<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
REGISTRATION NO. 333-75087
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
RUBIO'S RESTAURANTS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 5812 33-0100303
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
1902 WRIGHT PLACE, SUITE 300
CARLSBAD, CALIFORNIA 92008
(760) 929-8226
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
MR. RALPH RUBIO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RUBIO'S RESTAURANTS, INC.
1902 WRIGHT PLACE, SUITE 300
CARLSBAD, CALIFORNIA 92008
(760) 929-8226
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
COPIES TO:
CRAIG S. ANDREWS, ESQ. JEFFREY D. SAPER, ESQ.
FAYE H. RUSSELL, ESQ. J. ROBERT SUFFOLETTA, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON, SONSINI, GOODRICH & ROSATI,
550 WEST C STREET, SUITE 1300 P.C.
SAN DIEGO, CALIFORNIA 92101 650 PAGE MILL ROAD
(619) 234-1966 PALO ALTO, CALIFORNIA 94304
(650) 493-9300
------------------------
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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 30, 1999
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY CHANGE
WITHOUT NOTICE. WE AND THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
3,150,000 Shares
[LOGO]
Rubio's Restaurants, Inc.
Common Stock
------------------
This is an initial public offering of shares of common stock of Rubio's
Restaurants, Inc. We are offering 2,250,000 shares in this offering and the
selling stockholders are selling an additional 900,000 shares. No public market
currently exists for our common stock. We anticipate that the initial public
offering price for our shares will be between $9.00 and $11.00 per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "RUBO."
Investing in our common stock involves a high degree of risk. Please see "Risk
Factors" starting on page 7 to read about risks that you should consider
carefully before buying shares of our common stock.
<TABLE>
<CAPTION>
Per Share Total
---------- ----------
<S> <C> <C>
Public offering price..................................................................... $ $
Underwriting discounts and commissions.................................................... $ $
Proceeds to us............................................................................ $ $
Proceeds to selling stockholders.......................................................... $ $
</TABLE>
The underwriters have an option to purchase 472,500 additional shares of common
stock from us and from the selling stockholders named under the caption "Selling
Stockholders" at the initial public offering price to cover any over-allotments
of shares. We will not receive any of the proceeds from the sale of shares by
the selling stockholders.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Thomas Weisel Partners LLC
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
U.S. Bancorp Piper Jaffray
Prospectus dated , 1999
<PAGE>
INSIDE FRONT COVER
Photograph of the exterior of one of our restaurants, along with a map of
the southwestern United States, showing markets in which we do business, as well
as the number of restaurants in each market. Restaurants that we plan to open in
1999 are enclosed in parentheses.
FRONT GATEFOLD:
Photograph of a scene from the Baja peninsula, overlaid with pictures of our
restaurant interiors and exteriors, as well as pictures of a fish taco, shrimp
quesadilla and carne asada burrito and grilled chicken taco combination from our
menu, with captions identifying the name of each product.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SOME OF THE INFORMATION FOUND IN GREATER DETAIL
ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THIS SUMMARY, WE URGE YOU TO READ
THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING IN OUR COMMON
STOCK DISCUSSED UNDER "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
BEFORE YOU DECIDE TO BUY OUR COMMON STOCK.
THE COMPANY
Rubio's Restaurants, Inc. owns and operates 67 high-quality, quick-service
Mexican restaurants under the name "Rubio's Baja Grill" located principally in
the southwest region of the United States. Our restaurants offer a distinctive
blend of high-quality, traditional Mexican cuisine combined with fresh seafood
fare indicative of the Baja region of Mexico. Our menu contains appealing
Mexican offerings with distinctive taste profiles prepared from fresh
ingredients. Our traditional menu items such as tacos and burritos feature
marinated, chargrilled meats and other high-quality ingredients. Adhering to an
overall emphasis on freshness, we prepare our menu items on-site and
made-to-order, with each location preparing its own chips, salsa and guacamole
fresh every day. Our menu also features our signature Baja-style fish taco, and
is accentuated by seasonal offerings including our lobster burrito and tequila
shrimp burrito. Most of our restaurants also offer a selection of Mexican and
domestic beers. Prices range from $1.79 for a Baja-style fish taco to $5.69 for
a Cabo Combo, which includes a shrimp burrito, fish taco, chips and beans. We
strive to provide superior service in a setting designed to promote a casual,
relaxed and fun experience for our guests. We design our Rubio's restaurant
decor to be reminiscent of an authentic Baja beach setting. Most of our
restaurants feature saltwater aquariums, surfboards and outdoor patio seating
beneath traditional palm-thatched umbrellas, or palapas.
We seek to differentiate our restaurants by combining the high-quality
Mexican food expected in casual sit-down restaurants with the convenient counter
service of quick-service restaurants. In this respect, we believe the "Rubio's
Baja Grill" concept is uniquely positioned between the quick-service and casual
dining segments of the restaurant industry. The critical components of our
concept include:
- providing distinctive, flavorful Mexican cuisine;
- creating a fun and relaxed atmosphere with authentic personality; and
- offering our guests excellent dining value.
We believe that our restaurant concept has broad national appeal and that,
as a result, we have significant opportunities to expand our operations and
generate attractive returns. Our business objective is to become the leading
high-quality, quick-service Mexican restaurant brand nationwide. Key to our
expansion plans and success at the restaurant-level is our business strategy to:
- create a distinctive concept and brand;
- achieve attractive restaurant-level economics;
- execute disciplined expansion; and
- ensure a high-quality guest experience.
We believe that our restaurants provide attractive restaurant-level
economics. In 1998, the 43 units open the entire year generated average sales of
$901,000, average operating income of $148,000, or 16.4% of sales, and average
cash flow of $183,000, or 20.3% of sales. Comparable restaurant sales increased
10.4% in 1998, following an 18.0% increase in 1997. Net income for 1998 was
$915,000, which compares to a net loss for 1997 of $1.0 million. We currently
have 12 units located outside California. Of these, three units have over 12
months of operating results. These units generated average sales of $972,000 for
the most recent 12 months, average operating income of $149,000, or 15.0% of
sales, and average cash flow of $200,000, or 20.5% of sales. We opened eight
stores in 1996, 12 in 1997 and 16 in 1998. Our current expansion plan calls for
us to open 28 restaurants in 1999, of
3
<PAGE>
which eight have opened to date, and 36 restaurants in 2000. Four of the 20
units we plan to open in the balance of 1999 are currently under construction,
and the remaining 16 have signed leases. We intend to continue to develop
restaurants that will require, on average, a total cash investment of
approximately $380,000, including pre-opening expenses of $20,000.
The Rubio's Baja Grill concept successfully evolved from the original
"Rubio's, Home of the Fish Taco" concept, which our co-founder Ralph Rubio first
developed following his college spring break trips to the Baja peninsula of
Mexico in the mid-1970s. Ralph opened the first Rubio's restaurant with his
father, Rafael, over 16 years ago in the Mission Bay area of San Diego.
We were incorporated in California in May 1985, and reincorporated in
Delaware in September 1997. We have a wholly owned subsidiary, Rubio's
Restaurants of Nevada, Inc., which was incorporated in Nevada in 1997. Our
principal executive offices are located at 1902 Wright Place, Suite 300,
Carlsbad, California 92008. Our telephone number at that location is (760)
929-8226. Information contained on our Web site, www.rubios.com, does not
constitute part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us.............................. 2,250,000 shares
Common stock offered by selling stockholders............ 900,000 shares
Common stock outstanding after this offering............ 8,601,624 shares
Use of proceeds......................................... For development of new
restaurants, repayment of term
loan debt and working capital and
other general corporate purposes.
Please see "Use of Proceeds" for
more information regarding our
planned use of the proceeds from
this offering.
Proposed Nasdaq National Market symbol.................. RUBO
</TABLE>
In addition to the 8,601,624 shares of common stock to be outstanding after
this offering, there are:
- 379,376 shares issuable upon the exercise of options outstanding at a
weighted average exercise price of $3.89 per share;
- 45,000 shares issuable upon the exercise of an outstanding warrant at an
exercise price of $7.20 per share; and
- 244,562 shares available for issuance under our stock option plans. Since
March 28, 1999, we have granted options exercisable into 192,000 shares at
a weighted average exercise price of $10.00 per share. For a description
of our stock option plans, please see "Management--Benefit Plans."
This offering is for 3,150,000 shares; however, the underwriters have a
30-day option to purchase up to 472,500 additional shares from us and from the
selling stockholders to cover over-allotments. Some of the disclosures in this
prospectus would be different if the underwriters exercise the option. Unless we
tell you otherwise, the information in this prospectus assumes that the
underwriters will not exercise the option.
4
<PAGE>
CONVENTIONS WHICH APPLY TO THIS PROSPECTUS
Unless we tell you otherwise, all information in this prospectus relating to
our capitalization presented on an as adjusted or pro forma basis reflects:
- the automatic conversion of each share of our preferred stock into one
share of our common stock upon the closing of this offering;
- an increase in our authorized common stock to 75,000,000 shares and an
increase in our undesignated preferred stock to 5,000,000 shares effective
immediately prior to the closing of this offering; and
- the issuance of 37,677 shares of common stock upon the exercise of
warrants which terminate immediately upon this offering.
Our registered trademarks and service marks include
Rubio's-Registered Trademark-, Baja Grill-Registered Trademark-, Home of the
Fish Taco-Registered Trademark-, HealthMex-Registered Trademark- and
Pesky-Registered Trademark-. Each other trademark, trade name or service mark
appearing in this prospectus belongs to its holder.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE AND SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL ------------------------
----------------------------------------------------- MARCH 29, MARCH 28,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Sales............................. $ 11,837 $ 14,811 $ 19,523 $ 29,704 $ 44,699 $ 9,217 $ 14,383
Operating income (loss)........... (108) 9 85 (764) 596 (254) 72
Total other income (expense)...... (146) 55 16 (137) 253 87 3
Income (loss) before income
taxes........................... (254) 64 101 (901) 849 (167) 75
Net income (loss)................. (155) 16 72 (1,000) 915 (180) 45
Net income (loss) attributable to
common stockholders............. $ (155) $ (39) $ 3 $ (1,095) $ 568 $ (267) $ (41)
Net income (loss) per share
Basic........................... $ (0.15) $ (0.04) $ -- $ (1.08) $ 0.55 $ (0.26) $ (0.04)
Diluted......................... (0.15) (0.04) -- (1.08) 0.14 (0.26) (0.04)
Shares used in computing net
income (loss) per share
Basic........................... 1,000 1,000 1,008 1,010 1,033 1,013 1,050
Diluted......................... 1,000 1,000 1,026 1,010 6,418 1,013 1,050
Pro forma net income per share
Basic and diluted............... $ 0.14 $ 0.01
Shares used in computing pro forma
net income per share
Basic........................... 6,334 6,350
Diluted......................... 6,455 6,616
SELECTED OPERATING DATA:
Number of restaurants at end of
period.......................... 17 23 31 43 59 46 67
Comparable restaurant sales
increase (decrease)............. 11.0% 5.3% (3.6)% 18.0% 10.4% 7.6% 13.7%
Average restaurant volume of units
open for entire period.......... $ 767,695 $ 786,489 $ 728,234 $ 825,741 $ 900,870
</TABLE>
<TABLE>
<CAPTION>
MARCH 28, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 1,124 $ 19,678
Total assets........................................................................... 25,435 43,989
Long-term debt, including current portion.............................................. 1,671 --
Redeemable convertible preferred stock................................................. 17,782 --
Total stockholders' equity............................................................. 141 38,148
</TABLE>
- ------------------------------
Please see note 1 to the consolidated financial statements for an
explanation of the determination of the number of shares used in computing pro
forma net income per share.
Comparable restaurant sales are determined based on sales for stores which
were in operation for the previous 15 months.
The as adjusted balance sheet data listed above reflects the sale of
2,250,000 shares of common stock offered at an assumed initial public offering
price of $10.00 per share after deducting the estimated underwriting discount
and estimated offering expenses payable by us. Please see "Use of Proceeds" for
information regarding our anticipated use of the proceeds of this offering and
"Capitalization" for information regarding our capitalization following this
offering.
Fiscal years 1994 and 1995 ended on December 31. In 1996, we began using a
52- or 53-week fiscal year ending on the Sunday nearest December 31. Fiscal
years 1996, 1997 and 1998 each consisted of 52 weeks. The three-month periods
each consisted of 13 weeks.
Net income (loss) attributable to common stockholders includes the effect of
the accretion on the redeemable convertible preferred stock which reduces net
income (loss) attributable to common stockholders for the related periods. Net
income attributable to common stockholders for the fiscal 1998 diluted earnings
per share calculation is $915,000. The difference from the basic calculation is
due to the reversal of the accretion on the redeemable convertible preferred
stock as such stock is assumed to be converted to common stock for purposes of
the diluted calculation.
Net income for fiscal year 1998 was favorably impacted by the reversal of a
$452,000 deferred tax asset allowance that was previously provided for in fiscal
year 1997. We eliminated the valuation allowance in 1998 due to our belief that
current year activity made realization of such benefit more likely than not.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER WITH
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE WHETHER TO
BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD LIKELY SUFFER. IN
ANY SUCH CASE, THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK. ADDITIONAL RISKS
AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL
MAY ALSO IMPAIR OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
RISKS RELATED TO OUR BUSINESS
OUR PLANNED EXPANSION INTO NEW GEOGRAPHIC AREAS INVOLVES A NUMBER OF RISKS
WHICH COULD DELAY OR PREVENT THE OPENING OF PLANNED NEW RESTAURANTS.
Almost all of our current restaurants are located in the southwest region of
the United States. Our planned expansion into geographic areas outside the
Southwest involves a number of risks, including:
- uncertainties related to local demographics, tastes and preferences;
- local custom, wages, costs and other legal and economic conditions
particular to new regions;
- the need to develop relationships with local distributors and suppliers
for fresh produce, fresh tortillas and other ingredients;
- potential difficulties related to management of operations located in a
number of broadly dispersed locations; and
- lack of market awareness or acceptance of our restaurant concept in new
geographic areas.
We may not be successful in addressing these risks. We also may not be able
to open our planned new operations on a timely basis, or at all in these new
areas. Delays in opening or failure to open planned new restaurants outside the
Southwest could have a material adverse effect on our business and results of
operations. We currently anticipate that our new restaurants will take several
months to reach planned operating levels due to inefficiencies typically
associated with expanding into new regions, such as lack of market awareness,
acceptance of our restaurant concept and inability to hire sufficient staff.
IF WE ARE NOT ABLE TO SUCCESSFULLY PURSUE OUR RAPID EXPANSION STRATEGY, OUR
BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY IMPACTED.
We intend to continue to pursue a rapid expansion strategy. Since 1996, we
have opened 36 restaurants, 12 of which were opened outside of Southern
California. We intend to open an additional 28 restaurants in 1999, eight of
which have been opened to date. Approximately 13 of those additional restaurants
are outside Southern California. We intend to open an additional 36 restaurants
in 2000. Our ability to successfully achieve our expansion strategy will depend
on a variety of factors, many of which are beyond our control. These factors
include:
- our ability to locate suitable restaurant sites or negotiate acceptable
lease terms;
- our ability to obtain required local, state and federal governmental
approvals and permits related to construction of the sites, food and
alcoholic beverages;
- our dependence on contractors to construct new restaurants in a timely
manner;
- our ability to attract, train and retain qualified and experienced
restaurant personnel and management;
- our ability to operate our restaurants profitably;
- our need for additional capital and our ability to obtain such capital on
favorable terms or at all;
- our ability to respond effectively to the intense competition in the
quick-service restaurant industry; and
- general economic conditions.
7
<PAGE>
If we are not able to successfully address these factors, we may not be able
to expand at a rate currently contemplated by our strategy, and our business and
results of operations may be adversely impacted.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO SEASONALITY AND
OTHER FACTORS, WHICH COULD HAVE A NEGATIVE EFFECT ON THE PRICE OF OUR COMMON
STOCK.
Our business is subject to seasonal fluctuations. Historically, sales in
most of our restaurants have been higher during the second and third quarters of
each fiscal year. As a result, we expect our highest earnings to occur in the
second and third quarters of each fiscal year.
In addition to seasonality, our quarterly and annual operating results and
comparable unit sales may fluctuate significantly as a result of a variety of
factors, including:
- labor costs for our hourly and management personnel, including increases
in federal or state minimum wage requirements;
- fluctuations in food costs, particularly the cost of chicken, beef, fish,
cheese and produce;
- the timing of new restaurant openings and related expenses;
- the amount of sales contributed by new and existing restaurants;
- our ability to achieve and sustain profitability on a quarterly or annual
basis;
- consumer confidence;
- changes in consumer preferences;
- the level of competition from existing or new competitors in the
quick-service restaurant industry;
- factors associated with closing a unit, including payment of the base rent
for the balance of the lease term;
- impact of weather on revenues and costs of food; and
- general economic conditions.
Accordingly, results for any one quarter are not necessarily indicative of
results to be expected for any other quarter or for any year. Comparable unit
sales for any particular future period may decrease. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
discussion of factors which have historically affected our operating results.
THE RESTAURANT INDUSTRY IS INTENSELY COMPETITIVE AND WE MAY NOT HAVE THE
RESOURCES TO COMPETE ADEQUATELY.
The restaurant industry is intensely competitive. There are many different
segments within the restaurant industry that are distinguished by types of
service, food types and price/value relationships. We position our restaurants
in the high-quality, quick-service Mexican food segment of the industry. In this
segment, our direct competitors include Baja Fresh, La Salsa and Chipotle. We
also compete indirectly with full-service Mexican restaurants including Chevy's,
Chi Chi's and El Torito, and fast food restaurants, particularly those focused
on Mexican food such as Taco Bell and Del Taco. Competition in our industry
segment is based primarily upon food quality, price, restaurant ambiance,
service and location. Although we believe we compete favorably with respect to
each of these factors, many of our direct and indirect competitors are
well-established national, regional or local chains and have substantially
greater financial, marketing, personnel and other resources than we do. We also
compete with many other retail establishments for site locations.
The performance of individual units may also be affected by factors such as
traffic patterns, demographic considerations and the type, number and proximity
of competing restaurants. In addition, factors such as inflation, increased
food, labor and employee benefit costs and the availability of experienced
management and hourly employees may also adversely affect the restaurant
industry in general and our units in particular.
8
<PAGE>
THE ABILITY TO ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL TO OPERATE AND
MANAGE OUR RESTAURANTS IS EXTREMELY IMPORTANT AND OUR FAILURE TO DO SO COULD
ADVERSELY AFFECT US.
Our success and the success of our individual restaurants depend upon our
ability to attract and retain highly motivated, well-qualified restaurant
operators and other management personnel, as well as a sufficient number of
qualified employees, including guest service and kitchen staff, to keep pace
with our expansion schedule. Qualified individuals needed to fill these
positions are in short supply in some geographic areas. Our inability to recruit
and retain such individuals may delay the planned openings of new restaurants or
result in higher employee turnover in existing restaurants, which could have a
material adverse effect on our business or results of operations. We also face
significant competition in the recruitment of qualified employees. In addition,
we are heavily dependent upon the services of our officers and key management
involved in restaurant operations, marketing, finance, purchasing, expansion,
human resources and administration. The loss of any of these individuals could
have a material adverse effect on our business and results of operations. We
currently do not have employment agreements with any of our employees.
OUR RESOURCES MAY BE STRAINED IN IMPLEMENTING OUR BUSINESS STRATEGY.
Our growth strategy will place a strain on our management, financial and
other resources. To manage our growth effectively, we must maintain the level of
quality and service at our existing and future restaurants. We must also
continue to enhance our operational, financial and management systems and
locate, hire, train and retain experienced and dedicated operating personnel,
particularly managers. We may not be able to effectively manage any one or more
of these or other aspects of our expansion. Failure to do so could have a
material adverse effect on our business and results of operations.
WE MAY BE UNABLE TO FUND OUR SUBSTANTIAL WORKING CAPITAL REQUIREMENTS AND
MAY NEED ADDITIONAL FUNDING SOONER THAN WE ANTICIPATE.
We believe that the proceeds from this offering, together with anticipated
cash flow from operations and funds anticipated to be available from a credit
facility, will be sufficient to satisfy our working capital requirements for at
least the next 12 months. We plan to incur substantial costs over the near-term
in connection with our expansion plans. We may need to seek additional financing
sooner than we anticipate as a result of the following factors:
- changes in our operating plans;
- acceleration of our expansion plans;
- lower than anticipated sales of our menu offerings;
- increased food and/or labor costs; and
- potential acquisitions.
Additional financing may not be available on acceptable terms, or at all. If
we fail to get additional financing as needed, our business and results of
operations would likely suffer. Please see "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for a discussion of our
expected capital needs and current resources available.
9
<PAGE>
UNANTICIPATED COSTS OR DELAYS IN THE DEVELOPMENT OR CONSTRUCTION OF OUR
RESTAURANTS COULD PREVENT OUR TIMELY AND COST-EFFECTIVE OPENING OF NEW
RESTAURANTS.
We depend on contractors and real estate developers to construct our
restaurants. Many factors may adversely affect the cost and time associated with
the development and construction of our restaurants, including:
- labor disputes;
- shortages of materials and skilled labor;
- adverse weather;
- unforeseen engineering problems;
- environmental problems;
- construction or zoning problems;
- local government regulations;
- modifications in design; and
- other unanticipated increases in costs.
Any of these factors could give rise to delays or cost overruns which may
prevent us from developing additional restaurants within our anticipated budgets
or time periods. Any such failure could have a material adverse effect on our
business and results of operations.
OUR RESTAURANTS ARE CONCENTRATED IN THE SOUTHWEST REGION OF THE UNITED
STATES, AND THEREFORE, OUR BUSINESS IS SUBJECT TO FLUCTUATIONS IF ADVERSE
BUSINESS CONDITIONS OCCUR IN THAT REGION.
All but two of our existing restaurants are located in the southwest region
of the United States. Accordingly, we are susceptible to fluctuations in our
business caused by adverse economic or other conditions in this region,
including natural or other disasters. Our significant investment in, and
long-term commitment to, each of our units limits our ability to respond quickly
or effectively to changes in local competitive conditions or other changes that
could affect our operations. In addition, some of our competitors have many more
units than we do. Consequently, adverse economic or other conditions in a
region, a decline in the profitability of several existing units or the
introduction of several unsuccessful new units in a geographic area could have a
more significant effect on our results of operations than would be the case for
a company with a larger number of restaurants or with more geographically
dispersed restaurants.
OUR FAILURE OR INABILITY TO ENFORCE OUR TRADEMARKS AND TRADE NAMES COULD
ADVERSELY AFFECT OUR EFFORTS TO ESTABLISH BRAND EQUITY.
Our ability to successfully expand our concept will depend on our ability to
establish and maintain "brand equity" through the use of our trademarks, service
marks, trade dress and other proprietary intellectual property, including our
name and logos. We currently hold three trademarks and have seven service marks
relating to our brand. Some or all of the rights in our intellectual property
may not be enforceable, even if registered, against any prior users of similar
intellectual property or our competitors who seek to utilize similar
intellectual property in areas where we operate or intend to conduct operations.
