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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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P.F. CHANG'S CHINA BISTRO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 5812 86-0815086
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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5090 NORTH 40TH STREET, SUITE 160
PHOENIX, AZ 85018
(602) 957-8986
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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ROBERT T. VIVIAN
CHIEF FINANCIAL OFFICER
P.F. CHANG'S CHINA BISTRO, INC.
5090 NORTH 40TH STREET, SUITE 160
PHOENIX, AZ 85018
(602) 957-8986
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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CAMERON JAY RAINS, ESQ. CECIL SCHENKER, P.C.
SCOTT M. STANTON, ESQ. J. PATRICK RYAN, ESQ.
CHRISTIAN WAAGE, ESQ. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
GRAY CARY WARE & FREIDENRICH LLP 300 CONVENT STREET, SUITE 1500
4365 EXECUTIVE DRIVE, SUITE 1600 SAN ANTONIO, TX 78205
SAN DIEGO, CA 92121 (210) 281-7000
(619) 677-1400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE AMOUNT OF
BE REGISTERED REGISTERED(1) REGISTRATION FEE
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Common Stock, $0.001 par value..................... $57,500,000 $16,962.50
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(1) Estimated solely for the purposes of computing the registration fee in
accordance with Rule 457(o).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 24, 1998
PROSPECTUS
, 1998
SHARES
[P.F. CHANG'S LOGO]
P.F. CHANG'S CHINA BISTRO, INC.
COMMON STOCK
Of the shares of common stock offered hereby (the "Common
Stock"), shares are being offered by P.F. Chang's China Bistro, Inc.
("P.F. Chang's" or the "Company") and shares are being offered by the
Selling Stockholders. See "Principal and Selling Stockholders." The Company will
not receive any of the proceeds from the sale of the shares by the Selling
Stockholders.
Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $ and $ per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price.
Application has been made for the Common Stock to be approved for quotation
on the Nasdaq National Market under the symbol "PFCB."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
Total(3)............................. $ $ $ $
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(1) The Company and Selling Stockholders have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $550,000.
(3) The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable within 30 days after the date hereof to purchase up to
additional shares of Common Stock on the same terms and conditions
set forth above solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to the Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to the Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to certain prior conditions including the right of the Underwriters to
reject any order in whole or in part. It is expected that delivery of the
certificates representing the shares of Common Stock will be made in New York,
New York on or about , 1998.
DONALDSON, LUFKIN & JENRETTE
NATIONSBANC MONTGOMERY SECURITIES LLC
DAIN RAUSCHER WESSELS
a division of Dain Rauscher
Incorporated
<PAGE> 3
[INSIDE FRONT COVER]
The Company has registered the servicemark "P.F. Chang's China Bistro." All
other brand names and trademarks appearing in this Prospectus are the property
of their respective holders.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. As used in this Prospectus, unless the context
otherwise requires, the terms "Company" and "P.F. Chang's" include P.F. Chang's
China Bistro, Inc. and all of its subsidiaries and affiliates and their
respective predecessors. Except as otherwise noted, all information in this
Prospectus assumes (i) no exercise of the Underwriters' over-allotment option,
(ii) no exercise of options or warrants to purchase shares of Common Stock and
(iii) the conversion into shares of Common Stock upon the closing of this
offering of all outstanding shares of Convertible Redeemable Preferred Stock and
the deferred purchase price liability representing the balance of the purchase
price from the acquisition of minority interests in three of the four original
restaurants (the "Deferred Purchase Price Liability"). Information in this
Prospectus also gives effect to a one-for-two reverse stock split to be effected
prior to consummation of this offering. See "Description of Capital Stock" and
"Underwriting."
THE COMPANY
P.F. Chang's owns and operates 15 full service restaurants that feature a
unique blend of high quality, authentic Chinese cuisine and American hospitality
in a sophisticated, contemporary bistro setting. The Company's restaurants offer
intensely flavored, highly memorable culinary creations, prepared from fresh
ingredients, including premium herbs and spices imported directly from China.
The menu is focused on select dishes created to capture the distinct flavors and
styles of the five major culinary regions of China: Canton, Hunan, Mongolia,
Shanghai and Szechwan. By adhering to the Chinese culinary precepts of fan and
t'sai, a balancing of rice, noodles and grains with meat, seafood and
vegetables, the P.F. Chang's menu offers an array of taste, texture, color and
aroma. The menu is highlighted by signature dishes such as Chang's Spicy
Chicken, Orange Peel Beef, Peking Ravioli, Chicken in Soothing Lettuce Wrap,
Szechwan-Style Long Beans and Dan Dan Noodles. The authentic cuisine is
complemented by a full service bar offering an extensive selection of wines,
specialty drinks, Asian beers, cappuccino and espresso. The average check per
customer, including beverage, is approximately $17.00. The Company offers
superior customer service in a high energy atmosphere featuring a display
kitchen, exhibition wok cooking and a decor that includes wood and slate floors,
mounted life-size terra cotta replicas of Xi'an warriors and narrative murals
depicting 12th century China.
The Company was formed in early 1996 with the acquisition of the four
original P.F. Chang's restaurants and the hiring of an experienced management
team, led by Richard Federico and Robert Vivian, the Company's Chief Executive
Officer and Chief Financial Officer, respectively, to support the Company's
founder, Paul Fleming. P.F. Chang's opened three additional restaurants in 1996,
six in 1997 and expects to open ten restaurants in 1998 (two of which are open)
and 13 in 1999. Key to the Company's expansion strategy and success at the
restaurant level is the Company's management philosophy utilizing Market,
Operating and Culinary Partners. The Company has demonstrated the viability of
the P.F. Chang's concept in a wide variety of markets across the United States,
including the Southwest, southern California, Texas and southern Florida.
The P.F. Chang's concept was developed in 1993 by Paul Fleming, a highly
successful Phoenix-based restaurateur, in collaboration with Philip Chiang, the
owner of the acclaimed Mandarin restaurant in Beverly Hills, California. The
Company's objectives are to (i) develop and operate a nationwide system of
restaurants that offer guests a unique, sophisticated dining experience, (ii)
create a loyal customer base that generates a high level of repeat business and
(iii) provide superior returns to its investors. To achieve its objectives, the
Company strives to offer high quality Chinese cuisine in a memorable atmosphere
while delivering superior customer service and an excellent dining value. The
Company intends to pursue an accelerated, disciplined expansion program by
leveraging its innovative partnership management philosophy in order to build on
its exceptional restaurant economics.
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The Company was incorporated in January 1996 as a Delaware corporation in
connection with the acquisition of the four original P.F. Chang's restaurants.
The Company's principal executive office is located at 5090 North 40th Street,
Suite 160, Phoenix, Arizona 85018. The Company's telephone number is (602) 957-
8986, and its facsimile number is (602) 957-8998.
3
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THE OFFERING
Common Stock offered by the Company........... shares
Common Stock offered by the Selling
Stockholders.................................. shares
Common Stock to be outstanding after the
offering...................................... shares(1)
Use of proceeds............................... Development of new restaurants,
repayment of certain indebtedness and general corporate purposes including
working capital. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol........ PFCB
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(1) Based on shares outstanding at June 28, 1998, which includes (i)
3,475,854 shares issuable on conversion of outstanding shares of Series A
Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") and
outstanding shares of Series B Convertible Redeemable Preferred Stock (the
"Series B Preferred Stock" and together with the Series A Preferred Stock,
the "Preferred Stock"), (ii) 82,130 shares of Common Stock issuable as
paid-in-kind dividends to holders of Series A Preferred Stock of the Company
prior to consummation of the offering and (iii) shares issuable upon
consummation of this offering upon conversion of the Deferred Purchase Price
Liability, assuming an initial public offering price of $ . Excludes
(i) 1,009,635 shares reserved as of such date for issuance upon the exercise
of outstanding stock options at a weighted average exercise price of $3.87
per share, (ii) an aggregate of 680,000 shares reserved for future grant
under the Company's stock option and stock purchase plans and (iii) 62,190
shares reserved for issuance upon the exercise of outstanding warrants at an
exercise price of $4.00 per share. See "Management--Benefit Plans" and
"Description of Capital Stock."
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA(1)
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SIX MONTHS ENDED
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FISCAL YEAR TOTAL YEAR FISCAL YEAR JUNE 29, JUNE 28,
1995(2) 1996(3) 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues..................................... $10,465 $18,445 $39,768 $17,703 $32,937
Total restaurant operating costs............. 8,891 15,835 32,470 14,334 26,296
Income (loss) from operations................ 660 9 (2) 696 1,658
Net income (loss)............................ $ 647 $(1,145) $(1,696) $ (241) $ 847
Diluted net income (loss) per share.......... -- -- $ (1.03) $ (0.25) $ 0.13
Shares used in calculation of diluted net
income (loss) per share(4)................. -- -- 2,500 2,500 6,655
PRO FORMA DATA:(5)
Pro forma diluted net income (loss) per
share...................................... -- $ $ $ $
Shares used in calculation of pro forma
diluted net income (loss) per share........ --
OPERATING DATA:
Comparable restaurant sales increase(6)...... 25.1% 13.0% 13.8% 12.6% 11.7%
Average weekly restaurant sales.............. $81,122 $81,976 $90,383 $91,250 $93,839
Return on investment(7)...................... 25.2% 34.4% 34.9% -- --
Restaurants open at end of period............ 4 7 13 8 14
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JUNE 28, 1998
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ACTUAL AS ADJUSTED(8)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,802 $
Total assets................................................ 34,265
Deferred Purchase Price Liability........................... 2,426 --
Short- and long-term debt................................... 11,600 2,600
Convertible Redeemable Preferred Stock...................... 18,285 --
Common stockholders' equity (deficit)....................... (4,076)
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4
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(1) The Company's fiscal quarters typically consist of thirteen week periods
ending on the Sunday closest to the last day of the calendar quarter, and
its fiscal year ends on the Sunday closest to December 31 in each year.
(2) Fiscal year 1995 information reflects the combined results of operations of
the Predecessors. Accordingly, net income (loss) per share for fiscal year
1995 is not presented because it is not meaningful. See "Certain
Transactions" and Note 1 of Notes to Consolidated Financial Statements.
(3) Prior to February 29, 1996, the Company's business was conducted by four
business entities controlled by Paul Fleming: Fleming Chinese Restaurants,
Inc. (Scottsdale), P.F. Chang's II, Inc. (Newport Beach), P.F. Chang's III,
L.L.C. (La Jolla) and P.F. Chang's IV, L.L.C. (Irvine) (collectively, the
"Predecessors"). Total year 1996 information reflects the combined results
of the Predecessors for the period beginning January 1, 1996 and ending
February 28, 1996 and the results of the Company for the period beginning
February 29, 1996 and ending December 29, 1996. Accordingly, net income
(loss) per share for total year 1996 is not presented because it is not
meaningful. The allocation of the purchase price in connection with the
purchase of minority interests resulted in no material adjustment to the
historical recorded basis in the assets and liabilities except for goodwill.
Therefore, the effect to the statement of operations is primarily
amortization of goodwill subsequent to the date of acquisition. See
"Selected Consolidated Financial and Operating Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Certain Transactions" and Note 1 of Notes to Consolidated Financial
Statements.
(4) See Notes 2, 6 and 8 of Notes to Consolidated Financial Statements.
(5) Pro forma information gives effect as of the beginning of each period to (i)
the purchase of substantially all of the minority interests in the
Predecessors, (ii) the repayment of the Company's revolving line of credit
through the application of the net proceeds from the sale of a sufficient
number of shares of Common Stock at the assumed initial public offering
price of $ per share, and (iii) the conversion into Common Stock of
the Preferred Stock and the Deferred Purchase Price Liability, assuming an
initial public offering price of $ per share.
(6) A new restaurant is included in the calculation of the change in comparable
restaurant sales in the eighteenth month of that restaurant's operation.
(7) Return on investment for each restaurant is determined as the quotient of
earnings of such restaurant before interest, taxes and rent divided by the
Company's total investment in restaurant assets. The information presented
in the table is the aggregate return on investment for all restaurants open
during the respective periods. See "Business--Unit Economics."
(8) Adjusted to give effect as of June 28, 1998 to (i) the receipt by the
Company of the estimated net proceeds of $ from the sale of
shares of Common Stock offered hereby by the Company at an assumed initial
public offering price of $ per share, (ii) application of a portion of
the net proceeds of this offering to repay the Company's revolving line of
credit, and (iii) the conversion into Common Stock of the Preferred Stock
and the Deferred Purchase Price Liability, assuming an initial public
offering price of $ per share.
5
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RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors in evaluating an
investment in the Company before purchasing any shares of Common Stock offered
hereby. This Prospectus contains forward-looking statements which involve risks
and uncertainties. Such forward-looking statements may be deemed to include
anticipated restaurant openings, anticipated costs and sizes of future
restaurants and the adequacy of anticipated sources of cash, including the
proceeds from this offering, to fund the Company's future capital requirements.
Words such as "believes," "anticipates," "expects," "intends," "plans" and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying such statements. Prospective investors
are cautioned that actual events or results may differ materially from those
discussed in the forward-looking statements. Factors that might cause actual
events or results to differ materially from those indicated by such forward-
looking statements may include the matters set forth below and elsewhere in this
Prospectus.
UNCERTAINTIES ASSOCIATED WITH EXPANDING OPERATIONS
Because the Company currently operates only 15 restaurants, several of
which have been opened within the last twelve months, the results achieved to
date by the Company's relatively small number of restaurants may not be
indicative of those restaurants' long-term performance or the potential market
acceptance of restaurants in other locations. Further, there can be no assurance
that any new restaurant which the Company opens will obtain similar operating
results to those of prior restaurants. The Company anticipates that its new
restaurants will commonly take several months to reach planned operating levels
due to certain inefficiencies typically associated with new restaurants,
including lack of market awareness, inability to hire sufficient staff and other
factors.
A critical factor in the Company's future success is its ability to
successfully expand its operations. The Company expanded from seven restaurants
at the end of 1996 to 15 restaurants as of June 1998. The Company expects to
open a total of ten restaurants during 1998 (two of which are open) and an
additional 13 in 1999. The Company's ability to expand successfully will depend
on a number of factors, including the identification and availability of
suitable locations, competition for restaurant sites, the negotiation of
favorable lease arrangements, timely development in certain cases of commercial,
residential, street or highway construction near the Company's restaurants,
management of the costs of construction and development of new restaurants,
securing required governmental approvals and permits, recruitment of qualified
operating personnel (particularly managers and chefs), the competition in new
markets, general economic conditions and other factors, some of which are beyond
the control of the Company. The opening of additional restaurants in the future
will depend in part upon the Company's ability to generate sufficient funds from
operations or to obtain sufficient equity or debt financing on favorable terms
to support such expansion. There can be no assurance that the Company will be
successful in addressing these risks, that the Company will be able to open its
planned new operations on a timely basis, if at all, or, if opened, that those
operations will be operated profitably. The Company has experienced, and expects
to continue to experience, delays in restaurant openings from time to time.
Delays or failures in opening planned new restaurants could have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.
The Company's growth strategy may strain the Company's management,
financial and other resources. To manage its growth effectively, the Company
must maintain a high level of quality and service at its existing and future
restaurants, continue to enhance its operational, financial and management
capabilities and locate, hire, train and retain experienced and dedicated
operating personnel, particularly managers and chefs. There can be no assurance
that the Company will be able to effectively manage these and other factors
necessary to permit it to achieve its expansion objectives, and any failure to
do so could have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows.
6
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DEVELOPMENT AND CONSTRUCTION RISKS
Because each P.F. Chang's restaurant is distinctively designed to
accommodate particular characteristics of each location and to blend local or
regional design themes with the Company's principal trade dress and other common
design elements, each location presents its own development and construction
risks. Many factors may affect the costs associated with the development and
construction of the Company's restaurants, including labor disputes, shortages
of materials and skilled labor, weather interference, unforeseen engineering
problems, environmental problems, construction or zoning problems, local
government regulations, modifications in design to the size and scope of the
projects and other unanticipated increases in costs, any of which could give
rise to delays or cost overruns. There can be no assurance that the Company will
be able to develop additional P.F. Chang's restaurants within anticipated
budgets or time periods, and any such failure could materially adversely affect
the Company's business, financial condition, results of operations or cash
flows.
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business will continue to be highly dependent
on its key operating officers and employees, including Richard Federico, the
Company's Chief Executive Officer and President, and Robert Vivian, the
Company's Chief Financial Officer. The Company's success in the future will be
dependent on its ability to attract, retain and motivate a sufficient number of
qualified management and operating personnel, including Market Partners,
Operating Partners and chefs, to keep pace with an aggressive expansion
schedule. Such qualified individuals are historically in short supply and any
inability of the Company to attract and retain such key employees may limit its
ability to effectively penetrate new market areas. Additionally, the ability of
these key personnel to maintain consistency in the quality and atmosphere of the
Company's restaurants in various markets is a critical factor in the Company's
success. Any failure to do so may harm the Company's reputation and could have a
material adverse effect on the Company's business, financial condition, results
of operations or cash flows. See "Business--Operations" and "Management."
RESTAURANT INDUSTRY AND COMPETITION
The restaurant industry is intensely competitive with respect to food
quality, price-value relationships, ambiance, service and location, and many
restaurants compete with the Company at each of its locations. The Company's
competitors include mid-price, full-service casual dining restaurants and
locally owned and operated Chinese restaurants. There are many well-established
competitors with substantially greater financial, marketing, personnel and other
resources than the Company, and many of the Company's competitors are well
established in the markets where the Company's operations are, or in which they
may be, located. Additionally, other companies may develop restaurants that
operate with similar concepts.
The restaurant business is often affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends, consumer
confidence in the economy, discretionary spending priorities, weather
conditions, tourist travel, traffic patterns and the type, number and location
of competing restaurants. Changes in these factors could have a material adverse
effect on the Company's business, financial condition, results of operations or
cash flows. In the future, changes in consumer tastes may require the Company to
modify or refine elements of its restaurant system to evolve its concept in
order to compete with popular new restaurant formats or concepts that develop
from time to time, and there can be no assurance that the Company will be
successful in implementing such modifications. See "Business--Competition."
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may fluctuate significantly as a result of
a variety of factors, including general economic conditions, consumer confidence
in the economy, changes in consumer preferences, competitive factors, weather
conditions, the timing of new restaurant openings and related expenses, revenues
contributed by new restaurants and increases or decreases in comparable
restaurant revenues. Historically, the Company has experienced variability in
the amount and percentage of revenues attributable to preopening expenses. The
Company typically incurs the most significant portion of preopening expenses
associated with a given restaurant within the two months immediately preceding
and the month of the opening of the restaurant.
7
<PAGE> 9
In addition, the Company's experience to date has been that labor and operating
costs associated with a newly opened restaurant for the first several months of
operation are materially greater than what can be expected after that time, both
in aggregate dollars and as a percentage of revenues. Accordingly, the volume
and timing of new restaurant openings has had and is expected to have a
meaningful impact on preopening expenses and labor and operating costs until
such time as a larger base of restaurants in operation mitigates such impact.
Due to the foregoing factors, results for any one quarter are not necessarily
indicative of results to be expected for any other quarter or for a full fiscal
year, and, from time to time in the future, the Company's results of operations
may be below the expectations of public market analysts and investors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CHANGES IN FOOD COSTS
The Company's profitability is dependent in part on its ability to
anticipate and react to changes in food costs. Other than for produce, which is
purchased locally by each restaurant, the Company relies on the Distributors
Marketing Alliance as the primary distributor of its food. Although the Company
believes that alternative distribution sources are available, any increase in
distribution prices or failure to perform by the Distributors Marketing Alliance
could cause the Company's food costs to fluctuate. Further, various factors
beyond the Company's control, including adverse weather conditions and
governmental regulation, may affect the Company's food costs. There can be no
assurance that the Company will be able to anticipate and react to changing food
costs through its purchasing practices and menu price adjustments in the future,
and failure to do so could have a material adverse effect on the Company's
business, financial condition, results of operations or cash flows.
LITIGATION
The Company is from time to time the subject of complaints or litigation
from guests alleging illness, injury or other food quality, health or
operational concerns. Adverse publicity resulting from such allegations may
materially adversely affect the Company and its restaurants, regardless of
whether such allegations are valid or whether the Company is liable. The Company
also is the subject of complaints or allegations from former or prospective
employees from time to time. A lawsuit or claim could result in an adverse
decision against the Company that could materially adversely affect the Company
or its business.
GOVERNMENTAL REGULATION; MINIMUM WAGE
The Company's operations are subject to regulation by federal agencies and
to licensing and regulation by state and local health, environmental, labor
relations, sanitation, building, zoning, safety, fire and other departments
relating to the development and operation of restaurants and retail
establishments. The Company's activities are also subject to the federal
Americans With Disabilities Act and related regulations, which prohibit
discrimination on the basis of disability in public accommodations and
employment. The Company is also subject to state "dram-shop" laws and
regulations, which generally provide that a person injured by an intoxicated
person may seek to recover damages from an establishment that wrongfully served
alcoholic beverages to such person. Given the location of many of the Company's
restaurants, even if the Company's operation of those restaurants is in strict
compliance with the requirements of the Immigration and Naturalization Service
(the "INS"), the Company's employees may not all meet federal citizenship or
residency requirements, which could lead to disruptions in its work force.
Changes in any or all of these laws or regulations, such as government-imposed
paid leaves of absence or mandated health benefits, or increased tax reporting
and tax payment requirements for employees who receive gratuities, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Delays or failures in obtaining or maintaining required
construction and operating licenses, permits or approvals could delay or prevent
the opening of new restaurants or could materially and adversely affect the
operation of existing restaurants. In addition, there can be no assurance that
the Company will be able to obtain necessary variance or amendments to required
licenses, permits or other approvals on a cost-effective and timely basis in
order to construct and develop restaurants in the future. See
"Business--Governmental Regulation."
8
<PAGE> 10
A number of the Company's employees are subject to various minimum wage
requirements. Many of the Company's employees work in restaurants located in
California and receive salaries equal to the California minimum wage. The
minimum wage in California rose from $5.00 per hour effective March 1, 1997 to
$5.75 per hour effective March 1, 1998. There can be no assurance that similar
increases will not be implemented in other jurisdictions in which the Company
operates or seeks to operate. In addition, the federal minimum wage increased to
$5.15 per hour effective September 1, 1997. There can be no assurance that the
Company will be able to pass additional increases in labor costs through to its
guests in the form of menu price adjustments and, accordingly, such minimum wage
increases could have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows.
CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT
Following the closing of this offering, the Company's directors, officers
and their affiliates will beneficially own approximately % of the
outstanding Common Stock. As a result of such Common Stock ownership, the
Company's directors, officers and their affiliates, if they voted together,
would be able to elect all members of the Company's Board of Directors and
control corporate actions requiring stockholder approval. See "Principal and
Selling Stockholders."
CERTAIN ANTI-TAKEOVER MEASURES
The Company's Amended and Restated Certificate of Incorporation (the
"Charter") authorizes the Board of Directors to issue up to 10,000,000 shares of
preferred stock and to determine the powers, preferences, privileges, rights,
including voting rights, qualifications, limitations and restrictions of those
shares without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The Charter and By-laws, among other things, require that stockholder
actions occur at duly called meetings of the stockholders, limit who may call
special meetings of stockholders, do not permit cumulative voting in the
election of directors and require advance notice of stockholder proposals and
director nominations. Also, Section 203 of the Delaware General Corporation Law
(the "DGCL") restricts certain business combinations with any "interested
stockholder" as defined by such statute. These and other provisions could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company, discourage a hostile bid or
delay, prevent or deter a merger, acquisition or tender offer in which the
Company's stockholders could receive a premium for their shares, or a proxy
contest for control of the Company or other change in the Company's management.
See "Management" and "Description of Capital Stock."
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or,
if one develops, that it will be maintained. The initial public offering price
of the Common Stock will be established by negotiation among the Company, the
Selling Stockholders and the Underwriters. See "Underwriting" for a discussion
of factors to be considered in determining the initial public offering price.
The market price of the Common Stock could be subject to significant
fluctuations in response to the Company's operating results and other factors,
including general economic and market conditions. In addition, the stock market
in recent years has experienced and continues to experience significant price
and volume fluctuations, which have affected the market price of the stock of
many companies and which have often been unrelated or disproportionate to the
operating performance of these companies. These fluctuations, as well as a
shortfall in sales or earnings compared to securities analysts' expectations,
changes in analysts' recommendations or projections or general economic and
market conditions, may adversely affect the market price of the Common Stock. In
the past, securities class action litigation has often been instituted following
periods of volatility in the market price for a company's securities. Such
litigation could result in substantial costs and a diversion of management
attention and resources, which could have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
9
<PAGE> 11
ADDITIONAL SHARES ELIGIBLE FOR FUTURE SALE IN THE PUBLIC MARKET
The sale of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock. Upon the closing of this offering, the Company will have
outstanding an aggregate of shares of Common Stock (including
shares issuable upon conversion of the Deferred Purchase Price
Liability, assuming an initial public offering price of $ per share),
assuming no exercise of outstanding options, warrants or the Underwriters'
over-allotment option.
The shares of Common Stock sold in this offering (and any
shares sold upon exercise of the Underwriters' over-allotment option) will be
freely tradable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"). The remaining shares of Common Stock are
"restricted shares" within the meaning of Rule 144 promulgated under the
Securities Act and are subject to restrictions under the Securities Act. Of
these restricted shares, are subject to lock-up agreements under which the
holders have agreed not to sell or otherwise dispose of any of their shares for
a period of 180 days after the date of this Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). In its
sole discretion and at any time without notice, DLJ may release all or any
portion of the shares subject to the lock-up agreements. All of the restricted
shares subject to lock-up agreements will become available for sale in the
public market immediately following expiration of the 180-day lock-up period,
subject (to the extent applicable) to the volume and other limitations of Rule
144 or Rule 701 promulgated under the Securities Act. In addition, beginning 90
days after the date of this Prospectus, restricted shares not
subject to lock-up agreements or contractual restrictions will become available
for sale in the public market, subject to the volume and other limitations of
Rule 144 or Rule 701. In addition, after expiration of the lock-up period,
certain securityholders of the Company have the contractual right to require the
Company to register certain of their shares of Common Stock for future sale. The
Company is unable to predict the effect that future sales made pursuant to any
such registration rights, under Rule 144 or otherwise, may have on the
prevailing market price of the Common Stock. See "Description of Capital
Stock--Registration Rights" and "Shares Eligible for Future Sale."
DILUTION
The price to the public in this offering is substantially higher than the
net tangible book value per share of Common Stock. Investors purchasing shares
of Common Stock in this offering will therefore incur immediate and substantial
dilution. See "Dilution."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares
of Common Stock being offered by the Company hereby are estimated to be
approximately $ ($ if the Underwriters' over-allotment option
is exercised in full), assuming an initial public offering price of $ per
share and after deducting estimated underwriting discounts and commissions and
other estimated offering expenses. The Company intends to use a portion of the
net proceeds to repay certain indebtedness incurred for the development of
restaurants. Upon consummation of this offering, the Company is required to
repay all amounts outstanding under its revolving line of credit ($9.0 million
at June 28, 1998), which bears interest at LIBOR plus 3.5% (9.16% at June 28,
1998) and expires July 1, 1999. The Company intends to use the balance of the
net proceeds for development of new restaurants and for general corporate
purposes, including working capital. Pending such uses, the Company intends to
invest the net proceeds in short-term, investment-grade, interest-bearing
securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
in the past and does not anticipate paying dividends in the foreseeable future.
In addition, the Company's current credit agreements prohibit the payment of
cash dividends. The Company currently intends to retain its earnings for the
operation and development of its business. Any future payment of dividends is
within the discretion of the Company's Board of Directors and will depend, among
other factors, upon the capital requirements, operating results and financial
condition of the Company from time to time and restrictions under credit
agreements existing from time to time.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents,
short-term debt and capitalization of the Company as of June 28, 1998, and as
adjusted to reflect (i) the sale of the shares of Common Stock offered by the
Company hereby, (ii) the conversion into Common Stock of the Preferred Stock and
the Deferred Purchase Price Liability, assuming an initial public offering price
of $ per share and (iii) the application of the net proceeds from the
offering. This table should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 28, 1998
-------------------------
ACTUAL AS ADJUSTED(1)
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 1,802 $
======= =======
Revolving line of credit and current portion of long-term
debt...................................................... $ 9,441 $ 441
======= =======
Deferred Purchase Price Liability(2)........................ $ 2,426 $ --
Long-term debt, less current portion........................ 2,159
Convertible Redeemable Preferred Stock; $0.001 par value;
10,000,000 shares authorized; 3,475,854 shares issued and
outstanding, actual; no shares issued and outstanding, as
adjusted.................................................. 18,285 --
Common stockholders' equity (deficit):
Common stock; $0.001 par value; 20,000,000 shares
authorized; 2,500,000 shares issued and outstanding,
actual; shares issued and outstanding, as
adjusted(3)............................................ 3
Additional paid-in capital............................. 2
Accumulated deficit.................................... (4,081) (4,081)
------- -------
Total common stockholders' equity (deficit).......... (4,076)
------- -------
Total capitalization................................. $18,794 $
======= =======
</TABLE>
- ------------------------------
(1) Adjusted to give effect as of June 28, 1998 to (i) the receipt by the
Company of the estimated net proceeds of $ from the sale of
shares of Common Stock offered hereby by the Company, assuming an initial
public offering price of $ per share, (ii) application of a portion of
the net proceeds of this offering to repay the Company's revolving line of
credit and (iii) the conversion into Common Stock of the Preferred Stock and
the Deferred Purchase Price Liability, assuming an initial public offering
price of $ per share.
(2) See Note 1 of Notes to Consolidated Financial Statements.
(3) Based on shares outstanding at June 28, 1998, which includes (i)
3,475,854 shares issuable on conversion of outstanding Preferred Stock, (ii)
82,130 shares of Common Stock issuable as paid-in-kind dividends to holders
of Series A Preferred Stock of the Company prior to consummation of the
offering and (iii) shares issuable upon consummation of this offering
upon conversion of the Deferred Purchase Price Liability, assuming an
initial public offering price of $ . Excludes (i) 1,009,635 shares
reserved as of such date for issuance upon the exercise of outstanding stock
options at a weighted average price of $3.87 per share, (ii) an aggregate of
680,000 shares reserved for future grant under the Company's stock option
and stock purchase plans and (iii) 62,190 shares reserved for issuance upon
the exercise of outstanding warrants at an exercise price of $4.00 per
share. See "Management -- Benefit Plans" and "Description of Capital Stock."
12
<PAGE> 14
DILUTION
At June 28, 1998, the Company had a net tangible book value of $8.5
million, or $ per share of Common Stock. "Net tangible book value" per share
represents the amount of total tangible assets of the Company reduced by the
amount of its total liabilities and divided by the total number of outstanding
shares of Common Stock, giving effect to the conversion into Common Stock of the
Preferred Stock and the Deferred Purchase Price Liability, assuming an initial
public offering price of $ per share. The pro forma net tangible book value
of the Company as of June 28, 1998, giving effect to the sale by the Company of
the shares offered hereby, assuming an initial public offering price of
$ per share, would have been approximately $ , or $ per share.
This represents an immediate increase in net tangible book value of $ per
share to existing stockholders and an immediate dilution in net tangible book
value of $ per share to new investors. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C> <C>
Assumed initial public offering price per share............. $
------
Net tangible book value per share before the offering..... $
------
Increase attributable to new investors....................
------
Pro forma net tangible book value per share after the
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 28, 1998,
the differences between the existing stockholders (including persons who will
receive Common Stock upon conversion of the Deferred Purchase Price Liability)
and the new investors with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and the
average price per share paid by existing stockholders and new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE
(IN THOUSANDS) PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....... % $ % $
New investors(1)...............
-------- ----- ---- -----
Total................ 100.0% $ 100.0%
======== ===== ==== =====
</TABLE>
- ------------------------------
(1) Sales by Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to , or % of the total number
of shares of Common Stock outstanding, and will increase the number of
shares held by new investors to , or % of the total number of shares
of Common Stock outstanding after the offering.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected statements of operations data set forth below for the fiscal
year ended December 31, 1995, the period from January 1, 1996 to February 28,
1996, the period from February 29, 1996 to December 29, 1996 and the fiscal year
ended December 28, 1997 and the consolidated balance sheet data set forth below
as of December 29, 1996 and December 28, 1997 have been derived from the
financial statements of the Company and the Predecessors audited by Ernst &
Young LLP, independent auditors, which are included elsewhere in this
Prospectus. The selected combined statements of operations data for the fiscal
years ended December 31, 1993 and December 31, 1994 and the combined balance
sheet data set forth below as of December 31, 1993, December 31, 1994 and
December 31, 1995 are derived from the unaudited combined financial statements
of the Predecessors. The selected consolidated financial data as of June 28,
1998 and for the six months ended June 28, 1998 and June 29, 1997 has been
derived from the unaudited consolidated financial statements of the Company
included elsewhere in this Prospectus. In the opinion of management, all
adjustments, consisting of only normal recurring accruals, considered necessary
for a fair presentation have been made. The results of operations for the six
months ended June 28, 1998 are not necessarily indicative of the results to be
expected for the entire fiscal year. The following table is qualified by
reference to and should be read in conjunction with the consolidated financial
statements, related notes thereto and other financial data included elsewhere
herein. The Company's fiscal quarters typically consist of thirteen week periods
ending on the Sunday closest to the last day of the calendar quarter, and its
fiscal year ends on the Sunday closest to December 31 in each year.
<TABLE>
<CAPTION>
PREDECESSORS(1) COMPANY
------------------------------------- ----------------------------------------------------
PERIOD PERIOD SIX MONTHS ENDED
FISCAL FISCAL FISCAL FROM FROM TOTAL FISCAL -------------------
YEAR YEAR YEAR 1/1/96 TO 2/29/96 TO YEAR YEAR JUNE 29, JUNE 28,
1993 1994 1995 2/28/96 12/29/96 1996(2) 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues........................ $1,478 $5,348 $10,465 $2,815 $15,630 $18,445 $39,768 $17,703 $32,937
Costs and expenses:
Restaurant operating costs:
Cost of sales............. 368 1,422 2,957 772 4,454 5,226 11,317 5,029 9,099
Labor..................... 516 1,728 3,347 918 4,736 5,654 11,683 5,228 9,400
Operating................. 243 917 1,528 527 2,944 3,471 6,727 2,871 5,440
Occupancy................. 134 454 1,059 205 1,279 1,484 2,743 1,206 2,357
------ ------ ------- ------ ------- ------- ------- ------- -------
Total restaurant
operating costs...... 1,261 4,521 8,891 2,422 13,413 15,835 32,470 14,334 26,296
General and
administrative............ 7 57 192 17 1,368 1,385 4,276 1,823 2,753
Depreciation and
amortization.............. 26 70 322 82 352 434 1,102 451 1,013
Preopening.................. 204 249 400 17 765 782 1,922 399 1,217
------ ------ ------- ------ ------- ------- ------- ------- -------
Income (loss) from operations... (20) 451 660 277 (268) 9 (2) 696 1,658
Interest income (expense),
net........................... (1) (10) (13) (4) (127) (131) (317) (127) (455)
------ ------ ------- ------ ------- ------- ------- ------- -------
Income (loss) before elimination
of minority interests and
provision for income taxes.... (21) 441 647 273 (395) (122) (319) 569 1,203
Elimination of minority
interests..................... -- -- -- -- (720) (993) (1,308) (758) (345)
------ ------ ------- ------ ------- ------- ------- ------- -------
Income (loss) before provision
for income taxes.............. (21) 441 647 273 (1,115) (1,115) (1,627) (189) 858
Provision for income taxes...... -- -- -- -- (30) (30) (69) (52) (11)
------ ------ ------- ------ ------- ------- ------- ------- -------
Net income (loss)............... $ (21) $ 441 $ 647 $ 273 (1,145) (1,145) (1,696) (241) 847
====== ====== ======= ======
Convertible Redeemable Preferred Stock accretion....................... (504) (504) (876) (396) (477)
------- ------- ------- ------- -------
Net income (loss) available to common stockholders..................... $(1,649) $(1,649) $(2,572) $ (637) $ 370
======= ======= ======= ======= =======
Basic net income (loss) per share...................................... $ (0.66) $ (1.03) $ (0.25) $ 0.15
======= ======= ======= =======
Diluted net income (loss) per share.................................... $ (0.66) $ (1.03) $ (0.25) $ 0.13
======= ======= ======= =======
Shares used in calculation of basic net income (loss) per share(3)..... 2,500 2,500 2,500 2,500
======= ======= ======= =======
Shares used in calculation of diluted net income (loss) per share(3)... 2,500 2,500 2,500 6,655
======= ======= ======= =======
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR JUNE 29, JUNE 28,
1995(1) 1996(2) 1997 1997 1998
<S> <C> <C> <C> <C> <C>
PRO FORMA DATA:(4)
Pro forma diluted net income (loss) per share.............. -- $ $ $ $
Shares used in calculation of pro forma diluted net income
(loss) per share......................................... --
OPERATING DATA:
Comparable restaurant sales increase(5).................... 25.1% 13.0% 13.8% 12.6% 11.7%
Average weekly restaurant sales............................ $81,122 $81,976 $90,383 $91,250 $93,839
Return on investment(6).................................... 25.2% 34.4% 34.9% -- --
Restaurants open at end of period.......................... 4 7 13 8 14
</TABLE>
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------------------------------------ --------------------------------------
AS OF AS OF
------------------------------------------ --------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 29, DECEMBER 28, JUNE 28,
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $153 $ 347 $ 480 $ 1,877 $ 2,739 $ 1,802
Total assets.......................... 716 1,692 2,997 13,044 28,489 34,265
Short- and long-term debt............. 33 222 350 1,763 8,372 11,600
Deferred Purchase Price Liability..... -- -- -- -- 2,426 2,426
Convertible Redeemable Preferred
Stock............................... -- -- -- 10,517 17,808 18,285
Common stockholders' and members'
equity (deficit).................... 500 1,217 1,295 (1,874) (4,446) (4,076)
</TABLE>
- ------------------------------
(1) Information for fiscal years 1993, 1994 and 1995 and the period beginning
January 1, 1996 and ending February 28, 1996 as well as information as of
December 31, 1993, December 31, 1994 and December 31, 1995 relate to the
Predecessors. See "Certain Transactions" and Note 1 of Notes to Consolidated
Financial Statements.
(2) Total fiscal year 1996 information reflects the combined results of the
Predecessors for the period beginning January 1, 1996 and ending February
28, 1996 and of the Company for the period beginning February 29, 1996 and
ending December 29, 1996. See "Certain Transactions" and Note 1 of Notes to
Consolidated Financial Statements.
(3) See Notes 2, 6 and 8 of Notes to Consolidated Financial Statements.
(4) Pro forma information gives effect as of the beginning of each period to (i)
the purchase of substantially all of the minority interests in the
Predecessors, (ii) the repayment of the Company's revolving line of credit
through the application of the net proceeds from the sale of a sufficient
number of shares of Common Stock, assuming an initial public offering price
of $ per share and (iii) the conversion into Common Stock of the
Preferred Stock and the Deferred Purchase Price Liability, assuming an
initial public offering price of $ per share.
(5) A new restaurant is included in the calculation of the change in comparable
restaurant sales in the eighteenth month of that restaurant's operation.
(6) Return on investment for each restaurant is determined as the quotient of
earnings of such restaurant before interest, taxes and rent divided by the
Company's total investment in restaurant assets. The information presented
in the table is the aggregate return on investment for all restaurants open
during the respective periods. See "Business--Unit Economics."
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
P.F. Chang's owns and operates 15 full service restaurants that feature a
unique blend of high quality, authentic Chinese cuisine and American hospitality
in a sophisticated, contemporary bistro setting. The Company was formed in early
1996 with the acquisition of the four original P.F. Chang's restaurants and the
hiring of an experienced management team, led by Richard Federico and Robert
Vivian, the Company's Chief Executive Officer and Chief Financial Officer,
respectively, to support the Company's founder, Paul Fleming. Utilizing a
partnership management philosophy, the Company embarked on a strategic expansion
of the concept targeted at major metropolitan areas throughout the United States
and opened three additional restaurants in 1996 and six in 1997.
The Company intends to open ten new restaurants in 1998 (two of which are
open and eight of which are under development) and 13 restaurants in 1999. The
23 units that the Company intends to develop in 1998 and 1999 will be situated
in approximately 15 new cities across the United States. The Company has signed
lease agreements for six of the 13 units planned for 1999 and has signed letters
of intent for all of the remaining planned restaurants. The Company intends to
continue to develop restaurants that typically range in size from 6,000 square
feet to 7,000 square feet, and that require, on average, a total cash investment
of between $1.5 million and $2.0 million and a total capitalized investment of
between $2.5 million and $3.0 million per restaurant. This total investment
includes the capitalized lease value of the property, which can vary greatly
depending on the specific trade area. See "Risk Factors--Development and
Construction Risks."
Prior to February 29, 1996, the Company's business was conducted by four
business entities controlled by Paul Fleming: Fleming Chinese Restaurants, Inc.
(Scottsdale), P.F. Chang's II, Inc. (Newport Beach), P.F. Chang's III, L.L.C.
(La Jolla) and P.F. Chang's IV, L.L.C. (Irvine)(collectively, the
"Predecessors"). In February 1996, the Company acquired from Paul Fleming and
certain other investors in the Predecessors approximately 70% of the Scottsdale
restaurant, 43% of the Newport Beach restaurant, 50% of the La Jolla restaurant
and 54% of the Irvine restaurant. In May 1996, the Company acquired the
remaining minority interests in the Irvine restaurant, and in October 1997, the
Company acquired all of the outstanding minority interests in the Scottsdale and
Newport Beach restaurants and all but 2.5% of the La Jolla restaurant. As a
result of the ownership structure in place from February 29, 1996 to October
1997, historical financial results for that period reflect a reduction in the
Company's net income attributable to those ownership interests which is
reflected in the elimination of minority interests. The acquisitions of minority
interests in February 1996 and October 1997 were accounted for using the
purchase method of accounting and resulted in goodwill of $4.1 million and $4.6
million, respectively, which is being amortized over 20 years on a straight-line
basis. See "Certain Transactions."
In addition, elimination of minority interests for all periods subsequent
to 1996 includes the effect of the Company's partnership management structure.
The Company has entered into a series of partnership agreements with each of its
regional managers ("Market Partners") and certain of its general managers
("Operating Partners") and certain of its executive chefs ("Culinary Partners").
These partnership agreements typically provide that the Market Partner is
entitled to a specified percentage of the cash flows from the restaurants that
partner has developed and oversees as the regional manager. Similarly, the
Operating Partners and Culinary Partners receive a percentage of the cash flows
from the restaurant in which they work. See "Business--Operations."
16
<PAGE> 18
RESULTS OF OPERATIONS
The operating results of the Company for fiscal years 1995, 1996 and 1997
and for the six months ended June 29, 1997 and June 28, 1998 expressed as a
percentage of revenues were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
FISCAL YEAR TOTAL YEAR FISCAL YEAR JUNE 29, JUNE 28,
1995 1996(1) 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Restaurant operating costs:
Cost of sales................... 28.3 28.3 28.4 28.4 27.6
Labor........................... 32.0 30.7 29.4 29.5 28.5
Operating....................... 14.6 18.8 16.9 16.2 16.5
Occupancy....................... 10.1 8.0 6.9 6.8 7.2
----- ----- ----- ----- -----
Total restaurant operating
costs...................... 85.0 85.8 81.6 80.9 79.8
General and administrative........ 1.8 7.5 10.8 10.3 8.4
Depreciation and amortization..... 3.1 2.4 2.8 2.6 3.1
Preopening........................ 3.8 4.3 4.8 2.3 3.7
----- ----- ----- ----- -----
Income (loss) from operations.......... 6.3 -- -- 3.9 5.0
Interest income (expense), net......... (0.1) (0.7) (0.8) (0.7) (1.4)
Elimination of minority interests...... -- (5.3) (3.3) (4.3) (1.0)
----- ----- ----- ----- -----
Income (loss) before provision for
income taxes......................... 6.2 (6.0) (4.1) (1.1) 2.6
Provision for income taxes............. -- (0.2) (0.2) (0.3) --
----- ----- ----- ----- -----
Net income (loss)...................... 6.2% (6.2)% (4.3)% (1.4)% 2.6%
===== ===== ===== ===== =====
</TABLE>
- ------------------------------
(1) Total fiscal year 1996 information reflects the combined results of the
Predecessors and the Company. See "Selected Consolidated Financial and
Operating Data."
SIX MONTHS ENDED JUNE 28, 1998 COMPARED TO SIX MONTHS ENDED JUNE 29, 1997
REVENUES
The Company's revenues are derived entirely from food and beverage sales.
Revenues increased by $15.2 million, or 86.1%, to $32.9 million in the six
months ended June 28, 1998 from $17.7 million in the six months ended June 29,
1997. The increase was primarily attributable to revenues of $12.2 million
generated by new restaurants opened in the second half of 1997 and the first
half of 1998. Increased customer visits produced comparable restaurant sales
gains of 11.7% in the first half of 1998. The Company did not implement any
meaningful price increases in the first six months of 1998.
COSTS AND EXPENSES
Cost of sales. Cost of sales is composed of the cost of food and
beverages. Cost of sales decreased as a percentage of revenues to 27.6% in the
six months ended June 28, 1998 from 28.4% in the six months ended June 29, 1997,
primarily as a result of favorable commodity costs and purchasing efficiencies.
Labor. Labor expenses consist of restaurant management salaries, front of
the house and back of the house payroll costs and other payroll-related items.
Labor expenses as a percentage of revenues decreased to 28.5% in the six months
ended June 28, 1998 from 29.5% in the six months ended June 29, 1997. The
decrease in labor expenses was primarily due to increased labor efficiency in
the restaurants that opened in 1996. These improved efficiencies more than
offset the increase in hourly wages mandated by the federal government and the
State of California. The Company expects that the increase in minimum wage will
continue to exert
17
<PAGE> 19
upward pressure on its labor costs on a year-over-year basis for the remainder
of 1998 and the first quarter of 1999.
Operating. Operating expenses consist primarily of various
restaurant-level costs, which are generally variable and are expected to
fluctuate directly with revenues. Operating expenses increased as a percentage
of revenues to 16.5% in the six months ended June 28, 1998 from 16.2% in the six
months ended June 29, 1997, due primarily to increases in restaurant supplies
costs, facility costs and restaurant administration costs.
Occupancy. Occupancy costs include both fixed and variable portions of
rent, common area maintenance charges, property insurance and property taxes.
Occupancy costs increased as a percentage of revenues to 7.2% in the six months
ended June 28, 1998 from 6.8% in the six months ended June 29, 1997, due
primarily to the increase in common area maintenance charges in some of the
Company's mall locations and a general increase in property tax levels.
General and administrative. General and administrative expenses are
composed of expenses associated with corporate and administrative functions that
support development and restaurant operations and provide an infrastructure to
support future growth, including management and staff salaries, employee
benefits, travel, legal and professional fees, technology and market research.
General and administrative expenses increased to $2.8 million (8.4% of revenues)
in the six months ended June 28, 1998 from $1.8 million (10.3% of revenues) in
the six months ended June 29, 1997, due primarily to the addition of corporate
management personnel as well as additional costs to support a larger restaurant
base. The decrease as a percentage of revenues was due primarily to the
Company's expanding revenue base and its ability to leverage the duties and
responsibilities of its Market Partners.
Depreciation and amortization. Depreciation and amortization expenses
include the depreciation of fixed assets and the amortization of goodwill costs
associated with the acquisition of the ownership interests in the original
restaurants. Depreciation and amortization increased to $1.0 million in the six
months ended June 28, 1998 from $451,000 in the six months ended June 29, 1997.
This increase was primarily due to depreciation on new restaurants and
amortization of the goodwill associated with the acquisition in October 1997 of
the remaining minority interests in three of the four original restaurants.
Preopening. Preopening costs, which are expensed as incurred, consist of
expenses incurred prior to opening a new restaurant and are comprised
principally of manager salaries and relocation, advertising and employee payroll
and related training costs. Preopening expenses in the six months ended June 28,
1998 increased to $1.2 million from $399,000 in the six months ended June 29,
1997 due to the greater number of restaurants opened or under development during
the 1998 period.
Interest income (expense), net. Net interest expense increased to $455,000
in the six months ended June 28, 1998 from $127,000 in the six months ended June
29, 1997 principally due to borrowings under the Company's line of credit.
ELIMINATION OF MINORITY INTERESTS
Elimination of minority interests for the six months ended June 29, 1997
includes approximately $717,000 attributable to the minority interests in the
Scottsdale, Newport Beach and La Jolla restaurants. As a result of the
acquisition of substantially all of these minority interests in October 1997,
elimination of minority interests for the six months ended June 28, 1998
declined to $345,000. Approximately $41,000 and $332,000 was attributable to the
collective minority interests of Market Partners, Operating Partners and
Culinary Partners in the six months ended June 29, 1997 and June 28, 1998,
respectively.
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<PAGE> 20
PROVISION FOR INCOME TAXES
The provision for income taxes for the six months ended June 28, 1998 and
June 29, 1997 represents certain minimum state taxes based on taxable factors
other than earnings. The Company did not record a tax benefit for the losses
generated for the six months ended June 29, 1997 as utilization of such losses
in future periods was deemed uncertain. The income tax provision for the six
months ended June 28, 1998 differs from the expected provision for income taxes
derived by applying the statutory income tax rate as a result of a reduction in
the previously provided deferred income tax asset valuation allowance.
YEAR ENDED DECEMBER 28, 1997 COMPARED TO YEAR ENDED DECEMBER 29, 1996
The following discussion of the Company's results of operations for the
year ended December 29, 1996 relates to the combined operating results of the
Company and the Predecessors. The Company has not presented separate analyses
regarding the two month period ended February 28, 1996 relating to the
Predecessors or the ten month period ended December 29, 1996 relating to the
Company because the Company believes that such discussion would not be
meaningful.
REVENUES
Revenues increased by $21.3 million, or 115.6%, to $39.8 million in 1997
from $18.4 million in 1996. The increase was primarily attributable to $19.0
million of additional revenues generated by new restaurants opened in 1997 and
the increase in revenues in 1997 for restaurants opened in 1996. Comparable
restaurant sales, driven by increased customer visits, increased 13.8% in 1997.
The Company did not implement any meaningful price increases in 1997.
COSTS AND EXPENSES
Cost of sales. Cost of sales increased nominally as a percentage of
revenues to 28.4% in 1997 from 28.3% in 1996.
Labor. Labor costs decreased as a percentage of revenues to 29.4% in 1997
from 30.7% in 1996. This decrease was primarily the result of labor efficiencies
in new and existing restaurants.
Operating. Operating expenses decreased as a percentage of revenues to
16.9% in 1997 from 18.8% in 1996, due primarily to the expanded revenue base in
1997.
Occupancy. Occupancy costs decreased as a percentage of revenues to 6.9%
in 1997 from 8.0% in 1996. This decrease was primarily the result of the
increase in revenues and more favorable lease terms associated with the new
restaurants opened in 1997.
General and administrative. General and administrative expenses increased
in 1997 to $4.3 million, or 10.8% of revenues, from $1.4 million, or 7.5% of
revenues in 1996. This increase was primarily the result of the addition of
corporate management personnel in 1996 and 1997 as well as the increased cost of
supporting a larger restaurant base.
Depreciation and amortization. Depreciation and amortization increased to
$1.1 million in 1997 from $434,000 in 1996. This increase was primarily the
result of depreciation recognized on capital expenditures for new restaurants
and amortization of goodwill associated with the purchase of minority interests
in October 1997.
Preopening. Preopening expenses in 1997 increased to $1.9 million from
$782,000 in 1996 due to a greater number of restaurants which were developed in
1997 compared to 1996.
Interest income (expense), net. Net interest expense increased to $317,000
in 1997 from $131,000 in 1996 due to borrowings on the Company's line of credit
and an increase in long-term debt.
19
<PAGE> 21
ELIMINATION OF MINORITY INTERESTS
Elimination of minority interests increased to $1.3 million in 1997 from
$993,000 in 1996 primarily due to the increased income generated by the
Scottsdale, Newport Beach and La Jolla restaurants. Elimination of minority
interests in 1997 was also higher due to approximately $110,000 attributable in
1997 to the collective minority interests of Market Partners, Operating Partners
and Culinary Partners; such partnership arrangements were not in place in 1996.
These increases were offset in part by the repurchase in October 1997 of the
minority interests in the Scottsdale, Newport Beach and La Jolla restaurants.
PROVISION FOR INCOME TAXES
The provision for income taxes for 1997 and 1996 represents certain minimum
state taxes based on taxable factors other than earnings. The Company did not
record a tax benefit for the losses generated for fiscal years 1997 and 1996 as
utilization of such losses in future periods was deemed uncertain. At December
28, 1997, the Company had a net operating loss carryforward of approximately
$1.9 million which will expire for federal tax purposes in 2011 and for state
tax purposes in 2001. The expected income tax benefit derived by applying the
statutory income tax rate has been eliminated as a result of an increase in the
deferred income tax asset valuation allowance.
YEAR ENDED DECEMBER 29, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The following discussion of the Company's results of operations for the
year ended December 29, 1996 relates to the combined operating results of the
Company and the Predecessors. The Company has not presented separate analyses
regarding the two month period ended February 28, 1996 relating to the
Predecessors or the ten month period ended December 29, 1996 relating to the
Company because the Company believes that such discussion would not be
meaningful.
REVENUES
Revenues increased by $8.0 million, or 76.3%, to $18.4 million in 1996 from
$10.5 million in 1995. The increase was primarily attributable to revenues of
$6.9 million generated by new restaurants opened in 1996 and the increase in
revenues in 1996 for restaurants opened in 1995. Increased customer visits
generated comparable restaurant sales gains of 13.0% in 1996. The Company did
not implement any meaningful price increases in 1996.
COSTS AND EXPENSES
Cost of sales. Cost of sales remained constant as a percentage of revenues
at 28.3% in both 1996 and 1995.
Labor. Labor costs decreased as a percentage of revenues to 30.7% in 1996
from 32.0% in 1995. This decrease was primarily the result of labor efficiencies
in new and existing restaurants.
Operating. Operating costs increased as a percentage of revenues to 18.8%
in 1996 from 14.6% in 1995. This increase was primarily the result of new
restaurant openings in the last quarter of 1996.
Occupancy. Occupancy costs decreased as a percentage of revenues to 8.0%
in 1996 from 10.1% in 1995. This decrease was primarily the result of the
increased revenue base and more favorable lease terms associated with the new
restaurants opened in 1996.
General and administrative. General and administrative expenses increased
in 1996 to $1.4 million, or 7.5% of revenues, from $192,000, or 1.8% of
revenues, in 1995. This increase was primarily attributable to the initial
formation of the Company, including the addition of management personnel.
Depreciation and amortization. Depreciation and amortization expenses
increased to $434,000 in 1996 from $322,000 in 1995. This increase was
principally the result of depreciation recognized on capital expenditures on new
restaurants opened in 1996 and the amortization of goodwill associated with the
February 1996 acquisition. See "Certain Transactions."
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<PAGE> 22
Preopening. Preopening expenses increased to $782,000 in 1996 from
$400,000 in 1995, due to a greater number of restaurants under development in
1996.
Interest income (expense), net. Net interest expense increased to $131,000
in 1996 from $13,000 in 1995 due to interest expense incurred on notes payable
to minority stockholders in connection with the February 1996 acquisition. See
"Certain Transactions."
ELIMINATION OF MINORITY INTERESTS
The elimination of minority interests of $993,000 in 1996 was the result of
the formation of the Company in February 1996 and the related acquisition of the
majority of the interests in the original restaurants. In 1995, because the
operating results of the Predecessors are presented on a combined basis, there
were no minority interests.
PROVISION FOR INCOME TAXES
The provision for income taxes in 1996 represents certain minimum state
taxes based on taxable factors other than earnings. The Company did not record a
tax benefit for the losses generated for fiscal year 1996 as utilization of such
losses in future periods was deemed uncertain. The expected income tax benefit
derived by applying the statutory income tax rate has been eliminated as a
result of a deferred income tax asset valuation allowance. The Company's taxable
income for the year ended December 31, 1995 was allocated and taxed directly to
the stockholders and members of the Predecessors resulting in no tax provision.
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<PAGE> 23
QUARTERLY RESULTS
The following tables set forth certain unaudited quarterly information for
each of the eight fiscal quarters in the two year period ended June 28, 1998.
This quarterly information has been prepared on a consistent basis with the
audited financial statements and, in the opinion of management, includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the periods presented. The Company's
quarterly operating results may fluctuate significantly as a result of a variety
of factors, and operating results for any quarter are not necessarily indicative
of results for a full fiscal year. See "Risk Factors--Fluctuations in Operating
Results."
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997 FISCAL 1998
----------------- ------------------------------------- -----------------
THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $4,363 $5,458 $8,175 $9,528 $9,935 $12,130 $15,728 $17,209
Costs and expenses:
Restaurant operating costs:
Cost of sales............. 1,239 1,575 2,324 2,705 2,798 3,490 4,394 4,705
Labor..................... 1,290 1,713 2,384 2,844 2,885 3,570 4,556 4,844
Operating................. 850 1,063 1,284 1,587 1,705 2,151 2,579 2,861
Occupancy................. 348 491 564 642 681 856 1,103 1,254
------ ------ ------ ------ ------ ------- ------- -------
Total restaurant
operating costs...... 3,727 4,842 6,556 7,778 8,069 10,067 12,632 13,664
General and administrative.... 416 642 760 1,063 1,162 1,291 1,348 1,405
Depreciation and
amortization................ 147 159 209 242 262 389 489 524
Preopening.................... 268 467 146 253 683 840 432 785
------ ------ ------ ------ ------ ------- ------- -------
Income (loss) from operations... (195) (652) 504 192 (241) (457) 827 831
Interest income (expense),
net........................... (10) (72) (81) (46) (38) (152) (210) (245)
------ ------ ------ ------ ------ ------- ------- -------
Income (loss) before elimination
of minority interests and
provision for income taxes.... (205) (724) 423 146 (279) (609) 617 586
Elimination of minority
interests..................... (319) (103) (383) (375) (335) (215) (156) (189)
------ ------ ------ ------ ------ ------- ------- -------
Income (loss) before provision
for income taxes.............. (524) (827) 40 (229) (614) (824) 461 397
Provision for income taxes...... (4) (1) (32) (20) (10) (7) (4) (7)
------ ------ ------ ------ ------ ------- ------- -------
Net income (loss)............... $ (528) $ (828) $ 8 $ (249) $ (624) $ (831) $ 457 $ 390
====== ====== ====== ====== ====== ======= ======= =======
Restaurants open at end of
period........................ 4 7 7 8 9 13 13 14
</TABLE>
22
<PAGE> 24
The operating results of the Company for such eight fiscal quarters
expressed as a percentage of revenues were as follows:
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997 FISCAL 1998
----------------- ------------------------------------- -----------------
THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Restaurant operating costs:
Cost of sales................... 28.4 28.8 28.4 28.4 28.2 28.8 27.9 27.4
Labor........................... 29.5 31.4 29.2 29.8 29.0 29.4 29.0 28.1
Operating....................... 19.5 19.5 15.7 16.7 17.1 17.7 16.4 16.6
Occupancy....................... 8.0 9.0 6.9 6.7 6.9 7.1 7.0 7.3
----- ----- ----- ----- ----- ----- ----- -----
Total restaurant operating
costs...................... 85.4 88.7 80.2 81.6 81.2 83.0 80.3 79.4
General and administrative.......... 9.5 11.8 9.3 11.2 11.7 10.6 8.6 8.2
Depreciation and amortization....... 3.4 2.9 2.5 2.5 2.6 3.2 3.1 3.0
Preopening.......................... 6.1 8.6 1.8 2.7 6.9 6.9 2.7 4.6
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations......... (4.4) (12.0) 6.2 2.0 (2.4) (3.7) 5.3 4.8
Interest income (expense), net........ (0.3) (1.3) (1.0) (0.5) (0.4) (1.3) (1.4) (1.4)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before elimination of
minority interests and provision for
income taxes........................ (4.7) (13.3) 5.2 1.5 (2.8) (5.0) 3.9 3.4
Elimination of minority interests..... (7.3) (1.9) (4.7) (3.9) (3.4) (1.8) (1.0) (1.1)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before provision for
income taxes........................ (12.0) (15.2) 0.5 (2.4) (6.2) (6.8) 2.9 2.3
Provision for income taxes............ (0.1) -- (0.4) (0.2) (0.1) (0.1) -- --
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)..................... (12.1)% (15.2)% 0.1% (2.6)% (6.3)% (6.9)% 2.9% 2.3%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Historically, the Company has experienced variability in the amount and
percentage of revenues attributable to preopening expenses. The Company
typically incurs the most significant portion of preopening expenses associated
with a given restaurant within the two months immediately preceding and the
month of the opening of the restaurant. In addition, the Company's experience to
date has been that labor and operating costs associated with a newly opened
restaurant (for approximately its first four to six months of operation) are
materially greater than what can be expected after that time, both in aggregate
dollars and as a percentage of revenues. Accordingly, the volume and timing of
new restaurant openings has had and is expected to have a meaningful impact on
preopening expenses, labor and operating costs until such time as a larger base
of restaurants in operation mitigates such impact.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its capital requirements since its inception through
private sales of equity securities, debt financing, sale-leaseback arrangements
and cash flow from operations. Net cash provided by operating activities was
$625,000, $139,000 and $4.6 million for total year 1996, fiscal year 1997 and
the six months ended June 28, 1998, respectively. Net cash provided by operating
activities exceeded the net losses for the periods due principally to the effect
of minority interests and depreciation.
The Company uses cash primarily to fund the development and construction of
new restaurants. Net cash used in investing activities in total year 1996,
fiscal year 1997 and the six months ended June 28, 1998 was $8.2 million, $11.5
million and $8.5 million, respectively, which included payments of $4.2 million
and $2.5 million in total year 1996 and fiscal year 1997, respectively, made in
connection with the acquisition of minority interests. Capital expenditures were
$4.0 million, $8.7 million and $8.6 million in total year 1996, fiscal year 1997
and the six months ended June 28, 1998, respectively. The Company intends to
open ten restaurants in 1998 (two of which are open) and 13 in 1999. Total
capital expenditures are expected to be approximately $21 million in 1998. The
Company expects that its planned future restaurants will require, on average, a
total cash investment per restaurant, exclusive of landlord contributions, of
approximately $1.5 million to $2.0 million.
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<PAGE> 25
Net cash provided by financing activities in 1996, 1997 and the six months
ended June 28, 1998 was $9.0 million, $12.2 million, and $3.0 million,
respectively. Financing activities in 1996 and 1997 consisted principally of
sales of Preferred Stock. The Company has a line of credit agreement which
permits borrowings of up to $20 million and bears interest at LIBOR plus 3.5%
(9.16% at June 28, 1998). As of June 28, 1998, the Company had $9.0 million
outstanding under this facility. Pursuant to its terms, all borrowings under the
credit agreement must be repaid upon the consummation of this offering; however,
the Company will continue to be eligible to borrow funds under such line of
credit after repayment.
The Company's future capital requirements and the adequacy of its available
funds will depend on many factors, including the pace of expansion, real estate
markets, site locations and the nature of the arrangements negotiated with
landlords. Although no assurance can be given, the Company believes that
anticipated cash flow from operations together with the proceeds from this
offering will be sufficient to fund the majority of its capital requirements
through 1999. In the event that additional capital is required, the Company may
seek to raise such capital through public or private equity or debt financings.
Future capital funding transactions may result in dilution to purchasers in this
offering. There can be no assurance that such capital will be available on
favorable terms, if at all.
The Company leases restaurant and office facilities and equipment and
certain real property under operating leases expiring between 2000 and 2019.
Future minimum lease payments under operating leases, including restaurant
facilities currently under construction or yet to be constructed as of June 28,
1998 were as follows: remainder of 1998 - $1.9 million; 1999 - $5.2 million;
2000 - $5.4 million; 2001 - $5.4 million; 2002 - $5.4 million; and
thereafter - $53.5 million.
PREFERRED STOCK AND ACCRETION
In February 1996 and September 1996, the Company issued a total of
2,677,135 shares of its Series A Preferred Stock at $4.00 per share, and in May
1997, the Company issued 758,566 shares of its Series B Preferred Stock at $8.70
per share. The Series A Preferred Stock has an annual six percent dividend
payable quarterly on March 31, June 30, September 30, and December 31 in shares
of Series A Preferred Stock on a cumulative basis beginning January 1, 1998. The
Series B Preferred Stock has an annual six percent dividend payable quarterly on
March 31, June 30, September 30, and December 31 in shares of Series B Preferred
Stock on a cumulative basis beginning April 1, 1999. Dividend accretion on the
Series A and Series B Preferred Stock was approximately $504,000 for the year
ended December 29, 1996, $876,000 for the year ended December 28, 1997, and
$477,000 for the six month ended June 28, 1998, respectively. At June 28, 1998,
the carrying basis of the Preferred Stock was $18.3 million. As a result of this
offering, all shares of Series A Preferred Stock and Series B Preferred Stock
will be automatically converted into shares of Common Stock.
INFLATION
The primary inflationary factors affecting the Company's operations are
food and labor costs. A large number of the Company's restaurant personnel are
paid at rates based on the applicable minimum wage, and increases in the minimum
wage directly affect the Company's labor costs. To date, inflation has not had a
material impact on the Company's results of operations. See "Risk
Factors--Changes in Food Costs."
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two digit year value to "00". This issue is
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. The Company
is in the process of working with its software vendors to ensure that the
Company is prepared for the year 2000 problem. The Company believes that it will
not be required to make any material expenditure to address the year 2000
problem. However, uncertainty exists concerning the potential costs and effects
associated with any year 2000 compliance. Any year 2000 compliance problem of
either the Company or its vendors could materially adversely affect the
Company's business, financial condition or operating results.
24
<PAGE> 26
BUSINESS
P.F. Chang's owns and operates 15 full service restaurants that feature a
unique blend of high quality, authentic Chinese cuisine and American hospitality
in a sophisticated, contemporary bistro setting. The Company's restaurants offer
intensely flavored, highly memorable culinary creations, prepared from fresh
ingredients, including premium herbs and spices imported directly from China.
The menu is focused on select dishes created to capture the distinct flavors and
styles of the five major culinary regions of China: Canton, Hunan, Mongolia,
Shanghai and Szechwan. By adhering to the Chinese culinary precepts of fan and
t'sai, a balancing of rice, noodles and grains with meat, seafood and
vegetables, the P.F. Chang's menu offers an array of taste, texture, color and
aroma. The menu is highlighted by signature dishes such as Chang's Spicy
Chicken, Orange Peel Beef, Peking Ravioli, Chicken in Soothing Lettuce Wrap,
Szechwan-Style Long Beans and Dan Dan Noodles. The authentic cuisine is
complemented by a full service bar offering an extensive selection of wines,
specialty drinks, Asian beers, cappuccino and espresso. The average check per
customer, including beverage, is approximately $17.00. The Company offers
superior customer service in a high energy atmosphere featuring a display
kitchen, exhibition wok cooking and a decor that includes wood and slate floors,
mounted life-size terra cotta replicas of Xi'an warriors and narrative murals
depicting 12th century China.
The Company was formed in early 1996 with the acquisition of the four
original P.F. Chang's restaurants and the hiring of an experienced management
team led by Richard Federico and Robert Vivian, the Company's Chief Executive
Officer and Chief Financial Officer, respectively, to support the Company's
founder, Paul Fleming. P.F. Chang's opened three additional restaurants in 1996,
six in 1997 and expects to open ten restaurants in 1998 (two of which are open)
and 13 in 1999. Key to the Company's expansion strategy and success at the
restaurant level is the P.F. Chang's management philosophy utilizing Market,
Operating and Culinary Partners. The Company has demonstrated the viability of
the P.F. Chang's concept in a wide variety of markets across the United States,
including the Southwest, southern California, Texas and southern Florida.
P.F. CHANG'S CHINA BISTRO CONCEPT AND STRATEGY
The P.F. Chang's concept was developed in 1993 by Paul Fleming, a highly
successful Phoenix-based restaurateur, in collaboration with Philip Chiang, the
owner of the acclaimed Mandarin restaurant in Beverly Hills, California. The
Company's objectives are to (i) develop and operate a nationwide system of
restaurants that offer guests a unique, sophisticated dining experience, (ii)
create a loyal customer base that generates a high level of repeat business and
(iii) provide superior returns to its investors. To achieve its objectives, the
Company has developed the following strategies:
Offer High Quality Chinese Cuisine. P.F. Chang's seeks to differentiate
itself from other Chinese restaurants by offering only premium products made
from scratch upon order, from original regional Chinese recipes. The Company
utilizes traditional Hong Kong preparation techniques, which combine high
temperature wok cooking, fresh ingredients and reduced oil to produce dishes
with a distinct, outstanding and highly memorable flavor. A core menu is served
at both lunch and dinner featuring a variety of freshly prepared wok-fired
creations, roasted duck and chicken, fresh seafood, homemade soups, signature
salads and desserts. All products are served family-style allowing the guests to
build a meal of complementary flavors, colors and aromas.
Create a Memorable Atmosphere. The Company seeks to design a unique
atmosphere for each restaurant that it operates. Common design elements of the
restaurants include natural wood and slate floors, custom millwork, special
light fixtures, hand-painted murals depicting ancient Chinese history and
life-size terra cotta soldiers, all of which create a warm and elegant ambiance.
Exhibition-style kitchens, featuring the Company's classically trained wok
chefs, reinforce the perceptions of quality, freshness, authenticity and
cleanliness and add flash and fire to the energy of the restaurant.
Deliver Superior Customer Service. Significant time and resources are
spent in the development and implementation of a comprehensive service system at
each restaurant. The Company offers guests prompt, friendly and efficient
service, keeping waitstaff-to-table ratios high, and staffing each restaurant
with an
25
<PAGE> 27
experienced management team to ensure consistent and attentive customer service.
The Company employs food runners to ensure prompt delivery of fresh food at the
appropriate temperature, allowing the waitstaff to focus on overall customer
satisfaction. All service personnel are thoroughly trained in the subtle flavors
of each dish. Using a thorough knowledge and understanding of the Company's
menu, the waitperson assists guests in selecting a meal that balances the
principles of fan and t'sai foods to attain a harmony of taste, texture, color
and aroma.
Provide Excellent Dining Value. The Company believes it provides its
guests with an exceptional value by serving high quality Chinese cuisine in a
memorable atmosphere with superior customer service, all for an average check of
approximately $17.00. This price-value relationship helps create the long-term
bond between P.F. Chang's and its guests. Because of the superior level of
customer satisfaction it delivers, the Company believes it enjoys a high level
of repeat business, which serves as a solid foundation from which to grow
incremental sales. In 1997 and the first six months of 1998, the Company
generated comparable restaurant sales growth of approximately 13.8% and 11.7%,
respectively.
Achieve Exceptional Restaurant Economics. In the first six months of 1998,
the Company's restaurants produced average weekly sales of $93,839 and
restaurant operating income of 20.2% of sales. In addition, for the 12 month
period ended June 28, 1998, the Company's restaurants have achieved restaurant
pre-tax return on investment of 38.2%. The Company believes that it has been
able to achieve these results due to the broad appeal of the P.F. Chang's
concept, careful site selection and consistent application of its management and
training concepts.
Pursue Accelerated, Disciplined Restaurant Expansion. The Company plans to
develop restaurants in both existing and new markets nationwide where the
Company believes it can generate attractive unit-level economics. The Company
targets high traffic, high visibility locations in affluent urban and suburban
markets. The flexibility of the P.F. Chang's concept enables the Company to open
successful restaurants in a wide variety of locations, including residential
neighborhoods, shopping centers, office buildings and hotels. The Company
expects to open ten new restaurants in 1998 (two of which are open) and 13 in
1999. The Company intends to continue to develop restaurants that typically
range in size from 6,000 square feet to 7,000 square feet, and that require, on
average, a total cash investment of approximately $1.5 million to $2.0 million
and a total capitalized investment of between $2.5 million and $3.0 million per
restaurant. This total investment includes the capitalized lease value of the
property, which can vary greatly depending on the specific trade area.
Leverage P.F. Chang's Partnership Management Philosophy. The Company
believes that economic participation by management at the operating level is a
key to the long-term success of its restaurants. The Company has developed a
partnership management philosophy based on a three person team at each
restaurant: the Market Partner (regional manager), Operating Partner (restaurant
manager) and Culinary Partner (chef). Each of these partners is provided an
opportunity to invest in and to participate in the cash flows of the restaurants
for which they are responsible. As a result of this structure, the Company
believes it is able to (i) attract and retain highly experienced and motivated
managers with powerful incentives to execute the Company's strategy and maximize
stockholder value, (ii) provide stable restaurant management which reduces staff
turnover and increases customer satisfaction and (iii) leverage the specific
market knowledge of its partners to facilitate the rapid expansion of the
concept.
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<PAGE> 28
UNIT ECONOMICS
The following table depicts the pre-tax return on investment for the fiscal
years 1995, 1996 and 1997, as well as the 12 months ended June 28, 1998. Return
on investment is calculated as the quotient of restaurant income (loss) before
interest, taxes and rent divided by the total restaurant investment.
RETURN ON INVESTMENT
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE WEEKLY SALES)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL 12 MONTHS ENDED
1995 1996 1997 JUNE 28, 1998
<S> <C> <C> <C> <C>
TOTAL RESTAURANTS
Sales weeks................................... 129 225 440 597
Average weekly sales.......................... $81,122 $81,976 $90,383 $ 92,133
Sales......................................... 10,465 18,445 39,768 55,003
Restaurant income (loss) before income
taxes(1).................................... $ 585 $ 1,502 $ 4,482 $ 7,175
Interest expense.............................. 13 67 214 230
Rent expense(2)............................... 656 1,297 2,124 2,944
------- ------- ------- ----------
Restaurant EBIT + rent(a)..................... $ 1,254 $ 2,866 $ 6,820 $ 10,349
======= ======= ======= ==========
Average restaurant assets employed (net)(3)... $ 1,522 $ 2,448 $ 8,243 $ 11,794
Present value of remaining lease
obligations(4).............................. 3,461 5,891 11,272 15,283
------- ------- ------- ----------
Total restaurant investment(b)................ $ 4,983 $ 8,339 $19,515 $ 27,077
======= ======= ======= ==========
Return on investment(a)/(b)................... 25.2% 34.4% 34.9% 38.2%
RESTAURANTS OPENED IN 1998
Sales weeks.................................................................. 13
Average weekly sales......................................................... $ 108,392
Sales........................................................................ 1,409
Restaurant income (loss) before income taxes(1).............................. $ (231)
Interest expense............................................................. --
Rent expense(2).............................................................. 96
----------
Restaurant EBIT + rent(a).................................................... $ (135)
==========
Average restaurant assets employed (net)(3).................................. $ 307
Present value of remaining lease obligations(4).............................. 476
----------
Total restaurant investment(b)............................................... $ 783
==========
Return on investment(a)/(b).................................................. (17.2)%
RESTAURANTS OPENED IN 1997
Sales weeks....................................................... 76 220
Average weekly sales.............................................. $73,675 $ 77,381
Sales............................................................. 5,599 17,024
Restaurant income (loss) before income taxes(1)................... $(1,727) $ 54
Interest expense.................................................. -- --
Rent expense(2)................................................... 282 881
------- ----------
Restaurant EBIT + rent(a)......................................... $(1,445) $ 935
======= ==========
Average restaurant assets employed (net)(3)....................... $ 2,230 $ 5,787
Present value of remaining lease obligations(4)................... 2,068 5,795
------- ----------
Total restaurant investment(b).................................... $ 4,298 $ 11,582
======= ==========
Return on investment(a)/(b)....................................... (33.6)% 8.1%
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL 12 MONTHS ENDED
1995 1996 1997 JUNE 28, 1998
<S> <C> <C> <C> <C>
RESTAURANTS OPENED IN 1996
Sales weeks............................................ 17 156 156
Average weekly sales................................... $63,527 $92,930 $ 101,974
Sales.................................................. 1,080 14,497 15,908
Restaurant income (loss) before income taxes(1)........ $ (850) $ 1,866 $ 2,744
Interest expense....................................... 10 193 213
Rent expense(2)........................................ 65 717 787
------- ------- ----------
Restaurant EBIT + rent(a).............................. $ (775) $ 2,776 $ 3,744
======= ======= ==========
Average restaurant assets employed (net)(3)............ $ 402 $ 4,060 $ 3,849
Present value of remaining lease obligations(4)........ 704 4,294 4,267
------- ------- ----------
Total restaurant investment (b)........................ $ 1,106 $ 8,354 $ 8,116
======= ======= ==========
Return on investment (a)/(b)........................... (70.1)% 33.2% 46.1%
RESTAURANTS OPENED PRIOR TO 1996
Sales weeks................................... 129 208 208 208
Average weekly sales.......................... $81,122 $83,484 $94,578 $ 99,339
Sales......................................... 10,465 17,365 19,672 20,663
Restaurant income (loss) before income
taxes(1).................................... $ 585 $ 2,352 $ 4,343 $ 4,608
Interest expense.............................. 13 57 21 17
Rent expense(2)............................... 656 1,232 1,125 1,180
------- ------- ------- ----------
Restaurant EBIT + rent(a)..................... $ 1,254 $ 3,641 $ 5,489 $ 5,805
======= ======= ======= ==========
Average restaurant assets employed (net)(3)... $ 1,522 $ 2,046 $ 1,953 $ 1,851
Present value of remaining lease
obligations(4).............................. 3,461 5,187 4,910 4,745
------- ------- ------- ----------
Total restaurant investment(b)................ $ 4,983 $ 7,233 $ 6,863 $ 6,596
======= ======= ======= ==========
Return on investment(a)/(b)................... 25.2% 50.3% 80.0% 88.0%
</TABLE>
- ---------------
(1) Restaurant income (loss) before income taxes represents restaurant revenues
less all restaurant-specific operating costs, depreciation, preopening
costs, and interest expense. Preopening costs are aggregated in the month in
which a restaurant opens. General and administrative expenses, interest
expense on general corporate debt, depreciation on general corporate assets,
and amortization of goodwill are excluded from the calculation.
(2) Rent expense consists of minimum contractual rents plus contingent rents.
(3) Average restaurant assets employed (net) represents the 12 month average of
all restaurant-specific long-term assets, net of any accumulated
depreciation, determined on a prorated basis for restaurants opened within
the period.
(4) Present value of remaining lease obligations represents the 12 month average
discounted present value of restaurant lease payments to the date of lease
expiration using a 10% discount rate, determined on a prorated basis for
restaurants opened within the period.
28
<PAGE> 30
LOCATIONS
The following table depicts existing restaurants and restaurants expected
to open in 1998:
<TABLE>
<CAPTION>
APPROXIMATE SQUARE INTERIOR
EXISTING LOCATIONS OPENING DATE FOOTAGE SEATING*
- ------------------ ------------ ------------------ --------
<S> <C> <C> <C>
Scottsdale, AZ (Fashion Square) July 1993 6,050 177
Newport Beach, CA (Fashion Island) June 1994 5,050 155
La Jolla, CA (UTC) August 1995 7,400 257
Irvine, CA (Spectrum Center) November 1995 7,000 208
Las Vegas, NV (Paradise & Flamingo) October 1996 7,000 220
Houston, TX (Highland Village) December 1996 6,500 182
Littleton, CO (Park Meadows) December 1996 7,600 245
Metarie, LA (Lakeside) April 1997 5,850 201
Miami, FL (The Falls) September 1997 5,800 206
Charlotte, NC (Phillips Place) October 1997 6,900 211
N. Miami, FL (Aventura) October 1997 7,000 244
Tempe, AZ (Centerpoint) December 1997 6,600 228
McLean, VA (Tysons Corner) December 1997 6,500 204
Dallas, TX (North Tollway) March 1998 6,900 192
El Segundo, CA (Manhattan Beach) June 1998 6,950 220
PLANNED LOCATIONS ANTICIPATED OPENING DATE
- --------------------------------------------- -------------------------------------------
Austin, TX (Jollyville Road) Third Quarter 1998
Dallas, TX (NorthPark) Third Quarter 1998
Atlanta, GA (Ashwood & Perimeter) Fourth Quarter 1998
Birmingham, AL (The Summit) Fourth Quarter 1998
Denver, CO (Lodo) Fourth Quarter 1998
Northbrook, IL (Northbrook Court) Fourth Quarter 1998
Troy, MI (Somerset) Fourth Quarter 1998
Los Angeles, CA (Beverly Center) Fourth Quarter 1998
</TABLE>
- ------------------------------
* Many of the Company's restaurants have outdoor seating in addition to interior
seating.
In 1999, the Company intends to open 13 new restaurants in approximately
seven new markets, including New York, Boston, Orlando, San Francisco, Salt Lake
City, Raleigh and Cincinnati.
EXPANSION STRATEGY AND SITE SELECTION
The Company is actively developing restaurants in both new and existing
markets and has planned an expansion strategy targeted at major metropolitan
areas throughout the United States. Within each targeted metropolitan area, the
Company identifies specific trade areas with high traffic patterns and suitable
demographic characteristics, including population density, consumer attitudes
and affluence. Within an appropriate trade area, the Company evaluates specific
sites that provide visibility, accessibility and exposure to traffic volume. The
Company's site criteria are flexible, as is evidenced by the variety of
environments and facilities in which the Company currently operates. These
facilities include freestanding buildings, regional malls and entertainment
centers. Each restaurant is designed to convey a unique expression of local
styles incorporated into the P.F. Chang's decor that maximizes the value and
visibility of the site.
The Company intends to continue to develop restaurants that typically range
in size from 6,000 square feet to 7,000 square feet, and that require, on
average, a total capitalized investment of between $2.5 million and $3.0 million
per restaurant. This total investment includes the capitalized lease value of
the property, which can vary greatly depending on the specific trade area. The
Company expects that its planned future restaurants will require, on average, a
total cash investment per restaurant, exclusive of landlord contributions,
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<PAGE> 31
of approximately $1.5 million to $2.0 million. The Company currently leases the
sites for all of its restaurants and does not intend to purchase real estate for
its sites in the future.
MENU
The P. F. Chang's menu offers a harmony of taste, texture, color and aroma
by balancing the principles of fan and t'sai foods. Fan foods include rice,
noodles, grains and dumplings, while vegetables, meat, poultry and seafood are
t'sai foods. The Company's chefs are trained to produce distinctive Chinese
cuisine with traditional recipes from the five major culinary regions of China:
Canton, Hunan, Mongolia, Shanghai and Szechwan. The intense heat of
Mandarin-style wok cooking sears in the clarity and distinct flavor of fresh
ingredients. Slow roasted Cantonese-style ducklings, chickens, BBQ spare ribs
and BBQ pork are prepared in vertical ovens, while handmade shrimp, pork and
vegetable dumplings, as well as flavorful fish and vegetables, are prepared in
custom-made steamer cabinets. MSG is not added or used in any P.F. Chang's menu
items.
In addition to the core menu, P.F. Chang's also offers special lunch and
dinner selections. These menus offer specials developed by the Company's
Culinary Partners around the country and are changed two to three times a year.
Individual items that are received well by guests migrate to the core menu. The
fresh produce, seafood, meat, poultry and specialty items that are specific to a
certain region of the United States or to a specific season are featured on a
daily basis. Extensive research and development, including annual trips to China
by the P.F. Chang's corporate executive chef, continually reinforce the
Company's commitment to training the P.F. Chang's chefs and enhancing the menu
offerings.
The Company's entrees range in price from $8.00 to $13.00, and its
appetizers range in price from $4.00 to $7.00. The Company's average check per
guest, including alcoholic beverages, is approximately $17.00. Sales of
alcoholic beverages, featuring an extensive selection of wines, all of which are
offered by the glass, constitute approximately 20% of revenues. Lunch and dinner
contribute roughly 30% and 70% of revenues, respectively.
DECOR AND ATMOSPHERE
The Company believes that ambiance plays a critical role in the dining
experience. By combining the influences of Chinese and American cultures, each
restaurant is uniquely designed to create a warm, sophisticated environment that
is intended to be suitable for a variety of occasions. Each restaurant
incorporates certain elements of local styles and common design elements,
including hand-painted murals depicting 12th century China, sculptures of Xi'an
warriors, hardwood and slate flooring, decorative lighting and custom millwork,
all of which provide continuity of the brand. Seating is a comfortable
combination of tables, booths and banquettes. Bistro-style counter seating is
also available, frequently with a view of the exhibition-style kitchen in order
to accommodate peak-period demand and the preferences of single or time-pressed
diners.
OPERATIONS
In order to provide incentive to key management personnel, the Company has
entered into a series of partnership agreements with its regional managers
("Market Partners") and certain of its general managers ("Operating Partners")
and certain of its executive chefs ("Culinary Partners"). These partnership
agreements entitle the Market Partner to a specified percentage of the cash
flows from the restaurants that partner has developed and oversees as the
regional manager. Similarly, the general manager and the executive chef at most
of the Company's restaurants are offered the opportunity to become Operating
Partners and Culinary Partners, respectively, and to receive a percentage of the
cash flows from the restaurant in which they work. At the time an individual
becomes a Market Partner, Operating Partner or Culinary Partner, that person is
required to make an equity investment in the partnership and to enter into a
five year employment agreement with the Company. The Company has the right, in
its sole discretion, to terminate the employment of any Market Partner,
Operating Partner or Culinary Partner, and, upon such termination, to repurchase
that partner's interest in the partnership at such partner's then-current basis
in the partnership. If an individual continues to serve as Market Partner,
Operating Partner or Culinary Partner for five years, then the Company has the
right to repurchase that person's interest in the partnership for a value which
is determined by
30
<PAGE> 32
reference to trailing cash flows. The Company has implemented this partnership
structure to facilitate the development and operation of its restaurants. By
requiring this level of commitment and by providing the Market, Operating and
Culinary Partners with a significant stake in the success of the restaurant, the
Company believes that it is able to attract and retain experienced and highly
motivated managers.
Each of the Company's seven Market Partners oversees a territory that can
support seven to ten restaurants. The Market Partner's role is to ensure that
each restaurant within his or her territory achieves a competitive return on
investment through the successful execution of the concept. The typical Market
Partner is an individual who has achieved a leadership position (such as
Director of Operations) at a multi-unit, full-service restaurant company. The
Company anticipates adding six to eight Market Partners over the next five years
for its domestic development.
The Company strives to create a sophisticated dining experience through the
careful selection, training and supervision of personnel. The staff of a typical
restaurant consists of an Operating Partner, two or three managers, a Culinary
Partner, one or two sous chefs and approximately 125 hourly employees, many of
whom work part-time. The Operating Partner of each restaurant is responsible for
the day-to-day operation of that restaurant, including hiring, training and
development of personnel, as well as operating results. The Culinary Partner is
responsible for product quality, purchasing, food costs and kitchen labor costs.
The Company requires its Operating Partners and Culinary Partners to have
significant experience in the full-service restaurant industry.
The Company has a comprehensive 12 week management development program.
This program consists of six weeks of culinary training including both culinary
job functions and culinary management. The remaining six weeks focus on service
strategies, guest relations, office management and shift management. All
management and culinary personal are required to successfully complete all
sections of this program. The training program is comprised of a series of
projects and skill assessments. Each trainee is formally evaluated at the end of
each week in writing by the Operating Partner and Culinary Partner. This
feedback is forwarded to the program's administrators, the Director of Training
and the Director of Culinary Development. Upon the completion of each six week
section each trainee must successfully complete a comprehensive certification
administered by the Market Partner, Director of Culinary Development or the
Director of Training. A trainee cannot advance or complete the program without
being certified.
The Operating Partners and Culinary Partners are responsible for selecting
employees for their restaurants. The Partners are accountable for administering
the Company's staff training programs that are developed by the training and
culinary departments. The employee development program lasts between one and two
weeks and focuses on both technical and cultural knowledge.
MARKETING
The Company focuses its business strategy on providing high quality,
traditional Chinese cuisine served by an attentive staff in a distinctive
environment at an affordable price. By focusing on the food, service and
ambiance of the restaurant, the Company has created an environment that fosters
repeat patronage and encourages word-of-mouth recommendations. The Company
believes that word-of-mouth advertising is a key component in driving guest
trial and usage.
To attract new customers, the Company has also implemented a local,
regional and national marketing strategy through paid advertising, public
relations efforts and community involvement to maintain and build awareness
throughout each community in which it operates. In order to increase local
awareness of its restaurants, the Company builds relationships with local radio
personalities who provide testimonials to their listening audiences. The
partnered stations are consistently among the highest rated stations in their
markets. Likewise, the radio personalities are very well recognized in their
communities, not only on their station, but also in the market as a whole. In
most cases, the commercials are endorsed, live reads that are typically longer
than a normal 60 second commercial.
The Company also undertakes specialty programs such as concierge and
accommodation programs targeted to build relationships with the local hotel
concierges, who offer personal recommendations to the
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<PAGE> 33
guests of their establishments. Community involvement with local organizations,
participation in non-profit benefits and auctions, chef demonstrations and
cooking classes also increase consumer awareness.
A national advertising campaign comprised of advertisements in inflight
magazines of Southwest Airlines and America West Airlines, which carry a high
level of traffic in the Company's markets, is designed to make frequent
travelers aware of P.F. Chang's locations across the country.
MANAGEMENT INFORMATION SYSTEMS
The Company utilizes an integrated information system to manage the flow of
information within each restaurant and between the restaurants and the corporate
office. This system includes a point-of-sales ("POS") local area network that
helps facilitate the operations of the restaurant by recording sales
transactions and printing orders in the appropriate locations within the
restaurant. Additionally, the POS system is utilized to authorize, batch and
transmit credit card transactions, to record employee time clock information, to
schedule labor and to produce a variety of management reports. Select
information that is captured from the POS system is transmitted to the corporate
office on a daily basis, which enables senior management to continually monitor
operating results. The Company believes that its current POS system will be an
adequate platform to support its planned expansion.
The Company uses software and hardware developed by reputable vendors and
commonly used in the restaurant industry. These systems are integrated to
provide senior management with daily and weekly sales and cost analysis, monthly
detailed profit statements and comparisons between actual and budgeted operating
results.
PURCHASING
The Company's purchasing programs provide its restaurants with high quality
ingredients at competitive prices from reliable sources. Consistent menu
specifications as well as purchasing and receiving guidelines ensure freshness
and quality. Because the Company utilizes only fresh ingredients in all of its
menu offerings, inventory is maintained at a modest level. The Company
negotiates short-term and long-term contracts depending on demand for its
products. These contracts range in duration from two to twelve months. With the
exception of produce, which is purchased locally, the Company utilizes the
Distributors Marketing Alliance as the primary distributor of product to all of
its restaurants. The Company believes that competitively priced alternative
distribution sources are available should such channels be necessary.
Chinese-specific ingredients are usually sourced directly from Hong Kong, China
and Taiwan. The Company has developed an extensive network of importers in order
to maintain an adequate supply of items that conform to the Company's brand and
product specifications.
COMPETITION
The restaurant business is intensely competitive with respect to food
quality, price-value relationships, ambiance, service and location, and many
existing restaurants compete with the Company at each of its locations. Key
competitive factors in the industry include the quality and value of the food,
quality of service, price, dining experience, restaurant location and the
ambiance of the facilities. The Company's primary competitors include mid-price,
full service casual dining restaurants and locally-owned and operated Chinese
restaurants. There are many well-established competitors with substantially
greater financial, marketing, personnel and other resources than the Company. In
addition, many of the Company's competitors are well established in the markets
where the Company's operations are, or in which they may be, located. While the
Company believes that its restaurants are distinctive in design and operating
concept, other companies may develop restaurants that operate with similar
concepts.
PROPERTIES
All of the Company's restaurants are located in leased facilities. Current
restaurant leases have expiration dates ranging from 2002 to 2019, with the
majority of the leases providing for five-year options to renew for at least one
additional term. All of the Company's leases provide for a minimum annual rent,
and most leases
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<PAGE> 34
require additional percentage rent based on sales volume in excess of minimum
levels at the particular location. Most of the leases require the Company to pay
the costs of insurance, taxes, and a portion of the lessor's operating costs.
The Company does not anticipate any difficulties renewing existing leases as
they expire.
The Company's executive offices are located in approximately 4,400 square
feet of leased space in Phoenix, Arizona.
EMPLOYEES
At June 28, 1998, the Company employed approximately 1,900 persons, 30 of
whom were executive office personnel, 144 of whom were unit management personnel
and the remainder of whom were hourly restaurant personnel. The Company's
employees are not covered by a collective bargaining agreement. The Company
considers its employee relations to be good.
GOVERNMENTAL REGULATION
The Company's restaurants are subject to regulation by federal agencies and
to licensing and regulation by state and local health, sanitation, building,
zoning, safety, fire and other departments relating to the development and
operation of restaurants. These regulations include matters relating to
environmental, building construction, zoning requirements and the preparation
and sale of food and alcoholic beverages. The Company's facilities are licensed
and subject to regulation under state and local fire, health and safety codes.
The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
There can be no assurance that the Company will be able to obtain necessary
licenses or other approvals on a cost-effective and timely basis in order to
construct and develop restaurants in the future. Various federal and state labor
laws govern the Company's operations and its relationship with its employees,
including minimum wage, overtime, working conditions, fringe benefit and
citizenship requirements. In particular, the Company is subject to the
regulations of the INS. Given the location of many of the Company's restaurants,
even if the Company's operation of those restaurants is in strict compliance
with INS requirements, the Company's employees may not all meet federal
citizenship or residency requirements, which could lead to disruptions in its
work force.
Approximately 20% of the Company's revenues are attributable to the sale of
alcoholic beverages. The Company is required to comply with the alcohol
licensing requirements of the federal government, states and municipalities
where its restaurants are located. Alcoholic beverage control regulations
require applications to state authorities and, in certain locations, county and
municipal authorities for a license and permit to sell alcoholic beverages.
Typically, licenses must be renewed annually and may be revoked or suspended for
cause at any time. Alcoholic beverage control regulations relate to numerous
aspects of the daily operations of the restaurants, including minimum age of
guests and employees, hours of operation, advertising, wholesale purchasing,
inventory control and handling, storage and dispensing of alcoholic beverages.
Failure to comply with federal, state or local regulations could cause the
Company's licenses to be revoked or force it to terminate the sale of alcoholic
beverages at one or more of its restaurants.
The Company is subject to state "dram shop" laws and regulations, which
generally provide that a person injured by an intoxicated person may seek to
recover damages from an establishment that wrongfully served alcoholic beverages
to such person. While the Company carries liquor liability coverage as part of
its existing comprehensive general liability insurance, there can be no
assurance that it will not be subject to a judgment in excess of such insurance
coverage or that it will be able to obtain or continue to maintain such
insurance coverage at reasonable costs, or at all.
The federal Americans With Disabilities Act prohibits discrimination on the
basis of disability in public accommodations and employment. The Company is
required to comply with the Americans With Disabilities Act and regulations
relating to accommodating the needs of the disabled in connection with the
construction of new facilities and with significant renovations of existing
facilities.
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<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of June 28, 1998
concerning each of the Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Chief Executive Officer, President and
Richard L. Federico....................... 44 Director
Robert T. Vivian.......................... 40 Chief Financial Officer and Secretary
Frank Ziska............................... 51 Chief Development Officer
Paul M. Fleming........................... 44 Director and Founder
J. Michael Chu(2)......................... 40 Director
Gerald R. Gallagher(1).................... 57 Director
R. Michael Welborn(1)(2).................. 47 Director
James G. Shennan.......................... 57 Director
Yves Sisteron............................. 43 Director
</TABLE>
- ------------------------------
(1) Compensation Committee Member.
(2) Audit Committee Member.
Richard L. Federico joined the Company as President and a director in
February 1996 and in September 1997 succeeded Paul M. Fleming as Chief Executive
Officer. From February 1989 to January 1996 Mr. Federico served as President of
the Italian Concepts division of Brinker International, Inc. where he was
responsible for concept development and operations. Under his direction, this
division grew from one unit in 1989 to more than 70 units by 1996.
Robert T. Vivian has served as Chief Financial Officer and Secretary since
April 1996. From January 1991 to April 1996 Mr. Vivian served in a variety of
positions at Brinker International, Inc., the most recent of which was Vice
President of Investor Relations. In this capacity, Mr. Vivian was responsible
for dissemination of financial information and corporate communications to
Brinker's stockholders.
Frank Ziska has served as Chief Development Officer since June 1998. Prior
to joining the Company, from 1994 to June 1998, Mr. Ziska served as Managing
Director of United States and Canadian Operations for Cushman & Wakefield
Worldwide, a real estate brokerage firm. Prior to that time, beginning in 1989,
Mr. Ziska served as Managing Director and Branch Manager of Arizona Operations
for Cushman & Wakefield of Arizona, Inc.
Paul M. Fleming founded the Company in January 1996 and has served as a
director of the Company since that time. Mr. Fleming also served as Chief
Executive Officer of the Company from January 1996 to September 1997. From
November 1992 to February 1996, Mr. Fleming served as President of Fleming
Chinese Restaurants, Inc., the entity which opened, developed and managed the
first four P.F. Chang's restaurants, each of which were owned by separate
entities and were located in Scottsdale, Arizona and Irvine, Newport Beach and
La Jolla, California. In addition, from 1983 to 1997, Mr. Fleming was also a
franchisee of Ruth's Chris Steakhouse, Inc.
J. Michael Chu has served as a director of the Company since February 1996.
Mr. Chu has been President and Managing Director of Catterton-Simon Partners, a
venture capital firm, since 1990. Mr. Chu also serves on the boards of directors
of Halston, Inc., Fine Host Corp and several private companies.
Gerald R. Gallagher has served as a director of the Company since February
1996. He has been a General Partner of Oak Investment Partners, a venture
capital firm, since May 1987. Mr. Gallagher also serves on the boards of
directors of several private companies.
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<PAGE> 36
R. Michael Welborn has served as a director of the Company since August
1996. Mr. Welborn has served as the Chairman of Bank One, Arizona, N.A., a
commercial bank, since January 1996. From September 1993 to December 1995 he
served as Managing Director of The Venture West Group, a merchant bank. From May
1988 to September 1993 Mr. Welborn served as Chairman of Citibank of Arizona.
Mr. Welborn also serves on the boards of directors of Bank One, Arizona, N.A.
and a private company.
James G. Shennan, Jr. has served as a director of the Company since May
1997. He has been a principal of Trinity Ventures, a venture capital firm, since
June 1989. Mr. Shennan also serves on the boards of directors of Starbuck's
Corporation and a number of privately-held, consumer-oriented companies in which
Trinity Ventures is an investor.
Yves Sisteron has served as a director of the Company since May 1997. Mr.
Sisteron has been a Principal of Global Retail Partners, L.P. since January 1996
and a Manager, U.S. Investments of Carrefour S.A. since March 1993. Mr. Sisteron
has a J.D. and an L.L.M. from Lyon Law School and an L.L.M. in Comparative Law
from New York University School of Law. Mr. Sisteron also serves on the boards
of directors of CitySearch, Inc., InterWorld Technology Ventures, Inc. and
several private companies.
Currently, all directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Officers are elected by and serve at the discretion of the Company's Board of
Directors. There are no family relationships among the directors or officers of
the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee of the Company's Board of Directors is comprised
of Michael Welborn and Gerald Gallagher. Neither of these individuals was at any
time during the 1997 fiscal year or at any other time an officer or employee of
the Company. No executive officer of the Company serves as a member of the board
of directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to provisions of the Delaware General Corporation Law ("DGCL"),
the Company has adopted provisions in its Charter, which provide that directors
of the Company shall not be personally liable for monetary damages to the
Company or its stockholders for a breach of fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the DGCL relating to improper dividends or distributions; or (iv)
for any transaction from which the director derived an improper personal
benefit. Such limitation of liability does not affect the availability of
equitable remedies such as injunctive relief or rescission.
The Certificate also authorizes the Company to indemnify its current and
former officers, directors, employees or agents against certain liabilities that
may arise by reason of their status or service as directors, officers, employees
or agents of the Company (other than liabilities arising from acts or omissions
not in good faith or willful misconduct).
The Company's By-laws authorize the Company to indemnify its officers,
directors, employees and agents to the extent permitted by the DGCL. Pursuant to
Section 145 of the DGCL, which empowers the Company to enter into
indemnification agreements with its officers, directors, employees and agents,
the Company has entered into separate indemnification agreements with its
directors and executive officers which may, in some cases, be broader than the
specific indemnification provisions contained in the DGCL. The indemnification
agreements may require the Company, among other things, to indemnify such
executive officers and directors against certain liabilities that may arise by
reason of their status or service as directors or officers (other than
liabilities arising from acts or omissions not in good faith or willful
misconduct) and to advance expenses incurred as a result of any proceeding
against them as to which they could be indemnified.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted and the Company is not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
35
<PAGE> 37
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation paid
to each person who served as the Company's Chief Executive Officer during the
fiscal year ended December 28, 1997 and each other executive officer whose
combined salary and bonus for the fiscal year ended December 28, 1997 exceeded
$100,000 for services rendered in all capacities to the Company and its
subsidiaries for that fiscal year. The executive officers named below are
referred to herein as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION/
AWARDS
------------------
ANNUAL COMPENSATION SHARES OF
-------------------- COMMON STOCK
NAME AND PRINCIPAL POSITION(S) SALARY BONUS UNDERLYING OPTIONS
- ------------------------------ -------- -------- ------------------
<S> <C> <C> <C>
Richard L. Federico.................................. $270,000 $115,000 50,000
Chief Executive Officer and President
Robert T. Vivian..................................... 106,000 23,000 7,500
Chief Financial Officer and Secretary
Paul M. Fleming...................................... 167,000 50,000 --
Founder and former Chief Executive Officer
</TABLE>
OPTION GRANTS
The following table sets forth certain information concerning the grant of
options to purchase the Company's Common Stock made during the fiscal year ended
December 28, 1997 to each of the Named Executive Officers:
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF SHARES PERCENT OF TOTAL STOCK PRICE
OF COMMON STOCK OPTIONS GRANTED EXERCISE APPRECIATION FOR
UNDERLYING TO EMPLOYEES OR BASE OPTION TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
NAME AND PRINCIPAL POSITION(S) GRANTED(1) YEAR 1997(2) ($/SH) DATE 5% 10%
- ------------------------------ ---------------- ---------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Federico........ 50,000 29.4% $6.00 08/14/07 $188,688 $478,123
Chief Executive Officer and
President
Robert T. Vivian........... 7,500 4.4 6.00 11/25/07 28,300 71,718
Chief Financial Officer and
Secretary
Paul M. Fleming............ -- -- -- -- -- --
Founder and former Chief
Executive Officer
</TABLE>
- ------------------------------
(1) Options generally vest over a period of five years with 20% of the options
vesting one year after the date of grant and the balance vesting in equal
monthly installments.
(2) In 1997, the Company granted options to purchase an aggregate of 170,000
shares.
(3) Potential Realizable Value is based on certain assumed rates of appreciation
pursuant to rules prescribed by the Securities and Exchange Commission
("SEC"). Actual gains, if any, on stock option exercises are dependent upon
future performance of the Company and related Common Stock price levels
during the terms of the options. There can be no assurance that the amounts
reflected in this table will be achieved.
36
<PAGE> 38
FISCAL YEAR-END VALUES OF STOCK OPTIONS
The following table sets forth certain information concerning the 1997
fiscal year-end value of unexercised options held by the Named Executive
Officers. None of the Named Executive Officers exercised any options during
fiscal 1997.
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT 12/28/97 12/28/97(2)
------------------------------- -------------------------------
NAME EXERCISABLE(1) UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
---- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Richard L. Federico................... 393,965 0 $2,814,134 --
Robert T. Vivian...................... 93,490 0 653,524 --
Paul M. Fleming....................... 286,640 0 1,719,840 --
</TABLE>
- ------------------------------
(1) All options issued to the Named Executive Officers are immediately
exercisable. However, unvested shares are subject to a right of repurchase
on behalf of the Company in the event of the Named Executive Officer's
termination of service with the Company.
(2) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 28, 1997 ($10.00 as
determined by the Company's Board of Directors) and the exercise price of
the Named Executive Officer's options.
BENEFIT PLANS
1998 Stock Option Plan. A total of 280,000 shares of the Company's Common
Stock (the "Share Reserve") have been reserved for issuance under the Company's
1998 Stock Option Plan (the "1998 Option Plan"). In addition, the Share Reserve
will be increased if any outstanding options issued under the 1997 Restaurant
Management Plan and the 1996 Employee Stock Option Plan (collectively, the
"Prior Plans") expire or are canceled, or if the Company exercises its right to
repurchase unvested shares of stock which were acquired upon exercise of options
granted under the Prior Plans. As of June 28, 1998, no shares of Common Stock
have been issued upon exercise of options and an aggregate of 1,009,635 shares
were subject to outstanding options under the Prior Plans. The 1998 Option Plan
provides for discretionary grants of incentive stock options and nonqualified
stock options to the Company's employees, officers, directors, consultants,
advisors, and/or other independent contractors. The option price per share for
an incentive stock option may not be less than 100% of the fair market value of
a share of Common Stock on the grant date. The option price per share for a
nonstatutory stock option may not be less than 85% of the fair market value of a
share of Common Stock on the grant date. The option price per share for an
incentive stock option granted to a person owning stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or a
parent or subsidiary) may not be less than 110% of the fair market value of a
share of Common Stock on the grant date. The Company's Compensation Committee
has the authority to, among other things, determine the vesting schedule for
each option granted. All options expire within ten years. The 1998 Option Plan
includes an automatic grant program for outside directors. Pursuant to this
program, each outside director will be granted an option to purchase 10,000
shares of Common Stock at the time he or she is first elected or appointed a
director of the Company. In addition, Michael Welborn and each outside director
elected after the consummation of this offering remaining in office on the day
following each annual meeting of stockholders will be granted an option to
purchase 2,500 shares. With respect to the other outside directors in office
prior to consummation of this offering (Messrs. Chu, Gallagher and Sisteron),
each such director remaining in office 18 months after the consummation of this
offering shall be granted an option to purchase 2,500 shares on the day
following each annual meeting of stockholders thereafter.
1997 Restaurant Management Stock Option Plan. As of June 28, 1998, 56,875
shares were authorized under the Company's 1997 Restaurant Management Plan (the
"Restaurant Management Plan"). All of such shares were subject to outstanding
options and were exercisable as of such date. The Company will not issue
additional options under the Restaurant Management Plan. The Restaurant
Management Plan provides for
37
<PAGE> 39
grants of incentive stock options and nonqualified stock options to employees of
the Company who hold the position of general manager or assistant manager or a
position of similar importance to the Company. The option price per share for an
incentive stock option may not be less than 100% of the fair market value of a
share of Common Stock on the grant date. The option price per share for
nonqualified stock option may not be less than 85% of the fair market value of a
share of Common Stock on the grant date. The option price per share for an
option granted to a person owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company (or a parent or
subsidiary) or 10% of the total combined value of all such classes of stock may
not be less than 110% of the fair market value of a share of Common Stock on the
grant date. Generally, options vest over five years with 20% of the options
vesting one year after the grant date and the balance vesting in equal monthly
installments over the remaining term of the options. Options expire within ten
years.
1996 Employee Stock Option Plan. As of June 28, 1998, 952,760 shares were
authorized under the Company's 1996 Employee Stock Option Plan (the "Employee
Plan"). All of such shares were subject to outstanding options and were
exercisable as of such date. The Company will not issue any additional options
under the Employee Plan. The Employee Plan provides for grants of incentive
stock options and nonqualified stock options to the Company's employees
(including officers), directors, consultants, advisors, and/or other independent
contractors. The option price per share for an incentive stock option may not be
less than 100% of the fair market value of a share of Common Stock on the grant
date. The option price per share for a nonqualified stock option may not be less
than 85% of the fair market value of a share of Common Stock on the grant date.
The option price per share for an option granted to a person owning stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (or a parent or subsidiary) or 10% of the total combined
value of all such classes of stock may not be less than 110% of the fair market
value of a share of Common Stock on the grant date. Generally, options vest over
five years with 20% of the options vesting one year after the grant date and the
balance vesting in equal monthly installments over the remaining term of the
options. Options expire within ten years.
1998 Employee Stock Purchase Plan. A total of 400,000 shares of the
Company's Common Stock have been reserved for issuance under the Company's 1998
Employee Stock Purchase Plan (the "Purchase Plan"), none of which have been
issued. The Purchase Plan permits eligible employees to purchase Common Stock at
a discount, but only through payroll deductions, during concurrent 24 month
offering periods. Each offering period will be divided into four consecutive six
month purchase periods. The price at which stock is purchased under the Purchase
Plan is equal to 85% of the lower of the fair market value of the Common Stock
on the first day of the offering period and the fair market value of the Common
Stock on the last day of the purchase period. The initial offering period will
commence on the effective date of this offering.
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Paul M. Fleming on
January 31, 1996. Pursuant to the terms of the agreement, Mr. Fleming served as
Chief Executive Officer of the Company from January 1996 until September 1997
and is currently serving as a director and an employee of the Company for a term
which expires January 31, 1999. The term of Mr. Fleming's employment will be
automatically renewed for successive one year terms unless either Mr. Fleming or
the Company provides notice of an intention not to renew the agreement. In the
event that Mr. Fleming's employment is terminated by the Company without cause
or by Mr. Fleming for good reason (as defined in the agreement), Mr. Fleming is
entitled to receive as severance compensation (i) his base salary until the
earlier of (a) one year from the date of termination or (b) the expiration of
the initial term of the agreement, (ii) a lump sum payment of the average annual
bonuses paid over the term of the agreement and (iii) the right to exercise in
full all unvested stock options granted to him in accordance with the terms of
the Employee Plan under the agreement. In addition to his base salary, Mr.
Fleming is eligible to receive discretionary bonuses, when and if declared by
the Board of Directors. The agreement prohibits Mr. Fleming from competing with
the Company during the term of the agreement and for two years after the
termination thereof.
38
<PAGE> 40
CERTAIN TRANSACTIONS
Since December 31, 1995, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which the Company
or its Predecessors was or is to be a party in which the amount involved exceeds
$60,000 and in which any director, executive officer or beneficial holder of
more than 5% of any class of voting securities of the Company or members of such
person's immediate family had or will have a direct or indirect material
interest other than the transactions described below.
Formation and Series A Preferred Financing. The Company was formed on
January 31, 1996, through the issuance of 500 shares of Common Stock to Paul
Fleming for a purchase price of $100. In February 1996, the Company sold
2,487,500 shares of Series A Preferred Stock at a price of $4.00 per share and
related warrants for an aggregate purchase price of $9,950,000.
Contemporaneously, the Company acquired Paul and Kelly Fleming's 52% interest in
Fleming Chinese Restaurants, Inc., which operated the first P.F. Chang's
restaurant in Scottsdale, Arizona, for $1,037,000 in cash and $954,000 in notes
payable. The Company also acquired from the Flemings (i) a 43% interest in P.F.
Chang's II, Inc., which operated a P.F. Chang's restaurant in Newport Beach,
California, (ii) a 50% ownership in P.F. Chang's III, L.L.C., which operated a
P.F. Chang's restaurant in La Jolla, California and (iii) a 54% ownership
interest in P.F. Chang's IV, L.L.C., which operated a P.F. Chang's restaurant in
Irvine, California, all for an aggregate purchase price of $2,006,000 in cash
and 2,499,500 shares of Common Stock of the Company. In September 1996, the
Company issued an additional 189,635 shares of Series A Preferred Stock at a
price of $4.00 per share for an aggregate purchase price of $758,540. Pursuant
to the terms of the Company's Charter, on March 31, 1998 and June 30, 1998 the
Company issued, and upon the consummation of this offering will issue,
paid-in-kind dividends ("PIK Dividends") to the stockholders of the Company who
hold Series A Preferred Stock. PIK Dividends are cumulative and are equal to 6%
of the number of shares of Series A Preferred Stock owned by each stockholder
payable in quarterly installments. Upon completion of this offering, all shares
of the Series A Preferred Stock will convert into shares of Common Stock.
The following executive officers, directors and beneficial holders of more
than 5% of a class of the Company's capital stock purchased shares of the Series
A Preferred Stock having an aggregate purchase price of at least $60,000.
<TABLE>
<CAPTION>
SHARES
EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS(1) PURCHASED(4)
- ---------------------------------------------------- ------------
<S> <C>
Oak Investment Partners VI, Limited Partnership(2).......... 906,085
Catterton-Simon Partners, L.P.(2)........................... 625,000
Trinity Ventures V, L.P.(2)................................. 475,000
Silver Creek Investments Limited(2)......................... 437,500
Global Retail Partners, L.P.(2)............................. 40,450
Richard L. Federico(3)...................................... 50,000
</TABLE>
- ------------------------------
(1) See notes to "Principal and Selling Stockholders" for information relating
to the beneficial ownership of shares and identification of affiliated
stockholders.
(2) A beneficial owner of more than 5% of a class of the Company's capital
stock. Gerald R. Gallagher, J. Michael Chu, James G. Shennan and Yves
Sisteron, each a director of the Company, are affiliated with Oak Investment
Partners VI, Limited Partnership, Catterton-Simon Partners, L.P., Trinity
Ventures V, L.P. and Global Retail Partners, L.P., respectively.
(3) An officer and director of the Company.
(4) Excludes shares issued and issuable as PIK Dividends.
39
<PAGE> 41
Series B Preferred Financing. In May 1997, the Company issued 758,565
shares of Series B Preferred Stock at a price of $8.70 per share, for an
aggregate purchase price of $6,599,519. The following executive officers,
directors and beneficial holders of more than 5% of a class of the Company's
capital stock purchased shares of Series B Preferred Stock having an aggregate
purchase price of at least $60,000.
<TABLE>
<CAPTION>
SHARES
EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS(1) PURCHASED
- ---------------------------------------------------- ---------
<S> <C>
Global Retail Partners, L.P.(2)............................. 322,018
Oak Investment Partners VI, Limited Partnerships(2)......... 114,942
Catterton-Simon Partners, L.P.(2)........................... 114,942
Trinity Ventures V, L.P.(2)................................. 114,942
Silver Creek Investments Limited(2)......................... 54,959
</TABLE>
- ------------------------------
(1) See notes to table of beneficial ownership in "Principal and Selling
Stockholders" for information relating to the beneficial ownership of shares
and identification of affiliated stockholders.
(2) A beneficial owner of more than 5% of a class of the Company's Capital
Stock. Gerald R. Gallagher, J. Michael Chu, James G. Shennan and Yves
Sisteron, each a director of the Company, are affiliated with Oak Investment
Partners VI, Limited Partnership, Catterton-Simon Partners, L.P., Trinity
Ventures V, L.P. and Global Retail Partners, L.P., respectively.
Purchase of Remaining Minority Interests. During 1997, the Company
purchased substantially all the remaining outstanding minority interests in the
Scottsdale, La Jolla and Newport Beach restaurants for approximately $2,520,000
in cash and $2,426,000 in Common Stock of the Company to be issued upon
consummation of this offering upon conversion of the Deferred Purchase Price
Liability. The number of shares of Common Stock to be issued will be determined
by dividing $2,426,000 by the initial offering per share price. In the event the
offering is not completed by October 23, 1998, the Company will be obligated
(upon demand of the individual holders) to pay the minority interest holders an
aggregate amount of $2,426,000 in cash.
Promissory Notes. Prior to the formation of the Company, Paul Fleming, the
founder and a director of the Company, personally guaranteed several promissory
notes entered into by the Predecessors to pay for improvements to the
Scottsdale, La Jolla and Newport Beach restaurants. The aggregate original
principal amount of the notes was $472,000. In connection with the Company's
acquisition of the interests in the Predecessors, the Company assumed the
promissory notes. Mr. Fleming remains a guarantor of the notes. As of June 28,
1998, the aggregate outstanding principal amount of the notes was approximately
$120,000.
40
<PAGE> 42
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock as of June 28, 1998, and as
adjusted to reflect the sale of the shares offered hereby, assuming no exercise
of the Underwriters' over-allotment option, by (i) each person who is known by
the Company to be the beneficial owner of more than 5% of the Company's Common
Stock; (ii) each of the Named Executive Officers; (iii) each director of the
Company; (iv) all executive officers and directors of the Company as a group;
and (v) each of the Selling Stockholders. Except pursuant to applicable
community property laws or as indicated in the footnotes to this table, the
Company believes that each stockholder identified in the table possesses sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by such stockholder. The address of the individuals listed
below is the address of the Company appearing on the cover of this registration
statement.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING(1) SHARES AFTER THE OFFERING(1)
------------------------- BEING -----------------------
NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
<S> <C> <C> <C> <C> <C>
Oak Investment Partners VI, Limited
Partnership(3)...................... 1,062,415
Gerald R. Gallagher
4550 Norwest Center
Minneapolis, MN 55402
Catterton-Simon Partners, L.P.(4)..... 768,491
J. Michael Chu
9 Greenwich Office Park
Greenwich, CT 06830
Trinity Ventures V, L.P.(5)........... 611,639
James G. Shennan, Jr.
