrantors (Shares sold by the Trustees
being deemed to be sold by Geoff Street for these purposes),
and he shall not be liable for the proportions of the other
Warrantors;
4.4.2 the aggregate liability of each of the Warrantors (including
for these purposes any sums recovered under the Warranty
Insurance) in respect of all claims will be limited to
L10,000,000;
4.4.3 the aggregate liability of each of the Warrantors (but so as
not to include for these purposes any sums recovered under the
Warranty Insurance) in respect of all claims will be limited to
the consideration received by such Warrantor (or the Trustees
in the case of Geoff Street) pursuant to this Agreement (Shares
sold by the Trustees being deemed to be sold by Geoff Street
for these purposes);
4.4.4 save in the event of fraud or wilful non-disclosure, no
liability shall arise in respect of any individual claim for
less than L5,000 and unless and until the aggregate amount of
all such claims (taking no account of any for less than L5,000)
exceeds L50,000 in which event the Warrantors shall be liable
only for the amount by which such liability exceeds L50,000;
4.4.5 the Warrantors will have no liability in respect of any claim
to the extent that the Purchaser is compensated therefor by
virtue of being loss payee under the Warranty Insurance
Provided always that where the relevant
9
<PAGE>
insurers under the Warranty Insurance have accepted the
obligation to make payment in relation to all parts of a
particular claim against the Warrantor and the Purchaser and
the relevant insurers have agreed as to the quantum for which
the insurers will be liable and the insurers make payment under
the Warranty Insurance for such agreed sum, the Purchaser will
not be entitled to recover any further sum in respect of such
claim from the relevant Warrantor;
4.4.6 the Warrantors will be under no liability to make any payment
in respect of any claim unless written particulars of the claim
(giving details of the specific matter in respect of which such
claim is made together with a reasonable estimate of the amount
of liability under such claim) are given to the Warrantors by
the Purchaser:
4.4.6.1 in the case of the Warranties contained in SCHEDULE 4
by 31 March 2002;
4.4.6.2 in the case of the Warranties contained in PART 3 OF
SCHEDULE 5, or under PART 2 OF SCHEDULE 5, within six
years from the end of the Group's current accounting
period;
Provided that no Warrantor shall be relieved of liability in
the event that a claim is made prior to the relevant date
referred to above in this CLAUSE 4.4.6 but is determined after
such date to be excluded from coverage under the Warranty
Insurance;
4.4.7 for the avoidance of doubt the Warrantors shall have no
liability in respect of a claim in the event that paragraph 5
of Schedule 7 applies;
4.4.8 for the avoidance of doubt any Warrantor or Warrantors in
respect of whose pro rata responsibility or liability to meet a
claim an exclusion contained within the Warranty Insurance
applies such that the whole or part of such claim against such
Warrantor is not recoverable under the Warranty Insurance shall
be liable hereunder to meet such unrecovered part of the claim;
4.4.9 for the avoidance of doubt, the Warranties shall not apply in
relation to the Final Salary Scheme to the extent that the
Purchaser would otherwise have a claim against the Warrantors
as a result of the pension deficit in the Final Salary Scheme
at the date of this Agreement;
4.4.10 in the event that all or part of a claim is excluded from
recovery under the Warranty Insurance as a result of the fraud
or dishonesty of or deliberate or dishonest withholding of
information by two or more Warrantors, such Warrantors shall be
jointly and severally liable for any such sums not so recovered.
4.5 In relation to claims:
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<PAGE>
4.5.1 if any potential claim shall arise by reason of a liability of
the Company which is contingent only, then the Warrantors shall
not be under any obligation to make any payment in respect of
such claim until such time as the contingent liability ceases
to be contingent and becomes actual, provided always that the
provisions of clause 4.4.6 shall not prejudice any rights of
the Purchaser if the claim in relation to the liability at such
time as it remains contingent was made within the relevant time
period referred to therein;
4.5.2 no liability shall arise to the Warrantors and the Purchaser
shall not have any claim whatsoever against the Warrantors in
respect of any breach of any of the Warranties:
4.5.2.1 if and to the extent that such breach or claim occurs
or is increased as a result of any legislation not in
force at the date of this Agreement which takes effect
retrospectively or occurs as a result of any increase
in the rates of taxation in force at the date hereof
or occurs as a consequence of a change in the
interpretation of the law after the date hereof in any
jurisdiction inside and/or outside the United Kingdom;
4.5.2.2 if and to the extent that such breach or claim would
not have arisen but for any voluntary act, omission,
transaction or arrangement after completion by the
Purchaser, the Company or any subsidiary or holding
company (as those expressions are defined in section
736 of the Companies Act 1985) of the Purchaser
otherwise than where the Purchaser, Company or any
such subsidiary or holding company has been acting
reasonably in the ordinary course of business of the
Company as presently carried on;
4.5.2.3 where the Purchaser or the Company is entitled to
recover from some other person (other than under the
Warranty Insurance) any sum in respect of any matter
or event which could give or has given rise to a
claim, the person so entitled shall, subject to being
indemnified by the Warrantors against any costs that
such person shall reasonably incur, use reasonable
endeavours to recover that sum (and shall, subject as
aforesaid, take such actions to do so as reasonably
requested by the Warrantors provided always that the
Purchaser or the Company shall not be so required to
do so if such action is reasonably likely to prejudice
materially the goodwill of the business of the Group
taken as a whole) but shall not be obliged to do so
before making a claim, and any sum recovered will
reduce the amount of the claim (and, in the event of
the recovery being delayed until after the claim has
been satisfied by the Warrantors, shall be paid to the
Warrantors, after deduction of all reasonable costs
and expenses of the recovery) to the extent not
already indemnified (so that payment in respect
thereof has been received) by the Warrantors;
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<PAGE>
4.5.2.4 to the extent that specific provision or reserve in
respect thereof has been made in the Accounts
(as defined in SCHEDULE 4);
4.5.2.5 if and to the extent that such liability arises as a
result of changes (effected by the Purchaser or the
Company after Completion) in the accounting bases or
taxation policy upon which the Company or the Purchaser
value their respective assets or liabilities; and
4.5.2.6 in respect of any claim under PART 3 OF SCHEDULE 5,
to the extent the provisions of paragraph 4 (other than
paragraph 4.1.1.2) of SCHEDULE 5 apply.
4.6 The Purchaser shall not be entitled to recover damages in respect of
any claim for breach of the Warranties or in respect of any claim under
the provisions of PART 2 OF SCHEDULE 5 or otherwise obtain reimbursement
or restitution more than once to the extent and in respect of the same
damage suffered.
4.7 For the avoidance of doubt nothing in this CLAUSE 4 shall in any way
restrict or limit the general obligation at law of the Purchaser to
mitigate any loss or damage which it may suffer in consequence of any
breach by the Warrantors of the terms of this Agreement.
4.8 The Purchaser confirms:
4.8.1 that it has not relied on any warranty, convenant or undertaking
of the Warrantors or any other person, save for any warranty,
convenant or undertaking expressly set out or referred to in this
Agreement or the Disclosure Letter nor has it relied on any
representation of the Warrantors or any other party, provided
that nothing in this clause shall exclude the liability of any
parties for fraudulent misrepresentation or wilful concealment;
and
4.8.2 that, accordingly, it waives any right to damages or any other
remedy for any warranty, convenant or undertaking of the
Warrantors or any other party to this Agreement not expressly
set out or referred to in this Agreement or the Disclosure
Letter or any representation of the Warrantors or any other
such party unless such warranty, covenant, undertaking or
representation was made fraudulently or by way of wilful
concealment.
4.9 No breach or breaches of any of the Warranties or the provisions of
PART 2 OF SCHEDULE 5 shall give rise to any right of the Purchaser to
rescind or terminate this Agreement following Completion or render the
Warrantors liable for any consequential loss.
4.10 Any amount paid by the Warrantors in respect of any breach of any of
the Warranties or under the provisions of PART 2 OF SCHEDULE 5 shall be
treated as a reduction in the Consideration.
4.11 For the avoidance of doubt, the Warrantors shall not be entitled to
make any agreement with the insurers as to the quantum of liability
under a claim without the Purchaser's consent. If any payment is due to
be made by the Warrantors in respect
12
<PAGE>
of any claim make under the Warranties or under the provisions of PART 2
OF SCHEDULE 5 but the insurers under the Warranty Insurance have disputed
their liability to make a payment under the Warranty Insurance, no
payment shall be due in respect of that liability by the Warrantors until
any dispute in relation to the liability of the insurers to make a
payment under the Warranty Insurance has been finally resolved, provided
always that the provisions of CLAUSE 4.4.6 shall not prejudice any right
of the Purchaser if the initial claim in respect of which such dispute
has arisen was made within the relevant time period referred to therein.
The Purchaser shall seek to recover under the Warranty Insurance in
respect of any claim (and shall pursue all rights thereunder) before
taking any action to recover sums in respect thereof from any
individual Warrantor.
4.12 With respect to any amount which the Purchaser may claim against the
Warrantors on account of a breach or alleged breach of any of the
Warranties or other claim under this Agreement, the Purchaser shall
not, subject to the following provision of this subclause 4.12, be
entitled to set off the same against any payment due under any of the
Loan Notes or Further Loan Notes. If, however, any payment is due from
a Warrantor to the Purchaser howsoever incurred under this CLAUSE 4,
which is not recovered under the Warranty Insurance, in the event that
payment is not made by such Warrantor in full within 56 days of due
payment by such Warrantor being determined, the Purchaser shall be
entitled to set off (by notice in writing to the relevant Warrantor)
the payment so due against the capital and accrued interest under any
Loan Notes or Further Loan Notes then registered in the name of such
Warrantor (or any transferee of Loan Notes or Further Loan Notes issued
to such Warrantor at Completion (a "transferee")) up to a maximum
amount of the amount outstanding to such Warrantor (or such transferee)
under his (or his transferee's) Loan Notes and Further Loan Notes. In
the event of any sum being so set off, the Loan Notes or Further Loan
Notes in question shall be cancelled to the extent of the claim against
the holder(s) (or original holder) thereof. At any time during such
period of 56 days (and thereafter for so long as the sum remains unpaid
and the Loan Notes or Further Loan Notes, as the case may be, have not
been so cancelled), the Purchaser shall be entitled to serve a written
notice (a "Holding Notice") on the Warrantor (with a copy sent to
National Westminster Bank PLC) in respect of an equal amount of the
Loan Notes and/or Further Loan Notes held by or originally issued to
the Warrantor in respect of which it would (in the event of
non-payment) be entitled to set off such claim as described above. No
redemption of such Loan Notes and/or Further Loan Notes (or payment of
interest thereon) shall be made by a Warrantor following service of a
Holding Notice until the payment of such claim in full. In the event of
any service of a notice upon a Warrantor under this CLAUSE 4.12, a copy
of such notice shall also be served upon any relevant transferee. For
the purposes of this CLAUSE 4.12, the relevant notice must be served on
the Warrantor himself and accordingly the provisions of CLAUSE 10.3.2
shall not apply thereto. Such Holding Notice shall apply until the
earlier of the date of settlement of the relevant sum outstanding and
the date that the relevant Loan Notes and/or Further Loan Notes are
cancelled in satisfaction of the liability.
4.13 Notwithstanding any other provision of CLAUSES 4.4.1 TO 4.4.7 (inclusive)
of this Agreement, the provisions of CLAUSE 4.4 shall not apply to
exclude or limit the liability of one of the Vendors to the extent that
any claim arises by reason of any fraud or dishonest or wilful
misstatement or omission by or on behalf of that Vendor.
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5. CAPACITY AND SHARES
5.1 Each party severally warrants to each other party that it has full
power and authority to enter into and perform this Agreement (and any
other agreement or arrangement required to be entered into by it in
connection with this Agreement) and that the execution, delivery and
performance by it of this Agreement and each such other agreement and
arrangement will not:
5.1.1 result in a breach of, or constitute a default under, any
agreement or arrangement to which it is a party or by which it
is bound; or
5.1.2 result in a breach of any order, judgement or decree of any
court, governmental agency or regulatory body to which it is a
party or by which it is bound.
5.2 Each of the Warrantors severally warrants to the Purchaser that:
5.2.1 the number of Shares set opposite his own name in column (2) of
SCHEDULE 1 are legally and beneficially owned by him and are
free from all liens, charges and encumbrances or interests in
favour of or claims made by any other person and such Shares
are fully paid, have been properly and validly allotted and,
together with the Shares set opposite the names of the other
Vendors in column (2) of SCHEDULE 1, represent the entire
allotted and issued share capital of the Company;
5.2.2 other than this Agreement, there is no agreement, arrangement
or obligation requiring the creation, allotment, issue, sale,
transfer, redemption or repayment of, or the grant to a person
of the right (conditional or not) to require the allotment,
issue, sale, transfer, redemption or repayment of, any share
in the capital of the Company or any other Group Member
(including an option or right of pre-emption or conversion);
5.2.3 save as disclosed in the Disclosure Letter and in respect of
accrued salaries and any contract of employment, no
indebtedness (actual or contingent) is outstanding and no
contract or arrangement exists between any Group Member and
such Warrantor (or any person connected with such Warrantor);
and
5.2.4 save as disclosed in the Disclosure Letter and in respect of
accrued salaries and any contract of employment, such Warrantor
is not entitled to any claim of any nature against any Group
Member or any of their respective officers, employees, agents,
advisers, customers or suppliers and he has not assigned to any
third party the benefit of any such claim to which he was
previously entitled.
5.3 Each of the Warrantors warrants to the Purchaser that, save as
disclosed in the Disclosure Letter, neither he, nor so far as he is
aware, any person connected with him has any interest, direct or indirect,
in any business which competes with any business now carried on by any
Group Member.
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5.4 The Purchaser warrants to the Vendors that the Loan Notes and Further
Loan Notes will be allotted and issued credited as fully paid free from
all liens, charges, encumbrances, equities and claims whatsoever and
ranking pari passu in all respects inter se respectively.
5.5 Each of Barrington House Nominees Limited and Mrs Street severally
warrants to the Purchaser that:
5.5.1 the number of Shares set opposite its own name in column (2) of
SCHEDULE 1 are legally owned by it or her and that they have
all authorities and powers necessary to and hereby sell all
such shares free from all liens, charges and encumbrances or
interests in favour of or claims made by any other person; and
5.5.2 it or she is not entitled to any claim of any nature against
any Group Member or any of their respective officers and it or
she has not assigned to any third party the benefit of any such
claim to which it was previously entitled.
5.6 The Trustees hereby warrant to the Purchaser that:
5.6.1 the number of B Ordinary Shares set opposite their name in
column (2) of SCHEDULE 1 are legally owned by them in their
capacity as trustees of the Street Family Settlement and that
they have all authorities and powers necessary to and hereby
sell all such B Ordinary Shares free from all liens, charges and
encumbrances or interests in favour of or claims made by any
other person; and
5.6.2 they are not entitled to any claim of any nature against any
Group Member or any of their respective officers and they have
not assigned to any third party the benefit of any such claim
to which they were previously entitled.
6. RESTRICTIVE COVENANTS
6.1 For the purpose of assuring to the Purchaser the full benefit of each
Group Member and in consideration for the Purchaser agreeing to buy the
Shares on the terms of this Agreement, each of the Warrantors undertakes
to the Purchaser that (save as may be required to carry out his
duties under any service or consultancy agreement with the Purchaser,
the Company or any Group Member) such Warrantor will not, without the
prior written consent of the Purchaser, whether directly or indirectly
and whether alone or in conjunction with, or on behalf of, any other
person and whether as principal, shareholder, director, employee,
agent, consultant, partner or otherwise:
6.1.1 subject to the proviso to this CLAUSE 6.1, for a period of five
years immediately following Completion in the United Kingdom,
canvass, solicit or approach, or cause to be canvassed,
solicited or approached, for orders any person who at any time
during the twelve months immediately preceding the date of
Completion is or was:
6.1.1.1 negotiating with any Group Member for the supply by
any Group Member of goods or services; or
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<PAGE>
6.1.1.2 a client or customer of any Group Member; or
6.1.1.3 in the habit of dealing with any Group Member,
6.1.1.4 where the orders relate to a Restricted Business.
6.1.2 subject to the proviso to this CLAUSE 6.1, for a period of five
years immediately following Completion, deal or contract, in the
United Kingdom, with any person who at any time during the twelve
months immediately preceding the date of Completion is or was:
6.1.2.1 negotiating with any Group Member for the supply by
any Group Member of goods or services; or
6.1.2.2 a client or customer of any Group Member; or
6.1.2.3 in the habit of dealing with any Group Member,
where the dealing or contracting relates to a Restricted
Business;
6.1.3 for a period of five years immediately following Completion,
interfere, or seek to interfere, with the continuance of
supplies to any Group Member from any supplier who is a current
supplier of goods and/or services to that Group Member if such
interference causes or would cause that supplier to cease
supplying, or materially reduce its supply of, those goods and/or
services;
6.1.4 for a period of five years immediately following Completion,
solicit or entice, or endeavour to solicit or entice, away from
any Group Member, or employ, any person employed in a
managerial, supervisory, technical or sales capacity by, or who
is or was a consultant to, or a franchisee of any Group Member
at Completion;
6.1.5 within the United Kingdom for a period of five years
immediately following Completion, be engaged, concerned or
interested in, or provide technical, commercial or professional
advice to, any Restricted Business provided that this
restriction does not apply to prevent any of the Warrantors
from holding shares or other securities in any company which
are quoted,listed or otherwise dealt in on a recognised stock
exchange or other securities market and which confer not more
than 3 per cent of the votes which could be cast at a general
meeting of such company; or
6.1.6 use in connection with any business any name which includes the
name of any Group Member or any colourable imitation of it;
Provided always that, in the case of Geoffrey Street and Nicholas
Miller, a Restricted Business shall be constituted by (i) a business
involving pizza delivery (a "Delivery Business") or (ii) one involving
dealings with pizzas on a dine-in and/or take-away basis where such
activities account for more than 20 per cent of the aggregate food and
beverage turnover of the relevant business (a "Dine-In or Takeaway
Business") and Provided further that the references in CLAUSES
6.1.1, 6.1.2 AND 6.1.5 to five years
16
<PAGE>
shall be deemed, in the case of Geoffrey Street and Nicholas Miller, to
be references to 4 years in respect of a Delivery Business and 2 years
in respect of a Dine-In or Takeaway Business.
6.2 Each of the Warrantors acknowledges that such Warrantor has information
in respect of the business and financing of Group Members and their
dealings, transactions, affairs, plans and proposals, all of which
information is, or may be, secret or confidential and important to such
Group Members. In this CLAUSE 6 such information is called "Confidential
Information" and includes, without limitation, confidential or secret
information relating to each Group Member's trade secrets, know-how,
ideas, business methods, finances, prices, business plans, marketing
plans, development plan, manpower plans, sales targets, sales
statistics, customer lists, customer relationships, computer systems and
computer software. Each of the Warrantors further acknowledges that the
disclosure of Confidential Information (whether directly or indirectly)
to actual or potential competitors of a Group Member would place that
Group Member at a competitive disadvantage and would do damage (whether
financial or otherwise) to its business. Each of the Warrantors
accordingly agrees to enter into the restrictions contained in CLAUSE 6.3.
6.3 Each of the Warrantors undertakes that (save as may be required to carry
out his duties under any service or consultancy agreement with the
Purchaser, the Company or any Group Member) such Warrantor will not at
any time after Completion:
6.3.1 disclose to any person except to those authorised by the relevant
Group Member to know;
6.3.2 use for the Warrantor's own purposes or for any purposes other
than those of the relevant Group Member; or
6.3.3 through any failure to exercise all due care and diligence cause
any unauthorised disclosure of,
any Confidential Information of a Group Member, provided that these
restrictions on each Warrantor will cease to apply to information which
(otherwise than through the default of such Warrantor) becomes available
to the public generally.
6.4 The parties agree that each of the undertakings set out in this CLAUSE
6 is separate and severable and enforceable accordingly and if any one
or more of such undertakings or part of an undertaking is held to be
against the public interest or unlawful or in any way an unreasonable
restraint of trade, the remaining undertakings or remaining part of the
undertakings will continue in full force and effect and will bind each
of the Warrantors.
7. COMPLETION
The sale and purchase of the Shares will be completed at the offices of
the Vendors' Solicitors immediately after the execution of this
Agreement when:
7.1 the Vendors will produce and deliver to the Purchaser:
7.1.1 duly executed transfers of the Shares in favour of the Purchaser
together with all relevant share certificates (or in the case of
any lost certificate an
17
<PAGE>
indemnity reasonably satisfactory to the Purchaser in relation to it)
and together also with such waivers and consents as the Purchaser may
reasonably require to enable the Purchaser and its nominee(s) to be
registered as the holders of the Shares;
7.1.2 transfers of or declarations of trust over all shares in any Group
Member not held in the name of the Company or another Group Member
duly executed in favour of the Purchaser (or as it will direct)
together with share certificates in respect of all the issued shares
of each Group Member other than the Company (or in the case of any
lost certificate an indemnity satisfactory to the Purchaser in
relation to it);
7.1.3 written resignations from Mr Paul Marson-Smith, Mr Geoffrey Street and
Mr Nicholas Miller as directors of each Group Member to which they
have been appointed as directors, such resignations being in the
agreed terms;
7.1.4 the certificate of incorporation, any certificate(s) of incorporation
on change of name, the common seal and the statutory books and
registers (all entered up to date) of each Group Member;
7.1.5 evidence reasonably satisfactory to the Purchaser that any additional
or deferred consideration due by the Company under the Scott's
Acquisition Agreement has been paid in full;
7.1.6 all cheque books in current use of each Group Member;
7.1.7 bank statements in respect of each account of each Group Member as at
the close of business on the day being 2 Business Days prior to
Completion, together with a statement of outstanding cheques as at that
date and drawn since that date but prior to Completion prepared by the
Warrantors to show the position at Completion (listing unpresented
cheques drawn or received by the relevant Group Member and standing
orders payable since the date of such bank statements);
7.1.8 all mortgages or charges over the Shares or the assets (including in
respect of assignments of keyman policies) of any Group Member (or any
of them) duly vacated or (if the mortgages or charges also relate to
other property) duly executed releases of the Shares or the assets
of any Group Member (or any of them) from such mortgages or charges
together with letters of non-crystallisation in relation to such
charges, in each case in the agreed terms;
7.1.9 (on the part of Mr Geoffrey Street and Mr Nicholas Miller) property
(if any) of each Group Member which is in the possession or under
their control other than board papers issued to them in their capacity
as directors of the Company (but subject always to CLAUSE 6.2);
7.1.10 a deed of release, executed by all parties thereto of all obligations
under the investment agreement entered into between, inter alia,
certain of the Warrantors and the Company on 7 July 1997;
18
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7.2 each Vendor will repay, and will procure that any spouse or child of
such Vendor or any company ("controlled company") of which such Vendor
(and/or any such spouse or child) has control (as defined in section
840 Income and Corporation Taxes Act 1988) will repay, all amounts
owed by him, her or it to any Group Member, whether due for payment or
not;
7.3 the Vendors will procure that duly convened meetings are held at which:
7.3.1 the transfers referred to in CLAUSE 7.1 (subject to stamping if
not previously effected) are approved for registration in the
books of the relevant Group Members;
7.3.2 persons nominated by the Purchaser are appointed as additional
directors of specified Group Members (subject to any maximum
number of directors imposed by the relevant articles of
association), and any person nominated by the Purchaser is
appointed as secretary of specified Group Members; and
7.3.3 the variation letters referred to in CLAUSE 7.4 are approved;
7.4 the Vendors will procure that Anthony Sherriff, Christopher Dyson and
Alan Cotterill and the Company enter into variation letters in the
agreed terms in respect of their terms of employment with the Company
and Anthony Sherriff shall execute the stock option agreement referred
to in CLAUSE 7.8;
7.5 the Purchaser will pay in accordance with CLAUSE 3 that part of the
Consideration which is payable to the Vendors on Completion and as
regards the Retention Fund the Purchaser and the Vendors shall take
all such steps and give all such written instructions as are necessary
or desirable to give effect to CLAUSE 3.3.3 and the provisions of
SCHEDULE 6;
7.6 the Purchaser will allot and issue the Loan Notes, deliver to the
relevant Vendors certificates for their respective entitlements of
Loan Notes and enter their names in the register of holders of the
Loan Notes and deliver a certified copy of the Loan Note Instrument,
the Loan Note Guarantee and the board resolution approving the
adoption of the Loan Note Instrument and the guarantee of and the
creation of the Loan Notes;
7.7 the Purchaser will allot and issue the Further Loan Notes and will
deliver to the relevant Vendors certificates for their respective
entitlements of Further Loan Notes and will enter their names in the
register of holders of the Further Loan Notes and deliver a certified
copy of the Further Loan Notes Instrument, and the relevant board
resolution;
7.8 the Purchaser shall deliver (and if not on Completion within 10 days
of Completion) the stock option agreement in the agreed terms duly
executed by the Guarantor granting to Anthony Sherriff options over
25,000 common stock of par value US$0.01 in the capital of the
Guarantor; and
7.9 the Purchaser shall make the Cash Collateral Deposit.
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8 GUARANTEE
In consideration of the Vendors agreeing to enter into this Agreement
with the Purchaser, the Guarantor as primary obligor guarantees (and
is executing the Agreement solely to provide such guarantee) the due
performance of the Purchaser's obligations under this Agreement and
undertakes with the Vendors that:
8.1 if the Purchaser shall in any respect fail to implement any of its
obligations hereunder or commit any breach of such obligations then
the Guarantor will on demand effect such acts on behalf of the
Purchaser in order to rectify such breach of the obligations and shall
pay to the Vendors all monies due but not paid by the Purchaser; and
8.2 although as between the Purchaser and the Guarantor the Guarantor is a
guarantor only, as between the Guarantor and the Vendors (and each of
them) the Guarantor shall be deemed to be a principal obligor and not
just a surety and accordingly shall not be released or discharged, nor
shall its liability hereunder be prejudiced, by any forbearance or
indulgence shown by the Vendors or any of them to the Purchaser
whether as to payment, time, performance or otherwise any variation of
the terms of this Agreement, any other agreement entered into by the
Purchaser to which it is not a party, the Purchaser becoming insolvent,
the enforceability or invalidity of the Purchaser's obligations
under this Agreement, or (without limitation) any other thing except
an express release or variation in writing from the Vendors of the
Guarantor's liability.
9. ANNOUNCEMENTS AND COSTS
9.1 After Completion no announcement concerning the transactions
contemplated by this Agreement or any matter ancillary to it and no
disclosure of the terms of this Agreement will (save as required by law
or the regulations of the NASDAQ Stock Exchange or any other competent
regulatory body) be made by the parties except with the prior written
approval of the other parties, being the approval of Tony Sherriff
and Chris Dyson (in each case for so long as he continues to be
employed by a Group Member) in respect and on behalf of the Vendors,
in each case such consent not to be unreasonably withheld or delayed,
it being noted that if any such announcement does not prejudice the
interests of the Vendors the same should be permitted as aforesaid.
9.2 Each party to this Agreement will bear such party's own costs and
expenses relating to the preparation and completion of this Agreement,
except where otherwise expressly stated or as agreed betweeen the
parties.
10. NOTICES
10.1 Any demand, notice or other communication given or made under or in
connection with this Agreement will be in writing.
10.2 Any such demand, notice or other communication will, if otherwise
given or made in accordance with this CLAUSE 10, be deemed to have
been duly given or made as follows:
10.2.1 if sent by recorded delivery post, or the relevant record date
after the date of posting; or
20
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10.2.2 if delivered by hand, upon delivery at the address provided for
in this CLAUSE 10; or
10.2.3 if sent by facsimile, on the day of transmission provided that
a confirmatory copy is, on the same Business Day that the
facsimile is transmitted, sent by pre-paid first class post in
the manner provided for in this CLAUSE 10,
provided however that, if it is delivered by hand or sent by facsimile
on a day which is not a Business Day or after 4pm on a Business Day, it
will instead be deemed to have been given or made on the next
Business Day.
10.3 Any such demand, notice or other communication will, in the case of
service by post or delivery by hand, be addressed (subject as
provided in this CLAUSE 10) to the recipient at the recipient's
address stated in this Agreement or at such other address within the
United Kingdom as may from time to time be notified in writing by the
recipient to the sender as being the recipient's address for
service, provided that:
10.3.1 in the case of a company it may instead (at the option of the
sender) be addressed to its registered office for the time being;
and
10.3.2 if given or made to any one of the Warrantors with a copy to
the Vendors' Solicitors (ref: PTIN/S1586(1)) and to the Company
Secretary, Gresham Trust p.l.c., One South Place, London EC2M
2GT, it will be treated as validly given or made to all of the
Vendors.
10.4 Any such demand, notice or other communication will, in the case of
service by facsimile, be sent to the recipient or to any person
service on whom (in accordance with the foregoing provisions of this
CLAUSE 10) is deemed to be service on the recipient, using a facsimile
number then used by the recipient or (as the case may be) such other
person at an address which (in accordance with such provisions) could
have been used for service by post.
10.5 The Guarantor irrevocably appoints the Purchaser's Solicitors (ref:
MTI/FVS) as its agent to accept, on its behalf, service of proceedings
issued out of the English courts in any proceedings arising out of
this Agreement. Failure by the agent to notify the Guarantor of
service shall not affect the validity of service or a judgement based
on it.
10.6 If the agent appointed under CLAUSE 10.5 ceases to be able to act as
agent or to have an address in England, the Guarantor will appoint a
substitute agent acceptable to the Vendors. If the Guarantor fails to
appoint a substitute agent within 28 days of the agent ceasing to be
able to act, the Vendors may serve proceedings on the Guarantor by
written notice to the registered office of the Company.
11. GENERAL
11.1 This Agreement will be binding on and will enure for the benefit of
each party's successors, assigns and personal representatives (as the
case may be).
11.2 Except insofar as the same have been fully performed at Completion,
each of the agreements, covenants, obligations, warranties,
indemnities and undertakings contained in this Agreement will continue
in full force and effect notwithstanding Completion.