If we fail to enforce any of our intellectual property rights, we may be unable
to capitalize on our efforts to establish brand equity. It is also possible that
we will encounter claims from prior users of similar intellectual property in
areas where we operate or intend to conduct operations. Claims from prior users
could limit our operations and possibly cause us to pay damages or licensing
fees to a prior user or registrant of similar intellectual property.
10
<PAGE>
IF WE ARE NOT ABLE TO ANTICIPATE AND REACT TO OUR FOOD AND LABOR COSTS, WE
COULD BE ADVERSELY AFFECTED.
Our restaurant operating costs principally consist of food and labor costs.
Our profitability is dependent on our ability to anticipate and react to changes
in food and labor costs. Various factors beyond our control, including adverse
weather conditions and governmental regulation, may affect our food costs. We
may not be able to anticipate and react to changing food costs, whether through
our purchasing practices, menu composition or menu price adjustments in the
future. In the event that food or labor price increases cause us to increase our
menu prices, we face the risk that our guests will choose to patronize
lower-cost restaurants. Failure to react to changing food costs or to retain
guests if we are forced to raise menu prices could have a material adverse
effect on our business and results of operations. For more information regarding
our food supply sources and buying practices, please see "Business--Purchasing."
A substantial number of our employees are subject to various minimum wage
requirements. Many of our employees work in restaurants located in California
and receive salaries equal to or slightly greater than the California minimum
wage. Effective March 1, 1998, the minimum wage in California increased to $5.75
per hour from $5.15. Similar proposals may come before legislators or voters in
other jurisdictions in which we operate or seek to operate. Such minimum wage
increases could have a material adverse effect on our business and results of
operations. Please see "Business--Operations" for more information on the number
of and the benefits we provide to our employees.
AS A RESTAURANT SERVICE PROVIDER, WE COULD BE SUBJECT TO ADVERSE PUBLICITY
OR CLAIMS FROM OUR GUESTS.
We may be the subject of complaints or litigation from guests alleging
food-related illness, injuries suffered on the premises or other food quality,
health or operational concerns. Adverse publicity resulting from such
allegations may materially adversely affect us and our restaurants, regardless
of whether such allegations are true or whether we are ultimately held liable.
We may also be the subject of complaints or allegations from current, former or
prospective employees from time to time. A lawsuit or claim could result in an
adverse decision against us that could have a material adverse effect on our
business and results of operations.
WE MAY NOT BE ABLE TO OBTAIN AND MAINTAIN STATE AND LOCAL PERMITS NECESSARY
TO OPERATE OUR UNITS.
The failure to maintain necessary licenses, permits or approvals, including
food and alcoholic beverage licenses, or to comply with other government
regulations could have a material adverse effect on our business and results of
operations. In addition, difficulties or failures in obtaining required licenses
and approvals will result in delays in, or cancellation of, the opening of new
units. Restaurants are subject to licensing and regulation by state and local
health, environmental, labor relations, sanitation, building, zoning, safety,
fire and other departments. Our 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. We are 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 our restaurants, even if our
operation of those restaurants is in strict compliance with the requirements of
the Immigration and Naturalization Service, our employees may not all meet
federal citizenship or residency requirements, which could lead to disruptions
in our work force. If we are not in compliance with these requirements, we could
be subject to financial penalties. In addition, we could be forced to terminate
employees who do not meet these requirements. These consequences could adversely
affect our business. The development and construction of additional units will
also be subject to compliance with applicable zoning, land use and environmental
regulations. There can be no assurance that we will be able to obtain necessary
variances or other approvals on a cost-effective and timely basis in order to
construct and develop units in the future. Changes in any or all of these laws
or regulations, such as government-imposed paid leaves of absence or mandated
health benefits, could have a material adverse effect on our business and
results of operations. For a more complete description of the governmental
regulations to which our business is subject, please see "Business--Government
Regulation."
11
<PAGE>
OUR CURRENT INSURANCE MAY NOT PROVIDE ADEQUATE LEVELS OF COVERAGE AGAINST
CLAIMS.
There are types of losses we may incur that may be uninsurable or that we
believe are not economically insurable, such as losses due to earthquakes and
other natural disasters. In view of the location of many of our existing and
planned units, our operations are particularly susceptible to damage and
disruption caused by earthquakes. In the event of an earthquake or other natural
disaster affecting the geographic area of our operations, we could suffer a loss
of the capital invested in, as well as anticipated earnings from, the damaged or
destroyed properties. Further, we do not currently maintain any insurance
coverage for employee-related litigation or the effects of adverse publicity. In
addition, punitive damage awards are generally not covered by insurance. We may
also be subject to litigation which, regardless of the outcome, could result in
adverse publicity and damages. Such litigation, adverse publicity or damages
could have a material adverse effect on our business and results of operations.
WE MAY FAIL TO BE YEAR 2000 COMPLIANT.
We have not fully completed tests to assure that our systems will function
properly in the year 2000. Our restaurant information systems may need to be
upgraded in order to prevent system failure or miscalculation resulting from the
year 2000 that could disrupt our normal business activities.
We estimate that we have incurred costs of less than $25,000 to date in
connection with our year 2000 plan. We currently estimate the total costs of
completing our year 2000 plan, including costs incurred to date, to be less than
$50,000. Until our testing is complete and our vendors and providers are
contacted, we will not be able to completely evaluate whether our information
technology systems or non-information technology systems will need to be revised
or replaced. If our efforts to address year 2000 risks are not successful, or if
suppliers or other third parties with whom we conduct business do not
successfully address such risks, it could have a material adverse effect on our
business and results of operations. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Readiness
Disclosure" for detailed information on our state of readiness, potential risks
and contingency plans regarding the year 2000 issue.
IF WE ADOPT A FRANCHISING STRATEGY, WE MAY BE UNSUCCESSFUL IN EXECUTING A
FRANCHISING PROGRAM.
We may use a franchise strategy in selected markets. If we adopt a
franchising strategy, our failure to successfully execute a franchising program
could adversely affect our business and results of operations. We have not used
franchising to date and may not be successful in implementing a franchise
program in the future. We have not yet established any criteria to evaluate
prospective franchisees. We may be unable to identify and attract franchisees
that have the business abilities or access to financial resources necessary to
open our restaurants, or to successfully develop or operate our restaurants in
their franchise areas in a manner consistent with our standards.
RISKS RELATED TO THIS OFFERING
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING
COULD CAUSE OUR STOCK PRICE TO DECLINE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
market after this offering or the perception that such sales could occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. Please see "Shares
Eligible for Future Sale" for a description of sales that may occur in the
future.
12
<PAGE>
OUR COMMON STOCK MAY NOT DEVELOP AN ACTIVE, LIQUID TRADING MARKET.
We cannot predict the extent to which investor interest in us will lead to
the development of an active trading market or the level of trading volume that
will exist for our common stock after the offering. Low trading volumes may
adversely affect your ability to sell your shares quickly at the current market
price. The initial public offering price for the shares will be determined by
negotiations among us, the selling stockholders and the representatives of the
underwriters. This initial price may not be indicative of prices that will
prevail in the trading market. Please see "Underwriting" for more information
regarding our arrangement with the underwriters and the factors considered in
setting the initial public offering price.
THE MARKET PRICE OF OUR STOCK MAY BE ADVERSELY AFFECTED BY MARKET
VOLATILITY.
The stock market has experienced extreme price and volume fluctuations. The
trading price of our common stock could be subject to wide fluctuations in
response to a number of factors, including:
- fluctuations in our quarterly or annual results of operations;
- changes in published earnings estimates by analysts and whether our
earnings meet or exceed such estimates;
- additions or departures of key personnel; and
- changes in overall stock market conditions, including the stock prices of
other restaurant companies.
In the past, companies that have experienced volatility in the market price
of their stock have been the object of securities class action litigation. If we
were subject to securities class action litigation, it could result in
substantial costs and a diversion of our management's attention and resources.
THE INTERESTS OF OUR CONTROLLING STOCKHOLDERS MAY CONFLICT WITH YOUR
INTERESTS.
We anticipate that the executive officers, directors and entities affiliated
with them will, in the aggregate, beneficially own approximately 55.0% of our
outstanding common stock following the completion of this offering. These
stockholders will be able to exercise control over all matters requiring
approval by our stockholders, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of our company.
Please see "Management" and "Principal Stockholders" for detailed information on
the beneficial ownership of our executive officers, directors and their
affiliates.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD
MAKE A THIRD-PARTY ACQUISITION OF US DIFFICULT.
The anti-takeover provisions in our certificate of incorporation, our bylaws
and Delaware law could make it more difficult for a third party to acquire us.
As a result of these provisions, we could delay, deter or prevent a takeover
attempt or third party acquisition that our stockholders consider to be in their
best interest, including a takeover attempt that results in a premium over the
market price for the shares held by our stockholders. Please see "Description of
Securities" for more information on these anti-takeover provisions.
FORWARD-LOOKING STATEMENTS
This prospectus may contain forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of factors more fully described in the "Risk Factors"
section and elsewhere in this prospectus. We are not obligated to update or
revise these forward-looking statements to reflect new events or circumstances.
13
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 2,250,000 shares
offered by us will be approximately $20.2 million, assuming an initial public
offering price of $10.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. If our portion of the underwriters' over-allotment option is exercised in
full, we estimate that such net proceeds will be approximately $22.0 million.
We intend to use approximately $18.0 million of the net proceeds of this
offering for development of new restaurants, approximately $1.7 million for
repayment of term loan debt and the remainder for working capital and other
general corporate purposes. Our term loan agreement with BankBoston, N.A. was
amended on April 1, 1999, and now bears interest at the lesser of (1) the London
InterBank Offered Rate, also known as LIBOR, adjusted by the statutory reserve
rate plus 3.0%, or (2) the greater of the bank's base rate plus 0.75% or the
Federal Funds Effective Rate plus 1.5%. Pending any such use, as described
above, we intend to invest the net proceeds in interest-bearing instruments. We
will not receive any proceeds from the sale of shares by the selling
stockholders. Please see "Selling Stockholders" for a description of the number
of shares which may be sold by selling stockholders in this offering.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. Our
term loan agreement with BankBoston requires us to obtain the bank's consent
prior to making any distribution or declaring any dividends. We do not expect to
pay any cash dividends for the foreseeable future. We currently intend to retain
future earnings, if any, to finance the expansion of our business. Any future
determination to pay cash dividends will be at the discretion of our board of
directors and will be dependent on financial condition, operating results,
capital requirements and other factors that our board deems relevant.
14
<PAGE>
DILUTION
Our net tangible book value as of March 28, 1999, after giving effect to the
automatic conversion of all outstanding shares of preferred stock into common
stock, was $17,922,782, or $2.82 per share of common stock. Net tangible book
value per share is equal to the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding as of
March 28, 1999. Assuming the sale by us of the 2,250,000 shares offered at an
assumed initial public offering price of $10.00 per share and after deducting
underwriting discounts and estimated offering expenses, and the application of
the estimated net proceeds therefrom, our pro forma net tangible book value as
of March 28, 1999 would have been $38,147,782, or $4.43 per share of common
stock. This represents an immediate increase in net tangible book value of $1.61
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $5.57 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 10.00
---------
Net tangible book value per share before this offering............ $ 2.82
---------
Increase attributable to new investors............................ 1.61
---------
Pro forma net tangible book value per share after this offering..... 4.43
---------
Pro forma dilution per share to new investors....................... $ 5.57
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 28, 1999,
the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................... 6,351,624 73.8% $ 18,304,015 44.9% $ 2.88
New investors................................... 2,250,000 26.2 22,500,000 55.1 10.00
---------- ----- ------------- -----
Total......................................... 8,601,624 100.0% $ 40,804,015 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The tables and calculations above assume no exercise of outstanding options
or warrants unless otherwise set forth in this prospectus. On March 28, 1999,
there were:
- 379,376 shares issuable upon the exercise of options outstanding at a
weighted average exercise price of $3.89 per share;
- 45,000 shares issuable upon the exercise of an outstanding warrant at an
exercise price of $7.20 per share; and
- 244,562 shares available for issuance under our stock option plans. Since
March 28, 1999, we have granted options exercisable into 192,000 shares at
a weighted average exercise price of $10.00 per share.
To the extent that these options or warrants are exercised, there will be
further dilution to new investors. Please see "Management--Benefit Plans" for a
discussion of our stock option plans.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 28, 1999 on an
actual basis and as adjusted to give effect to the receipt by us of the
estimated net proceeds from the sale of 2,250,000 shares offered at an assumed
initial public offering price of $10.00 per share. This information should be
read in conjunction with our consolidated financial statements and the notes
relating to such statements appearing elsewhere in this prospectus. This
information is based on the number of shares of common stock outstanding on
March 28, 1999. It excludes:
- 379,376 shares of common stock issuable upon the exercise of options
outstanding at a weighted average exercise price of $3.89 per share;
- 45,000 shares of common stock issuable upon the exercise of an outstanding
warrant at an exercise price of $7.20 per share; and
- 244,562 shares available for issuance under our stock option plans.
<TABLE>
<CAPTION>
MARCH 28, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current portion.................................... $ 928 $ --
--------- -----------
Redeemable convertible preferred stock:
$0.001 par value, 3,410,242 shares authorized on an actual basis;
3,338,138 shares issued and outstanding on an actual basis; and no
shares authorized, issued and outstanding on an as adjusted basis... 17,782 --
Stockholders' equity:
Convertible preferred stock, $0.001 par value, 1,973,395 shares
authorized on an actual basis; 1,924,747 shares issued and
outstanding on an actual basis; no shares authorized, issued and
outstanding on an as adjusted basis................................. 2 --
Preferred stock, $0.001 par value, no shares authorized, issued and
outstanding on an actual basis; 5,000,000 shares authorized on an as
adjusted basis; no shares issued and outstanding on an as adjusted
basis............................................................... -- --
Common stock, $0.001 par value, 7,298,725 shares authorized on an
actual basis; 1,051,062 shares issued and outstanding on an actual
basis; 75,000,000 shares authorized on as adjusted basis; 8,601,624
shares issued and outstanding on an as adjusted basis............... 1 9
Additional paid-in capital............................................ 3 38,004
Deferred compensation................................................. 39 39
Accumulated other comprehensive income................................ 11 11
Retained earnings..................................................... 85 85
--------- -----------
Total stockholders' equity.......................................... 141 38,148
--------- -----------
--------- -----------
Total capitalization................................................ $ 18,851 $ 38,148
--------- -----------
--------- -----------
</TABLE>
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to such
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus. The statement of
operations data for the years ended December 29, 1996, December 28, 1997 and
December 27, 1998, and the consolidated balance sheet data at December 28, 1997
and December 27, 1998 are derived from our consolidated financial statements
which have been audited by Deloitte & Touche LLP, independent auditors, and are
included elsewhere in this prospectus. The statement of operations data for the
two years ended December 31, 1994 and 1995, and the consolidated balance sheet
data at December 31, 1994 and 1995 and December 29, 1996 are derived from
audited consolidated financial statements not included in this prospectus. The
consolidated statement of operations data for the three months ended March 29,
1998 and March 28, 1999 and the consolidated balance sheet data at March 28,
1999 have been derived from the unaudited financial statements included
elsewhere in this prospectus that have been prepared on the same basis as the
audited consolidated financial statements and, in our opinion, contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for such
periods. Historical results are not necessarily indicative of the results to be
expected in the future and results for interim periods are not necessarily
indicative of results for the entire year.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
FISCAL -----------
-------------------------------------------------------- MARCH 29,
1994 1995 1996 1997 1998 1998
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales........................................... $ 11,837 $ 14,811 $ 19,523 $ 29,704 $ 44,699 $ 9,217
Costs and expenses:
Cost of sales................................. 2,988 3,587 5,068 8,659 13,074 2,671
Restaurant labor, occupancy and other......... 6,535 8,141 10,441 15,639 22,616 4,895
General and administrative expenses........... 2,073 2,596 3,176 4,253 6,148 1,428
Depreciation and amortization................. 349 478 735 1,259 1,946 426
Pre-opening expenses.......................... -- -- 18 271 319 51
Loss on asset impairment...................... -- -- -- 387 -- --
--------- --------- --------- --------- --------- -----------
Operating income (loss)......................... (108) 9 85 (764) 596 (254)
Other income (expense):
Interest income (expense), net................ (109) (58) 17 (75) 268 79
Miscellaneous income (expense)................ 63 111 1 (6) (10) 2
Gain (loss) on disposal/sale of property...... (100) 2 (2) (56) (5) 6
--------- --------- --------- --------- --------- -----------
Total other income (expense)................ (146) 55 16 (137) 253 87
--------- --------- --------- --------- --------- -----------
Income (loss) before income taxes............... (254) 64 101 (901) 849 (167)
Income tax benefit (expense).................... 99 (48) (29) (99) 66 (13)
--------- --------- --------- --------- --------- -----------
Net income (loss)............................... $ (155) $ 16 $ 72 $ (1,000) $ 915 $ (180)
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Net income (loss) attributable to common
stockholders.................................. $ (155) $ (39) $ 3 $ (1,095) $ 568 $ (267)
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Net income (loss) per share
Basic......................................... $ (0.15) $ (0.04) $ -- $ (1.08) $ 0.55 $ (0.26)
Diluted....................................... (0.15) (0.04) -- (1.08) 0.14 (0.26)
Shares used in computing net income (loss) per
share
Basic......................................... 1,000 1,000 1,008 1,010 1,033 1,013
Diluted....................................... 1,000 1,000 1,026 1,010 6,418 1,013
Pro forma net income per share, basic and
diluted....................................... $ 0.14
Shares used in computing pro forma net income
per share
Basic......................................... 6,334
Diluted....................................... 6,455
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 53 $ 1,004 $ 633 $ 866 $ 786
Total assets...................................... 3,799 7,813 13,375 23,054 25,752
Long-term debt, including current portion......... 1,285 1,923 2,483 2,562 1,856
Redeemable convertible preferred stock............ -- 3,171 7,550 17,003 17,695
Total stockholders' equity (deficit).............. 1,130 4,317 8,474 (141) 196
<CAPTION>
MARCH 28,
1999
-----------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales........................................... $ 14,383
Costs and expenses:
Cost of sales................................. 4,247
Restaurant labor, occupancy and other......... 7,254
General and administrative expenses........... 2,075
Depreciation and amortization................. 641
Pre-opening expenses.......................... 94
Loss on asset impairment...................... --
-----------
Operating income (loss)......................... 72
Other income (expense):
Interest income (expense), net................ 7
Miscellaneous income (expense)................ --
Gain (loss) on disposal/sale of property...... (4)
-----------
Total other income (expense)................ 3
-----------
Income (loss) before income taxes............... 75
Income tax benefit (expense).................... (30)
-----------
Net income (loss)............................... $ 45
-----------
-----------
Net income (loss) attributable to common
stockholders.................................. $ (41)
-----------
-----------
Net income (loss) per share
Basic......................................... $ (0.04)
Diluted....................................... (0.04)
Shares used in computing net income (loss) per
share
Basic......................................... 1,050
Diluted....................................... 1,050
Pro forma net income per share, basic and
diluted....................................... $ 0.01
Shares used in computing pro forma net income
per share
Basic......................................... 6,350
Diluted....................................... 6,616
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 1,124
Total assets...................................... 25,435
Long-term debt, including current portion......... 1,671
Redeemable convertible preferred stock............ 17,782
Total stockholders' equity (deficit).............. 141
</TABLE>
- ------------------------------
Please see the consolidated financial statements and related notes appearing
elsewhere in this prospectus for the determination of number of shares used in
computing basic and diluted net income (loss) per share.
Net income (loss) attributable to common stockholders includes the effect of
the accretion on the redeemable convertible preferred stock which reduces net
income (loss) attributable to common stockholders for the related periods. Net
income attributable to common stockholders for the fiscal 1998 diluted earnings
per share calculation is $915,000. The difference from the basic calculation is
due to the reversal of the accretion on the redeemable convertible preferred
stock as such stock is assumed to be converted to common stock for purposes of
the diluted calculation.
Net income for fiscal year 1998 was favorably impacted by the reversal of a
$452,000 deferred tax asset allowance that was previously provided for in fiscal
year 1997. We eliminated the valuation allowance in 1998 due to our belief that
current year activity made realization of such benefit more likely than not.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We own and operate 67 high-quality, quick-service Mexican restaurants under
the name "Rubio's Baja Grill." In addition, we license our concept to other
restaurant operators in three non-traditional locations at Qualcomm Stadium, the
San Diego International Airport food court and the Del Mar Thoroughbred Club. We
opened our first restaurant in 1983, and grew steadily through 1994, at which
time we operated 17 units. We increased the number of restaurant openings in
recent years, opening six in 1995, eight in 1996, 12 in 1997 and 16 in 1998. We
intend to open 28 units in 1999, of which eight have been opened to date, and 36
units in 2000.
As a result of our rapid expansion, period to period comparisons of our
financial results may not be meaningful. When a new unit opens, it will
typically incur higher than normal levels of food and labor costs until new
personnel gain experience. Hourly labor schedules are gradually adjusted
downward during the first three months of a restaurant opening, in order to
reach operating efficiencies similar to those at established units. In
calculating comparable restaurant sales, we introduce a restaurant into our
comparable restaurant base once it has been in operation for 15 calendar months.
Throughout our history, we have sought to evolve our concept and menu in
order to meet the changing needs and taste preferences of our guests. From
January through April 1997, we modified our restaurant concept to include a
broader menu selection and updated our restaurant decor. To reflect these
additions and improvements in our concept, we changed our name to "Rubio's Baja
Grill, Home of the Fish Taco" from "Rubio's, Home of the Fish Taco." During this
time we added and deleted various menu items, upgraded other menu items and
increased prices on selected items. We believe that this concept modification
was a critical factor influencing the comparable restaurant sales increases of
18.0% reported in 1997 and 10.4% reported in 1998. Since the spring of 1997, our
sales and costs reflect these higher quality, higher cost and higher priced menu
items and may not be comparable to historical comparable period results.
In conjunction with the modification of our restaurant concept, we increased
our marketing expenditures from $515,000 in 1996 to $1.1 million in 1997 and
$1.4 million in 1998. In particular, we increased media spending and, we
believe, used this medium more efficiently to augment growth in our sales base.
We believe our restaurant sales are favorably impacted by radio and television
advertising and that this advertising helped to contribute to the comparable
restaurant sales increases in both 1997 and 1998.
Sales represents gross sales less sales taxes, coupons and other discounts.
Cost of sales is composed of food, beverage and paper supply expenses.
Components of restaurant labor, occupancy and other expenses include direct
hourly and management wages, bonuses, fringe benefit costs, rent and other
occupancy costs, advertising and promotion, operating supplies, utilities,
maintenance and repairs and other operating expenses.
General and administrative expenses include all corporate and administrative
functions that support existing operations and provide infrastructure to
facilitate our future growth. Components of this category include management,
supervisory and staff salaries and employee benefits, travel, information
systems, training, corporate rent and professional and consulting fees.
18
<PAGE>
Pre-opening costs, which are expensed as incurred, consist of the costs of
hiring and training the initial workforce, travel, the cost of food used in
training, the cost of the initial stocking of operating supplies and other
direct costs related to the opening.