3000 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Global Retail Partners, L.P.(6)....... 364,316
Yves Sisteron
2121 Avenue of the Stars, Suite 1600
Los Angeles, CA 90067
Silver Creek Investments Limited(7)... 512,443
61 Purchase Street, Suite #2R
Rye, NY 10580
Paul M. Fleming(8).................... 2,774,170
R. Michael Welborn(9)................. 30,172
Richard L. Federico(10)............... 446,249
Robert T. Vivian(11).................. 93,490
All officers and directors as a group
(9 persons)(12)..................... 6,150,912
</TABLE>
- ------------------------------
* Less than one percent.
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, a person has beneficial ownership of any securities over which
such person directly or indirectly, through any contract, arrangement,
undertaking, relationship or otherwise has or shares voting power and/or
investment power, or as to which such person has the right to acquire such
voting and/or investment power within 60 days.
(2) Percentage ownership is based on: (i) before the offering, shares
of Common Stock (which includes (a) shares outstanding on June 28, 1998,
(b) 82,130 shares issuable as PIK Dividends
41
<PAGE> 43
to holders of Series A Preferred Stock prior to consummation of the offering,
and (c) shares issuable upon completion of this offering upon
conversion of the Deferred Purchase Price Liability (assuming an initial public
offering price of $ per share)); and (ii) after the offering,
shares of Common Stock outstanding (assuming no exercise of
the Underwriter's over-allotment option). Percentage of beneficial
ownership as to any person as of a particular date is calculated by
dividing the number of shares beneficially owned by such person by the sum
of the number of shares outstanding as of such date and the number of
shares as to which such person has the right to acquire voting and/or
investment power within 60 days of such date.
(3) Includes 27,797 shares issuable as PIK Dividends to the named stockholder
and its affiliates who hold Series A Preferred Stock prior to consummation
of the offering. Includes 1,038,191 shares held by Oak Investment Partners
VI, Limited Partnership and 24,224 shares held by Oak VI Affiliates Fund,
Limited Partnership. Gerald Gallagher, a director of the Company, is a
partner of Oak Investment Partners with certain voting and investment power
over such shares. Although Mr. Gallagher may be deemed to be a beneficial
owner of such shares, he disclaims all such beneficial ownership except to
the extent of any pecuniary interest therein which he may have.
(4) Includes 19,174 shares issuable as PIK Dividends to the named stockholder
and its affiliates who hold Series A Preferred Stock prior to consummation
of the offering. Includes 457,484 shares held by Catterton-Simon Partners,
L.P., 224,800 shares held by Catterton-PFC, L.L.C. and 86,207 shares held
by Catterton-PFC Partners II, L.L.C. Michael Chu, a director of the
Company, is President and Managing Director of Catterton-Simon Partners
with certain voting and investment power over such shares. Although Mr. Chu
may be deemed to be a beneficial owner of such shares, he disclaims all
such beneficial ownership except to the extent of any pecuniary interest
therein which he may have.
(5) Includes 14,572 shares issuable as PIK Dividends to the named stockholder
and its affiliates who hold Series A Preferred Stock prior to consummation
of the offering. Includes 575,993 shares held by Trinity Ventures V, L.P.
and 35,645 shares held by Trinity Ventures V Side-by-Side Fund, L.P. James
G. Shennan, Jr., a director of the Company, is a partner of Trinity
Ventures with certain voting and investment power over such shares.
Although Mr. Shennan may be deemed to be a beneficial owner of such shares,
he disclaims all such beneficial ownership except to the extent of any
pecuniary interest therein which he may have.
(6) Includes 1,242 shares issuable as PIK Dividends to the named stockholder
and its affiliates who hold Series A Preferred Stock prior to consummation
of the offering. Includes 8,047 shares held by Mr. Sisteron, 199,490 shares
held by Global Retail Partners, L.P., 14,607 shares held by Global Retail
Partners Funding, Inc., 15,664 shares held by GRP Partners, L.P., 82,678
shares held by DLJ Diversified Partners, L.P., 3,652 shares held by DLJ
First ESC, L.P., and 40,177 shares held by certain individuals affiliated
with DLJ. Each of such persons is affiliated with Global Retail Partners,
L.P. and Global Retail Partners, L.P. and such affiliates are each
affiliates of DLJ. Yves Sisteron, a director of the Company, is a Principal
of Global Retail Partners L.P. with certain voting and investment power
over such shares. Although Mr. Sisteron may be deemed to be a beneficial
owner of such shares, he disclaims all such beneficial ownership except to
the extent of any pecuniary interest therein which he may have.
(7) Includes 13,422 shares issuable as PIK Dividends to the named stockholder
who holds Series A Preferred Stock prior to consummation of the offering.
(8) Includes 286,640 shares subject to options which are exercisable within 60
days of September 30, 1998.
(9) Includes 25,000 shares subject to options which are exercisable within 60
days of September 30, 1998.
(10) Includes 1,534 shares issuable as PIK Dividends to the named stockholder
who holds Series A Preferred Stock prior to consummation of the offering.
Includes 393,965 shares subject to options which are exercisable within 60
days of September 30, 1998.
(11) Includes 93,490 shares subject to options which are exercisable within 60
days of September 30, 1998.
(12) Includes 799,095 shares subject to options which are exercisable within 60
days of September 30, 1998 and 64,319 shares issuable as PIK Dividends.
42
<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Charter and By-laws is a summary and is qualified in
its entirety by the provisions of the Charter and By-laws, which have been filed
as exhibits to the Company's Registration Statement, of which this Prospectus is
a part.
Upon the closing of the offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, $0.001 par value, and
10,000,000 shares of Preferred Stock, $0.001 par value.
COMMON STOCK
As of June 28, 1998, there were shares of Common Stock
(after giving effect to the conversion into Common Stock of the Preferred Stock
and the Deferred Purchase Price Liability upon the closing of this offering)
outstanding held of record by fifty-nine (59) stockholders. Holders of Common
Stock are entitled to one vote per share on all matters to be voted upon by the
stockholders. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available thereof. In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior liquidation rights of preferred stock, if any, then
outstanding. The Common Stock has no preemptive or conversion rights or other
subscriptive rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable, and the shares of Common Stock to be outstanding upon
completion of the offering contemplated by this Prospectus will be fully paid
and non-assessable. The Charter does not provide for cumulative voting, and
accordingly, the holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election.
PREFERRED STOCK
Upon consummation of the offering there will be no outstanding shares of
preferred stock of the Company. The Board of Directors has the authority,
without action by the stockholders, to designate and issue preferred stock in
one or more series and to designate the dividend rate, voting rights and other
rights, preferences and restrictions of each series, any or all of which may be
greater than the rights of the Common Stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the Common Stock until the Board of Directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things, restricting dividends on the Common Stock,
diluting the voting power of the Common Stock, impairing the liquidation rights
of the Common Stock and delaying or preventing a change in control of the
Company without further action by the stockholders. The Company has no present
plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Pursuant to the Amended and Restated Registration Rights Agreement dated
May 1, 1997, between the Company and certain stockholders, certain investors
holding an aggregate of 3,557,984 shares (the "Registrable Securities") will
have certain "demand" rights to register those shares under the Securities Act.
Beginning 180 days after the date of this Prospectus, if requested by holders of
more than 50% of the Registrable Securities then outstanding and assuming a
reasonably anticipated aggregate price to the public of at least $5 million,
then, subject to certain limitations, the Company must file a registration
statement under the Securities Act covering all Registrable Securities requested
to be included by holders of Registrable Securities. The Company is required to
effect up to three such "demand" registrations. The Company has the right to
delay any such registration for up to 90 days under certain circumstances. All
fees, costs and expenses of such registrations other than underwriting discounts
and commissions, will be borne by the Company.
In addition, holders of Registrable Securities have certain "piggyback"
registration rights. If the Company proposes to register any of its securities
under the Securities Act other than in connection with the
43
<PAGE> 45
Company's employee benefit plans or a corporate reorganization, then, subject to
certain limitations, the holders of Registrable Securities may require the
Company to include all or a portion of their shares in such registration,
although the managing underwriter of any such offering has certain rights to
limit the number of shares in such registration.
Subject to certain limitations, expenses incurred in connection with the
above registrations (other than underwriters' and brokers' discounts and
commissions) will be borne by the Company.
DEFERRED PURCHASE PRICE LIABILITY
In connection with the repurchase by the Company of minority interests in
the Scottsdale, La Jolla and Newport Beach restaurants, certain of the former
minority interest holders have the right to receive a number of shares of
restricted Common Stock of the Company upon completion of the offering
determined by dividing $2,426,000 by the initial public offering price per
share. In the event the offering is not completed by October 23, 1998, the
Company will be obligated (upon demand of the individual holders) to pay the
holders of such rights the aggregate amount of $2,426,000 in cash.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 102(b)(7) of the DGCL authorizes corporations to limit or eliminate
the personal liability of directors to corporations and their stockholders for
monetary damages for a breach of a director's fiduciary duty of care. Although
Section 102(b)(7) does not change a director's duty of care, it enables
corporations to limit available relief to equitable remedies such as injunction
or rescission. The Company's Charter limits the liability of directors to the
Company and its stockholders. Specifically, directors of the Company are not
personally liable for monetary damages to the Company or its stockholders for a
breach of fiduciary duty as a director, except for liability: (i) for any breach
of the director's duty of loyalty to the Company or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) for any
transaction from which the director derived an improper personal benefit.
ANTI-TAKEOVER PROVISIONS
General. Certain provisions of the DGCL and the Company's Charter and
By-laws may discourage or make it more difficult for a third-party to acquire
control of the Company. Such provisions may limit the price that certain
investors are willing to pay in the future for shares of the Company's Common
Stock. These certain provisions may also have the effect of discouraging or
preventing certain types of transactions involving an actual or threatened
change of control of the Company (including unsolicited takeover attempts), even
though such a transaction may offer the Company's stockholders the opportunity
to sell their stock at a price above the prevailing market price. The Charter
allows the Company to issue preferred stock with rights senior to those of the
Common Stock and other rights that could adversely affect the interests of
holders of shares of Common Stock without any further vote or action by the
stockholders. The issuance of preferred stock, for example, could decrease the
amount of earnings or assets available for distribution to the holders of shares
of Common Stock or could adversely affect the rights and powers, including
voting rights, of the holders of shares of Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock, as well as having the anti-takeover effects discussed
above.
Delaware Takeover Statute. The Company is subject to Section 203 of the
DGCL, which prohibits a Delaware corporation from engaging in a "business
combination" with certain persons ("Interested Stockholders") for three years
following the time any such person becomes an Interested Stockholder. Interested
Stockholders generally include (i) persons who are the beneficial owners of 15%
or more of the outstanding voting stock of the corporation, and (ii) persons who
are affiliates or associates of the corporation and who hold 15% or more of the
corporation's outstanding voting stock at any time within three years before the
date on which such person's status as an Interested Stockholder is determined.
Subject to certain exceptions, a business combination includes, among other
things, (i) mergers or consolidations, (ii) the sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets having an aggregate market value
equal to
44
<PAGE> 46
10% or more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market value of
all the outstanding stock of the corporation, (iii) transactions that result in,
among other things, the issuance or transfer by the corporation of any stock of
the corporation to the Interested Stockholder, except pursuant to a transaction
that effects a pro rata distribution to all stockholders of the corporation,
(iv) any transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series, or securities
convertible into the stock of any class or series, of the corporation that is
owned directly or indirectly by the Interested Stockholder, or (v) any receipt
by the Interested Stockholder of the benefit (except proportionately as a
stockholder) of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation.
Section 203 does not apply to a business combination if (i) before a person
becomes an Interested Stockholder, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the Interested Stockholder becoming an Interested Stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, other than certain excluded shares, or (iii) at or subsequent to such
time the business combination is (a) approved by the board of directors of the
corporation and (b) authorized at a regular or special meeting of stockholders,
and not by written consent, by the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of the corporation not owned by the
Interested Stockholder.
CHARTER AND BY-LAWS
The Company's By-laws provide that special meetings of the stockholders of
the Company may be called only by the President of the Company, and shall be
called by the President or Secretary of the Company upon the written request of
a majority of the Board of Directors or by any person or persons holding shares
representing a majority of the outstanding capital stock entitled to vote. The
Company's Bylaws also require advance written notice of a special meeting to
each stockholder of the Company entitled to vote at such meeting not less than
10, nor more than 60, days prior to the meeting. The Company's Charter does not
include a provision for cumulative voting in the election of directors. Under
cumulative voting, a minority stockholder holding a sufficient number of shares
may be able to ensure the election of one or more directors. The absence of
cumulative voting may have the effect of limiting the ability of minority
stockholders to effect changes in the Board of Directors and, as a result, may
have the effect of deterring a hostile takeover or delaying or preventing
changes in control or management of the Company.
The Company's By-laws provide that the authorized number of directors may
be changed by an amendment to the By-laws adopted by the Board of Directors or
by the stockholders. Vacancies in the Board of Directors may be filled either by
holders of a majority of the Company's directors then in office, though less
than a quorum, or by a sole remaining director, or if there are no directors in
office, in the manner provided by statute. If the directors then in office
constitute less than a majority of the whole board, any stockholder or
stockholders holding at least ten percent (10%) of the outstanding capital stock
entitled to vote may apply to the Court of Chancery to order an election.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
45
<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect market prices prevailing from time to time. Furthermore,
since only a limited number of shares will be available for sale shortly after
the offering because of certain contractual and legal restrictions on resale (as
described below), sales of substantial amounts of Common Stock in the public
market after such restrictions lapse could adversely affect the prevailing
market price at such time and the ability of the Company to raise equity capital
in the future.
Upon completion of this offering, the Company will have outstanding an
aggregate of shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants to purchase Common Stock. Of these shares, the shares of Common Stock
to be sold in this Offering will be freely tradable without restriction or
further registration under the Securities Act, unless such shares are held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act (the "Affiliates"). The remaining shares held by
existing stockholders of the Company were sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act and are
"restricted" securities within the meaning of Rule 144 under the Securities Act
(the "Restricted Shares"). Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rule 144 or Rule 701 promulgated under the Securities Act, which rules are
summarized below. As a result of the contractual restrictions described below
and the provisions of Rule 144 Rule and 701, the Restricted Shares will be
available for sale in the public market as follows (based on the number of
shares outstanding as of June 28, 1998): (i) Restricted Shares will be
eligible for sale 90 days after the date of this Prospectus; and (ii) all
Restricted Shares will be eligible for sale upon expiration of the lock-up
agreements 180 days after the date of this Prospectus.
All officers and directors, and certain stockholders and option holders of
the Company have agreed not to sell, make any short sale of, grant any option
for the purchase of, or otherwise transfer or dispose of, any shares of Common
Stock or any securities convertible into or exercisable for Common Stock held by
such persons for a period of 180 days after the date of this Prospectus, without
the prior written consent of DLJ. When determining whether or not to release
shares from the lock-up agreements, DLJ will consider, among other factors, the
stockholder's reasons for requesting the release, the number of shares for which
the release is being requested and market conditions at the time.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock (approximately shares immediately after the offering) or
(ii) the average weekly trading volume of the Common Stock on the Nasdaq
National Market during the four calendar weeks preceding such sale, subject to
the filing of a Form 144 with respect to such sale. Sales under rule 144 are
also subject to certain manner of sale provisions and notice requirements and to
the availability of current public information about the Company. In addition, a
person who is not deemed to have been an Affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, would be entitled to sell such
shares under Rule 144(k) without regard to the requirements described above.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
following completion of the offering. In general, under Rule 701 of the
Securities Act as currently in effect, any employee, consultant or advisor of
the Company who purchased shares from the Company in connection with a
compensatory stock or option plan or written employment agreement is eligible to
resell such shares 90 days after the effective date of the offering in reliance
on Rule 144, but without compliance with certain restrictions, including the
holding period conditions, contained in Rule 144.
Within 90 days of the date of this Prospectus, the Company intends to file
a registration statement under the Securities Act to register shares of Common
Stock reserved for issuance under its equity incentive plans, thus permitting
the resale of such shares by non-affiliates in the public market without
restriction under the Securities Act. Such registration statements will become
effective immediately upon filing. As of June 28, 1998, 1,009,635 options to
purchase shares of Common Stock were outstanding under the Company's stock
option plans and agreements, all of which are subject to the lock-up agreements
described above.
46
<PAGE> 48
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement dated
, 1998 (the "Underwriting Agreement"), the Underwriters named below,
who are represented by Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), NationsBanc Montgomery Securities LLC ("NationsBanc Montgomery") and
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated ("Dain Rauscher
Wessels") (the "Representatives"), have severally agreed to purchase from the
Company and the Selling Stockholders the respective number of shares of Common
Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ -----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
NationsBanc Montgomery Securities LLC.......................
Dain Rauscher Wessels.......................................
-----------
Total.............................................
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company and the Selling Stockholders have granted to the Underwriters
an option, exercisable within 30 days after the date of this Prospectus, to
purchase, from time to time, in whole or in part, up to an aggregate of
additional shares of Common Stock at the initial public offering
price less underwriting discounts and commissions. The Underwriters may exercise
such option solely to cover over-allotments, if any, made in connection with the
offering. To the extent that the Underwriters exercise such option, each
Underwriter will become obligated, subject to certain conditions, to purchase
its pro rata portion of such additional shares based on such Underwriter's
percentage underwriting commitment as indicated in the preceding table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
stockholders of the Company (including the Selling Stockholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise) for a period of 180 days after the date of this Prospectus
without the prior written consent of DLJ. In addition, during such period, the
Company has also agreed not to file any registration statement with respect to,
and each of its executive officers, directors and certain stockholders of the
Company (including the Selling Stockholders) has agreed not to make any demand
for, or exercise any right with respect to, the
47
<PAGE> 49
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock other than registrations relating
to equity compensation plans without DLJ's prior written consent.
Prior to the offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company,
representatives of the Selling Stockholders and the Representatives. The factors
to be considered in determining the initial public offering price include the
history of and the prospects for the industry in which the Company competes, the
past and present operations of the Company, the historical results of operations
of the Company, the prospects for future earnings of the Company, the recent
market prices of securities of generally comparable companies and the general
condition of the securities markets at the time of the offering.
Global Retail Partners, L.P. ("GRP") and its affiliates (together, the "GRP
Related Entities"), each an affiliate of DLJ, Yves Sisteron, a Principal of GRP,
and two other individual affiliates of DLJ (collectively, the "DLJ Affiliates")
are stockholders of the Company. Mr. Sisteron, a director of the Company has
been elected to the Board of Directors pursuant to the provisions of a
stockholder agreement which entitles Global Retail Partners, L.P., as a holder
of Series B Preferred Stock and so long as it continues to hold at least a
specified percentage of the Series B Preferred Stock, to elect one of the seven
directors of the Company. Such stockholder agreement will terminate upon
consummation of this offering. See "Management," "Certain Transactions" and
"Principal and Selling Stockholders." In May 1997, Global Retail Partners, L.P.
and certain other DLJ affiliates, including Mr. Sisteron, acquired an aggregate
of 322,018 shares of the Company's Series B Preferred Stock. Previously, in
February 1996, Mr. Sisteron and two other individual affiliates of DLJ, acquired
an aggregate of 40,450 shares of the Company's Series A Preferred Stock and have
since received and will receive scheduled PIK Dividends thereon. In addition,
certain individuals who are associated with NationsBanc Montgomery acquired an
aggregate of 90,762 shares of Series A Preferred Stock in February 1996, and
such individuals and one other individual associated with NationsBanc Montgomery
acquired an aggregate of 24,404 shares of Series B Preferred Stock in May 1997.
In February 1996, NationsBanc Montgomery also received a five-year warrant to
purchase up to 62,190 shares of Series A Preferred Stock at an exercise price of
$4.00 per share in connection with placement agent and other services it
performed for the Company.
Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the offering of the Common Stock and the distribution
of this Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
48
<PAGE> 50
LEGAL MATTERS
The validity of the securities offered hereby has been and general
corporate legal matters will be passed upon for the Company by Gray Cary Ware &
Freidenrich LLP, San Diego, California. Certain legal matters will be passed
upon for the Underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P., San
Antonio, Texas.
EXPERTS
The consolidated financial statements of P.F. Chang's China Bistro, Inc. at
December 28, 1997 and December 29, 1996 and for the year ended December 28,
1997, the period from February 29, 1996 to December 29, 1996, the combined
results of operations of its Predecessors for the period from January 1, 1996 to
February 28, 1996 and the year ended December 31, 1995 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement (which term shall include any amendments thereto) on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement. As
used herein, the term "Registration Statement" means the initial Registration
Statement (including the exhibits, schedules, financial statements and notes
filed as part thereof) and any and all amendments thereto. This Prospectus omits
certain information contained in the Registration Statement as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements herein concerning the contents of any
contract or other document are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed with the
Commission as an exhibit to the Registration Statement, each such statement
being qualified by and subject to such reference in all respects. With respect
to each such document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved.
As a result of this offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, will file reports and other information with the
Commission. Reports, registration statements, proxy statements, and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
Commission's Regional Offices: 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, New York, New York 10048. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the site is
http://www.sec.gov.
The Company intends to furnish holders of the Common Stock with annual
reports containing, among other information, audited financial statements
certified by an independent audited accounting firm and quarterly reports
containing unaudited condensed financial information for the first three
quarters of each fiscal year. The Company intends to furnish such other reports
as it may determine or as may be required by law.
49
<PAGE> 51
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
P.F. CHANG'S CHINA BISTRO, INC.
Report of Independent Auditors.............................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 29, 1996, December
28, 1997, and June 28, 1998 (unaudited)................ F-3
Consolidated Statements of Operations for the Year Ended
December 31, 1995, the Period from January 1, 1996 to
February 28, 1996, the Period from February 29, 1996 to
December 29, 1996, the Year Ended December 28, 1997,
and the Six Months Ended June 29, 1997 and June 28,
1998 (unaudited)....................................... F-4
Consolidated Statements of Convertible Redeemable
Preferred Stock and Common Stockholders' and Members'
Equity (Deficit) for the Year Ended December 31, 1995,
the Period from January 1, 1996 to February 28, 1996,
the Period from February 29, 1996 to December 29, 1996,
the Year Ended December 28, 1997, and the Six Months
Ended June 28, 1998 (unaudited)........................ F-5
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1995, the Period from January 1, 1996 to
February 28, 1996, the Period from February 29, 1996 to
December 29, 1996, the Year Ended December 28, 1997,
and the Six Months Ended June 29, 1997 and June 28,
1998 (unaudited)....................................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
P.F. Chang's China Bistro, Inc.
We have audited the accompanying consolidated balance sheets of P.F.
Chang's China Bistro, Inc. (Company) as of December 29, 1996 and December 28,
1997, and the related consolidated statements of operations, convertible
redeemable preferred stock and common stockholders' and members' equity
(deficit), and cash flows for the period from February 29, 1996 to December 29,
1996 and for the year ended December 28, 1997. We have also audited the combined
statements of operations, stockholders' and members' equity (deficit), and cash
flows of the corporations and limited liability companies listed in Note 2 for
the year ended December 31, 1995 and for the period from January 1, 1996 to
February 28, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of P.F. Chang's
China Bistro, Inc. at December 29, 1996 and December 28, 1997 and the results of
its operations and its cash flows for the period from February 29, 1996 to
December 29, 1996 and for the year ended December 28, 1997, and the combined
results of operations and cash flows of the corporations and limited liability
companies listed in Note 2 for the year ended December 31, 1995 and for the
period from January 1, 1996 to February 28, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Phoenix, Arizona
January 26, 1998, except for Note 11
as to which the date is , 1998
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of
the one-for-two reverse stock split described in Note 11 to the consolidated
financial statements.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
July 22, 1998
F-2
<PAGE> 53
P.F. CHANG'S CHINA BISTRO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 29, DECEMBER 28, JUNE 28, JUNE 28,
1996 1997 1998 1998
------------ ------------ -------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,877 $ 2,739 $ 1,802 $ 1,802
Receivables....................................... 659 2,062 825 825
Inventories....................................... 194 363 362 362
Current portion of notes receivable from related
parties......................................... -- 130 69 69
Prepaids and other current assets................. 79 417 766 766
------- ------- ------- -------
Total current assets................................ 2,809 5,711 3,824 3,824
Construction-in-progress............................ 3,202 3,787 7,522 7,522
Property and equipment, net......................... 2,954 10,207 14,234 14,234
Goodwill, net of accumulated amortization of
$154,000, $398,000 and $616,000 in 1996, 1997 and
1998, respectively................................ 3,971 8,307 8,089 8,089
Notes receivable from related parties, less current
portion........................................... -- 162 187 187
Other assets........................................ 108 315 409 409
------- ------- ------- -------
Total assets........................................ $13,044 $28,489 $34,265 $34,265
======= ======= ======= =======
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving line of credit.......................... $ -- $ 5,500 $ 9,000 $ 9,000
Accounts payable.................................. 1,049 1,658 2,789 2,789
Accrued payroll................................... 624 1,214 1,266 1,266
Other accrued expenses............................ 536 988 1,470 1,470
Unearned revenue.................................. 133 305 269 269
Current portion of long-term debt................. 432 481 441 441
Deferred purchase price........................... -- 2,426 2,426 --
Accrued minority members' distributions........... 281 -- -- --
------- ------- ------- -------
Total current liabilities........................... 3,055 12,572 17,661 15,235
Long-term debt...................................... 1,331 2,391 2,159 2,159
Interests of minority members and partners in
consolidated limited liability companies and
partnerships...................................... 15 164 236 236
Commitments and contingencies.......................
Convertible redeemable preferred stock, $0.001 par
value, 10,000,000 shares authorized:
Series A--2,677,135 shares issued and outstanding
at December 29, 1996 and December 28, 1997 and
2,717,289 shares issued and outstanding at June
28, 1998, liquidation preference of $10,709,000
at December 29, 1996 and December 28, 1997 and
$10,869,000 at June 28, 1998.................... 10,517 11,175 11,432 --
Series B--758,565 shares issued and outstanding,
liquidation preference of $6,600,000 at December
28, 1997 and June 28, 1998...................... -- 6,633 6,853 --
Common stockholders' equity (deficit):
Common stock, $0.001 par value, 20,000,000 shares
authorized: 2,500,000 shares issued and
outstanding..................................... 3 3 3 6
Additional paid-in capital........................ 2 2 2 20,710
Accumulated deficit............................... (1,879) (4,451) (4,081) (4,081)
------- ------- ------- -------
Total common stockholders' equity (deficit)......... (1,874) (4,446) (4,076) 16,635
------- ------- ------- -------
Total liabilities, convertible redeemable preferred
stock and common stockholders' equity (deficit)... $13,044 $28,489 $34,265 $34,265
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 54
P.F. CHANG'S CHINA BISTRO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------------------------ -------------------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1996 FEBRUARY 29, SIX MONTHS ENDED
YEAR ENDED TO 1996 TO YEAR ENDED -------------------
DECEMBER 31, FEBRUARY 28, DECEMBER 29, DECEMBER 28, JUNE 29, JUNE 28,
1995 1996 1996 1997 1997 1998
------------ --------------- ------------ ------------ -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... $10,465 $2,815 $15,630 $39,768 $17,703 $32,937
Costs and expenses:
Restaurant operating costs:
Cost of sales................. 2,957 772 4,454 11,317 5,029 9,099
Labor......................... 3,347 918 4,736 11,683 5,228 9,400
Operating..................... 1,528 527 2,944 6,727 2,871 5,440
Occupancy..................... 1,059 205 1,279 2,743 1,206 2,357
------- ------ ------- ------- ------- -------
Total restaurant
operating costs........ 8,891 2,422 13,413 32,470 14,334 26,296
General and administrative...... 192 17 1,368 4,276 1,823 2,753
Depreciation and amortization... 322 82 352 1,102 451 1,013
Preopening...................... 400 17 765 1,922 399 1,217
------- ------ ------- ------- ------- -------
Income (loss) from operations..... 660 277 (268) (2) 696 1,658
Interest income (expense):
Interest expense................ (13) (4) (163) (380) (150) (520)
Interest income................. - - 36 63 23 65
------- ------ ------- ------- ------- -------
Income (loss) before elimination
of minority members' and
partners' interests and
provision for income taxes...... 647 273 (395) (319) 569 1,203
Elimination of minority members'
and partners' interests......... - - (720) (1,308) (758) (345)
------- ------ ------- ------- ------- -------
Income (loss) before provision for
income taxes.................... 647 273 (1,115) (1,627) (189) 858
Provision for income taxes........ - - (30) (69) (52) (11)
------- ------ ------- ------- ------- -------
Net income (loss)................. $ 647 $ 273 (1,145) (1,696) (241) 847
======= ======
Redeemable preferred stock
accretion....................... (504) (876) (396) (477)
------- ------- ------- -------
Net income (loss) available to
common stockholders............. $(1,649) $(2,572) $ (637) $ 370
======= ======= ======= =======
Net income (loss) per share:
Basic........................... $ (0.66) $ (1.03) $ (0.25) $ 0.15
======= ======= ======= =======
Diluted......................... $ (0.66) $ (1.03) $ (0.25) $ 0.13
======= ======= ======= =======
Weighted average shares used in
computation:
Basic........................... 2,500 2,500 2,500 2,500
======= ======= ======= =======
Diluted......................... 2,500 2,500 2,500 6,655
======= ======= ======= =======
Pro forma data (unaudited):
Net income (loss) per share:
Basic......................... $ (0.30) $ 0.14
======= =======
Diluted....................... $ (0.30) $ 0.13
======= =======
Weighted average shares used in
computation:
Basic......................... 5,706 6,099
======= =======
Diluted....................... 5,706 6,798
======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 55
P.F. CHANG'S CHINA BISTRO, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK AND
COMMON STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE REDEEMABLE PREFERRED STOCK
-----------------------------------------
SERIES A SERIES B
------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
PREDECESSORS
Balances, January 1, 1995......................... -- $ -- -- $ --
Members' contributions............................ -- -- -- --
Distributions..................................... -- -- -- --
Net income (loss)................................. -- -- -- --
----- ------- --- ------
Balances, December 31, 1995....................... -- -- -- --
Distributions..................................... -- -- -- --
Net income (loss)................................. -- -- -- --
----- ------- --- ------
Balances, February 28, 1996....................... -- -- -- --
COMPANY
Conversion of S corporations to limited liability
companies....................................... -- -- -- --
Purchase of members' interests.................... -- -- -- --
Reclassification to minority interest upon
consolidation in connection with acquisition of
interests....................................... -- -- -- --
Issuance of common stock.......................... -- -- -- --
Issuance of Series A preferred stock, net of
issuance costs of $695,000...................... 2,677 10,013 -- --
Redeemable preferred stock accretion.............. -- 504 -- --
Net loss.......................................... -- -- -- --
----- ------- --- ------
Balances, December 29, 1996....................... 2,677 10,517
Issuance of Series B preferred stock, net of
issuance costs of $184,000...................... -- -- 759 6,415
Redeemable preferred stock accretion.............. -- 658 -- 218
Net loss.......................................... -- -- -- --
----- ------- --- ------
Balances, December 28, 1997....................... 2,677 11,175 759 6,633
Series A preferred stock dividend paid
(unaudited)..................................... 40 -- -- --
Redeemable preferred stock accretion
(unaudited)..................................... -- 257 -- 220
Net income (unaudited)............................ -- -- -- --
----- ------- --- ------
Balances, June 28, 1998 (unaudited)............... 2,717 $11,432 759 $6,853
===== ======= === ======
<CAPTION>
COMMON STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT)
--------------------------------------------------------------------
COMMON STOCK ADDITIONAL
---------------- PAID-IN MEMBERS' ACCUMULATED
SHARES AMOUNT CAPITAL CAPITAL DEFICIT TOTAL
------ ------ ---------- -------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PREDECESSORS
Balances, January 1, 1995......................... 20 $-- $1,419 $ -- $ (202) $ 1,217
Members' contributions............................ -- -- -- 710 -- 710
Distributions..................................... -- -- (706) (50) (523) (1,279)
Net income (loss)................................. -- -- -- (18) 665 647
----- -- ------ ------- ------- -------
Balances, December 31, 1995....................... 20 -- 713 642 (60) 1,295
Distributions..................................... -- -- (112) -- (228) (340)
Net income (loss)................................. -- -- -- (12) 285 273
----- -- ------ ------- ------- -------
Balances, February 28, 1996....................... 20 -- 601 630 (3) 1,228
COMPANY
Conversion of S corporations to limited liability
companies....................................... (20) -- (601) 601 -- --
Purchase of members' interests.................... -- -- -- (1,231) -- (1,231)
Reclassification to minority interest upon
consolidation in connection with acquisition of
interests....................................... -- -- -- -- (227) (227)
Issuance of common stock.......................... 2,500 3 2 -- -- 5
Issuance of Series A preferred stock, net of
issuance costs of $695,000...................... -- -- -- -- -- --
Redeemable preferred stock accretion.............. -- -- -- -- (504) (504)
Net loss.......................................... -- -- -- -- (1,145) (1,145)
----- -- ------ ------- ------- -------
Balances, December 29, 1996....................... 2,500 3 2 -- (1,879) (1,874)
Issuance of Series B preferred stock, net of
issuance costs of $184,000...................... -- -- -- -- -- --
Redeemable preferred stock accretion.............. -- -- -- -- (876) (876)
Net loss.......................................... -- -- -- -- (1,696) (1,696)
----- -- ------ ------- ------- -------
Balances, December 28, 1997....................... 2,500 3 2 -- (4,451) (4,446)
Series A preferred stock dividend paid
(unaudited)..................................... -- -- -- -- -- --
Redeemable preferred stock accretion
(unaudited)..................................... -- -- -- -- (477) (477)
Net income (unaudited)............................ -- -- -- -- 847 847
----- -- ------ ------- ------- -------
Balances, June 28, 1998 (unaudited)............... 2,500 $3 $ 2 $ -- $(4,081) $(4,076)
===== == ====== ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 56
P.F. CHANG'S CHINA BISTRO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------------------------ ------------------------------------------------------
PERIOD FROM PERIOD FROM SIX MONTHS ENDED
YEAR ENDED JANUARY 1, 1996 FEBRUARY 29, 1996 YEAR ENDED -------------------
DECEMBER 31, TO FEBRUARY 28, TO DECEMBER 29, DECEMBER 28, JUNE 29, JUNE 28,
1995 1996 1996 1997 1997 1998
------------ --------------- ----------------- ------------ -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)....................... $ 647 $ 273 $(1,145) $(1,696) $ (241) $ 847
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation.......................... 322 82 198 858 348 795
Amortization.......................... -- -- 154 244 103 218
Minority members' and partners'
interests........................... -- -- 720 1,308 758 345
Change in operating assets and
liabilities:
Receivables......................... (127) 134 (658) (1,403) 659 1,237
Inventories......................... (54) (5) (75) (169) (10) 1
Prepaids and other current assets... (56) (6) 17 (338) (310) (349)
Other assets........................ (40) 8 (63) (207) 3 (94)
Accounts payable.................... 489 (65) 395 609 (331) 1,131
Accrued payroll..................... 50 80 385 590 (433) 52
Other accrued expenses.............. 299 (143) 289 452 214 482
Unearned revenue.................... 67 (13) 63 172 (3) (36)
Accrued minority members'
distributions..................... -- -- -- (281) (281) --
------- ----- ------- ------- ------- -------
Net cash provided by operating
activities............................ 1,597 345 280 139 476 4,629
INVESTING ACTIVITIES:
Capital expenditures.................... (824) -- (4,008) (8,696) (2,769) (8,557)
Decrease (increase) in notes receivable
from related parties.................. -- -- -- (292) (119) 36
Payment for members' interests.......... -- -- (4,175) (2,520) -- --
------- ----- ------- ------- ------- -------
Net cash used in investing activities... (824) -- (8,183) (11,508) (2,888) (8,521)
FINANCING ACTIVITIES:
Net proceeds from revolving line of
credit................................ -- -- -- 5,500 -- 3,500
Proceeds from issuance of long-term
debt.................................. -- -- -- 1,600 1,600 --
Repayments of long-term debt............ (71) (7) (267) (491) (246) (272)
Proceeds from issuance of common
stock................................. -- -- 5 -- -- --
Proceeds from issuance of redeemable
preferred stock, net of issuance
costs................................. -- -- 10,013 6,415 6,415 --
Proceeds from minority partners'
contributions......................... -- -- -- 441 183 92
Proceeds from members' contributions.... 710 -- -- -- -- --
Distributions to members and
stockholders.......................... (1,279) (340) -- -- -- --
Distributions to minority members and
partners.............................. -- -- (449) (1,234) (321) (365)
------- ----- ------- ------- ------- -------
Net cash provided by (used in) financing
activities............................ (640) (347) 9,302 12,231 7,631 2,955
------- ----- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents........................... 133 (2) 1,399 862 5,219 (937)
Cash and cash equivalents at the
beginning of the period............... 347 480 478 1,877 1,877 2,739
------- ----- ------- ------- ------- -------
Cash and cash equivalents at the end of
the period............................ $ 480 $ 478 $ 1,877 $ 2,739 $ 7,096 $ 1,802
======= ===== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest.................. $ 13 $ 4 $ 108 $ 319 $ 112 $ 494
Cash paid for income taxes.............. -- -- 30 69 52 11
Purchase of members' interests through
issuance of long-term debt............ -- -- 1,266 -- -- --
Purchase of property and equipment
through issuance of long-term debt.... 200 -- 421 -- -- --
Purchase of members' and partners'
interest through deferred purchase
price................................. -- -- -- 2,426 -- --
</TABLE>
See accompanying notes.
F-6
<PAGE> 57
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1997 AND JUNE 28, 1998
(THE INFORMATION AS OF JUNE 28, 1998 AND FOR THE SIX MONTHS ENDED JUNE 29, 1997
AND JUNE 28, 1998 IS UNAUDITED)
1. BASIS OF PRESENTATION
P.F. Chang's China Bistro, Inc. (Company) operates restaurants in Arizona,
California, Colorado, Texas, Nevada, Florida, North Carolina, Louisiana, and
Virginia under the name of "P.F. Chang's China Bistro." The Company was formed
in January, 1996 through the issuance of 500 shares of common stock to Mr. Paul
Fleming for $100 in cash. In February 1996, the Company sold 2,487,500 shares of
Series A convertible preferred stock and warrants for $9,950,000 in cash.
Contemporaneously, the Company acquired Mr. Fleming's 52 percent interest in
Fleming Chinese Restaurants, Inc., which operates a restaurant in Scottsdale,
Arizona (Scottsdale), for $1,037,000 in cash and $954,000 in notes payable. The
Company also acquired Mr. Fleming's 43 percent interest in P.F. Chang's II,
Inc., which operates a restaurant in Newport Beach, California (Newport Beach);
49.85 percent ownership in P.F. Chang's III, L.L.C., which operates a restaurant
in La Jolla, California (La Jolla); and 54.2 percent ownership interest in P.F.
Chang's IV, L.L.C., which operates a restaurant in Irvine, California (Irvine),
for $2,006,000 in cash and 2,499,500 shares of common stock of the Company. In
addition, in 1996 the Company acquired an additional 18 percent ownership in
Scottsdale and the remaining 45.8 percent ownership of Irvine in various
transactions for an aggregate of $1,132,000 in cash and $312,000 in notes
payable.
The acquisition of the ownership interests in the various entities during
1996 have been accounted for under the purchase method of accounting for
business combinations. Accordingly, the purchase price was allocated to the
proportional assets acquired and liabilities assumed based on their relative
fair values, with $4,125,000 allocated to goodwill. As a result of the start-up
nature of the operations of the Company, the significant prior claims of the
preferred stockholders of the Company, and the minority interests in Scottsdale,
Newport Beach and La Jolla, no significant value was assigned to the common
stock issued in the acquisitions.
During 1997, the Company purchased substantially all the remaining
outstanding minority interests in the Scottsdale, La Jolla and Newport Beach
restaurants for approximately $2,520,000 in cash and $2,426,000 in common stock
of the Company to be issued in connection with a contemplated initial public
offering (IPO). Upon consummation of an IPO, the number of common shares to be
issued will be the fixed purchase price of $2,426,000 divided by the price per
share of the common stock sold in the IPO. Should the IPO not be completed by a
stipulated date as defined, the Company will be obligated (upon demand of the
individual holders) to pay the minority interest holders the $2,426,000 in cash.
The acquisition of the ownership interests in the various entities during
1997 has been accounted for under the purchase method of accounting for business
combinations. Accordingly, the purchase price was allocated to the proportional
assets acquired and liabilities assumed based on their relative fair values,
with $4,581,000 allocated to goodwill.
Two of the predecessor entities, Fleming Chinese Restaurants, Inc. and P.F.
Chang's II, Inc. were dissolved and their operations transferred to two new
entities, PFCCB Scottsdale, L.L.C. and PFCCB Newport Beach, L.L.C. Accordingly,
at December 29, 1996, each of the existing restaurants was structured as a
limited liability corporation, and the Company's ownership of these restaurants
is through its membership in each limited liability corporation. The Company's
new restaurants are generally organized as partnerships with the Company as
general partner.
The operations of the predecessor entities which operated the restaurants
have been presented in the accompanying combined financial statements for 1995
and through the date of acquisition at historical cost due to the common
ownership. The allocation of the purchase price resulted in no material
adjustment to the historical recorded basis in the assets and liabilities except
for goodwill. Therefore, the effect to the statement of operations is primarily
amortization subsequent to the date of acquisition.
F-7
<PAGE> 58
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has incurred successive losses and has negative working capital
at December 28, 1997, and its capital requirements, including start-up costs,
related to the opening of additional restaurants have been, and will continue to
be significant. The Company has experienced positive operating cash flows since
its inception. To date, the Company has been substantially dependent upon loans
from lending institutions and private equity funding to develop its restaurants.
The Company will be required to seek significant amounts of additional debt
and/or equity capital in order to fund its planned development activities.
Although there is no assurance that the Company will be able to obtain adequate
financing for its future development, management believes that such capital will
be available to the Company.
In the event the Company is unsuccessful in obtaining additional funds for
development, management may need to take steps to continue to operate within the
available cash flow. Such steps may include, among others, the postponement of
planned future development.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The 1996 and 1997 consolidated financial statements include the accounts
and operations of the Company and its subsidiaries or partnerships in which it
owns more than a 50 percent interest. All material balances and transactions
between the consolidated entities have been eliminated.
The 1995 combined statements of operations and cash flows includes the
accounts of Fleming Chinese Restaurants, Inc., P.F. Chang's II, Inc., P.F.
Chang's III, L.L.C., and P.F. Chang's IV, L.L.C. All material balances and
transactions between the combined entities have been eliminated.
INTERIM FINANCIAL INFORMATION
The consolidated financial statements for the six months ended June 29,
1997 and June 28, 1998 are unaudited and have been prepared on the same basis as
the audited consolidated financial statements included herein. In the opinion of
management, such unaudited consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of financial position and results of operations. The results
of operation for such interim periods are not necessarily indicative of the
results that may be expected for any future periods.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity date of
three months or less when purchased to be cash equivalents.
RECEIVABLES
Receivables consist primarily of amounts due from landlords or other
parties for the reimbursement of leasehold improvements paid by the Company.
INVENTORIES
Inventories consist of food and beverages and are stated at the lower of
cost or market using the first-in, first-out method.
NOTES RECEIVABLE FROM RELATED PARTIES
Notes receivable from related parties represent amounts due the Company
from limited partners of affiliated partnerships. Payments of principal and
interest of 11.0 percent amortized over a five year period are due monthly with
a balloon payment for the outstanding principal and interest due at the end of
two years.
F-8
<PAGE> 59
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSTRUCTION-IN-PROGRESS
The Company capitalizes all direct costs in the construction of new
restaurants. Upon opening, these costs are depreciated over their useful lives
based upon the property classifications.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Furniture, fixtures, and
equipment are depreciated on a straight line basis over the estimated useful
service lives of the related assets which approximate seven years. Leasehold
improvements are amortized over the shorter of the useful life of the asset or
the length of the related lease term. China and smallwares are depreciated over
two years up to 50 percent of their original cost, after which subsequent
additions are expensed as purchased.
GOODWILL
Goodwill represents the excess of cost over net assets acquired in the
purchase of interests in various restaurants (see Note 1) and is being amortized
over 20 years on a straight-line basis. The Company assesses the recoverability
of goodwill based upon expected future undiscounted cash flows resulting from
the acquired interests in the restaurants.
UNEARNED REVENUE
Unearned revenue represents gift certificates sold but not yet redeemed.
Revenues are recognized upon redemption of the gift certificates.
ADVERTISING
The Company expenses advertising as incurred. Advertising expense during
the year ended December 31, 1995, the period from January 1, 1996 to February
28, 1996, the period from February 29, 1996 to December 29, 1996, and for the
year ended December 28, 1997 was approximately $328,000, $10,000, $232,000, and
$901,000, respectively. During the six months ended June 29, 1997 and June 28,
1998, advertising expense was approximately $432,000 and $550,000, respectively.
PREOPENING
Preopening expenses, consisting primarily of manager salaries and
relocation, advertising, and employee payroll and related training costs
incurred prior to the opening of a restaurant, are expensed as incurred.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under the liability method, deferred taxes are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Recognition of deferred tax assets is
limited to amounts considered by management to be more likely than not of
realization in future periods.
Minority members' and partners' interests in income or loss of limited
liability corporations and partnerships includes no provision for income taxes
as any tax liability related thereto is the responsibility of the individual
minority members.
The predecessor entities are S corporations and limited liability
corporations under the Internal Revenue Code. Accordingly, the taxable income
and losses are allocated and taxed directly to the stockholders and
F-9
<PAGE> 60
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
members resulting in no tax provision for the year ended December 31, 1995 or
the period from January 1, 1996 to February 28, 1996.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to certain
employees with an exercise price equal to or greater than the fair value of the
shares at the date of grant. The Company accounts for stock option grants to
employees in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and, accordingly,
recognizes no compensation expense for the stock option grants.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share."
Pro forma basic and diluted net income per share has been computed giving
effect to the conversion of all the outstanding shares of convertible redeemable
preferred stock and deferred purchase price liability into common stock upon
closing of the Company's IPO (determined using the if-converted method).
PRO FORMA BALANCE SHEET (UNAUDITED)
As discussed in Notes 1 and 6, the convertible redeemable preferred stock
and deferred purchase price liability will be automatically converted upon the
closing of the public offering contemplated herein. The accompanying pro forma
balance sheet gives effect to this conversion as if such event occurred on June
28, 1998.
FISCAL YEAR
The Company's fiscal year ends on the Sunday closest to the end of December
and includes 52 weeks in 1995, 1996 and 1997.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, receivables, accounts
payable, and accrued expenses approximate fair value because of the immediate or
short-term maturity of these financial instruments. The fair value of long-term
debt is determined using current applicable rates for similar instruments and
collateral as of the balance sheet date and approximates the carrying value of
such debt.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash investments and
receivables. The Company maintains cash and cash equivalents, restricted funds
on deposit and certain other financial instruments with financial institutions
that are considered in the Company's investment strategy. Concentrations of
credit risk with respect to receivables are limited as the Company's receivables
are primarily with its landlords for the reimbursement of tenant improvements.
F-10
<PAGE> 61
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain amounts shown in the prior period combined and consolidated
financial statements have been reclassified to conform with the current year
consolidated financial statements presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28, JUNE 28,
1996 1997 1998
------------ ------------ -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements........................ $1,551 $ 6,904 $10,380
Furniture, fixtures and equipment............. 1,946 4,386 5,576
China and smallwares.......................... 142 423 575
------ ------- -------
3,639 11,713 16,531
Less accumulated depreciation................. 685 1,506 2,297
------ ------- -------
$2,954 $10,207 $14,234
====== ======= =======
</TABLE>
4. REVOLVING LINE OF CREDIT
On October 24, 1997, the Company entered into a $10,000,000 revolving line
of credit agreement with a finance corporation. The line of credit bears
interest at LIBOR plus 4.0 percent, payable monthly, and expires on November 1,
1998. At December 28, 1997, amounts available under the line of credit were
approximately $4,500,000. In June 1998, the Company amended its revolving line
of credit to provide for a $20,000,000 line with interest at LIBOR plus 3.5
percent and expires on July 1, 1999. At June 28, 1998, amounts available under
the line of credit were $11,000,000. The weighted average interest rate under
the line of credit was 9.5 percent in 1997 and 1998, respectively.
The line of credit requires the Company to maintain a net worth of at least
$10,000,000 including convertible redeemable preferred stock. The line of credit
agreement also contains covenants which place various restrictions on sales of
properties, transactions with affiliates, creation of additional debt, and other
nonfinancial covenants, as defined. The line of credit agreement is
collateralized by the Company's interests in certain affiliated partnerships.
F-11
<PAGE> 62
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28, JUNE 28,
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
$1,100,000 promissory note, collateralized by
leasehold improvements, payable in monthly
installments of $11,354 including interest
at 11.0 percent, until March 1, 2017, when
all remaining principal and interest is due
and payable. Additional payments may be
required under the promissory note based on
a percentage of gross sales. ............... $ -- $1,088 $1,080
$500,000 promissory note, collateralized by
equipment, payable in monthly installments
of $8,561 including interest at 11.0 percent
until March 1, 2004 when all remaining
principal and interest is due and
payable. ................................... -- 463 436
$1,266,000 unsecured promissory notes to
related parties, payable in quarterly
installments of $96,967 including interest
at 10.0 percent, until March 1, 2000, when
all remaining principal and interest is due
and payable. ............................... 1,065 762 606
$421,000 equipment loan, collateralized by
furniture, fixtures and equipment, payable
in monthly installments of $7,202 including
interest at 11.0 percent, until January 1,
2004, when all remaining principal and
interest is due and payable. ............... 421 382 358
$200,000 unsecured promissory note, payable in
monthly installments of $3,333 plus interest
at prime plus one percent, until April 2001,
when all remaining principal and interest is
due and payable. The note is guaranteed by a
stockholder of the Company. ................ 173 133 114
Other......................................... 104 44 6
------ ------ ------
1,763 2,872 2,600
Less current portion.......................... 432 481 441
------ ------ ------
$1,331 $2,391 $2,159
====== ====== ======
</TABLE>
The aggregate annual payments of long-term debt outstanding at December 28,
1997, for the next five years and thereafter, are summarized as follows:
1998--$481,000; 1999--$523,000; 2000--$281,000; 2001--$178,000; 2002--$184,000;
and thereafter--$1,225,000.
F-12
<PAGE> 63
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
PREFERRED STOCK
In February 1996, the Company issued 2,487,500 shares of Series A
convertible redeemable preferred stock (Series A preferred stock), and warrants
exercisable for 621,875 shares of Series A preferred stock, for an aggregate
purchase price of approximately $9,950,000, less issuance costs of $695,000. In
September 1996, the Company issued an additional 189,635 shares of Series A
preferred stock for $758,000 in order to purchase the remaining minority
interests in the Irvine restaurant. The Series A preferred stock has a $0.001
par value and an annual six percent dividend payable quarterly on March 31, June
30, September 30, and December 31 in shares of such Series A preferred stock on
a cumulative basis beginning January 1, 1998. The Company may also declare, upon
unanimous consent of the Non-Investor Directors as defined, a cash dividend
equal to ten percent of the liquidation price of the Series A preferred stock in
lieu of the Series A preferred stock dividend.
In May 1997, the Company issued 758,565 shares of Series B convertible
redeemable preferred stock (Series B preferred stock) for an aggregate purchase
price of $6,599,000, less issuance costs of approximately $184,000. The Series B
preferred stock has a $0.001 par value and an annual six percent dividend
payable quarterly on March 31, June 30, September 30, and December 31 in shares
of such Series B preferred stock on a cumulative basis beginning April 1, 1999.
The Company may also declare, upon unanimous consent of the Non-Investor
Directors as defined, a cash dividend equal to ten percent of the liquidation
price of the Series B preferred stock in lieu of the Series B preferred stock
dividend.
Each share of Series A and Series B preferred stock is convertible at any
time into one share of common stock, subject to dilution adjustments as defined,
at the option of the holder and is automatically converted into common stock at
the date of a qualified IPO. The Series A preferred stock is mandatorily
redeemable at a minimum of 50 percent of the shares outstanding in May 2003 with
the remaining outstanding shares becoming mandatorily redeemable in May 2004 at
$4.00 per share plus accrued and unpaid dividends. The Series A preferred stock
has a liquidation preference equal to the greater of $4.00 per share or such
amount per share as would have been payable had each share of Series A preferred
stock been converted into common stock. The Series B preferred stock is
mandatorily redeemable at a minimum of 50 percent of the shares outstanding in
May 2003 with the remaining in May 2004 at $8.70 per share plus accrued and
unpaid dividends. The Series B preferred stock has a liquidation preference
equal to the greater of $8.70 per share or such amount per share as would have
been payable had each share of Series B preferred stock been converted into
common stock. Upon voluntary or involuntary liquidation, the holders of the
Series A and Series B preferred stock shall be entitled to be paid out of the
assets of the Company with the common stockholders being entitled to all
remaining assets of the Company to be distributed. The holders of the Series A
and Series B preferred stock have the right to vote based on the number of
shares of common stock into which each share of Series A and Series B preferred
stock would thus be converted. The difference between the redemption amount and
the carrying amount of the Series A and Series B preferred stock and dividends
thereon calculated on a straight-line basis beginning with the date of issuance
is being recorded through periodic accretions charged to accumulated deficit.
Effective April 30, 1997, 1,116,990 and 233,578 shares of Series A and Series B
preferred stock, respectively, have been reserved for issuance upon the exercise
of warrants previously issued and upon issuance of "payment-in-kind" dividends
of Series A and Series B preferred stock.
The 621,875 warrants issued during 1996 were cancelable by the Company
should the Irvine restaurant achieve certain operating goals. During 1997, the
Irvine restaurant achieved such goals, and the warrants were consequently
canceled.
In connection with the original capitalization of the Company, an
additional 62,190 warrants were issued to an investment bank to purchase Series
A preferred stock at $4.00 per share. The warrants expire February 28, 2001.
F-13
<PAGE> 64
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SHAREHOLDERS' AGREEMENT
The Company's common and preferred stock is subject to a shareholders'
agreement which provides to the stockholders a right of first refusal to
purchase the other stockholders' interests. Before any such shares of common and
preferred stock may be sold, assigned, transferred, pledged, encumbered, or
disposed in any way, such shares shall first be offered to the Company and other
stockholders party to the shareholders' agreement. In addition, such
stockholders have certain bring-along and tag-along rights with respect to sales
of common stock by certain other stockholders. Upon a qualified IPO, all rights
and obligations under the shareholders' agreement terminate.
PARTNERSHIP AGREEMENTS
The Company has entered into a series of partnership agreements with each
of its regional managers (Market Partners), certain of its general managers
(Operating Partners) and certain of its executive chefs (Culinary Partners).
These partnership agreements entitle the Market Partner to a specified
percentage of the cash flows from the restaurants that partner has developed and
oversees as the regional manager. Similarly, the general manager and the
executive chef at most of the Company's restaurants are offered the opportunity
to become Operating Partners and Culinary Partners, respectively, and to receive
a percentage of the cash flows from the restaurant in which they work. At the
time an individual becomes a Market Partner, Operating Partner or Culinary
Partner, that person is required to make an equity investment in the partnership
and to enter into a five year employment agreement with the Company. The Company
has the right, in its sole discretion, to terminate the employment of any Market
Partner, Operating Partner or Culinary Partner, and, upon such termination, to
repurchase that partner's interest in the partnership at such partners
then-current basis in the partnership. If an individual continues to serve as
Market Partner, Operating Partner or Culinary Partner for five years, then the
Company has the right to repurchase that person's interest in the partnership
for a value, which is determined by reference to trailing cash flows.
COMMON STOCK
The Company has reserved 5,912,920 shares of common stock for issuance upon
the exercise of options and warrants to purchase such shares, and upon the
conversion of Series A and Series B preferred stock into such shares.
STOCK OPTION PLAN
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," (Statement 123) requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals or exceeds the fair value of the underlying stock
on the date of grant, no compensation expense is recognized.
In August 1996, the Company adopted the 1996 Stock Option Plan (1996 Plan),
and in July 1997, the Company adopted the 1997 Restaurant Management Stock
Option Plan (1997 Plan). Options under the 1996 Plan may be granted to
employees, consultants and directors to purchase the Company's common stock at
an exercise price that equals or exceeds the fair value of such shares on the
date such option is granted. Options under the 1997 Plan may be granted to key
employees of the Company who are actively engaged in the management and
operation of the Company's restaurants to purchase the Company's common stock at
an exercise price that equals or exceeds the fair value of such shares on the
date such option is granted. Vesting periods are determined at the discretion of
the board of directors, and options currently outstanding at December 28, 1997
vest over five years. Options may be exercised immediately upon grant subject to
a right by the Company to repurchase any unvested shares at the exercise price.
Any options granted shall not be
F-14
<PAGE> 65
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercisable after ten years. Incentive options granted to individuals who own
more than ten percent of the total combined voting power of all classes of stock
shall not be exercisable after five years and options granted to prospective
employees, consultants or directors may not become exercisable prior to the date
on which such person commences services with the Company. Upon certain changes
in control of the Company, the Plan provides for two additional years of
immediate vesting. The Company has reserved a total of 1,086,500 shares of
common stock for issuance under the 1996 and 1997 Plans.
Pro forma information regarding net income (loss) is required by Statement
123, which also requires that the information be determined as if the Company
has accounted for its employee stock options granted subsequent to December 31,
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 with the following weighted-average assumptions for 1996 and 1997:
risk-free interest rate of 5.5 percent; a dividend yield of -0-percent;
volatility factors of the expected market price of the Company's common stock of
.01 and .122, respectively; and a weighted-average expected life of the option
of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's 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 its employee stock options.
Because Statement 123 is applicable to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
approximately 2002. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting period.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 29,
1996 TO YEAR ENDED
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Net loss, as reported.............................. $1,145 $1,696
Pro forma compensation expense for stock options... 48 82
------ ------
Pro forma net loss................................. $1,193 $1,778
====== ======
</TABLE>
F-15
<PAGE> 66
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding activity for stock options outstanding under the
Plans are as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------
SHARES WEIGHTED-
AVAILABLE AVERAGE
FOR EXERCISE
OPTIONS SHARES PRICE
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at December 31, 1995................... -- -- $ --
Authorized....................................... 890,000 -- --
Granted.......................................... (791,510) 791,510 2.98
Exercised........................................ -- -- --
Forfeited (canceled)............................. -- -- --
-------- --------- -----
Outstanding at December 29, 1996................... 98,490 791,510 2.98
Authorized....................................... 196,500 -- --
Granted.......................................... (170,000) 170,000 5.40
Exercised........................................ -- -- --
Forfeited (canceled)............................. -- -- --
-------- --------- -----
Outstanding at December 28, 1997................... 124,990 961,510 3.40
Authorized (unaudited)........................... -- -- --
Granted (unaudited).............................. (48,125) 48,125 13.09
Exercised (unaudited)............................ -- -- --
Forfeited (canceled) (unaudited)................. -- -- --
-------- --------- -----
Outstanding at June 28, 1998 (unaudited)........... 76,865 1,009,635 $3.87
======== ========= =====
</TABLE>
Information regarding options outstanding and exercisable at December 28,
1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.40 504,872 8.16 years $ 2.40 176,672 $2.40
$4.00-$6.00 445,388 5.38 years 4.38 105,510 4.00
$10.00 11,250 9.90 years 10.00 -- --
</TABLE>
Since options are generally exercisable upon date of grant, options
exercisable included in the above table represent vested options that are not
subject to repurchase by the Company. The weighted-average fair value of options
granted during the period from February 29, 1996 to December 29, 1996 and for
the year ended December 28, 1997 was $0.56 and $1.38, respectively.
F-16
<PAGE> 67
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 29,
1996 TO YEAR ENDED
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Federal:
Current.......................................... $-- $--
Deferred......................................... -- --
--- ---
-- --
State:
Current.......................................... 30 69
Deferred......................................... -- --
--- ---
30 69
--- ---
$30 $69
=== ===
</TABLE>
The Company's effective tax rate differs from the federal statutory rate
for the following reasons:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 29,
1996 TO YEAR ENDED
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Income tax benefit at federal statutory rate....... $(379) $(553)
State taxes, net of federal benefit................ 30 69
Increase in valuation allowance.................... 398 426
Other, net......................................... (19) 127
----- -----
$ 30 $ 69
===== =====
</TABLE>
The Company's net income for the year ended December 31, 1995 and for the
period from January 1, 1996 to February 28, 1996 included earnings attributable
to the Scottsdale, Newport Beach, La Jolla and Irvine restaurants. These
restaurants were organized as limited liability companies or had elected under
Subchapter S of the Internal Revenue Code to have their stockholders pay any
federal and state income tax due on their earnings. Although income prior to the
consolidation attributable to the acquired restaurants is included in the
Company's consolidated financial statements, the Company is not required to pay
income taxes on the income since they are the responsibility of the members and
stockholders of the acquired companies.
F-17
<PAGE> 68
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Bonus accrual.................................... $ 47 $ --
Depreciation on property and equipment........... 44 2
Preopening expenses.............................. 80 267
Goodwill amortization............................ 7 --
Net operating loss carryforwards................. 290 760
----- ------
468 1,029
Deferred tax liabilities:
Goodwill amortization............................ -- 136
----- ------
468 893
Valuation allowance................................ (468) (893)
----- ------
Net deferred tax assets............................ $ -- $ --
===== ======
</TABLE>
During the period from January 1, 1996 to December 29, 1996 and for the
year ended December 28, 1997, the valuation allowance increased $468,000 and
$425,000, respectively. At December 28, 1997, the Company has a net operating
loss carryforward of approximately $1,900,000 which begins to expire for federal
purposes in 2011 and for state purposes in 2001.
F-18
<PAGE> 69
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. NET INCOME (LOSS) PER SHARE AND PRO FORMA NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 29, SIX MONTHS ENDED
1996 TO YEAR ENDED --------------------
DECEMBER 29, DECEMBER 28, JUNE 29, JUNE 28,
1996 1997 1997 1998
------------ ------------ -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss).................... $(1,145) $(1,696) $ (241) $ 847
Convertible redeemable preferred
stock accretion................... (504) (876) (396) (477)
------- ------- ------ ------
Numerator for basic net income (loss)
per share--income available to
common stockholders............... (1,649) (2,572) (637) 370
Effect of dilutive securities:
Convertible redeemable preferred
stock accretion................. -- -- -- 477
------- ------- ------ ------
Numerator for diluted net income
(loss) per share--income available
to common stockholders after
assumed conversions............... $(1,649) $(2,572) $ (637) $ 847
======= ======= ====== ======
Denominator:
Denominator for basic net income
(loss) per share--weighted-average
shares............................ 2,500 2,500 2,500 2,500
Effect of dilutive securities:
Employee and director stock
options........................... -- -- -- 660
Warrants............................. -- -- -- 39
Convertible redeemable preferred
stock............................. -- -- -- 3,456
------- ------- ------ ------
Denominator for diluted net income
(loss) per share--adjusted weighted
average shares and assumed
conversions.......................... 2,500 2,500 2,500 6,655
======= ======= ====== ======
Net income (loss) per share:
Basic................................ $ (0.66) $ (1.03) $(0.25) $ 0.15
======= ======= ====== ======
Diluted.............................. $ (0.66) $ (1.03) $(0.25) $ 0.13
======= ======= ====== ======
</TABLE>
Warrants of 62,190 and options to purchase 961,510 shares of common stock
ranging from $2.40 to $10.00 per share were outstanding during the year ended
December 28, 1997, but were not included in the computation of diluted net
income (loss) per share because the effect would be antidilutive. The Series A
and B preferred stock convertible to common stock is not included in the
computation of diluted net income (loss) per share during the year ended
December 28, 1997, because the assumed conversions would be antidilutive.
As discussed in Note 1 and should the Company complete an IPO, contingently
issuable shares based on the IPO common stock price will be issued. As the
conditions for the shares to be issued have not been satisfied, the contingent
shares are not included in diluted net income (loss) per share.
F-19
<PAGE> 70
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the computation of basic and diluted pro
forma net income (loss) per share giving effect to the conversion of the
preferred stock and the deferred purchase price to common stock as of the
beginning of each period presented:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 28, ENDED JUNE 28,
1997 1998
------------ --------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Numerator for basic pro forma net income (loss) per share:
Net income (loss)....................................... $(1,696) $ 847
======= ======
Denominator:
Weighted-average shares................................. 2,500 2,500
Conversion of convertible preferred stock and deferred
purchase price....................................... 3,206 3,599
------- ------
Denominator for basic pro forma net income (loss) per
share................................................ 5,706 6,099
Effect of dilutive securities:
Employee and director stock options.................. -- 660
Warrants............................................. -- 39
------- ------
Denominator for dilutive pro forma net income (loss) per
share -- adjusted weighted average shares and assumed
conversions.......................................... 5,706 6,798
======= ======
Pro forma net income (loss) per share:
Basic................................................... $ (0.30) $ 0.14
======= ======
Diluted................................................. $ (0.30) $ 0.13
======= ======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases restaurant and office facilities and equipment and
certain real property under operating leases having terms expiring between 2000
and 2019. The restaurant facility and real property leases primarily have
renewal clauses of five to 15 years exercisable at the option of the Company and
rent escalation clauses stipulating specific rent increases, some of which are
based on the consumer price index. Certain of these leases require the payment
of contingent rentals based on a percentage of gross revenues, as defined. Rent
expense during the year ended December 31, 1995, the period from January 1, 1996
to February 28, 1996, the period from February 29, 1996 to December 29, 1996 and
for the year ended December 28, 1997 was approximately $656,000, $121,000,
$1,176,000 and $2,203,000, respectively. During the six months ended June 29,
1997 and June 28, 1998, rent expense was approximately $698,000 and $1,311,000,
respectively. Contingent rent included in rent expense during the year ended
December 31, 1995, the period from January 1, 1996 to February 28, 1996, the
period from February 29, 1996 to December 29, 1996 and for the year ended
December 28, 1997 was approximately $152,000, $76,000, $225,000 and $605,000,
respectively. During the six months ended June 29, 1997 and June 28, 1998,
contingent rent included in rent expense was approximately $270,000 and
$493,000, respectively.
At December 28, 1997, the Company had entered into other lease agreements
for restaurant facilities currently under construction or yet to be constructed.
In addition, the leases also contain provisions for
F-20
<PAGE> 71
P.F. CHANG'S CHINA BISTRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional contingent rent based upon gross sales, as defined in the leases.
Future minimum lease payments under operating leases (including restaurants to
be opened in 1998) are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................... $ 3,158
1999............................................... 4,161
2000............................................... 4,220
2001............................................... 4,172
2002............................................... 4,145
Thereafter......................................... 38,537
-------
Total minimum lease payments....................... $58,393
=======
</TABLE>
The Company leases a building and certain furniture and equipment from a
partnership in which the Company owns an approximate six percent interest.
Annual rent payments are contingent based on a percentage of gross revenues. The
respective period rent expense are included in the above disclosed amounts.
10. BENEFIT PLAN
Effective July 1, 1997, the Company adopted the 401(k) Defined Contribution
Benefit Plan, which covers substantially all employees of the Company that have
completed one year of service and have attained the age of 21 years old. The
plan permits participants to contribute to the plan, subject to Internal Revenue
Code restrictions, and the plan also permits the Company to make discretionary
matching contributions. During the year ended December 28, 1997 and for the six
months ended June 28, 1998, the Company did not make any contributions to the
Plan.
11. SUBSEQUENT EVENTS
On June 2, 1998, the Company's Board of Directors approved, subject to
stockholder approval, a one-for-two reverse stock split of the common and
preferred stock and made conforming adjustments on the terms of all outstanding
common stock equivalents except for the par value and authorized shares. All
shares and per share information in the accompanying consolidated financial
statements has been retroactively adjusted to reflect the reverse split.
During 1998, the Company's Board of Directors approved, subject to
stockholder approval, the 1998 Stock Option Plan (1998 Plan) which provides for
discretionary grants of incentive stock options and nonqualified stock options
to the Company's employees including officers, directors, consultants, advisors,
and other independent contractors. A total of 280,000 shares have been reserved
for issuance under the 1998 Plan. The option price per share for an incentive
stock option may not be less than 100% of the fair market value of a share of
common stock on the grant date. The option price per share for a nonstatutory
stock option may not be less than 85 percent of the fair market value of a share
of common stock on the grant date. The option price per share for an incentive
stock option granted to a person owning stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the Company (or a
parent or subsidiary) may not be less than 110 percent of the fair market value
of a share of common stock on the grant date. The Company's Compensation
Committee has the authority to, among other things, determine the vesting
schedule for each option granted. All options expire within 10 years. The 1998
Plan includes an automatic grant program for outside directors. Pursuant to this
program, each outside director will be granted an option to purchase 10,000
shares of common stock at the time he or she is first elected or appointed a
director of the Company. In addition, each outside director remaining in office
will be granted an option to purchase 2,500 shares on the day following each
annual meeting of stockholders.
During 1998, the Company's Board of Directors approved, subject to
stockholder approval, the 1998 Employee Stock Purchase Plan (Purchase Plan) and
reserved 400,000 shares for issuance thereunder. The Purchase Plan permits
eligible employees to purchase common stock at a discount, but only through
payroll deductions, during concurrent 24 month offering periods. Each offering
period will be divided into four consecutive 6 month purchase periods. The price
at which stock is purchased under the Purchase Plan is equal to 85 percent of
the lower of the fair market value of the common stock on the first day of the
offering period and the fair market value of the common stock on the last day of
the purchase period.
F-21
<PAGE> 72
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 6
Use of Proceeds............................ 11
Dividend Policy............................ 11
Capitalization............................. 12
Dilution................................... 13
Selected Consolidated Financial and
Operating Data........................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 16
Business................................... 25
Management................................. 34
Certain Transactions....................... 39
Principal and Selling Stockholders......... 41
Description of Capital Stock............... 43
Shares Eligible for Future Sale............ 46
Underwriting............................... 47
Legal Matters.............................. 49
Experts.................................... 49
Additional Information..................... 49
Index to Financial Statements.............. F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
[P.F. CHANG'S LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
NATIONSBANC MONTGOMERY
SECURITIES LLC
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. The Company is paying all of the expenses
incurred on behalf of the Selling Stockholders (other than underwriting
discounts and commissions). All amounts shown are estimates except for the
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 16,963
NASD filing fee............................................. 6,250
Nasdaq National Market fee.................................. 41,250
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 100,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 100,000
Transfer agent and registrar fees........................... 10,000
Fee for Custodian for Selling Stockholders.................. 10,000
Miscellaneous............................................... 15,537
--------
Total............................................. $550,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the DGCL permits indemnification of officers, directors, and
other corporate agents under certain circumstances and subject to certain
limitations. The Registrant's Amended and Restated Certificate of Incorporation
and By-laws provide that the Registrant shall indemnify its directors, officers,
employees and agents to the full extent permitted by the DGCL, including
circumstances in which indemnification is otherwise discretionary under Delaware
law. In addition, the Registrant has entered into separate indemnification
agreements with its directors and executive officers which require the
Registrant, among other things, to indemnify them against certain liabilities
which may arise by reason of their status or service (other than liabilities
arising from acts or omissions not in good faith or willful misconduct).
These indemnification provisions and the indemnification agreements entered
into between the Registrant and its executive officers and directors may be
sufficiently broad to permit indemnification of the Registrant's executive
officers and directors for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since July 31, 1995, the Registrant and its Predecessors have sold and
issued the following unregistered securities:
(a) Issuances of Shares of Common Stock.
On January 31, 1996, the Registrant issued a total of 500 shares of Common
Stock to Paul Fleming in exchange for an aggregate purchase price of $100.00, or
$0.20 per share. On February 28, 1996, the Registrant issued a total of
2,499,500 shares of Common Stock to Paul and Kelly Fleming in exchange for their
interests in the Predecessors.
(b) Issuances of Shares of Preferred Stock.
On February 1, 1996, the Registrant issued a total of 2,487,500 shares of
Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock") and
Warrants exercisable for a total of 621,875 shares of Series A Preferred Stock
to accredited investors for an aggregate purchase price of $9,950,000.
II-1
<PAGE> 74
In September 1996, the Company issued an additional 189,635 shares of Series A
Preferred Stock to accredited investors for an aggregate purchase price of
$758,540. On March 31, 1998 and June 30, 1998, the Company issued an aggregate
of 80,913 shares of Series A Preferred Stock as paid-in-kind dividends to
holders of Series A Preferred Stock.
On May 1, 1997, the Registrant issued a total of 758,565 shares of Series B
Convertible Redeemable Preferred Stock to accredited investors for an aggregate
offering price of $6,599,519.
(c) Option Issuances to, and Exercises by, Employees and Directors.
From June 28, 1996 to June 28, 1998, the Registrant issued options to
purchase a total of 1,009,635 shares of Common Stock at a weighted-average
exercise price of $3.87 per share to 45 employees. No consideration was paid to
the Registrant by any recipient of any of the foregoing options for the grant of
any such options. As of June 28, 1998, no employees had exercised their options.
(d) Warrants
In connection with the original capitalization of the Company, warrants to
purchase 62,190 shares of Series A Preferred Stock at $4.00 per share were
issued to an investment bank. The warrants expire February 28, 2001.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
The issuances described in Items 15(a) and 15(b) were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering. In
addition, the issuances described in Item 15(c) were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in such transactions. All recipients either received adequate information
about the Registrant or had access, through employment or other relationships,
to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company.
3.2 By-laws.
4.1* Specimen Common Stock Certificate.
4.2 Amended and Restated Registration Rights Agreement dated May
1, 1997.
5.1* Opinion of Gray Cary Ware & Freidenrich LLP.
10.1 Form of Indemnification Agreement for directors and
executive officers.
10.2 1998 Stock Option Plan and forms of agreement thereunder.
10.3 1997 Restaurant Manager Stock Option Plan and forms of
Agreement thereunder.
10.4 1996 Stock Option Plan and forms of Agreement thereunder.
10.5 1998 Employee Stock Purchase Plan.
10.6* Employment Agreement between Paul M. Fleming and the Company
dated January 31, 1996.
10.7 Series A Preferred Stock Purchase Agreement dated February
1, 1996.
10.8 Series B Preferred Stock Purchase Agreement dated May 1,
1997.
10.9 Amended and Restated Revolving Line of Credit Loan Agreement
between the Company and FFCA dated June 20, 1998.
10.10 Office Lease between the Company and U.S. West Business
Resources, Inc. dated February 15, 1997.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors (see page II-5).
23.2* Consent of Counsel (included in Exhibit 5.1).
</TABLE>
II-2
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, employee or agent of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, employee or agent in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale,
County of Maricopa, State of Arizona, on the 23rd day of July 1998.
P.F. Chang's China Bistro, Inc.
By: /s/ RICHARD L. FEDERICO
------------------------------------
Richard L. Federico
Chief Executive Officer and
President
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Richard L. Federico and Robert T.
Vivian, or either of them, as his attorney-in-fact, each with full power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Registration Statement, including post-effective amendments and any and
all new registration statements filed pursuant to Rule 462 under the Securities
Act in connection with or related to the offering contemplated by this
Registration Statement as amended, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorney-in-fact
or his substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ RICHARD L. FEDERICO Chief Executive Officer, President July 23, 1998
- --------------------------------------------------- and Director (Principal
Richard L. Federico Executive Officer)
/s/ ROBERT T. VIVIAN Chief Financial Officer and July 23, 1998
- --------------------------------------------------- Secretary (Principal Financial
Robert T. Vivian and Accounting Officer)
/s/ PAUL M. FLEMING Director July 23, 1998
- ---------------------------------------------------
Paul M. Fleming
/s/ J. MICHAEL CHU Director July 23, 1998
- ---------------------------------------------------
J. Michael Chu
/s/ GERALD R. GALLAGHER Director July 23, 1998
- ---------------------------------------------------
Gerald R. Gallagher
/s/ R. MICHAEL WELBORN Director July 23, 1998
- ---------------------------------------------------
R. Michael Welborn
/s/ JAMES G. SHENNAN, JR. Director July 23, 1998
- ---------------------------------------------------
James G. Shennan, Jr.
/s/ YVES SISTERON Director July 23, 1998
- ---------------------------------------------------
Yves Sisteron
</TABLE>
II-4
<PAGE> 77
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the captions "Selected
Consolidated Financial and Operating Data" and "Experts" and to the use of our
report dated January 26, 1998, except Note 11 as to which the date is , 1998,
in the Registration Statement (Form S-1 No. ) and related Prospectus of
P.F. Chang's China Bistro, Inc. for the registration of shares of its
common stock
ERNST & YOUNG LLP
Phoenix, Arizona
, 1998
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the
completion of the one-for-two reverse stock split described in Note 11 to the
consolidated financial statements.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
July 22, 1998
II-5
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Company
3.2 By-laws
4.1* Specimen Common Stock Certificate
4.2 Amended and Restated Registration Rights Agreement dated May
1, 1997
5.1* Opinion of Gray Cary Ware & Freidenrich LLP
10.1 Form of Indemnification Agreement for directors and
executive officers
10.2 1998 Stock Option Plan and forms of agreement thereunder
10.3 1997 Restaurant Manager Stock Option Plan and forms of
Agreement thereunder
10.4 1996 Stock Option Plan and forms of Agreement thereunder
10.5 1998 Employee Stock Purchase Plan
10.6* Employment Agreement between Paul M. Fleming and the Company
dated January 31, 1996
10.7 Series A Preferred Stock Purchase Agreement dated February
1, 1996
10.8 Series B Preferred Stock Purchase Agreement dated May 1,
1997
10.9 Amended and Restated Revolving Line of Credit Loan Agreement
between the Company and FFCA dated June 20, 1998
10.10 Office Lease between the Company and U.S. West Business
Resources, Inc. dated February 15, 1997
21.1 List of Subsidiaries
23.1 Consent of Independent Auditors (see page II-5)
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-4)
27.1 Financial Data Schedule
</TABLE>
- ------------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
P.F. CHANG'S CHINA BISTRO, INC.
FIRST: The name of the corporation (hereinafter referred to as the
"Corporation") is:
P.F. CHANG'S CHINA BISTRO, INC.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware
19805-1297. The name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The aggregate number of all classes of shares which the
Corporation shall have authority to issue is Ten Million (10,000,000) shares
divided into two classes of which Two Million (2,000,000) shares of par value
$.01 per share shall be designated Preferred Stock and Eight Million (8,000,000)
shares of par value $.01 per share shall be designated Common Stock.
At all times, each holder of common stock of the Corporation shall be
entitled to one vote for each share of common stock held by such stockholder
standing in the name of such stockholder on the books of the Corporation.
The Board of Directors is authorized, subject to limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock in
one or more series, to establish the
1
<PAGE> 2
number of shares to be included in each such series, and to fix the
designations, powers, preferences, and rights of the shares of each such
series, and any qualifications, limitations or restrictions thereof.
FIFTH: The name and address of the Incorporator is as follows:
Paul M. Fleming
2201 E. Camelback Road
Phoenix, Arizona 85016
SIXTH: In furtherance and not in limitation of the power conferred
by statute, the Board of Directors is expressly authorized to make, alter or
repeal the Bylaws of the Corporation.
SEVENTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for the breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
If the Delaware General Corporation Law is amended to authorize
corporate actions further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of this Article
SEVENTH by the shareholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification. The Corporation may adopt such provisions with
respect to indemnification of
2
<PAGE> 3
directors, officers, or employees of the Corporation, consistent with this
Article SEVENTH, as may be set forth from time to time in the Bylaws of the
Corporation or a resolution adopted by the Board of Directors.
EIGHTH: Election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by the law of the State of Delaware. All
rights conferred upon stockholders herein are granted subject to this
reservation.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, herein declaring and
certifying that this is my act and deed and the facts herein stated are true,
and accordingly have hereunto set my hand this 30th day of January, 1996.
/s/ Paul M. Fleming
-------------------------
Paul M. Fleming,
Sole Incorporator
3
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
P.F. CHANG'S CHINA BISTRO, INC.
P.F. Chang's China Bistro, Inc., a corporation organized and existing under
and by virtue of the General Corporation's Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the corporation, by unanimous written
consent, adopted a resolutions proposing and declaring advisable the
following amendments to the Certificate of Incorporation of the
corporation:
RESOLVED, that Article IV of the Certificate of Incorporation of
P.F. Chang's China Bistro, Inc., a Delaware corporation (the
"Corporation"), is amended in its entirety to read as follows:
FOURTH: The aggregate number of all classes of shares which
the Corporation shall have authority to issue is Thirty Million
(30,000,000) shares divided into two classes of which Ten Million
(10,000,000) shares of par value $.001 per share shall be
designated Preferred Stock and Twenty Million (20,000,000) shares
of par value $.001 per share shall be designated Common Stock.
At all times, each holder of Common Stock of the Corporation
shall be entitled to one vote for each share of Common Stock held
by such stockholder standing in the name of such stockholder on
the books of the Corporation.
The Board of Directors is authorized, subject to limitations
prescribed by law, to provide for the issuance of shares of
Preferred Stock in one or more series, to establish the number of
shares to be included in each such series, and to fix the
designations, powers, preferences, and rights of the
<PAGE> 5
shares of each such series, and any qualifications, limitations,
or restrictions thereof.
FURTHER RESOLVED that the resolutions of the Board of Directors as
set forth in the Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions Thereof of Series A
Convertible Preferred Stock of P.F. Chang's China Bistro, Inc. are
amended to increase the number of shares designated as "Series A
Convertible Preferred Stock" to 7,500,000 shares and to change the par
value of such shares to $.001 per share.
FURTHER RESOLVED that in order to effect a 10:1 stock split of the
outstanding capital stock of the Corporation, effective upon the date
of filing (the "Effective Date") of a Certificate of Amendment with the
Secretary of State of the State of Delaware, each issued and
outstanding share of the Corporation's capital stock, including without
limitation all issued and outstanding shares of Common Stock and Series
A Convertible Preferred Stock and options and warrants exercisable for
such shares, shall be divided into 10 shares of validly issued, fully
paid and non-assessable stock of the same class or series. As soon as
practicable after the Effective Date, the Corporation shall request in
writing the holders of its capital stock outstanding as of the
Effective Date to surrender certificates representing the Corporation's
capital stock to the Corporation and each such shareholder shall
receive upon such surrender a stock certificate or certificates to
evidence and represent the number of shares of post-split capital stock
to which such shareholder is entitled.
SECOND: That in lieu of a meeting and vote of stockholders, the stockholders
have given written consent to the amendments in accordance with the
provisions of Section 228 of the General Corporation Law of the State
of Delaware and written notice of the adoption of the amendments has
been given as provided in Section 228 of the General Corporation Law of
the State of Delaware to every stockholder entitled to such notice.
<PAGE> 6
THIRD: That the amendments were duly adopted in accordance with the applicable
provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, P.F. Chang's China Bistro, Inc. has caused this
certificate to be signed by Richard L. Federico, its President, this 24th day
of April, 1997.
P.F. Chang's China Bistro, Inc.
By /s/ R. L. Federico
-------------------------------
Richard L. Federico, President
<PAGE> 7
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL
AND OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES A
CONVERTIBLE PREFERRED STOCK
OF
P.F. CHANG'S CHINA BISTRO, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article
FOURTH of its Certificate of Incorporation (the "Certificate of Incorporation")
and in accordance with the provisions of Section 151 of the General Corporation
Law of the State of Delaware (the "DGCL"), the Board of Directors of the
Corporation by written consent dated as of April 30, 1997, duly adopted the
following resolution, which resolution (i) amended and restated prior
resolutions of the Board of Directors of the Corporation adopted by written
consent as of February 22, 1996 pursuant to which the Corporation had originally
established the Series A Preferred Stock (as defined below), (ii) was approved
by written consent of the holders of the Series A Preferred Stock, and (iii)
remains in full force and effect on the date hereof:
RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock of
the Corporation be and hereby is established, consisting of 7,700,000 shares,
$.001 par value per share, to be designated the "Series A Convertible Preferred
Stock" (hereinafter, "Series A Preferred Stock"); that the Board of Directors be
and hereby is authorized to issue such shares of Series A Preferred Stock from
time to time and for such consideration and on such terms as the Board of
Directors shall determine; and that, subject to the limitations provided by law
and by the Certificate of Incorporation, the voting powers, preferences and
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions thereof shall be as follows:
<PAGE> 8
1. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
paragraph 1 shall have, for all purposes of this resolution, the meanings herein
specified (with terms defined in the singular having comparable meanings when
used in the plural).
"Affiliate" shall have the meaning given to such term under Rule
12b-2 of the rules promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934.
"Annual Per Share Cash Dividend Amount" shall mean a cash payment
equal to ten percent (10%) per annum of the Liquidation Price of one share of
the Series A Preferred Stock.
"Annual Per Share PIK Dividend Amount" shall mean a fraction of
one share of Series A Preferred Stock equal to six percent (6%) per annum of one
share of the Series A Preferred Stock.
"Business Day" shall mean a day other than a Saturday, a Sunday or
any other day on which banking institutions in New York, New York are authorized
or obligated by law to close.
"Common Equity" shall mean all shares now or hereafter authorized
of any class of common stock of the Corporation, however, designated, including
the Comon Stock, and any other stock of the Corporation, howsoever designated,
authorized after the Initial Issue Date, which has the right (subject always to
prior rights of any class or series of preferred stock) to participate in the
distribution of the assets and earnings of the Corporation without limit as to
per share amount.
"Common Stock" shall mean the common stock, par value $.001 per
share, of the Corporation.
"Corporation's Affiliates" shall mean (i) PFCCB Scottsdale,
L.L.C., an Arizona limited liability company; (ii) PFCCB Newport Beach, L.L.C.,
an Arizona limited liability company; (iii) P.F. Chang's III, L.L.C., an Arizona
limited liability company; (iv) P.F. Chang's IV, L.L.C., an Arizona limited
liability company; (v) PFC Building III Limited Partnership, an Arizona limited
partnership; (vi) PFCCB LouTex Joint Venture, an Arizona general partnership;
and (vii) PFCCB NUC LLC, an Arizona limited liability company.
"Conversion Date" shall have the meaning set forth in subparagraph
4.1(b) below.
2
<PAGE> 9
"Debt" shall mean any indebtedness, contingent or otherwise, of
any person in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof) or evidenced by bonds, notes, debentures or similar instruments or
letters of credit or representing the balance deferred and unpaid of the
purchase price of any property or interest therein, except any such balance that
constitutes a trade payable, if and to the extent such indebtedness would appear
as a liability upon a balance sheet of such person prepared on a consolidated
basis in accordance with generally accepted accounting principles.
"Debt to Equity Ratio" shall mean the ratio of (i) the total
Indebtedness to (ii) Total Stockholders' Equity.
"Delinquent Mandatory Redemption Price" shall mean, with respect
to each share of Series A Preferred Stock, $2.00 (adjusted for stock splits,
subdivisions, combinations and similar transactions), plus all accrued and
unpaid dividends payable in respect of such a share of the Series A Preferred
Stock, plus an amount thereon accruing from the Mandatory Redemption Date
relating thereto at the Increasing Rate.
"Final Mandatory Redemption Date" shall mean May 1, 2004 or, if
such day is not a Business Day, the next succeeding Business Day.
"Increasing Rate" shall mean, with respect to any obligation, an
annual rate equal to the Prime Rate, plus (i) two percent, plus (ii) one percent
after the first completed six-month period that the obligation subject to the
Increasing Rate has been outstanding and has not been paid in full.
"Indebtedness" shall mean the Debt of the Corporation or a
subsidiary of the Corporation plus, to the extent not otherwise included, (i)
the guaranty of any Debt of any other person; and (ii) obligations in respect of
borrowed money secured by any Lien to which any property or asset owned or held
by the Corporation or a subsidiary is subject, whether or not the obligations
secured thereby shall have been assumed by the Corporation or such subsidiary;
and (iii) capitalized lease obligations.
"Initial Issue Date" shall mean the date that shares of Series A
Preferred Stock are first issued by the Corporation.
"Initial Mandatory Redemption Date" shall mean May 1, 2003 or, if
such day is not a Business Day, the next succeeding Business Day.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital
3
<PAGE> 10
lease obligation, or any financing lease having substantially the same economic
effect as any of the foregoing.
"Liquidation Price" shall mean $2.00 per share of Series A
Preferred Stock (adjusted for stock splits, subdivisions, combinations and
similar transactions), plus all accrued and unpaid dividends payable in respect
of such share of Series A Preferred Stock pursuant to subparagraph 2(c).
"Mandatory Redemption Date" shall mean the Initial Mandatory
Redemption Date and the Final Mandatory Redemption Date.
"Mandatory Redemption Obligation" shall have the meaning set forth
in subparagraph 5(c) below.
"Non-Investor Directors" shall mean those directors elected to the
Corporation's Board of Directors other than those directors that are elected
solely by the holders of Series A Preferred Stock or Parity Stock pursuant to
the Shareholders Agreement.
"Parity Stock" shall mean any class or series of capital stock of
the Corporation ranking on a parity with the Series A Preferred Stock as to (i)
priority of payment of cash and stock dividends and other distributions, (ii)
priority of payment upon liquidation, dissolution or winding up of the
Corporation, and (iii) the time of, and priority of payment upon, any mandatory
redemption. For purposes of this definition, differences between any class or
series of capital stock and the Series A Preferred Stock as to the amount of the
liquidation price (or other fixed amount) to which any cash dividend rate is
applied, the amount of the liquidation price payable upon liquidation,
dissolution or winding up of the Corporation, the amount of the redemption price
payable upon any mandatory redemption, or the time when cash or stock dividends
or other distributions shall begin to accrue, shall not be considered in
determining whether such class or series of capital stock is on a parity with
the Series A Preferred Stock.
"PIK Dividends" shall mean the "paid-in-kind" dividends as set
forth in subparagraph 2(a) below.
"PIK Dividend Payment Date" shall mean March 31, June 30,
September 30, and December 31, of each year during the PIK Dividend Payment
Period.
"PIK Dividend Payment Period" shall mean the period from, and
including, January 1, 1998, to and including the Final Mandatory Redemption
Date.
"PIK Dividend Period" shall mean the period from, and including,
January 1, 1998, to, but not including, the first PIK Dividend Payment Date and
thereafter, each quarterly period, including any PIK Dividend Payment Date to,
but not including, the next PIK Dividend Payment Date.
4
<PAGE> 11
"PIK Record Date" shall mean the date that is ten Business Days
prior to any PIK Dividend Payment Date.
"Preferred Cash Dividends" shall mean the cash dividends as set
forth in subparagraph 2(f) below.
"Prime Rate" shall mean the rate announced as the "prime rate" by
NationsBank, N.A. whether or not such rate is actually charged.
"Pro Rata" shall mean, in the case of stock dividends, stock
dividends of the same class or series as the stock upon which the dividends are
being paid and that are proportionate to the number of outstanding shares of
such stock, and, in the case of cash dividends or dividends in property, cash
dividends or dividends in property that are proportionate to the liquidation
price of the class or series of stock upon which the dividends are being paid.
"Qualified Initial Public Offering" shall mean an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933 of shares of the Common Stock, (i) the aggregate gross
proceeds of which equal or exceed $15,000,000 and (ii) the per share offering
price of which equals or exceeds $10.00; provided, however, that the per share
offering price referred to in clause (ii) shall be adjusted to reflect the
effect of any stock split or any subdivision, reclassification, combination or
like event of or with respect to outstanding shares of Common Stock occurring
after May 1, 1997.
"Quoted Price" shall mean with respect to any security the
arithmetic mean of the last bid and ask price for one (1) share of the
applicable security as reported by the National Association of Securities
Dealers, Inc., Automatic Quotations System, National Market System ("NASDAQ"),
or, if the applicable security is listed or admitted for trading on a securities
exchange, the arithmetic mean of the high and low trading prices during the
relevant trading day for one (1) share of the applicable security on the
principal exchange on which the applicable security is listed or admitted for
trading (which shall be for consolidated trading if applicable to such
exchange), in each case, on the Trading Day in question.
"Redemption Price" shall mean, with respect to each share of
Series A Preferred Stock, $2.00 (adjusted for stock splits, subdivisions,
combinations and similar transactions) plus all accrued and unpaid dividends
payable in respect of such share of the Series A Preferred Stock.
"Series A Directors" shall mean those members of the Board of
Directors of the Corporation elected solely by the holders of the Series A
Preferred Stock pursuant to the Shareholders Agreement.
5
<PAGE> 12
"Shareholders Agreement" shall mean the Amended and Restated
Shareholders Agreement among the Corporation and the holders of the Common
Stock, Series A Preferred Stock and Parity Stock dated as of May 1, 1997, as the
same may be amended from time to time.
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement
among the Corporation, Paul Fleming and the Purchasers listed therein dated as
of February 1, 1996, as the same may be amended from time to time.
"Subordinate Stock" shall mean the Common Equity and any class or
series of capital stock of the Corporation, however designated, which is not
entitled to receive (i) any dividends unless all dividends required to have been
paid or declared and set apart for payment on the Series A Preferred Stock shall
have been so paid or declared and set apart for payment or (ii) any assets upon
liquidation, dissolution or winding up of the affairs of the Corporation until
the Series A Preferred Stock shall have received the entire amount to which such
stock is entitled upon such liquidation, dissolution or winding up.
"Total Stockholders' Equity" shall mean the stockholders' equity
of the Corporation as it appears in the monthly balance sheet of the
Corporation.
"Trading Days" shall mean any day on which any market in which the
applicable security is then traded and in which a Quoted Price may be
ascertained is open for business.
2. Dividends.
(a) The record holders of Series A Preferred Stock on each PIK
Record Date shall receive on each PIK Dividend Payment Date during the PIK
Dividend Payment Period per share dividends in additional fully paid and
nonassessable shares of Series A Preferred Stock legally available for such
purpose (such dividends being herein called "PIK Dividends"). PIK Dividends
shall be paid by delivering to the record holders of Series A Preferred Stock a
number of shares of Series A Preferred Stock equal to (i) the number of shares
of Series A Preferred Stock held by such holder on the applicable PIK Record
Date, multiplied by (ii) twenty-five percent (25%) of the Annual Per Share PIK
Dividend Amount. Except as set forth in subparagraph 2(b) below, the Corporation
shall not issue fractional shares of Series A Preferred Stock to which holders
may become entitled pursuant to this subparagraph, but in lieu thereof, the
Corporation shall at the option of the holder either (i) deliver its check in an
amount equal to the applicable fraction of one (1) share of Series A Preferred
Stock multiplied by $2.00 (adjusted for stock splits, subdivisions, combinations
or other similar transactions) (the "PIK Cash Dividend Payment") or (ii) defer
delivery of the fractional PIK Cash Dividend Payment to the holder and apply
such amount to PIK Dividends issued to such holder on the subsequent PIK
Dividend Date. Any additional shares of Series A Preferred Stock issued pursuant
to this paragraph shall be governed by this
6
<PAGE> 13
resolution and shall be subject in all respects, except as to the date of
issuance and date from which PIK Dividends accrue and cumulate as set forth
below, to the same terms as the shares of Series A Preferred Stock originally
issued hereunder; provided, however, in no event shall any PIK Dividends accrue
prior to January 1, 1998.
(b) Prior to each PIK Record Date immediately preceding each PIK
Dividend Payment Date, the Board of Directors of the Corporation shall declare
PIK Dividends on the Series A Preferred Stock in accordance with subparagraph
2(a) above, payable on the next PIK Dividend Payment Date. PIK Dividends (which
shall include, for purposes of this subparagraph, any PIK Cash Dividend Payment
due pursuant to subparagraph 2(a)) on shares of Series A Preferred Stock shall
accrue and be cumulative from the later of (i) January 1, 1998 and (ii) the date
of issuance of such shares, notwithstanding the failure of the Board of
Directors to declare and/or issue PIK Dividends with respect to any PIK Dividend
Period. PIK Dividends shall be payable in arrears during the PIK Dividend
Payment Period on each PIK Dividend Payment Date, commencing on the first PIK
Dividend Payment Date subsequent to January 1, 1998, and for shares issued as
PIK Dividends, commencing on the first PIK Dividend Payment Date after such
shares are issued. If any PIK Dividend Payment Date occurs on a day that is not
a Business Day, any accrued PIK Dividends otherwise payable on such PIK Dividend
Payment Date shall be paid on the next succeeding Business Day. PIK Dividends
shall be paid on each PIK Dividend Payment Date to the holders of record of the
Series A Preferred Stock as their names shall appear on the share register of
the Corporation on the PIK Record Date immediately preceding such PIK Dividend
Payment Date. If a PIK Cash Dividend Payment on account of PIK Dividends that
would otherwise be issued as fractional shares may not legally be paid in the
full amount to which shares of Series A Preferred Stock are entitled with
respect to any PIK Dividend Period, dividends in the full preferential amount
hereby provided shall be, to the extent legally and contractually permissible,
declared and paid as PIK Dividends in the form of shares of Series A Preferred
Stock (including fractional shares thereof). PIK Dividends on account of arrears
for any past PIK Dividend Periods may be declared and paid at any time to the
holders of record on the PIK Record Dates applicable to such past PIK Dividend
Periods.
(c) In addition to the PIK Dividends and the PIK Cash Dividend
Payments referred to in subparagraph 2(a) hereof and the Preferred Cash
Dividends referred to in subparagraph 2(f), at any time during which any shares
of Series A Preferred Stock remain outstanding, the Corporation may declare, pay
or set apart for payment cash and/or property to be distributed or paid as a
dividend in respect of shares of Series A Preferred Stock. The foregoing
notwithstanding, no dividends may be declared or paid on the Series A Preferred
Stock pursuant to this subparagraph 2(c) unless Pro Rata dividends are
contemporaneously declared or paid on any then outstanding Parity Stock.
(d) So long as any shares of Series A Preferred Stock shall be
outstanding:
7
<PAGE> 14
(i) the Corporation shall not declare, pay or set apart
for payment on any Subordinate Stock any dividends or distributions
whatsoever, whether in cash, property or otherwise (other than dividends
payable in shares of the class or series upon which such dividends are
declared or paid, or payable in shares of Common Stock with respect to
Subordinate Stock other than Common Stock, together with cash in lieu of
fractional shares), nor shall any Subordinate Stock be purchased, redeemed
or otherwise acquired by the Corporation or any of its subsidiaries of
which it owns not less than a majority of the outstanding voting power, nor
shall any monies be paid or made available for a sinking fund for the
purchase or redemption of any Subordinate Stock, without the prior written
consent of the holders of at least a majority of the outstanding shares of
Series A Preferred Stock and unless all dividends to which the holders of
Series A Preferred Stock shall have been entitled for all previous PIK
Dividend Periods shall have been (A) paid or (B) declared and a sum of
money, in the case of dividends payable in cash, sufficient for the payment
thereof has been set apart;
(ii) the Corporation shall not declare, pay or set apart
for payment on any Parity Stock any dividends or distributions whatsoever,
whether in cash, property or otherwise, unless Pro Rata dividends are
contemporaneously declared, paid or set apart for payment on the Series A
Preferred Stock; and
(iii) neither the Corporation nor any of its subsidiaries
of which it owns not less than a majority of the outstanding voting power
shall purchase, redeem or otherwise acquire any Parity Stock, nor pay any
monies to or make any monies available for a sinking fund for the purchase
or redemption of any Parity Stock, without the prior written consent of the
holders of at least a majority of the outstanding shares of Series A
Preferred Stock and unless all dividends to which the holders of Series A
Preferred Stock shall have been entitled for all previous PIK Dividend
Periods shall have been (A) paid or (B) declared and a sum of money, in the
case of dividends payable in cash, sufficient for the payment thereof has
been set apart, except that the Corporation may redeem Parity Stock so long
as it contemporaneously redeems a proportionate percentage of the
outstanding Series A Preferred Stock, ratably among the holders thereof.
(e) In the event that full dividends, in cash or property, if
declared, are not paid or made available to the holders of all outstanding
shares of Series A Preferred Stock and Parity Stock and funds or property
available for payment of dividends shall be insufficient to permit payment in
full to holders of all such stock of the full preferential amounts to which they
are then entitled, then the entire amount available for payment of dividends
shall be distributed ratably among all such holders of Series A Preferred Stock
and Parity Stock in proportion to the full amount to which they would otherwise
be respectively entitled.
8
<PAGE> 15
(f) Notwithstanding anything to the contrary set forth herein,
with respect to any PIK Dividend otherwise payable on any PIK Dividend Payment
Date pursuant to this paragraph 2, the Corporation may, upon the unanimous
approval of the Non-Investor Directors by vote on or prior to the applicable PIK
Record Date, declare on such PIK Record Date and pay on such PIK Dividend
Payment Date a cash dividend (a "Preferred Cash Dividend") to all record holders
of Series A Preferred Stock on such PIK Record Date in an amount per share equal
to twenty-five percent (25%) of the Annual Per Share Cash Dividend Amount.
Payment of such Preferred Cash Dividend on such PIK Dividend Payment Date shall
be in lieu of the payment of the PIK Dividend on such PIK Dividend Payment Date.
The foregoing notwithstanding, no Preferred Cash Dividend may be declared and
paid on the Series A Preferred Stock unless Pro Rata cash dividends are
contemporaneously declared and then paid on any then outstanding Parity Stock.
(g) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series A Preferred Stock shall be declared by the Board
of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time if such declaration or payment shall be restricted or
prohibited by law.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or other winding up of the affairs of the Corporation, before any
payment or distribution shall be made to the holders of Subordinate Stock and
contemporaneously with any payment or distribution to the holders of Parity
Stock, the holders of Series A Preferred Stock shall be entitled to be paid out
of the assets of the Corporation in cash, or, if the Corporation does not have
sufficient cash on hand to pay such amounts, property of the Corporation at its
fair market value as determined by the Board of Directors of the Corporation,
the greater of (i) the Liquidation Price per share of Series A Preferred Stock,
or (ii) such amount per share of Series A Preferred Stock as would have been
payable had each such share been converted into Common Stock pursuant to
paragraph 4 immediately prior to such liquidation, dissolution or other winding
up of the affairs of the Corporation. Immediately preceding such liquidation,
dissolution or winding up, adjustment shall be made for accrued but unpaid
dividends (including, without limitation, PIK Dividends).
(b) If, upon any such liquidation, dissolution or other winding up
of the affairs of the Corporation, the assets of the Corporation shall be
insufficient to permit the payment in full of the Liquidation Price for each
share of the Series A Preferred Stock and the applicable liquidation price for
each share of any Parity Stock then outstanding, then the assets of the
Corporation shall be ratably distributed among the holders of Series A Preferred
Stock and Parity Stock in proportion to the full amounts to which they would
otherwise be respectively entitled if all amounts thereon were paid in full.
Neither the consolidation or merger of the Corporation into or with another
corporation or corporations, nor the sale, lease, transfer or conveyance of all
or any
9
<PAGE> 16
portion of the assets of the Corporation to another corporation or any other
entity shall be deemed a liquidation, dissolution or winding up of the affairs
of the Corporation within the meaning of this paragraph 3.
4. Conversion Rights.
4.1 Conversion at the Option of the Holder.
(a) At any time before the close of business on the Final
Mandatory Redemption Date (unless the Corporation shall default in payment of
the Redemption Price or the Delinquent Mandatory Redemption Price, in which
case, the conversion rights set forth in this paragraph shall continue until the
cure of any such default), each holder of Series A Preferred Stock may, at its
option, convert each share of Series A Preferred Stock held by such holder into
one (1) share of Common Stock subject to adjustment pursuant to paragraph 4.3.
Upon such conversion, the rights of the holders of converted Series A Preferred
Stock with respect to the shares of Series A Preferred Stock so converted shall
cease.
(b) To convert Series A Preferred Stock in accordance with this
paragraph 4.1, a holder must (i) surrender the certificate or certificates
evidencing the shares of Series A Preferred Stock to be converted (or a duly
executed affidavit of lost certificate in accordance with the bylaws of the
Corporation), duly endorsed in a form satisfactory to the Corporation, at the
office of the Corporation or transfer agent for the Series A Preferred Stock,
(ii) notify the Corporation at such office in writing that it elects to convert
Series A Preferred Stock, and the number of shares it wishes to convert, (iii)
state in writing the name or names in which it wishes the certificate or
certificates for shares of Common Stock to be issued, and (iv) pay any transfer
or similar tax with respect to the transfer of the shares of Series A Preferred
Stock converted, if required. The date on which the holder satisfies the
foregoing requirements shall be the "Conversion Date." As soon as practical but
in any event within five (5) Business Days of the Conversion Date, the
Corporation shall deliver a certificate for the number of shares of Common Stock
issuable upon the conversion, a check for the amount payable in respect of any
fractional share pursuant to subparagraph 4.1(c) and a new certificate
representing the unconverted portion, if any, of the shares of Series A
Preferred Stock represented by the certificate or certificates surrendered for
conversion. The person in whose name the Common Stock certificate is registered
shall be treated as the stockholder of record on and after the Conversion Date.
Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid
dividends (including, without limitation, PIK Dividends), as of the Conversion
Date, on converted shares of Series A Preferred Stock. PIK Dividends will be
paid on any PIK Dividend Payment Date with respect to Series A Preferred Stock
surrendered for conversion at any time on or after a PIK Record Date for the
payment of a PIK Dividend to the registered holder of Series A Preferred Stock
on such PIK Record Date. If the last day on which Series A Preferred Stock may
be converted is not a Business
10
<PAGE> 17
Day, Series A Preferred Stock may be surrendered for conversion on the next
succeeding day that is a Business Day.
(c) The Corporation will not issue a fractional share of Common
Stock upon conversion of Series A Preferred Stock. Instead the Corporation will
deliver its check in an amount equal to the applicable fraction multiplied by
the fair market value of the Common Stock.
(d) If a holder converts shares of Series A Preferred Stock, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of shares of Common Stock upon the conversion; provided,
however, that pursuant to subparagraph 4.1(b) the holder shall pay any such tax
which is due because the shares are issued in a name other than the holder's
name.
4.2 Mandatory Conversion. Subject to the adjustments set forth
in paragraph 4.3, each share of the Series A Preferred Stock shall be
automatically converted into one (1) share of Common Stock on the date a
Qualified Initial Public Offering is consummated ("Mandatory Conversion Date").
Upon such occurrence resulting in a Mandatory Conversion Date, the Corporation
shall (i) notify all holders of the Series A Preferred Stock not later than five
(5) Business Days subsequent to approval by the Board of Directors of the
Corporation to undertake a Qualified Initial Public Offering, (ii) demand that
all shares representing the Series A Preferred Stock be returned to the
Corporation's offices or to the designated transfer agent, and (iii) pay any
transfer or similar tax with respect to the conversion, if any. As soon as
practical but in any event within thirty (30) days of the Mandatory Conversion
Date, the Corporation shall deliver a certificate to and in the name of the
holder of the Series A Preferred Stock for the number of shares of Common Stock
issuable upon the conversion and a check in an amount calculated in accordance
with subparagraph 4.1(c) for any fractional shares, if any, for the shares of
Series A Preferred Stock represented by the certificate. The name of the person
in which the Series A Preferred Stock was issued shall be treated as the
stockholder of record of the Common Stock in which the Series A Preferred Stock
was converted on and after the Mandatory Conversion Date. Adjustment (or cash
payment, if applicable) shall be made for accrued and unpaid dividends
(including, without limitation, PIK Dividends), as of the Mandatory Conversion
Date, on shares of Series A Preferred Stock converted pursuant to this paragraph
4.2. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to
Series A Preferred Stock converted pursuant to this paragraph 4.2 on or after a
PIK Record Date to the registered holder of Series A Preferred Stock on such PIK
Record Date, and the shares of Series A Preferred Stock received in payment of
such PIK Dividend shall be deemed automatically converted to one (1) share of
Common Stock, subject to adjustment in accordance with paragraph 4.3, effective
as of the Mandatory Conversion Date. Upon such conversion, the rights of the
holders of converted Series A Preferred Stock with respect to the shares of
Series A Preferred Stock so converted shall cease.
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<PAGE> 18
4.3 Certain Matters With Respect to Conversion.
(a) The Corporation has reserved and shall continue to reserve out
of its authorized but unissued Common Stock enough shares of Common Stock to
permit the conversion of the Series A Preferred Stock in full. All shares of
Common Stock which are issued upon conversion of Series A Preferred Stock shall
be duly authorized, validly issued, fully paid and nonassessable. The
Corporation shall comply with all securities laws regulating the offer and
delivery of shares of common stock upon conversion of Series A Preferred Stock
and will list such shares on each national securities exchange on which the
common stock is listed.
(b) If the Corporation:
(i) pays a dividend or makes a distribution on its Common
Stock or any other class of the Corporation's stock other than the Series A
Preferred Stock in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common
Stock into a greater number of shares;
(iii) combines its outstanding shares of Common Stock
into a smaller number of shares;
(iv) issues by reclassification of its Common
Stock any shares of its capital stock;
then an appropriate and proportionate adjustment shall be made to the number of
shares into which each share of Series A Preferred Stock is convertible so that
immediately after the occurrence of such event the holders of Series A Preferred
Stock shall be entitled to receive the same percentage of the issued and
outstanding Common Stock upon conversion of the Series A Preferred Stock as such
holders would have received if converted immediately prior to such dividend,
distribution, subdivision, combination or reclassification. The adjustment shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date of a subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(c) If the Corporation distributes any rights, options or warrants
to all holders of its Common Stock entitling them for a period expiring within
sixty (60) days after the record date referenced in subparagraph (l) below to
purchase additional shares of Common Stock at a price per share less than $2.00
per share (as adjusted to reflect any stock split or any subdivision,
reclassification, combination of or with respect to outstanding shares of Common
Stock or any similar transaction) on that record date, the number of shares of
Common Stock into which each share of Series A Preferred Stock is convertible
shall be adjusted, in accordance with the following formula:
12
<PAGE> 19
N x (O+A)
--------
N' = O + AxP
---
M
where:
N' = the number of shares of Common Stock into which
each share of Series A Preferred Stock is
convertible after such distribution.
O = the number of shares of Common Stock outstanding
on the record date.
N = the number of shares of Common Stock into which
each share of Series A Preferred Stock was
convertible prior to such distribution.
P = the offering price per share of the additional
shares of Common Stock.
M = the current market price per share of Common
Stock on the record date.
A = the number of additional shares of Common Stock
offered.
The adjustment shall be made successively whenever any such
rights, options or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
the rights, options or warrants. If at the end of the period during which such
warrants, options or rights are exercisable, not all warrants, options or rights
shall have been exercised, the number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible shall be immediately readjusted
to what it would have been if "A" in the above formula had been the number of
shares actually issued.
(d) If the Corporation issues shares of Common Stock for a
consideration per share less than $2.00 per share (as adjusted to reflect the
effect of any stock split or any subdivision, reclassification, combination of
or with respect to outstanding shares of Common Stock or any similar
transaction) on the date the Corporation fixes the offering price of such
additional shares, the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible shall be adjusted in accordance with the
following formula:
N x A
-----
N' = O + P
-
M
13
<PAGE> 20
where:
N' = the number of shares of Common Stock into which
each share of Series A Preferred Stock is
convertible after such issuance.
N = the number of shares of Common Stock into which
each share of Series A Preferred Stock was
convertible prior to such issuance.
O = the number of shares of Common Stock
outstanding immediately prior to the issuance of
such additional shares.
P = the aggregate consideration received for
the issuance of such additional shares.
M = the current market price per share of Common
Stock on the date of issuance of such additional
shares.
A = the number of shares outstanding immediately
after the issuance of such additional shares.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
This subparagraph 4.3(d) does not apply to (i) any transaction or issuance
described in subparagraphs 4.3(b) or 4.3(c) above or subparagraph 4.3(e) below,
including issuances of Common Stock pursuant to warrants, options, rights or
other convertible securities described in subparagraphs 4.3(c) and 4.3(e), (ii)
the conversion of Series A Preferred Stock, or the conversion, exchange or
exercise of other securities convertible into or exchangeable or exercisable for
Common Stock, (iii) Common Stock issued to the Corporation's employees under
bona fide employee benefit plans adopted by the Board of Directors of the
Corporation and approved by the holders of Common Stock when required by law, if
such Common Stock would otherwise be covered by this subparagraph 4.3(d) (but
only to the extent that the aggregate number of shares excluded hereby (together
with the aggregate number of shares issuable upon conversion, exchange or
exercise of the securities excluded by clause (iii) of subparagraph 4.3(e)
below) and issued shall not exceed 15% of the Common Stock of the Corporation on
a fully diluted basis at the time of any such issuance excluding options to
purchase Common Stock held by directors of the Corporation), or (iv) Common
Stock issued in a bona fide public offering pursuant to a firm commitment
underwriting.
(e) If the Corporation issues any options, warrants or other
securities convertible into or exchangeable or exercisable for Common Stock
(other than Series A Preferred Stock or securities issued in transactions
described in subparagraph 4.3(c) above) for a consideration per share of Common
Stock initially deliverable upon
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<PAGE> 21
conversion, exchange or exercise of such securities of less than $2.00 per share
of Common Stock (as adjusted to reflect the effect of any stock split or any
subdivision, reclassification, combination of or with respect to outstanding
shares of Common Stock or any similar transaction) on the date of issuance of
such securities, the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible shall be adjusted in accordance with the
following formula:
N x (O+D)
---------
N' = O + P
-
M
where:
N' = the number of shares of Common Stock into which
each share of Series A Preferred Stock is
convertible immediately after such issuance.
N = the number of shares of Common Stock into which
each share of Series A Preferred Stock was
convertible immediately prior to such issuance.
O = the number of shares of Common Stock
outstanding immediately prior to the issuance of
such securities.
P = the aggregate consideration received for
the issuance of such securities.
M = the current market price per share of Common
Stock on the date of issuance of such securities.
D = the maximum number of shares deliverable upon
conversion or in exchange for or upon exercise of
such securities at the initial conversion,
exchange or exercise rate.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance. If
all of the Common Stock deliverable upon conversion, exchange or exercise of
such securities has not been issued when such securities are no longer
outstanding, then the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible shall promptly be readjusted to the
basis of the actual number of shares of Common Stock issued upon conversion,
exchange or exercise of such securities. This subparagraph 4.3(e) does not apply
to (i) the issuance of any such securities in a bona fide public offering
pursuant to a firm commitment underwriting, (ii) the issuance of any such
securities to the Corporation's employees under bona fide employee benefit plans
adopted by the Board of Directors of the Corporation and approved by the holders
of Common Stock when required by law, if such securities would otherwise be
covered
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<PAGE> 22
by this subparagraph 4.3(e) (but only to the extent that the aggregate number of
shares issuable upon the conversion, exchange or exercise of the aggregate
number of securities excluded hereby (together with the aggregate number of
shares excluded by clause (iii) of subparagraph 4.3(d) above) and issued shall
not exceed 15% of the Common Stock of the Corporation on a fully diluted basis
at the time of any such issuance excluding options to purchase Common Stock held
by directors of the Corporation), or (iii) shares issued as PIK Dividends or as
"paid-in-kind" dividends on any Parity Stock provided such dividends are
required by the terms of such Parity Stock.
(f) If the Corporation (i) distributes any rights, options or
warrants to all holders of its Common Stock entitling them for a period expiring
within sixty (60) days after the record date referenced in subparagraph (l)
herein to purchase additional shares of Common Stock; (ii) issues shares of
Common Stock; or (iii) issues any options, warrants or other securities
convertible into or exchangeable or exercisable for Common Stock (other than
Series A Preferred Stock or securities issued in transactions described in (i)
above) at a price reflecting an implied price per share less than $2.00 per
share, the number of shares of Common Stock into which each share of Series A
Preferred Stock is convertible shall be reduced proportionally to reflect the
price at which the Corporation issued or sold such shares of Common Stock
pursuant to this subparagraph 4.3(f).
(g) For the purpose hereof, the current market price per share of
any security on any date is the average of the Quoted Prices for thirty (30)
consecutive Trading Days commencing forty-five (45) Trading Days before the date
in question. If the Quoted Price is not ascertainable, the current market price
per share of any security on any date shall be the current market price as
determined by the Board of Directors of the Corporation in its reasonable
judgment exercised in good faith. Notwithstanding the foregoing, the current
market price per share of any security shall be deemed to be the greater of (i)
the current market price as determined above and (ii) the Liquidation Price.