21
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11.3 The parties agree that they will do all such acts and things and
execute all such documents as may be required on or subsequent to
Completion to vest in the Purchaser legal and beneficial ownership of
the Shares in accordance with this Agreement and otherwise to give
effect to its terms.
11.4 Failure or delay by any party in exercising any right or remedy under
this Agreement will not in any circumstances operate as a waiver of
it, nor will any single or partial exercise of any right or remedy in
any circumstances preclude any other or further exercise of it or the
exercise of any other right or remedy.
11.5 Any waiver of any breach of, or any default under, any of the terms of
this Agreement will not be deemed a waiver of any subsequent breach or
default and will in no way affect the other terms of this Agreement.
In the event that more than one Warrantor is liable hereunder in
relation to a particular matter, the Purchaser shall take all such
steps as are reasonably available to it to recover any sums so due by
each of such Warrantors and not from one or some only of such
Warrantors.
11.6 The rights and remedies expressly provided for by this Agreement
will not exclude any rights or remedies provided by law.
11.7 This Agreement may be executed in any number of counterparts, and by
the parties on separate counterparts, each of which so executed and
delivered will be an original, but all the counterparts will together
constitute one and the same agreement.
11.8 The Purchaser shall be entitled to assign the benefit of any right or
entitlement under the Warranties or Schedule 5 to any Affiliate (for
so long as the Affiliate in question continues to constitute an
Affiliate) but otherwise shall not be entitled to so assign the same.
11.9 The formation, existence, construction, performance, validity and all
aspects whatsover of this Agreement or of any term of this Agreement
shall be governed by English law. The English Courts shall have
exclusive jurisdiction to settle any disputes which may arise out of
or in connection with this Agreement.
Note: The schedules referred to in this agreement have been excluded from
this filing.
22
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SIGNED by )
MARTIN CLAYTON ) /s/ Anthony C. Sherriff (As Attorney)
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
SIGNED by )
ALAN COTTERILL ) /s/ Anthony C. Sherriff (As Attorney)
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
SIGNED by )
NICHOLAS MILLER ) /s/ Nicholas Miller
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
23
<PAGE>
SIGNED by )
ANTHONY SHERRIFF ) /s/ Anthony C. Sherriff
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
24
<PAGE>
SIGNED by )
GEOFFREY STREET ) /s/ Geoffrey G. Street
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
25
<PAGE>
SIGNED by )
RENEE STREET ) /s/ Geoffrey G. Street (As Attorney)
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
SIGNED by )
GORDON MCINTYRE ) /s/ Anthony C. Sherriff (As Attorney)
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
SIGNED by GEOFFREY STREET )
AND RENEE STREET AS ) /s/ Nicholas Miller (As Attorney)
TRUSTEES OF STREET FAMILY ) /s/ Geoffrey G. Street
SETTLEMENT )
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
26
<PAGE>
SIGNED by )
PETER SAUNDERS ) /s/ Anthony C. Sherriff (As Attorney)
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
27
<PAGE>
SIGNED by )
CHRISTOPHER DYSON ) /s/ Christopher C. Dyson
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
SIGNED by CHARLES SCHNATTER )
duly authorised to sign for )
and on behalf of )
PAPA JOHN'S (UK) LIMITED ) /s/ Charles W. Schnatter (As Attorney)
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
28
<PAGE>
SIGNED by )
duly authorised to sign for )
and on behalf of nn )
BARRINGTON HOUSE NOMINEES ) /s/ James Barbour Smith
LIMITED )
in the presence of: )
Witness signature: /s/ Eliot Kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
SIGNED by CHARLES SCHNATTER )
duly authorised to sign for )
and on behalf of )
PAPA JOHN'S INTERNATIONAL, INC. ) /s/ Charles W. Schnatter (As Attorney)
in the presence of: )
Witness signature: /s/ Eliot kate
Name: ELIOT KATE
Address: Berwin Leighton, Adelaide House, London EC4
Occupation: TRAINEE SOLICITOR
29
<PAGE>
Exhibit 10.25
CREDIT AGREEMENT
by and among
PAPA JOHN'S INTERNATIONAL, INC.
and
THE BANKS PARTY HERETO
and
BANK ONE, INDIANA, NA, As Syndication Agent
and
PNC BANK, NATIONAL ASSOCIATION, As Lead Arranger and Administrative Agent
Dated as of March 17, 2000
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
SCHEDULE 1.1(B) - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
SCHEDULE 1.1(E) - EXISTING LETTERS OF CREDIT
SCHEDULE 1.1(P) - PERMITTED LIENS
SCHEDULE 5.1.1 - QUALIFICATIONS TO DO BUSINESS
SCHEDULE 5.1.2 - CAPITALIZATION
SCHEDULE 5.1.3 - SUBSIDIARIES
SCHEDULE 5.1.13 - CONSENTS AND APPROVALS
SCHEDULE 5.1.20 - EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 5.1.22 - ENVIRONMENTAL DISCLOSURES
SCHEDULE 7.2.1 - PERMITTED INDEBTEDNESS
SCHEDULE 7.2.4 - RESTRICTED INVESTMENTS IN EXCLUDED
SUBSIDIARIES EXISTING ON THE CLOSING DATE
EXHIBITS
EXHIBIT 1.1(A) - ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(B) - BANK JOINDER
EXHIBIT 1.1(G)(1) - GUARANTOR JOINDER
EXHIBIT 1.1(G)(2) - GUARANTY AGREEMENT
EXHIBIT 1.1(I) - INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(N) - REVOLVING CREDIT NOTE
EXHIBIT 2.4 - LOAN REQUEST
EXHIBIT 6.1.4 - OPINION OF COUNSEL
EXHIBIT 7.2.6 - ACQUISITION COMPLIANCE CERTIFICATE
EXHIBIT 7.3.3 - QUARTERLY COMPLIANCE CERTIFICATE
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<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of March 17, 2000 and is made by and
among PAPA JOHN'S INTERNATIONAL, INC., a Delaware corporation (the "Borrower"),
each of the Guarantors (as hereinafter defined), the BANKS (as hereinafter
defined), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative
agent for the Banks under this Agreement (hereinafter referred to in such
capacity as the "Administrative Agent"), and BANK ONE, INDIANA, NA, in its
capacity as the syndication agent for the Banks under this Agreement.
WITNESSETH:
WHEREAS, the Borrower has requested the Banks to provide a revolving
credit facility to the Borrower in an aggregate principal amount not to exceed
$150,000,000, as the same may be increased hereafter; and
WHEREAS, the revolving credit facility shall be used for general
corporate purposes and to repurchase the Borrower's common stock; and
WHEREAS, the Banks are willing to provide such credit upon the terms
and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS.
In addition to words and terms defined elsewhere in this Agreement,
the following words and terms shall have the following meanings, respectively,
unless the context hereof clearly requires otherwise:
AFFILIATE as to any Person shall mean any other Person (i)
which directly or indirectly controls, is controlled by, or is under common
control with such Person, (ii) which beneficially owns or holds 5% or more of
any class of the voting or other equity interests of such Person, or (iii) 5% or
more of any class of voting interests or other equity interests of which is
beneficially owned or held, directly or indirectly, by such Person. Control, as
used in this definition, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting
<PAGE>
securities, by contract or otherwise, including the power to elect a majority of
the directors or trustees of a corporation or trust, as the case may be.
ADMINISTRATIVE AGENT shall mean PNC Bank, National
Association, and its successors and assigns.
ADMINISTRATIVE AGENT'S FEE shall have the meaning
assigned to that term in Section 9.15.
ADMINISTRATIVE AGENT'S LETTER shall have the meaning assigned
to that term in Section 9.15.
AGREEMENT shall mean this Credit Agreement, as the same may be
supplemented or amended from time to time, including all schedules
and exhibits.
ANNUAL STATEMENTS shall have the meaning assigned to that term
in Section 5.1.9((i)).
APPLICABLE COMMITMENT FEE RATE shall mean the percentage rate
per annum based on the Leverage Ratio then in effect according to the pricing
grid on SCHEDULE 1.1(A) below the heading "Commitment Fee." The Applicable
Commitment Fee Rate shall be computed in accordance with the parameters set
forth on Schedule 1.1(A).
APPLICABLE MARGIN shall mean, as applicable:
(A) the percentage spread to be added to Base Rate under the
Base Rate Option based on the Leverage Ratio then in effect according to the
pricing grid on SCHEDULE 1.1(A) below the heading "Base Rate Spread",
(B) the percentage spread to be added to Euro-Rate under the
Euro-Rate Option based on the Leverage Ratio then in effect according to the
pricing grid on SCHEDULE 1.1(A) below the heading "Euro-Rate Spread", or
The Applicable Margin shall be computed in accordance with the
parameters set forth on Schedule 1.1(A).
ASSIGNMENT AND ASSUMPTION AGREEMENT shall mean an Assignment
and Assumption Agreement by and among a Purchasing Bank, a Transferor Bank and
the Administrative Agent, as Administrative Agent and on behalf of the remaining
Banks, substantially in the form of EXHIBIT 1.1(A).
AUTHORIZED OFFICER shall mean those individuals, designated by
written notice to the Administrative Agent from the Borrower, authorized to
execute notices, reports and other documents on behalf of the Loan Parties
required hereunder. The Borrower may amend
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<PAGE>
such list of individuals from time to time by giving written notice of such
amendment to the Administrative Agent.
BANKS shall mean the financial institutions named on SCHEDULE
1.1(B) and their respective successors and assigns as permitted hereunder, each
of which is referred to herein as a Bank.
BASE NET WORTH shall mean the sum of $260,000,000.
PLUS
(i) 50% of consolidated net income of the Borrower and its
Subsidiaries for each fiscal quarter in which net income was earned (as opposed
to a net loss) during the period from December 27,1999 through the date of
determination
LESS
(ii) the aggregate consideration paid by the Borrower during
the period from December 27,1999 through the date of determination in connection
with the purchase by the Borrower of its capital stock.
BASE RATE shall mean the greater of (i) the interest rate per
annum announced from time to time by the Administrative Agent at its Principal
Office as its then prime rate, which rate may not be the lowest rate then being
charged commercial borrowers by the Administrative Agent, or (ii) the Federal
Funds Effective Rate plus 1/2% per annum.
BASE RATE OPTION shall mean the option of the Borrower to have
Loans bear interest at the rate and under the terms and conditions set forth in
Section 3.1.1((i)).
BANK JOINDER shall mean that form of Joinder pursuant to which
a New Commitment Provider shall provide Commitments hereunder and, if it is a
New Lender, join this Credit Agreement Exhibit 1.1(B).
BENEFIT ARRANGEMENT shall mean at any time an "employee
benefit plan," within the meaning of Section 3(3) of ERISA, which is neither a
Plan nor a Multiemployer Plan and which is maintained, sponsored or otherwise
contributed to by any member of the ERISA Group.
BIBP COMMODITIES GUARANTY shall mean that certain Guaranty of
the Borrower in favor of PNC Bank guarantying the obligations of BIBP
Commodities, Inc. ("BIBP") under any short-term loans made by PNC to BIBP, which
Guaranty is limited to a maximum principal amount of $5,000,000.
BORROWER shall mean Papa John's International, Inc., a
corporation organized and existing under the laws of the State of Delaware.
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<PAGE>
BORROWING DATE shall mean, with respect to any Loan, the date
for the making thereof or the renewal or conversion thereof at or to the same or
a different Interest Rate Option, which shall be a Business Day.
BORROWING TRANCHE shall mean specified portions of Loans
outstanding as follows: (i) any Loans to which a Euro-Rate Option applies which
become subject to the same Interest Rate Option under the same Loan Request by
the Borrower and which have the same Interest Period shall constitute one
Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies shall
constitute one Borrowing Tranche.
BUSINESS DAY shall mean any day other than a Saturday or
Sunday or a legal holiday on which commercial banks are authorized or required
to be closed for business in Pittsburgh, Pennsylvania and if the applicable
Business Day relates to any Loan to which the Euro-Rate Option applies, such day
must also be a day on which dealings are carried on in the London interbank
market.
CLOSING DATE shall mean the Business Day on which the first
Loan shall be made, which shall be March 17, 2000.
COMMERCIAL LETTER OF CREDIT shall mean any Letter of Credit
which is a commercial letter of credit issued in respect of the purchase of
goods or services by one or more of the Loan Parties in the ordinary course of
their business.
COMMITMENT shall mean, as to any Bank at any time, the amount
initially set forth opposite its name on SCHEDULE 1.1(B) in the column labeled
"Amount of Commitment for Loans," and thereafter on Schedule I to the most
recent Assignment and Assumption Agreement, and COMMITMENTS shall mean the
aggregate Commitments of all of the Banks.
COMMITMENT FEE shall have the meaning assigned to that term in
Section 2.3.
COMPLIANCE CERTIFICATE shall have the meaning assigned to such
term in Section 7.3.3.
CONSOLIDATED NET WORTH shall mean as of any date of
determination total stockholders' equity of the Borrower and its Subsidiaries as
of such date determined and consolidated in accordance with GAAP.
CONTAMINATION shall mean the presence or release or threat of
release of Regulated Substances in, on, under or emanating to or from the
Property, which pursuant to Environmental Laws requires notification or
reporting to an Official Body, or which pursuant to Environmental Laws requires
the investigation, cleanup, removal, remediation, containment, abatement of or
other response action or which otherwise constitutes a violation of
Environmental Laws.
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DOLLAR, DOLLARS, U.S. DOLLARS and the symbol $ shall mean
lawful money of the United States of America.
DRAWING DATE shall have the meaning assigned to that term in
Section 2.9.3.2.
EBITDA for any period of determination shall mean (i) the sum
of net income, depreciation, amortization, other non-cash charges to net income,
interest expense and income tax expense minus (ii) non-cash credits to net
income, in each case of the Borrower and its Subsidiaries for such period
determined and consolidated in accordance with GAAP.
ENVIRONMENTAL COMPLAINT shall mean any written complaint by
any Person or Official Body setting forth a cause of action for personal injury
or property damage, natural resource damage, contribution or indemnity for
response costs, civil or administrative penalties, criminal fines or penalties,
or declaratory or equitable relief arising under any Environmental Laws or any
order, notice of violation, citation, subpoena, request for information or other
written notice or demand of any type issued by an Official Body pursuant to any
Environmental Laws.
ENVIRONMENTAL LAWS shall mean all federal, state, local and
foreign Laws and any consent decrees, settlement agreements, judgments, orders,
directives, policies or programs issued by or entered into with an Official Body
pertaining or relating to: (i) pollution or pollution control; (ii) protection
of human health or the environment; (iii) employee safety in the workplace; (iv)
the presence, use, management, generation, manufacture, processing, extraction,
treatment, recycling, refining, reclamation, labeling, transport, storage,
collection, distribution, disposal or release or threat of release of Regulated
Substances; (v) the presence of Contamination; (vi) the protection of endangered
or threatened species; and (vii) the protection of Environmentally Sensitive
Areas.
ENVIRONMENTALLY SENSITIVE AREA shall mean (i) any wetland as
defined by applicable Environmental Laws; (ii) any area designated as a coastal
zone pursuant to applicable Laws, including Environmental Laws; (iii) any area
of historic or archeological significance or scenic area as defined or
designated by applicable Laws, including Environmental Laws; (iv) habitats of
endangered species or threatened species as designated by applicable Laws,
including Environmental Laws; or (v) a floodplain or other flood hazard area as
defined pursuant to any applicable Laws.
ERISA shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
ERISA GROUP shall mean, at any time, the Borrower and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under
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common control and all other entities which, together with the Borrower, are
treated as a single employer under Section 414 of the Internal Revenue Code.
EURO-RATE shall mean, with respect to the Loans comprising any
Borrowing Tranche to which the Euro-Rate Option applies for any Interest Period,
the interest rate per annum determined by the Administrative Agent by dividing
(the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of
1% per annum) (i) the rate of interest determined by the Administrative Agent in
accordance with its usual procedures (which determination shall be conclusive
absent manifest error) to be the average of the London interbank offered rates
for U.S. Dollars quoted by the British Bankers' Association as set forth on Dow
Jones Markets Service (formerly known as Telerate) (or appropriate successor or,
if the British Bankers' Association or its successor ceases to provide such
quotes, a comparable replacement determined by the Administrative Agent) display
page 3750 (or such other display page on the Dow Jones Markets Service system as
may replace display page 3750) two (2) Business Days prior to the first day of
such Interest Period for an amount comparable to such Borrowing Tranche and
having a borrowing date and a maturity comparable to such Interest Period by
(ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The
Euro-Rate may also be expressed by the following formula:
Average of London interbank offered rates quoted
by BBA or appropriate successor as shown on
Euro-Rate = Dow Jones Markets Service display page 3750
--------------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Loan to which the Euro-Rate
Option applies that is outstanding on the effective date of any change in the
Euro-Rate Reserve Percentage as of such effective date. The Administrative Agent
shall give prompt notice to the Borrower of the Euro-Rate as determined or
adjusted in accordance herewith, which determination shall be conclusive absent
manifest error.
EURO-RATE OPTION shall mean the option of the Borrower to have
Loans bear interest at the rate and under the terms and conditions set forth in
Section 3.1.1((ii)).
EURO-RATE RESERVE PERCENTAGE shall mean as of any day the
maximum percentage in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
reserve requirements (including supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding (currently referred to as
"Eurocurrency Liabilities").
EVENT OF DEFAULT shall mean any of the events described in
Section 8.1 and referred to therein as an "Event of Default."
EXCLUDED DOMESTIC SUBSIDIARY SHALL MEAN THOSE FOUR
SUBSIDIARIES OF THE BORROWER IDENTIFIED AS EXCLUDED DOMESTIC SUBSIDIARIES ON
SCHEDULE 5.1.3.
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<PAGE>
EXCLUDED SUBSIDIARY shall mean any Subsidiary of the
Borrower which is not a Loan Party.
EXISTING LETTERS OF CREDIT shall mean the letters of credit
listed on SCHEDULE 1(E). The Existing Letters of Credit shall be Letters of
Credit under this Agreement on and after the Closing Date and the Banks shall
participate in such Letters of Credit pursuant to Section 2.9.
EXPIRATION DATE shall mean, with respect to the Commitments,
March 17, 2003.
FEDERAL FUNDS EFFECTIVE RATE for any day shall mean the rate
per annum (based on a year of 360 days and actual days elapsed and rounded
upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New
York (or any successor) on such day as being the weighted average of the rates
on overnight federal funds transactions arranged by federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; PROVIDED, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
FINANCIAL PROJECTIONS shall have the meaning assigned to that
term in Section 5.1.9((ii)).
FOREIGN SUBSIDIARY shall mean any Subsidiary of the Borrower
which is organized under the Laws of a country other than the United States of
America.
GAAP shall mean generally accepted accounting principles as
are in effect from time to time, subject to the provisions of Section 1.3, and
applied on a consistent basis both as to classification of items and amounts.
GOVERNMENTAL ACTS shall have the meaning assigned to that term
in Section 2.9.8.
GUARANTOR shall mean each of the parties to this Agreement
which is designated as a "Guarantor" on the signature page hereof and each other
Person which joins this Agreement as a Guarantor after the date hereof pursuant
to Section 10.18. Each of the Subsidiaries of the Borrower shall join this
Agreement as a Guarantor except that each Foreign Subsidiary and each Excluded
Domestic Subsidiary shall not be required to join this Agreement as a Guarantor.
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<PAGE>
GUARANTOR JOINDER shall mean a joinder by a Person as a
Guarantor under this Agreement, the Guaranty Agreement and the other Loan
Documents in the form of EXHIBIT 1.1(G)(1).
GUARANTY of any Person shall mean any obligation of such
Person guaranteeing or in effect guaranteeing any liability or obligation of any
other Person in any manner, whether directly or indirectly, including any
agreement to indemnify or hold harmless any other Person, any performance bond
or other suretyship arrangement and any other form of assurance against loss,
except endorsement of negotiable or other instruments for deposit or collection
in the ordinary course of business.
GUARANTY AGREEMENT shall mean the Guaranty and Suretyship
Agreement in substantially the form of EXHIBIT 1.1(G)(2) executed and delivered
by each of the Guarantors to the Administrative Agent for the benefit of the
Banks.
HISTORICAL STATEMENTS shall have the meaning assigned to that
term in Section 5.1.9((i)).
INDEBTEDNESS shall mean, as to any Person at any time, any
and all indebtedness, obligations or liabilities (whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, or joint or several) of such Person for or in respect of: (i)
borrowed money, excluding the Jeffersontown IRB, so long as (i) the
Jeffersontown IRB is owned by Capital Delivery, Inc., (ii) Capital Delivery
Inc. shall be a wholly-owned Subsidiary of the Borrower, and (iii) the
principal amount thereof does not exceed $70,200,000, (ii) amounts raised
under or liabilities in respect of any note purchase or acceptance credit
facility, (iii) reimbursement obligations (contingent or otherwise) under any
letter of credit, currency swap agreement, interest rate swap, cap, collar or
floor agreement or other interest rate management device, (iv) any other
transaction (including forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such Person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note or other evidence of indebtedness and which are not more than
thirty (30) days past due), or (v) any Guaranty of Indebtedness for borrowed
money, excluding the BIBP Commodities Guaranty.
INELIGIBLE SECURITY shall mean any security which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as
amended.
INSOLVENCY PROCEEDING shall mean, with respect to any Person,
(a) a case, action or proceeding with respect to such Person (i) before any
court or any other Official Body under any bankruptcy, insolvency,
reorganization or other similar Law now or hereafter in effect, or (ii) for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of any Loan Party or otherwise
relating to the liquidation,
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<PAGE>
dissolution, winding-up or relief of such Person, or (b) any general assignment
for the benefit of creditors, composition, marshaling of assets for creditors,
or other, similar arrangement in respect of such Person's creditors generally or
any substantial portion of its creditors; undertaken under any Law.
INTERCOMPANY SUBORDINATION AGREEMENT shall mean a
Subordination Agreement among the Loan Parties in the form attached hereto as
EXHIBIT 1.1(I).
INTEREST COVERAGE RATIO shall be computed as of the end of
each quarter for the Borrower and its Subsidiaries determined on a consolidated
basis in accordance with GAAP for the four (4) quarters then ended and shall be
the ratio of (i) EBITDA plus rental expense, plus preopening expenses relating
to restaurants, less capital expenditures, to (ii) interest expense, rental
expense and preopening expenses relating to restaurants.
INTEREST PERIOD shall mean the period of time selected by the
Borrower in connection with (and to apply to) any election permitted hereunder
by the Borrower to have Loans bear interest under the Euro-Rate Option. Subject
to the last sentence of this definition, such period shall be one, two, three or
six Months if Borrower selects the Euro-Rate Option. Such Interest Period shall
commence on the effective date of such Interest Rate Option, which shall be (i)
the Borrowing Date if the Borrower is requesting new Loans, or (ii) the date of
renewal of or conversion to the Euro-Rate Option if the Borrower is renewing or
converting to the Euro-Rate Option applicable to outstanding Loans.
Notwithstanding the second sentence hereof: (A) any Interest Period which would
otherwise end on a date which is not a Business Day shall be extended to the
next succeeding Business Day unless such Business Day falls in the next calendar
month, in which case such Interest Period shall end on the next preceding
Business Day, and (B) the Borrower shall not select, convert to or renew an
Interest Period for any portion of the Loans that would end after the Expiration
Date.
INTEREST RATE OPTION shall mean any Euro-Rate Option or Base
Rate Option.
INTERIM STATEMENTS shall have the meaning assigned to that
term in Section 5.1.9((i)).
INTERNAL REVENUE CODE shall mean the Internal Revenue Code of
1986, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
JEFFERSONTOWN IRB shall mean that certain $7,500,000
Industrial Revenue Bond issued by the City of Jeffersontown, Kentucky on
December 27, 1997 and the $62,700,000 Industrial Revenue Bond issued by the City
of Jeffersontown, Kentucky on November 9, 1999. The $70,200,000 Industrial
Revenue Bond is secured by the transfer of the $70,200,000 of property located
2002 Papa John's Boulevard to the City of Jeffersontown.
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<PAGE>
LABOR CONTRACTS shall mean all employment agreements,
employment contracts, collective bargaining agreements and other agreements
among any Loan Party or Subsidiary of a Loan Party and its employees.
LAW shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree, bond, judgment, authorization or approval, lien or
award of or settlement agreement with any Official Body.
LETTER OF CREDIT shall have the meaning assigned to that term
in Section 2.9.1.
LETTER OF CREDIT BORROWING shall have the meaning assigned to
such term in Section 2.9.3.4.
LETTER OF CREDIT FEE shall have the meaning assigned to that
term in Section 2.9.2.
LETTERS OF CREDIT OUTSTANDING shall mean at any time the sum
of (i) the aggregate undrawn face amount of outstanding Letters of Credit and
(ii) the aggregate amount of all unpaid and outstanding Reimbursement
Obligations and Letter of Credit Borrowings.
LEVERAGE RATIO shall mean as of any date of determination, the
ratio of consolidated Indebtedness of the Loan Parties as of such date to EBITDA
for the four quarters ending on such date (or the immediately four fiscal
quarters if such date is not a fiscal quarter end).
LIEN shall mean any mortgage, deed of trust, pledge, lien,
security interest, charge or other encumbrance or security arrangement of any
nature whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the filing).
LLC INTERESTS shall have the meaning given to such term in
Section 5.1.3.
LOAN DOCUMENTS shall mean this Agreement, the Administrative
Agent's Letter, the Guaranty Agreement, the Intercompany Subordination
Agreement, the Notes, and any other instruments, certificates or documents
delivered or contemplated to be delivered hereunder or thereunder or in
connection herewith or therewith, as the same may be supplemented or amended
from time to time in accordance herewith or therewith, and LOAN DOCUMENT shall
mean any of the Loan Documents.
LOAN PARTIES shall mean the Borrower and the Guarantors.
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<PAGE>
LOAN REQUEST shall have the meaning given to such term in
Section 2.4.
LOANS shall mean collectively and LOAN shall mean separately
all Loans or any Loan made by the Banks or one of the Banks to the Borrower
pursuant to Section 2.1 or 2.9.3.
MATERIAL ADVERSE CHANGE shall mean any set of circumstances or
events which (a) has or could reasonably be expected to have any material
adverse effect whatsoever upon the validity or enforceability of this Agreement
or any other Loan Document, (b) is or could reasonably be expected to be
material and adverse to the business, properties, assets, financial condition,
results of operations or prospects of the Loan Parties taken as a whole, (c)
impairs materially or could reasonably be expected to impair materially the
ability of the Loan Parties taken as a whole to duly and punctually pay or
perform its Indebtedness, or (d) impairs materially or could reasonably be
expected to impair materially the ability of the Administrative Agent or any of
the Banks, to the extent permitted, to enforce their legal remedies pursuant to
this Agreement or any other Loan Document.
MONTH, with respect to an Interest Period under the Euro-Rate
Option, shall mean the interval between the days in consecutive calendar months
numerically corresponding to the first day of such Interest Period. If any
Euro-Rate Interest Period begins on a day of a calendar month for which there is
no numerically corresponding day in the month in which such Interest Period is
to end, the final month of such Interest Period shall be deemed to end on the
last Business Day of such final month.
MULTIEMPLOYER PLAN shall mean any employee benefit plan which
is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and
to which the Borrower or any member of the ERISA Group is then making or
accruing an obligation to make contributions or, within the preceding five Plan
years, has made or had an obligation to make such contributions.
MULTIPLE EMPLOYER PLAN shall mean a Plan which has two or more
contributing sponsors (including the Borrower or any member of the ERISA Group)
at least two of whom are not under common control, as such a plan is described
in Sections 4063 and 4064 of ERISA.
NOTES shall mean collectively and NOTE shall mean separately
all the Notes of the Borrower in the form of EXHIBIT 1.1(N) evidencing the Loans
together with all amendments, extensions, renewals, replacements, refinancings
or refundings thereof in whole or in part.
NOTICES shall have the meaning assigned to that term in
Section 10.6.
OBLIGATION shall mean any obligation or liability of any of
the Loan Parties to the Administrative Agent or any of the Banks, howsoever
created, arising or evidenced,
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<PAGE>
whether direct or indirect, absolute or contingent, now or hereafter existing,
or due or to become due, under or in connection with this Agreement, the Notes,
the Letters of Credit, the Administrative Agent's Letter or any other Loan
Document.
OFFICIAL BODY shall mean any national, federal, state, local
or other government or political subdivision or any agency, authority, board,
bureau, central bank, commission, department or instrumentality of either, or
any court, tribunal, grand jury or arbitrator, in each case whether foreign or
domestic.
PARTICIPATION ADVANCE shall mean, with respect to any Bank,
such Bank's payment in respect of its participation in a Letter of Credit
Borrowing according to its Ratable Share pursuant to Section 2.9.3.4.
PARTNERSHIP INTERESTS shall have the meaning given to such
term in Section 5.1.3.
PBGC shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or any successor.
PERMITTED ACQUISITIONS shall have the meaning assigned to such
term in Section 7.2.6.
PERMITTED INVESTMENTS shall mean:
(i) direct obligations of the United States of America or
any agency or instrumentality thereof or obligations backed by the full faith
and credit of the United States of America maturing in twelve (12) months or
less from the date of acquisition;
(ii) commercial paper maturing in 180 days or less rated
not lower than A-1, by Standard & Poor's or P-1 by Moody's Investors Service,
Inc. on the date of acquisition;
(iii) demand deposits, time deposits or certificates of
deposit maturing within one year in commercial banks whose obligations are rated
A-1, A or the equivalent or better by Standard & Poor's on the date of
acquisition, and
(iv) bond funds with investments in short and intermediate
term investment grade debt obligations with portfolio maturity of not more than
three years
(v) PJ America stock warrant for purchase of 225,000 shares
of common stock at a purchase price of $11.25 per share, exercisable in whole or
in part any time within five years of October 25, 1996 (the closing date of the
Borrower's initial public offering). .