We have leased all of our facilities, except for one building, in order to
minimize the cash investment associated with each unit. The majority of our
leases are for 10-year terms and include options to extend the terms. The
majority of our leases also include both fixed rate and percentage-of-sales rent
provisions.
We use a 52- or 53-week fiscal year ending on the Sunday nearest December
31. Fiscal years 1996, 1997 and 1998 each consisted of 52 weeks. The three-month
periods ended March 29, 1998 and March 28, 1999 each consisted of 13 weeks.
RESULTS OF OPERATIONS
Our operating results, expressed as a percentage of sales, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL ------------------------
------------------------------- MARCH 29, MARCH 28,
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales...................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales............................................ 26.0 29.2 29.2 29.0 29.5
Restaurant labor, occupancy and other.................... 53.5 52.6 50.6 53.1 50.4
General and administrative expenses...................... 16.3 14.3 13.8 15.5 14.4
Depreciation and amortization............................ 3.8 4.2 4.4 4.6 4.5
Pre-opening expenses..................................... 0.1 0.9 0.7 0.6 0.7
Loss on asset impairment................................. -- 1.3 -- -- --
--------- --------- --------- ----- -----
Operating income (loss).................................... 0.3 (2.5) 1.3 (2.8) 0.5
Other income (expense):
Interest income (expense), net........................... 0.1 (0.3) 0.6 0.9 --
Miscellaneous income (expense)........................... -- -- -- -- --
Gain (loss) on disposal/sale of property................. -- (0.2) -- 0.1 --
--------- --------- --------- ----- -----
Total other income (expense)........................... 0.1 (0.5) 0.6 1.0 --
--------- --------- --------- ----- -----
Income (loss) before income taxes.......................... 0.4 (3.0) 1.9 (1.8) 0.5
Income tax (expense) benefit............................... -- (0.3) 0.1 (0.1) (0.2)
--------- --------- --------- ----- -----
Net income (loss).......................................... 0.4% (3.3)% 2.0% (1.9 )% 0.3%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
QUARTER ENDED MARCH 28, 1999 COMPARED TO THE QUARTER ENDED MARCH 29, 1998
Results of operations reflect a full quarter of operations for 59
restaurants and 43 restaurants for the quarters ended March 28, 1999 and March
29, 1998, respectively. Results of operations also reflect a partial quarter of
operations for five and three restaurants for the quarters ended March 28, 1999
and March 29, 1998, respectively.
SALES. Sales increased $5.2 million, or 56.5%, to $14.4 million in the
first quarter of 1999 from $9.2 million in the first quarter of 1998. This
increase was principally due to the realization of a full quarter of operations
from the 16 units opened in 1998 resulting in sales of $3.5 million in the first
quarter of 1999 and $608,000 in sales derived from the five units opened in
1999, along with a comparable unit sales increase of $1.1 million, or 13.7%. The
comparable unit sales increase was driven by the success of a 99-cent fish taco
radio promotion in the first quarter of 1999, combined with slightly
19
<PAGE>
weaker sales in 1998 as a result of poor weather related to El Nino. We also
introduced a price increase of approximately 1.5% at the beginning of 1999.
COST OF SALES. Cost of sales as a percentage of sales increased to 29.5% in
1999 from 29.0% in 1998 primarily due to increases in the cost of food items.
RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy and
other decreased as a percentage of sales to 50.4% in 1999 from 53.1% in 1998.
This reduction was due primarily to lower labor, minimum rent and other fixed
unit operating expenses as a result of the efficiencies associated with
increased unit sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $2.1 million in the first quarter of 1999 from $1.4 million in the
first quarter of 1998. The increase is principally due to $182,000 in accrued
executive bonus expense resulting from our strong first quarter performance,
$131,000 in salaries and benefits related to the hiring of additional corporate
employees and field management personnel required to support and manage unit
expansion, $93,000 in management recruiting costs, and $242,000 in other
corporate level expenses related to our business growth. General and
administrative expenses decreased as a percentage of sales to 14.4% in the first
quarter of 1999 from 15.5% in the first quarter of 1998 primarily due to our
expanding revenue base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$641,000 in the first quarter of 1999 from $426,000 in 1998. The increase was
primarily due to the additional depreciation on the new units opened during 1998
and during the first quarter of 1999.
PRE-OPENING EXPENSES. Pre-opening expenses increased to $94,000 in the
first quarter of 1999 from $51,000 in the first quarter of 1998 primarily due to
the increase in unit openings to five in the first quarter of 1999 compared to
three in the first quarter of 1998.
INTEREST INCOME (EXPENSE), NET. Net interest income decreased to $7,000 in
the first quarter of 1999 from $79,000 in net interest income in the first
quarter of 1998. This decrease is primarily due to a decrease in cash available
for investing, which resulted in a decline of interest income to $63,000 in the
first quarter of 1999 from $137,000 in the first quarter of 1998. The decrease
in cash available to generate interest income resulted from the use of these
funds for the development of new restaurants.
INCOME TAXES. The provision for income taxes in the first quarter of 1999
and 1998 is based on the annual effective tax rate applied to the respective
quarter's pretax book income (loss). The 40% tax rate applied in the first
quarter of 1999 comprises the federal and state statutory rates based on the
estimated annual effective rate for 1999. The 7.8% tax rate applied in the first
quarter of 1998 is primarily a result of the recognition of 1997 net deferred
tax assets previously valued, due to fiscal 1998 net income and the future
realizability of such net deferred tax assets.
YEAR ENDED DECEMBER 27, 1998 COMPARED TO YEAR ENDED DECEMBER 28, 1997
Results of operations reflect a full year of operations of 43 restaurants
and 31 restaurants for the years ended December 27, 1998 and December 28, 1997,
respectively. Results of operations also reflect partial year of operations of
16 restaurants and 12 restaurants for the years ended December 27, 1998 and
December 28, 1997, respectively.
SALES. Sales increased $15.0 million, or 50.5%, to $44.7 million in 1998
from $29.7 million in 1997. This increase was principally due to $6.4 million in
sales generated by a full year of operations from 12 units opened in 1997 and
$5.7 million in sales derived from the 16 units opened in 1998, along with a
comparable unit sales increase of $2.8 million, or 10.4%. The comparable unit
sales increase was driven both by the momentum generated by the Baja Grill
concept, as well as the success of the lobster
20
<PAGE>
burrito promotion, which took place from June through September 1998. We also
introduced a price increase of approximately 1.5% at the beginning of 1998.
COST OF SALES. Cost of sales as a percentage of sales remained constant at
29.2% in 1998 and 1997.
RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy and
other decreased as a percentage of sales to 50.6% in 1998 from 52.6% in 1997.
This reduction was due primarily to lower labor, minimum rent and other fixed
unit operating expenses as a percentage of sales as a result of the efficiencies
associated with increased unit sales. In addition, there were non-recurring
expenses incurred in 1997, related to the modification of our restaurant
concept. These one-time expenses included higher levels of hourly employee
training and operating supplies, resulting in higher 1997 total expenses in this
category.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $6.1 million in 1998 from $4.3 million in 1997, primarily due to
$1.0 million in salary and benefits related to the hiring of additional
corporate employees and field management required to support and manage unit
expansion, $296,000 related to a senior management bonus expense incurred in
1998 which was not incurred in 1997, and $586,000 in other corporate level
expenses related to our business growth. General and administrative expenses
decreased as a percentage of sales to 13.8% in 1998 from 14.3% in 1997 primarily
due to our expanding revenue base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$1.9 million in 1998 from $1.3 million in 1997. The increase was primarily due
to the additional depreciation on the 16 new units opened during 1998.
PRE-OPENING EXPENSES. Pre-opening expenses increased to $319,000 in 1998
from $271,000 in 1997 primarily due to the increase in unit openings in 1998 to
16 from 12 in the prior period.
LOSS ON ASSET IMPAIRMENT. There was no loss on asset impairment in 1998.
Loss on asset impairment of $387,000 in 1997 reflects the difference between the
carrying value and the estimated fair value of the assets of one restaurant
location.
INTEREST INCOME (EXPENSE), NET. Net interest income increased to $268,000
in 1998 from $75,000 in net interest expense in 1997. This increase was
primarily due to an increase in interest income from $188,000 in 1997 to
$521,000 in 1998 resulting from interest and other investment income associated
with the investment of the net proceeds from our $10.1 million preferred stock
private placement in November 1997.
INCOME TAXES. The provision (benefit) for income taxes in 1998 and 1997 is
based on the approximate tax rate applied to the respective year's pre-tax book
income (loss). The 7.8% tax benefit applied in 1998 is primarily a result of the
recognition of prior year net deferred tax assets previously valued, due to the
current year net income and the future realizability of such net deferred tax
assets.
YEAR ENDED DECEMBER 28, 1997 COMPARED TO YEAR ENDED DECEMBER 29, 1996
Results of operations reflect a full year of operations of 31 restaurants
and 23 restaurants for the years ended December 28, 1997 and December 29, 1996,
respectively. Results of operations also reflect a partial year of operations of
12 restaurants and eight restaurants for the years ended December 28, 1997 and
December 29, 1996, respectively.
SALES. Sales increased $10.2 million, or 52.1%, to $29.7 million in 1997
from $19.5 million in 1996. This increase was principally due to $3.1 million in
sales generated by a full year of operations from eight units opened in 1996 and
$3.9 million in sales derived from the 12 units opened in 1997, along
21
<PAGE>
with a comparable unit sales increase of $3.2 million or 18.0% driven primarily
by the modification to the Baja Grill concept and related promotional campaigns.
COST OF SALES. Cost of sales as a percentage of sales increased to 29.2% in
1997 from 26.0% in 1996, primarily due to the modification to the Baja Grill
concept. The new menu items offered with the Baja Grill menu, particularly those
containing chargrilled chicken and steak, reflect higher food cost percentages
than items replaced or retained from the previous menu.
RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy and
other decreased as a percentage of sales to 52.6% in 1997 from 53.5% in 1996.
This reduction was due primarily to a decrease in unit minimum rent as a
percentage of sales resulting from our expanding revenue base.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $4.3 million in 1997 from $3.2 million in 1996, primarily due to
$697,000 in salaries and benefits related to the hiring of additional corporate
employees and field management personnel required to support and manage unit
expansion and $384,000 in other corporate level expenses related to our business
growth. General and administrative expenses decreased as a percentage of sales
to 14.3% in 1997 from 16.3% in 1996 due primarily to our expanding revenue base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$1.3 million in 1997 from $735,000 in 1996. This $524,000 increase was primarily
due to the additional depreciation on the 12 new units opened during 1997 as
well as the depreciation of the fixed assets purchased in conjunction with the
modification to the Baja Grill concept.
PRE-OPENING EXPENSES. Pre-opening expenses increased to $271,000 in 1997
from $18,000 in 1996 primarily due to the increase in unit openings in 1997 to
12 from eight in the prior period. Prior to the third quarter of 1996, we did
not report pre-opening expenses separately from recurring restaurant expense
categories on our income statement.
LOSS ON ASSET IMPAIRMENT. Loss on asset impairment of $387,000 in 1997
reflects the difference between the carrying value and the estimated fair value
of the assets of one restaurant location.
GAIN (LOSS) ON DISPOSAL/SALE OF PROPERTY. The $56,000 loss on the sale of
property in 1997 resulted primarily from the disposal of assets in conjunction
with the modification of units to the Baja Grill concept.
INTEREST INCOME (EXPENSE), NET. Net interest expense increased to $75,000
in 1997 from $17,000 in net interest income in 1996. This decrease was primarily
due to less cash invested in short-term instruments. This net reduction in
interest was offset by an increase in borrowing related to the new restaurant
financings.
INCOME TAXES. The provision for income taxes in 1997 and 1996 is based on
the approximate tax rate applied to each year's pretax book income. The 1997
provision for income tax was adjusted by a valuation allowance equal to the net
deferred tax asset due to uncertainty as to its realization.
22
<PAGE>
QUARTERLY RESULTS
The following tables set forth unaudited quarterly information for the last
nine quarters. This quarterly information has been prepared on a basis
consistent with the audited consolidated financial statements and, we believe,
includes all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the information shown. Our 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.
<TABLE>
<CAPTION>
FISCAL 1997
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT NUMBER OF RESTAURANTS)
<S> <C> <C> <C> <C>
Sales................................. $ 6,143 $ 7,449 $ 8,162 $ 7,950
Costs and expenses:
Cost of sales....................... 1,761 2,208 2,341 2,349
Restaurant labor, occupancy and
other............................. 3,361 3,906 4,032 4,340
General and administrative
expenses.......................... 1,003 1,149 1,036 1,065
Depreciation and amortization....... 235 312 332 380
Pre-opening expenses................ 26 40 47 158
Loss on asset impairment............ -- -- -- 387
----------- ----------- ----------- -----------
Operating income (loss)........... (243) (166) 374 (729)
Other income (expense):
Interest income (expense), net...... (1) (31) (42) (1)
Miscellaneous income (expense)...... -- -- (3) (3)
Gain (loss) on disposal/sale of
property.......................... (45) (11) 1 (1)
----------- ----------- ----------- -----------
Total other income (expense)........ (46) (42) (44) (5)
----------- ----------- ----------- -----------
Income (loss) before income taxes..... (289) (208) 330 (734)
Income tax benefit (expense).......... (31) (23) 36 (81)
----------- ----------- ----------- -----------
Net income (loss)................... $ (320) $ (231) $ 366 $ (815)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Number of restaurants at end of
period.............................. 33 35 38 43
<CAPTION>
FISCAL 1998 FISCAL 1999
----------------------------------------------------- -----------
FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales................................. $ 9,217 $ 10,907 $ 12,935 $ 11,640 $ 14,383
Costs and expenses:
Cost of sales....................... 2,671 3,180 3,832 3,390 4,247
Restaurant labor, occupancy and
other............................. 4,895 5,433 6,217 6,071 7,254
General and administrative
expenses.......................... 1,428 1,488 1,674 1,558 2,075
Depreciation and amortization....... 426 482 495 543 641
Pre-opening expenses................ 51 42 80 146 94
Loss on asset impairment............ -- -- -- -- --
------ ----------- ----------- ----------- -----------
Operating income (loss)........... (254) 282 637 (68) 72
Other income (expense):
Interest income (expense), net...... 79 51 54 83 7
Miscellaneous income (expense)...... 2 (9) (1) (2) --
Gain (loss) on disposal/sale of
property.......................... 6 (2) (2) (7) (4)
------ ----------- ----------- ----------- -----------
Total other income (expense)........ 87 40 51 74 3
------ ----------- ----------- ----------- -----------
Income (loss) before income taxes..... (167) 322 688 6 75
Income tax benefit (expense).......... (13) 25 54 -- (30)
------ ----------- ----------- ----------- -----------
Net income (loss)................... $ (180) $ 347 $ 742 $ 6 $ 45
------ ----------- ----------- ----------- -----------
------ ----------- ----------- ----------- -----------
Number of restaurants at end of
period.............................. 46 49 52 59 64
</TABLE>
Our operating results for the nine fiscal quarters expressed as a percentage
of sales were as follows:
<TABLE>
<CAPTION>
FISCAL 1997
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales................................. 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales....................... 28.7 29.6 28.7 29.5
Restaurant labor, occupancy and
other............................. 54.7 52.4 49.4 54.6
General and administrative
expenses.......................... 16.3 15.4 12.7 13.4
Depreciation and amortization....... 3.8 4.2 4.1 4.8
Pre-opening expenses................ 0.4 0.5 0.6 2.0
Loss on asset impairment............ -- -- -- 4.9
----- ----- ----- -----
Operating income (loss)............. (3.9) (2.1) 4.5 (9.2)
Other income (expense):
Interest income (expense), net...... -- (0.4) (0.5) --
Miscellaneous income (expense)...... -- -- -- --
Gain (loss) on disposal/sale of
property.......................... (0.7) (0.1) -- --
----- ----- ----- -----
Total other income (expense)........ (0.7) (0.5) (0.5) --
----- ----- ----- -----
Income (loss) before income taxes..... (4.6) (2.6) 4.0 (9.2)
Income tax benefit (expense).......... (0.5) (0.3) 0.4 (1.0)
----- ----- ----- -----
Net income (loss)..................... (5.1)% (2.9 )% 4.4% (10.2)%
----- ----- ----- -----
----- ----- ----- -----
<CAPTION>
FISCAL 1998 FISCAL 1999
----------------------------------------------------- -----------
FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales....................... 29.0 29.2 29.6 29.1 29.5
Restaurant labor, occupancy and
other............................. 53.1 49.8 48.1 52.2 50.4
General and administrative
expenses.......................... 15.5 13.6 12.9 13.4 14.4
Depreciation and amortization....... 4.6 4.4 3.8 4.7 4.5
Pre-opening expenses................ 0.6 0.4 0.6 1.2 0.7
Loss on asset impairment............ -- -- -- -- --
----- ----- ----- ----- -----
Operating income (loss)............. (2.8) 2.6 5.0 (0.6) 0.5
Other income (expense):
Interest income (expense), net...... 0.9 0.5 0.4 0.7 --
Miscellaneous income (expense)...... -- (0.1) -- -- --
Gain (loss) on disposal/sale of
property.......................... 0.1 -- -- -- --
----- ----- ----- ----- -----
Total other income (expense)........ 1.0 0.4 0.4 0.7 --
----- ----- ----- ----- -----
Income (loss) before income taxes..... (1.8) 3.0 5.4 0.1 0.5
Income tax benefit (expense).......... (0.1) 0.2 0.4 -- (0.2)
----- ----- ----- ----- -----
Net income (loss)..................... (1.9 )% 3.2% 5.8% 0.1% 0.3%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
23
<PAGE>
Historically, we have experienced seasonal variability in our quarterly
operating results with higher sales per restaurant in the second and third
quarters than in the first and fourth quarters. The higher sales in the second
and third quarters affect profitability by reducing the impact of our
restaurants' fixed and semi-fixed costs, as well as through increased revenues.
This seasonal impact on our operating results is expected to continue.
INFLATION
Components of our operations subject to inflation include food, beverage,
lease and labor costs. Our leases require us to pay taxes, maintenance, repairs,
insurance and utilities, all of which are subject to inflationary increases. We
believe inflation has not had a material impact on our results of operations in
recent years.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our capital requirements in recent years through cash flow
from operations, private placements of preferred stock and bank debt. We
generated $4.2 million in cash flow from operating activities in 1998, $2.0
million in 1997 and $1.4 million in 1996. From 1995 through 1997, we raised
approximately $16.8 million, net of financing costs, from the sale of preferred
stock. We have also financed our capital requirements through bank borrowings.
As of March 28, 1999, the balance outstanding under our term loan agreement with
BankBoston, N.A. was approximately $1.7 million. On April 1, 1999 the loan
agreement was amended to provide for the outstanding balance to bear interest at
the lesser of (1) LIBOR adjusted by the statutory reserve rate plus 3.0%, or (2)
the greater of the bank's base rate plus 0.75% or the Federal Funds Effective
Rate plus 1.5%. In addition, we have a $7.5 million line of credit agreement
with BankBoston, which bears interest at the same rate as the term loan. As of
April 9, 1999, there was approximately $1.0 million outstanding under this
agreement.
Our principal financial needs arise from the development and opening of new
units. We incurred capital expenditures of approximately $6.9 million during
1998, of which $6.6 million was for new unit openings. In 1997 we incurred
approximately $6.4 million in capital expenditures, of which $5.0 million was
for new unit openings and $1.0 million for the modification to the Baja Grill
concept. In 1996, we incurred $3.0 million in capital expenditures, of which
$2.6 million was for new unit openings.
Total capital expenditures in 1999 are expected to be approximately $11.7
million, of which approximately $10.0 million is expected to be invested in the
opening of new restaurants. Approximately $2.6 million of this was incurred in
the first quarter. We plan to open 28 units in 1999, and 36 units in 2000. We
expect that future locations will generally cost approximately $360,000 per unit
net of landlord allowances and excluding pre-opening expenses. Pre-opening
expenses are expected to average approximately $20,000 per restaurant.
We lease restaurant and office facilities and real property under operating
leases expiring through 2013. As of the date of this prospectus, our future
minimum lease payments for our headquarters and restaurants are as follows: $4.4
million in 1999, $5.0 million in 2000, $5.0 million in 2001, $4.9 million in
2002, and $4.9 million in 2003 and $19.4 million thereafter.
We believe that the proceeds from this offering, together with anticipated
cash flow from operations and funds anticipated to be available from a credit
facility, will be sufficient to satisfy our working capital and capital
expenditure requirements for at least the next 12 months. We plan to incur
substantial costs over the near term in connection with our expansion program.
Changes in our operating plans, acceleration of our expansion plans, lower than
anticipated sales, increased expenses, potential acquisitions or other events
may cause us to seek additional financing sooner than anticipated. Additional
financing may not be available on acceptable terms, or at all. Failure to obtain
additional financing as needed could have a material adverse effect on our
business and results of operations.
24
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk exposures are related to our cash, cash equivalents and
investments. We invest our excess cash in highly liquid short-term investments
with maturities of less than one year and U.S. Treasury notes and
mortgage-backed securities with maturities in excess of one year. We do not feel
these are a significant market risk.
YEAR 2000 READINESS DISCLOSURE
Historically, most computer databases, as well as embedded microprocessors
in computer systems and industrial equipment, were designed with date data using
only two digits of the year. Most computer programs, computers and embedded
microprocessors controlling equipment were programmed to assume that all two
digit dates were preceded by "19," causing "00" to be interpreted as the year
1900. This formerly common practice now could result in a computer system or
embedded microprocessor which fails to recognize properly a year that begins
with "20," rather than "19." This in turn could result in computer system
miscalculations or failures, as well as failures of equipment controlled by date
sensitive microprocessors, and is generally referred to as the "year 2000"
issue.
OUR STATE OF YEAR 2000 READINESS
We have reviewed both our information technology and our non-information
technology systems to determine whether they are year 2000 compliant. We have
not identified any material systems which are not year 2000 compliant. We have
initiated formal communications with all significant supplier and service
providers to determine the extent to which we are vulnerable to those third
parties' failures to solve their year 2000 problem. We have received written
assurances of year 2000 compliance from a majority of the third parties with
whom we have relationships, including our point-of-sale, payroll, and credit
card service providers. Testing and replacement of all systems is scheduled to
be completed by July 1, 1999. We intend to continue to make efforts to ensure
that third parties with whom we have relationships are year 2000 compliant.
THE COSTS TO ADDRESS OUR YEAR 2000 ISSUES
We estimate that we have incurred costs of less than $25,000 to date in
connection with our year 2000 plan. We currently estimate the total costs of
completing our year 2000 plan, including costs incurred to date, to be less than
$50,000. This estimate is based on currently available information and will be
updated as we continue our assessment of third-party relationships, proceed with
our testing and implementation and design contingency plans.
THE RISKS OF OUR YEAR 2000 ISSUES
If any information technologies or embedded microprocessor technology
systems critical to our operations have been overlooked, there could be a
material adverse effect on our business or results of operations of a magnitude
which we have not yet fully analyzed. If the vendors of most important goods and
services or the suppliers of our necessary energy, telecommunications and
transportation needs, fail to provide us with:
- the materials and services which are necessary to produce, distribute and
sell our products;
- the electrical power and other utilities necessary to sustain our
operations; or
- reliable means of transporting supplies to our restaurants, such failure
could affect our ability to sell product which could have a material
adverse effect on our business or results of operations.