(h) For purposes of any computation respecting consideration
received pursuant to subparagraphs 4.3(d) and 4.3(e) above, the following shall
apply:
(i) in case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in
no case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Corporation for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined by the Board of
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<PAGE> 23
Directors of the Corporation in its reasonable judgment exercised in good
faith (irrespective of the accounting treatment thereof); and
(iii) in the case of the issuance of options, warrants or
other securities convertible into or exchangeable or exercisable for shares
of Common Stock, the aggregate consideration received therefor shall be
deemed to be the consideration received by the Corporation for the issuance
of such options, warrants or other securities plus the additional minimum
consideration, if any, to be received by the Corporation upon the
conversion or exchange or exercise thereof (the consideration in each case
to be determined in the same manner as provided in clauses (i) and (ii) of
this subparagraph 4.3(h)).
(i) No adjustment in the number of shares of Common Stock into
which each share of Series A Preferred Stock is convertible need be made unless
the adjustment would require an increase or decrease of at least one-half of one
percent (.5%) in the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible. Any adjustments that are not made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this paragraph 4.3 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.
(j) No adjustment in the number of shares of Common Stock into
which each share of Series A Preferred Stock is convertible need be made under
this paragraph 4.3 for (i) rights to purchase Common Stock pursuant to a
Corporation plan for reinvestment of dividends or interest, or (ii) any change
in the par value or change from no par value to par value of the Common Stock.
If an adjustment is made to the number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible upon a record date established
for a distribution subject to this paragraph 4.3 and if such distribution is
subsequently cancelled, the number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible then in effect shall be
readjusted, effective as of the date when the Board of Directors of the
Corporation determines to cancel such distribution, to the number of shares of
Common Stock into which each share of Series A Preferred Stock is convertible as
would have been in effect if such record date had not been fixed. No adjustment
need be made under paragraph 4.3 if the Corporation issues or distributes to
each holder of Series A Preferred Stock the shares of Common Stock, evidences of
indebtedness, assets, rights, options or warrants referred to in such paragraph
which each holder would have been entitled to receive had Series A Preferred
Stock been converted into Common Stock prior to or simultaneously with the
happening of such event or the record date with respect thereto.
(k) Whenever the number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible is adjusted, the Corporation
shall promptly mail to holders of Series A Preferred Stock, first class, postage
prepaid, a notice of the adjustment. The Corporation shall file with the
transfer agent, if any, for
17
<PAGE> 24
Series A Preferred Stock a certificate from the Corporation's independent public
accountants briefly stating the facts requiring the adjustment and the manner of
computing it. Subject to subparagraph 4.3(o) below, the certificate shall be
conclusive evidence that the adjustment is correct.
(l) If:
(i) the Corporation takes any action that would
require an adjustment pursuant to paragraph 4.3;
(ii) the Corporation consolidates or merges with,
or transfers all or substantially all of its assets to, another
corporation, and stockholders of the Corporation must approve the
transaction; or
(iii) there is a dissolution or liquidation of the
Corporation;
a holder of Series A Preferred Stock may want to convert such stock into shares
of Common Stock prior to the record date for or the effective date of the
transaction so that it may receive the rights, warrants, securities or assets
which a holder of shares of Common Stock on that date may receive. Therefore,
the Corporation shall mail to such holders, first class, postage prepaid, a
notice stating the proposed record or effective date, as the case may be. The
Corporation shall mail the notice at least thirty (30) days before such date.
(m) If the Corporation is party to a consolidation or merger which
reclassifies or changes its Common Stock or to the sale of all or substantially
all of the assets of the Corporation, upon consummation of such transaction the
Series A Preferred Stock shall automatically become convertible at the option of
their respective holders into the kind and amount of securities, cash or other
assets which the holder of Series A Preferred Stock would have owned immediately
after the sale, consolidation or merger, if such holder had converted Series A
Preferred Stock immediately before the effective date of the transaction, and an
appropriate adjustment (as determined by the Board of Directors of the
Corporation) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of Series A
Preferred Stock, to the end that the provisions set forth herein (including
provisions with respect to liquidation preferences and changes in and other
adjustment of the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
securities or property thereafter deliverable upon the conversion of Series A
Preferred Stock. The Corporation shall not effect any such consolidation, merger
or sale, unless prior to the consummation thereof, the successor corporation (if
other than the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets assumes by written instrument (in a form
reasonably satisfactory to the holders of a majority of the Series A Preferred
Stock then outstanding), the obligation to deliver to each such holder such
18
<PAGE> 25
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire. If this subparagraph 4.3(m)
applies, subparagraphs 4.3(b), 4.3(c), 4.3(d) and 4.3(e) do not apply.
(n) In any case in which this paragraph 4.3 shall require that an
adjustment as a result of any event become effective from and after a record
date, the Corporation may elect to defer until after the occurrence of such
event (i) the issuance to the holder of any shares of Series A Preferred Stock
converted after such record date and before the occurrence of such event of the
additional shares of Common Stock issuable upon such conversion over and above
the shares issuable immediately prior to adjustment and (ii) the delivery of a
check for any remaining fractional shares as provided in subparagraph 4.1(c)
above.
(o) Whenever the Corporation or its Board of Directors shall be
required to make a determination under this paragraph 4.3, such determination
shall be made in good faith and may be challenged in good faith by the holders
of a majority of the Series A Preferred Stock, and any dispute shall be resolved
promptly (and in no event later than ninety (90) days after any challenge), at
the Corporation's expense, by an investment banking firm of recognized national
standing selected by the Corporation and acceptable to such holders of Series A
Preferred Stock. Any such determination shall be deemed approved if the
requisite holders have not notified the Corporation of any challenge within
thirty (30) days after receiving notice (including a statement in reasonable
detail of the bases therefor) of such determination.
(p) If any event occurs of the type contemplated by the provisions
of this paragraph 4.3 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment to the
number of shares of Common Stock into which each share of Series A Preferred
Stock is convertible so as to protect the rights of the holders of Series A
Preferred Stock; provided that no such adjustment shall increase the number of
shares of Common Stock into which a share of Series A Preferred Stock is
convertible if otherwise adjusted pursuant to another provision of this
paragraph 4.3 or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series A Preferred Stock.
19
<PAGE> 26
5. Mandatory Redemption by the Corporation.
(a) To the extent the Corporation shall have funds legally
available for such payment under the DGCL, the Corporation shall redeem on the
Initial Mandatory Redemption Date at least fifty percent (50%) of the then
outstanding shares of Series A Preferred Stock at the Redemption Price, ratably
among the holders thereof. In addition, to the extent the Corporation shall have
funds legally available for such payment under the DGCL, the Corporation shall
redeem on the Final Mandatory Redemption Date all of the then outstanding shares
of Series A Preferred Stock at the Redemption Price, plus an amount accruing
thereon at the Increasing Rate from the Initial Mandatory Redemption Date.
(b) Shares of Series A Preferred Stock which have been issued and
converted or reacquired in any manner, including as a result of redemption,
shall (upon compliance with any applicable provisions of the DGCL) have the
status of authorized and unissued shares of the class of preferred stock of the
Corporation undesignated as to series, and may be redesignated and reissued as
part of any series of preferred stock of the Corporation; provided, however,
that no such issued and reacquired shares of Series A Preferred Stock shall be
reissued as Series A Preferred Stock.
(c) If on any Mandatory Redemption Date the Corporation is unable
or shall fail to discharge its obligation to redeem all outstanding shares of
Series A Preferred Stock required to be redeemed on such date pursuant to
subparagraph 5(a) and all outstanding shares of Parity Stock required to be
redeemed on such date (the "Mandatory Redemption Obligation"), the Corporation
shall redeem on such Mandatory Redemption Date the number of shares of Series A
Preferred Stock and Parity Stock which it is able to redeem, ratably among the
holders of Series A Preferred Stock and Parity Stock in proportion to the full
amounts to which they would otherwise be respectively entitled if all shares of
Series A Preferred Stock and Parity Stock required to be redeemed on such date
were redeemed. In such a case, the remainder of the Redemption Price payable but
not paid at the Mandatory Redemption Date shall be converted into the Delinquent
Mandatory Redemption Price and shall be discharged as soon as the Corporation is
able to discharge such Delinquent Mandatory Redemption Price out of funds
legally available therefor. If and so long as any Mandatory Redemption
Obligation (or any obligation in respect of the Delinquent Mandatory Redemption
Price) with respect to the Series A Preferred Stock and any Parity Stock shall
not be fully discharged and paid, the Corporation shall not declare or pay any
dividend or make any distribution on, or, directly or indirectly, purchase,
redeem or satisfy any mandatory redemption, sinking fund or other similar
obligation in respect of Subordinate Stock (other than repurchases of shares of
Subordinate Stock in accordance with the terms of restricted stock vesting
agreements with employees of the Corporation approved by the Board of Directors
of the Corporation).
(d) Notwithstanding the foregoing provisions of this paragraph 5,
unless the full cumulative dividends on all outstanding shares of Series A
Preferred Stock and
20
<PAGE> 27
Parity Stock have been paid or contemporaneously are declared and paid for all
dividend periods to and including the Mandatory Redemption Date, none of the
shares of Series A Preferred Stock or Parity Stock shall be redeemed or set
aside for redemption, unless such shares of Series A Preferred Stock and Parity
Stock are redeemed pro rata based upon the full amounts to which the holders
thereof would otherwise be respectively entitled.
(e) Notice of any redemption shall be sent by or on behalf of the
Corporation not more than sixty (60) days nor less than thirty (30) days prior
to any Mandatory Redemption Date, by first class mail, postage prepaid, to all
holders of record of the Series A Preferred Stock at their respective last
addresses as they shall appear on the books of the Corporation; provided,
however, that no failure to give notice or any defect therein or in the mailing
thereof shall affect the validity of the proceedings for the redemption of any
shares of Series A Preferred Stock except as to the holder to whom the
Corporation has failed to give notice or except as to the holder to whom notice
was defective. In addition to any information required by law or by the
applicable rules of any exchange upon which Series A Preferred Stock may be
listed or admitted to trading, such notice shall state: (i) the Mandatory
Redemption Date; (ii) the Redemption Price; (iii) the number of shares of Series
A Preferred Stock to be redeemed; (iv) the place or places where certificates
for such shares are to be surrendered for payment of the Redemption Price; (v)
that dividends on the shares to be redeemed will cease to accrue on the
Mandatory Redemption Date; (vi) the number of shares of Common Stock into which
each share of Series A Preferred Stock is convertible as of the notice date and,
if any transactions are contemplated to occur between the notice date and the
Mandatory Redemption Date which would cause such number of shares of Common
Stock to be adjusted, the number of shares of Common Stock into which each share
of Series A Preferred Stock would be convertible after giving effect to such
transaction(s); (vii) that Series A Preferred Stock called for redemption may be
converted at any time before the close of business on the Mandatory Redemption
Date; and (viii) that holders of Series A Preferred Stock must satisfy the
requirements of subparagraph 4.1(b) above if such holders desire to convert such
shares. Upon the mailing of any such notices of redemption, the Corporation
shall become obligated to redeem at the time of redemption specified therein all
shares called for redemption other than shares converted into Common Stock prior
to the Mandatory Redemption Date.
(f) If notice has been mailed in accordance with subparagraph 5(e)
above and provided that on or before the Mandatory Redemption Date specified in
such notice, all funds necessary for such redemption shall have been set aside
by the Corporation, separate and apart from its other funds in trust for the pro
rata benefit of the holders of the shares so called for redemption, so as to be,
and to continue to be available therefor, then, from and after the Mandatory
Redemption Date, dividends on the shares of the Series A Preferred Stock so
called for redemption shall cease to accrue, and said shares shall no longer be
deemed to be outstanding and shall not have the status of shares of Series A
Preferred Stock, and all rights of the holders thereof as
21
<PAGE> 28
shareholders of the Corporation (except the right to receive from the
Corporation the Redemption Price) shall cease, irrespective of whether any
certificates for shares called for redemption have been surrendered to the
Corporation. Upon surrender, in accordance with said notice, of the certificates
for any shares so redeemed (properly endorsed or assigned for transfer), such
shares shall be redeemed by the Corporation at the Redemption Price and no
holder of shares called for redemption shall be entitled to receive payment of
the Redemption Price therefor until such surrender to the Corporation has been
accomplished or a duly executed affidavit of lost certificate shall have been
delivered to the Corporation. In case fewer than all the shares represented by
any such certificate are redeemed, a new certificate or certificates shall be
issued representing the unredeemed shares without cost to the holder thereof (so
long as such certificate is issued to the holder).
(g) Any funds deposited with a bank or trust company for the
purpose of redeeming Series A Preferred Stock shall be irrevocable except that:
(i) the Corporation shall be entitled to receive from such
bank or trust company the interest or other earnings, if any, earned on any
money so deposited in trust, and the holders of any shares redeemed shall
have no claim to such interest or other earnings; and
(ii) any balance of monies so deposited by the Corporation
and unclaimed by the holders of the Series A Preferred Stock entitled
thereto at the expiration of two (2) years from the applicable Mandatory
Redemption Date shall be repaid, together with any interest or other
earnings earned thereon, to the Corporation, and after any such repayment,
the holders of the shares entitled to the funds so repaid to the
Corporation shall look only to the Corporation for payment without interest
or other earnings.
(h) Notwithstanding anything to the contrary herein, no shares of
Series A Preferred Stock may be redeemed except with funds legally available for
the payment of the Redemption Price.
6. Voting Rights.
(a) Except as otherwise set forth in this paragraph 6 and the
Shareholders Agreement or as otherwise required by law, each share of Series A
Preferred Stock issued and outstanding shall have the right to vote on all
matters presented to the holders of the Common Stock for vote in the number of
votes equal at any time to the number of shares of Common Stock into which each
share of Series A Preferred Stock would then be convertible, and the holders of
the Series A Preferred Stock and Parity Stock shall vote with the holders of the
Common Stock as a single class.
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<PAGE> 29
(b) In addition to any vote or consent of shareholders required by
law or the Certificate of Incorporation of the Corporation, the affirmative
consent of the holders of a majority of the issued and outstanding shares of
Series A Preferred Stock at the time outstanding, voting as a single class,
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating:
(i) (x) Any amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation (including without
limitation this Certificate of Designation) of the Corporation or (y) any
amendment of the by-laws of the Corporation that materially affects the
rights of the holders of the Series A Preferred Stock;
(ii) Any action by the Corporation or any of its
subsidiaries not approved in advance by all Series A Directors to effect
any amendment, alteration or repeal of any of the provisions of the
articles of organization, operating agreements, certificates of limited
partnership, or partnership agreements of any of the Corporation's
Affiliates or subsidiaries (except such amendments, alterations or repeals
that are ministerial in nature or required to effect a transfer of
ownership interests in the Corporation's Affiliates or subsidiaries (other
than any ownership interest beneficially owned by the Corporation));
(iii) Any authorization, issuance or creation of, or
increase in the authorized amount of, (x) any shares of any class or any
security of any class ranking senior to the shares of Series A Preferred
Stock in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation or in the payment of dividends or requiring
redemption at any time any shares of Series A Preferred Stock are still
outstanding, or (y) any shares of Parity Stock (except shares issued as
"paid-in-kind" dividends on Parity Stock provided Pro Rata dividends have
also been declared and paid on the Series A Preferred Stock);
(iv) Any action by the Corporation or any of its
subsidiaries not approved in advance by all Series A Directors to effect
the authorization, issuance or creation of, or increase in the authorized
amount of, any membership interests, limited partnership interests or other
equity security interests of any of the Corporation's Affiliates or
subsidiaries;
(v) Any increase or decrease (other than by redemption or
conversion) in the total number of authorized shares of Series A Preferred
Stock or any issuance of the currently authorized shares of the Series A
Preferred Stock other than the issuance of shares of Series A Preferred
Stock pursuant to the Stock Purchase Agreement or as PIK Dividends;
(vi) Any transaction or series of related transactions
that entails the sale, lease, assignment, transfer or other conveyance of
assets having a value
23
<PAGE> 30
greater than $10 million (measured by the book value at the date of such
transaction) of the Corporation and its subsidiaries (determined on a
consolidated basis); any sale or issuance of shares of capital stock of any
subsidiary (other than such sales or issuance approved in advance by all
Series A Directors), any consolidation or merger involving the Corporation
or any of such subsidiaries other than a consolidation or merger in which
the Corporation or subsidiary, as the case may be, is the surviving entity
and no change in the capital stock or ownership of the Corporation or the
subsidiary, as the case may be, occurs, or any reclassification or
recapitalization of any capital stock of the Corporation, or any
dissolution, liquidation, or winding up of the Corporation, or any
agreement to become so obligated;
(vii) Any acquisition or series of related acquisitions of
a business, businesses or assets involving aggregate consideration of $10
million or more;
(viii) The incurrence of, or agreement to incur, any
Indebtedness which would result in a Debt to Equity Ratio at the time the
Indebtedness is incurred (after giving effect to such incurrence) of
greater than 1:1, as measured based upon the balance sheet of the
Corporation prepared as of the last day of the immediately preceding month,
with a pro forma adjustment for the Indebtedness incurred and any equity
invested in the Corporation since such date, other than such incurrences or
agreements to incur Indebtedness that have been approved in advance by all
Series A Directors;
(ix) Any action by the Corporation or any of its
subsidiaries not approved in advance by all Series A Directors to effect
the incurrence of, or agreement to incur, any Indebtedness by any of the
Corporation's Affiliates or subsidiaries;
(x) Any loan, advance or guarantee to, or for the benefit
of, or any sale, lease, transfer or disposition of any of the properties or
assets of the Corporation or its subsidiaries to, or for the benefit of, or
any purchase or lease of any property or assets from, or the execution,
performance or amendment of any contract, agreement or understanding with,
or for the benefit of, any Affiliate of the Corporation or its
subsidiaries;
(xi) Any declaration or payment of any dividends on or any
declaration or making of any other distribution, directly or indirectly,
through subsidiaries (excluding dividends and distributions made to all
owners of the Corporation's Affiliates in proportion to their respective
ownership interests) or otherwise, on account of any Parity Stock (unless
Pro Rata dividends have also been declared or paid on the Series A
Preferred Stock) or Subordinate Stock or the setting apart of any sum for
any such purpose;
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<PAGE> 31
(xii) The appointment or involuntary termination of
the Chairman of the Board, Chief Executive Officer, Chief Financial
Officer, Chief Operating Officer or other senior officers of the
Corporation or its subsidiaries;
(c) The rights of the holders of the Series A Preferred Stock may
be exercised in writing without a meeting or by proxy or in person at a special
meeting of the holders of Series A Preferred Stock, called as hereinafter
provided, or at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at such annual meetings or by a holder of
Series A Preferred Stock designated in writing by the written consent of the
holders of Series A Preferred Stock.
(d) A special meeting of the holders of Series A Preferred Stock
for purposes of voting on matters with respect to which the holders of such
shares are entitled to vote as a class may be called by the Secretary of the
Corporation or by a holder of Series A Preferred Stock designated in writing by
the holders of ten percent (10%) of the shares of Series A Preferred Stock then
outstanding. Such meeting may be called at the expense of the Corporation by
either such person. At any meeting of the holders of Series A Preferred Stock,
the presence in person or by proxy of the holders of a majority of the shares of
Series A Preferred Stock then outstanding shall constitute a quorum of the
Series A Preferred Stock for the purpose of voting on matters to be acted upon
by holders of the Series A Preferred Stock.
7. Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Series A
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Certificate of Incorporation of the Corporation.
8. Headings of Subdivisions.
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
25
<PAGE> 32
9. Severability of Provisions.
If any voting powers, preferences and relative, participating,
optional and other special rights of the Series A Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as such resolution may be amended from time to time) are invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other voting powers, preferences and relative, participating,
optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be duly executed by an authorized officer and attested by its Secretary, this
_________ day of ______________________, 1997.
P.F. CHANG'S CHINA BISTRO, INC.
By:
------------------------------------
Richard L. Federico, President
Attest:
- ------------------------------------
Robert T. Vivian, Secretary
26
<PAGE> 33
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL
AND OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES B
CONVERTIBLE PREFERRED STOCK
OF
P.F. CHANG'S CHINA BISTRO, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article
FOURTH of its Certificate of Incorporation (the "Certificate of Incorporation")
and in accordance with the provisions of Section 151 of the General Corporation
Law of the State of Delaware (the "DGCL"), the Board of Directors of the
Corporation by written consent dated as of April 30, 1997, duly adopted the
following resolution, which resolution was approved by written consent of the
holders of the Series A Convertible Preferred Stock of the Corporation and
remains in full force and effect on the date hereof:
RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock of
the Corporation be and hereby is established, consisting of 2,300,000 shares,
$.001 par value per share, to be designated the "Series B Convertible Preferred
Stock" (hereinafter, "Series B Preferred Stock"); that the Board of Directors be
and hereby is authorized to issue such shares of Series B Preferred Stock from
time to time and for such consideration and on such terms as the Board of
Directors shall determine; and that, subject to the limitations provided by law
and by the Certificate of Incorporation, the voting powers, preferences and
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions thereof shall be as follows:
1. Certain Definitions.
<PAGE> 34
Unless the context otherwise requires, the terms defined in this
paragraph 1 shall have, for all purposes of this resolution, the meanings herein
specified (with terms defined in the singular having comparable meanings when
used in the plural).
"Affiliate" shall have the meaning given to such term under Rule
12b-2 of the rules promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934.
"Annual Per Share Cash Dividend Amount" shall mean a cash payment
equal to ten percent (10%) per annum of the Liquidation Price of one share of
the Series B Preferred Stock.
"Annual Per Share PIK Dividend Amount" shall mean a fraction of
one share of Series B Preferred Stock equal to six percent (6%) per annum of one
share of the Series B Preferred Stock.
"Business Day" shall mean a day other than a Saturday, a Sunday or
any other day on which banking institutions in New York, New York are authorized
or obligated by law to close.
"Common Equity" shall mean all shares now or hereafter authorized
of any class of common stock of the Corporation, however, designated, including
the Comon Stock, and any other stock of the Corporation, howsoever designated,
authorized after the Initial Issue Date, which has the right (subject always to
prior rights of any class or series of preferred stock) to participate in the
distribution of the assets and earnings of the Corporation without limit as to
per share amount.
"Common Stock" shall mean the common stock, par value $.001 per
share, of the Corporation.
"Corporation's Affiliates" shall mean (i) PFCCB Scottsdale,
L.L.C., an Arizona limited liability company; (ii) PFCCB Newport Beach, L.L.C.,
an Arizona limited liability company; (iii) P.F. Chang's III, L.L.C., an Arizona
limited liability company; (iv) P.F. Chang's IV, L.L.C., an Arizona limited
liability company; (v) PFC Building III Limited Partnership, an Arizona limited
partnership; (vi) PFCCB LouTex Joint Venture, an Arizona general partnership;
and (vii) PFCCB NUC LLC, an Arizona limited liability company.
"Conversion Date" shall have the meaning set forth in subparagraph
4.1(b) below.
"Debt" shall mean any indebtedness, contingent or otherwise, of
any person in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof) or evidenced by bonds, notes, debentures or similar instruments or
letters of credit or representing the balance deferred
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<PAGE> 35
and unpaid of the purchase price of any property or interest therein, except any
such balance that constitutes a trade payable, if and to the extent such
indebtedness would appear as a liability upon a balance sheet of such person
prepared on a consolidated basis in accordance with generally accepted
accounting principles.
"Debt to Equity Ratio" shall mean the ratio of (i) the total
Indebtedness to (ii) Total Stockholders' Equity.
"Delinquent Mandatory Redemption Price" shall mean, with respect
to each share of Series B Preferred Stock, $4.35 (adjusted for stock splits,
subdivisions, combinations and similar transactions), plus all accrued and
unpaid dividends payable in respect of such a share of the Series B Preferred
Stock, plus an amount thereon accruing from the Mandatory Redemption Date
relating thereto at the Increasing Rate.
"Final Mandatory Redemption Date" shall mean May 1, 2004 or, if
such day is not a Business Day, the next succeeding Business Day.
"Increasing Rate" shall mean, with respect to any obligation, an
annual rate equal to the Prime Rate, plus (i) two percent, plus (ii) one percent
after the first completed six-month period that the obligation subject to the
Increasing Rate has been outstanding and has not been paid in full.
"Indebtedness" shall mean the Debt of the Corporation or a
subsidiary of the Corporation plus, to the extent not otherwise included, (i)
the guaranty of any Debt of any other person; and (ii) obligations in respect of
borrowed money secured by any Lien to which any property or asset owned or held
by the Corporation or a subsidiary is subject, whether or not the obligations
secured thereby shall have been assumed by the Corporation or such subsidiary;
and (iii) capitalized lease obligations.
"Initial Issue Date" shall mean the date that shares of Series B
Preferred Stock are first issued by the Corporation.
"Initial Mandatory Redemption Date" shall mean May 1, 2003 or, if
such day is not a Business Day, the next succeeding Business Day.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"Liquidation Price" shall mean $4.35 per share of Series B
Preferred Stock (adjusted for stock splits, subdivisions, combinations and
similar transactions), plus all
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<PAGE> 36
accrued and unpaid dividends payable in respect of such share of Series B
Preferred Stock pursuant to subparagraph 2(c).
"Mandatory Redemption Date" shall mean the Initial Mandatory
Redemption Date and the Final Mandatory Redemption Date.
"Mandatory Redemption Obligation" shall have the meaning set forth
in subparagraph 5(c) below.
"Non-Investor Directors" shall mean those directors elected to the
Corporation's Board of Directors other than those directors that are elected
solely by the holders of Series B Preferred Stock or Parity Stock pursuant to
the Shareholders Agreement.
"Parity Stock" shall mean any class or series of capital stock of
the Corporation ranking on a parity with the Series B Preferred Stock as to (i)
priority of payment of cash and stock dividends and other distributions, (ii)
priority of payment upon liquidation, dissolution or winding up of the
Corporation, and (iii) the time of, and priority of payment upon, any mandatory
redemption. For purposes of this definition, differences between any class or
series of capital stock and the Series B Preferred Stock as to the amount of the
liquidation price (or other fixed amount) to which any cash dividend rate is
applied, the amount of the liquidation price payable upon liquidation,
dissolution or winding up of the Corporation, the amount of the redemption price
payable upon any mandatory redemption, or the time when cash or stock dividends
or other distributions shall begin to accrue, shall not be considered in
determining whether such class or series of capital stock is on a parity with
the Series B Preferred Stock.
"PIK Dividends" shall mean the "paid-in-kind" dividends as set
forth in subparagraph 2(a) below.
"PIK Dividend Payment Date" shall mean March 31, June 30,
September 30, and December 31, of each year during the PIK Dividend Payment
Period.
"PIK Dividend Payment Period" shall mean the period from, and
including, April 1, 1999, to and including the Final Mandatory Redemption Date.
"PIK Dividend Period" shall mean the period from, and including,
April 1, 1999, to, but not including, the first PIK Dividend Payment Date and
thereafter, each quarterly period, including any PIK Dividend Payment Date to,
but not including, the next PIK Dividend Payment Date.
"PIK Record Date" shall mean the date that is ten Business Days
prior to any PIK Dividend Payment Date.
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<PAGE> 37
"Preferred Cash Dividends" shall mean the cash dividends as set
forth in subparagraph 2(f) below.
"Prime Rate" shall mean the rate announced as the "prime rate" by
NationsBank, N.A. whether or not such rate is actually charged.
"Pro Rata" shall mean, in the case of stock dividends, stock
dividends of the same class or series as the stock upon which the dividends are
being paid and that are proportionate to the number of outstanding shares of
such stock, and, in the case of cash dividends or dividends in property, cash
dividends or dividends in property that are proportionate to the liquidation
price of the class or series of stock upon which the dividends are being paid.
"Qualified Initial Public Offering" shall mean an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933 of shares of the Common Stock, (i) the aggregate gross
proceeds of which equal or exceed $15,000,000 and (ii) the per share offering
price of which equals or exceeds $10.00; provided, however, that the per share
offering price referred to in clause (ii) shall be adjusted to reflect the
effect of any stock split or any subdivision, reclassification, combination or
like event of or with respect to outstanding shares of Common Stock occurring
after the Initial Issue Date.
"Quoted Price" shall mean with respect to any security the
arithmetic mean of the last bid and ask price for one (1) share of the
applicable security as reported by the National Association of Securities
Dealers, Inc., Automatic Quotations System, National Market System ("NASDAQ"),
or, if the applicable security is listed or admitted for trading on a securities
exchange, the arithmetic mean of the high and low trading prices during the
relevant trading day for one (1) share of the applicable security on the
principal exchange on which the applicable security is listed or admitted for
trading (which shall be for consolidated trading if applicable to such
exchange), in each case, on the Trading Day in question.
"Redemption Price" shall mean, with respect to each share of
Series B Preferred Stock, $4.35 (adjusted for stock splits, subdivisions,
combinations and similar transactions) plus all accrued and unpaid dividends
payable in respect of such share of the Series B Preferred Stock.
"Series B Director" shall mean that member of the Board of
Directors of the Corporation elected solely by the holders of the Series B
Preferred Stock pursuant to the Shareholders Agreement.
"Shareholders Agreement" shall mean the Amended and Restated
Shareholders Agreement among the Corporation and the holders of the Common
Stock, Series B Preferred Stock and Parity Stock dated as of May 1, 1997, as the
same may be amended from time to time.
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<PAGE> 38
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement
among the Corporation and the Purchasers listed therein dated as of April 28,
1997, as the same may be amended from time to time.
"Subordinate Stock" shall mean the Common Equity and any class or
series of capital stock of the Corporation, however designated, which is not
entitled to receive (i) any dividends unless all dividends required to have been
paid or declared and set apart for payment on the Series B Preferred Stock shall
have been so paid or declared and set apart for payment or (ii) any assets upon
liquidation, dissolution or winding up of the affairs of the Corporation until
the Series B Preferred Stock shall have received the entire amount to which such
stock is entitled upon such liquidation, dissolution or winding up.
"Total Stockholders' Equity" shall mean the stockholders' equity
of the Corporation as it appears in the monthly balance sheet of the
Corporation.
"Trading Days" shall mean any day on which any market in which the
applicable security is then traded and in which a Quoted Price may be
ascertained is open for business.
2. Dividends.
(a) The record holders of Series B Preferred Stock on each PIK
Record Date shall receive on each PIK Dividend Payment Date during the PIK
Dividend Payment Period per share dividends in additional fully paid and
nonassessable shares of Series B Preferred Stock legally available for such
purpose (such dividends being herein called "PIK Dividends"). PIK Dividends
shall be paid by delivering to the record holders of Series B Preferred Stock a
number of shares of Series B Preferred Stock equal to (i) the number of shares
of Series B Preferred Stock held by such holder on the applicable PIK Record
Date, multiplied by (ii) twenty-five percent (25%) of the Annual Per Share PIK
Dividend Amount. Except as set forth in subparagraph 2(b) below, the Corporation
shall not issue fractional shares of Series B Preferred Stock to which holders
may become entitled pursuant to this subparagraph, but in lieu thereof, the
Corporation shall at the option of the holder either (i) deliver its check in an
amount equal to the applicable fraction of one (1) share of Series B Preferred
Stock multiplied by $4.35 (adjusted for stock splits, subdivisions, combinations
or other similar transactions) (the "PIK Cash Dividend Payment") or (ii) defer
delivery of the fractional PIK Cash Dividend Payment to the holder and apply
such amount to PIK Dividends issued to such holder on the subsequent PIK
Dividend Date. Any additional shares of Series B Preferred Stock issued pursuant
to this paragraph shall be governed by this resolution and shall be subject in
all respects, except as to the date of issuance and date from which PIK
Dividends accrue and cumulate as set forth below, to the same terms as the
shares of Series B Preferred Stock originally issued hereunder; provided,
however, in no event shall any PIK Dividends accrue prior to April 1, 1999.
6
<PAGE> 39
(b) Prior to each PIK Record Date immediately preceding each PIK
Dividend Payment Date, the Board of Directors of the Corporation shall declare
PIK Dividends on the Series B Preferred Stock in accordance with subparagraph
2(a) above, payable on the next PIK Dividend Payment Date. PIK Dividends (which
shall include, for purposes of this subparagraph, any PIK Cash Dividend Payment
due pursuant to subparagraph 2(a)) on shares of Series B Preferred Stock shall
accrue and be cumulative from the later of (i) April 1, 1999 and (ii) the date
of issuance of such shares, notwithstanding the failure of the Board of
Directors to declare and/or issue PIK Dividends with respect to any PIK Dividend
Period. PIK Dividends shall be payable in arrears during the PIK Dividend
Payment Period on each PIK Dividend Payment Date, commencing on the first PIK
Dividend Payment Date subsequent to April 1, 1999, and for shares issued as PIK
Dividends, commencing on the first PIK Dividend Payment Date after such shares
are issued. If any PIK Dividend Payment Date occurs on a day that is not a
Business Day, any accrued PIK Dividends otherwise payable on such PIK Dividend
Payment Date shall be paid on the next succeeding Business Day. PIK Dividends
shall be paid on each PIK Dividend Payment Date to the holders of record of the
Series B Preferred Stock as their names shall appear on the share register of
the Corporation on the PIK Record Date immediately preceding such PIK Dividend
Payment Date. If a PIK Cash Dividend Payment on account of PIK Dividends that
would otherwise be issued as fractional shares may not legally be paid in the
full amount to which shares of Series B Preferred Stock are entitled with
respect to any PIK Dividend Period, dividends in the full preferential amount
hereby provided shall be, to the extent legally and contractually permissible,
declared and paid as PIK Dividends in the form of shares of Series B Preferred
Stock (including fractional shares thereof). PIK Dividends on account of arrears
for any past PIK Dividend Periods may be declared and paid at any time to the
holders of record on the PIK Record Dates applicable to such past PIK Dividend
Periods.
(c) In addition to the PIK Dividends and the PIK Cash Dividend
Payments referred to in subparagraph 2(a) hereof and the Preferred Cash
Dividends referred to in subparagraph 2(f), at any time during which any shares
of Series B Preferred Stock remain outstanding, the Corporation may declare, pay
or set apart for payment cash and/or property to be distributed or paid as a
dividend in respect of shares of Series B Preferred Stock. The foregoing
notwithstanding, no dividends may be declared or paid on the Series B Preferred
Stock pursuant to this subparagraph 2(c) unless Pro Rata dividends are
contemporaneously declared or paid on any then outstanding Parity Stock.
(d) So long as any shares of Series B Preferred Stock shall be
outstanding:
(i) the Corporation shall not declare, pay or set apart
for payment on any Subordinate Stock any dividends or distributions
whatsoever, whether in cash, property or otherwise (other than dividends
payable in shares of the
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<PAGE> 40
class or series upon which such dividends are declared or paid, or payable
in shares of Common Stock with respect to Subordinate Stock other than
Common Stock, together with cash in lieu of fractional shares), nor shall
any Subordinate Stock be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries of which it owns not less than a
majority of the outstanding voting power, nor shall any monies be paid or
made available for a sinking fund for the purchase or redemption of any
Subordinate Stock, without the prior written consent of the holders of at
least a majority of the outstanding shares of Series B Preferred Stock and
unless all dividends to which the holders of Series B Preferred Stock shall
have been entitled for all previous PIK Dividend Periods shall have been
(A) paid or (B) declared and a sum of money, in the case of dividends
payable in cash, sufficient for the payment thereof has been set apart;
(ii) the Corporation shall not declare, pay or set apart
for payment on any Parity Stock any dividends or distributions whatsoever,
whether in cash, property or otherwise, unless Pro Rata dividends are
contemporaneously declared, paid or set apart for payment on the Series B
Preferred Stock, except that, prior to the commencement of the PIK Dividend
Payment Period, the Corporation may declare and pay dividends on the Series
A Convertible Preferred Stock of the Corporation as required by the terms
thereof as in effect on the Initial Issue Date of the Series B Preferred
Stock; and
(iii) neither the Corporation nor any of its subsidiaries
of which it owns not less than a majority of the outstanding voting power
shall purchase, redeem or otherwise acquire any Parity Stock, nor pay any
monies to or make any monies available for a sinking fund for the purchase
or redemption of any Parity Stock, without the prior written consent of the
holders of at least a majority of the outstanding shares of Series B
Preferred Stock and unless all dividends to which the holders of Series B
Preferred Stock shall have been entitled for all previous PIK Dividend
Periods shall have been (A) paid or (B) declared and a sum of money, in the
case of dividends payable in cash, sufficient for the payment thereof has
been set apart, except that the Corporation may redeem Parity Stock so long
as it contemporaneously redeems a proportionate percentage of the
outstanding Series B Preferred Stock, ratably among the holders thereof.
(e) In the event that full dividends, in cash or property, if
declared, are not paid or made available to the holders of all outstanding
shares of Series B Preferred Stock and Parity Stock and funds or property
available for payment of dividends shall be insufficient to permit payment in
full to holders of all such stock of the full preferential amounts to which they
are then entitled, then the entire amount available for payment of dividends
shall be distributed ratably among all such holders of Series B Preferred Stock
and Parity Stock in proportion to the full amount to which they would otherwise
be respectively entitled.
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<PAGE> 41
(f) Notwithstanding anything to the contrary set forth herein,
with respect to any PIK Dividend otherwise payable on any PIK Dividend Payment
Date pursuant to this paragraph 2, the Corporation may, upon the unanimous
approval of the Non-Investor Directors by vote on or prior to the applicable PIK
Record Date, declare on such PIK Record Date and pay on such PIK Dividend
Payment Date a cash dividend (a "Preferred Cash Dividend") to all record holders
of Series B Preferred Stock on such PIK Record Date in an amount per share equal
to twenty-five percent (25%) of the Annual Per Share Cash Dividend Amount.
Payment of such Preferred Cash Dividend on such PIK Dividend Payment Date shall
be in lieu of the payment of the PIK Dividend on such PIK Dividend Payment Date.
The foregoing notwithstanding, no Preferred Cash Dividend may be declared and
paid on the Series B Preferred Stock unless Pro Rata cash dividends are
contemporaneously declared and then paid on any then outstanding Parity Stock.
(g) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series B Preferred Stock shall be declared by the Board
of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time if such declaration or payment shall be restricted or
prohibited by law.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or other winding up of the affairs of the Corporation, before any
payment or distribution shall be made to the holders of Subordinate Stock and
contemporaneously with any payment or distribution to the holders of Parity
Stock, the holders of Series B Preferred Stock shall be entitled to be paid out
of the assets of the Corporation in cash, or, if the Corporation does not have
sufficient cash on hand to pay such amounts, property of the Corporation at its
fair market value as determined by the Board of Directors of the Corporation,
the greater of (i) the Liquidation Price per share of Series B Preferred Stock,
or (ii) such amount per share of Series B Preferred Stock as would have been
payable had each such share been converted into Common Stock pursuant to
paragraph 4 immediately prior to such liquidation, dissolution or other winding
up of the affairs of the Corporation. Immediately preceding such liquidation,
dissolution or winding up, adjustment shall be made for accrued but unpaid
dividends (including, without limitation, PIK Dividends).
(b) If, upon any such liquidation, dissolution or other winding up
of the affairs of the Corporation, the assets of the Corporation shall be
insufficient to permit the payment in full of the Liquidation Price for each
share of the Series B Preferred Stock and the applicable liquidation price for
each share of any Parity Stock then outstanding, then the assets of the
Corporation shall be ratably distributed among the holders of Series B Preferred
Stock and Parity Stock in proportion to the full amounts to which they would
otherwise be respectively entitled if all amounts thereon were paid in full.
Neither the consolidation or merger of the Corporation into or with another
corporation or corporations, nor the sale, lease, transfer or conveyance of all
or any
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<PAGE> 42
portion of the assets of the Corporation to another corporation or any other
entity shall be deemed a liquidation, dissolution or winding up of the affairs
of the Corporation within the meaning of this paragraph 3.
4. Conversion Rights.
4.1 Conversion at the Option of the Holder.
(a) At any time before the close of business on the Final
Mandatory Redemption Date (unless the Corporation shall default in payment of
the Redemption Price or the Delinquent Mandatory Redemption Price, in which
case, the conversion rights set forth in this paragraph shall continue until the
cure of any such default), each holder of Series B Preferred Stock may, at its
option, convert each share of Series B Preferred Stock held by such holder into
one (1) share of Common Stock subject to adjustment pursuant to paragraph 4.3.
Upon such conversion, the rights of the holders of converted Series B Preferred
Stock with respect to the shares of Series B Preferred Stock so converted shall
cease.
(b) To convert Series B Preferred Stock in accordance with this
paragraph 4.1, a holder must (i) surrender the certificate or certificates
evidencing the shares of Series B Preferred Stock to be converted (or a duly
executed affidavit of lost certificate in accordance with the bylaws of the
Corporation), duly endorsed in a form satisfactory to the Corporation, at the
office of the Corporation or transfer agent for the Series B Preferred Stock,
(ii) notify the Corporation at such office in writing that it elects to convert
Series B Preferred Stock, and the number of shares it wishes to convert, (iii)
state in writing the name or names in which it wishes the certificate or
certificates for shares of Common Stock to be issued, and (iv) pay any transfer
or similar tax with respect to the transfer of the shares of Series B Preferred
Stock converted, if required. The date on which the holder satisfies the
foregoing requirements shall be the "Conversion Date." As soon as practical but
in any event within five (5) Business Days of the Conversion Date, the
Corporation shall deliver a certificate for the number of shares of Common Stock
issuable upon the conversion, a check for the amount payable in respect of any
fractional share pursuant to subparagraph 4.1(c) and a new certificate
representing the unconverted portion, if any, of the shares of Series B
Preferred Stock represented by the certificate or certificates surrendered for
conversion. The person in whose name the Common Stock certificate is registered
shall be treated as the stockholder of record on and after the Conversion Date.
Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid
dividends (including, without limitation, PIK Dividends), as of the Conversion
Date, on converted shares of Series B Preferred Stock. PIK Dividends will be
paid on any PIK Dividend Payment Date with respect to Series B Preferred Stock
surrendered for conversion at any time on or after a PIK Record Date for the
payment of a PIK Dividend to the registered holder of Series B Preferred Stock
on such PIK Record Date. If the last day on which Series B Preferred Stock may
be converted is not a Business
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<PAGE> 43
Day, Series B Preferred Stock may be surrendered for conversion on the next
succeeding day that is a Business Day.
(c) The Corporation will not issue a fractional share of Common
Stock upon conversion of Series B Preferred Stock. Instead the Corporation will
deliver its check in an amount equal to the applicable fraction multiplied by
the fair market value of the Common Stock.
(d) If a holder converts shares of Series B Preferred Stock, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of shares of Common Stock upon the conversion; provided,
however, that pursuant to subparagraph 4.1(b) the holder shall pay any such tax
which is due because the shares are issued in a name other than the holder's
name.
4.2 Mandatory Conversion. Subject to the adjustments set
forth in paragraph 4.3, each share of the Series B Preferred Stock shall be
automatically converted into one (1) share of Common Stock on the date a
Qualified Initial Public Offering is consummated ("Mandatory Conversion Date").
Upon such occurrence resulting in a Mandatory Conversion Date, the Corporation
shall (i) notify all holders of the Series B Preferred Stock not later than five
(5) Business Days subsequent to approval by the Board of Directors of the
Corporation to undertake a Qualified Initial Public Offering, (ii) demand that
all shares representing the Series B Preferred Stock be returned to the
Corporation's offices or to the designated transfer agent, and (iii) pay any
transfer or similar tax with respect to the conversion, if any. As soon as
practical but in any event within thirty (30) days of the Mandatory Conversion
Date, the Corporation shall deliver a certificate to and in the name of the
holder of the Series B Preferred Stock for the number of shares of Common Stock
issuable upon the conversion and a check in an amount calculated in accordance
with subparagraph 4.1(c) for any fractional shares, if any, for the shares of
Series B Preferred Stock represented by the certificate. The name of the person
in which the Series B Preferred Stock was issued shall be treated as the
stockholder of record of the Common Stock in which the Series B Preferred Stock
was converted on and after the Mandatory Conversion Date. Adjustment (or cash
payment, if applicable) shall be made for accrued and unpaid dividends
(including, without limitation, PIK Dividends), as of the Mandatory Conversion
Date, on shares of Series B Preferred Stock converted pursuant to this paragraph
4.2. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to
Series B Preferred Stock converted pursuant to this paragraph 4.2 on or after a
PIK Record Date to the registered holder of Series B Preferred Stock on such PIK
Record Date, and the shares of Series B Preferred Stock received in payment of
such PIK Dividend shall be deemed automatically converted to one (1) share of
Common Stock, subject to adjustment in accordance with paragraph 4.3, effective
as of the Mandatory Conversion Date. Upon such conversion, the rights of the
holders of converted Series B Preferred Stock with respect to the shares of
Series B Preferred Stock so converted shall cease.
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<PAGE> 44
4.3 Certain Matters With Respect to Conversion.
(a) The Corporation has reserved and shall continue to reserve out
of its authorized but unissued Common Stock enough shares of Common Stock to
permit the conversion of the Series B Preferred Stock in full. All shares of
Common Stock which are issued upon conversion of Series B Preferred Stock shall
be duly authorized, validly issued, fully paid and nonassessable. The
Corporation shall comply with all securities laws regulating the offer and
delivery of shares of common stock upon conversion of Series B Preferred Stock
and will list such shares on each national securities exchange on which the
common stock is listed.
(b) If the Corporation:
(i) pays a dividend or makes a distribution on its Common
Stock or any other class of the Corporation's stock other than the Series B
Preferred Stock in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock
into a greater number of shares;
(iii)combines its outstanding shares of Common Stock
into a smaller number of shares;
(iv) issues by reclassification of its Common Stock any
shares of its capital stock;
then an appropriate and proportionate adjustment shall be made to the number of
shares into which each share of Series B Preferred Stock is convertible so that
immediately after the occurrence of such event the holders of Series B Preferred
Stock shall be entitled to receive the same percentage of the issued and
outstanding Common Stock upon conversion of the Series B Preferred Stock as such
holders would have received if converted immediately prior to such dividend,
distribution, subdivision, combination or reclassification. The adjustment shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date of a subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(c) If the Corporation distributes any rights, options or warrants
to all holders of its Common Stock entitling them for a period expiring within
sixty (60) days after the record date referenced in subparagraph (l) below to
purchase additional shares of Common Stock at a price per share less than $4.35
per share (as adjusted to reflect any stock split or any subdivision,
reclassification, combination of or with respect to outstanding shares of Common
Stock or any similar transaction) on that record date, the number of shares of
Common Stock into which each share of Series B Preferred Stock is convertible
shall be adjusted, in accordance with the following formula:
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<PAGE> 45
N x (O+A)
---------
N' = O + AxP
---
M
where:
N' = the number of shares of Common Stock into which
each share of Series B Preferred Stock is
convertible after such distribution.
O = the number of shares of Common Stock outstanding
on the record date.
N = the number of shares of Common Stock into which
each share of Series B Preferred Stock was
convertible prior to such distribution.
P = the offering price per share of the additional
shares of Common Stock.
M = the current market price per share of Common
Stock on the record date.
A = the number of additional shares of Common Stock
offered.
The adjustment shall be made successively whenever any such rights, options or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the rights, options or
warrants. If at the end of the period during which such warrants, options or
rights are exercisable, not all warrants, options or rights shall have been
exercised, the number of shares of Common Stock into which each share of Series
B Preferred Stock is convertible shall be immediately readjusted to what it
would have been if "A" in the above formula had been the number of shares
actually issued.
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<PAGE> 46
(d) If the Corporation issues shares of Common Stock for a
consideration per share less than $4.35 per share (as adjusted to reflect the
effect of any stock split or any subdivision, reclassification, combination of
or with respect to outstanding shares of Common Stock or any similar
transaction) on the date the Corporation fixes the offering price of such
additional shares, the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible shall be adjusted in accordance with the
following formula:
N x A
-----
N' = O + P
-
M
where:
N' = the number of shares of Common Stock into which
each share of Series B Preferred Stock is
convertible after such issuance.
N = the number of shares of Common Stock into which
each share of Series B Preferred Stock was
convertible prior to such issuance.
O = the number of shares of Common Stock
outstanding immediately prior to the issuance of
such additional shares.
P = the aggregate consideration received for the
issuance of such additional shares.
M = the current market price per share of Common
Stock on the date of issuance of such additional
shares.
A = the number of shares outstanding immediately
after the issuance of such additional shares.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
This subparagraph 4.3(d) does not apply to (i) any transaction or issuance
described in subparagraphs 4.3(b) or 4.3(c) above or subparagraph 4.3(e) below,
including issuances of Common Stock pursuant to warrants, options, rights or
other convertible securities described in subparagraphs 4.3(c) and 4.3(e), (ii)
the conversion of Series B Preferred Stock, or the conversion, exchange or
exercise of other securities convertible into or exchangeable or exercisable for
Common Stock, (iii) Common Stock issued to the Corporation's employees under
bona fide employee benefit plans adopted by the Board of Directors of the
Corporation and approved by the holders of Common Stock when required by law, if
such Common Stock would otherwise be covered by this subparagraph 4.3(d) (but
only to the extent that the aggregate number of shares excluded hereby (together
with
14
<PAGE> 47
the aggregate number of shares issuable upon conversion, exchange or exercise of
the securities excluded by clause (iii) of subparagraph 4.3(e) below) and issued
shall not exceed 15% of the Common Stock of the Corporation on a fully diluted
basis at the time of any such issuance excluding options to purchase Common
Stock held by directors of the Corporation), or (iv) Common Stock issued in a
bona fide public offering pursuant to a firm commitment underwriting.
(e) If the Corporation issues any options, warrants or other
securities convertible into or exchangeable or exercisable for Common Stock
(other than Series B Preferred Stock or securities issued in transactions
described in subparagraph 4.3(c) above) for a consideration per share of Common
Stock initially deliverable upon conversion, exchange or exercise of such
securities of less than $4.35 per share of Common Stock (as adjusted to reflect
the effect of any stock split or any subdivision, reclassification, combination
of or with respect to outstanding shares of Common Stock or any similar
transaction) on the date of issuance of such securities, the number of shares of
Common Stock into which each share of Series B Preferred Stock is convertible
shall be adjusted in accordance with the following formula:
N x (O+D)
---------
N' = O + P
-
M
where:
N' = the number of shares of Common Stock into which
each share of Series B Preferred Stock is
convertible immediately after such issuance.
N = the number of shares of Common Stock into which
each share of Series B Preferred Stock was
convertible immediately prior to such issuance.
O = the number of shares of Common Stock
outstanding immediately prior to the issuance of
such securities.
P = the aggregate consideration received for the
issuance of such securities.
M = the current market price per share of Common
Stock on the date of issuance of such securities.
D = the maximum number of shares deliverable upon
conversion or in exchange for or upon exercise of
such securities at the initial conversion,
exchange or exercise rate.
15
<PAGE> 48
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance. If
all of the Common Stock deliverable upon conversion, exchange or exercise of
such securities has not been issued when such securities are no longer
outstanding, then the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible shall promptly be readjusted to the
basis of the actual number of shares of Common Stock issued upon conversion,
exchange or exercise of such securities. This subparagraph 4.3(e) does not apply
to (i) the issuance of any such securities in a bona fide public offering
pursuant to a firm commitment underwriting, (ii) the issuance of any such
securities to the Corporation's employees under bona fide employee benefit plans
adopted by the Board of Directors of the Corporation and approved by the holders
of Common Stock when required by law, if such securities would otherwise be
covered by this subparagraph 4.3(e) (but only to the extent that the aggregate
number of shares issuable upon the conversion, exchange or exercise of the
aggregate number of securities excluded hereby (together with the aggregate
number of shares excluded by clause (iii) of subparagraph 4.3(d) above) and
issued shall not exceed 15% of the Common Stock of the Corporation on a fully
diluted basis at the time of any such issuance excluding options to purchase
Common Stock held by directors of the Corporation), or (iii) shares issued as
PIK Dividends, shares issued as "paid-in-kind" dividends on the Series A
Convertible Preferred Stock of the Corporation as required by the terms thereof
as in effect on the Initial Issue Date of the Series B Preferred Stock, or
shares issued as "paid-in-kind" dividends on Parity Stock provided such
dividends are required by the terms of such Parity Stock.
(f) If the Corporation (i) distributes any rights, options or
warrants to all holders of its Common Stock entitling them for a period expiring
within sixty (60) days after the record date referenced in subparagraph (l)
herein to purchase additional shares of Common Stock; (ii) issues shares of
Common Stock; or (iii) issues any options, warrants or other securities
convertible into or exchangeable or exercisable for Common Stock (other than
Series B Preferred Stock or securities issued in transactions described in (i)
above) at a price reflecting an implied price per share less than $4.35 per
share, the number of shares of Common Stock into which each share of Series B
Preferred Stock is convertible shall be reduced proportionally to reflect the
price at which the Corporation issued or sold such shares of Common Stock
pursuant to this subparagraph 4.3(f).
(g) For the purpose hereof, the current market price per share of
any security on any date is the average of the Quoted Prices for thirty (30)
consecutive Trading Days commencing forty-five (45) Trading Days before the date
in question. If the Quoted Price is not ascertainable, the current market price
per share of any security on any date shall be the current market price as
determined by the Board of Directors of the Corporation in its reasonable
judgment exercised in good faith. Notwithstanding the foregoing, the current
market price per share of any security shall be deemed to be the greater of (i)
the current market price as determined above and (ii) the Liquidation Price.
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<PAGE> 49
(h) For purposes of any computation respecting consideration
received pursuant to subparagraphs 4.3(d) and 4.3(e) above, the following shall
apply:
(i) in case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in
no case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Corporation for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined by the Board of Directors of the Corporation in its reasonable
judgment exercised in good faith (irrespective of the accounting treatment
thereof); and
(iii) in the case of the issuance of options, warrants or
other securities convertible into or exchangeable or exercisable for shares
of Common Stock, the aggregate consideration received therefor shall be
deemed to be the consideration received by the Corporation for the issuance
of such options, warrants or other securities plus the additional minimum
consideration, if any, to be received by the Corporation upon the
conversion or exchange or exercise thereof (the consideration in each case
to be determined in the same manner as provided in clauses (i) and (ii) of
this subparagraph 4.3(h)).
(i) No adjustment in the number of shares of Common Stock into
which each share of Series B Preferred Stock is convertible need be made unless
the adjustment would require an increase or decrease of at least one-half of one
percent (.5%) in the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible. Any adjustments that are not made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this paragraph 4.3 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.
(j) No adjustment in the number of shares of Common Stock into
which each share of Series B Preferred Stock is convertible need be made under
this paragraph 4.3 for (i) rights to purchase Common Stock pursuant to a
Corporation plan for reinvestment of dividends or interest, or (ii) any change
in the par value or change from no par value to par value of the Common Stock.
If an adjustment is made to the number of shares of Common Stock into which each
share of Series B Preferred Stock is convertible upon a record date established
for a distribution subject to this paragraph 4.3 and if such distribution is
subsequently cancelled, the number of shares of Common Stock into which each
share of Series B Preferred Stock is convertible then in effect shall be
readjusted, effective as of the date when the Board of Directors of the
Corporation determines to cancel such distribution, to the number of shares of
Common
17
<PAGE> 50
Stock into which each share of Series B Preferred Stock is convertible as would
have been in effect if such record date had not been fixed. No adjustment need
be made under paragraph 4.3 if the Corporation issues or distributes to each
holder of Series B Preferred Stock the shares of Common Stock, evidences of
indebtedness, assets, rights, options or warrants referred to in such paragraph
which each holder would have been entitled to receive had Series B Preferred
Stock been converted into Common Stock prior to or simultaneously with the
happening of such event or the record date with respect thereto.
(k) Whenever the number of shares of Common Stock into which each
share of Series B Preferred Stock is convertible is adjusted, the Corporation
shall promptly mail to holders of Series B Preferred Stock, first class, postage
prepaid, a notice of the adjustment. The Corporation shall file with the
transfer agent, if any, for Series B Preferred Stock a certificate from the
Corporation's independent public accountants briefly stating the facts requiring
the adjustment and the manner of computing it. Subject to subparagraph 4.3(o)
below, the certificate shall be conclusive evidence that the adjustment is
correct.
(l) If:
(i) the Corporation takes any action that would
require an adjustment pursuant to paragraph 4.3;
(ii) the Corporation consolidates or merges with, or
transfers all or substantially all of its assets to, another corporation,
and stockholders of the Corporation must approve the transaction; or
(iii) there is a dissolution or liquidation of the
Corporation;
a holder of Series B Preferred Stock may want to convert such stock into shares
of Common Stock prior to the record date for or the effective date of the
transaction so that it may receive the rights, warrants, securities or assets
which a holder of shares of Common Stock on that date may receive. Therefore,
the Corporation shall mail to such holders, first class, postage prepaid, a
notice stating the proposed record or effective date, as the case may be. The
Corporation shall mail the notice at least thirty (30) days before such date.
(m) If the Corporation is party to a consolidation or merger which
reclassifies or changes its Common Stock or to the sale of all or substantially
all of the assets of the Corporation, upon consummation of such transaction the
Series B Preferred Stock shall automatically become convertible at the option of
their respective holders into the kind and amount of securities, cash or other
assets which the holder of Series B Preferred Stock would have owned immediately
after the sale, consolidation or merger, if such holder had converted Series B
Preferred Stock immediately before the effective date of the transaction, and an
appropriate adjustment (as determined by the
18
<PAGE> 51
Board of Directors of the Corporation) shall be made in the application of the
provisions herein set forth with respect to the rights and interests thereafter
of the holders of Series B Preferred Stock, to the end that the provisions set
forth herein (including provisions with respect to liquidation preferences and
changes in and other adjustment of the number of shares of Common Stock into
which each share of Series B Preferred Stock is convertible) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other securities or property thereafter deliverable upon the conversion of
Series B Preferred Stock. The Corporation shall not affect any such
consolidation, merge or sale, unless prior to the consummation thereof, the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets assumes by
written instrument (in a form reasonably satisfactory to the holders of a
majority of the Series B Preferred Stock then outstanding), the obligation to
deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire. If this subparagraph 4.3(m) applies, subparagraphs 4.3(b), 4.3(c),
4.3(d) and 4.3(e) do not apply.
(n) In any case in which this paragraph 4.3 shall require that an
adjustment as a result of any event become effective from and after a record
date, the Corporation may elect to defer until after the occurrence of such
event (i) the issuance to the holder of any shares of Series B Preferred Stock
converted after such record date and before the occurrence of such event of the
additional shares of Common Stock issuable upon such conversion over and above
the shares issuable immediately prior to adjustment and (ii) the delivery of a
check for any remaining fractional shares as provided in subparagraph 4.1(c)
above.
(o) Whenever the Corporation or its Board of Directors shall be
required to make a determination under this paragraph 4.3, such determination
shall be made in good faith and may be challenged in good faith by the holders
of a majority of the Series B Preferred Stock, and any dispute shall be resolved
promptly (and in no event later than ninety (90) days after any challenge), at
the Corporation's expense, by an investment banking firm of recognized national
standing selected by the Corporation and acceptable to such holders of Series B
Preferred Stock. Any such determination shall be deemed approved if the
requisite holders have not notified the Corporation of any challenge within
thirty (30) days after receiving notice (including a statement in reasonable
detail of the bases therefor) of such determination.
(p) If any event occurs of the type contemplated by the provisions
of this paragraph 4.3 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment to the
number of shares of Common Stock into which each share of Series B Preferred
Stock is convertible so as to protect the rights of the holders of Series B
Preferred Stock; provided that no such adjustment shall increase the number of
shares of Common Stock into which a share of Series B Preferred Stock is
19
<PAGE> 52
convertible if otherwise adjusted pursuant to another provision of this
paragraph 4.3 or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series B Preferred Stock.
5. Mandatory Redemption by the Corporation.
(a) To the extent the Corporation shall have funds legally
available for such payment under the DGCL, the Corporation shall redeem on the
Initial Mandatory Redemption Date at least fifty percent (50%) of the then
outstanding shares of Series B Preferred Stock at the Redemption Price, ratably
among the holders thereof. In addition, to the extent the Corporation shall have
funds legally available for such payment under the DGCL, the Corporation shall
redeem on the Final Mandatory Redemption Date all of the then outstanding shares
of Series B Preferred Stock at the Redemption Price, plus an amount accruing
thereon at the Increasing Rate from the Initial Mandatory Redemption Date.
(b) Shares of Series B Preferred Stock which have been issued and
converted or reacquired in any manner, including as a result of redemption,
shall (upon compliance with any applicable provisions of the DGCL) have the
status of authorized and unissued shares of the class of preferred stock of the
Corporation undesignated as to series, and may be redesignated and reissued as
part of any series of preferred stock of the Corporation; provided, however,
that no such issued and reacquired shares of Series B Preferred Stock shall be
reissued as Series B Preferred Stock.
(c) If on any Mandatory Redemption Date the Corporation is unable
or shall fail to discharge its obligation to redeem all outstanding shares of
Series B Preferred Stock required to be redeemed on such date pursuant to
subparagraph 5(a) and all outstanding shares of Parity Stock required to be
redeemed on such date (the "Mandatory Redemption Obligation"), the Corporation
shall redeem on such Mandatory Redemption Date the number of shares of Series B
Preferred Stock and Parity Stock which it is able to redeem, ratably among the
holders of Series B Preferred Stock and Parity Stock in proportion to the full
amounts to which they would otherwise be respectively entitled if all shares of
Series B Preferred Stock and Parity Stock required to be redeemed on such date
were redeemed. In such a case, the remainder of the Redemption Price payable but
not paid at the Mandatory Redemption Date shall be converted into the Delinquent
Mandatory Redemption Price and shall be discharged as soon as the Corporation is
able to discharge such Delinquent Mandatory Redemption Price out of funds
legally available therefor. If and so long as any Mandatory Redemption
Obligation (or any obligation in respect of the Delinquent Mandatory Redemption
Price) with respect to the Series B Preferred Stock and any Parity Stock shall
not be fully discharged and paid, the Corporation shall not declare or pay any
dividend or make any distribution on, or, directly or indirectly, purchase,
redeem or satisfy any mandatory redemption, sinking fund or other similar
obligation in respect of Subordinate Stock (other than repurchases of shares of
Subordinate Stock in accordance
20
<PAGE> 53
with the terms of restricted stock vesting agreements with employees of the
Corporation approved by the Board of Directors of the Corporation).
(d) Notwithstanding the foregoing provisions of this paragraph 5,
unless the full cumulative dividends on all outstanding shares of Series B
Preferred Stock and Parity Stock have been paid or contemporaneously are
declared and paid for all dividend periods to and including the Mandatory
Redemption Date, none of the shares of Series B Preferred Stock or Parity Stock
shall be redeemed or set aside for redemption, unless such shares of Series B
Preferred Stock and Parity Stock are redeemed pro rata based upon the full
amounts to which the holders thereof would otherwise be respectively entitled.
(e) Notice of any redemption shall be sent by or on behalf of the
Corporation not more than sixty (60) days nor less than thirty (30) days prior
to any Mandatory Redemption Date, by first class mail, postage prepaid, to all
holders of record of the Series B Preferred Stock at their respective last
addresses as they shall appear on the books of the Corporation; provided,
however, that no failure to give notice or any defect therein or in the mailing
thereof shall affect the validity of the proceedings for the redemption of any
shares of Series B Preferred Stock except as to the holder to whom the
Corporation has failed to give notice or except as to the holder to whom notice
was defective. In addition to any information required by law or by the
applicable rules of any exchange upon which Series B Preferred Stock may be
listed or admitted to trading, such notice shall state: (i) the Mandatory
Redemption Date; (ii) the Redemption Price; (iii) the number of shares of Series
B Preferred Stock to be redeemed; (iv) the place or places where certificates
for such shares are to be surrendered for payment of the Redemption Price; (v)
that dividends on the shares to be redeemed will cease to accrue on the
Mandatory Redemption Date; (vi) the number of shares of Common Stock into which
each share of Series B Preferred Stock is convertible as of the notice date and,
if any transactions are contemplated to occur between the notice date and the
Mandatory Redemption Date which would cause such number of shares of Common
Stock to be adjusted, the number of shares of Common Stock into which each share
of Series B Preferred Stock would be convertible after giving effect to such
transaction(s); (vii) that Series B Preferred Stock called for redemption may be
converted at any time before the close of business on the Mandatory Redemption
Date; and (viii) that holders of Series B Preferred Stock must satisfy the
requirements of subparagraph 4.1(b) above if such holders desire to convert such
shares. Upon the mailing of any such notices of redemption, the Corporation
shall become obligated to redeem at the time of redemption specified therein all
shares called for redemption other than shares converted into Common Stock prior
to the Mandatory Redemption Date.
(f) If notice has been mailed in accordance with subparagraph 5(e)
above and provided that on or before the Mandatory Redemption Date specified in
such notice, all funds necessary for such redemption shall have been set aside
by the Corporation, separate and apart from its other funds in trust for the pro
rata benefit of
21
<PAGE> 54
the holders of the shares so called for redemption, so as to be, and to continue
to be available therefor, then, from and after the Mandatory Redemption Date,
dividends on the shares of the Series B Preferred Stock so called for redemption
shall cease to accrue, and said shares shall no longer be deemed to be
outstanding and shall not have the status of shares of Series B Preferred Stock,
and all rights of the holders thereof as shareholders of the Corporation (except
the right to receive from the Corporation the Redemption Price) shall cease,
irrespective of whether any certificates for shares called for redemption have
been surrendered to the Corporation. Upon surrender, in accordance with said
notice, of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer), such shares shall be redeemed by the Corporation at the
Redemption Price and no holder of shares called for redemption shall be entitled
to receive payment of the Redemption Price therefor until such surrender to the
Corporation has been accomplished or a duly executed affidavit of lost
certificate shall have been delivered to the Corporation. In case fewer than all
the shares represented by any such certificate are redeemed, a new certificate
or certificates shall be issued representing the unredeemed shares without cost
to the holder thereof (so long as such certificate is issued to the holder).
(g) Any funds deposited with a bank or trust company for the
purpose of redeeming Series B Preferred Stock shall be irrevocable except that:
(i) the Corporation shall be entitled to receive from such
bank or trust company the interest or other earnings, if any, earned on any
money so deposited in trust, and the holders of any shares redeemed shall
have no claim to such interest or other earnings; and
(ii) any balance of monies so deposited by the Corporation
and unclaimed by the holders of the Series B Preferred Stock entitled
thereto at the expiration of two (2) years from the applicable Mandatory
Redemption Date shall be repaid, together with any interest or other
earnings earned thereon, to the Corporation, and after any such repayment,
the holders of the shares entitled to the funds so repaid to the
Corporation shall look only to the Corporation for payment without interest
or other earnings.
(h) Notwithstanding anything to the contrary herein, no shares of
Series B Preferred Stock may be redeemed except with funds legally available for
the payment of the Redemption Price.
6. Voting Rights.
(a) Except as otherwise set forth in this paragraph 6 and the
Shareholders Agreement or as otherwise required by law, each share of Series B
Preferred Stock issued and outstanding shall have the right to vote on all
matters presented to the holders of the Common Stock for vote in the number of
votes equal at any time to the number of shares of Common Stock into which each
share of Series B
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<PAGE> 55
Preferred Stock would then be convertible, and the holders of the Series B
Preferred Stock and Parity Stock shall vote with the holders of the Common Stock
as a single class.
(b) In addition to any vote or consent of shareholders required by
law or the Certificate of Incorporation of the Corporation, the affirmative
consent of the holders of a majority of the issued and outstanding shares of
Series B Preferred Stock at the time outstanding, voting as a single class,
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating:
(i) (x) Any amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation (including without
limitation this Certificate of Designation) of the Corporation or (y) any
amendment of the by-laws of the Corporation that materially affects the
rights of the holders of the Series B Preferred Stock;
(ii) Any action by the Corporation or any of its
subsidiaries not approved in advance by the Series B Director to effect any
amendment, alteration or repeal of any of the provisions of the articles of
organization, operating agreements, certificates of limited partnership, or
partnership agreements of any of the Corporation's Affiliates or
subsidiaries (except such amendments, alterations or repeals that are
ministerial in nature or required to effect a transfer of ownership
interests in the Corporation's Affiliates or subsidiaries (other than any
ownership interest beneficially owned by the Corporation));
(iii) Any authorization, issuance or creation of, or
increase in the authorized amount of, (x) any shares of any class or any
security of any class ranking senior to the shares of Series B Preferred
Stock in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation or in the payment of dividends or requiring
redemption at any time any shares of Series B Preferred Stock are still
outstanding, or (y) any shares of Parity Stock (except shares issued as
"paid-in-kind" dividends on Parity Stock provided Pro Rata dividends have
also been declared and paid on the Series B Preferred Stock and except,
prior to the commencement of the PIK Dividend Payment Period, shares issued
as "paid-in-kind" dividends on the Series A Preferred Stock as required by
the terms thereof as in effect on the Initial Issue Date of the Series B
Preferred Stock);
(iv) Any action by the Corporation or any of its
subsidiaries not approved in advance by the Series B Director to effect the
authorization, issuance or creation of, or increase in the authorized
amount of, any membership interests, limited partnership interests or other
equity security interests of any of the Corporation's Affiliates or
subsidiaries;
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<PAGE> 56
(v) Any increase or decrease (other than by redemption or
conversion) in the total number of authorized shares of Series B Preferred
Stock or any issuance of the currently authorized shares of the Series B
Preferred Stock other than the issuance of shares of Series B Preferred
Stock pursuant to the Stock Purchase Agreement or as PIK Dividends;
(vi) Any transaction or series of related transactions
that entails the sale, lease, assignment, transfer or other conveyance of
assets having a value greater than $10 million (measured by the book value
at the date of such transaction) of the Corporation and its subsidiaries
(determined on a consolidated basis); any sale or issuance of shares of
capital stock of any subsidiary (other than such sales or issuance approved
in advance by the Series B Director), any consolidation or merger involving
the Corporation or any of such subsidiaries other than a consolidation or
merger in which the Corporation or subsidiary, as the case may be, is the
surviving entity and no change in the capital stock or ownership of the
Corporation or the subsidiary, as the case may be, occurs, or any
reclassification or recapitalization of any capital stock of the
Corporation, or any dissolution, liquidation, or winding up of the
Corporation, or any agreement to become so obligated;
(vii) Any acquisition or series of related acquisitions of
a business, businesses or assets involving aggregate consideration of $10
million or more;
(viii) The incurrence of, or agreement to incur, any
Indebtedness which would result in a Debt to Equity Ratio at the time the
Indebtedness is incurred (after giving effect to such incurrence) of
greater than 1:1, as measured based upon the balance sheet of the
Corporation prepared as of the last day of the immediately preceding month,
with a pro forma adjustment for the Indebtedness incurred and any equity
invested in the Corporation since such date, other than such incurrences or
agreements to incur Indebtedness that have been approved in advance by the
Series B Director;
(ix) Any action by the Corporation or any of its
subsidiaries not approved in advance by the Series B Director to effect the
incurrence of, or agreement to incur, any Indebtedness by any of the
Corporation's Affiliates or subsidiaries;
(x) Any loan, advance or guarantee to, or for the benefit
of, or any sale, lease, transfer or disposition of any of the properties or
assets of the Corporation or its subsidiaries to, or for the benefit of, or
any purchase or lease of any property or assets from, or the execution,
performance or amendment of any contract, agreement or understanding with,
or for the benefit of, any Affiliate of the Corporation or its
subsidiaries;
24
<PAGE> 57
(xi) Any declaration or payment of any dividends on or any
declaration or making of any other distribution, directly or indirectly,
through subsidiaries (excluding dividends and distributions made to all
owners of the Corporation's Affiliates in proportion to their respective
ownership interests) or otherwise, on account of any Parity Stock (unless
Pro Rata dividends have also been declared or paid on the Series B
Preferred Stock and except that, prior to the commencement of the PIK
Dividend Payment Period, "paid-in-kind" dividends on the Series A
Convertible Preferred Stock of the Corporation may be paid thereon as
required by the terms thereof as in effect on the Initial Issue Date of the
Series B Preferred Stock) or Subordinate Stock or the setting apart of any
sum for any such purpose;
(xii) The appointment or involuntary termination of the
Chairman of the Board, Chief Executive Officer, Chief Financial Officer,
Chief Operating Officer or other senior officers of the Corporation or its
subsidiaries;
(c) The rights of the holders of the Series B Preferred Stock may
be exercised in writing without a meeting or by proxy or in person at a special
meeting of the holders of Series B Preferred Stock, called as hereinafter
provided, or at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at such annual meetings or by a holder of
Series B Preferred Stock designated in writing by the written consent of the
holders of Series B Preferred Stock.
(d) A special meeting of the holders of Series B Preferred Stock
for purposes of voting on matters with respect to which the holders of such
shares are entitled to vote as a class may be called by the Secretary of the
Corporation or by a holder of Series B Preferred Stock designated in writing by
the holders of ten percent (10%) of the shares of Series B Preferred Stock then
outstanding. Such meeting may be called at the expense of the Corporation by
either such person. At any meeting of the holders of Series B Preferred Stock,
the presence in person or by proxy of the holders of a majority of the shares of
Series B Preferred Stock then outstanding shall constitute a quorum of the
Series B Preferred Stock for the purpose of voting on matters to be acted upon
by holders of the Series B Preferred Stock.
7. Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Series B
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Certificate of Incorporation of the Corporation.
8. Headings of Subdivisions.
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<PAGE> 58
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
9. Severability of Provisions.
If any voting powers, preferences and relative, participating,
optional and other special rights of the Series B Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as such resolution may be amended from time to time) are invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other voting powers, preferences and relative, participating,
optional and other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series B Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.
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<PAGE> 59
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be duly executed by an authorized officer and attested by its Secretary, this
________ day of _________________, 1997.
P.F. CHANG'S CHINA BISTRO, INC.
By:
------------------------------------
Richard L. Federico, President
Attest:
- ------------------------------
Robert T. Vivian, Secretary
27
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
P.F. CHANG'S CHINA BISTRO, INC.
<PAGE> 2
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Dover, County
of Kent, State of Delaware.
Section 2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE 11
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of stockholders shall be held at any place within or
outside the State of Delaware designated by the Board of Directors. In the
absence of any such designation, stockholders' meetings shall be held at the
principal executive office of the Corporation.
Section 2. The annual meeting of stockholders shall be held each year on
a date and a time designated by the Board of Directors. At each annual meeting
directors shall be elected and any other proper business may be transacted.
Section 3. A majority of the stock issued and outstanding and entitled
to vote at any meeting of stockholders, the holders of which are present in
person or represented by proxy, shall constitute a quorum for the transaction of
business except as otherwise provided by law, by the Certificate of
Incorporation, or by these By-Laws. A quorum, once established, shall not be
broken by the withdrawal of enough votes to leave less than a quorum and the
votes present may continue to transact business until adjournment. If, however,
such quorum shall not be present or represented at any
1
<PAGE> 3
meeting of the stockholders, a majority of the voting stock represented in
person or by proxy may adjourn the meeting from time to time. without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat.
Section 4. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes, or
the Certificate of Incorporation, or these By-Laws, a different vote is required
in which case such express provision shall govern and control the decision of
such question.
Section 5. At each meeting of the stockholders, each stockholder having
the right to vote may vote in person or may authorize another person or persons
to act for him by proxy appointed by an instrument in writing subscribed by such
stockholder and bearing a date not more than three years prior to said meeting,
unless said instrument des for a longer period. All proxies must be filed with
the Secretary of the Corporation at the beginning of each meeting in order to be
counted in any vote at the meeting. Each stockholder shall have one vote for
each share of stock having voting power, registered in his name on the books of
the Corporation on the record date set by
2
<PAGE> 4
the Board of Directors as provided in Article V, Section 6 hereof. All elections
shall be had and all questions decided by a plurality vote.
Section 6. Special meetings of the stockholders, for any purpose, or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the President and shall be called by the
President or the Secretary at the request in writing of a majority of the Board
of Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the Corporation, issued and outstanding,
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 7. Whenever stockholders are required or permitted to take any
action at a meeting, a written notice of the meeting shall be given which notice
shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. The
written notice of any meeting shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than sixty days before the date
of the meeting. If mailed, notice is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the Corporation.
Section 8. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the
3
<PAGE> 5
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 9. Unless otherwise provided in the Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
Board shall be not less than five (5) and not more than seven (7). The initial
number of directors shall be five (5), and any increase from the initial number
of directors shall require the unanimous consent of the directors. The directors
need not be stockholders. The directors shall be elected at the annual meeting
of the stockholders, except as
4
<PAGE> 6
provided in Section 2 of this Article, and each director elected shall hold
office until his successor is elected and qualified; provided, however, that
unless otherwise restricted by the Certificate of Incorporation or by law, any
director or the entire Board of Directors may be removed, either with or without
cause, from the Board of Directors at any meeting of stockholders by two-thirds
of the stock represented and entitled to vote thereat.
Section 2. Vacancies on the Board of Directors by reason of death,
resignation, retirement, disqualification, removal from office, or otherwise,
and newly created directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. The directors so
chosen shall hold office until the next annual election of directors and until
their successors are duly elected and shall qualify, unless sooner replaced by a
vote of the shareholders. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The property and business of the Corporation shall be managed
by or under the direction of its Board of Directors. In addition to the powers
and
5
<PAGE> 7
authorities by these By-Laws expressly conferred upon them, the Board may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
Section 4. The directors may hold their meetings and have one or more
offices, and keep the books of the Corporation outside of the State of Delaware.
Section 5. Regular meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be determined
by the Board.
Section 6. Special meetings of the Board of Directors may be called by
the President on forty-eight hours' notice to each director, either personally
or by mail or by telegram; special meetings shall be called by the President or
the Secretary in like manner and on like notice on the written request of two
directors.
Section 7. At all meetings of the Board of Directors a majority of the
authorized number of directors shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the vote of a majority of the
directors present at any meeting at which there is a quorum, shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute, by the Certificate of Incorporation or by these By-Laws. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present. If only one
director is authorized, such sole director shall constitute a quorum. At any
meeting, a director shall have the right to be accompanied by counsel provided
that such
6
<PAGE> 8
counsel shall agree to any confidentiality restrictions reasonably imposed by
the Corporation.
Section 8. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 9. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 10. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each such
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such
7
<PAGE> 9
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-Laws of the Corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Section 11. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
Section 12. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
8
<PAGE> 10
Section 13. The Corporation shall indemnify every person who is or was a
party or is or was threatened to be made a party to any action, suit, or
proceeding, whether civil, criminal. administrative or investigative, by reason
of the fact that he is or was a director or officer of the Corporation or, while
a director or officer or employee of the Corporation, is or was serving at the
request of the Corporation as a director, officer, employee, agent or trustee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including counsel fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, to the full extent permitted by
applicable law.
ARTICLE IV
OFFICERS
Section 1. The officers of this corporation shall be chosen by the Board
of Directors and shall include a President, a Secretary, and a Treasurer. The
Corporation may also have, at the discretion of the Board of Directors, such
other officers as are desired, including a Chairman of the Board, Chief
Executive Officer, one or more Vice Presidents, one or more Assistant
Secretaries and Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 3 hereof. In the event
there are two or more Vice Presidents, then one or more may be designated as
Executive Vice President, Senior Vice President, or other similar or dissimilar
title. At the time of the election of officers, the directors may by resolution
determine the order of their rank. Any number of offices may be held by the same
person unless the Certificate of Incorporation or these By-Laws otherwise
provide.
9
<PAGE> 11
Section 2. The Board of Directors, at its first meeting after each
annual meeting of stockholders, shall choose the officers of the Corporation.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 4. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold office until their
successors are chosen and qualify in their stead. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. If the office of any
officer or officers becomes vacant for any reason, the vacancy shall be filled
by the Board of Directors.
Section 6. Chairman of the Board. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by these
By-Laws. If there is no President, the Chairman of the Board shall in addition
be the Chief Executive Officer of the Corporation and shall have the powers and
duties prescribed in Section 8 of this Article IV.
Section 7. Chief Executive Officer. Subject to such supervisory powers,
if any, as may be given by the Board of Directors to the Chairman of the Board,
if there be such an officer, the Chief Executive Officer shall, subject to the
control of the Board
10
<PAGE> 12
of Directors, have general supervision, direction and control of the business
and officers of the Corporation. He shall be an ex-officio member of all
committees and shall have the general powers and duties of management usually
vested in the office of the Chief Executive Officer of corporations, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or these By-Laws.
Section 8. President. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business and
officers of the Corporation. He shall preside at all meetings of the
stockholders and, in the absence of the Chairman of the Board, or if there be
none, at all meetings of the Board of Directors. He shall be an ex-officio
member of all committees and shall have the general powers and duties of
management usually vested in the office of President of corporations, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or these By-Laws.
Section 9. Vice Presidents. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to time
may be prescribed for them, respectively, by the Board of Directors.
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<PAGE> 13
Section 10. Secretary. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these By-Laws.
He shall keep in safe custody the seal of the Corporation, and when
authorized by the Board, affix the same to any instrument requiring it, and when
so affixed it shall be attested by his signature or by the signature of an
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature.
Section 11. Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors, or if there be no such determination, the Assistant Secretary
designated by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 12. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys, and other valuable effects in the name and to the credit of
the Corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds
12
<PAGE> 14
of the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, he shall give the
Corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 13. Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors, or if there be no such determination, the Assistant
Treasurer designated by the Board of Directors, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Every holder of stock of the Corporation shall be entitled
to have a certificate signed by, or in the name of the Corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the Chief Executive
Officer, or the President or a Vice President, and by the Secretary or an
Assistant Secretary, or the Treasurer or an
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<PAGE> 15
Assistant Treasurer of the Corporation, certifying the number of shares
represented by the certificate owned by such stockholder in the Corporation.
Section 2. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue.
Section 3. If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 4. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the
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<PAGE> 16
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 5. Upon surrender to the Corporation, or the transfer agent of
the Corporation, of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the certificate transaction upon its book.
Section 6. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders, or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall
15
<PAGE> 17
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 7. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interests of the
Corporation, and the directors may abolish any such reserve.
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<PAGE> 18
Section 3. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers as the Board of Directors may from
time to time designate.
Section 4. The fiscal year of the Corporation shall be the calendar
year.
Section 5. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Delaware". Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 6. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram or facsimile transmission.
Section 7. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
Section 8. The Board of Directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
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ARTICLE VII
AMENDMENTS
Section 1. These By-Laws may be altered, amended or repealed or new
By-Laws may be adopted by the stockholders or by the Board of Directors at any
regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new By-Laws be contained in
the notice of such special meeting. If the power to adopt, amend or repeal
By-Laws is conferred upon the Board of Directors by the Certificate of
Incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal By-Laws.
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<PAGE> 20
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of P.F. CHANG'S
CHINA BISTRO, INC., a Delaware corporation; and
(2) That the foregoing By-Laws, comprising seventeen pages, constitute
the By-Laws of said corporation as duly adopted by the written consent of the
Incorporator, and approved by the Board of Directors, of said corporation as of
January 31 , 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 31 day of
January, 1996.
/s/ MICHELLE D. PRATT
-------------------------------------------
Michelle D. Pratt, Secretary
19
<PAGE> 1
EXHIBIT 4.2
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is entered into as of the 1st day of May, 1997 by and among P.F.
CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "Company"), and the
PERSONS listed on Schedule 1 attached hereto.
RECITALS
WHEREAS, as a condition precedent to the consummation of the
transactions contemplated by that certain Stock Purchase Agreement (the
"Original Purchase Agreement") dated as of February 1, 1996 among the Company
and certain of the shareholders of the Company (the "Original Investors"), the
Company and the Original Investors entered into a Registration Rights Agreement
(the "Original Registration Rights Agreement") dated as of February 28, 1996;
WHEREAS, the Company has entered into a Stock Purchase Agreement
(the "New Purchase Agreement") dated as of April 28, 1997 with certain of the
Original Investors and additional investors (collectively, the "Purchasers"),
pursuant to which the Company will issue shares of its Series B Convertible
Preferred Stock to the Purchasers; and
WHEREAS, in order to induce the Purchasers to enter into the New
Purchase Agreement, the Company has agreed to amend and restate the Original
Registration Rights Agreement to grant the benefits of the Original Registration
Rights Agreement to the holders of the Series B Convertible Preferred Stock and
to join those Purchasers not party to the Original Registration Rights
Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements herein contained and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereby agree as follows:
1. (a) Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms shall have the
meanings indicated:
"Agent" means any Person authorized to act and who acts on
behalf of any holder of Registrable Securities with respect to the transactions
contemplated by this Agreement or the Stock Purchase Agreements.
<PAGE> 2
"Agreement Year" means each consecutive twelve-month period
beginning with the date of the Original Registration Rights Agreement.
"Business Days" means all days other than Saturday or Sunday
or any day on which banking institutions in New York, New York are authorized or
obligated by law to close.
"Common Stock" means capital stock of the Company, however
designated, which is not limited as to the amount of dividends (except as
subordinated to preferred stock in priority), or which is not limited as to the
amount of distributions upon liquidation or dissolution of the Company (except
as subordinated to preferred stock in priority), and shall include, without
limitation, the Company's presently authorized Common Stock, par value $.001 per
share.
"Demand Registration" means a registration pursuant to Section
3(a).
"Equivalent Transaction" means, with respect to any proposed
Piggy-Back Registration, the sale, pursuant to Rule 144A or any successor rule
thereto, of the Registrable Securities proposed to be sold in such Piggy-Back
Registration, which sale, in the good faith judgment of the holders of a
majority of such Registrable Securities after consultation with a reputable
investment banking firm, is likely to result in sales proceeds of 95% or more of
the greater of (i) the sales proceeds pursuant to such Piggy-Back Registration
and (ii) if the class of securities of which the Registrable Securities is a
part is traded on a national securities exchange or the Nasdaq National Market
System, the market price thereof.
"Exchange Act" means the Securities Exchange Act of 1934, and
the rules and regulations thereunder as amended from time to time.
"NASD" means National Association of Securities Dealers, Inc.
"Person" means an individual, firm, partnership, corporation,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company or other entity or a government or agency or
political subdivision thereof.
"Piggy-Back Registration" means a registration pursuant to
Section 3(e).
"Preferred Stock" means the Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock of the Company, par value $.001
per share, issued or sold pursuant to the Stock Purchase Agreements, or issued
by way of stock dividend or stock split in respect thereof, together with any
securities issued in substitution or exchange therefor.
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"Priority Amount" means $16.6 million.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by the Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"Registrable Securities" means (a) the shares of Common Stock
issued or issuable upon conversion of the Preferred Stock, whether owned by any
Purchaser or not, and (b) any shares of Common Stock issued or issuable with
respect to such Common Stock by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or reorganization; provided, however, that any such share or other security
shall be deemed to be a Registrable Security only if and so long as it is a
Transfer Restricted Security.
"Registration Expenses" See Section 6 hereof.
"Registration Statement" means any registration statement of
the Company which covers Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, and all exhibits
and all material incorporated by reference in such Registration Statement.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"SEC" means the Securities and Exchange Commission.
"Stock Purchase Agreements" means the Original Purchase
Agreement and the New Purchase Agreement.
"Transfer Restricted Securities" means securities acquired by
the holder thereof other than pursuant to an effective registration under
Section 5 of the Securities Act or pursuant to Rule 144; provided that a
Registrable Security that has ceased to be a Transfer Restricted Security cannot
thereafter become a Transfer Restricted Security.
"Underwritten Registration or Underwritten Offering" means a
registration in which securities of the Company are sold (whether by the Company
or by selling stockholders) to an underwriter for reoffering to the public.
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(b) Knowledge Standard. When used herein, the phrase "to
the knowledge of" any Person, "to the best knowledge of" any Person or any
similar phrase shall mean, (i) with respect to any individual, the actual
knowledge of such Person (ii) with respect to any corporation (or a limited
liability company), the actual knowledge of officers and directors, or Persons
acting in similar capacities, of such corporation and the knowledge of such
facts that such persons should have in the exercise of their duties after
reasonable inquiry and (iii) with respect to a partnership, the actual knowledge
of the officers and directors of the general partner of such partnership and the
knowledge of such facts that such persons should have in the exercise of their
duties after reasonable inquiry. When used herein, the phrase "to the knowledge
of the Company," "to the best knowledge of the Company" or any similar phrase
shall mean "to the best knowledge of the Company" using the standards set forth
in the previous sentence.
2. Securities Subject to this Agreement.
(a) Registrable Securities. The securities entitled to the
benefits of this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities whether or
not such acquisition has actually been effected and disregarding the legal
restrictions upon the exercise of such right; provided, however, that a Person
shall not be deemed to be a holder of Registrable Securities who, together with
such Person's affiliates, then holds Registrable Securities constituting less
than one percent (1%) of the then issued and outstanding Common Stock and who
may then sell all Registrable Securities owned by such holder in reliance upon
Rule 144 of the Securities Act within six months pursuant to the volume
restrictions under said Rule based upon the average weekly reported trading
volume (currently Rule 144(e)(1)(ii)).
3. Demand Registration and Piggy-Back Registration.
(a) Request for Registration by Holders of Registrable Securities.
At any time after the earlier of (i) the last day of the third Agreement Year or
(ii) six months after the closing of the Company's initial public offering, if
the Company receives from the holders of at least 50% of the then outstanding
Registrable Securities then having a market value of at least $5 million, a
written request that the Company effect any registration or qualification with
respect to the Registrable Securities, the Company will:
(1) within ten (10) days of receipt of such a request,
give written notice of the proposed registration or qualification to
all other holders of Registrable Securities; and
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<PAGE> 5
(2) as soon as reasonably practicable, use its best
efforts to effect such registration or qualification (including,
without limitation, the execution in the applicable Registration
Statement of an undertaking to file required post-effective amendments,
appropriate qualification under the applicable blue sky or other state
securities laws and appropriate compliance with exemptive regulations
issued under the Securities Act and any other governmental requirements
or regulations) as may be so requested and as are reasonably necessary
to permit or facilitate the sale and distribution of all or such
portion of such holder's or holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other holder or holders joining in such
request, or the Company in the case of securities requested by the
Company to be registered (provided, however, the Company shall be
permitted to participate in such registration only to the extent that
all Registrable Securities as are specified by any holder in a Demand
Registration request have been included in such registration), as are
specified in a written notice given to the Company within 20 days after
the date of such written notice from the Company pursuant to Section
3(a)(1); provided, however that the Company will not be obligated to
take any action to effect any such registration, qualification or
compliance pursuant to this Section 3(a) after the completion of three
Demand Registrations as set forth in Section 3(b).
Subject to the foregoing provisions, the Company will file a
Registration Statement covering the Registrable Securities so requested to be
registered as soon as practicable, but in any event within one hundred twenty
(120) days, after receipt of the request or requests of the initiating holders,
and shall use its best efforts to cause such Registration Statement and
Prospectus through which such Demand Registration is effected to remain
effective for a period of not more than twelve (12) months; provided, however,
that the Company may, for reasonable cause, by written notice to the holders
requesting a Demand Registration within ten (10) business days after such
request for a Demand Registration is given, elect to defer the Demand
Registration for a period not to exceed ninety (90) days (only one such election
to defer may be made in any 360-day period), whereupon at any time during such
ninety (90) day period the holders requesting such Demand Registration may
withdraw such request.
(b) Effective Registration. A registration of Registrable
Securities will not count as a Demand Registration until it has become effective
and has been effective until all Registrable Securities included in such Demand
Registration have been sold pursuant thereto, provided, that such period of
effectiveness shall not exceed twelve (12) months.
(c) Priority on Demand Registrations. If the holder or
holders of a majority in number of the Registrable Securities to be registered
in a Demand Registration under this Section 3 (or the holder or holders who
initiated the Demand Registration) so elect, the offering of such Registrable
Securities pursuant to such Demand Registration shall be in the form of an
Underwritten Offering. In such event, if the managing underwriter or
underwriters of such offering advise the Company and the
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<PAGE> 6
holders in writing that in their opinion the Registrable Securities requested to
be included in such offering is sufficiently large so as to materially and
adversely affect the success of the offering, the Company shall include in such
registration the maximum amount of Registrable Securities which in the opinion
of such managing underwriter or underwriters can be sold without any such
material adverse effect. The Company shall include Registrable Securities in
such registration as follows: (i) first, pro rata among the holders of
Registrable Securities who have requested to be included in such registration
pursuant to Section 3(a), including Section 3(a)(2) (based upon the number of
shares requested to be included in such registration), (ii) second, all
securities held by the Company for which the Company has requested inclusion
pursuant to Section 3(a), and (iii) third, any other holders of securities of
the Company who have requested to be included in such registration.
(d) Selection of Underwriters. The investment banker or bankers
and manager or managers that will administer the offering will be nationally
recognized investment banking firm(s) selected by the Company with the prior
written consent of the holders of a majority in number of Registrable Securities
to be included in such offering, which consent shall not be unreasonably
withheld.
(e) Piggy-Back Registration. If the Company determines to file a
registration statement under the Securities Act relating to a proposed sale to
the public of its equity securities (but excluding registrations relating solely
to employees' stock option or purchase plans or relating solely to a transaction
employing SEC Form S-4 or Form S-8 or successor forms thereto), either for its
own account or the account of a security holder or holders, the Company shall:
(1) promptly give to each holder of Registrable
Securities written notice thereof (which will include, to the extent
known at the time, a list of the jurisdictions in which the Company
intends to qualify such securities under the applicable blue sky or
other state securities laws, the proposed offering price or price
range, and the plan of distribution);
(2) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified
in a written request or requests, made within thirty (30) days after
such written notice from the Company; and
(3) use its best efforts to cause the managing
underwriter or underwriters of such proposed Underwritten Offering to
permit the Registrable Securities requested to be included in the
registration statement for such offering to be included on the same
terms and conditions as any similar securities of the Company included
therein. Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering deliver a written opinion to the Company
and the holders of such Registrable Securities that marketing
considerations require a limitation on the number of shares of Common
Stock
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<PAGE> 7
offered pursuant to any Registration Statement filed under this Section
3(e), such limitation shall be imposed pro rata among all holders of
Common Stock (other than such holders, if any, initiating the
registration pursuant to registration rights granted by the Company,
which holders shall receive priority with respect to inclusion in such
registration in accordance with such contractual rights) and
Registrable Securities who requested inclusion in the registration
(based upon the number of shares requested to be included in the
registration).
The foregoing notwithstanding, the Company shall not be obligated to effect a
Piggy-Back Registration pursuant to this Section 3(e) if at the time of the
request for such Piggy-Back Registration an Equivalent Transaction is available.
(f) Priority on All Registrations. If the Company (i) determines
to file a registration statement under the Securities Act relating to a proposed
sale to the public of its equity securities (but excluding registrations
relating solely to employees' stock option or purchase plans or relating solely
to a transaction employing SEC Form S-4 or Form S-8 or any successor forms
thereto), either for its own account or the account of a security holder or
holders or (ii) receives a written request to effect a Demand Registration, the
Company shall promptly give written notification ("Priority Notice") of the
proposed registration to all holders of Registrable Securities. Upon receipt of
a Priority Notice, any holder of Registrable Securities may elect to join in any
such proposed registration pursuant and subject to the terms of this Section
3(f) by providing the Company with written notice of such election and the
number of shares for which registration is requested ("Priority Request") within
thirty (30) days of receipt of the Priority Notice; provided, however, that the
holders of at least a majority of outstanding Registrable Securities so elect.
Notwithstanding anything to the contrary set forth in this Agreement,
in connection with any registration of securities of the Company, upon receipt
of a Priority Request, the Company shall include in such registration the
Registrable Securities beneficially owned by such holders of Registrable
Securities that request to be included in such registration, representing up to
the Priority Amount in gross proceeds to such holders (less any amount of gross
proceeds received by any holders of Registrable Securities in connection with a
prior request pursuant to this Section 3(f)) (the "Priority Securities"), prior
to including securities of any other holder in such registration. In connection
with any registration in which more than one holder of Registrable Securities
makes a request to include Priority Securities, the Company shall include
Priority Securities in accordance with such holders' pro rata portion of the
Priority Amount (less any amount of gross proceeds received by such holder in
connection with a prior request pursuant to this Section 3(f)).
Any request for registration made pursuant to Section 3(a) or 3(e) that
is withdrawn by a majority of the holders of Registrable Securities who
requested inclusion therein at any time prior to the date the Registration
Statement has become effective, due to a request by the holders of a majority of
outstanding Registrable
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<PAGE> 8
Securities pursuant to this Section 3(f), shall not be counted as a Demand
Registration; provided, however, that the holder(s) effecting such withdrawal
shall be required to pay any Registration Expenses unless the managing
underwriter or underwriters shall have determined that the inclusion of the
Priority Securities in such registration would impair the ability to include the
Registrable Securities originally proposed for inclusion in such registration by
such withdrawing holder(s) or the price at which such shares would be offered to
the public. Any request for registration made pursuant to Section 3(f) shall not
be counted as a Demand Registration.
4. Hold-Back Agreements.
(a) Restrictions on Public Sale by the Company of Registrable
Securities. Each holder of Registrable Securities whose Registrable Securities
are covered by a Registration Statement filed pursuant to Section 3 hereof
agrees, if requested in writing by the managing underwriters in an Underwritten
Offering, not to effect any public sale or distribution of securities of the
Company of the same class as the securities included in such Registration
Statement, including a sale pursuant to Rule 144 under the Securities Act
(except as part of such Underwritten Registration), during the ninety (90) day
period subsequent to the filing of the Registration Statement for each
Underwritten Offering pursuant to such Registration Statement and during such
other period (not less than ninety (90) days) following such effective date as
shall be reasonably agreed upon by the Company, the holders of the Registrable
Securities whose Registrable Securities are covered by such registration and the
managing underwriters.
(b) Restrictions on Public Sale by the Company and Others. The
Company agrees:
(1) not to effect any public or private sale or
distribution of its debt or equity securities, including a sale
pursuant to Regulation D under the Securities Act, during the ninety
(90) day period prior to the filing of a Registration Statement under
Section 3 hereof, and during the one hundred twenty (120) day period
beginning on, the closing date of each Underwritten Offering made
pursuant to a Registration Statement filed under Section 3 hereof, to
the extent timely requested in writing by the managing underwriters
(except as part of such Underwritten Registration or pursuant to
registrations on Forms S-4 or S-8 or any successor forms thereto), and
(2) to cause each holder of its privately placed debt or
equity securities issued by the Company at any time on or after the
date of this Agreement (other than Registrable Securities or securities
issued upon the exercise or conversion of securities outstanding as of
the date hereof) to agree not to effect any public sale or distribution
of any such securities, including a sale pursuant to Rule 144 under the
Securities Act (except as part of such Underwritten Registration, if
permitted), during the ninety (90) day period subsequent to the filing
of the
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<PAGE> 9
Registration Statement for each Underwritten Offering and during the
ninety (90) day period following the effective date of such
Registration Statement, in each case to the extent the managing
underwriter makes a timely written request that specifically identifies
such holder(s).
5. Registration Procedures.
In connection with the Company's registration obligations pursuant to
Section 3 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Company will as expeditiously as possible:
(a) before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, furnish to the holders of the Registrable
Securities covered by such Registration Statement and the managing underwriters,
if any, copies of all such documents proposed to be filed, which documents will
be made available for review by such holders and managing underwriters, and the
Company will not file any Registration Statement or amendment thereto or any
Prospectus or any supplement thereto which includes information provided by the
holders of Registrable Securities to which the holders of a majority in number
of the Registrable Securities covered by such Registration Statement or the
underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and
post-effective amendments to any Registration Statement, and such supplements to
the Prospectus, as may be reasonably requested by any holders of a majority of
Registrable Securities covered by the Registration Statement or any managing
underwriter of Registrable Securities or as may be required by the rules,
regulations or instructions applicable to the registration form utilized by the
Company or by the Securities Act or otherwise necessary to keep such
Registration Statement effective for the applicable period and cause the
Prospectus as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the sellers thereof set forth in such Registration Statement
or supplement to the Prospectus;
(c) notify the counsel to the selling holders of Registrable
Securities and the managing underwriters, if any, promptly, and (if requested by
any such Person) confirm such advice in writing,
(1) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same
has become effective,
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<PAGE> 10
(2) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or for
additional information,
(3) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose,
(4) if at any time, to the knowledge of the Company, the
representations and warranties of the Company contemplated by paragraph
(n) below cease to be true and correct,
(5) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and
(6) of the existence of any fact, to the knowledge of the
Company, which results in the Registration Statement, the Prospectus or
any document incorporated therein by reference containing an untrue
statement of material fact or omitting to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading;
(d) use every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriter or
underwriters or a holder of Registrable Securities being sold in connection with
an Underwritten Offering, immediately incorporate in a Prospectus supplement or
post-effective amendment such necessary information as the managing underwriters
and the holders of a majority of the Registrable Securities being sold
reasonably request to have included therein relating to the plan of distribution
with respect to such Registrable Securities, including, without limitation,
information with respect to the amount of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such underwriters
and with respect to any other terms of the Underwritten (or best efforts
underwritten) Offering of the Registrable Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or
post-effective amendment within three (3) Business Days of the Company's
knowledge of any matters that would require such Prospectus supplement or
post-effective amendment;
(f) at the request of any selling holder of Registrable
Securities, furnish to such selling holder of Registrable Securities and each
managing underwriter, without charge, such number of conformed copies of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all
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<PAGE> 11
documents incorporated therein by reference and all exhibits (including those
incorporated by reference) as such holder may reasonably request;
(g) deliver to each selling holder of Registrable Securities and
the underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto; provided, however, the Company may revoke such
consent at any time the continued use of such Prospectus or any amendment or
supplement thereto would be in violation of applicable federal or state
securities laws or regulations;
(h) prior to any public offering of Registrable Securities,
register or qualify or cooperate with the selling holders of Registrable
Securities, the managing underwriters, if any, and their respective counsel in
connection with the registration or qualification of such Registrable Securities
for offer and sale under the securities or blue sky laws of such jurisdictions
as any seller or underwriter reasonably requests in writing and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statement; provided that the Company will not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of process in any such
jurisdiction where it is not then so subject;
(i) cooperate with the selling holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and, if
not required by applicable law, not bearing any restrictive legends; and enable
such Registrable Securities to be in such denominations and registered in such
names as the managing underwriters may request at least two business days prior
to any sale of Registrable Securities to the underwriters;
(j) use its best efforts to cause, and cooperate with the holders
of the Registrable Securities to cause, the Registrable Securities covered by
the applicable Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(k) if any fact contemplated by paragraph (c)(6) above shall
exist, to the Company's knowledge, during the period that the Company shall be
required hereunder to use its best efforts to maintain the effectiveness of the
applicable Registration Statement, prepare a supplement or post-effective
amendment to the Registration Statement or the related Prospectus or any
document incorporated therein by reference
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or file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
(l) use its best efforts to cause all Registrable Securities
covered by the Registration Statement to be listed on each securities exchange
on which similar securities issued by the Company are then listed if requested
by the holders of a majority in number of such Registrable Securities or by the
managing underwriters, if any;
(m) not later than the effective date of the applicable
Registration Statement, provide a CUSIP number for all Registrable Securities
and, consistent with subparagraph (i) above, provide the applicable trustees or
transfer agents with printed certificates for the Registrable Securities which
are in a form eligible for deposit with Depositary Trust Company;
(n) enter into agreements (including underwriting agreements) in a
form reasonably satisfactory to the Company and take all other appropriate and
reasonable actions in order to expedite or facilitate the disposition of such
Registrable Securities and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an Underwritten
Registration:
(1) make such representations and warranties to the
holders of such Registrable Securities and the underwriters, if any, in
form, substance and scope as are customarily made by issuers to
underwriters in primary Underwritten Offerings, in a manner reasonably
satisfactory to the Company;
(2) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if any,
and the counsel to the holders of Registrable Securities being sold)
addressed to each selling holder and the underwriters, if any, covering
the matters customarily covered in opinions requested in Underwritten
Offerings, in a manner reasonably satisfactory to the Company;
(3) obtain "cold comfort" letters and updates thereof
from the Company's independent certified public accountants addressed
to the selling holders of Registrable Securities and the underwriters,
if any, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters to underwriters
in connection with primary Underwritten Offerings;
(4) if an underwriting agreement is entered into, cause
the same to set forth in full the indemnification provisions and
procedures of Section 7 hereof (or such other substantially similar
indemnification and contribution provisions and
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procedures as the underwriters shall reasonably request) with respect
to all parties to be indemnified pursuant to said Section; and
(5) deliver such documents and certificates as may be
reasonably requested by the holders of a majority of the Registrable
Securities being sold and the managing underwriters, if any, to
evidence compliance with paragraph (k) above and with any customary
conditions contained in the underwriting agreement or other agreement
entered into by the Company.
The actions set forth in the above paragraph (n) shall be done at the
effectiveness of such Registration Statement, each closing under any
underwriting or similar agreement as and to the extent required thereunder and
from time to time as may reasonably be requested by any selling holder in
connection with the disposition of Registrable Securities pursuant to such
Registration Statement, all in a manner consistent with customary industry
practice;
(o) make available to a representative of the holders of a
majority in number of the Registrable Securities being sold, any managing
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant retained by the sellers or managing
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant reasonably related to the
registration, with respect to each at such time or times as the Company shall
reasonably determine; provided that any records, information or documents that
are designated by the Company in writing as confidential shall be kept
confidential by such Persons unless disclosure of such records, information or
documents is required by court or administrative order;
(p) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder;
(q) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD); and
(r) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement) provide copies of such
document to counsel to the selling holders of Registrable Securities and to the
managing underwriters, if any, make the Company's representatives available for
discussion of such document during business hours upon reasonable advance
request and make such changes in such
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document prior to the filing thereof as counsel for such selling holders or
underwriters may reasonably request.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding such seller and that distribution of such securities as
the Company may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (k) above, such holder
will forthwith discontinue disposition of Registrable Securities until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by paragraph (k) above, or until it is advised in writing by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the Prospectus, and, if so directed by the Company, such holder will deliver to
the Company (at the Company's expense, unless such supplement or amendment is
due to inaccurate information supplied by such holder to the Company in writing
specifically for inclusion in the applicable Registration Statement) all copies,
other than permanent file copies then in such holder's possession, of the
Prospectus covering such Registrable Securities current at the time of receipt
of such notice. In the event the Company shall give any such notice, the time
periods mentioned in Section 4(a) hereof shall be extended by the number of days
during the period from and including the date of the giving of such notice to
and including the date when each seller of Registrable Securities covered by
such Registration Statement either receives the copies of the supplemented or
amended Prospectus contemplated by paragraph (k) above or is advised in writing
by the Company that the use of the Prospectus may be resumed.
6. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be paid by the Company, regardless whether
the Registration Statement becomes effective including without limitation:
(1) all registration and filing fees;
(2) fees and expenses of compliance with securities or
blue sky laws (including, without limitation, fees and disbursements of
counsel for the underwriters or selling holders in connection with blue
sky qualifications of the Registrable Securities and determination of
their eligibility for investment under the laws of such jurisdictions
as the managing underwriters or holders of a majority of the
Registrable Securities being sold may reasonably designate);
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<PAGE> 15
(3) printing (including, without limitation, expenses of
printing or engraving certificates for the Registrable Securities in a
form eligible for deposit with Depositary Trust Company and of printing
prospectuses), messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel (i) for the Company
and (ii) for the selling holders of the Registrable Securities;
(5) fees and disbursements of all independent certified
public accountants of the Company (including, without limitation, the
expenses of any special audit and "cold comfort" letters required by or
incident to such performance);
(6) fees and disbursements of underwriters as reasonably
approved by the Company (excluding (x) discounts, commissions or fees
of underwriters, selling brokers, dealer managers or similar securities
industry professionals relating to the distribution of the Registrable
Securities or (y) legal expenses of any Person other than the Company,
the underwriters and the selling holders);
(7) securities acts liability insurance if the Company so
desires, and in such event, coverage for, selling holders of
Registrable Securities should they so request and it is available;
(8) fees and expenses associated of other Persons
retained by the Company; and
(9) fees and expenses associated with any NASD filing
required to be made in connection with the Registration Statement,
including, if applicable, the fees and expenses of any "qualified
independent underwriter" (and its counsel) that is required to be
retained in accordance with the rules and regulations of the NASD (all
such expenses being herein called "Registration Expenses").
Notwithstanding the provisions of subsection (a)(4) above, the amount
of legal fees reimbursable by the Company with respect to services rendered on
behalf of the selling holders of Registrable Securities thereunder shall not,
without the consent of the Company (which consent shall not be unreasonably
withheld) exceed (i) $5,000 in connection with a registration on Form S-3 and
(ii) $20,000 in connection with any other registration. The Company will, in any
event, pay its internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit, the fees and expenses incurred in
connection with the listing of the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed, and the fees and expenses of any Person, including special experts,
retained by the Company.
15
<PAGE> 16
(b) In connection with each Registration Statement required
hereunder and pursuant to subsection (a)(4)(ii) above, the Company will
reimburse the holders of Registrable Securities being registered (together with
the holders of all other securities being registered) pursuant to such
Registration Statement for the reasonable fees and disbursements of not more
than one counsel (or more than one counsel if a conflict exists among such
selling holders in the exercise of the reasonable judgment of counsel for the
selling holders and counsel for the Company) chosen by the holders of a majority
of such Registrable Securities and such other securities being registered under
such Registration Statement.
7. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each holder of Registrable Securities, its officers,
directors, employees and Agents and each Person who controls such holder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each such person being sometimes hereinafter referred to as an
"Indemnified Holder") from and against all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation and legal expenses)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement or Prospectus or in any
amendment or supplement thereto or in any preliminary Prospectus, or arising out
of or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
allegation thereof based upon information furnished in writing to the Company by
such holder expressly for use therein; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any preliminary
Prospectus if (i) such holder failed to send or deliver a copy of the Prospectus
with or prior to the delivery of written confirmation of the sale of Registrable
Securities and (ii) the Prospectus would have corrected such untrue statement or
omission; and provided, further, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission in the Prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the Prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such holder thereafter fails to deliver such Prospectus
as so amended or supplemented prior to or concurrently with the sale of a
Registrable Security to the person asserting such loss, claim, damage, liability
or expense who purchased such Registrable Security which is the subject thereof
from such holder. This indemnity will be in addition to any liability which the
Company may otherwise have.
16
<PAGE> 17
The Company will also provide customary indemnification to underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Indemnified Holders of Registrable
Securities.
If any action or proceeding (including any governmental investigation
or inquiry) shall be brought or asserted against an Indemnified Holder in
respect of which indemnity may be sought from the Company, such Indemnified
Holder shall promptly notify the Company in writing, and the Company shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Holder and the payment of all expenses. Such
Indemnified Holder shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be the expense of such Indemnified Holder unless (a) the
Company has agreed to pay such fees and expenses or (b) the Company shall have
failed to assume the defense of such action or proceeding or has failed to
employ counsel reasonably satisfactory to such Indemnified Holder in any such
action or proceeding or (c) if the representation of such Indemnified Holder by
the counsel retained by the Company would be inappropriate due to actual or
potential conflicts of interests between the Indemnified Holder and any other
party represented by such counsel in such proceeding based on written advice of
counsel made available to the Company (in which case, if such Indemnified Holder
notifies the Company in writing that it elects to employ separate counsel at the
expense of the Company, the Company shall not have the right to assume the
defense of such action or proceeding on behalf of such Indemnified Holder, it
being understood, however, that the Company shall not, in connection with any
one such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for such Indemnified Holder
and any other Indemnified Holders, which firm shall be designated in writing by
such Indemnified Holders). The Company shall not be liable for any settlement of
any such action or proceeding effected without its written consent, but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Company agrees to indemnify and
hold harmless such Indemnified Holders from and against any loss or liability by
reason of such settlement or judgment.
(b) Indemnification by Holder of Registrable Securities. Each
holder of Registrable Securities agrees to indemnify and hold harmless the
Company, its directors and officers and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to such holder, but only with respect to information relating to such
holder furnished in writing by such holder expressly for use in any Registration
Statement or Prospectus, or any amendment or
17
<PAGE> 18
supplement thereto, or any preliminary Prospectus. In case any action or
proceeding shall be brought against the Company or its directors or officers or
any such controlling person, in respect of which indemnity may be sought against
a holder of Registrable Securities, such holder shall have the rights and duties
given the Company and the Company or its directors, officers, employees, agents
or such controlling person shall have the rights and duties given to each holder
by Section 7(a). In no event shall the liability of any selling holder of
Registrable Securities under this Section 7(b) be greater in amount than the
dollar amount of the net proceeds received by such holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
The Company shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information so furnished in writing by such Persons specifically for
inclusion in any Prospectus or Registration Statement or any amendment or
supplement thereto, or any preliminary Prospectus.
(c) Contribution. If the indemnification provided for in this
Section 7 is unavailable to an indemnified party under Section 7(a) or Section
7(b) hereof (other than by reason of exceptions provided in those Sections) in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand, and of the Indemnified Holder, on the other hand,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Indemnified Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Indemnified Holder and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 7(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company and each holder of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 7(c)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section
7(c), an Indemnified Holder shall not be required to contribute any amount in
excess of the amount by which the total price at
18
<PAGE> 19
which the Registrable Securities sold by such Indemnified Holder or its
affiliated Indemnified Holders and distributed to the public were offered to the
public exceeds the amount of any damages which such Indemnified Holder, or its
affiliated Indemnified Holders, has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
8. Rule 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder and, at all times after the
effective date of the first registration filed by the Company which involves a
sale of securities of the Company to the general public, will take such further
action as any holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time or (b) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such information and requirements.
9. Participation in Underwritten Registrations. No holder of
Registrable Securities (or its successors or assigns) may participate in any
Underwritten Registration hereunder unless such Person (a) agrees to sell such
Person's Registrable Securities on the basis provided in any underwriting
arrangements approved by the underwriters and other Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
10. Miscellaneous.
(a) Remedies. Each holder of Registrable Securities, in addition
to being entitled to exercise all rights provided herein, and as provided in the
Transaction Agreements (as defined in the Stock Purchase Agreements), and
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. The Company will not on or after
the date of this Agreement enter into any agreement, and as of the date of this
Agreement the Company is not a party to any agreement, with respect to its
securities which is
19
<PAGE> 20
inconsistent with the rights granted to the holders of Registrable Securities in
this Agreement or otherwise conflicts with the provisions hereof or impairs the
rights granted hereunder. The Company has not previously entered into any
agreement with respect to its securities granting any registration rights to any
Person which has not been terminated on or prior to the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least 50% of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other holders of Registrable
Securities may be given by the holders of 50% of the Registrable Securities
being sold.
(d) Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
service or personal delivery to the Company at its principal office and to the
Shareholders at the addresses or facsimile numbers set forth on Schedule 1
hereto or to such other addresses or facsimile number, as applicable, as any
party hereto may designate to the other in writing. All such notices and
communications shall be deemed to have been duly given: when delivered by hand,
if personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; when mailed, five business days after being deposited
in the mail, postage prepaid.
(e) Successors and Assigns.
(i) Subject to subparagraph (ii) of this Section 10(e),
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties, including, without limitation, and without
the need for an express assignment, subsequent holders of Registrable
Securities.
(ii) The rights to cause the Company to register
securities granted to a holder of Registrable Securities by the Company pursuant
to this Agreement may be assigned by such holder to a transferee or assignee of
any of the holders' Registrable Securities; provided that (1) the Company is
given written notice by the holder at the time of or within a reasonable time
after said transfer, stating the name and address of said transferee or assignee
and identifying the securities with respect to which such registration rights
are being transferred or assigned; and (2) within sixty (60) days after being
requested to do so by the Company, said transferee or assignee executes an
agreement reasonably proposed by the Company by which the transferee or assignee
agrees to be bound by the terms hereof.
20
<PAGE> 21
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings as to the subject matter, other than those
set forth or referred to herein with respect to the registration rights granted
by the Company with respect to the securities sold pursuant to the Stock
Purchase Agreements. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
[signature pages follow]
21
<PAGE> 22
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
P.F. CHANG'S CHINA BISTRO, INC.
By: ___________________________________
Richard L. Federico, President
5090 North 40th Street
Suite 160
Phoenix, Arizona 85018
Attention: Bert Vivian
Telephone: 602-957-8986
Telecopy: 602-957-8998
22
<PAGE> 23
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
CATTERTON-SIMON PARTNERS, L.P.
By: CATTERTON INVESTMENT PARTNERS,
its General Partner
By: CATTERTON PARTNERS CORPORATION
its Managing General Partner
By:________________________________________
Name:
Title:
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: J. Michael Chu
Telephone: 203-629-4901
Telecopy: 203-629-4903
CATTERTON-PFC, L.L.C.
By: CATTERTON PARTNERS CORPORATION
its Managing Member
By:________________________________________
Name:
Title:
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: J. Michael Chu
23
<PAGE> 24
Telephone: 203-629-4901
Telecopy: 203-629-4903
24
<PAGE> 25
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
CATTERTON-PFC PARTNERS II, L.L.C.