PERMITTED LIENS shall mean:
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<PAGE>
(i) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business and which are not yet due and
payable;
(ii) Pledges or deposits made in the ordinary course of
business to secure payment of workmen's compensation, or to participate in any
fund in connection with workmen's compensation, unemployment insurance, old-age
pensions or other social security programs;
(iii) Liens of mechanics, materialmen, warehousemen,
carriers, or other like Liens, securing obligations incurred in the ordinary
course of business that are not yet due and payable and Liens of landlords
securing obligations to pay lease payments that are not yet due and payable or
in default;
(iv) Good-faith pledges or deposits made in the ordinary
course of business to secure performance of bids, tenders, contracts (other than
for the repayment of borrowed money) or leases, not in excess of the aggregate
amount due thereunder, or to secure statutory obligations, or surety, appeal,
indemnity, performance or other similar bonds required in the ordinary course of
business;
(v) Encumbrances consisting of zoning restrictions,
easements or other restrictions on the use of real property, none of which
materially impairs the use of such property or the value thereof, and none of
which is violated in any material respect by existing or proposed structures or
land use;
(vi) Liens, security interests and mortgages in favor of
the Administrative Agent for the benefit of the Banks;
(vii) Liens on property leased by any Loan Party or
Subsidiary of a Loan Party under capital and operating leases securing
obligations of such Loan Party or Subsidiary to the lessor under such leases;
(viii) Any Lien existing on the date of this Agreement and
described on SCHEDULE 1.1(P), PROVIDED that the principal amount secured thereby
is not hereafter increased, and no additional assets become subject to such
Lien;
(ix) Purchase Money Security Interests, PROVIDED that the
aggregate amount of loans and deferred payments secured by such Purchase Money
Security Interests shall not exceed $10,000,000 (excluding for the purpose of
this computation any loans or deferred payments secured by Liens described on
SCHEDULE 1.1(P)); and
(x) The following, (A) if the validity or amount thereof is
being contested in good faith by appropriate and lawful proceedings diligently
conducted so long as levy and execution thereon have been stayed and continue to
be stayed or (B) if a final judgment is entered and such judgment is discharged
within thirty (30) days of entry, and in either case
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they do not in the aggregate, materially impair the ability of any Loan Party to
perform its Obligations hereunder or under the other Loan Documents:
(1) Claims or Liens for taxes, assessments or charges
due and payable and subject to interest or penalty, PROVIDED that
the applicable Loan Party maintains such reserves or other
appropriate provisions as shall be required by GAAP and pays all
such taxes, assessments or charges forthwith upon the commencement
of proceedings to foreclose any such Lien;
(2) Claims, Liens or encumbrances upon, and defects
of title to, real or personal property, including any attachment of
personal or real property or other legal process prior to
adjudication of a dispute on the merits;
(3) Claims or Liens of mechanics, materialmen,
warehousemen, carriers, or other statutory nonconsensual Liens; or
(4) Liens resulting from final judgments or orders
described in Section 8.1.6.
PERSON shall mean any individual, corporation, partnership,
limited liability company, association, joint-stock company, trust,
unincorporated organization, joint venture, government or political subdivision
or agency thereof, or any other entity.
PLAN shall mean at any time an employee pension benefit plan
(including a Multiple Employer Plan, but not a Multiemployer Plan) which is
covered by Title IV of ERISA or is subject to the minimum funding standards
under Section 412 of the Internal Revenue Code and either (i) is maintained by
any member of the ERISA Group for employees of any member of the ERISA Group or
(ii) has at any time within the preceding five years been maintained by any
entity which was at such time a member of the ERISA Group for employees of any
entity which was at such time a member of the ERISA Group.
PNC BANK shall mean PNC Bank, National Association, its
successors and assigns.
POTENTIAL DEFAULT shall mean any event or condition which with
notice, passage of time or a determination by the Administrative Agent or the
Required Banks, or any combination of the foregoing, would constitute an Event
of Default.
PRINCIPAL OFFICE shall mean the main banking office of the
Administrative Agent in Pittsburgh, Pennsylvania.
PROHIBITED TRANSACTION shall mean any prohibited transaction
as defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA
for which neither an individual nor a class exemption has been issued by the
United States Department of Labor.
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PROPERTY shall mean all real property, both owned and leased,
of any Loan Party or Subsidiary of a Loan Party.
PURCHASE MONEY SECURITY INTEREST shall mean Liens upon
tangible personal property securing loans to any Loan Party or Subsidiary of a
Loan Party or deferred payments by such Loan Party or Subsidiary for the
purchase of such tangible personal property.
PURCHASING BANK shall mean a Bank which becomes a party to
this Agreement by executing an Assignment and Assumption Agreement.
RATABLE SHARE shall mean the proportion that a Bank's
Commitment bears to the Commitments of all of the Banks.
REGULATED SUBSTANCES shall mean, without limitation, any
substance, material or waste, regardless of its form or nature, defined under
Environmental Laws as a "hazardous substance," "pollutant," "pollution,"
"contaminant," "hazardous or toxic substance," "extremely hazardous substance,"
"toxic chemical," "toxic substance," "toxic waste," "hazardous waste," "special
handling waste," "industrial waste," "residual waste," "solid waste," "municipal
waste," "mixed waste," "infectious waste," "chemotherapeutic waste," "medical
waste," or "regulated substance" or any other material, substance or waste,
regardless of its form or nature, which otherwise is regulated by Environmental
Laws.
REGULATION U shall mean Regulation U, T or X as promulgated by
the Board of Governors of the Federal Reserve System, as amended from time to
time.
REIMBURSEMENT OBLIGATION shall have the meaning assigned to
such term in Section 2.9.3.2.
REPORTABLE EVENT shall mean a reportable event described in
Section 4043 of ERISA and regulations thereunder with respect to a Plan or
Multiemployer Plan.
REQUIRED BANKS shall mean
(i) if there are no Loans, Reimbursement Obligations or
Letter of Credit Borrowings outstanding, Banks whose Commitments aggregate at
least 51% of the Commitments of all of the Banks, or
(ii) if there are Loans, Reimbursement Obligations, or
Letter of Credit Borrowings outstanding, any Bank or group of Banks if the sum
of the Loans, Reimbursement Obligations and Letter of Credit Borrowings of such
Banks then outstanding aggregates at least 51% of the total principal amount of
all of the Loans, Reimbursement Obligations and Letter of Credit Borrowings then
outstanding. Reimbursement Obligations and Letter of Credit Borrowings shall be
deemed, for purposes of this definition, to be in favor of the Administrative
Agent and not a participating Bank if such Bank has not made its Participation
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Advance in respect thereof and shall be deemed to be in favor of such Bank to
the extent of its Participation Advance if it has made its Participation Advance
in respect thereof.
REQUIRED ENVIRONMENTAL NOTICES shall mean all notices,
reports, plans, forms or other filings which pursuant to Environmental Laws,
Required Environmental Permits or at the request or direction of an Official
Body either must be submitted to an Official Body or which otherwise must be
maintained.
REQUIRED ENVIRONMENTAL PERMITS shall mean all permits,
licenses, bonds, consents, programs, approvals or authorizations required under
Environmental Laws to own, occupy or maintain the Property or which otherwise
are required for the operations and business activities of the Borrower or
Guarantors.
RESTRICTED INVESTMENTS shall mean all of the following with
respect to any Person, including any Excluded Subsidiary or other Person: (i)
investments or contributions by any of the Loan Parties directly or indirectly
in or to the capital of or other payments to or for the benefit of such Person,
(ii) loans by any of the Loan Parties directly or indirectly to such Person,
(iii) guaranties by any of the Loan Parties directly or indirectly of the
obligations of such Person, or (iv) other obligations, contingent or otherwise,
of any of the Loan Parties to or for the benefit of such Person.
REVOLVING FACILITY USAGE shall mean at any time the sum of the
Loans outstanding and the Letters of Credit Outstanding.
SECTION 20 SUBSIDIARY shall mean the Subsidiary of the bank
holding company controlling any Bank, which Subsidiary has been granted
authority by the Federal Reserve Board to underwrite and deal in certain
Ineligible Securities.
SHARES shall have the meaning assigned to that term in Section
5.1.2.
STANDARD & POOR'S shall mean Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc.
STANDBY LETTER OF CREDIT shall mean a Letter of Credit issued
to support obligations of one or more of the Loan Parties, contingent or
otherwise, which finance the working capital and business needs of the Loan
Parties incurred in the ordinary course of business.
SUBSIDIARY of any Person at any time shall mean (i) any
corporation or trust of which 50% or more (by number of shares or number of
votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by such Person or one or
more of such Person's Subsidiaries, (ii) any partnership of which such Person is
a general partner or of which 50% or more of the partnership interests is at the
time directly or indirectly owned by such Person or one or more of such Person's
Subsidiaries, (iii) any limited liability company of which such Person is a
member or of which
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50% or more (by number of shares or number of votes) of the outstanding capital
stock or shares of beneficial interest normally entitled to vote for the
election of one or more directors or trustees (regardless of any contingency
which does or may suspend or dilute the voting rights) is at such time owned
directly or indirectly by such Person or one or more of such Person's
Subsidiaries, (ii) any partnership of which such Person is a general partner or
of which 50% or more of the partnership interests is at the time directly or
indirectly owned by such Person or one or more of such Person's Subsidiaries,
(iii) any limited liability company of which such Person is a member or of which
50% or more of the limited liability company interests is at the time directly
or indirectly owned by such Person or one or more of such Person's Subsidiaries
or (iv) any corporation, trust, partnership, limited liability company or other
entity which is controlled or capable of being controlled by such Person or one
or more of such Person's Subsidiaries.
SUBSIDIARY SHARES shall have the meaning assigned to that term
in Section 5.1.3.
SYNDICATION AGENT shall mean Bank One, Indiana, NA, and its
successors and assigns. The Syndication Agent shall have no rights duties or
obligations in such capacity under this agreement or the other Loan Documents.
TRANSFEROR BANK shall mean the selling Bank pursuant to an
Assignment and Assumption Agreement.
1.2 CONSTRUCTION.
Unless the context of this Agreement otherwise clearly requires, the
following rules of construction shall apply to this Agreement and each of the
other Loan Documents:
1.2.1. NUMBER; INCLUSION.
references to the plural include the singular, the plural, the
part and the whole; "or" has the inclusive meaning represented by the phrase
"and/or," and "including" has the meaning represented by the phrase "including
without limitation";
1.2.2. DETERMINATION.
references to "determination" of or by the Administrative
Agent or the Banks shall be deemed to include good-faith estimates by the
Administrative Agent or the Banks (in the case of quantitative determinations)
and good-faith beliefs by the Administrative Agent or the Banks (in the case of
qualitative determinations) and such determination shall be conclusive absent
manifest error;
1.2.3. ADMINISTRATIVE AGENT'S DISCRETION AND CONSENT.
whenever the Administrative Agent or the Banks are granted the
right herein to act in its or their sole discretion or to grant or withhold
consent such right shall be exercised in good faith;
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1.2.4. DOCUMENTS TAKEN AS A WHOLE.
the words "hereof," "herein," "hereunder," "hereto" and
similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document as a whole and not to any particular
provision of this Agreement or such other Loan Document;
1.2.5. HEADINGS.
the section and other headings contained in this Agreement or
such other Loan Document and the Table of Contents (if any), preceding this
Agreement or such other Loan Document are for reference purposes only and shall
not control or affect the construction of this Agreement or such other Loan
Document or the interpretation thereof in any respect;
1.2.6. IMPLIED REFERENCES TO THIS AGREEMENT.
article, section, subsection, clause, schedule and exhibit
references are to this Agreement or other Loan Document, as the case may be,
unless otherwise specified;
1.2.7. PERSONS.
reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are permitted by
this Agreement or such other Loan Document, as the case may be, and reference to
a Person in a particular capacity excludes such Person in any other capacity;
1.2.8. MODIFICATIONS TO DOCUMENTS.
reference to any agreement (including this Agreement and any
other Loan Document together with the schedules and exhibits hereto or thereto),
document or instrument means such agreement, document or instrument as amended,
modified, replaced, substituted for, superseded or restated;
1.2.9. FROM, TO AND THROUGH.
relative to the determination of any period of time, "from"
means "from and including," "to" means "to but excluding," and "through" means
"through and including"; and
1.2.10. SHALL; WILL.
references to "shall" and "will" are intended to have the same
meaning.
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1.3 ACCOUNTING PRINCIPLES.
Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters and all
financial statements to be delivered pursuant to this Agreement shall be made
and prepared in accordance with GAAP (including principles of consolidation
where appropriate), and all accounting or financial terms shall have the
meanings ascribed to such terms by GAAP; PROVIDED, HOWEVER, that all accounting
terms used in Section 7.2 [Negative Covenants] (and all defined terms used in
the definition of any accounting term used in Section 7.2 shall have the meaning
given to such terms (and defined terms) under GAAP as in effect on the date
hereof applied on a basis consistent with those used in preparing the Annual
Statements referred to in Section 5.1.9((i)) [Historical Statements]. In the
event of any change after the date hereof in GAAP, and if such change would
result in the inability to determine compliance with the financial covenants set
forth in Section 7.2 based upon the Borrower's regularly prepared financial
statements by reason of the preceding sentence, then the parties hereto agree to
endeavor, in good faith, to agree upon an amendment to this Agreement that would
adjust such financial covenants in a manner that would not affect the substance
thereof, but would allow compliance therewith to be determined in accordance
with the Borrower's financial statements at that time.
2. REVOLVING CREDIT FACILITY
2.1 REVOLVING CREDIT COMMITMENTS.
Subject to the terms and conditions hereof and relying upon
the representations and warranties herein set forth, each Bank severally agrees
to make Loans to the Borrower at any time or from time to time on or after the
date hereof to the Expiration Date provided that after giving effect to such
Loan the aggregate amount of Loans from such Bank shall not exceed such Bank's
Commitment minus such Bank's Ratable Share of the Letters of Credit Outstanding.
Within such limits of time and amount and subject to the other provisions of
this Agreement, the Borrower may borrow, repay and reborrow pursuant to this
Section 2.1.
2.2 NATURE OF BANKS' OBLIGATIONS WITH RESPECT TO LOANS.
Each Bank shall be obligated to participate in each request
for Loans pursuant to Section 2.4 [Loan Requests] in accordance with its Ratable
Share. The aggregate of each Bank's Loans outstanding hereunder to the Borrower
at any time shall never exceed its Commitment minus its Ratable Share of the
Letters of Credit Outstanding. The obligations of each Bank hereunder are
several. The failure of any Bank to perform its obligations hereunder shall not
affect the Obligations of the Borrower to any other party nor shall any other
party be liable for the failure of such Bank to perform its obligations
hereunder. The Banks shall have no obligation to make Loans hereunder on or
after the Expiration Date.
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2.3 COMMITMENT FEES.
Accruing from the date hereof until the Expiration Date, the
Borrower agrees to pay to the Administrative Agent for the account of each Bank,
as consideration for such Bank's Commitment hereunder, a nonrefundable
commitment fee (the "Commitment Fee") equal to the Applicable Commitment Fee
Rate per annum (computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed) on the average daily difference between the
amount of (i) such Bank's Commitment as the same may be constituted from time to
time and (ii) the sum of such Bank's Loans outstanding plus its Ratable Share of
Letters of Credit Outstanding. All Commitment Fees shall be payable in arrears
on the first Business Day of each April, July, October and January after the
date hereof and on the Expiration Date or upon acceleration of the Notes.
2.4 REVOLVING CREDIT FACILITY FEE.
The Borrower agrees to pay to the Administrative Agent for the
account of each Bank, as consideration for such Bank's Revolving Credit
Commitment, a nonrefundable facility fee equal to .05% of such Bank's
Commitment, payable on the Closing Date.
2.5 LOAN REQUESTS.
Except as otherwise provided herein, the Borrower may from
time to time prior to the Expiration Date request the Banks to make Loans, or
renew or convert the Interest Rate Option applicable to existing Loans pursuant
to Section 3.2 [Interest Periods], by delivering to the Administrative Agent,
not later than 10:00 a.m., Pittsburgh time, (i) three (3) Business Days prior to
the proposed Borrowing Date with respect to the making of Loans to which the
Euro-Rate Option applies or the conversion to or the renewal of the Euro-Rate
Option for any Loans; and (ii) one (1) Business Day prior to either the proposed
Borrowing Date with respect to the making of a Loan to which the Base Rate
Option applies or the last day of the preceding Interest Period with respect to
the conversion to the Base Rate Option for any Loan, of a duly completed request
therefor substantially in the form of EXHIBIT 2.5 or a request by telephone
immediately confirmed in writing by letter, facsimile or telex in such form
(each, a "Loan Request"), it being understood that the Administrative Agent may
rely on the authority of any individual making such a telephonic request without
the necessity of receipt of such written confirmation. Each Loan Request shall
be irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the
aggregate amount of the proposed Loans comprising each Borrowing Tranche, which
shall be in integral multiples of $1,000,000 and not less than $5,000,000 for
each Borrowing Tranche to which the Euro-Rate Option applies and not less than
the lesser of $1,000,000 or the maximum amount available for Borrowing Tranches
to which the Base Rate Option applies; (iii) whether the Euro-Rate Option or
Base Rate Option shall apply to the proposed Loans comprising the applicable
Borrowing Tranche; and (iv) in the case of a Borrowing Tranche to which the
Euro-Rate Option applies, an appropriate Interest Period for the Loans
comprising such Borrowing Tranche.
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2.6 MAKING LOANS.
The Administrative Agent shall, promptly after receipt by it
of a Loan Request pursuant to Section 2.5 [Loan Requests], notify the Banks of
its receipt of such Loan Request specifying: (i) the proposed Borrowing Date and
the time and method of disbursement of the Loans requested thereby; (ii) the
amount and type of each such Loan and the applicable Interest Period (if any);
and (iii) the apportionment among the Banks of such Loans as determined by the
Administrative Agent in accordance with Section 2.2 [Nature of Banks'
Obligations]. Each Bank shall remit the principal amount of each Loan to the
Administrative Agent such that the Administrative Agent is able to, and the
Administrative Agent shall, to the extent the Banks have made funds available to
it for such purpose and subject to Section 6.2 [Each Additional Loan], fund such
Loans to the Borrower in U.S. Dollars and immediately available funds at the
Principal Office prior to 2:00 p.m., Pittsburgh time, on the applicable
Borrowing Date, PROVIDED that if any Bank fails to remit such funds to the
Administrative Agent in a timely manner, the Administrative Agent may elect in
its sole discretion to fund with its own funds the Loans of such Bank on such
Borrowing Date, and such Bank shall be subject to the repayment obligation in
Section 9.16 [Availability of Funds].
2.7 NOTES.
The Obligation of the Borrower to repay the aggregate unpaid
principal amount of the Loans made to it by each Bank, together with interest
thereon, shall be evidenced by a Note dated the Closing Date payable to the
order of such Bank in a face amount equal to the Commitment of such Bank.
2.8 USE OF PROCEEDS.
The proceeds of the Loans shall be used for general corporate
purposes and to purchase the common stock of the Borrower and in accordance with
Section 7.1.10 [Use of Proceeds].
2.9 LETTER OF CREDIT SUBFACILITY.
2.9.1. ISSUANCE OF LETTERS OF CREDIT.
Borrower may request the issuance of a letter of credit
(each a "Letter of Credit" any Existing Letter of Credit also shall be a Letter
of Credit under this Agreement) on behalf of itself or another Loan Party by
delivering to the Administrative Agent a completed application and agreement for
letters of credit in such form as the Administrative Agent may specify from time
to time by no later than 10:00 a.m., Pittsburgh time, at least three (3)
Business Days, or such shorter period as may be agreed to by the Administrative
Agent, in advance of the proposed date of issuance. Each Letter of Credit shall
be either a Standby Letter of Credit or a Commercial Letter of Credit. Subject
to the terms and conditions hereof and in reliance on the
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agreements of the other Banks set forth in this Section 2.9, the Administrative
Agent will issue a Letter of Credit provided that each Letter of Credit shall
(A) have a maximum maturity of twelve (12) months from the date of issuance, and
(B) in no event expire later than ten (10) Business Days prior to the Expiration
Date and providing that in no event shall (i) the Letters of Credit Outstanding
exceed, at any one time, $10,000,000 or (ii) the Revolving Facility Usage
exceed, at any one time, the Commitments.
2.9.2. LETTER OF CREDIT FEES.
The Borrower shall pay (i) to the Administrative Agent for the
ratable account of the Banks a fee (the "Letter of Credit Fee") equal to the
Applicable Margin applicable to Loans under the Euro-Rate Option per annum, and
(ii) to the Administrative Agent for its own account a fronting fee as provided
in the Administrative Agent's Letter, which fees shall be computed on the basis
of a year of 360 days and actual days elapsed on the daily average Letters of
Credit Outstanding and shall be payable quarterly in arrears commencing with the
first Business Day of each April, July, October and January following issuance
of each Letter of Credit and on the Expiration Date. The Borrower shall also pay
to the Administrative Agent for the Administrative Agent's sole account the
Administrative Agent's then in effect customary fees and administrative expenses
payable with respect to the Letters of Credit as the Administrative Agent may
generally charge or incur from time to time in connection with the issuance,
maintenance, modification (if any), assignment or transfer (if any),
negotiation, and administration of Letters of Credit.
2.9.3. DISBURSEMENTS, REIMBURSEMENT.
2.9.3.1 Immediately upon the Issuance of each Letter of
Credit, each Bank shall be deemed to, and hereby irrevocably and unconditionally
agrees to, purchase from the Administrative Agent a participation in such Letter
of Credit and each drawing thereunder in an amount equal to such Bank's Ratable
Share of the maximum amount available to be drawn under such Letter of Credit
and the amount of such drawing, respectively.
2.9.3.2 In the event of any request for a drawing under a
Letter of Credit by the beneficiary or transferee thereof, the Administrative
Agent will promptly notify the Borrower. Provided that it shall have received
such notice, the Borrower shall reimburse (such obligation to reimburse the
Administrative Agent shall sometimes be referred to as a "Reimbursement
Obligation") the Administrative Agent prior to 12:00 noon, Pittsburgh time on
each date that an amount is paid by the Administrative Agent under any Letter of
Credit (each such date, an "Drawing Date") in an amount equal to the amount so
paid by the Administrative Agent. In the event the Borrower fails to reimburse
the Administrative Agent for the full amount of any drawing under any Letter of
Credit by 12:00 noon, Pittsburgh time, on the Drawing Date, the Administrative
Agent will promptly notify each Bank thereof, and the Borrower shall be deemed
to have requested that Loans be made by the Banks under the Base Rate Option to
be disbursed on the Drawing Date under such Letter of Credit, subject to the
amount of the
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unutilized portion of the Commitment and subject to the conditions set forth in
Section 6.2 [Each Additional Loan] other than any notice requirements. Any
notice given by the Administrative Agent pursuant to this Section 2.9.3.2 may be
oral if immediately confirmed in writing; provided that the lack of such an
immediate confirmation shall not affect the conclusiveness or binding effect of
such notice.
2.9.3.3 Each Bank shall upon any notice pursuant to Section
2.9.3.2 make available to the Administrative Agent an amount in immediately
available funds equal to its Ratable Share of the amount of the drawing,
whereupon the participating Banks shall (subject to Section 2.9.3.4) each be
deemed to have made a Loan under the Base Rate Option to the Borrower in that
amount. If any Bank so notified fails to make available to the Administrative
Agent for the account of the Administrative Agent the amount of such Bank's
Ratable Share of such amount by no later than 2:00 p.m., Pittsburgh time on the
Drawing Date, then interest shall accrue on such Bank's obligation to make such
payment, from the Drawing Date to the date on which such Bank makes such payment
(i) at a rate per annum equal to the Federal Funds Effective Rate during the
first three days following the Drawing Date and (ii) at a rate per annum equal
to the rate applicable to Loans under the Base Rate Option on and after the
fourth day following the Drawing Date. The Administrative Agent will promptly
give notice of the occurrence of the Drawing Date, but failure of the
Administrative Agent to give any such notice on the Drawing Date or in
sufficient time to enable any Bank to effect such payment on such date shall not
relieve such Bank from its obligation under this Section 2.9.3.3.
2.9.3.4 With respect to any unreimbursed drawing that is
not converted into Loans under the Base Rate Option to the Borrower in whole or
in part as contemplated by Section 2.9.3.2, because of the Borrower's failure to
satisfy the conditions set forth in Section 6.2 [Each Additional Loan] other
than any notice requirements or for any other reason, the Borrower shall be
deemed to have incurred from the Administrative Agent a borrowing (each a
"Letter of Credit Borrowing") in the amount of such drawing. Such Letter of
Credit Borrowing shall be due and payable on demand (together with interest) and
shall bear interest at the rate per annum applicable to the Loans under the Base
Rate Option. Each Bank's payment to the Administrative Agent pursuant to Section
2.9.3.3 shall be deemed to be a payment in respect of its participation in such
Letter of Credit Borrowing and shall constitute a "Participation Advance" from
such Bank in satisfaction of its participation obligation under this Section
2.9.3.
2.9.4. REPAYMENT OF PARTICIPATION ADVANCES.
2.9.4.1 Upon (and only upon) receipt by the Administrative
Agent for its account of immediately available funds from the Borrower (i) in
reimbursement of any payment made by the Administrative Agent under the Letter
of Credit with respect to which any Bank has made a Participation Advance to the
Administrative Agent, or (ii) in payment of interest on such a payment made by
the Administrative Agent under such a Letter of Credit, the Administrative Agent
will pay to each Bank, in the same funds as those received by the
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Administrative Agent, the amount of such Bank's Ratable Share of such funds,
except the Administrative Agent shall retain the amount of the Ratable Share of
such funds of any Bank that did not make a Participation Advance in respect of
such payment by Administrative Agent.
2.9.4.2 If the Administrative Agent is required at any time
to return to any Loan Party, or to a trustee, receiver, liquidator, custodian,
or any official in any Insolvency Proceeding, any portion of the payments made
by any Loan Party to the Administrative Agent pursuant to Section 2.9.4.1 in
reimbursement of a payment made under the Letter of Credit or interest or fee
thereon, each Bank shall, on demand of the Administrative Agent, forthwith
return to the Administrative Agent the amount of its Ratable Share of any
amounts so returned by the Administrative Agent plus interest thereon from the
date such demand is made to the date such amounts are returned by such Bank to
the Administrative Agent, at a rate per annum equal to the Federal Funds
Effective Rate in effect from time to time.
2.9.5. DOCUMENTATION.
Each Loan Party agrees to be bound by the terms of the
Administrative Agent's application and agreement for letters of credit and the
Administrative Agent's written regulations and customary practices relating to
letters of credit, though such interpretation may be different from such Loan
Party's own. In the event of a conflict between such application or agreement
and this Agreement, this Agreement shall govern. It is understood and agreed
that, except in the case of gross negligence or willful misconduct, the
Administrative Agent shall not be liable for any error, negligence and/or
mistakes, whether of omission or commission, in following any Loan Party's
instructions or those contained in the Letters of Credit or any modifications,
amendments or supplements thereto.
2.9.6. DETERMINATIONS TO HONOR DRAWING REQUESTS.
In determining whether to honor any request for drawing under
any Letter of Credit by the beneficiary thereof, the Administrative Agent shall
be responsible only to determine that the documents and certificates required to
be delivered under such Letter of Credit have been delivered and that they
comply on their face with the requirements of such Letter of Credit.
2.9.7. NATURE OF PARTICIPATION AND REIMBURSEMENT OBLIGATIONS.
Each Bank's obligation in accordance with this Agreement to
make the Loans or Participation Advances, as contemplated by Section 2.9.3, as a
result of a drawing under a Letter of Credit, and the Obligations of the
Borrower to reimburse the Administrative Agent upon a draw under a Letter of
Credit, shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Section 2.9 under all
circumstances, including the following circumstances:
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(i) any set-off, counterclaim, recoupment, defense or other
right which such Bank may have against the Administrative Agent, the Borrower or
any other Person for any reason whatsoever;
(ii) the failure of any Loan Party or any other Person to
comply, in connection with a Letter of Credit Borrowing, with the conditions set
forth in Section 2.1 [Commitments], 2.4 [Loan Requests], 2.6 [Making Loans] or
6.2 [Each Additional Loan] or as otherwise set forth in this Agreement for the
making of a Loan, it being acknowledged that such conditions are not required
for the making of a Letter of Credit Borrowing and the obligation of the Banks
to make Participation Advances under Section 2.9.3;
(iii) any lack of validity or enforceability of any Letter
of Credit;
(iv) the existence of any claim, set-off, defense or other
right which any Loan Party or any Bank may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any Persons for whom
any such transferee may be acting), the Administrative Agent or any Bank or any
other Person or, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between any Loan Party or Subsidiaries of a Loan Party and the
beneficiary for which any Letter of Credit was procured);
(v) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect even if the Administrative Agent has been notified
thereof;
(vi) payment by the Administrative Agent under any Letter
of Credit against presentation of a demand, draft or certificate or other
document which does not comply with the terms of such Letter of Credit;
(vii) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of any Loan
Party or Subsidiaries of a Loan Party;
(viii) any breach of this Agreement or any other Loan
Document by any party thereto;
(ix) the occurrence or continuance of an Insolvency
Proceeding with respect to any Loan Party;
(x) the fact that an Event of Default or a Potential
Default shall have occurred and be continuing;
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(xi) the fact that the Expiration Date shall have passed or
this Agreement or the Commitments hereunder shall have been terminated; and
(xii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
2.9.8. INDEMNITY.
In addition to amounts payable as provided in Section 9.5
[Reimbursement of Administrative Agent by Borrower, Etc.], the Borrower hereby
agrees to protect, indemnify, pay and save harmless the Administrative Agent
from and against any and all claims, demands, liabilities, damages, losses,
costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel and allocated costs of internal counsel) which the
Administrative Agent may incur or be subject to as a consequence, direct or
indirect, of the issuance of any Letter of Credit, other than as a result of (A)
the gross negligence or willful misconduct of the Administrative Agent as
determined by a final judgment of a court of competent jurisdiction or (B) the
wrongful dishonor by the Administrative Agent of a proper demand for payment
made under any Letter of Credit, except if such dishonor resulted from any act
or omission, whether rightful or wrongful, of any present or future de jure or
de facto government or governmental authority (all such acts or omissions herein
called "Governmental Acts").