25
<PAGE>
OUR CONTINGENCY PLAN
We are in the initial stages of developing a business contingency plan to
address both unavoided and unavoidable year 2000 risks. This plan currently
includes developing and maintaining relationships with several suppliers of
services and products to mitigate a "worst case" scenario in which one or more
of our suppliers are not year 2000 compliant. Although we expect to have the
plan well-developed and costs of the plan estimated by July 31, 1999,
enhancements and revisions will be continuously considered and implemented as
appropriate.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. We have not
yet assessed the effect of this standard on our current reporting and
disclosures.
In April 1998, Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" was issued by the Accounting Standards Executive Committee.
SOP 98-5 provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred, and is effective for fiscal years beginning
after December 15, 1998. We chose to early adopt this SOP for the fiscal year
ended December 28, 1997. The adoption of this SOP did not have a material effect
on our operations.
26
<PAGE>
BUSINESS
THIS PROSPECTUS MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN ANY FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS."
OVERVIEW
We own and operate 67 high-quality, quick-service Mexican restaurants under
the name "Rubio's Baja Grill" located principally in the southwest region of the
United States. Our restaurants offer a distinctive blend of high-quality,
traditional Mexican cuisine combined with fresh seafood fare indicative of the
Baja region of Mexico.
RUBIO'S BAJA GRILL CONCEPT
The Rubio's Baja Grill concept successfully evolved from the original
"Rubio's, Home of the Fish Taco" concept, which our co-founder Ralph Rubio first
developed following his college spring break trips to the Baja peninsula of
Mexico in the mid-1970s. Ralph opened the first Rubio's restaurant with his
father, Rafael, over 16 years ago in the Mission Bay area of San Diego. Building
on the success of our original "fish taco" concept, we later expanded our menu
offerings and upgraded our store layout to appeal to a broader customer base. We
seek to differentiate our restaurants by providing high-quality Mexican food in
a quick-service environment. We believe the "Rubio's Baja Grill" concept is
uniquely positioned between the quick-service and casual dining segments of the
restaurant industry. The critical elements of our market positioning are as
follows:
- DISTINCTIVE, FRESH, HIGH-QUALITY FOOD. We seek to differentiate ourselves
from other quick-service and fast food Mexican restaurants by offering
high-quality products made-to-order using authentic regional Baja Mexican
recipes. We have experienced a high degree of success to date developing
distinctive and flavorful offerings that generate strong customer loyalty
and are often described as "craveable." Our signature items include our
Baja-style fish tacos as well as limited time promotions such as our
lobster burrito and tequila shrimp burrito. Our menu is served at both
lunch and dinner. It features a variety of other freshly prepared items,
including tacos and burritos made with chargrilled chicken, steak, mahi
mahi and shrimp, as well as grilled quesadillas. Freshly prepared salsas
are offered at our complimentary salsa bar. Our menu also includes reduced
fat "Healthmex" offerings and "Kid Pesky" meals designed for children.
- CASUAL, FUN DINING EXPERIENCE. We strive to promote an enjoyable overall
customer experience by creating a fun and relaxed setting in each of our
restaurants. Unlike the generic decor of a typical fast food restaurant,
our restaurants are designed to create an authentic personality capturing
the relaxed, beach-like atmosphere of the Baja region of Mexico. Our
design elements include colorful Mexican tiles, saltwater aquariums with
tropical fish, Baja beach photos and tropical prints, surfboards on the
walls and authentic palm-thatched patio umbrellas, or palapas, in most
existing locations.
- EXCELLENT DINING VALUE. Our restaurants offer guests high-quality food
typically associated with sit-down, casual dining restaurants at
quick-service prices. In addition to favorable prices, we offer the
convenience and rapid delivery of a traditional quick-service format. We
provide guests a clean and comfortable environment in which to enjoy their
meal on site. We also offer guests the convenience of take-out service. We
believe the strong value we deliver to our customers is critical to
building strong repeat business and customer loyalty.
27
<PAGE>
OUR BUSINESS STRATEGIES
Our business objective is to become the leading high-quality, quick-service
Mexican restaurant brand nationwide. In order to achieve our business objective,
we have developed the following strategies:
- CREATE A DISTINCTIVE CONCEPT AND BRAND. Our restaurants provide guests
with a distinctive dining experience which, we believe, helps promote
frequent visiting patterns and strong customer loyalty. We continue to
focus on several key initiatives designed to enhance the performance of
our existing restaurants and strengthen our brand identity. These
initiatives include developing and expanding proprietary menu offerings
such as the Baja-style fish taco, lobster burrito and "Baja Bowl," a
flavorful combination of chargrilled steak or chicken served over rice and
beans with fresh tomatoes, onions and cilantro. In addition, we focus on
securing high-visibility, high-traffic store locations and promoting the
awareness of our brand through comprehensive regional and local media
campaigns. As a result of these initiatives, we experienced comparable
store sales increases of 10.4% in 1998 and 18.0% in 1997.
- ACHIEVE ATTRACTIVE RESTAURANT-LEVEL ECONOMICS. We believe that we have
been able to achieve attractive operating results due to the broad appeal
of our concept, careful site selection and cost-effective development,
consistent application of our management and training programs and
favorable product costs. We utilize centralized information and accounting
systems which allow our management to monitor and control labor, food and
other direct operating expenses, and provide them with timely access to
financial and operating data. We believe we achieve a lower-than-average
product cost compared to our competitors, due to the popularity of our
fish items versus higher-cost items such as chicken and steak. We also
believe that our culture and emphasis on training leads to a lower
employee turnover ratio, and therefore higher productivity, compared to
many of our competitors.
- EXECUTE DISCIPLINED EXPANSION STRATEGY. We believe that our restaurant
concept has broad national appeal and that, as a result, we have
significant opportunities to expand our operations and generate attractive
unit level economics. With the addition of selected senior management in
operations, development, marketing and finance in 1996, we implemented an
accelerated expansion strategy. Our current expansion plan calls for us to
open 28 restaurants in 1999 and 36 restaurants in 2000. Through our
rigorous site selection process and criteria developed by our real estate
committee, we principally target high-traffic, high-visibility locations
in urban and suburban markets with medium to high family income levels.
- ENSURE HIGH-QUALITY GUEST EXPERIENCE. We strive to provide a consistent,
high-quality guest experience in order to generate frequent visiting
patterns and brand loyalty. To achieve this goal, we focus on creating a
fun, team-like culture for our restaurant employees, which we believe
fosters a friendly and inviting atmosphere for our guests. Through
extensive training, experienced restaurant-level management and rigorous
operational controls, we seek to ensure prompt, friendly and efficient
service to our guests. Our commitment to making each guest's experience a
consistently positive one is evidenced by Rubio's list of "House Rules",
which is prominently displayed in each restaurant and defines the high
level of quality and service our guests can expect from us. Overall, we
design our concept to appeal to a broad variety of guests, including
families, and believe the cleanliness of our facilities provides an
additional advantage over many of our competitors.
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<PAGE>
UNIT ECONOMICS
In 1998, the 43 units open the entire year generated on a per unit basis
average sales of $901,000, average operating income of $148,000, or 16.4% of
sales, and average cash flow of $183,000, or 20.3% of sales. Comparable
restaurant sales increased 10.4% in 1998, following an 18.0% increase in 1997.
In addition, comparable restaurant sales increased 13.7% in the first quarter of
1999, as compared to a 7.6% increase in the same period of 1998.
We currently have 12 units open outside California. Of these, three units
have over 12 months of operating results. These units generated average sales of
$972,000 for the most recent 12 months, average operating income of $149,000, or
15.0% of sales, and average cash flow of $200,000 or 20.5% of sales. These
results are not necessarily indicative of the results we will obtain in
connection with the other units currently open, or those we may open in the
future.
We currently lease all of our restaurant locations with the exception of one
owned building. We plan to continue to lease substantially all of our future
restaurant locations in order to minimize the cash investment associated with
each unit. Our site selection strategy is to locate our restaurants in
high-profile, high-traffic locations, preferably on an end-cap location in line
with other retail properties.
Historically, the size of our restaurants has generally ranged from 1,800 to
3,000 square feet, excluding our smaller, food court locations. We expect the
size of our future sites to range from 2,000 to 2,400 square feet. We intend to
continue to develop restaurants that will require, on average, a total cash
investment of approximately $380,000, including pre-opening expenses of $20,000.
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<PAGE>
EXISTING AND PROPOSED LOCATIONS
The following table sets forth information about our existing and proposed
units. We currently operate 67 restaurant facilities under the name "Rubio's
Baja Grill," with 27 restaurants in San Diego county, 28 restaurants in greater
Los Angeles, which includes Los Angeles, Orange, San Bernardino and Riverside
counties, six restaurants in Phoenix, Arizona, four restaurants in Las Vegas,
Nevada and two restaurants in Denver, Colorado. In addition, we license our
concept to other restaurant operators for three non-traditional locations at
Qualcomm Stadium, the San Diego International Airport food court and the Del Mar
Thoroughbred Club. Four of the 20 units we plan to open in the balance of 1999
are under construction. We have signed leases for an additional 19 units. The
majority of our units are in high-traffic retail centers, and are not
stand-alone units.
<TABLE>
<CAPTION>
SQUARE
LOCATIONS DATE OPENED FOOTAGE
- ------------------------- ----------------- -----------
<S> <C> <C>
SAN DIEGO AREA
Mission Bay............ January 1983 1,800
San Diego State
University........... March 1986 1,300
Pacific Beach.......... August 1987 1,800
Point Loma............. March 1988 2,995
San Marcos............. July 1988 1,900
Chula Vista............ October 1988 2,262
Encinitas.............. October 1989 3,250
El Cajon............... July 1990 3,000
Kearny Mesa............ October 1990 2,900
University Towne
Centre............... April 1991 1,992
Solana Beach........... May 1992 2,207
Downtown San Diego..... August 1992 2,100
Carmel Mountain Ranch.. December 1993 2,262
Mission Valley......... August 1995 2,658
Grossmont.............. December 1995 2,914
La Jolla............... February 1996 2,350
San Diego Hall of
Justice (Food
Court)............... June 1996 619
Carlsbad............... October 1996 2,450
Hillcrest.............. December 1996 2,650
Vista.................. October 1997 2,000
Mission Gorge.......... December 1997 2,352
Rancho Bernardo........ March 1998 2,270
Fashion Valley Food
Court................ April 1998 870
Rancho Del Rey......... October 1998 2,000
Rancho San Diego....... January 1999 2,038
Parkway Plaza.......... February 1999 2,685
Del Mar................ April 1999 2,000
Under
Oceanside.............. construction 2,480
Scripps Ranch.......... Lease signed 2,000
San Marcos (Restaurant
Row)................. Lease signed 1,700
Ramona................. Lease signed 2,000
LOS ANGELES AREA
Tustin................. June 1991 2,397
Irvine................. August 1991 2,448
Temecula............... November 1994 2,916
Costa Mesa............. December 1994 2,201
Laguna Niguel.......... May 1995 2,418
Anaheim................ July 1995 2,985
Encino................. September 1995 2,673
Irvine Spectrum (Food
Court)............... December 1995 1,350
Manhattan Beach........ January 1996 3,600
Santa Ana.............. February 1996 2,400
Marina del Rey......... October 1996 2,027
La Habra............... December 1996 2,000
Cypress................ March 1997 2,070
Belmont Shore.......... March 1997 2,114
Mission Viejo.......... April 1997 2,322
<CAPTION>
SQUARE
LOCATIONS DATE OPENED FOOTAGE
- ------------------------- ----------------- -----------
<S> <C> <C>
LOS ANGELES AREA
(CONTINUED)
Cerritos............... August 1997 1,752
Torrance............... September 1997 2,500
Ontario................ October 1997 2,160
Rancho Cucamonga....... November 1997 2,235
San Clemente........... February 1998 2,154
Northridge............. March 1998 2,180
Villa Park............. April 1998 2,120
University of
California Los
Angeles (Food
Court)............... September 1998 960
Yorba Linda............ November 1998 1,996
The Block, Orange...... November 1998 2,000
Riverside.............. December 1998 2,000
Chino Hills............ December 1998 2,045
Monrovia............... April 1999 2,500
Under
Long Beach............. construction 1,372
Upland................. Lease signed 1,879
Brentwood.............. Lease signed 2,000
Placentia.............. Lease signed 2,100
West Covina............ Lease signed 2,000
Fountain Valley........ Lease signed 2,272
Oxnard................. Lease signed 2,000
Foothill Ranch Lease signed 2,008
PHOENIX AREA
Ahwatukee.............. April 1997 2,000
North Scottsdale....... September 1997 2,400
Gilbert................ May 1998 2,400
North Phoenix.......... August 1998 2,435
Agua Fria.............. November 1998 2,150
Chandler............... March 1999 2,100
Under
Tucson (Ina)........... construction 2,400
Tempe.................. Lease signed 2,000
Peoria................. Lease signed 2,000
Mesa................... Lease signed 2,200
Tucson (Campbell and
Glen)................ Lease signed 2,000
LAS VEGAS AREA
Henderson.............. December 1997 2,400
Summerlin.............. August 1998 2,100
The Lakes.............. December 1998 2,100
Tenaya................. January 1999 2,278
DENVER AREA
Lone Tree.............. March 1999 2,200
Belcaro................ April 1999 2,223
Northglenn............. Lease signed 2,300
Highlands Ranch Lease signed 2,300
SACRAMENTO, CALIFORNIA
Sacramento (Natomas)... Lease signed 2,000
Rocklin Lease signed 2,100
SALT LAKE CITY, UTAH
Under
Sugarhouse............. construction 2,500
Provo.................. Lease signed 2,236
</TABLE>
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<PAGE>
EXPANSION AND SITE SELECTION
We plan to open 28 units during 1999, eight of which have opened to date,
and 36 units in 2000. Leases for 10 of the 36 units to be opened in 2000 have
been signed. We opened our first unit outside of California in Phoenix, Arizona
in April 1997. We currently operate a total of 12 units outside of California,
including six in Arizona, four in Las Vegas and two in Denver. We are
negotiating new leases in all of our current markets, in addition to Salt Lake
City, Sacramento and Minneapolis.
Our expansion strategy targets major metropolitan areas that have attractive
demographic characteristics. Once a metropolitan area is selected, we identify
viable trade areas that have high-traffic patterns, strong demographics, such as
high density of white collar families, medium to high family incomes, high
education levels, and density of both daytime employment and residential
developments, limited competition within the trade area and strong retail and
entertainment developments. Within a desirable trade area, we select sites that
provide specific levels of visibility, accessibility, parking, co-tenancy and
exposure to a large number of potential customers.
We believe that the quality of our site selection criteria is critical to
our continuing success. Therefore, our senior management team is actively
involved in the selection of each new market and specific site, personally
visiting all new markets and most sites or conducting a video site tour of all
sites prior to granting final approval. Each new market and site must be
approved by our Real Estate Site Acquisition Committee, which consists of
members of senior management. This process allows us to analyze each potential
location taking into account its effect on all aspects of our business.
In connection with our strategy to rapidly expand into selected markets, we
expect to evaluate the merits of initiating a franchising program. We are not
sure when or if we will decide to franchise our concept or how extensively we
will pursue such a strategy. Adopting a franchising strategy would require us to
devote management and financial resources to build the operational
infrastructure needed to support the franchise of our restaurants. If we
implemented a franchising program, we would earn revenue through initial
franchise fees payable to us by franchisees and through royalty income based on
a percentage of restaurant sales. Franchising programs typically involve
substantially lower initial cash investments compared to unit expansion
strategies where company-owned units are developed and leased. Franchising
programs involve risks. Please see "Risk Factors--If we adopt a franchising
strategy, we may be unsuccessful in executing a franchising program" for a
description of the risks associated with franchising programs.
MENU
Our menu features made-to-order burritos, soft-shell tacos, and quesadillas
made with marinated, chargrilled chicken breast and lean steak, as well as
seafood indicative of the Baja region of Mexico, such as chargrilled mahi mahi,
sauteed shrimp and our signature Baja-style fish taco. Side items including our
chips, beans and rice are all made fresh daily. Other ingredients, such as our
fresh, handmade guacamole, shredded natural cheeses and our zesty chipotle
sauce, also contribute to our quality image and distinctive flavor profiles. We
also offer a self-serve salsa bar where guests can choose from three different
salsas made fresh every day at each restaurant. Our prices range from $1.79 for
a Baja-style fish taco to $5.69 for a Cabo Combo, which includes a shrimp
burrito, fish taco, chips and beans. Most units also offer a selection of
imported Mexican and domestic beers.
To provide added variety, from time to time we introduce limited time
offerings such as our lobster burrito, tequila shrimp burrito, "killer" shark
tacos and Baja Bowls. Some of these items have been permanently added to the
menu, such as the Baja Bowl. Other items, such as the lobster burrito, are
offered seasonally due to limited availability.
Substantially all of our units include a HealthMex section on their menu and
Kid Pesky meals designed for children. Our HealthMex items are designed to have
less than 22% of their calories from
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<PAGE>
fat, and include a chargrilled mahi mahi taco or a chargrilled chicken burrito
served on a whole wheat tortilla. The Kid Pesky meals consist of a choice of a
fish taco, chicken taquitos, quesadilla or a bean and cheese burrito, along with
a side dish, drink, churro dessert and toy surprise.
DECOR AND ATMOSPHERE
We believe that the decor and atmosphere of our restaurants is a critical
factor in our guests' overall dining experience. We strive to create the
relaxed, casual environment that is reminiscent of the Baja region of Mexico.
Our design elements include colorful Mexican tiles, saltwater aquariums with
tropical fish, Baja beach photos and tropical prints, surfboards on the walls
and authentic palm-thatched patio umbrellas, or palapas, in most existing
locations. We believe the decor and atmosphere of our restaurants appeal to a
broad variety of consumers, including families.
MARKETING
We utilize broadcast advertising as a marketing tool to increase our brand
awareness, attract new guests and build customer loyalty. Our advertising is
designed to portray ourselves as a high-quality, quick-service Mexican food
restaurant and to promote special offers to increase sales. Examples of these
offers include limited-time-only product introductions, such as our lobster
burrito or tequila shrimp burrito, as well as price promotions, such as our
99-cent fish taco special. Media used for these promotions include television,
radio, coupons and in-store merchandising materials. We believe word-of-mouth
advertising is also a key component in attracting new guests.
As part of our expansion strategy, we select target markets which we believe
will support multiple units and the efficient use of broadcast advertising. Upon
entry into each new market, we also hire local public relations firms to help
establish brand awareness for our restaurants as we build toward media
efficiency. In 1998, we spent approximately $1.4 million on marketing. We expect
our marketing expenditures to increase as we add new restaurants and expand into
new markets.
OPERATIONS
UNIT MANAGEMENT AND EMPLOYEES
Our typical restaurant employs one general manager, one to two assistant
managers and 22 to 25 hourly employees, approximately 60% of which are full-time
employees and approximately 40% of which are part-time employees. The general
manager is responsible for the day-to-day operations of the restaurant,
including food quality, service, staffing and purchasing. We seek to hire
experienced general managers and staff and to motivate and retain them by
providing opportunities for increased responsibilities and advancement, as well
as performance-based cash incentives. These performance incentives are tied to
sales, profitability and qualitative measures such as mystery shoppers, who
anonymously evaluate individual restaurants. We also grant general managers
options to purchase shares of our common stock when hired or promoted. All
employees working more than 20 hours per week are eligible for health benefits
and participation in our 401(k) plan.
We currently employ 11 district managers, each of whom reports either to a
regional manager or to the director of operations. These district managers
direct unit management in all phases of restaurant operations, as well as assist
in opening new units. We also grant district managers options to purchase shares
of our common stock when hired or promoted.
TRAINING
We strive to maintain quality and consistency in each of our units through
the careful training and supervision of personnel and the establishment of, and
adherence to, high standards relating to personnel performance, food and
beverage preparation and maintenance of facilities. We have
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<PAGE>
implemented a training program that is designed to teach new managers the
technical and supervisory skills necessary to direct the operations of our
restaurants in a professional and profitable manner. Each manager must
successfully complete a five-week training course, which includes hands-on
experience in both the kitchen and dining areas. We have also prepared
operations manuals and videotapes relating to food and beverage handling,
preparation and service. In addition, we maintain a continuing education program
to provide our unit managers with ongoing training and support. We strive to
maintain a team-oriented atmosphere and instill enthusiasm and dedication in our
employees. We regularly solicit employee suggestions concerning the improvement
of our operations in order to be responsive to both them and our guests.
QUALITY CONTROLS
Our emphasis on excellent customer service is enhanced by our quality
control programs. We welcome comments on the quality of service and food at our
restaurants by maintaining a toll-free customer hotline and distributing
customer surveys. District managers are directly responsible for ensuring that
these comments are addressed to achieve a high level of customer satisfaction.
Our Director of Food and Beverage is also responsible for ensuring product
consistency and quality among our restaurants. Furthermore, we engage a
third-party service whereby an anonymous customer or mystery shopper evaluates
and reports to management key elements of the Rubio's experience, including
product quality, cleanliness and customer service.
HOURS OF OPERATIONS
Our units are generally open Sunday through Thursday from 10:30 a.m. until
10:00 p.m., and on Friday and Saturday from 10:30 a.m. until 11:00 p.m.
MANAGEMENT INFORMATION SYSTEMS
All of our restaurants use computerized point-of-sale systems, which are
designed to improve operating efficiency, provide corporate management timely
access to financial and marketing data, and reduce restaurant and corporate
administrative time and expense. These systems record each order and print the
food requests in the kitchen for the cooks to prepare. The data captured for use
by operations and corporate management include gross and sales amounts, cash and
credit card receipts, and quantities of each menu item sold. Sales and receipts
information is generally transmitted to the corporate office daily, where it is
reviewed and reconciled by the accounting department before being recorded in
the accounting system. The daily sales information is polled nightly to the
corporate office and distributed to management via electronic mail each morning.
The point-of-sale system also calculates daily ideal usage and cost for the top
10 food items which make up approximately 85% of total food cost. A monthly
trend report of actual food cost compared to ideal food cost is also prepared.
We are currently installing a back office system, including personal computers
in each of our restaurants, which will allow managers to compare actual food
cost to ideal food costs on a daily basis. As of the date of this prospectus,
this system is currently operational in over half of our restaurants, and is
expected to be installed in all of our restaurants by the end of 1999.
Our corporate systems provide management with operating reports that show
restaurant performance comparisons with budget and prior year results both for
the accounting period and year-to-date, as well as trend formats by both dollars
and percents of sales. These systems allow us to closely monitor restaurant
sales, cost of sales, labor expense and other restaurant trends on a daily,
33
<PAGE>
weekly, and monthly basis. We believe these systems will enable both unit and
corporate management to adequately manage the operational and financial
performance of the restaurants in support of our planned expansion.