By: CATTERTON PARTNERS CORPORATION
its Managing Member
By:________________________________________
Name:
Title:
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: J. Michael Chu
Telephone: 203-629-4901
Telecopy: 203-629-4903
25
<PAGE> 26
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
OAK INVESTMENT PARTNERS VI, LIMITED
PARTNERSHIP
By:________________________________________
Gerald R. Gallagher
Managing Member of
Oak Associates VI, LLC,
the General Partner of Oak Investment
Partners VI, Limited Partnership
Oak Investment Partners
4550 Norwest Center
Minneapolis, Minnesota 55402
Attention: Gerald Gallagher
Telephone: 612-339-9322
Telecopy: 612-337-8017
OAK VI AFFILIATES FUND, LIMITED PARTNERSHIP
By:________________________________________
Gerald R. Gallagher
Managing Member of
Oak VI Affiliates, LLC,
the General Partner of Oak VI
Affiliates Fund, Limited Partnership
Oak Investment Partners
4550 Norwest Center
Minneapolis, Minnesota 55402
Attention: Gerald Gallagher
26
<PAGE> 27
Telephone: 612-339-9322
Telecopy: 612-337-8017
27
<PAGE> 28
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
TRINITY VENTURES V, L.P.
By:________________________________________
James G. Shennan, Jr.
General Partner
Trinity Ventures
155 Bovet Road, Suite 660
San Mateo, California 94402
Attention: James G. Shennan, Jr.
Telephone: 415-358-9700
Telecopy: 415-358-9785
TRINITY VENTURES V SIDE-BY-SIDE FUND, L.P.
By:________________________________________
James G. Shennan, Jr.
General Partner
Trinity Ventures
155 Bovet Road, Suite 660
San Mateo, California 94402
Attention: James G. Shennan, Jr.
Telephone: 415-358-9700
Telecopy: 415-358-9785
28
<PAGE> 29
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
ARABELLA S.A.
By:________________________________________
Name:
Title:
c/o Scorpion Holdings
599 Lexington Avenue, Suite 2700
New York, New York 10022
Attention: Kevin McCarthy
Telephone: (212) 207-9020
Telecopy: (212) 207-9050
ALBA, LTD.
By:________________________________________
Name:
Title:
c/o Scorpion Holdings
599 Lexington Avenue, Suite 2700
New York, New York 10022
Attention: Kevin McCarthy
Telephone: (212) 207-9020
Telecopy: (212) 207-9050
29
<PAGE> 30
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
YVES SISTERON
___________________________________________
602 North Crescent Avenue
Beverly Hills, California 90210
Telephone: 310-858-8042
Telecopy: 310-550-1876
STEVEN LEBOW
___________________________________________
150 North Cliffwood
Los Angeles, California 90049
Telephone: 310-282-6165
Telecopy: 310-282-6178
30
<PAGE> 31
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
SUSAN C. SCHNABEL AND EDWARD L.
PLUMMER, JOINTLY
___________________________________________
Susan C. Schnabel
___________________________________________
Edward L. Plummer
40858 N. 109th Place
Scottsdale, Arizona 85262
Telephone: (602) 595-1366
Telecopy: (602) 595-1041
31
<PAGE> 32
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
JOSEPH SCHELL
___________________________________________
3983 Happy Valley Road
Lafayette, California 94549
Telephone: 415-627-2000
Telecopy: 415-249-5513
KARL MATTHIES
___________________________________________
7 Bellagio Road
P. O. Box 1322
Ross, California 94957
Telephone: 415-627-2250
Telecopy: 415-249-5513
MURRAY HUNEKE
___________________________________________
315 Ambar Way
Menlo Park, California 94025
Telephone: 415-627-2873
Telecopy: 415-249-5512
32
<PAGE> 33
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
DAVID JACQUIN
___________________________________________
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Telephone: (415) 627-2000
Telecopy: (415) 249-5513
PAUL S. MADERA AND JOAN K. MADERA, JTWROS
___________________________________________
Paul S. Madera
___________________________________________
Joan K. Madera
1205 Vancouver Avenue
Burlingame, California 94010
Telephone: 415-627-3174
Telecopy: 413-249-5704
KENNETH LANG
___________________________________________
c/o Putnam Investments
One Post Office Square
33
<PAGE> 34
Boston, Massachusetts 02109
Telephone: (617) 760-7443
Telecopy: (617) 292-1784
34
<PAGE> 35
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
RICHARD FEDERICO
___________________________________________
c/o P.F. Chang's China Bistro, Inc.
5090 North 40th Street
Suite 160
Phoenix, Arizona 85018
Telephone: 602-957-8986
Telecopy: 602-957-8998
EDWARD J. MATHIAS
___________________________________________
5120 Cammack Drive
Bethesda, Maryland 20816
Telephone: 202-626-1228
Telecopy: 202-347-1818
A. WILLIAM ALLEN
___________________________________________
7710 Sweetgum Avenue
Los Colinas, Texas 75063
Telephone: (972) 401-0668
Telecopy: (972) 444-8375
35
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P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
J. RICHARD FREDERICKS
___________________________________________
2395 Vallejo Street
San Francisco, California 94010
Telephone: 415-627-2000
Telecopy: 413-249-5513
C. DONALD DORSEY
___________________________________________
1225 E. Warner Road, Lot 18
Tempe, Arizona 85284-3245
Telephone: 602-491-3109
Telecopy: 602-491-1505
36
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P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
MICHAEL G. MUELLER AND CHRISTINE ELLEN
CULLENS, TRUSTEES OF THE MUELLER-CULLENS
FAMILY TRUST U/D/T/ DATED JULY 9, 1996
___________________________________________
Michael G. Mueller, Trustee
___________________________________________
Christine Ellen Cullens, Trustee
2710 Filbert Street
San Francisco, California 94112
Telephone: 415-775-4528
37
<PAGE> 38
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
MICHAEL WELBORN
___________________________________________
c/o Bank One, Arizona
201 North Central Avenue
35th Floor
Phoenix, Arizona 85004
Telephone: (602) 221-1674
Telecopy: (602) 221-2684
38
<PAGE> 39
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
GLOBAL RETAIL PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.,
its General Partner
By:________________________________________
Name:
Title:
Global Retail Partners, L.P.
277 Park Avenue, 19th Floor
New York, New York 10172
Attention: Nicole Arnaboldi/Theo Rand
Telephone: (212) 892-3000
Telecopy: (212) 892-7552
Global Retail Partners, L.P.
2121 Avenue of the Stars, 30th Floor
Los Angeles, California 90067
Attention: Osamu Watanabe
Telephone: (310) 282-6100
Telecopy: (310) 282-6178
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<PAGE> 40
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.,
its General Partner
By:________________________________________
Name:
Title:
DLJ Diversified Partners, L.P.
277 Park Avenue, 19th Floor
New York, New York 10172
Attention: Nicole Arnaboldi/Theo Rand
Telephone: (212) 892-3000
Telecopy: (212) 892-7552
with copy to:
DLJ Diversified Partners, L.P.
277 Park Avenue, 23rd Floor
New York, New York 10172
Attention: Ivy Dodes
Telephone: (212) 892-3000
Telecopy: (212) 892-2689
40
<PAGE> 41
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
GRP PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.,
its General Partner
By:________________________________________
Name:
Title:
GRP Partners, L.P.
277 Park Avenue, 19th Floor
New York, New York 10172
Attention: Nicole Arnaboldi/Theo Rand
Telephone: (212) 892-3000
Telecopy: (212) 892-7552
with copy to:
GRP Partners, L.P.
2121 Avenue of the Stars, 30th Floor
Los Angeles, California 90067
Attention: Osamu Watanabe
Telephone: (310) 282-6100
Telecopy: (310) 282-6178
41
<PAGE> 42
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
GLOBAL RETAIL PARTNERS FUNDING, INC.
By:________________________________________
Name:
Title:
Global Retail Partners Funding, Inc.
277 Park Avenue, 19th Floor
New York, New York 10172
Attention: Nicole Arnaboldi/Theo Rand
Telephone: (212) 892-3000
Telecopy: (212) 892-7552
with copy to:
Global Retail Partners Funding, Inc.
2121 Avenue of the Stars
Los Angeles, California 90067
Attention: Osamu Watanabe
Telephone: (310) 282-6100
Telecopy: (310) 282-6178
42
<PAGE> 43
P.F. CHANG'S CHINA BISTRO, INC.
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
DLJ FIRST ESC L.L.C.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION, its Manager
By:________________________________________
Name:
Title:
DLJ First ESC L.L.C.
277 Park Avenue, 19th Floor
New York, New York 10172
Attention: Ed Poletti
Telephone: (212) 892-3005
Telecopy: (212) 892-7272
with copy to:
DLJ First ESC L.L.C.
277 Park Avenue, 23rd Floor
New York, New York 10172
Attention: Ivy Dodes
Telephone: (212) 892-3000
Telecopy: (212) 892-2689
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<PAGE> 44
P.F. CHANG'S CHINA BISTRO, INC.
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
Dated as of May 1, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. (a) Definitions........................................................................ 1
(b) Knowledge Standard................................................................. 3
2. Securities Subject to this Agreement........................................................ 4
(a) Registrable Securities............................................................. 4
(b) Holders of Registrable Securities.................................................. 4
3. Demand Registration and Piggy-Back Registration............................................. 4
(a) Request for Registration by Holders of Registrable Securities...................... 4
(b) Effective Registration............................................................. 5
(c) Priority on Demand Registrations................................................... 5
(d) Selection of Underwriters. ........................................................ 6
(e) Piggy-Back Registration............................................................ 6
(f) Priority on All Registrations...................................................... 7
4. Hold-Back Agreements........................................................................ 7
(a) Restrictions on Public Sale by the Company of Registrable Securities............... 7
(b) Restrictions on Public Sale by the Company and Others.............................. 8
5. Registration Procedures..................................................................... 8
</TABLE>
44
<PAGE> 45
<TABLE>
<S> <C>
6. Registration Expenses....................................................................... 14
7. Indemnification............................................................................. 15
(a) Indemnification by the Company..................................................... 15
(b) Indemnification by Holder of Registrable Securities................................ 17
(c) Contribution....................................................................... 17
8. Rule 144.................................................................................... 18
9. Participation in Underwritten Registrations................................................. 18
10. Miscellaneous................................................................................ 19
(a) Remedies........................................................................... 19
(b) No Inconsistent Agreements......................................................... 19
(c) Amendments and Waivers............................................................. 19
(d) Notices............................................................................ 19
(e) Successors and Assigns............................................................. 20
(f) Counterparts....................................................................... 20
(g) Headings........................................................................... 20
(h) Governing Law...................................................................... 20
(i) Severability....................................................................... 20
(j) Entire Agreement................................................................... 20
</TABLE>
45
<PAGE> 1
EXHIBIT 10.1
FORM OF
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of ____________, 19__, is made by
and between P.F. Chang's China Bistro, Inc., a Delaware corporation (the
"Company"), and ______________ (the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers
and agents and the directors, officers and agents of its subsidiaries to assume
the risk of huge judgments and other expenses which may occur in cases in which
the director, officer or agent received no personal profit and in cases where
the director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
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<PAGE> 2
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to encourage such individuals to take
the business risks necessary for the success of the Company and its
subsidiaries, it is necessary for the Company to contractually indemnify its
directors, officers and agents and the directors, officers and agents of its
subsidiaries, and to assume for itself maximum liability for expenses and
damages in connection with claims against such directors, officers and agents in
connection with their service to the Company and its subsidiaries, and has
further concluded that the failure to provide such contractual indemnification
could result in great harm to the Company and its subsidiaries and the Company's
stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
2
<PAGE> 3
(b) Expenses. For purposes of this Agreement, "expenses" include all
out-of-pocket costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement or Section 145 or otherwise;
provided, however, that "expenses" shall not include any judgments, fines, ERISA
excise taxes or penalties, or amounts paid in settlement of a proceeding.
(c) Proceeding. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary" means
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue
to serve as agent of the Company, at its will (or under separate agreement, if
such agreement exists), in the capacity Indemnitee currently serves as an agent
of the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the By-laws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.
3. Mandatory Indemnification. Subject to Section 8 below, the Company
shall indemnify the Indemnitee as follows:
(a) Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was or is
a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
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<PAGE> 4
(c) Derivative Actions. If the Indemnitee is a person who was or is
a party or is threatened to be made a party to any proceeding by or in the right
of the Company by reason of the fact that he is or was an agent of the Company,
or by reason of anything done or not done by him in any such capacity, the
Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 3(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 3(a), 3(b), or 3(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) for which payment is actually
made to or on behalf of Indemnitee under a valid and collectible insurance
policy of D&O Insurance, or under a valid and enforceable indemnity clause,
by-law or agreement.
4. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
5. Mandatory Advancement of Expenses. Subject to Section 7(a) below,
the Company shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified
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<PAGE> 5
by the Company as authorized hereby. The advances to be made hereunder shall be
paid by the Company to the Indemnitee within twenty (20) days following delivery
of a written request therefor by the Indemnitee to the Company.
6. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the commencement
of a proceeding pursuant to Section 6(a) hereof, the Company has D&O Insurance
in effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.
(c) In the event the Company shall be obligated to pay the expenses
of any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense, or (C) the Company shall not, in fact, have employed counsel
to assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
7. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
(b) Lack of Good Faith. To indemnify the Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce
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<PAGE> 6
or interpret this Agreement, if a court of competent jurisdiction determines
that each of the material assertions made by the Indemnitee in such proceeding
was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of a proceeding unless the Company
consents to such settlement, which consent shall not be unreasonably withheld.
8. Non-exclusivity. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or By-laws, the vote of the Company's
stockholders or disinterested directors, other agreements, or otherwise, both as
to action in his official capacity and to action in another capacity while
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
9. Enforcement. Any right to indemnification or advances granted by
this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement (other
than an action brought to enforce a claim for expenses pursuant to Section 5
hereof, provided that the required undertaking has been tendered to the Company)
that Indemnitee is not entitled to indemnification because of the limitations
set forth in Sections 3 and 7 hereof. Neither the failure of the Company
(including its Board of Directors or its stockholders) to have made a
determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that such indemnification is improper, shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
10. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
11. Survival of Rights.
(a) All agreements and obligations of the Company contained herein
shall continue during the period Indemnitee is an agent of the Company and shall
continue thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal, arbitrational, administrative or investigative, by reason of the fact
that Indemnitee was serving in the capacity referred to herein.
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<PAGE> 7
(b) The Company shall require any successor to the Company (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place.
12. Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
13. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 12 hereof.
14. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
15. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
16. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
7
<PAGE> 8
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
THE COMPANY:
P.F. CHANG'S CHINA BISTRO, INC.
By: _______________________________
_____________________________________
(Printed Name)
Title _______________________________
Address: ____________________________
_____________________________________
INDEMNITEE:
By: _______________________________
_____________________________________
(Indemnitee's Printed Name)
Address: ____________________________
_____________________________________
8
<PAGE> 1
EXHIBIT 10.2
P.F. CHANG'S CHINA BISTRO, INC.
1998 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The P.F. Chang's China Bistro, Inc. 1998 Stock
Option Plan (the "PLAN") is hereby established effective as of the effective
date of the initial registration by the Company of its Stock under Section 12 of
the Exchange Act (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the interests
of the Participating Company Group and its stockholders by providing an
incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Incentive
Stock Options shall be granted, if at all, within ten (10) years from the
earlier of the date the Plan is adopted by the Board or the date the Plan is
duly approved by the stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"BOARD" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
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<PAGE> 2
(d) "COMPANY" means P.F. Chang's China Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(f) "DIRECTOR" means a member of the Board or of the board
of directors of any other Participating Company.
(g) "DISABILITY" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.
(h) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any Incentive Stock
Option granted to such person, who is an employee for purposes of Section 422 of
the Code; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan. The Company shall determine in good faith and in the exercise of its
discretion whether an individual has become or has ceased to be an Employee and
the effective date of such individual's employment or termination of employment,
as the case may be. For purposes of an individual's rights, if any, under the
Plan as of the time of the Company's determination, all such determinations by
the Company shall be final, binding and conclusive, notwithstanding that the
Company or any governmental agency subsequently makes a contrary determination.
(i) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(j) "FAIR MARKET VALUE" means, as of any date, the value of
a share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing price of a
share of Stock (or the mean of the closing bid and asked prices of a share of
Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
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(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option intended to be
(as set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.
(l) "INSIDER" means an officer or a Director of the Company
or any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(m) "NONEMPLOYEE DIRECTOR" means a Director of the Company
who is not an Employee.
(n) "NONEMPLOYEE DIRECTOR OPTION" means a right to purchase
Stock (subject to adjustment as provided in Section 4.2) granted to a
Nonemployee Director pursuant to the terms and conditions of the Plan.
Nonemployee Director Options shall be Nonstatutory Stock Options.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended
to be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
(p) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan, including a Nonemployee Director Option. An Option may be either an
Incentive Stock Option or a Nonstatutory Stock Option.
(q) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(r) "OPTIONEE" means a person who has been granted one or
more Options.
(s) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(t) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(u) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(v) "PRIOR PLANS" means the Company's 1996 Stock Option Plan
and 1997 Restaurant Management Stock Option Plan.
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(w) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(x) "SECTION 162(m)" means Section 162(m) of the Code.
(y) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(z) "SERVICE" means an Optionee's employment or service with
the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. An Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
an Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and instead shall be treated thereafter as
a Nonstatutory Stock Option unless the Optionee's right to return to Service
with the Participating Company Group is guaranteed by statute or contract.
Notwithstanding the foregoing, unless otherwise designated by the Company or
required by law, a leave of absence shall not be treated as Service for purposes
of determining vesting under the Optionee's Option Agreement. An Optionee's
Service shall be deemed to have terminated either upon an actual termination of
Service or upon the corporation for which the Optionee performs Service ceasing
to be a Participating Company. Subject to the foregoing, the Company, in its
sole discretion, shall determine whether an Optionee's Service has terminated
and the effective date of such termination.
(aa) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(bb) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(cc) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at
the time an Option is granted to the Optionee, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
a Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall
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include the singular. Use of the term "or" is not intended to be exclusive,
unless the context clearly requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered
by the Board. All questions of interpretation of the Plan or of any Option shall
be determined by the Board, and such determinations shall be final and binding
upon all persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 COMMITTEE COMPLYING WITH SECTION 162(m). If a Participating
Company is a "publicly held corporation" within the meaning of Section 162(m),
the Board may establish a Committee of "outside directors" within the meaning of
Section 162(m) to approve the grant of any Option which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m).
3.4 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times
at which, Options shall be granted and the number of shares of Stock to be
subject to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or
other property;
(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the
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withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, or grant a new
Option in substitution for, any Option or to waive any restrictions or
conditions applicable to any Option or any shares acquired upon the exercise
thereof;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be the sum of (a)____________________________
(__________) shares, (b) the number of shares of Stock, as of the date on which
the Board adopted the Plan (the "ADOPTION DATE"), subject to outstanding options
granted pursuant to the Prior Plans (the "PRIOR PLAN OPTIONS"), and (c) the
number of shares of Stock available for future grant under the Prior Plans as of
the Adoption Date (the "PRIOR PLAN AVAILABLE SHARES"), resulting in an aggregate
total of five hundred sixty thousand (560,000) shares (the "SHARE RESERVE") and
shall consist of authorized but unissued or reacquired shares of Stock or any
combination thereof. Notwithstanding the foregoing, the Share Reserve,
determined at any time, shall be reduced by (a) the number of shares remaining
subject to outstanding Prior Plan Options, (b) the number of shares issued upon
the exercise of Prior Plan Options, and (c) the number of shares, if any, of the
Prior Plan Available Shares which are issued upon the exercise of options
granted under the Prior
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Plans subsequent to the Effective Date. If an outstanding Option for any reason
expires or is terminated or canceled, or if shares of Stock acquired, subject to
repurchase, upon the exercise of an Option are repurchased by the Company, the
shares of Stock allocable to the unexercised portion of such Option or such
repurchased shares of Stock shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options, in the share limit set forth
in Section 3.4(h), in the Section 162(m) Grant Limit set forth in Section 5.4,
to the automatic Nonemployee Director Option grant provisions set forth in
Section 7.1 and in the exercise price per share of any outstanding Options. If a
majority of the shares which are of the same class as the shares that are
subject to outstanding Options are exchanged for, converted into, or otherwise
become (whether or not pursuant to an Ownership Change Event, as defined in
Section 9.1) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares. In the event of any such amendment, the number of
shares subject to, and the exercise price per share of, the outstanding Options
shall be adjusted in a fair and equitable manner as determined by the Board, in
its sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or
down to the nearest whole number, as determined by the Board, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option. The adjustments determined by
the Board pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants and Directors. For purposes of the foregoing sentence,
"Employees", "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of employment or other service relationship with
the Participating Company Group. Eligible persons may be granted more than one
(1) Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee
on the effective date of the grant of an Option to such person may be granted
only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences Service as
an Employee with a Participating Company, with an exercise price determined as
of such date in accordance with Section 6.1. A Nonemployee Director Option may
be granted only to a person who at the time of grant is a Nonemployee Director.
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5.3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having an
aggregate Fair Market Value greater than One Hundred Thousand Dollars
($100,000), the portion of such options which exceeds such amount shall be
treated as Nonstatutory Stock Options. For purposes of this Section 5.3, options
designated as Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of stock shall be
determined as of the time the option with respect to such stock is granted. If
the Code is amended to provide for a different limitation from that set forth in
this Section 5.3, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of the
limitation set forth in this Section 5.3, the Optionee may designate which
portion of such Option the Optionee is exercising. In the absence of such
designation, the Optionee shall be deemed to have exercised the Incentive Stock
Option portion of the Option first. Separate certificates representing each such
portion shall be issued upon the exercise of the Option.
5.4 SECTION 162(m) GRANT LIMIT. Subject to adjustment as provided
in Section 4.2, at any such time as a Participating Company is a "publicly held
corporation" within the meaning of Section 162(m), no Employee shall be granted
one or more Options within any fiscal year of the Company which in the aggregate
are for the purchase of more than ___________________________ (_____________)
shares of Stock (the "SECTION 162(m) GRANT LIMIT"). An Option which is canceled
in the same fiscal year of the Company in which it was granted shall continue to
be counted against the Section 162(m) Grant Limit for such period.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish. No Option or purported Option shall be a valid and
binding obligation of the Company unless evidenced by a fully executed Option
Agreement. Option Agreements may incorporate all or any of the terms of the Plan
by reference and, except as otherwise set forth in Section 7 with respect to
Nonemployee Director Options, shall comply with and be subject to the following
terms and conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Incentive
Stock Option granted to a Ten Percent Owner Optionee shall have an exercise
price per share less than one hundred ten percent (110%) of the Fair Market
Value of a share of Stock on the effective date of grant of the
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Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an exercise price
lower than the minimum exercise price set forth above if such Option is granted
pursuant to an assumption or substitution for another option in a manner
qualifying under the provisions of Section 424(a) of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Incentive Stock Option shall be exercisable after the expiration of
ten (10) years after the effective date of grant of such Option, (b) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall be
exercisable after the expiration of five (5) years after the effective date of
grant of such Option, and (c) no Option granted to a prospective Employee,
prospective Consultant or prospective Director may become exercisable prior to
the date on which such person commences Service with a Participating Company.
Subject to the foregoing, unless otherwise specified by the Board in the grant
of an Option, any Option granted hereunder shall have a term of ten (10) years
from the effective date of the grant of the Option.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) provided that the Optionee is an Employee, by cash
for a portion of the aggregate exercise price not less than the par value of the
shares being acquired and the Optionee's promissory note in a form approved by
the Company for the balance of the aggregate exercise price, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 8, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may
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not be exercised by tender to the Company of shares of Stock unless such shares
either have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market Value, as determined by the Company, equal
to all or any part of the federal, state, local and foreign taxes, if any,
required by law to be withheld by the Participating Company Group with respect
to such Option or the shares acquired upon the exercise thereof. Alternatively
or in addition, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding, cash payment or otherwise,
including by means of a Cashless Exercise, to make adequate provision for any
such tax withholding obligations of the Participating Company Group arising in
connection with the Option or the shares acquired upon the exercise thereof. The
Company shall have no obligation to deliver shares of Stock until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to earlier termination of
the Option as otherwise provided herein, an Option shall be exercisable after an
Optionee's termination of Service as follows:
(i) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be
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exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months (or such longer or
shorter period of time as determined by the Board, in its sole discretion) after
the date on which the Optionee's Service terminated, but in any event no later
than the date of expiration of the Option's term as set forth in the Option
Agreement evidencing such Option (the "OPTION EXPIRATION DATE").
(ii) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of twelve
(12) months (or such longer or shorter period of time as determined by the
Board, in its sole discretion) after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. The
Optionee's Service shall be deemed to have terminated on account of death if the
Optionee dies within three (3) months after the Optionee's termination of
Service.
(iii) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability, death or Cause, as provided in Section 6.5(d) below, the Option, to
the extent unexercised and exercisable by the Optionee on the date on which the
Optionee's Service terminated, may be exercised by the Optionee within three (3)
months (or such longer or shorter period of time as determined by the Board, in
its sole discretion) after the date on which the Optionee's Service terminated,
but in any event no later than the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of an Option within the applicable time periods
set forth in Section 6.5(a) is prevented by the provisions of Section 12 below,
the Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.5(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
(d) TERMINATION FOR CAUSE. Except as otherwise provided in a
contract of employment or service between a Participating Company and an
Optionee, and notwithstanding any other provision of the Plan to the contrary,
if the Optionee's Service with the Participating Company Group is terminated for
Cause as defined below, the Option shall terminate and cease to be exercisable
immediately upon such termination of Service. For purposes of this Section
6.5(d), "CAUSE" shall mean any of the following: (1) the Optionee's
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theft, dishonesty, or falsification of any Participating Company documents or
records; (2) the Optionee's improper use or disclosure of a Participating
Company's confidential or proprietary information; (3) any action by the
Optionee which has a detrimental effect on a Participating Company's reputation
or business; (4) the Optionee's failure or inability to perform any reasonable
assigned duties after written notice from the Participating Company Group of,
and a reasonable opportunity to cure, such failure or inability; (5) any
material breach by the Optionee of any agreement of employment or service
between the Optionee and the Participating Company Group, which breach is not
cured pursuant to the terms of such agreement; or (6) the Optionee's conviction
(including any plea of guilty or nolo contendere) of any criminal act which
impairs the Optionee's ability to perform his or her duties with the
Participating Company Group. A determination by the Board that the Optionee was
terminated for Cause shall be final and binding upon the Optionee for all
purposes and shall not be subject to review by any governmental agency or court
of law.
7. TERMS AND CONDITIONS OF NONEMPLOYEE DIRECTOR OPTIONS.
Nonemployee Director Options shall be evidenced by Option
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Such Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
7.1 AUTOMATIC GRANT. Subject to the execution by a Nonemployee
Director of an appropriate Option Agreement, Nonemployee Director Options shall
be granted automatically and without further action of the Board, as follows:
(a) INITIAL OPTION. Each person who first becomes a
Nonemployee Director on or after the Effective Date shall be granted on the date
such person first becomes a Nonemployee Director a Nonemployee Director Option
to purchase twenty thousand (20,000) shares of Stock (an "INITIAL OPTION");
provided, however, that an Initial Option shall not be granted to a Director who
previously did not qualify as a Nonemployee Director but subsequently becomes a
Nonemployee Director as a result of the termination of his or her status as an
Employee.
(b) ANNUAL OPTION. Each Nonemployee Director (including any
Director who previously did not qualify as a Nonemployee Director but who
subsequently becomes a Nonemployee Director) shall be granted on the date
immediately following each annual meeting of the stockholders of the Company
which occurs on or after the Effective Date (an "ANNUAL MEETING") a Nonemployee
Director Option to purchase five thousand (5,000) shares of Stock (an "ANNUAL
OPTION"); provided, however, that a Nonemployee Director granted an Initial
Option on the date of an Annual Meeting shall not be granted an Annual Option
pursuant to this Section on the date immediately following the same Annual
Meeting.
(c) RIGHT TO DECLINE NONEMPLOYEE DIRECTOR OPTION.
Notwithstanding the foregoing, any person may elect not to receive a Nonemployee
Director Option by delivering
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written notice of such election to the Board no later than the day prior to the
date such Nonemployee Director Option would otherwise be granted. A person so
declining a Nonemployee Director Option shall receive no payment or other
consideration in lieu of such declined Nonemployee Director Option. A person who
has declined a Nonemployee Director Option may revoke such election by
delivering written notice of such revocation to the Board no later than the day
prior to the date such Nonemployee Director Option would be granted pursuant to
Section 7.1(a) or (b), as the case may be.
7.2 EXERCISE PRICE. The exercise price per share of Stock subject
to a Nonemployee Director Option shall be the Fair Market Value of a share of
Stock on the date the Nonemployee Director Option is granted.
7.3 EXERCISE PERIOD. Each Nonemployee Director Option shall
terminate and cease to be exercisable on the date ten (10) years after the date
of grant of the Nonemployee Director Option unless earlier terminated pursuant
to the terms of the Plan or the Option Agreement.
7.4 RIGHT TO EXERCISE NONEMPLOYEE DIRECTOR OPTIONS. Except as
otherwise provided in the Option Agreement, 1/5 of the shares subject to a
Nonemployee Director Option shall become vested and exercisable on the first
anniversary of the date on which such Option was granted, and the remaining
shares shall vest in equal monthly installments over the following 48 months,
provided that the Optionee's Service has not terminated prior to the relevant
date.
7.5 EFFECT OF TERMINATION OF SERVICE ON NONEMPLOYEE DIRECTOR
OPTIONS.
(a) OPTION EXERCISABILITY. Subject to earlier termination of
the Nonemployee Director Option as otherwise provided herein, a Nonemployee
Director Option shall be exercisable after an Optionee's termination of Service
as follows:
(i) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Nonemployee Director Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months after the date on
which the Optionee's Service terminated, but in any event no later than the date
of expiration of the Option Expiration Date.
(ii) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Nonemployee Director Option, to the extent unexercised and exercisable on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee's legal representative or other person who acquired the right to
exercise the Nonemployee Director Option by reason of the Optionee's death at
any time prior to the expiration of twelve (12) months after the date on which
the Optionee's Service terminated, but in any event no later than the Option
Expiration Date. The
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<PAGE> 14
Optionee's Service shall be deemed to have terminated on account of death if the
Optionee dies within six (6) months after the Optionee's termination of Service.
(iii) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Nonemployee Director Option, to the extent unexercised
and exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within six (6) months after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of a Nonemployee Director Option within the
applicable time periods set forth in Section 7.5(a) is prevented by the
provisions of Section 12 below, the Nonemployee Director Option shall remain
exercisable until three (3) months after the date the Optionee is notified by
the Company that the Nonemployee Director Option is exercisable, but in any
event no later than the Option Expiration Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.5(a) of shares acquired upon the exercise of the Nonemployee
Director Option would subject the Optionee to suit under Section 16(b) of the
Exchange Act, the Nonemployee Director Option shall remain exercisable until the
earliest to occur of (i) the tenth (10th) day following the date on which a sale
of such shares by the Optionee would no longer be subject to such suit, (ii) the
one hundred and ninetieth (190th) day after the Optionee's termination of
Service, or (iii) the Option Expiration Date.
8. STANDARD FORMS OF OPTION AGREEMENT.
8.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the appropriate form of Incentive Stock Option Agreement adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
8.2 NONSTATUTORY STOCK OPTIONS (OTHER THAN NONEMPLOYEE DIRECTOR
OPTION). Unless otherwise provided by the Board at the time the Option is
granted, an Option designated as a "Nonstatutory Stock Option" (other than a
Nonemployee Director Option) shall comply with and be subject to the terms and
conditions set forth in the appropriate form of Nonstatutory Stock Option
Agreement adopted by the Board concurrently with its adoption of the Plan and as
amended from time to time.
8.3 NONEMPLOYEE DIRECTOR OPTION. Each Nonemployee Director Option
shall comply with and be subject to the terms and conditions set forth in the
appropriate form of
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<PAGE> 15
Nonstatutory Stock Option Agreement (Nonemployee Director Option) adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
8.4 AUTHORITY TO VARY TERMS. The Board shall have the authority
from time to time to vary the terms of any of the standard forms of Option
Agreement described in this Section 8 either in connection with the grant or
amendment of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
any such new, revised or amended standard form or forms of Option Agreement are
not inconsistent with the terms of the Plan.
9. CHANGE IN CONTROL.
9.1 DEFINITIONS. Except as otherwise determined by the Board and
set forth in an Option Agreement, the following terms shall have their
respective meanings set forth below:
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the stockholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is
a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
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<PAGE> 16
9.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a
Change in Control, each holder of an unexercisable or unvested outstanding
Option shall be credited with an additional two (2) years of Service as of the
date ten (10) days prior to the date of the Change in Control, solely for the
purpose of determining the number of exercisable and vested shares of Stock
subject to the Option. The exercise or vesting of any Option that was
permissible solely by reason of this Section shall be conditioned upon the
consummation of the Change in Control. In addition, the surviving, continuing,
successor, or purchasing corporation or parent corporation thereof, as the case
may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and
obligations under outstanding Options or substitute for outstanding Options
substantially equivalent options for the Acquiring Corporation's stock. For
purposes of this Section 9.2, an Option shall be deemed assumed if, following
the Change in Control, the Option confers the right to purchase in accordance
with its terms and conditions, for each share of Stock subject to the Option
immediately prior to the Change in Control, the consideration (whether stock,
cash or other securities or property) to which a holder of a share of Stock on
the effective date of the Change in Control was entitled. Any Options which are
neither assumed or substituted for by the Acquiring Corporation in connection
with the Change in Control nor exercised as of the date of the Change in Control
shall terminate and cease to be outstanding effective as of the date of the
Change in Control. Notwithstanding the foregoing, if the corporation the stock
of which is subject to the outstanding Options immediately prior to an Ownership
Change Event described in Section 9.1(a)(i) constituting a Change in Control is
the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power of
its voting stock is held by another corporation or by other corporations that
are members of an affiliated group within the meaning of Section 1504(a) of the
Code without regard to the provisions of Section 1504(b) of the Code, the
outstanding Options shall not terminate unless the Board otherwise provides in
its sole discretion.
9.3 NOTICE. The Company shall provide notice of a Change in
Control to all holders of outstanding Options at least ten (10) days prior to
the consummation of the Change in Control. The Company's notice shall summarize
the principal terms of the Change in Control, including, without limitation,
whether the Acquiring Corporation is assuming the outstanding Options or
substituting equivalent options therefor.
10. PROVISION OF INFORMATION.
Each Optionee shall be given access to information concerning the
Company equivalent to that information generally made available to the Company's
common stockholders.
11. TRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee or the Optionee's guardian or legal
representative. No Option shall be assignable or transferable by the Optionee,
except by will or by the laws of descent and distribution.
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<PAGE> 17
Notwithstanding the foregoing, a Nonstatutory Stock Option shall be assignable
or transferable to the extent permitted by the Board and set forth in the Option
Agreement evidencing such Option.
12. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
no Option may be exercised unless (a) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (b) in the opinion
of legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of any
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
13. INDEMNIFICATION.
In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
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<PAGE> 18
14. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's stockholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's stockholders under any applicable law, regulation or rule. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or rule.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing P.F. Chang's China Bistro, Inc. 1998 Stock Option Plan was
duly adopted by the Board on _________________, 1998.
_____________________________
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<PAGE> 19
P.F. CHANG'S CHINA BISTRO, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
(NONEMPLOYEE DIRECTOR)
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is
made and entered into as of the Date of Option Grant by and between P.F. Chang's
China Bistro, Inc. and ___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the P.F. Chang's
China Bistro, Inc. 1998 Stock Option Plan (the "PLAN") an option to purchase
certain shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1. DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means ___________________ , 199 __
.
(b) "NUMBER OF OPTION SHARES" means __________________ shares
of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $ ______________ per share of
Stock, as adjusted from time to time pursuant to Section 9.
(d) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(e) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the
Optionee's Service has not terminated
prior to such date 1/5
Plus:
For each full month of the Optionee's
continuous Service from the Initial
Vesting Date until the Vested Ratio
equals 1/1, an additional 1/60
</TABLE>
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<PAGE> 20
(f) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(g) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(h) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(i) "COMPANY" means P.F. Chang's China Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.
(j) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(k) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(l) "DISABILITY" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.
(m) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company and who is an employee for purposes of
Section 422 of the Code; provided, however, that neither service as a Director
nor payment of a director's fee shall be sufficient to constitute employment for
this purpose. The Company shall determine in good faith and in the exercise of
its discretion whether an individual has become or has ceased to be an Employee
and the effective date of such individual's employment or termination of
employment, as the case may be. For purposes of an individual's rights, if any,
under the Plan as of the time of the Company's determination, all such
determinations by the Company shall be final, binding and conclusive,
notwithstanding that the Company or any governmental agency subsequently makes a
contrary determination.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of a
share of stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
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<PAGE> 21
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing price of a
share of Stock (or the mean of the closing bid and asked prices of a share of
Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(p) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(r) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(s) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(t) "SERVICE" means the Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service.
Notwithstanding the foregoing, unless otherwise designated by the Company or
required by law, a leave of absence shall not be treated as Service for purposes
of determining the Vested Ratio. The Optionee's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the corporation
for which the Optionee performs Service ceasing to be a Participating Company.
Subject to the foregoing, the Company, in its sole discretion, shall determine
whether the Optionee's Service has terminated and the effective date of such
termination.
(u) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 9.
(v) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
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<PAGE> 22
1.2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. TAX STATUS OF OPTION.
This Option is intended to be a nonstatutory stock option and shall not
be treated as an incentive stock option within the meaning of Section 422(b) of
the Code.
3. ADMINISTRATION.
All questions of interpretation concerning this Option Agreement shall
be determined by the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Date of Option Grant and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option. In no event
shall the Option be exercisable for more shares than the Number of Option
Shares.
4.2. METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered to the Chief Financial Officer of the Company, or
other authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in Section 6, accompanied by full payment
of the aggregate Exercise Price for the number of shares of Stock being
purchased and the tax withholding obligations, if any, as provided in Section
4.4. The Option shall be deemed to be exercised upon receipt by the Company of
such written notice, the aggregate Exercise Price, and tax withholding
obligations, if any.
4.3. PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash or
cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by
the Optionee having a Fair Market Value (as determined by the Company without
regard to any restrictions on transferability applicable to
4
<PAGE> 23
such stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by any
combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4. TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested, and
the Company shall have no obligation to issue a certificate for such shares.
4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock
5
<PAGE> 24
may then be listed. In addition, the Option may not be exercised unless (i) a
registration statement under the Securities Act shall at the time of exercise of
the Option be in effect with respect to the shares issuable upon exercise of the
Option or (ii) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions
concerning this restriction should be directed to the Chief Financial Officer of
the Company. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's legal counsel
to be necessary to the lawful issuance and sale of any shares subject to the
Option shall relieve the Company of any liability in respect of the failure to
issue or sell such shares as to which such requisite authority shall not have
been obtained. As a condition to the exercise of the Option, the Company may
require the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to
make any representation or warranty with respect thereto as may be requested by
the Company.
4.7. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION.
The Option may be exercised during the lifetime of the Optionee only by
the Optionee or the Optionee's guardian or legal representative and may not be
assigned or transferred in any manner except by will or by the laws of descent
and distribution. Following the death of the Optionee, the Option, to the extent
provided in Section 7, may be exercised by the Optionee's legal representative
or by any person empowered to do so under the deceased Optionee's will or under
the then applicable laws of descent and distribution.
6. TERMINATION OF THE OPTION.
The Option shall terminate and may no longer be exercised on the first
to occur of (a) the Option Expiration Date, (b) the last date for exercising the
Option following termination of the Optionee's Service as described in Section
7, or (c) a Change in Control to the extent provided in Section 8.
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<PAGE> 25
7. EFFECT OF TERMINATION OF SERVICE.
7.1. OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within six (6) months after
the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within six (6) months (or such other longer period of
time as determined by the Board, in its sole discretion) after the date on which
the Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
7.2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
8. CHANGE IN CONTROL.
8.1. DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
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<PAGE> 26
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the stockholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is
a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2. EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a
Change in Control, the Optionee shall be credited with an additional two (2)
years of Service as of the date ten (10) days prior to the date of the Change in
Control, solely for purposes of determining the Vested Ratio. Any exercise or
vesting of the Option that was permissible solely by reason of this Section 8.2
shall be conditioned upon the consummation of the Change in Control. In
addition, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"),
may either assume the Company's rights and obligations under the Option or
substitute for the Option a substantially equivalent option for the Acquiring
Corporation's stock. For purposes of this Section 8.2, the Option shall be
deemed assumed if, following the Change in Control, the Option confers the right
to purchase in accordance with its terms and conditions, for each share of Stock
subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Change in Control was
entitled. The Option shall terminate and cease to be outstanding effective as of
the date of the Change in Control to the extent that the Option is neither
assumed or substituted for by the Acquiring Corporation in connection with the
Change in Control nor exercised as of the date of the Change in Control.
Notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Change in Control is the surviving or
continuing corporation and
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<PAGE> 27
immediately after any such event less than fifty percent (50%) of the total
combined voting power of its voting stock is held by another corporation or by
other corporations that are members of an affiliated group within the meaning of
Section 1504(a) of the Code without regard to the provisions of Section 1504(b)
of the Code, the Option shall not terminate unless the Board otherwise provides
in its sole discretion.
8.3. NOTICE. The Company shall provide notice of a Change in
Control to the Optionee at least ten (10) days prior to the consummation of a
Change in Control. The Company's notice shall summarize the principal terms of
the Change in Control, including, without limitation, whether the Acquiring
Corporation is assuming the Option or substituting an equivalent option
therefor.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a
majority of the shares which are of the same class as the shares that are
subject to the Option are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the Number of Option Shares and the Exercise Price shall be adjusted
in a fair and equitable manner, as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 9 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
Exercise Price be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 9 shall be final, binding and conclusive.
10. RIGHTS AS A STOCKHOLDER.
The Optionee shall have no rights as a stockholder with respect to any
shares covered by the Option until the date of the issuance of a certificate for
the shares for which the Option has been exercised (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends, distributions
or other rights for which the record date is prior to the date such certificate
is issued, except as provided in Section 9.
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<PAGE> 28
11. LEGENDS.
The Company may at any time place legends referencing any applicable
federal, state or foreign securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this Section.
12. BINDING EFFECT.
Subject to the restrictions on transfer set forth herein, this Option
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, administrators, successors and assigns.
13. TERMINATION OR AMENDMENT.
The Board may terminate or amend the Plan or the Option at any time;
provided, however, that except as provided in Section 8.2 in connection with a
Change in Control, no such termination or amendment may adversely affect the
Option or any unexercised portion hereof without the consent of the Optionee
unless such termination or amendment is necessary to comply with any applicable
law or government regulation. No amendment or addition to this Option Agreement
shall be effective unless in writing.
14. NOTICES.
Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given (except to the extent that this Option
Agreement provides for effectiveness only upon actual receipt of such notice)
upon personal delivery or upon deposit in the United States Post Office, by
registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address of such party as set forth below that party's
signature or at such other address as such party may designate in writing from
time to time to the other party.
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<PAGE> 29
15. INTEGRATED AGREEMENT.
This Option Agreement constitutes the entire understanding and
agreement of the Optionee and the Participating Company Group with respect to
the subject matter contained herein, and there are no agreements,
understandings, restrictions, representations, or warranties among the Optionee
and the Participating Company Group with respect to such subject matter other
than those as set forth or provided for herein. To the extent contemplated
herein, the provisions of this Option Agreement shall survive any exercise of
the Option and shall remain in full force and effect.
16. APPLICABLE LAW.
This Option Agreement shall be governed by the laws of the State of
Delaware as such laws are applied to agreements between Delaware residents
entered into and to be performed entirely within the State of Delaware.
P.F. CHANG'S CHINA BISTRO, INC.
By: ________________________________
Title: _____________________________
Address: ___________________________
___________________________
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement, and hereby accepts the Option subject
to all of the terms and provisions thereof. The Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Board
upon any questions arising under this Option Agreement.
OPTIONEE
Date:_____________________________ ____________________________________
Optionee Address:
____________________________________
____________________________________
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<PAGE> 30
P.F. CHANG'S CHINA BISTRO, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is
made and entered into as of the Date of Option Grant by and between P.F. Chang's
China Bistro, Inc. and ___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the P.F. Chang's
China Bistro, Inc. 1998 Stock Option Plan (the "PLAN") an option to purchase
certain shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1. DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means ___________________ ,
199 __ .
(b) "NUMBER OF OPTION SHARES" means __________________ shares
of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $ ______________ per share of
Stock, as adjusted from time to time pursuant to Section 9.
(d) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(e) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the
Optionee's Service has not terminated
prior to such date 1/5
Plus:
For each full month of the Optionee's
continuous Service from the Initial
Vesting Date until the Vested Ratio
equals 1/1, an additional 1/60
</TABLE>
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<PAGE> 31
(f) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(g) "CAUSE" means any of the following: (i) the Optionee's
theft, dishonesty, or falsification of any Participating Company documents or
records; (ii) the Optionee's improper use or disclosure of a Participating
Company's confidential or proprietary information; (iii) any action by the
Optionee which has a detrimental effect on a Participating Company's reputation
or business; (iv) the Optionee's failure or inability to perform any reasonable
assigned duties after written notice from the Participating Company Group of,
and a reasonable opportunity to cure, such failure or inability; (v) any
material breach by the Optionee of any agreement of employment or service
between the Optionee and the Participating Company Group, which breach is not
cured pursuant to the terms of such agreement; or (vi) the Optionee's conviction
(including any plea of guilty or nolo contendere) of any criminal act which
impairs the Optionee's ability to perform his or her duties with the
Participating Company Group. A determination by the Board that the Optionee was
terminated for Cause shall be final and binding upon the Optionee for all
purposes and shall not be subject to review by any governmental agency or court
of law.
(h) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(i) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(j) "COMPANY" means P.F. Chang's China Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.
(k) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(l) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(m) "DISABILITY" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.
(n) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company and who is an employee for purposes of
Section 422 of the Code; provided, however, that neither service as a Director
nor payment of a director's fee shall be sufficient to constitute employment for
this purpose. The Company shall determine in good faith and in the exercise of
its discretion whether an individual has become or has ceased to be an Employee
and the
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<PAGE> 32
effective date of such individual's employment or termination of employment, as
the case may be. For purposes of an individual's rights, if any, under the Plan
as of the time of the Company's determination, all such determinations by the
Company shall be final, binding and conclusive, notwithstanding that the Company
or any governmental agency subsequently makes a contrary determination.
(o) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(p) "FAIR MARKET VALUE" means, as of any date, the value of
a share of stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing price of a
share of Stock (or the mean of the closing bid and asked prices of a share of
Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(q) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(t) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(u) "SERVICE" means the Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service.
Notwithstanding the foregoing, unless otherwise designated by the Company or
required by law, a leave of
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<PAGE> 33
absence shall not be treated as Service for purposes of determining the Vested
Ratio. The Optionee's Service shall be deemed to have terminated either upon an
actual termination of Service or upon the corporation for which the Optionee
performs Service ceasing to be a Participating Company. Subject to the
foregoing, the Company, in its sole discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
(v) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 9.
(w) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
1.2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. TAX STATUS OF OPTION.
This Option is intended to be a nonstatutory stock option and shall not
be treated as an incentive stock option within the meaning of Section 422(b) of
the Code.
3. ADMINISTRATION.
All questions of interpretation concerning this Option Agreement shall
be determined by the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Date of Option Grant and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option. In no event
shall the Option be exercisable for more shares than the Number of Option
Shares.
4.2. METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered to the Chief Financial Officer of the Company, or
other authorized
4
<PAGE> 34
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased and
the tax withholding obligations, if any, as provided in Section 4.4. The Option
shall be deemed to be exercised upon receipt by the Company of such written
notice, the aggregate Exercise Price, and tax withholding obligations, if any.
4.3. PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash or
cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by
the Optionee having a Fair Market Value (as determined by the Company without
regard to any restrictions on transferability applicable to such stock by reason
of federal or state securities laws or agreements with an underwriter for the
Company) not less than the aggregate Exercise Price, (iii) by means of a
Cashless Exercise, as defined in Section 4.3(c), or (iv) by any combination of
the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4. TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the
5
<PAGE> 35
Optionee may not be able to exercise the Option when desired even though the
Option is vested, and the Company shall have no obligation to issue a
certificate for such shares.
4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should
be directed to the Chief Financial Officer of the Company. The inability of the
Company to obtain from any regulatory body having jurisdiction the authority, if
any, deemed by the Company's legal counsel to be necessary to the lawful
issuance and sale of any shares subject to the Option shall relieve the Company
of any liability in respect of the failure to issue or sell such shares as to
which such requisite authority shall not have been obtained. As a condition to
the exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
4.7. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION.
The Option may be exercised during the lifetime of the Optionee only by
the Optionee or the Optionee's guardian or legal representative and may not be
assigned or transferred in any manner except by will or by the laws of descent
and distribution. Following the death of the Optionee, the Option, to the extent
provided in Section 7, may be exercised by the Optionee's legal representative
or by any person empowered to do so under the deceased Optionee's will or under
the then applicable laws of descent and distribution.
6. TERMINATION OF THE OPTION.
6
<PAGE> 36
The Option shall terminate and may no longer be exercised on the first
to occur of (a) the Option Expiration Date, (b) the last date for exercising the
Option following termination of the Optionee's Service as described in Section
7, or (c) a Change in Control to the extent provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1. OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within three (3) months
after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability, death, or Cause, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within three (3) months (or such
other longer period of time as determined by the Board, in its sole discretion)
after the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date.
7.2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
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<PAGE> 37
7.4. TERMINATION FOR CAUSE. Except as otherwise provided in a
contract of employment or service between a Participating Company and the
Optionee, and notwithstanding any other provision of this Option Agreement to
the contrary, if the Optionee's Service with the Participating Company Group is
terminated for Cause, the Option shall terminate and cease to be exercisable
immediately upon such termination of Service.
8. CHANGE IN CONTROL.
8.1. DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the stockholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is
a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2. EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a
Change in Control, the Optionee shall be credited with an additional two (2)
years of Service as of the date ten (10) days prior to the date of the Change in
Control, solely for purposes of determining the Vested Ratio. Any exercise or
vesting of the Option that was permissible solely by reason of this Section 8.2
shall be conditioned upon the consummation of the Change in Control. In
addition, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"),
may either assume the Company's rights and
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<PAGE> 38
obligations under the Option or substitute for the Option a substantially
equivalent option for the Acquiring Corporation's stock. For purposes of this
Section 8.2, the Option shall be deemed assumed if, following the Change in
Control, the Option confers the right to purchase in accordance with its terms
and conditions, for each share of Stock subject to the Option immediately prior
to the Change in Control, the consideration (whether stock, cash or other
securities or property) to which a holder of a share of Stock on the effective
date of the Change in Control was entitled. The Option shall terminate and cease
to be outstanding effective as of the date of the Change in Control to the
extent that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Change in Control nor exercised as of the
date of the Change in Control. Notwithstanding the foregoing, if the corporation
the stock of which is subject to the Option immediately prior to an Ownership
Change Event described in Section 8.1(a)(i) constituting a Change in Control is
the surviving or continuing corporation and immediately after any such event
less than fifty percent (50%) of the total combined voting power of its voting
stock is held by another corporation or by other corporations that are members
of an affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the Option shall not
terminate unless the Board otherwise provides in its sole discretion.
8.3. NOTICE. The Company shall provide notice of a Change in
Control to the Optionee at least ten (10) days prior to the consummation of a
Change in Control. The Company's notice shall summarize the principal terms of
the Change in Control, including, without limitation, whether the Acquiring
Corporation is assuming the Option or substituting an equivalent option
therefor.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a
majority of the shares which are of the same class as the shares that are
subject to the Option are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the Number of Option Shares and the Exercise Price shall be adjusted
in a fair and equitable manner, as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 9 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
Exercise Price be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 9 shall be final, binding and conclusive.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT.
The Optionee shall have no rights as a stockholder with respect to any
shares covered by the Option until the date of the issuance of a certificate for
the shares for which the Option has been exercised (as evidenced by the
appropriate entry on the books of the Company or of a duly
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<PAGE> 39
authorized transfer agent of the Company). No adjustment shall be made for
dividends, distributions or other rights for which the record date is prior to
the date such certificate is issued, except as provided in Section 9. If the
Optionee is an Employee, the Optionee understands and acknowledges that, except
as otherwise provided in a separate, written employment agreement between a
Participating Company and the Optionee, the Optionee's employment is "at will"
and is for no specified term. Nothing in this Option Agreement shall confer upon
the Optionee, whether an Employee or Consultant, any right to continue in the
Service of a Participating Company or interfere in any way with any right of the
Participating Company Group to terminate the Optionee's Service as an Employee
or Consultant, as the case may be, at any time.
11. LEGENDS.
The Company may at any time place legends referencing any applicable
federal, state or foreign securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this Section.
12. BINDING EFFECT.
Subject to the restrictions on transfer set forth herein, this Option
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, administrators, successors and assigns.
13. TERMINATION OR AMENDMENT.
The Board may terminate or amend the Plan or the Option at any time;
provided, however, that except as provided in Section 8.2 in connection with a
Change in Control, no such termination or amendment may adversely affect the
Option or any unexercised portion hereof without the consent of the Optionee
unless such termination or amendment is necessary to comply with any applicable
law or government regulation. No amendment or addition to this Option Agreement
shall be effective unless in writing.
14. NOTICES.
Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given (except to the extent that this Option
Agreement provides for effectiveness only upon actual receipt of such notice)
upon personal delivery or upon deposit in the United States Post Office, by
registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address of such party as set forth below that party's
signature or at such other address as such party may designate in writing from
time to time to the other party.
15. INTEGRATED AGREEMENT.
This Option Agreement constitutes the entire understanding and
agreement of the Optionee and the Participating Company Group with respect to
the subject matter contained
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<PAGE> 40
herein, and there are no agreements, understandings, restrictions,
representations, or warranties among the Optionee and the Participating Company
Group with respect to such subject matter other than those as set forth or
provided for herein. To the extent contemplated herein, the provisions of this
Option Agreement shall survive any exercise of the Option and shall remain in
full force and effect.
16. APPLICABLE LAW.
This Option Agreement shall be governed by the laws of the State of
Delaware as such laws are applied to agreements between Delaware residents
entered into and to be performed entirely within the State of Delaware.
P.F. CHANG'S CHINA BISTRO, INC.
By: ________________________________
Title: _____________________________
Address: ___________________________
___________________________
The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement, and hereby accepts the Option subject
to all of the terms and provisions thereof. The Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Board
upon any questions arising under this Option Agreement.
OPTIONEE
Date:_____________________________ ____________________________________
Optionee Address:
____________________________________
____________________________________
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<PAGE> 41
P.F. CHANG'S CHINA BISTRO, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made
and entered into as of the Date of Option Grant by and between P.F. Chang's
China Bistro, Inc. and ___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the P.F. Chang's
China Bistro, Inc. 1998 Stock Option Plan (the "PLAN") an option to purchase
certain shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1. DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means ___________________ ,
199 __ .
(b) "NUMBER OF OPTION SHARES" means __________________ shares
of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $ ______________ per share of
Stock, as adjusted from time to time pursuant to Section 9.
(d) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(e) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the
Optionee's Service has not terminated
prior to such date 1/5
Plus:
For each full month of the Optionee's
continuous Service from the Initial
Vesting Date until the Vested Ratio
equals 1/1, an additional 1/60
</TABLE>
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<PAGE> 42
(f) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(g) "CAUSE" means any of the following: (i) the Optionee's
theft, dishonesty, or falsification of any Participating Company documents or
records; (ii) the Optionee's improper use or disclosure of a Participating
Company's confidential or proprietary information; (iii) any action by the
Optionee which has a detrimental effect on a Participating Company's reputation
or business; (iv) the Optionee's failure or inability to perform any reasonable
assigned duties after written notice from the Participating Company Group of,
and a reasonable opportunity to cure, such failure or inability; (v) any
material breach by the Optionee of any agreement of employment or service
between the Optionee and the Participating Company Group, which breach is not
cured pursuant to the terms of such agreement; or (vi) the Optionee's conviction
(including any plea of guilty or nolo contendere) of any criminal act which
impairs the Optionee's ability to perform his or her duties with the
Participating Company Group. A determination by the Board that the Optionee was
terminated for Cause shall be final and binding upon the Optionee for all
purposes and shall not be subject to review by any governmental agency or court
of law.
(h) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(i) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(j) "COMPANY" means P.F. Chang's China Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.
(k) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(l) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(m) "DISABILITY" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.
(n) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company and who is an employee for purposes of
Section 422 of the Code; provided, however, that neither service as a Director
nor payment of a director's fee shall be sufficient to constitute employment for
this purpose. The Company shall determine in good faith and in the exercise of
its discretion whether an individual has become or has ceased to be an Employee
and the
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<PAGE> 43
effective date of such individual's employment or termination of employment, as
the case may be. For purposes of an individual's rights, if any, under the Plan
as of the time of the Company's determination, all such determinations by the
Company shall be final, binding and conclusive, notwithstanding that the Company
or any governmental agency subsequently makes a contrary determination.
(o) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(p) "FAIR MARKET VALUE" means, as of any date, the value of
a share of stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing price of a
share of Stock (or the mean of the closing bid and asked prices of a share of
Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(q) "INCENTIVE STOCK OPTION" means an Option intended to be
(to the extent set forth in this Option Agreement) and which qualifies as an
incentive stock option within the meaning of Section 422(b) of the Code.
(r) "NONSTATUTORY STOCK OPTION" means an Option which does
not qualify as an Incentive Stock Option.
(s) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(t) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(u) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(v) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
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<PAGE> 44
(w) "SERVICE" means the Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
the Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and instead shall be treated thereafter as
a Nonstatutory Stock Option unless the Optionee's right to return to Service
with the Participating Company Group is guaranteed by statute or contract.
Notwithstanding the foregoing, unless otherwise designated by the Company or
required by law, a leave of absence shall not be treated as Service for purposes
of determining the Vested Ratio. The Optionee's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the corporation
for which the Optionee performs Service ceasing to be a Participating Company.
Subject to the foregoing, the Company, in its sole discretion, shall determine
whether the Optionee's Service has terminated and the effective date of such
termination. (NOTE: If the Option is exercised more than three (3) months after
the date on which the Optionee ceased to be an Employee (other than by reason of
death or Disability), the Option will be treated as a Nonstatutory Stock Option
and not as an incentive stock option to the extent required by Section 422 of
the Code.)
(x) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 9.
(y) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
1.2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. TAX STATUS OF OPTION.
This Option is intended to be an Incentive Stock Option, but the
Company does not represent or warrant that this Option qualifies as such. The
Optionee should consult with the Optionee's own tax advisor regarding the tax
effects of this Option and the requirements necessary to obtain favorable income
tax treatment under Section 422 of the Code, including, but not limited to,
holding period requirements. (NOTE: If the aggregate Exercise Price of the
Option (that is, the Exercise Price multiplied by the Number of Option Shares)
plus the aggregate exercise price of any other Incentive Stock Options held by
the Optionee (whether granted pursuant to the Plan or any other stock option
plan of the Participating Company Group) is
4
<PAGE> 45
greater than One Hundred Thousand Dollars ($100,000), the Optionee should
contact the Chief Financial Officer of the Company to ascertain whether the
entire Option qualifies as an Incentive Stock Option.)
3. ADMINISTRATION.
All questions of interpretation concerning this Option Agreement shall
be determined by the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Date of Option Grant and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option. In no event
shall the Option be exercisable for more shares than the Number of Option
Shares.
4.2. METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered to the Chief Financial Officer of the Company, or
other authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in Section 6, accompanied by full payment
of the aggregate Exercise Price for the number of shares of Stock being
purchased and the tax withholding obligations, if any, as provided in Section
4.4. The Option shall be deemed to be exercised upon receipt by the Company of
such written notice, the aggregate Exercise Price, and tax withholding
obligations, if any.
4.3. PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash or
cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by
the Optionee having a Fair Market Value (as determined by the Company without
regard to any restrictions on transferability applicable to such stock by reason
of federal or state securities laws or agreements with an underwriter for the
Company) not less than the aggregate Exercise Price, (iii) by means of a
Cashless Exercise, as defined in Section 4.3(c), or (iv) by any combination of
the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the
5
<PAGE> 46
redemption of the Company's stock. The Option may not be exercised by tender to
the Company of shares of Stock unless such shares either have been owned by the
Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4. TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested, and
the Company shall have no obligation to issue a certificate for such shares.
4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE
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<PAGE> 47
OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE
OPTION IS VESTED. Questions concerning this restriction should be directed to
the Chief Financial Officer of the Company. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares subject to the Option shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained. As a condition to the
exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
4.7. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION.
The Option may be exercised during the lifetime of the Optionee only by
the Optionee or the Optionee's guardian or legal representative and may not be
assigned or transferred in any manner except by will or by the laws of descent
and distribution. Following the death of the Optionee, the Option, to the extent
provided in Section 7, may be exercised by the Optionee's legal representative
or by any person empowered to do so under the deceased Optionee's will or under
the then applicable laws of descent and distribution.
6. TERMINATION OF THE OPTION.
The Option shall terminate and may no longer be exercised on the first
to occur of (a) the Option Expiration Date, (b) the last date for exercising the
Option following termination of the Optionee's Service as described in Section
7, or (c) a Change in Control to the extent provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1. OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date on which the Optionee's Service terminated, but in any event no later
than the Option
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<PAGE> 48
Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months after the
Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability, death, or Cause, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within three (3) months (or such
other longer period of time as determined by the Board, in its sole discretion)
after the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date.
7.2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as to
the tax consequences of any such delayed exercise. The Optionee should consult
with the Optionee's own tax advisor as to the tax consequences to the Optionee
of any such delayed exercise.
7.3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisors as to the tax consequences to the Optionee of any such delayed
exercise.
7.4. TERMINATION FOR CAUSE. Except as otherwise provided in a
contract of employment or service between a Participating Company and the
Optionee, and notwithstanding any other provision of this Option Agreement to
the contrary, if the Optionee's Service with the Participating Company Group is
terminated for Cause, the Option shall terminate and cease to be exercisable
immediately upon such termination of Service.
8. CHANGE IN CONTROL.
8.1. DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
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<PAGE> 49
(ii) a merger or consolidation in which the Company is
a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2. EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a
Change in Control, the Optionee shall be credited with an additional two (2)
years of Service as of the date ten (10) days prior to the date of the Change in
Control, solely for purposes of determining the Vested Ratio. Any exercise or
vesting of the Option that was permissible solely by reason of this Section 8.2
shall be conditioned upon the consummation of the Change in Control. In
addition, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"),
may either assume the Company's rights and obligations under the Option or
substitute for the Option a substantially equivalent option for the Acquiring
Corporation's stock. For purposes of this Section 8.2, the Option shall be
deemed assumed if, following the Change in Control, the Option confers the right
to purchase in accordance with its terms and conditions, for each share of Stock
subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Change in Control was
entitled. The Option shall terminate and cease to be outstanding effective as of
the date of the Change in Control to the extent that the Option is neither
assumed or substituted for by the Acquiring Corporation in connection with the
Change in Control nor exercised as of the date of the Change in Control.
Notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Change in Control is the surviving or
continuing corporation and immediately after any such event less than fifty
percent (50%) of the total combined voting power of its voting stock is held by
another corporation or by other corporations that are members of an affiliated
group within the meaning of Section 1504(a) of the Code without
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<PAGE> 50
regard to the provisions of Section 1504(b) of the Code, the Option shall not
terminate unless the Board otherwise provides in its sole discretion.
8.3. NOTICE. The Company shall provide notice of a Change in
Control to the Optionee at least ten (10) days prior to the consummation of a
Change in Control. The Company's notice shall summarize the principal terms of
the Change in Control, including, without limitation, whether the Acquiring
Corporation is assuming the Option or substituting an equivalent option
therefor.
8.4. FAIR MARKET VALUE LIMITATION. Should the exercisability of
this Option be accelerated in connection with a Change in Control in accordance
with Section 8.2, then to the extent that the aggregate Fair Market Value of the
shares of Stock with respect to which the Optionee may exercise the Option for
the first time during the calendar year of such acceleration, when added to the
aggregate Fair Market Value of the shares subject to any other options
designated as Incentive Stock Options granted to the Optionee under all stock
option plans of the Participating Company Group prior to the Date of Option
Grant with respect to which such options are exercisable for the first time
during the same calendar year, exceeds One Hundred Thousand Dollars ($100,000)
(or such other limit, if any, imposed by Section 422 of the Code), the portion
of the Option which exceeds such amount shall be treated as a Nonstatutory Stock
Option. For purposes of the preceding sentence, options designated as Incentive
Stock Options shall be taken into account in the order in which they were
granted, and the Fair Market Value of shares of stock shall be determined as of
the time the option with respect to such shares is granted.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a
majority of the shares which are of the same class as the shares that are
subject to the Option are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the Number of Option Shares and the Exercise Price shall be adjusted
in a fair and equitable manner, as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 9 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
Exercise Price be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 9 shall be final, binding and conclusive.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT.
The Optionee shall have no rights as a stockholder with respect to any
shares covered by the Option until the date of the issuance of a certificate for
the shares for which the Option has been exercised (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends,
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<PAGE> 51
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in Section 9. If the Optionee is
an Employee, the Optionee understands and acknowledges that, except as otherwise
provided in a separate, written employment agreement between a Participating
Company and the Optionee, the Optionee's employment is "at will" and is for no
specified term. Nothing in this Option Agreement shall confer upon the Optionee,
whether an Employee or Consultant, any right to continue in the Service of a
Participating Company or interfere in any way with any right of the
Participating Company Group to terminate the Optionee's Service as an Employee
or Consultant, as the case may be, at any time.
11. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION.
The Optionee shall dispose of the shares acquired pursuant to the
Option only in accordance with the provisions of this Option Agreement. In
addition, the Optionee shall promptly notify the Chief Financial Officer of the
Company if the Optionee disposes of any of the shares acquired pursuant to the
Option within one (1) year after the date the Optionee exercises all or part of
the Option or within two (2) years after the Date of Option Grant and shall
provide the Company with a description of the terms and circumstances of such
disposition. Until such time as the Optionee disposes of such shares in a manner
consistent with the provisions of this Option Agreement, unless otherwise
expressly authorized by the Company, the Optionee shall hold all shares acquired
pursuant to the Option in the Optionee's name (and not in the name of any
nominee) for the one-year period immediately after the exercise of the Option
and the two-year period immediately after Date of Option Grant. At any time
during the one-year or two-year periods set forth above, the Company may place a
legend on any certificate representing shares acquired pursuant to the Option
requesting the transfer agent for the Company's stock to notify the Company of
any such transfers. The obligation of the Optionee to notify the Company of any
such transfer shall continue notwithstanding that a legend has been placed on
the certificate pursuant to the preceding sentence.
12. LEGENDS.
The Company may at any time place legends referencing any applicable
federal, state or foreign securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this Section.
13. BINDING EFFECT.
Subject to the restrictions on transfer set forth herein, this Option
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, administrators, successors and assigns.
14. TERMINATION OR AMENDMENT.
The Board may terminate or amend the Plan or the Option at any time;
provided, however, that except as provided in Section 8.2 in connection with a
Change in Control, no such
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<PAGE> 52
termination or amendment may adversely affect the Option or any unexercised
portion hereof without the consent of the Optionee unless such termination or
amendment is necessary to comply with any applicable law or government
regulation or is required to enable the Option to qualify as an Incentive Stock
Option. No amendment or addition to this Option Agreement shall be effective
unless in writing.
15. NOTICES.
Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given (except to the extent that this Option
Agreement provides for effectiveness only upon actual receipt of such notice)
upon personal delivery or upon deposit in the United States Post Office, by
registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address of such party as set forth below that party's
signature or at such other address as such party may designate in writing from
time to time to the other party.
16. INTEGRATED AGREEMENT.
This Option Agreement constitutes the entire understanding and
agreement of the Optionee and the Participating Company Group with respect to
the subject matter contained herein, and there are no agreements,
understandings, restrictions, representations, or warranties among the Optionee
and the Participating Company Group with respect to such subject matter other
than those as set forth or provided for herein. To the extent contemplated
herein, the provisions of this Option Agreement shall survive any exercise of
the Option and shall remain in full force and effect.
17. APPLICABLE LAW.
This Option Agreement shall be governed by the laws of the State of
Delaware as such laws are applied to agreements between Delaware residents
entered into and to be performed entirely within the State of Delaware.
P.F. CHANG'S CHINA BISTRO, INC.
By: ________________________________
Title: _____________________________
Address: ___________________________
___________________________
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The Optionee represents that the Optionee is familiar with the terms
and provisions of this Option Agreement, and hereby accepts the Option subject
to all of the terms and provisions thereof. The Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Board
upon any questions arising under this Option Agreement.
OPTIONEE
Date:______________________________ ____________________________________
Optionee Address:
____________________________________
____________________________________
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<PAGE> 1
Exhibit 10.3
P.F. CHANG'S CHINA BISTRO, INC.
1997 RESTAURANT MANAGEMENT STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1. ESTABLISHMENT. The P.F. CHANG'S CHINA BISTRO, INC.'s 1997
Restaurant Management Stock Option Plan (the "PLAN") is hereby established
effective as of July 18, 1997 (the "EFFECTIVE DATE").
1.2. PURPOSE. The purpose of the Plan is to advance the interests
of the Participating Company Group and its stockholders by providing an
incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3. TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, within ten (10) years from the earlier of the date
the Plan is adopted by the Board or the date the Plan is duly approved by the
stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1. DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means P.F. Chang's China Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
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(f) "DIRECTOR" means a member of the Board or of the board
of directors of any other Participating Company.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(i) "FAIR MARKET VALUE" means, as of any date, the value of
a share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing sale price
of a share of Stock (or the mean of the closing bid and asked prices of a share
of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for
the Stock, the Fair Market Value of a share of Stock shall be as determined by
the Board without regard to any restriction other than a restriction which, by
its terms, will never lapse.
(j) "INCENTIVE STOCK OPTION" means an Option intended to be
(as set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.
(k) "INSIDER" means an officer or a Director of the Company
or any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(l) "NONSTATUTORY STOCK OPTION" means an Option not intended
to be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
(m) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
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<PAGE> 3
(n) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(o) "OPTIONEE" means a person who has been granted one or
more Options.
(p) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(r) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(s) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(t) "STOCK" means the common stock, $0.01 par value per
share, of the Company, as adjusted from time to time in accordance with Section
4.2.
(u) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(v) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at
the time an Option is granted to the Optionee, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
a Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1. ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
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<PAGE> 4
3.2. ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3. POWERS OF THE BOARD. In addition to any other powers set forth
in the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times
at which, Options shall be granted and the number of shares of Stock to be
subject to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or
other property;
(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of employment or service
with the Participating Company Group on any of the foregoing, and (vii) all
other terms, conditions and restrictions applicable to the Option or such shares
not inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, or renew, or grant a new
Option in substitution for, any Option or to waive any restrictions or
conditions applicable to any Option or any shares acquired upon the exercise
thereof;
(g) to amend the exercisability of any Option or the vesting
of any shares acquired upon the exercise thereof, including with respect to the
period following an Optionee's termination of employment or service with the
Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
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<PAGE> 5
(i) to correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
4. SHARES SUBJECT TO PLAN.
4.1. MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be one hundred twenty-five thousand (125,000)
and shall consist of authorized but unissued or reacquired shares of Stock or
any combination thereof. If an outstanding Option for any reason expires or is
terminated or canceled, or if shares of Stock acquired, subject to repurchase,
upon the exercise of an Option are repurchased by the Company, the shares of
Stock allocable to the unexercised portion of such Option or such repurchased
shares of Stock shall again be available for issuance under the Plan.
Notwithstanding the foregoing, at any such time as the offer and sale of
securities pursuant to the Plan is subject to compliance with Section 260.140.45
of Title 10 of the California Code of Regulations ("SECTION 260.140.45"), the
total number of shares of Stock issuable upon the exercise of all outstanding
Options (together with options outstanding under any other stock option plan of
the Company) and the total number of shares provided for under any stock bonus
or similar plan of the Company shall not exceed thirty percent (30%) (or such
other higher percentage limitation as may be approved by the shareholders of the
Company pursuant to Section 260.140.45) of the then outstanding shares of the
Company as calculated in accordance with the conditions and exclusions of
Section 260.140.45.
4.2. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options and in the exercise price per
share of any outstanding Options. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Options are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change Event, as defined in Section 8.1) shares of another corporation
(the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to
provide that such Options are exercisable for New Shares. In the event of any
such amendment, the number of shares subject to, and the exercise price per
share of, the outstanding Options shall be adjusted in a fair and equitable
manner as determined by the Board, in its sole discretion. Notwithstanding the
foregoing, any fractional share resulting from an adjustment pursuant to this
Section 4.2 shall be rounded up or down to the nearest whole number, as
determined by the Board, and in no event may the exercise price of any Option be
decreased to an amount less than the par value, if any, of the stock subject to
the Option. The adjustments determined by the Board pursuant to this Section 4.2
shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
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<PAGE> 6
5.1. PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
key Employees of the Company who are actively engaged in the management and
operation of the Company's restaurants. For Purposes of the foregoing sentence,
"Employees" shall include prospective Employees to whom Options are granted in
connection with written offers of employment or other service relationship with
the Participating Company Group. Eligible persons may be granted more than one
(1) Option.
5.2. OPTION GRANT RESTRICTIONS. Any person who is not an Employee
on the effective date of the grant of an Option to such person may be granted
only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences service with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1.
5.3. FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having an
aggregate Fair Market Value greater than One Hundred Thousand Dollars
($100,000), the portion of such options which exceeds such amount shall be
treated as Nonstatutory Stock Options. For purposes of this Section 5.3, options
designated as Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of stock shall be
determined as of the time the option with respect to such stock is granted. If
the Code is amended to provide for a different limitation from that set forth in
this Section 5.3, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of the
limitation set forth in this Section 5.3, the Optionee may designate which
portion of such Option the Optionee is exercising. In the absence of such
designation, the Optionee shall be deemed to have exercised the Incentive Stock
Option portion of the Option first. Separate certificates representing each such
portion shall be issued upon the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
Option Agreements specifying the number of shares of Stock covered thereby, in
such form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1. EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Option granted
to a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%)
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<PAGE> 7
of the Fair Market Value of a share of Stock on the effective date of grant of
the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an exercise price
lower than the minimum exercise price set forth above if such Option is granted
pursuant to an assumption or substitution for another option in a manner
qualifying under the provisions of Section 424(a) of the Code.
6.2. EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the expiration of ten (10) years
after the effective date of grant of such Option, (b) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the effective date of grant of such Option,
and (c) no Option granted to a prospective Employee, prospective Consultant or
prospective Director may become exercisable prior to the date on which such
person commences service with a Participating Company, and (d) with the
exception of an Option granted to an officer, Director or Consultant, no Option
shall become exercisable at a rate less than twenty percent (20%) per year over
a period of five (5) years from the effective date of grant of such Option,
subject to the Optionee's continued Service. Subject to the foregoing, unless
otherwise specified by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
6.3. PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the
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<PAGE> 8
redemption of the Company's stock. Unless otherwise provided by the Board, an
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4. TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof. Alternatively or in
addition, in its sole discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5. REPURCHASE RIGHTS. Shares issued under the Plan may be subject
to a right of first refusal, one or more repurchase options, or other conditions
and restrictions as determined by the Board, in its sole discretion, at the time
the Option is granted. The Company shall have the right to assign at any time
any repurchase right it may have, whether or not such right is then exercisable,
to one or more persons as may be selected by the Company. Upon request by the
Company, each Optionee shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and shall
promptly present to the
8
<PAGE> 9
Company any and all certificates representing shares of Stock acquired hereunder
for the placement on such certificates of appropriate legends evidencing any
such transfer restrictions.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1. INCENTIVE STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Immediately Exercisable Incentive Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
7.2. NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as a "Nonstatutory
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Immediately Exercisable Nonstatutory Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
7.3. STANDARD TERM OF OPTIONS. Except as otherwise provided in
Section 6.2 or by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
7.4. AUTHORITY TO VARY TERMS. The Board shall have the authority
from time to time to vary the terms of any of the standard forms of Option
Agreement described in this Section 7 either in connection with the grant or
amendment of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
any such new, revised or amended standard form or forms of Option Agreement are
not inconsistent with the terms of the Plan. Such authority shall include, but
not by way of limitation, the authority to grant Options which are not
immediately exercisable.
8. TRANSFER OF CONTROL.
8.1. DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the stockholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is
a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
9
<PAGE> 10
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be, provided, however, that neither an initial
public offering by the Company, nor an equity or convertible securities
financing by the Company shall be deemed an Ownership Change Event or Transfer
of Control for the purpose of any accelerated vesting provision of this Option
Agreement. For purposes of the preceding sentence, indirect beneficial ownership
shall include, without limitation, an interest resulting from ownership of the
voting stock of one or more corporations which, as a result of the Transaction,
own the Company or the Transferee Corporation(s), as the case may be, either
directly or through one or more subsidiary corporations. The Board shall have
the right to determine whether multiple sales or exchanges of the voting stock
of the Company or multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
8.2. EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of an
eligible Transfer of Control, each of the outstanding Options shall receive an
additional two (2) years of accelerated vesting as of the date ten (10) days
prior to the date of the Transfer of Control. The exercise or vesting of any
Option that was permissible solely by reason of this Section 8.2 shall be
conditioned upon the consummation of the Transfer of Control. In addition, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may
either assume the Company's rights and obligations under outstanding Options or
substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall
be deemed assumed if, following the Transfer of Control, the Option confers the
right to purchase in accordance with its terms and conditions, for each share of
Stock subject to the Option immediately prior to the Transfer of Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Transfer of Control was
entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control. Notwithstanding
the foregoing, shares acquired upon exercise of an Option prior to the Transfer
of Control and any consideration received pursuant to the Transfer of Control
with respect to such shares shall continue to be subject to all applicable
provisions of the Option Agreement evidencing such Option except as otherwise
provided in such Option Agreement. Furthermore, notwithstanding the foregoing,
if the corporation the stock of which is subject to the outstanding Options
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of
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<PAGE> 11
the Code without regard to the provisions of Section 1504(b) of the Code, the
outstanding Options shall not terminate unless the Board otherwise provides in
its sole discretion.
8.3. NOTICE. The Company shall send to all holders of outstanding
Options at least ten (10) days' written notice prior to the consummation of a
Transfer of Control. The Company's notice shall summarize the principal terms of
the Transfer of Control including, without limitation, whether the Acquiring
Corporation is assuming the outstanding Options or substituting equivalent
options therefor.
9. PROVISION OF INFORMATION. At least annually, copies of the Company's
balance sheet and income statement for the just completed fiscal year shall be
made available to each Optionee and purchaser of shares of Stock upon the
exercise of an Option. The Company shall not be required to provide such
information to persons whose duties in connection with the Company assure them
access to equivalent information.
10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
11. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, subject to changes in applicable law, regulations
or rules that would permit otherwise, without the approval of the Company's
stockholders there shall be (a) no increase in the maximum aggregate number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), (b) no change in the class of persons eligible to
receive Incentive Stock Options, and (c) no other amendment of the Plan that
would require approval of the Company's stockholders under any applicable law,
regulation or rule. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Optionee, unless such
11
<PAGE> 12
termination or amendment is required to enable an Option designated as an
Incentive Stock Option to qualify as an Incentive Stock Option or is necessary
to comply with any applicable law, regulation or rule.
13. STOCKHOLDER APPROVAL. The Plan or any increase in the maximum number
of shares of Stock issuable thereunder as provided in Section 4.1 (the "MAXIMUM
SHARES") shall be approved by the stockholders of the Company within twelve (12)
months of the date of adoption thereof by the Board. Options granted prior to
stockholder approval of the Plan or in excess of the Maximum Shares previously
approved by the stockholders shall become exercisable no earlier than the date
of stockholder approval of the Plan or such increase in the Maximum Shares, as
the case may be.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing P.F. CHANG'S CHINA BISTRO, INC. 1997 Restaurant Management
Stock Option Plan was duly adopted by the Board on July 18, 1997.
By: _____________________________________
Title: __________________________________
_____________________________
Print Name and Title
12
<PAGE> 13
PLAN HISTORY
July 18, 1997 Board adopts the Plan, with an initial reserve of 125,000
shares.
________, 1997 Stockholders approve the Plan, with an initial reserve of
125,000 shares.
13
<PAGE> 14
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
P.F. CHANG'S CHINA BISTRO, INC.
IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT (the
"OPTION AGREEMENT") is made and entered into as of ___________, 199_, by and
between P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "COMPANY")
and ___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the P.F. Chang's China
Bistro, Inc. 1997 Restaurant Management Stock Option Plan (the "Plan") an option
to purchase certain shares of stock, upon the terms and conditions set forth in
this Option Agreement (the "OPTION"). The Option shall in all respects be
subject to the terms and conditions of the Plan, the provisions of which are
incorporated herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1. DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means , 199_.
(b) "NUMBER OF OPTION SHARES" means ________ shares of
Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $ _____ per share of Stock, as
adjusted from time to time pursuant to Section 9.
<PAGE> 15
(d) "INITIAL EXERCISE DATE" means the letter of the Date of
Option Grant or the date the Optionee's Service commences.
(e) "INITIAL VESTING DATE" means the date occurring one (1)
year after
(check one):
_____ the Date of Option Grant
_____ _________________________, 199_, the date the
Optionee's Service commenced.
(f) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
(i) Prior to the Initial Vesting Date, the Vested
Ratio shall be 0.
(ii) On the Initial Vesting Date, provided that the
Optionee's Service has been continuous from the Date of Option Grant until the
Initial Vesting Date, the Vested Ratio shall be 1/5.
(iii) For each full month of the Optionee's continuous
service after the Initial Vesting Date, the Vested Ratio shall be increased by
one-sixtieth (1/60).
(iv) In no event shall the Vested Ratio exceed 1/1.
(g) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(h) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(i) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(j) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(k) "COMPANY" means P.F. Chang's China Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.
(l) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company Group because
of the sickness or injury of the Optionee.
<PAGE> 16
(m) "EMPLOYEE" means any person treated as an employee
(including an officer or a director who is also treated as an employee) in the
records of the Company; provided, however, that neither service as a director
nor payment of a director's fee shall be sufficient to constitute employment for
this purpose.
(n) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of
a share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein.
(p) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(r) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(s) "PLAN" means the P.F. Chang's China Bistro, Inc. 1997
Restaurant Management Stock Option Plan.
(t) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(u) "SERVICE" means the Optionee's employment or service
with the Participating Company Group in the capacity of an Employee. The
Optionee's Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Optionee renders Service to the
Participating Company Group or a change in the Participating Company for which
the Optionee renders such Service, provided that there is no interruption or
termination of the Optionee's Service. Furthermore, the Optionee's Service with
the Participating Company Group shall not be deemed to have terminated if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Optionee's Service shall be deemed to have terminated unless the Optionee's
right to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated
by the Company or required by law, a leave of absence shall not be treated as
Service for purposes of determining the Optionee's Vested Ratio. The Optionee's
Service shall be deemed to have terminated either upon an actual termination of
Service or upon the corporation for which the Optionee performs Service ceasing
to be a Participating Company. Subject to the foregoing, the Company, in its
sole discretion, shall determine whether the Optionee's Service has terminated
and the effective date of such termination.
(v) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 9.
(w) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
<PAGE> 17
2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX CONSEQUENCES.
1. TAX STATUS OF OPTION. This Option is intended to be a
Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option
within the meaning of Section 422(b) of the Code.
2. ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Service terminates, (b) the Optionee is an Insider and
exercises the Option within six (6) months of the Date of the Option Grant (if a
class of equity security of the Company is registered under Section 12 of the
Exchange Act), or (c) the Optionee is subject to a restriction on transfer to
comply with "Pooling-of-Interests Accounting" rules. Failure to file an election
under Section 83(b), if appropriate, may result in adverse tax consequences to
the Optionee. The Optionee acknowledges that the Optionee has been advised to
consult with a tax advisor prior to the exercise of the Option regarding the tax
consequences to the Optionee of the exercise of the Option. AN ELECTION UNDER
SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE
PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES
THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE
RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE
TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
1. RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares of Stock previously
acquired upon exercise of the Option subject to the Optionee's agreement that
any shares purchased upon exercise are subject to the Company's repurchase
rights set forth in Section 11 and to the Company's first refusal rights set
forth in Section 12. In no event shall the Option be exercisable for more shares
than the Number of Option Shares.
<PAGE> 18
2. METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Company, prior to the termination of the Option as set
forth in Section 6, accompanied by (i) full payment of the aggregate Exercise
Price for the number of shares of Stock being purchased and (ii) an executed
copy, if required herein, of the then current forms of escrow and security
agreement referenced below. The Option shall be deemed to be exercised upon
receipt by the Company of such written notice, the aggregate Exercise Price,
and, if required by the Company, such executed agreements.
3. PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3.(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by cash for a
portion of the aggregate Exercise Price not less than the par value of the
shares being acquired, and the Optionee's promissory note for the balance of the
aggregate Exercise Price, or (v) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of shares of Stock would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the
Company's Stock. The Option may not be exercised by the tender to the Company of
shares of Stock unless such shares either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
modify, decline to approve or terminate any such Cashless Exercise program or
procedures.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. The promissory note permitted in clause (iv) of Section
4.3.(a) shall be a full recourse note in a form satisfactory to the Company,
with principal payable no more than four (4) years after the date the Option is
exercised. Interest on the principal balance of the promissory note shall be
payable in annual installments at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then
<PAGE> 19
current form of security agreement as approved by the Company. At any time
the Company is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations. Except as the Company in its sole
discretion shall determine, the Optionee shall pay the unpaid principal balance
of the promissory note and any accrued interest thereon upon termination of the
Optionee's Service with the Participating Company Group for any reason, with or
without cause.
4. TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless such tax withholding obligations are satisfied. Accordingly,
the Optionee may not be able to exercise the Option when desired even though the
Option is vested, and the Company shall have no obligation to issue a
certificate for such shares or release such shares from any escrow provided for
herein.
5. CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the shares of Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this
restriction should be directed to the Chief Financial Officer of the Company.
The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require
the Optionee to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
<PAGE> 20
7. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
1. OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service is terminated
because of the Disability of the Optionee, the Option, to the extent unexercised
and exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
(b) DEATH. If the Optionee's Service is terminated because
of the death of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee's legal representative or other person who acquired
the right to exercise the Option by reason of the Optionee's death at any time
prior to the expiration of twelve (12) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months after the
Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
terminates for any reason except Disability or death, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee's
Service terminated, may be exercised by the Optionee within three (3) months (or
such other longer period of time as determined by the Board, in its sole
discretion) after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date.
2. ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding the
provisions of Section 7.1, the Option may not be exercised after the Optionee's
termination of Service to the extent that the shares to be acquired upon
exercise of the Option would be subject to the Unvested Share Repurchase Option
as provided in Section 11. Except as the Company and the Optionee otherwise
agree, exercise of the Option pursuant to Section 7.1 following termination of
the Optionee's Service may not be made by delivery of a promissory note as
provided in Section 4.3.(a).
3. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the
<PAGE> 21
provisions of Section 4.6, the Option shall remain exercisable until three (3)
months after the date the Optionee is notified that the Option is exercisable,
but in any event no later than the Option Expiration Date. The Company makes no
representation as to the tax consequences of any such delayed exercise. The
Optionee should consult with the Optionee's own tax advisor as to the tax
consequences to the Optionee of any such delayed exercise.
4. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor(s) as to the tax consequences to the Optionee of any such delayed
exercise.
5. LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's
Service shall not be deemed to terminate if the Optionee takes any military
leave, sick leave, or other bona fide leave of absence approved by the Company
of ninety (90) days or less. In the event of a leave of absence in excess of
ninety (90) days, the Optionee's Service shall be deemed to terminate on the
ninety-first (91st) day of such leave unless the Optionee's right to return to
Service remains guaranteed by statute or contract. Notwithstanding the
foregoing, unless otherwise designated by the Company (or required by law), a
leave of absence shall not be treated as Service for purposes of determining the
Optionee's Vested Ratio.
8. TRANSFER OF CONTROL.
1. DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the stockholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is
a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
<PAGE> 22
CORPORATION(S)"), as the case may be; provided, however, that neither an initial
public offering by the Company, nor an equity or convertible securities
financing by the Company shall be deemed an Ownership Change Event or Transfer
of Control for the purpose of any accelerated vesting provision of this Option
Agreement.. For purposes of the preceding sentence, indirect beneficial
ownership shall include, without limitation, an interest resulting from
ownership of the voting stock of one or more corporations which, as a result of
the Transaction, own the Company or the Transferee Corporation(s), as the case
may be, either directly or through one or more subsidiary corporations. The
Board shall have the right to determine whether multiple sales or exchanges of
the voting stock of the Company or multiple Ownership Change Events are related,
and its determination shall be final, binding and conclusive.
2. EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of an
eligible Transfer of Control, the Vested Ratio shall be increased by two-fifths
(2/5) as of the date ten (10) days prior to the date of any such eligible
Transfer of Control; provided, however, that in no event shall the Vested Ratio
be increased pursuant to this Section 8.2 to a ratio in excess of one (1). The
exercise or vesting of any Option that was permissible solely by reason of this
Section 8.2 shall be conditioned upon the consummation of the Transfer of
Control. In addition, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, the Option
shall be deemed assumed if, following the Transfer of Control, the Option
confers the right to purchase, for each share of Stock subject to the Option
immediately prior to the Transfer of Control, the consideration (whether stock,
cash or other securities or property) to which a holder of a share of Stock on
the effective date of the Transfer of Control was entitled. The Option shall
terminate and cease to be outstanding effective as of the date of the Transfer
of Control to the extent that the Option is neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control. Notwithstanding the
foregoing, shares acquired upon exercise of the Option prior to the Transfer of
Control and any consideration received pursuant to the Transfer of Control with
respect to such shares shall continue to be subject to all applicable provisions
of this Option Agreement except as otherwise provided herein. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1.(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the Option shall not
terminate unless the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to
<PAGE> 23
the Option. The adjustments determined by the Board pursuant to this Section 9
shall be final, binding and conclusive.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. If the Optionee is an Employee, the Optionee understands
and acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating Company and the Optionee, the
Optionee's employment is "at will" and is for no specified term. Nothing in this
Option Agreement shall confer upon the Optionee, whether an Employee or
Consultant, any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. UNVESTED SHARE REPURCHASE OPTION.
1. GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event the
Optionee's Service is terminated for any reason or no reason, with or without
cause, of if the Optionee, the Optionee's legal representative, or other holder
of shares acquired upon exercise of the Option attempts to sell, exchange,
transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership
Change Event) any shares acquired upon exercise of the Option which exceed the
Vested Shares as defined in Section 11.2 below (the "Unvested Shares"), the
Company shall have the right to repurchase the Unvested Shares under the terms
and subject to the conditions set forth in this Section 11 (the "Unvested Share
Repurchase Option").
2. VESTED SHARES AND UNVESTED SHARES DEFINED. The "Vested Shares"
shall mean, on any given date, a number of shares of Stock equal to the Number
of Option Shares multiplied by the Vested Ratio determined as of such date and
rounded down to the nearest whole share. On such given date, the "Unvested
Shares" shall mean the number of shares of stock acquired upon exercise of the
Option which exceed the Vested Shares determined as of such date.
3. EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company may
exercise the Unvested Share Repurchase Option by written notice to the Optionee
within sixty (60) days after (a) termination of the Optionee's Service for
exercise of the Option, if later) or (b) the Company has received notice of the
attempted disposition of Unvested Shares. If the Company fails to give notice
within such sixty (60) day period, the Unvested Share Repurchase Option shall
terminate (unless the Company and the Optionee have extended the time for the
exercise of the Unvested Share Repurchase Option. The Unvested Share Repurchase
Option must be exercised, if at all, for all of the Unvested Shares, except as
the Company and the Optionee otherwise agree.
4. PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
Purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
9 (the "Repurchase Price"). The Company shall pay the aggregate Repurchase Price
to the Optionee in cash within thirty (30) days after the date of the written
notice to the Optionee of the Company's exercise of the Unvested Share
Repurchase Option. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest.
<PAGE> 24
The shares being repurchased shall be delivered to the Company by the Optionee
at the same time as the delivery of the Repurchase Price to the Optionee.
5. ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The Company
shall have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.
6. OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership
Change Event, any and all new, substituted or additional securities or other
property to which the Optionee is entitled by reason of the Optionee's ownership
of Unvested Shares shall be immediately subject to the Unvested Share Repurchase
Option and included in the terms "Stock" and "Unvested Shares" for all purposes
of the Unvested Share Repurchase Option with the same force and effect as the
Unvested Shares immediately prior to the Ownership Change Event. While the
aggregate Repurchase Price shall remain the same after such Ownership Change
Event, the Repurchase Price per Unvested Share upon exercise of the Unvested
Share Repurchase Option following such Ownership Change Event shall be adjusted
as appropriate. For purposes of determining the Vested Ratio following an
Ownership Change Event, credited Service shall include all Service with any
corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event. The foregoing notwithstanding, in the
event of an Ownership Change Event that is also a Transfer of Control, the
Unvested Share Repurchase Option will terminate if the surviving corporation
does not assume, or substitute substantially equivalent options for, all
outstanding Options under the Plan.
12. RIGHT OF FIRST REFUSAL.
1. GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in Section
12.7 below, in the event the Optionee, the Optionee's legal representative, or
other holder of shares acquired upon exercise of the Option proposes to sell,
exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the
"TRANSFER SHARES") to any person or entity, including, without limitation, any
shareholder of the Participating Company Group, the Company shall have the right
to repurchase the Transfer Shares under the terms and subject to the conditions
set forth in this Section 12 (the "RIGHT OF FIRST REFUSAL").
2. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall deliver written notice (the "TRANSFER
NOTICE") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith. If the Optionee
proposes to transfer any Transfer Shares to more than one Proposed Transferee,
the Optionee shall provide a separate Transfer Notice for the proposed transfer
to each Proposed Transferee. The Transfer Notice shall be signed by both the
Optionee and the Proposed Transferee and must constitute a binding commitment of
the Optionee and the Proposed Transferee for the transfer of the Transfer Shares
to the Proposed Transferee subject only to the Right of First Refusal.
3. BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 12, and the Optionee shall have no right
to transfer
<PAGE> 25
the Transfer Shares without first complying with the procedure described in this
Section 12. The Optionee shall not be permitted to transfer the Transfer Shares
if the proposed transfer is not bona fide.
4. EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth in the Transfer Notice by delivery to the Optionee of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the present
value cash equivalent of the consideration described in the Transfer Notice as
reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
5. FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company
fails to exercise the Right of First Refusal in full (or to such lesser extent
as the Company and the Optionee otherwise agree) within the period specified in
Section 12.4 above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall have
the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 12.
6. TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 12 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 12 are met.
7. TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the Option if such transfer or exchange is in connection with
an Ownership Change Event. If the consideration received pursuant to such
transfer or exchange consists of stock of a Participating Company, such
consideration
<PAGE> 26
shall remain subject to the Right of First Refusal unless the provisions of
Section 12.9 below result in a termination of the Right of First Refusal.
8. ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not there
has been an attempted transfer, to one or more persons as may be selected by the
Company.
9. EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
13. ESCROW.
1. ESTABLISHMENT OF ESCROW. To ensure that shares of Stock
obtained upon exercise of this Option which are subject to the Unvested Share
Repurchase Option, the Right of First Refusal or securing any promissory note
will be available for repurchase, the Company may require the Optionee to
deposit the certificate evidencing the shares of Stock which the Optionee
purchases upon exercise of the Option with an escrow agent designated by the
Company under the terms and conditions of an escrow and security agreements
approved by the Company. If the Company does not require such deposit as a
condition of exercise of the Option, the Company reserves the right at any time
to require the Optionee to so deposit the certificate in escrow. Upon the
occurrence of an Ownership Change Event or a change, as described in Section 9,
in the character or amount of any of the outstanding stock of the corporation
the stock of which is subject to the provisions of this Option Agreement, any
and all new, substituted or additional securities or other property to which the
Optionee is entitled by reason of the Optionee's ownership of shares of Stock
acquired upon exercise of the Option that remain, following such Ownership
Change Event or change described in Section 9, subject to the Unvested Share
Repurchase Option Right of First Refusal or any security interest held by the
Company shall be immediately subject to the escrow to the same extent as such
shares of Stock immediately before such event. The Company shall bear the
expenses of the escrow.
2. DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
the expiration of the Unvested Share Repurchase Option, the Right of First
Refusal and after full repayment of any promissory note secured by the option
shares of Stock or other property in escrow, but not more frequently than twice
each calendar year, the escrow agent shall deliver to the Optionee the shares of
Stock and any other property no longer subject to such restrictions and no
longer securing any promissory note.
3. NOTICES AND PAYMENTS. In the event the shares of Stock and any
other property held in escrow are subject to the Company's exercise of the
Unvested Share Repurchase Option, the Right of First Refusal, or any security
interest of the Company, the notices required to be given to the Optionee shall
be given to the escrow agent, and any payment required to be given to the
Optionee shall be given to the escrow agent. Within thirty (30) days after
payment by the Company, the escrow agent shall deliver the shares of Stock and
any other property which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
<PAGE> 27
14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option, Right of First
Refusal and any security interest held by the Company and with the same force
and effect as the shares subject to the Unvested Share Repurchase Option, Right
of First Refusal and any such security interest immediately before such event.
15. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant and shall provide the Company with
a description of the terms and circumstances of such disposition. Until such
time as the Optionee disposes of such shares in a manner consistent with the
provisions of this Option Agreement, unless otherwise expressly authorized by
the Company, the Optionee shall hold all shares acquired pursuant to the Option
in the Optionee's name (and not in the name of any nominee) for the one-year
period immediately after the exercise of the Option and the two-year period
immediately after Date of Option Grant. At any time during the one-year or
two-year periods set forth above, the Company may place a legend on any
certificate representing shares acquired pursuant to the Option requesting the
transfer agent for the Company's stock to notify the Company of any such
transfers. The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate pursuant to the preceding sentence.
16. LEGENDS. The Company may at any time place legends referencing the
Unvested Share Repurchase Option, the Right of First Refusal, any security
interest and any applicable federal, state or foreign securities law
restrictions on all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company any and all certificates representing
shares acquired pursuant to the Option in the possession of the Optionee in
order to carry out the provisions of this Section. Unless otherwise specified by
the Company, legends placed on such certificates may include, but shall not be
limited to, the following:
1. "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
2. Any legend required to be placed thereon by the Commissioner
of Corporations of the State of California.
3. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS
<PAGE> 28
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THIS CORPORATION."
4. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
17. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any
underwritten public offering of stock, including an initial public offering of
stock, made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering at its sole discretion. The foregoing limitation shall not apply
to shares registered in the public offering under the Securities Act. The
Optionee shall be subject to this Section provided and only if the officers and
directors of the Company are also subject to similar arrangements.
18. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise
of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement and,
except pursuant to an Ownership Change, until the date on which such shares
become Vested Shares, any such attempted disposition shall be void. The Company
shall not be required (a) to transfer on its books any shares which will have
been transferred in violation of any of the provisions set forth in this Option
Agreement or (b) to treat as owner of such shares or to accord the right to vote
as such owner or to pay dividends to any transferee to whom such shares will
have been so transferred.
19. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
20. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation or is required to enable
the Option to qualify as an Incentive Stock Option. No amendment or addition to
this Option Agreement shall be effective unless in writing.
21. NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given (except to the extent that this
Option Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery or upon deposit in the United States Post Office,
by registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature or at such other
address as such party may designate in writing from time to time to the other
party.
<PAGE> 29
22. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute
the entire understanding and agreement of the Optionee and the Participating
Company Group with respect to the subject matter contained herein or therein,
and there are no agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Participating Company Group with respect
to such subject matter other than those as set forth or provided for herein or
therein. To the extent contemplated herein or therein, the provisions of this
Option Agreement shall survive any exercise of the Option and shall remain in
full force and effect.
23. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of Delaware as such laws are applied to agreements between Delaware
residents entered into and to be performed entirely within the State of
Delaware.
COMPANY:
P.F. CHANG'S CHINA BISTRO, INC.,
a Delaware corporation
By:_____________________________________
Title:__________________________________
________________________________________
Print Name and Title
5040 North 40th Street
Phoenix, AZ 85018
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11, and the Right of First Refusal set forth in
Section 12, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Option Agreement. The undersigned acknowledges receipt of a
copy of the Plan.
OPTIONEE:
Date:______________________________ ________________________________________
Signature
________________________________________
Print Name
Optionee's Address:
________________________________________
________________________________________
________________________________________
<PAGE> 30
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
P.F. CHANG'S CHINA BISTRO, INC.
IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT (the "OPTION
AGREEMENT") is made and entered into as of ___________, 199_, by and between
P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "Company") and
___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the P.F. Chang's China
Bistro, Inc. 1997 Restaurant Management Stock Option Plan (the "Plan") an option
to purchase certain shares of stock, upon the terms and conditions set forth in
this Option Agreement (the "OPTION"). The Option shall in all respects be
subject to the terms and conditions of the Plan, the provisions of which are
incorporated herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1 DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means , 199_.
(b) "NUMBER OF OPTION SHARES" means shares of Stock, as
adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $ per share of Stock, as adjusted
from time to time pursuant to Section 9.
<PAGE> 31
(d) "INITIAL EXERCISE DATE" means the Date of Option Grant.
(e) "INITIAL VESTING DATE" means the date occurring one (1)
year after
(check one):
_____ the Date of Option Grant.
_____ _______________, 199__, the date the
Optionee's Service commenced.
(f) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
(i) Prior to the Initial Vesting Date, the Vested
Ratio shall be 0.
(ii) On the Initial Vesting Date, provided that the
Optionee's Service has been continuous from the Date of Option Grant until the
Initial Vesting Date, the Vested Ratio shall be 1/5.
(iii) For each full month of the Optionee's continuous
service after the Initial Vesting Date, the Vested Ratio shall be increased by
one-sixtieth (1/60).
(iv) In no event shall the Vested Ratio exceed 1/1.
(g) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(h) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(i) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(j) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(k) "COMPANY" means P.F. Chang's China Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.
(l) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company Group because
of the sickness or injury of the Optionee.
(m) "EMPLOYEE" means any person treated as an employee
(including an officer or a director who is also treated as an employee) in the
records of the Company; provided,
<PAGE> 32
however, that neither service as a director nor payment of a director's fee
shall be sufficient to constitute employment for this purpose.
(n) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of
a share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein.
(p) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(r) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(s) "PLAN" means the P.F. Chang's China Bistro, Inc. 1997
Restaurant Management Stock Option Plan.
(t) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(u) "SERVICE" means the Optionee's employment or service
with the Participating Company Group in the capacity of an Employee. The
Optionee's Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Optionee renders Service to the
Participating Company Group or a change in the Participating Company for which
the Optionee renders such Service, provided that there is no interruption or
termination of the Optionee's Service. Furthermore, the Optionee's Service with
the Participating Company Group shall not be deemed to have terminated if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Optionee's Service shall be deemed to have terminated unless the Optionee's
right to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated
by the Company or required by law, a leave of absence shall not be treated as
Service for purposes of determining the Optionee's Vested Ratio. The Optionee's
Service shall be deemed to have terminated either upon an actual termination of
Service or upon the corporation for which the Optionee performs Service ceasing
to be a Participating Company. Subject to the foregoing, the Company, in its
sole discretion, shall determine whether the Optionee's Service has terminated
and the effective date of such termination.
(v) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 9.
(w) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when
<PAGE> 33
otherwise indicated by the context, the singular shall include the plural, the
plural shall include the singular, and the term "or" shall include the
conjunctive as well as the disjunctive.
2. TAX CONSEQUENCES.
1 TAX STATUS OF OPTION. This Option is intended to be an
Incentive Stock Option within the meaning of Section 422(b) of the Code (an
"INCENTIVE STOCK OPTION"), but the Company does not represent or warrant that
this Option qualifies as such. The Optionee should consult with the Optionee's
own tax advisor regarding the tax effects of this Option and the requirements
necessary to obtain favorable income tax treatment under Section 422 of the
Code, including, but not limited to, holding period requirements. (NOTE: If the
aggregate Exercise Price of the Option (that is, the Exercise Price multiplied
by the Number of Option Shares) plus the aggregate exercise price of any other
Incentive Stock Options held by the Optionee (whether granted pursuant to the
Plan or any other stock option plan of the Participating Company Group) is
greater than One Hundred Thousand Dollars ($100,000), the Optionee should
contact the Chief Financial Officer of the Company to ascertain whether the
entire Option qualifies as an Incentive Stock Option.)
2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Service terminates, (b) the Optionee is an Insider and
exercises the Option within six (6) months of the Date of Option Grant (if a
class of equity security of the Company is registered under Section 12 of the
Exchange Act), or (c) the Optionee is subject to a restriction on transfer to
comply with "Pooling-of-Interests Accounting" rules. Failure to file an election
under Section 83(b), if appropriate, may result in adverse tax consequences to
the Optionee. The Optionee acknowledges that the Optionee has been advised to
consult with a tax advisor prior to the exercise of the Option regarding the tax
consequences to the Optionee of the exercise of the Option. AN ELECTION UNDER
SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE
PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES
THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE
RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE
TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
<PAGE> 34
4. EXERCISE OF THE OPTION.
1 RIGHT TO EXERCISE.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Exercise Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares less the number of shares of Stock previously acquired upon
exercise of the Option, subject to the Optionee's agreement that any shares
purchased upon exercise are subject to the Company's repurchase rights set forth
in Section 11 and to the Company's first refusal rights set forth in Section 12.
In no event shall the Option be exercisable for more shares than the Number of
Option Shares. Notwithstanding the foregoing, except as provided in Section
4.1(b), the aggregate Fair Market Value of the shares of Stock with respect to
which the Optionee may exercise the Option for the first time during any
calendar year, when added to the aggregate Fair Market Value of the shares
subject to any other options designated as Incentive Stock Options granted to
the Optionee under all stock option plans of the Participating Company Group
prior to the Date of Option Grant with respect to which such options are
exercisable for the first time during the same calendar year, shall not exceed
One Hundred Thousand Dollars ($100,000). For purposes of the preceding sentence,
options designated as Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of shares of stock
shall be determined as of the time the option with respect to such shares is
granted. Such limitation on exercise shall be referred to in this Option
Agreement as the "ISO Exercise Limitation." If Section 422 of the Code is
amended to provide for a different limitation from that set forth in this
Section 4.1(a), the ISO Exercise Limitation shall be deemed amended effective as
of the date required or permitted by such amendment to the Code. The ISO
Exercise Limitation shall terminate upon the earlier of (i) the Optionee's
termination of Service, (ii) the day immediately prior to the effective date of
a Transfer of Control in which the Option is not assumed or substituted for by
the Acquiring Corporation as provided in Section 8, or (iii) the day ten (10)
days prior to the Option Expiration Date. Upon such termination of the ISO
Exercise Limitation, the Option shall be deemed a Nonstatutory Stock Option to
the extent of the number of shares subject to the Option which would otherwise
exceed the ISO Exercise Limitation.
(b) Notwithstanding any other provision of this Option
Agreement, if compliance with the ISO Exercise Limitation as set forth in
Section 4.1(a) will result in the exercisability of any Vested Shares (as
defined in Section 11.2) being delayed more than thirty (30) days beyond the
date such shares become Vested (the "Vesting Date"), the Option shall be deemed
to be two (2) options. The fist option shall be for the maximum portion of the
Number of Option Shares that can comply with the ISO Exercise Limitation without
causing the Option to be unexercisable in the aggregate as to Vested Shares on
the Vesting Date for such shares. The second option, which shall not be treated
as an Incentive Stock Option as described in Section 422(b) of the Code, shall
be for the balance of the Number of Option Shares: that is, those such shares
which, on the respective Vesting Date for such shares, would be unexercisable if
included in the first option and thereby made subject to the ISO Exercise
Limitation. Shares treated as subject to the second option shall be exercisable
on the same terms and at the same time as set forth in this Option Agreement;
provided, however, that (i) the third sentence of Section 4.1(a) shall not apply
to the second option and (ii) each such share shall become a Vested Share on the
Vesting Date on which such shares must first be allocated to the second option
pursuant to the preceding sentence. Unless the Optionee specifically elects to
the contrary in the Optionee's written notice of exercise, the first option
shall be deemed to be exercise first to the maximum possible extent and then the
second option shall be deemed to be exercised.
2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for
<PAGE> 35
which the Option is being exercised and such other representations and
agreements as to the Optionee's investment intent with respect to such shares as
may be required pursuant to the provisions of this Option Agreement. The written
notice must be signed by the Optionee and must be delivered in person, by
certified or registered mail, return receipt requested, by confirmed facsimile
transmission, or by such other means as the Company may permit, to the Chief
Financial Officer of the Company, or other authorized representative of the
Company, prior to the termination of the Option as set forth in Section 6,
accompanied by (i) full payment of the aggregate Exercise Price for the number
of shares of Stock being purchased and (ii) an executed copy, if required
herein, of the then current forms of escrow and security agreement referenced
below. The Option shall be deemed to be exercised upon receipt by the Company of
such written notice, the aggregate Exercise Price, and, if required by the
Company, such executed agreements.
3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by cash for a
portion of the aggregate Exercise Price not less than the par value of the
shares being acquired, and the Optionee's promissory note for the balance of the
aggregate Exercise Price, or (v) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of shares of Stock would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the
Company's Stock. The Option may not be exercised by tender to the Company of
shares of Stock unless such shares either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
modify, decline to approve or terminate any such program or procedures.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. The promissory note permitted in clause (iv) of Section
4.3(a) shall be a full recourse note in a form satisfactory to the Company, with
principal payable no more than four (4) years after the date the Option is
exercised. Interest on the principal balance of the promissory note shall be
payable in annual installments at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. At any time
the Company is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any
<PAGE> 36
promissory note shall comply with such applicable regulations, and the Optionee
shall pay the unpaid principal and accrued interest, if any, to the extent
necessary to comply with such applicable regulations. Except as the Company in
its sole discretion shall determine, the Optionee shall pay the unpaid principal
balance of the promissory note and any accrued interest thereon upon termination
of the Optionee's Service with the Participating Company Group for any reason,
with or without cause.
4 TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless such tax withholding obligations are satisfied. Accordingly,
the Optionee may not be able to exercise the Option when desired even though the
Option is vested, and the Company shall have no obligation to issue a
certificate for such shares or release such shares from any escrow provided for
herein.
5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the shares of Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this
restriction should be directed to the Chief Financial Officer of the Company.
The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require
the Optionee to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
<PAGE> 37
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service is terminated
because of the Disability of the Optionee, the Option, to the extent unexercised
and exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date. (NOTE: If the Option is exercised more than three (3)
months after the date on which the Optionee's Service as an Employee terminated
as a result of a Disability other than a permanent and total disability as
defined in Section 22(e)(3) of the Code, the Option will be treated as a
Nonstatutory Stock Option and not as an Incentive Stock Option to the extent
required by Section 422 of the Code.
(b) DEATH. If the Optionee's Service is terminated because
of the death of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee's legal representative or other person who acquired
the right to exercise the Option by reason of the Optionee's death at any time
prior to the expiration of twelve (12) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months after the
Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
terminates for any reason except Disability or death, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee's
Service terminated, may be exercised by the Optionee within three (3) months (or
such other longer period of time as determined by the Board, in its sole
discretion) after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date.
2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding the
provisions in Section 7.1, the Option may not be exercised after the Optionee's
termination of Service to the extent that the shares to be acquired upon
exercise of the Option would be subject to the Unvested Share Repurchase Option
as provided in Section 11. Except as the Company and the Optionee otherwise
agree, exercise of the Option pursuant to Section 7.1 following termination of
the Optionee's Service may not be made by delivery of a promissory note as
provided in Section 4.3(a).
<PAGE> 38
3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified that the Option is exercisable, but in any event no later than the
Option Expiration Date. The Company makes no representation as to the tax
consequences of any such delayed exercise. The Optionee should consult with the
Optionee's own tax advisor as to the tax consequences to the Optionee of any
such delayed exercise.
4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor(s) as to the tax consequences to the Optionee of any such delayed
exercise.
5 LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's
Service shall not be deemed to terminate if the Optionee takes any military
leave, sick leave, or other bona fide leave of absence approved by the Company
of ninety (90) days or less. In the event of a leave of absence in excess of
ninety (90) days, the Optionee's Service shall be deemed to terminate on the
ninety-first (91st) day of such leave unless the Optionee's right to return to
Service remains guaranteed by statute or contract. Notwithstanding the
foregoing, unless otherwise designated by the Company (or required by law), a
leave of absence shall not be treated as Service for purposes of determining the
Optionee's Vested Ratio.
8. TRANSFER OF CONTROL.
1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the stockholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is
a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent
<PAGE> 39
(50%) of the total combined voting power of the outstanding voting stock of the
Company or the corporation or corporations to which the assets of the Company
were transferred (the "TRANSFEREE CORPORATION(s)"), as the case may be;
provided, however, that neither an initial public offering by the Company, nor
an equity or convertible securities financing by the Company shall be deemed an
Ownership Change Event or Transfer of Control for the purpose of any accelerated
vesting provision of this Option Agreement. For purposes of the preceding
sentence, indirect beneficial ownership shall include, without limitation, an
interest resulting from ownership of the voting stock of one or more
corporations which, as a result of the Transaction, own the Company or the
Transferee Corporation(s), as the case may be, either directly or through one or
more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of an
eligible Transfer of Control, the Vested Ratio shall be increased by two-fifths
(2/5) as of the date ten (10) days prior to the date of any such eligible
Transfer of Control; provided, however, that in no event shall the Vested Ratio
be increased pursuant to this Section 8.2 to a ratio in excess of one (1). The
exercise or vesting of any Option that was permissible solely by reason of this
Section 8.2 shall be conditioned upon the consummation of the Transfer of
Control. In addition, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, the Option
shall be deemed assumed if, following the Transfer of Control, the Option
confers the right to purchase, for each share of Stock subject to the Option
immediately prior to the Transfer of Control, the consideration (whether stock,
cash or other securities or property) to which a holder of a share of Stock on
the effective date of the Transfer of Control was entitled. The Option shall
terminate and cease to be outstanding effective as of the date of the Transfer
of Control to the extent that the Option is neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control. Notwithstanding the
foregoing, shares acquired upon exercise of the Option prior to the Transfer of
Control and any consideration received pursuant to the Transfer of Control with
respect to such shares shall continue to be subject to all applicable provisions
of this Option Agreement except as otherwise provided herein. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the Option shall not
terminate unless the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this
<PAGE> 40
Section 9 shall be rounded up or down to the nearest whole number, as determined
by the Board, and in no event may the Exercise Price be decreased to an amount
less than the par value, if any, of the stock subject to the Option. The
adjustments determined by the Board pursuant to this Section 9 shall be final,
binding and conclusive.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. If the Optionee is an Employee, the Optionee understands
and acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating Company and the Optionee, the
Optionee's employment is "at will" and is for no specified term. Nothing in this
Option Agreement shall confer upon the Optionee, whether an Employee or
Consultant, any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. UNVESTED SHARE REPURCHASE OPTION.
1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event the
Optionee's Service is terminated for any reason or no reason, with or without
cause, or if the Optionee, the Optionee's legal representative, or other holder
of shares acquired upon exercise of the Option attempts to sell, exchange,
transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership
Change Event) any shares acquired upon exercise of the Option which exceed the
Vested Shares as defined in Section 11.2 below (the "Unvested Shares"), the
Company shall have the right to repurchase the Unvested Shares under the terms
and subject to the conditions set forth in this Section 11 (the "Unvested Share
Repurchase Option").
2 VESTED SHARES AND UNVESTED SHARES DEFINED. The "Vested Shares"
shall mean, on any given date, a number of shares of Stock equal to the Number
of Option Shares multiplied by the Vested Ratio determined as of such date and
rounded down to the nearest whole share. On such given date, the "Unvested
Shares" shall mean the number of shares of Stock acquired upon exercise of the
Option which exceed the Vested Shares determined as of such date.
3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company may
exercise the Unvested Share Repurchase Option by written notice to the Optionee
within sixty (60) days after (a) termination of the Optionee's Service (or
exercise of the Option, if later) or (b) the Company has received notice of the
attempted disposition of Unvested Shares. If the Company fails to give notice
within such sixty (60) day period, the Unvested Share Repurchase Option shall
terminate unless the Company and the Optionee have extended the time for the
exercise of the Unvested Share Repurchase Option. The Unvested Share Repurchase
Option must be exercised, if at all, for all of the Unvested Shares, except as
the Company and the Optionee otherwise agree.