2.9.9. LIABILITY FOR ACTS AND OMISSIONS.
As between any Loan Party and the Administrative Agent, such
Loan Party assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, the Administrative Agent
shall not be responsible for: (i) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for an issuance of any such Letter of Credit, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged (even if the Administrative Agent shall have
been notified thereof); (ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) the
failure of the beneficiary of any such Letter of Credit, or any other party to
which such Letter of Credit may be transferred, to comply fully with any
conditions required in order to draw upon such Letter of Credit or any other
claim of any Loan Party against any beneficiary of such Letter of Credit, or any
such transferee, or any dispute between or among any Loan Party and any
beneficiary of any Letter of Credit or any such transferee; (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(v) errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit
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of the proceeds of any drawing under such Letter of Credit; or (viii) any
consequences arising from causes beyond the control of the Administrative Agent,
including any Governmental Acts, and none of the above shall affect or impair,
or prevent the vesting of, any of the Administrative Agent's rights or powers
hereunder. Nothing in the preceding sentence shall relieve the Administrative
Agent from liability for the Administrative Agent's gross negligence or willful
misconduct in connection with actions or omissions described in such clauses(i)
through (viii) of such sentence.
In furtherance and extension and not in limitation of the
specific provisions set forth above, any action taken or omitted by the
Administrative Agent under or in connection with the Letters of Credit issued by
it or any documents and certificates delivered thereunder, if taken or omitted
in good faith, shall not put the Administrative Agent under any resulting
liability to the Borrower or any Bank.
2.10 INCREASE IN COMMITMENTS.
The Borrower may at any time increase the Commitments up to an
amount not to exceed $200,000,000, provided that the Borrower shall comply with
each of the following requirements in connection with any such increase:
(i) ELIGIBILITY
Each lender who provides an increase in the Commitments
hereunder (each a "New Commitment Provider") shall be either an existing
Bank (each an "Existing Bank") or a new lender (each a "New Lender") which is
not currently a Bank, provided that (1) the Borrower shall first offer any new
Commitment to the Existing Banks by giving notice thereof to each of the
Existing Banks and thirty (30) days to respond to such notice (failure to
respond shall be deemed a rejection) and (2) if the New Commitment Provider is a
New Lender, such New Lender shall subject to the approval of the Administrative
Agent.
(ii) NOTICE.
The Borrower shall notify the Administrative Agent and the
other Banks at least thirty (30) Business Days before any such increase shall
become effective,. Such notice shall state the amount of the increase in the
Commitments, the name of the lenders providing such additional Commitments and
the effective date of the increase. The Agent shall notify the Banks of the
amount of the Commitments of each Bank after giving effect to such increase, on
or before the effective date of such increase (to the extent that the Banks have
not previously received notice thereof).
(iii) MINIMUM AMOUNT.
Any increase in the Commitments provided by any individual
lender shall be in an amount not less than $5,000,000 and an integral multiple
of $1,000,000
(iv) EFFECTIVE DATE.
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On the Effective Date:
(1) JOINDER.
The New Commitment Provider shall execute and deliver to the
Administrative Agent a Bank Joinder in the form attached as Exhibit 1.1(B) which
shall become effective on the Effective Date. The Bank Joinder shall set forth
the Commitment provided by the New Commitment Provider if it is a New Lender and
the amount of the increase in the Commitments to be provided if it is an
Existing Lender. If the New Commitment Provider is a New Lender it shall on the
Effective Date join and become a party to the Credit Agreement and the other
Loan Documents as a Bank for all purposes hereunder and thereunder, subject to
the provisions of this Section 2.10(iv) with a Commitment as set forth and the
Bank Joinder shall confirm the same.
(2) BASE RATE LOANS
Each New Commitment Provider shall (i) purchase from the other
banks its Ratable Share in any Base Rate Loans outstanding on the date on which
its new Commitment becomes effective (the "Effective Date"), (ii) share ratably
in all Base Rate Loans borrowed by the Borrower after the Effective Date.
(3) EURO-RATE LOANS
Each New Commitment Provider (i) shall purchase from the other
Banks its Ratable Share in each outstanding Borrowing Tranche of Euro-Rate Loans
on the date on which the Borrower either renews its Euro-Rate election with
respect to such Borrowing Tranche or converts such Borrowing Tranche to the Base
Rate Option. The New Commitment Provider shall not purchase an interest in such
Loans from the other Banks on the Effective Date (unless the Effective Date is a
renewal or conversion date, as applicable, in which case the preceding sentence
shall apply), and (ii) shall participate in all new Euro-Rate Loans borrowed by
the Borrower on and after the Effective Date.
(4) LETTERS OF CREDIT LOANS
Each New Commitment Provider shall participate in all Letters
of Credit outstanding on the Effective Date according to its Ratable Share.
(v) LIMIT ON AMOUNT.
Any increase in the Commitments pursuant to this Section 2.10
may not cause the total amount of the Commitments to exceed
$200,000,000.
(vi) NO DEFAULT.
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There shall exist no Event of Default or Potential Default on
the Effective Date. If an Event of Default or Potential Default exists, the
Borrower may not increase the Commitments.
(vii) NO OBLIGATION.
No Existing Bank shall be required to increase its Commitment
in the event that the Borrower asks such Existing Bank to provide all or a
portion of any increase in the Commitments desired by the Borrower.
2.11 REDUCTION OF COMMITMENT.
The Borrower shall have the right at any time and
from time to time upon five (5) Business Days' prior written notice to the
Administrative Agent to permanently reduce, in whole multiples of $10,000,000 of
principal, or terminate the Commitments without penalty or premium, except as
hereinafter set forth, provided that any such reduction or termination shall be
accompanied by (a) the payment in full of any Commitment Fee then accrued on the
amount of such reduction or termination and (b) prepayment of the Notes,
together with the full amount of interest accrued on the principal sum to be
prepaid (and all amounts referred to in Section 4.5 hereof), to the extent that
the aggregate amount thereof then outstanding exceeds the Commitment as so
reduced or terminated. From the effective date of any such reduction or
termination the obligations of Borrower to pay the Commitment Fee pursuant to
Section 2.3 shall correspondingly be reduced or cease.
3. INTEREST RATES
3.1 INTEREST RATE OPTIONS.
The Borrower shall pay interest in respect of the outstanding
unpaid principal amount of the Loans as selected by it from the Base Rate Option
or Euro-Rate Option set forth below applicable to the Loans, it being understood
that, subject to the provisions of this Agreement, the Borrower may select
different Interest Rate Options and different Interest Periods to apply
simultaneously to the Loans comprising different Borrowing Tranches and may
convert to or renew one or more Interest Rate Options with respect to all or any
portion of the Loans comprising any Borrowing Tranche, PROVIDED that there shall
not be at any one time outstanding more than eight (8) Borrowing Tranches in the
aggregate among all of the Loans. If at any time the designated rate applicable
to any Loan made by any Bank exceeds such Bank's highest lawful rate, the rate
of interest on such Bank's Loan shall be limited to such Bank's highest lawful
rate.
3.1.1. INTEREST RATE OPTIONS.
The Borrower shall have the right to select from the following
Interest Rate Options applicable to the Loans:
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(i) BASE RATE OPTION: A fluctuating rate per annum
(computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed) equal to the Base Rate plus the Applicable Margin, such
interest rate to change automatically from time to time effective as of the
effective date of each change in the Base Rate; or
(ii) EURO-RATE OPTION: A rate per annum (computed on the
basis of a year of 360 days and actual days elapsed) equal to the Euro-Rate plus
the Applicable Margin.
3.1.2. RATE QUOTATIONS.
The Borrower may call the Administrative Agent on or before
the date on which a Loan Request is to be delivered to receive an indication of
the rates then in effect, but it is acknowledged that such projection shall not
be binding on the Administrative Agent or the Banks nor affect the rate of
interest which thereafter is actually in effect when the election is made.
3.2 INTEREST PERIODS.
At any time when the Borrower shall select, convert to or
renew a Euro-Rate Option, the Borrower shall notify the Administrative Agent
thereof at least three (3) Business Days prior to the effective date of such
Euro-Rate Option by delivering a Loan Request. The notice shall specify an
Interest Period during which such Interest Rate Option shall apply.
Notwithstanding the preceding sentence, the following provisions shall apply to
any selection of, renewal of, or conversion to a Euro-Rate Option:
3.2.1. AMOUNT OF BORROWING TRANCHE.
each Borrowing Tranche of Euro-Rate Loans shall be in
integral multiples of $5,000,000 and not less than $1,000,000
3.2.2. RENEWALS.
in the case of the renewal of a Euro-Rate Option at the end
of an Interest Period, the first day of the new Interest Period shall be the
last day of the preceding Interest Period, without duplication in payment of
interest for such day.
3.3 INTEREST AFTER DEFAULT.
To the extent permitted by Law, upon the occurrence of an
Event of Default and until such time such Event of Default shall have been cured
or waived:
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3.3.1. LETTER OF CREDIT FEES, INTEREST RATE.
the Letter of Credit Fees and the rate of interest for each
Loan otherwise applicable pursuant to Section 2.9.2 [Letter of Credit Fees] or
Section 3.1 [Interest Rate Options], respectively, shall be increased by 2.0%
per annum; and
3.3.2. OTHER OBLIGATIONS.
each other Obligation hereunder if not paid when due shall
bear interest at a rate per annum equal to the sum of the rate of interest
applicable under the Base Rate Option plus an additional two percent (2%) per
annum from the time such Obligation becomes due and payable and until it is paid
in full.
3.3.3. ACKNOWLEDGMENT.
The Borrower acknowledges that the increase in rates
referred to in this Section 3.3 reflects, among other things, the fact that such
Loans or other amounts have become a substantially greater risk given their
default status and that the Banks are entitled to additional compensation for
such risk; and all such interest shall be payable by Borrower upon demand by
Administrative Agent.
3.4 EURO-RATE UNASCERTAINABLE; ILLEGALITY; INCREASED COSTS;
DEPOSITS NOT AVAILABLE.
3.4.1. UNASCERTAINABLE.
If on any date on which a Euro-Rate would otherwise be
determined, the Administrative Agent shall have determined that:
(i) adequate and reasonable means do not exist for
ascertaining such Euro-Rate, or
(ii) a contingency has occurred which materially and
adversely affects the London interbank eurodollar market relating to the
Euro-Rate, the Administrative Agent shall have the rights specified in Section
3.4.3.
3.4.2. ILLEGALITY; INCREASED COSTS; DEPOSITS NOT AVAILABLE.
If at any time any Bank shall have determined that:
(i) the making, maintenance or funding of any Loan to
which a Euro-Rate Option applies has been made impracticable or unlawful by
compliance by such Bank in good faith with any Law or any interpretation or
application thereof by any Official
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Body or with any request or directive of any such Official Body (whether or not
having the force of Law), or
(ii) such Euro-Rate Option will not adequately and
fairly reflect the cost to such Bank of the establishment or maintenance of any
such Loan, or
(iii) after making all reasonable efforts, deposits of
the relevant amount in Dollars for the relevant Interest Period for a Loan, or
to banks generally, to which a Euro-Rate Option applies, respectively, are not
available to such Bank with respect to such Loan, or to banks generally, in the
interbank eurodollar market, then the Administrative Agent shall have the rights
specified in Section 3.4.3.
3.4.3. ADMINISTRATIVE AGENT'S AND BANK'S RIGHTS.
In the case of any event specified in Section 3.4.1 above,
the Administrative Agent shall promptly so notify the Banks and the Borrower
thereof, and in the case of an event specified in Section 3.4.2 above, such Bank
shall promptly so notify the Administrative Agent and endorse a certificate to
such notice as to the specific circumstances of such notice, and the
Administrative Agent shall promptly send copies of such notice and certificate
to the other Banks and the Borrower. Upon such date as shall be specified in
such notice (which shall not be earlier than the date such notice is given), the
obligation of (A) the Banks, in the case of such notice given by the
Administrative Agent, or (B) such Bank, in the case of such notice given by such
Bank, to allow the Borrower to select, convert to or renew a Euro-Rate Option
shall be suspended until the Administrative Agent shall have later notified the
Borrower, or such Bank shall have later notified the Administrative Agent, of
the Administrative Agent's or such Bank's, as the case may be, determination
that the circumstances giving rise to such previous determination no longer
exist. If at any time the Administrative Agent makes a determination under
Section 3.4.1 and the Borrower has previously notified the Administrative Agent
of its selection of, conversion to or renewal of a Euro-Rate Option and such
Interest Rate Option has not yet gone into effect, such notification shall be
deemed to provide for selection of, conversion to or renewal of the Base Rate
Option otherwise available with respect to such Loans. If any Bank notifies the
Administrative Agent of a determination under Section 3.4.2, the Borrower shall,
subject to the Borrower's indemnification Obligations under Section 4.5.2
[Indemnity], as to any Loan of the Bank to which a Euro-Rate Option applies, on
the date specified in such notice either convert such Loan to the Base Rate
Option otherwise available with respect to such Loan or prepay such Loan in
accordance with Section 4.4 [Voluntary Prepayments]. Absent due notice from the
Borrower of conversion or prepayment, such Loan shall automatically be converted
to the Base Rate Option otherwise available with respect to such Loan upon such
specified date.
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3.5 SELECTION OF INTEREST RATE OPTIONS.
If the Borrower fails to select a new Interest Period to apply to
any Borrowing Tranche of Loans under the Euro-Rate Option at the expiration of
an existing Interest Period applicable to such Borrowing Tranche in accordance
with the provisions of Section 3.2 [Interest Periods], the Borrower shall be
deemed to have converted such Borrowing Tranche to the Base Rate Option,
commencing upon the last day of the existing Interest Period.
4. PAYMENTS
4.1 PAYMENTS.
All payments and prepayments to be made in respect of principal,
interest, Commitment Fees, Letter of Credit Fees, Administrative Agent's Fee or
other fees or amounts due from the Borrower hereunder shall be payable prior to
11:00 a.m., Pittsburgh time, on the date when due without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived by the
Borrower, and without set-off, counterclaim or other deduction of any nature,
and an action therefor shall immediately accrue. Such payments shall be made to
the Administrative Agent at the Principal Office for the ratable accounts of the
Banks with respect to the Loans in U.S. Dollars and in immediately available
funds, and the Administrative Agent shall promptly distribute such amounts to
the Banks in immediately available funds, PROVIDED that in the event payments
are received by 11:00 a.m., Pittsburgh time, by the Administrative Agent with
respect to the Loans and such payments are not distributed to the Banks on the
same day received by the Administrative Agent, the Administrative Agent shall
pay the Banks the Federal Funds Effective Rate with respect to the amount of
such payments for each day held by the Administrative Agent and not distributed
to the Banks. The Administrative Agent's and each Bank's statement of account,
ledger or other relevant record shall, in the absence of manifest error, be
conclusive as the statement of the amount of principal of and interest on the
Loans and other amounts owing under this Agreement and shall be deemed an
"account stated."
4.2 PRO RATA TREATMENT OF BANKS.
Each borrowing shall be allocated to each Bank according to its
Ratable Share, and each selection of, conversion to or renewal of any Interest
Rate Option and each payment or prepayment by the Borrower with respect to
principal, interest, Commitment Fees, Letter of Credit Fees, or other fees
(except for the Administrative Agent's Fee) or amounts due from the Borrower
hereunder to the Banks with respect to the Loans, shall (except as provided in
Section 3.4.3 [Administrative Agent's and Bank's Rights] in the case of an event
specified in Section 3.4 [Euro-Rate Unascertainable; Etc.], 4.4.2 [Replacement
of a Bank] or 4.5 [Additional Compensation in Certain Circumstances]) be made in
proportion to the applicable Loans
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outstanding from each Bank and, if no such Loans are then outstanding, in
proportion to the Ratable Share of each Bank.
4.3 INTEREST PAYMENT DATES.
Interest on Loans to which the Base Rate Option applies shall be due
and payable in arrears on the first Business Day of each April, July, October
and January after the date hereof and on the Expiration Date or upon
acceleration of the Notes. Interest on Loans to which the Euro-Rate Option
applies shall be due and payable on the last day of each Interest Period for
those Loans and, if such Interest Period is longer than three (3) Months, also
on the 90th day of such Interest Period. Interest on the principal amount of
each Loan or other monetary Obligation shall be due and payable on demand after
such principal amount or other monetary Obligation becomes due and payable
(whether on the stated maturity date, upon acceleration or otherwise).
4.4 VOLUNTARY PREPAYMENTS.
4.4.1. RIGHT TO PREPAY.
The Borrower shall have the right at its option from time to
time to prepay the Loans in whole or part without premium or penalty (except as
provided in Section 4.4.2 below or in Section 4.5 [Additional Compensation in
Certain Circumstances]):
(i) at any time with respect to any Loan to which the
Base Rate Option applies,
(ii) on the last day of the applicable Interest Period
with respect to Loans to which a Euro-Rate Option applies,
(iii) on the date specified in a notice by any Bank
pursuant to Section 3.4 [Euro-Rate Unascertainable, Etc.] with respect to any
Loan to which a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the Loans,
it shall provide a prepayment notice to the Administrative Agent by 1:00 p.m. at
least one (1) Business Day prior to the date of prepayment of Loans setting
forth the following information:
(y) the date, which shall be a Business Day,
on which the proposed prepayment is to be made; and
(z) the total principal amount of such prepayment,
which shall not be less than $1,000,000
All prepayment notices shall be irrevocable. The principal
amount of the Loans for which a prepayment notice is given, together with
interest on such principal amount
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except with respect to Loans to which the Base Rate Option applies, shall be due
and payable on the date specified in such prepayment notice as the date on which
the proposed prepayment is to be made. Except as provided in Section 3.4.3
[Administrative Agent's and Bank's rights], if the Borrower prepays a Loan but
fails to specify the applicable Borrowing Tranche which the Borrower is
prepaying, the prepayment shall be applied first to Loans to which the Base Rate
Option applies, then to Loans to which the Euro-Rate Option applies. Any
prepayment hereunder shall be subject to the Borrower's Obligation to indemnify
the Banks under Section 4.5.2 [Indemnity].
4.4.2. REPLACEMENT OF A BANK.
In the event any Bank (i) gives notice under Section 3.4
[Euro-Rate Unascertainable, Etc.] or Section 4.5.1 [Increased Costs, Etc.], (ii)
does not fund Loans because the making of such Loans would contravene any Law
applicable to such Bank, or (iii) becomes subject to the control of an Official
Body (other than normal and customary supervision), then the Borrower shall have
the right at its option, with the consent of the Administrative Agent, which
shall not be unreasonably withheld, to prepay the Loans of such Bank in whole,
together with all interest accrued thereon, and terminate such Bank's Commitment
within ninety (90) days after (x) receipt of such Bank's notice under Section
3.4 [Euro-Rate Unascertainable, Etc.] or 4.5.1 [Increased Costs, Etc.], (y) the
date such Bank has failed to fund Loans because the making of such Loans would
contravene Law applicable to such Bank, or (z) the date such Bank became subject
to the control of an Official Body, as applicable; PROVIDED that the Borrower
shall also pay to such Bank at the time of such prepayment any amounts required
under Section 4.5 [Additional Compensation in Certain Circumstances] and any
accrued interest due on such amount and any related fees; PROVIDED, however,
that the Commitment of such Bank shall be provided by one or more of the
remaining Banks or a replacement bank acceptable to the Administrative Agent;
PROVIDED, further, the remaining Banks shall have no obligation hereunder to
increase their Commitments. Notwithstanding the foregoing, the Administrative
Agent may only be replaced subject to the requirements of Section 9.14
[Successor Administrative Agent] and PROVIDED that all Letters of Credit have
expired or been terminated or replaced.
4.4.3. CHANGE OF LENDING OFFICE.
Each Bank agrees that upon the occurrence of any event
giving rise to increased costs or other special payments under Section 3.4.2
[Illegality, Etc.] or 4.5.1 [Increased Costs, Etc.] with respect to such Bank,
it will if requested by the Borrower, use reasonable efforts (subject to overall
policy considerations of such Bank) to designate another lending office for any
Loans or Letters of Credit affected by such event, PROVIDED that such
designation is made on such terms that such Bank and its lending office suffer
no economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of such Section. Nothing
in this Section 4.4.3 shall affect or postpone any of the Obligations of the
Borrower or any other Loan Party or the rights of the Administrative Agent or
any Bank provided in this Agreement.
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4.5 ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES.
4.5.1. INCREASED COSTS OR REDUCED RETURN RESULTING FROM
TAXES, RESERVES, CAPITAL ADEQUACY REQUIREMENTS, EXPENSES,
ETC.
If any Law, guideline or interpretation or any change in
any Law, guideline or interpretation or application thereof by any Official Body
charged with the interpretation or administration thereof or compliance with any
request or directive (whether or not having the force of Law) of any central
bank or other Official Body (for the purpose of this Section references to Banks
shall include the parents (i.e. corporate owners) of such banks):
(i) subjects any Bank to any tax or changes the basis
of taxation with respect to this Agreement, the Notes, the Loans or payments by
the Borrower of principal, interest, Commitment Fees, or other amounts due from
the Borrower hereunder or under the Notes (except for taxes on the overall net
income of such Bank),
(ii) imposes, modifies or deems applicable any reserve,
special deposit or similar requirement against credits or commitments to extend
credit extended by, or assets (funded or contingent) of, deposits with or for
the account of, or other acquisitions of funds by, any Bank, or
(iii) imposes, modifies or deems applicable any capital
adequacy or similar requirement (A) against assets (funded or contingent) of, or
letters of credit, other credits or commitments to extend credit extended by,
any Bank, or (B) otherwise applicable to the obligations of any Bank under this
Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank with respect to this Agreement, the Notes or the making, maintenance or
funding of any part of the Loans (or, in the case of any capital adequacy or
similar requirement, to have the effect of reducing the rate of return on any
Bank's capital, taking into consideration such Bank's customary policies with
respect to capital adequacy) by an amount which such Bank in its sole discretion
deems to be material, such Bank shall from time to time notify the Borrower and
the Administrative Agent of the amount determined in good faith (using any
averaging and attribution methods employed in good faith) by such Bank to be
necessary to compensate such Bank for such increase in cost, reduction of
income, additional expense or reduced rate of return. Such notice shall set
forth in reasonable detail the basis for such determination. Such amount shall
be due and payable by the Borrower to such Bank ten (10) Business Days after
such notice is given.
4.5.2. INDEMNITY.
In addition to the compensation required by Section 4.5.1
[Increased Costs, Etc.], the Borrower shall indemnify each Bank against all
liabilities, losses or expenses (including loss of margin, any loss or expense
incurred in liquidating or employing deposits from
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third parties and any loss or expense incurred in connection with funds acquired
by a Bank to fund or maintain Loans subject to a Euro-Rate Option) which such
Bank sustains or incurs as a consequence of any
(i) payment, prepayment, conversion or renewal of any
Loan to which a Euro-Rate Option applies on a day other than the last day of the
corresponding Interest Period (whether or not such payment or prepayment is
mandatory, voluntary or automatic and whether or not such payment or prepayment
is then due),
(ii) attempt by the Borrower to revoke (expressly, by
later inconsistent notices or otherwise) in whole or part any Loan Requests
under Section 2.4 [Loan Requests] or Section 3.2 [Interest Periods] or notice
relating to prepayments under Section 4.4 [Voluntary Prepayments], or
(iii) default by the Borrower in the performance or
observance of any covenant or condition contained in this Agreement or any other
Loan Document, including any failure of the Borrower to pay when due (by
acceleration or otherwise) any principal, interest, Commitment Fee or any other
amount due hereunder.
If any Bank sustains or incurs any such loss or expense, it
shall from time to time notify the Borrower of the amount determined in good
faith by such Bank (which determination may include such assumptions,
allocations of costs and expenses and averaging or attribution methods as such
Bank shall deem reasonable) to be necessary to indemnify such Bank for such loss
or expense. Such notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrower to such Bank
ten (10) Business Days after such notice is given.
5. REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES.
The Loan Parties, jointly and severally, represent and warrant
to the Administrative Agent and each of the Banks as follows:
5.1.1. ORGANIZATION AND QUALIFICATION.
Each Loan Party and each Subsidiary of each Loan Party is a
corporation, partnership or limited liability company duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each Loan Party and each Subsidiary of each Loan Party has the
lawful power to own or lease its properties and to engage in the business it
presently conducts or proposes to conduct. Each Loan Party and each Subsidiary
of each Loan Party is duly licensed or qualified and in good standing in each
jurisdiction listed on SCHEDULE
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5.1.1 and in all other jurisdictions where the property owned or leased by it or
the nature of the business transacted by it or both makes such licensing or
qualification necessary.
5.1.2. CAPITALIZATION AND OWNERSHIP.
are All of the issued and outstanding shares of capital
stock of the Borrower (referred to herein as the "Shares") have been validly
issued and are fully paid and nonassessable. There are no options, warrants or
other rights outstanding to purchase any such shares except as indicated on
SCHEDULE 5.1.2.
5.1.3. SUBSIDIARIES.
SCHEDULE 5.1.3 states the name of each of the Borrower's
Subsidiaries, its jurisdiction of incorporation, its authorized capital stock,
the issued and outstanding shares (referred to herein as the "Subsidiary
Shares") and the owners thereof if it is a corporation, its outstanding
partnership interests (the "Partnership Interests") if it is a partnership and
its outstanding limited liability company interests, interests assigned to
managers thereof and the voting rights associated therewith (the "LLC
Interests") if it is a limited liability company. The Borrower and each
Subsidiary of the Borrower has good and marketable title to all of the
Subsidiary Shares, Partnership Interests and LLC Interests it purports to own,
free and clear in each case of any Lien. All Subsidiary Shares, Partnership
Interests and LLC Interests have been validly issued, and all Subsidiary Shares
are fully paid and nonassessable. All capital contributions and other
consideration required to be made or paid in connection with the issuance of the
Partnership Interests and LLC Interests have been made or paid, as the case may
be. There are no options, warrants or other rights outstanding to purchase any
such Subsidiary Shares, Partnership Interests or LLC Interests except as
indicated on SCHEDULE 5.1.3.
5.1.4. POWER AND AUTHORITY.
Each Loan Party has full power to enter into, execute,
deliver and carry out this Agreement and the other Loan Documents to which it is
a party, to incur the Indebtedness contemplated by the Loan Documents and to
perform its Obligations under the Loan Documents to which it is a party, and all
such actions have been duly authorized by all necessary proceedings on its part.
5.1.5. VALIDITY AND BINDING EFFECT.
This Agreement has been duly and validly executed and
delivered by each Loan Party, and each other Loan Document which any Loan Party
is required to execute and deliver on or after the date hereof will have been
duly executed and delivered by such Loan Party on the required date of delivery
of such Loan Document. This Agreement and each other Loan Document constitutes,
or will constitute, legal, valid and binding obligations of each Loan Party
which is or will be a party thereto on and after its date of delivery thereof,
enforceable against such Loan Party in accordance with its terms, except to the
extent that enforceability of any of
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such Loan Document may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforceability of creditors'
rights generally or limiting the right of specific performance.
5.1.6. NO CONFLICT.
Neither the execution and delivery of this Agreement or the
other Loan Documents by any Loan Party nor the consummation of the transactions
herein or therein contemplated or compliance with the terms and provisions
hereof or thereof by any of them will conflict with, constitute a default under
or result in any breach of (i) the terms and conditions of the certificate of
incorporation, bylaws, certificate of limited partnership, partnership
agreement, certificate of formation, limited liability company agreement or
other organizational documents of any Loan Party or (ii) any Law or any material
agreement or instrument or order, writ, judgment, injunction or decree to which
any Loan Party or any of its Subsidiaries is a party or by which it or any of
its Subsidiaries is bound or to which it is subject, or result in the creation
or enforcement of any Lien, charge or encumbrance whatsoever upon any property
(now or hereafter acquired) of any Loan Party or any of its Subsidiaries (other
than Liens granted under the Loan Documents).
5.1.7. LITIGATION.
There are no actions, suits, proceedings or investigations
pending or, to the knowledge of any Loan Party, threatened against such Loan
Party or any Subsidiary of such Loan Party at law or equity before any Official
Body which individually or in the aggregate may result in any Material Adverse
Change. None of the Loan Parties or any Subsidiaries of any Loan Party is in
violation of any order, writ, injunction or any decree of any Official Body
which may result in any Material Adverse Change.
5.1.8. TITLE TO PROPERTIES.
Each Loan Party and each Subsidiary of each Loan Party has
good and marketable title to or valid leasehold interest in all properties,
assets and other rights which it purports to own or lease or which are reflected
as owned or leased on its books and records, free and clear of all Liens and
encumbrances except Permitted Liens, and subject to the terms and conditions of
the applicable leases. All leases of property are in full force and effect
without the necessity for any consent which has not previously been obtained
upon consummation of the transactions contemplated hereby.
5.1.9. FINANCIAL STATEMENTS.
(I) HISTORICAL STATEMENTS. The Borrower has delivered
to the Administrative Agent copies of its audited consolidated year-end
financial statements for and as of the end of the three (3) fiscal years ended
December 27, 1998 (the "Annual Statements"). In addition, the Borrower has
delivered to the Administrative Agent copies of its
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unaudited consolidated interim financial statements for the fiscal year to date
and as of the end of the fiscal quarter ended September 26, 1999 (the "Interim
Statements") (the Annual and Interim Statements being collectively referred to
as the "Historical Statements"). The Historical Statements were compiled from
the books and records maintained by the Borrower's management, are correct and
complete and fairly represent the consolidated financial condition of the
Borrower and its Subsidiaries as of their dates and the results of operations
for the fiscal periods then ended and have been prepared in accordance with GAAP
consistently applied, subject (in the case of the Interim Statements) to normal
year-end audit adjustments.