PURCHASING
We strive to obtain consistently high-quality ingredients at competitive
prices from reliable sources. To attain operating efficiencies and to provide
fresh ingredients for our food products while obtaining the lowest possible
prices for the required quality, purchasing employees at the corporate office
control the purchasing of food items through buying from a variety of national,
regional and local suppliers at negotiated prices. Most food and other products
are shipped from a central distributor directly to the units two to four times
per week. Produce and tortillas are delivered daily from local suppliers to
ensure product freshness. We do not maintain a central food product warehouse or
commissary. As is typical in our industry, we do not have any long-term
contracts with our food suppliers. We have not experienced significant delays in
receiving our food and beverage inventories, restaurant supplies or equipment.
COMPETITION
The restaurant industry is intensely competitive. There are many different
segments within the restaurant industry that are distinguished by types of
service, food types and price/value relationships. We position our restaurants
in the high-quality, quick-service Mexican food segment of the industry. In this
segment, our direct competitors include Baja Fresh, La Salsa and Chipotle. We
also compete indirectly with full-service Mexican restaurants including Chevy's,
Chi Chi's and El Torito and fast food restaurants, particularly those focused on
Mexican food such as Taco Bell and Del Taco. Competition in our industry segment
is based primarily upon food quality, price, restaurant ambiance, service and
location. Although we believe we compete favorably with respect to each of these
factors, many of our direct and indirect competitors are well-established
national, regional or local chains and have substantially greater financial,
marketing, personnel and other resources than we do. We also compete with many
other retail establishments for site locations.
PROPERTIES
Our corporate headquarters are located in Carlsbad, California. We occupy
this facility under a lease which terminates in August 31, 2005, with options to
extend the lease for an additional 13 years. We lease each of our restaurant
facilities with the exception of the El Cajon unit, which is covered by a ground
lease. The majority of our leases are for 10-year terms and include options to
extend the terms. The majority of our leases also include both fixed rate and
percentage-of-sales rent provisions. The landlord of our San Diego State
University unit has the right to terminate the lease, with 60 days notice, in
the event a proposed redevelopment project commences work.
TRADEMARKS
Our registered trademarks and service marks include "Rubio's," "Baja Grill,"
"Home of the Fish Taco," "HealthMex" and "Pesky" with the United States Patents
and Trademark Office. We believe that our trademarks, service marks and other
proprietary rights have significant value and are important to the marketing of
our restaurant concept. We have in the past and expect to continue to vigorously
protect our proprietary rights. We cannot predict, however, whether steps taken
by us to protect our proprietary rights will be adequate to prevent
misappropriation of these rights or the use by others of restaurant features
based upon, or otherwise similar to, our concept. It may be difficult for us to
prevent others from copying elements of our concept and any litigation to
enforce our rights will likely be costly. In addition, other local restaurant
operations with names similar to those we use may try to prevent us from using
our marks in those locales.
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<PAGE>
EMPLOYEES
As of April 21, 1999, we had approximately 1,860 employees, including
approximately 40 employees located at our corporate headquarters.
GOVERNMENT REGULATION
Our restaurants are subject to licensing and regulation by state and local
health, sanitation, safety, fire and other authorities, including licensing and
regulation requirements for the sale of alcoholic beverages and food. To date,
we have not experienced an inability to obtain or maintain any necessary
licenses, permits or approvals, including restaurant, alcoholic beverage and
retail licensing. The development and construction of additional units will also
be subject to compliance with applicable zoning, land use and environmental
regulations. For a description of risks faced by us related to government
regulation, please see "Risk Factors--We may not be able to obtain and maintain
state and local permits necessary to operate our units."
LEGAL PROCEEDINGS
As of the date of this prospectus, we are not a party to any material
litigation.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Our executive officers, key employees and directors, as of April 29, 1999,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH US
- ---------------------------- --- ------------------------------------------------------------------------------
<S> <C> <C>
Rafael Rubio................ 69 Chairman of the Board and Director
Ralph Rubio................. 43 President, Chief Executive Officer and Director
Stephen J. Sather........... 51 Chief Operating Officer, Vice President of Operations
Joseph N. Stein............. 38 Chief Strategic and Financial Officer
Richard Rubio............... 35 Vice President of Real Estate Development
Bruce Frazer................ 39 Vice President of Marketing
Ted Frumkin................. 37 Director of Real Estate
Kyle A. Anderson(1)(2)...... 42 Director
Michael Dooling............. 54 Director
Jason M. Fish(1)(2)......... 41 Director
Kim Lopdrup(1)(2)........... 40 Director
Robert Rubio................ 37 Director
Timothy J. Ryan............. 59 Director
</TABLE>
- ------------------------
(1) Audit committee member.
(2) Compensation committee member.
RAFAEL RUBIO, a co-founder, has served as a Director and as Chairman of the
Board since our inception in January 1983. Prior to his current position with
Rubio's, Mr. Rubio held the positions of Executive Vice President and Vice
President of Manufacturing of Ornyte Xerxes-Proform Co., a fiberglass and
plastics manufacturer. He continues to serve as an international consultant to
various fiberglass and plastics manufacturers.
RALPH RUBIO, a co-founder, has served as President, Chief Executive Officer
and Director since our inception in January 1983. Prior to founding Rubio's, Mr.
Rubio was employed in restaurant management and in various other positions at
the Old Spaghetti Factory, Hungry Hunter and Harbor House restaurant chains. Mr.
Rubio has more than 20 years of experience in the restaurant industry.
STEPHEN J. SATHER has served as Chief Operating Officer since July 1998. He
has served as Vice President of Operations since February 1996. Prior to joining
us, Mr. Sather served as Vice President of New Concepts for Rally's Hamburgers,
Inc., a publicly held company, from December 1993 to February 1996. Prior to
that, Mr. Sather served as Senior Vice President of Operations for La Salsa
Holding Company, a privately held company, from December 1992 until November
1993. From April 1986 until November 1992, Mr. Sather was employed by Taco Bell
Corporation, a publicly held company, and served as Director of New Concepts
when he left. Mr. Sather has more than 25 years of experience in the restaurant
industry.
JOSEPH N. STEIN was elected Chief Strategic and Financial Officer in April
1999. Prior to joining us, Mr. Stein served as Executive Vice President and
Chief Administrative Officer of Checkers Drive-In Restaurants, Inc., a publicly
held company, from January 1997 to April 1999, and as Executive Vice President
and Chief Financial Officer of Rally's Hamburgers, Inc., a publicly held
company, from December 1997 to April 1999. From May 1995 to January 1997, Mr.
Stein was employed at CKE Restaurants, Inc., a publicly held company, serving as
Senior Vice President and Chief Financial Officer. From April 1990 to May 1995,
Mr. Stein held various executive positions at Fidelity National
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<PAGE>
Title Insurance Company, a publicly held company, including Senior Vice
President and Director of National Agency Operations. Mr. Stein has more than 13
years of experience in the restaurant industry.
RICHARD RUBIO has served as Vice President of Real Estate Development since
November 1994. From October 1990 until November 1994, Mr. Rubio served as Vice
President of Construction, and has served in various other positions with us
since June 1983.
BRUCE FRAZER has served as Vice President of Marketing since June 1996.
Prior to joining us, Mr. Frazer served as Vice President of Food &
Beverage/Product Marketing at Family Restaurants, Inc. from May 1994 until May
1996. From December 1984 until April 1994, Mr. Frazer was employed at Foodmaker,
Inc., a publicly held company, serving as Vice President of Product Marketing
when he left. Mr. Frazer has more than 15 years of experience in the restaurant
industry.
TED FRUMKIN has served as Director of Real Estate since May 1996. Prior to
joining us, Mr. Frumkin served as Real Estate Manager at Office Depot Inc., a
publicly held company, from December 1994 until May 1996. From July 1991 until
December 1994, Mr. Frumkin served as Real Estate Manager at Wal-Mart Stores
Inc., a publicly held company. Prior to that, Mr. Frumkin served as Real Estate
Manager at Taco Bell Corporation, a publicly held company, from December 1985
until July 1991.
KYLE A. ANDERSON has served as a Director since January 1995. Mr. Anderson
is a founding member of Rosewood Capital Associates, LLC, the general partner of
Rosewood Capital, L.P., a consumer oriented private equity investment fund.
Prior to joining Rosewood in 1988, Mr. Anderson was a Vice President in the
mergers and acquisitions department at The First Boston Corporation. Mr.
Anderson serves on the board of directors of Gardenburger, Inc., a publicly held
company, and on a number of privately held companies.
MICHAEL DOOLING has served as a Director since April 1999. Mr. Dooling has
been a general partner of Jacaranda Partners, an investment partnership, since
1987. From August 1987 to November 1997, Mr. Dooling served as a member of the
board of directors of Mailboxes Etc., including as Vice Chairman from August
1988 to May 1990 and as Chairman of the Board from May 1990 to November 1997.
From November 1997 to June 1998, Mr. Dooling served as a director of U.S. Office
Products, a publicly held company, following its acquisition of Mailboxes Etc.
Mr. Dooling also serves as a director of a privately held company.
JASON M. FISH has served as a Director since December 1997. Mr. Fish has
been a managing member of Farallon Capital Management, L.L.C. and Farallon
Partners, L.L.C., since April 1996, when they were formed to serve as management
companies for funds affiliated with Farallon, and was a managing director of
their predecessor, FCMI, Inc., from January 1993 through April 1996. Mr. Fish
also served as a general partner of funds affiliated with Farallon during that
time period. Mr. Fish joined Farallon in 1990. Mr. Fish serves as a director of
Town Sports International, Inc., a health club management company and
Gardenburger, Inc., a publicly held company.
KIM LOPDRUP has served as a Director since January 1997. Mr. Lopdrup has
served in various positions at Allied Domecq PLC, a publicly held company whose
subsidiaries include Baskin Robbins, Dunkin Donuts and TOGO'S, since May 1985,
and has served in his current position as Chief Executive Officer of Allied
Domecq Retailing International since October 1998. Mr. Lopdrup serves as a
director of Baskin Robbins Japan, a publicly held company listed on the Tokyo
Stock Exchange.
ROBERT RUBIO has served as a Director since 1994. From August 1995 through
September 1998, Mr. Rubio served as Vice President of Market Development, and
from March 1993 until July 1995, he served as Vice President of Operations. Mr.
Rubio has served in various other positions at Rubio's since February 1986.
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<PAGE>
TIMOTHY J. RYAN has served as a Director since April 1999. Mr. Ryan has
served as the President and Chief Executive Officer of Diedrich Coffee, Inc.
since November 1997. From December 1995 until his retirement in December 1996,
Mr. Ryan served as President of Sizzler U.S.A., a division of Sizzler
International, Inc., and as a director, of Sizzler International, Inc., of which
he was also a Senior Vice President. Sizzler International, Inc. filed for
bankruptcy protection in June 1996. From November 1988 to December 1993, Mr.
Ryan served as Senior Vice President of Marketing at Taco Bell Worldwide, and
from December 1993 to December 1995, he served as Senior Vice President of Taco
Bell's Casual Dining Division.
Our executive officers are appointed by the board and serve until their
successors are elected or appointed.
Ralph Rubio, Richard Rubio and Robert Rubio are the sons of Rafael Rubio.
CLASSIFIED BOARD
Our board currently has six members. Under our bylaws, beginning at our next
annual meeting of stockholders, our board will be divided into three classes of
directors serving staggered three-year terms, with one class of directors to be
elected at each annual meeting of stockholders. The first class of directors
whose term will expire in 2000 will include Jason M. Fish and Robert Rubio. The
second class of directors whose term will expire in 2001 will include Michael
Dooling, Kim Lopdrup and Rafael Rubio. The third class of directors whose term
will expire in 2002 will include Ralph Rubio, Kyle A. Anderson and Timothy J.
Ryan.
BOARD COMMITTEES
AUDIT COMMITTEE. The audit committee of the board of directors reviews,
acts on and reports to the board of directors with respect to various auditing
and accounting matters, including the recommendation of our auditors, the scope
of the annual audits, fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices. The members of the audit
committee are Messrs. Anderson, Fish and Lopdrup.
COMPENSATION COMMITTEE. The compensation committee of the board of
directors recommends, reviews and oversees the salaries, benefits and stock
option plans for our employees, consultants, directors and other individuals
compensated by us. The compensation committee also administers our compensation
plans. The members of the compensation committee are Messrs. Anderson, Fish and
Lopdrup.
DIRECTOR COMPENSATION
Directors do not receive cash compensation for their service on our board of
directors. Non-employee directors are reimbursed for reasonable expenses
incurred in connection with serving as a director. In January 1997, we granted a
non-qualified stock option to purchase 25,000 shares of common stock to Mr.
Lopdrup, a non-employee director. The option granted to Mr. Lopdrup was fully
exercised by Mr. Lopdrup and is subject to a right of repurchase in our favor
which lapses over a period of five years from the date of grant. In April 1999,
we granted options to purchase 25,000 shares of our common stock to each of Mr.
Dooling and Mr. Ryan in connection with their election to our board of
directors. 15,000 shares are immediately vested, with the remaining 10,000
shares vesting over the next two years. Vesting of any options previously
granted to board members will automatically accelerate in the event of a sale,
acquisition or merger of Rubio's. Each individual who first becomes a
non-employee member of the board of directors at any time after the offering
will receive an option to purchase 25,000 shares of common stock on the date
such individual joins the board of directors, provided such individual has not
previously been employed by us or any parent or subsidiary corporation. In
addition, on the date of each annual stockholders' meeting beginning in 2000,
each
38
<PAGE>
non-employee member of the board of directors will automatically be granted an
option to purchase 5,000 shares of common stock, provided such individual has
served as a non-employee member of the board of directors for at least six
months. For a discussion of our automatic option grant program and accelerated
vesting of options under the 1999 Plan, please see "--Benefit Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Messrs. Anderson, Fish and
Lopdrup. No member of the compensation committee has been an officer or employee
of us at any time. None of our executive officers serves as a member of the
board of directors or compensation committee of any other company that has one
or more executive officers serving as a member of our board of directors or
compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth all compensation received during fiscal 1998
by our chief executive officer and four of our other executive officers whose
salary and bonus exceeded $100,000 in such fiscal year. Perquisites and other
personal benefits paid to officers in the table below are less than the minimum
reporting thresholds and are represented in the table below by "--." All other
compensation represents matching payments under our 401(k) plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
SECURITIES
--------------------- OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ---------------------------------------------------- ---------- --------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Ralph Rubio......................................... $ 199,836 $ 39,967 -- -- $ --
President and Chief Executive Officer
Rafael Rubio........................................ 199,836 39,967 -- -- --
Chairman of the Board
Stephen J. Sather................................... 169,800 32,760 -- 8,000 340
Vice President of Operations and Chief Operating
Officer
James W. Stryker.................................... 141,500 27,300 -- 6,000 775
Vice President of Finance and Chief Financial
Officer
Bruce Frazer........................................ 135,840 26,208 -- 6,000 815
Vice President of Marketing
</TABLE>
Mr. Stryker served as our Vice President of Finance and Chief Financial
Officer from February 1996 through March 19, 1999.
STOCK OPTION INFORMATION
The following table sets forth information regarding options granted to the
executive officers listed in the Summary Compensation Table during fiscal 1998.
We have not granted any stock appreciation rights.
Each option represents the right to purchase one share of common stock. The
options shown in this table are all incentive stock options granted under our
stock option plans. The options vest on the following schedule: 20% of the
options vest after the completion of one year of service from the grant date and
the remainder of the options vest in equal monthly installments over the next 48
months of
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<PAGE>
service. To the extent not already exercisable, these options may also
accelerate and become exercisable in the event of a merger in which we are not
the surviving corporation or upon the sale of substantially all of our assets.
Please see "--Benefit Plans" for more details regarding these options. In the
year ended December 27, 1998, we granted options to purchase an aggregate of
137,140 shares of common stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES EXERCISE EXPIRATION --------------------
NAME GRANTED IN 1998 PRICE DATE 5% 10%
- --------------------------------------------- ------------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ralph Rubio.................................. -- -- -- -- -- --
Rafael Rubio................................. -- -- -- -- -- --
Stephen J. Sather............................ 8,000 5.8% $ 2.00 01/30/08 $ 10,062 $ 25,500
James W. Stryker............................. 6,000 4.4 2.00 01/30/08 7,547 19,125
Bruce Frazer................................. 6,000 4.4 2.00 01/30/08 7,547 19,125
</TABLE>
The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined by our board after
consideration of a number of factors, including, but not limited to, our
financial performance, market conditions and the price, preferred rights and
privileges of shares of equity securities sold to or purchased by outside
investors.
The potential realizable value at assumed annual rates of stock price
appreciation for the option term represents hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the SEC and do not represent our estimate or projection of
our future common stock prices. These amounts represent assumed rates of
appreciation in the value of our common stock from the fair market value on the
date of grant. Actual gains, if any, on stock option exercises are dependent on
the future performance of the common stock and overall stock market conditions.
The amounts reflected in the table may not necessarily be achieved.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 27, 1998 AND YEAR-END
OPTION VALUES
The following table sets forth information concerning the number and value
of unexercised options held by each of the executive officers listed in the
Summary Compensation Table at December 27, 1998. None of these executive
officers exercised options to purchase common stock during fiscal 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL 1998 OPTIONS AT FISCAL 1998
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ralph Rubio..................................................... -- -- -- --
Rafael Rubio.................................................... -- -- -- --
Stephen J. Sather............................................... 26,050 26,950 $ 220,692 $ 225,808
James W. Stryker................................................ 13,967 16,033 118,167 133,833
Bruce Frazer.................................................... 11,633 13,367 98,333 111,167
</TABLE>
There was no public trading market for the common stock as of December 27,
1998. Accordingly, the value of unexercised in-the-money options listed above
has been calculated on the basis of the
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<PAGE>
assumed initial public offering price of $10.00 per share, less the applicable
exercise price per share, multiplied by the number of shares underlying such
options.
BENEFIT PLANS
1999 STOCK INCENTIVE PLAN
Our 1999 Stock Incentive Plan is intended to serve as the successor equity
incentive program to our 1998 Stock Option/Stock Issuance Plan, 1995 Stock
Option/Stock Issuance Plan and 1993 Stock Option/Stock Issuance Plan. Our 1999
plan was adopted by our board and stockholders in March 1999. Our 1999 plan will
become effective on the date the underwriting agreement is signed in connection
with this offering of our common stock. All outstanding options under the
predecessor plans will be incorporated into our 1999 plan on the date this plan
is effective, and no further option grants will be made under the predecessor
plans after such date. The incorporated options will continue to be governed by
their existing terms, unless the plan administrator elects to extend one or more
features of our 1999 plan to those options. Except as otherwise noted below, the
incorporated options will have substantially the same terms as in effect for
grants made under the discretionary option grant program of our 1999 plan.
An initial reserve of 1,123,938 shares of common stock has been authorized
for issuance under our 1999 plan. Such share reserve consists of (1)
approximately the number of shares which will remain available for issuance
under the predecessor plans on the date our 1999 plan becomes effective,
including the shares subject to outstanding options thereunder, plus (2) an
additional increase of approximately 500,000 shares. The number of shares of
common stock reserved for issuance under our 1999 plan will automatically
increase on the first trading day in January each calendar year, beginning in
calendar year 2000, by an amount equal to 3% of the total number of shares of
common stock outstanding on the last trading day in December of the preceding
calendar year, but in no event will any such annual increase exceed 450,000
shares. In addition, no participant in our 1999 plan may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 500,000 shares of common stock in the aggregate per
calendar year.
Our 1999 plan is divided into five separate components:
- the discretionary option grant program, under which eligible individuals
in our employ or service including officers, non-employee board members
and consultants may, at the discretion of the plan administrator, be
granted options to purchase shares of common stock at an exercise price
not less than 100% of the fair market value of those shares on the grant
date;
- the stock issuance program, under which such individuals may, in the plan
administrator's discretion, be issued shares of common stock directly,
through the purchase of such shares at a price not less than 100% of their
fair market value at the time of issuance or as a bonus tied to the
performance of services;
- the salary investment option grant program, which may, at the plan
administrator's sole discretion, be activated for one or more calendar
years and, if so activated, will allow executive officers and other highly
compensated employees the opportunity to apply a portion of their base
salary to the acquisition of special below-market stock option grants;
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee board
members to purchase shares of common stock at an exercise price equal to
100% of the fair market value of those shares on the grant date; and
- the director fee option grant program, which may, in the plan
administrator's sole discretion, be activated for one or more calendar
years and, if so activated, will allow non-employee board
41
<PAGE>
members the opportunity to apply a portion of the annual retainer fee
otherwise payable to them in cash each year to the acquisition of special
below-market option grants.
The discretionary option grant program and the stock issuance program will
be administered by the compensation committee. The compensation committee as
plan administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to be
made, the number of shares subject to each such grant or issuance, the status of
any granted option as either an incentive stock option or a non-statutory stock
option under the federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding. However, the board acting by disinterested majority
will have the exclusive authority to make any discretionary option grants or
stock issuances to members of the compensation committee. The compensation
committee will also have the exclusive authority to select the executive
officers and other highly compensated employees who may participate in the
salary investment option grant program in the event that program is activated
for one or more calendar years. Neither the compensation committee nor the board
will exercise any administrative discretion with respect to option grants under
the salary investment option grant program or under the automatic option grant
or director fee option grant program for the non-employee board members. All
grants under those latter three programs will be made in strict compliance with
the express provisions of each such program.
The exercise price for the shares of common stock subject to option grants
made under our 1999 plan may be paid in cash or in shares of common stock valued
at fair market value on the exercise date. The option may also be exercised
through a same-day sale program without any cash outlay by the optionee. In
addition, the plan administrator may provide financial assistance to one or more
optionees in the exercise of their outstanding options or the purchase of their
unvested shares by allowing such individuals to deliver a full-recourse,
interest-bearing promissory note in payment of the exercise price and any
associated withholding taxes incurred in connection with such exercise or
purchase.
The plan administrator will have the authority to cancel outstanding options
under the discretionary option grant program, including options incorporated
from the predecessor plans, in return for the grant of new options for the same
or different number of option shares with an exercise price per share based upon
the fair market value of our common stock on the new grant date.
Stock appreciation rights are authorized for issuance under the
discretionary option grant program. Such rights will provide the holders with
the election to surrender their outstanding options for an appreciation
distribution from us equal to the excess of (1) the fair market value of the
vested shares of common stock subject to the surrendered option over (2) the
aggregate exercise price payable for those shares. Such appreciation
distribution may be made in cash or in shares of common stock. None of the
incorporated options from the predecessor plans contain any stock appreciation
rights.
In the event that we are acquired by merger or asset sale, each outstanding
option under the discretionary option grant program which is not to be assumed
by the successor corporation will automatically accelerate in full, and all
unvested shares under the discretionary option grant and stock issuance programs
will immediately vest, except to the extent our repurchase rights with respect
to those shares are to be assigned to the successor corporation. The plan
administrator will have complete discretion to grant one or more options under
the discretionary option grant program which will become fully vested for all
the option shares in the event those options are assumed in the acquisition and
the optionee's service with us or the acquiring entity involuntarily terminates
within a designated period following such acquisition, not to exceed 18 months.
The vesting of outstanding shares under the stock issuance program may be
accelerated upon similar terms and conditions. The plan administrator
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<PAGE>
will also have the authority to grant options which will immediately vest upon
an acquisition of us, whether or not those options are assumed by the successor
corporation.