4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
9 (the "Repurchase Price"). The Company shall pay the aggregate Repurchase Price
to the Optionee in cash within thirty (30) days after the date of the written
notice to the Optionee of the Company's exercise of the Unvested Share
Repurchase Option. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be
<PAGE> 41
treated as payment to the Optionee in cash to the extent of the unpaid principal
and any accrued interest canceled. The shares being repurchased shall be
delivered to the Company by the Optionee at the same time as the delivery of the
Repurchase Price to the Optionee.
5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The Company
shall have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.
6 OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership
Change Event, any and all new, substituted or additional securities or other
property to which the Optionee is entitled by reason of the Optionee's ownership
of Unvested Shares shall be immediately subject to the Unvested Share Repurchase
Option and included in the terms "Stock" and "Unvested Shares" for all purposes
of the Unvested Share Repurchase Option with the same force and effect as the
Unvested Shares immediately prior to the Ownership Change Event. While the
aggregate Repurchase Price shall remain the same after such Ownership Change
Event, the Repurchase Price per Unvested Share upon exercise of the Unvested
Share Repurchase Option following such Ownership Change Event shall be adjusted
as appropriate. For purposes of determining the Vested Ratio following an
Ownership Change Event, credited Service shall include all Service with any
corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event. The foregoing notwithstanding, in the
event of an Ownership Change Event that is also a Transfer of Control, the
Unvested Share Repurchase Option will terminate if the surviving corporation
does not assume, or substitute substantially equivalent options for, all
outstanding Options under the Plan.
12. RIGHT OF FIRST REFUSAL.
1 GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in Section
12.7 below, in the event the Optionee, the Optionee's legal representative, or
other holder of shares acquired upon exercise of the Option proposes to sell,
exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the
"TRANSFER SHARES") to any person or entity, including, without limitation, any
shareholder of the Participating Company Group, the Company shall have the right
to repurchase the Transfer Shares under the terms and subject to the conditions
set forth in this Section 12 (the "RIGHT OF FIRST REFUSAL").
2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall deliver written notice (the "TRANSFER
NOTICE") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith. If the Optionee
proposes to transfer any Transfer Shares to more than one Proposed Transferee,
the Optionee shall provide a separate Transfer Notice for the proposed transfer
to each Proposed Transferee. The Transfer Notice shall be signed by both the
Optionee and the Proposed Transferee and must constitute a binding commitment of
the Optionee and the Proposed Transferee for the transfer of the Transfer Shares
to the Proposed Transferee subject only to the Right of First Refusal.
3 BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 12, and the Optionee shall have no right
to transfer
<PAGE> 42
the Transfer Shares without first complying with the procedure described in this
Section 12. The Optionee shall not be permitted to transfer the Transfer Shares
if the proposed transfer is not bona fide.
4 EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth in the Transfer Notice by delivery to the Optionee of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the present
value cash equivalent of the consideration described in the Transfer Notice as
reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
5 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company
fails to exercise the Right of First Refusal in full (or to such lesser extent
as the Company and the Optionee otherwise agree) within the period specified in
Section 12.4 above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall have
the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 12.
6 TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 12 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 12 are met.
7 TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the Option if such transfer or exchange is in connection with
an Ownership Change Event. If the consideration received pursuant to such
transfer or exchange consists of stock of a Participating Company, such
consideration shall remain
<PAGE> 43
subject to the Right of First Refusal unless the provisions of Section 12.9
below result in a termination of the Right of First Refusal.
8 ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not there
has been an attempted transfer, to one or more persons as may be selected by the
Company.
9 EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
13. ESCROW.
1 ESTABLISHMENT OF ESCROW. To ensure that shares of Stock issued
upon exercise of this Option which are subject to the Unvested Share Repurchase
Option, the Right of First Refusal or securing any promissory note will be
available for repurchase, the Company may require the Optionee to deposit the
certificate evidencing the shares of Stock which the Optionee purchases upon
exercise of the Option with an escrow agent designated by the Company under the
terms and conditions of an escrow and security agreements approved by the
Company. If the Company does not require such deposit as a condition of exercise
of the Option, the Company reserves the right at any time to require the
Optionee to so deposit the certificate in escrow. Upon the occurrence of an
Ownership Change Event or a change, as described in Section 9, in the character
or amount of any of the outstanding stock of the corporation the stock of which
is subject to the provisions of this Option Agreement, any and all new,
substituted or additional securities or other property to which the Optionee is
entitled by reason of the Optionee's ownership of shares of Stock acquired upon
exercise of the Option that remain, following such Ownership Change Event or
change described in Section 9, subject to the Unvested Share Repurchase Option,
the Right of First Refusal or any security interest held by the Company shall be
immediately subject to the escrow to the same extent as such shares of Stock
immediately before such event. The Company shall bear the expenses of the
escrow.
2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
the expiration of the Unvested Share Repurchase Option, the Right of First
Refusal and after full repayment of any promissory note secured by the shares of
Stock or other property in escrow, but not more frequently than twice each
calendar year, the escrow agent shall deliver to the Optionee the shares of
Stock and any other property no longer subject to such restrictions and no
longer securing any promissory note.
3 NOTICES AND PAYMENTS. In the event the shares of Stock and any
other property held in escrow are subject to the Company's exercise of the
Unvested Share Repurchase Option, the Right of First Refusal, or any security
interest of the Company, the notices required to be given to the Optionee shall
be given to the escrow agent, and any payment required to be given to the
Optionee shall be given to the escrow agent. Within thirty (30) days after
payment by the Company, the escrow agent shall deliver the shares of Stock and
any other property which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
<PAGE> 44
14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option, the Right of First
Refusal and any security interest held by the Company and with the same force
and effect as the shares subject to the Unvested Share Repurchase Option, the
Right of First Refusal and any such security interest immediately before such
event.
15. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant and shall provide the Company with
a description of the terms and circumstances of such disposition. Until such
time as the Optionee disposes of such shares in a manner consistent with the
provisions of this Option Agreement, unless otherwise expressly authorized by
the Company, the Optionee shall hold all shares acquired pursuant to the Option
in the Optionee's name (and not in the name of any nominee) for the one-year
period immediately after the exercise of the Option and the two-year period
immediately after Date of Option Grant. At any time during the one-year or
two-year periods set forth above, the Company may place a legend on any
certificate representing shares acquired pursuant to the Option requesting the
transfer agent for the Company's stock to notify the Company of any such
transfers. The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate pursuant to the preceding sentence.
16. LEGENDS. The Company may at any time place legends referencing the
Unvested Share Repurchase Option, the Right of First Refusal, any security
interest and any applicable federal, state or foreign securities law
restrictions on all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company any and all certificates representing
shares acquired pursuant to the Option in the possession of the Optionee in
order to carry out the provisions of this Section. Unless otherwise specified by
the Company, legends placed on such certificates may include, but shall not be
limited to, the following:
1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
2 Any legend required to be placed thereon by the Commissioner
of Corporations of the State of California.
3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS
<PAGE> 45
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THIS CORPORATION."
4 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
5 "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION
AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE
SHARES SHOULD NOT BE TRANSFERRED PRIOR TO . SHOULD THE REGISTERED HOLDER
ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX
TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION
IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE
INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF
ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE."
17. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any
underwritten public offering of stock, including an initial public offering of
stock, made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering at its sole discretion. The foregoing limitation shall not apply
to shares registered in the public offering under the Securities Act. The
Optionee shall be subject to this Section provided and only if the officers and
directors of the Company are also subject to similar arrangements.
18. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise
of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement and,
except pursuant to an Ownership Change, until the date on which such shares
become Vested Shares, any such attempted disposition shall be void. The Company
shall not be required (a) to transfer on its books any shares which will have
been transferred in violation of any of the provisions set forth in this Option
Agreement or (b) to treat as owner of such shares or to accord the right to vote
as such owner or to pay dividends to any transferee to whom such shares will
have been so transferred.
19. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
20. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any
<PAGE> 46
unexercised portion hereof without the consent of the Optionee unless such
termination or amendment is necessary to comply with any applicable law or
government regulation or is required to enable the Option to qualify as an
Incentive Stock Option. No amendment or addition to this Option Agreement shall
be effective unless in writing.
21. NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given (except to the extent that this
Option Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery or upon deposit in the United States Post Office,
by registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature or at such other
address as such party may designate in writing from time to time to the other
party.
22. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute
the entire understanding and agreement of the Optionee and the Participating
Company Group with respect to the subject matter contained herein or therein,
and there are no agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Participating Company Group with respect
to such subject matter other than those as set forth or provided for herein or
therein. To the extent contemplated herein or therein, the provisions of this
Option Agreement shall survive any exercise of the Option and shall remain in
full force and effect.
23. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of Delaware as such laws are applied to agreements between Delaware
residents entered into and to be performed entirely within the State of
Delaware.
COMPANY:
P.F. CHANG'S CHINA BISTRO, INC.
By:____________________________________
Title:_________________________________
_______________________________________
Print Name and Title
5040 North 49th Street
Phoenix, AZ 85018
<PAGE> 47
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11, and the Right of First Refusal set forth in
Section 12, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Option Agreement. The undersigned acknowledges receipt of a
copy of the Plan.
OPTIONEE
Date:_______________________________ _______________________________________
Signature
_______________________________________
Print Name
Optionee's Address:
_______________________________________
_______________________________________
_______________________________________
<PAGE> 1
Exhibit 10.4
P.F. CHANG'S CHINA BISTRO, INC.
1996 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1 ESTABLISHMENT. The P.F. CHANG'S CHINA BISTRO, INC.'s 1996 Stock
Option Plan (the "PLAN") is hereby established effective as of August 2, 1996
(the "EFFECTIVE DATE").
2 PURPOSE. The purpose of the Plan is to advance the interests of
the Participating Company Group and its stockholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
3 TERM OF PLAN. The Plan shall continue in effect until the earlier
of its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed. However, all Options shall be granted, if at
all, within ten (10) years from the earlier of the date the Plan is adopted by
the Board or the date the Plan is duly approved by the stockholders of the
Company.
2. DEFINITIONS AND CONSTRUCTION.
1 DEFINITIONS. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means P.F. Chang's China Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.
<PAGE> 2
(e) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(f) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(i) "FAIR MARKET VALUE" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing sale price
of a share of Stock (or the mean of the closing bid and asked prices of a share
of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(j) "INCENTIVE STOCK OPTION" means an Option intended to be
(as set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.
(k) "INSIDER" means an officer or a Director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(l) "NONSTATUTORY STOCK OPTION" means an Option not intended
to be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
<PAGE> 3
(m) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(n) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(o) "OPTIONEE" means a person who has been granted one or more
Options.
(p) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(r) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(s) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(t) "STOCK" means the common stock, $0.01 par value per share,
of the Company, as adjusted from time to time in accordance with Section 4.2.
(u) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(v) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the
time an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3
<PAGE> 4
3. ADMINISTRATION.
1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the
Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3 POWERS OF THE BOARD. In addition to any other powers set forth in
the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or
other property;
(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of employment or service
with the Participating Company Group on any of the foregoing, and (vii) all
other terms, conditions and restrictions applicable to the Option or such shares
not inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, or renew, or grant a new Option
in substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;
<PAGE> 5
(g) to amend the exercisability of any Option or the vesting
of any shares acquired upon the exercise thereof, including with respect to the
period following an Optionee's termination of employment or service with the
Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
4. SHARES SUBJECT TO PLAN.
1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be one hundred seventy-eight thousand
(178,000) and shall consist of authorized but unissued or reacquired shares of
Stock or any combination thereof. If an outstanding Option for any reason
expires or is terminated or canceled, or if shares of Stock acquired, subject to
repurchase, upon the exercise of an Option are repurchased by the Company, the
shares of Stock allocable to the unexercised portion of such Option or such
repurchased shares of Stock shall again be available for issuance under the
Plan.
2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan and to any outstanding Options and in the exercise price per share
of any outstanding Options. If a majority of the shares which are of the same
class as the shares that are subject to outstanding Options are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event, as defined in Section 8.1) shares of another corporation (the "NEW
SHARES"), the Board may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise price per share of,
the outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded up or down to the nearest whole number, as determined by the
Board, and in no event may the exercise price of any Option be decreased to an
amount less than the par value, if any, of the stock subject to the Option. The
adjustments determined by the Board pursuant to this Section 4.2 shall be final,
binding and conclusive.
<PAGE> 6
5. ELIGIBILITY AND OPTION LIMITATIONS.
1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees," "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of employment or other service relationship with
the Participating Company Group. Eligible persons may be granted more than one
(1) Option.
2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on
the effective date of the grant of an Option to such person may be granted only
a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences service with a Participating
Company, with an exercise price determined as of such date in accordance with
Section 6.1.
3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having an
aggregate Fair Market Value greater than One Hundred Thousand Dollars
($100,000), the portion of such options which exceeds such amount shall be
treated as Nonstatutory Stock Options. For purposes of this Section 5.3, options
designated as Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of stock shall be
determined as of the time the option with respect to such stock is granted. If
the Code is amended to provide for a different limitation from that set forth in
this Section 5.3, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of the
limitation set forth in this Section 5.3, the Optionee may designate which
portion of such Option the Optionee is exercising. In the absence of such
designation, the Optionee shall be deemed to have exercised the Incentive Stock
Option portion of the Option first. Separate certificates representing each such
portion shall be issued upon the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
1 EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of
<PAGE> 7
Stock on the effective date of grant of the Option, and (c) no Option granted to
a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section 424(a) of
the Code.
2 EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the expiration of ten (10) years
after the effective date of grant of such Option, (b) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the effective date of grant of such Option,
and (c) no Option granted to a prospective Employee, prospective Consultant or
prospective Director may become exercisable prior to the date on which such
person commences service with a Participating Company.
3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
<PAGE> 8
(c) CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
4 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof. Alternatively or in
addition, in its sole discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
5 REPURCHASE RIGHTS. Shares issued under the Plan may be subject to
a right of first refusal, one or more repurchase options, or other conditions
and restrictions as determined by the Board, in its sole discretion, at the time
the Option is granted. The Company shall have the right to assign at any time
any repurchase right it may have, whether or not such right is then exercisable,
to one or more persons as may be selected by the Company. Upon request by the
Company, each Optionee shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and shall
promptly present to the Company any and all certificates representing shares of
Stock acquired hereunder for the placement on such certificates of appropriate
legends evidencing any such transfer restrictions.
<PAGE> 9
7. STANDARD FORMS OF OPTION AGREEMENT.
1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the Board at
the time the Option is granted, an Option designated as an "Incentive Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Immediately Exercisable Incentive Stock Option Agreement adopted
by the Board concurrently with its adoption of the Plan and as amended from time
to time.
2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by the Board
at the time the Option is granted, an Option designated as a "Nonstatutory Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Immediately Exercisable Nonstatutory Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
3 STANDARD TERM OF OPTIONS. Except as otherwise provided in Section
6.2 or by the Board in the grant of an Option, any Option granted hereunder
shall have a term of ten (10) years from the effective date of grant of the
Option.
4 AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan. Such authority shall include, but not
by way of limitation, the authority to grant Options which are not immediately
exercisable.
8. TRANSFER OF CONTROL.
1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
<PAGE> 10
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be, provided, however, that neither an initial
public offering by the Company, nor an equity or convertible securities
financing by the Company shall be deemed an Ownership Change Event or Transfer
of Control for the purpose of any accelerated vesting provision of this Option
Agreement. For purposes of the preceding sentence, indirect beneficial ownership
shall include, without limitation, an interest resulting from ownership of the
voting stock of one or more corporations which, as a result of the Transaction,
own the Company or the Transferee Corporation(s), as the case may be, either
directly or through one or more subsidiary corporations. The Board shall have
the right to determine whether multiple sales or exchanges of the voting stock
of the Company or multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
<PAGE> 11
2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of an
eligible Transfer of Control, each of the outstanding Options shall receive an
additional two (2) years of accelerated vesting as of the date ten (10) days
prior to the date of the Transfer of Control. The exercise or vesting of any
Option that was permissible solely by reason of this Section 8.2 shall be
conditioned upon the consummation of the Transfer of Control. In addition, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may
either assume the Company's rights and obligations under outstanding Options or
substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall
be deemed assumed if, following the Transfer of Control, the Option confers the
right to purchase in accordance with its terms and conditions, for each share of
Stock subject to the Option immediately prior to the Transfer of Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Transfer of Control was
entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control. Notwithstanding
the foregoing, shares acquired upon exercise of an Option prior to the Transfer
of Control and any consideration received pursuant to the Transfer of Control
with respect to such shares shall continue to be subject to all applicable
provisions of the Option Agreement evidencing such Option except as otherwise
provided in such Option Agreement. Furthermore, notwithstanding the foregoing,
if the corporation the stock of which is subject to the outstanding Options
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the outstanding Options shall not
terminate unless the Board otherwise provides in its sole discretion.
3 NOTICE. The Company shall send to all holders of outstanding
Options at least ten (10) days' written notice prior to the consummation of a
Transfer of Control. The Company's notice shall summarize the principal terms of
the Transfer of Control including, without limitation, whether the Acquiring
Corporation is assuming the outstanding Options or substituting equivalent
options therefor.
9. PROVISION OF INFORMATION. At least annually, copies of the Company's
balance sheet and income statement for the just completed fiscal year shall be
made available to each Optionee and purchaser of shares of Stock upon the
exercise of an Option. The Company shall not be required to provide such
information to persons whose duties in connection with the Company assure them
access to equivalent information.
10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an
Option shall be exercisable only by the Optionee or the Optionee's guardian or
legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
<PAGE> 12
11. TRANSFER OF COMPANY'S RIGHTS. In the event any Participating Company
assigns, other than by operation of law, to a third person, other than another
Participating Company, any of the Participating Company's rights to repurchase
any shares of Stock acquired upon the exercise of an Option, the assignee shall
pay to the assigning Participating Company the value of such right as determined
by the Company in the Company's sole discretion. Such consideration shall be
paid in cash. In the event such repurchase right is exercisable at the time of
such assignment, the value of such right shall be not less than the Fair Market
Value of the shares of Stock which may be repurchased under such right (as
determined by the Company) minus the repurchase price of such shares. The
requirements of this Section 11 regarding the minimum consideration to be
received by the assigning Participating Company shall not inure to the benefit
of the Optionee whose shares of Stock are being repurchased. Failure of a
Participating Company to comply with the provisions of this Section 11 shall not
constitute a defense or otherwise prevent the exercise of the repurchase right
by the assignee of such right.
12. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the
Plan at any time. However, subject to changes in applicable law, regulations or
rules that would permit otherwise, without the approval of the Company's
stockholders there shall be (a) no increase in the maximum aggregate number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), (b) no change in the class of persons eligible to
receive Incentive Stock Options, and (c) no other amendment of the Plan that
would require approval of the Company's stockholders under any applicable law,
regulation or rule. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Optionee, unless such termination or amendment is
required to enable an Option designated as an Incentive Stock Option to qualify
as an Incentive Stock Option or is necessary to comply with any applicable law,
regulation or rule.
<PAGE> 13
14. STOCKHOLDER APPROVAL. The Plan or any increase in the maximum number
of shares of Stock issuable thereunder as provided in Section 4.1 (the "MAXIMUM
SHARES") shall be approved by the stockholders of the Company within twelve (12)
months of the date of adoption thereof by the Board. Options granted prior to
stockholder approval of the Plan or in excess of the Maximum Shares previously
approved by the stockholders shall become exercisable no earlier than the date
of stockholder approval of the Plan or such increase in the Maximum Shares, as
the case may be.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing P.F. CHANG'S CHINA BISTRO, INC. 1996 Stock Option Plan was
duly adopted by the Board on August 2, 1996.
PLAN HISTORY
August 2, 1996 Board adopts the Plan, with an initial reserve of
178,000 shares.
________, 1997 Stockholders approve the Plan, with an initial
reserve of 178,000 shares.
<PAGE> 14
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
P.F. CHANG'S CHINA BISTRO, INC.
IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT (the "OPTION
AGREEMENT") is made and entered into as of ___________, 199_, by and between
P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "Company") and
___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the P.F. Chang's China
Bistro, Inc. 1996 Stock Option Plan (the "Plan") an option to purchase certain
shares of stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION"). The Option shall in all respects be subject to the
terms and conditions of the Plan, the provisions of which are incorporated
herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means _________________ ,
199_.
(b) "NUMBER OF OPTION Shares" means _____________ shares
of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $________ per share of Stock,
as adjusted from time to time pursuant to Section 9.
(d) "INITIAL EXERCISE DATE" means the Date of Option
Grant.
<PAGE> 15
(e) "INITIAL VESTING DATE" means the date occurring one
(1) year after (check one):
_____ the Date of Option Grant.
_____ _______________, 199__, the date the
Optionee's Service commenced.
(f) "VESTED RATIO" means, on any relevant date, the
ratio determined as follows:
(i) Prior to the Initial Vesting Date, the Vested
Ratio shall be 0.
(ii) On the Initial Vesting Date, provided that
the Optionee's Service has been continuous from the Date of Option Grant until
the Initial Vesting Date, the Vested Ratio shall be 1/5.
(iii) For each full month of the Optionee's
continuous service after the Initial Vesting Date, the Vested Ratio shall be
increased by one-sixtieth (1/60).
(iv) In no event shall the Vested Ratio exceed
1/1.
(g) "OPTION EXPIRATION Date" means the date ten (10)
years after the Date of Option Grant.
(h) "BOARD" means the Board of Directors of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "Board" shall also mean such Committee(s).
(i) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(j) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted in the Plan, including, without limitation, the
power to amend or terminate the Plan at any time, subject to the terms of the
Plan and any applicable limitations imposed by law.
(k) "COMPANY" means P.F. Chang's China Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.
(l) "DISABILITY" means the inability of the Optionee, in
the opinion of a qualified physician acceptable to the Company, to perform the
major duties of the Optionee's position with the Participating Company Group
because of the sickness or injury of the Optionee.
<PAGE> 16
(m) "EMPLOYEE" means any person treated as an employee
(including an officer or a director who is also treated as an employee) in the
records of the Company; provided, however, that neither service as a director
nor payment of a director's fee shall be sufficient to constitute employment for
this purpose.
(n) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value
of a share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein.
(p) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(r) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(s) "PLAN" means the P.F. Chang's China Bistro, Inc.
1996 Stock Option Plan.
(t) "SECURITIES ACT" means the Securities Act of 1933,
as amended.
(u) "SERVICE" means the Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
the Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company Group
is guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining the Optionee's Vested
Ratio. The Optionee's Service shall be deemed to have terminated either upon an
actual termination of Service or upon the corporation for which the Optionee
performs Service ceasing to be a Participating Company. Subject to the
foregoing, the Company, in its sole discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
(v) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 9.
(w) "SUBSIDIARY Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
<PAGE> 17
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX CONSEQUENCES.
2.1 TAX STATUS OF OPTION. This Option is intended to be an
Incentive Stock Option within the meaning of Section 422(b) of the Code (an
"INCENTIVE STOCK OPTION"), but the Company does not represent or warrant that
this Option qualifies as such. The Optionee should consult with the Optionee's
own tax advisor regarding the tax effects of this Option and the requirements
necessary to obtain favorable income tax treatment under Section 422 of the
Code, including, but not limited to, holding period requirements. (NOTE: If the
aggregate Exercise Price of the Option (that is, the Exercise Price multiplied
by the Number of Option Shares) plus the aggregate exercise price of any other
Incentive Stock Options held by the Optionee (whether granted pursuant to the
Plan or any other stock option plan of the Participating Company Group) is
greater than One Hundred Thousand Dollars ($100,000), the Optionee should
contact the Chief Financial Officer of the Company to ascertain whether the
entire Option qualifies as an Incentive Stock Option.)
2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Service terminates, (b) the Optionee is an Insider and
exercises the Option within six (6) months of the Date of Option Grant (if a
class of equity security of the Company is registered under Section 12 of the
Exchange Act), or (c) the Optionee is subject to a restriction on transfer to
comply with "Pooling-of-Interests Accounting" rules. Failure to file an election
under Section 83(b), if appropriate, may result in adverse tax consequences to
the Optionee. The Optionee acknowledges that the Optionee has been advised to
consult with a tax advisor prior to the exercise of the Option regarding the tax
consequences to the Optionee of the exercise of the Option. AN ELECTION UNDER
SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE
PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES
THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE
RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE
TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
<PAGE> 18
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE.
(a) Except as otherwise provided herein, the Option
shall be exercisable on and after the Initial Exercise Date and prior to the
termination of the Option (as provided in Section 6) in an amount not to exceed
the Number of Option Shares less the number of shares of Stock previously
acquired upon exercise of the Option, subject to the Optionee's agreement that
any shares purchased upon exercise are subject to the Company's repurchase
rights set forth in Section 11 and to the Company's first refusal rights set
forth in Section 12. In no event shall the Option be exercisable for more shares
than the Number of Option Shares. Notwithstanding the foregoing, except as
provided in Section 4.1(b), the aggregate Fair Market Value of the shares of
Stock with respect to which the Optionee may exercise the Option for the first
time during any calendar year, when added to the aggregate Fair Market Value of
the shares subject to any other options designated as Incentive Stock Options
granted to the Optionee under all stock option plans of the Participating
Company Group prior to the Date of Option Grant with respect to which such
options are exercisable for the first time during the same calendar year, shall
not exceed One Hundred Thousand Dollars ($100,000). For purposes of the
preceding sentence, options designated as Incentive Stock Options shall be taken
into account in the order in which they were granted, and the Fair Market Value
of shares of stock shall be determined as of the time the option with respect to
such shares is granted. Such limitation on exercise shall be referred to in this
Option Agreement as the "ISO Exercise Limitation." If Section 422 of the Code is
amended to provide for a different limitation from that set forth in this
Section 4.1(a), the ISO Exercise Limitation shall be deemed amended effective as
of the date required or permitted by such amendment to the Code. The ISO
Exercise Limitation shall terminate upon the earlier of (i) the Optionee's
termination of Service, (ii) the day immediately prior to the effective date of
a Transfer of Control in which the Option is not assumed or substituted for by
the Acquiring Corporation as provided in Section 8, or (iii) the day ten (10)
days prior to the Option Expiration Date. Upon such termination of the ISO
Exercise Limitation, the Option shall be deemed a Nonstatutory Stock Option to
the extent of the number of shares subject to the Option which would otherwise
exceed the ISO Exercise Limitation.
(b) Notwithstanding any other provision of this Option
Agreement, if compliance with the ISO Exercise Limitation as set forth in
Section 4.1(a) will result in the exercisability of any Vested Shares (as
defined in Section 11.2) being delayed more than thirty (30) days beyond the
date such shares become Vested (the "Vesting Date"), the Option shall be deemed
to be two (2) options. The fist option shall be for the maximum portion of the
Number of Option Shares that can comply with the ISO Exercise Limitation without
causing the Option to be unexercisable in the aggregate as to Vested Shares on
the Vesting Date for such shares. The second option, which shall not be treated
as an Incentive Stock Option as described in Section 422(b) of the Code, shall
be for the balance of the Number of Option Shares: that is, those such shares
which, on the respective Vesting Date for such shares, would be unexercisable if
included in the first option and thereby made subject to the ISO Exercise
Limitation. Shares treated as subject to the second option shall be exercisable
on the same terms and at the same time as set forth in this Option Agreement;
provided, however, that (i) the third sentence of Section 4.1(a) shall not apply
to the second option and (ii) each such share shall become a Vested Share on the
Vesting Date on which such shares must first be allocated to the second option
pursuant to the preceding sentence. Unless the Optionee specifically elects to
the contrary in the Optionee's written notice of exercise, the first option
shall be deemed to be exercise first to the maximum possible extent and then the
second option shall be deemed to be exercised.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock
<PAGE> 19
for which the Option is being exercised and such other representations and
agreements as to the Optionee's investment intent with respect to such shares as
may be required pursuant to the provisions of this Option Agreement. The written
notice must be signed by the Optionee and must be delivered in person, by
certified or registered mail, return receipt requested, by confirmed facsimile
transmission, or by such other means as the Company may permit, to the Chief
Financial Officer of the Company, or other authorized representative of the
Company, prior to the termination of the Option as set forth in Section 6,
accompanied by (i) full payment of the aggregate Exercise Price for the number
of shares of Stock being purchased and (ii) an executed copy, if required
herein, of the then current forms of escrow and security agreement referenced
below. The Option shall be deemed to be exercised upon receipt by the Company of
such written notice, the aggregate Exercise Price, and, if required by the
Company, such executed agreements.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value (as determined
by the Company without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the aggregate Exercise Price,
(iii) by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by cash for a
portion of the aggregate Exercise Price not less than the par value of the
shares being acquired, and the Optionee's promissory note for the balance of the
aggregate Exercise Price, or (v) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of shares of Stock would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the
Company's Stock. The Option may not be exercised by tender to the Company of
shares of Stock unless such shares either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
modify, decline to approve or terminate any such program or procedures.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall
be permitted if an exercise of the Option using a promissory note would be a
violation of any law. The promissory note permitted in clause (iv) of Section
4.3(a) shall be a full recourse note in a form satisfactory to the Company, with
principal payable no more than four (4) years after the date the Option is
exercised. Interest on the principal balance of the promissory note shall be
payable in annual installments at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. At any time
the Company is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other
<PAGE> 20
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations. Except as the Company in its sole discretion shall determine, the
Optionee shall pay the unpaid principal balance of the promissory note and any
accrued interest thereon upon termination of the Optionee's Service with the
Participating Company Group for any reason, with or without cause.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless such tax withholding obligations are
satisfied. Accordingly, the Optionee may not be able to exercise the Option when
desired even though the Option is vested, and the Company shall have no
obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the shares of Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this
restriction should be directed to the Chief Financial Officer of the Company.
The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require
the Optionee to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
<PAGE> 21
4.7 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised
during the lifetime of the Optionee only by the Optionee or the Optionee's
guardian or legal representative and may not be assigned or transferred in any
manner except by will or by the laws of descent and distribution. Following the
death of the Optionee, the Option, to the extent provided in Section 7, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service is terminated
because of the Disability of the Optionee, the Option, to the extent unexercised
and exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date. (NOTE: If the Option is exercised more than three (3)
months after the date on which the Optionee's Service as an Employee terminated
as a result of a Disability other than a permanent and total disability as
defined in Section 22(e)(3) of the Code, the Option will be treated as a
Nonstatutory Stock Option and not as an Incentive Stock Option to the extent
required by Section 422 of the Code.
(b) DEATH. If the Optionee's Service is terminated
because of the death of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee's legal representative or other person who acquired
the right to exercise the Option by reason of the Optionee's death at any time
prior to the expiration of twelve (12) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months after the
Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service terminates for any reason except Disability or death, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee's Service terminated, may be exercised by the Optionee within three (3)
months (or such other longer period of time as determined by the Board, in its
sole discretion) after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date.
7.2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding
the provisions in Section 7.1, the Option may not be exercised after the
Optionee's termination of Service to the extent that the shares to be acquired
upon exercise of the Option would be subject to the Unvested Share Repurchase
Option as provided in Section 11. Except as the Company and the Optionee
otherwise agree, exercise of the Option pursuant to Section 7.1 following
termination of the Optionee's Service may not be made by delivery of a
promissory note as provided in Section 4.3(a).
<PAGE> 22
7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified that the Option is exercisable, but in any event no later than the
Option Expiration Date. The Company makes no representation as to the tax
consequences of any such delayed exercise. The Optionee should consult with the
Optionee's own tax advisor as to the tax consequences to the Optionee of any
such delayed exercise.
7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor(s) as to the tax consequences to the Optionee of any such delayed
exercise.
7.5 LEAVE OF ABSENCE. For purposes of Section 7.1, the
Optionee's Service shall not be deemed to terminate if the Optionee takes any
military leave, sick leave, or other bona fide leave of absence approved by the
Company of ninety (90) days or less. In the event of a leave of absence in
excess of ninety (90) days, the Optionee's Service shall be deemed to terminate
on the ninety-first (91st) day of such leave unless the Optionee's right to
return to Service remains guaranteed by statute or contract. Notwithstanding the
foregoing, unless otherwise designated by the Company (or required by law), a
leave of absence shall not be treated as Service for purposes of determining the
Optionee's Vested Ratio.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the stockholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the
Company is a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the
<PAGE> 23
Transaction, in substantially the same proportions as their ownership of shares
of the Company's voting stock immediately before the Transaction, direct or
indirect beneficial ownership of more than fifty percent (50%) of the total
combined voting power of the outstanding voting stock of the Company or the
corporation or corporations to which the assets of the Company were transferred
(the "TRANSFEREE CORPORATION(S)"), as the case may be; provided, however, that
neither an initial public offering by the Company, nor an equity or convertible
securities financing by the Company shall be deemed an Ownership Change Event or
Transfer of Control for the purpose of any accelerated vesting provision of this
Option Agreement. For purposes of the preceding sentence, indirect beneficial
ownership shall include, without limitation, an interest resulting from
ownership of the voting stock of one or more corporations which, as a result of
the Transaction, own the Company or the Transferee Corporation(s), as the case
may be, either directly or through one or more subsidiary corporations. The
Board shall have the right to determine whether multiple sales or exchanges of
the voting stock of the Company or multiple Ownership Change Events are related,
and its determination shall be final, binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of
an eligible Transfer of Control, the Vested Ratio shall be increased by
two-fifths (2/5) as of the date ten (10) days prior to the date of any such
eligible Transfer of Control; provided, however, that in no event shall the
Vested Ratio be increased pursuant to this Section 8.2 to a ratio in excess of
one (1). The exercise or vesting of any Option that was permissible solely by
reason of this Section 8.2 shall be conditioned upon the consummation of the
Transfer of Control. In addition, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"ACQUIRING CORPORATION"), may either assume the Company's rights and obligations
under the Option or substitute for the Option a substantially equivalent option
for the Acquiring Corporation's stock. For purposes of this Section 8.2, the
Option shall be deemed assumed if, following the Transfer of Control, the Option
confers the right to purchase, for each share of Stock subject to the Option
immediately prior to the Transfer of Control, the consideration (whether stock,
cash or other securities or property) to which a holder of a share of Stock on
the effective date of the Transfer of Control was entitled. The Option shall
terminate and cease to be outstanding effective as of the date of the Transfer
of Control to the extent that the Option is neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control. Notwithstanding the
foregoing, shares acquired upon exercise of the Option prior to the Transfer of
Control and any consideration received pursuant to the Transfer of Control with
respect to such shares shall continue to be subject to all applicable provisions
of this Option Agreement except as otherwise provided herein. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the Option shall not
terminate unless the Board otherwise provides in its sole discretion.
8.3 FAIR MARKET VALUE LIMITATION. Should the exercisability of
this Option be accelerated in connection with a Transfer of Control in
accordance with Section 8.2, then to the extent that the aggregate Fair Market
Value of the shares of Stock with respect to which the Optionee may exercise the
Option for the first time during the calendar year of the Transfer of Control,
when added to the aggregate Fair Market Value of the shares subject to any other
options designated as Incentive Stock Options granted to the Optionee under all
stock option plans of the Participating Company Group prior to the Date of
Option Grant with respect to which such options are exercisable for the first
time during the same calendar year, exceeds One Hundred Thousand Dollars
($100,000) (or such other limit, if any,
<PAGE> 24
imposed by Section 422 of the Code), the portion of the Option which exceeds
such amount shall be treated as a Nonstatutory Stock Option. For purposes of the
preceding sentence, options designated as Incentive Stock Options shall be taken
into account in the order in which they were granted, and the Fair Market Value
of shares of stock shall be determined as of the time the option with respect to
such shares is granted.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee
shall have no rights as a stockholder with respect to any shares covered by the
Option until the date of the issuance of a certificate for the shares for which
the Option has been exercised (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. If the Optionee is an Employee, the Optionee understands
and acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating Company and the Optionee, the
Optionee's employment is "at will" and is for no specified term. Nothing in this
Option Agreement shall confer upon the Optionee, whether an Employee or
Consultant, any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. UNVESTED SHARE REPURCHASE OPTION.
11.1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event
the Optionee's Service is terminated for any reason or no reason, with or
without cause, or if the Optionee, the Optionee's legal representative, or other
holder of shares acquired upon exercise of the Option attempts to sell,
exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an
Ownership Change Event) any shares acquired upon exercise of the Option which
exceed the Vested Shares as defined in Section 11.2 below (the "Unvested
Shares"), the Company shall have the right to repurchase the Unvested Shares
under the terms and subject to the conditions set forth in this Section 11 (the
"Unvested Share Repurchase Option").
11.2 VESTED SHARES AND UNVESTED SHARES DEFINED. The "Vested
Shares" shall mean, on any given date, a number of shares of Stock equal to the
Number of Option Shares multiplied by the Vested Ratio determined as of such
date and rounded down to the nearest whole share. On such given date, the
"Unvested Shares" shall mean the number of shares of Stock acquired upon
exercise of the Option which exceed the Vested Shares determined as of such
date.
<PAGE> 25
11.3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company
may exercise the Unvested Share Repurchase Option by written notice to the
Optionee within sixty (60) days after (a) termination of the Optionee's Service
(or exercise of the Option, if later) or (b) the Company has received notice of
the attempted disposition of Unvested Shares. If the Company fails to give
notice within such sixty (60) day period, the Unvested Share Repurchase Option
shall terminate unless the Company and the Optionee have extended the time for
the exercise of the Unvested Share Repurchase Option. The Unvested Share
Repurchase Option must be exercised, if at all, for all of the Unvested Shares,
except as the Company and the Optionee otherwise agree.
11.4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
9 (the "Repurchase Price"). The Company shall pay the aggregate Repurchase Price
to the Optionee in cash within thirty (30) days after the date of the written
notice to the Optionee of the Company's exercise of the Unvested Share
Repurchase Option. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled. The shares being repurchased shall be delivered to
the Company by the Optionee at the same time as the delivery of the Repurchase
Price to the Optionee.
11.5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The
Company shall have the right to assign the Unvested Share Repurchase Option at
any time, whether or not such option is then exercisable, to one or more persons
as may be selected by the Company.
11.6 OWNERSHIP CHANGE Event. Upon the occurrence of an
Ownership Change Event, any and all new, substituted or additional securities or
other property to which the Optionee is entitled by reason of the Optionee's
ownership of Unvested Shares shall be immediately subject to the Unvested Share
Repurchase Option and included in the terms "Stock" and "Unvested Shares" for
all purposes of the Unvested Share Repurchase Option with the same force and
effect as the Unvested Shares immediately prior to the Ownership Change Event.
While the aggregate Repurchase Price shall remain the same after such Ownership
Change Event, the Repurchase Price per Unvested Share upon exercise of the
Unvested Share Repurchase Option following such Ownership Change Event shall be
adjusted as appropriate. For purposes of determining the Vested Ratio following
an Ownership Change Event, credited Service shall include all Service with any
corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event. The foregoing notwithstanding, in the
event of an Ownership Change Event that is also a Transfer of Control, the
Unvested Share Repurchase Option will terminate if the surviving corporation
does not assume, or substitute substantially equivalent options for, all
outstanding Options under the Plan.
12. RIGHT OF FIRST REFUSAL.
12.1 GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in
Section 12.7 below, in the event the Optionee, the Optionee's legal
representative, or other holder of shares acquired upon exercise of the Option
proposes to sell, exchange, transfer, pledge, or otherwise dispose of any shares
acquired upon exercise of the Option (the "TRANSFER SHARES") to any person or
entity, including, without limitation, any shareholder of the Participating
Company Group, the Company shall have the right to repurchase the Transfer
Shares under the terms and subject to the conditions set forth in this Section
12 (the "RIGHT OF FIRST REFUSAL").
<PAGE> 26
12.2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed
transfer of the Transfer Shares, the Optionee shall deliver written notice (the
"TRANSFER NOTICE") to the Company describing fully the proposed transfer,
including the number of Transfer Shares, the name and address of the proposed
transferee (the "PROPOSED TRANSFEREE") and, if the transfer is voluntary, the
proposed transfer price, and containing such information necessary to show the
bona fide nature of the proposed transfer. In the event of a bona fide gift or
involuntary transfer, the proposed transfer price shall be deemed to be the Fair
Market Value of the Transfer Shares, as determined by the Board in good faith.
If the Optionee proposes to transfer any Transfer Shares to more than one
Proposed Transferee, the Optionee shall provide a separate Transfer Notice for
the proposed transfer to each Proposed Transferee. The Transfer Notice shall be
signed by both the Optionee and the Proposed Transferee and must constitute a
binding commitment of the Optionee and the Proposed Transferee for the transfer
of the Transfer Shares to the Proposed Transferee subject only to the Right of
First Refusal.
12.3 BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 12, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 12. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
12.4 EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company
determines the proposed transfer to be bona fide, the Company shall have the
right to purchase all, but not less than all, of the Transfer Shares (except as
the Company and the Optionee otherwise agree) at the purchase price and on the
terms set forth in the Transfer Notice by delivery to the Optionee of a notice
of exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the present
value cash equivalent of the consideration described in the Transfer Notice as
reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
12.5 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the
Company fails to exercise the Right of First Refusal in full (or to such lesser
extent as the Company and the Optionee otherwise agree) within the period
specified in Section 12.4 above, the Optionee may conclude a transfer to the
Proposed Transferee of the Transfer Shares on the terms and conditions described
in the Transfer Notice, provided such transfer occurs not later than ninety (90)
days following delivery to the Company of the Transfer Notice. The Company shall
have the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed
<PAGE> 27
transfer on terms and conditions different from those described in the Transfer
Notice, as well as any subsequent proposed transfer by the Optionee, shall again
be subject to the Right of First Refusal and shall require compliance by the
Optionee with the procedure described in this Section 12.
12.6 TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 12 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 12 are met.
12.7 TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The
Right of First Refusal shall not apply to any transfer or exchange of the shares
acquired upon exercise of the Option if such transfer or exchange is in
connection with an Ownership Change Event. If the consideration received
pursuant to such transfer or exchange consists of stock of a Participating
Company, such consideration shall remain subject to the Right of First Refusal
unless the provisions of Section 12.9 below result in a termination of the Right
of First Refusal.
12.8 ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall
have the right to assign the Right of First Refusal at any time, whether or not
there has been an attempted transfer, to one or more persons as may be selected
by the Company.
12.9 EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
13. ESCROW.
13.1 ESTABLISHMENT OF Escrow. To ensure that shares of Stock
issued upon exercise of this Option which are subject to the Unvested Share
Repurchase Option, the Tight of First Refusal or securing any promissory note
will be available for repurchase, the Company may require the Optionee to
deposit the certificate evidencing the shares of Stock which the Optionee
purchases upon exercise of the Option with an escrow agent designated by the
Company under the terms and conditions of an escrow and security agreements
approved by the Company. If the Company does not require such deposit as a
condition of exercise of the Option, the Company reserves the right at any time
to require the Optionee to so deposit the certificate in escrow. Upon the
occurrence of an Ownership Change Event or a change, as described in Section 9,
in the character or amount of any of the outstanding stock of the corporation
the stock of which is subject to the provisions of this Option Agreement, any
and all new, substituted or additional securities or other property to which the
Optionee is entitled by reason of the Optionee's ownership of shares of Stock
acquired upon exercise of the Option that remain, following such Ownership
Change Event or change described in Section 9, subject to the Unvested Share
Repurchase Option, the Right of First Refusal or any security interest held by
the Company shall be
<PAGE> 28
immediately subject to the escrow to the same extent as such shares of Stock
immediately before such event. The Company shall bear the expenses of the
escrow.
13.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after the expiration of the Unvested Share Repurchase Option, the Right of First
Refusal and after full repayment of any promissory note secured by the shares of
Stock or other property in escrow, but not more frequently than twice each
calendar year, the escrow agent shall deliver to the Optionee the shares of
Stock and any other property no longer subject to such restrictions and no
longer securing any promissory note.
13.3 NOTICES AND PAYMENTS. In the event the shares of Stock
and any other property held in escrow are subject to the Company's exercise of
the Unvested Share Repurchase Option, the Right of First Refusal, or any
security interest of the Company, the notices required to be given to the
Optionee shall be given to the escrow agent, and any payment required to be
given to the Optionee shall be given to the escrow agent. Within thirty (30)
days after payment by the Company, the escrow agent shall deliver the shares of
Stock and any other property which the Company has purchased to the Company and
shall deliver the payment received from the Company to the Optionee.
14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time
to time, there is any stock dividend, stock split or other change, as described
in Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option, the Right of First
Refusal and any security interest held by the Company and with the same force
and effect as the shares subject to the Unvested Share Repurchase Option, the
Right of First Refusal and any such security interest immediately before such
event.
15. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee
shall dispose of the shares acquired pursuant to the Option only in accordance
with the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant and shall provide the Company with
a description of the terms and circumstances of such disposition. Until such
time as the Optionee disposes of such shares in a manner consistent with the
provisions of this Option Agreement, unless otherwise expressly authorized by
the Company, the Optionee shall hold all shares acquired pursuant to the Option
in the Optionee's name (and not in the name of any nominee) for the one-year
period immediately after the exercise of the Option and the two-year period
immediately after Date of Option Grant. At any time during the one-year or
two-year periods set forth above, the Company may place a legend on any
certificate representing shares acquired pursuant to the Option requesting the
transfer agent for the Company's stock to notify the Company of any such
transfers. The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate pursuant to the preceding sentence.
16. REPRESENTATIONS AND WARRANTIES. In connection with the receipt
of the Option and any acquisition of shares upon the exercise thereof, the
Optionee hereby agrees, represents and warrants as follows:
<PAGE> 29
16.1 The Optionee is acquiring the Option and will acquire any
shares of Stock upon exercise of the Option for the Optionee's own account, and
not on behalf of any other person or as a nominee, for investment and not with a
view to, or sale in connection with, any distribution of the Option or such
shares.
16.2 The Optionee was not presented with or solicited by any
form of general solicitation or general advertising, including, but not limited
to, any advertisement, article, notice, or other communication published in any
newspaper, magazine, or similar media, or broadcast over television, radio or
similar communications media, or presented at any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
16.3 The Optionee has either (a) a preexisting personal or
business relationship with the Company or any of its officers, directors, or
controlling persons, consisting of personal or business contacts of a nature and
duration to enable the Optionee to be aware of the character, business acumen
and general business and financial circumstances of the person with whom such
relationship exists, or (b) such knowledge and experience in financial and
business matters (or has relied on the financial and business knowledge and
experience of the Optionee's professional advisor who is unaffiliated with and
who is not, directly or indirectly, compensated by the Company or any affiliate
or selling agent of the Company) as to make the Optionee capable of evaluating
the merits and risks of the Option and any investment in shares acquired
pursuant to the Option and to protect the Optionee's own interests in the
transaction, or (c) both such relationship and such knowledge and experience.
16.4 The Optionee understands that the Option and any shares
acquired upon exercise of the Option have not been qualified under the Corporate
Securities Law of 1968, as amended, of the State of California by reason of a
specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the Optionee's representations as expressed herein. The
Optionee understands that the Company is relying on the Optionee's
representations and warrants that the Company is entitled to rely on such
representations and that such reliance is reasonable.
17. LEGENDS. The Company may at any time place legends referencing
the Unvested Share Repurchase Option, the Right of First Refusal, any security
interest and any applicable federal, state or foreign securities law
restrictions on all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company any and all certificates representing
shares acquired pursuant to the Option in the possession of the Optionee in
order to carry out the provisions of this Section. Unless otherwise specified by
the Company, legends placed on such certificates may include, but shall not be
limited to, the following:
17.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE
IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES
AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY
TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
<PAGE> 30
17.2 Any legend required to be placed thereon by the
Commissioner of Corporations of the State of California.
17.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO AN UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THIS CORPORATION."
17.4 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE
SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR
SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS CORPORATION."
17.5 "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY
THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK
OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED ("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO
ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO . SHOULD THE REGISTERED
HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX
TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION
IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE
INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF
ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE."
18. PUBLIC OFFERING. The Optionee hereby agrees that in the event of
any underwritten public offering of stock, including an initial public offering
of stock, made by the Company pursuant to an effective registration statement
filed under the Securities Act, the Optionee shall not offer, sell, contract to
sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any shares of stock of the Company or any rights to
acquire stock of the Company for such period of time from and after the
effective date of such registration statement as may be established by the
underwriter for such public offering at its sole discretion. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The Optionee shall be subject to this Section provided and only
if the officers and directors of the Company are also subject to similar
arrangements.
19. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon
exercise of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement and,
except pursuant to an Ownership Change, until the date on which such shares
become Vested Shares, any such attempted disposition shall be void. The Company
shall not be required (a) to transfer on its books any shares which will have
been transferred in violation of any of the provisions set forth in this Option
Agreement or (b) to treat as owner of such shares or to accord the right to vote
as such owner or to pay dividends to any transferee to whom such shares will
have been so transferred.
<PAGE> 31
20. BINDING EFFECT. Subject to the restrictions on transfer set
forth herein, this Option Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
21. TERMINATION OR AMENDMENT. The Board may terminate or amend the
Plan or the Option at any time; provided, however, that except as provided in
Section 8.2 in connection with a Transfer of Control, no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation or is
required to enable the Option to qualify as an Incentive Stock Option. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
22. NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given (except to the extent
that this Option Agreement provides for effectiveness only upon actual receipt
of such notice) upon personal delivery or upon deposit in the United States Post
Office, by registered or certified mail, with postage and fees prepaid,
addressed to the other party at the address shown below that party's signature
or at such other address as such party may designate in writing from time to
time to the other party.
23. INTEGRATED AGREEMENT. This Option Agreement and the Plan
constitute the entire understanding and agreement of the Optionee and the
Participating Company Group with respect to the subject matter contained herein
or therein, and there are no agreements, understandings, restrictions,
representations, or warranties among the Optionee and the Participating Company
Group with respect to such subject matter other than those as set forth or
provided for herein or therein. To the extent contemplated herein or therein,
the provisions of this Option Agreement shall survive any exercise of the Option
and shall remain in full force and effect.
24. APPLICABLE LAW. This Option Agreement shall be governed by the
laws of the State of Delaware as such laws are applied to agreements between
Delaware residents entered into and to be performed entirely within the State of
Delaware.
COMPANY:
P.F. CHANG'S CHINA BISTRO, INC.
By:___________________________________
Title:________________________________
<PAGE> 32
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11, and the Right of First Refusal set forth in
Section 12, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Option Agreement. The undersigned acknowledges receipt of a
copy of the Plan.
OPTIONEE
Date:________________________________ ______________________________________
Signature
Optionee's Address:
______________________________________
______________________________________
______________________________________
<PAGE> 33
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
P.F. CHANG'S CHINA BISTRO, INC.
IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT (the
"OPTION AGREEMENT") is made and entered into as of ___________, 199_, by and
between P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "COMPANY")
and ___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the P.F. Chang's China
Bistro, Inc. 1996 Stock Option Plan (the "Plan") an option to purchase certain
shares of stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION"). The Option shall in all respects be subject to the
terms and conditions of the Plan, the provisions of which are incorporated
herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1. DEFINITIONS. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means_______________ , 199_.
(b) "NUMBER OF OPTION SHARES" means ____________ shares of
Stock, as adjusted from time to time pursuant to Section 0.
(c) "EXERCISE PRICE" means $ ________ per share of Stock, as
adjusted from time to time pursuant to Section 0.
(d) "INITIAL EXERCISE DATE" means the letter of the Date of
Option Grant or the date the Optionee's Service commences.
<PAGE> 34
(e) "INITIAL VESTING DATE" means the date occurring one (1)
year after (check one):
_____ the Date of Option Grant
_____ ______________________________, 199_, the date the
Optionee's Service commenced.
(f) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
(i) Prior to the Initial Vesting Date, the Vested Ratio
shall be 0.
(ii) On the Initial Vesting Date, provided that the
Optionee's Service has been continuous from the Date of Option Grant until the
Initial Vesting Date, the Vested Ratio shall be 1/5.
(iii) For each full month of the Optionee's continuous
service after the Initial Vesting Date, the Vested Ratio shall be increased by
one-sixtieth (1/60).
(iv) In no event shall the Vested Ratio exceed 1/1.
(g) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(h) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(i) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(j) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(k) "COMPANY" means P.F. Chang's China Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.
(l) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company Group because
of the sickness or injury of the Optionee.
(m) "EMPLOYEE" means any person treated as an employee
(including an officer or a director who is also treated as an employee) in the
records of the Company; provided,
<PAGE> 35
however, that neither service as a director nor payment of a director's fee
shall be sufficient to constitute employment for this purpose.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein.
(p) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(r) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(s) "PLAN" means the P.F. Chang's China Bistro, Inc. 1996
Stock Option Plan.
(t) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(u) "SERVICE" means the Optionee's employment or service with
the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
the Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company Group
is guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining the Optionee's Vested
Ratio. The Optionee's Service shall be deemed to have terminated either upon an
actual termination of Service or upon the corporation for which the Optionee
performs Service ceasing to be a Participating Company. Subject to the
foregoing, the Company, in its sole discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
(v) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 0.
(w) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
1.2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when
<PAGE> 36
otherwise indicated by the context, the singular shall include the plural, the
plural shall include the singular, and the term "or" shall include the
conjunctive as well as the disjunctive.
2. TAX CONSEQUENCES.
2.1. TAX STATUS OF OPTION. This Option is intended to be a
Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option
within the meaning of Section 422(b) of the Code.
2.2. ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Service terminates, (b) the Optionee is an Insider and
exercises the Option within six (6) months of the Date of the Option Grant (if a
class of equity security of the Company is registered under Section 12 of the
Exchange Act), or (c) the Optionee is subject to a restriction on transfer to
comply with "Pooling-of-Interests Accounting" rules. Failure to file an election
under Section 83(b), if appropriate, may result in adverse tax consequences to
the Optionee. The Optionee acknowledges that the Optionee has been advised to
consult with a tax advisor prior to the exercise of the Option regarding the tax
consequences to the Optionee of the exercise of the Option. AN ELECTION UNDER
SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE
PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES
THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE
RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE
TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. ADMINISTRATION. All questions of interpretation concerning this Option
Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option (as provided in Section 0) in an amount not to
exceed the Number of Option Shares less the number of shares of Stock previously
acquired upon exercise of the Option subject to the Optionee's agreement that
any shares purchased upon exercise are subject to the Company's repurchase
rights set forth in Section ERROR! REFERENCE SOURCE NOT FOUND. and to the
Company's first refusal rights set forth in Section ERROR! REFERENCE SOURCE NOT
FOUND. In no event shall the Option be exercisable for more shares than the
Number of Option Shares.
<PAGE> 37
4.2. METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Company, prior to the termination of the Option as set
forth in Section 0, accompanied by (i) full payment of the aggregate Exercise
Price for the number of shares of Stock being purchased and (ii) an executed
copy, if required herein, of the then current forms of escrow and security
agreement referenced below. The Option shall be deemed to be exercised upon
receipt by the Company of such written notice, the aggregate Exercise Price,
and, if required by the Company, such executed agreements.
4.3. PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 0, (iv) in the Company's
sole discretion at the time the Option is exercised, by cash for a portion of
the aggregate Exercise Price not less than the par value of the shares being
acquired, and the Optionee's promissory note for the balance of the aggregate
Exercise Price, or (v) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of shares of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
Stock. The Option may not be exercised by the tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
modify, decline to approve or terminate any such Cashless Exercise program or
procedures.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. The promissory note permitted in clause (iv) of Section 0
shall be a full recourse note in a form satisfactory to the Company, with
principal payable no more than four (4) years after the date the Option is
exercised. Interest on the principal balance of the promissory note shall be
payable in annual installments at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then
<PAGE> 38
current form of security agreement as approved by the Company. At any time the
Company is subject to the regulations promulgated by the Board of Governors of
the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations. Except as the Company in its sole
discretion shall determine, the Optionee shall pay the unpaid principal balance
of the promissory note and any accrued interest thereon upon termination of the
Optionee's Service with the Participating Company Group for any reason, with or
without cause.
4.4. TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless such tax withholding obligations are satisfied. Accordingly,
the Optionee may not be able to exercise the Option when desired even though the
Option is vested, and the Company shall have no obligation to issue a
certificate for such shares or release such shares from any escrow provided for
herein.
4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the shares of Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this
restriction should be directed to the Chief Financial Officer of the Company.
The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require
the Optionee to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
<PAGE> 39
4.7. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 0, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer
be exercised on the first to occur of (a) the Option Expiration Date, (b) the
last date for exercising the Option following termination of the Optionee's
Service as described in Section 0, or (c) a Transfer of Control to the extent
provided in Section 0.
7. EFFECT OF TERMINATION OF SERVICE.
7.1. OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service is terminated
because of the Disability of the Optionee, the Option, to the extent unexercised
and exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
(b) DEATH. If the Optionee's Service is terminated because of
the death of the Optionee, the Option, to the extent unexercised and exercisable
on the date on which the Optionee's Service terminated, may be exercised by the
Optionee's legal representative or other person who acquired the right to
exercise the Option by reason of the Optionee's death at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. The
Optionee's Service shall be deemed to have terminated on account of death if the
Optionee dies within three (3) months after the Optionee's termination of
Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
terminates for any reason except Disability or death, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee's
Service terminated, may be exercised by the Optionee within three (3) months (or
such other longer period of time as determined by the Board, in its sole
discretion) after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date.
7.2. ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding the
provisions of Section 7.1, the Option may not be exercised after the Optionee's
termination of Service to the extent that the shares to be acquired upon
exercise of the Option would be subject to the Unvested Share Repurchase Option
as provided in Section 11. Except as the Company and the Optionee otherwise
agree, exercise of the Option pursuant to Section 0 following termination of the
Optionee's Service may not be made by delivery of a promissory note as provided
in Section 0.
7.3. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 0 is prevented by the
<PAGE> 40
provisions of Section 0, the Option shall remain exercisable until three (3)
months after the date the Optionee is notified that the Option is exercisable,
but in any event no later than the Option Expiration Date. The Company makes no
representation as to the tax consequences of any such delayed exercise. The
Optionee should consult with the Optionee's own tax advisor as to the tax
consequences to the Optionee of any such delayed exercise.
7.4. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
0 of shares acquired upon the exercise of the Option would subject the Optionee
to suit under Section 16(b) of the Exchange Act, the Option shall remain
exercisable until the earliest to occur of (i) the tenth (10th) day following
the date on which a sale of such shares by the Optionee would no longer be
subject to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of Service, or (iii) the Option Expiration Date. The
Company makes no representation as to the tax consequences of any such delayed
exercise. The Optionee should consult with the Optionee's own tax advisor(s) as
to the tax consequences to the Optionee of any such delayed exercise.
7.5. LEAVE OF ABSENCE. For purposes of Section 0, the Optionee's
Service shall not be deemed to terminate if the Optionee takes any military
leave, sick leave, or other bona fide leave of absence approved by the Company
of ninety (90) days or less. In the event of a leave of absence in excess of
ninety (90) days, the Optionee's Service shall be deemed to terminate on the
ninety-first (91st) day of such leave unless the Optionee's right to return to
Service remains guaranteed by statute or contract. Notwithstanding the
foregoing, unless otherwise designated by the Company (or required by law), a
leave of absence shall not be treated as Service for purposes of determining the
Optionee's Vested Ratio.
8. TRANSFER OF CONTROL.
8.1. DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
<PAGE> 41
CORPORATION(S)"), as the case may be; provided, however, that neither an initial
public offering by the Company, nor an equity or convertible securities
financing by the Company shall be deemed an Ownership Change Event or Transfer
of Control for the purpose of any accelerated vesting provision of this Option
Agreement. For purposes of the preceding sentence, indirect beneficial
ownership shall include, without limitation, an interest resulting from
ownership of the voting stock of one or more corporations which, as a result of
the Transaction, own the Company or the Transferee Corporation(s), as the case
may be, either directly or through one or more subsidiary corporations. The
Board shall have the right to determine whether multiple sales or exchanges of
the voting stock of the Company or multiple Ownership Change Events are related,
and its determination shall be final, binding and conclusive.
8.2. EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of an
eligible Transfer of Control, the Vested Ratio shall be increased by two-fifths
(2/5) as of the date ten (10) days prior to the date of any such eligible
Transfer of Control; provided, however, that in no event shall the Vested Ratio
be increased pursuant to this Section 0 to a ratio in excess of one (1). The
exercise or vesting of any Option that was permissible solely by reason of this
Section 0 shall be conditioned upon the consummation of the Transfer of Control.
In addition, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"),
may either assume the Company's rights and obligations under the Option or
substitute for the Option a substantially equivalent option for the Acquiring
Corporation's stock. For purposes of this Section 0, the Option shall be deemed
assumed if, following the Transfer of Control, the Option confers the right to
purchase, for each share of Stock subject to the Option immediately prior to the
Transfer of Control, the consideration (whether stock, cash or other securities
or property) to which a holder of a share of Stock on the effective date of the
Transfer of Control was entitled. The Option shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 0
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 0 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to
<PAGE> 42
the Option. The adjustments determined by the Board pursuant to this Section 0
shall be final, binding and conclusive.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 0. If the Optionee is an Employee, the Optionee understands
and acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating Company and the Optionee, the
Optionee's employment is "at will" and is for no specified term. Nothing in this
Option Agreement shall confer upon the Optionee, whether an Employee or
Consultant, any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. UNVESTED SHARE REPURCHASE OPTION.
11.1. GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event the
Optionee's Service is terminated for any reason or no reason, with or without
cause, of if the Optionee, the Optionee's legal representative, or other holder
of shares acquired upon exercise of the Option attempts to sell, exchange,
transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership
Change Event) any shares acquired upon exercise of the Option which exceed the
Vested Shares as defined in Section 11.2 below (the "Unvested Shares"), the
Company shall have the right to repurchase the Unvested Shares under the terms
and subject to the conditions set forth in this Section 11 (the "Unvested Share
Repurchase Option").
11.2. VESTED SHARES AND UNVESTED SHARES DEFINED. The "Vested Shares"
shall mean, on any given date, a number of shares of Stock equal to the Number
of Option Shares multiplied by the Vested Ratio determined as of such date and
rounded down to the nearest whole share. On such given date, the "Unvested
Shares" shall mean the number of shares of stock acquired upon exercise of the
Option which exceed the Vested Shares determined as of such date.
11.3. EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company may
exercise the Unvested Share Repurchase Option by written notice to the Optionee
within sixty (60) days after (a) termination of the Optionee's Service for
exercise of the Option, if later) or (b) the Company has received notice of the
attempted disposition of Unvested Shares. If the Company fails to give notice
within such sixty (60) day period, the Unvested Share Repurchase Option shall
terminate (unless the Company and the Optionee have extended the time for the
exercise of the Unvested Share Repurchase Option. The Unvested Share Repurchase
Option must be exercised, if at all, for all of the Unvested Shares, except as
the Company and the Optionee otherwise agree.
11.4. PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
Purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
9 (the "Repurchase Price"). The Company shall pay the aggregate Repurchase Price
to the Optionee in cash within thirty (30) days after the date of the written
notice to the Optionee of the Company's exercise of the Unvested Share
Repurchase Option. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest.
<PAGE> 43
The shares being repurchased shall be delivered to the Company by the Optionee
at the same time as the delivery of the Repurchase Price to the Optionee.
11.5. ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The Company
shall have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.
11.6. OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership
Change Event, any and all new, substituted or additional securities or other
property to which the Optionee is entitled by reason of the Optionee's ownership
of Unvested Shares shall be immediately subject to the Unvested Share Repurchase
Option and included in the terms "Stock" and "Unvested Shares" for all purposes
of the Unvested Share Repurchase Option with the same force and effect as the
Unvested Shares immediately prior to the Ownership Change Event. While the
aggregate Repurchase Price shall remain the same after such Ownership Change
Event, the Repurchase Price per Unvested Share upon exercise of the Unvested
Share Repurchase Option following such Ownership Change Event shall be adjusted
as appropriate. For purposes of determining the Vested Ratio following an
Ownership Change Event, credited Service shall include all Service with any
corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event. The foregoing notwithstanding, in the
event of an Ownership Change Event that is also a Transfer of Control, the
Unvested Share Repurchase Option will terminate if the surviving corporation
does not assume, or substitute substantially equivalent options for, all
outstanding Options under the Plan.
12. RIGHT OF FIRST REFUSAL.
12.1. GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in Section
0 below, in the event the Optionee, the Optionee's legal representative, or
other holder of shares acquired upon exercise of the Option proposes to sell,
exchange, transfer, pledge, or otherwise dispose of any Vested Shares (the
"TRANSFER SHARES") to any person or entity, including, without limitation, any
shareholder of the Participating Company Group, the Company shall have the right
to repurchase the Transfer Shares under the terms and subject to the conditions
set forth in this Section 0 (the "RIGHT OF FIRST REFUSAL").
12.2. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall deliver written notice (the "TRANSFER
NOTICE") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith. If the Optionee
proposes to transfer any Transfer Shares to more than one Proposed Transferee,
the Optionee shall provide a separate Transfer Notice for the proposed transfer
to each Proposed Transferee. The Transfer Notice shall be signed by both the
Optionee and the Proposed Transferee and must constitute a binding commitment of
the Optionee and the Proposed Transferee for the transfer of the Transfer Shares
to the Proposed Transferee subject only to the Right of First Refusal.
12.3. BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 0, and the Optionee shall have no right
to transfer
<PAGE> 44
the Transfer Shares without first complying with the procedure described in this
Section 0. The Optionee shall not be permitted to transfer the Transfer Shares
if the proposed transfer is not bona fide.
12.4. EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth in the Transfer Notice by delivery to the Optionee of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the present
value cash equivalent of the consideration described in the Transfer Notice as
reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
12.5. FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company
fails to exercise the Right of First Refusal in full (or to such lesser extent
as the Company and the Optionee otherwise agree) within the period specified in
Section 0 above, the Optionee may conclude a transfer to the Proposed Transferee
of the Transfer Shares on the terms and conditions described in the Transfer
Notice, provided such transfer occurs not later than ninety (90) days following
delivery to the Company of the Transfer Notice. The Company shall have the right
to demand further assurances from the Optionee and the Proposed Transferee (in a
form satisfactory to the Company) that the transfer of the Transfer Shares was
actually carried out on the terms and conditions described in the Transfer
Notice. No Transfer Shares shall be transferred on the books of the Company
until the Company has received such assurances, if so demanded, and has approved
the proposed transfer as bona fide. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as well as any
subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 0.
12.6. TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 0 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 0 are met.
12.7. TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the Option if such transfer or exchange is in connection with
an Ownership Change Event. If the consideration received pursuant to such
transfer or exchange consists of stock of a Participating Company, such
consideration
<PAGE> 45
shall remain subject to the Right of First Refusal unless the provisions of
Section 0 below result in a termination of the Right of First Refusal.
12.8. ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not there
has been an attempted transfer, to one or more persons as may be selected by the
Company.
12.9. EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
13. ESCROW.
13.1. ESTABLISHMENT OF ESCROW. To ensure that shares of Stock
obtained upon exercise of this Option which are subject to the Unvested Share
Repurchase Option, the Right of First Refusal or securing any promissory note
will be available for repurchase, the Company may require the Optionee to
deposit the certificate evidencing the shares of Stock which the Optionee
purchases upon exercise of the Option with an escrow agent designated by the
Company under the terms and conditions of an escrow and security agreements
approved by the Company. If the Company does not require such deposit as a
condition of exercise of the Option, the Company reserves the right at any time
to require the Optionee to so deposit the certificate in escrow. Upon the
occurrence of an Ownership Change Event or a change, as described in Section 0,
in the character or amount of any of the outstanding stock of the corporation
the stock of which is subject to the provisions of this Option Agreement, any
and all new, substituted or additional securities or other property to which the
Optionee is entitled by reason of the Optionee's ownership of shares of Stock
acquired upon exercise of the Option that remain, following such Ownership
Change Event or change described in Section 0, subject to the Unvested Share
Repurchase Option Right of First Refusal or any security interest held by the
Company shall be immediately subject to the escrow to the same extent as such
shares of Stock immediately before such event. The Company shall bear the
expenses of the escrow.
13.2. DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
the expiration of the Unvested Share Repurchase Option, the Right of First
Refusal and after full repayment of any promissory note secured by the option
shares of Stock or other property in escrow, but not more frequently than twice
each calendar year, the escrow agent shall deliver to the Optionee the shares of
Stock and any other property no longer subject to such restrictions and no
longer securing any promissory note.
13.3. NOTICES AND PAYMENTS. In the event the shares of Stock and any
other property held in escrow are subject to the Company's exercise of the
Unvested Share Repurchase Option, the Right of First Refusal, or any security
interest of the Company, the notices required to be given to the Optionee shall
be given to the escrow agent, and any payment required to be given to the
Optionee shall be given to the escrow agent. Within thirty (30) days after
payment by the Company, the escrow agent shall deliver the shares of Stock and
any other property which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
<PAGE> 46
14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 0, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option, Right of First
Refusal and any security interest held by the Company and with the same force
and effect as the shares subject to the Unvested Share Repurchase Option, Right
of First Refusal and any such security interest immediately before such event.
15. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant and shall provide the Company with
a description of the terms and circumstances of such disposition. Until such
time as the Optionee disposes of such shares in a manner consistent with the
provisions of this Option Agreement, unless otherwise expressly authorized by
the Company, the Optionee shall hold all shares acquired pursuant to the Option
in the Optionee's name (and not in the name of any nominee) for the one-year
period immediately after the exercise of the Option and the two-year period
immediately after Date of Option Grant. At any time during the one-year or
two-year periods set forth above, the Company may place a legend on any
certificate representing shares acquired pursuant to the Option requesting the
transfer agent for the Company's stock to notify the Company of any such
transfers. The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate pursuant to the preceding sentence.
16. REPRESENTATIONS AND WARRANTIES. In connection with the receipt of the
Option and any acquisition of shares upon the exercise thereof, the Optionee
hereby agrees, represents and warrants as follows:
16.1. The Optionee is acquiring the Option and will acquire any
shares of Stock upon exercise of the Option for the Optionee's own account, and
not on behalf of any other person or as a nominee, for investment and not with a
view to, or sale in connection with, any distribution of the Option or such
shares.
16.2. The Optionee was not presented with or solicited by any form
of general solicitation or general advertising, including, but not limited to,
any advertisement, article, notice, or other communication published in any
newspaper, magazine, or similar media, or broadcast over television, radio or
similar communications media, or presented at any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
16.3. The Optionee has either (a) a preexisting personal or business
relationship with the Company or any of its officers, directors, or controlling
persons, consisting of personal or business contacts of a nature and duration to
enable the Optionee to be aware of the character, business acumen and general
business and financial circumstances of the person with whom such relationship
exists, or (b) such knowledge and experience in financial and business matters
(or has relied on the financial and business knowledge and experience of the
Optionee's professional advisor who is unaffiliated with and who is not,
directly or indirectly, compensated by the Company or any affiliate or selling
agent of the Company) as to make the Optionee capable of evaluating the merits
and risks of the Option and any
<PAGE> 47
investment in shares acquired pursuant to the Option and to protect the
Optionee's own interests in the transaction, or (c) both such relationship and
such knowledge and experience.
16.4. The Optionee understands that the Option and any shares
acquired upon exercise of the Option have not been qualified under the Corporate
Securities Law of 1968, as amended, of the State of California by reason of a
specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the Optionee's representations as expressed herein. The
Optionee understands that the Company is relying on the Optionee's
representations and warrants that the Company is entitled to rely on such
representations and that such reliance is reasonable.
17. LEGENDS. The Company may at any time place legends referencing the
Unvested Share Repurchase Option, the Right of First Refusal, any security
interest and any applicable federal, state or foreign securities law
restrictions on all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company any and all certificates representing
shares acquired pursuant to the Option in the possession of the Optionee in
order to carry out the provisions of this Section. Unless otherwise specified by
the Company, legends placed on such certificates may include, but shall not be
limited to, the following:
17.1. "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
17.2. Any legend required to be placed thereon by the Commissioner
of Corporations of the State of California.
17.3. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
17.4. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
18. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any
underwritten public offering of stock, including an initial public offering of
stock, made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering at its sole discretion. The foregoing limitation shall not apply
to
<PAGE> 48
shares registered in the public offering under the Securities Act. The Optionee
shall be subject to this Section provided and only if the officers and directors
of the Company are also subject to similar arrangements.
19. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise
of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement and,
except pursuant to an Ownership Change, until the date on which such shares
become Vested Shares, any such attempted disposition shall be void. The Company
shall not be required (a) to transfer on its books any shares which will have
been transferred in violation of any of the provisions set forth in this Option
Agreement or (b) to treat as owner of such shares or to accord the right to vote
as such owner or to pay dividends to any transferee to whom such shares will
have been so transferred.
20. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
21. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or
the Option at any time; provided, however, that except as provided in Section 0
in connection with a Transfer of Control, no such termination or amendment may
adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation or is required to enable
the Option to qualify as an Incentive Stock Option. No amendment or addition to
this Option Agreement shall be effective unless in writing.
22. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given (except to the extent that this
Option Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery or upon deposit in the United States Post Office,
by registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature or at such other
address as such party may designate in writing from time to time to the other
party.
23. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute
the entire understanding and agreement of the Optionee and the Participating
Company Group with respect to the subject matter contained herein or therein,
and there are no agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Participating Company Group with respect
to such subject matter other than those as set forth or provided for herein or
therein. To the extent contemplated herein or therein, the provisions of this
Option Agreement shall survive any exercise of the Option and shall remain in
full force and effect.
<PAGE> 49
24. APPLICABLE LAW. This Option Agreement shall be governed by the laws of
the State of Delaware as such laws are applied to agreements between Delaware
residents entered into and to be performed entirely within the State of
Delaware.
COMPANY:
P.F. CHANG'S CHINA BISTRO, INC.,
a Delaware corporation
By:_______________________________________
Title:____________________________________
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section ERROR! REFERENCE SOURCE NOT FOUND., and the Right of
First Refusal set forth in Section 0, and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement. The undersigned acknowledges
receipt of a copy of the Plan.
OPTIONEE:
Date:____________________________ __________________________________________
Signature
Optionee's Address:
__________________________________________
__________________________________________
__________________________________________
<PAGE> 1
EXHIBIT 10.5
P.F. CHANG'S CHINA BISTRO, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The P.F. Chang's China Bistro, Inc. 1998
Employee Stock Purchase Plan (the "PLAN") is hereby established effective as of
the effective date of the initial registration by the Company of its Stock under
Section 12 of the Securities Exchange Act of 1934, as amended (the "EFFECTIVE
DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of Company and its stockholders by providing an incentive to attract,
retain and reward Eligible Employees of the Participating Company Group and by
motivating such persons to contribute to the growth and profitability of the
Participating Company Group. The Plan provides such Eligible Employees with an
opportunity to acquire a proprietary interest in the Company through the
purchase of Stock. The Company intends that the Plan qualify as an "employee
stock purchase plan" under Section 423 of the Code (including any amendments or
replacements of such section), and the Plan shall be so construed.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan
but defined for purposes of Section 423 of the Code shall have the same
definition herein. Whenever used herein, the following terms shall have their
respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified by
the Board. Unless the powers of the Committee have been specifically limited,
the Committee shall have all of the powers of the Board granted herein,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law.
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(d) "COMPANY" means P.F. Chang's China Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.
(e) "COMPENSATION" means, with respect to any Offering Period,
base wages or salary, commissions, overtime, bonuses, annual awards, other
incentive payments, shift premiums, and all other compensation paid in cash
during such Offering Period before deduction for any contributions to any plan
maintained by a Participating Company and described in Section 401(k) or Section
125 of the Code. Compensation shall not include reimbursements of expenses,
allowances, long-term disability, workers' compensation or any amount deemed
received without the actual transfer of cash or any amounts directly or
indirectly paid pursuant to the Plan or any other stock purchase or stock option
plan, or any compensation other than base wages or salary.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the Plan.
(g) "EMPLOYEE" means a person treated as an employee of a
Participating Company for purposes of Section 423 of the Code. A Participant
shall be deemed to have ceased to be an Employee either upon an actual
termination of employment or upon the corporation employing the Participant
ceasing to be a Participating Company. For purposes of the Plan, an individual
shall not be deemed to have ceased to be an Employee while such individual is on
any military leave, sick leave, or other bona fide leave of absence approved by
the Company of ninety (90) days or less. In the event an individual's leave of
absence exceeds ninety (90) days, the individual shall be deemed to have ceased
to be an Employee on the ninety-first (91st) day of such leave unless the
individual's right to reemployment with the Participating Company Group is
guaranteed either by statute or by contract. The Company shall determine in good
faith and in the exercise of its discretion whether an individual has become or
has ceased to be an Employee and the effective date of such individual's
employment or termination of employment, as the case may be. For purposes of an
individual's participation in or other rights, if any, under the Plan as of the
time of the Company's determination, all such determinations by the Company
shall be final, binding and conclusive, notwithstanding that the Company or any
governmental agency subsequently makes a contrary determination.
(h) "FAIR MARKET VALUE" means, as of any date, if there is
then a public market for the Stock, the closing price of a share of Stock (or
the mean of the closing bid and asked prices if the Stock is so quoted instead)
as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such
other national or regional securities exchange or market system constituting the
primary market for the Stock, as reported in The Wall Street Journal or such
other source as the Company deems reliable. If the relevant date does not fall
on a day on which the Stock has traded on such securities exchange or market
system, the date on which the Fair Market Value shall be established shall be
the last day on which the Stock was so traded prior to the relevant date, or
such other appropriate day as shall be determined by the Board, in its sole
discretion. If there is then no public market for the Stock, the Fair Market
Value on any relevant date shall be as determined by the Board. Notwithstanding
the foregoing, the Fair Market Value per share of Stock on the Effective Date
shall be deemed to be the public offering
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price set forth in the final prospectus filed with the Securities and Exchange
Commission in connection with the public offering of the Stock on the Effective
Date.
(i) "OFFERING" means an offering of Stock as provided in
Section 6.
(j) "OFFERING DATE" means, for any Offering, the first day of
the Offering Period with respect to such Offering.
(k) "OFFERING PERIOD" means a period established in accordance
with Section 6.1.
(l) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(m) "PARTICIPANT" means an Eligible Employee who has become a
participant in an Offering Period in accordance with Section 7 and remains a
participant in accordance with the Plan.
(n) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation designated by the Board as a corporation
the Employees of which may, if Eligible Employees, participate in the Plan. The
Board shall have the sole and absolute discretion to determine from time to time
which Parent Corporations or Subsidiary Corporations shall be Participating
Companies.
(o) "PARTICIPATING COMPANY GROUP" means, at any point in time,
the Company and all other corporations collectively which are then Participating
Companies.
(p) "PURCHASE DATE" means, for any Offering Period (or
Purchase Period, if so determined by the Board in accordance with Section 6.2),
the last day of such period.
(q) "PURCHASE PERIOD" means a period, if any, established in
accordance with Section 6.2.
(r) "PURCHASE PRICE" means the price at which a share of Stock
may be purchased under the Plan, as determined in accordance with Section 9.
(s) "PURCHASE RIGHT" means an option granted to a Participant
pursuant to the Plan to purchase such shares of Stock as provided in Section 8,
which the Participant may or may not exercise during the Offering Period in
which such option is outstanding. Such option arises from the right of a
Participant to withdraw any accumulated payroll deductions of the Participant
not previously applied to the purchase of Stock under the Plan and to terminate
participation in the Plan at any time during an Offering Period.
(t) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
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(u) "SUBSCRIPTION AGREEMENT" means a written
agreement in such form as specified by the Company, stating an Employee's
election to participate in the Plan and authorizing payroll deductions under the
Plan from the Employee's Compensation.
(v) "SUBSCRIPTION DATE" means the last business
day prior to the Offering Date of an Offering Period or such earlier date as the
Company shall establish.
(w) "SUBSIDIARY CORPORATION" means any present
or future "subsidiary corporation" of the Company, as defined in Section 424(f)
of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein
are for convenience only and shall not affect the meaning or interpretation of
any provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board. All questions of interpretation of the Plan, of any
form of agreement or other document employed by the Company in the
administration of the Plan, or of any Purchase Right shall be determined by the
Board and shall be final and binding upon all persons having an interest in the
Plan or the Purchase Right. Subject to the provisions of the Plan, the Board
shall determine all of the relevant terms and conditions of Purchase Rights
granted pursuant to the Plan; provided, however, that all Participants granted
Purchase Rights pursuant to the Plan shall have the same rights and privileges
within the meaning of Section 423(b)(5) of the Code. All expenses incurred in
connection with the administration of the Plan shall be paid by the Company.
3.2 AUTHORITY OF OFFICERS. Any officer of the Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election that is the responsibility
of or that is allocated to the Company herein, provided that the officer has
apparent authority with respect to such matter, right, obligation, determination
or election.
3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY.
The Company may, from time to time, consistent with the Plan and the
requirements of Section 423 of the Code, establish, change or terminate such
rules, guidelines, policies, procedures, limitations, or adjustments as deemed
advisable by the Company, in its sole discretion, for the proper administration
of the Plan, including, without limitation, (a) a minimum payroll deduction
amount required for participation in an Offering, (b) a limitation on the
frequency or number of changes permitted in the rate of payroll deduction during
an Offering, (c) an exchange ratio applicable to amounts withheld in a currency
other than United States dollars, (d) a payroll deduction greater than or less
than the amount designated by a Participant in order to adjust for the Company's
delay or mistake in processing a Subscription Agreement or in otherwise
effecting a Participant's election under the Plan or as advisable to comply with
the requirements
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of Section 423 of the Code, and (e) determination of the date and manner by
which the Fair Market Value of a share of Stock is determined for purposes of
administration of the Plan.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to
adjustment as provided in Section 4.2, the maximum aggregate number of shares of
Stock that may be issued under the Plan shall be eight hundred thousand
(800,000) and shall consist of authorized but unissued or reacquired shares of
Stock, or any combination thereof. If an outstanding Purchase Right for any
reason expires or is terminated or canceled, the shares of Stock allocable to
the unexercised portion of such Purchase Right shall again be available for
issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the
event of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, or in the event of any merger (including a merger effected for the
purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall be
made in the number and class of shares subject to the Plan and each Purchase
Right and in the Purchase Price. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Purchase Rights are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Purchase Rights to provide that
such Purchase Rights are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the Purchase Price of, the
outstanding Purchase Rights shall be adjusted in a fair and equitable manner, as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded down to the nearest whole number, and in no event may the
Purchase Price be decreased to an amount less than the par value, if any, of the
stock subject to the Purchase Right. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee of a
Participating Company is eligible to participate in the Plan and shall be deemed
an Eligible Employee except for any Employee who has not completed one (1) year
of continuous employment with a Participating Company as of the commencement of
an Offering Period.
5.2 EXCLUSION OF CERTAIN STOCKHOLDERS. Notwithstanding
any provision of the Plan to the contrary, no Employee shall be granted a
Purchase Right under the Plan if, immediately after such grant, such Employee
would own or hold options to purchase stock of the Company or of any Parent
Corporation or Subsidiary Corporation possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of such
corporation, as determined in accordance with Section 423(b)(3) of the Code. For
purposes of this Section 5.2, the attribution rules of Section 424(d) of the
Code shall apply in determining the stock ownership of such Employee.
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<PAGE> 6
6. OFFERINGS.
6.1 OFFERING PERIODS. Except as otherwise set forth
below, the Plan shall be implemented by sequential Offerings of approximately
six (6) months duration (an "OFFERING PERIOD"). The first Offering Period shall
commence on the Effective Date and end on January 31, 1999. Subsequent Offerings
shall commence on the first day of February and August of each year and end on
the last day of the following July and January, respectively, occurring
thereafter. Notwithstanding the foregoing, the Board may establish a different
duration for one or more future Offering Periods or different commencing or
ending dates for such Offering Periods; provided, however, that no Offering
Period may have a duration exceeding twenty-seven (27) months. If the first or
last day of an Offering Period is not a day on which the national or regional
securities exchange or market system constituting the primary market for the
Stock is open for trading, the Company shall specify the trading day that will
be deemed the first or last day, as the case may be, of the Offering Period.
6.2 PURCHASE PERIODS. If the Board so determines, in its
discretion, each Offering Period may consist of two (2) or more consecutive
Purchase Periods having such duration as the Board shall specify, and the last
day of each such Purchase Period shall be a Purchase Date. If the first or last
day of a Purchase Period is not a day on which the national or regional
securities exchange or market system constituting the primary market for the
Stock is open for trading, the Company shall specify the trading day that will
be deemed the first or last day, as the case may be, of the Purchase Period.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee may
become a Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the office designated by the Company not later than
the close of business for such office on the Subscription Date established by
the Company for such Offering Period. An Eligible Employee who does not deliver
a properly completed Subscription Agreement to the Company's designated office
on or before the Subscription Date for an Offering Period shall not participate
in the Plan for that Offering Period or for any subsequent Offering Period
unless such Eligible Employee subsequently delivers a properly completed
Subscription Agreement to the appropriate office of the Company on or before the
Subscription Date for such subsequent Offering Period. An Employee who becomes
an Eligible Employee after the Offering Date of an Offering Period shall not be
eligible to participate in such Offering Period but may participate in any
subsequent Offering Period provided such Employee is still an Eligible Employee
as of the Offering Date of such subsequent Offering Period.
7.2 CONTINUED PARTICIPATION. A Participant shall
automatically participate in the next Offering Period commencing immediately
after the Purchase Date of each Offering Period in which the Participant
participates provided that such Participant remains an Eligible Employee on the
Offering Date of the new Offering Period and has not either (a) withdrawn from
the Plan pursuant to Section 12.1 or (b) terminated employment as provided in
Section 13. A Participant who may automatically participate in a subsequent
Offering Period, as provided in
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this Section, is not required to deliver any additional Subscription Agreement
for the subsequent Offering Period in order to continue participation in the
Plan. However, a Participant may deliver a new Subscription Agreement for a
subsequent Offering Period in accordance with the procedures set forth in
Section 7.1 if the Participant desires to change any of the elections contained
in the Participant's then effective Subscription Agreement.
8. RIGHT TO PURCHASE SHARES.
8.1 GRANT OF PURCHASE RIGHT. Except as set forth below,
on the Offering Date of each Offering Period, each Participant in such Offering
Period shall be granted automatically a Purchase Right consisting of an option
to purchase the lesser of (a) that number of whole shares of Stock determined by
dividing Twelve Thousand Five Hundred Dollars ($12,500) by the Fair Market Value
of a share of Stock on such Offering Date or (b) one thousand two hundred fifty
(1,250) shares of Stock. No Purchase Right shall be granted on an Offering Date
to any person who is not, on such Offering Date, an Eligible Employee.
8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT.
Notwithstanding the provisions of Section 8.1, if the Board establishes an
Offering Period of any duration other than six months, then (a) the dollar
amount in Section 8.1 shall be determined by multiplying $2,083.33 by the number
of months (rounded to the nearest whole month) in the Offering Period and
rounding to the nearest whole dollar, and (b) the share amount in Section 8.1
shall be determined by multiplying 208.33 shares by the number of months
(rounded to the nearest whole month) in the Offering Period and rounding to the
nearest whole share.
8.3 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding
any provision of the Plan to the contrary, no Participant shall be granted a
Purchase Right which permits his or her right to purchase shares of Stock under
the Plan to accrue at a rate which, when aggregated with such Participant's
rights to purchase shares under all other employee stock purchase plans of a
Participating Company intended to meet the requirements of Section 423 of the
Code, exceeds Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or
such other limit, if any, as may be imposed by the Code) for each calendar year
in which such Purchase Right is outstanding at any time. For purposes of the
preceding sentence, the Fair Market Value of shares purchased during a given
Offering Period shall be determined as of the Offering Date for such Offering
Period. The limitation described in this Section 8.3 shall be applied in
conformance with applicable regulations under Section 423(b)(8) of the Code.
9. PURCHASE PRICE.
The Purchase Price at which each share of Stock may be
acquired in an Offering Period upon the exercise of all or any portion of a
Purchase Right shall be established by the Board; provided, however, that the
Purchase Price shall not be less than eighty-five percent (85%) of the lesser of
(a) the Fair Market Value of a share of Stock on the Offering Date of the
Offering Period or (b) the Fair Market Value of a share of Stock on the Purchase
Date. Unless otherwise provided by the Board prior to the commencement of an
Offering Period, the Purchase Price for that Offering Period shall be
eighty-five percent (85%) of the lesser of (a) the Fair
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<PAGE> 8
Market Value of a share of Stock on the Offering Date of the Offering Period, or
(b) the Fair Market Value of a share of Stock on the Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.
Shares of Stock acquired pursuant to the exercise of all or
any portion of a Purchase Right may be paid for only by means of payroll
deductions from the Participant's Compensation accumulated during the Offering
Period for which such Purchase Right was granted, subject to the following:
10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise
provided herein, the amount to be deducted under the Plan from a Participant's
Compensation on each payday during an Offering Period shall be determined by the
Participant's Subscription Agreement. The Subscription Agreement shall set forth
the percentage of the Participant's Compensation to be deducted on each payday
during an Offering Period in whole percentages of not less than one percent (1%)
(except as a result of an election pursuant to Section 10.3 to stop payroll
deductions made effective following the first payday during an Offering) or more
than ten percent (10%). Notwithstanding the foregoing, the Board may change the
limits on payroll deductions effective as of any future Offering Date.
10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions
shall commence on the first payday following the Offering Date and shall
continue to the end of the Offering Period unless sooner altered or terminated
as provided herein.
10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During an
Offering Period, a Participant may elect to increase or decrease the rate of or
to stop deductions from his or her Compensation by delivering to the Company's
designated office an amended Subscription Agreement authorizing such change on
or before the "Change Notice Date." The "CHANGE NOTICE DATE" shall be a date
prior to the beginning of the first pay period for which such election is to be
effective as established by the Company from time to time and announced to the
Participants. A Participant who elects to decrease the rate of his or her
payroll deductions to zero percent (0%) shall nevertheless remain a Participant
in the current Offering Period unless such Participant withdraws from the Plan
as provided in Section 12.1.
10.4 ADMINISTRATIVE SUSPENSION OF PAYROLL DEDUCTIONS. The
Company may, in its sole discretion, suspend a Participant's payroll deductions
under the Plan as the Company deems advisable to avoid accumulating payroll
deductions in excess of the amount that could reasonably be anticipated to
purchase the maximum number of shares of Stock permitted during a calendar year
under the limit set forth in Section 8.3. Payroll deductions shall be resumed at
the rate specified in the Participant's then effective Subscription Agreement at
the beginning of the next Offering Period the Purchase Date of which falls in
the following calendar year.
10.5 PARTICIPANT ACCOUNTS. Individual bookkeeping accounts
shall be maintained for each Participant. All payroll deductions from a
Participant's Compensation shall be credited to such Participant's Plan account
and shall be deposited with the general funds of the
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<PAGE> 9
Company. All payroll deductions received or held by the Company may be used by
the Company for any corporate purpose.
10.6 NO INTEREST PAID. Interest shall not be paid on sums
deducted from a Participant's Compensation pursuant to the Plan.
10.7 VOLUNTARY WITHDRAWAL FROM PLAN ACCOUNT. A Participant may
withdraw all or any portion of the payroll deductions credited to his or her
Plan account and not previously applied toward the purchase of Stock by
delivering to the Company's designated office a written notice on a form
provided by the Company for such purpose. A Participant who withdraws the entire
remaining balance credited to his or her Plan account shall be deemed to have
withdrawn from the Plan in accordance with Section 12.1. Amounts withdrawn shall
be returned to the Participant as soon as practicable after the withdrawal and
may not be applied to the purchase of shares in any Offering under the Plan. The
Company may from time to time establish or change limitations on the frequency
of withdrawals permitted under this Section, establish a minimum dollar amount
that must be retained in the Participant's Plan account, or terminate the
withdrawal right provided by this Section.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Plan and whose
participation in the Offering has not terminated before such Purchase Date shall
automatically acquire pursuant to the exercise of the Participant's Purchase
Right the number of whole shares of Stock determined by dividing (a) the total
amount of the Participant's payroll deductions accumulated in the Participant's
Plan account during the Offering Period and not previously applied toward the
purchase of Stock by (b) the Purchase Price. However, in no event shall the
number of shares purchased by the Participant during an Offering Period exceed
the number of shares subject to the Participant's Purchase Right. No shares of
Stock shall be purchased on a Purchase Date on behalf of a Participant whose
participation in the Offering or the Plan has terminated before such Purchase
Date.
11.2 PRO RATA ALLOCATION OF SHARES. In the event that the
number of shares of Stock which might be purchased by all Participants in the
Plan on a Purchase Date exceeds the number of shares of Stock available in the
Plan as provided in Section 4.1, the Company shall make a pro rata allocation of
the remaining shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable. Any fractional share resulting from
such pro rata allocation to any Participant shall be disregarded.
11.3 DELIVERY OF CERTIFICATES. As soon as practicable after
each Purchase Date, the Company shall arrange the delivery to each Participant,
as appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
shares to a broker that holds such shares in street name for the benefit of the
Participant. Shares to be delivered to a Participant under the Plan shall be
registered in the name of the Participant, or, if requested by the Participant,
in the name of the Participant and his or her spouse, or, if applicable, in the
names of the heirs of the Participant.
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11.4 RETURN OF CASH BALANCE. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to the
Participant as soon as practicable after such Purchase Date. However, if the
cash to be returned to a Participant pursuant to the preceding sentence is an
amount less than the amount that would have been necessary to purchase an
additional whole share of Stock on such Purchase Date, the Company may retain
such amount in the Participant's Plan account to be applied toward the purchase
of shares of Stock in the subsequent Purchase Period or Offering Period, as the
case may be.
11.5 TAX WITHHOLDING. At the time a Participant's Purchase
Right is exercised, in whole or in part, or at the time a Participant disposes
of some or all of the shares of Stock he or she acquires under the Plan, the
Participant shall make adequate provision for the foreign, federal, state and
local tax withholding obligations of the Participating Company Group, if any,
which arise upon exercise of the Purchase Right or upon such disposition of
shares, respectively. The Participating Company Group may, but shall not be
obligated to, withhold from the Participant's compensation the amount necessary
to meet such withholding obligations.
11.6 EXPIRATION OF PURCHASE RIGHT. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the Offering
Period to which the Purchase Right relates shall expire immediately upon the end
of the Offering Period.
11.7 REPORTS TO PARTICIPANTS. Each Participant who has
exercised all or part of his or her Purchase Right shall receive, as soon as
practicable after the Purchase Date, a report of such Participant's Plan account
setting forth the total payroll deductions accumulated prior to such exercise,
the number of shares of Stock purchased, the Purchase Price for such shares, the
date of purchase and the cash balance, if any, remaining immediately after such
purchase that is to be refunded or retained in the Participant's Plan account
pursuant to Section 11.4. The report required by this Section may be delivered
in such form and by such means, including by electronic transmission, as the
Company may determine.
12. WITHDRAWAL FROM THE PLAN.
12.1 VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant may
withdraw from the Plan by signing and delivering to the Company's designated
office a written notice of withdrawal on a form provided by the Company for such
purpose. Such withdrawal may be elected at any time prior to the end of an
Offering Period. A Participant who voluntarily withdraws from the Plan is
prohibited from resuming participation in the Plan in the same Offering from
which he or she withdrew, but may participate in any subsequent Offering by
again satisfying the requirements of Sections 5 and 7.1. The Company may impose,
from time to time, a requirement that the notice of withdrawal from the Plan be
on file with the Company's designated office for a reasonable period prior to
the effectiveness of the Participant's withdrawal.
12.2 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's
voluntary withdrawal from the Plan pursuant to Sections 12.1, the Participant's
accumulated payroll deductions which have not been applied toward the purchase
of shares of Stock shall be refunded to the Participant as soon as practicable
after the withdrawal, without the payment of any interest,
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and the Participant's interest in the Plan shall terminate. Such accumulated
payroll deductions to be refunded in accordance with this Section may not be
applied to any other Offering under the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY.
Upon a Participant's ceasing, prior to a Purchase Date, to be
an Employee of the Participating Company Group for any reason, including
retirement, disability or death, or the failure of a Participant to remain an
Eligible Employee, the Participant's participation in the Plan shall terminate
immediately. In such event, the payroll deductions credited to the Participant's
Plan account since the last Purchase Date shall, as soon as practicable, be
returned to the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned pursuant
to this Section 13. A Participant whose participation has been so terminated may
again become eligible to participate in the Plan by again satisfying the
requirements of Sections 5 and 7.1.
14. CHANGE IN CONTROL.
14.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed
to have occurred if any of the following occurs with respect to the Company: (i)
the direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an
Ownership Change Event or a series of related Ownership Change Events
(collectively, the "TRANSACTION") wherein the stockholders of the Company
immediately before the Transaction do not retain immediately after the
Transaction, in substantially the same proportions as their ownership of shares
of the Company's voting stock immediately before the Transaction, direct or
indirect beneficial ownership of more than fifty percent (50%) of the total
combined voting power of the outstanding voting stock of the Company or the
corporation or corporations to which the assets of the Company were transferred
(the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the
preceding sentence, indirect beneficial ownership shall include, without
limitation, an interest resulting from ownership of the voting stock of one or
more corporations which, as a result of the Transaction, own the Company or the
Transferee Corporation(s), as the case may be, either directly or through one or
more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
(c) EFFECT OF CHANGE IN CONTROL ON PURCHASE
RIGHTS. In the event of a Change in Control, the surviving, continuing,
successor, or purchasing corporation or parent
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corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may
assume the Company's rights and obligations under the Plan. If the Acquiring
Corporation elects not to assume the Company's rights and obligations under
outstanding Purchase Rights, the Purchase Date of the then current Offering
Period (or Purchase Period) shall be accelerated to a date before the date of
the Change in Control specified by the Board, but the number of shares of Stock
subject to outstanding Purchase Rights shall not be adjusted. All Purchase
Rights which are neither assumed by the Acquiring Corporation in connection with
the Change in Control nor exercised as of the date of the Change in Control
shall terminate and cease to be outstanding effective as of the date of the
Change in Control.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS.
A Purchase Right may not be transferred in any manner
otherwise than by will or the laws of descent and distribution and shall be
exercisable during the lifetime of the Participant only by the Participant.
16. COMPLIANCE WITH SECURITIES LAW.
The issuance of shares under the Plan shall be subject to
compliance with all applicable requirements of federal, state and foreign law
with respect to such securities. A Purchase Right may not be exercised if the
issuance of shares upon such exercise would constitute a violation of any
applicable federal, state or foreign securities laws or other law or regulations
or the requirements of any securities exchange or market system upon which the
Stock may then be listed. In addition, no Purchase Right may be exercised unless
(a) a registration statement under the Securities Act of 1933, as amended, shall
at the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Purchase
Right may be issued in accordance with the terms of an applicable exemption from
the registration requirements of said Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares under the Plan shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of a
Purchase Right, the Company may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation, and to make any representation or warranty
with respect thereto as may be requested by the Company.
17. RIGHTS AS A STOCKHOLDER AND EMPLOYEE.
A Participant shall have no rights as a stockholder by virtue
of the Participant's participation in the Plan until the date of the issuance of
a certificate for the shares purchased pursuant to the exercise of the
Participant's Purchase Right (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 4.2. Nothing herein shall
12
<PAGE> 13
confer upon a Participant any right to continue in the employ of the
Participating Company Group or interfere in any way with any right of the
Participating Company Group to terminate the Participant's employment at any
time.
18. LEGENDS.
The Company may at any time place legends or other identifying
symbols referencing any applicable federal, state or foreign securities law
restrictions or any provision convenient in the administration of the Plan on
some or all of the certificates representing shares of Stock issued under the
Plan. The Participant shall, at the request of the Company, promptly present to
the Company any and all certificates representing shares acquired pursuant to a
Purchase Right in the possession of the Participant in order to carry out the
provisions of this Section.
19. NOTIFICATION OF SALE OF SHARES.
The Company may require the Participant to give the Company
prompt notice of any disposition of shares acquired by exercise of a Purchase
Right within two years from the date of granting such Purchase Right or one year
from the date of exercise of such Purchase Right. The Company may require that
until such time as a Participant disposes of shares acquired upon exercise of a
Purchase Right, the Participant shall hold all such shares in the Participant's
name (or, if elected by the Participant, in the name of the Participant and his
or her spouse but not in the name of any nominee) until the lapse of the time
periods with respect to such Purchase Right referred to in the preceding
sentence. The Company may direct that the certificates evidencing shares
acquired by exercise of a Purchase Right refer to such requirement to give
prompt notice of disposition.
20. NOTICES.
All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. INDEMNIFICATION.
In addition to such other rights of indemnification as they
may have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or
13
<PAGE> 14
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such person is liable for gross negligence,
bad faith or intentional misconduct in duties; provided, however, that within
sixty (60) days after the institution of such action, suit or proceeding, such
person shall offer to the Company, in writing, the opportunity at its own
expense to handle and defend the same.
22. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may at any time amend or terminate the Plan, except
that (a) such termination shall not affect Purchase Rights previously granted
under the Plan, except as permitted under the Plan, and (b) no amendment may
adversely affect a Purchase Right previously granted under the Plan (except to
the extent permitted by the Plan or as may be necessary to qualify the Plan as
an employee stock purchase plan pursuant to Section 423 of the Code or to obtain
qualification or registration of the shares of Stock under applicable federal,
state or foreign securities laws). In addition, an amendment to the Plan must be
approved by the stockholders of the Company within twelve (12) months of the
adoption of such amendment if such amendment would authorize the sale of more
shares than are authorized for issuance under the Plan or would change the
definition of the corporations that may be designated by the Board as
Participating Companies. In the event that the Board approves an amendment to
increase the number of shares authorized for issuance under the Plan (the
"ADDITIONAL SHARES"), the Board, in its sole discretion, may specify that such
Additional Shares may only be issued pursuant to Purchase Rights granted after
the date on which the stockholders of the Company approve such amendment, and
such designation by the Board shall not be deemed to have adversely affected any
Purchase Right granted prior to the date on which the stockholders approve the
amendment.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing P.F. Chang's China Bistro, Inc. 1998 Employee Stock Purchase
Plan was duly adopted by the Board of Directors of the Company on _____________,
1998.
____________________________________
Secretary
14
<PAGE> 15
PLAN HISTORY
_____________, 1998 Board adopts the Plan, with an initial reserve of
800,000 shares.
_____________, 1998 Stockholders approve Plan, with an initial reserve of
800,000 shares.
<PAGE> 1
EXHIBIT 10.7
================================================================================
STOCK PURCHASE AGREEMENT
by
and
among
P.F. CHANG'S CHINA BISTRO, INC.;
CATTERTON-SIMON PARTNERS, L.P.;
CATTERTON-PFC, L.L.C.;
OAK INVESTMENT PARTNERS VI, L.P.;
OAK AFFILIATES FUND, L.P.;
the OTHER CO-INVESTORS listed on Schedule 1;
and
PAUL M. FLEMING and KELLY M. FLEMING
----------
Dated as of FEBRUARY 1, 1996
----------
================================================================================
<PAGE> 2
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RECITALS ................................................................................................1
AGREEMENT ...............................................................................................1
ARTICLE 1
DEFINITIONS ...........................................................2
1.1 Definitions .................................................................................2
1.2 Accounting Terms; Financial Statements.......................................................8
1.3 Knowledge Standard...........................................................................8
1.4 Other Defined Terms..........................................................................8
ARTICLE 2
AUTHORIZATION OF PREFERRED STOCK;
PURCHASE AND SALE OF SECURITIES.................................................9
2.1 Preferred Stock..............................................................................9
2.2 Purchase and Sale of Securities..............................................................9
2.3 Closing......................................................................................9
2.4 Fees and Expenses...........................................................................10
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO PURCHASE THE SECURITIES..........................................10
3.1 Representations and Warranties.............................................................10
3.2 Compliance with Terms and Conditions of this Agreement.....................................10
3.3 Delivery of Certificates Evidencing the Securities.........................................10
3.5 Secretary's Certificates...................................................................11
3.6 Documents .................................................................................11
3.7 Purchase Permitted by Applicable Laws......................................................11
3.8 Opinion of Counsel.........................................................................11
3.9 Approval of Counsel to Purchasers..........................................................11
3.10 Consents and Approvals.....................................................................11
3.11 Certain Waivers............................................................................12
3.12 No material Adverse Change.................................................................12
3.13 Certificate and By-laws....................................................................12
3.14 No Material Judgment or Order..............................................................12
3.15 Financial Statements.......................................................................12
3.16 Pro Forma Balance Sheet....................................................................12
3.17 Budget.....................................................................................12
3.18 Contribution Agreement.....................................................................13
3.19 Employment Agreement.......................................................................13
3.20 Guaranty Agreement.........................................................................13
3.21 Registration Rights Agreement..............................................................13
3.22 Shareholders' Agreement....................................................................13
3.23 Transition Services Agreement..............................................................13
3.24 Corporate Restructuring. The Corporate Restructuring shall have been completed in form
and substance reasonably satisfactory to the Purchasers....................................13
ARTICLE 4
CONDITIONS TO THE OBLIGATION OF THE
COMPANY TO CLOSE.........................................................13
4.1 Representations and Warranties.............................................................13
4.2 Compliance with Terms and Conditions of this Agreement.....................................13
</TABLE>
4.3 Certificates. The Company shall have received (i) for each Purchaser
that is a corporation, a certificate from such corporation, dated as of the
Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying that the attached resolutions of the Board of Directors of
such corporation approving the Transaction Agreements and the transactions
contemplated thereby, are true, complete and correct and remain unchanged and in
full force and effect; and (ii) for each Purchaser that is not a corporation, a
certificate executed by such Person as the Company shall reasonably deem
appropriate under the circumstances, certifying that all approvals required
according to such Purchaser's organizational documents have been duly obtained,
and remain unchanged and in full force and effect.
4.4 Documents. The Company shall have received true, complete and
correct copies of such documents and such other information as it may have
reasonably requested in connection with or related to the purchase of the
Securities by each Purchaser and the transactions contemplated by the
Transaction Agreement, all in form and substance reasonably satisfactory to the
Company prior to the Closing, including without limitation the Registration
Rights Agreement and the Shareholders Agreement executed by the Purchasers,
unless the execution of such documents by the Company has been waived by the
Purchasers as a condition to their obligation to purchase
the Securities.
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4.5 Closing Certificate..................................................................14
4.7 Payment of Purchase Price............................................................14
4.8 Approval of Counsel to Company.......................................................14
4.9 Consents and Approvals...............................................................15
4.10 No Material Judgment or Order........................................................15
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY..........................................15
5.1 Corporate Existence and Authority....................................................15
5.2 Corporate Authorization; No Contravention............................................15
5.3 Governmental Authorization; Third Party Consents.....................................16
5.4 Binding Effect.......................................................................16
5.5 Other Agreements.....................................................................16
5.6 Capitalization.......................................................................16
5.7 Company Affiliates...................................................................17
5.8 Private Offering.....................................................................17
5.9 Litigation...........................................................................18
5.10 Financial Statements.................................................................18
5.11 Title and Condition of Assets........................................................18
5.12 Contractual Obligations..............................................................19
5.13 Patents, Trademarks, Etc.............................................................20
5.14 Tax Matters..........................................................................20
5.15 Severance Arrangements...............................................................22
5.16 No Material Adverse Change...........................................................22
5.17 Environmental Matters................................................................22
5.18 Investment Company/Government Regulations............................................23
5.19 Broker's, Finder's or Similar Fees...................................................23
5.20 Labor Relations and Employee Matters.................................................23
5.21 Employee Benefits Matters
5.22 Potential Conflicts of Interest......................................................26
5.23 Outstanding Borrowings...............................................................26
5.24 Insurance Schedule...................................................................26
5.25 Undisclosed Liabilities..............................................................26
5.26 Solvency.............................................................................26
5.27 Compliance with Law..................................................................27
5.28 No Other Agreements to Sell the Assets or Capital Stock of the Company...............27
5.29 Hart-Scott-Rodino....................................................................27
5.30 Disclosure...........................................................................27
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS........................................28
6.1 Existence and Authority..............................................................28
6.2 Authorization; No Contravention......................................................28
6.3 Governmental Authorization; Third Party Consent......................................28
6.4 Binding Effect.......................................................................28
6.5 Purchase for Own Account.............................................................28
6.6 Accredited Investor Status...........................................................29
6.8 Broker's, Finder's or Similar Fees...................................................30
ARTICLE 7
COVENANTS OF THE COMPANY...........................................30
7.1 Further Assurances...................................................................30
7.2 Notification of Certain Matters......................................................30
7.3 Access to Information................................................................30
7.4 Conduct of Business..................................................................31
7.5 Contribution Agreement...............................................................31
ARTICLE 8
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING.....................................31
8.1 Reservation of Shares................................................................31
8.2 Books and Records....................................................................32
8.3 Use of Proceeds......................................................................32
8.4 New Lines of Business................................................................32
8.5 Compensation of Directors............................................................32
8.6 Management Incentive Stock Option Plan...............................................32
ARTICLE 9
INDEMNIFICATION.................................................32
9.1 Indemnification......................................................................32
ii
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9.2 Notification........................................................................33
9.3 Registration Rights Agreement.......................................................34
ARTICLE 10
MISCELLANEOUS...........................................34
10.1 Termination.........................................................................34
10.2 Survival of Representations and Warranties..........................................35
10.4 Notices.............................................................................35
10.5 Successors and Assigns..............................................................36
10.6 Amendment and Waiver................................................................37
10.7 Counterparts........................................................................37
10.8 Headings............................................................................37
10.9 Governing Law.......................................................................37
10.10 Jurisdiction........................................................................37
10.11 Severability........................................................................38
10.12 Rules of Construction...............................................................38
10.13 Entire Agreement....................................................................38
10.14 Transaction Expenses................................................................38
10.15 Publicity...........................................................................38
10.16 Further Assurances..................................................................38
10.17 Severability of Representations, Warranties and Covenants...........................38
iii
</TABLE>
<PAGE> 5
<TABLE>
TABLE OF EXHIBITS AND SCHEDULES
EXHIBITS
<S> <C>
Contribution Agreement........................................................A
Acquisition Agreement.........................................................B
Corporate Restructuring.......................................................C
Guaranty Agreement............................................................D
Registration Rights Agreement.................................................E
Shareholders' Agreement.......................................................F
Transition Services Agreement.................................................G
Warrant.......................................................................H
Certificate of Incorporation..................................................I
By-Laws.......................................................................J
Employment Agreement..........................................................K
SCHEDULES
Securities Being Purchased....................................................1
</TABLE>
<PAGE> 6
<TABLE>
SCHEDULES (continued)
<S> <C>
Government & Other Consents.......................................5.3
Shareholders......................................................5.6
Affiliates........................................................5.7
Leased Real Estate.............................................5.11(a)
Agreements.......................................................5.12
Intellectual Property............................................5.13
Tax Elections....................................................5.14
Environmental....................................................5.17
Employee Plans...................................................5.21
Conflicts........................................................5.22
Borrowings.......................................................5.23
Insurance Policies...............................................5.24
Noncompliance....................................................5.27
Obligation to Sell...............................................5.28
</TABLE>
<PAGE> 7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered
into as of the 1st day of February, 1996 by and among CATTERTON-SIMON PARTNERS,
L.P., a Delaware limited partnership, and CATTERTON-PFC, L.L.C., a Delaware
limited liability company (collectively "Catterton"), OAK INVESTMENT PARTNERS
VI, L.P., a Delaware limited partnership and OAK VI AFFILIATES FUND, L.P., a
Delaware limited partnership (collectively "Oak"), the other co-investors listed
on Schedule 1 attached hereto (the "Co-Investors"), PAUL M. FLEMING and KELLY M.
FLEMING, a married couple dealing in community property (collectively,
"Fleming") and P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the
"Company").
RECITALS:
A. WHEREAS, upon the terms and subject to the conditions set forth in
this Agreement, the Company proposes to issue and sell (i) shares of its Series
A Convertible Preferred Stock (as defined herein) and (ii) Warrants (as defined
herein) to purchase shares of Series A Convertible Preferred Stock to Catterton,
Oak and the Co-Investors (each being referred to herein as a "Purchaser" and
collectively referred to herein as the "Purchasers").
B. WHEREAS, upon the terms and subject to the conditions set forth in
this Agreement, the Purchasers desire to contribute capital to the Company in
exchange for the issuance to the Purchasers of shares of the Series A
Convertible Preferred Stock and Warrants of the Company as set forth herein.
C. WHEREAS, the Purchasers desire that, upon the Closing (as defined in
herein), the Purchasers will collectively own one hundred percent (100%) of the
Company's outstanding Series A Convertible Preferred Stock.
D. WHEREAS, Fleming and the Company shall enter into a Contribution
Agreement simultaneously with the execution of this Agreement in the form
attached hereto as Exhibit A.
E. WHEREAS, the Company, the Purchasers and Fleming, holder of 100% of
the Company's common stock, desire to set forth the objectives and agreements,
that will govern their relations and responsibilities with respect to each other
by entering into concurrently with the sale and purchase of securities hereunder
a Shareholders' Agreement (as defined herein).
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereby agree as follows:
<PAGE> 8
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Acquisition Agreement" means the Acquisition Agreement among the
holders of equity interests in the Company Affiliates and the Company
substantially in the form attached hereto as Exhibit B.
"Affiliate" means, with respect to any specified Person, any Person
that, directly or indirectly, controls, is controlled by, or is under common
control with, such specified Person, whether by contract, through one or more
intermediaries, or otherwise.
"Balance Sheet Date" means November 30, 1995.
"Benefit Arrangement" means any employment, consulting, severance or
other similar contract, arrangement or policy and each plan, arrangement
(written or oral), program, agreement or commitment providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, life, health, disability or accident benefits (including,
without limitation, any "voluntary employees' beneficiary association" as
defined in Section 501(c)(9) of the Code providing for the same or other
benefits) or for deferred compensation, profit-sharing bonuses, stock options,
stock appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (A) is
not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as the case may be,
by the Company or an ERISA Affiliate or under which the Company or any ERISA
Affiliate may incur any liability, and (C) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such entities).
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the common stock, par value $.01 per share, of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Company Affiliates" means (i) Fleming Chinese Restaurants, Inc., an
Arizona corporation, together with its successors and assigns; (ii) P.F. Chang's
II, Inc., an Arizona corporation, together with its successors and assigns;
(iii) P.F. Chang's III, L.L.C., an Arizona
2
<PAGE> 9
limited liability company; (iv) P.F. Chang's IV, L.L.C., an Arizona limited
liability company; (v) PFC Building Limited Partnership, an Arizona limited
partnership; and (vi) Fleming/PFC III Corp, an Arizona corporation.
"Condition of the Company" means the assets, business, properties,
operations, financial condition or prospects (excluding prospects arising out of
general economic or business conditions affecting the restaurant industry
generally) of the Company and the Company Affiliates taken as a whole.
"Contractual Obligation" means as to any Person, any provision of any
security issued by such Person or any provision of any agreement, lease of real
or personal property, undertaking, contract, indenture, mortgage, deed of trust
or other instrument to which such Person is a party or by which it or any of its
property is bound.
"Contribution Agreement" means that certain Contribution Agreement to be
entered into as of the Closing Date by and between the Company and Paul Fleming.
"Corporate Restructuring" means the restructuring of Fleming Chinese
Restaurants, Inc., and P.F. Chang's II, Inc., as described in Exhibit C attached
hereto.
"Defined Benefit Plan" means a defined benefit plan within the meaning
of Section 3(35) of ERISA or Section 414(j) of the Code, whether funded or
unfunded, qualified or nonqualified (whether or not subject to ERISA or the
Code).
"Employee Plans" means all Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
"Employment Agreement" means the Employment Agreement to be entered into
as of the Closing Date between the Company and Fleming substantially in the form
attached hereto as Exhibit K.
"Environmental Expenses" means any liability, loss, cost or expense
arising from any Pre-Closing Environmental Matter, including, without
limitation, costs of investigation, cleanup, removal, remedial, corrective or
response action, the costs associated with posting financial assurances for the
completion of investigation, cleanup, removal, remedial, corrective or response
actions, the preparation of any closure or other necessary or required plans or
analyses, or other reports or analyses submitted to or prepared by regulating
agencies, including the cost of health assessments, epidemiological studies and
the like, retention of engineers and other expert consultants, legal counsel,
capital improvement, operation and maintenance testing and monitoring costs,
power and utility costs and pumping taxes or fees, and administrative costs
or damages.