(ii) FINANCIAL PROJECTIONS. The Borrower has delivered
to the Administrative Agent financial projections of the Borrower and its
Subsidiaries for the period 2000 through 2002 derived from various assumptions
of the Borrower's management (the "Financial Projections"). The Financial
Projections represent a reasonable range of possible results in light of the
history of the business, present and foreseeable conditions and the intentions
of the Borrower's management. The Financial Projections accurately reflect the
liabilities of the Borrower and its Subsidiaries upon consummation of the
transactions contemplated hereby as of the Closing Date.
(iii) ACCURACY OF FINANCIAL STATEMENTS. Neither the
Borrower nor any Subsidiary of the Borrower has any liabilities, contingent or
otherwise, or forward or long-term commitments that are not disclosed in the
Historical Statements or in the notes thereto, and except as disclosed therein
there are no unrealized or anticipated losses from any commitments of the
Borrower or any Subsidiary of the Borrower which may cause a Material Adverse
Change. Since December 28, 1998, no Material Adverse Change has occurred.
5.1.10. USE OF PROCEEDS; MARGIN STOCK; SECTION 20
SUBSIDIARIES.
5.1.10.1 GENERAL.
The Loan Parties intend to use the proceeds of the Loans
in accordance with Sections 2.8 and 7.1.10.
5.1.10.2 MARGIN STOCK.
None of the Loan Parties or any Subsidiaries of any Loan
Party engages or intends to engage principally, or as one of its important
activities, in the business of extending credit for the purpose, immediately,
incidentally or ultimately, of purchasing or carrying margin stock (within the
meaning of Regulation U). No part of the proceeds of any Loan has been or will
be used, immediately, incidentally or ultimately, to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock or to refund Indebtedness originally incurred for such
purpose, or for any purpose which entails a violation of or which is
inconsistent with the provisions of the regulations of the Board of Governors of
the Federal Reserve System. None of the Loan Parties or any Subsidiary of any
Loan Party holds or intends to hold margin stock in such amounts that more than
25% of the
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reasonable value of the assets of any Loan Party or Subsidiary of any Loan Party
are or will be represented by margin stock.
5.1.10.3 SECTION 20 SUBSIDIARIES.
The Loan Parties do not intend to use and shall not use
any portion of the proceeds of the Loans, directly or indirectly, to purchase
during the underwriting period, or for thirty (30) days thereafter, Ineligible
Securities being underwritten by a Section 20 Subsidiary.
5.1.11. FULL DISCLOSURE.
Neither this Agreement nor any other Loan Document, nor any
certificate, statement, agreement or other documents furnished to the
Administrative Agent or any Bank in connection herewith or therewith, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and therein, in light
of the circumstances under which they were made, not misleading. There is no
fact known to any Loan Party which materially adversely affects the business,
property, assets, financial condition, results of operations or prospects of any
Loan Party or Subsidiary of any Loan Party which has not been set forth in this
Agreement or in the certificates, statements, agreements or other documents
furnished in writing to the Administrative Agent and the Banks prior to or at
the date hereof in connection with the transactions contemplated hereby.
5.1.12. TAXES.
All federal, state, local and other tax returns required to
have been filed with respect to each Loan Party and each Subsidiary of each Loan
Party have been filed, and payment or adequate provision has been made for the
payment of all taxes, fees, assessments and other governmental charges which
have or may become due pursuant to said returns or to assessments received,
except to the extent that such taxes, fees, assessments and other charges are
being contested in good faith by appropriate proceedings diligently conducted
and for which such reserves or other appropriate provisions, if any, as shall be
required by GAAP shall have been made. There are no agreements or waivers
extending the statutory period of limitations applicable to any federal income
tax return of any Loan Party or Subsidiary of any Loan Party for any period.
5.1.13. CONSENTS AND APPROVALS.
No consent, approval, exemption, order or authorization of,
or a registration or filing with, any Official Body or any other Person is
required by any Law or any agreement in connection with the execution, delivery
and carrying out of this Agreement and the other Loan Documents by any Loan
Party, except as listed on SCHEDULE 5.1.13, all of which shall have been
obtained or made on or prior to the Closing Date except as otherwise indicated
on SCHEDULE 5.1.13.
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5.1.14. NO EVENT OF DEFAULT; COMPLIANCE WITH INSTRUMENTS.
No event has occurred and is continuing and no condition
exists or will exist after giving effect to the borrowings or other extensions
of credit to be made on the Closing Date under or pursuant to the Loan Documents
which constitutes an Event of Default or Potential Default. None of the Loan
Parties or any Subsidiaries of any Loan Party is in violation of (i) any term of
its certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability company
agreement or other organizational documents or (ii) any material agreement or
instrument to which it is a party or by which it or any of its properties may be
subject or bound where such violation would constitute a Material Adverse
Change.
5.1.15. PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC.
Each Loan Party and each Subsidiary of each Loan Party owns
or possesses all the material patents, trademarks, service marks, trade names,
copyrights, licenses, registrations, franchises, permits and rights necessary to
own and operate its properties and to carry on its business as presently
conducted and planned to be conducted by such Loan Party or Subsidiary, without
known possible, alleged or actual conflict with the rights of others.
5.1.16. INSURANCE.
All insurance policies and other bonds to which any Loan
Party or Subsidiary of any Loan Party is a party are valid and in full force and
effect. No notice has been given or claim made and no grounds exist to cancel or
avoid any of such policies or bonds or to reduce the coverage provided thereby.
Such policies and bonds provide adequate coverage from reputable and financially
sound insurers in amounts sufficient to insure the assets and risks of each Loan
Party and each Subsidiary of each Loan Party in accordance with prudent business
practice in the industry of the Loan Parties and their Subsidiaries.
5.1.17. COMPLIANCE WITH LAWS.
The Loan Parties and their Subsidiaries are in compliance
in all material respects with all applicable Laws (other than Environmental Laws
which are specifically addressed in Section 5.1.22 [Environmental Matters]) in
all jurisdictions in which any Loan Party or Subsidiary of any Loan Party is
presently or will be doing business except where the failure to do so would not
constitute a Material Adverse Change.
5.1.18. MATERIAL CONTRACTS; BURDENSOME RESTRICTIONS.
All material contracts relating to the business operations
of each Loan Party and each Subsidiary of any Loan Party, including all employee
benefit plans and Labor Contracts are valid, binding and enforceable upon such
Loan Party or Subsidiary and each of the other parties thereto in accordance
with their respective terms, and there is no default thereunder,
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to the Loan Parties' knowledge, with respect to parties other than such Loan
Party or Subsidiary. None of the Loan Parties or their Subsidiaries is bound by
any contractual obligation, or subject to any restriction in any organization
document, or any requirement of Law which could result in a Material Adverse
Change.
5.1.19. INVESTMENT COMPANIES; REGULATED ENTITIES.
None of the Loan Parties or any Subsidiaries of any Loan
Party is an "investment company" registered or required to be registered under
the Investment Company Act of 1940 or under the "control" of an "investment
company" as such terms are defined in the Investment Company Act of 1940 and
shall not become such an "investment company" or under such "control." None of
the Loan Parties or any Subsidiaries of any Loan Party is subject to any other
Federal or state statute or regulation limiting its ability to incur
Indebtedness for borrowed money.
5.1.20. PLANS AND BENEFIT ARRANGEMENTS.
Except as set forth on SCHEDULE 5.1.20:
(i) The Borrower and each other member of the ERISA
Group are in compliance in all material respects with any applicable provisions
of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer
Plans. There has been no Prohibited Transaction with respect to any Benefit
Arrangement or any Plan or, to the best knowledge of the Borrower, with respect
to any Multiemployer Plan or Multiple Employer Plan, which could result in any
material liability of the Borrower or any other member of the ERISA Group. The
Borrower and all other members of the ERISA Group have made when due any and all
payments required to be made under any agreement relating to a Multiemployer
Plan or a Multiple Employer Plan or any Law pertaining thereto. With respect to
each Plan and Multiemployer Plan, the Borrower and each other member of the
ERISA Group (i) have fulfilled in all material respects their obligations under
the minimum funding standards of ERISA, (ii) have not incurred any liability to
the PBGC, and (iii) have not had asserted against them any penalty for failure
to fulfill the minimum funding requirements of ERISA.
(ii) To the best of the Borrower's knowledge, each
Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder
when due.
(iii) Neither the Borrower nor any other member of the
ERISA Group has instituted or intends to institute proceedings to terminate any
Plan.
(iv) No event requiring notice to the PBGC under
Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur
with respect to any Plan, and no amendment with respect to which security is
required under Section 307 of ERISA has been made or is reasonably expected to
be made to any Plan.
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(v) The aggregate actuarial present value of all
benefit liabilities (whether or not vested) under each Plan, determined on a
plan termination basis, as disclosed in, and as of the date of, the most recent
actuarial report for such Plan, does not exceed the aggregate fair market value
of the assets of such Plan.
(vi) Neither the Borrower nor any other member of the
ERISA Group has incurred or reasonably expects to incur any material withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer Plan.
Neither the Borrower nor any other member of the ERISA Group has been notified
by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan
or Multiple Employer Plan has been terminated within the meaning of Title IV of
ERISA and, to the best knowledge of the Borrower, no Multiemployer Plan or
Multiple Employer Plan is reasonably expected to be reorganized or terminated,
within the meaning of Title IV of ERISA.
(vii) To the extent that any Benefit Arrangement is
insured, the Borrower and all other members of the ERISA Group have paid when
due all premiums required to be paid for all periods through the Closing Date.
To the extent that any Benefit Arrangement is funded other than with insurance,
the Borrower and all other members of the ERISA Group have made when due all
contributions required to be paid for all periods through the Closing Date.
(viii) All Plans, Benefit Arrangements and
Multiemployer Plans have been administered in accordance with their terms and
applicable Law.
5.1.21. EMPLOYMENT MATTERS.
Each of the Loan Parties and each of their Subsidiaries is
in compliance with the Labor Contracts and all applicable federal, state and
local labor and employment Laws including those related to equal employment
opportunity and affirmative action, labor relations, minimum wage, overtime,
child labor, medical insurance continuation, worker adjustment and relocation
notices, immigration controls and worker and unemployment compensation, where
the failure to comply would constitute a Material Adverse Change. There are no
outstanding grievances, arbitration awards or appeals therefrom arising out of
the Labor Contracts or current or threatened strikes, picketing, handbilling or
other work stoppages or slowdowns at facilities of any of the Loan Parties or
any of their Subsidiaries which in any case would constitute a Material Adverse
Change. The Borrower has delivered to the Administrative Agent true and correct
copies of each of the Labor Contracts.
5.1.22. ENVIRONMENTAL MATTERS.
Except as disclosed on SCHEDULE 5.1.22:
(i) None of the Loan Parties has received any
Environmental Complaint, whether directed or issued to any Loan Party or
relating or pertaining
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to any prior owner, operator or occupant of the Property, and has no reason to
believe that it might receive an Environmental Complaint.
(ii) No activity of any Loan Party at the Property is
being or has been conducted in violation of any Environmental Law or Required
Environmental Permit and to the knowledge of any Loan Party no activity of any
prior owner, operator or occupant of the Property was conducted in violation of
any Environmental Law.
(iii) There are no Regulated Substances present on, in,
under, or emanating from, or to any Loan Party's knowledge emanating to, the
Property or any portion thereof which result in Contamination.
(iv) Each Loan Party has all Required Environmental
Permits and all such Required Environmental Permits are in full force and
effect.
(v) Each Loan Party has submitted to an Official Body
and/or maintains, as appropriate, all Required Environmental Notices.
(vi) No structures, improvements, equipment, fixtures,
impoundments, pits, lagoons or aboveground or underground storage tanks located
on the Property contain or use, except in compliance with Environmental Laws and
Required Environmental Permits, Regulated Substances or otherwise are operated
or maintained except in compliance with Environmental Laws and Required
Environmental Permits. To the knowledge of each Loan Party, no structures,
improvements, equipment, fixtures, impoundments, pits, lagoons or aboveground or
underground storage tanks of prior owners, operators or occupants of the
Property contained or used, except in compliance with Environmental Laws,
Regulated Substances or otherwise were operated or maintained by any such prior
owner, operator or occupant except in compliance with Environmental Laws.
(vii) To the knowledge of each Loan Party, no facility
or site to which any Loan Party, either directly or indirectly by a third party,
has sent Regulated Substances for storage, treatment, disposal or other
management has been or is being operated in violation of Environmental Laws or
pursuant to Environmental Laws is identified or proposed to be identified on any
list of contaminated properties or other properties which pursuant to
Environmental Laws are the subject of an investigation, cleanup, removal,
remediation or other response action by an Official Body.
(viii) No portion of the Property is identified or to
the knowledge of any Loan Party proposed to be identified on any list of
contaminated properties or other properties which pursuant to Environmental Laws
are the subject of an investigation or remediation action by an Official Body,
nor to the knowledge of any Loan Party is any property adjoining or in the
proximity of the Property identified or proposed to be identified on any such
list.
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(ix) No portion of the Property constitutes an
Environmentally Sensitive Area.
(x) No lien or other encumbrance authorized by
Environmental Laws exists against the Property and none of the Loan Parties has
any reason to believe that such a lien or encumbrance may be imposed.
5.1.23. SENIOR DEBT STATUS.
The Obligations of each Loan Party under this Agreement,
the Notes, the Guaranty Agreement and each of the other Loan Documents to which
it is a party do rank and will rank at least PARI PASSU in priority of payment
with all other Indebtedness of such Loan Party except Indebtedness of such Loan
Party to the extent secured by Permitted Liens. There is no Lien upon or with
respect to any of the properties or income of any Loan Party or Subsidiary of
any Loan Party which secures indebtedness or other obligations of any Person
except for Permitted Liens.
5.1.24. YEAR 2000.
The computer applications used by Borrower or its
Subsidiaries (and to the knowledge of the Borrower their respective material
suppliers, customers or vendors) are able to recognize and perform properly
date-sensitive functions involving dates prior to and after December 31, 1999
(the "Year 2000 Problem") and the Borrower and its Subsidiaries' business was
not adversely affected by the Year 2000 Problem.
5.1.25. SOLVENCY.
Immediately after the consummation of the transactions to
occur on the Closing Date and immediately following the making of each Loan made
on the Closing Date and after giving effect to the application of the proceeds
of such Loans, (a) the fair value of the assets of each Loan Party, at a fair
valuation, will exceed its debts and liabilities, subordinated, contingent or
otherwise; (b) the present fair saleable value of the property of each Loan
Party will be greater than the amount that will be required to pay the probable
liability of its debts and other liabilities, subordinated, contingent
otherwise, as such debts and other liabilities become absolute and matured; (c)
each Loan Party will be able to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured; and (d) each Loan Party will not have unreasonably small capital with
which to conduct the business in which it is engaged as such business is now
conducted and is proposed to be conducted following the Closing Date.
5.2 UPDATES TO SCHEDULES.
Should any of the information or disclosures provided on any
of the Schedules attached hereto become outdated or incorrect in any material
respect, the Borrower
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shall promptly provide the Administrative Agent in writing with such revisions
or updates to such Schedule as may be necessary or appropriate to update or
correct same; PROVIDED, however, that no Schedule shall be deemed to have been
amended, modified or superseded by any such correction or update, nor shall any
breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule be deemed to have been cured thereby, unless
and until the Required Banks, in their sole and absolute discretion, shall have
accepted in writing such revisions or updates to such Schedule.
6. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT
The obligation of each Bank to make Loans and of the Administrative
Agent to issue Letters of Credit hereunder is subject to the performance by each
of the Loan Parties of its Obligations to be performed hereunder at or prior to
the making of any such Loans or issuance of such Letters of Credit and to the
satisfaction of the following further conditions:
6.1 FIRST LOANS AND LETTERS OF CREDIT.
On the Closing Date:
6.1.1. OFFICER'S CERTIFICATE.
The representations and warranties of each of the Loan Parties
contained in Section 5 and in each of the other Loan Documents shall be true and
accurate on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein), and each of the Loan Parties shall
have performed and complied with all covenants and conditions hereof and
thereof, no Event of Default or Potential Default shall have occurred and be
continuing or shall exist; and there shall be delivered to the Administrative
Agent for the benefit of each Bank a certificate of each of the Loan Parties,
dated the Closing Date and signed by the Chief Executive Officer, President or
Chief Financial Officer of each of the Loan Parties, to each such effect.
6.1.2. SECRETARY'S CERTIFICATE.
There shall be delivered to the Administrative Agent for the
benefit of each Bank a certificate dated the Closing Date and signed by the
Secretary or an Assistant Secretary of each of the Loan Parties, certifying as
appropriate as to:
(i) all action taken by each Loan Party in connection with
this Agreement and the other Loan Documents;
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(ii) the names of the officer or officers authorized to
sign this Agreement and the other Loan Documents and the true signatures of such
officer or officers and specifying the Authorized Officers permitted to act on
behalf of each Loan Party for purposes of this Agreement and the true signatures
of such officers, on which the Administrative Agent and each Bank may
conclusively rely; and
(iii) copies of its organizational documents, including its
certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, and limited liability company
agreement as in effect on the Closing Date, in the case of the Borrower
certified by the appropriate state official where such documents are filed in a
state office, together with certificates from the appropriate state officials as
to the continued existence and good standing of each Loan Party in each state
where organized or qualified to do business (confirmations of foreign
qualifications may be online computer reports)..
6.1.3. DELIVERY OF LOAN DOCUMENTS.
The Guaranty Agreement, Notes and Intercompany Subordination
Agreement shall have been duly executed and delivered to the Administrative
Agent for the benefit of the Banks, together with all appropriate financing
statements and appropriate stock powers and certificates evidencing the Shares,
the Partnership Interests and the LLC Interests.
6.1.4. OPINION OF COUNSEL.
There shall be delivered to the Administrative Agent for the
benefit of each Bank a written opinion of Greenbaum Doll & McDonald, counsel for
the Loan Parties (who may rely on the opinions of such other counsel as may be
acceptable to the Administrative Agent), dated the Closing Date and in form and
substance satisfactory to the Administrative Agent and its counsel:
(i) as to the matters set forth in EXHIBIT 6.1.4; and
(ii) as to such other matters incident to the transactions
contemplated herein as the Administrative Agent may reasonably request.
6.1.5. LEGAL DETAILS.
All legal details and proceedings in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be in form and substance satisfactory to the Administrative Agent and counsel
for the Administrative Agent, and the Administrative Agent shall have received
all such other counterpart originals or certified or other copies of such
documents and proceedings in connection with such transactions, in form and
substance satisfactory to the Administrative Agent and said counsel, as the
Administrative Agent or said counsel may reasonably request.
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6.1.6. PAYMENT OF FEES.
The Borrower shall have paid or caused to be paid to the
Administrative Agent for itself and for the account of the Banks to the extent
not previously paid all other commitment and other fees accrued through the
Closing Date and the costs and expenses for which the Administrative Agent and
the Banks are entitled to be reimbursed.
6.1.7. CONSENTS.
All material consents required to effectuate the transactions
contemplated hereby as set forth on SCHEDULE 5.1.13 shall have been obtained.
6.1.8. OFFICER'S CERTIFICATE REGARDING MACS.
Since December 28, 1998 no Material Adverse Change shall have
occurred; prior to the Closing Date, there shall have been no material change in
the management of any Loan Party or Subsidiary of any Loan Party; and there
shall have been delivered to the Administrative Agent for the benefit of each
Bank a certificate dated the Closing Date and signed by the Chief Executive
Officer, President or Chief Financial Officer of each Loan Party to each such
effect.
6.1.9. NO VIOLATION OF LAWS.
The making of the Loans and the issuance of the Letters of
Credit shall not contravene any Law applicable to any Loan Party or any of the
Banks.
6.1.10. NO ACTIONS OR PROCEEDINGS.
No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, this Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or which, in the
Administrative Agent's sole discretion, would make it inadvisable to consummate
the transactions contemplated by this Agreement or any of the other Loan
Documents.
6.1.11. INSURANCE POLICIES; CERTIFICATES OF INSURANCE;
ENDORSEMENTS.
The Loan Parties shall have delivered a summary of its
insurance coverage.
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6.1.12. ADMINISTRATIVE QUESTIONNAIRE.
Each of the Banks and the Borrower shall have completed and
delivered to the Administrative Agent the Administrative Agent's form of
administrative qUESTIONNAIRE.
6.2 EACH ADDITIONAL LOAN OR LETTER OF CREDIT.
At the time of making any Loans or issuing any Letters of Credit
other than Loans made or Letters of Credit issued on the Closing Date and after
giving effect to the proposed extensions of credit: the representations and
warranties of the Loan Parties contained in Section 5 and in the other Loan
Documents shall be true on and as of the date of such additional Loan or Letter
of Credit with the same effect as though such representations and warranties had
been made on and as of such date (except representations and warranties which
expressly relate solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific dates or times
referred to therein) and the Loan Parties shall have performed and complied with
all covenants and conditions hereof; no Event of Default or Potential Default
shall have occurred and be continuing or shall exist; the making of the Loans or
issuance of such Letter of Credit shall not contravene any Law applicable to any
Loan Party or Subsidiary of any Loan Party or any of the Banks; and the Borrower
shall have delivered to the Administrative Agent a duly executed and completed
Loan Request or application for a Letter of Credit as the case may be.
7. COVENANTS
7.1 AFFIRMATIVE COVENANTS.
The Loan Parties, jointly and severally, covenant and agree that
until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings, and interest thereon, expiration or termination of all
Letters of Credit, satisfaction of all of the Loan Parties' other Obligations
under the Loan Documents and termination of the Commitments, the Loan Parties
shall comply at all times with the following affirmative covenants:
7.1.1. PRESERVATION OF EXISTENCE, ETC.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain its legal existence as a corporation, limited
partnership or limited liability company and its license or qualification and
good standing in each jurisdiction in which its ownership or lease of property
or the nature of its business makes such license or qualification necessary,
except as otherwise expressly permitted in Section 7.2.6 [Liquidations, Mergers,
Etc.].
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7.1.2. PAYMENT OF LIABILITIES, INCLUDING TAXES, ETC.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, duly pay and discharge all liabilities to which it is subject
or which are asserted against it, promptly as and when the same shall become due
and payable, including all taxes, assessments and governmental charges upon it
or any of its properties, assets, income or profits, prior to the date on which
penalties attach thereto, except to the extent that such liabilities, including
taxes, assessments or charges, are being contested in good faith and by
appropriate and lawful proceedings diligently conducted and for which such
reserve or other appropriate provisions, if any, as shall be required by GAAP
shall have been made, but only to the extent that failure to discharge any such
liabilities would not result in any additional liability which would adversely
affect to a material extent the financial condition of any Loan Party or
Subsidiary of any Loan Party, PROVIDED that the Loan Parties and their
Subsidiaries will pay all such liabilities forthwith upon the commencement of
proceedings to foreclose any Lien which may have attached as security therefor.
7.1.3. MAINTENANCE OF INSURANCE.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, insure its properties and assets against loss or damage by fire
and such other insurable hazards as such assets are commonly insured (including
fire, extended coverage, property damage, workers' compensation, public
liability and business interruption insurance) and against other risks
(including errors and omissions) in such amounts as similar properties and
assets are insured by prudent companies in similar circumstances carrying on
similar businesses, and with reputable and financially sound insurers, including
self-insurance to the extent customary, all as reasonably determined by the
Administrative Agent.
7.1.4. MAINTENANCE OF PROPERTIES AND LEASES.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain in good repair, working order and condition (ordinary
wear and tear excepted) in accordance with the general practice of other
businesses of similar character and size, all of those properties useful or
necessary to its business, and from time to time, such Loan Party will make or
cause to be made all appropriate repairs, renewals or replacements thereof.
7.1.5. MAINTENANCE OF PATENTS, TRADEMARKS, ETC.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain in full force and effect all patents, trademarks,
service marks, trade names, copyrights, licenses, franchises, permits and other
authorizations necessary for the ownership and operation of its properties and
business if the failure so to maintain the same would constitute a Material
Adverse Change.
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7.1.6. VISITATION RIGHTS.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, permit any of the officers or authorized employees or
representatives of the Administrative Agent or any of the Banks to visit and
inspect any of its properties and to examine and make excerpts from its books
and records and discuss its business affairs, finances and accounts with its
officers, all in such detail and at such times and as often as any of the Banks
may reasonably request, PROVIDED that each Bank shall provide the Borrower and
the Administrative Agent with reasonable notice prior to any visit or
inspection. In the event any Bank desires to conduct an audit of any Loan Party,
such Bank shall make a reasonable effort to conduct such audit contemporaneously
with any audit to be performed by the Administrative Agent.
7.1.7. KEEPING OF RECORDS AND BOOKS OF ACCOUNT.
The Borrower shall, and shall cause each Subsidiary of the
Borrower to, maintain and keep proper books of record and account which enable
the Borrower and its Subsidiaries to issue financial statements in accordance
with GAAP and as otherwise required by applicable Laws of any Official Body
having jurisdiction over the Borrower or any Subsidiary of the Borrower, and in
which full, true and correct entries shall be made in all material respects of
all its dealings and business and financial affairs.
7.1.8. PLANS AND BENEFIT ARRANGEMENTS.
The Borrower shall, and shall cause each other member of the
ERISA Group to, comply with ERISA, the Internal Revenue Code and other
applicable Laws applicable to Plans and Benefit Arrangements except where such
failure, alone or in conjunction with any other failure, would not result in a
Material Adverse Change. Without limiting the generality of the foregoing, the
Borrower shall cause all of its Plans and all Plans maintained by any member of
the ERISA Group to be funded in accordance with the minimum funding requirements
of ERISA and shall make, and cause each member of the ERISA Group to make, in a
timely manner, all contributions due to Plans, Benefit Arrangements and
Multiemployer Plans.
7.1.9. COMPLIANCE WITH LAWS.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, comply with all applicable Laws, including all Environmental
Laws, in all respects, PROVIDED that it shall not be deemed to be a violation of
this Section 7.1.9 if any failure to comply with any Law would not result in
fines, penalties, remediation costs, other similar liabilities or injunctive
relief which in the aggregate would constitute a Material Adverse Change.
7.1.10. USE OF PROCEEDS.
The Loan Parties will use the Letters of Credit and the
proceeds of the Loans only for (i) general corporate purposes, and (ii) to
repurchase its common stock as
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permitted hereunder. The Loan Parties shall not use the Letters of Credit or the
proceeds of the Loans for any purposes which contravenes any applicable Law or
any provision hereof.
7.1.11. SUBORDINATION OF INTERCOMPANY LOANS.
Each Loan Party shall cause any intercompany Indebtedness,
loans or advances owed by any Loan Party to any other Loan Party to be
subordinated pursuant to the terms of the Intercompany Subordination Agreement.
7.2 NEGATIVE COVENANTS.
The Loan Parties, jointly and severally, covenant and agree that
until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings and interest thereon, expiration or termination of all Letters
of Credit, satisfaction of all of the Loan Parties' other Obligations hereunder
and termination of the Commitments, the Loan Parties shall comply with the
following negative covenants:
7.2.1. INDEBTEDNESS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, at any time create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Existing Indebtedness as set forth on SCHEDULE 7.2.1
(including any extensions or renewals thereof, PROVIDED there is no increase in
the amount thereof or other significant change in the terms thereof unless
otherwise specified on SCHEDULE 7.2.1;
(iii) Indebtedness under the Jeffersontown IRB, provided
that the principal amount is not subsequently increased; such Jeffersontown IRB
shall continue to be permitted Indebtedness hereunder if Capital Delivery, Inc.
should subsequently sell its rights thereunder to a Person which is not an
Affiliate of the Borrower;
(iv) Capitalized and operating leases;
(v) Indebtedness secured by Purchase Money Security
Interests not exceeding $10,000,000; and
(vi) Indebtedness of a Loan Party to another Loan Party
which is subordinated in accordance with the provisions of Section 7.1.11
[Subordination of Intercompany Loans].
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7.2.2. LIENS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, at any time create, incur, assume or suffer to exist any
Lien on any of its property or assets, tangible or intangible, now owned or
hereafter acquired, or agree or become liable to do so, except Permitted Liens.
7.2.3. GUARANTIES.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, at any time, directly or indirectly, become or be liable
in respect of any Guaranty, or assume, guarantee, become surety for, endorse or
otherwise agree, become or remain directly or contingently liable upon or with
respect to any obligation or liability of any other Person, except for the BIBP
Commodities Guaranty, Guaranties of Indebtedness of the Loan Parties permitted
hereunder and except for Guaranties by Loan Parties in favor of Excluded
Subsidiaries provided that the amount of such Guaranties shall be subject to the
limitation on Restricted Investments in such Excluded Subsidiaries contained in
Section 7.2.4.
7.2.4. LOANS AND INVESTMENTS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, at any time make or suffer to remain outstanding any
loan or advance to, or purchase, acquire or own any stock, bonds, notes or
securities of, or any partnership interest (whether general or limited) or
limited liability company interest in, or any Restricted Investment, or other
investment or interest in, or make any capital contribution to, any other
Person, or agree, become or remain liable to do any of the foregoing, except:
(i) trade credit extended on usual and customary terms in
the ordinary course of business;
(ii) advances to employees to meet expenses incurred by
such employees in the ordinary course of business;
(iii) Permitted Investments; and
(iv) loans, advances and investments in other Loan Parties;
(v) Restricted Investments in Excluded Subsidiaries
existing on the Closing Date in the amounts set forth on SCHEDULE 7.2.4; and
(vi) Restricted Investments in Foreign Subsidiaries, not to
exceed $25,000,000 in the aggregate. Any Restricted Investment in an Foreign
Subsidiary existing on the Closing Date and listed on SCHEDULE 7.2.4 shall not
count towards the
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$25,000,000 limit to the extent that such Restricted Investment does not exceed
the amount included on SCHEDULE 7.2.4.