The plan administrator is also authorized under the discretionary option
grant and stock issuance programs to grant options and to structure repurchase
rights so that the shares subject to those options or repurchase rights will
immediately vest in connection with a change in ownership or control of us,
whether by successful tender offer for more than 50% of the outstanding voting
stock or by a change in the majority of the board by reason of one or more
contested elections for board membership. Such accelerated vesting may occur
either at the time of such change or upon the subsequent involuntary termination
of the individual's service within a designated period following such change in
control, not to exceed 18 months.
The options incorporated from the predecessor plans may, in the plan
administrator's discretion, immediately vest in the event of the following
changes in control (1) our merger or consolidation, or (2) the acquisition by
another corporation or person of (a) all or substantially all of our assets or
(b) 50% or more of our then outstanding voting stock, unless those options are
assumed or substituted in the acquisition of us. Options incorporated from the
predecessor plans are subject to provisions providing for accelerated vesting
upon a change in control. The plan administrator will have the discretion to
extend the acceleration provisions of our 1999 plan to any or all of the options
outstanding under the predecessor plans.
In the event the plan administrator elects to activate the salary investment
option grant program for one or more calendar years, each of our executive
officers and other highly compensated employees selected for participation may
elect, prior to the start of the calendar year, to reduce his or her base salary
for that calendar year by a specified dollar amount not less than $10,000 nor
more than $50,000. Each selected individual who files such a timely election
will automatically be granted, on the first trading day in January of the
calendar year for which that salary reduction is to be in effect, a
non-statutory option to purchase that number of shares of common stock
determined by dividing the salary reduction amount by two-thirds of the fair
market value per share of common stock on the grant date. The option will be
exercisable at a price per share equal to one-third of the fair market value of
the option shares on the grant date. As a result, the fair market value of the
option shares on the grant date less the aggregate exercise price payable for
those shares will be equal to the amount of salary invested in that option. The
option will vest and become exercisable in a series of 12 equal monthly
installments over the calendar year for which the salary reduction is to be in
effect and will be subject to full and immediate vesting upon changes in the
ownership or control of us, as defined in the 1999 plan.
Under the automatic option grant program, each individual who first becomes
a non-employee board member at any time after the completion of this offering
will automatically receive an option grant for 25,000 shares on the date such
individual joins the board, provided such individual has not been in our prior
employ. In addition, on the date of each annual stockholders meeting held after
the completion of this offering, each non-employee board member who is to
continue to serve as a non-employee board member will automatically be granted
an option to purchase 5,000 shares of common stock, provided such individual has
served on our board for at least six months.
Each automatic grant will have a term of 10 years, subject to earlier
termination following the optionee's cessation of board service. The option will
be immediately exercisable for all of the option shares and will be immediately
vested.
Should the director fee option grant program be activated in the future,
each non-employee board member will have the opportunity to apply all or a
portion of any annual retainer fee otherwise payable in cash to the acquisition
of a below-market option grant. The option grant will automatically be made on
the first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the
43
<PAGE>
option shares on the grant date, and the number of shares subject to the option
will be determined by dividing the amount of the retainer fee applied to the
program by two-thirds of the fair market value per share of common stock on the
grant date. As a result, the fair market value of the option shares on the grant
date less the aggregate exercise price payable for those shares will be equal to
the portion of the retainer fee invested in that option. The option will vest
and become exercisable for the option shares in a series of 12 equal monthly
installments over the calendar year for which the election is to be in effect.
However, the option will become immediately exercisable and vested for all the
option shares upon:
- changes in the ownership or control of us, as defined in the 1999 plan; or
- the death or disability of the optionee while serving as a board member.
The shares subject to each option under the salary investment option grant
and director fee option grant programs will immediately vest upon:
- an acquisition of us by merger or asset sale; or
- the successful completion of a tender offer for more than 50% of our
outstanding voting stock or a change in the majority of the board effected
through one or more contested elections for board membership.
Limited stock appreciation rights will automatically be included as part of
each grant made under the automatic option grant, salary investment option grant
and director fee option grant programs and may be granted to one or more of our
officers as part of their option grants under the discretionary option grant
program. Options with such a limited stock appreciation right may be surrendered
to us upon the successful completion of a hostile tender offer for more than 50%
of our outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount per
surrendered option share equal to the excess of (1) the highest price per share
of common stock paid in connection with the tender offer over (2) the exercise
price payable for such share.
The board may amend or modify our 1999 plan at any time, subject to any
required stockholder approval. Our 1999 plan will terminate on the earliest of:
- March 17, 2009;
- the date on which all shares available for issuance under our 1999 plan
have been issued as fully-vested shares; or
- the termination of all outstanding options in connection with changes in
control or ownership of us, as defined in the 1999 plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan was adopted by our board and
stockholders in March 1999 and will become effective immediately upon the
execution of the underwriting agreement for this offering. Our employee stock
purchase plan is designed to allow our eligible employees to purchase shares of
common stock, at semi-annual intervals, through their periodic payroll
deductions under our employee stock purchase plan.
An initial reserve of 200,000 shares of common stock has been authorized for
issuance under our employee stock purchase plan. Our employee stock purchase
plan will be implemented in a series of successive offering periods, each with a
maximum duration for 24 months. However, the initial offering period will begin
on the execution date of the underwriting agreement and will end on the last
business day in July 2001. The next offering period will commence on the first
business day in August 2001, and subsequent offering periods will commence as
designated by the plan administrator.
44
<PAGE>
Individuals who are scheduled to work more than 20 hours per week for more
than five calendar months per year on the start date of any offering period may
enter our employee stock purchase plan on that start date or on any subsequent
semi-annual entry date. Entry dates are the first business day of February or
August each year. Individuals who become eligible employees after the start date
of the offering period may join our employee stock purchase plan on any
subsequent semi-annual entry date within that offering period.
Payroll deductions may not exceed 10% of the participant's cash earnings.
The accumulated payroll deductions of each participant will be applied to the
purchase of shares on his or her behalf on the last business day in January and
July each year at a purchase price per share equal to 85% of the lower of:
- the fair market value of the common stock on the participant's entry date
into the offering period; or
- the fair market value on the semi-annual purchase date.
In no event, however, may any participant purchase more than 1,500 shares on any
semi-annual purchase date nor may all participants in the aggregate purchase
more than 50,000 shares on any such semi-annual purchase date. The plan
administrator may require shares of common stock purchased under our employee
stock purchase plan to be held for one year before they may be sold or otherwise
transferred.
Should the fair market value per share of common stock on any purchase date
be less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day, with all
participants in the terminated offering to be automatically transferred to the
new offering period.
In the event we are acquired by merger or asset sale, all outstanding
purchase rights will automatically be exercised immediately prior to the
effective date of such acquisition. The purchase price will be equal to 85% of
the lower of:
- the fair market value per share of common stock on the participant's entry
date into the offering period in which such acquisition occurs; or
- the fair market value per share of common stock immediately prior to such
acquisition.
Our employee stock purchase plan will terminate on the earlier of:
- the last business day of July 2009;
- the date on which all shares available for issuance under our employee
stock purchase plan shall have been sold; or
- the date on which all purchase rights are exercised in connection with an
acquisition of us by merger or asset sale.
The board may at any time alter, suspend or discontinue our employee stock
purchase plan. However, some amendments to our employee stock purchase plan may
require stockholder approval.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALES OF SECURITIES
Since February 1995, we have issued the following securities in private
placement transactions:
- 1,092,007 shares of Series B preferred stock and common stock warrants
exercisable for 50,000 shares for an aggregate price of $3,500,003 in
February 1995;
- 793,640 shares of Series C preferred stock for an aggregate price of
$4,270,783 in March and June 1996;
- 1,403,843 shares of Series D preferred stock for an aggregate price of
$10,100,005 in November and December 1997; and
- an additional 48,648 shares of Series D preferred stock for an aggregate
price of $350,000 in May 1998.
The purchasers of more than $60,000 of such securities in the last four years
include, among others, the following executive officers, directors and holders
of more than 5% of our outstanding stock and their affiliates:
<TABLE>
<CAPTION>
PREFERRED STOCK
EXECUTIVE OFFICERS, DIRECTORS ------------------------------- TOTAL
AND 5% STOCKHOLDERS SERIES B SERIES C SERIES D CONSIDERATION
- -------------------------------------------------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C>
Rosewood Capital, L.P................................... 936,005 743,321 347,486 $ 9,500,004
Funds affiliated with Farallon Partners, L.L.C.......... -- -- 952,111 $ 6,850,001
Trust for the benefit of Michael Dooling and his
family................................................ 46,800 -- -- $ 149,999
Bruce Frazer............................................ -- 9,291 6,950 $ 99,999
</TABLE>
For additional information regarding securities held by our executive
officers and directors and by stockholders of more than 5% of our outstanding
common stock and their affiliates, please see "Principal Stockholders."
Holders of 3,341,841 shares of common stock and 45,000 shares of common
stock issuable upon the exercise of warrants are entitled to registration
rights. For a description of these rights, please see "Description of
Securities--Registration Rights" and "Management--Director Compensation."
SERIES A PREFERRED STOCK REPURCHASE
In June 1998, we repurchased from the Rafael R. Rubio and Gloria G. Rubio
Family Trust 48,648 shares of Series A preferred stock for an aggregate
repurchase price of $350,000. Rafael Rubio, our Chairman of the Board and
Director, and his wife are co-trustees and beneficiaries of this trust. We then
issued 48,648 shares of Series D preferred stock to funds affiliated with
Farallon Partners, L.L.C., including Farallon Capital Partners, L.P., Farallon
Capital Institutional Partners, L.P., Farallon Capital Institutional Partners
II, Farallon Capital Institutional Partners III, L.P. and RR Capital Partners,
L.P., a holder of more than 5% of our securities.
46
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of April 29, 1999, and as adjusted to reflect
the sale of the shares of common stock offered in this offering, by:
- each person or group of affiliated persons who we know owns beneficially
5% or more of our common stock;
- each of our directors;
- our executive officers listed in the Summary Compensation Table; and
- all of our directors and executive officers as a group.
Percentage of ownership is calculated as required by Commission Rule
13d-3(d)(1). Except as indicated in the footnotes to this table, the persons
named in the table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them, subject to community
property laws. The table below includes the number of shares underlying options
which are exercisable within 60 days from the date of this offering. The address
for those individuals for which an address is not otherwise indicated is 1902
Wright Place, Suite 300, Carlsbad, California 92008.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PRIOR TO SHARES BENEFICIALLY OWNED AFTER THIS
THIS OFFERING NUMBER OF OFFERING
------------------------------------- SHARES -------------------------------------
NUMBER OF BEING NUMBER OF
NUMBER OF SHARES OFFERED IN NUMBER OF SHARES
SHARES UNDERLYING PERCENT THIS SHARES UNDERLYING PERCENT
BENEFICIAL OWNER OUTSTANDING OPTIONS (%) OFFERING OUTSTANDING OPTIONS (%)
- ----------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rosewood Capital, L.P.
One Maritime Plaza, Suite 1330
San Francisco, California 94111........ 2,026,812 -- 31.9 300,000+ 1,726,812 -- 20.1
Funds affiliated with Farallon Partners,
L.L.C.(1)
One Maritime Plaza, Suite 1325
San Francisco, California 94111........ 952,111 -- 15.0 300,000+ 652,111 -- 7.6
Rafael Rubio(2).......................... 1,135,752 -- 17.9 300,000+ 835,752 -- 9.7
Ralph Rubio(3)........................... 1,184,100 -- 18.6 -- 1,184,100 -- 13.8
Kyle A. Anderson(4)...................... 2,026,812 -- 31.9 300,000+ 1,726,812 -- 20.1
Michael Dooling.......................... 78,000 16,292 1.5 -- 78,000 16,292 1.1
Jason M. Fish(5)......................... 952,111 -- 15.0 300,000+ 652,111 -- 7.6
Kim Lopdrup.............................. 35,000 -- * -- 35,000 -- *
Robert Rubio(3).......................... 150,133 -- 2.4 -- 150,133 -- 1.7
Timothy J. Ryan.......................... -- 16,292 * -- -- 16,292 1.1
Stephen J. Sather........................ -- 35,565 * -- -- 35,565 *
James W. Stryker......................... 2,500 17,266 * -- 2,500 17,266 *
Bruce Frazer............................. 16,241 15,562 * -- 16,241 15,562 *
All directors and executive officers as a
group (12 persons)..................... 5,580,649 106,594 88.1 900,000 4,680,649 106,594 55.0
</TABLE>
- ------------------------------
* Less than 1% of total.
+ Rosewood Capital, L.P. may sell up to 200,000 additional shares, funds
affiliated with Farallon Partners, L.L.C. may sell up to 50,000 additional
shares and a trust for the benefit of Mr. Rubio or his family may sell up to
35,752 additional shares in connection with the exercise of the
over-allotment option.
(1) Includes 399,886 shares beneficially owned by Farallon Capital Partners,
L.P., 333,239 shares beneficially owned by Farallon Capital Institutional
Partners, L.P., 142,816 shares beneficially owned by Farallon Capital
Institutional Partners II, L.P., 38,085
47
<PAGE>
shares beneficially owned by Farallon Capital Institutional Partners III,
L.P., and 38,085 shares beneficially owned by RR Capital Partners, L.P. All
of the foregoing entities disclaim group attribution.
(2) Includes 835,752 shares held by the Rafael R. Rubio and Gloria G. Rubio
Family Trust and 300,000 shares held by the Rafael and Gloria Rubio
Irrevocable Trust. All 300,000 shares held by the Rafael and Gloria Rubio
Irrevocable Trust are being offered in this offering.
(3) All of the shares outstanding held by Ralph Rubio and Robert Rubio are held
in trust for the benefit of these individuals and/or their families.
(4) Includes 2,026,812 shares held by the Rosewood Capital, L.P. Mr. Anderson is
a founding member of Rosewood Capital Associates LLC, the general partner of
Rosewood Capital, L.P. Mr. Anderson disclaims beneficial ownership of such
shares.
(5) Includes 952,111 shares held by the funds affiliated with Farallon Partners,
L.L.C., as described in note (1) above. Mr. Fish is a managing member of
Farallon Partners, L.L.C. Mr. Fish disclaims beneficial ownership of such
shares.
48
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of April 29, 1999, and as adjusted to reflect
the sale of the shares of common stock offered in this offering by us and each
stockholder selling common stock in this offering. Rosewood Capital, L.P., may
sell up to 200,000 additional shares, funds affiliated with Farallon Partners,
L.L.C., may sell up to 50,000 additional shares and a trust for the benefit of
Mr. Rubio or his family may sell up to 35,752 additional shares in connection
with the exercise of the over-allotment option. For further information
regarding the selling stockholders' relationship with us during the last three
years, please see "Management--Executive Officers and Directors" and "Certain
Relationships and Related Transactions."
Percentage of ownership is calculated as required by Commission Rule
13d-3(d)(1). Except as indicated in the footnotes to this table, the persons
named in the table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them, subject to community
property laws. The table below includes the number of shares underlying options
which are exercisable within 60 days from the date of this offering. The address
for those individuals for which an address is not otherwise indicated is 1902
Wright Place, Suite 300, Carlsbad, California 92008.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PRIOR TO THIS
SHARES BENEFICIALLY OWNED
OFFERING NUMBER OF AFTER THIS OFFERING
--------------------------------------- SHARES --------------------------
NUMBER OF BEING NUMBER OF
NUMBER OF SHARES OFFERED IN NUMBER OF SHARES
SHARES UNDERLYING PERCENT THIS SHARES UNDERLYING
BENEFICIAL OWNER OUTSTANDING OPTIONS (%) OFFERING OUTSTANDING OPTIONS
- ----------------------------------------- ----------- ------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rosewood Capital, L.P.
One Maritime Plaza, Suite 1330
San Francisco, California 94111........ 2,026,812 -- 31.9 300,000 1,726,812 --
Funds affiliated with Farallon Partners,
L.L.C.(1)
One Maritime Plaza, Suite 1325
San Francisco, California 94111........ 952,111 -- 15.0 300,000 652,111 --
Rafael Rubio(2).......................... 1,135,752 -- 17.9 300,000 835,752 --
Kyle A. Anderson(3)...................... 2,026,812 -- 31.9 300,000 1,726,812 --
Jason M. Fish(4)......................... 952,111 -- 15.0 300,000 652,111 --
<CAPTION>
PERCENT
BENEFICIAL OWNER (%)
- ----------------------------------------- -----------
<S> <C>
Rosewood Capital, L.P.
One Maritime Plaza, Suite 1330
San Francisco, California 94111........ 20.1
Funds affiliated with Farallon Partners,
L.L.C.(1)
One Maritime Plaza, Suite 1325
San Francisco, California 94111........ 7.6
Rafael Rubio(2).......................... 9.7
Kyle A. Anderson(3)...................... 20.1
Jason M. Fish(4)......................... 7.6
</TABLE>
- ------------------------------
* Less than 1% of total.
(1) Includes 399,886 shares beneficially owned by Farallon Capital Partners,
L.P., 333,239 shares beneficially owned by Farallon Capital Institutional
Partners, L.P., 142,816 shares beneficially owned by Farallon Capital
Institutional Partners II, L.P., 38,085 shares beneficially owned by
Farallon Capital Institutional Partners III, L.P., and 38,085 shares
beneficially owned by RR Capital Partners, L.P. All of the foregoing
entities disclaim group attribution.
(2) Includes 835,752 shares held by the Rafael R. Rubio and Gloria G. Rubio
Family Trust and 300,000 shares held by the Rafael and Gloria Rubio
Irrevocable Trust. All 300,000 shares held by the Rafael and Gloria Rubio
Irrevocable Trust are being offered in this offering.
(3) Includes 2,026,812 shares held by the Rosewood Capital, L.P. Mr. Anderson is
a founding member of Rosewood Capital Associates LLC, the general partner of
Rosewood Capital, L.P. Mr. Anderson disclaims beneficial ownership of such
shares.
(4) Includes 952,111 shares held by the funds affiliated with Farallon Partners,
L.L.C., as described in note (1) above. Mr. Fish is a managing member of
Farallon Partners, L.L.C. Mr. Fish disclaims beneficial ownership of such
shares.
49
<PAGE>
DESCRIPTION OF SECURITIES
The following information describes our common stock and preferred stock and
provisions of our certificate of incorporation and our bylaws as in effect upon
the closing of this offering. This description is only a summary. You should
also refer to the certificate and bylaws which have been filed with the SEC as
exhibits to our registration statement, of which this prospectus forms a part.
The descriptions of the common stock and preferred stock reflect changes to our
capital structure that will occur upon the closing of this offering.
Upon the completion of the offering, our authorized capital stock will
consist of 75,000,000 shares of common stock, par value $0.001 per share, and
5,000,000 shares of preferred stock, par value $0.001 per share.
COMMON STOCK
As of March 28, 1999, there were 1,085,036 shares of common stock
outstanding and held of record by 23 stockholders, assuming the exercise of all
common stock warrants that must be exercised prior to this offering. There will
be 8,601,624 shares of common stock outstanding upon the closing of this
offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, 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. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the board of directors out of
funds legally available for that purpose, subject to any preferential dividend
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption, liquidation or conversion rights. The
shares offered by us in this offering will be, when issued in consideration for
payment thereof, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which we may designate and issue in the future. Upon the closing of this
offering, there will be no shares of preferred stock outstanding. With respect
to restrictions on alienability of shares of our common stock held by some of
our stockholders, please see "Shares Eligible for Future Sale."
PREFERRED STOCK
As of March 28, 1999, there were 5,266,588 shares of convertible preferred
stock outstanding, assuming the exercise of all preferred stock warrants that
must be exercised prior to this offering. All outstanding shares of convertible
preferred stock will be converted into an aggregate of 5,266,588 shares of
common stock upon the closing of this offering and such shares of convertible
preferred stock will no longer be authorized, issued or outstanding.
Upon the closing of this offering, the board of directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 5,000,000 shares of preferred stock in one or more series and
to fix or alter the designations, powers, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption including sinking fund provisions, redemption
price or prices, liquidation preferences and the number of shares constituting
any series or designations of such series. We have no present plans to issue any
shares of preferred stock. Please see "--Anti-Takeover Effects of Provisions of
Delaware Law and our Certificate of Incorporation and Bylaws" for information
regarding the potential anti-takeover effects of authorized but unissued
preferred stock.
50
<PAGE>
OPTIONS
As of March 28, 1999, options to purchase a total of 379,376 shares of
common stock were outstanding and, assuming the effectiveness of the 1999 Stock
Incentive Plan, options to purchase a total of 744,562 shares of common stock
will be available for future issuance under the 1999 Stock Incentive Plan. Since
March 28, 1999, we have granted options exercisable into 192,000 shares at a
weighted average exercise price of $10.00 per share. Please see
"Management--Benefit Plans" for a discussion of the 1999 Stock Incentive Plan
and "Shares Eligible for Future Sale" for information regarding the number of
options available for sale to the public after this offering.
COMMON STOCK WARRANT
We have an outstanding warrant to purchase 45,000 shares of common stock, at
an exercise price of $7.20. The warrant contains an anti-dilution provision
providing for adjustments of the exercise price and the number of shares
underlying the warrant upon the occurrence of events, including any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. This warrant expires on the earlier of the
business day preceding an acquisition or December 31, 2002.
REGISTRATION RIGHTS
As of March 28, 1999, under the terms of an investors' rights agreement
after the closing of this offering the holders of 3,341,841 shares of common
stock and up to 45,000 shares of common stock issuable upon exercise of a
warrant will be entitled to demand registration rights with respect to the
registration of their shares under the Securities Act of 1933. The holders of
50% of shares issued on conversion of the Series B preferred stock and Series C
preferred stock or the holders of 50% of such shares issued on conversion of the
Series D preferred stock have the right to demand that we register their shares
under the Securities Act subject to limitations described in the agreement. We
are not required to file more than two registrations under such demand
registration rights. In addition, after the closing of this offering these
holders will be entitled to piggyback registration rights with respect to the
registration of such shares of common stock under the Securities Act. In the
event that we propose to register any shares of common stock under the
Securities Act either for our account or for the account of other security
holders, the holders of shares having piggyback registration rights are entitled
to receive notice of such registration and to include their shares in any such
registration, subject to limitations described in the agreement. Further, at any
time after we become eligible to file a registration statement on Form S-3, the
holders of 3,341,841 shares of common stock and up to 45,000 shares of common
stock issuable upon exercise of a warrant may require us to file registration
statements under the Securities Act on Form S-3 with respect to their shares of
common stock. These registration rights are subject to conditions and
limitations described in the agreement, among them the right of the underwriters
of an offering to limit the number of shares of common stock held by such
security holders to be included in such registration. We are generally required
to bear all of the expenses of all such registrations, including the reasonable
fees of a single counsel acting on behalf of all selling holders, except
underwriting discounts and selling commissions. Registration of any of the
shares of common stock held by security holders with registration rights would
result in such shares becoming freely tradable without restriction under the
Securities Act immediately upon effectiveness of such registration.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
GENERAL
Provisions of Delaware law and our certificate of incorporation and bylaws
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, control of us. Such provisions
could limit the price that investors might be willing to pay in the future
51
<PAGE>
for shares of our common stock. These provisions of Delaware law and the
certificate of incorporation and bylaws may also have the effect of discouraging
or preventing transactions involving an actual or threatened change of control
of us, including unsolicited takeover attempts, even though such a transaction
may offer our stockholders the opportunity to sell their stock at a price above
the prevailing market price.