"Environmental Laws" means any federal, state, territorial, provincial
or local law, common law doctrine, rule, order, decree, judgment, injunction,
license, permit or regulation relating to environmental matters, including those
pertaining to land use, air, soil, surface water, ground water (including the
protection, cleanup, removal, remediation or damage
3
<PAGE> 10
thereof), public or employee health or safety or any other environmental matter,
together with any other laws (federal, state, territorial, provincial or local)
relating to emissions, discharges, releases or threatened releases of any
pollutant or contaminant including, without limitation, medical, chemical,
biological, biohazardous or radioactive waste and materials, into ambient air,
land, surface water, groundwater, personal property or structures, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transportation, discharge or handling of any contaminant, including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous Material
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 1251 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601
et seq.), and the Occupational Safety and Health Act (29 U.S.C. Section 651 et
seq.), as such laws have been, or are, amended, modified or supplemented
heretofore or from time to time hereafter and any analogous future federal, or
present or future state or local laws, statutes and regulations promulgated
thereunder.
"Equipment" means all of the tangible personal property owned or leased
by the Company or any Company Affiliate and used in or held for use in the
operations of the business of the Company or any of Company Affiliate.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person that is (or at any relevant time was)
a member of a "controlled group of corporations" with or under "common control"
with the Company as defined in Section 414(b), (c), (m) or (o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Facilities" means the buildings, plants, offices, stores, restaurants
and all other improvements on any real property (including fixtures affixed
thereto) which are owned or leased by the Company or any Company Affiliate and
used or held for use in the operation of the business of the Company or any
Company Affiliate.
"GAAP" means United States generally accepted accounting principles, in
effect from time to time, consistently applied.
"Governmental Authority" means the government of any nation, state,
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
exercising public functions owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"Guaranty Agreement" means the Guaranty Agreement entered into by
Fleming for the benefit of the Purchasers substantially in the form attached
hereto as Exhibit D.
4
<PAGE> 11
"Hazardous Materials" means those substances which are regulated by or
form the basis of liability under any Environmental Laws, including, without
limitation, petroleum products, radon and asbestos.
"Indebtedness" means, as to any Person: (a) all obligations, whether or
not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (e)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (f)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) all
Indebtedness of any other Person referred to in clauses (a) through (f) above,
guaranteed, directly or indirectly, by that Person.
"Initial Issue Date" shall mean the date that shares of Preferred Stock
are first issued by the Company.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having - substantially the same economic effect as any of the foregoing.
"Material Adverse Effect" means any event or condition which
individually or in the aggregate has a material adverse effect on the Condition
of the Company or on the ability of the Company to perform its obligations under
the Transaction Agreements.
"Multiemployer Plan" means any "multiemployer plan," as defined in
Section 4001(a)(3) or Section 3(37) of ERISA, (A) which the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA Affiliate
may incur any liability and (B) which covers any employee or former employee of
the Company or any ERISA Affiliate (with respect to their relationship with such
entities).
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"Outstanding Borrowings" means all Indebtedness of the Company and/or
its Subsidiaries for borrowed money (including without limitation, reimbursement
and all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), excluding obligations with
respect to trade payables incurred in the ordinary course of business.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) (A) which the Company or
any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, within the five years prior to the Closing Date, maintained,
administered, contributed to or was required to contribute to, or under which
the Company or any ERISA Affiliate may incur any liability and (B) which covers
any employee or former employee of the Company or any ERISA Affiliate (with
respect to their relationship with such entities).
"Permitted Liens" means (i) Liens for taxes, governmental charges or
levies which (a) are not yet due and payable, or (b) are being diligently
contested in good faith by appropriate proceedings; provided, that for any such
taxes being diligently contested in good faith, the Company has set aside
adequate reserves, (ii) Liens imposed by law, such as mechanic's, materialman's,
landlord's, warehouseman's and carrier's liens, securing obligations incurred in
the ordinary course of business which are not yet overdue or which are being
diligently contested in good faith by appropriate proceeding and, with respect
to such obligations which are being contested, for which the Company has set
aside adequate reserves, and (iii) Liens which (x) in each case, secure
obligations of less than $10,000, and (y) do not, individually or in the
aggregate, interfere with the use and enjoyment of the property subject thereto.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Pre-Closing Environmental Matters" means (i) the production, use,
generation, storage, treatment, recycling, disposal, discharge, release, or
other handling or disposition of any kind at any time on or prior to the Closing
Date (collectively "Handling") of any Hazardous Material, either in, on, or
under any real property or facility (including the Facilities) owned, leased or
used at any time by the Company (or a predecessor or affiliate of the Company)
including without limitation the effects of such Handling of Hazardous Materials
on resources, persons, or property within or outside the boundaries of any
facility owned, operated or otherwise used by the Company; (ii) the presence as
of the Closing Date of Hazardous Materials in, on or under any facility
(including the Facilities) owned, leased or used at any time by the Company
regardless of how the Hazardous Materials came to rest at, on or under such
facility, (iii) the failure on or prior to the Closing Date of any facility or
any operations of the Company to be in compliance with an Environmental Laws,
and (iv) any other act, omission or condition existing prior to the Closing Date
which gives rise to liability under any Environmental Laws with respect to the
Company.
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"Preferred Stock" means the Series A Convertible Preferred Stock, par
value $.01 per share, of the Company, or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"Qualified Initial Public Offering" shall mean a public offering,
underwritten by a reputable and nationally recognized underwriter, pursuant to
an effective registration statement under the Securities Act of shares of the
Common Stock, (i) the aggregate gross proceeds of which equal or exceed
$15,000,000 and (ii) the per share offering price to the public of which equals
or exceeds five (5) times the per share Purchase Price; provided, however, that
the per share offering price referred to in clause (ii) shall be adjusted to
reflect the effect of any stock split or any subdivision, reclassification,
combination or like event of or with respect to outstanding shares of Common
Stock occurring after the Initial Issue Date.
"Registration Rights Agreement" means the Registration Rights Agreement
substantially in the form attached hereto as Exhibit E.
"Requirements of Law" means, as to any Person, the provisions of the
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, and any law, treaty, rule, regulation, right,
privilege, qualification, license or franchise, order, judgment, or
determination, in each case, of an arbitrator or a court or other Governmental
Authority, in each case, applicable to or binding upon such Person or any of its
property (or to which such Person or any of its property is subject) or
applicable to any or all of the transactions contemplated by or referred to in
the Transaction Agreements.
"Securities" means the Preferred Stock and the Warrants.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Shareholders' Agreement" means the Shareholders' Agreement among the
Company, Paul Fleming and the Purchasers substantially in the form attached
hereto as Exhibit F.
"Shares" means the Common Stock and the Preferred Stock.
"Tax" or "Taxes" shall mean all federal, state, local, foreign and other
taxes, assessments or other government charges, including, without limitation,
income, estimated income, business, occupation, franchise, property, sales,
transfer, use, employment, commercial rent or withholding taxes, including
interest, penalties and additions in connection therewith for which the Company
may be liable.
"Transaction Agreements" means collectively, this Agreement, the
Acquisition Agreement, the Contribution Agreement, the Employment Agreement, the
Guaranty Agreement, the Registration Rights Agreement, the Shareholders'
Agreement, the Transition Services Agreement, and the Warrants.
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<PAGE> 14
"Transaction Expenses" means any and all reasonable out-of-pocket
expenses incurred by the Purchasers in connection with the legal and financial
due diligence review of the Condition of the Company conducted by the
Purchasers, the negotiation and preparation of the Transaction Agreements, the
consummation of the transactions contemplated thereby and preparation for any of
the foregoing, including, without limitation, travel expenses, fees, charges and
disbursements of counsel and any similar or related costs and expenses;
provided, however, that with respect to legal fees and costs, such legal fees
and costs shall be limited to those charged by one firm of counsel representing
all Purchasers.
"Transition Services Agreement" means the Transition Services Agreement
between the Company and Beverly Hills Cajun, Inc. substantially in the form
attached hereto as Exhibit G.
"Warrants" means those certain warrants in the form attached hereto as
Exhibit H to purchase shares of Series A Convertible Preferred Stock.
"Welfare Plan" means any "employee welfare benefit plan" as defined in
Section 3(l) of ERISA, (A) which the Company or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or under which the
Company or any ERISA Affiliate may incur any liability and (B) which covers any
employee or former employee of the Company or any ERISA Affiliate (with respect
to their relationship with such entities).
1.2 Accounting Terms; Financial Statements. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with GAAP.
1.3 Knowledge Standard. When used herein, the phrase "to the knowledge
of" any Person, "to the best knowledge of" any Person or any similar phrase
shall mean, (i) with respect to any individual, the actual knowledge of such
Person (ii) with respect to any corporation (or a limited liability company),
the actual knowledge of officers and directors, or Persons acting in similar
capacities, of such corporation and the knowledge of such facts that such
persons should have in the exercise of their duties after reasonable inquiry and
(iii) with respect to a partnership, the actual knowledge of the officers and
directors of the general partner of such partnership and the knowledge of such
facts that such persons should have in the exercise of their duties after
reasonable inquiry. When used herein, the phrase "to the knowledge of the
Company," "to the best knowledge of the Company" or any similar phrase shall
mean "to the best knowledge of the Company and each Company Affiliate" using the
standards set forth in the previous sentence.
1.4 Other Defined Terms. The following terms shall have the meanings
specified in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Actions 5.9
Certificate 2.1
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C>
Closing 2.3
Closing Date 2.3
Indemnified Party 8.1
Indemnifying Party 8.1
Intellectual Property 5.13
Liability (and Liabilities) 8.1
Preferred Shares 2.1
Pro Forma Balance Sheet 3.17
Purchase Price 2.2
Purchased Securities 2.2
Taxpayers 5.14
Unaudited Financial Statements 5.10
Warrant Shares 2.1
</TABLE>
ARTICLE 2
AUTHORIZATION OF PREFERRED STOCK;
PURCHASE AND SALE OF SECURITIES
2.1 Preferred Stock. The Company has authorized (a) the issuance and
sale to the Purchasers of 497,500 shares of Preferred Stock (the "Preferred
Shares") and the Warrants exercisable for an aggregate of 124,375 shares of
Preferred Stock (the "Warrant Shares") and (b) has duly adopted resolutions
establishing the rights, preferences, privileges and restrictions of the
Preferred Stock. The Preferred Stock will have the respective rights,
preferences and privileges set forth in the Company's Certificate of
Incorporation substantially in the form attached hereto as Exhibit I (the
"Certificate").
2.2 Purchase and Sale of Securities. Upon the terms and subject to the
conditions herein contained, at the Closing (as defined herein) on the Closing
Date (as defined herein), the Company agrees that it will issue to each of the
Purchasers, and each Purchaser agrees that it will purchase from the Company,
the number of Preferred Shares and a Warrant exercisable for the number of
Warrant Shares listed next to such Purchaser's name on Schedule 1 hereto
(collectively, the "Purchased Securities"). The aggregate purchase price of such
Purchased Securities, to be paid by the Purchasers in the amounts listed next to
each Purchaser's name on Schedule 1 hereto shall be Nine Million, Nine Hundred
and Fifty Thousand Dollars ($9,950,000) (the "Purchase Price"). The Purchase
Price is subject to adjustment which is reflected in the Warrants to be issued
at Closing.
2.3 Closing. The closing of the sale to and purchase by the Purchasers
of the Securities referred to in Section 2.2 hereof (the "Closing") shall occur
at the offices of Squire, Sanders & Dempsey, 40 North Central, Suite 2700,
Phoenix, AZ 85004 at 10:00 a.m., Phoenix, AZ time on February 29, 1996 or at
such different time of day as the Purchasers and the Company shall agree (the
"Closing Date"). At the Closing, (i) the Company shall deliver to each Purchaser
certificates evidencing the Securities being purchased by such Purchaser, free
and clear of any Liens of any nature whatsoever, other than those created by the
Certificate,
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<PAGE> 16
registered in such Purchaser's name, and (ii) each Purchaser shall deliver to
the Company the portion of the Purchase Price listed next to such Purchaser's
name on Schedule 1 hereto, by cashier's check or wire transfer of immediately
available funds.
2.4 Fees and Expenses. The Company shall reimburse the Purchasers for
all Transaction Expenses, at the Closing out of the proceeds of the sale of the
Securities hereunder. If the Closing does not occur for any reason other than a
refusal or failure of Purchasers to close in material breach hereof by the
Purchasers, the Company shall reimburse the Purchasers for all Transaction
Expenses promptly upon request therefor, which payment shall be made by wire
transfer of immediately available funds to an account or accounts designated by
the Purchasers.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO PURCHASE THE SECURITIES
The obligation of each Purchaser to purchase the Securities, to pay the
purchase prices therefor and to perform any obligations hereunder on the Closing
Date (unless otherwise specified) shall be subject to the satisfaction as
determined by, or waiver by, such Purchaser of the following conditions on or
before the Closing Date:
3.1 Representations and Warranties. The representations and warranties
of the Company contained in Article 5 hereof shall be true and correct at and as
of the Closing Date (both before and after giving effect to the transactions
contemplated under this Agreement) as if made at and as of such date, except
that the timely filing and payment of Taxes as set forth in the first sentence
of Section 5.14(a) and Section 5.14(b) shall be true and correct at and as of
the Closing Date (both before and after giving effect to the transactions
contemplated under this Agreement) as if made at and as of such date to the
extent that any failure to timely file or pay such Taxes shall not have a
Material Adverse Effect.
3.2 Compliance with Terms and Conditions of this Agreement. The Company
shall have performed and complied with all of the agreements and conditions set
forth herein that are required to be performed or complied with by the Company
on or before the Closing Date.
3.3 Delivery of Certificates Evidencing the Securities. The Company
shall contemporaneously deliver to each Purchaser the certificates evidencing
the Securities as set forth in Section 2.3.
3.4 Closing Certificates. The Company shall have delivered to each
Purchaser a certificate executed by an authorized officer of the Company
certifying that the representations and warranties of the Company contained in
the Agreement are true and correct on and as of the Closing Date, and that the
conditions set forth in this Section 3 to be satisfied by the Company have been
satisfied on and as of the Closing Date.
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<PAGE> 17
3.5 Secretary's Certificates. Each Purchaser shall have received a
certificate from the Company, dated as of the Closing Date and signed by the
Secretary or an Assistant Secretary of the Company, certifying that the attached
copies of the Certificate of Incorporation, By-laws of the Company, and
resolutions of the Board of Directors of the Company approving the Transaction
Agreements and the transactions contemplated thereby, are all true, complete and
correct and remain unamended and in full force and effect.
3.6 Documents . Each Purchaser shall have received true, complete and
correct copies of such documents and such other information as it may have
reasonably requested in connection with or relating to the sale of the
Securities and the transactions contemplated by the Transaction Agreements, all
in form and substance reasonably satisfactory to the Purchasers prior to the
Closing.
3.7 Purchase Permitted by Applicable Laws. The acquisition of and
payment for the Securities to be acquired by the Purchasers hereunder and the
consummation of the transactions contemplated by the Transaction Agreements
shall not (a) violate any Requirements of Law, (b) result in a material breach
or default (i) under any of the Contractual Obligations of the Company or (ii)
under any order, writ, judgment, injunction, decree, determination or award of
any court, arbitrator, or commission, board, bureau, agency or other
governmental instrumentality, or (c) result in, or require, the creation or
imposition of any Lien upon or with respect to any of the property of the
Company.
3.8 Opinion of Counsel. Each Purchaser shall have received an opinion of
Squire, Sanders & Dempsey, counsel to the Company, dated as of the Closing Date
in a form mutually agreed upon by Squire, Sanders & Dempsey and Latham &
Watkins, counsel to the Purchasers.
3.9 Approval of Counsel to Purchasers. All actions and proceedings
required to be performed on or prior to the Closing Date hereunder and all
documents required to be delivered by the Company on or prior to the Closing
Date as required by this Agreement, shall have been acceptable to Latham &
Watkins, counsel to the Purchasers, in their reasonable judgment as to their
form and substance.
3.10 Consents and Approvals. All consents, exemptions, authorizations,
or other actions by, or notices to, or filings with, Governmental Authorities
and other Persons in respect of all Requirements of Law (except with respect to
any post-Closing filing requirements required by (i) the Arizona State
Department of Liquor License and Control, (ii) the California State Department
of Liquor License and Control, (iii) the Nevada State Department of Liquor
License and Control, or (iv) any federal or state securities agencies) and with
respect to those material Contractual Obligations of the Company, necessary or
required in connection with the execution, delivery or performance of the
Transaction Agreements (including, without limitation, the issuance of the
Securities, based solely on the Requirements of the Law and facts and
circumstances in effect as of the Closing Date, and issuance of the Common Stock
upon conversion or exercise of the Securities) by the Company, and shall have
been obtained and be in full force and effect, and the Purchasers shall have
been furnished with appropriate evidence
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<PAGE> 18
thereof, and all waiting periods shall have lapsed without extension or the
imposition of any conditions or restrictions.
3.11 Certain Waivers. Each holder of the shares of the capital stock of
the Company (or any other party who may possess such rights) shall have waived
any and all preemptive rights, rights of first refusal, "tag along" rights,
rights of co-sale and any similar rights with respect to the issuance of the
Preferred Shares contemplated hereby.
3.12 No Material Adverse Change. Since the Balance Sheet Date, there
shall have been no Material Adverse Effect.
3.13 Certificate and By-laws. The Company shall have adopted and filed
the Certificate of Incorporation in the form of Exhibit I hereto (with such
changes as agreed to by the Purchasers) and adopted the By-laws of the Company
in the form of Exhibit J hereto.
3.14 No Material Judgment or Order. There shall not be on the Closing
Date any judgment or order of a court of competent jurisdiction or any ruling of
any Governmental Authority affecting the Company or any Company Affiliate or any
condition imposed under any Requirement of Law affecting the Company or any
Company Affiliate which, in the reasonable judgment of the Purchasers, would (i)
prohibit the purchase of the Securities or the consummation of the other
transactions contemplated hereunder, (ii) subject the Purchasers to any penalty
if the Securities were to be purchased hereunder, (iii) question the validity or
legality of the transactions contemplated hereby, or (iv) be reasonably expected
to materially adversely affect the value of the capital stock of the Company,
the Securities or have a Material Adverse Effect.
3.15 Financial Statements. The Company shall have delivered to the
Purchasers a copy of the combined audited balance sheets of the Company
Affiliates as of December 31, 1995, which financial statements shall fairly
present in all material respects the financial position and the results of
operations and cash flows of each Company Affiliate for such period in
conformity with GAAP.
3.16 Pro Forma Balance Sheet. The Company shall have delivered to the
Purchasers on or before the Closing Date pro forma balance sheet dated as of the
Balance Sheet Date (the "Pro Forma Balance Sheet"), setting forth the assets and
liabilities of the Company after giving effect to the transactions referred to
in the Transaction Agreements (including the payment of all fees and expenses
estimated to be paid or incurred in connection therewith), certified on behalf
of the Company by Paul Fleming, acting as an officer of the Company, as fairly
presenting the assets and liabilities of the Company and each Company Affiliate
as of the Balance Sheet Date, based on the assumptions set forth therein.
3.17 Budget. The Company previously has delivered to the Purchasers a
copy of the budget (the "Budget") for the Company's fiscal year ending December
31, 1996. As of the date hereof, the Budget represents the Company's
management's good faith estimate of the future financial and operating
performance of the Company (for the period set forth therein), based upon the
best currently available information. As of the Closing Date, no event shall
have
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<PAGE> 19
occurred that would result in a material adverse change in the Budget or the
assumptions underlying the Budget.
3.18 Contribution Agreement. The Company and Fleming shall
contemporaneously enter into and consummate the Contribution Agreement
substantially in the form attached hereto as Exhibit A.
3.19 Employment Agreement. The Company and Fleming shall
contemporaneously duly execute and deliver to the Purchasers an Employment
Agreement substantially in the form attached hereto as Exhibit K.
3.20 Guaranty Agreement. Fleming shall have entered into the Guaranty
Agreement substantially in the form attached hereto as Exhibit D.
3.21 Registration Rights Agreement. The Company shall contemporaneously
duly execute and deliver to each Purchaser the Registration Rights Agreement
substantially in the form attached hereto as Exhibit E.
3.22 Shareholders' Agreement. The Company, Fleming and the Purchasers
shall contemporaneously enter into a Shareholders' Agreement substantially in
the form attached hereto as Exhibit F.
3.23 Transition Services Agreement. The Company shall have entered into
the Transition Services Agreement substantially in the form attached hereto as
Exhibit G.
3.24 Corporate Restructuring. The Corporate Restructuring shall have
been completed in form and substance reasonably satisfactory to the Purchasers.
ARTICLE 4
CONDITIONS TO THE OBLIGATION OF THE
COMPANY TO CLOSE
The obligation of the Company to issue and sell the Securities and the
other obligations of the Company hereunder, shall be subject to the satisfaction
as determined by, or waiver by, the Company of the following conditions on or
before the Closing Date:
4.1 Representations and Warranties. The representations and warranties
of the Purchasers contained in Section 6 hereof shall be true and correct at and
as of the Closing Date (both before and after giving effect to the transactions
contemplated under this Agreement) as if made at and as of such date.
4.2 Compliance with Terms and Conditions of this Agreement. The
Purchasers shall have performed and complied with all of the agreements and
conditions set forth
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<PAGE> 20
herein that are required to be performed or complied with by the Purchasers on
or before the Closing Date.
4.3 Certificates. The Company shall have received (i) for each Purchaser
that is a corporation, a certificate from such corporation, dated as of the
Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying that the attached resolutions of the Board of Directors of
such corporation approving the Transaction Agreements and the transactions
contemplated thereby, are true, complete and correct and remain unchanged and in
full force and effect; and (ii) for each Purchaser that is not a corporation, a
certificate executed by such Person as the Company shall reasonably deem
appropriate under the circumstances, certifying that all approvals required
according to such Purchaser's organizational documents have been duly obtained,
and remain unchanged and in full force and effect.
4.4 Documents. The Company shall have received true, complete and
correct copies of such documents and such other information as it may have
reasonably requested in connection with or related to the purchase of the
Securities by each Purchaser and the transactions contemplated by the
Transaction Agreement, all in form and substance reasonably satisfactory to the
Company prior to the Closing, including without limitation the Registration
Rights Agreement and the Shareholders Agreement executed by the Purchasers,
unless the execution of such documents by the Company has been waived by the
Purchasers as a condition to their obligation to purchase the Securities.
4.5 Closing Certificate. Each Purchaser shall have delivered to the
Company a certificate executed by such Purchaser certifying that the
representations and warranties of such Purchaser contained in this Agreement are
true and correct on and as of the Closing Date, and that the conditions set
forth in this Section 4 to be satisfied by such Purchaser have been satisfied on
and as of the Closing Date.
4.6 Issuance Permitted by Applicable Laws. The issuance of the
Securities by the Company hereunder, acquisition of the Securities by the
Purchaser hereunder and the consummation of the transactions contemplated by the
Transaction Agreements shall not (a) violate any Requirements of Law, or (b)
result in a breach or default (i) under any of the Contractual Obligations of
the Purchasers, or (ii) under any order, writ, judgment, injunction, decree,
determination or award of any court, arbitrator, or commission, board, bureau,
agency or other governmental instrumentality, or (c) require any consents,
approvals, exemptions, authorizations, registrations, declarations or filings by
the Purchasers.
4.7 Payment of Purchase Price. The Purchasers shall tender to the
Company the Purchase Price in the manner set forth in Section 2.2 in the
respective amounts specified on Schedule 1 hereto.
4.8 Approval of Counsel to Company. All actions and proceedings required
to be performed on or prior to the Closing Date hereunder and all documents
required to be delivered by the Purchasers on or prior to the Closing Date as
required by this Agreement, shall have been acceptable to Squire, Sanders &
Dempsey, counsel to the Company, in their reasonable judgment as to their form
and substance.
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4.9 Consents and Approvals. All consents, exemptions, authorizations, or
other actions by, or notices to, or filings with. Governmental Authorities and
other Persons in respect of all Requirements of Law and with respect to those
material Contractual Obligations of the Purchasers; necessary or required in
connection with the execution, delivery or performance of the Transaction
Agreements by each Purchaser, shall have been obtained and be in full force and
effect, and the Company shall have been furnished with appropriate evidence
thereof as requested by the Company and all waiting periods shall have lapsed
without extension or imposition of any conditions or restrictions.
4. 10 No Material Judgment or Order. There shall not be on the Closing
Date any judgment or order of a court of competent jurisdiction or any ruling of
any Governmental Authority or any condition imposed under any Requirements of
Law which, in the reasonable judgment of the Company would (i) prohibit the sale
of the Securities or the consummation of the other transactions contemplated
hereunder, (ii) subject the Company to any penalty if the Securities were to be
sold hereunder, or (iii) question the validity or legality of the transactions
contemplated hereby.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers as of the
date hereof as follows:
5.1 Corporate Existence and Authority. The Company (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (b) has all requisite corporate power and authority to own
and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be
engaged, (c) is duly qualified as a foreign corporation, licensed and in good
standing in each jurisdiction where the failure to do so would have a Material
Adverse Effect, and (d) has the corporate power and authority to execute,
deliver and perform its obligations under each Transaction Agreement to which it
is or will be a party.
5.2 Corporate Authorization, No Contravention. The execution, delivery
and performance by the Company of each of the Transaction Agreements and the
consummation of the transactions contemplated thereby, including without
limitation, the issuance of the Securities (a) has been duly authorized by all
necessary corporate action, including, if required, stockholder action, (b) does
not and will not conflict with or contravene the terms of the Certificate or the
By-Laws of the Company, or any amendment thereof; and (c) does not and will not
violate, conflict with or result in any material breach or contravention of (i)
any Contractual Obligation of the Company or any of its Subsidiaries, or (ii)
any Requirements of Law applicable to the Company or any of its Subsidiaries.
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5.3 Governmental Authorization, Third Party Consents. Except as set
forth on Schedule 5.3, no approval, consent, compliance, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any applicable
Requirements of Law, and no lapse of a waiting period under any applicable
Requirements of Law, is necessary or required in connection with the execution,
delivery or performance (including, without limitation, the issuance of the
Securities, the issuance of the Common Stock upon the conversion or exercise of
the Securities and execution, delivery and performance of the Contribution
Agreement by the Company and Fleming) by the Company or the enforcement against
the Company of the Transaction Agreements, or the transactions contemplated
thereby.
5.4 Binding Effect. The Transaction Agreements have been duly executed
and delivered by the Company and constitute the legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as enforceability may be limited by applicable bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity relating to enforceability.
5.5 Other Agreements. Neither the Company, the Company Affiliates nor
Fleming have previously entered into any agreements which are currently in
effect or to which the Company, the Company Affiliates and Fleming is currently
bound, granting any registration or other material rights to any Person, the
provision or performance of which would render the provision or performance
(including, without limitation, the issuance of the Securities and the issuance
of the Common Stock upon the conversion or exercise of the Securities and the
issuance of Common Stock upon the conversion or exercise of the Securities) of
the material rights to be granted to the Purchasers by the Company in the
Transaction Agreements impracticable.
5.6 Capitalization.
(a) As of the date hereof, the capital stock of the Company
consists solely of (i) 8,000,000 authorized shares of Common Stock (of which 100
are issued and outstanding and (ii) 2,000,000 authorized shares of Preferred
Stock. Immediately following the Closing (i) 500,000 shares of Common Stock will
be issued and outstanding; (ii) 933,541 shares of Common Stock will be reserved
for issuance upon (a) the exercise of options and warrants to purchase such
shares, (b) the conversion of Preferred Stock and (c) the conversion of
Preferred Stock issued upon the exercise of the Warrants and certain warrants
issued to Montgomery Securities; (iii) 497,500 shares of Preferred Stock will be
issued and outstanding; (iv) 124,375 shares of Preferred Stock will be reserved
for issuance upon exercise of the Warrants; (v) 12,438 shares of Preferred Stock
will be reserved for issuance upon exercise of certain warrants issued to
Montgomery Securities; (vi) 170,621 shares of Preferred Stock will be reserved
for issuance as "payment-in-kind" dividends of Preferred Stock. A total of
1,250,483 fully diluted shares of Common Stock will be outstanding immediately
following the Closing, assuming the conversion of all outstanding shares of
Preferred Stock and the exercise of all outstanding options and warrants. All
outstanding shares of capital stock of the Company are, and the shares of
Preferred Stock (when issued, sold and delivered against payment therefor) and
the shares of Preferred Stock issuable pursuant to the Warrant (when issued and
delivered against any applicable payment therefore) and as "payment-in-kind"
shares in respect
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of Preferred Stock will be, duly authorized and validly issued, fully paid,
nonassessable and free and clear of any Liens, preferential rights, priorities,
claims, options, charges or other encumbrances or restrictions, other than those
created by the Certificate and the Shareholders' Agreement.
(b) Schedule 5.6 sets forth the name of each holder of the issued
and outstanding capital stock of the Company, the number of shares of such
capital stock held of record by each such holder, the name of each Person
holding any options, warrants or other rights to purchase any capital stock of
the Company, the number, class and series of shares of capital stock subject to
each such option, warrant or right and the exercise price of each such option,
warrant or right. Except as set forth on Schedule 5.6, and except for the stock
options, warrants and rights referred to in Section 5.6(a) and the Preferred
Stock, there are no outstanding securities convertible into or exchangeable for
capital stock of the Company or options, warrants or other rights to purchase or
subscribe to capital stock of the Company or contracts, commitments, agreements,
understandings or arrangements of any kind to which the Company or any such
holder of capital stock is a party relating to the issuance of any capital stock
of the Company, any such convertible or exchangeable securities or any such
options, warrants or rights.
(c) Except as set forth on Schedule 5.6 and in the Transaction
Agreements, no Person has any preemptive rights, rights of first refusal, "tag
along" rights, rights of co-sale or any similar rights with respect to the
issuance of the Preferred Shares contemplated hereby. Schedule 5.6 identifies
all Persons holding any such rights and describes the material terms of all such
rights and as of the Closing Date.
5.7 Company Affiliates. Schedule 5.7 sets forth a complete and accurate
list of all of the Company Affiliates and all entities that own or operate a P.
F. Chang's China Bistro together with their respective jurisdictions of
incorporation or organization. Each Company Affiliate that is a corporation or a
limited liability company is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the
corporate or requisite power and authority to own its properties and conduct its
business. Each Company Affiliate that is a partnership is an existing
partnership under the laws of the jurisdiction of its formation and has full
partnership power and authority to own its properties and conduct its business.
Each Company Affiliate is qualified and licensed to transact business in each
jurisdiction where the failure to do so would have a Material Adverse Effect.
All of the outstanding shares of capital stock of the Company Affiliates that
are corporations have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth on Schedule 5.7, all of the outstanding
shares of capital stock of, or other ownership interests in, each of the Company
Affiliates are owned by the Company free and clear of any Liens, claims,
options, charges or other encumbrances, except as expressly provided in the
organizational documents of the Company Affiliates. Except as set forth on
Schedule 5.7, no Company Affiliate has outstanding options, warrants,
subscriptions, calls, rights, convertible securities or other agreements or
commitments obligating the Company Affiliate to issue, transfer or sell any
securities of the Company Affiliate.
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5.8 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Preferred Shares. No registration of the Preferred
Shares pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws will be required by the offer, sale or issuance of the
Securities pursuant to this Agreement.
5.9 Litigation. There is no complaint, action, order, writ, injunction,
judgment or decree outstanding, or claim, suit, litigation, proceeding, labor
dispute, arbitral action or investigation (collectively, "Actions") pending or,
to the knowledge of the Company, threatened against, relating to or affecting
(i) the assets of the Company or the Company Affiliates or (ii) the transactions
required to be performed under this Agreement or by the Transaction Agreements.
Neither the Company nor any of the Company Affiliates is in default with respect
to any judgment, order, writ, injunction or decree of any court or governmental
agency, and there are no unsatisfied judgments against the Company or any
Company Affiliate. There is not a reasonable likelihood of an adverse
determination of any pending Action that would, individually or in the
aggregate, have a Material Adverse Effect.
5.10 Financial Statements
(a) The Company has furnished the Purchasers with the unaudited
balance sheets of each Company Affiliate as of the Balance Sheet Date and the
related separate statements of operations and cash flows of each Company
Affiliate for the eleven (11) month period ending on the Balance Sheet Date,
certified on behalf of the Company by the Chief Financial Officer of the Company
or, if there is no such Chief Financial Officer, another responsible officer of
the Company (the "Unaudited Financial Statements"). The Unaudited Financial
Statements were properly prepared on a tax basis and present in all material
respects the separate financial position of each Company Affiliate as of the
dates thereof and the results of operations and cash flows of each Company
Affiliate for the periods set forth therein.
(b) The Pro Forma Balance Sheets delivered to the Purchasers set
forth the assets and liabilities of the Company and each Company Affiliate on a
pro forma consolidated basis after giving effect to the consummation of this
Agreement and the transactions contemplated hereby. The Pro Forma Balance Sheets
were properly prepared on a tax basis and present the assets and liabilities of
the Company and each Company Affiliate as of the Balance Sheet Date based on the
assumptions set forth therein.
5.11 Title and Condition of Assets.
(a) The Company and each Company Affiliate has good title to all
of the personal property reflected on the balance sheets included in the
Unaudited Financial Statements or acquired by the Company or any of the Company
Affiliates since the Balance Sheet Date, and all real and personal property
reflected on such balance sheets or acquired by the Company or the Company
Affiliates since the Balance Sheet Date is free and clear of any Liens or
defects of title, other than Permitted Liens. All real property which is leased
by the Company and the Existing Subsidiaries is listed on Schedule 5.11(a)
hereto. The Company and each Company Affiliate has a valid and enforceable
leasehold interest in all real property leased
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<PAGE> 25
by it pursuant to the terms of the respective lease agreements (assuming that
each respective landlord has good and marketable title to all real property that
is subject to such leases and except as enforceability may be limited by
applicable bankruptcy laws or rights of creditors generally.)
(b) The Facilities and Equipment are in good operating condition
and repair (except for ordinary wear and tear and any defect the cost of
repairing which would not be material), are sufficient for the operation of the
business of the Company and each Company Affiliate and are in conformity in all
material respects with applicable laws, ordinances, orders, regulations and
other requirements (including applicable zoning, environmental, motor vehicle
safety standards, occupational safety and health laws and regulations) relating
thereto, except where such failure to conform would not have a Material Adverse
Effect. The Company and each Company Affiliate enjoy peaceful and undisturbed
possession of all Facilities owned or leased by the Company or such Company
Affiliate, and, to the best knowledge of the Company, such Facilities are not
subject to any encroachments, building or use restrictions, exceptions,
reservations or limitations which in any material respect interfere with or
impair the present and continued use thereof in the usual and normal conduct of
the business of the Company or each Company Affiliate. There are no pending or,
to the best knowledge of the Company, threatened, condemnation proceedings
relating to any of the Facilities. The Facilities and the Equipment are insured
and are, to the best of the Company's knowledge, structurally sound with no
material defects.
(c) All assets are valued on the books of the Company or the
Company Affiliate at or below actual cost less appropriate depreciation charges.
Neither the Company nor any Company Affiliate has depreciated any of the Assets
for tax purposes in any manner inconsistent with the Code or the rules,
regulations, or guidelines of the Internal Revenue Service.
5.12 Contractual Obligations.
(a) Neither the Company nor any of the Company Affiliates is in
default or breach under or with respect to any Contractual Obligation to which
it is a party (and to the best knowledge of the Company and such Company
Affiliates no other party to any such Contractual Obligation is in default or
breach thereunder), except any such default which, individually or together with
all such defaults, would not have a Material Adverse Effect.
(b) Schedule 5.12 lists all of the contracts, leases,
agreements, indentures and undertakings governing or relating to the Contractual
Obligations of the Company and the Company Affiliates other than (i) the
Transaction Agreements, (ii) purchase orders entered into in the ordinary course
of business, and (iii) any such contracts, leases, agreements, indentures or
undertaking that (x) do not involve the receipt or payment of more than $20,000
each, (y) do not involve employment or labor matters and (z) do not contain
covenants materially restricting the Company or any Company Affiliate from
engaging in any line of business. To the best knowledge of the Company, the
Company has provided the Purchaser with true, correct and complete copies of all
written contracts, leases, agreements, indentures and undertakings listed on
Schedule 5.12.
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5.13 Patents, Trademarks, Etc. As of the Closing, the Company owns or is
licensed or otherwise has the right to use all patents, trademarks, service
marks, trade names, copyrights, licenses, franchises and other intellectual
property rights that are material to the operation of the businesses of the
Company (the "Intellectual Property"), and all pending applications related to
such Intellectual Property, registered rights in such Intellectual Property and
executed agreements related to such Intellectual Property are listed on Schedule
5.13 hereto. To the best knowledge of the Company, no product, process, method,
substance or other material presently sold by or employed by the Company, or
which the Company contemplates selling or employing, infringes upon the patents,
trademarks, service marks, trade names, copyrights, licenses or other
intellectual property rights that are owned by others. No litigation is pending
and no claim has been made against the Company or any Company Affiliate or, to
the best knowledge of the Company, is threatened, contesting the right of the
Company or any Company Affiliate to sell or use any product, process, method,
substance or other material presently sold by or employed by the Company or any
Company Affiliate. To the best knowledge of the Company, no patent, invention,
devise, principal or any statute, law, rule, regulation, standard or code is
pending or proposed, which would have a material adverse effect on the Condition
of the Company.
5.14 Tax Matters.
(a) Filing of Tax Returns. Each of the Company and the Company
Affiliates (each such entity hereinafter a "Taxpayer" or collectively the
"Taxpayers") have timely filed with the appropriate taxing authorities all
returns (including without limitation information returns and other material
information) in respect of Taxes required to be filed through the date hereof
and will timely file any such returns required to be filed on or prior to the
Closing Date. The returns and other information filed (or to be filed) are
complete and accurate in all material respects. No Taxpayer has requested any
extension of time within which to file returns (including without limitation
information returns) in respect of any Taxes that have not been filed.
(b) Payment of Taxes. All Taxes of each of the Taxpayers in respect of
periods beginning before the Closing Date have been timely paid, or will be
timely paid prior to the Closing Date, to the extent due and payable prior to
the Closing Date, and no Taxpayer has any material liability for Taxes in excess
of the amounts so paid. All Taxes that each Taxpayer has been required to
collect or withhold have been duly collected or withheld and, to the extent
required when due, have been or will be (prior to the Closing Date) duly paid to
the proper taxing authority.
(c) Audits, Investigations or Claims. The federal income tax returns of
each of the Taxpayers have not been examined by the Internal Revenue Service,
and no material deficiencies for Taxes of any of the Taxpayers have been
claimed, proposed or assessed by any taxing or other governmental authority
against any of the Taxpayers. There are no pending or, to the best knowledge of
the Taxpayers, threatened audits, investigations or claims for or relating to
any material additional liability to any of them in respect of Taxes, and there
are no matters under discussion with any governmental authorities with respect
to Taxes that in the reasonable judgment of any of the Taxpayers, or its or
their counsel, is likely to result in a material
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<PAGE> 27
additional liability to any of them for Taxes. No audits of any of the
Taxpayers' federal, state, and local returns for Taxes by the relevant taxing
authorities have occurred. None of the Taxpayers have been notified that any
taxing authority intends to audit a return for any period. No extension of a
statute of limitations relating to Taxes is in effect with respect to any of the
Taxpayers.
(d) Lien. There are no liens for Taxes (other than for current Taxes
not yet due and payable) on any assets of any Taxpayer.
(e) Partnership Status. Each of the Company Affiliates which purports to
be a limited liability company or a partnership is properly treated as a
partnership for federal income tax purposes and not as an association or
publicly traded partnership taxable as a corporation, and has been properly so
treated since the time of its organization.
(f) Tax Elections; Tax Sharing Arrangements
(i) All material elections with respect to Taxes affecting each
of the Taxpayers as of the date hereof are set forth on Schedule 5.14.
(ii) None of the Taxpayers have made an election, and none of
them are required, to treat any asset as owned by another person or as
tax-exempt bond financed property or tax-exempt use property within the meaning
of section 168 of the Code or under any comparable state or local income tax or
other tax provision.
(iii) None of the Taxpayers are a party to or bound by any
binding tax sharing, tax indemnity or tax allocation agreement or other similar
arrangement with any other party.
(iv) None of the Taxpayers have filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state or local law) or agreed to have Section
341(f)(2) of the Code (or any corresponding provision of state or local law)
apply to any disposition of any asset owned by it.
(g) Affiliated Group. None of the Taxpayers have ever been a member of
an affiliated group of corporations, within the meaning of Section 1504 of the
Code.
(h) Section 481(a). None of the Taxpayers have agreed to make, or are
required to make, any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise.
(i) Excess Parachute Payments. None of the Taxpayers are a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
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(j) No Joint Venture. Except as set forth on Schedule 5.14, none of the
Taxpayers is a party to any joint venture, partnership, or other arrangement or
contract which could be treated as a partnership for federal income tax
purposes.
5.15 Severance Arrangements. Except pursuant to the Employment
Agreement, neither the Company nor any Company Affiliate has not entered into
any severance or similar arrangement in respect of any present or former
employee that will result in any obligation (absolute or contingent) of the
Purchasers, the Company to make any payment to any present or former employee
following termination of employment.
5.16 No Material Adverse Change. To the best knowledge of the Company,
since the Balance Sheet Date, there has not been any Material Adverse Effect,
nor to the best knowledge of the Company is any such Material Adverse Effect
threatened.
5.17 Environmental Matters.
(a) Except as set forth on Schedule 5.17, the property, assets
and operations of the Company and each Company Affiliate are and have been in
compliance in all material respects with all applicable Environmental Laws;
there are no Hazardous Materials stored or otherwise located in, on or under any
of the property or assets of the Company and each Company Affiliate, including
the groundwater; and, to the best knowledge of the Company, there have been no
releases or threatened releases of Hazardous Materials in, on or under any
property adjoining any of the property or assets of the Company and each Company
Affiliate. Neither the Company nor any Company Affiliate has stored or caused to
be stored any Hazardous Materials on or under any of the property or assets of
the Company, including the groundwater, other than in compliance with
Environmental Laws; and the Company has not generated, released or discharged
any Hazardous Materials other than in compliance with Environmental Laws.
(b) None of the property, assets or operations of the Company or
any Company Affiliate is the subject of any federal, state or local
investigation evaluating whether (i) any remedial action is needed to respond to
a release or threatened release of any Hazardous Materials into the environment
or (ii) any release or threatened release of any Hazardous Materials into the
environment is in contravention of any Environmental Law.
(c) There are no pending, or, to the best knowledge of the
Company, threatened lawsuits or proceedings against the Company or any Company
Affiliate, with respect to violations of an Environmental Law or in connection
with the presence of or exposure to any Hazardous Materials in the environment
or any release or threatened release of any Hazardous Materials into the
environment, and neither the Company nor any Company Affiliate is or was the
owner or operator of any property which (i) pursuant to any Environmental Law
has been placed on any list of Hazardous Materials disposal sites, including
without limitation, the "National Priorities List" or "CERCLIS List," (ii) has
or, to the best knowledge of the Company, had any subsurface storage tanks
located thereon; or (iii) to the knowledge of the Company, has ever been used as
or for a waste disposal facility, a mine, a gasoline service station or a
petroleum products storage facility.
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(d) Neither the Company nor any Company Affiliate has any
present or contingent liability in connection which the presence either on or
off the property or assets of the Company or any Company Affiliate of any
Hazardous Materials in the environment or any release or threatened release of
any Hazardous Materials into the environment, except for any such liability that
would not have a material adverse effect on the Condition of the Company.
5.18 Investment Company/Government Regulations. Immediately following
the Closing, after giving effect to the transactions contemplated by the
Transaction Agreements, neither the Company nor any Person controlling,
controlled by or under common control with the Company will be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
The Company is not subject to regulation under the Public Utility Holding
Company Act of 1935, as amended, the Federal Power Act, or any federal or state
statute or regulation limiting its ability to incur Indebtedness.
5.19 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Company or any officer, director, shareholder, or
Affiliate of the Company, or any action taken by any such person except for (i)
such fees payable to Montgomery Securities in an amount not to exceed $485,000
and (ii) certain warrants to purchase 12,438 shares of Preferred Stock at an
exercise price of $20.00 per share to be issued to Montgomery Securities.
5.20 Labor Relations and Employee Matters.
(a) Neither the Company nor any Company Affiliate is engaged in
any unfair labor practice. There is (i) no unfair labor practice complaint
pending or, to the best knowledge of the Company, threatened against the Company
or any Company Affiliate before the National Labor Relations Board, and no
grievance or arbitration proceeding arising out of or under collective
bargaining agreements is so pending or, to the best knowledge of the Company,
threatened against the Company or any Company Affiliate (ii) no strike, labor
dispute, slowdown or stoppage pending or, to the best knowledge of the Company,
threatened against the Company or any Company Affiliate and (iii) no union
representation question existing with respect to the employees of the Company or
any Company Affiliate and, to the knowledge of the Company, no union organizing
activities are taking place.
(b) Except as set forth on Schedule 5.12, the Company is not a
party to any employment agreement (other than "at will" employment
relationships), collective bargaining agreement or covenant not to compete.
5.21 Employee Benefits Matters.
Schedule 5.21 contains a complete list of Employee Plans
which cover or have covered employees of the Company or a Company Affiliate
(with respect to their relationship with such entities). True and complete
copies of each of the following documents have been delivered by the Company to
the Purchaser: (i) each Welfare Plan (and, if applicable,
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<PAGE> 30
related trust agreements) which covers or has covered employees of the Company
or a Company Affiliate (with respect to their relationship with such entities)
and all amendments thereto, all written interpretations thereof and written
descriptions thereof which have been distributed to the Company's employees and
all funding instruments, (ii) each Benefit Arrangement (other than "at will"
benefits arrangements) which cover or have covered employees of the Company or a
Company Affiliate (with respect to their relationship with such entities)
including written interpretations thereof and written descriptions thereof which
have been distributed to the Company's employees (including descriptions of the
number and level of employees covered thereby) and a complete description of any
such Benefit Arrangement which is not in writing, (iii) the most recent
determination or opinion letter, if any, issued by the Internal Revenue Service,
with respect to each Welfare Plan (other than a "multiemployer plan," as defined
in Section 3(37) of ERISA) which covers or has covered employees of the Company
or a Company Affiliate (with respect to their relationship with such entities),
and (iv) a description setting forth the amount of any liability of the Company
as of the Closing Date for payments more than thirty days past due with respect
to each Welfare Plan which covers or has covered employees or former employees
of the Company or a Company Affiliate.
Except as set forth in Schedule 5.21, the Company
represents as follows:
(1) Pension Plans and Multiemployer Plans Neither the
Company nor any ERISA Affiliate sponsors, maintains, contributes to, is required
to contribute to or otherwise has a liability or potential liability with
respect to, or has at any time sponsored, maintained, contributed to, or been
required to contribute to, a Pension Plan or a Multiemployer Plan.
(2) Welfare Plans
(i) Each Welfare Plan which covers or has
covered employees or former employees of the Company or a Company Affiliate
(with respect to their relationship with such entities) has been maintained in
material compliance with its terms and, both as to form and operation, with the
requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Welfare Plan, including but not limited to ERISA
and the Code.
(ii) None of the Company, any ERISA Affiliate or
any Welfare Plan has any present or future obligation to make any payment to or
with respect to any present or former employee of the Company or any ERISA
Affiliate pursuant to any retiree medical benefit plan, or other retiree Welfare
Plan, and no condition exists which would prevent the Company from amending or
terminating any such benefit plan or Welfare Plan.
(iii) Each Welfare Plan which covers or has
covered employees or former employees of the Company or a Company Affiliate and
which is a "group health plan," as defined in Section 607(1) of ERISA, has been
operated in material compliance with the provisions of Part 6 of Title 1,
Subtitle B of ERISA and Sections 162K and 4980B of the Code at all times.
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(3) Benefit Arrangements. Each Benefit Arrangement which covers
or has covered employees or former employees of the Company or a Company
Affiliate (with respect to their relationship with such entities) has been
maintained in compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Benefit Arrangement, including but not limited to the Code.
(4) Unrelated Business Taxable Income. No Employee Plan (or trust
or other funding vehicle pursuant thereto) is subject to any tax under Code
Section 511.
(5)Deductibility of Payments. There is no contract, agreement,
plan or arrangement covering any employee or former employee of the Company or a
Company Affiliate (with respect to their relationship with such entities) that,
individually or collectively, provides for the payment by the Company of any
amount (i) that is not deductible under Section 162(a)(1) or 404 of the Code or
(ii) for which the deduction by Company would be disallowed under Section 162(m)
of the Code.
(6) Fiduciary Duties and Prohibited Transactions. Neither the
Company nor any plan fiduciary of any Welfare Plan which covers or has covered
employees or former employees of the Company or any ERISA Affiliate, has engaged
in any transaction in violation of Sections 404 or 406 of ERISA or any
"prohibited transaction," as defined in Section 4975(c)(1) of the Code, for
which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or
(d) of the Code.
(7) Validity and Enforceability. Each Welfare Plan, related trust
agreement or other funding instrument and Benefit Arrangement which covers or
has covered employees or former employees of the Company or a Company Affiliate
(with respect to their relationship with such entities) is legally valid and
binding and in full force and effect.
(8) Litigation. There is no action, order, writ, injunction,
judgment or decree outstanding or claim, suit, proceeding, arbitral action,
governmental audit or investigation relating to or seeking benefits under any
Employee Plan that is pending, or, to the best knowledge of the Company,
threatened against the Company, any ERISA Affiliate or any Employee Plan other
than a domestic relations order or a qualified domestic relations order.
(9) No Amendments. Except for the Employment Agreement, neither
the Company nor any ERISA Affiliate has any announced plan or legally binding
commitment to create any additional Employee Plans which are intended to cover
employees or former employees of the Company or a Company Affiliate (with
respect to their relationship with such entities) or to amend or modify any
existing Employee Plan which covers or has covered employees or former employees
of the Company or a Company Affiliate (with respect to their relationship with
such entities).
(10) No Other Material Liability. No event has occurred in
connection with which the Company or any ERISA Affiliate or any Employee Plan,
directly or indirectly, could be subject to any material liability (i) under any
statute, regulation or governmental order relating to any Employee Plans or (ii)
pursuant to any obligation of the Company or any
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<PAGE> 32
Company Affiliate to indemnify any person against liability incurred under, any
such statute, regulation or order as they relate to the Employee Plans.
(11) No Acceleration or Creation of Rights. Neither the execution
and delivery of this Agreement or other related agreements by the Company nor
the consummation of the transactions contemplated hereby or the related
transactions will result in the acceleration or creation of any rights of any
person to benefits under any Employee Plan.
5.22 Potential Conflicts of Interest. Except as set forth on
Schedule 5.22, no officer, director, or stockholder of ten percent (10%) or
more of the aggregate number of shares of Common Stock then outstanding on a
fully diluted basis of the Company or any Company Affiliate, no spouse of any
such officer, director or stockholder and no Affiliate of the foregoing: (a)
owns, directly or indirectly, any interest in, or is an officer, director,
employee or consultant of, any Person which is, or is engaged in business as, a
competitor, lessor, lessee, supplier, distributor, sales agent or customer of,
or lender to or borrower from, the Company or any Company Affiliate (b) owns,
directly or indirectly, in whole or in part, any tangible or intangible property
that the Company or any Company Affiliate uses in the conduct of business; or
(c) has any cause of action or other claim whatsoever against, or owes any
amount to, the Company or any Company Affiliate, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements existing on the
date hereof and described in Schedule 5.22.
5.23 Outstanding Borrowings. Schedule 5.23 lists the amount of
all Outstanding Borrowings as of the date hereof and the name of each lender
thereof.
5.24 Insurance Schedule. Schedule 5.24 accurately summarizes all
of the insurance policies or programs of the Company or any Company Affiliate in
effect as of the date hereof (true and correct copies of which have been
provided to the Purchasers), and indicates the insurer's name, policy number,
expiration date, amount of coverage, type of coverage, annual premiums and
deductibles, and also indicates any self-insurance program that is in effect.
5.25 Undisclosed Liabilities. Neither the Company nor any Company
Affiliate have any liabilities or obligations (absolute, accrued, contingent or
otherwise) to the best knowledge of the Company except (i) liabilities that are
reflected and reserved against on the balance sheets included in the Unaudited
Financial Statements (including the notes thereto), (ii) liabilities incurred in
the ordinary course of business and consistent with the past practice of the
Company since the Balance Sheet Date, and which are reflected and reserved for
in the balance sheets included in the Unaudited Financial Statements, and (iii)
liabilities arising under Contractual Obligations described on Schedule 5.12, or
not required to be described on Schedule 5.12 pursuant to clauses (i), (ii) or
(iii) thereof.
5.26 Solvency. Neither the Company nor any Company Affiliate has
(i) made a general assignment for the benefit of its creditors, (ii) filed any
voluntary petition in bankruptcy or suffered the filing of any involuntary
petition in bankruptcy by its creditors, (iii) suffered the appointment of a
receiver to take possession of all or substantially all of its assets or
properties, (iv) suffered the attachment or other judicial seizure of all or
substantially all of
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its assets or (v) admitted in writing its inability to pay its debts as they
come due. After giving effect to the transactions contemplated by the
Transaction Agreements, the Pro Forma Balance Sheets will not show that the
Company will (i) have liabilities which exceed the stated value of its assets,
or (ii) be left with unreasonably small capital with which to engage in its
respective business for the foreseeable future, or (iii) have incurred debts
beyond its ability to pay such debts as they mature.
5.27 Compliance with Law. Except as set forth on Schedule 5.27,
to the best knowledge of the Company, the Company and the Company Affiliates and
the conduct of their businesses is in compliance with all applicable laws,
statutes, ordinances and regulations, whether federal, state or local, except
where the failure to comply would not have a Material Adverse Effect. Neither
the Company nor any Company Affiliate has received any written notice to the
effect that, or to the knowledge of the Company, it is not in compliance with
any of such statutes, regulations, orders, ordinances or other laws where the
failure to comply would have a material adverse effect on the Condition of the
Company or, to the best knowledge of the Company has no reason to anticipate
that any presently existing circumstances are likely to result in violations of
any such regulations which would, in any one case or in the aggregate, have a
Material Adverse Effect.
5.28 No Other Agreements to Sell the Assets or Capital Stock of
the Company. Except as set forth on Schedule 5.28, neither the Company nor any
Company Affiliate has any legal obligation, absolute or contingent, other than
the obligations of the Company and each Company Affiliate under the Transaction
Agreements, to any person or firm to (i) sell the assets other than in the
ordinary course of business consistent with past practices, (ii) sell any
capital stock of the Company (other than as set forth in Section 5.6) or effect
any merger, consolidation or other reorganization of the Company or (iii) enter
into any agreement with respect to any of the foregoing.
5.29 Hart-Scott-Rodino. The Person (as that term is defined in 16
C.F.R. Section 801.1(a)(1)) of which the Company is a part does not have total
assets or annual net sales of $100,000,000 or more, as measured under the
applicable rules and regulations interpreting the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act").
5.30 Disclosure.
(a) Agreement and Other Documents. This Agreement does
not, and the documents and certificates executed by the Company or otherwise
furnished by the Company to the Purchasers at the Closing will not, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
(b) Material Adverse Effects. There is no fact known to
the Company, which the Company has not disclosed to the Purchasers in writing,
which materially adversely affects, or insofar as the Company can reasonably
foresee, will have a Material Adverse Effect.
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ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company as of the date hereof as follows:
6.1 Existence and Authority. Such Purchaser (a) is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, (b) has all requisite power and authority to own
its assets and operate its business, and (c) has all requisite power and
authority to execute, deliver and perform its obligations under each of the
Transaction Agreements to which it is or will be a party.
6.2 Authorization; No Contravention. The execution, delivery and
performance by such Purchaser of the Transaction Agreements to which it is a
party and the consummation of the transactions contemplated thereby, including,
without limitation, the acquisition of the Preferred Shares: (a) is within such
Purchaser's power and authority and has been duly authorized by all necessary
action on the part of such Purchaser; (b) does not conflict with or contravene
the terms of such Purchaser's organizational documents or any amendment thereof;
and (c) will not violate, conflict with or result in any material breach or
contravention of (i) any Contractual Obligation of such Purchaser, or (ii) the
Requirements of Law or any order or decree applicable to such Purchaser.
6.3 Governmental Authorization; Third Party Consent. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
Requirements of Law, and no lapse of a waiting period under any Requirements of
Law, is necessary or required in connection with the execution, delivery or
performance by such Purchaser (including, without limitation, the acquisition of
the Securities and issuance of Common Stock upon the conversion or exercise of
the Securities) or enforcement against such Purchaser of this Agreement or the
other Transaction Agreements to which it is a party, or the transactions
contemplated thereby.
6.4 Binding Effect. This Agreement has been duly executed and delivered
by such Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.5 Purchase for Own Account. The Securities and the Common Stock to be
issued upon conversion of the Securities, are being or will be acquired by such
Purchaser for its own account and with no intention of distributing or reselling
such securities or any part thereof in any transaction that would be in
violation of the securities laws of the United States of America, or any state,
without prejudice, however, to the rights of such Purchaser at all times to sell
or otherwise dispose of all or any part of the Securities or the shares of
Common Stock issuable upon conversion of the Securities under an effective
registration statement under the
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Securities Act, or under an exemption from such registration available under the
Securities Act, and subject, nevertheless, to the disposition of such
Purchaser's property being at all times within its control. Such Purchaser
agrees not to dispose of any of the Securities or the shares of Common Stock
issuable upon conversion of the Securities, unless it does so only in
compliance with the Securities Act and applicable state securities laws, as then
in effect. Such Purchaser agrees to the imprinting, so long as required by law,
of a legend on certificates representing all of the Securities or the shares of
Common Stock to be issued upon conversion of the Preferred Shares to the
following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SHAREHOLDERS' AGREEMENT DATED AS OF
FEBRUARY, 1996. A COPY OF SUCH AGREEMENT MAY BE OBTAINED FROM THE
COMPANY UPON REQUEST."
6.6 Accredited Investor Status. Such Purchaser is an "accredited
investor" as such term is defined in Rule 501(a) of Regulation D, promulgated
under the Securities Act. Each Purchaser shall provide such information with
respect to its status as an "accredited investor" that the Company shall have
reasonably requested at least ten (10) days prior to the Closing Date.
6.7 Investment Risk. Each Purchaser has the ability to bear the
economic risks of the Purchaser's prospective investment and the Purchaser is
able, without materially impairing its financial condition, to hold the
Preferred Stock for an indefinite period of time and to suffer complete loss on
its investment. Each Purchaser understands and has fully considered for purposes
of this investment the risks of this investment and understands that: (i) this
investment is suitable only for an investor who is able to bear the economic
consequences of losing his or its entire investment; (ii) the Preferred Stock
represents an extremely speculative investment which involves a high degree of
risk of loss; (iii) there are substantial restrictions on the transferability of
the Preferred Stock and, accordingly, it may not be possible for the Purchaser
to liquidate his or its investment in the Preferred Stock; and (iv) there have
been no representations as to the possible future value, if any, of the
Preferred Stock. Each Purchaser acknowledges that it has been provided the
opportunity to ask questions and receive answers from duly authorized officers
or other representatives of the Company concerning the Company. Each Purchaser
acknowledges that its acquisition of the Securities hereunder may involve tax
consequences to such Purchaser and that the Company has not provided such
Purchaser with tax advice.
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Each Purchaser understands and acknowledges that the sale of the
Preferred Stock pursuant to this Agreement will not be registered under the
Securities Act on the grounds that the offering and sale of securities
contemplated by this Agreement are exempt from registration pursuant to Section
4(2) of the Securities Act, and that the Company's reliance upon such exemption
is predicated in part upon the Purchaser's representations set forth in this
Agreement.
6.8 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Purchasers.
ARTICLE 7
COVENANTS OF THE COMPANY
From the date hereof until the Closing Date, the Company hereby
covenants and agrees with the Purchasers as follows:
7.1 Further Assurances. Upon the terms and subject to the conditions
contained herein, each of the parties hereto agrees, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, (ii) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing, including using their reasonable respective best
efforts (A) to obtain all necessary waivers, consents and approvals from other
parties that may be required; (B) to obtain all necessary permits as are
required to be obtained under any federal, state, local or foreign law or
regulations, and (C) to fulfill all conditions to this Agreement.
7.2 Notification of Certain Matters. From the date hereof through the
Closing, the Company shall give prompt notice upon obtaining knowledge thereof
to Purchaser of (a) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty
contained in this Agreement or in any exhibit or schedule hereto to be untrue or
inaccurate in any material respect and (b) any material failure of the Company
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it under this Agreement or any exhibit or schedule hereto.
7.3 Access to Information. From the date hereof through the Closing, the
Company shall, and shall cause its officers, directors, employees and agents to,
afford the Purchasers (or its representatives) access at all times to the
Company's records for the purpose of inspecting the same, and subject to prior
written request, to the officers, employees, agents, attorneys, accountants,
properties, and contracts of the Company, and shall furnish Purchasers
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all financial, operating and other data and information as the Purchasers or
their representatives, may reasonably request.
7.4 Conduct of Business. From the date hereof through the Closing (the
"Interim Period"), the Company shall, except as contemplated by this Agreement,
or as consented to by Purchaser in writing which consent will not be
unreasonably withheld, operate the Company in the ordinary course of business
and in accordance with past practice and will not take any action inconsistent
with this Agreement or with the consummation of the Closing; provided, however,
that the Company may during the Interim Period take such actions as a reasonably
necessary or appropriate in connection with the development of restaurant
facilities located in Irvine, California, Las Vegas, Nevada and the additional
locations set forth in Schedule 7.4 attached hereto so long as the Company (a)
provides advance notice to the Purchasers of any such action and (b) upon
request of any Purchaser, provides to such Purchaser and its counsel copies of
any agreements and other documents relating to such actions. The Company agrees
that neither it, nor anyone acting on its behalf, will offer or sell the
Securities or any other security in a manner that would require the issuance and
sale of the Securities to be registered or qualified pursuant to the provisions
of the Securities Act or any state securities or "blue sky" laws.
7.5 Contribution Agreement. The Company and Fleming shall consummate the
Contribution Agreement in accordance with its terms concurrently with the
transactions contemplated hereunder.
7.6 Corporate Restructuring. Fleming shall use his best efforts to cause
the Corporate Restructuring to be completed prior to the Closing Date.
ARTICLE 8
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until (a) all shares of Preferred Stock are no longer outstanding due to
conversion, redemption or otherwise, and (b) the Company has paid to the
Purchasers all other amounts due to them under the Transaction Agreements or the
Certificate, the Company hereby covenants and agrees with the Purchasers as
follows:
8.1 Reservation of Shares. The Company shall at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issue or delivery upon conversion of the Securities as provided in the
Certificate, the maximum number of shares of Common Stock that may be issuable
or deliverable upon such conversion, as well as the number of shares of Common
Stock that may be issuable or deliverable upon conversion of the Securities
issued to the Purchasers as dividends. Such shares of Common Stock shall, when
issued or delivered in accordance with the provisions of the Certificate, be
duly authorized, validly issued and fully paid and non-assessable. The Company
shall issue such Common Stock in accordance with the provisions of the
Certificate and shall otherwise comply with the terms thereof.
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8.2 Books and Records. The Company shall, and shall cause each of the
Company Affiliates, together with any newly formed subsidiaries of the Company,
to, keep proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of the
Company and each of such Company Affiliates or subsidiaries in accordance with
GAAP, to the extent GAAP is applicable. The Company shall provide the Purchasers
with reasonable access to all such books and records during regular business
hours and allow the Purchasers to make copies and abstracts thereof.
8.3 Use of Proceeds. The Company shall use the proceeds of the sale of
Securities hereunder only (a) as a payment to Fleming pursuant to the terms of
the Contribution Agreement, (b) as working capital for the Company, (c) for
expansion of the Company, (d) for the payment of fees and expenses in connection
with the transactions contemplated in the - Transaction Agreements, including
without limitation, expenses incurred by Fleming in connection with such
transactions; and (e) for any other purpose contained in, or undertaken pursuant
to, the Budget.
8.4 New Lines of Business. The Company shall not without the prior
written consent of holders of a majority in interest of the Preferred Stock,
engage in any business other than the preparation and distribution of Chinese
food products or any line of business that is related thereto.
8.5 Compensation of Directors. Each member of the Board of Directors
shall entitled to customary fees and reimbursement by the Company for all
out-of-pocket expenses, including, without limitation, travel expenses, incurred
by such director in connection with the performance of such director's duties.
8.6 Management Incentive Stock Option Plan. After consultation with the
Purchasers, the Company shall develop and the Board of Directors shall authorize
a Management Incentive Stock Option Plan pursuant to which Fleming shall be
granted options to purchase up to 5% of the Common Stock of the Company (after
taking into account the conversion of the Preferred Shares, including Preferred
Shares issued upon the exercise of the Warrants) in accordance with the
provisions set forth in the Employment Agreement and shall at all times keep and
reserve available out of its Common Stock, solely for the purpose of issue or
delivery upon exercise of such options, the maximum number of shares of Common
Stock that may be issuable or deliverable upon such exercise.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification. In addition to all other sums due hereunder or
provided for in this Agreement and all other remedies that may be otherwise
available, the Company (the "Indemnifying Party") agrees to indemnify and hold
harmless each Purchaser and its Affiliates and its respective officers,
directors, agents, employees, Subsidiaries, partners and assigns (each, an
"Indemnified Party") to the fullest extent permitted by law from and against any
and all (i) Environmental Expenses and (ii) tax liabilities, losses, costs,
claims, damages, expenses
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(including reasonable fees, disbursements and other charges of counsel) and
other liabilities (collectively, "Liabilities") based upon, relating to or
arising out of any breach of any representation or warranty, covenant or
agreement of such Indemnifying Party in this Agreement or any legal,
administrative or other actions (including actions brought by any of the
Purchasers or any Indemnifying Party or any equity holders of the Company or
derivative actions brought by any Person claiming through or in the Company's
name), proceedings or investigations (whether formal or informal), or written
threats thereof, based upon, relating to or arising out of (A) the status of the
Purchasers as shareholders of the Company and the existence or exercise of the
rights and powers of the Purchasers (including without limitation, any claim
against any Indemnified Party relating to Environmental Matters), (B) violations
of applicable securities laws by the Company in connection with the offering of
the Shares, or (C) third party claims that the Securities hereunder violate
preexisting understandings or arrangements with the Company; provided, however,
that no Indemnifying Party shall be liable under this Section 9.1 to an
Indemnified Party: (a) for any amount paid in settlement of claims without such
Indemnifying Party's consent (which consent shall not be unreasonably withheld),
(b) to the extent that it is finally judicially determined that such Liabilities
resulted solely from the willful misconduct or gross negligence of such
Indemnified Party, or (c) to the extent that it is finally judicially determined
that such Liabilities resulted solely from the material breach by such
Indemnified Party of any representation, warranty, covenant or other agreement
of such Indemnified Party contained in this Agreement; provided, further, that
if and to the extent that such indemnification is unenforceable for any reason,
the Indemnifying Party shall make the maximum contribution to the payment and
satisfaction of such indemnified liability which shall be permissible under
applicable laws. In connection with the obligation of the Indemnifying Party to
indemnify for expenses as set forth above, the Indemnifying Party further agrees
to reimburse each Indemnified Party for all such expenses (including reasonable
fees, disbursements and other charges of counsel) as they are incurred by such
Indemnified Party.
The Company shall be liable for losses pursuant to this Section 9.1
only to the extent that the aggregate amount of such losses exceed $100,000 (the
"Basket Amount"), whereupon the Company shall be liable for all such losses in
excess of the Basket Amount.
Notwithstanding any other provision of this Agreement, the Basket Amount
shall not apply to Liabilities (collectively, the "Exceptional Liabilities")
incurred by the Purchasers based upon, relating to or arising out of (i) any
breach of the representations and warranties in Section 5.14 of the this
Agreement; (ii) the Company's ownership of the assets it purports to own after
giving effect to the transactions contemplated by this Agreement; and (iii) the
organization and corporate or other governance of the Company Affiliates prior
to the Closing, including, but not limited to the Corporate Restructuring.
9.2 Notification. Each Indemnified Party under this Article 9 will,
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from any Indemnifying Party under this
Article 9, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such Indemnified Party under this Article 9 except to the extent
that such failure to
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notify results in a loss of a material defense of such Indemnified Party in
actual prejudice due to such action. In case any such action, claim or other
proceeding shall be brought against any Indemnified Party and such Indemnified
Party shall notify the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to assume the defense thereof at its own
expense, with counsel satisfactory to such Indemnified Party in its reasonable
judgment; provided, however, that any Indemnified Party may, at its own expense,
retain separate counsel to participate in such defense. Notwithstanding the
foregoing, in any action, claim or proceeding in which both the Indemnifying
Party, on the one hand, and an Indemnified Party, on the other hand, is, or is
reasonably likely to become, a party, such Indemnified Party shall have the
right to employ separate counsel at the Indemnifying Party's expense and to
control its own defense of such action, claim or proceeding if, in the
reasonable opinion of counsel to such Indemnified Party, a conflict or potential
conflict exists between the Indemnifying Party, on the one hand, and such
Indemnified Party, on the other hand, that would make such separate
representation advisable. The Indemnifying Party agrees that it will not,
without the prior written consent of the Purchasers (such consent not to be
unreasonably withheld), settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated hereby (if any Indemnified Party is a party thereto or
has been actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of the Purchasers and
each other Indemnified Party from all liability arising or that may arise out of
such claim, action or proceeding. The rights accorded to Indemnified Parties
hereunder shall be in addition to any rights that any Indemnified Party may have
at common law, by separate agreement or otherwise.
9.3 Registration Rights Agreement. Notwithstanding anything to the
contrary in this Article 9, the indemnification and contribution provisions of
the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
ARTICLE 10
MISCELLANEOUS
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by the mutual written consent of the Purchaser and the
Company;
(b) by either Purchaser or the Company if the Closing shall not
have occurred prior to March 31, 1996 (the "Termination Date") unless such
Termination Date is extended by mutual written consent of the Purchasers and the
Company provided, that the right to terminate this Agreement under this Section
10.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or results in, the
failure of the Closing to have occurred by such date;
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In the event of a termination, no party hereto (or any of its directors
or officers or shareholders, partner, members or Affiliates) shall have any
liability or further obligation to any other party hereto or directors or
officers in respect thereof, other than as provided in Section 2.4 and under
Section 10.3, except that nothing herein will relieve any party from liability
for any breach of this Agreement.
10.2 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the Closing Date of
this Agreement for a period of two (2) years from the date hereof except the
representations and warranties in (i) Sections 5.11(a) and 5.17 shall survive
until the statute of limitations period has expired for such representations and
warranties and (ii) Section 5.14 shall survive until thirty days after the
expiration of the statute of limitations period has expired for such
representations and warranties.
10.3 Confidential Information. The Company and the Purchaser shall each
maintain as confidential any non-public, confidential and proprietary
information (collectively, "Confidential Information") provided by one to the
other regarding the matters contained in the Transaction Documents or with
respect to the other. The Company and Purchaser and each of their partners,
officers, directors, members, employees, agents and representative
(collectively, "Representatives") will not disclose, use or otherwise
appropriate the Confidential Information in any way detrimental to the other
party, and the Confidential Information will be kept confidential by each party;
provided, however, that any Confidential Information may be disclosed to
prospective investors who require such information for the purpose of evaluating
the transactions contemplated by the Transaction Agreements. If no transaction
is effected pursuant to the terms of the Transaction Agreements, the Company and
Purchaser shall each promptly deliver to the other party any Confidential
Information of such other party, without retaining any copy thereof.
10.4 Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, courier service or
personal delivery:
(a) if to Catterton:
Catterton Partners Corporation
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: J. Michael Chu
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, NW, Suite 1300
Washington, DC 20004-2505
Attention: Eric A. Stem, Esq.
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(b) if to Oak:
Oak Investment Partners
4550 Norwest Center
Minneapolis, Minnesota 55402
Attention: Gerald Gallagher
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W, Suite 1300
Washington, DC 20004-2505
Attention: Eric A. Stern, Esq.
(c) if to the Company:
P.F. Chang's China Bistro, Inc.
c/o Ruth's Chris Steakhouse
2201 East Camelback
Phoenix, Arizona 85016
Attention: Paul Fleming
with a copy to:
Squire, Sanders & Dempsey
40 North Central
Suite 2700
Phoenix, Arizona 85004
Attention: Norman C. Storey, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; when mailed, five
business days after being deposited in the mail, postage prepaid.
10.5 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of the parties
hereto. This Agreement may not be assigned by any Purchaser subsequent to the
Closing without the written consent of the Company. The Company may not assign
any of its rights under this Agreement without the written consent of each of
the Purchasers. Except as provided in Article 9, no Person other than the
parties hereto and their successors and permitted assigns is intended to be a
beneficiary of any of the Transaction Agreements.
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10.6 Amendment and Waiver.
(a) No failure or delay on the part of the Company, or the
Purchasers in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party from the terms of any provision of
this Agreement, shall be effective (i) only if it is made or given in writing
and signed by the Company and holders of a majority in interest of the Preferred
Stock or by the party or parties to be bound hereby, and (ii) only in the
specific instance and for the specific purpose for which made or given. Except
where notice is specifically required by this Agreement, no notice to or demand
on any party in any case shall entitle any party hereto to any other or further
notice or demand in similar or other circumstances.
10. 7 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
10. 8 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
10. 9 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such state.
10. 10 Jurisdiction. Each party to this Agreement hereby irrevocably
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby shall be brought
in the courts of the State of New York or of the United States of America for
the District of New York and hereby expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and expressly
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 10.2, such service to
become effective 10 days after such mailing.
10.11 Severability. If anyone or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the
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provision or provisions held invalid, illegal or unenforceable shall
substantially impair the remaining provisions hereof.
10.12 Rules of Construction. Unless the context otherwise requires,
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
10.13 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto and the other Transaction Agreements is intended by the parties
as a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
herein or therein. This Agreement, together with the exhibits and schedules
hereto, the other Transaction Agreements, supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
10.14 Transaction Expenses. The Company will pay all Transaction
Expenses of the Purchasers in accordance with Section 2.4 of this Agreement,
regardless whether the transactions contemplated hereby are consummated.
10.15 Publicity. Except as may be required by applicable law, none of
the parties hereto shall issue a publicity release or announcement or otherwise
make any public disclosure concerning this Agreement or the transactions
contemplated hereby, without prior approval by the other parties hereto. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
10.16 Further Assurances. Upon the terms and subject to the conditions
contained herein, each of the parties hereto agrees, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, (ii) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing, including using their respective best efforts (A)
to obtain all necessary waivers, consents and approvals from other parties that
may be required; (B) to obtain all necessary permits as are required to be
obtained under any federal, state, local or foreign law or regulations, and (C)
to fulfill all conditions to this Agreement.
10.17 Severability of Representations, Warranties and Covenants.
Neither Catterton nor Oak shall be liable to the Company for the breach or
violation, if any, of any representation, warranty or covenant made or to be
complied with by any of the other Purchasers, but each such Purchaser shall be
liable to the Company solely for its own breach or violation, if any, of any
representation, warranty or covenant made or to be complied with by such
Purchaser. Neither the Company nor Fleming shall be liable to the Purchasers for
the breach or violation, if any, of any representation, warranty or covenant
made or to be complied
38
<PAGE> 45
with by any party hereto, but the Company shall be liable to the Purchasers
solely for its and Fleming's breach or violation , if any, of any
representation, warranty, or covenant made or to be complied with by the Company
or Fleming.
39
<PAGE> 46
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement or caused this Agreement to be executed and delivered
by their authorized representatives as of the date first above written.
P.F. CHANG'S CHINA BISTRO, INC.
By: /s/ PAUL M. FLEMING
-------------------------------------------
Name: Paul M. Fleming
Title: President
c/o Ruth's Chris Steakhouse
2201 East Camelback
Phoenix, Arizona 85016
Attention: Paul Fleming
Telephone: 602-957-8986
Telecopy: 602-957-8998
PAUL M. FLEMING
By: /s/ PAUL M. FLEMING
-------------------------------------------
c/o Ruth's Chris Steakhouse
2201 East Camelback
Phoenix, Arizona 85016
KELLY M. FLEMING
By: /s/ KELLY M. FLEMING
-------------------------------------------
c/o Ruth's Chris Steakhouse
2201 East Camelback
Phoenix, Arizona 85016
<PAGE> 47
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
CATTERTON-SIMON PARTNERS, L.P.
By: CATTERTON INVESTMENT PARTNERS,
its General Partner
By: CATTERTON PARTNERS CORPORATION
its Managing General Partner
By: /s/ J. MICHAEL CHU
---------------------------------
Name: J. Michael Chu
Title: President
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: J. Michael Chu
Telephone: 203-629-4901
Telecopy: 203-629-4903
CATTERTON-PFC, L.L.C.
By: CATTERTON PARTNERS CORPORATION
in Managing Member
By: /s/ J. MICHAEL CHU
---------------------------------
Name: J. Michael Chu
Title: President
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: J. Michael Chu
Telephone: 203-629-4901
Telecopy: 203-629-4903
<PAGE> 48
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement or caused this Agreement to be executed and delivered
by their authorized representatives as of the date first above written.
OAK INVESTMENT PARTNERS VI, LIMITED
PARTNERSHIP
By: /s/ GERALD R. GALLAGHER
---------------------------------------
Gerald R. Gallagher
General Partner of Oak Associates VI
Limited Partnership,
the General Partner of Oak Investment
Partners VI, Limited Partnership
Oak Investment Partners
4550 Norwest Center
Minneapolis, Minnesota 55402
Attention: Gerald Gallagher
Telephone: 612-339-9322
Telecopy: 612-337-8017
OAK VI AFFILIATES FUND, LIMITED
PARTNERSHIP
By: /s/GERALD R. GALLAGHER
---------------------------------------
Gerald R. Gallagher
General Partner of Oak VI Affiliates,
Limited Partnership,
the General Partner of Oak VI
Affiliates Fund, Limited Partnership
Oak Investment Partners
4550 Norwest Center
Minneapolis, Minnesota 55402
Attention: Gerald Gallagher
Telephone: 612-339-9322
Telecopy: 612-337-8017
<PAGE> 49
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement or caused this Agreement to be executed and delivered
by their authorized representatives as of the date first above written.
TRINITY VENTURES V, L.P.
By: /s/ JAMES G. SHENNAN, JR.
-----------------------------------------------
General Partner
Trinity Ventures
155 Bovet Road, Suite 660
San Mateo, California 94402
Attention: James G. Shennan, Jr.
Telephone: 415-358-9700
Telecopy: 415-358-9785
TRINITY VENTURES V SIDE-BY-SIDE FUND, L.P.
By: /s/ JAMES G. SHENNAN, JR.
-----------------------------------------------
General Partner
Trinity Ventures
155 Bovet Road, Suite 660
San Mateo, California 94402
Attention: James G. Shennan, Jr.
Telephone: 415-358-9700
Telecopy: 415-358-9785
<PAGE> 50
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement or caused this Agreement to be executed and delivered
by their authorized representatives as of the date first above written.
ARABELLA S.A.
By: /s/ PIERRE CALAND
--------------------------------------
Name:PIERRE CALAND
Title:
c/o NECB
1, Avenue Montaigne
Paris, France 75008
Telephone: 33 (15) 367-8530
Telecopy: 33 (15) 367-8531
<PAGE> 51
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement or caused this Agreement to be executed and delivered
by their authorized representatives as of the date first above written.
JOSEPH SCHELL
/s/ JOSEPH SCHELL
--------------------------------------
3983 Happy Valley Road
Lafayette, California 94549
Telephone: 415-627-2000
Telecopy: 415-249-5513
KARL MATTHIES
/s/ KARL MATTHIES
--------------------------------------
7 Bellagio Road
PO Box 1322
Ross, California 94957
Telephone: 415-627-2250
Telecopy: 415-249-5513
J. RICHARD FREDRICKS
/s/ RICHARD FREDRICKS
--------------------------------------
2395 Vallejo Street
San Francisco, California 94010
Telephone: 415-627-2000
Telecopy: 415-249-5513
<PAGE> 52
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
DAVID JACQUIN
/s/ DAVID JACQUIN
----------------------------------
1870 Pacific Avenue #704
San Francisco, California 94109
Telephone: 415-627-2402
Telecopy: 415-249-5514
MURRAY HUNEKE
/S/ MURRAY HUNEKE
----------------------------------
315 Ambar Way
Menlo Park, California 94025
Telephone: 415-627-2873
Telecopy: 415-249-5512
PAUL MADERA
/s/ PAUL MADERA
----------------------------------
1205 Vancouver Ave.
Burlingame, California 94010
Telephone: 415-627-3174
Telecopy: 415-249-5511
<PAGE> 53
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement or caused this Agreement to be executed and delivered
by their authorized representatives as of the date first above written.
KENNETH LANG
/s/ KENNETH LANG
--------------------------------------
2121 Sacramento Street #203
San Francisco, California 94109
Telephone: 415-627-2143
Telecopy: 415-249-5097
<PAGE> 54
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement or caused this Agreement to be executed and delivered
by their authorized representatives as of the date first above written.
EDWARD J. MATHIAS
/s/ EDWARD J. MATHIAS
--------------------------------------
5120 Cammack Drive
Bethesda, Maryland 20816
Telephone: 202-626-1228
Telecopy: 202-347-1818
WILLIAM A. ALLEN
--------------------------------------
7710 Sweetgum Avenue
Los Colinas, Texas 75063
Telephone:
Telecopy:
STEVEN LEBOW
--------------------------------------
150 North Cliffwood
Los Angeles, California 90049
Telephone: 310-282-6165
Telecopy: 310-282-6178
<PAGE> 55
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement or caused this Agreement to be executed and delivered
by their authorized representatives as of the date first above written.
EDWARD J. MATHIAS
--------------------------------------
5120 Cammack Drive
Bethesda, Maryland 20816
Telephone: 202-626-1228
Telecopy: 202-347-1818
WILLIAM A. ALLEN
/s/ WILLIAM A. ALLEN
--------------------------------------
7710 Sweetgum Avenue
Los Colinas, Texas 75063
Telephone:
Telecopy:
STEVEN LEBOW
--------------------------------------
150 North Cliffwood
Los Angeles, California 90049
Telephone: 310-282-6165
Telecopy: 310-282-6178
<PAGE> 56
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement or caused this Agreement to be executed and delivered
by their authorized representatives as of the date first above written.
EDWARD J. MATHIAS
--------------------------------------
5120 Cammack Drive
Bethesda, Maryland 20816
Telephone: 202-626-1228
Telecopy: 202-347-1818
WILLIAM A. ALLEN
--------------------------------------
7710 Sweetgum Avenue
Los Colinas, Texas 75063
Telephone:
Telecopy:
STEVEN LEBOW
/s/ STEVEN LEBOW
--------------------------------------
150 North Cliffwood
Los Angeles, California 90049
Telephone: 310-282-6165
Telecopy: 310-282-6178
<PAGE> 57
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
SUSAN C. SCHNABEL and EDWARD L.
PLUMMER, JOINTLY
/s/ Susan C. Schnabel
-----------------------------------
/s/ Edward L. Plummer
-----------------------------------
c/o Donaldson, Lufkin & Jenrette
2121 Avenue of the Stars
Suite 3000
Los Angeles, California 90067
Telephone: 310-282-6172
Telecopy: 310-282-6178
YVES SISTERON
-----------------------------------
602 North Crescent Avenue
Beverly Hills, California 90210
Telephone: 310-858-8042
Telecopy: 310-550-1876
<PAGE> 58
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
SUSAN C. SCHNABEL and EDWARD L. PLUMMER, JOINTLY
------------------------------------------------
------------------------------------------------
c/o Donaldson, Lufkin & Jenrette
2121 Avenue of the Stars
Suite 3000
Los Angeles, California 90067
Telephone: 310-282-6172
Telecopy: 310-282-6178
YVES SISTERON
/s/ YVES SISTERON
------------------------------------------------
602 North Crescent Avenue
Beverly Hills, California 90210
Telephone: 310-858-8042
Telecopy: 310-550-1876
<PAGE> 59
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement or caused this Agreement to be executed and delivered
by their authorized representatives as of the date first above written.
RICHARD FEDERICO
/s/ RICHARD FEDERICO
--------------------------------------
c/o P.F. Chang's China Bistro, Inc.
2201 East Camelback Road
Suite 225-B
Phoenix, Arizona 85016
Telephone: 602-957-8986
Telecopy: 602-957-8998
<PAGE> 1
EXHIBIT 10.8
STOCK PURCHASE AGREEMENT
by
and
among
P.F. CHANG'S CHINA BISTRO, INC.;
and
the INVESTORS listed on Schedule 1;
Dated as of APRIL 28, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1
DEFINITIONS....................................................................................... 1
1.1 Definitions......................................................................... 1
1.2 Accounting Terms; Financial Statements.............................................. 7
1.3 Knowledge Standard.................................................................. 8
1.4 Other Defined Terms................................................................. 8
ARTICLE 2
AUTHORIZATION OF PREFERRED STOCK;
PURCHASE AND SALE OF SECURITIES................................................................... 8
2.1 Preferred Stock..................................................................... 8
2.2 Purchase and Sale of Securities..................................................... 9
2.3 Closing............................................................................. 9
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO PURCHASE THE PREFERRED SHARES................................................ 9
3.1 Representations and Warranties...................................................... 9
3.2 Compliance with Terms and Conditions of this Agreement.............................. 9
3.3 Delivery of Certificates Evidencing the Securities.................................. 10
3.4 Closing Certificates................................................................ 10
3.5 Secretary's Certificates............................................................ 10
3.6 Documents........................................................................... 10
3.7 Purchase Permitted by Applicable Laws............................................... 10
3.8 Opinion of Counsel.................................................................. 10
3.9 Approval of Counsel to Purchasers................................................... 10
3.10 Consents and Approvals.............................................................. 11
3.11 Certain Waivers..................................................................... 11
3.12 No Material Adverse Change.......................................................... 11
3.13 Certificate. ...................................................................... 11
3.14 No Material Judgment or Order....................................................... 11
3.15 Financial Statements................................................................ 11
3.16 Registration Rights Agreement....................................................... 12
3.17 Shareholders Agreement.............................................................. 12
3.18 Board of Directors.................................................................. 12
3.19 Concurrent Purchases................................................................ 12
ARTICLE 4
CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE.............................................. 12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.1 Representations and Warranties...................................................... 12
4.2 Compliance with Terms and Conditions of this Agreement.............................. 12
4.3 Issuance Permitted by Applicable Laws............................................... 12
4.4 Payment of Purchase Price........................................................... 13
4.5 No Material Judgment or Order....................................................... 13
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................... 13
5.1 Corporate Existence and Authority................................................... 13
5.2 Corporate Authorization; No Contravention........................................... 13
5.3 Governmental Authorization; Third Party Consents.................................... 13
5.4 Binding Effect...................................................................... 14
5.5 Other Agreements.................................................................... 14
5.6 Capitalization...................................................................... 14
5.7 Company Affiliates.................................................................. 15
5.8 Private Offering.................................................................... 16
5.9 Litigation.......................................................................... 16
5.10 Financial Statements................................................................ 16
5.11 Title and Condition of Assets....................................................... 16
5.12 Contractual Obligations............................................................. 17
5.13 Patents, Trademarks, Etc............................................................ 17
5.14 Tax Matters......................................................................... 18
5.15 Severance Arrangements.............................................................. 19
5.16 No Material Adverse Change.......................................................... 19
5.17 Environmental Matters............................................................... 20
5.18 Investment Company/Government Regulations. ......................................... 21
5.19 Broker's, Finder's or Similar Fees. ................................................ 21
5.20 Labor Relations and Employee Matters................................................ 21
5.21 Employee Benefits Matters........................................................... 21
5.22 Undisclosed Liabilities............................................................. 23
5.23 Solvency............................................................................ 23
5.24 Compliance with Law................................................................. 24
5.25 No Other Agreements to Sell the Assets or Capital Stock of the Company.............. 24
5.26 Hart-Scott-Rodino................................................................... 24
5.27 Budget.............................................................................. 24
5.28 Insurance........................................................................... 24
5.29 Disclosure.......................................................................... 25
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.................................................. 25
6.1 Existence and Authority............................................................. 25
6.2 Authorization; No Contravention..................................................... 25
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.3 Governmental Authorization; Third Party Consent..................................... 25
6.4 Binding Effect...................................................................... 26
6.5 Purchase for Own Account............................................................ 26
6.6 Accredited Investor Status.......................................................... 26
6.7 Investment Risk..................................................................... 27
6.8 Broker's, Finder's or Similar Fees.................................................. 27
ARTICLE 7
COVENANTS OF THE COMPANY.......................................................................... 27
7.1 Further Assurances.................................................................. 27
7.2 Notification of Certain Matters..................................................... 28
7.3 Access to Information............................................................... 28
7.4 Conduct of Business................................................................. 28
ARTICLE 8
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING............................................................... 28
8.1 Reservation of Shares............................................................... 29
8.2 Books and Records................................................................... 29
8.3 Use of Proceeds..................................................................... 29
8.4 New Lines of Business............................................................... 29
8.5 Compensation of Directors........................................................... 29
ARTICLE 9
INDEMNIFICATION................................................................................... 29
9.1 Indemnification..................................................................... 29
9.2 Notification........................................................................ 30
9.3 Registration Rights Agreement....................................................... 31
ARTICLE 10
MISCELLANEOUS..................................................................................... 31
10.1 Termination......................................................................... 31
10.2 Survival of Representations and Warranties.......................................... 32
10.3 Confidential Information............................................................ 32
10.4 Notices............................................................................. 32
10.5 Successors and Assigns.............................................................. 34
10.6 Amendment and Waiver................................................................ 34
10.7 Counterparts........................................................................ 34
10.8 Headings............................................................................ 34
10.9 Governing Law....................................................................... 34
10.10 Jurisdiction........................................................................ 34
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
10.11 Severability........................................................................ 35
10.12 Rules of Construction............................................................... 35
10.13 Entire Agreement.................................................................... 35
10.14 Transaction Expenses................................................................ 35
10.15 Severability of Representations, Warranties and Covenants........................... 35
</TABLE>
iv
<PAGE> 6
TABLE OF EXHIBITS AND SCHEDULES
EXHIBITS
Registration Rights Agreement A
Shareholders Agreement B
Certificate of Incorporation C
Opinion of Company Counsel D
SCHEDULES
Securities Being Purchased 1
Shareholders 5.6
Company Affiliates 5.7
Environmental 5.17
<PAGE> 7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as
of the 28th day of April, 1997 by and among P.F. CHANG'S CHINA BISTRO, INC., a
Delaware corporation (the "Company"), and the INVESTORS listed on Schedule 1
attached hereto (the "Investors").
RECITALS:
A. WHEREAS, upon the terms and subject to the conditions set forth
in this Agreement, the Company proposes to issue and sell shares of its Series B
Preferred Stock (as defined herein) to the Investors (each being referred to
herein as a "Purchaser" and collectively referred to herein as the
"Purchasers").
B. WHEREAS, upon the terms and subject to the conditions set forth
in this Agreement, the Purchasers desire to contribute capital to the Company in
the amount of $4.35 per share in exchange for the issuance to the Purchasers of
shares of the Series B Preferred Stock of the Company as set forth herein.
C. WHEREAS, the Purchasers desire that, upon the Closing (as
defined in herein), the Purchasers will collectively own one hundred percent
(100%) of the Company's outstanding Series B Preferred Stock.
D. WHEREAS, the Company, the Purchasers and the holders of the
Company's Common Stock (as defined herein) and Series A Preferred Stock (as
defined herein) desire to set forth the objectives and agreements that will
govern their relations and responsibilities with respect to each other by
entering into concurrently with the sale and purchase of securities hereunder a
Shareholders Agreement (as defined herein).
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" means, with respect to any specified Person, any
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such
<PAGE> 8
specified Person, whether by contract, through one or more intermediaries, or
otherwise.
"Benefit Arrangement" means any employment, consulting, severance
or other similar contract, arrangement or policy and each plan, arrangement
(written or oral), program, agreement or commitment providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, life, health, disability or accident benefits (including,
without limitation, any "voluntary employees' beneficiary association" as
defined in Section 501(c)(9) of the Code providing for the same or other
benefits) or for deferred compensation, profit-sharing bonuses, stock options,
stock appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (A) is
not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as the case may be,
by the Company or an ERISA Affiliate or under which the Company or any ERISA
Affiliate may incur any liability, and (C) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such entities).
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the common stock, par value $.001 per share,
of the Company, or any other capital stock of the Company into which such stock
is reclassified or reconstituted.
"Company Affiliates" means (i) PFCCB Scottsdale, L.L.C., an
Arizona limited liability company; (ii) PFCCB Newport Beach, L.L.C., an Arizona
limited liability company; (iii) P.F. Chang's III, L.L.C., an Arizona limited
liability company; (iv) P.F. Chang's IV, L.L.C., an Arizona limited liability
company; (v) PFC Building III Limited Partnership, an Arizona limited
partnership; (vi) PFCCB LouTex Joint Venture, an Arizona general partnership;
and (vii) PFCCB NUC LLC, an Arizona limited liability company.
"Condition of the Company" means the assets, business, properties,
operations, financial condition or prospects (excluding prospects arising out of
general economic or business conditions affecting the restaurant industry
generally) of the Company and the Company Affiliates taken as a whole.
"Contractual Obligation" means as to any Person, any provision of
any security issued by such Person or any provision of any agreement, lease of
real or personal property, undertaking, contract, indenture, mortgage, deed of
trust or other
2
<PAGE> 9
instrument to which such Person is a party or by which it or any of its property
is bound.
"Defined Benefit Plan" means a defined benefit plan within the
meaning of Section 3(35) of ERISA or Section 414(j) of the Code, whether funded
or unfunded, qualified or nonqualified (whether or not subject to ERISA or the
Code).
"Employee Plans" means all Benefit Arrangements, Multiemployer
Plans, Pension Plans and Welfare Plans.
"Environmental Expenses" means any liability, loss, cost or
expense arising from any Pre-Closing Environmental Matter, including, without
limitation, costs of investigation, cleanup, removal, remedial, corrective or
response action, the costs associated with posting financial assurances for the
completion of investigation, cleanup, removal, remedial, corrective or response
actions, the preparation of any closure or other necessary or required plans or
analyses, or other reports or analyses submitted to or prepared by regulating
agencies, including the cost of health assessments, epidemiological studies and
the like, retention of engineers and other expert consultants, legal counsel,
capital improvement, operation and maintenance testing and monitoring costs,
power and utility costs and pumping taxes or fees, and administrative costs or
damages.
"Environmental Laws" means any federal, state, territorial,
provincial or local law, common law doctrine, rule, order, decree, judgment,
injunction, license, permit or regulation relating to environmental matters,
including those pertaining to land use, air, soil, surface water, ground water
(including the protection, cleanup, removal, remediation or damage thereof),
public or employee health or safety or any other environmental matter, together
with any other laws (federal, state, territorial, provincial or local) relating
to emissions, discharges, releases or threatened releases of any pollutant or
contaminant including, without limitation, medical, chemical, biological,
biohazardous or radioactive waste and materials, into ambient air, land, surface
water, groundwater, personal property or structures, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any contaminant, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. 9601 et seq.), the Hazardous Material Transportation
Act (49 U.S.C. 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C.
1251 et seq.), the Clean Air Act (42 U.S.C. 1251 et seq.), the Toxic
Substances Control Act (15 U.S.C. 2601 et seq.), and the Occupational Safety
and Health Act (29 U.S.C. 651 et seq.), as such laws have been, or are,
amended, modified or supplemented heretofore or from time to time hereafter and
any analogous future federal, or present or future state or local laws, statutes
and regulations promulgated thereunder.
3
<PAGE> 10
"Equipment" means all of the tangible personal property owned or
leased by the Company or any Company Affiliate and used in or held for use in
the operations of the business of the Company or any Company Affiliate.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means any Person that is (or at any relevant
time was) a member of a "controlled group of corporations" with or under "common
control" with the Company as defined in Section 414(b), (c), (m) or (o) of the
Code.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Facilities" means the buildings, plants, offices, stores,
restaurants and all other improvements on any real property (including fixtures
affixed thereto) which are owned or leased by the Company or any Company
Affiliate and used or held for use in the operation of the business of the
Company or any Company Affiliate.
"Financial Statements Date" means December 29, 1996.
"GAAP" means United States generally accepted accounting
principles, in effect from time to time, consistently applied.
"Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision or any agency thereof, any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
exercising public functions owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"Hazardous Materials" means those substances which are regulated
by or form the basis of liability under any Environmental Laws, including,
without limitation, petroleum products, radon and asbestos.
"Indebtedness" means, as to any Person: (a) all obligations,
whether or not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person representing the balance of
deferred purchase price of property or services, except trade accounts payable
and accrued commercial or trade liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps, caps, collars and similar
agreements or hedging devices under which payments are obligated to be made by
such Person, whether periodically or upon the happening of a contingency, (e)
all indebtedness created or arising under any conditional sale or other title
retention
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agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (f) all
obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (g) all indebtedness secured
by any Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f)) on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non-recourse to the credit of that Person, and (h) all
Indebtedness of any other Person referred to in clauses (a) through (f) above,
guaranteed, directly or indirectly, by that Person.
"Initial Issue Date" shall mean the date that shares of Series B
Preferred Stock are first issued by the Company.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever (excluding preferred stock or equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"Material Adverse Effect" means any event or condition which
individually or in the aggregate has a material adverse effect on the Condition
of the Company or on the ability of the Company to perform its obligations under
the Transaction Agreements.
"Multiemployer Plan" means any "multiemployer plan," as defined in
Section 4001(a)(3) or Section 3(37) of ERISA, (A) which the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA Affiliate
may incur any liability and (B) which covers any employee or former employee of
the Company or any ERISA Affiliate (with respect to their relationship with such
entities).
"Outstanding Borrowings" means all Indebtedness of the Company and
the Company Affiliates for borrowed money (including without limitation,
reimbursement and all other obligations with respect to surety bonds, letters of
credit and bankers' acceptances, whether or not matured), excluding obligations
with respect to trade payables incurred in the ordinary course of business.
"Pension Plan" means any "employee pension benefit plan" as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan) (A) which the
Company or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or, within the five years prior to the Closing Date,
maintained, administered,
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contributed to or was required to contribute to, or under which the Company or
any ERISA Affiliate may incur any liability and (B) which covers any employee or
former employee of the Company or any ERISA Affiliate (with respect to their
relationship with such entities).
"Permitted Liens" means (i) Liens for taxes, governmental charges
or levies which (a) are not yet due and payable, or (b) are being diligently
contested in good faith by appropriate proceedings; provided, that for any such
taxes being diligently contested in good faith, the Company has set aside
adequate reserves, (ii) Liens imposed by law, such as mechanic's, materialman's,
landlord's, warehouseman's and carrier's liens, securing obligations incurred in
the ordinary course of business which are not yet overdue or which are being
diligently contested in good faith by appropriate proceeding and, with respect
to such obligations which are being contested, for which the Company has set
aside adequate reserves, and (iii) Liens which (x) in each case, secure
obligations of less than $10,000, and (y) do not, individually or in the
aggregate, interfere with the use and enjoyment of the property subject thereto.
"Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Pre-Closing Environmental Matters" means (i) the production, use,
generation, storage, treatment, recycling, disposal, discharge, release, or
other handling or disposition of any kind at any time on or prior to the Closing
Date (collectively "Handling") of any Hazardous Material, either in, on, or
under any real property or facility (including the Facilities) owned, leased or
used at any time by the Company (or a predecessor or affiliate of the Company)
including without limitation the effects of such Handling of Hazardous Materials
on resources, persons, or property within or outside the boundaries of any
facility owned, operated or otherwise used by the Company; (ii) the presence as
of the Closing Date of Hazardous Materials in, on or under any facility
(including the Facilities) owned, leased or used at any time by the Company
regardless of how the Hazardous Materials came to rest at, on or under such
facility, (iii) the failure on or prior to the Closing Date of any facility or
any operations of the Company to be in compliance with an Environmental Laws,
and (iv) any other act, omission or condition existing prior to the Closing Date
which gives rise to liability under any Environmental Laws with respect to the
Company.
"Preferred Stock" means the Series A Preferred Stock and the
Series B Preferred Stock.
"Qualified Initial Public Offering" shall mean a public offering,
underwritten by a reputable and nationally recognized underwriter, pursuant to
an effective registration statement under the Securities Act of shares of the
Common Stock, (i) the aggregate gross proceeds of which equal or exceed $
15,000,000 and (ii)
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the per share offering price to the public of which equals or exceeds $10.00;
provided, however, that the per share offering price referred to in clause (ii)
shall be adjusted to reflect the effect of any stock split or any subdivision,
reclassification, combination or like event of or with respect to outstanding
shares of Common Stock occurring after the Initial Issue Date.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement in the form attached hereto as Exhibit A.
"Requirements of Law" means, as to any Person, the provisions of
the certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule, regulation,
right, privilege, qualification, license or franchise, order, judgment, or
determination, in each case, of an arbitrator or a court or other Governmental
Authority, in each case, applicable to or binding upon such Person or any of its
property (or to which such Person or any of its property is subject) or
applicable to any or all of the transactions contemplated by or referred to in
the Transaction Agreements.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"Series A Preferred Stock" means the Series A Convertible
Preferred Stock, par value $.001 per share, of the Company, or any other capital
stock of the Company into which such stock is reclassified or reconstituted.
"Series B Preferred Stock" means the Series B Convertible
Preferred Stock, par value $.001 per share, of the Company, or any other capital
stock of the Company into which such stock is reclassified or reconstituted.
"Shareholders Agreement" means the Amended and Restated
Shareholders Agreement among the Company, the Purchasers and the holders of the
Common Stock and the Series A Preferred Stock in the form attached hereto as
Exhibit B.
"Tax" or "Taxes" shall mean all federal, state, local, foreign and
other taxes, assessments or other government charges, including, without
limitation, income, estimated income, business, occupation, franchise, property,
sales, transfer, use, employment, commercial rent or withholding taxes,
including interest, penalties and additions in connection therewith for which
the Company may be liable.
"Transaction Agreements" means collectively, this Agreement, the
Registration Rights Agreement, and the Shareholders Agreement.
"Welfare Plan" means any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA, (A) which the Company or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or under
which the Company
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or any ERISA Affiliate may incur any liability and (B) which covers any employee
or former employee of the Company or any ERISA Affiliate (with respect to their
relationship with such entities).
1.2 Accounting Terms; Financial Statements. All accounting terms
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with GAAP.
1.3 Knowledge Standard. When used herein, the phrase "to the
knowledge of" any Person, "to the best knowledge of" any Person or any similar
phrase shall mean, (i) with respect to any individual, the actual knowledge of
such Person (ii) with respect to any corporation (or a limited liability
company), the actual knowledge of officers and directors, or Persons acting in
similar capacities, of such corporation and the knowledge of such facts that
such persons should have in the exercise of their duties after reasonable
inquiry and (iii) with respect to a partnership, the actual knowledge of the
officers and directors of the general partner of such partnership and the
knowledge of such facts that such persons should have in the exercise of their
duties after reasonable inquiry. When used herein, the phrase "to the knowledge
of the Company," "to the best knowledge of the Company" or any similar phrase
shall mean "to the best knowledge of the Company and each Company Affiliate"
using the standards set forth in the previous sentence.
1.4 Other Defined Terms. The following terms shall have the
meanings specified in the Sections set forth below:
Term Section
Actions 5.9
Audited Financial Statements 3.15
Certificate 2.1
Closing 2.3
Closing Date 2.3
Indemnified Party 9.1
Indemnifying Party 9.1
Intellectual Property 5.13
Liability (and Liabilities) 9.1
Preferred Shares 2.1
Purchase Price 2.2
Taxpayers 5.14
ARTICLE 2
AUTHORIZATION OF PREFERRED STOCK;
PURCHASE AND SALE OF SECURITIES
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2.1 Preferred Stock. The Company has authorized the issuance and
sale to the Purchasers of 1,517,131 shares of Series B Preferred Stock (the
"Preferred Shares") and has duly adopted resolutions establishing the rights,
preferences, privileges and restrictions of the Series B Preferred Stock. The
Series B Preferred Stock will have the respective rights, preferences and
privileges set forth in the Company's Certificate of Incorporation, including
the Certificate of Designations, Preferences, and Relative, Participating,
Optional and Other Special Rights of Preferred Stock and Qualifications,
Limitations and Restrictions Thereof of Series B Convertible Preferred Stock of
P.F. Chang's China Bistro, Inc., in the form attached hereto as Exhibit C (the
"Certificate").
2.2 Purchase and Sale of Securities. Upon the terms and subject to
the conditions herein contained, at the Closing (as defined herein) on the
Closing Date (as defined herein), the Company agrees that it will issue to each
of the Purchasers, and each Purchaser agrees that it will purchase from the
Company, the number of Preferred Shares listed next to such Purchaser's name on
Schedule 1 hereto. The aggregate purchase price of the Preferred Shares, to be
paid by the Purchasers in the amounts listed next to each Purchaser's name on
Schedule 1 hereto, shall be Six Million, Five Hundred Ninety-Nine Thousand, Five
Hundred Nineteen Dollars and Eighty-Five Cents ($6,599,519.85) (the "Purchase
Price").
2.3 Closing. The closing of the sale to and purchase by the
Purchasers of the Preferred Shares (the "Closing") shall occur at the offices of
Lewis and Roca LLP, 40 North Central, Suite 1900, Phoenix, Arizona 85004 at
10:00 a.m., Phoenix, Arizona time on April 30, 1997 or on such different date
and time as the Purchasers and the Company shall agree (the "Closing Date"). At
the Closing, (i) the Company shall deliver to each Purchaser certificates
evidencing the Preferred Shares being purchased by such Purchaser, free and
clear of any Liens of any nature whatsoever, other than those created by the
Certificate, registered in such Purchaser's name, and (ii) each Purchaser shall
deliver to the Company the portion of the Purchase Price listed next to such
Purchaser's name on Schedule 1 hereto, by cashier's check or wire transfer of
immediately available funds.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO PURCHASE THE PREFERRED SHARES
The obligation of each Purchaser to purchase the Preferred Shares,
to pay the purchase prices therefor and to perform any obligations hereunder on
the Closing Date (unless otherwise specified) shall be subject to the
satisfaction as determined by, or waiver by, such Purchaser of the following
conditions on or before the Closing Date:
3.1 Representations and Warranties. The representations and
warranties of the Company contained in Article 5 hereof shall be true and
correct at and as of the Closing Date (both before and after giving effect to
the transactions contemplated under
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this Agreement) as if made at and as of such date, except that the timely filing
and payment of Taxes as set forth in Section 5.14(a) and Section 5.14(b) shall
be true and correct at and as of the Closing Date (both before and after giving
effect to the transactions contemplated under this Agreement) as if made at and
as of such date to the extent that any failure to timely file or pay such Taxes
shall not have a Material Adverse Effect.
3.2 Compliance with Terms and Conditions of this Agreement. The
Company shall have performed and complied with all of the agreements and
conditions set forth herein that are required to be performed or complied with
by the Company on or before the Closing Date.
3.3 Delivery of Certificates Evidencing the Securities. The Company
shall contemporaneously deliver to each Purchaser the certificates evidencing
the Preferred Shares as set forth in Section 2.3.
3.4 Closing Certificates. The Company shall have delivered to each
Purchaser a certificate executed by an authorized officer of the Company
certifying that the representations and warranties of the Company contained in
the Agreement are true and correct on and as of the Closing Date, and that the
conditions set forth in this Section 3 to be satisfied by the Company have been
satisfied on and as of the Closing Date.
3.5 Secretary's Certificates. Each Purchaser shall have received a
certificate from the Company, dated as of the Closing Date and signed by the
Secretary or an Assistant Secretary of the Company, certifying that the attached
copies of the Certificate, Bylaws of the Company and resolutions of the Board of
Directors of the Company approving the Transaction Agreements and the
transactions contemplated thereby, are all true, complete and correct and remain
unamended and in full force and effect.
3.6 Documents. Each Purchaser shall have received true, complete
and correct copies of such documents and such other information as it may have
reasonably requested in connection with or relating to the sale of the Preferred
Shares and the transactions contemplated by the Transaction Agreements, or the
business of the Company, all in form and substance reasonably satisfactory to
the Purchasers prior to the Closing.
3.7 Purchase Permitted by Applicable Laws. The acquisition of and
payment for the Preferred Shares to be acquired by the Purchasers hereunder and
the consummation of the transactions contemplated by the Transaction Agreements
shall not (a) violate any Requirements of Law, (b) result in a material breach
or default (i) under any of the Contractual Obligations of the Company or (ii)
under any order, writ, judgment, injunction, decree, determination or award of
any court, arbitrator, or commission, board, bureau, agency or other
governmental instrumentality, or (c) result
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in, or require, the creation or imposition of any Lien upon or with respect to
any of the property of the Company.
3.8 Opinion of Counsel. Each Purchaser shall have received an
opinion of Lewis and Roca LLP, counsel to the Company, dated as of the Closing
Date in the form attached as Exhibit D.
3.9 Approval of Counsel to Purchasers. All actions and proceedings
required to be performed on or prior to the Closing Date hereunder and all
documents required to be delivered by the Company on or prior to the Closing
Date as required by this Agreement, shall have been acceptable to counsel to
such Purchaser, in its reasonable judgment as to their form and substance.
3.10 Consents and Approvals. All consents, exemptions,
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of Law
and with respect to those material Contractual Obligations of the Company,
necessary or required in connection with the execution, delivery or performance
of the Transaction Agreements (including, without limitation, the issuance of
the Preferred Shares, based solely on the Requirements of the Law and facts and
circumstances in effect as of the Closing Date, and issuance of the Common Stock
upon conversion or exercise of the Preferred Shares) by the Company, and shall
have been obtained and be in full force and effect, and the Purchasers shall
have been furnished with appropriate evidence thereof, and all waiting periods
shall have lapsed without extension or the imposition of any conditions or
restrictions.
3.11 Certain Waivers. Each holder of the shares of the capital
stock of the Company (or any other party who may possess such rights) shall have
waived any and all preemptive rights, rights of first refusal, "tag along"
rights, rights of co-sale and any similar rights with respect to the issuance of
the Preferred Shares contemplated hereby.
3.12 No Material Adverse Change. Since the Financial Statements
Date, there shall have been no Material Adverse Effect.
3.13 Certificate. The Company shall have amended and filed the
Certificate in the form of Exhibit C hereto (with such changes as agreed to by
each Purchaser).
3.14 No Material Judgment or Order. There shall not be on the
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority affecting the Company or any Company
Affiliate or any condition imposed under any Requirement of Law affecting the
Company or any Company Affiliate which, in the reasonable judgment of the
Purchasers, would (i) prohibit the purchase of the Preferred Shares or the
consummation of the other transactions contemplated hereunder, (ii) subject the
Purchasers to any penalty if the
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Preferred Shares were to be purchased hereunder, (iii) question the validity or
legality of the transactions contemplated hereby, or (iv) be reasonably expected
to materially adversely affect the value of the capital stock of the Company or
have a Material Adverse Effect.
3.15 Financial Statements. The Company shall have delivered to the
Purchasers a copy of the audited consolidated financial statements of the
Company and the Company Affiliates as of and for the year ended December 29,
1996 (the "Audited Financial Statements"), which Audited Financial Statements
shall fairly present in all material respects the financial position and the
results of operations and cash flows of the Company and the Company Affiliates
as of and for such period in conformity with GAAP.
3.16 Registration Rights Agreement. The Company, the Purchasers and
the holders of the Common Stock and Series A Preferred Stock shall
contemporaneously execute and deliver the Registration Rights Agreement in the
form attached hereto as Exhibit A.
3.17 Shareholders Agreement. The Company, the Purchasers and the
holders of the Common Stock and Series A Preferred Stock shall contemporaneously
execute and deliver a Shareholders Agreement in the form attached hereto as
Exhibit B.
3.18 Board of Directors. Immediately following the Closing, the
Board of Directors of the Company shall consist of Paul Fleming, Richard
Federico, Michael Welborn, J. Michael Chu, Gerald Gallagher, Yves Sisteron and
James Shennan.
3.19 Concurrent Purchases. Each Purchaser shall concurrently
purchase its Preferred Shares.
ARTICLE 4
CONDITIONS TO THE OBLIGATION OF THE
COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred
Shares and the other obligations of the Company hereunder, shall be subject to
the satisfaction as determined by, or waiver by, the Company of the following
conditions on or before the Closing Date:
4.1 Representations and Warranties. The representations and
warranties of the Purchasers contained in Section 6 hereof shall be true and
correct at and as of the Closing Date (both before and after giving effect to
the transactions contemplated under this Agreement) as if made at and as of such
date.
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4.2 Compliance with Terms and Conditions of this Agreement. The
Purchasers shall have performed and complied with all of the agreements and
conditions set forth herein that are required to be performed or complied with
by the Purchasers on or before the Closing Date.
4.3 Issuance Permitted by Applicable Laws. The issuance of the
Preferred Shares by the Company hereunder, acquisition of the Preferred Shares
by the Purchaser hereunder and the consummation of the transactions contemplated
by the Transaction Agreements shall not (a) violate any Requirements of Law, or
(b) result in a breach or default (i) under any of the Contractual Obligations
of the Purchasers, or (ii) under any order, writ, judgment, injunction, decree,
determination or award of any court, arbitrator, or commission, board, bureau,
agency or other governmental instrumentality, or (c) require any consents,
approvals, exemptions, authorizations, registrations, declarations or filings by
the Purchasers.
4.4 Payment of Purchase Price. The Purchasers shall tender to the
Company the Purchase Price in the manner set forth in Section 2.2 in the
respective amounts specified on Schedule 1 hereto.
4.5 No Material Judgment or Order. There shall not be on the
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority or any condition imposed under any
Requirements of Law which, in the reasonable judgment of the Company would (i)
prohibit the sale of the Preferred Shares or the consummation of the other
transactions contemplated hereunder, (ii) subject the Company to any penalty if
the Preferred Shares were to be sold hereunder, or (iii) question the validity
or legality of the transactions contemplated hereby.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers as of
the date hereof as follows:
5.1 Corporate Existence and Authority. The Company (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, (b) has all requisite corporate power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be
engaged, (c) is duly qualified as a foreign corporation, licensed and in good
standing in each jurisdiction where the failure to do so would have a Material
Adverse Effect, and (d) has the corporate power and authority to execute,
deliver and perform its obligations under each Transaction Agreement to which it
is or will be a party.
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5.2 Corporate Authorization; No Contravention. The execution,
delivery and performance by the Company of each of the Transaction Agreements
and the consummation of the transactions contemplated thereby, including without
limitation, the issuance of the Preferred Shares (a) has been duly authorized by
all necessary corporate action, including, if required, stockholder action, (b)
does not and will not conflict with or contravene the terms of the Certificate
or the By-Laws of the Company, or any amendment thereof; and (c) does not and
will not violate, conflict with or result in any material breach or
contravention of (i) any Contractual Obligation of the Company or any Company
Affiliate, or (ii) any Requirements of Law applicable to the Company or any
Company Affiliate.
5.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
applicable Requirements of Law, and no lapse of a waiting period under any
applicable Requirements of Law, is necessary or required in connection with the
execution, delivery or performance (including, without limitation, the issuance
of the Preferred Shares and the issuance of the Common Stock upon the conversion
of the Preferred Shares) by the Company or the enforcement against the Company
of the Transaction Agreements, or the transactions contemplated thereby.
5.4 Binding Effect. The Transaction Agreements have been duly
executed and delivered by the Company and constitute the legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as enforceability may be limited by applicable
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity relating to
enforceability.
5.5 Other Agreements. Neither the Company nor the Company
Affiliates have previously entered into any agreements which are currently in
effect or to which the Company or the Company Affiliates is currently bound,
granting any registration or other material rights to any Person, the provision
or performance of which would render the provision or performance (including,
without limitation, the issuance of the Preferred Shares and the issuance of the
Common Stock upon the conversion of the Preferred Shares) of the material rights
to be granted to the Purchasers by the Company in the Transaction Agreements
impracticable.