(vii) Restricted Investments in Excluded Domestic
Subsidiaries, not to exceed $1,000,000 in the aggregate. Any Restricted
Investment in an Excluded Domestic Subsidiary existing on the Closing Date and
listed on SCHEDULE 7.2.4 shall not count towards the $1,000,000 limit to the
extent that such Restricted Investment does not exceed the amount included on
SCHEDULE 7.2.4.
7.2.5. DIVIDENDS AND RELATED DISTRIBUTIONS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, make or pay, or agree to become or remain liable to make
or pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of its shares of
capital stock, partnership interests or limited liability company interests on
account of the purchase, redemption, retirement or acquisition of its shares of
capital stock (or warrants, options or rights therefor), partnership interests
or limited liability company interests, except
(i) dividends or other distributions payable to another
Loan Party, and
(ii) payment of dividends or repurchases of the common
stock of the Borrower, provided that there exists no Potential Default or Event
of Default after giving effect to such repurchase, and provided that the
Borrower shall notify the Administrative Agent and the Banks within thirty (30)
days after making any such payment or repurchase
7.2.6. LIQUIDATIONS, MERGERS, CONSOLIDATIONS, ACQUISITIONS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a
party to any merger or consolidation, or acquire by purchase, lease or otherwise
all or substantially all of the assets or capital stock of any other Person,
PROVIDED that
(1) any Loan Party other than the Borrower may consolidate or
merge into another Loan Party which is wholly-owned by one or more of the other
Loan Parties, and
(2) any Loan Party may acquire, whether by purchase or by
merger, (A) all of the ownership interests of another Person or (B)
substantially all of assets of another Person or of a business or division of
another Person (each an "Permitted Acquisition"), PROVIDED that each of the
following requirements is met:
(i) if the Loan Parties are acquiring the ownership
interests in such Person whether directly or indirectly and whether by purchase,
merger or
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otherwise, such Person shall execute a Guarantor Joinder and join this Agreement
as a Guarantor pursuant to Section 10.18 [Joinder of Guarantors] on or before
the date of such Permitted Acquisition (except that Foreign Subsidiaries shall
not be required to execute a Guarantor Joinder as provided in Section 7.2.9 but
any acquisition of any Excluded Subsidiary shall be subject to the limitations
on Restricted Investments in such Excluded Subsidiaries described in Section
7.2.4), and if the Borrower is a party to such purchase, merger or other
transaction, the Borrower shall be the survivor thereof;
(ii) the board of directors or other equivalent governing
body of such Person shall have approved such Permitted Acquisition and, if the
Loan Parties shall use any portion of the Loans to fund such Permitted
Acquisition, the Loan Parties also shall have delivered to the Banks written
evidence of the approval of the board of directors (or equivalent body) of such
Person for such Permitted Acquisition;
(iii) the business acquired, or the business conducted by
the Person whose ownership interests are being acquired, as applicable, shall be
substantially the same as one or more line or lines of business conducted by the
Loan Parties and shall comply with Section 7.2.10 [Continuation of or Change in
Business];
(iv) no Potential Default or Event of Default shall exist
immediately prior to and after giving effect to such Permitted Acquisition;
(v) the Borrower shall demonstrate that it shall be in
compliance with the covenants contained in Sections 7.2 after giving effect to
such Permitted Acquisition (including in such computation Indebtedness or other
liabilities assumed or incurred in connection with such Permitted Acquisition
but excluding income earned or expenses incurred by the Person, business or
assets to be acquired prior to the date of such Permitted Acquisition) by
delivering at least five (5) Business Days prior to such Permitted Acquisition a
certificate in the form of EXHIBIT 7.2.6 evidencing such compliance;
(vi) the Loan Parties shall deliver to the Administrative
Agent at least five (5) Business Days before such Permitted Acquisition copies
of any agreements entered into or proposed to be entered into by such Loan
Parties in connection with such Permitted Acquisition and shall deliver to the
Administrative Agent such other information about such Person or its assets as
any Loan Party may reasonably require.
7.2.7. DISPOSITIONS OF ASSETS OR SUBSIDIARIES.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, sell, convey, assign, lease, abandon or otherwise
transfer or dispose of, voluntarily or involuntarily, any of its properties or
assets, tangible or intangible (including sale, assignment, discount or other
disposition of accounts, contract rights, chattel paper, equipment or general
intangibles with or without recourse or of capital stock, shares of beneficial
interest,
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partnership interests or limited liability company interests of a Subsidiary of
such Loan Party), except:
(i) transactions involving the sale of inventory in the
ordinary course of business;
(ii) any sale, transfer or lease of assets in the ordinary
course of business which are no longer necessary or required in the conduct of
such Loan Party's or such Subsidiary's business;
(iii) any sale, transfer or lease of assets by any wholly
owned Subsidiary of such Loan Party to another Loan Party;
(iv) any sale, transfer or lease of assets in the ordinary
course of business which are replaced by substitute assets acquired or leased;
(v) any sale of a store and related assets to a franchisee
provided that each of the following conditions is satisfied:
(1) the gross sales price (before deduction for
expenses) in connection with the sale any store shall not exceed $5,000,000,
(2) the gross sales price (before deduction for
expenses) in connection with all sales by the Loan Parties under this clause (v)
of Section 7.2.7 shall not exceed $25,000,000 over the term of this Agreement
(including any extension of the Expiration Date hereof) after giving effect to
such sale:
(3) the Borrower shall be in pro-forma compliance with
its financial covenants and the other terms of this Agreement after giving
effect to such sale;
(4) the Borrower shall notify the Administrative Agent
and the Banks of such sale within ten Business Days following the date of such
sale such notice to state the amount of the gross sales price (before deduction
for expenses) of such sale and demonstrate compliance with clauses (1) through
(3) above.
7.2.8. AFFILIATE TRANSACTIONS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, enter into or carry out any transaction (including
purchasing property or services from or selling property or services to any
Affiliate of any Loan Party or other Person) unless such transaction is not
otherwise prohibited by this Agreement, is entered into in the ordinary course
of business upon fair and reasonable arm's-length terms and conditions which are
fully disclosed to the Administrative Agent and is in accordance with all
applicable Law.
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7.2.9. SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, own or create directly or indirectly any Subsidiaries
other than (i) any Subsidiary which has joined this Agreement as Guarantor on
the Closing Date; and (ii) any Subsidiary formed after the Closing Date which
joins this Agreement as a Guarantor pursuant to Section 10.18 [Joinder of
Guarantors], (iii) any Foreign Subsidiary, provided that the total amount of the
Restricted Investment in Foreign Subsidiaries which do not join this Agreement
as Guarantors may not exceed the amounts permitted under Section 7.2.4, and (iv)
and any Excluded Domestic Subsidiary, provided that the total amount of the
Restricted Investment in Excluded Domestic Subsidiaries which do not join this
Agreement as Guarantors may not exceed the amounts permitted under Section
7.2.4. Each of the Loan Parties shall not become or agree to (1) become a
general or limited partner in any general or limited partnership, except that
the Loan Parties may be general or limited partners in other Loan Parties, (2)
become a member or manager of, or hold a limited liability company interest in,
a limited liability company, except that the Loan Parties may be members or
managers of, or hold limited liability company interests in, other Loan Parties,
or (3) become a joint venturer or hold a joint venture interest in any joint
venture.
7.2.10. CONTINUATION OF OR CHANGE IN BUSINESS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, engage in any business other than owning and operating
restaurants substantially as conducted and operated by such Loan Party or
Subsidiary during the present fiscal year and related support functions, and
such Loan Party or Subsidiary shall not permit any material change in such
business.
7.2.11. PLANS AND BENEFIT ARRANGEMENTS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to:
(i) fail to satisfy the minimum funding requirements of
ERISA and the Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver from the Internal
Revenue Service with respect to any Plan;
(iii) engage in a Prohibited Transaction with any Plan,
Benefit Arrangement or Multiemployer Plan which, alone or in conjunction with
any other circumstances or set of circumstances resulting in liability under
ERISA, would constitute a Material Adverse Change;
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(iv) permit the aggregate actuarial present value of all
benefit liabilities (whether or not vested) under each Plan, determined on a
plan termination basis, as disclosed in the most recent actuarial report
completed with respect to such Plan, to exceed, as of any actuarial valuation
date, the fair market value of the assets of such Plan;
(v) fail to make when due any contribution to any
Multiemployer Plan that the Borrower or any member of the ERISA Group may be
required to make under any agreement relating to such Multiemployer Plan, or any
Law pertaining thereto;
(vi) withdraw (completely or partially) from any
Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA to
withdraw) from any Multiple Employer Plan, where any such withdrawal is likely
to result in a material liability of the Borrower or any member of the ERISA
Group;
(vii) terminate, or institute proceedings to terminate, any
Plan, where such termination is likely to result in a material liability to the
Borrower or any member of the ERISA Group;
(viii) make any amendment to any Plan with respect to which
security is required under Section 307 of ERISA; or
(ix) fail to give any and all notices and make all
disclosures and governmental filings required under ERISA or the Internal
Revenue Code, where such failure is likely to result in a Material Adverse
Change.
7.2.12. FISCAL YEAR.
The Borrower shall not, and shall not permit any Subsidiary of
the Borrower to, change its fiscal year from the 52- or 53- week period
beginning on the Monday following the last Sunday in December of the previous
calendar year, and ending on the last Sunday in December.
7.2.13. CHANGES IN ORGANIZATIONAL DOCUMENTS.
Each of the Loan Parties shall not, and shall not permit any
of its Subsidiaries to, amend in any respect its certificate of incorporation
(including any provisions or resolutions relating to capital stock), by-laws,
certificate of limited partnership, partnership agreement, certificate of
formation, limited liability company agreement or other organizational documents
without providing at least fifteen (15) calendar days' prior written notice to
the Administrative Agent and the Banks and, in the event such change would be
adverse to the Banks as determined by the Administrative Agent in its sole
discretion, obtaining the prior written consent of the Required Banks.
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7.2.14. MAXIMUM LEVERAGE RATIO.
The Borrower shall not permit the Leverage Ratio, calculated
as of the end of each fiscal quarter, to exceed 2.0 to 1.0.
7.2.15. MINIMUM INTEREST COVERAGE RATIO.
The Borrower shall not permit the Interest Coverage
Ratio, calculated as of the end of each fiscal quarter for the four (4) fiscal
quarters then ended, to be less than the following levels as of the following
measurement dates:
<TABLE>
<CAPTION>
---------------------------------------------- --------------------------------------------------
Measurement Dates Minimum Ratio
-----------------
---------------------------------------------- --------------------------------------------------
<S> <C>
End of Each Fiscal Quarter through and 1.5 to 1.0
Including Quarter Ending on or about
December 31, 2000
---------------------------------------------- --------------------------------------------------
End of Quarter ending on or about March 31, 2.0 to 1.0
2001 and the End of Each Fiscal Thereafter
---------------------------------------------- --------------------------------------------------
</TABLE>
7.2.16. MINIMUM NET WORTH.
The Borrower shall not at any time permit Consolidated Net
Worth to be less than Base Net Worth.
7.3 REPORTING REQUIREMENTS.
The Loan Parties, jointly and severally, covenant and agree that
until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings and interest thereon, expiration or termination of all Letters
of Credit, satisfaction of all of the Loan Parties' other Obligations hereunder
and under the other Loan Documents and termination of the Commitments, the Loan
Parties will furnish or cause to be furnished to the Administrative Agent and
each of the Banks:
7.3.1. QUARTERLY FINANCIAL STATEMENTS.
As soon as available and in any event within forty-five (45)
calendar days after the end of each of the first three fiscal quarters in each
fiscal year, financial statements of the Borrower, consisting of a consolidated
and consolidating balance sheet as of the end of such fiscal quarter and related
consolidated and consolidating statements of income, stockholders' equity and
cash flows for the fiscal quarter then ended and the fiscal year through that
date, all in
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reasonable detail and certified (subject to normal year-end audit adjustments)
by the Chief Executive Officer, President or Chief Financial Officer of the
Borrower as having been prepared in accordance with GAAP, consistently applied,
and setting forth in comparative form the respective financial statements for
the corresponding date and period in the previous fiscal year.
7.3.2. ANNUAL FINANCIAL STATEMENTS.
As soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, financial statements of the
Borrower consisting of a consolidated and consolidating balance sheet as of the
end of such fiscal year, and related consolidated and consolidating statements
of income, stockholders' equity and cash flows for the fiscal year then ended,
all in reasonable detail and setting forth in comparative form the financial
statements as of the end of and for the preceding fiscal year, and certified by
independent certified public accountants of nationally recognized standing
satisfactory to the Administrative Agent. The certificate or report of
accountants shall be free of qualifications (other than any consistency
qualification that may result from a change in the method used to prepare the
financial statements as to which such accountants concur) and shall not indicate
the occurrence or existence of any event, condition or contingency which would
materially impair the prospect of payment or performance of any covenant,
agreement or duty of any Loan Party under any of the Loan Documents. The Loan
Parties shall deliver with such financial statements and certification by their
accountants a letter of such accountants to the Administrative Agent and the
Banks substantially (i) to the effect that, based upon their ordinary and
customary examination of the affairs of the Borrower, performed in connection
with the preparation of such consolidated financial statements, and in
accordance with generally accepted auditing standards, they are not aware of the
existence of any condition or event which constitutes an Event of Default or
Potential Default or, if they are aware of such condition or event, stating the
nature thereof and confirming the Borrower's calculations with respect to the
certificate to be delivered pursuant to Section 7.3.3 [Certificate of the
Borrower] with respect to such financial statements and (ii) to the effect that
the Banks are intended to rely upon such accountant's certification of the
annual financial statements and that such accountants authorize the Loan Parties
to deliver such reports and certificate to the Banks on such accountants'
behalf.
7.3.3. CERTIFICATE OF THE BORROWER.
Concurrently with the financial statements of the Borrower
furnished to the Administrative Agent and to the Banks pursuant to Sections
7.3.1 [Quarterly Financial Statements] and 7.3.2 [Annual Financial Statements],
a certificate (each a "Compliance Certificate") of the Borrower signed by the
Chief Executive Officer, President or Chief Financial Officer of the Borrower,
in the form of EXHIBIT 7.3.3, to the effect that, except as described pursuant
to Section 7.3.4 [Notice of Default], (i) the representations and warranties of
the Borrower contained in Section 5 and in the other Loan Documents are true on
and as of the date of such certificate with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which expressly relate solely
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to an earlier date or time) and the Loan Parties have performed and complied
with all covenants and conditions hereof, (ii) no Event of Default or Potential
Default exists and is continuing on the date of such certificate and (iii)
containing calculations in sufficient detail to demonstrate compliance as of the
date of such financial statements with all financial covenants contained in
Section 7.2 [Negative Covenants].
7.3.4. NOTICE OF DEFAULT.
Promptly after any officer of any Loan Party has learned of
the occurrence of an Event of Default or Potential Default, a certificate signed
by the Chief Executive Officer, President or Chief Financial Officer of such
Loan Party setting forth the details of such Event of Default or Potential
Default and the action which the such Loan Party proposes to take with respect
thereto.
7.3.5. NOTICE OF LITIGATION.
Promptly after the commencement thereof, notice of all
actions, suits, proceedings or investigations before or by any Official Body or
any other Person against any Loan Party or Subsidiary of any Loan Party which
involve a claim or series of claims in excess of $1,000,000 or which if
adversely determined would constitute a Material Adverse Change.
7.3.6. BUDGETS, FORECASTS, OTHER REPORTS AND INFORMATION.
Promptly upon their becoming available to the Borrower:
(i) the annual budget and any forecasts or projections of
the Borrower, to be supplied not later than forty-five (45) days prior to
commencement of the fiscal year to which any of the foregoing may be applicable,
(ii) any reports including management letters submitted to
the Borrower by independent accountants in connection with any annual, interim
or special audit,
(iii) any reports, notices or proxy statements generally
distributed by the Borrower to its stockholders on a date no later than the date
supplied to such stockholders,
(iv) regular or periodic reports, including Forms 10-K,
10-Q and 8-K, registration statements and prospectuses, filed by the Borrower
with the Securities and Exchange Commission,
(v) a copy of any order in any proceeding to which the
Borrower or any of its Subsidiaries is a party issued by any Official Body, and
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(vi) such other reports and information as any of the Banks
may from time to time reasonably request. The Borrower shall also notify the
Banks promptly of the enactment or adoption of any Law which may result in a
Material Adverse Change.
7.3.7. NOTICES REGARDING PLANS AND BENEFIT ARRANGEMENTS.
7.3.7.1 CERTAIN EVENTS.
Promptly upon becoming aware of the occurrence thereof,
notice (including the nature of the event and, when known, any action taken or
threatened by the Internal Revenue Service or the PBGC with respect thereto) of:
(i) any Reportable Event with respect to the Borrower or
any other member of the ERISA Group (regardless of whether the obligation to
report said Reportable Event to the PBGC has been waived),
(ii) any Prohibited Transaction which could subject the
Borrower or any other member of the ERISA Group to a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Internal Revenue Code in connection with any Plan, any Benefit Arrangement or
any trust created thereunder,
(iii) any assertion of material withdrawal liability with
respect to any Multiemployer Plan,
(iv) any partial or complete withdrawal from a
Multiemployer Plan by the Borrower or any other member of the ERISA Group under
Title IV of ERISA (or assertion thereof), where such withdrawal is likely to
result in material withdrawal liability,
(v) any cessation of operations (by the Borrower or any
other member of the ERISA Group) at a facility in the circumstances described in
Section 4062(e) of ERISA,
(vi) withdrawal by the Borrower or any other member of the
ERISA Group from a Multiple Employer Plan,
(vii) a failure by the Borrower or any other member of the
ERISA Group to make a payment to a Plan required to avoid imposition of a Lien
under Section 302(f) of ERISA,
(viii) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA, or
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(ix) any change in the actuarial assumptions or funding
methods used for any Plan, where the effect of such change is to materially
increase or materially reduce the unfunded benefit liability or obligation to
make periodic contributions.
7.3.7.2 NOTICES OF INVOLUNTARY TERMINATION AND ANNUAL
REPORTS.
Promptly after receipt thereof, copies of (a) all notices
received by the Borrower or any other member of the ERISA Group of the PBGC's
intent to terminate any Plan administered or maintained by the Borrower or any
member of the ERISA Group, or to have a trustee appointed to administer any such
Plan; and (b) at the request of the Administrative Agent or any Bank each annual
report (IRS Form 5500 series) and all accompanying schedules, the most recent
actuarial reports, the most recent financial information concerning the
financial status of each Plan administered or maintained by the Borrower or any
other member of the ERISA Group, and schedules showing the amounts contributed
to each such Plan by or on behalf of the Borrower or any other member of the
ERISA Group in which any of their personnel participate or from which such
personnel may derive a benefit, and each Schedule B (Actuarial Information) to
the annual report filed by the Borrower or any other member of the ERISA Group
with the Internal Revenue Service with respect to each such Plan.
7.3.7.3 NOTICE OF VOLUNTARY TERMINATION.
Promptly upon the filing thereof, copies of any Form 5310,
or any successor or equivalent form to Form 5310, filed with the PBGC in
connection with the termination of any Plan.
8. DEFAULT
8.1 EVENTS OF DEFAULT.
An Event of Default shall mean the occurrence or existence of any
one or more of the following events or conditions (whatever the reason therefor
and whether voluntary, involuntary or effected by operation of Law):
8.1.1. PAYMENTS UNDER LOAN DOCUMENTS.
The Borrower shall fail to pay any principal of any Loan
(including scheduled installments, mandatory prepayments or the payment due at
maturity), Reimbursement Obligation or Letter of Credit Borrowing or shall fail
to pay any interest on any Loan , Reimbursement Obligation or Letter of Credit
Borrowing or any other amount owing hereunder or under the other Loan Documents
after such principal, interest or other amount becomes due in accordance with
the terms hereof or thereof;
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8.1.2. BREACH OF WARRANTY.
Any representation or warranty made at any time by any of the
Loan Parties herein or by any of the Loan Parties in any other Loan Document, or
in any certificate, other instrument or statement furnished pursuant to the
provisions hereof or thereof, shall prove to have been false or misleading in
any material respect as of the time it was made or furnished;
8.1.3. BREACH OF NEGATIVE COVENANTS OR VISITATION RIGHTS.
Any of the Loan Parties shall default in the observance or
performance of any covenant contained in Section 7.1.6 [Visitation Rights] or
Section 7.2 [Negative Covenants];
8.1.4. BREACH OF OTHER COVENANTS.
Any of the Loan Parties shall default in the observance or
performance of any other covenant, condition or provision hereof or of
any other Loan Document and such default shall continue unremedied for a period
of ten (10) Business Days after any officer of any Loan Party becomes aware of
the occurrence thereof (such grace period to be applicable only in the event
such default can be remedied by corrective action of the Loan Parties as
determined by the Administrative Agent in its sole discretion);
8.1.5. DEFAULTS IN OTHER AGREEMENTS OR INDEBTEDNESS.
A breach, default or event of default shall occur at any time
under the terms of any other agreement involving borrowed money or the extension
of credit or any other Indebtedness under which any Loan Party or Subsidiary of
any Loan Party may be obligated as a borrower or guarantor in excess of
$1,000,000in the aggregate, and such breach, default or event of default
consists of the failure to pay (beyond any period of grace permitted with
respect thereto, whether waived or not) any indebtedness when due (whether at
stated maturity, by acceleration or otherwise) or if such breach, default or
event of default permits or causes the acceleration of any indebtedness (whether
or not such right shall have been waived) or the termination of any commitment
to lend;
8.1.6. FINAL JUDGMENTS OR ORDERS.
Any final judgments or orders for the payment of money in
excess of $1,000,000 in the aggregate shall be entered against any Loan Party by
a court having jurisdiction in the premises, which judgment is not discharged,
vacated, bonded or stayed pending appeal within a period of thirty (30) days
from the date of entry;
8.1.7. LOAN DOCUMENT UNENFORCEABLE.
Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the party executing the same or such
party's successors and
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assigns (as permitted under the Loan Documents) in accordance with the
respective terms thereof or shall in any way be terminated (except in accordance
with its terms) or become or be declared ineffective or inoperative or shall in
any way be challenged or contested or cease to give or provide the respective
Liens, security interests, rights, titles, interests, remedies, powers or
privileges intended to be created thereby;
8.1.8. UNINSURED LOSSES; PROCEEDINGS AGAINST ASSETS.
Any of the Loan Parties' or any of their Subsidiaries' assets
are attached, seized, levied upon or subjected to a writ or distress warrant; or
such come within the possession of any receiver, trustee, custodian or assignee
for the benefit of creditors and the same is not cured within thirty (30) days
thereafter;
8.1.9. NOTICE OF LIEN OR ASSESSMENT.
A notice of Lien or assessment in excess of $1,000,000 which
is not a Permitted Lien is filed of record with respect to all or any part of
any of the Loan Parties' or any of their Subsidiaries' assets by the United
States, or any department, agency or instrumentality thereof, or by any state,
county, municipal or other governmental agency, including the PBGC, or any taxes
or debts owing at any time or times hereafter to any one of these becomes
payable and the same is not paid within thirty (30) days after the same becomes
payable;
8.1.10. INSOLVENCY.
Any Loan Party or any Subsidiary of a Loan Party ceases to be
solvent or admits in writing its inability to pay its debts as they mature;
8.1.11. EVENTS RELATING TO PLANS AND BENEFIT ARRANGEMENTS.
Any of the following occurs: (i) any Reportable Event, which
the Administrative Agent determines in good faith constitutes grounds for the
termination of any Plan by the PBGC or the appointment of a trustee to
administer or liquidate any Plan, shall have occurred and be continuing; (ii)
proceedings shall have been instituted or other action taken to terminate any
Plan, or a termination notice shall have been filed with respect to any Plan;
(iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the
PBGC shall give notice of its intent to institute proceedings to terminate any
Plan or Plans or to appoint a trustee to administer or liquidate any Plan; and,
in the case of the occurrence of (i), (ii), (iii) or (iv) above, the
Administrative Agent determines in good faith that the amount of the Borrower's
liability is likely to exceed 10% of its Consolidated Net Worth; (v) the
Borrower or any member of the ERISA Group shall fail to make any contributions
when due to a Plan or a Multiemployer Plan; (vi) the Borrower or any other
member of the ERISA Group shall make any amendment to a Plan with respect to
which security is required under Section 307 of ERISA; (vii) the Borrower or any
other member of the ERISA Group shall withdraw completely or partially from a
Multiemployer Plan; (viii) the Borrower or any other member of the ERISA Group
shall withdraw (or shall be
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deemed under Section 4062(e) of ERISA to withdraw) from a Multiple Employer
Plan; or (ix) any applicable Law is adopted, changed or interpreted by any
Official Body with respect to or otherwise affecting one or more Plans,
Multiemployer Plans or Benefit Arrangements and, with respect to any of the
events specified in (v), (vi), (vii), (viii) or (ix), the Administrative Agent
determines in good faith that any such occurrence would be reasonably likely to
materially and adversely affect the total enterprise represented by the Borrower
and the other members of the ERISA Group;
8.1.12. CESSATION OF BUSINESS.
Any Loan Party or Subsidiary of a Loan Party ceases to conduct
its business as contemplated, except as expressly permitted under Section 7.2.6
[Liquidations, Mergers, Etc.] or 7.2.7, or any Loan Party or Subsidiary of a
Loan Party is enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business and such injunction,
restraint or other preventive order is not dismissed within thirty (30) days
after the entry thereof;
8.1.13. CHANGE OF CONTROL.
(i) Any person or group of persons (within the meaning of
Sections 13(d) or 14(a) of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial ownership of (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under said Act) more than
50% of the voting capital stock of the Borrower; or (ii) within a period of
twelve (12) consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period shall cease to constitute a majority of
the board of directors of the Borrower;
8.1.14. INVOLUNTARY PROCEEDINGS.
A proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect of
any Loan Party or Subsidiary of a Loan Party in an involuntary case under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, or for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator, conservator (or similar official) of any Loan
Party or Subsidiary of a Loan Party for any substantial part of its property, or
for the winding-up or liquidation of its affairs, and such proceeding shall
remain undismissed or unstayed and in effect for a period of thirty (30)
consecutive days or such court shall enter a decree or order granting any of the
relief sought in such proceeding; or
8.1.15. VOLUNTARY PROCEEDINGS.
Any Loan Party or Subsidiary of a Loan Party shall commence a
voluntary case under any applicable bankruptcy, insolvency, reorganization or
other similar law now or hereafter in effect, shall consent to the entry of an
order for relief in an involuntary case under
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any such law, or shall consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator
(or other similar official) of itself or for any substantial part of its
property or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take any
action in furtherance of any of the foregoing.
8.2 CONSEQUENCES OF EVENT OF DEFAULT.
8.2.1. EVENTS OF DEFAULT OTHER THAN BANKRUPTCY, INSOLVENCY OR
REORGANIZATION PROCEEDINGS.
If an Event of Default specified under Sections 8.1.1 through
8.1.13 shall occur and be continuing, the Banks and the Administrative Agent
shall be under no further obligation to make Loans or issue Letters of Credit,
as the case may be, and the Administrative Agent may, and upon the request of
the Required Banks, shall (i) by written notice to the Borrower, declare the
unpaid principal amount of the Notes then outstanding and all interest accrued
thereon, any unpaid fees and all other Indebtedness of the Borrower to the Banks
hereunder and thereunder to be forthwith due and payable, and the same shall
thereupon become and be immediately due and payable to the Administrative Agent
for the benefit of each Bank without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, and (ii) require
the Borrower to, and the Borrower shall thereupon, deposit in a
non-interest-bearing account with the Administrative Agent, as cash collateral
for its Obligations under the Loan Documents, an amount equal to the maximum
amount currently or at any time thereafter available to be drawn on all
outstanding Letters of Credit, and the Borrower hereby pledges to the
Administrative Agent and the Banks, and grants to the Administrative Agent and
the Banks a security interest in, all such cash as security for such
Obligations. Upon the curing of all existing Events of Default to the
satisfaction of the Required Banks, the Administrative Agent shall return such
cash collateral to the Borrower; and
8.2.2. BANKRUPTCY, INSOLVENCY OR REORGANIZATION PROCEEDINGS.
If an Event of Default specified under Section 8.1.14
[Involuntary Proceedings] or 8.1.15 [Voluntary Proceedings] shall occur, the
Banks shall be under no further obligations to make Loans hereunder and the
unpaid principal amount of the Loans then outstanding and all interest accrued
thereon, any unpaid fees and all other Indebtedness of the Borrower to the Banks
hereunder and thereunder shall be immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived; and
8.2.3. SET-OFF.
If an Event of Default shall occur and be continuing, any Bank
to whom any Obligation is owed by any Loan Party hereunder or under any other
Loan Document or any
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participant of such Bank which has agreed in writing to be bound by the
provisions of Section 9.13 [Equalization of Banks] and any branch, Subsidiary or
Affiliate of such Bank or participant anywhere in the world shall have the
right, in addition to all other rights and remedies available to it, without
notice to such Loan Party, to set-off against and apply to the then unpaid
balance of all the Loans and all other Obligations of the Borrower and the other
Loan Parties hereunder or under any other Loan Document any debt owing to, and
any other funds held in any manner for the account of, the Borrower or such
other Loan Party by such Bank or participant or by such branch, Subsidiary or
Affiliate, including all funds in all deposit accounts (whether time or demand,
general or special, provisionally credited or finally credited, or otherwise)
now or hereafter maintained by the Borrower or such other Loan Party for its own
account (but not including funds held in custodian or trust accounts) with such
Bank or participant or such branch, Subsidiary or Affiliate. Such right shall
exist whether or not any Bank or the Administrative Agent shall have made any
demand under this Agreement or any other Loan Document, whether or not such debt
owing to or funds held for the account of the Borrower or such other Loan Party
is or are matured or unmatured and regardless of the existence or adequacy of
any collateral, Guaranty or any other security, right or remedy available to any
Bank or the Administrative Agent; and
8.2.4. SUITS, ACTIONS, PROCEEDINGS.
If an Event of Default shall occur and be continuing, and
whether or not the Administrative Agent shall have accelerated the maturity of
Loans pursuant to any of the foregoing provisions of this Section 8.2, the
Administrative Agent or any Bank, if owed any amount with respect to the Loans,
may proceed to protect and enforce its rights by suit in equity, action at law
and/or other appropriate proceeding, whether for the specific performance of any
covenant or agreement contained in this Agreement or the other Loan Documents,
including as permitted by applicable Law the obtaining of the EX PARTE
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of the Administrative Agent or such Bank; and
8.2.5. APPLICATION OF PROCEEDS.
From and after the date on which the Administrative Agent has
taken any action pursuant to this Section 8.2 and until all Obligations of the
Loan Parties have been paid in full, any and all proceeds received by the
Administrative Agent from the exercise of any other remedy by the Administrative
Agent, shall be applied as follows:
(i) first, to reimburse the Administrative Agent and the
Banks for out-of-pocket costs, expenses and disbursements, including reasonable
attorneys' and paralegals' fees and legal expenses, incurred by the
Administrative Agent or the Banks in connection with collection of any
Obligations of any of the Loan Parties under any of the Loan Documents;
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(ii) second, to the repayment of all Indebtedness then due
and unpaid of the Loan Parties to the Banks incurred under this Agreement or any
of the other Loan Documents, whether of principal, interest, fees, expenses or
otherwise, in such manner as the Administrative Agent may determine in its
discretion; and
(iii) the balance, if any, as required by Law.