DELAWARE TAKEOVER STATUTE
We are subject to the "business combination" provisions of Section 203 of
the Delaware General Corporation Law. With limited exceptions, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder obtained interested stockholder status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the stockholder owned at least 85% of
our voting stock outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding
those shares owned by (a) persons who are directors and also officers and
(b) employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
- on or subsequent to the date the business combination is approved by the
board and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to exceptions described in the Delaware code, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of the corporation's voting stock. This
statute could prohibit or delay the accomplishment of mergers or other takeover
or change in control attempts with respect to us and, accordingly, may
discourage attempts to acquire us.
In addition, provisions of our certificate of incorporation and bylaws
summarized in the following paragraphs may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
BOARD OF DIRECTORS VACANCIES
Our bylaws authorize the board of directors to fill vacant directorships or
increase the size of the board of directors. This may deter a stockholder from
removing incumbent directors and simultaneously gaining control of the board of
directors by filling the vacancies created by such removal with its own
nominees.
CLASSIFIED BOARD
Our bylaws provide that our board will be classified into three classes of
directors beginning at the next annual meeting of stockholders. Please see
"Management--Classes of the Board" for more information regarding the classified
board.
52
<PAGE>
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our certificate of incorporation provides that stockholders may act only at
duly called annual or special meetings of stockholders, not by written consent.
Our bylaws further provide that special meetings of our stockholders may be
called only by the President, Chief Executive Officer or Chairman of the board
of directors or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
Our bylaws provide that stockholders seeking to bring business before our
annual meeting of stockholders, or to nominate candidates for election as
directors at our annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to,
or mailed and received at, our principal executive offices not less than 120
days prior to the first anniversary of the date of notice of annual meeting
provided with respect to the previous year's annual meeting of stockholders;
provided, that if no annual meeting of stockholders was held in the previous
year or the date of the annual meeting of stockholders has been changed to be
more than 30 calendar days earlier than such anniversary, notice by the
stockholder, to be timely, must be received a reasonable time before the
solicitation is made. The bylaws also specify requirements as to the form and
content of a stockholder's notice. These provisions may preclude stockholders
from bringing matters before our annual meeting of stockholders or from making
nominations for directors at our annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES
Our authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval, subject to
limitations imposed by the Nasdaq National Market. These additional shares may
be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued and unreserved common
stock and preferred stock could render more difficult or discourage an attempt
to obtain control of us by means of a proxy contest, tender offer, merger or
otherwise.
Delaware law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation provides that, except to the extent
prohibited by Delaware law, our directors shall not be personally liable to us
or our stockholders for monetary damages for any breach of fiduciary duty as our
directors. Under Delaware law, the directors have a fiduciary duty to us which
is not eliminated by this provision of the certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under Delaware law for breach of the
director's duty of loyalty to us for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or which involve
intentional misconduct, or knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by Delaware
law. This provision does not affect the directors' responsibilities under any
other laws, such as the Federal securities laws or state or Federal
environmental laws.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of their capacity or status as directors and officers,
provided that this provision shall not eliminate or limit the liability of a
director for the following:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock purchases or redemptions;
or
- for any transaction from which the director derived an improper personal
benefit.
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<PAGE>
Delaware law provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under our bylaws, any agreement, a vote of stockholders
or otherwise. The certificate eliminates the personal liability of directors to
the fullest extent permitted by Delaware law. In addition, the certificate
provides that we may fully indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that such person is or was one of our
directors or officers or is or was serving at our request as a director of or
officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses including attorney's fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding.
We have also entered into agreements to indemnify our directors and
executive officers, in addition to the indemnification provided for in our
bylaws. We believe that these provisions and agreements are necessary to attract
and retain qualified directors and executive officers. Our bylaws also permit us
to secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions, regardless of whether
Delaware law would permit indemnification. We have applied for liability
insurance for our officers and directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the certificate of incorporation. We are not aware
of any threatened litigation or proceeding that may result in a claim for such
indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock Transfer
Corporation.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market after this offering, or
the perception that such sales could occur. Such sales also might make it more
difficult for us to sell equity securities in the future at a time and price
that we deem appropriate. After this offering, 8,601,624 shares of common stock
will be outstanding. Of these shares, the 3,150,000 shares being offered in the
offering are freely tradable. This leaves 5,451,624 shares eligible for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ----------------- -----------------------------------------------------------------------------------------------
<S> <C>
33,974 After the date of this prospectus
571,376 Upon the filing of a registration statement to register for resale shares of common stock
issuable upon the exercise of options granted under our stock option plans
5,417,650 At various times after 180 days from the date of this prospectus, subject, in some cases, to
volume limitations
</TABLE>
In general, under Rule 144, as currently in effect, an affiliate of Rubio's
or a person or persons whose shares are required to be aggregated and who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (1)
approximately 86,016 shares immediately after this offering or (2) the average
weekly trading volume in the common stock during the four calendar weeks
preceding the date on which notice of such sale is filed, subject to restriction
under Rule 144. In addition, a person who is not deemed to have been our
affiliate 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. To the extent that shares were acquired from one
of our affiliates, such person's holding period for the purpose of effecting a
sale under Rule 144 commences on the date of transfer from the affiliate.
As of the date of this prospectus, options to purchase a total of 571,376
shares of common stock are outstanding, of which 161,134 shares are currently
vested and immediately exercisable. Upon the closing of this offering, we intend
to file a registration statement to register for resale the 1,123,938 shares of
common stock reserved for issuance under our stock option plans. We expect such
registration statement to become effective immediately upon filing. Shares
issued upon the exercise of stock options granted under our stock option plans
will be eligible for resale in the public market from time to time subject to
vesting and, in the case of options held by persons who have signed lock-up
agreements referred to below, the expiration of the lock-up agreements.
Our directors, officers and stockholders who hold 5,040,718 shares in the
aggregate have entered into lock-up agreements under which they have agreed that
they will not sell, directly or indirectly, any shares of common stock without
the prior written consent of Thomas Weisel Partners LLC for a period of 180 days
from the date of this prospectus. In addition, stockholders who hold 376,932
shares in the aggregate have entered into similar lock-up agreements with us.
Holders of approximately 3,341,841 shares of common stock and up to 45,000
shares of common stock issuable upon exercise of a warrant, have the right,
subject to conditions and limitations described in the investors rights
agreement, to include their shares in registration statements relating to our
securities. By exercising their registration rights and causing a large number
of shares to be registered and sold in the public market, these holders may
cause the price of the common stock to fall. In addition, any demand to include
such shares in our registration statements could have an adverse effect on our
ability to raise needed capital. Please see "Description of
Securities--Registration Rights" for a description of the registration rights of
our stockholders and "Risk Factors--The large number of shares eligible for
public sale after this offering could cause our stock price to decline" for a
discussion of the risks associated with a large number of shares being available
for public sale.
55
<PAGE>
UNDERWRITING
GENERAL
Subject to the terms and conditions set forth in an agreement among the
underwriters and us, each of the underwriters named below, through their
representatives, Thomas Weisel Partners LLC, Dain Rauscher Wessels, a division
of Dain Rauscher Incorporated, and U.S. Bancorp Piper Jaffray, has severally
agreed to purchase from us the aggregate number of shares of common stock set
forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Thomas Weisel Partners LLC.................................................
Dain Rauscher Wessels......................................................
U.S. Bancorp Piper Jaffray.................................................
-----------------
Total.................................................................... 3,150,000
-----------------
-----------------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to various conditions, such as approval of legal
matters by counsel. The nature of the underwriters' obligations is such that
they are committed to purchase and pay for all of the shares of common stock
listed above if any are purchased.
The underwriting agreement provides that we and the selling stockholders
will indemnify the underwriters against liabilities specified in the
underwriting agreement under the Securities Act or will contribute to payments
that the underwriters may be required to make relating to these liabilities.
OVER-ALLOTMENT OPTION
We and the selling stockholders named under the caption "Selling
Stockholders" have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of 472,500 additional shares of our common stock
exercisable at the "public offering price" less the "underwriting discounts and
commissions," each as set forth on the cover page of this prospectus. If the
underwriters exercise such option in whole or in part, then each of the
underwriters will be severally committed, subject to conditions described in the
underwriting agreement, to purchase the additional shares of our common stock in
proportion to their respective purchase commitments set forth in the table
above.
COMMISSIONS AND DISCOUNTS
The underwriters propose to offer the shares of common stock directly to the
public at the "public offering price" set forth on the cover page of this
prospectus, and at such price less a concession not in excess of $ per share of
common stock to other dealers specified in a master agreement among underwriters
who are members of the National Association of Securities Dealers, Inc. The
underwriters may allow, and such dealers may reallow, concessions not in excess
of $ per share of common stock to these other dealers. After this offering, the
offering price, concessions and other selling terms may be changed by the
underwriters. Our common stock is offered subject to receipt and acceptance by
the underwriters and to other conditions, including the right to reject orders
in whole or in part.
56
<PAGE>
The following table summarizes the compensation to be paid to the
underwriters by us and the expenses payable by us:
<TABLE>
<CAPTION>
TOTAL
------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us...................... $ $ $
Expenses payable by us................................................. $ $ $
</TABLE>
RESERVED SHARES
The underwriters, at our request, have reserved for sale at the initial
public offering price up to 94,500 shares of common stock to be sold in this
offering for sale to our employees and other persons designated by us. Michael
Dooling, one of our directors, has expressed interest in acquiring, directly or
through affiliates, 100,000 shares of common stock in this offering at the
initial public offering price. The number of shares available for sale to the
general public will be reduced to the extent that any reserved shares are
purchased. Any reserved shares not purchased in this manner will be offered by
the underwriters on the same basis as the other shares offered in the offering.
NO SALES OF SIMILAR SECURITIES
Our directors, officers and stockholders who hold 5,040,718 shares in the
aggregate, have agreed that they will not offer, sell, or agree to sell,
directly or indirectly, or otherwise dispose of any shares of common stock
without the prior written consent of Thomas Weisel Partners LLC for a period of
180 days from the date of this prospectus.
In addition, we have agreed that for a period of 180 days after the date of
this prospectus we will not, without the prior written consent of Thomas Weisel
Partners LLC, offer, sell or otherwise dispose of any shares of common stock
except for the shares of common stock offered in the offering, the shares of
common stock issuable upon exercise of outstanding options and warrants.
INFORMATION REGARDING THOMAS WEISEL PARTNERS LLC
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 24
filed public offerings of equity securities, of which eight have been completed,
and has acted as a syndicate member in an additional 10 public offerings of
equity securities. Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or controlling persons,
except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.
NASDAQ NATIONAL MARKET LISTING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial offering price for our common stock will be
determined by negotiations between us, the selling stockholders and
representatives of the underwriters. Some of the factors to be considered in
these negotiations will be our results of operations in recent periods,
estimates of our prospects and the industry in which we compete, an assessment
of our management, the general state of the securities markets at the time of
this offering and the prices of similar securities of generally comparable
companies. We have applied for approval for the quotation of our common stock on
the Nasdaq National Market, under the symbol "RUBO." We cannot assure you,
however, that an active or orderly trading market will develop for our common
stock or that our common stock will trade in the public markets subsequent to
this offering at or above the initial offering price. Please see "Risk
Factors--Our common stock may not develop an active, liquid trading market."
The underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered under this prospectus.
57
<PAGE>
MARKET STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
In order to facilitate this offering, persons participating in this offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of our common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in our common
stock for their own account by selling more shares of common stock than we have
sold to them. The underwriters may elect to cover any short position by
purchasing shares of common stock in the open market or by exercising the
over-allotment option granted to the underwriters. In addition, the underwriters
may stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids. Under these penalty bids, selling concessions that are allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
repurchased, usually in order to stabilize the market. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. No representation is made
as to the magnitude or effect of any such stabilization or other transactions.
These transactions may be effected on the Nasdaq National Market or otherwise
and may be discontinued at any time after they are commenced.
58
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered in the offering will be
passed upon for us by Brobeck, Phleger & Harrison LLP, San Diego, California.
Attorneys associated with Brobeck, Phleger & Harrison LLP own an aggregate of
76,288 shares of common stock. Legal matters in connection with this offering
will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati,
P.C., Palo Alto, California.
EXPERTS
The consolidated financial statements as of December 28, 1997 and December
27, 1998 and for each of the three years in the period ended December 27, 1998
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, including
the exhibits, schedules and amendments to the registration statement, under the
Securities Act with respect to the shares of common stock to be sold in this
offering. This prospectus does not contain all the information set forth in the
registration statement. For further information with respect to our company and
the shares of common stock to be sold in this offering, reference is made to the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
You may read and copy all or any portion of the registration statement or
any other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the Commission's Web site, http://www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act, and, in accordance therewith, will
file periodic reports, proxy statements and other information with the SEC. Upon
approval of the common stock for the quotation on the Nasdaq National Market,
such reports, proxy and information statements and other information may also be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
We intend to furnish our stockholders with annual reports containing audited
consolidated financial statements and with quarterly reports for the first three
quarters of each year containing unaudited interim consolidated financial
information.
59
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RUBIO'S RESTAURANTS, INC. PAGE
---------
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets as of December 28, 1997 and December 27, 1998............ F-3
Consolidated Statements of Operations for the years ended December 29, 1996, December
28, 1997 and December 27, 1998..................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 29, 1996, December 28, 1997 and December 27, 1998......................... F-5
Consolidated Statements of Cash Flows for the years ended December 29, 1996, December
28, 1997 and December 27, 1998..................................................... F-6
Notes to Consolidated Financial Statements........................................... F-7
Unaudited Consolidated Balance Sheets as of December 27, 1998 and March 28, 1999..... F-24
Unaudited Consolidated Statements of Operations for the three months ended March 29,
1998 and March 28, 1999............................................................ F-25
Unaudited Consolidated Statements of Cash Flows for the three months ended March 29,
1998 and March 28, 1999............................................................ F-26
Notes to Unaudited Consolidated Financial Statements................................. F-27
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Rubio's Restaurants, Inc.:
We have audited the accompanying consolidated balance sheets of Rubio's
Restaurants, Inc. and subsidiary (the "Company") as of December 28, 1997 and
December 27, 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and of cash flows for each of the three years in
the period ended December 27, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Rubio's Restaurants, Inc. and
subsidiary as of December 28, 1997 and December 27, 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 27, 1998 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Diego, California
March 25, 1999
F-2
<PAGE>
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1997 AND DECEMBER 27, 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................................... $ 866,160 $ 786,493
Short-term investments............................................................................ 4,758,475 2,721,894
Other receivables................................................................................. 12,592 169,688
Income taxes receivable........................................................................... 3,315 99,478
Inventory......................................................................................... 254,210 359,755
Prepaid expenses.................................................................................. 174,108 295,143
Deferred income taxes............................................................................. -- 53,485
---------- ----------
Total current assets............................................................................ 6,068,860 4,485,936
INVESTMENTS......................................................................................... 4,617,000 3,391,490
PROPERTY--net....................................................................................... 12,167,851 17,133,392
OTHER ASSETS........................................................................................ 200,294 346,765
DEFERRED INCOME TAXES............................................................................... -- 393,914
---------- ----------
TOTAL............................................................................................... $23,054,005 $25,751,497
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.................................................................................. $1,765,720 $2,942,970
Accrued expenses and other liabilities............................................................ 1,226,754 2,150,424
Current portion of long-term debt................................................................. 808,232 742,573
Income taxes payable.............................................................................. -- 105,235
---------- ----------
Total current liabilities....................................................................... 3,800,706 5,941,202
DEFERRED RENT....................................................................................... 637,579 805,054
LONG-TERM DEBT...................................................................................... 1,753,842 1,113,860
---------- ----------
Total liabilities............................................................................... 6,192,127 7,860,116
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4)
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series B redeemable ($4.04 per share liquidation preference), actual--$.001 par value, 1,092,007
shares authorized, issued and outstanding....................................................... 3,348,015 3,408,810
Series C redeemable ($6.27 per share liquidation preference), actual--$.001 par value, 793,640
shares authorized, issued and outstanding....................................................... 4,243,570 4,254,450
Series D redeemable ($7.77 per share liquidation preference), actual--$.001 par value, 1,524,595
shares authorized, 1,403,843 issued and outstanding in 1997 and 1,452,491 issued and outstanding
in 1998......................................................................................... 9,411,116 10,032,065
---------- ----------
Total redeemable convertible preferred stock.................................................... 17,002,701 17,695,325
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock Series A ($2.00 per share liquidation preference), actual--$.001 par
value, 1,973,395 shares authorized, 1,973,395 issued and outstanding in 1997 and 1,924,747
issued and outstanding in 1998.................................................................. 1,973 1,925
Common stock, actual--$.001 par value, 7,298,725 shares authorized, 1,010,577 issued and
outstanding in 1997 and 1,048,600 issued and outstanding in 1998................................ 1,011 1,049
Paid-in capital................................................................................... 28,271 --
Deferred compensation............................................................................. -- 22,881
Accumulated other comprehensive income............................................................ -- 44,271
Retained earnings (accumulated deficit)........................................................... (172,078) 125,930
---------- ----------
Total stockholders' equity (deficit)............................................................ (140,823) 196,056
---------- ----------
---------- ----------
TOTAL............................................................................................... $23,054,005 $25,751,497
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
SALES............................................................... $ 19,523,064 $ 29,703,726 $ 44,698,531
COSTS AND EXPENSES:
Cost of sales..................................................... 5,068,647 8,658,651 13,073,417
Restaurant labor, occupancy and other............................. 10,440,660 15,639,052 22,616,021
General and administrative expenses............................... 3,175,603 4,253,704 6,148,137
Depreciation and amortization..................................... 735,241 1,259,283 1,945,932
Pre-opening expenses.............................................. 18,298 270,846 318,529
Loss on asset impairment.......................................... -- 386,928 --
------------- ------------- -------------
OPERATING INCOME (LOSS)............................................. 84,615 (764,738) 596,495
OTHER INCOME (EXPENSE):
Interest and investment income.................................... 236,469 188,132 521,110
Interest expense.................................................. (219,307) (262,622) (253,575)
Miscellaneous income (expense).................................... 1,235 (5,321) (9,945)
Loss on disposal/sale of property................................. (1,799) (56,395) (5,073)
------------- ------------- -------------
Total other income (expense).................................... 16,598 (136,206) 252,517
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES................................... 101,213 (900,944) 849,012
INCOME TAX (EXPENSE) BENEFIT........................................ (29,611) (99,522) 66,276
------------- ------------- -------------
NET INCOME (LOSS)................................................... $ 71,602 $ (1,000,466) $ 915,288
------------- ------------- -------------
------------- ------------- -------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS............... $ 2,644 $ (1,095,105) $ 568,055
------------- ------------- -------------
------------- ------------- -------------
HISTORIC NET INCOME (LOSS) PER SHARE:
Basic............................................................. $ -- $ (1.08) $ .55
------------- ------------- -------------
------------- ------------- -------------
Diluted........................................................... $ -- $ (1.08) $ .14
------------- ------------- -------------
------------- ------------- -------------
HISTORIC SHARES USED IN CALCULATING HISTORIC NET INCOME (LOSS) PER
SHARE:
Basic............................................................. 1,007,639 1,010,483 1,033,469
------------- ------------- -------------
------------- ------------- -------------
Diluted........................................................... 1,025,588 1,010,483 6,417,654
------------- ------------- -------------
------------- ------------- -------------
PRO FORMA NET INCOME PER SHARE (UNAUDITED):
Basic............................................................. $ .14
-------------
-------------
Diluted........................................................... $ .14
-------------
-------------
PRO FORMA SHARES USED IN CALCULATING PRO FORMA NET INCOME PER SHARE
(UNAUDITED):
Basic............................................................. 6,334,031
-------------
-------------
Diluted........................................................... 6,455,331
-------------
-------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK
SERIES A COMMON STOCK
---------------------- ---------------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
--------- ----------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996............................ 2,000,000 $ 2,000 1,000,000 $ 1,000 $ 24,387
Exercise of common stock options.................. -- -- 10,107 10 3,651
Repurchase shares of Series A preferred stock..... (26,605) (27) -- -- (216)
Net income........................................ -- -- -- -- --
Accretion of redemption--preferred stock.......... -- -- -- -- --
--------- ----------- --------- ----------- ---------
BALANCE, DECEMBER 29, 1996.......................... 1,973,395 1,973 1,010,107 1,010 27,822
Exercise of common stock options.................. -- -- 450 1 449
Net loss.......................................... -- -- -- -- --
Accretion of redemption--preferred stock.......... -- -- -- -- --
--------- ----------- --------- ----------- ---------
BALANCE, DECEMBER 28, 1997.......................... 1,973,395 1,973 1,010,557 1,011 28,271
Exercise of common stock options.................. -- -- 38,043 38 51,634
Repurchase shares of Series A preferred stock..... (48,648) (48) -- -- (79,905)
Deferred compensation--stock options.............. -- -- -- -- -- $ 22,881
Accretion of redemption--preferred stock.......... -- -- -- -- -- --
Net income........................................ -- -- -- -- -- --
Other comprehensive income:
Net unrealized gain on available-for-sale
investments, net of $30,765 tax............... -- -- -- -- -- --
Total comprehensive income.................... -- -- -- -- -- --
--------- ----------- --------- ----------- --------- -------------
BALANCE, DECEMBER 27, 1998.......................... 1,924,747 $ 1,925 1,048,600 $ 1,049 $ -- $ 22,881
--------- ----------- --------- ----------- --------- -------------
--------- ----------- --------- ----------- --------- -------------
<CAPTION>
ACCUMULATED
OTHER RETAINED TOTAL TOTAL
COMPRE- EARNINGS STOCKHOLDERS' COMPRE-
HENSIVE (ACCUMULATED EQUITY HENSIVE
INCOME DEFICIT) (DEFICIT) INCOME
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996............................ $1,063,309 $1,090,696
Exercise of common stock options.................. -- 3,661
Repurchase shares of Series A preferred stock..... (142,926) (143,169)
Net income........................................ 71,602 71,602
Accretion of redemption--preferred stock.......... (68,958) (68,958)
------------ ------------
BALANCE, DECEMBER 29, 1996.......................... 923,027 953,832
Exercise of common stock options.................. -- 450
Net loss.......................................... (1,000,466) (1,000,466)
Accretion of redemption--preferred stock.......... (94,639) (94,639)
------------ ------------
BALANCE, DECEMBER 28, 1997.......................... (172,078) (140,823)
Exercise of common stock options.................. -- 51,672
Repurchase shares of Series A preferred stock..... (270,047) (350,000)
Deferred compensation--stock options.............. -- 22,881
Accretion of redemption--preferred stock.......... (347,233) (347,233)
Net income........................................ 915,288 915,288 $ 915,288
Other comprehensive income:
Net unrealized gain on available-for-sale
investments, net of $30,765 tax............... $ 44,271 -- 44,271 44,271
-----------
Total comprehensive income.................... -- -- -- $ 959,559
------------- ------------ ------------ -----------
-----------
BALANCE, DECEMBER 27, 1998.......................... $ 44,271 $ 125,930 $ 196,056
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................................................... $ 71,602 $ (1,000,466) $ 915,288
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization....................................... 735,241 1,259,283 1,945,932
Loss on asset impairment............................................ -- 386,928 --
Deferred compensation............................................... -- -- 22,881
Loss on disposal/sale of property................................... 1,799 56,395 5,073
Changes in assets and liabilities:
Other receivables................................................. (24,178) 11,586 (157,096)
Income taxes receivable........................................... 51,060 8,849 (96,163)
Inventory......................................................... (40,880) (80,230) (105,545)
Prepaid expenses.................................................. (179,460) 52,522 (121,035)
Other assets...................................................... (26,122) 55,781 (146,471)
Deferred income taxes............................................. 12,525 33,611 (447,399)
Accounts payable.................................................. 522,001 540,584 1,177,250
Accrued expenses and other liabilities............................ 246,727 535,084 923,670
Income taxes payable.............................................. -- -- 105,235
Deferred rent..................................................... 77,489 135,775 167,475
------------ -------------- --------------
Cash provided by operating activities........................... 1,447,804 1,995,702 4,189,095
INVESTING ACTIVITIES:
Proceeds from sale of property........................................ 2,002 9,330 7,200
Purchase of property.................................................. (2,951,304) (6,423,481) (6,923,746)
Purchases of investments.............................................. (9,119,679) (17,264,580) (29,648,505)
Sales and maturities of investments................................... 5,508,529 12,291,384 32,954,867
------------ -------------- --------------
Cash used for investing activities.............................. (6,560,452) (11,387,347) (3,610,184)
FINANCING ACTIVITIES:
Proceeds from long-term debt.......................................... 1,168,678 836,869 2,227,720
Principal payments on long-term debt.................................. (609,162) (757,418) (2,933,361)
Proceeds from the sale of redeemable preferred stock.................. 4,224,527 9,388,152 350,000
Repurchase of Series A preferred stock................................ (143,169) -- (350,000)
Proceeds from exercise of stock options............................... 3,661 450 51,672
Deferred offering costs............................................... -- -- (4,609)
Transfer of cash from restricted deposit.............................. 97,002 156,624 --
------------ -------------- --------------
Cash provided by (used for) financing activities................ 4,741,537 9,624,677 (658,578)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................ (371,111) 233,032 (79,667)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.......................... 1,004,239 633,128 866,160
------------ -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR................................ $ 633,128 $ 866,160 $ 786,493
------------ -------------- --------------
------------ -------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest................................................ $ 203,716 $ 260,988 $ 219,740
Cash paid (received) related to income taxes--net..................... $ 68,250 $ (61,085) $ 402,818
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Holding gains on available-for-sale investments, before tax........... $ 75,036
--------------
--------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--Rubio's Restaurants, Inc. was incorporated in
California in 1985 and reincorporated in Delaware in 1997 (see Note 7). Rubio's
Restaurants, Inc. has a wholly-owned subsidiary which was incorporated in Nevada
in 1997. Rubio's Restaurants, Inc. and its subsidiary (collectively, the
"Company") own and operate a chain of 59 restaurants and three concessions in
Southern California, Nevada and Arizona.