5.6 Capitalization.
(a) Immediately prior to the Closing, the authorized capital stock
of the Company will consist solely of (i) 20,000,000 shares of Common Stock and
(ii) 10,000,000 shares of Preferred Stock (7,700,000 shares of Series A
Preferred Stock and 2,300,000 shares of Series B Preferred Stock). Immediately
following the Closing (i) 5,000,000 shares of Common Stock will be issued and
outstanding; (ii) 11,383,358
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shares of Common Stock will be reserved for issuance upon (a) the exercise of
options to purchase such shares, (b) the conversion of Preferred Stock and (c)
the conversion of Series A Preferred Stock issued upon the exercise of certain
warrants issued to Montgomery Securities; (iii) 6,871,401 shares of Preferred
Stock will be issued and outstanding (of which 5,354,270 shares will be shares
of Series A Preferred Stock and 1,517,131 shares will be shares of Series B
Preferred Stock); (iv) 124,380 shares of Series A Preferred Stock will be
reserved for issuance upon exercise of certain warrants issued to Montgomery
Securities; (v) (a) 2,189,905 shares of Series A Preferred Stock will be
reserved for issuance as "payment-in-kind" dividends of Series A Preferred Stock
and (b) 467,155 shares of Series B Preferred Stock will be reserved for issuance
as "payment-in-kind" dividends of Series B Preferred Stock; and (vi) options to
purchase 1,730,517 shares of Common Stock will be outstanding. A total of
13,726,298 fully diluted shares of Common Stock will be outstanding immediately
following the Closing, assuming the conversion of all outstanding shares of
Preferred Stock and the exercise of all outstanding options and warrants. All
outstanding shares of capital stock of the Company are, and the shares of Series
B Preferred Stock (when issued, sold and delivered against payment therefor),
the shares of Preferred Stock issuable as "payment-in-kind" shares in respect of
Preferred Stock (when declared and paid), and the shares of Common Stock
issuable upon conversion of the Preferred Stock (when issued upon conversion)
will be, duly authorized and validly issued, fully paid, nonassessable and free
and clear of any Liens, preferential rights, priorities, claims, options,
charges or other encumbrances or restrictions, other than those created by the
Certificate and the Shareholders Agreement.
(b) Schedule 5.6 sets forth the name of each holder of the issued
and outstanding capital stock of the Company, the number of shares of such
capital stock held of record by each such holder, the name of each Person
holding any options, warrants or other rights to purchase any capital stock of
the Company, the number, class and series of shares of capital stock subject to
each such option, warrant or right and the exercise price of each such option,
warrant or right. Except as set forth on Schedule 5.6, and except for the
Preferred Stock, there are no outstanding securities convertible into or
exchangeable for capital stock of the Company or options, warrants or other
rights to purchase or subscribe to capital stock of the Company or contracts,
commitments, agreements, understandings or arrangements of any kind to which the
Company or any such holder of capital stock is a party relating to the issuance
of any capital stock of the Company, any such convertible or exchangeable
securities or any such options, warrants or rights.
(c) Except as set forth on Schedule 5.6 and in the Transaction
Agreements, no Person has any preemptive rights, rights of first refusal, "tag
along" rights, rights of co-sale or any similar rights with respect to the
issuance of the Preferred Shares contemplated hereby.
5.7 Company Affiliates. Schedule 5.7 sets forth a complete and
accurate list of all of the Company Affiliates and all entities that own or
operate a P.F. Chang's
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China Bistro together with the Company's ownership interest therein. Each
Company Affiliate that is a corporation or a limited liability company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the corporate or requisite power and
authority to own its properties and conduct its business. Each Company Affiliate
that is a partnership is an existing partnership under the laws of the
jurisdiction of its formation and has full partnership power and authority to
own its properties and conduct its business. Each Company Affiliate is qualified
and licensed to transact business in each jurisdiction where the failure to do
so would have a Material Adverse Effect. All of the outstanding shares of
capital stock of the Company Affiliates that are corporations have been duly
authorized and validly issued and are fully paid and nonassessable. All of the
outstanding shares of capital stock of, or other ownership interests in, each of
the Company Affiliates are owned by the Company free and clear of any Liens,
claims, options, charges or other encumbrances, except as expressly provided in
the organizational documents of the Company Affiliates. No Company Affiliate has
outstanding options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating the Company Affiliate
to issue, transfer or sell any securities of the Company Affiliate.
5.8 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Preferred Shares. No registration of the Preferred
Shares pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws will be required by the offer, sale or issuance of the
Preferred Shares pursuant to this Agreement.
5.9 Litigation. There is no complaint, action, order, writ,
injunction, judgment or decree outstanding, or claim, suit, litigation,
proceeding, labor dispute, arbitral action or investigation (collectively,
"Actions") pending or, to the knowledge of the Company, threatened against,
relating to or affecting (i) the assets of the Company or the Company Affiliates
or (ii) the transactions required to be performed under this Agreement or by the
Transaction Agreements. Neither the Company nor any of the Company Affiliates is
in default with respect to any judgment, order, writ, injunction or decree of
any court or governmental agency, and there are no unsatisfied judgments against
the Company or any Company Affiliate. There is not a reasonable likelihood of an
adverse determination of any pending Action that would, individually or in the
aggregate, have a Material Adverse Effect.
5.10 Financial Statements. The Audited Financial Statements have
been prepared in accordance with GAAP and fairly present in all material
respects the consolidated financial position of the Company and the Company
Affiliates as of the date thereof and the results of operations and cash flows
of the Company and the Company Affiliates for the period set forth therein.
5.11 Title and Condition of Assets.
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(a) The Company and each Company Affiliate has good title to all
of the personal property reflected on the balance sheet included in the Audited
Financial Statements or acquired by the Company or any of the Company Affiliates
since the date thereof, and all real and personal property reflected on such
balance sheet or acquired by the Company or the Company Affiliates since the
date thereof is free and clear of any Liens or defects of title, other than
Permitted Liens. The Company and each Company Affiliate has a valid and
enforceable leasehold interest in all real property leased by it pursuant to the
terms of the respective lease agreements (assuming that each respective landlord
has good and marketable title to all real property that is subject to such
leases and except as enforceability may be limited by applicable bankruptcy laws
or rights of creditors generally).
(b) The Facilities and Equipment are in good operating condition
and repair (except for ordinary wear and tear and any defect the cost of
repairing which would not be material), are sufficient for the operation of the
business of the Company and each Company Affiliate and are in conformity in all
material respects with applicable laws, ordinances, orders, regulations and
other requirements (including applicable zoning, environmental, motor vehicle
safety standards, occupational safety and health laws and regulations) relating
thereto, except where such failure to conform would not have a Material Adverse
Effect. The Company and each Company Affiliate enjoy peaceful and undisturbed
possession of all Facilities owned or leased by the Company or such Company
Affiliate, and, to the best knowledge of the Company, such Facilities are not
subject to any encroachments, building or use restrictions, exceptions,
reservations or limitations which in any material respect interfere with or
impair the present and continued use thereof in the usual and normal conduct of
the business of the Company or each Company Affiliate. There are no pending or,
to the best knowledge of the Company, threatened, condemnation proceedings
relating to any of the Facilities. The Facilities and the Equipment are insured
and are, to the best of the Company's knowledge, structurally sound with no
material defects.
(c) All assets are valued on the books of the Company or the
Company Affiliate at or below actual cost less appropriate depreciation charges.
Neither the Company nor any Company Affiliate has depreciated any of the Assets
for tax purposes in any manner inconsistent with the Code or the rules,
regulations, or guidelines of the Internal Revenue Service.
5.12 Contractual Obligations. Neither the Company nor any of the
Company Affiliates is in default or breach under or with respect to any
Contractual Obligation to which it is a party (and to the best knowledge of the
Company and such Company Affiliates no other party to any such Contractual
Obligation is in default or breach thereunder), except any such default which,
individually or together with all such defaults, would not have a Material
Adverse Effect.
5.13 Patents, Trademarks, Etc. As of the Closing, the Company owns
or is licensed or otherwise has the right to use all patents, trademarks,
service marks, trade
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names, copyrights, licenses, franchises and other intellectual property rights
that are material to the operation of the businesses of the Company (the
"Intellectual Property"). To the best knowledge of the Company, no product,
process, method, substance or other material presently sold by or employed by
the Company, or which the Company contemplates selling or employing, infringes
upon the patents, trademarks, service marks, trade names, copyrights, licenses
or other intellectual property rights that are owned by others. No litigation is
pending and no claim has been made against the Company or any Company Affiliate
or, to the best knowledge of the Company, is threatened, contesting the right of
the Company or any Company Affiliate to sell or use any product, process,
method, substance or other material presently sold by or employed by the Company
or any Company Affiliate. To the best knowledge of the Company, no patent,
invention, devise, principal or any statute, law, rule, regulation, standard or
code is pending or proposed, which would have a material adverse effect on the
Condition of the Company. The Company has not licensed any Intellectual Property
to any Person other than the Company Affiliates and no Person other than the
Company Affiliates has the right to license or use any Intellectual Property to
identify, or in connection with the operation of, its business.
5.14 Tax Matters.
(a) Filing of Tax Returns. Each of the Company and the Company
Affiliates (each such entity hereinafter a "Taxpayer" or collectively the
"Taxpayers") have timely filed with the appropriate taxing authorities all
returns (including without limitation information returns and other material
information) in respect of Taxes required to be filed through the date hereof
and will timely file any such returns required to be filed on or prior to the
Closing Date. The returns and other information filed (or to be filed) are
complete and accurate in all material respects.
(b) Payment of Taxes. All Taxes of each of the Taxpayers in
respect of periods beginning before the Closing Date have been timely paid, or
will be timely paid prior to the Closing Date, to the extent due and payable
prior to the Closing Date, and no Taxpayer has any material liability for Taxes
in excess of the amounts so paid. All Taxes that each Taxpayer has been required
to collect or withhold have been duly collected or withheld and, to the extent
required when due, have been or will be (prior to the Closing Date) duly paid to
the proper taxing authority.
(c) Audits Investigations or Claims. The federal income tax
returns of each of the Taxpayers have not been examined by the Internal Revenue
Service, and no material deficiencies for Taxes of any of the Taxpayers have
been claimed, proposed or assessed by any taxing or other governmental authority
against any of the Taxpayers which have not been reserved for in the Audited
Financial Statements. There are no pending or, to the best knowledge of the
Taxpayers, threatened audits, investigations or claims for or relating to any
material additional liability to any of them in respect of Taxes, and there are
no matters under discussion with any governmental authorities with respect to
Taxes that in the reasonable judgment of any of the Taxpayers, or its or their
counsel, is likely to result in a material additional liability to any of them
for
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Taxes. None of the Taxpayers' federal, state and local returns for Taxes are
currently under audit by the relevant taxing authorities and the results of any
prior audit are fairly presented in the Audited Financial Statements. None of
the Taxpayers have been notified that any taxing authority intends to audit a
return for any period. No extension of a statute of limitations relating to
Taxes is in effect with respect to any of the Taxpayers.
(d) Lien. There are no liens for Taxes (other than for current
Taxes not yet due and payable) on any assets of any Taxpayer.
(e) Partnership Status. Each of the Company Affiliates which
purports to be a limited liability company or a partnership is properly treated
as a partnership for federal income tax purposes and not as an association or
publicly traded partnership taxable as a corporation, and has been properly so
treated since the time of its organization.
(f) Tax Elections; Tax Sharing Arrangements.
(i) None of the Taxpayers have made an election, and none of
them are required, to treat any asset as owned by another person or as
tax-exempt bond financed property or tax-exempt use property within the meaning
of section 168 of the Code or under any comparable state or local income tax or
other tax provision.
(ii) None of the Taxpayers are a party to or bound by any
binding tax sharing, tax indemnity or tax allocation agreement or other similar
arrangement with any other party.
(iii) None of the Taxpayers have filed a consent pursuant to
the collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state or local law) or agreed to have Section
341(f)(2) of the Code (or any corresponding provision of state or local law)
apply to any disposition of any asset owned by it.
(g) Affiliated Group. None of the Taxpayers have ever been a
member of an affiliated group of corporations, within the meaning of Section
1504 of the Code.
(h) Section 481(a). None of the Taxpayers have agreed to make, or
are required to make, any adjustment under Section 481(a) of the Code by reason
of a change in accounting method or otherwise.
(i) Excess Parachute Payments. None of the Taxpayers are a party
to any agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
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(j) No Joint Venture. Other than the Company Affiliates which are
partnerships or limited liability companies, none of the Taxpayers is a party to
any joint venture, partnership, or other arrangement or contract which could be
treated as a partnership for federal income tax purposes.
5.15 Severance Arrangements. Except pursuant to the employment
agreements between the Company and Paul M. Fleming, Richard L. Federico and John
Middleton, neither the Company nor any Company Affiliate has entered into any
severance or similar arrangement in respect of any present or former employee
that will result in any obligation (absolute or contingent) of the Company or
any Company Affiliate to make any payment to any present or former employee
following termination of employment.
5.16 No Material Adverse Change. To the best knowledge of the
Company, since the Financial Statements Date, there has not been any Material
Adverse Effect, nor to the best knowledge of the Company is any such Material
Adverse Effect threatened.
5.17 Environmental Matters.
(a) Except as set forth on Schedule 5.17, the property, assets and
operations of the Company and each Company Affiliate are and have been in
compliance in all material respects with all applicable Environmental Laws;
there are no Hazardous Materials stored or otherwise located in, on or under any
of the property or assets of the Company and each Company Affiliate, including
the groundwater; and, to the best knowledge of the Company, there have been no
releases or threatened releases of Hazardous Materials in, on or under any
property adjoining any of the property or assets of the Company and each Company
Affiliate. Neither the Company nor any Company Affiliate has stored or caused to
be stored any Hazardous Materials on or under any of the property or assets of
the Company, including the groundwater, other than in compliance with
Environmental Laws; and the Company has not generated, released or discharged
any Hazardous Materials other than in compliance with Environmental Laws.
(b) None of the property, assets or operations of the Company or
any Company Affiliate is the subject of any federal, state or local
investigation evaluating whether (i) any remedial action is needed to respond to
a release or threatened release of any Hazardous Materials into the environment
or (ii) any release or threatened release of any Hazardous Materials into the
environment is in contravention of any Environmental Law.
(c) There are no pending, or, to the best knowledge of the
Company, threatened lawsuits or proceedings against the Company or any Company
Affiliate, with respect to violations of an Environmental Law or in connection
with the presence of or exposure to any Hazardous Materials in the environment
or any release or
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threatened release of any Hazardous Materials into the environment, and neither
the Company nor any Company Affiliate is or was the owner or operator of any
property which (i) pursuant to any Environmental Law has been placed on any list
of Hazardous Materials disposal sites, including without limitation, the
"National Priorities List" or "CERCLIS List," (ii) has or, to the best knowledge
of the Company, had any subsurface storage tanks located thereon; or (iii) to
the knowledge of the Company, has ever been used as or for a waste disposal
facility, a mine, a gasoline service station or a petroleum products storage
facility.
(d) Neither the Company nor any Company Affiliate has any present
or contingent liability in connection which the presence either on or off the
property or assets of the Company or any Company Affiliate of any Hazardous
Materials in the environment or any release or threatened release of any
Hazardous Materials into the environment, except for any such liability that
would not have a material adverse effect on the Condition of the Company.
5.18 Investment Company/Government Regulations. Immediately
following the Closing, after giving effect to the transactions contemplated by
the Transaction Agreements, neither the Company nor any Person controlling,
controlled by or under common control with the Company will be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
The Company is not subject to regulation under the Public Utility Holding
Company Act of 1935, as amended, the Federal Power Act, or any federal or state
statute or regulation limiting its ability to incur Indebtedness.
5.19 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Company or any officer, director, shareholder, or
Affiliate of the Company, or any action taken by any such person except for the
fee payable to Montgomery Securities in the amount of $100,000 pursuant to the
engagement letter dated September 10, 1995, as evidenced by the invoice dated
April 24, 1997.
5.20 Labor Relations and Employee Matters. Neither the Company nor
any Company Affiliate is engaged in any unfair labor practice. There is (i) no
unfair labor practice complaint pending or, to the best knowledge of the
Company, threatened against the Company or any Company Affiliate before the
National Labor Relations Board, and no grievance or arbitration proceeding
arising out of or under collective bargaining agreements is so pending or, to
the best knowledge of the Company, threatened against the Company or any Company
Affiliate, (ii) no strike, labor dispute, slowdown or stoppage pending or, to
the best knowledge of the Company, threatened against the Company or any Company
Affiliate, and (iii) no union representation question existing with respect to
the employees of the Company or any Company Affiliate and, to the knowledge of
the Company, no union organizing activities are
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taking place. The Company is not a party to any collective bargaining agreement
or covenant not to compete.
5.21 Employee Benefits Matters.
(a) Pension Plans and Multiemployer Plans. Neither the Company nor
any ERISA Affiliate sponsors, maintains, contributes to, is required to
contribute to or otherwise has a liability or potential liability with respect
to, or has at any time sponsored, maintained, contributed to, or been required
to contribute to, a Pension Plan or a Multiemployer Plan.
(b) Welfare Plans.
(i) Each Welfare Plan which covers or has covered employees
or former employees of the Company or a Company Affiliate (with respect to their
relationship with such entities) has been maintained in material compliance with
its terms and, both as to form and operation, with the requirements prescribed
by any and all statutes, orders, rules and regulations which are applicable to
such Welfare Plan, including but not limited to ERISA and the Code.
(ii) None of the Company, any ERISA Affiliate or any Welfare
Plan has any present or future obligation to make any payment to or with respect
to any present or former employee of the Company or any ERISA Affiliate pursuant
to any retiree medical benefit plan, or other retiree Welfare Plan, and no
condition exists which would prevent the Company from amending or terminating
any such benefit plan or Welfare Plan.
(iii) Each Welfare Plan which covers or has covered employees
or former employees of the Company or a Company Affiliate and which is a "group
health plan," as defined in Section 607(1) of ERISA, has been operated in
material compliance with the provisions of Part 6 of Title I, Subtitle B of
ERISA and Sections 162K and 4980B of the Code at all times.
(c) Benefit Arrangements. Each Benefit Arrangement which covers or
has covered employees or former employees of the Company or a Company Affiliate
(with respect to their relationship with such entities) has been maintained in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Benefit
Arrangement, including but not limited to the Code.
(d) Unrelated Business Taxable Income. No Employee Plan (or trust
or other funding vehicle pursuant thereto) is subject to any tax under Code
Section 511.
(e) Deductibility of Payments. There is no contract, agreement,
plan or arrangement covering any employee or former employee of the Company or a
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Company Affiliate (with respect to their relationship with such entities) that,
individually or collectively, provides for the payment by the Company of any
amount (i) that is not deductible under Section 162(a)(1) or 404 of the Code or
(ii) for which the deduction by Company would be disallowed under Section 162(m)
of the Code.
(f) Fiduciary Duties and Prohibited Transactions. Neither the
Company nor any plan fiduciary of any Welfare Plan which covers or has covered
employees or former employees of the Company or any ERISA Affiliate, has engaged
in any transaction in violation of Sections 404 or 406 of ERISA or any
"prohibited transaction," as defined in Section 4975(c)(1) of the Code, for
which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or
(d) of the Code.
(g) Validity and Enforceability. Each Welfare Plan, related trust
agreement or other funding instrument and Benefit Arrangement which covers or
has covered employees or former employees of the Company or a Company Affiliate
(with respect to their relationship with such entities) is legally valid and
binding and in full force and effect.
(h) Litigation. There is no action, order, writ, injunction,
judgment or decree outstanding or claim, suit, proceeding, arbitral action,
governmental audit or investigation relating to or seeking benefits under any
Employee Plan that is pending, or, to the best knowledge of the Company,
threatened against the Company, any ERISA Affiliate or any Employee Plan other
than a domestic relations order or a qualified domestic relations order.
(i) No Amendments. Neither the Company nor any ERISA Affiliate has
any announced plan or legally binding commitment to create any additional
Employee Plans which are intended to cover employees or former employees of the
Company or a Company Affiliate (with respect to their relationship with such
entities) or to amend or modify any existing Employee Plan which covers or has
covered employees or former employees of the Company or a Company Affiliate
(with respect to their relationship with such entities).
(j) No Other Material Liability. No event has occurred in
connection with which the Company or any ERISA Affiliate or any Employee Plan,
directly or indirectly, could be subject to any material liability (i) under any
statute, regulation or governmental order relating to any Employee Plans or (ii)
pursuant to any obligation of the Company or any Company Affiliate to indemnify
any person against liability incurred under, any such statute, regulation or
order as they relate to the Employee Plans. The Company has performed all of its
obligations under all Employee Plans including, without limitation, the full
payment when due of all amounts required to be made as contributions to any
Employee Plan or otherwise and there is no unfunded liability for vested or
non-vested benefits under any funded Employee Plan.
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(k) No Acceleration or Creation of Rights. Neither the execution
and delivery of this Agreement or other related agreements by the Company nor
the consummation of the transactions contemplated hereby or the related
transactions will result in the acceleration or creation of any rights of any
person to benefits under any Employee Plan.
5.22 Undisclosed Liabilities. Neither the Company nor any Company
Affiliate have any liabilities or obligations (absolute, accrued, contingent or
otherwise) to the best knowledge of the Company except (i) liabilities that are
reflected and reserved against on the balance sheet included in the Audited
Financial Statements (including the notes thereto), or (ii) liabilities incurred
in the ordinary course of business and consistent with the past practice of the
Company.
5.23 Solvency. Neither the Company nor any Company Affiliate has
(i) made a general assignment for the benefit of its creditors, (ii) filed any
voluntary petition in bankruptcy or suffered the filing of any involuntary
petition in bankruptcy by its creditors, (iii) suffered the appointment of a
receiver to take possession of all or substantially all of its assets or
properties, (iv) suffered the attachment or other judicial seizure of all or
substantially all of its assets or (v) admitted in writing its inability to pay
its debts as they come due. After giving effect to the transactions contemplated
by the Transaction Agreements, the Company will not (i) have liabilities which
exceed the stated value of its assets, or (ii) be left with unreasonably small
capital with which to engage in its respective business for the foreseeable
future, or (iii) have incurred debts beyond its ability to pay such debts as
they mature.
5.24 Compliance with Law. To the best knowledge of the Company, the
Company and the Company Affiliates and the conduct of their businesses is in
compliance with all applicable laws, statutes, ordinances and regulations,
whether federal, state or local, except where the failure to comply would not
have a Material Adverse Effect. Neither the Company nor any Company Affiliate
has received any written notice to the effect that, or to the knowledge of the
Company, it is not in compliance with any of such statutes, regulations, orders,
ordinances or other laws where the failure to comply would have a material
adverse effect on the Condition of the Company or, to the best knowledge of the
Company has no reason to anticipate that any presently existing circumstances
are likely to result in violations of any such regulations which would, in any
one case or in the aggregate, have a Material Adverse Effect.
5.25 No Other Agreements to Sell the Assets or Capital Stock of the
Company. Neither the Company nor any Company Affiliate has any legal obligation,
absolute or contingent, other than the obligations of the Company and each
Company Affiliate under the Transaction Agreements, to any person or firm to (i)
sell or license the assets other than in the ordinary course of business
consistent with past practices, (ii) sell any capital stock of the Company
(other than as set forth in Section 5.6) or
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effect any merger, consolidation or other reorganization of the Company or (iii)
enter into any agreement with respect to any of the foregoing.
5.26 Hart-Scott-Rodino. The Person (as that term is defined in 16
C.F.R. 801.1(a)(1)) of which the Company is a part does not have total assets
or annual net sales of $100,000,000 or more, as measured under the applicable
rules and regulations interpreting the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act").
5.27 Budget. The Company's budget for the fiscal year ending
December 31, 1997 represents the Company's management's good faith estimate of
the future financial and operating performance of the Company (for the period
set forth therein), based upon the best currently available information. As of
the Closing Date, no event shall have occurred that would result in a material
adverse change in such budget or the assumptions underlying such budget.
5.28 Insurance. The Company maintains fire, theft, casualty,
liability and such other insurance policies as are customary and adequate for
the Company's business.
5.29 Disclosure.
(a) Agreement and Other Documents. This Agreement does not, and
the documents and certificates executed by the Company or otherwise furnished by
the Company to the Purchasers at the Closing will not, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
(b) Material Adverse Effects. There is no fact known to the
Company, which the Company has not disclosed to the Purchasers in writing, which
materially adversely affects, or insofar as the Company can reasonably foresee,
will have a Material Adverse Effect.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company as of the date hereof as follows:
6.1 Existence and Authority. Such Purchaser (a) is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, (b) has all requisite power and authority to own
its assets and operate its business, and (c) has all requisite power and
authority to execute, deliver and perform
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its obligations under each of the Transaction Agreements to which it is or will
be a party.
6.2 Authorization; No Contravention. The execution, delivery and
performance by such Purchaser of the Transaction Agreements to which it is a
party and the consummation of the transactions contemplated thereby, including,
without limitation, the acquisition of the Preferred Shares: (a) is within such
Purchaser's power and authority and has been duly authorized by all necessary
action on the part of such Purchaser; (b) does not conflict with or contravene
the terms of such Purchaser's organizational documents or any amendment thereof;
and (c) will not violate, conflict with or result in any material breach or
contravention of (i) any Contractual Obligation of such Purchaser, or (ii) the
Requirements of Law or any order or decree applicable to such Purchaser.
6.3 Governmental Authorization; Third Party Consent. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
Requirements of Law, and no lapse of a waiting period under any Requirements of
Law, is necessary or required in connection with the execution, delivery or
performance by such Purchaser (including, without limitation, the acquisition of
the Preferred Shares and issuance of Common Stock upon the conversion or
exercise of the Preferred Shares) or enforcement against such Purchaser of this
Agreement or the other Transaction Agreements to which it is a party, or the
transactions contemplated thereby.
6.4 Binding Effect. This Agreement has been duly executed and
delivered by such Purchaser, and this Agreement constitutes the legal, valid and
binding obligation of such Purchaser, enforceable against it in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.5 Purchase for Own Account. The Preferred Shares and the Common
Stock to be issued upon conversion of the Preferred Shares, are being or will be
acquired by such Purchaser for its own account and with no intention of
distributing or reselling such securities or any part thereof in any transaction
that would be in violation of the securities laws of the United States of
America, or any state, without prejudice, however, to the rights of such
Purchaser at all times to sell or otherwise dispose of all or any part of the
Preferred Shares or the shares of Common Stock issuable upon conversion of the
Preferred Shares under an effective registration statement under the Securities
Act, or under an exemption from such registration available under the Securities
Act, and subject, nevertheless, to the disposition of such Purchaser's property
being at all times within its control. Such Purchaser agrees not to dispose of
any of the Preferred Shares or the shares of Common Stock issuable upon
conversion of the Preferred Shares, unless it does so only in compliance with
the Securities Act and applicable state securities laws, as then in effect. Such
Purchaser agrees to the
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imprinting, so long as required by law, of a legend on certificates representing
all of the Preferred Shares or the shares of Common Stock to be issued upon
conversion of the Preferred Shares to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN AN AMENDED AND
RESTATED SHAREHOLDERS AGREEMENT DATED AS OF MAY 1, 1997. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED FROM THE COMPANY UPON REQUEST."
6.6 Accredited Investor Status. Such Purchaser is an "accredited
investor" as such term is defined in Rule 501(a) of Regulation D, promulgated
under the Securities Act. Each Purchaser shall provide such information with
respect to its status as an "accredited investor" that the Company shall have
reasonably requested prior to the Closing Date.
6.7 Investment Risk. Each Purchaser has the ability to bear the
economic risks of the Purchaser's prospective investment and the Purchaser is
able, without materially impairing its financial condition, to hold the
Preferred Stock for an indefinite period of time and to suffer complete loss on
its investment. Each Purchaser understands and has fully considered for purposes
of this investment the risks of this investment and understands that: (i) this
investment is suitable only for an investor who is able to bear the economic
consequences of losing his or its entire investment; (ii) the Preferred Shares
represent an extremely speculative investment which involves a high degree of
risk of loss; (iii) there are substantial restrictions on the transferability of
the Preferred Shares and, accordingly, it may not be possible for the Purchaser
to liquidate his or its investment in the Preferred Shares; and (iv) there have
been no representations as to the possible future value, if any, of the
Preferred Shares. Each Purchaser acknowledges that it has been provided the
opportunity to ask questions and receive answers from duly authorized officers
or other representatives of the Company concerning the Company. Each Purchaser
acknowledges that its acquisition of the Preferred Shares hereunder may involve
tax consequences to such Purchaser and that the Company has not provided such
Purchaser with tax advice.
Each Purchaser understands and acknowledges that the sale of
the Preferred Shares pursuant to this Agreement will not be registered under the
Securities Act on the grounds that the offering and sale of securities
contemplated by this Agreement are exempt from registration pursuant to Section
4(2) of the Securities Act, and that the
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Company's reliance upon such exemption is predicated in part upon the
Purchaser's representations set forth in this Agreement.
6.8 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Purchasers.
ARTICLE 7
COVENANTS OF THE COMPANY
From the date hereof until the Closing Date, the Company hereby
covenants and agrees with the Purchasers as follows:
7.1 Further Assurances. Upon the terms and subject to the
conditions contained herein, each of the parties hereto agrees, both before and
after the Closing, (i) to use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement, (ii) to execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing, including using their reasonable respective best
efforts (A) to obtain all necessary waivers, consents and approvals from other
parties that may be required; (B) to obtain all necessary permits as are
required to be obtained under any federal, state, local or foreign law or
regulations, and (C) to fulfill all conditions to this Agreement.
7.2 Notification of Certain Matters. From the date hereof
through the Closing, the Company shall give prompt notice upon obtaining
knowledge thereof to Purchaser of (a) the occurrence, or failure to occur, of
any event which occurrence or failure would be likely to cause any
representation or warranty contained in this Agreement or in any exhibit or
schedule hereto to be untrue or inaccurate in any material respect and (b) any
material failure of the Company to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or any exhibit or schedule hereto.
7.3 Access to Information. From the date hereof through the
Closing, the Company shall, and shall cause its officers, directors, employees
and agents to, afford the Purchasers (or its representatives) access at all
times to the Company's records for the purpose of inspecting the same, and
subject to prior written request, to the officers, employees, agents, attorneys,
accountants, properties, and contracts of the Company, and shall furnish
Purchasers all financial, operating and other data and information as the
Purchasers or their representatives, may reasonably request.
28
<PAGE> 35
7.4 Conduct of Business. From the date hereof through the
Closing, the Company shall, except as contemplated by this Agreement, or as
consented to by Purchaser in writing which consent will not be unreasonably
withheld, operate the Company in the ordinary course of business and in
accordance with past practice and will not take any action inconsistent with
this Agreement or with the consummation of the Closing. The Company agrees that
neither it, nor anyone acting on its behalf, will offer or sell the Preferred
Shares or any other security in a manner that would require the issuance and
sale of the Preferred Shares to be registered or qualified pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws.
ARTICLE 8
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until (a) all shares of Preferred Stock are no longer outstanding
due to conversion, redemption or otherwise, and (b) the Company has paid to the
Purchasers all other amounts due to them under the Transaction Agreements or the
Certificate, the Company hereby covenants and agrees with the Purchasers as
follows:
8.1 Reservation of Shares. The Company shall at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue or delivery upon conversion of the Preferred Shares as provided
in the Certificate, the maximum number of shares of Common Stock that may be
issuable or deliverable upon such conversion, as well as the number of shares of
Common Stock that may be issuable or deliverable upon conversion of the Series B
Preferred Stock issued to the Purchasers as dividends. Such shares of Common
Stock shall, when issued or delivered in accordance with the provisions of the
Certificate, be duly authorized, validly issued and fully paid and
non-assessable. The Company shall issue such Common Stock in accordance with the
provisions of the Certificate and shall otherwise comply with the terms thereof.
8.2 Books and Records. The Company shall, and shall cause each
of the Company Affiliates, together with any newly formed subsidiaries of the
Company, to, keep proper books of record and account, in which full and correct
entries shall be made of all financial transactions and the assets and business
of the Company and each of such Company Affiliates or subsidiaries in accordance
with GAAP, to the extent GAAP is applicable. The Company shall provide the
Purchasers with reasonable access to all such books and records during regular
business hours and allow the Purchasers to make copies and abstracts thereof.
8.3 Use of Proceeds. The Company shall use the proceeds of the
sale of Preferred Shares hereunder only (a) as working capital for the Company,
(b) for
29
<PAGE> 36
expansion of the Company, and (c) for the payment of fees and expenses in
connection with the Transaction Agreements.
8.4 New Lines of Business. The Company shall not without the
prior written consent of holders of a majority in interest of the Preferred
Shares, engage in any business other than the preparation and distribution of
Chinese food products or any line of business that is related thereto.
8.5 Compensation of Directors. Each member of the Board of
Directors shall be reimbursed by the Company for all out-of-pocket expenses,
including, without limitation, travel expenses, incurred by such director in
connection with the performance of such director's duties.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification. In addition to all other sums due
hereunder or provided for in this Agreement and all other remedies that may be
otherwise available, the Company (the "Indemnifying Party") agrees to indemnify
and hold harmless each Purchaser and its Affiliates and its respective officers,
directors, agents, employees, partners and assigns (each, an "Indemnified
Party") to the fullest extent permitted by law from and against any and all (i)
Environmental Expenses and (ii) tax liabilities, losses, costs, claims, damages,
expenses (including reasonable fees, disbursements and other charges of counsel)
and other liabilities (collectively, "Liabilities") based upon, relating to or
arising out of any breach of any representation or warranty, covenant or
agreement of such Indemnifying Party in this Agreement or any legal,
administrative or other actions (including actions brought by any of the
Purchasers or any Indemnifying Party or any equity holders of the Company or
derivative actions brought by any Person claiming through or in the Company's
name), proceedings or investigations (whether formal or informal), or written
threats thereof, based upon, relating to or arising out of (A) the status of the
Purchasers as shareholders of the Company and the existence or exercise of the
rights and powers of the Purchasers (including without limitation, any claim
against any Indemnified Party relating to Environmental Matters), (B) violations
of applicable securities laws by the Company in connection with the offering of
the Preferred Shares, or (C) third party claims that the Preferred Shares
hereunder violate preexisting understandings or arrangements with the Company;
provided, however, that no Indemnifying Party shall be liable under this Section
9.1 to an Indemnified Party: (a) for any amount paid in settlement of claims
without such Indemnifying Party's consent (which consent shall not be
unreasonably withheld), (b) to the extent that it is finally judicially
determined that such Liabilities resulted solely from the willful misconduct or
gross negligence of such Indemnified Party, or (c) to the extent that it is
finally judicially determined that such Liabilities resulted solely from the
material breach by such Indemnified Party of any representation, warranty,
covenant or other agreement of such Indemnified Party contained in this
Agreement; provided, further, that if and to the
30
<PAGE> 37
extent that such indemnification is unenforceable for any reason, the
Indemnifying Party shall make the maximum contribution to the payment and
satisfaction of such indemnified liability which shall be permissible under
applicable laws. In connection with the obligation of the Indemnifying Party to
indemnify for expenses as set forth above, the Indemnifying Party further agrees
to reimburse each Indemnified Party for all such expenses (including reasonable
fees, disbursements and other charges of counsel) as they are incurred by such
Indemnified Party.
The Company shall be liable for losses pursuant to this Section
9.1 only to the extent that the aggregate amount of such losses exceed $100,000
(the "Basket Amount"), whereupon the Company shall be liable for all such losses
in excess of the Basket Amount.
Notwithstanding any other provision of this Agreement, the Basket
Amount shall not apply to Liabilities (collectively, the "Exceptional
Liabilities") incurred by the Purchasers based upon, relating to or arising out
of (i) any breach of the representations and warranties in Section 5.14 of the
this Agreement; (ii) the Company's ownership of the assets it purports to own
after giving effect to the transactions contemplated by this Agreement; and
(iii) the organization and corporate or other governance of the Company
Affiliates prior to the Closing.
9.2 Notification. Each Indemnified Party under this Article 9
will, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from any Indemnifying Party under this
Article 9, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such Indemnified Party under this Article 9 except to the extent
that such failure to notify results in a loss of a material defense of such
Indemnified Party in actual prejudice due to such action. In case any such
action, claim or other proceeding shall be brought against any Indemnified Party
and such Indemnified Party shall notify the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that any
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action, claim
or proceeding in which both the Indemnifying Party, on the one hand, and an
Indemnified Party, on the other hand, is, or is reasonably likely to become, a
party, such Indemnified Party shall have the right to employ separate counsel at
the Indemnifying Party's expense and to control its own defense of such action,
claim or proceeding if, in the reasonable opinion of counsel to such Indemnified
Party, a conflict or potential conflict exists between the Indemnifying Party,
on the one hand, and such Indemnified Party, on the other hand, that would make
such separate representation advisable. The Indemnifying Party agrees that it
will not, without the prior written consent of the Purchasers (such consent not
to be unreasonably withheld),
31
<PAGE> 38
settle, compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding relating to the matters contemplated
hereby (if any Indemnified Party is a party thereto or has been actually
threatened to be made a party thereto) unless such settlement, compromise or
consent includes an unconditional release of the Purchasers and each other
Indemnified Party from all liability arising or that may arise out of such
claim, action or proceeding. The rights accorded to Indemnified Parties
hereunder shall be in addition to any rights that any Indemnified Party may have
at common law, by separate agreement or otherwise.
9.3 Registration Rights Agreement. Notwithstanding anything to
the contrary in this Article 9, the indemnification and contribution provisions
of the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
ARTICLE 10
MISCELLANEOUS
10.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date by the mutual written consent of the Purchasers and
the Company. In the event of a termination, no party hereto (or any of its
directors or officers or shareholders, partner, members or Affiliates) shall
have any liability or further obligation to any other party hereto or directors
or officers in respect thereof, other than as provided under Section 10.3,
except that nothing herein will relieve any party from liability for any breach
of this Agreement.
10.2 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the Closing Date of
this Agreement for a period of two (2) years from the date hereof except the
representations and warranties in (i) Sections 5.11(a) and 5.17 shall survive
until the statute of limitations period has expired for such representations and
warranties and (ii) Section 5.14 shall survive until thirty days after the
expiration of the statute of limitations period has expired for such
representations and warranties.
10.3 Confidential Information. The Company and the Purchasers
shall each maintain as confidential any non-public, confidential and proprietary
information (collectively, "Confidential Information") provided by one to the
other regarding the matters contained in the Transaction Agreements or with
respect to the other. The Company and Purchasers and each of their partners,
officers, directors, members, employees, agents and representative
(collectively, "Representatives") will not disclose, use or otherwise
appropriate the Confidential Information in any way detrimental to the other
party, and the Confidential Information will be kept confidential by each party;
provided, however, that any Confidential Information may be disclosed by
Purchasers to their partners and shareholders and to prospective investors who
require such information for the purpose of evaluating the transactions
contemplated by the
32
<PAGE> 39
Transaction Agreements. If no transaction is effected pursuant to the terms of
the Transaction Agreements, the Company and Purchasers shall each promptly
deliver to the other party any Confidential Information of such other party,
without retaining any copy thereof.
10.4 Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
service or personal delivery:
(a) if to Purchasers:
Catterton Partners Corporation
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: J. Michael Chu
Oak Investment Partners
4550 Norwest Center
Minneapolis, Minnesota 55402
Attention: Gerald Gallagher
Trinity Ventures, Ltd.
155 Bovet Road, Suite 660
San Mateo, California 94402
Attention: James G. Shennan, Jr.
Global Retail Partners, L.P.
221 Avenue of the Stars
30th Floor
Los Angeles, California 90067
Attention: Yves Sisteron
Jackson National Life Insurance Company
c/o PPM America, Inc.
225 West Wacker Drive
Suite 1200
Chicago, Illinois 60606
Attention: Private Finance Group
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W, Suite 1300
Washington, DC 20004-2505
Attention: Michael Bell, Esq.
33
<PAGE> 40
(b) if to the Company:
P.F. Chang's China Bistro, Inc.
5090 North 40th Street
Suite 160
Phoenix, Arizona 85018
Attention: Robert T. Vivian
with a copy to:
Lewis and Roca LLP
40 North Central
Suite 1900
Phoenix, Arizona 85004
Attention: Kevin G. Hunter, Esq.
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; when mailed, five
business days after being deposited in the mail, postage prepaid.
10.5 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. This Agreement may not be assigned by any Purchaser subsequent
to the Closing without the written consent of the Company. The Company may not
assign any of its rights under this Agreement without the written consent of
each of the Purchasers.
10.6 Amendment and Waiver.
(a) No failure or delay on the part of the Company or the
Purchasers in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party from the terms of any provision of
this Agreement, shall be effective (i) only if it is made or given in writing
and signed by the Company and all holders of the Preferred Shares or by the
party or parties to be bound hereby, and (ii) only in the specific instance and
for the specific purpose for which made or given. Except where notice is
specifically required by this Agreement, no notice to or demand
34
<PAGE> 41
on any party in any case shall entitle any party hereto to any other or further
notice or demand in similar or other circumstances.
10.7 Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
10.8 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
10.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of law of such state.
10.10 Jurisdiction. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated hereby
shall be brought in the courts of the State of New York or of the United States
of America for the District of New York and hereby expressly submits to the
personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 10.2, such service to
become effective 10 days after such mailing.
10.11 Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provision or provisions held invalid, illegal or unenforceable shall
substantially impair the remaining provisions hereof.
10.12 Rules of Construction. Unless the context otherwise
requires, "or" is not exclusive, and references to sections or subsections refer
to sections or subsections of this Agreement.
10.13 Entire Agreement. This Agreement, together with the
exhibits and schedules hereto and the other Transaction Agreements, is intended
by the parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, warranties or undertakings, other than
those set forth herein or therein. This Agreement, together with the exhibits
and schedules hereto and the other Transaction
35
<PAGE> 42
Agreements, supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
10.14 Transaction Expenses. Each party will pay its own expenses
incurred in connection with the transactions contemplated by this Agreement,
regardless whether the transactions contemplated hereby are consummated.
10.15 Severability of Representations, Warranties and Covenants.
Each Purchaser shall be liable to the Company solely for its own breach or
violation, if any, of any representation, warranty or covenant made or to be
complied with by such Purchaser. The Company shall not be liable to the
Purchasers for the breach or violation, if any, of any representation, warranty
or covenant made or to be complied with by any Purchaser, but the Company shall
be liable to the Purchasers solely for its breach or violation, if any, of any
representation, warranty, or covenant made or to be complied with by the
Company.
36
<PAGE> 43
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
P.F. CHANG'S CHINA BISTRO, INC.
By:
---------------------------------
Richard L. Federico, President
5090 North 40th Street, Suite 160
Phoenix, Arizona 85018
Attention: Robert T. Vivian
Telephone: 602-957-8986
Telecopy: 602-957-8998
37
<PAGE> 44
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
CATTERTON-PFC, L.L.C.
By: CATTERTON PARTNERS
CORPORATION its
Managing Member
By:
---------------------------------
Name:
Title:
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: J. Michael Chu
Telephone: 203-629-4901
Telecopy: 203-629-4903
38
<PAGE> 45
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
CATTERTON-PFC PARTNERS II, L.L.C.
By: CATTERTON PARTNERS CORPORATION
its Managing Member
By:
---------------------------------
Name:
Title:
115 East Putnam Avenue
Greenwich, Connecticut 06830
Attention: J. Michael Chu
Telephone: 203-629-4901
Telecopy: 203-629-4903
39
<PAGE> 46
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
OAK INVESTMENT PARTNERS VI,
LIMITED PARTNERSHIP
By:
---------------------------------
Gerald R. Gallagher
Managing Member of
Oak Associates VI, LLC,
the General Partner of Oak
Investment Partners VI,
Limited Partnership
Oak Investment Partners
4550 Norwest Center
Minneapolis, Minnesota 55402
Attention: Gerald Gallagher
Telephone: 612-339-9322
Telecopy: 612-337-8017
OAK VI AFFILIATES FUND, LIMITED
PARTNERSHIP
By:
---------------------------------
Gerald R. Gallagher
Managing Member of Oak VI
Affiliates, LLC, the General
Partner of Oak VI Affiliates
Fund, Limited Partnership
Oak Investment Partners
4550 Norwest Center
Minneapolis, Minnesota 55402
Attention: Gerald Gallagher
Telephone: 612-339-9322
Telecopy: 612-337-8017
40
<PAGE> 47
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
TRINITY VENTURES V, L.P.
By:
---------------------------------
James G. Shennan, Jr.
General Partner
Trinity Ventures
155 Bovet Road, Suite 660
San Mateo, California 94402
Attention: James G. Shennan, Jr.
Telephone: 415-358-9700
Telecopy: 415-358-9785
TRINITY VENTURES V SIDE-BY-SIDE
FUND, L.P.
By:
---------------------------------
James G. Shennan, Jr.
General Partner
Trinity Ventures
155 Bovet Road, Suite 660
San Mateo, California 94402
Attention: James G. Shennan, Jr.
Telephone: 415-358-9700
Telecopy: 415-358-9785
41
<PAGE> 48
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
ARABELLA S.A.
By:
---------------------------------
Name:
Title:
c/o Scorpion Holdings
599 Lexington Avenue, Suite 2700
Attention: Kevin McCarthy
Telephone: (212) 207-9020
Telecopy: (212) 207-9050
ALBA, LTD.
By:
---------------------------------
Name:
Title:
c/o Scorpion Holdings
599 Lexington Avenue, Suite 2700
Attention: Kevin McCarthy
Telephone: (212) 207-9020
Telecopy: (212) 207-9050
42
<PAGE> 49
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
YVES SISTERON
---------------------------------
602 North Crescent Avenue
Beverly Hills, California 90210
Telephone: 310-858-8042
Telecopy: 310-550-1876
STEVEN LEBOW
---------------------------------
150 North Cliffwood
Los Angeles, California 90049
Telephone: 310-282-6165
Telecopy: 310-282-6178
43
<PAGE> 50
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
SUSAN C. SCHNABEL AND EDWARD L.
PLUMMER, JOINTLY
---------------------------------
Susan C. Schnabel
---------------------------------
Edward L. Plummer
40858 N. 109th Place
Scottsdale, Arizona 85262
Telephone: (602) 595-1366
Telecopy: (602) 595-1041
44
<PAGE> 51
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
JOSEPH SCHELL
---------------------------------
3983 Happy Valley Road
Lafayette, California 94549
Telephone: 415-627-2000
Telecopy: 415-249-5513
KARL MATTHIES
---------------------------------
7 Bellagio Road
P. O. Box 1322
Ross, California 94957
Telephone: 415-627-2250
Telecopy: 415-249-5513
MURRAY HUNEKE
---------------------------------
315 Ambar Way
Menlo Park, California 94025
Telephone: 415-627-2873
Telecopy: 415-249-5512
45
<PAGE> 52
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
DAVID JACQUIN
---------------------------------
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Telephone: (415) 627-2000
Telecopy: (415) 249-5513
PAUL S. MADERA AND JOAN K.
MADERA, JTWROS
---------------------------------
Paul S. Madera
---------------------------------
Joan K. Madera
1205 Vancouver Avenue
Burlingame, California 94010
Telephone: 415-627-3174
Telecopy: 413-249-5704
KENNETH LANG
---------------------------------
c/o Putnam Investments
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 760-7443
Telecopy: (617) 292-1784
46
<PAGE> 53
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
EDWARD J. MATHIAS
---------------------------------
5120 Cammack Drive
Bethesda, Maryland 20816
Telephone: 202-626-1228
Telecopy: 202-347-1818
A. WILLIAM ALLEN
---------------------------------
7710 Sweetgum Avenue
Los Colinas, Texas 75063
Telephone: (972) 401-0668
Telecopy: (972) 444-8375
47
<PAGE> 54
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
J. RICHARD FREDERICKS
---------------------------------
2395 Vallejo Street
San Francisco, California 94010
Telephone: 415-627-2000
Telecopy: 413-249-5513
C. DONALD DORSEY
---------------------------------
1225 E. Warner Road, Lot 18
Tempe, Arizona 85284-3245
Telephone: (602) 491-3109
Telecopy: (602) 491-1505
48
<PAGE> 55
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
MICHAEL G. MUELLER AND CHRISTINE
ELLEN CULLENS, TRUSTEES OF THE
MUELLER-CULLENS FAMILY TRUST U/D/T
DATED JULY 9, 1996
---------------------------------
Michael G. Mueller, Trustee
---------------------------------
Christine Ellen Cullens, Trustee
2710 Filbert Street
San Francisco, California 94123
Telephone: 415-775-4528
49
<PAGE> 56
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
MICHAEL WELBORN
---------------------------------
c/o Bank One, Arizona
201 North Central Avenue
35th Floor
Phoenix, Arizona 85004
Telephone: (602) 221-1674
Telecopy: (602) 221-2684
50
<PAGE> 57
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
GLOBAL RETAIL PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.,
its General Partner
By:
---------------------------------
Name:
Title:
Global Retail Partners, L.P.
277 Park Avenue, 19th Floor
New York, New York 10172
Attention: Nicole Arnaboldi/Theo Rand
Telephone: (212) 892-3000
Telecopy: (212) 892-7552
Global Retail Partners, L.P.
2121 Avenue of the Stars, 30th Floor
Los Angeles, California 90067
Attention: Osamu Watanabe
Telephone: (310) 282-6100
Telecopy: (310) 282-6178
51
<PAGE> 58
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.,
its General Partner
By:
---------------------------------
Name:
Title:
DLJ Diversified Partners, L.P.
277 Park Avenue, 19th Floor
New York, New York 10172
Attention: Nicole Arnaboldi/Theo Rand
Telephone: (212) 892-3000
Telecopy: (212) 892-7552
with copy to:
DLJ Diversified Partners, L.P.
277 Park Avenue, 23rd Floor
New York, New York 10172
Attention: Ivy Dodes
Telephone: (212) 892-3000
Telecopy: (212) 892-2689
52
<PAGE> 59
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
GRP PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.,
its General Partner
By:
---------------------------------
Name:
Title:
GRP Partners, L.P.
277 Park Avenue, 19th Floor
New York, New York 10172
Attention: Nicole Arnaboldi/Theo Rand
Telephone: (212) 892-3000
Telecopy: (212) 892-7552
with copy to:
GRP Partners, L.P.
2121 Avenue of the Stars, 30th Floor
Los Angeles, California 90067
Attention: Osamu Watanabe
Telephone: (310) 282-6100
Telecopy: (310) 282-6178
53
<PAGE> 60
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
GLOBAL RETAIL PARTNERS FUNDING, INC.
By:
---------------------------------
Name:
Title:
Global Retail Partners Funding, Inc.
277 Park Avenue, 19th Floor
New York, New York 10172
Attention: Nicole Arnaboldi/Theo Rand
Telephone: (212) 892-3000
Telecopy: (212) 892-7552
with copy to:
Global Retail Partners Funding, Inc.
2121 Avenue of the Stars
Los Angeles, California 90067
Attention: Osamu Watanabe
Telephone: (310) 282-6100
Telecopy: (310) 282-6178
54
<PAGE> 61
P.F. CHANG'S CHINA BISTRO, INC.
STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement or caused this Agreement to be executed and delivered by their
authorized representatives as of the date first above written.
DLJ FIRST ESC L.L.C.
By: DLJ LBO PLANS MANAGEMENT CORPORATION,
its Manager
By:
--------------------------------------
Name:
Title:
DLJ First ESC L.L.C.
277 Park Avenue, 19th Floor
New York, New York 10172
Attention: Ed Poletti
Telephone: (212) 892-3005
Telecopy: (212) 892-7272
with copy to:
DLJ First ESC L.L.C.
277 Park Avenue, 23rd Floor
New York, New York 10172
Attention: Ivy Dodes
Telephone: (212) 892-3000
Telecopy: (212) 892-2689
55
<PAGE> 1
Exhibit 10.9
AMENDED AND RESTATED
REVOLVING LINE OF CREDIT
LOAN AGREEMENT
THIS AMENDED AND RESTATED REVOLVING LINE OF CREDIT LOAN AGREEMENT (this
"Agreement") is made as of June 29, 1998 (the "Effective Date"), by and between
FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation ("FFCA"), whose
address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, and P. F.
CHANG'S CHINA BISTRO, INC., a Delaware corporation ("Debtor"), whose address is
5090 North 40th Street, Suite 160, Phoenix, Arizona 85018.
PRELIMINARY STATEMENT:
Unless otherwise expressly provided herein, all defined terms used in
this Agreement shall have the meanings set forth in Section 1. Debtor and FFCA
entered into that certain Revolving Line of Credit Loan Agreement dated as of
October , 1997 (the "Original Agreement"). Subsequently, FFCA has agreed to
increase the amount of the Loan and Debtor has agreed to pledge its interest in
the Collateral pursuant to the Security Agreement in order to provide security
for the Loan. This Agreement amends and restates the Original Agreement in order
to reflect the terms and conditions associated with an increase of the Loan and
a pledge of the Collateral.
AGREEMENT:
In consideration of the mutual covenants and provisions of this
Agreement, the parties agree as follows:
1. DEFINITIONS. The following terms shall have the following
meanings for all purposes of this Agreement:
"Acceleration Event" means (a) a breach or default, after the passage
of all applicable notice and cure or grace periods, under any other agreement,
instrument or promissory note other than the Loan Documents between, among or by
(i) Debtor or any Affiliate of Debtor, and, or for the benefit of, (ii) FFCA
and/or any Affiliate of FFCA, (b) the consummation of a sale of shares of stock
or other ownership interests in Debtor by Paul Fleming, Kelly Fleming, Robert
Vivian and Richard Federico (collectively, the "Primary Shareholders") other
than sales of such stock or ownership interests in Debtor among the Primary
Shareholders, members of the immediate family of the Primary Shareholders or
family trusts, foundations or other legal entities which are owned by and
created for the benefit of the Primary Shareholders, (c) the consummation of a
sale of stock or other ownership interests in Debtor pursuant to a public
offering or private placement pursuant to the Securities Act of 1933 or (d) at
any time that the Primary Shareholders, members of the immediate family of the
Primary Shareholders or family trusts, foundations or other legal entities which
are owned by and created for the benefit of the Primary Shareholders do not own
more than 40% of the stock or other ownership interests in Debtor.
"Action" has the meaning set forth in Section 7.
<PAGE> 2
"Advance" means any advance of the proceeds of the Loan made by FFCA
pursuant to the terms of Section 2.
"Affiliate" means any Person which directly or indirectly controls, is
under common control with, or is controlled by any other Person. For purposes of
this definition, "controls", "under common control with" and "controlled by"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
ownership of voting securities or otherwise.
"Business Day" means any day on which banks are open for general
banking business in the State of Arizona other than a Saturday, Sunday, a legal
holiday or any other day on which banks in the State of Arizona are required or
authorized by law to close.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et
seq., as amended.
"Collateral" means Debtor's membership or partnership interest in the
Companies as more particularly described in the Security Agreement.
"Commitment" means that certain Commitment Letter dated March , 1998
between FFCA and Debtor with respect to the transaction described in this
Agreement, and any amendments or supplements thereto.
"Companies" means the Arizona general partnerships and the Arizona
limited liability companies identified on Exhibit G attached hereto.
"Counsel" means Lewis and Roca LLP, licensed in the State of Arizona
(where Debtor maintains its principal place of business) or such other legal
counsel as selected by Debtor and reasonably approved by FFCA.
"Debt" means as to such Person at any time (without duplication): (a)
all obligations of such Person for borrowed money; (b) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments; (c)
all obligations of such Person to pay the deferred purchase price of property or
services; (d) all capital lease obligations of such Person; (e) all contingent
obligations or other obligations of others guaranteed by such Person; (f) all
obligations secured by a lien existing on property owned by such Person, whether
or not the obligations secured thereby have been assumed by such Person or are
nonrecourse to the credit of such Person; and (g) all reimbursement obligations
of such Person (whether contingent or otherwise) in respect of letters of
credit, bankers' acceptances, surety or other bonds and similar instruments.
"Effective Date" has the meaning set forth in the introductory
paragraph of this Agreement.
"Event of Default" has the meaning set forth in Section 7.
"Fee" means a draw fee equal to .5% of the amount of each Advance.
2
<PAGE> 3
"Indemnified Parties" has the meaning set forth in Section 9.
"Joint Venture Agreements" means those Joint Venture Agreements and
Operating Agreements between Debtor and the respective Partners of each Company.
"Loan" means the revolving line of credit in the Maximum Loan Amount
and as described in Section 2.
"Loan Documents" means, collectively, this Agreement, the Note, the
Security Agreement, the UCC Financing Statements, the Negative Pledges and all
other documents, instruments and agreements executed in connection therewith or
contemplated thereby.
"Management Agreements" means the management agreements between Debtor
and a Company with respect to each of the Premises.
"Material Adverse Effect" means a material adverse effect on (i) the
financial condition of Debtor or the Companies, as applicable or (ii) the
ability of Debtor or the Companies, as applicable, to perform its obligations
under the Loan Documents.
"Maturity Date" shall have the meaning set forth in the Note.
"Maximum Loan Amount" means $20,000,000.00.
"Negative Pledges" means the negative pledge agreements dated as of the
Effective Date executed by the Companies in favor of FFCA in the form of Exhibit
F attached hereto. A Negative Pledge will be executed for each of the Premises.
"Note" means the promissory note dated as of the Effective Date
executed by Debtor in favor of FFCA in the form of Exhibit A attached to this
Agreement, as such Note may be amended and/or amended and restated and/or
substituted from time to time as contemplated by Section 2. The term "Note"
shall also include all additional promissory notes executed and delivered by
Debtor to FFCA from time to time as contemplated by Section 2.
"Partners" means, as applicable, the general partners (other than
Debtor) for each of the Companies that are general partnerships and the members
(other than Debtor) of the Companies that are limited liability companies.
"Person" shall mean any individual, corporation, partnership, limited
liability company, trust, unincorporated organization, governmental authority or
any other form of entity.
"Premises" means the parcels of real estate owned or leased by the
Debtor described in Exhibit D attached hereto, all rights, privileges and
appurtenances associated therewith, and all buildings, fixtures and other
improvements now or hereafter located thereon (whether or not affixed to such
real estate).
"Security Agreement" means the security agreement dated as of the
Effective Date executed by Debtor in favor of FFCA in the form of Exhibit E
attached to this Agreement, as such Security Agreement may be amended from time
to time.
3
<PAGE> 4
"Subsidiary" means any corporation or other entity of which at least a
majority of the outstanding shares of stock or other ownership interests having
by the terms thereof ordinary voting power to elect a majority of the board of
directors (or Persons performing similar functions) of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation or entity shall have or might have voting power by reason of
the happening of any contingency) is at the time directly or indirectly owned or
controlled by Debtor or one or more of the Subsidiaries or by Debtor and one or
more of the Subsidiaries.
"UCC Financing Statements" means those UCC financing statements
required by FFCA to be executed and delivered by Debtor that are necessary to
perfect FFCA's security interest in the Collateral.
2. REVOLVING LINE OF CREDIT. A. On the terms and subject to the
satisfaction by Debtor of the conditions set forth in this Agreement, FFCA
agrees to make the Loan to Debtor, which Loan will be in the form of Advances
made from time to time as provided in this Agreement. The outstanding aggregate
principal amount of the Loan shall not exceed the Maximum Loan Amount at any
time. So long as no event has occurred which is, or with the passage of time or
the giving of notice or both under the Loan Documents would constitute, an Event
of Default or an Acceleration Event, Debtor may borrow, prepay and reborrow,
from the Effective Date until the Maturity Date, an amount up to the Maximum
Loan Amount. Debtor shall not request an Advance in an amount less than
$500,000.00 and no more than once in a calendar month.
B. Simultaneously with the execution and delivery of this
Agreement, Debtor shall execute and deliver to FFCA the Note. The obligation of
Debtor to pay the outstanding aggregate principal amount of all Advances plus
accrued interest thereon shall be evidenced by the Note. Debtor irrevocably
authorizes FFCA to make or cause to be made, at or about the time of any Advance
or at the time of FFCA's receipt of any payment of the principal amount of the
Note, an appropriate notation in FFCA's records reflecting the amount of such
Advance or payment, as applicable. The outstanding aggregate principal amount of
the Note plus accrued interest thereon set forth in FFCA's records maintained
with respect to the Note (which may include computer records) shall, absent
manifest error, be prima facie evidence of the outstanding aggregate principal
amount plus accrued interest thereon due and owing to FFCA, but the failure to
record, or any error in so recording, any such amount on FFCA's records shall
not limit or otherwise affect the obligations of Debtor under the Note to make
payments when due. Notwithstanding the foregoing, Debtor agrees to execute such
amendments to the Note, amendments and restatements of the Note and/or
substitute and/or additional promissory notes in the form of the Note as FFCA
may reasonably request to evidence Debtor's obligations to FFCA under the Loan
Documents.
C. Debtor shall notify FFCA at least five Business Days before
the Business Day on which Debtor desires to receive an Advance; provided,
however, Debtor acknowledges that each Advance shall be made on the first
Business Day of the month immediately following the month in which Debtor
notifies FFCA of its desire to receive such Advance. Each such notice shall be
in the form of Exhibit B attached hereto (each, a "Notice"), and shall set forth
the requested amount of each Advance and such other information required by the
Notice. Each Notice shall constitute a certification by Debtor that the
representations and warranties of Debtor set forth in
4
<PAGE> 5
the Loan Documents, are true, correct and complete in all material respects as
of the date of such Notice and as of the date of such requested Advance and that
Debtor has satisfied each of the conditions precedent set forth in this
Agreement. FFCA's obligation to fund each Advance shall be subject to the
satisfaction of the following conditions precedent as of the date of the
requested Advance:
(i) no event shall have occurred which is, or with the
passage of time or the giving of notice or both under the Loan
Documents would constitute, an Event of Default or an Acceleration
Event;
(ii) Debtor shall be in compliance with each of the
covenants set forth in Section 5;
(iii) the outstanding principal balance of the Loan,
together with the amount of the requested Advance, must not exceed the
Maximum Loan Amount; and
(iv) there shall have been no material adverse change in
Debtor's business, operations, assets or financial condition since the
Effective Date, as determined by FFCA in its reasonable discretion.
Upon Debtor's satisfaction of the foregoing conditions, FFCA will disburse the
requested Advance in immediately available funds to such account as Debtor shall
have specified in the Notice or as otherwise directed by Debtor in the Notice.
D. The Loan shall bear interest at a variable rate of interest as
set forth in the Note and shall be payable in arrears on the first day of each
month based on the then outstanding principal balance of the Note. Debtor shall
have the right to prepay (without premium or penalty) the Note in whole or in
part at any time provided that any such prepayment shall only be made on a
regularly scheduled payment date upon not less than 10 days prior written notice
from Debtor to FFCA. Debtor shall pay on the Maturity Date, and there shall
become absolutely due and payable on the Maturity Date, the outstanding
principal amount of the Loan and all accrued but unpaid interest thereon. E. As
security for the Loan, Debtor agrees to pledge its interest in the Collateral
pursuant to the Security Agreement. In addition, Debtor will execute and deliver
the Negative Pledges. A Negative Pledge will be recorded in the real estate
records of each county where each of the Premises is located.
E. All costs and expenses of the transaction described in this
Agreement shall be paid by Debtor, including, without limitation, the attorneys'
fees of Debtor and the reasonable attorneys' fees and expenses of FFCA.
F. FFCA's obligation to provide the Loan is further subject to
the delivery to FFCA of Counsel's opinion in form and substance reasonably
satisfactory to FFCA.
G. The Fee shall be paid at the time of each Advance from each
Advance and shall be deemed nonrefundable and fully earned with each Advance.
5
<PAGE> 6
3. REPRESENTATIONS AND WARRANTIES OF FFCA. The representations
and warranties of FFCA contained in this Section are being made by FFCA as of
the Effective Date to induce Debtor to enter into this Agreement and consummate
the transactions contemplated herein, and Debtor has relied, and will continue
to rely, upon such representations and warranties from and after the execution
of this Agreement. FFCA represents and warrants to Debtor as follows:
A. Organization of FFCA. FFCA has been duly formed, is
validly existing and has taken all necessary action to authorize the
execution, delivery and performance by FFCA of this Agreement.
B. Authority of FFCA. The person who has executed this
Agreement on behalf of FFCA is duly authorized so to do.
C. Enforceability. Upon execution by FFCA, this
Agreement shall constitute the legal, valid and binding obligation of
FFCA, enforceable against FFCA in accordance with its terms.
All representations and warranties of FFCA made in this Agreement shall
survive the execution of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF DEBTOR. The representations
and warranties of Debtor contained in this Section are being made by Debtor as
of the Effective Date and the date of each Advance to induce FFCA to enter into
this Agreement and consummate the transactions contemplated herein, and FFCA has
relied, and will continue to rely, upon such representations and warranties from
and after the Effective Date and the date of each Advance. Debtor represents and
warrants to FFCA as follows:
A. Information and Financial Statements. Debtor has
delivered to FFCA financial statements (either audited financial
statements or, if Debtor does not have audited financial statements,
certified financial statements) and certain other information
concerning itself, which financial statements and other information are
true, correct and complete in all material respects; and no material
adverse change has occurred with respect to any such financial
statements and other information provided to FFCA since the date such
financial statements and other information were prepared or delivered
to FFCA. Debtor understands that FFCA is relying upon such financial
statements and information and Debtor represents that such reliance is
reasonable. All such financial statements were prepared in accordance
with generally accepted accounting principles consistently applied
(except as otherwise noted in such financial statements) and accurately
reflect as of the Effective Date the financial condition of each
individual or entity to which they pertain.
B. Organization and Authority of Debtor. Debtor is duly
organized or formed, validly existing and in good standing under the
laws of the State of Delaware and qualified as a foreign corporation to
do business in any jurisdiction where such qualification is required.
All necessary corporate action has been taken to authorize the
execution, delivery and performance of the Loan Documents. The
person(s) who have executed the Loan Documents on behalf of Debtor are
duly authorized so to do.
6
<PAGE> 7
C. Organization and Authority of Companies. The
Companies are duly organized or formed, validly existing and in good
standing under the laws of the states where they were organized and
qualified as foreign partnerships or foreign limited liability
companies to do business in any jurisdiction where such qualification
is required.
D. Enforceability of Documents. Upon execution by
Debtor, the Loan Documents shall constitute the legal, valid and
binding obligations of Debtor, enforceable against Debtor in accordance
with their respective terms.
E. Litigation. There are no suits, actions, proceedings
or investigations pending or, to the actual knowledge of Debtor,
threatened against or involving Debtor, the Companies, the Collateral,
the Premises or any of Debtor's or any of the Companies' assets before
any court, arbitrator, or administrative or governmental body which
might reasonably result in a Material Adverse Effect.
F. Absence of Breaches or Defaults. Neither Debtor nor
any of the Companies are in default beyond any applicable grace period
under any other document, instrument or agreement to which Debtor or
any of the Companies is a party (including, without limitation, the
Partnership Agreements and the Management Agreements) or by which the
Debtor, the Companies, the Collateral, the Premises or any of the
property of Debtor or any of the Companies is subject or bound which
would have a Material Adverse Effect or would materially interfere with
or prevent Debtor's or the Companies performance under the Loan
Documents. The authorization, execution, delivery and performance of
the Loan Documents will not result in a Material Adverse Effect or
result in any breach or default under any other document, instrument or
agreement to which Debtor or any of the Companies is a party
(including, without limitation, the Partnership Agreements and the
Management Agreements) or by which Debtor, the Companies, the
Collateral, the Premises or any of the property of Debtor is subject or
bound which would materially interfere with or prevent Debtor's or the
Companies' performance under the Loan Documents. The authorization,
execution, delivery and performance of the Loan Documents will not
violate any applicable law, statute, regulation, rule, ordinance, code,
rule or order.
G. Licenses, Permits, Consents and Approvals. Debtor or
the Companies has all required licenses, permits, consents and
approvals, both governmental and private, to use and operate the
Collateral, the Premises and the rest of their assets and conduct their
business in the intended manner.
H. Insolvency; Net Worth. Debtor is not insolvent within
the meaning of the Code. Debtor has a net worth of at least
$10,000,000.00, as determined in accordance with generally accepted
accounting principles consistently applied, except that for purposes of
calculating Debtor's net worth hereunder, convertible preferred stock
issued by Debtor shall be treated as equity.
I. Taxes. Debtor and the Companies have paid, in the
ordinary course of business, all taxes, assessments, levies and other
governmental charges which have been levied or imposed upon Debtor, the
Companies, the Collateral, the Premises and/or Debtor's and properties
and would be due and payable.
7
<PAGE> 8
J. Title to Collateral; First Priority Security
Interest. Debtor owns, and with respect to Collateral acquired after
the date hereof, Debtor will own, legally and beneficially, the
Collateral, free and clear of any lien, security interest, pledge,
hypothecation, claim or other encumbrance, or any right or option on
the part of any third person to purchase or otherwise acquire or obtain
any lien or security interest in the Collateral or any part thereof,
except for the lien and security interest granted in the Security
Agreement in favor of FFCA. Upon the execution of the Loan Documents by
the applicable parties, Secured Party shall have a valid first priority
lien upon and security interest in the Collateral.
K. Title to Premises. Debtor holds either (i) fee title
to the Premises, (ii) a leasehold interest in the land relating to the
Premises and fee title to the buildings and improvements located
thereon or (iii) a leasehold interest in the Premises, free and clear
of all liens, encumbrances, charges and security interests of any
nature whatsoever, except as otherwise disclosed in writing to FFCA.
L. Collateral Genuine. The Collateral is genuine, free
from any restriction on transfer, duly and validly authorized and
issued, constitutes the valid and legally binding obligation of the
Companies, enforceable in accordance with its terms, is fully paid and
non-assessable, and is hereby duly and validly pledged and hypothecated
to FFCA in accordance with law. The interests listed on Schedule II
represent one hundred (100%) percent of the issued and outstanding
interests of the Companies. There are no other interests issued and
outstanding and there are no other interests in the Companies.
M. No Actions. No action has been brought or is
threatened which would in any way prohibit or restrict the execution
and delivery of any of the Loan Documents by Debtor or the performance
in all respects of Debtor thereunder.
All representations and warranties of Debtor made in this Agreement
shall survive the execution of this Agreement and each Advance.
5. COVENANTS. Debtor covenants to FFCA from and after the
Effective Date as follows:
A. Books, Records and Inspections. Debtor shall, at all
reasonable times upon prior written notice from FFCA and during normal
business hours, (i) provide FFCA and FFCA's officers, employees,
agents, advisors, attorneys and accountants with access to Debtor's
personal and real properties and books and records, and (ii) allow such
persons to make such inquires of Debtor's officers and employees and to
make copies and perform such verifications as FFCA considers reasonably
necessary; provided, however, all such inspections, copies and
verifications shall be at FFCA's sole cost and expense and FFCA shall
reasonably attempt to minimize, during any such activity, interference
with the operation of Debtor's business and FFCA shall keep any
information obtained confidential; provided, however, FFCA shall not be
required to keep confidential (1) any information which had previously
been made public, (2) information that FFCA is required to disclose by
court order, subpoena or under federal or state law, or (3) information
received by FFCA from a third party.
8
<PAGE> 9
B. Net Worth. At all times while the obligations of
Debtor to FFCA pursuant to the Loan Documents are outstanding, Debtor
shall maintain a net worth of at least $10,000,000.00, as determined in
accordance with generally accepted accounting principles consistently
applied, except that for purposes of calculating Debtor's net worth
hereunder convertible preferred stock issued by Debtor shall be treated
as equity.
C. Reporting Obligations. Debtor will provide FFCA with
each of the following:
(i) Financial Statements. Within 45 days after
the end of each fiscal quarter and within 120 days after the
end of each fiscal year of Debtor, Debtor shall deliver to
FFCA complete financial statements of Debtor including a
balance sheet, profit and loss statement, cash flow statement
and all other related schedules for the fiscal period then
ended. All such financial statements shall be prepared in
accordance with generally accepted accounting principles,
consistently applied from period to period, and shall be
certified to be accurate and complete by Debtor (or the
Treasurer or other appropriate officer of Debtor). Debtor
understands that FFCA is relying upon such financial
statements and Debtor represents that such reliance is
reasonable. The financial statements delivered to FFCA need
not be audited, but Debtor shall deliver to FFCA copies of any
audited financial statements of Debtor which may be prepared,
as soon as they are available.
(ii) Event of Default or Acceleration Event.
Promptly, but in any event within five days, after Debtor
becomes aware of an Event of Default or an Acceleration Event,
written notification to an officer of FFCA specifying the
nature and period of existence thereof and what action Debtor
is taking or proposes to take with respect thereto.
(iii) Litigation. Within ten days after Debtor
becomes aware of any action, suit or proceeding pending or
threatened in writing against or involving Debtor and/or
Debtor's properties, except for those actions, suits or
proceedings (1) for which damages of less than $250,000 have
been sought, threatened or are likely to be incurred and (2)
which Debtor in good faith determines will be covered by its
insurance (including worker's compensation claims), Debtor
shall notify FFCA of such action, suit or proceeding and in
such notice specify the nature thereof, whether the alleged
liability therein is covered by insurance then in effect and,
if so covered, the monetary coverage thereof, and what action
Debtor is taking or proposes to take with respect thereto.
(iv) Certificates. At the time of each Advance, a
certificate of an officer of Debtor, substantially in the form
attached hereto as Exhibit B.
(v) Auditors' Reports. Promptly upon receipt
thereof, a copy of each report submitted to Debtor by its
independent accountants in connection with any annual, interim
or special audit made by it of the books of Debtor.
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<PAGE> 10
(vi) Other Information. Debtor shall deliver to
FFCA promptly after the receipt of written request therefor
information concerning Debtor requested by FFCA that is
required to satisfy all requirements applicable to FFCA
pursuant to the Securities Exchange Act of 1934 and all other
regulatory laws applicable to FFCA or to which FFCA is subject
or bound.
D. Payment of Taxes, Etc. Unless Debtor shall contest
the amount or validity thereof in the manner described below, Debtor
shall pay all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits, or upon any properties
belonging to it, prior to the date on which penalties attach thereto,
and all lawful claims which, if unpaid, might become a lien upon any of
its properties. Debtor may, at its own expense, contest or cause to be
contested such taxes, assessments, governmental charges or levies or
other claims (i) in good faith, (ii) by proper proceedings, and (iii)
against which adequate reserves in accordance with generally accepted
accounting principles are being maintained.
E. Organization of Debtor. Debtor will continue to be a
corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction and qualified to do business in any
jurisdiction where such qualification is required.
F. Licenses, Permits, Consents and Approvals. Debtor
shall maintain in full force and effect all required licenses, permits,
consents and approvals, both governmental and private, to use and
operate its assets and conduct its business in the intended manner.
G. Use of Proceeds. Debtor shall use the proceeds of the
Loan for (i) the purchase of interests of minority owners of Debtor,
(ii) working capital and (iii) construction or renovation of P.F.
Chang's China Bistro restaurants.
H. Debt. Debtor shall not, and shall not permit any
Subsidiary to, incur, create, assume or permit to exist any Debt,
except (a) Debt to FFCA or Affiliates of FFCA; (b) Debt incurred
pursuant to trade accounts arising in the ordinary course of business
that are not past due by more than 30 days; (c) letters of credit for
deposits not to exceed $15,000.00 each and (d) existing Debt described
on the attached Exhibit C and any extensions, substitutions or renewals
thereof.
I. Fundamental Changes. Debtor shall not consolidate
with or merge into any Person or permit any Person to merge into it;
provided that the Companies may enter into a consolidation or merger
with any person if (i) the survivor formed by or resulting from such
consolidation or merger is the Companies and (ii) at the time of such
consolidation or merger and immediately after giving effect thereto no
Event of Default or Acceleration Event shall have occurred and be
continuing.
J. Disposition of Assets. Without the prior written
consent of FFCA, Debtor shall not, directly or indirectly, sell,
assign, lease, transfer or otherwise dispose of all or substantially
all of its assets (other than in the ordinary course of business for
full and fair consideration).
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<PAGE> 11
K. No New Subsidiaries. Without the prior written
consent of FFCA, Debtor shall not, and shall not permit any of its
Subsidiaries to, acquire, incorporate or otherwise organize any
Subsidiary, which was not in existence as of the Effective Date.
L. Transactions With Affiliates. Without the prior
written consent of FFCA, Debtor will not enter into, and will not
permit any Subsidiary to enter into, any transaction, including,
without limitation, the purchase, sale, or exchange of property or the
rendering of any service, with any Affiliate of Debtor or such
Subsidiary, except transactions for fair value in accordance with
reasonable commercial standards.
M. Maintenance of Assets. Debtor shall maintain, keep
and preserve, and will cause each Subsidiary to maintain, keep and
preserve, all of its tangible and intangible property and other assets
that are necessary and useful in proper conduct of its business.
N. Amendment of Joint Venture Agreements. Without the
prior written approval of FFCA in its sole and absolute discretion,
Debtor shall not amend or terminate any of the Joint Venture Agreements
or the Management Agreements nor shall it permit any of the Joint
Venture Agreements or the Management Agreements to be amended or
terminated.
O. Title; First Priority Lien. Debtor shall maintain
good and marketable fee simple title to the Collateral, free and clear
of all liens, encumbrances, charges and other exceptions to title.
Debtor shall maintain good and marketable title to or valid and binding
leasehold interests in, as applicable, the Premises, free and clear of
all liens, encumbrances, charges and other exceptions to title.
6. TRANSACTION CHARACTERIZATION. This Agreement is a contract to
extend a financial accommodation (as such term is used in the Code) for the
benefit of Debtor. It is the intent of the parties hereto that the business
relationship created by this Agreement, the Note and the other Loan Documents is
solely that of creditor and debtor and has been entered into by both parties in
reliance upon the economic and legal bargains contained in the Loan Documents.
None of the agreements contained in the Loan Documents is intended, nor shall
the same be deemed or construed, to create a partnership between Debtor and
FFCA, to make them joint venturers, to make Debtor an agent, legal
representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any
way responsible for the debts, obligations or losses of Debtor.
7. DEFAULT AND REMEDIES. A. Each of the following shall be deemed
an event of default by Debtor, after notice, to the extent required hereunder,
and after the expiration of any applicable grace or cure period without the cure
thereof (each, an "Event of Default"):
(1) If any representation or warranty of Debtor set forth
in any of the Loan Documents is false in any material respect when made
or becomes false in any material respect, or if Debtor renders any
materially false statement or account;
(2) If any principal, interest or other monetary sum due
under the Note or any other Loan Document is not paid within five days
from the date when due and FFCA shall have given notice of such failure
to Debtor and such failure shall not have been cured by Debtor within
five days from the delivery of such notice;
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<PAGE> 12
(3) If Debtor fails to observe or perform any of the
other covenants (except as otherwise provided below), conditions, or
obligations of this Agreement other than the covenants in Sections
5.B., 5.H., 5.I, 5.J, 5.N and 5.O of this Agreement or there is a
breach or default under any other Loan Document beyond any applicable
notice or cure period; provided, however, if any such event does not
involve the payment of any monetary sum, is not the result of a willful
or intentional act or omission of Debtor, does not place any rights or
property of FFCA in immediate jeopardy, and is within the reasonable
power of Debtor to promptly cure after receipt of notice thereof, all
as determined by FFCA in its reasonable discretion, then such event
shall not constitute an Event of Default hereunder, unless otherwise
expressly provided herein, unless and until FFCA shall have given
Debtor notice thereof and a period of 30 days shall have elapsed,
during which period Debtor may correct or cure such event, upon failure
of which an Event of Default shall be deemed to have occurred hereunder
(except as otherwise provided in the following sentence) without
further notice or demand of any kind being required. If such
nonmonetary event cannot reasonably be cured within such 30-day period,
as determined by FFCA in its reasonable discretion, and Debtor is
diligently pursuing a cure of such event, then an Event of Default
shall not be deemed to have occurred hereunder upon the expiration of
such 30-day period and Debtor shall have a reasonable period to cure
such event beyond such 30-day period, which shall not exceed 90 days
after receiving notice of the event from FFCA. If Debtor shall fail to
correct or cure such event within such 90-day period, an Event of
Default shall be deemed to have occurred hereunder without further
notice or demand of any kind being required;
(4) If Debtor fails to observe or perform any of the
covenants in Sections 5.B, 5.H, 5.I, 5.J, 5.N or 5.O of this Agreement;
or
(5) If Debtor becomes insolvent within the meaning of the
Code, files or notifies FFCA that it intends to file a petition under
the Code, initiates a proceeding under any similar law or statute
relating to bankruptcy, insolvency, reorganization, winding up or
adjustment of debts (collectively, an "Action"), becomes the subject of
either an involuntary Action or petition under the Code without such
involuntary Action or petition being dismissed within 30 days of filing
or, if Debtor is diligently proceeding to dismiss such petition, such
longer period of time as if required, but in no event shall such longer
period of time be greater than 90 days, or is not generally paying its
debts as the same become due.
B. Upon and during the continuance of an Event of
Default, subject to the limitations, notices and cure periods set forth
in subsection A, or an Acceleration Event, FFCA shall have no
obligation to fund any Advance to Debtor and FFCA may declare all
obligations of Debtor under the Note, this Agreement and any other Loan
Document to be due and payable, and the same shall thereupon become due
and payable without any presentment, demand, protest or notice of any
kind except as expressly provided herein. Thereafter, FFCA may
exercise, at its option, concurrently, successively or in any
combination, all remedies available at law or in equity, including
without limitation any one or more of the remedies available under the
Note or any other Loan Document. Neither the acceptance of this
Agreement nor its enforcement shall prejudice or in any manner affect
FFCA's right to realize upon or enforce any other security now or
hereafter held by FFCA, it being agreed that FFCA shall be entitled to
enforce this Agreement and any other security now or hereafter held by
FFCA in such order and manner as it may in its absolute discretion
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<PAGE> 13
determine. No remedy herein conferred upon or reserved to FFCA is
intended to be exclusive of any other remedy given hereunder or now or
hereafter existing at law or in equity or by statute. Every power or
remedy given by any of the Loan Documents to FFCA, or to which FFCA may
be otherwise entitled, may be exercised, concurrently or independently,
from time to time and as often as may be deemed expedient by FFCA.
8. ASSIGNMENTS BY FFCA. FFCA may assign in whole or in part its
rights under this Agreement. Upon any unconditional assignment of FFCA's entire
right and interest hereunder, FFCA shall automatically be relieved, from and
after the date of such assignment, of liability for the performance of any
obligation of FFCA contained herein arising after the date of the assignment
provided that any assignee shall be bound by all of FFCA's obligations hereunder
accruing from and after the date of such assignment.
9. INDEMNITY. Debtor agrees to indemnify, hold harmless and
defend FFCA and each of its directors, officers, shareholders, employees,
successors, assigns, agents, experts, licensees, affiliates, lenders, mortgagees
and trustees, as applicable (collectively, the "Indemnified Parties"), from and
against any and all losses, costs, claims, liabilities, damages and expenses,
including, without limitation, reasonable attorneys' fees (collectively,
"Losses"), arising as the result of a breach of any of the representations,
warranties, covenants, agreements or obligations of Debtor set forth in this
Agreement, but excluding Losses suffered by an Indemnified Party directly
arising out of such Indemnified Party's gross negligence or willful misconduct.
10. MISCELLANEOUS PROVISIONS.
A. Notices. All notices, consents, approvals or other
instruments required or permitted to be given by either party pursuant
to this Agreement shall be in writing and given by (i) hand delivery,
(ii) facsimile, (iii) express overnight delivery service or (iv)
certified or registered mail, return receipt requested, and shall be
deemed to have been delivered upon (a) receipt, if hand delivered, (b)
transmission, if delivered by facsimile (and if a copy of such notice
is also mailed by certified or registered mail, return receipt
requested, and deposited with the U.S. Postal Service no later than the
first business day after the notice was transmitted by facsimile), (c)
the next business day following the date of deposit with the delivery
service, if delivered by express overnight delivery service, or (d) the
third business day following the day of deposit of such notice with the
United States Postal Service, if sent by certified or registered mail,
return receipt requested. Notices shall be provided to the parties and
addresses (or facsimile numbers, as applicable) specified below:
If to Debtor: P. F. Chang's China Bistro, Inc.
5090 North 40th Street, Suite 160
Phoenix, AZ 85018
Attention: Mr. Robert T. Vivian
Telephone: (602) 957-8986
Telecopy: (602) 957-8998
13
<PAGE> 14
With a copy to: Kenneth Van Winkle, Jr., Esq.
Lewis and Roca LLP
40 North Central Avenue
Phoenix, AZ 85004-4429
Telephone: (602) 262-5311
Telecopy: (602) 262-5747
If to FFCA: Dennis L. Ruben, Esq.
Executive Vice President and
General Counsel
Franchise Finance Corporation of America
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
B. Waiver and Amendment. No provisions of this Agreement
shall be deemed waived or amended except by a written instrument
unambiguously setting forth the matter waived or amended and signed by
the party against which enforcement of such waiver or amendment is
sought. Waiver of any matter shall not be deemed a waiver of the same
or any other matter on any future occasion.
C. Captions. Captions are used throughout this Agreement
for convenience of reference only and shall not be considered in any
manner in the construction or interpretation hereof.
D. FFCA's Liability. Notwithstanding anything to the
contrary provided in this Agreement, it is specifically understood and
agreed, such agreement being a primary consideration for the execution
of this Agreement by FFCA, that (i) there shall be absolutely no
personal liability on the part of any shareholder, director, officer or
employee of FFCA, with respect to any of the terms, covenants and
conditions of this Agreement or the other Loan Documents, (ii) Debtor
waives all claims, demands and causes of action against FFCA's
officers, directors, employees and agents in the event of any breach by
FFCA of any of the terms, covenants and conditions of this Agreement or
the other Loan Documents to be performed by FFCA and (iii) Debtor shall
look solely to the assets of FFCA for the satisfaction of each and
every remedy of Debtor in the event of any breach by FFCA of any of the
terms, covenants and conditions of this Agreement or the other Loan
Documents to be performed by FFCA, such exculpation of liability to be
absolute and without any exception whatsoever.
E. Severability. The provisions of this Agreement shall
be deemed severable. If any part of this Agreement shall be held
unenforceable, the remainder shall remain in full force and effect, and
such unenforceable provision shall be reformed by such court so as to
give maximum legal effect to the intention of the parties as expressed
therein.
F. Construction Generally. This is an agreement between
parties who are experienced in sophisticated and complex matters
similar to the transaction contemplated by
14
<PAGE> 15
this Agreement and is entered into by both parties in reliance upon the
economic and legal bargains contained herein and shall be interpreted
and construed in a fair and impartial manner without regard to such
factors as the party which prepared the instrument, the relative
bargaining powers of the parties or the domicile of any party. Debtor
and FFCA were each represented by legal counsel competent in advising
them of their obligations and liabilities hereunder.
G. Other Documents. Each of the parties agrees to sign
such other and further documents as may be reasonably necessary to
carry out the intentions expressed in this Agreement.
H. Attorneys' Fees. In the event of any judicial or
other adversarial proceeding between the parties concerning this
Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and other costs in addition to any other
relief to which it may be entitled. References in this Agreement to the
attorneys' fees and/or costs of a party shall mean both the reasonable
fees and costs of independent outside counsel retained by such party
with respect to this transaction and the reasonable fees and costs of
the party's in-house counsel incurred in connection with this
transaction.
I. Entire Agreement. This Agreement and the other Loan
Documents, together with any other certificates, instruments or
agreements to be delivered in connection therewith, constitute the
entire agreement between the parties with respect to the subject matter
hereof, and there are no other representations, warranties or
agreements, written or oral, between Debtor and FFCA with respect to
the subject matter of this Agreement. Notwithstanding anything in this
Agreement to the contrary, upon the execution and delivery of this
Agreement by Debtor and FFCA, the Commitment shall be deemed null and
void and of no further force and effect and the terms and conditions of
this Agreement shall control notwithstanding that such terms may be
inconsistent with or vary from those set forth in the Commitment.
J. Forum Selection; Jurisdiction; Venue; Choice of Law.
Debtor acknowledges that this Agreement was substantially negotiated in
the State of Arizona, the Agreement was signed and delivered by FFCA
and Debtor in the State of Arizona, all payments under the Note will be
delivered in the State of Arizona and there are substantial contacts
between the parties and the transactions contemplated herein and the
State of Arizona. For purposes of any action or proceeding arising out
of this Agreement or any of the other Loan Documents, the parties
hereto hereby expressly submit to the jurisdiction of all federal and
state courts located in the State of Arizona and Debtor consents that
it may be served with any process or paper by registered mail or by
personal service within or without the State of Arizona in accordance
with applicable law. Furthermore, Debtor waives and agrees not to
assert in any such action, suit or proceeding that it is not personally
subject to the jurisdiction of such courts, that the action, suit or
proceeding is brought in an inconvenient forum or that venue of the
action, suit or proceeding is improper. It is the intent of the parties
hereto that all provisions of this Agreement shall be governed by and
construed under the laws of the State of Arizona. Nothing in this
Section shall limit or restrict the right of FFCA to commence any
proceeding in the federal or state courts located in a state other than
Arizona to the extent FFCA deems such proceeding necessary or
15
<PAGE> 16
advisable to exercise remedies available under this Agreement or the
other Loan Documents.
K. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original.
L. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of Debtor and FFCA and their respective
successors and permitted assigns, including, without limitation, any
United States trustee, any debtor in possession or any trustee
appointed from a private panel.
M. Survival. All representations, warranties,
agreements, obligations and indemnities of Debtor and FFCA set forth in
this Agreement shall survive the execution of this Agreement and each
Advance.
N. Waiver of Jury Trial and Punitive, Consequential,
Special and Indirect Damages. DEBTOR AND FFCA HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A
TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY
ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE
PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY
MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY
DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE
PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN
NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE,
DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT
IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT
DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY
ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST
FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR
RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK
PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN
NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR
BARGAIN.
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<PAGE> 17
IN WITNESS WHEREOF, Debtor and FFCA have entered into this Agreement as
of the date first above written.
FFCA:
FRANCHISE FINANCE CORPORATION OF AMERICA,
a Delaware corporation
By
-------------------------------------------
Printed Name
---------------------------------
Its
------------------------------------------
DEBTOR:
P. F. CHINA BISTRO, INC.,
a Delaware corporation
By /s/ Robert Vivian
-------------------------------------------
Printed Name Robert Vivian
---------------------------------
Its CFO
------------------------------------------
17
<PAGE> 18
STATE OF ARIZONA ]
] SS.
COUNTY OF MARICOPA ]
The foregoing instrument was acknowledged before me on , 1998
by , of Franchise Finance Corporation of America, a Delaware
corporation, on behalf of the corporation.
---------------------------------
Notary Public
My Commission Expires:
- ---------------------------------
STATE OF ARIZONA ]
] SS.
COUNTY OF MARICOPA ]
The foregoing instrument was acknowledged before me on June 29 , 1998
by Robert Vivian , CFO of P. F. Chang's China Bistro, Inc., a Delaware
corporation, on behalf of the corporation.
/s/ Kim Kuharske
---------------------------------
Notary Public
My Commission Expires:
7/25/99
- ---------------------------------
18
<PAGE> 19
AMENDED AND RESTATED PROMISSORY NOTE
Dated as of June 29, 1998
$20,000,000.00 Scottsdale, Arizona
THIS AMENDED AND RESTATED PROMISSORY NOTE (this "Note") executed by
P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation ("Debtor"), amends and
restates that certain Promissory Note dated as of October , 1997 in the
principal amount of $10,000,000.00, payable to FRANCHISE FINANCE CORPORATION OF
AMERICA, a Delaware corporation ("FFCA").
Debtor, for value received, hereby promises to pay to FFCA, whose
address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, or order, on
or before the Maturity Date (as defined below), the principal sum of TWENTY
MILLION AND NO/100 DOLLARS ($20,000,000.00), or such much thereof as may be
outstanding from time to time, in accordance with that certain Amended and
Restated Revolving Line of Credit Loan Agreement dated as of the date of this
Note between Debtor and FFCA, as such agreement may be amended from time to time
(the "Loan Agreement").
Initially capitalized terms which are not otherwise defined in this
Note shall have the meanings set forth in the Loan Agreement. The following
terms shall have the following meanings for all purposes of this Note:
"Applicable Margin" means an annual percentage equal to 3.50%.
"Adjustable Rate" means an annual interest rate equal to the
sum of the Adjustable Rate Basis plus the Applicable Margin.
"Adjustable Rate Basis" means, for any Interest Period, the
annual interest rate (rounded upwards, if necessary, to the nearest
1/100th of one percent) appearing on Telerate Page 3750 (or any
successor page) as the London interbank offered rate for deposits in
dollars at approximately 11:000 a.m. (London time) on the Adjustable
Rate Reset Date for a term comparable to such Interest Period. If for
any reasons such rate is not available, the term "Adjustable Rate
Basis" shall mean, for any Interest Period, the annual interest rate
(rounded upwards, if necessary, to the nearest 1/100th of one percent)
appearing on Reuters Screen LIBO Page as the London interbank offered
rate for deposits in dollars at approximately 11:00 a.m. (London time)
on the Adjustable Rate Reset Date for a term comparable to such
Interest Period provided, however, if more than one rate is specified
on the Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates. Notwithstanding the provisions of
the foregoing two sentences, if, the annual interest rate charge to
FFCA under its then existing LIBOR based credit facility (the "FFCA
Credit Facility") is determined by a methodology other than as
described in such sentences, the Adjustable Rate Basis shall be
determined in accordance with the methodology for determining the
annual interest rate under the FFCA Credit Facility.
<PAGE> 20
"Adjustable Rate Reset Date" means the fifteenth day of each
calendar month, or the next succeeding Business Day if such day is not
a Business Day, prior to the next Interest Period.
"Business Day" means any day on which FFCA is open for
business in the State of Arizona, other than a Saturday, Sunday or a
legal holiday.
"Interest Period" means (i) initially, the period beginning on
the date of this Note and ending on the last day of the calendar month
in which such date occurs, and (ii) thereafter, the period beginning on
the first day of the calendar month and ending on the last day of such
calendar month.
"Maturity Date" means July 1 , 1999.
Debtor shall pay FFCA interest on the outstanding principal amount of
this Note at the Adjustable Rate, on the basis of a 360-day year for the actual
number of days elapsed, in arrears. Commencing on August 1 , 1998, and on the
first day of each calendar month thereafter until the Maturity Date, Debtor
shall pay FFCA interest which has accrued at the Adjustable Rate on the
outstanding principal balance of this Note during the preceding Interest Period.
FFCA shall notify Debtor in writing on or before the twenty-fifth day of each
calendar month during the term of this Note of FFCA's determination of the
interest payable on the first day of the next succeeding calendar month. All
outstanding principal and unpaid accrued interest shall be paid on the Maturity
Date.
Each payment hereunder shall be applied first to any past due payments
under this Note (including payment of all Costs (as herein defined)), then to
accrued interest at the Adjustable Rate, and the balance, after the payment of
such accrued interest, if any, shall be applied to the unpaid principal balance
of this Note; provided, however, each payment hereunder while an Event of
Default under this Note has occurred and is continuing shall be applied as FFCA
in its sole discretion may determine.
Upon execution of this Note, Debtor shall establish arrangements
whereby all payments hereunder are transferred by wire or other means directly
from Debtor's bank account to such account as FFCA may designate or as FFCA may
otherwise designate.
Debtor may prepay this Note as provided in the Loan Agreement.
An "Event of Default" shall be deemed to have occurred under this Note
if any principal, interest or other monetary sum due under this Note is not paid
within five days from the date when due and FFCA shall have given notice of such
failure to Debtor and such failure shall not have been cured by Debtor within
five days from the delivery of such notice. Upon the occurrence of (i) an Event
of Default under this Note or (ii) an Event of Default or an Acceleration Event
under any of the other Loan Documents, then, in any of such events, time being
of the essence hereof, FFCA may declare the entire unpaid principal balance of
this Note, accrued interest, if any, and all other sums due under this Note, the
other Loan Documents and
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<PAGE> 21
any other document further securing this Note, due and payable at once without
written notice to Debtor.
All past-due principal and/or interest shall bear interest at the
lesser of the highest rate for which the undersigned may legally contract or the
rate of 18% per annum (the "Default Rate"), and such Default Rate shall continue
to apply following a judgment in favor of FFCA under this Note. If Debtor fails
to make any payment or installment due under this Note within five days of its
due date, Debtor shall pay to FFCA in addition to any other sum due FFCA under
this Note or any other Loan Document a late charge equal to 10% of such past-due
payment or installment.
All payments of principal and interest due hereunder shall be made (i)
without deduction of any present and future taxes, levies, imposts, deductions,
charges or withholdings, which amounts shall be paid by Debtor, and (ii) without
any other right of abatement, reduction, setoff, defense, counterclaim,
interruption, deferment or recoupment for any reason whatsoever. Debtor will pay
the amounts necessary such that the gross amount of the principal and interest
received by FFCA is not less than that required by this Note.
No delay or omission on the part of FFCA in exercising any remedy,
right or option under this Note shall operate as a waiver of such remedy, right
or option. In any event, a waiver on any one occasion shall not be construed as
a waiver or bar to any such remedy, right or option on a future occasion.
Debtor hereby waives presentment, demand for payment, notice of
dishonor, notice of protest, and protest, and except as otherwise provided in
the Loan Documents, all other notices or demands in connection with delivery,
acceptance, performance, default or endorsement of this Note.
All notices, consents, approvals or other instruments required or
permitted to be given by either party pursuant to this Note shall be in writing
and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery
service or (iv) certified or registered mail, return receipt requested, and
shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b)
transmission, if delivered by facsimile (and if a copy of such notice is also
mailed by certified or registered mail, return receipt requested, and deposited
with the U.S. Postal Service no later than the first business day after the
notice was transmitted by facsimile), (c) the next business day, following the
date of deposit with the delivery service, if delivered by express overnight
delivery service, or (d) the third business day following the day of deposit of
such notice with the United States Postal Service, if sent by certified or
registered mail, return receipt requested. Notices shall be provided to the
parties and addresses (or facsimile numbers, as applicable) specified below:
If to Debtor: P. F. Chang's China Bistro, Inc.
5090 North 40th Street, Suite 160
2201 East Camelback Road
Phoenix, AZ 85018
Attention: Mr. Robert T. Vivian
Telephone: (602) 957-8986
Telecopy: (602) 957-8998
3
<PAGE> 22
With a copy to: Kenneth Van Winkle, Jr., Esq.
Lewis and Roca LLP
40 North Central Avenue
Phoenix, AZ 85004-4429
Telephone: (602) 262-5311
Telecopy: (602) 262-5747
If to FFCA: Dennis L. Ruben, Esq.
Executive Vice President and General
Counsel
Franchise Finance Corporation of America
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
or to such other address or such other person as either party may from time to
time hereafter specify to the other party in a notice delivered in the manner
provided above.
Should any indebtedness represented by this Note be collected at law or
in equity, or in bankruptcy or other proceedings, or should this Note be placed
in the hands of attorneys for collection after default, Debtor shall pay, in
addition to the principal and interest due and payable hereon, all costs of
collecting or attempting to collect this Note (the "Costs"), including
reasonable attorneys' fees and expenses of FFCA (including those fees and
expenses incurred in connection with any appeal and those of FFCA's in-house
counsel) whether or not a judicial action is commenced by FFCA.
This Note may not be amended or modified except by a written agreement
duly executed by Debtor and FFCA. In case any one or more of the provisions
contained in this Note shall be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, and this Note shall be construed as if such
provision had never been contained herein or therein.
Notwithstanding anything to the contrary contained in any of the Loan
Documents, the obligations of Debtor to FFCA under this Note and any other Loan
Documents are subject to the limitation that payments of interest and late
charges to FFCA shall not be required to the extent that receipt of any such
payment by FFCA would be contrary to provisions of applicable law limiting the
maximum rate of interest that may be charged or collected by FFCA. The portion
of any such payment received by FFCA that is in excess of the maximum interest
permitted by such provisions of law shall be credited to the principal balance
of this Note or if such excess portion exceeds the outstanding principal balance
of this Note, then such excess portion shall be refunded to Debtor. All interest
paid or agreed to be paid to FFCA shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and/or spread throughout the full term of
this Note (including, without limitation, the period of any renewal or extension
thereof) so that interest for such full term shall not exceed the maximum amount
permitted by applicable law.
4
<PAGE> 23
It is the intent of the parties hereto that the business relationship
created by this Note and the other Loan Documents is solely that of creditor and
debtor and has been entered into by both parties in reliance upon the economic
and legal bargains contained in the Loan Documents. None of the agreements
contained in the Loan Documents, is intended, nor shall the same be deemed or
construed, to create a partnership between FFCA and Debtor, to make them joint
venturers, to make Debtor an agent, legal representative, partner, subsidiary or
employee of FFCA, nor to make FFCA in any way responsible for the debts,
obligations or losses of Debtor.
FFCA, by accepting this Note, and Debtor acknowledge and warrant to
each other that each has been represented by independent counsel and Debtor has
executed this Note after being fully advised by said counsel as to its effect
and significance. This Note shall be interpreted and construed in a fair and
impartial manner without regard to such factors as the party which prepared the
instrument, the relative bargaining powers of the parties or the domicile of any
party.
Debtor acknowledges that this Note was substantially negotiated in the
State of Arizona, the Note was executed and delivered in the State of Arizona,
all payments under this Note will be delivered in the State of Arizona and there
are substantial contacts between the parties and the transactions contemplated
herein and the State of Arizona. For purposes of any action or proceeding
arising out of this Note, the parties hereto expressly submit to the
jurisdiction of all federal and state courts located in the State of Arizona.
Debtor consents that it may be served with any process or paper by registered
mail or by personal service within or without the State of Arizona in accordance
with applicable law. Furthermore, Debtor waives and agrees not to assert in any
such action, suit or proceeding that it is not personally subject to the
jurisdiction of such courts, that the action, suit or proceeding is brought in
an inconvenient forum or that venue of the action, suit or proceeding is
improper. It is the intent of Debtor and FFCA that all provisions of this Note
shall be governed by and construed under the laws of the State of Arizona.
Nothing contained in this paragraph shall limit or restrict the right of FFCA to
commence any proceeding in the federal or state courts located in any state in
which FFCA deems such proceeding necessary or advisable to exercise remedies
available under the Loan Documents.
FFCA, BY ACCEPTING THIS NOTE, AND DEBTOR HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH
RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS
SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS
NOTE, THE RELATIONSHIP OF FFCA AND DEBTOR AND/OR ANY CLAIM FOR INJURY OR DAMAGE,
OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY
RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL
ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL,
SPECIAL AND INDIRECT DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES
PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR
AGAINST FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN
CONNECTION WITH THIS
5
<PAGE> 24
NOTE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR
OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT
DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF
THEIR BARGAIN.
This obligation shall bind Debtor and its successors and assigns, and
the benefits hereof shall inure to FFCA and its successors and assigns. FFCA may
assign its rights under this Note as set forth in the Loan Agreement.
6
<PAGE> 25
IN WITNESS WHEREOF, Debtor has executed and delivered this Note
effective as of the date first set forth above.
P. F. CHANG'S CHINA BISTRO, INC., a
Delaware corporation
By /s/ Robert Vivian
-----------------------------------
Printed Name Robert Vivian
-------------------------
Title CFO
--------------------------------
7
<PAGE> 26
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made and entered into as
of June 29, 1998 by and between P.F. CHANG'S CHINA BISTRO, INC., a Delaware
corporation ("Debtor"), whose principal place of business is located at 5090
North 40th Street, Suite 160, Phoenix, Arizona 85015, and FRANCHISE FINANCE
CORPORATION OF AMERICA, a Delaware corporation ("FFCA"), whose address is 17207
North Perimeter Drive, Scottsdale, Arizona 85255.
PRELIMINARY STATEMENT:
FFCA has agreed to make the Loan to Debtor. To secure the Loan, Debtor
has agreed to grant FFCA a security interest in the Collateral on the terms and
conditions set forth in this Agreement. Capitalized terms not defined herein
shall have the respective meanings set forth in that certain Amended and
Restated Revolving Line of Credit Loan Agreement dated as of the date hereof
between Debtor and FFCA.
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises hereinafter set forth, FFCA and Debtor agree as follows:
1. DEBTOR'S OBLIGATION; SECURITY INTEREST CREATED. FFCA has
agreed to advance to Debtor the Loan, as evidenced by the execution and delivery
of the Note to FFCA, and Debtor shall pay other sums advanced or expended by
FFCA pursuant to the terms of the Loan Documents, and perform all other terms
and conditions of Debtor set forth in the Loan Documents (collectively, the
"Obligations"). To secure the payment of the Obligations, Debtor hereby grants
to FFCA a security interest in its general partnership or membership interests
in the Companies identified on Exhibit A attached hereto (the "Collateral").
2. DEFAULT. Any action or event which would constitute an Event
of Default (a "Default") and shall permit FFCA to exercise and pursue the
remedies specified in Section 3 below.
3. REMEDIES FOR DEFAULT. In the event that Debtor is, or is
deemed to be, in Default hereunder, FFCA shall have all rights and remedies of a
secured party in, to and against the Collateral granted by the Uniform
Commercial Code in the State of Arizona and otherwise available at law or in
equity, including, without limitation: (i) the right to declare all payments due
under the Loan Documents immediately due and payable and the right to recover
all fees and expenses (including reasonable attorney fees) in connection with
the collection or enforcement thereof, which fees and expenses shall constitute
additional Obligations of Debtor hereunder; (ii) the right to act as, and Debtor
hereby constitutes and appoints FFCA, Debtor's true, lawful and irrevocable
attorney-in-fact (which appointment shall be deemed coupled with an interest) to
demand, receive and enforce payments and to give receipts, releases,
satisfaction for and to sue for moneys payable to Debtor under or with respect
to any of the Collateral under this Agreement, and actions taken pursuant to
this appointment may be taken either in the name of
<PAGE> 27
Debtor or in the name of FFCA with the same force and effect as if this
appointment had not been made; (iii) the right to take immediate and exclusive
possession of the Collateral, or any part thereof; (iv) the right to hold,
maintain, preserve and prepare the Collateral for sale, until disposed of; (v)
the right to dispose of the Collateral; (vi) the right to require Debtor to
assemble and package the Collateral and make it available to FFCA for its
possession at a place to be designated by FFCA which is reasonably convenient to
the FFCA; (vii) the right to sell, hold or otherwise dispose of all or any part
of the Collateral; (viii) the right to sue for specific performance of any
obligation under the Loan Documents or to recover damages for breach thereof;
(ix) the right at any time to amend or terminate the Management Agreements
and/or the Joint Venture Agreements; (x) the right to receive all cash
distributions or payments payable in respect of the Collateral; and (xi) the
right to exercise or cause to be exercised all voting rights and partnership or
limited liability company, as applicable, powers in respect of the Collateral.
The remedies of FFCA hereunder are cumulative and the exercise of any one or
more of the remedies provided for herein or under the Uniform Commercial Code or
other applicable law shall not be construed as a waiver of any of the other
remedies of FFCA so long as any part of the Obligations secured hereby remains
unsatisfied. FFCA shall be entitled to receive on demand, as additional
Obligations hereunder, interest at the lower of 18% per annum or the highest
rate permitted by applicable law on all amounts not paid when due under the Note
or this Agreement, for the period such amounts are overdue. FFCA shall have no
duty to mitigate any loss to the Debtor occasioned by enforcement of any remedy
hereunder and shall have no duty of any kind to any subordinated creditor of
Debtor.
4. APPLICATION OF PROCEEDS. Should FFCA exercise the rights and
remedies specified in Section 3 hereof, any proceeds received thereby shall be
first applied to pay the costs and expenses, including reasonable attorneys'
fees, incurred by FFCA as a result of Debtor's Default. The remainder of any
proceeds, net of FFCA's costs and expenses, shall be applied to the satisfaction
of the Obligations and, so long as Debtor is not in Default hereunder, any
excess shall be paid over to Debtor. If Debtor is in Default hereunder, any
excess may be held by FFCA for a reasonable time and either applied to the
Obligations or paid over to Debtor.
5. APPLICABLE LAW. Debtor acknowledges that this Agreement was
substantially negotiated in the State of Arizona, the executed Agreement was
delivered in the State of Arizona, all payments under the Loan Documents will be
delivered in the State of Arizona and there are substantial contacts between the
parties and the transactions contemplated herein and the State of Arizona. For
purposes of any action or proceeding arising out of this Agreement, the parties
hereto expressly submit to the jurisdiction of all federal and state courts
located in the State of Arizona. Debtor consents that it may be served with any
process or paper by registered mail or by personal service within or without the
State of Arizona in accordance with applicable law. Furthermore, Debtor waives
and agrees not to assert in any such action, suit or proceeding that it is not
personally subject to the jurisdiction of such courts, that the action, suit or
proceeding is brought in an inconvenient forum or that venue of the action, suit
or proceeding is improper. It is the intent of the parties hereto that all
provisions of this Agreement shall be governed by and construed in accordance
with the laws of the State of Arizona. To the extent that a court of competent
jurisdiction finds Arizona law inapplicable with respect to any
2
<PAGE> 28
provisions hereof, then, as to those provisions only, the laws of the state
where the Collateral is located shall be deemed to apply. Nothing contained in
this paragraph shall limit or restrict the right of FFCA to commence any
proceeding in the federal or state courts located in the state in which the
Collateral is located to the extent FFCA deems such proceeding necessary or
advisable to exercise remedies available under the Loan Documents.
6. NONASSIGNABILITY. This Agreement may not by assigned by Debtor
without the consent of FFCA. However, FFCA may assign its rights under this
Agreement to any third party without the prior consent of Debtor.
7. POSSESSION. Until a Default occurs, Debtor may retain
possession of the Collateral, shall be entitled to all distributions as a result
of its interests in the Companies and may use it in any lawful manner not
inconsistent with this Agreement, with the provisions of any policies of
insurance thereon or the other Loan Documents.
8. WAIVER. No Default hereunder by Debtor shall be deemed to have
been waived by FFCA except by a writing to that effect signed by FFCA and no
waiver of any Default shall operate as a waiver of any other Default on a future
occasion. No modification, rescission, waiver, release or amendment of any
provision of this Agreement shall be made except by a written agreement signed
by Debtor and FFCA.
9. SEVERABILITY. In case any one or more of the provisions
contained herein or in the Note shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such provision had never been contained herein or therein.
10. NOTICES; AMENDMENTS; WAIVERS. All notices, demands,
designations, certificates, requests, offers, consents, approvals, appointments
and other instruments given pursuant to this Agreement (collectively called
"Notices") shall be in writing and given by (i) hand delivery, (ii) facsimile,
(iii) express overnight delivery service or (iv) certified or registered mail,
return receipt requested, and shall be deemed to have been delivered upon (a)
receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the
next business day, if delivered by express overnight delivery service, or (d)
the third business day following the day of deposit of such notice with the
United States Postal Service, if sent by certified or registered mail, return
receipt requested. Notices shall be provided to the parties and addresses (or
facsimile numbers, as applicable) specified below:
If to Debtor: P. F. Chang's China Bistro, Inc.
5090 North 40th Street, Suite 160
Phoenix, AZ 85018
Attention: Mr. Robert T. Vivian
Telephone: (602) 957-8986
Telecopy: (602) 957-8998
3
<PAGE> 29
With a copy to: Kenneth Van Winkle, Jr., Esq.
Lewis and Roca LLP
40 North Central Avenue
Phoenix, AZ 85004-4429
Telephone: (602) 262-5357
Telecopy: (602) 262-5747
If to FFCA: Dennis L. Ruben, Esq.
Senior Vice President and General Counsel
Franchise Finance Corporation of America
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
or to such other address or such other person as either party may from time to
time hereafter specify to the other party in a notice delivered in the manner
provided above. Whenever in this Agreement the giving of Notice is required, the
giving thereof may be waived in writing at any time by the person or persons
entitled to receive such Notice.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each thereof shall be deemed to be an original, and all such
counterparts shall constitute but one and the same instrument.
12. HEADINGS. The headings appearing in this Agreement have been
inserted for convenient reference only and shall not modify, define, limit or
expand the express provisions of this Agreement.
13. CHARACTERIZATION; INTERPRETATION. It is the intent of the
parties hereto that the business relationship created by the Note, this
Agreement and the other Loan Documents is solely that of creditor and debtor and
has been entered into by both parties in reliance upon the economic and legal
bargains contained in the Loan Documents. None of the agreements contained in
the Loan Documents is intended, nor shall the same be deemed or construed, to
create a partnership between FFCA and Debtor, to make them joint venturers, to
make Debtor an agent, legal representative, partner, subsidiary or employee of
FFCA, nor to make FFCA in any way responsible for the debts, obligations or
losses of Debtor.
FFCA and Debtor acknowledge and warrant to each other that each has
been represented by independent counsel and has executed this Agreement after
being fully advised by said counsel as to its effect and significance. This
Agreement shall be interpreted and construed in a fair and impartial manner
without regard to such factors as the party, which prepared the instrument, the
relative bargaining powers of the parties or the domicile of any party.
14. TIME OF THE ESSENCE. Time is of the essence in the performance
of each and every obligation under this Agreement.
4
<PAGE> 30
15. WAIVER OF JURY TRIAL AND PUNITIVE, CONSEQUENTIAL, SPECIAL AND
INDIRECT DAMAGES. FFCA AND DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO
ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH
RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, THE
RELATIONSHIP OF FFCA AND DEBTOR, DEBTOR'S USE OR OCCUPANCY OF THE COLLATERAL,
AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY.
THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY
JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE
RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES
FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION,
PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS
SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY DOCUMENTS CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY
DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND
INDIRECT DAMAGES HAS BEEN NEGOTIATED BY DEBTOR AND FFCA AND IS AN ESSENTIAL
ASPECT OF THEIR BARGAIN.
5
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
DEBTOR:
P.F.CHANG'S CHINA BISTRO, INC.,
a Delaware corporation
By /s/ Robert Vivian
---------------------------------------
Printed Name Robert Vivian
-----------------------------
Its CFO
--------------------------------------
SECURED PARTY:
FRANCHISE FINANCE CORPORATION OF AMERICA,
a Delaware corporation
By
---------------------------------------
Printed Name
-----------------------------
Title
------------------------------------
6
<PAGE> 32
EXHIBIT A
COMPANIES
PFCCB NUC LLC, an Arizona limited liability company
PFCCB Southeastern LLC, an Arizona limited liability company
PFCCB Mid-Atlantic LLC, an Arizona limited liability company
PFCCB LouTex Joint Venture, an Arizona general partnership
PFCCB Florida Joint Venture, an Arizona general partnership
<PAGE> 33
FORM OF
NEGATIVE PLEDGE AGREEMENT
THIS NEGATIVE PLEDGE AGREEMENT (this "Agreement") is made as of June 29,
1998 by P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation ("Debtor") whose
principal place of business is located at 5090 North 40th Street, Suite 160,
Phoenix, Arizona 85015 for the benefit of FRANCHISE FINANCE CORPORATION OF
AMERICA, a Delaware corporation ("FFCA"), whose address is 17207 North Perimeter
Drive, Scottsdale, Arizona 85255.
PRELIMINARY STATEMENTS
Capitalized terms not defined herein shall have the respective meanings
set forth in that certain Amended and Restated Revolving Line of Credit Loan
Agreement (the "Loan Agreement") dated as of the date hereof between FFCA and
Debtor. Debtor either holds (i) fee title to the property legally described on
the attached Exhibit A (ii) a leasehold interest in the land legally described
on the attached Exhibit A and fee title to the buildings and improvements
located thereon or (iii) a leasehold interest in the real property legally
described on the attached Exhibit A (in any case, the "Premises"). FFCA has
agreed to make the Loan to Debtor. In consideration of the Loan and as security
for the Loan, Debtor has agreed to execute and deliver this Agreement.
AGREEMENT
1. NEGATIVE PLEDGE. Debtor agrees that it shall not sell, assign,
mortgage, grant, bargain, convey, pledge or encumber by deed of trust, security
agreement or other consensual monetary lien in or on Debtor's interest in the
Premises or any portion thereof or permit Debtor's interest in the Premises or
any part thereof to be sold, assigned, mortgaged, granted, bargained, conveyed,
pledged or encumbered by deed of trust, security agreement or other consensual
monetary lien without the prior written consent of FFCA, which consent may be
withheld in FFCA's sole discretion. Any sale, assignment, mortgage, grant,
bargain, conveyance, pledge or consensual encumbrance in breach of the
preceding sentence shall be null and void, and of no force and effect, and
shall constitute an "Event of Default" under the Loan Agreement. Debtor
acknowledges that a material inducement to FFCA's willingness to advance the
Loan is the execution and delivery by Debtor of this Agreement.
2. RECORDATION. Debtor agrees that is Agreement will be recorded in the
real property records of the county where the Premises is located to provide
constructive notice of the terms and conditions of this Agreement; provided,
however, that this Agreement does not encumber or affect any landlord's or
lessor's interest in the Premises.
3. RELEASE. FFCA agrees that at such time as the obligations of Debtor
under the Loan Documents are paid and satisfied in full, FFCA shall execute a
release of this Agreement.
4. MISCELLANEOUS PROVISIONS.
A. Notices. All notices, consents, approvals or other instruments required
or permitted to be given by either party pursuant to this Agreement shall be in
writing and given by
<PAGE> 34
(i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or
(iv) certified or registered mail, return receipt requested, and shall be
deemed to have been delivered upon (a) receipt, if hand delivered, (b)
electronic confirmation of transmission, if delivered by facsimile, (c) the
next business day, if delivered by express overnight delivery service, or (d)
the third business day following the day of deposit of such notice with the
United States Postal Service, if sent by certified or registered mail, return
receipt requested. Notices shall be provided to the parties and addresses (or
facsimile numbers, as applicable) specified below:
If to Debtor: P.F. Chang's China Bistro, Inc.