8.2.6. OTHER RIGHTS AND REMEDIES.
The Administrative Agent may, and upon the request of the
Required Banks shall, exercise all post-default rights granted to the
Administrative Agent and the Banks under the Loan Documents or applicable Law.
9. THE ADMINISTRATIVE AGENT
9.1 APPOINTMENT.
Each Bank hereby irrevocably designates, appoints and authorizes PNC
Bank to act as Administrative Agent for such Bank under this Agreement and to
execute and deliver or accept on behalf of each of the Banks the other Loan
Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note
by the acceptance of a Note shall be deemed irrevocably to authorize, the
Administrative Agent to take such action on its behalf under the provisions of
this Agreement and the other Loan Documents and any other instruments and
agreements referred to herein, and to exercise such powers and to perform such
duties hereunder as are specifically delegated to or required of the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. PNC Bank agrees to act as the Administrative
Agent on behalf of the Banks to the extent provided in this Agreement.
9.2 DELEGATION OF DUTIES.
The Administrative Agent may perform any of its duties hereunder by
or through agents or employees (PROVIDED such delegation does not constitute a
relinquishment of its duties as Administrative Agent) and, subject to Sections
9.5 [Reimbursement of Administrative Agent by Borrower, Etc.] and 9.6, shall be
entitled to engage and pay for the advice or services of any attorneys,
accountants or other experts concerning all matters pertaining to its duties
hereunder and to rely upon any advice so obtained.
9.3 NATURE OF DUTIES; INDEPENDENT CREDIT INVESTIGATION.
The Administrative Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and no implied covenants,
functions, responsibilities, duties, obligations, or liabilities shall be read
into this Agreement or otherwise exist. The duties of the Administrative Agent
shall be mechanical and administrative in nature; the Administrative
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Agent shall not have by reason of this Agreement a fiduciary or trust
relationship in respect of any Bank; and nothing in this Agreement, expressed or
implied, is intended to or shall be so construed as to impose upon the
Administrative Agent any obligations in respect of this Agreement except as
expressly set forth herein. Without limiting the generality of the foregoing,
the use of the term "agent" in this Agreement with reference to the
Administrative Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable Law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties. Each Bank expressly acknowledges (i) that the
Administrative Agent has not made any representations or warranties to it and
that no act by the Administrative Agent hereafter taken, including any review of
the affairs of any of the Loan Parties, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Bank; (ii) that it
has made and will continue to make, without reliance upon the Administrative
Agent, its own independent investigation of the financial condition and affairs
and its own appraisal of the creditworthiness of each of the Loan Parties in
connection with this Agreement and the making and continuance of the Loans
hereunder; and (iii) except as expressly provided herein, that the
Administrative Agent shall have no duty or responsibility, either initially or
on a continuing basis, to provide any Bank with any credit or other information
with respect thereto, whether coming into its possession before the making of
any Loan or at any time or times thereafter.
9.4 ACTIONS IN DISCRETION OF ADMINISTRATIVE AGENT; INSTRUCTIONS FROM
THE BANKS.
The Administrative Agent agrees, upon the written request of the
Required Banks, to take or refrain from taking any action of the type specified
as being within the Administrative Agent's rights, powers or discretion herein,
PROVIDED that the Administrative Agent shall not be required to take any action
which exposes the Administrative Agent to personal liability or which is
contrary to this Agreement or any other Loan Document or applicable Law. In the
absence of a request by the Required Banks, the Administrative Agent shall have
authority, in its sole discretion, to take or not to take any such action,
unless this Agreement specifically requires the consent of the Required Banks or
all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section 9.6
[Exculpatory Provisions, Etc.]. Subject to the provisions of Section 9.6, no
Bank shall have any right of action whatsoever against the Administrative Agent
as a result of the Administrative Agent acting or refraining from acting
hereunder in accordance with the instructions of the Required Banks, or in the
absence of such instructions, in the absolute discretion of the Administrative
Agent.
9.5 REIMBURSEMENT AND INDEMNIFICATION OF ADMINISTRATIVE AGENT BY THE
BORROWER.
The Borrower unconditionally agrees to pay or reimburse the
Administrative Agent and hold the Administrative Agent harmless against (a)
liability for the payment of all reasonable out-of-pocket costs, expenses and
disbursements, including fees and expenses of
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counsel (including the allocated costs of staff counsel), appraisers and
environmental consultants, incurred by the Administrative Agent (i) in
connection with the development, negotiation, preparation, printing, execution,
administration, syndication, interpretation and performance of this Agreement
and the other Loan Documents, (ii) relating to any requested amendments, waivers
or consents pursuant to the provisions hereof, (iii) in connection with the
enforcement of this Agreement or any other Loan Document or collection of
amounts due hereunder or thereunder or the proof and allowability of any claim
arising under this Agreement or any other Loan Document, whether in bankruptcy
or receivership proceedings or otherwise, and (iv) in any workout or
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, and (b) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Administrative Agent, in its capacity as such, in any way relating
to or arising out of this Agreement or any other Loan Documents or any action
taken or omitted by the Administrative Agent hereunder or thereunder, PROVIDED
that the Borrower shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements if the same results from the Administrative Agent's
gross negligence or willful misconduct, or if the Borrower was not given notice
of the subject claim and the opportunity to participate in the defense thereof,
at its expense (except that the Borrower shall remain liable to the extent such
failure to give notice does not result in a loss to the Borrower), or if the
same results from a compromise or settlement agreement entered into without the
consent of the Borrower, which shall not be unreasonably withheld. In addition,
the Borrower agrees to reimburse and pay all reasonable out-of-pocket expenses
of the Administrative Agent's regular employees and agents engaged periodically
to perform audits of the Loan Parties' books, records and business properties.
9.6 EXCULPATORY PROVISIONS; LIMITATION OF LIABILITY.
Neither any of the Agents nor any of their respective directors,
officers, employees, agents, attorneys or Affiliates shall (a) be liable to any
Bank for any action taken or omitted to be taken by it or them hereunder, or in
connection herewith including pursuant to any Loan Document, unless caused by
its or their own gross negligence or willful misconduct, (b) be responsible in
any manner to any of the Banks for the effectiveness, enforceability,
genuineness, validity or the due execution of this Agreement or any other Loan
Documents or for any recital, representation, warranty, document, certificate,
report or statement herein or made or furnished under or in connection with this
Agreement or any other Loan Documents, or (c) be under any obligation to any of
the Banks to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or conditions hereof or thereof on the part of the Loan
Parties, or the financial condition of the Loan Parties, or the existence or
possible existence of any Event of Default or Potential Default. No claim may be
made by any of the Loan Parties, any Bank, the Administrative Agent or any of
their respective Subsidiaries against the Administrative Agent, any Bank or any
of their respective directors, officers, employees, agents, attorneys or
Affiliates,
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or any of them, for any special, indirect or consequential damages or, to the
fullest extent permitted by Law, for any punitive damages in respect of any
claim or cause of action (whether based on contract, tort, statutory liability,
or any other ground) based on, arising out of or related to any Loan Document or
the transactions contemplated hereby or any act, omission or event occurring in
connection therewith, including the negotiation, documentation, administration
or collection of the Loans, and each of the Loan Parties, (for itself and on
behalf of each of its Subsidiaries), the Administrative Agent and each Bank
hereby waive, releases and agree never to sue upon any claim for any such
damages, whether such claim now exists or hereafter arises and whether or not it
is now known or suspected to exist in its favor. Each Bank agrees that, except
for notices, reports and other documents expressly required to be furnished to
the Banks by the Administrative Agent hereunder or given to the Administrative
Agent for the account of or with copies for the Banks, the Administrative Agent
and each of its directors, officers, employees, agents, attorneys or Affiliates
shall not have any duty or responsibility to provide any Bank with an credit or
other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of the Loan Parties
which may come into the possession of the Administrative Agent or any of its
directors, officers, employees, agents, attorneys or Affiliates.
9.7 REIMBURSEMENT AND INDEMNIFICATION OF ADMINISTRATIVE AGENT BY
BANKS.
Each Bank agrees to reimburse and indemnify the Administrative Agent
(to the extent not reimbursed by the Borrower and without limiting the
Obligation of the Borrower to do so) in proportion to its Ratable Share from and
against all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements, including attorneys' fees
and disbursements (including the allocated costs of staff counsel), and costs of
appraisers and environmental consultants, of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Administrative Agent, in
its capacity as such, in any way relating to or arising out of this Agreement or
any other Loan Documents or any action taken or omitted by the Administrative
Agent hereunder or thereunder, PROVIDED that no Bank shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (a) if the same results from
the Administrative Agent's gross negligence or willful misconduct, or (b) if
such Bank was not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense (except that such Bank shall
remain liable to the extent such failure to give notice does not result in a
loss to the Bank), or (c) if the same results from a compromise and settlement
agreement entered into without the consent of such Bank, which shall not be
unreasonably withheld. In addition, each Bank agrees promptly upon demand to
reimburse the Administrative Agent (to the extent not reimbursed by the Borrower
and without limiting the Obligation of the Borrower to do so) in proportion to
its Ratable Share for all amounts due and payable by the Borrower to the
Administrative Agent in connection with the Administrative Agent's periodic
audit of the Loan Parties' books, records and business properties.
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9.8 RELIANCE BY ADMINISTRATIVE AGENT.
The Administrative Agent shall be entitled to rely upon any writing,
telegram, telex or teletype message, resolution, notice, consent, certificate,
letter, cablegram, statement, order or other document or conversation by
telephone or otherwise believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons, and upon the advice and
opinions of counsel and other professional advisers selected by the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action hereunder unless it shall first be
indemnified to its satisfaction by the Banks against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action.
9.9 NOTICE OF DEFAULT.
The Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of any Potential Default or Event of Default (except
for defaults in payment of interest or principal) unless the Administrative
Agent has received written notice from a Bank or the Borrower referring to this
Agreement, describing such Potential Default or Event of Default and stating
that such notice is a "notice of default."
9.10 NOTICES.
The Administrative Agent shall promptly send to each Bank a copy of
all notices received from the Borrower pursuant to the provisions of this
Agreement or the other Loan Documents promptly upon receipt thereof. The
Administrative Agent shall promptly notify the Borrower and the other Banks of
each change in the Base Rate and the effective date thereof.
9.11 BANKS IN THEIR INDIVIDUAL CAPACITIES; ADMINISTRATIVE AGENT IN
ITS INDIVIDUAL CAPACITY.
With respect to its Commitment and the Loans made by it and any
other rights and powers given to it as a Bank hereunder or under any of the
other Loan Documents, the Administrative Agent shall have the same rights and
powers hereunder as any other Bank and may exercise the same as though it were
not the Administrative Agent, and the term "Bank" and "Banks" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. PNC Bank and its Affiliates and each of the Banks and their respective
Affiliates may, without liability to account, except as prohibited herein, make
loans to, issue letters of credit for the account of, acquire equity interests
in, accept deposits from, discount drafts for, act as trustee under indentures
of, and generally engage in any kind of banking, trust, financial advisory,
underwriting or other business with, the Loan Parties and their Affiliates, in
the case of the Administrative Agent, as though it were not acting as
Administrative Agent hereunder and in the case of each Bank, as though such Bank
were not a Bank hereunder, in each case without notice to or consent of the
other Banks. The Banks acknowledge that, pursuant to
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such activities, the Administrative Agent or its Affiliates may (i) receive
information regarding the Loan Parties or any of their Subsidiaries or
Affiliates (including information that may be subject to confidentiality
obligations in favor of the Loan Parties or such Subsidiary or Affiliate) and
acknowledge that the Administrative Agent shall be under no obligation to
provide such information to them, and (ii) accept fees and other consideration
from the Loan Parties for services in connection with this Agreement and
otherwise without having to account for the same to the Banks.
9.12 HOLDERS OF NOTES.
The Administrative Agent may deem and treat any payee of any Note as
the owner thereof for all purposes hereof unless and until written notice of the
assignment or transfer thereof shall have been filed with the Administrative
Agent. Any request, authority or consent of any Person who at the time of making
such request or giving such authority or consent is the holder of any Note shall
be conclusive and binding on any subsequent holder, transferee or assignee of
such Note or of any Note or Notes issued in exchange therefor.
9.13 EQUALIZATION OF BANKS.
The Banks and the holders of any participations in any Notes agree
among themselves that, with respect to all amounts received by any Bank or any
such holder for application on any Obligation hereunder or under any Note or
under any such participation, whether received by voluntary payment, by
realization upon security, by the exercise of the right of set-off or banker's
lien, by counterclaim or by any other non-pro rata source, equitable adjustment
will be made in the manner stated in the following sentence so that, in effect,
all such excess amounts will be shared ratably among the Banks and such holders
in proportion to their interests in payments under the Notes, except as
otherwise provided in Section 3.4.3 [Administrative Agent's and Bank's Rights],
4.4.2 [Replacement of a Bank] or 4.5 [Additional Compensation in Certain
Circumstances]. The Banks or any such holder receiving any such amount shall
purchase for cash from each of the other Banks an interest in such Bank's Loans
in such amount as shall result in a ratable participation by the Banks and each
such holder in the aggregate unpaid amount under the Notes, PROVIDED that if all
or any portion of such excess amount is thereafter recovered from the Bank or
the holder making such purchase, such purchase shall be rescinded and the
purchase price restored to the extent of such recovery, together with interest
or other amounts, if any, required by law (including court order) to be paid by
the Bank or the holder making such purchase.
9.14 SUCCESSOR ADMINISTRATIVE AGENT.
The Administrative Agent (i) may resign as Administrative Agent or
(ii) shall resign if such resignation is requested by the Required Banks (if the
Administrative Agent is a Bank, the Administrative Agent's Loans and its
Commitment shall be considered in determining whether the Required Banks have
requested such resignation) or required by Section 4.4.2
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[Replacement of a Bank], in either case of (i) or (ii) by giving not less than
thirty (30) days' prior written notice to the Borrower. If the Administrative
Agent shall resign under this Agreement, then either (a) the Required Banks
shall appoint from among the Banks a successor Administrative Agent for the
Banks, subject to the consent of the Borrower, such consent not to be
unreasonably withheld, or (b) if a successor Administrative Agent shall not be
so appointed and approved within the thirty (30) day period following the
Administrative Agent's notice to the Banks of its resignation, then the
Administrative Agent shall appoint, with the consent of the Borrower, such
consent not to be unreasonably withheld, a successor Administrative Agent who
shall serve as Administrative Agent until such time as the Required Banks
appoint and the Borrower consents to the appointment of a successor
Administrative Agent. Any success or Administrative Agent appointed under this
Section shall: (i) have a capitalization of at least $500,000,000, and (ii) be
organized under the Laws of the United States, the states thereof and
instrumentalities thereof. Upon its appointment pursuant to either clause (a) or
(b) above, such successor Administrative Agent shall succeed to the rights,
powers and duties of the Administrative Agent, and the term "Administrative
Agent" shall mean such successor Administrative Agent, effective upon its
appointment, and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement. After the resignation of any Administrative Agent hereunder, the
provisions of this Section 9 shall inure to the benefit of such former
Administrative Agent and such former Administrative Agent shall not by reason of
such resignation be deemed to be released from liability for any actions taken
or not taken by it while it was an Administrative Agent under this Agreement.
9.15 ADMINISTRATIVE AGENT'S FEE.
The Borrower shall pay to the Administrative Agent a nonrefundable
fee (the "Administrative Agent's Fee") under the terms of a letter (the
"Administrative Agent's Letter") between the Borrower and Administrative Agent,
as amended from time to time.
9.16 AVAILABILITY OF FUNDS.
The Administrative Agent may assume that each Bank has made or will
make the proceeds of a Loan available to the Administrative Agent unless the
Administrative Agent shall have been notified by such Bank on or before the
later of (1) the close of Business on the Business Day preceding the Borrowing
Date with respect to such Loan or two (2) hours before the time on which the
Administrative Agent actually funds the proceeds of such Loan to the Borrower
(whether using its own funds pursuant to this Section 9.16 or using proceeds
deposited with the Administrative Agent by the Banks and whether such funding
occurs before or after the time on which Banks are required to deposit the
proceeds of such Loan with the Administrative Agent). The Administrative Agent
may, in reliance upon such assumption (but shall not be required to), make
available to the Borrower a corresponding amount. If such corresponding amount
is not in fact made available to the Administrative Agent by such Bank, the
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Administrative Agent shall be entitled to recover such amount on demand from
such Bank (or, if such Bank fails to pay such amount forthwith upon such demand
from the Borrower) together with interest thereon, in respect of each day during
the period commencing on the date such amount was made available to the Borrower
and ending on the date the Administrative Agent recovers such amount, at a rate
per annum equal to (i) the Federal Funds Effective Rate during the first three
(3) days after such interest shall begin to accrue and (ii) the applicable
interest rate in respect of such Loan after the end of such three-day period.
9.17 CALCULATIONS.
In the absence of gross negligence or willful misconduct, the
Administrative Agent shall not be liable for any error in computing the amount
payable to any Bank whether in respect of the Loans, fees or any other amounts
due to the Banks under this Agreement. In the event an error in computing any
amount payable to any Bank is made, the Administrative Agent, the Borrower and
each affected Bank shall, forthwith upon discovery of such error, make such
adjustments as shall be required to correct such error, and any compensation
therefor will be calculated at the Federal Funds Effective Rate.
9.18 BENEFICIARIES.
Except as expressly provided herein, the provisions of this Section
9 are solely for the benefit of the Administrative Agent and the Banks, and the
Loan Parties shall not have any rights to rely on or enforce any of the
provisions hereof. In performing its functions and duties under this Agreement,
the Administrative Agent shall act solely as agent of the Banks and does not
assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for any of the Loan Parties.
10. MISCELLANEOUS
10.1 MODIFICATIONS, AMENDMENTS OR WAIVERS.
With the written consent of the Required Banks, the Administrative
Agent, acting on behalf of all the Banks, and the Borrower, on behalf of the
Loan Parties, may from time to time enter into written agreements amending or
changing any provision of this Agreement or any other Loan Document or the
rights of the Banks or the Loan Parties hereunder or thereunder, or may grant
written waivers or consents to a departure from the due performance of the
Obligations of the Loan Parties hereunder or thereunder. Any such agreement,
waiver or consent made with such written consent shall be effective to bind all
the Banks and the Loan Parties; PROVIDED, that, without the written consent of
all the Banks, no such agreement, waiver or consent may be made which will:
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10.1.1. INCREASE OF COMMITMENT; EXTENSION OF EXPIRATION DATE.
Increase the amount of the Commitment of any Bank hereunder or
extend the Expiration Date;
10.1.2. EXTENSION OF PAYMENT; REDUCTION OF PRINCIPAL INTEREST
OR FEES; MODIFICATION OF TERMS OF PAYMENT.
Whether or not any Loans are outstanding, extend the time for
payment of principal or interest of any Loan (excluding the due date of any
mandatory prepayment of a Loan or any mandatory Commitment reduction in
connection with such a mandatory prepayment hereunder except for mandatory
reductions of the Commitments on the Expiration Date), the Commitment Fee or any
other fee payable to any Bank, or reduce the principal amount of or the rate of
interest borne by any Loan or reduce the Commitment Fee or any other fee payable
to any Bank, or otherwise affect the terms of payment of the principal of or
interest of any Loan, the Commitment Fee or any other fee payable to any Bank;
10.1.3. RELEASE OF GUARANTOR.
Except for sales of assets permitted by Section 7.2.7
[Disposition of Assets or Subsidiaries] release any Guarantor from its
Obligations under the Guaranty Agreement or any other security for any of the
Loan Parties' Obligations; or
10.1.4. MISCELLANEOUS.
Amend Section 4.2 [Pro Rata Treatment of Banks], 9.6
[Exculpatory Provisions, Etc.] or 9.13 [Equalization of Banks] or this Section
10.1, alter any provision regarding the pro rata treatment of the Banks, change
the definition of Required Banks, or change any requirement providing for the
Banks or the Required Banks to authorize the taking of any action hereunder;
PROVIDED, further, that no agreement, waiver or consent which would modify the
interests, rights or obligations of the Administrative Agent in its capacity as
Administrative Agent or as the issuer of Letters of Credit shall be effective
without the written consent of the Administrative Agent.
10.2 NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING REQUIRED.
No course of dealing and no delay or failure of the Administrative
Agent or any Bank in exercising any right, power, remedy or privilege under this
Agreement or any other Loan Document shall affect any other or future exercise
thereof or operate as a waiver thereof, nor shall any single or partial exercise
thereof or any abandonment or discontinuance of steps to enforce such a right,
power, remedy or privilege preclude any further exercise thereof or of any other
right, power, remedy or privilege. The rights and remedies of the Administrative
Agent
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and the Banks under this Agreement and any other Loan Documents are cumulative
and not exclusive of any rights or remedies which they would otherwise have. Any
waiver, permit, consent or approval of any kind or character on the part of any
Bank of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing.
10.3 REIMBURSEMENT AND INDEMNIFICATION OF BANKS BY THE BORROWER;
TAXES.
The Borrower agrees unconditionally upon demand to pay or reimburse
to each Bank (other than the Administrative Agent, as to which the Borrower's
Obligations are set forth in Section 9.5 [Reimbursement of Administrative Agent
By Borrower, Etc.]) and to save such Bank harmless against (i) liability for the
payment of all reasonable out-of-pocket costs, expenses and disbursements
(including fees and expenses of counsel (including allocated costs of staff
counsel) for each Bank except with respect to (a) and (b) below), incurred by
such Bank (a) in connection with the administration and interpretation of this
Agreement, and other instruments and documents to be delivered hereunder, (b)
relating to any amendments, waivers or consents pursuant to the provisions
hereof, (c) in connection with the enforcement of this Agreement or any other
Loan Document, or collection of amounts due hereunder or thereunder or the proof
and allowability of any claim arising under this Agreement or any other Loan
Document, whether in bankruptcy or receivership proceedings or otherwise, and
(d) in any workout or restructuring or in connection with the protection,
preservation, exercise or enforcement of any of the terms hereof or of any
rights hereunder or under any other Loan Document or in connection with any
foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against such Bank, in its capacity as such, in any
way relating to or arising out of this Agreement or any other Loan Documents or
any action taken or omitted by such Bank hereunder or thereunder, PROVIDED that
the Borrower shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements (A) if the same results from such Bank's gross
negligence or willful misconduct, or (B) if the Borrower was not given notice of
the subject claim and the opportunity to participate in the defense thereof, at
its expense (except that the Borrower shall remain liable to the extent such
failure to give notice does not result in a loss to the Borrower), or (C) if the
same results from a compromise or settlement agreement entered into without the
consent of the Borrower, which shall not be unreasonably withheld. The Banks
will attempt to minimize the fees and expenses of legal counsel for the Banks
which are subject to reimbursement by the Borrower hereunder by considering the
usage of one law firm to represent the Banks and the Administrative Agent if
appropriate under the circumstances. The Borrower agrees unconditionally to pay
all stamp, document, transfer, recording or filing taxes or fees and similar
impositions now or hereafter determined by the Administrative Agent or any Bank
to be payable in connection with this Agreement or any other Loan Document, and
the Borrower agrees unconditionally to save the Administrative Agent and the
Banks harmless from and against any and all present or future claims,
liabilities or losses
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with respect to or resulting from any omission to pay or delay in paying any
such taxes, fees or impositions.
10.4 HOLIDAYS.
Whenever payment of a Loan to be made or taken hereunder shall be
due on a day which is not a Business Day such payment shall be due on the next
Business Day (except as provided in Section 3.2 [Interest Periods] with respect
to Interest Periods under the Euro-Rate Option) and such extension of time shall
be included in computing interest and fees, except that the Loans shall be due
on the Business Day preceding the Expiration Date if the Expiration Date is not
a Business Day. Whenever any payment or action to be made or taken hereunder
(other than payment of the Loans) shall be stated to be due on a day which is
not a Business Day, such payment or action shall be made or taken on the next
following Business Day, and such extension of time shall not be included in
computing interest or fees, if any, in connection with such payment or action.
10.5 FUNDING BY BRANCH, SUBSIDIARY OR AFFILIATE.
10.5.1. NOTIONAL FUNDING.
Each Bank shall have the right from time to time, without
notice to the Borrower, to deem any branch, Subsidiary or Affiliate (which for
the purposes of this Section 10.5 shall mean any corporation or association
which is directly or indirectly controlled by or is under direct or indirect
common control with any corporation or association which directly or indirectly
controls such Bank) of such Bank to have made, maintained or funded any Loan to
which the Euro-Rate Option applies at any time, PROVIDED that immediately
following (on the assumption that a payment were then due from the Borrower to
such other office), and as a result of such change, the Borrower would not be
under any greater financial obligation pursuant to Section 4.5 [Additional
Compensation in Certain Circumstances] than it would have been in the absence of
such change. Notional funding offices may be selected by each Bank without
regard to such Bank's actual methods of making, maintaining or funding the Loans
or any sources of funding actually used by or available to such Bank.
10.5.2. ACTUAL FUNDING.
Each Bank shall have the right from time to time to make or
maintain any Loan by arranging for a branch, Subsidiary or Affiliate of such
Bank to make or maintain such Loan subject to the last sentence of this Section
10.5.2. If any Bank causes a branch, Subsidiary or Affiliate to make or maintain
any part of the Loans hereunder, all terms and conditions of this Agreement
shall, except where the context clearly requires otherwise, be applicable to
such part of the Loans to the same extent as if such Loans were made or
maintained by such Bank, but in no event shall any Bank's use of such a branch,
Subsidiary or Affiliate to make or maintain any part of the Loans hereunder
cause such Bank or such branch, Subsidiary or Affiliate to incur any
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cost or expenses payable by the Borrower hereunder or require the Borrower to
pay any other compensation to any Bank (including any expenses incurred or
payable pursuant to Section 4.5 [Additional Compensation in Certain
Circumstances]) which would otherwise not be incurred.
10.6 NOTICES.
All notices, requests, demands, directions and other communications
(as used in this Section 10.6, collectively referred to as "notices") given to
or made upon any party hereto under the provisions of this Agreement shall be by
telephone or in writing (including electronic transmission, facsimile
transmission or posting on a secured web site) unless otherwise expressly
permitted hereunder and shall be delivered or sent by electronic or facsimile
transmission to the respective parties at the addresses and numbers set forth
under their respective names on SCHEDULE 1.1 (B) hereof or in accordance with
any subsequent unrevoked written direction from any party to the others. All
notices shall, except as otherwise expressly herein provided, be effective (a)
in the case of facsimile, when received, (b) in the case of hand-delivered
notice, when hand-delivered, (c) in the case of electronic transmission when
received and in the case of posting on a secured web site upon receipt of notice
of such posting (and rights to access such web site) (d) in the case of
telephone, when telephoned, PROVIDED, however, that in order to be effective,
telephonic notices must be confirmed in writing no later than the next day by
letter, facsimile, electronic transmission or posting on a secured web site, (e)
if given by mail, four (4) days after such communication is deposited in the
mail with first-class postage prepaid, return receipt requested, and (f) if
given by any other means (including by air courier), when delivered; PROVIDED,
that notices to the Administrative Agent shall not be effective until received.
Any Bank giving any notice to any Loan Party shall simultaneously send a copy
thereof to the Administrative Agent, and the Administrative Agent shall promptly
notify the other Banks of the receipt by it of any such notice.
10.7 SEVERABILITY.
The provisions of this Agreement are intended to be severable. If
any provision of this Agreement shall be held invalid or unenforceable in whole
or in part in any jurisdiction, such provision shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without in
any manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
10.8 GOVERNING LAW.
Each Letter of Credit and Section 2.9 [Letter of Credit Subfacility]
shall be subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500, as the
same may be revised or amended from time to time, and to the extent not
inconsistent therewith, the internal laws of the Commonwealth of
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Kentucky without regard to its conflict of laws principles, and the balance of
this Agreement shall be deemed to be a contract under the Laws of the
Commonwealth of Kentucky and for all purposes shall be governed by and construed
and enforced in accordance with the internal laws of the Commonwealth of
Kentucky without regard to its conflict of laws principles.
10.9 PRIOR UNDERSTANDING.
This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto and thereto relating to the transactions provided for herein and therein,
including any prior confidentiality agreements and commitments.
10.10 DURATION; SURVIVAL.
All representations and warranties of the Loan Parties contained
herein or made in connection herewith shall survive the making of Loans and
issuance of Letters of Credit and shall not be waived by the execution and
delivery of this Agreement, any investigation by the Administrative Agent or the
Banks, the making of Loans, issuance of Letters of Credit, or payment in full of
the Loans. All covenants and agreements of the Loan Parties contained in
Sections 7.1 [Affirmative Covenants], 7.2 [Negative Covenants] and 7.3
[Reporting Requirements] herein shall continue in full force and effect from and
after the date hereof so long as the Borrower may borrow or request Letters of
Credit hereunder and until termination of the Commitments and payment in full of
the Loans and expiration or termination of all Letters of Credit. All covenants
and agreements of the Borrower contained herein relating to the payment of
principal, interest, premiums, additional compensation or expenses and
indemnification, including those set forth in the Notes, Section 4 [Payments]
and Sections 9.5 [Reimbursement of Administrative Agent by Borrower, Etc.], 9.7
[Reimbursement of Administrative Agent by Banks, Etc.] and 10.3 [Reimbursement
of Banks by Borrower; Etc.], shall survive payment in full of the Loans,
expiration or termination of the Letters of Credit and termination of the
Commitments.
10.11 SUCCESSORS AND ASSIGNS.
(i) This Agreement shall be binding upon and shall inure to
the benefit of the Banks, the Administrative Agent, the Loan Parties and their
respective successors and assigns, except that none of the Loan Parties may
assign or transfer any of its rights and Obligations hereunder or any interest
herein. Each Bank may, at its own cost, make assignments of or sell
participations in all or any part of its Commitments and the Loans made by it to
one or more banks or other entities, subject to the consent of the Borrower and
the Administrative Agent with respect to any assignee (but not any participant),
such consent not to be unreasonably withheld, PROVIDED that (1) no consent of
the Borrower shall be required (A) if an Event of Default exists and is
continuing, or (B) in the case of an assignment by a Bank to an Affiliate of
such Bank, and (2) any assignment by a Bank to a Person other than an Affiliate
of such Bank may not be made in amounts less than the lesser of $5,000,000 or
the amount of the
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assigning Bank's Commitment. In the case of an assignment, upon receipt by the
Administrative Agent of the Assignment and Assumption Agreement, the assignee
shall have, to the extent of such assignment (unless otherwise provided
therein), the same rights, benefits and obligations as it would have if it had
been a signatory Bank hereunder, the Commitments shall be adjusted accordingly,
and upon surrender of any Note subject to such assignment, the Borrower shall
execute and deliver a new Note to the assignee in an amount equal to the amount
of the Commitment assumed by it and a new Note to the assigning Bank in an
amount equal to the Commitment retained by it hereunder. Any Bank which assigns
any or all of its Commitment or Loans to a Person other than an Affiliate of
such Bank shall pay to the Administrative Agent a service fee in the amount of
$3,500 for each assignment. In the case of a participation, the participant
shall only have the rights specified in Section 8.2.3 [Set-off] (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto and not to include any voting rights except with
respect to changes of the type referenced in Sections 10.1.1 [Increase of
Commitment, Etc.], 10.1.2 [Extension of Payment, Etc.], or 10.1.3 [Release of
Guarantor]), all of such Bank's obligations under this Agreement or any other
Loan Document shall remain unchanged, and all amounts payable by any Loan Party
hereunder or thereunder shall be determined as if such Bank had not sold such
participation.
(ii) Any assignee or participant which is not incorporated
under the Laws of the United States of America or a state thereof shall deliver
to the Borrower and the Administrative Agent the form of certificate described
in Section 10.17 [Tax Withholding Clause] relating to federal income tax
withholding. Each Bank may furnish any publicly available information concerning
any Loan Party or its Subsidiaries and any other information concerning any Loan
Party or its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees or participants),
PROVIDED that such assignees and participants agree to be bound by the
provisions of Section 10.12 [Confidentiality].
(iii) Notwithstanding any other provision in this
Agreement, any Bank may at any time pledge or grant a security interest in all
or any portion of its rights under this Agreement, its Note and the other Loan
Documents to any Federal Reserve Bank in accordance with Regulation A of the FRB
or U.S. Treasury Regulation 31 CFR Section 203.14 without notice to or consent
of the Borrower or the Administrative Agent. No such pledge or grant of a
security interest shall release the transferor Bank of its obligations hereunder
or under any other Loan Document.
10.12 CONFIDENTIALITY.
10.12.1. GENERAL.
The Administrative Agent and the Banks each agree to keep
confidential all information obtained from any Loan Party or its Subsidiaries
which is nonpublic and
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confidential or proprietary in nature (including any information the Borrower
specifically designates as confidential), except as provided below, and to use
such information only in connection with their respective capacities under this
Agreement and for the purposes contemplated hereby. The Administrative Agent and
the Banks shall be permitted to disclose such information (i) to outside legal
counsel, accountants and other professional advisors who need to know such
information in connection with the administration and enforcement of this
Agreement, subject to agreement of such Persons to maintain the confidentiality,
(ii) to assignees and participants as contemplated by Section 10.11, and
prospective assignees and participants, (iii) to the extent requested by any
bank regulatory authority or, with notice to the Borrower, as otherwise required
by applicable Law or by any subpoena or similar legal process, or in connection
with any investigation or proceeding arising out of the transactions
contemplated by this Agreement, (iv) if it becomes publicly available other than
as a result of a breach of this Agreement or becomes available from a source not
known to be subject to confidentiality restrictions, or (v) if the Borrower
shall have consented to such disclosure.
10.12.2. SHARING INFORMATION WITH AFFILIATES OF THE BANKS.
Each Loan Party acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Borrower or one or more of its Affiliates (in connection with this Agreement
or otherwise) by any Bank or by one or more Subsidiaries or Affiliates of such
Bank and each of the Loan Parties hereby authorizes each Bank to share any
information delivered to such Bank by such Loan Party and its Subsidiaries
pursuant to this Agreement, or in connection with the decision of such Bank to
enter into this Agreement, to any such Subsidiary or Affiliate of such Bank, it
being understood that any such Subsidiary or affiliate of any Bank receiving
such information shall be bound by the provisions of Section 10.12.1 as if it
were a Bank hereunder. Such Authorization shall survive the repayment of the
Loans and other Obligations and the termination of the Commitments.
10.13 COUNTERPARTS.
This Agreement may be executed by different parties hereto on any
number of separate counterparts, each of which, when so executed and delivered,
shall be an original, and all such counterparts shall together constitute one
and the same instrument.
10.14 ADMINISTRATIVE AGENT'S OR BANK'S CONSENT.
Whenever the Administrative Agent's or any Bank's consent is
required to be obtained under this Agreement or any of the other Loan Documents
as a condition to any action, inaction, condition or event, the Administrative
Agent and each Bank shall be authorized to give or withhold such consent in its
sole and absolute discretion (except when this Agreement provides that such
discretion shall be "reasonable" or otherwise expressly limits the discretion of
the Administrative Agent or such Bank) and to condition its consent upon the
giving of additional collateral, the payment of money or any other matter.
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10.15 EXCEPTIONS.
The representations, warranties and covenants contained herein shall
be independent of each other, and no exception to any representation, warranty
or covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that would be in
contravention of applicable Law.
10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF THE CIRCUIT COURT OF JEFFERSON COUNTY, KENTUCKY, AND THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY, AND WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH LOAN PARTY AT
THE ADDRESSES PROVIDED FOR IN SECTION 10.6 AND SERVICE SO MADE SHALL BE DEEMED
TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY WAIVES ANY
OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS
PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE. EACH LOAN PARTY, THE ADMINISTRATIVE AGENT AND THE BANKS
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF
ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR
THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.
10.17 TAX WITHHOLDING CLAUSE.
Each Bank or assignee or participant of a Bank that is not
incorporated under the Laws of the United States of America or a state thereof
agrees that it will deliver to each of the Borrower and the Administrative Agent
two (2) duly completed copies of the following: (i) Internal Revenue Service
Form W-9, 4224 or 1001, or other applicable form prescribed by the Internal
Revenue Service, certifying that such Bank, assignee or participant is entitled
to receive payments under this Agreement and the other Loan Documents without
deduction or withholding of any United States federal income taxes, or is
subject to such tax at a reduced rate under an applicable tax treaty, or (ii)
Internal Revenue Service Form W-8 or other applicable form or a certificate of
such Bank, assignee or participant indicating that no such exemption or reduced
rate is allowable with respect to such payments. Each Bank, assignee or
participant required to deliver to the Borrower and the Administrative Agent a
form or certificate pursuant to the preceding sentence shall deliver such form
or certificate as follows: (A) each Bank which is a party hereto on the Closing
Date shall deliver such form or certificate at least five (5) Business Days
prior to the first date on which any interest or fees are payable by the
Borrower hereunder
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for the account of such Bank; (B) each assignee or participant shall deliver
such form or certificate at least five (5) Business Days before the effective
date of such assignment or participation (unless the Administrative Agent in its
sole discretion shall permit such assignee or participant to deliver such form
or certificate less than five (5) Business Days before such date in which case
it shall be due on the date specified by the Administrative Agent). Each Bank,
assignee or participant which so delivers a Form W-8, W-9, 4224 or 1001 further
undertakes to deliver to each of the Borrower and the Administrative Agent two
(2) additional copies of such form (or a successor form) on or before the date
that such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Administrative Agent, either certifying that
such Bank, assignee or participant is entitled to receive payments under this
Agreement and the other Loan Documents without deduction or withholding of any
United States federal income taxes or is subject to such tax at a reduced rate
under an applicable tax treaty or stating that no such exemption or reduced rate
is allowable. The Administrative Agent shall be entitled to withhold United
States federal income taxes at the full withholding rate unless the Bank,
assignee or participant establishes an exemption or that it is subject to a
reduced rate as established pursuant to the above provisions.
10.18 JOINDER OF GUARANTORS.
Any Subsidiary of the Borrower which is required to join this
Agreement as a Guarantor pursuant to Section 7.2.9 [Subsidiaries, Partnerships
and Joint Ventures] shall execute and deliver to the Administrative Agent (i) a
Guarantor Joinder in substantially the form attached hereto as EXHIBIT 1.1(G)(1)
pursuant to which it shall join as a Guarantor each of the documents to which
the Guarantors are parties; and (ii) documents in the forms described in Section
6.1 [First Loans] modified as appropriate to relate to such Subsidiary. The Loan
Parties shall deliver such Guarantor Joinder and related documents to the
Administrative Agent within five (5) Business Days after the date of the filing
of such Subsidiary's articles of incorporation if the Subsidiary is a
corporation, the date of the filing of its certificate of limited partnership if
it is a limited partnership or the date of its organization if it is an entity
other than a limited partnership or corporation.
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IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the day and year first above
written.
PAPA JOHN'S INTERNATIONAL, INC.
By: /s/ J. David Flanery
----------------------------------------
Title: Vice President and Corporate
Controller
-------------------------------------
GUARANTORS:
PAPA JOHN'S USA, INC.
By: /s/ J. David Flanery
----------------------------------------
Title: Vice President and Corporate
Controller
-------------------------------------
PAPA JOHN'S SUPPORT SERVICES, INC.
By: /s/ Charles W. Schnatter
----------------------------------------
Title: Senior Vice President, General
Counsel and Secretary
-------------------------------------
CAPITAL DELIVERY, INC.
By: /s/ J. David Flanery
----------------------------------------
Title: Vice President and Corporate
Controller
-------------------------------------
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RISK SERVICES CORP.
By: /s/ J. David Flanery
----------------------------------------
Title: Vice President and Corporate
Controller
-------------------------------------
PJ FOOD SERVICE, INC.
By: /s/ Charles W. Schnatter
----------------------------------------
Title: Senior Vice President, General
Counsel and Secretary
-------------------------------------
PJFS OF MISSISSIPPI, INC.
By: /s/ Charles W. Schnatter
----------------------------------------
Title: Senior Vice President, General
Counsel and Secretary
-------------------------------------
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PNC BANK, NATIONAL ASSOCIATION,
individually and as Administrative Agent
By /s/ Ralph M. Bowman
--------------------------------------------
Title: Vice President
-----------------------------------------
BANK ONE, INDIANA, NA, individually and as
Syndication Agent
By: /s/ Jim Tutt
--------------------------------------------
Title: First Vice President
----------------------------------------
BANK OF LOUISVILLE
By: /s/ John Z. Barr
--------------------------------------------
Title: Senior Vice President
-----------------------------------------
FIFTH THIRD BANK, KENTUCKY, INC.
By: /s/ Edward B. Martin
--------------------------------------------
Title: Assistant Vice President
-----------------------------------------
FIRSTAR BANK, N.A.
By: /s/ Toby Rau
--------------------------------------------
Title: Vice President
-----------------------------------------
-89-
<PAGE>
NATIONAL CITY BANK OF KENTUCKY
By: /s/ Chuck Denny
--------------------------------------------
Title: Senior Vice President
----------------------------------------
SUNTRUST BANK
By: /s/ Charles Johnson
--------------------------------------------
Title: Director
----------------------------------------
-90-
<PAGE>
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
Page 1 of 2
PART 1 - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES TO BANKS
<TABLE>
<CAPTION>
AMOUNT OF COMMITMENT
BANK FOR LOANS RATABLE SHARE
---- -------------------- -------------
<S> <C> <C>
Name: PNC Bank, National Association
Address: Citizens Plaza
500 West Jefferson St., 2nd Floor
Louisville, KY 40202-2823
Attention: Paula Fryland
Telephone 502-581-2244 $36,750,000 24.500000%
Telecopy: 502-581-2780
Name: Bank One, Indiana, NA
Address: Mail Stop Kyl - 2206
416 West Jefferson, St.,
Louisville, KY 40202Attention: Thelma Ferguson
Telephone 502-566-2821
Telecopy: 502-566-2367 $36,750,000 24.500000%
Name: National City Bank of Kentucky
Address: 101 S. Fifth St., 37th Floor
Louisville, KY 40202
Attention: Hugh Wright
Telephone 502-581-5355
Telecopy: 502-581-4424 $31,500,000 21.000000%
</TABLE>
SCHEDULE 1.1(B) - 1
<PAGE>
<TABLE>
<S> <C> <C>
Name: Fifth Third Bank, Kentucky, Inc.
Address: Fifth Third Center
401 South 4th Avenue
Louisville, KY 40202-3411
Attention: Ed Martin
Telephone 502-562-5536 $15,000,000 10.000000%
Telecopy: 502-562-5540
Name: Firstar Bank
Address: One Financial Square
Louisville, KY 40201-3322
Attention: Mark Wheeler
Telephone 502-562-6336
Telecopy: 502-562-6460 $15,000,000 10.000000%
Name: SunTrust Bank
Address: 303 Peachtree St., N.E., 2nd Floor
Atlanta, GA 30308
Attention: Sean McLaren
Telephone 404-588-7687
Telecopy: 404-724-3716 $10,000,000 6.666667%
Name: Bank of Louisville
Address: Bank of Louisville Building
500 West Broadway, 6th Floor
Louisville, KY 40202
Attention: John Z. Barr
Telephone 502-562-6823 $5,000,000 3.333333%
Telecopy: 502-562-6990
Total $150,000,000 %
========
</TABLE>
SCHEDULE 1.1(B) - 2
<PAGE>
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
Page 2 of 2
PART 2 - ADDRESSES FOR NOTICES TO BORROWER AND GUARANTORS:
ADMINISTRATIVE AGENT
Name: PNC Bank, National Association
Address: Citizens Plaza
500 West Jefferson Street, 2nd Floor
Louisville, KY 40202-2823
Attention: Paula Fryland
Telephone: 502-581-2244
Telecopy: 502-581-2780
BORROWER AND GUARANTORS:
Name: Papa John's International, Inc.
Address: 2002 Papa John's Boulevard
Louisville, KY 40299
Attention: J. David Flanery
Telephone: 502-261-4753
Telecopy: 502-261-4190
SCHEDULE 1.1(B) - 3
<PAGE>
SCHEDULE 1.1(A)
PRICING GRID--
VARIABLE PRICING AND FEES BASED ON LEVERAGE RATIO
<TABLE>
<CAPTION>
- --------- ------------------------ ----------------- --------------------- ----------------------
LEVEL LEVERAGE RATIO COMMITMENT FEE BASE RATE SPREAD EURO-RATE SPREAD
- --------- ------------------------ ----------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
I LESS THAN 1.0 TO 1.0 .125% 0 .500%
- --------- ------------------------ ----------------- --------------------- ----------------------
GREATER THAN OR EQUAL
TO 1.0 TO 1.0 BUT LESS
II THAN 1.5 TO 1.0 .125% 0 .625%
- --------- ------------------------ ----------------- --------------------- ----------------------
GREATER THAN OR EQUAL
III TO 1.5 TO 1.0 .200% 0 .875%
- --------- ------------------------ ----------------- --------------------- ----------------------
</TABLE>
For purposes of determining the Applicable Margin and the Applicable
Commitment Fee Rate:
(a) The Applicable Margin and the Applicable Commitment Fee Rate shall
be the percentages applicable to Level I in the grid above.
(b) The Applicable Margin and the Applicable Commitment Fee Rate shall
be recomputed as of the end of each fiscal quarter ending after the Closing Date
based on the Leverage Ratio as of such quarter end. Any increase or decrease in
the Applicable Margin or the Applicable Commitment Fee Rate computed as of a
quarter end shall be effective on the date on which the Compliance Certificate
evidencing such computation is due to be delivered under Section 7.3.3.
SCHEDULE 1.1(B) - 4
<PAGE>
Exhibit 10.26
[LOGO]
BANK ONE, INDIANA, N.A.
1 BANK ONE PLAZA MALL, SUITE IL1-0047
CHICAGO, IL 60670
UNITED STATES OF AMERICA
PAPA JOHN'S INTERNATIONAL, INC.
P.O. BOX 99900
LOUISVILLE, KY 40269-0900
UNITED STATES OF AMERICA
ATTN: DAVE FLANNERY
FAX: 502-261-4190
PHONE: 502-261-7272
DATE: 22 February 2000
REF: 25553
The purpose of this letter agreement is to confirm the terms and conditions
of the Transaction entered into between PAPA JOHN'S INTERNATIONAL, INC. and
BANK ONE, INDIANA, N.A. on the Trade Date specified below. This Transaction
shall be governed by the International Swaps and Derivatives Association Inc.
("ISDA") Master Agreement ("Master Agreement") with a first draft of a
Schedule thereto to be provided by BANK ONE, INDIANA, N.A.. This letter shall
evidence a binding Agreement between the parties until such time as the Master
Agreement is executed, and upon its execution shall become a Confirmation
thereunder. Terms used and not otherwise defined herein shall have their
meaning defined in the 1991 ISDA Definitions (as supplemented by the 1998
Supplement and further amended and supplemented by the 1998 ISDA Euro
Definitions) (the "Definitions"), as published by the International Swaps and
Derivatives Association Inc. The definitions and provisions contained in the
1991 ISDA Definitions are incorporated into this Confirmation. In the event
of any inconsistency between the Definitions and provisions and this
Confirmation, this Confirmation will govern.
If you and we are not parties to a Master Agreement, then you and we agree to
use our best efforts to negotiate promptly, execute and deliver a Master
Agreement including a standard form of Schedule attached thereto and made a
part thereof, with such modifications as you and we shall in good faith agree.
Upon execution and delivery by you and us of a Master Agreement, this
Confirmation shall supplement, form part of and be subject to such Master
Agreement. Until you and we execute and deliver a Master Agreement, this
Confirmation shall supplement, form a part of and be subject to the Master
Agreement published by the International Swap and Derivatives Association
Inc., as if you and we had executed that Agreement (but without any Schedule
thereto). However, notwithstanding the foregoing, until such Master Agreement
is executed, the Termination Currency shall be United States Dollars and
Governing Law shall be the laws of the State of New York. After such Master
Agreement is executed the Termination Currency and Governing Law shall be
those stated within the Schedule to the Master Agreement.
<PAGE>
TERM
- ----
TRADE DATE: 22 February 2000
EFFECTIVE DATE: 24 February 2000
TERMINATION DATE: 10 March 2003, subject to adjustment in accordance with
the Modified Following Business Day Convention.
NOTIONAL AMOUNT: USD 100,000,000.00
PREMIUM: Not Applicable
FLOATING AMOUNTS
- ----------------
CAP RATE: 9.50%
FLOATING RATE PAYER: BANK ONE, INDIANA, N.A.
FLOATING RATE PAYER
PAYMENT DATES: Each 10 January, 10 February, 10 March, 10 April, 10
May, 10 June, 10 July, 10 August, 10 September, 10
October, 10 November, 10 December from and including
10 April 2000, to and including 10 March 2003, subject
to adjustment in accordance with the Modified
Following Business Day Convention.
FLOATING RATE OPTION: USD-LIBOR-BBA
DESIGNATED MATURITY: 1 Month
FLOATING RATE DAY COUNT
FRACTION: Actual/360
RESET DATES: The first day of each Calculation Period
ROUNDING CONVENTION: As per ISDA
BUSINESS DAYS: London, New York
FLOATING AMOUNTS
- ----------------
FLOOR RATE: 6.36%
FLOATING RATE PAYER: PAPA JOHN'S INTERNATIONAL, INC.
<PAGE>
FLOATING RATE PAYER
PAYMENT DATES: Each 10 January, 10 February, 10 March, 10 April, 10
May, 10 June, 10 July, 10 August, 10 September, 10
October, 10 November, 10 December from and including
10 April 2000, to and including 10 March 2003, subject
to adjustment in accordance with the Modified
Following Business Day Convention.
FLOATING RATE OPTION: USD-LIBOR-BBA
DESIGNATED MATURITY: 1 Month
FLOATING RATE DAY COUNT
FRACTION: Actual/360
RESET DATES: The first day of each Calculation Period
ROUNDING CONVENTION: As per ISDA
BUSINESS DAYS: London, New York
ADDITIONAL PROVISIONS
- ---------------------
Notwithstanding anything to the contrary set forth herein, no Floating Rate
shall be determined for, and no Floating Amount shall be payable in respect
of, the Calculation Period which commences on the Effective Date.
ACCOUNT DETAILS
- ---------------
Payments to PAPA JOHN'S INTERNATIONAL, INC. in USD:
***TO BE ADVISED***
Payments to BANK ONE, INDIANA, N.A. in USD:
PAY TO: BANK ONE NA,
ABA NUMBER:
FOR THE ACCOUNT OF: BANK ONE, N.A.
ACCOUNT NUMBER:
ATTN OR REF: GLOBAL DERIVATIVES
OFFICES
- -------
(a) The Office of BANK ONE, INDIANA, N.A. in CHICAGO
(b) The Office of PAPA JOHN'S INTERNATIONAL, INC. in LOUISVILLE
Dealing with Confirmations on our behalf:
Kevin Doyle 312-732-2148
Dealing with Settlements on our behalf:
Global Derivative Products (312)732-4333
<PAGE>
Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this letter and returning all pages of this letter via
facsimile to.
Yours sincerely,
BANK ONE, INDIANA, N.A.
By:
/s/ Dianne Schuyler
Name: Dianne Schuyler
Title: Vice President
BANK ONE, INDIANA, N.A.
By:
/s/ Steven D. Matheson
Name: Steven D. Matheson
Title: Vice President
Confirmed as of the date above written:
PAPA JOHN'S INTERNATIONAL, INC.
By:
/s/ J. David Flanery
Name: J. David Flanery
Title: Vice President & Corporate Controller
RE: OUR REF: 25553
<PAGE>
Exhibit 21
Subsidiaries of the Company
(a) PJ Food Service, Inc., a Kentucky corporation
(b) Papa John's USA, Inc., a Kentucky corporation
(c) Papa John's Support Services, Inc., a Kentucky corporation
(d) PJFS of Mississippi, Inc., a Mississippi corporation
(e) Risk Services Corp., a Kentucky corporation
(f) Capital Delivery, Ltd., a Kentucky corporation
(g) Papa John's (U.K.) Ltd., a United Kingdom corporation
(h) Perfect Pizza Ltd., a United Kingdom corporation
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in (i) the Registration Statements
(Forms S-8 No. 333-27823, No. 333-16447, No. 33-67472 and No. 333-86537)
pertaining to the Papa John's International, Inc. 1993 Stock Ownership Incentive
Plan, (ii) the Registration Statements (Forms S-8 No. 33-67470 and No.
333-86539) pertaining to the Papa John's International, Inc. 1993 Stock Option
Plan for Non-Employee Directors, (iii) the Registration Statement (Form S-8 No.
333-86535) pertaining to the Papa John's International, Inc. 1999 Team Member
Stock Ownership Plan and (iv) the Registration Statement (Form S-4 No. 33-96552)
of Papa John's International, Inc. of our report dated March 17, 2000, with
respect to the consolidated financial statements of Papa John's International,
Inc. and subsidiaries included in the Annual Report (Form 10-K) for the year
ended December 26, 1999.
Louisville, Kentucky
March 20, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> DEC-26-1999
<CASH> 3,698
<SECURITIES> 22,086
<RECEIVABLES> 18,546
<ALLOWANCES> 433
<INVENTORY> 10,637
<CURRENT-ASSETS> 46,105
<PP&E> 297,558
<DEPRECIATION> 69,745
<TOTAL-ASSETS> 372,051
<CURRENT-LIABILITIES> 68,771
<BONDS> 925
0
0
<COMMON> 305
<OTHER-SE> 291,828
<TOTAL-LIABILITY-AND-EQUITY> 372,051
<SALES> 757,184
<TOTAL-REVENUES> 805,325
<CGS> 376,491
<TOTAL-COSTS> 644,110
<OTHER-EXPENSES> 88,882
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 75,717
<INCOME-TAX> 28,431
<INCOME-CONTINUING> 47,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,286
<EPS-BASIC> 1.57
<EPS-DILUTED> 1.52
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 18,836
<SECURITIES> 57,933
<RECEIVABLES> 15,354
<ALLOWANCES> 0
<INVENTORY> 9,201
<CURRENT-ASSETS> 49,701
<PP&E> 149,170
<DEPRECIATION> 33,561
<TOTAL-ASSETS> 253,412
<CURRENT-LIABILITIES> 31,889
<BONDS> 1,320
0
0
<COMMON> 292
<OTHER-SE> 206,704
<TOTAL-LIABILITY-AND-EQUITY> 253,412
<SALES> 486,631
<TOTAL-REVENUES> 515,668
<CGS> 243,890
<TOTAL-COSTS> 419,762
<OTHER-EXPENSES> 60,765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 39,337
<INCOME-TAX> 15,772
<INCOME-CONTINUING> 23,565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,565
<EPS-BASIC> 0.81
<EPS-DILUTED> 0.79
</TABLE>
<PAGE>
Exhibit 99.1
Exhibit 99.1 - Cautionary Statements
Information provided herein by Papa John's contains, and from time to time we
may disseminate materials and make statements which contain "forward looking"
information within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Act"), including information within Management's Discussion and
Analysis of Financial Condition and Results of Operations. The following
cautionary statements are being made pursuant to the provisions of the Act and
with the intention of obtaining the benefits of the "safe harbor" provisions of
the Act. Although we believe that our expectations are based on reasonable
assumptions, actual results may differ materially from those in the forward
looking statements as a result of various factors, including but not limited to,
the following:
1. Our ability and the ability of our franchisees to continue to expand
through the opening of new restaurants is affected by a number of factors,
many of which are beyond our control and our franchisees' control. These
factors include, among other things, selection and availability of suitable
restaurant locations, increases in food, paper and labor costs, negotiation
of suitable lease or financing terms, constraints on permitting and
construction of other restaurants, higher than anticipated construction
costs, and the hiring, training and retention of management and other
personnel. Accordingly, there can be no assurance that we or the Papa
John's franchisees will be able to meet planned growth targets or open
restaurants in markets now targeted for expansion.
2. The restaurant industry is intensely competitive with respect to price,
service, location and food quality, and there are many well-established
competitors with substantially greater financial and other resources than
Papa John's and our franchisees. Some of these competitors have been in
existence for a substantially longer period than us or our franchisees and
may be better established in the markets where restaurants operated by
Papa John's or our franchisees are, or may be, located. A change in the
pricing or other marketing or promotional strategies of one or more of our
major competitors could have an adverse impact on sales and earnings at
restaurants operated by us and our franchisees.
3. An increase in the cost of cheese or other commodities could adversely
affect the profitability of our restaurant operations. Cheese,
representing approximately 40% of our food cost, and other commodities are
subject to seasonal fluctuations, weather, demand and other factors that
are beyond our control. During the third quarter of 1999, cheese prices
reached an all time high, but have since returned to more normal levels.
Additionally, sustained increases in fuel costs could adversely affect
profitability of our restaurant and commissary businesses.
4. Changes in consumer taste, demographic trends, traffic patterns and the
type, number and location of competing restaurants could adversely affect
our restaurant business.
5. Our restaurant operations are subject to federal and state laws governing
such matters as wages, working conditions, citizenship requirements and
overtime. A significant number of hourly personnel employed by us and our
franchisees are paid at rates related to the federal minimum wage.
Accordingly, further increases in the minimum wage will increase labor
costs for us and our franchisees. Additionally, labor shortages in various
markets could result in higher required wage rates.
<PAGE>
6. Our international operations are subject to a number of additional
factors, including international economic and political conditions,
currency regulations and fluctuations, differing cultures and consumer
preferences, diverse government regulations and structures, availability
and cost of land and construction, and differing interpretation of the
obligations established in franchise agreements with international
franchisees. Accordingly, there can be no assurance that our
international operations will achieve or maintain profitability or meet
planned growth rates.
7. Our acquisition of Perfect Pizza and planned conversion of Perfect Pizza
restaurants to Papa John's restaurants over the next three years
represents the first time we have attempted to expand the Papa John's
brand in this manner. There can be no assurance that all conversion
issues will be identified and successfully addressed in a timely and
cost-effective manner or that the existing Perfect Pizza market share can
be successfully converted to Papa John's.