5090 North 40th Street, Suite 160
Phoenix, AZ 85018
Attention: Mr. Robert T. Vivian
Telephone: (602) 957-8986
Telecopy: (602) 957-8998
With a copy to: Kenneth Van Winkle, Jr., Esq.
Lewis and Roca LLP
40 North Central Avenue
Phoenix, AZ 85004-4429
Telephone: (602) 262-5311
Telecopy: (602) 262-5747
If to FFCA: Dennis L. Ruben, Esq.
Executive Vice President and
General Counsel
Franchise Finance Corporation of America
17207 North Perimeter Drive
Scottsdale, AZ 85255
Telephone: (602) 585-4500
Telecopy: (602) 585-2226
B. Waiver and Amendment. No provisions of this Agreement shall be
deemed waived or amended except by a written instrument unambiguously setting
forth the matter or amended except by a written instrument unambiguously setting
forth the matter waived or amended and signed by the party against which
enforcement of such waiver or amendment is sought. Waiver of any matter shall
not be deemed a waiver of the same or any other matter on any future occasion.
C. Captions. Captions are used throughout this Agreement for
convenience of reference only and shall not be considered in any manner in the
construction or interpretation hereof.
D. Severability. The provisions of this Agreement shall be deemed
severable. If any part of this Agreement shall be held unenforceable, the
remainder shall remain in full force and effect, and such unenforceable
provision shall be reformed by such court so as to give maximum legal effect to
the intention of the parties as expressed therein.
2
<PAGE> 35
E. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of Debtor and FFCA and their respective successors and permitted
assigns, including, without limitation, any United States trustee, any debtor in
possession or any trustee appointed from a private panel.
F. Forum Selection; Jurisdiction; Venue; Choice of Law. Debtor and FFCA
acknowledge that this Agreement was substantially negotiated in the State of
Arizona, the Agreement was signed and delivered by Debtor in the State of
Arizona, and there are substantial contacts between the parties and the
transactions contemplated herein and the State of Arizona. For purposes of any
action or proceeding arising out of this Agreement, the parties hereto hereby
expressly submit to the jurisdiction of all federal and state courts located in
the State of Arizona and Debtor consents that it may be served with any process
or paper by registered mail or by personal service within or without the State
of Arizona in accordance with applicable law. Furthermore, Debtor waives and
agrees not to assert in any such action, suit or proceeding that it is not
personally subject to the jurisdiction of such courts, that the action, suit or
proceeding is brought in an inconvenient forum or that venue of the action, suit
or proceeding is improper. It is the intent of the parties hereto that all
provisions of this Agreement shall be governed by and construed under the laws
of the State of Arizona. To the extent that a court of competent jurisdiction
finds Arizona law inapplicable with respect to any provisions hereof, then, as
to those provisions only, the laws of the state where the Premises is located
shall be deemed to apply. Nothing in this Section shall limit or restrict the
right of FFCA to commence any proceeding in the federal or state courts located
in the state in which the Premises are located to the extent FFCA deems such
proceeding necessary or advisable to exercise remedies available under this
Agreement.
H. Waiver of Jury Trial and Punitive, Consequential, Special and
Indirect Damages. DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO
ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS
WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE
PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN
NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO
SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM FFCA WITH
RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR
COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS SUCCESSORS WITH RESPECT TO
ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT
CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY
HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN
3
<PAGE> 36
NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
I. Costs. Debtor shall be responsible for the payment of all
out-of-pocket costs and expenses incurred by Debtor and FFCA in connection with
this Agreement, including, without limitation, reasonable attorneys' fees and
recording and filing fees and charges.
4
<PAGE> 37
STATE OF ARIZONA )
) SS.
COUNTY OF MARICOPA)
The foregoing instrument was acknowledged before me on June 29, 1998 by
Robert Vivian, CFO of P.F. Chang's China Bistro, Inc. a Delaware corporation, on
behalf of the corporation.
/s/ Kim Kuharske
----------------------------------
Notary Public
My Commission Expires:
7-25-99
- ----------------------
6
<PAGE> 1
EXHIBIT 10.10
OFFICE LEASE
THIS OFFICE LEASE is entered into by Landlord and Tenant as described
in the following Basic Lease Information on the Date which is set forth for
reference only in the following Basic Lease Information. Landlord and Tenant
agree:
ARTICLE 1--BASIC LEASE INFORMATION
1.1 Basic Lease Information. In addition to the terms which are defined
elsewhere in this Lease, the following defined terms are used in this Lease:
(a) DATE: February 15, 1997.
(b) LANDLORD: U S WEST Business Resources, Inc., a
Colorado corporation.
(c) LANDLORD'S ADDRESS: with a copy at the same time to:
<TABLE>
<S> <C>
U S WEST Business Resources, Inc. U S WEST, Inc.
3640 East Indian School Road, Room 300 7800 East Orchard Road, Room 480
Phoenix, AZ 85018 Englewood, CO 80111
Attn: Manager--Real Estate Attn: Law Department
</TABLE>
(d) TENANT: P.F. Chang's China Bistro, Inc., a Delaware
corporation.
(e) TENANT'S ADDRESS: P.F. Chang's China Bistro, Inc.
5090 North 40th Street, Suite 160
Phoenix, AZ 85018
(f) BUILDING ADDRESS: 5090 North 40th Street
Phoenix, AZ 85018
(g) PREMISES: The Premises shown on Exhibit A to this
Lease, known as Suite 160.
(h) RENTABLE AREA OF THE PREMISES: Approximately 4,410
rentable square feet.
(i) RENTABLE AREA OF THE BUILDING: 175,186 rentable
square feet.
(j) TERM: Approximately 60 months, beginning on the
Commencement Date and expiring on the Expiration
Date.
(k) COMMENCEMENT DATE: May 1, 1997, as the same may be
extended pursuant to Article 3 below.
(l) EXPIRATION DATE: April 30, 2002, as the same may be
extended pursuant to Section 3.2 below.
(m) SECURITY DEPOSIT: $-0-.
(n) MONTHLY RENT: $8,085.00 per month. For purposes of
this subsection (n), month 1 will be considered the
first full calendar month of the Term; from the
Commencement Date until the beginning of month 1, the
Monthly Rent shall be $8,085.00 per month on a
prorated basis.
The Monthly Rent includes the product of 1/12th of
the Operating Expenses Base times the Rentable Area
of the Premises. The Monthly Rent does not include
the Arizona state and local transaction privileges
tax.
(o) OPERATING EXPENSES BASE: Actual operating expenses
for calendar year 1997, expressed on a per square
foot basis.
(p) TENANT'S SHARE: 2.517% (determined by dividing the
Rentable Area of the Premises by the total rentable
area of the building).
(q) PARKING SPACES: Landlord shall provide six covered,
reserved parking stalls. Upon Tenant's request,
Landlord shall provide twenty-five covered unreserved
parking stalls. Tenant shall notify Landlord if it
desires any additional unreserved stalls.
(r) PARKING CHARGE: $45 per month per stall for the
covered reserved parking stalls, and $26 per month
per stall for covered unreserved Parking stalls.
(s) BROKER: CB Commercial.
<PAGE> 2
(t) TENANT IMPROVEMENTS: Landlord shall provide space
based on a mutually acceptable space plan. Landlord's
obligation and costs for tenant improvements shall
not exceed $7.00 per rentable square foot.
1.2 Definitions:
(a) ADDITIONAL RENT: Any amounts which this Lease
requires Tenant to pay in addition to Monthly Rent,
including, but not limited to, the Arizona state and
local transaction privilege tax.
(b) BUILDING: The building which is located on the Land
and of which the Premises are a part
(c) LAND: The land on which the Project is located and
which is described on Exhibit B.
(d) PRIME RATE: The rate of interest from time to time
announced by Norwest Banks, or any successor to it,
as its prime rate. If Norwest Banks or any successor
to it ceases to announce its prime rate, the Prime
Rate will be a comparable interest rate designated by
Landlord which replaces the Prime Rate.
(e) PROJECT: The development consisting of the Land and
all improvements built on the Land including without
limitation the Building, parking lot, parking
structure, if any, walkways, driveways, fences, and
landscaping.
(f) RENT: The Monthly Rent and Additional Rent.
If any other provision of this Lease contradicts any definition of this
Article, the other provision will prevail.
1.3 Exhibits. The following addendum and exhibits are attached to this
Lease and are made part of this Lease:
EXHIBIT A--The Premises
EXHIBIT B--Legal Description of the Land
EXHIBIT C--Work Letter
EXHIBIT D--Rules and Regulations
EXHIBIT E--Commencement Date Certificate
ARTICLE 2--AGREEMENT
Landlord leases the Premises to Tenant, and Tenant leases the Premises;
from Landlord, according to this Lease. The duration of this Lease will be the
Term. The Term will commence on the Commencement Date, and will expire on the
Expiration Date.
ARTICLE 3--DELIVERY OF PREMISES
Landlord will perform the Tenant Improvements as described in the
attached Exhibit C above. Subject to Landlord's obligation to complete the
Tenant Improvements, Landlord shall have delivered possession of the Premises to
Tenant on the Commencement Date, AS-IS in its present condition on the
Commencement Date. Tenant acknowledges that neither Landlord nor its agents or
employees have made any representations or warranties as to the suitability or
fitness of the Premises for the conduct of Tenant's business or for any other
purpose, nor has Landlord or its agents or employees agreed to undertake any
alterations or construct any tenant improvements to the Premises except as
expressly provided in this Lease. If for any reason, Landlord cannot deliver
possession of the Premises to Tenant on the Commencement Date, (a) this Lease
will not be void or voidable and Landlord will not be liable to Tenant for any
resultant loss or damage, and (b) the Commencement Date and Expiration Date
shall each be delayed by one day for each day of such delay; provided, however,
if the Commencement Date is delayed by more than 90 days, Tenant, by written
notice to Landlord prior to the Commencement Date, may terminate this Lease.
Tenant will execute the Commencement Date Certificate attached to this Lease as
Exhibit E within 15 days of Landlord's request.
ARTICLE 4--MONTHLY RENT
Throughout the Term of this Lease, Tenant will pay Monthly Rent to
Landlord as rent for the Premises. Monthly Rent will be paid in advance on or
before the first day of each calendar month of the Term. If the Term commences
on a day other than the first day of a calendar month or ends on a day other
than the last day of a calendar month, then Monthly Rent will be appropriately
prorated by Landlord based on the actual number of calendar days in such month.
If the Term commences on a day other than the first day of a calendar month,
then the prorated Monthly Rent for such month will be paid on or before the
first day of the Term. Monthly Rent will be paid to Landlord, without written
notice or demand, and without deduction or offset, in lawful money of the United
States of America at Landlord's Address, or to such other address as Landlord
may from time to time designate in writing.
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ARTICLE 5--OPERATING EXPENSES
5.1 General.
(a) In addition to Monthly Rent, beginning on January 1, 1998,
Tenant will pay Tenant's Share of the amount by which the Operating Expenses
paid, payable or incurred by Landlord in each calendar year or partial calendar
year during the Term exceeds the product of (i) the Operating Expenses Base
times (ii) the Rentable Area of the Building. If Operating Expenses are
calculated for a partial calendar year, the Operating Expenses Base will be
appropriately prorated.
(b) As used in this Lease, the term "Operating Expenses"
means:
(1) All reasonable costs of management, operation and
maintenance of the Project, including without limitation, real and personal
property taxes and assessments (and any tax levied in whole or in part in lieu
of or in addition to real property taxes); wages, salaries and compensation of
employees employed at or allocated to the Project; consulting, accounting,
legal, janitorial, maintenance, guard, and other services; management fees and
costs (charged by Landlord, any affiliate of Landlord, or any other entity
managing the Project and determined at a rate consistent with prevailing market
rates for comparable services and projects); reasonable reserves for Operating
Expenses; that part of office rent or rental value of space in the Project used
or furnished by Landlord to enhance, manage, operate, and maintain the Project;
power, water, waste disposal, and other utilities; materials and supplies;
maintenance and repairs; insurance obtained with respect to the Project;
depreciation on personal property and equipment (except as set forth in (c)
below or which is or should be capitalized on the books of Landlord); and any
other costs, charges, and expenses which, under generally accepted accounting
principles, would be regarded as management, maintenance, and operating
expenses; and
(2) The cost (amortized over such period as Landlord
will reasonably determine) together with interest at the greater of (A) the
Prime Rate prevailing plus 2% or (B) Landlord's borrowing rate for such capital
improvements plus 2%, on the unamortized balance of any capital improvements (i)
which are made to the Project by Landlord for the purpose of reducing Operating
Expenses, or (ii) which are required under any governmental law or regulation
that was not applicable to the Project at the time it was constructed and which
are not a result of special requirements for any tenant's use of the Building
(whether or not such law or regulation is applicable to the Building as a result
of Landlord's or any tenant's status under such law or regulation, Landlord's or
any tenant's use, occupancy, or alteration of any portion of the Building, or
improvements made by or for any tenant in its premises). Notwithstanding the
foregoing, the Building's Operating Expenses will not include the cost of
capital improvements which are required to be made to any tenant's premises by
Such tenant pursuant to Section 8.1.
(c) The Operating Expenses will not include: (1) depreciation
on the Project (other than depreciation on personal property, equipment, window
coverings on exterior windows provided by Landlord and carpeting in public
corridors and common areas); (2) costs of alterations of space or other
improvements made for tenants of the Project; (3) finders' fees and real estate
brokers' commissions; (4) ground lease payments, mortgage principal or interest;
(5) capital items other than those referred to in clause (b)(2) above; (6) costs
of replacements to personal property and equipment for which depreciation costs
are included as an Operating Expense; (7) costs of excess or additional services
provided to any tenant in the Building which are directly billed to such
tenants; (8) the cost of repairs due to casualty or condemnation which are
reimbursed by third parties; (9) any cost due to Landlord's breach of this
Lease; (10) any income, estate, inheritance, or other transfer tax and any
excess profit, franchise, or similar taxes on Landlord's business; (11) all
costs, including legal fees, relating to activities for the solicitation and
execution of leases of space in the Building; and (12) any legal fees incurred
by Landlord in enforcing its rights under other leases for premises in the
Building.
(d) The Operating Expenses which vary with occupancy and which
are attributable to any part of the Term in which less than 95% of the Rentable
Area of the Building is occupied by tenants, will be adjusted by Landlord to the
amount which Landlord reasonably believes that they would have been if 95% of
the Rentable Area of the Building had been so occupied.
(e) Tenant acknowledges that Landlord has not made any
representation or given Tenant any assurances that the Operating Expenses Base
will equal or approximate the actual Operating Expenses per square foot of
Rentable Area of the Premises for any calendar year during the Term. In no event
shall Operating Expenses within the control of Landlord exceed 5% per year.
5.2 Estimated Payments. Commencing on January 1, 1998 and hereafter
during each calendar year or partial calendar year in the Term, in addition to
Monthly Rent, Tenant will pay to Landlord on the first day of each month an
amount equal to 1/12 of the product of Tenant's Share multiplied by the
"Estimated Operating Expenses" (defined below) for such calendar year.
"Estimated Operating Expenses" for any calendar year shall mean Landlord's
reasonable estimate of Operating Expenses for such calendar year less the
product of the Operating Expenses Base multiplied by the Rentable Area of the
Building and shall be subject to revision according to the further provisions of
this Section 5.2 and Section 5.3. During any partial calendar year during the
Term, Estimated Operating Expenses will be estimated on a full-year basis.
During each December during the Term, or as soon after each December as
practicable, Landlord will give Tenant written notice of Estimated Operating
Expenses for the ensuing calendar year. On or before the first day of each month
during the ensuing calendar year (or each month of the Term, if a partial
calendar year), Tenant will pay to Landlord 1/12 of the product of Tenant's
Share multiplied by the Estimated Operating Expenses for such calendar year;
however, if such written notice is not given in December, Tenant will continue
to make monthly payments on the basis of the prior year's Estimated Operating
Expenses until the month after such written notice is given, at which
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<PAGE> 4
time Tenant will commence making monthly payments based upon the revised
Estimated Operating Expenses. In the month Tenant first makes a payment based
upon the revised Estimated Operating Expenses, Tenant will pay to Landlord the
difference between the amount payable based upon the revised Estimated Operating
Expenses and the amount payable based upon the prior year's Estimated Operating
Expenses, for each month which has elapsed since December. If at any time or
times it reasonably appears to Landlord that the actual Operating Expenses for
any calendar year will vary from the Estimated Operating Expenses for such
calendar year, Landlord may, by written notice to Tenant, revise the Estimated
Operating Expenses for such calendar year, and subsequent payments by Tenant in
such calendar year will be based upon such revised Estimated Operating Expenses.
5.3 Annual Settlement. Within 120 days after the end of each calendar
year or as soon after such 120-day period as practicable, Landlord will deliver
to Tenant a statement of amounts payable under Section 5.1 for such calendar
year prepared and certified by Landlord. Such certified statement will be final
and binding upon Landlord and Tenant unless Tenant objects to it in writing to
Landlord within 60 days after it is given to Tenant. If such statement shows an
amount owing by Tenant that is less than the estimated payments previously made
by Tenant for such calendar year, the excess will be held by Landlord and
credited against the next payment of Rent; however, if the Term has ended and
Tenant was not in default at its end, Landlord will refund the excess to Tenant.
If such statement shows an amount owing by Tenant that is more than the
estimated payments previously made by Tenant for such calendar year, Tenant will
pay the deficiency to Landlord within 30 days after the delivery of such
statement. Tenant may review Landlord's records of the Operating Expenses, at
Tenant's sole cost and expense, at the place Landlord normally maintains such
records during Landlord's normal business hours upon reasonable advance written
notice.
5.4 Final Proration. If this Lease ends on a day other than the last
day of a calendar year, the amount of increase (if any) in the Operating
Expenses payable by Tenant applicable to the calendar year in which this Lease
ends will be calculated on the basis of the number of days of the Term falling
within such calendar year and Tenant's obligation to pay any increase or
Landlord's obligation to refund any overage will survive the expiration or other
termination of this Lease. If Tenant's audit reveals an overstatement of the
total Operating Expense of more than 5%, then Landlord shall pay the cost of
Tenant's audit.
5.5 Other Taxes.
(a) Tenant will reimburse Landlord upon demand for any and all
taxes payable by Landlord (other than as set forth in subparagraph (b) below),
whether or not now customary or within the contemplation of Landlord and Tenant:
(1) Upon or measured by Rent, including without
limitation, any gross revenue tax, excise tax, or value added tax levied by the
federal government or any other governmental body with respect to the receipt of
Rent, including, but not limited to, the Arizona state and local transaction
privileges tax; and
(2) Upon this transaction or any document to which
Tenant is a party creating or transferring an interest or an estate in the
Premises.
(b) Tenant will not be obligated to pay any inheritance tax,
gift tax, transfer tax, franchise tax, income tax (based on net income), profit
tax, or capital levy imposed upon Landlord.
(c) Tenant will pay promptly when due all personal property
taxes on Tenant's personal property in the Premises and any other taxes payable
by Tenant, the non-payment of which might give rise to a lien on the Premises or
Tenant's interest in the Premises.
5.6 Additional Rent. Amounts payable by Tenant according to this
Article 5 will be payable as Rent, without deduction or offset. If Tenant fails
to pay any amounts due according to this Article 5, Landlord will have all the
rights and remedies available to it on account of Tenant's failure to pay Rent.
ARTICLE 6--INSURANCE
6.1 Landlord's Insurance. At all times during the Term, Landlord will
carry and maintain:
(a) Fire and extended coverage insurance covering the Project
and its equipment and common area furnishings;
(b) Bodily injury and property damage insurance; and
(c) Such other insurance as Landlord reasonably determines
from time to time or required by any Superior Lien (as defined in Section 19.1).
The insurance coverages and amounts in this Section 6.1 will be reasonably
determined by Landlord, based on coverages carried by prudent owners of
comparable buildings in the vicinity of the Project.
6.2 Tenant's Insurance. At all times during the Term, Tenant will carry
and maintain, at Tenant's expense, the following insurance, in the amounts
specified below or such other amounts as Landlord may from time to time
reasonably request and which are customary for projects similar to the Project
in the Phoenix area, with insurance companies and on forms reasonably
satisfactory to Landlord:
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<PAGE> 5
(a) Bodily injury and property damage liability insurance,
with a combined single occurrence limit of not less than $1,000,000. All such
insurance will be equivalent to coverage offered by a Commercial General
Liability form including, without limitation, personal injury and contractual
liability coverage for the performance by Tenant of the indemnity agreements set
forth in Article 12 of this Lease;
(b) Insurance covering all of Tenant's furniture and fixtures,
machinery, equipment, stock and any other personal property owned and used in
Tenant's business and found in, on or about the Project.
Property forms will provide coverage on a broad form basis insuring against "all
risks of direct physical loss." All policy proceeds will be used for the repair
or replacement of the property damaged or destroyed; however, if this Lease
ceases under the provisions of Article 18, Tenant will be entitled to any
proceeds resulting from damage to Tenant's furniture and fixtures, machinery and
equipment, stock and any other personal property;
(c) Worker's compensation insurance insuring against and
satisfying Tenant's obligations and liabilities under the worker's compensation
laws of the state in which the Premises are located, including employer's
liability insurance in the limits required by the laws of the state in which the
Project is located; and
(d) If Tenant operates owned, hired or nonowned vehicles on
the Project, comprehensive automobile liability will be carried at a limit of
liability not less than $500,000 combined bodily injury and property damage.
6.3 Forms of the Policies. Certificates of insurance, together with
copies of the endorsements when applicable naming Landlord and any others
specified by Landlord as additional insureds, will be delivered to Landlord
prior to Tenant's occupancy of the Premises and from time to time at least 10
days prior to the expiration of the term of each such policy. All Commercial
General Liability or comparable policies maintained by Tenant will name Landlord
and such other persons or firms having an interest in the Project (whether as
owner or mortgagee) as Landlord specifies (in writing) from time to time as
additional insureds entitling them to recover under such policies for any loss
sustained by them, their agents and employees as a result of the negligent acts
or omissions of Tenant. All such policies maintained by Tenant will provide that
they may not be terminated nor may coverage be reduced except after 30 days'
prior written notice to Landlord. All Commercial General Liability and property
policies maintained by Tenant will be written as primary policies, not
contributing with and not supplemental to the coverage that Landlord may carry.
6.4 Waiver of Subrogation. Landlord and Tenant each waive any and all
rights to recover against the other or against any other tenant, occupant of the
Project or Superior Lien holder, or against the officers, directors,
shareholders, partners, joint venturers, employees, agents, customers, invitees
or business visitors of such other party or of such other tenant or, occupant of
the Project, or Superior Lien holder, for any loss or damage to such waiving
party arising from any cause covered by any property insurance required to be
carried by such party pursuant to this Article 6 or any other property insurance
actually carried by such party to the extent of the recovery under such policy.
Landlord and Tenant, from time to time, will cause their respective insurers to
issue appropriate waiver of subrogation rights endorsements to all property
insurance policies carried in connection with the Project or the Premises or the
contents of the Project or the Premises. Tenant agrees to cause all other
occupants of the Premises claiming by, under or through Tenant to execute and
deliver to Landlord such a waiver of claims and to obtain such waiver of
subrogation rights endorsements.
6.5 Adequacy of Coverage. Landlord, its agents and employees, make no
representation that the limits of liability specified to be carried by Tenant
pursuant to this Article 6 are adequate to protect Tenant. If Tenant believes
that any of such insurance coverage is inadequate, Tenant will obtain such
additional insurance coverage as Tenant deems adequate, at Tenant's sole
expense.
ARTICLE 7--USE
The Premises will be used only for general office purposes and ancillary
office purposes. Tenant will not (a) do or permit to be done in or about the
Premises, nor bring to, keep, or permit to be brought or kept in the Premises,
anything which is prohibited by or will in any way conflict with any law,
statute, ordinance, or governmental rule or regulation which is now in force or
which may be enacted or promulgated after the Date; (b) do or permit anything to
be done in or about the Premises which will in any way obstruct or interfere
with the rights of other tenants of the Building or Project or injure or annoy
them; (c) use or allow the Premises to be used for any immoral or unlawful,
purpose; (d) cause, maintain, or permit any nuisance in, on, or about the
Premises, or (e) commit or allow to be committed any, waste in, on, or about
the Premises.
ARTICLE 8--REQUIREMENTS OF LAW; FIRE INSURANCE
8.1 General. At its sole cost and expense, Tenant will promptly comply
with all laws, statutes, ordinances and governmental rules, regulations, or
requirements now in force or in force after the Commencement Date, with the
requirements of any board of fire underwriters or other similar body constituted
now or after the Date, with any direction or occupancy certificate issued
pursuant to any law by any public officer or officers, as well as the provisions
of all recorded documents affecting the Premises, insofar as they relate to (a)
Tenant's use, occupancy, or alteration of the Premises; (b) the condition of the
Premises resulting from Tenant's use, occupancy, or alteration of the Premises;
or (c) alterations to the Premises required as a result of Tenant's status under
such laws. Tenant will not be required to comply with such laws with respect to
structural changes or changes outside the Premises unless related to (y)
Tenant's use or occupancy of the Premises, or (z) improvements or alterations
made by or for Tenant.
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8.2 Hazardous Materials.
(a) For purposes of this Lease, "Hazardous Materials" means
any toxic or caustic substances, explosives, radioactive materials, hazardous
wastes, hazardous substances, or petroleum, its derivatives, by-products, or
other hydrocarbons, including, without limitation, substances defined as
"hazardous substances" or "hazardous waste" in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections
9601-9657; the Hazardous Materials Transportation Act of 1975, 49 U.S.C.
Sections 1801-1812; the Resource Conservation and Recovery Act of 1976,42 U.S.C.
Sections 6901-6987; The Occupational Safety and Health Act of 1970 or any other
federal, state, or local statute, law, ordinance, code, rule, regulation, order,
or decree regulating, relating to, or imposing liability or standards of conduct
concerning hazardous materials, waste, or substances now or at any time
hereafter in effect (collectively, "Hazardous Materials Laws").
(b) Tenant will not cause or permit the release, treatment,
recycling, storage, use, generation, transportation, or disposition of any
Hazardous Materials in, on or about the Premises or the Project by Tenant, its
agents, employees, or contractors, except typical office products used in the
normal course of business and in accordance with applicable Hazardous Materials
Laws. Tenant will not permit the Premises to be used or operated in a manner
that may cause the Premises or the Project to be contaminated by any Hazardous
Materials in violation of any Hazardous Materials Laws. Tenant will not install
or permit the installation on the Project of any underground storage tanks,
surface impoundments, or asbestos-containing materials in violation of any
Hazardous Materials Laws. Tenant will cause any alterations of the Premises to
be made in a way not to expose persons working or visiting the Project to
Hazardous Materials in excess of safety levels established by Hazardous
Materials Laws. Tenant will immediately advise Landlord in writing of (1) any
and all enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed, or threatened pursuant to any
Hazardous Materials Laws relating to any Hazardous Material affecting the
Premises; (2) all claims made or threatened by any third party against Tenant,
Landlord, or the Premises relating to damage, contribution, cost recovery,
compensation, loss, or injury resulting from any Hazardous Materials on or about
the Premises; and (3) the failure of the Premises to comply with any Hazardous
Materials Laws. Without Landlord's prior written consent, Tenant will not take
any remedial action or enter into any agreements or settlements in response to
the presence of any Hazardous Materials in, on, or about the Premises.
(c) Tenant will be solely responsible for and will defend,
indemnify and hold Landlord, the holders of Superior Liens, their agents,
employees, partners, shareholders, officers, and directors (collectively,
"Landlord Indemnities") harmless from and against all claims, costs and
liabilities, including attorneys' fees and costs, arising out of or in
connection with Tenant's breach of its obligations in this Article 8. Tenant
will be solely responsible for and will defend, indemnify and hold Landlord
Indemnities harmless from and against any and all claims, costs, and
liabilities, including attorneys' fees and costs, arising out of or in
connection with the removal, clean-up and restoration work and materials
necessary to return the Premises and any other property of whatever nature
located on the Project to their condition existing prior to the appearance of
Tenant's Hazardous Materials on the Premises. Tenant's obligations under this
Article 8 will survive the expiration or other termination of this Lease.
(d) Landlord will be solely responsible for and will defend,
indemnify and hold Tenant, its agents, employees, partners, shareholders,
officers and directors ("Tenant Indemnities") harmless from and against all
claims, costs and liabilities including attorneys' fees and costs, arising out
of or in connection with Landlord's release, treatment, recycling, storage, use,
generation, transportation, or disposition of any Hazardous Materials in, on or
about the Premises or the Project prior to the date of this Lease ("Tenant
Indemnification Event"). Landlord will be solely responsible for and will
defend, indemnify and hold Tenant Indemnities harmless from and against any and
all claims, costs and liabilities, including attorneys' fees and costs, arising
out of or in connection with the removal, cleanup and restoration work required
in connection with any Hazardous Materials on the Premises or the Project
arising from a Tenant Indemnification Event. Landlord's obligations under this
Article 8 will survive the expiration or termination of this Lease. Landlord
represents that it has no actual knowledge of any potential claims, costs, or
liabilities arising out of or in connection with a Tenant Indemnification Event.
(e) Landlord may, from time to time during the Term based on
reasonable cause, conduct such environmental assessments or tests as Landlord
deems necessary, provided that Landlord will give Tenant reasonable prior notice
of its entry on the Premises for such purposes and will cooperate in minimizing
any disruption of Tenant's use of the Premises as a result of such activity.
Tenant will reimburse Landlord for the cost of such environmental assessment or
test if, at the time Landlord causes such assessment or test to be made,
Landlord has reasonable grounds to believe that an event has occurred which
constitutes a violation by Tenant of one of its covenants under, or which is
likely to result in Tenant being liable to Landlord by virtue of, an indemnity
given by Tenant under this Section 8.2.
8.3 Certain Insurance Risks. Tenant will not do or permit to be done
any act or thing upon the Premises or the Project which would (a) jeopardize or
be in conflict with fire insurance policies covering the Project, and fixtures
and property in the Project, or (b) increase the rate of fire insurance
applicable to the Project to an amount higher than it otherwise would be for
general office use of the Project, or (c) subject Landlord to any liability or
responsibility for injury to any person or persons or to property by reason of
any business or operation being carried on upon the Premises.
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ARTICLE 9--ASSIGNMENT AND SUBLETTING
9.1 General. Except in connection with the sale or transfer of all of
Tenant's assets, Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, covenants that it
will not assign, mortgage or encumber this Lease, nor sublease, or permit the
Premises or any part of the Premises to be used or occupied by others, without
the prior written consent of Landlord in each instance, which consent will not
be unreasonably withheld or delayed. Any assignment or sublease in violation of
this Article 9 will be void. If this Lease is assigned, or if the Premises or
any part of the Premises are subleased or occupied by anyone other than Tenant,
Landlord may, after default by Tenant, collect rent from the assignee, subtenant
or occupant, and apply the net amount collected to Rent. No assignment,
sublease, occupancy or collection will be deemed a waiver of the provisions of
this Section 9.1, the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant contained in this Lease. The consent by
Landlord to an assignment or sublease will not be construed to relieve Tenant
from obtaining Landlord's prior written consent to any further assignment or
sublease. No permitted subtenant may assign or encumber its sublease or further
sublease all or any portion of its subleased space, or otherwise permit the
subleased space or any part of its subleased space to be used or occupied by
others, without Landlord's prior written consent in each instance.
9.2 Submission of Information. If Tenant requests Landlord's consent
to a specific assignment or subletting, Tenant will submit in writing to
Landlord (a) the name and address of the proposed assignee or subtenant; (b) the
business terms of the proposed assignment or sublease; (c) reasonably
satisfactory information as to the nature and character of the business of the
proposed assignee or subtenant, and as to the nature of its proposed use of the
space; (d) banking, financial, or other credit information reasonably sufficient
to enable Landlord to determine the financial responsibility and character of
the proposed assignee or subtenant; and (e) the proposed form of assignment or
sublease for Landlord's reasonable approval.
9.3 Payments to Landlord. If Landlord consents to a proposed
assignment or sublease, then Landlord will have the right to require Tenant to
pay to Landlord a sum equal to (a) 75% of any rent or other consideration paid
to Tenant by any proposed transferee which (after deducting the costs of Tenant,
if any, in effecting the assignment or sublease, including reasonable alteration
costs, commissions and legal fees) is in excess of the Rent allocable to the
transferred space which is then being paid by Tenant to Landlord pursuant to
this Lease; (b) 75% of any other profit or gain (after deducting any necessary
expenses incurred) realized by Tenant from any such sublease or assignment; and
(c) Landlord's reasonable attorneys' fees and costs incurred in connection with
negotiation, review and processing of the transfer. All such sums payable will
be payable to Landlord at the time the next payment of Monthly Rent is due.
9.4 Prohibited Transfers. The transfer of a majority of the issued and
outstanding capital stock of any corporate tenant or subtenant of this Lease or
a majority of the total interest in any partnership tenant or subtenant, however
accomplished, and whether in a single transaction or in a series of related or
unrelated transactions, will be deemed an assignment of this Lease or of such
sublease requiring Landlord's consent in each instance. For purposes of this
Article 9, the transfer of outstanding capital stock of any corporate tenant
will not include any sale of such stock by persons (other than those deemed
"Insiders" within the meaning of the Securities Exchange Act of 1934, as
amended) or the issuance of new stock, effected through "over-the-
counter-market" or through any recognized stock exchange.
9.5 Permitted Transfer. Landlord consents to an assignment of this
Lease, or sublease of all or part of the Premises, to a wholly-owned subsidiary
of Tenant or the parent of Tenant or to any corporation into or with which
Tenant may be merged or consolidated; provided that Tenant promptly provides
Landlord with a fully executed copy of such assignment or sublease and that
Tenant is not released from liability under the Lease.
ARTICLE 10--RULES AND REGULATIONS
Tenant and its employees, agents, licensees and visitors will at all
times observe faithfully, and comply strictly with, the rules and regulations
set forth on Exhibit D. Landlord may from time to time reasonably amend, delete
or modify existing rules and regulations, or adopt reasonable new rules and
regulations for the use, safety, cleanliness and care of the Premises, the
Building, and the Project, and the comfort, quiet and convenience of occupants
of the Project in a nondiscriminatory manner. Modifications or additions to the
rules and regulations will be effective upon 30 days' prior written notice to
Tenant from Landlord. In the event of any breach of any rules or regulations or
any amendments or additions to such rules and regulations, Landlord will have
all remedies which this Lease provides for default by Tenant, and will, in
addition, have any remedies available at law or in equity, including the right
to enjoin any breach of such rules and regulations. Landlord will not be liable
to Tenant for violation of such rules and regulations by any other tenant, its
employees, agents, visitors of licensees or any other person for so long as
Landlord shall proceed with due diligence to enforce the same in a consistent,
reasonable, and non-discriminatory manner. Landlord shall not unreasonably
enforce the rules and regulations against Tenant. In the event of any conflict
between the provisions of this Lease and the rules and regulations, the
provisions of this Lease will govern.
ARTICLE 11--COMMON AREAS
As used in this Lease, the term "common areas" means, without
limitation, the hallways, entryways, stairs, elevators, driveways, parking lots,
walkways, terraces, docks, loading areas, restrooms, trash facilities and all
other areas and facilities in the Project which are provided and designated from
time to time by Landlord for the general nonexclusive use and convenience of
Tenant with Landlord and other tenants of the Project and
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their respective employees, invitees, licensees or other visitors. Landlord
grants Tenant, its employees, invitees, licensees and other visitors a
nonexclusive license for the Term to use the common areas in common with others
entitled to use the common areas, subject to the terms and conditions of this
Lease. Without advance written notice to Tenant (except with respect to matters
covered by subsection (a) below) and without any liability to Tenant in any
respect, provided Landlord will take no action permitted under this Article 11
in such a manner so as to materially impair or adversely affect Tenant's
substantial benefit and enjoyment of the Premises, Landlord will have the right
to:
(a) Close off any of the common areas to whatever extent required
in the opinion of Landlord and its counsel to prevent a dedication of any of the
common areas or the accrual of any rights by any person or the public to the
common areas;
(b) Temporarily close any of the common areas for maintenance,
alteration or improvement purposes; and
(c) Change the size, use, shape or nature of any such common
areas, including erecting additional buildings on the common areas, expanding
the existing Building or other buildings to cover a portion of the common areas,
converting common areas to a portion of the Building or other buildings, or
converting any portion of the Building (excluding the Premises) or other
buildings to common areas. Upon erection of any additional buildings or change
in common areas, the portion of the Project upon which buildings or structures
have been erected will no longer be deemed to be a part of the common areas. In
the event of any such changes in the size or use of the Building or common areas
of the Building or Project, Landlord will make an appropriate adjustment in the
Rentable Area of the Building or the Building's pro rata share of exterior
common areas of the Project, as appropriate, and a corresponding adjustment to
Tenant's Share of the Operating Expenses payable pursuant to Article 5 of this
Lease.
ARTICLE 12--LANDLORD'S SERVICES
12.1 Landlord's Repair and Maintenance. Landlord will maintain, repair
and restore the common areas of the Project, including lobbies, stairs,
elevators, corridors and restrooms, the windows in the Building, the mechanical,
plumbing and electrical equipment serving the Building, and the structure of the
Building in reasonably good order and condition.
12.2 Landlord's Services.
(a) Landlord will furnish the Premises with those services
customarily provided in comparable office buildings in the vicinity of the
Project, including, without limitation, (1) electricity for lighting and the
operation of low-wattage office machines (such as desk-top micro-computers,
desk-top calculators and typewriters), although Landlord will not be obligated
to furnish more power to the Premises than is proportionally allocated to the
Premises under the Building design; (2) heat and air conditioning reasonably
required for the comfortable occupation of the Premises during Business Hours;
(3) access and elevator service; (4) lighting replacement during Business Hours
(for building standard lights but not any special Tenant lights, which will be
replaced at Tenant's sole cost and expense); (5) restroom supplies; (6) window
washing with reasonable frequency, as determined by Landlord; and (7) daily
cleaning service on weekdays. Landlord may provide, but will not be obligated to
provide, any such services (except access and elevator service) on Holidays or
weekends.
(b) Tenant will have the right to purchase for use during Business
Hours and non-Business Hours the services described in clauses (a)(1) and (2) in
excess of the amounts which Landlord has agreed to furnish so long as (1) Tenant
gives Landlord reasonable prior written notice of its desire to do so; (2) the
excess services are reasonably available to Landlord and to the Premises; and
(3) Tenant pays as Additional Rent (at the time the next payment of Monthly Rent
is due) the cost of such excess service from time to time charged by Landlord;
subject to the procedures established by Landlord from time to time for
providing such additional or excess services.
(c) The term "Business Hours" means 7:00 a.m. to 6:00 p.m. on
Monday through Friday, except Holidays (as that term is defined below), and 8:00
a.m. to 12:00 noon on Saturdays, except Holidays. The term "Holidays" means New
Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
12.3 Tenant's Costs. Whenever equipment or lighting (other than
building standard lights) is used in the Premises by Tenant and such equipment
or lighting affects the temperature otherwise normally maintained by the design
of the Building's air conditioning system, Landlord will have the right, after
prior written notice to Tenant, to install supplementary air conditioning
facilities in the Premises or otherwise modify the ventilating and air
conditioning system serving the Premises; and the cost of such facilities,
modifications, and additional service will be paid by Tenant as Additional Rent.
If Landlord reasonably believes that Tenant is using more power than Landlord
furnishes pursuant to Section 12.2, Landlord may install separate meters of
Tenant's power usage, and Tenant will pay for the cost of such excess power as
Additional Rent, together with the cost of installing any risers, meters or
other facilities that may be necessary to furnish or measure such excess power
to the Premises.
12.4 Limitation on Liability. Provided such is not the result of the
gross negligence or intentional misconduct of Landlord, Landlord will not be in
default under this Lease or be liable to Tenant or any other person, for direct
or consequential damage, or otherwise, for any failure to supply any heat, air
conditioning,
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elevator, cleaning, lighting, security, surges or interruptions of electricity,
or other service Landlord has agreed to supply during any period when Landlord
uses reasonable diligence to supply such services. Landlord will use reasonable
efforts to diligently remedy any interruption in the furnishing of such
services. Landlord reserves the right temporarily to discontinue such services
at such times as may be necessary by reason of accident, repairs, alterations or
improvements, strikes, lockouts, riots, acts of God, governmental preemption in
connection with a national or local emergency, any rule, order or regulation of
any governmental agency, conditions of supply and demand which make any product
unavailable, Landlord's compliance with any mandatory governmental energy
conservation or environmental protection program, or any voluntary governmental
energy conservation program at the request of or with consent or acquiescence of
Tenant, or any other happening beyond the control of Landlord. Landlord will not
be liable to Tenant or any other person or entity for direct or consequential
damages resulting from the admission to or exclusion from the Building or
Project of any person. In the event of invasion, mob, riot, public excitement,
strikes, lockouts, or other circumstances rendering such action advisable in
Landlord's sole opinion, Landlord will have the right to prevent access to the
Building or Project during the continuance of the same by such means as
Landlord, in its sole discretion, may deem appropriate, including, without
limitation, locking doors and closing parking areas and other common areas.
Provided such is not the result of the gross negligence or intentional
misconduct of the Landlord, Landlord will not be liable for damages to person or
property or for injury to, or interruption of, business for any discontinuance
permitted under this Article 12, nor will such discontinuance in any way be
construed as an eviction of Tenant or cause an abatement of Rent or operate to
release Tenant from any of Tenant's obligations under this Lease.
ARTICLE 13--TENANT'S CARE OF THE PREMISES
Subject to Landlord's obligations under Article 12, Tenant will
maintain the Premises (including Tenant's equipment, personal property and trade
fixtures located in the Premises) in their condition at the time they were
delivered to Tenant, reasonable wear and tear excluded. Tenant will immediately
advise Landlord of any damage to the Premises or the Project. All damage or
injury to the Premises, or the Project, or the fixtures, appurtenances and
equipment in the Premises or the Project which is caused by Tenant, its agents,
employees, or invitees, may be repaired, restored or replaced by Landlord, at
the expense of Tenant and such expense (plus 15% of such expense for Landlord's
overhead) will be collectible as Additional Rent and will be paid by Tenant
within 10 days after delivery of a statement for such expense.
ARTICLE 14--ALTERATIONS
14.1 General.
(a) During the Term, Tenant will not make or allow to be made any
alterations, additions, or improvements ("Alterations") to or of the Premises or
any part of the Premises, or attach any fixtures or equipment to the Premises,
without first obtaining Landlord's written consent. Landlord's consent to such
alterations, additions, or improvements or Landlord's approval of the plans,
specifications, and working drawings for such alterations, additions, or
improvements shall create no responsibility or liability on the part of Landlord
for the completeness, design sufficiency, or compliance with all laws, rules,
and regulations of governmental agencies or authorities with respect to such
alterations, additions or improvements. No Alterations will be approved by
Landlord if such Alterations would not be approved by the holder of a Superior
Lien. All such Alterations consented to by Landlord, and capital improvements
which are required to be made to the Project as a result of the nature of
Tenant's use of the Premises:
(1) Will be performed by contractors approved by Landlord and
subject to conditions specified by Landlord (which may include requiring the
posting of a mechanic's or materialmen's lien bond);
(2) Will not be made until Tenant has procured and paid for
all permits and authorizations of all municipal and other governmental
authorities with jurisdiction over the Premises;
(3) Will be expeditiously completed in a good and workmanlike
manner in compliance with all Laws;
(4) Will not be made until Tenant procures, in addition to
insurance required by Section 6.2, completed value builder's risk insurance for
the Project, including all building materials thereon, to be maintained
during the period of demolition or construction, covering loss or damage from
fire, lightning, extended coverage perils, sprinkler, leakage, vandalism,
malicious mischief, and perils insured under a difference in conditions policy
in an amount not less than the cost, as estimated by Landlord, of the
construction of the alterations;
(5) Will be of such a character as not to adversely affect
the fair market value of the Project;
(6) Will be paid for by Tenant when due so that the Project
will, at all times, be free of liens for labor and materials supplied or claimed
to have been supplied to the Project;
(7) Will not be of such a character as to materially
adversely affect the character of the Building as a general office Building, a
self-contained structural unit, capable of being operated independently of any
other buildings or improvements, and as a multi-tenant facility;
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(8) At Landlord's option, will be made by Landlord for
Tenant's, account, and Tenant will reimburse Landlord for their cost (including
10% for Landlord's overhead) within 10 days after receipt of a statement of
such cost;
(9) If the Alterations have an estimated cost in excess of
$10,000:
(A) Will be conducted under the supervision of an
architect or engineer employed or engaged by Landlord and paid by Tenant;
(B) Will not be undertaken except in accordance with
detailed plans, specifications, and cost estimates approved by Landlord. Within
30 days of Landlord's receipt of detailed plans, specifications, and cost
estimates, Landlord shall either approve the proposed Alterations or disapprove
the proposed Alterations by delivering to Tenant a written explanation for such
disapproval.
(b) Except to the extent such constitute Tenant's trade fixtures
or trade dress, and subject to Tenant's rights in Article 16, all alterations,
additions, fixtures and improvements, whether temporary or permanent in
character, made in or upon the Premises either by Tenant or Landlord, will
immediately become Landlord's property and, at the end of the Term will remain
on the Premises without compensation to Tenant.
14.2 Free-Standing Partitions. Tenant will have the right to install
free-standing work station partitions, without Landlord's prior written consent,
so long as no building or other governmental permit is required for their
installation or relocation; however, if a permit is required, Landlord will not
unreasonably withhold its consent to such relocation or installation. The
free-standing work station partitions for which Tenant pays will be part of
Tenant's trade fixtures for all purposes under this Lease. All other partitions
which are installed in the Premises are and will be Landlord's property for all
purposes under this Lease.
ARTICLE 15--MECHANICS' LIENS
Tenant will pay or cause to be paid all costs and charges for work (a)
done by Tenant or caused to be done by Tenant, in or to the Premises, and (b)
for all materials furnished for or in connection with such work. Tenant will
indemnify Landlord against and hold Landlord, the Premises and the Project free,
clear and harmless of and from all mechanics' liens and claims of liens, and all
other liabilities, liens, claims and demands on account of such work by or on
behalf of Tenant. If any such lien, at any time, is filed against the Premises,
or any part of the Project, Tenant will cause such lien to be discharged of
record within 10 days after the filing of such lien, except that if Tenant
desires to contest such lien, it will furnish Landlord, within such 10-day
period, security reasonably satisfactory to Landlord of at least 150% of the
amount of the claim, plus estimated costs and interest or comply with such
statutory procedures as may be available to release the lien. If a final
judgment establishing the validity or existence of a lien for any amount is
entered, Tenant will pay and satisfy the same at once. If Tenant fails to pay
any charge for which a mechanics' lien has been filed, and has not given
Landlord security as described above, or has not complied with such statutory
procedures as may be available to release the lien, Landlord may, at its option,
pay such charge and related costs and interest, and the amount so paid, together
with reasonable attorneys' fees incurred in connection with such lien, will be
immediately due from Tenant to Landlord as Additional Rent. Nothing contained
in this Lease will be deemed the consent or agreement of Landlord to subject
Landlord's interest in the Project to liability under any mechanics' or other
lien law. If Tenant receives written notice that a lien has been or is about to
be filed against the Premises or the Project or any action affecting title to
the Project has been commenced on account of work done by or for or materials
furnished to or for Tenant, it will immediately give Landlord written notice of
such notice. At least 15 days prior to the commencement of any work (including,
but not limited to, any maintenance, repairs, alterations, additions,
improvements or installations) in or to the Premises, by or for Tenant, Tenant
will give Landlord written notice of the proposed work and the names and
addresses of the persons supplying labor and materials for the proposed work.
Landlord will have the right to post notices of non-responsibility or similar
written notices on the Premises in order to protect the Premises against any
such liens. Upon request, Tenant will furnish Landlord evidence of any
settlement, satisfaction, or payment made of any lien or claim pursuant to this
Article 15.
ARTICLE 16--END OF TERM
At the end of this Lease, Tenant will promptly quit and surrender the
Premises broom-clean, in good order and repair, ordinary wear and tear excepted.
If Tenant is not then in default, Tenant may remove from the Premises any trade
fixtures, equipment and movable furniture placed in the Premises by Tenant,
whether or not such trade fixtures or equipment are fastened to the Building;
Tenant will not remove any trade fixtures or equipment without Landlord's prior
written consent if such fixtures or equipment are used in the operation of the
Building, or if the removal of such fixtures or equipment will result in
impairing the structural strength of the Building . Tenant will fully repair any
damage occasioned by the removal of any trade fixtures, equipment, and
furniture. All trade fixtures, equipment, furniture, inventory, and effects on
the Premises after the end of the Term will be deemed conclusively to have been
abandoned and may be appropriated, sold, stored, destroyed or otherwise disposed
of by Landlord without written notice to Tenant or any other person and without
obligation to account for them. Tenant will pay Landlord for all expenses
incurred in connection with the removal of such property, including, but not
limited to, the cost of repairing any damage to the Building or Premises caused
by the removal of such property. Tenant's obligation to observe and perform this
covenant will survive the expiration or other termination of this Lease.
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ARTICLE 17--EMINENT DOMAIN
If all of the Premises are taken by exercise of the power of eminent
domain (or conveyed by Landlord in lieu of such exercise) this Lease will
terminate on a date (the "termination date") which is the earlier of the date
upon which the condemning authority takes possession of the Premises or the date
on which title to the Premises is vested in the condemning authority. If more
than 25% of the Rentable Area of the Premises is so taken, Tenant will have the
right to cancel this Lease by written notice to Landlord given within 20 days
after the termination date. If less than 25% of the Rentable Area of the
Premises is so taken, or if the Tenant does not cancel this Lease according to
the preceding sentence, the Monthly Rent will be abated in the proportion of the
Rentable Area of the Premises so taken to the Rentable Area of the Premises
immediately before such taking, and Tenant's Share will be appropriately
recalculated. If 25% or more of the Building or the Project is so taken, or such
portion of the Building or Project is taken such that the Premises cannot
reasonably be used by Tenant an Tenant gives Landlord written notice of that
within 30 days of the date of the taking, Landlord and Tenant may cancel this
Lease by written notice to the other given within 30 days after the termination
date. In the event of any such taking, the entire award will be paid to Landlord
and Tenant will have no right or claim to any part of such award; however,
Tenant will have the right to assert a claim against the condemning authority in
a separate action, so long as Landlord's award is not otherwise reduced, for (a)
Tenant's moving expenses and (b) leasehold improvements owned by Tenant.
ARTICLE 18--DAMAGE AND DESTRUCTION
(a) If the Premises or the Building are damaged by fire or other
insured casualty, Landlord will give Tenant written notice of the time which
will be needed to repair such damage, as determined by Landlord in its
reasonable discretion, and the election (if any) which Landlord has made
according to this Article 18. Such notice will be given before the 30th day (the
"notice date") after the fire or other insured casualty.
(b) If the Premises or the Building are damaged by fire or other
insured casualty to an extent which it may be repaired its original condition as
of the time of the Commencement Date within 120 days after the notice date, as
reasonably determined by Landlord, Landlord will promptly begin to repair the
damage after the notice date and will diligently pursue the completion of such
repair. In that event this Lease will continue in full force and effect except
that Monthly Rent will be abated on a pro rata basis from the date of the damage
until the date of the completion of such repairs (the "repair period") based on
the proportion of the Rentable Area of the Premises which Tenant is unable to
use during the repair period.
(c) If the Premises or the Building are damaged by fire or other
insured casualty to an extent which may not be repaired within 120 days after
the notice date, as reasonably determined by Landlord, then (1) Landlord may
cancel this Lease as of the date of such damage by written notice given to
Tenant on or before the notice date or (2) Tenant may cancel this Lease as of
the date of such damage by written notice given to Landlord within 10 days after
Landlord's delivery of a written notice that the repairs cannot be made within
such 120-day period. If neither Landlord nor Tenant so elects to cancel this
Lease, Landlord will diligently proceed to repair the Building and Premises and
Monthly Rent will be abated on a pro rata basis during the repair period based
on the proportion of the Rentable Area of the Premises which Tenant is unable to
use during the repair period.
(d) Notwithstanding the provisions of subparagraphs (a), (b), and
(c) above, if the Premises or the Building are damaged by uninsured casualty, or
if the proceeds of insurance are insufficient to pay for the repair of any
damage to the Premises or the Building, Landlord will have the option to repair
such damage or cancel this Lease as of the date of such casualty by written
notice to Tenant on or before the notice date.
(e) If any such damage by fire or other casualty is the result of
the willful conduct or negligence or failure to act of Tenant, its agents,
contractors, employees or invitees, there will be no abatement of Monthly Rent
as otherwise provided for in this Article 18. Tenant will have no rights to
terminate this Lease on account of any damage to the Premises, the Building, or
the Project, except as set forth in this Lease.
ARTICLE 19--SUBORDINATION
19.1 General. This Lease and Tenant's rights under this Lease are
subject and subordinate to any ground or underlying master lease, mortgage,
indenture, deed of trust or other lien encumbrance (each a "Superior Lien"),
together with any renewals, extensions, modifications, consolidations and
replacements of such Superior Lien, now or after the Date affecting or placed,
charged or enforced against the Land, the Building, or all or any portion of the
Project or any interest of Landlord in them or Landlord's interest in this Lease
and the leasehold estate created by this Lease (except to the extent any such
instrument will expressly provide that this Lease, is superior to such
instrument). This provision will be self-operative and no further instrument of
subordination will be required in order to effect it. Notwithstanding the
foregoing, provided Landlord provides Tenant with a nondisturbance agreement in
a form reasonably satisfactory to Tenant, Tenant will execute, acknowledge and
deliver to Landlord, within 20 days after written demand by Landlord, such
documents as may be reasonably requested by Landlord or the holder of any
Superior Lien to confirm or effect any such subordination.
19.2 Attornment and Non-Disturbance. Tenant agrees that in the event
that any holder of a Superior Lien succeeds to Landlord's interest in the
Premises, Tenant will pay to such holder all rents subsequently payable under
this Lease. Further, Tenant agrees that in the event of the enforcement by the
holder of a Superior Lien of the remedies provided for by law or by such
Superior Lien, Tenant will, upon request of any
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person or party succeeding to the interest of Landlord as a result of such
enforcement, automatically become the Tenant of and attorn to such
successor-in-interest without change in the terms or provisions of this Lease.
Such successor-in-interest will not be bound by (a) any payment of Rent for more
than one month in advance, except prepayments in the nature of security for the
performance by Tenant of its obligations under this Lease; (b) any amendment or
modification of this Lease made without the written consent of such
successor-in-interest of which Tenant has written notice at the time of the
amendment or modifications (if such consent was required under the terms of such
Superior Lien); (c) any claim against Landlord arising prior to the date on
which such successor-in-interest succeeded to Landlord's interest; or (d) any
claim or offset of Rent against the Landlord. Upon request by such
successor-in-interest and without cost to Landlord or such
successor-in-interest, Tenant will, within 20 days after written demand,
execute, acknowledge and deliver an instrument or instruments confirming the
attornment, so long as such instrument provides that such successor-in-interest
will not disturb Tenant in its use of the Premises in accordance with this
Lease.
ARTICLE 20--ENTRY BY LANDLORD
Landlord, the holder of a Superior Lien, their agents, employees, and
contractors may enter the Premises at any time in response to an emergency and
at least 24 hours prior telephone notice when possible, at reasonable hours to:
(a) Inspect the Premises;
(b) Exhibit the Premises to prospective purchasers, lenders or
tenants;
(c) Determine whether Tenant is complying with all its obligations
in this Lease;
(d) Supply cleaning service and any other service to be provided
by Landlord to Tenant according to this Lease (without notice);
(e) Post written notices of non-responsibility or similar notices
(without notice); or
(f) Make repairs required of Landlord under the terms of this
Lease or repairs to any adjoining space or utility services or make repairs,
alterations or improvements to any other portion of the Building; however, all
such work will be done as promptly as reasonably possible and so as to cause as
little interference to Tenant as reasonably possible.
Tenant, by this Article 20, waives any claim against Landlord, its agents,
employees or contractors for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises or any other loss occasioned by any entry in accordance with this
Article 20 except to the extent caused by the gross negligence of Landlord.
Landlord will at all times have and retain a key with which to unlock all of the
doors in, on or about the Premises (excluding Tenant's vaults, safes and similar
areas designated in writing by Tenant in advance). Landlord will have the right
to use any and all means which Landlord may deem proper to open doors in and to
the Premises in an emergency in order to obtain entry to the Premises, provided
that Landlord will promptly repair any damages caused by any forced entry. Any
entry to the Premises by Landlord in accordance with this Article 20 will not be
construed or deemed to be a forcible or unlawful entry into or a detainer of the
Premises or an eviction, actual or constructive, of Tenant from the Premises, or
any portion of the Premises, nor will any such entry entitle Tenant to damages
or an abatement of Monthly Rent, Additional Rent, or other charges which this
Lease requires Tenant to pay.
ARTICLE 21--INDEMNIFICATION, WAIVER, AND RELEASE
21.1 Indemnification. Except for any injury or damage to persons or
property on the Premises which is proximately caused by or results proximately
from the negligence or deliberate act of Landlord, its employees or agents, and
subject to the provisions of Section 6.4, Tenant will neither hold nor attempt
to hold Landlord, its employees or agents liable for, and Tenant will indemnify
and hold harmless Landlord, its employees and agents from and against, any and
all demands, claims, causes of action, fines, penalties, damages (including
consequential damages), liabilities, judgments, and expenses (including, without
limitation, reasonable attorneys' fees) incurred in connection with or arising
from: (a) the use or occupancy or manner of use or occupancy of the Premises by
Tenant or any person claiming under Tenant; (b) any activity, work, or thing
done or permitted by Tenant in or about the Premises, the Building, or the
Project; (c) any breach by Tenant or its employees, agents, contractors, or
invitees of this Lease; and (d) any injury or damage to the person, property,
or business of Tenant, its employees, agents, contractors, or invitees entering
upon the Premises under the express or implied invitation of Tenant.
If any action or proceeding is brought against Landlord, its
employees or agents by reason of any such claim for which Tenant has indemnified
Landlord, Tenant, upon written notice from Landlord, will defend the same at
Tenant's expense, with counsel reasonably satisfactory to Landlord.
(a) Except for any injury or damage to persons or property on the
Premises which is proximately caused by or results proximately from the
negligence or deliberate act of Tenant, its employees or agents, Landlord will
neither hold nor attempt to hold Tenant, its employees or agents liable for, and
Landlord will indemnify and hold harmless Tenant, its employees and agents from
and against, any and all demands, claims, causes of action, fines, penalties,
damages (including consequential damages), liabilities, judgements and expenses
(including without limitation reasonable attorneys' fees) incurred in connection
with or arising from
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the acts of Landlord or its agents at the Project. If any action or proceeding
is brought against Tenant, or its employees or agents by reason of any such
claim for which Landlord has indemnified Tenant, Landlord, upon written notice
from Tenant, will defend the same at Landlord's expense, with counsel reasonably
satisfactory to Tenant.
21.2 Waiver and Release. Tenant, as a material part of the
consideration to Landlord for this Lease, by this Section 21.2, waives and
releases all claims against Landlord, its employees and agents with respect to
all matters for which Landlord has disclaimed liability pursuant to the
provisions of this Lease.
ARTICLE 22--SECURITY DEPOSIT
Intentionally deleted.
ARTICLE 23--QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that so long as Tenant pays
the Rent, and observes and performs all the terms, covenants and conditions of
this Lease on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the Premises subject, nevertheless, to the terms and
conditions of this Lease and Tenant's possession will not be disturbed by anyone
claiming by, through or under Landlord.
ARTICLE 24--EFFECT OF SALE
A sale, conveyance or assignment of Landlord's interest in the Building
or the Project will operate to release Landlord from liability from and after
the effective date of such sale, conveyance or assignment upon all of the
covenants, terms and conditions of this Lease, express or implied, except those
liabilities which arose prior to such effective date, and, after the effective
date of such sale, conveyance or assignment, Tenant will look solely to
Landlord's successor-in-interest in and to this Lease. This Lease will not be
affected by any such sale, conveyance or assignment, and Tenant will attorn to
Landlord's successor-in-interest to this Lease, so long as such
successor-in-interest assumes Landlord's obligations under the Lease from and
after such effective date.
ARTICLE 25--DEFAULT
25.1 Events of Default. The following events are referred to,
collectively, as "Events of Default" or, individually, as an "Event of Default":
(a) Tenant defaults in the due and punctual payment of Rent, and
such default continues for 5 days after receipt of written notice from Landlord;
however, Tenant will not be entitled to more than 1 written notice for monetary
defaults during any 12-month period, and if after such written notice any Rent
is not paid within 5 days after due, an Event of Default will be considered to
have occurred without further notice;
(b) Tenant abandons the Premises;
(c) This Lease or the Premises or any part of the Premises are
taken upon execution or by other process of law directed against Tenant, or are
taken upon or subject to any attachment by any creditor of Tenant or claimant
against Tenant, and said attachment is not discharged or disposed of within 30
days after its levy;
(d) Tenant files a petition in bankruptcy or insolvency or for
reorganization or arrangement under the bankruptcy laws of the United States or
under any insolvency act of any state, or admits the material allegations of
any such petition by answer or otherwise, or is dissolved or makes an assignment
for the benefit of creditors;
(e) Involuntary proceedings under any such bankruptcy law or
insolvency act or for the dissolution of Tenant are instituted against Tenant,
or a receiver or trustee is appointed for all or substantially all of the
property of Tenant, and such proceeding is not dismissed or such receivership or
trusteeship vacated within 60 days after such institution or appointment;
(f) Tenant fails to take possession of the Premises on the
Commencement Date of the Term; or
(g) Tenant breaches any of the other agreements, terms, covenants
or conditions which this Lease requires Tenant to perform, and such breach
continues for a period of 30 days after receipt of written notice from Landlord
to Tenant or, if such breach cannot be cured reasonably within such 30-day
period, if Tenant fails to diligently commence to cure such breach within 30
days after written notice from Landlord and to complete such cure within a
reasonable time thereafter.
25.2 Landlord's Remedies. If any one or more Events of Default set
forth in Section 25.1 occurs then Landlord has the right, at its election:
(a) To give Tenant written notice of Landlord's intention to
terminate this Lease on the earliest date permitted by law or on any later date
specified in such notice, in which case Tenant's right to possession
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of the Premises will cease and this Lease will be terminated, except as to
Tenant's liability, as if the expiration of the term fixed in such notice were
the end of the Term;
(b) Without further demand or notice, to reenter and take
possession of the Premises or any part of the Premises, repossess the same,
expel Tenant and those claiming through or under Tenant, and remove the effects
of both or either, using such force for such purposes as may be necessary,
without being liable for prosecution, without prejudice to any remedies for
arrears of Monthly Rent or other amounts payable under this Lease or as a result
of any preceding breach of covenants or conditions; or
(c) Without further demand or notice to cure any Event of Default
and to charge Tenant for the cost of effecting such cure, including, without
limitation, reasonable attorneys' fees and interest on the amount so advanced at
the rate set forth in Section 27.21, provided that Landlord will have no
obligation to cure any such Event of Default of Tenant.
Should Landlord elect to reenter as provided in subsection (b), or should
Landlord take possession pursuant to legal proceedings or pursuant to any notice
provided by law, Landlord may, from time to time, without terminating this
Lease, relet the Premises or any part of the Premises in Landlord's or Tenant's
name, but for the account of Tenant, for such term or terms (which may be
greater or less than the period which would otherwise have constituted the
balance of the Term) and on such conditions and upon such other terms (which may
include concessions of free rent and alteration and repair of the Premises) as
Landlord, in its reasonable discretion, may determine and Landlord may collect
and receive the rent. Landlord will in no way be responsible or liable for any
failure to relet the Premises, or any part of the Premises, or for any failure
to collect any rent due upon such reletting. No such reentry or taking
possession of the Premises by Landlord will be construed as an election on
Landlord's part to terminate this Lease unless such notice specifically so
states. Landlord reserves the right following any such reentry or reletting to
exercise its right to terminate this Lease by giving Tenant such written notice,
in which event this Lease will terminate as specified in such notice.
25.3 Certain Damages. In the event that Landlord does not elect to
terminate this Lease as permitted in Section 25.2(a), but on the contrary,
elects to take possession as provided in Section 25.2(b), Tenant will pay to
Landlord: (a) Monthly Rent and other sums as provided in this Lease, which would
be payable under this Lease if such repossession had not occurred, less (b) the
net proceeds, if any, of any reletting of the Premises after deducting all of
Landlord's reasonable expenses in connection with such reletting, including,
without limitation, all repossession costs, brokerage commissions, attorneys'
fees, expenses of employees, alteration and repair costs and expenses of
preparation for such reletting. If, in connection with any reletting, the new
lease term extends beyond the existing Term, or the premises covered by such new
lease include other premises not part of the Premises, a fair apportionment of
the rent received from such reletting and the expenses incurred in connection
with such reletting as provided in this Section will be made in determining the
net proceeds from such reletting, and any rent concessions will be equally
apportioned over the term of the new lease. Tenant will pay such rent and other
sums to Landlord monthly on the day on which the Monthly Rent would have been
payable under this Lease if possession had not been retaken and Landlord will be
entitled to receive such rent and other sums from Tenant on each such day.
25.4 Continuing Liability After Termination. If this Lease is
terminated on account of the occurrence of an Event of Default, Tenant will
remain liable to Landlord for damages in an amount equal to Monthly Rent and
other amounts which would have been owing by Tenant for the balance of the Term,
had this Lease not been terminated, less the net proceeds, if any, of any
reletting of the Premises by Landlord subsequent to such termination, after
deducting all of Landlord's expenses in connection with such reletting,
including, without limitation, the expenses enumerated in Section 25.3. Landlord
will be entitled to collect such damages from Tenant monthly on the day on which
Monthly Rent and other amounts would have been payable under this Lease if this
Lease had not been terminated, and Landlord will be entitled to receive such
Monthly Rent and other amounts from Tenant on each such day. Alternatively, at
the option of Landlord, in the event this Lease is so terminated, Landlord will
be entitled to recover against Tenant as damages for loss of the bargain and not
as a penalty:
(a) The worth at the time of award of the unpaid Rent which had
been earned at the time of termination;
(b) The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided;
(c) The worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term of this Lease (had the same not been so
terminated by Landlord) after the time of award exceeds the amount of such
rental loss that Tenant proves could be reasonably avoided;
(d) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom.
The "worth at the time of award" of the amounts referred to in clauses (a) and
(b) above is computed by adding interest at the per annum interest rate
described in Section 27.21 on the date on which this Lease is terminated from
the date of termination until the time of the award. The worth at the time of
award of the amount referred to in clause (c) above is computed by discounting
such amount at the discount rate of the Federal Reserve Bank of Kansas City,
Missouri, at the time of award plus 1%.
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25.5 Cumulative Remedies. Any suit or suits for the recovery of the
amounts, and damages set forth in Sections 25.3 and 25.4 may be brought by
Landlord, from time to time, at Landlord's election, and nothing in this Lease
will be deemed to require Landlord to await the date upon which this Lease or
the Term would have expired had there occurred no Event of Default. Each right
and remedy provided for in this Lease is cumulative and is in addition to every
other right or remedy provided for in this Lease or now or after the Date
existing at law or in equity or by statute or otherwise, and the exercise or
beginning of the exercise by Landlord of any one or more of the rights or
remedies provided for in this Lease or now or after the Date existing at law or
in equity or by statute or otherwise will not preclude the simultaneous or later
exercise by Landlord of any or all other rights or remedies provided for in this
Lease or now or after the Date existing at law or in equity or by statute or
otherwise. All costs incurred by Landlord in collecting any amounts and damages
owing by Tenant pursuant to the provisions of this Lease or to enforce any
provision of this Lease, including reasonable attorneys' fees from the date any
such matter is turned over to an attorney, whether or not one or more actions
are commenced by Landlord, will also be recoverable by Landlord from Tenant.
25.6 Waiver of Redemption. Tenant waives any right of redemption
arising as a result of Landlord's exercise of its remedies under this Article
25.
ARTICLE 26--PARKING
Tenant will be entitled to use the Parking Spaces during the Term
subject to the rules and regulations set forth on Exhibit D, and any amendments
or additions to them. The parking charges set forth in Section 1.1 (r), if any,
will be due and payable in advance at the same time and place as Monthly Rent.
Except for six reserved parking spaces described in Section 1.1(q) above, the
Parking Spaces will be unassigned, non-reserved, and non-designated. Landlord
reserves the right to reasonably adjust the Parking Charges (based on the
prevailing rate for similar projects in the Phoenix metro area) in Landlord's
sole discretion at any time after 30 days' prior written notice.
ARTICLE 27--MISCELLANEOUS
27.1 No Offer. This Lease is submitted to Tenant on the
understanding that it will not be considered an offer and will not bind Landlord
in any way until Tenant has duly executed and delivered duplicate originals to
Landlord and Landlord has executed and delivered one of such originals to
Tenant.
27.2 Joint and Several Liability. If Tenant is composed of more
than one signatory to this Lease, each signatory will be jointly and severally
liable with each other signatory for payment and performance according to this
Lease. The act of, written notice to, written notice from, refund to, or
signature of, any signatory to this Lease (including without limitation
modifications of this Lease made by fewer than all such signatories) will bind
every other signatory as though every other signatory had so acted, or received
or given the written notice or refund, or signed.
27.3 No Construction Against Drafting Party. Landlord and Tenant
acknowledge that each of them and their counsel have had an opportunity to
review this Lease and that this Lease will not be construed against Landlord
merely because Landlord has prepared it.
27.4 Time of the Essence. Time is of the essence of each and every
provision of this Lease.
27.5 No Recordation. Tenant's recordation of this Lease or any
memorandum or short form of it will be void and a default under this Lease.
27.6 No Waiver. The waiver by Landlord of any agreement, condition
or provision contained in this Lease will not be deemed to be a waiver of any
subsequent breach of the same or any other agreement, condition or provision
contained in this Lease, nor will any custom or practice which may develop
between the parties in the administration of the terms of this Lease be
construed to waive or to lessen the right of Landlord to insist upon the
performance by Tenant in strict accordance with the terms of this Lease. The
subsequent acceptance of Rent by Landlord will not be deemed to be a waiver of
any preceding breach by Tenant of any agreement, condition nor provision of this
Lease, other than the failure of Tenant to pay the particular Rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such Rent.
27.7 Limitation on Recourse. Tenant specifically agrees to look
solely to Landlord's interest in the Project for the recovery of any judgments
from Landlord. It is agreed that Landlord (and its shareholders, venturers, and
partners, and their shareholders, venturers and partners and all of their
officers, directors and employees) will not be personally liable for any such
judgments. The provisions contained in the preceding sentences are not intended
to, and will not, limit any right that Tenant might otherwise have to obtain
injunctive relief against Landlord or relief in any suit or action in connection
with enforcement or collection of amounts which may become owing or payable
under or on account of insurance maintained by Landlord.
27.8 Estoppel Certificates. At any time and from time to time but
within 10 days after prior written request by Landlord, Tenant will execute,
acknowledge and deliver to Landlord, promptly upon request, a certificate
certifying (a) that this Lease is unmodified and in full force and effect or, if
there have been modifications, that this Lease is in full force and effect, as
modified, and stating the date and nature of each modification; (b) the date, if
any, to which Rent and other sums payable under this Lease have been paid; (c)
that no written notice of any default has been delivered to Landlord which
default has not been cured, except, as to defaults specified in said
certificate; (d) there is no Event of Default under this Lease or an event
which,
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with notice or the passage of time, or both, would result in an Event of Default
under this Lease, except for defaults specified in said certificate; and (e)
such other matters as may be reasonably requested by Landlord. Any such
certificate may be relied upon by any holder of a Superior Lien, prospective
purchaser, or existing or prospective mortgagee or beneficiary under any deed of
trust of the Building or any part of the Project. Tenant's failure to deliver
such a certificate within such time will be conclusive evidence of the matters
set forth in it.
27.9 Waiver of Jury Trial. Landlord and Tenant by this Section 27.9
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties to this Lease against the other on any matters whatsoever arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, or any other claims (except
claims for personal injury or property damage), and any emergency statutory or
any other statutory remedy.
27.10 No Merger. The voluntary or other surrender of this Lease by
Tenant or the cancellation of this Lease by mutual agreement of Tenant and
Landlord or the termination of this Lease on account of Tenant's default will
not work a merger, and will, at Landlord's option, (a) terminate all or any
subleases and subtenancies or (b) operate as an assignment to Landlord of all or
any subleases or subtenancies. Landlord's option under this Section 27.10 will
be exercised by written notice to Tenant and all known sublessees or subtenants
in the Premises or any part of the Premises.
27.11 Holding Over. Tenant will have no right to remain in
possession of all or any part of the Premises after the expiration of the Term.
If Tenant remains in possession of all or any part of the Premises after the
expiration of the Term, with the express or implied consent of Landlord: (a)
such tenancy will be deemed to be a periodic tenancy from month-to-month only;
(b) such tenancy will not constitute a renewal or extension of this Lease for
any further term; and (c) such tenancy may be terminated by Landlord upon the
earlier of 30 days' prior written notice or the earliest date permitted by law.
In such event, Monthly Rent will be increased to an amount equal to 150% of the
Monthly Rent payable during the last month of the Term, and any other sums due
under this Lease will be payable in the amount and at the times specified in
this Lease. Such month-to-month tenancy will be subject to every other term,
condition, and covenant contained in this Lease.
27.12 Notices. Any notice, request, demand, consent, approval or
other communication required or permitted under this Lease must be in writing
and will be deemed to have been given when personally delivered, sent by
facsimile with receipt acknowledged, deposited with any nationally recognized
overnight carrier which routinely issues receipts, or deposited in any
depository regularly maintained by the United States Postal Service, postage
prepaid, certified mail, return receipt requested, addressed to the party for
whom it is intended at its address set forth in Section 1.1. Either Landlord or
Tenant may add additional addresses or change its address for purposes of
receipt of any such communication by giving 10 days' prior written notice of
such change to the other party in the manner prescribed in this Section 27.12.
27.13 Severability. If any provision of this Lease proves to be
illegal, invalid or unenforceable, the remainder of this Lease will not be
affected by such finding, and in lieu of each provision of this Lease that is
illegal, invalid or unenforceable, a provision will be added as a part of this
Lease as similar in terms to such illegal, invalid or unenforceable provision as
may be possible and legal, valid and enforceable.
27.14 Written Amendment Required. No amendment, alteration,
modification of or addition to the Lease will be valid or binding unless
expressed in writing and signed by Landlord and Tenant. Tenant agrees to make
any modifications of the terms and provisions of this Lease required or
requested by any lending institution providing financing for the Building, or
Project, as the case may be, provided that no such modifications will materially
adversely affect Tenant's rights and obligations under this Lease.
27.15 Entire Agreement. This Lease, the Exhibits and Addenda, if
any, contain the entire agreement between Landlord and Tenant. No promises or
representations, except as contained in this Lease, have been made to Tenant
respecting the condition or the manner of operating the Premises, the Building,
or the Project.
27.16 Captions. The captions of the various Articles and Sections of
this Lease are for convenience only and do not necessarily define, limit,
describe or construe the contents of such Articles or Sections.
27.17 Notice of Landlord's Default. In the event of any alleged
default in the obligation of Landlord under this Lease, Tenant will deliver to
Landlord written notice listing the reasons for Landlord's default and Landlord
will have 30 days following receipt of such notice to cure such alleged default
or, in the event the alleged default cannot reasonably be cured within a 30-day
period, to commence action and proceed diligently to cure such alleged default.
If Landlord fails to timely cure such default, then Tenant shall have the right
to exercise its rights to either terminate the Lease, sue for specific
performance, or sue for actual damages, but not for consequential damages. A
copy of such notice to Landlord will be sent to any holder of a mortgage or
other encumbrance on the Building or Project of which Tenant has been notified
in writing, and any such holder will also have the same time periods to cure
such alleged default.
27.18 Authority. Tenant and the party executing this Lease on behalf
of Tenant represent to Landlord that such party is authorized to do so by
requisite action of the board of directors, or partners, as the case may be, and
agree upon request to deliver to Landlord a resolution or similar document to
that effect,
27.19 Brokers. Landlord and Tenant respectively represent and
warrant to each other that neither of them has consulted or negotiated with any
broker or finder with regard to the Premises except the Broker named in Section
1.1 and Tenant's broker. Each of them will indemnify the other against and hold
the other harmless from any claims for fees or commissions from anyone with whom
either of them has consulted or
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negotiated with regard to the Premises except Broker and Tenant's broker.
Landlord will pay any fees or commissions due Broker. Tenant shall be
responsible for paying Tenant's broker any commission.
27.20 Governing Law. This Lease will be governed by and construed
pursuant to the laws of the State in which the Project is located.
27.21 Late Payments. Any Rent which is not paid within 5 days after
due will accrue interest at a late rate charge of the Prime Rate plus 5% per
annum (but in no event in an amount in excess of the maximum rate allowed by
applicable law) from the date on which it was due until the date on which it is
paid in full with accrued interest.
27.22 No Easements for Air or Liqht. Any diminution or shutting off
of light, air or view by any structure which may be erected on lands adjacent to
the Building will in no way affect this Lease or impose any liability on
Landlord.
27.23 Tax Credits. Landlord is entitled to claim all tax credits and
depreciation attributable to Landlord's leasehold improvements in the Premises.
Promptly after Landlord's demand, Landlord and Tenant will prepare a detailed
list of the leasehold improvements and fixtures and their respective costs for
which Landlord or Tenant has paid. Landlord will be entitled to all credits and
depreciation for those items for which Landlord has paid by means of any tenant
finish allowance or otherwise. Tenant will be entitled to any tax credits and
depreciation for all items for which Tenant has paid with funds not provided by
Landlord.
27.24 Relocation of the Premises. Landlord at its sole cost and
expense, reserves the right to relocate the Premises to substantially comparable
space within the Building, pursuant to this Section 27.24. Landlord will give
Tenant a written notice of its intention to relocate the Premises, and Tenant
will complete such relocation within 60 days after receipt of such written
notice. If the space to which Landlord proposes to relocate Tenant is not
substantially comparable to the Premises, Tenant may so notify Landlord, and if
Landlord fails to offer space satisfactory to Tenant, Landlord may not relocate
the Tenant. If Tenant does relocate within the Project, then effective on the
date of such relocation this Lease will be amended by deleting the description
of the original Premises and substituting for it a description of such
comparable space. Landlord agrees to reimburse Tenant for its actual reasonable
moving costs to such other space within the Project, the reasonable costs of
reprinting stationery, and the costs of rewiring the new Premises for telephone
and computers comparable to the original Premises. Landlord will use best
efforts to minimize any disruption to tenant's business.
27.25 Financial Reports. Within 15 days after Landlord's request,
Tenant will furnish Tenant's most recent audited financial statements (including
any notes to them) to Landlord, or, if no such audited statements have been
prepared, such other financial statements (and notes to them) as may have been
prepared by an independent certified public accountant, or, failing those,
Tenant's internally prepared financial statements. Tenant will discuss its
financial statements with Landlord and will give Landlord access to Tenant's
books and records in order to enable Landlord to verify the financial
statements. Landlord will not disclose any aspect of Tenant's financial
statements which Tenant designates to Landlord as confidential except (a) to
Landlord's lenders or prospective purchasers of the Project, (b) in litigation
between Landlord and Tenant, and (c) if required by court order.
27.26 Landlord's Fees. Whenever Tenant requests Landlord to take any
action or give any consent required or permitted under this Lease, Tenant will
reimburse Landlord for all of Landlord's reasonable costs incurred in reviewing
the proposed action or consent, including, without limitation, reasonable
attorneys', engineers' or architects' fees, within 10 days after Landlord's
delivery to Tenant of a statement of such costs. Tenant will be obligated to
make such reimbursement without regard to whether Landlord consents to any such
proposed action.
27.27 Disputes. Any claim, controversy or dispute, whether sounding
in contract, statute, tort, fraud, misrepresentation or other legal theory,
related directly or indirectly to this Agreement, whenever brought and whether
between the parties to this Agreement or between the parties to this Agreement
or between one of the parties to this Agreement and the employees, agents or
affiliated businesses of the other party, shall be resolved by arbitration as
prescribed in this section. The Federal Arbitration Act, 9 U.S.C. Sections 1-15,
not state law, shall govern the arbitrability of all claims.
A single arbitrator engaged in the practice of law who is
knowledgeable about the subject matter of this Agreement shall conduct the
arbitration under the then current rules of the American Arbitration Association
(the "AAA"). The arbitrator shall be selected in accordance with AAA procedures
from a list of qualified people maintained by the AAA. The arbitration shall be
conducted in the regional AAA office closest to where the claim arose, and all
expedited procedures prescribed by the AAA rules shall apply.
There shall be no discovery other than the exchange of
information which is provided to the arbitrator by the parties. The arbitrator
shall have authority only to award compensatory damages and shall not have
authority to award punitive damages, or other noncompensatory damages. Each
party shall bear its own costs and attorneys' fees, and the parties shall share
equally the fees and expenses of the arbitrator. The arbitrator's decision and
award shall be final and binding, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
If any party files a judicial or administrative action
asserting claims subject to arbitration as prescribed herein, and another party
successfully stays such action or compels arbitration of said claims, the
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party filing said action shall pay the other party's costs and expenses incurred
in seeking such stay or compelling arbitration, including reasonable attorneys'
fees.
27.28 Binding Effect. The covenants, conditions and agreements
contained in this Lease will bind and inure to the benefit of Landlord and
Tenant and their respective heirs, distributees, executors, administrators,
successors, and, except as otherwise provided in this Lease, their assigns.
27.29 OPTION TO RENEW. (a) Option Period. So long as Tenant is not
in default under this Lease, either at the time of exercise or at the time the
extended term commences, Tenant will have the option to extend the initial term
of this Lease for an additional period of five years, but in no event beyond May
31, 2007, (the "Option Period") on the same terms, covenants, and conditions of
this Lease, except that the monthly rent during the Option Period will be
determined pursuant to paragraph 27.29(b). Tenant will exercise its option by
giving Landlord written notice ("Option Notice") at least 180 days but not more
than 270 days prior to the expiration of the initial term of this Lease.
(b) Option Period Monthly Rent. The monthly rent for the
Option Period will be determined as follows:
(1) The then-fair market rental value of the
Premises, as defined in paragraph 27.29(b)(2) below, or the current Monthly
Rent, whichever is greater.
(2) The "then-fair market rental value of the
Premises" means what a landlord under no compulsion to lease the Premises and a
tenant under no compulsion to lease the Premises would determine as rent
(including initial monthly rent and rental increase) for the Option Period,
excluding any tenant improvement allowance, as of the commencement of the Option
Period, taking into consideration the uses permitted under this Lease, the
quality, size, design and location of the Premises, and the rent for comparable
buildings located in the vicinity of Phoenix. The then-fair market rental value
of the Premises and the rental increases in the monthly rent for the Option
Period will not be less than that provided during the initial term,
(3) Within 30 days after receiving written
notice from Tenant of its intent to exercise this option, Landlord shall
determine the then fair market value of the Premises, and advise Tenant in
writing.
27.30 EXPANSION SPACE OPTION: If the tenant of either of the
premises known as Suites 150 or 165, adjacent to the Premises (either space
shall be known as the "Expansion Space"), shall vacate or surrender its premises
to Landlord during the term of this Lease, and if Tenant is not in default under
this Lease, then Landlord shall offer the Expansion Space to Tenant on the same
terms and conditions as this Lease, except as noted herein regarding monthly
rent and Tenant's Share. The Monthly Rent will be the monthly rent per rentable
square foot of the Premises in effect on the date on which the Expansion Space
becomes part of the Premises. The Monthly Rent will be increased as of the day
on which the Expansion Space becomes part of the Premises by an amount equal to
the product of (1) the number of rentable square feet of the Expansion Space
multiplied by (2) the Monthly Rent per rentable square foot of the Premises in
effect on the day on which the Expansion Space becomes part of the Premises.
Tenant's Share shall be increased as of the day on which any Expansion Space
becomes part of the Premises to a percentage determined by adding the Rentable
Area of the Expansion Space to the Rentable Area of the Premises, and dividing
said product by the total Rentable Area of the Building. If Tenant does not
exercise this option to expand in writing within 30 days after Landlord offers
the Expansion Space to Tenant, then this option shall expire as to the space
offered. If Tenant exercises this option timely, then the Lease shall be amended
to incorporate the Expansion Space into the Premises. If Tenant is offered the
Expansion Space and exercises its option in writing as to one of the adjacent
suites prior to January 1, 2000, Landlord shall provide tenant with a tenant
improvement allowance in an amount equal to $5.50 per rentable square foot for
the first adjacent suite to which Tenant exercises this option. This tenant
improvement allowance shall not apply to any subsequent exercise of this
expansion option. Any additional alterations to the Expansion Space or exercise
of this option as to a second adjacent suite will be at the sole cost and
expense of Tenant and subject to the alterations provisions of the Lease,
27.31 EXTERIOR SIGNAGE: Landlord agrees to provide tenant space for
signage on the Building's monument sign. Tenant's sign is subject to the
approval of Landlord. Tenant shall be responsible for all costs associated with
placing Tenant's sign on the Building monument sign.
Landlord and Tenant have executed this Lease as of the day and year
first above written.
LANDLORD:
U S WEST BUSINESS RESOURCES, INC., a Colorado
corporation
By /s/ ILLEGIBLE SIGNATURE
Name ILLEGIBLE
Title Attorney-In-Fact
-18-
<PAGE> 19
APPROVED AS TO LEGAL FORM by
Counsel to Landlord:
Fisher & Sweetbaum, P.C.
By /s/ ILLEGIBLE SIGNATURE
Date
TENANT:
P.F. CHANG'S CHINA BISTRO, INC., a Delaware
corporation
By /s/ ILLEGIBLE SIGNATURE
Name
Title
-19-
<PAGE> 20
EXHIBIT A
THE PREMISES
EXHIBIT A
THE PREMISES
To be provided by Landlord prior to execution.
<PAGE> 21
EXHIBIT B
LEGAL DESCRIPTION OF THE LAND
PARCEL NO. 1:
BEGINNING at the Northeast corner of the Southeast quarter of the Southeast
quarter of Section 13, Township 2 North, Range 3 East of the Gila and Salt
River Base and Meridian, Maricopa County, Arizona; thence North 89 degrees 55'
58" West along the North line of said Southeast quarter of the Southeast
quarter, 40 feet to the TRUE POINT OF BEGINNING; thence South, 40 feet West of
and parallel to the East line of said Southeast quarter of the Southeast
quarter, 400 feet; thence North 73 degrees 30' 00" West 400 feet; thence North
16 degrees 30' 00" East 299.06 feet to a point on the North line of said
Southeast quarter of the Southeast quarter; thence South 89 degrees 55' 58"
East along said North line 298.59 feet to the TRUE POINT OF BEGINNING.
PARCEL NO. 2:
A non-exclusive easement for pedestrian and vehicle ingress and egress as
created in Docket 15938, page 464, records of Maricopa County, Arizona,
described as follows:
That part of the Southeast quarter of the Southeast quarter of Section 13,
Township 2 North, Range 3 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, described as follows:
FROM the Northeast corner of the said Southeast quarter of the Southeast
quarter of Section 13, measure; thence North 89 degrees 55' 56" West along
the North line of the said Southeast quarter of the Southeast quarter,
Section 13, a distance of 40.00 feet to a point on the West right-of-way
line of 40th Street; thence South (bearing of reference) along the West
right-of-way line of 40th Street a distance of 426.00 feet to the POINT OF
BEGINNING; thence continuing South 40.00 feet to the end of a curve having
a radius point bearing North 140.00 feet; thence Westerly 59.01 feet along
the arc of this curve through 24 degrees 09' 00" of central angle; thence
North 67 degrees 26' 28" West 36.01 feet; thence North 65 degrees 51' 00"
West 57.00 feet to the beginning of a curve having point bearing South 24
degrees 09' 00" West 369.00 feet; thence Westerly 108.09 feet along the
arc of this curve through 16 degrees 47' 00" of central angle; thence
North 82 degrees 38' 00" West 17.18 feet to the beginning of a curve
having a radius point bearing North 07 degrees 22' 00" East 1,839.00 feet;
thence Westerly 148.47 feet along the arc of this curve through 04 degrees
37' 33" of central angle to a point of a compound curve having a radius
point bearing North 11 degrees 59' 33" East 918.00 feet thence Westerly
36.42 feet along the arc of this curve through 02 degrees 16' 23" of
central angle to a point of a reverse curve having a radius point bearing
South 14 degrees 15' 56" West 10.00 feet; thence Southerly 15.32 feet
along the arc of this curve through 87 degrees 45' 56" of central angle;
thence South 89 degrees 26' 28" West 31.38 feet to a point at the end of a
curve having a radius point bearing North 73 degrees 30' 00" West 10.00
feet; thence Northerly 15.71 feet along the arc of this curve through 90
degrees 00' 00" of central angle; thence North 73 degrees 30' 00" West
6.98 feet; thence North 16 degrees 30' 00" East 28.00 feet to a point at
the end of a curve having a radius point bearing North 16 degrees 30' 00"
East 10.00 feet; thence Northeasterly 20.54 feet along the arc of this
curve through 117 degrees 42' 00" of central angle; thence North 11
degrees 12' 00" West 5.77 feet to the beginning of a curve having a radius
point bearing South 78 degrees 48' 00" West 7.00 feet; thence
Northwesterly 2.19 feet along the arc of this curve through 17 degrees 53'
05" of central angle; thence South 73 degrees 30' 00" East 39.37 feet to a
point on a curve having thence Easterly 18.95 feet along the arc of this
curve through 30 degrees 09' 32" of central angle to a point of a compound
curve having a radius point bearing North 13 degrees 47' 15" East 882.00
feet; thence Easterly 35.80 feet along the arc of this
<PAGE> 22
curve through 02 degrees 19' 33" of central angle to a point of a compound
curve having a radius point bearing North 11 degrees 27' 42" East 15.00
feet; thence Northeasterly 22.24 feet along the arc of this curve through
84 degrees 57' 42" of central angle; thence North 16 degrees 30' 00" East
26.65 feet; thence South 73 degrees 30' 00" East 28.00 feet; thence South
16 degrees 30' 00" West 22.40 feet to the beginning of a curve having a
radius point bearing South 73 degrees 30' 00" East 10.00 feet; thence
Southeasterly 17.30 feet along the arc of this curve through 99 degrees
08' 00" of central angle; thence South 82 degrees 38' 00" East 100.36 feet
to the beginning of a curve having a radius point bearing South 07 degrees
22' 00" West 411.00 feet; thence Easterly 120.39 feet along the arc of
this curve through 16 degrees 47' 00" of central angle; thence South 65
degrees 51' 00" East 29.00 feet to the beginning of a curve having a
radius point bearing North 24 degrees 09' 00" East 10.00 feet; thence
Northeasterly 17.04 feet along the arc of this curve through 97 degrees
39' 00" of central angle; thence North 16 degrees 30' 00" East 8.73 feet;
thence South 73 degrees 30' 00" East 32.00 feet; thence South 16 degrees
30' 00" West 16.73 feet to the beginning of a curve having a radius point
bearing South 73 degrees 30' 00" East 10.00 feet; thence Southeasterly
14.37 feet along the arc of this curve through 82 degrees 21' 00" of
central angle; thence South 65 degrees 51' 00" East 11.40 feet to the
beginning of a curve having a radius point bearing North 24 degrees 09'
00" East 100.00 feet; thence Easterly 42.15 feet along the arc of this
curve through 24 degrees 09' 00" of central angle to the POINT OF
BEGINNING.
<PAGE> 23
EXHIBIT C
WORK LETTER
This Work Letter is dated January , 1997, between U S WEST BUSINESS
RESOURCES, INC. ("Landlord") and P.F. CHANG'S CHINA BRISTRO, INC. ("Tenant"),
and is attached to and forms a part of that certain Office Lease of even date
(the "Lease"), whereby Landlord leased to Tenant 4,410 rentable square feet in
the building located at 5090 North 40th Street, Phoenix, Arizona (the
"Premises").
Tenant desires to make certain improvements to the Premises, and Tenant
desires to hire its own architect and contractors to manage the construction of
such initial improvements, prior to occupancy, upon the terms and conditions of
this Work Letter. In addition, the provisions hereof shall apply to any
additional improvements or alterations to the Premises by Tenant, and Landlord
has agreed to allow such initial improvements, upon the terms and conditions
contained in this Work Letter.
1. Definitions. In this Work Letter, some defined terms are used.
They are:
(a) Tenant's Representative: John Middleton
(b) Landlord's Representative: Mike Reynard
(c) Final Space Plan: A drawing of the Premises clearly
showing the layout and relationship of all departments and offices, depicting
partitions, door locations, and types of electrical/data/telephone outlets and
delineation of furniture and equipment,
(d) Estimated Construction Costs: A preliminary estimate
of the cost for the improvements that are depicted on the Final Space Plan,
including all architectural, engineering, contractor, and any other costs as can
be determined from the Final Space Plan.
(e) Working Drawings: Construction documents detailing
the improvements and conforming to applicable codes, complete in form and
content.
(f) Construction Schedule: A schedule depicting the
relative time frames for various activities related to the construction of the
improvements in the Premises.
(g) Work: The Work is inclusive of the following:
(l) The development of Final Space Plans and
Working Drawings, including, without limitation, architectural and engineering
fees and expenses, and costs of supporting engineering studies (i.e., structural
design or analysis, lighting or acoustical evaluations, or others as determined
by Tenant's architect).
(2) All construction work necessary to augment
the Base Building, creating the details and partitioning shown on the Final
Space Plan. The Work will create finished ceilings, walls, and floor surfaces,
as well as complete HVAC, lighting, electrical, and fire protection systems.
(h) Costs of the Work: The Costs of the Work includes,
but is not limited to, the following:
(l) All architectural and engineering fees and
expenses.
(2) All contractor and construction manager
costs and fees.
(3) All permits and taxes.
(i) Change Order: Any change, modification, or addition
to the Final Space Plan or Working Drawings after Landlord has approved the
same.
(j) Base Building: Those elements of the core and shell
construction that are completed in preparation for the Work to the Premises.
This includes Building structure, envelope, and systems. This defines the
existing conditions to which improvements are added.
(k) Building Standard: Component elements utilized in the
design and construction of the improvements that have been pre-selected by the
Landlord to ensure uniformity of quality, function, and appearance throughout
the Building. These elements include, but are not limited to, ceiling systems,
doors, hardware, walls, floor coverings, finishes, window coverings, light
fixtures, and HVAC components.
Any of the capitalized terms which is used in this Work Letter but not defined
in this Work Letter has the meaning set forth for such term in the Lease.
2. Representatives. Landlord appoints Landlord's Representative
to act for Landlord in all matters covered by this Work Letter. Tenant appoints
Tenant's Representative to act for Tenant in all matters covered by this Work
Letter. All inquiries, requests, instructions, authorizations and other
communications with respect to the matters covered by this Work Letter will be
made to Landlord's Representative or Tenant's Representative, as the case may
be. Either party may change its Representative under this Work Letter at any
time by providing 3 days' prior written notice to the other party.
(C-1)
<PAGE> 24
3. Building Standard. Tenant must use Building Standard items in
order to assure the consistent quality and appearance of the Building.
(a) All Work will be performed by designers, contractors
and subcontractors selected and engaged by Tenant. Tenant's contractor and all
subcontractors shall be subject to Landlord's written approval, which shall not
be unreasonably withheld.
(b) Landlord shall receive no fee during construction or
move-in for profit, overhead, general conditions, construction supervision,
drawing review, freight elevator, utilities, parking or other similar
miscellaneous costs.
4. Cost Responsibilities. Landlord agrees that it will contribute
up to $7.00 per usable square foot which equals $30,870.00 (such amount is
sometimes herein after referred to as the "Construction Allowance") toward the
cost of constructing and installing the Tenant Improvements, which amount will
be payable within 30 days from the date the Work is completed in accordance with
the terms of this Lease and Tenant has submitted to Landlord a written statement
requesting such payment, providing that at the time of such request and
scheduled payment:
a) Tenant is not in default under this Lease;
b) No liens have been filed and appropriate waivers,
affidavits and releases of liens will have been received by Landlord covering
all work for which payment is requested or the time for filing liens has
expired;
c) The certificate of occupancy for the Premises has
been issued;
d) Tenant's architect has certified in writing to
Landlord that the Work has been completed in substantial accordance with
Tenant's Drawings and with applicable law, ordinances, rules, regulations and
codes.
5. Landlord's Approval. Landlord, in its sole, but reasonable
discretion, may withhold its approval of any Final Space Plan, Working Drawings,
or Change Orders, and may consider, among other things, whether any of the same:
(a) Exceeds or adversely affects the structural integrity
of the Building, or any part of the heating, ventilating, air conditioning,
plumbing, mechanical, electrical, communication or other systems of the
Building;
(b) Would not be approved by a prudent owner of property
similar to the Building;
(c) Violates any agreement which affects the Project or
binds Landlord;
(d) Landlord reasonably believes will increase the cost
of operation or maintenance of any of the systems of the Project;
(e) Landlord reasonably believes will reduce the market
value of the Premises or the Project at the end of the Term;
(f) Does not conform to applicable building code or is
not approved by any governmental authority with jurisdiction over the Premises;
(g) Does not conform to the Building Standard; or
(h) Is not approved by any holder of a mortgage or other
superior lien ("Superior Lien") at the time the work is proposed, unless such
approval is not required under the documents evidencing the applicable Superior
Lien, or is contained in any agreement now or hereafter executed by such
Superior Lien holder.
6. Schedule of Improvement Activities.
(a) After Landlord's approval of the Final Space Plan,
Tenant will cause to be prepared and delivered to Landlord the Working Drawings,
and the Construction Schedule, in accordance with the Final Space Plan for
Landlord's review,
(b) Following approval of the Working Drawings, Tenant
will cause application to be made to the appropriate governmental authorities
for necessary approvals and building permits. Within a reasonable time after its
receipt of the necessary approvals and permits, Tenant will begin construction
of the improvements.
(c) Landlord will join in, and will use best efforts to
cause the joinder in, to the extent necessary, of all parties holding Superior
Liens, all applications and other documents required for Tenant to obtain all
permits necessary for its intended use of the Premises (including, but not
limited to, any rezoning application.)
(C-2)
<PAGE> 25
7. Change Orders. Tenant may authorize changes in the Work during
construction, only by written instructions to Landlord's Representative on a
form approved by Landlord. All such changes will be subject to Landlord's prior
written approval in accordance with Paragraph 5.
8. Access to Premises and Conduct of Work. During the
construction period, Tenant and its contractors and subcontractors shall have
24-hour access to the Building's freight elevator and to the Premises, subject
to Landlord's reasonable generally applicable requirements relating thereto, and
shall be provided electrical power and other utilities sufficient for completion
of Work.
9. Completion and Commencement Date. Tenant's obligation for
payment of Rent pursuant to the Lease will commence on the Commencement Date,
regardless of whether the Work has been completed.
11. Condition of the Premises. Except as otherwise provided in the
Lease, Tenant acknowledges that neither Landlord nor its agents or employees
have made any representations or warranties as to the suitability or fitness of
the Premises for the conduct of Tenant's business or for any other purpose, nor
has Landlord or its agents or employees agreed to undertake any alterations or
construct any tenant improvements to the Premises.
12. Disclaimer of Liability. Landlord's approval of the Final
Space Plan, other plans, specifications and the Working Drawings shall create no
responsibility or liability on the part of Landlord for the completeness, design
sufficiency, or compliance with laws, rules and regulations of governmental
agencies or authorities with respect to such plans, specifications and Working
Drawings or improvements constructed in conformity therewith. Tenant shall be
solely responsible for ensuring that the design and improvements of the interior
of the Premises comply with the Americans with Disabilities Act and Tenant shall
indemnify and hold harmless Landlord in connection therewith.
13. Landlord's Approval. All approvals by Landlord under this Work
Letter shall be granted or withheld, in Landlord's reasonable discretion, within
3 business days after request for each such approval is made.
(C-3)
<PAGE> 26
EXHIBIT D
RULES AND REGULATIONS
1. Landlord may from time to time adopt appropriate systems and
procedures for the security or safety of the Building, any persons occupying,
using or entering the Building, or any equipment, finishing or contents of the
Building, and Tenant will comply with Landlord's reasonable requirements
relative to such systems and procedures.
2. The sidewalks, halls, passages, exits, entrances, elevators,
and stairways of the Building will not be obstructed by any tenants or used by
any of them for any purpose other than for ingress to and egress from their
respective premises. The halls, passages, exits, entrances, elevators,
escalators and stairways are not for the general public, and Landlord will in
all cases retain the right to control and prevent access to such halls,
passages, exits, entrances, elevators and stairways of all persons whose
presence in the judgment of Landlord would be prejudicial to the safety,
character, reputation and interests of the Building and its tenants, provided
that nothing contained in these Rules and Regulations will be construed to
prevent such access to persons with whom any tenant normally deals in the
ordinary course of its business, unless such persons are engaged in illegal
activities. No tenant and no employee or invitee of any tenant will go upon the
roof of the Building except such roof or portion of such roof as may be
contiguous to the premises of a particular tenant and may be designated in
writing by Landlord as a roof deck or roof garden area. No tenant will be
permitted to place or install any object (including, without limitation, radio
and television antenna, loud speakers, sound amplifiers, microwave dishes, solar
devices, or similar devices) on the exterior of the Building or on the roof of
the Building.
3. No sign, placard, picture, name, advertisement or written
notice visible from the exterior of Tenant's premises will be inscribed,
painted, affixed or otherwise displayed by Tenant on any part of the Building or
the Premises without the prior written consent of Landlord. Landlord will adopt
and furnish to Tenant general guidelines relating to signs inside the Building
on the office floors. Tenant agrees to conform to such guidelines. All approved
signs or lettering on doors will be printed, painted, affixed or inscribed at
the expense of the tenant by a person approved by Landlord. Other than draperies
expressly permitted by Landlord and building standard mini-blinds, material
visible from outside the Building will not be permitted. In the event of the
violation of this Rule by Tenant, Landlord may remove the violating items
without any liability, and may charge the expense incurred by such removal to
the tenant or tenants violating this Rule.
4. No cooking will be done or permitted by any tenant on the
Premises, except in areas of the Premises which are specially constructed for
cooking and except that use by the tenant of microwave ovens and Underwriters'
Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar
beverages will be permitted, provided that such use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations.
5. No tenant will employ any person or persons other than the
cleaning service of Landlord for the purpose of cleaning the Premises, unless
otherwise agreed to by Landlord in writing. Except with the written consent of
Landlord, no person or persons other than those approved by Landlord will be
permitted to enter the Building for the purpose of cleaning it. No tenant will
cause any unnecessary labor by reason of such tenant's carelessness or
indifference in the preservation of good order and cleanliness. Should Tenant's
actions result in any increased expense for any required cleaning, Landlord
reserves the right to assess Tenant for such expenses.
6. The toilet rooms, toilets, urinals, wash bowls and other
plumbing fixtures will not be used for any purposes other than those for which
they were constructed, and no sweepings, rubbish, rags, or other foreign
substances will be thrown in such plumbing fixtures. All damages resulting from
any misuse of the fixtures will be borne by the tenant who, or whose servants,
employees, agents, visitors or licensees, caused the same.
7. No tenant will in any way deface any part of the Premises or
the Building of which they form a part. In those portions of the Premises where
carpet has been provided directly or indirectly by Landlord, Tenant will at its
own expense install and maintain pads to protect the carpet under all furniture
having casters other than carpet casters,
8. No tenant will alter, change, replace or rekey any lock or
install a new lock or a knocker on any door of the Premises. Landlord, its
agents or employees, will retain a pass (master) key to all door locks on the
Premises. Any new door locks required by Tenant or any change in keying of
existing locks will be installed or changed by Landlord following Tenant's
written request to Landlord and will be at Tenant's expense. All new locks and,
rekeyed locks will remain operable by Landlord's pass (master) key. Landlord
will furnish each Tenant, free of charge, with two keys to each door lock on the
Premises, and two (2) Building/area access cards. Landlord will have the right
to collect a reasonable charge for additional keys and cards requested by any
tenant. Each tenant, upon termination of its tenancy, will deliver to Landlord
all keys and access cards for its premises and Building which have been
furnished to such tenant.
9. The elevator designated for freight by Landlord will be
available for use by all tenants in the Building during the hours and pursuant
to such procedures as Landlord may determine from time to time. The persons
employed to move Tenant's equipment, material, furniture or other property in or
out of the Building must be acceptable to Landlord. The moving company must be a
locally recognized professional mover, whose primary business is the performing
of relocation services, and must be bonded and fully insured. A certificate or
other verification of such insurance must be received and approved by Landlord
prior to the start of any moving operations. Insurance must be sufficient in
Landlord's sole opinion, to cover all personal liability, theft
(D-1)
<PAGE> 27
or damage to the Project, including, but not limited to, floor coverings, doors,
walls, elevators, stairs, foliage and landscaping. Special care must be taken to
prevent damage to foliage and landscaping during adverse weather. All moving
operations will be conducted at such times and in such a manner as Landlord will
direct, and all moving will take place during non-business hours unless Landlord
agrees in writing otherwise. Tenant will be responsible for the provision of
Building security during all moving operations, and will be liable for all
losses and damages sustained by any party as a result of the failure to supply
adequate security. Landlord will have the right to prescribe the weight, size
and position of all equipment, materials, furniture or other property brought
into the Building. Heavy objects will, if considered necessary by Landlord,
stand on wood strips of such thickness as is necessary to properly distribute
the weight. Landlord will not be responsible for loss of or damage to any such
property from any cause, and all damage done to the Building by moving or
maintaining such property will be repaired at the expense of Tenant. Landlord
reserves the right to inspect all such property to be brought into the Building
and to exclude from the Building all such property which violates any of these
Rules and Regulations or the Lease of which these Rules and Regulations are a
part. Supplies, goods, materials, packages, furniture and all other items of
every kind delivered to or taken from the Premises will be delivered or removed
through the entrance and route designated by Landlord, and Landlord will not be
responsible for the loss or damage of any such property unless such loss or
damage results from the negligence of Landlord, its agents or employees.
10. No tenant will use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible or explosive fluid or material
or chemical substance other than limited quantities of such materials or
substances reasonably necessary for the operation or maintenance of office
equipment or limited quantities of cleaning fluids and solvents required in such
tenant's normal operations in the Premises. Without Landlord's prior written
approval, no tenant will use any method of heating or air conditioning other
than that supplied by Landlord. No tenant will use or keep or permit to be used
or kept any foul or noxious gas or substance in the Premises.
11. Landlord will have the right, exercisable upon written notice
and without liability to any tenant, to change the name and street address of
the Building.
12. Landlord will have the right to prohibit any advertising by
Tenant, mentioning the Building, which, in Landlord's reasonable opinion, tends
to impair the reputation of the Building or its desirability as a building for
offices, and upon written notice from Landlord, Tenant will refrain from or
discontinue such advertising.
13. Tenant will not bring any animals (except "Seeing Eye" dogs)
or birds into the Building, and will not permit bicycles or other vehicles
inside or on the sidewalks outside the Building except in areas designated from
time to time by Landlord for such purposes.
14. All persons entering or leaving the Building between the hours
of 6 p.m. and 7 a.m. Monday through Friday, and at all hours on Saturdays,
Sundays and holidays will comply with such off-hour regulations as Landlord may
establish and modify from time to time. Landlord reserves the right to limit
reasonably or restrict access to the Building during such time periods.
15. Each tenant will store all its trash and garbage within its
Premises. No material will be placed in the trash boxes or receptacles if such
material is of such nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of trash and garbage without being in
violation of any law or ordinance governing such disposal. All garbage and
refuse disposal will be made only through entryways and elevators provided for
such purposes and at such times as Landlord designates. Removal of any furniture
or furnishings, large equipment, packing crates, packing materials and boxes
will be the responsibility of each tenant and such items may not be disposed of
in the Building, trash receptacles nor will they be removed by the Building's
janitorial service, except at Landlord's sole option and at the tenant's
expense. No furniture, appliances, equipment or flammable products of any type
may be disposed of in the Building trash receptacles.
16. Canvassing, peddling, soliciting, and distribution of
handbills or any other written materials in the Building are prohibited, and
each tenant will cooperate to prevent the same.
17. The requirements of the tenants will be attended to only upon
application by written, personal or telephone notice at the office of the
Building. Employees of Landlord will not perform any work or do anything outside
of their regular duties unless under special instructions from Landlord.
18. A directory of the Building will be provided for the display
of the name and location of tenants only and such reasonable number of the
principal officers and employees of tenants as Landlord in its sole discretion
approves, but Landlord will not in any event be obligated to furnish more than
one directory strip for each 2,500 square feet of Rentable Area in the Premises.
Any additional name(s) which Tenant desires to place in such directory must
first be approved by Landlord, and if so approved, Tenant will pay to Landlord a
charge, set by Landlord, for each such additional name. All entries on the
building directory display will conform to standards and style set by Landlord
in its sole discretion. Space on any exterior signage will be provided in
Landlord's sole discretion, No tenant will have any right to the use of the
exterior sign.
19. Tenant will see that the doors of the Premises are closed and
locked and that all water faucets, water apparatus and utilities are shut off
before Tenant or Tenant's employees leave the Premises, so as to prevent waste
or damage, and for any default or carelessness in this regard Tenant will make
good all injuries sustained by other tenants or occupants of the Building or
Landlord. On multiple-tenancy floors, all tenants will keep the doors to the
Building corridors closed at all times except for ingress and egress.
(D-2)
<PAGE> 28
20. Tenant will not conduct itself in any manner which is
inconsistent with the character of the Building as a first quality building or
which will impair the comfort and convenience of other tenants in the Building.
21. Neither Landlord nor any operator of the parking areas within
the Project, as the same are designated and modified by Landlord, in its sole
discretion, from time to time (the "Parking Areas") will be liable for loss of
or damage to any vehicle or any contents of such vehicle or accessories to any
such vehicle, or any property left in any of the Parking Areas, resulting from
fire, theft, vandalism, accident, conduct of other users of the Parking Areas
and other persons, or any other casualty or cause. Further, Tenant understands
and agrees that: (a) Landlord will not be obligated to provide any traffic
control, security protection or operator for the Parking Areas; (b) Tenant uses
the Parking Areas at its own risk; and (c) Landlord will not be liable for
personal injury or death, or theft, loss of or damage to property. Tenant waives
and releases Landlord from any and all liability arising out of the use of the
Parking Areas by Tenant, its employees, agents, invitees, and visitors, whether
brought by any of such persons or any other person.
22. Tenant (including Tenant's employees, agents, invitees, and
visitors) will use the Parking Spaces solely for the purpose of parking
passenger model cars, small vans and small trucks and will comply in all
respects with any rules and regulations that may be promulgated by Landlord from
time to time with respect to the Parking Areas. The Parking Areas may be used by
tenant, its agents or employees, for occasional overnight parking of vehicles.
Tenant will ensure that any vehicle parked in any of the Parking Spaces will be
kept in proper repair and will not leak excessive amounts of oil or grease or
any amount of gasoline. If any of the Parking Spaces are at any time used (a)
for any purpose other than parking as provided above; (b) in any way or manner
reasonably objectionable to Landlord; or (c) by Tenant after default by Tenant
under the Lease, Landlord, in addition to any other rights otherwise available
to Landlord, may consider such default an Event of Default under the Lease.
23. Tenant's right to use the Parking Areas will be in common with
other tenants of the Project and with other parties permitted by Landlord to use
the Parking Areas. Landlord reserves the right to assign and reassign, from time
to time, particular parking spaces for use by persons selected by Landlord
provided that Tenant's rights under the Lease are preserved. Landlord will not
be liable to Tenant for any unavailability of Tenant's designated spaces, if
any, nor will any unavailability entitle Tenant to any refund, deduction, or
allowance. Tenant will not park in any numbered space or any space designated
as: RESERVED, HANDICAPPED, VISITORS ONLY, or LIMITED TIME PARKING (or similar
designation).
24. If the Parking Areas are damaged or destroyed, or if the use
of the Parking Areas is limited or prohibited by any governmental authority, or
the use or operation of the Parking Areas is limited or prevented by strikes or
other labor difficulties or other causes beyond Landlord's control, Tenant's
inability to use the Parking Spaces will not subject Landlord or any operator of
the Parking Areas to any liability to Tenant and will not relieve Tenant of any
of its obligations under the Lease and the Lease will remain in full force and
effect.
25. Tenant has no right to assign or sublicense any of its rights
in the Parking Spaces, except as part of a permitted assignment or sublease of
the Lease; however, Tenant may allocate the Parking Spaces among its employees.
26. No act or thing done or omitted to be done by Landlord or
Landlord's agent during the term of the Lease in connection with the enforcement
of these Rules and Regulations will constitute an eviction by Landlord of any
tenant nor will it be deemed an acceptance of surrender of the Premises by any
tenant, and no agreement to accept such termination or surrender will be valid
unless in a writing signed by Landlord. The delivery of keys to any employee or
agent of Landlord will not operate as a termination of the Lease or a surrender
of the Premises unless such delivery of keys is done in connection with a
written instrument executed by Landlord approving the termination or surrender.
27. In these Rules and Regulations, "tenant" includes the
employees, agents, invitees and licensees of Tenant and others permitted by
Tenant to use or occupy the Premises.
28. Landlord may waive any one or more of these Rules and
Regulations for the benefit of any particular tenant or tenants, but no such
waiver by Landlord will be construed as a waiver of such Rules and Regulations
in favor of any other tenant or tenants, nor prevent Landlord from enforcing any
such Rules and Regulations against any or all of the tenants of the Building
after such waiver.
29. These Rules and Regulations are in addition to, and will not
be construed to modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of the Lease.
(D-3)
<PAGE> 29
EXHIBIT E
COMMENCEMENT DATE CERTIFICATE
This Commencement Date Certificate is entered into by Landlord and
Tenant pursuant to Section 3.1 of the Lease.
1. DEFINITIONS. In this Certificate the following terms have the
meanings given to them:
(a) Landlord: U S WEST Business Resources, Inc.
(b) Tenant: P.F. Chang's China Bistro, Inc.
(c) Lease: Office Lease dated , 1997 between
Landlord and Tenant.
(d) Premises: Suite 160.
(e) Building Address: 5090 North 40th Street
Phoenix, AZ 85018
2. CONFIRMATION OF LEASE COMMENCEMENT. Landlord and Tenant
confirm that the Commencement Date of the Lease is and the
Expiration Date is and that Sections 1.1(k) and (l) are
accordingly amended.
Landlord and Tenant have executed this Commencement Date Certificate
as of the dates set forth below.
LANDLORD: TENANT:
U S WEST BUSINESS RESOURCES, INC., P.F. CHANG'S CHINA BISTRO, INC., a
a Colorado corporation Delaware corporation
By By
-------------------------------------- --------------------------------
Name Name
------------------------------------ -------------------------------
Title Title
----------------------------------- ------------------------------
APPROVED AS TO LEGAL FORM by Counsel to
Landlord:
Fisher & Sweetbaum, P.C.
By
---------------------------
Date
------------------------
(E-1)
<PAGE> 1
Exhibit 21.1
P.F. CHANG'S
CHINA BISTRO, INC.
LIST OF SUBSIDIARIES
Entity Jurisdiction
------ ------------
PFCCB Scottsdale, LLC Arizona
PFCCB Newport Beach, LLC Arizona
P.F. Chang's III, LLC Arizona
P.F. Chang's IV, LLC Arizona
La Jolla Building III, L.P. Arizona
PFCCB Loutex Joint Venture Arizona
PFCCB NUCA, LLC Arizona
PFCCB Florida Joint Venture Arizona
PFCCB Southeastern, LLC Arizona
PFCCB Mid-Atlantic, LLC Arizona
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-29-1997
<PERIOD-END> JUN-28-1998
<EXCHANGE-RATE> 1000
<CASH> 1,802
<SECURITIES> 0
<RECEIVABLES> 825
<ALLOWANCES> 0
<INVENTORY> 362
<CURRENT-ASSETS> 3,824
<PP&E> 16,531
<DEPRECIATION> 2,297
<TOTAL-ASSETS> 34,265
<CURRENT-LIABILITIES> 17,661
<BONDS> 2,159
18,285
0
<COMMON> 3
<OTHER-SE> (4,079)
<TOTAL-LIABILITY-AND-EQUITY> 34,265
<SALES> 32,937
<TOTAL-REVENUES> 32,937
<CGS> 26,296
<TOTAL-COSTS> 26,296
<OTHER-EXPENSES> 4,983
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 520
<INCOME-PRETAX> 1,203
<INCOME-TAX> 11
<INCOME-CONTINUING> 847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 847
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.13
</TABLE>