BASIS OF FINANCIAL STATEMENT PRESENTATION--The Company operates and reports
on a 52-53 week fiscal year ending on the Sunday closest to December 31.
ACCOUNTING ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results may differ from those estimates.
CASH EQUIVALENTS--Cash equivalents consist of money market instruments
purchased with an original maturity date of three months or less.
INVESTMENTS--The Company's investments are composed primarily of government
and mortgage-backed securities. While it is the Company's general intent to hold
such securities until maturity, management will occasionally sell particular
securities for cash flow purposes. Therefore, pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Company's investments are classified as
available-for-sale based upon the Company's intent, and are accounted for at
fair market value (see Note 2). The fair market value of such investments is
determined based on quoted market prices for those investments, and approximated
cost at December 28, 1997. Holding gains on these investments were $75,036 at
December 27, 1998 and are included as other accumulated comprehensive income in
the statements of stockholders' equity. Short-term investments are investments
with original maturities of greater than three months and remaining maturities
of less than one year, or investments that are reasonably expected to be
realized in cash or consumed in operations over the next year (see Note 2).
INVENTORY--Inventory consists of food, beverage and restaurant supplies and
is stated at the lower of cost (first-in, first-out method) or market.
PROPERTY--Property is stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets or the remaining lease term, whichever is less. The lives for equipment
are 3 - 7 years and for building and leasehold items, 5 - 20 years.
The Company periodically assesses its ability to recover the carrying value
of its long-lived assets. If management concludes that the carrying value will
not be recovered, an impairment write-down is recorded to reduce the asset to
its estimated fair value.
In 1997, in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of," the Company recorded a loss of $386,928 on
long-lived assets where circumstances indicated that the assets were impaired
based on the expected future cash flows of one of the restaurant locations.
Impairment is reviewed at the lowest levels for which there are identifiable
cash flows that are independent of the cash flows of other groups of assets. In
the Company's circumstances,
F-7
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
such analysis is performed on an individual restaurant basis. The impairment
charge was the difference between the carrying value and the estimated fair
value of the assets. The Company estimated fair values based on sales prices for
comparable assets. The Company will continue to operate this store to the end of
the lease term. The Company did not have any impairment losses in fiscal 1996 or
1998.
DEFERRED RENT--Rent expense on operating leases with scheduled or minimum
rent increases is expensed on the straight-line basis over the lease terms.
Deferred rent represents the excess of rent charged to expense over rent payable
under the lease agreement.
UNEARNED USAGE ALLOWANCE--The Company receives payments from the Company's
beverage suppliers under the suppliers' marketing allowance programs and records
such amounts as an unearned usage allowance. The Company recognizes the usage
allowance as a reduction to cost of sales based on the actual quantity purchased
on a monthly basis.
STORE PRE-OPENING EXPENSES--Costs incurred in connection with start-up and
promotion of new store openings are expensed as incurred.
INCOME TAXES--The Company accounts for income taxes in accordance with SFAS
No. 109 "Accounting for Income Taxes" (see Note 5).
STOCK-BASED COMPENSATION--Effective January 1, 1996, the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
encourages, but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market value of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock (see Note 7).
CONCENTRATION OF CREDIT RISK--The Company invests its excess cash in money
market accounts and debt securities. The Company has not experienced any
material losses on its cash accounts or other investments.
EARNINGS PER SHARE--In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, "Earnings Per Share" (EPS), effective for
all financial statements issued after December 15, 1997. SFAS No. 128 requires
dual presentation of "Basic" and "Diluted" EPS by entities with complex capital
structures, replacing "Primary" and "Fully Diluted" EPS under APB Opinion No.
15. Basic EPS excludes dilution and is computed by dividing net income or loss
attributable to common stockholders by the weighted average of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock (convertible
preferred stock, warrants to purchase common stock and common stock options
using the treasury stock method) were exercised or converted into common stock.
Potential common shares in the diluted EPS computation are excluded where their
effect would be antidilutive. EPS for all periods have been computed in
accordance with SFAS No. 128 (see Note 8).
PRO FORMA NET INCOME PER SHARE--In accordance with SFAS No. 128, pro forma
basic net income per share is computed based on the weighted average of common
shares outstanding during the year,
F-8
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
which includes the conversion of 5,262,885 shares of convertible preferred stock
then outstanding into 5,262,885 shares of common stock, and the issuance of
37,677 shares of common stock upon the exercise of certain outstanding warrants
upon the consummation of the Company's planned initial public offering. Pro
forma diluted earnings per share is computed assuming the potential dilution
upon exercise of potential common shares using the treasury stock method, except
for the years where potential dilution is not assumed as the effect would be
antidilutive (see "Earnings Per Share" and Note 8).
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income," effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 establishes standards for the reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period, resulting from transactions and
other events and circumstances from nonowner sources. The Company implemented
SFAS No. 130 for fiscal 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires publicly held
companies to report financial and other information about key revenue-producing
segments of the entity for which such information is available and is utilized
by the chief operating decision maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and expense items
and total assets. A reconciliation of segment financial information to amounts
reported in the financial statements would be provided. SFAS No. 131 is
effective for the Company in 1998. The Company currently operates as one segment
(see Note 9).
In April 1998, Statement of Position ("SOP") 98-5, "Reporting on the Costs
of Start-Up Activities" was issued by the Accounting Standards Executive
Committee. SOP 98-5 provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred, and is effective for fiscal years
beginning after December 15, 1998. The Company early adopted this SOP for the
fiscal year ended December 28, 1997. The adoption of this SOP did not have a
material effect on the results of operations.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform with current year presentation.
2. BALANCE SHEET DETAILS as of December 28, 1997 and December 27, 1998,
respectively:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
PROPERTY--at cost:
Building and leasehold improvements.......................... $ 7,884,212 $ 11,209,218
Equipment and furniture...................................... 7,411,138 10,319,498
Construction in process and related costs.................... 468,580 1,059,514
------------- -------------
15,763,930 22,588,230
Less: accumulated depreciation and amortization................ (3,596,079) (5,454,838)
------------- -------------
Total.......................................................... $ 12,167,851 $ 17,133,392
------------- -------------
------------- -------------
</TABLE>
F-9
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
2. BALANCE SHEET DETAILS as of December 28, 1997 and December 27, 1998,
respectively: (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
OTHER ASSETS:
Long-term deposits........................................... $ 193,836 $ 268,680
Other........................................................ 6,458 78,085
------------- -------------
Total.......................................................... $ 200,294 $ 346,765
------------- -------------
------------- -------------
ACCRUED EXPENSES AND OTHER LIABILITIES:
Compensation................................................. $ 531,997 $ 1,069,227
Sales taxes.................................................. 223,129 334,157
Vacation pay................................................. 165,347 248,136
Unearned usage allowance..................................... 114,442 206,316
Other........................................................ 191,839 292,588
------------- -------------
Total.......................................................... $ 1,226,754 $ 2,150,424
------------- -------------
------------- -------------
INVESTMENTS:
U.S. Treasury notes.......................................... $ 9,324,976 $ 4,911,791
Mortgage-backed securities................................... 50,499 1,201,593
------------- -------------
9,375,475 6,113,384
Less current portion......................................... (4,758,475) (2,721,894)
------------- -------------
Non-current.................................................. $ 4,617,000 $ 3,391,490
------------- -------------
------------- -------------
</TABLE>
3. LONG-TERM DEBT AND CREDIT FACILITIES
CAPITAL EXPANSION LINE--In 1997, the Company had a $3,000,000 capital
expansion line (the "Capital line") with a bank which provided for interest at
1.0% over the bank's referenced rate (8.50% at December 28, 1997). The purpose
of the Capital line was to assist the Company in financing leasehold
improvements and equipment in new restaurant locations. Under the Capital line,
the bank would advance 75% of the invoice amounts, not to exceed $200,000 per
location. Once each restaurant was completed the advances were converted to an
individual term loan. Each individual loan had specific monthly payments of both
principal and interest, commencing one month after conversion. The Capital line
was secured by the Company's assets, including a specific collateral assignment
of Rubio's trademarks and Waiver and Consent Agreement on all new locations
financed. Interest expense for the borrowings under the Capital line was
$219,307, $262,622 and $82,081 for the years ended December 29, 1996, December
28, 1997 and December 27, 1998, respectively. The Capital line contained various
covenants including the maintenance of a minimum amount of tangible net worth
and a debt coverage ratio, and placed certain restrictions on fixed asset
purchases. There was $2,562,074 in total borrowings against the Capital line as
of December 28, 1997, and the Company was in compliance with all related
covenants. There were no additional amounts available upon the expiration of the
Capital line on April 30, 1997. The Company refinanced the remaining borrowings
under the Capital line with the Term Loan in May 1998.
F-10
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
3. LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED)
TERM LOAN--In May 1998, the Company entered into a term loan (the "Term
Loan") with another bank to refinance the remaining borrowings under the Capital
line. The Term Loan provides for interest, at the election of the Company at:
(1) adjusted LIBOR plus 4.0% per annum (9.25% at December 27, 1998) or (2) the
greater of the bank reference rate plus 1.5% or the Federal Funds Effective Rate
plus 2.0%. There was $1,856,433 outstanding under the Term Loan as of December
27, 1998. Interest expense was $171,494 under the Term Loan for the year ended
December 27, 1998. There are no additional amounts available to the Company
under the Term Loan. Principal and interest payments are due in quarterly
installments through April 1, 2001 or no later than 90 days after the completion
of an initial public offering, whichever is earlier.
REVOLVING LINE OF CREDIT--In May 1998, the Company entered into a revolving
line of credit (the "Credit line") in conjunction with the Term Loan, which
provides for interest at the election of the Company, at: (1) adjusted LIBOR
plus 4.0% per annum (9.25% at December 27, 1998) or (2) the greater of the bank
reference rate plus 1.5% or the Federal Funds Effective Rate plus 2.0%.
Principal and interest payments due under the Credit line are payable upon or
before maturity at May 12, 2001. There were no borrowings outstanding against
the Credit line at December 27, 1998.
The Term Loan and Credit line contain various covenants including a fixed
charge coverage ratio, minimum interest coverage ratio, and maximum total
leverage ratio, and place certain restrictions on fixed asset purchases. The
Term Loan and Credit line restrict the payment of cash dividends and other stock
redemptions or repurchases, as defined in the agreement, without prior consent
of the lender. Borrowings under the Credit line and the Term Loan are secured by
the Company's assets. The Company was in compliance with all such covenants as
of December 27, 1998.
The following summarizes the balances outstanding as long-term debt as of
December 28, 1997 and December 27, 1998:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Term Loan, total quarterly installment payments of $185,643,
interest payable in arrears ranging from 9.14% to 9.25%......... $ -- $ 1,856,433
Capital line, total monthly installment payments approximating
$89,193 including interest ranging from 8.38% to 10.75%......... 2,562,074 --
Less current portion.............................................. (808,232) (742,573)
------------ ------------
Long-term debt.................................................... $ 1,753,842 $ 1,113,860
------------ ------------
------------ ------------
</TABLE>
F-11
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
3. LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED)
Principal payments on total long-term debt at December 27, 1998 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- --------------------------------------------------------------------------------
<S> <C>
1999............................................................................ $ 742,573
2000............................................................................ 742,573
2001............................................................................ 371,287
------------
$ 1,856,433
------------
------------
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company leases restaurant and office facilities, four vehicles, and
office equipment under various operating leases expiring through 2013. The
leases generally provide renewal options from three to ten years. Certain leases
are subject to minimum annual increases based upon the consumer price index not
to exceed specific maximum amounts, certain leases have built-in contingent
percentage rents based upon sales, and other leases pass through common area
charges to the Company. Rental expense under these operating leases was
approximately $1,879,954, $2,495,415 and $3,545,546 for fiscal years 1996, 1997
and 1998, respectively.
Future minimum annual lease commitments, as of December 27, 1998, are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -------------------------------------------------------------------------------
<S> <C>
1999........................................................................... $ 3,808,816
2000........................................................................... 3,761,455
2001........................................................................... 3,782,455
2002........................................................................... 3,683,500
2003........................................................................... 3,687,735
Thereafter..................................................................... 11,873,765
-------------
Total.......................................................................... $ 30,597,726
-------------
-------------
</TABLE>
EMPLOYEE SAVINGS PLAN--On January 31, 1997, the Company adopted a defined
contribution benefit 401(k) plan. This plan allows eligible employees to
contribute a percentage of their salary, subject to annual limits. The Company
matches 25% of each eligible employee's contributions up to 6% of their gross
salary. The contributions vest over a five-year period. The Company contributed
$43,573 to the plan for the year ended December 27, 1998.
5. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, the deferred tax (provision)
benefit is determined under the liability method. Under this method, deferred
tax assets and liabilities are recognized based on differences between the
financial statement and tax basis of assets and liabilities using presently
enacted tax rates.
F-12
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
5. INCOME TAXES (CONTINUED)
The components of the income taxes expense for the years ended December 29,
1996, December 28, 1997 and December 27, 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Federal (expense) benefit:
Current............................................... $ (30,609) $ 42,483 $ (306,652)
Deferred.............................................. 10,120 (127,496) 368,361
State (expense) benefit:
Current............................................... (800) 9,753 (105,236)
Deferred.............................................. (8,322) (24,262) 109,803
---------- ----------- -----------
Total income tax (expense) benefit...................... $ (29,611) $ (99,522) $ 66,276
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The income tax expense differs from the Federal statutory rate because of
the effect of the following items for the years ended December 29, 1996,
December 28, 1997 and December 27, 1998:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate..................................................... (34.0)% 34.0% (35.0)%
State income taxes, net of Federal benefit......................... (6.0) (1.1) (5.9)
Non-deductible items............................................... (4.4) (.1) (.9)
Valuation allowance................................................ -- (49.2) 53.2
Other.............................................................. 15.1 5.3 (3.6)
--------- --------- ---------
Effective tax (expense) benefit rate............................... (29.3)% (11.1)% 7.8%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for reporting and the
amounts used for income tax purposes.
The tax effects of items comprising the Company's net deferred tax assets as
of December 28, 1997 and December 27, 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Deferred rent....................................................... $ 273,139 $ 352,936
Differences between book and tax basis of property.................. (351,147) (326,163)
Reserves currently not deductible................................... 227,770 262,464
Net operating losses................................................ 234,737 --
Credits............................................................. 66,089 245,301
Other............................................................... 921 (17,943)
Unrealized gain on investments...................................... -- (30,765)
State taxes......................................................... -- (38,431)
----------- -----------
Net deferred tax assets before valuation allowance.................. 451,509 447,399
Valuation allowance................................................. (451,509) --
----------- -----------
Total............................................................... $ -- $ 447,399
----------- -----------
----------- -----------
</TABLE>
F-13
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
5. INCOME TAXES (CONTINUED)
The Company has Federal credit carryforwards available to offset future tax
liabilities of $245,301.
The Company has provided a valuation allowance equal to the net deferred tax
asset as of December 28, 1997. The Company eliminated the valuation allowance in
1998 due to management's belief that current year activity made realization of
such benefit more likely than not.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
REDEEMABLE CONVERTIBLE PREFERRED STOCK--The Company has three classes of
redeemable convertible preferred stock outstanding, each with voting rights and
each subject to the Stock Restriction Agreement dated February 1, 1995, as
amended and the Amended and Restated Certificate of Incorporation dated November
18, 1997 (the "Certificate of Incorporation").
SERIES B REDEEMABLE--In conjunction with the Certificate of
Incorporation, the Series B Stock Purchase Agreement and Investors'
Rights Agreement as amended and restated on November 19, 1997 provide,
among other things, that the Series B stockholders: (1) are entitled to a
$.26 per share annual dividend (non-cumulative) prior to any declaration
or payment of dividends to any holders of Series A Preferred Stock or
common stock, (2) have a liquidation preference of $3.20511 per share
plus declared but unpaid dividends plus an amount equal to 8% compounded
per annum, (3) may request redemption of their shares, subject to legally
available funds, any time on or after July 1, 2000 at a price equal to
the greater of $3.20511 per share or the fair market value of such
shares, but the Company may elect to defer a portion of the redemption
for up to four years from the date of the redemption request, with such
deferral bearing interest at prime plus 1%, (4) have the right at any
time to convert their shares into common stock on a 1 for 1 basis
(subject to adjustment) as defined in the Certificate of Incorporation,
(5) shall automatically convert their shares to common stock on a 1 for 1
basis upon either (a) the consummation of a public offering with
aggregate net proceeds of $15 million, or (b) the date upon which the
Company obtains the consent of the holders of a majority of the then
outstanding shares of Series B Preferred Stock for such conversion, (6)
have certain registration rights and (7) have the right to approve
certain corporate transactions and the right of first refusal on certain
stock offerings.
SERIES C REDEEMABLE--In conjunction with the Certificate of
Incorporation, the Series C Preferred Stock Purchase Agreement and
Investors' Rights Agreement as amended and restated on November 19, 1997,
provide, among other things, that the Series C stockholders: (1) are
entitled to a $.43 per share annual dividend (non-cumulative) prior to
any declaration or payment of dividends to any holders of Series A
Preferred Stock or common stock, (2) have a liquidation preference of
$5.38126 per share plus declared but unpaid dividends, plus an amount
equal to 8% compounded per annum, (3) may request redemption of their
shares, subject to legally available funds, any time on or after July 1,
2000 at a price equal to the greater of $5.38126 per share or the fair
market value of such shares, but the Company may elect to defer a portion
of the redemption for up to four years from the date of the redemption
request, with such deferral bearing interest at prime plus 1%, (4) have
the right to convert their shares into common stock on a 1 for 1 basis
(subject to adjustment) as defined in the Certificate of Incorporation,
(5) shall automatically convert their shares to common
F-14
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
stock on a 1 for 1 basis (subject to adjustment) upon either (a) the
consummation of a public offering with aggregate net proceeds of $15
million, or (b) the date upon which the Company obtains the consent of
the holders of a majority of the then outstanding shares of Series C
Preferred Stock for such conversion, (6) have certain registration rights
and (7) have the right to approve certain corporate transactions and the
right of first refusal on certain stock offerings.
SERIES D REDEEMABLE--In conjunction with the Certificate of
Incorporation, the Series D Preferred Stock Purchase Agreement and
Investors' Rights Agreement dated November 19, 1997, provide, among other
things, that the Series D stockholders: (1) are entitled to a $.5756 per
share annual dividend (non-cumulative) prior to any declaration or
payment of dividends to any holders of Series A Preferred Stock or common
stock, (2) have a liquidation preference of $7.19454 per share plus
declared but unpaid dividends, plus an amount equal to 8% compounded per
annum, (3) may request redemption of their shares, subject to legally
available funds, any time on or after July 1, 2000 at a price equal to
the greater of $7.19454 per share or the fair market value of such
shares, but the Company may elect to defer a portion of the redemption
for up to four years from the date of the redemption request, with such
deferral bearing interest at prime plus 1%, (4) have the right to convert
their shares into common stock on a 1 for 1 basis (subject to adjustment)
as defined in the Certificate of Incorporation, (5) shall automatically
convert their shares to common stock on a 1 for 1 basis (subject to
adjustment) upon either (a) the consummation of a public offering with
aggregate net proceeds of $15 million, or (b) the date upon which the
Company obtains the consent of the holders of a majority of the then
outstanding shares of Series D Preferred Stock for such conversion, (6)
have certain registration rights and (7) have the right to approve
certain corporate transactions and the right of first refusal on certain
stock offerings.
PREFERRED STOCK PURCHASE WARRANTS
DEFERRED STOCK ISSUE COSTS--In connection with the Series D redeemable
convertible preferred stock ("Series D Preferred Stock") issuance, the
Company issued a warrant to purchase up to 27,104 shares (subject to
adjustment under a formula defined in the warrant) of the Company's
Series D Preferred Stock. The warrant is exercisable under certain
conditions specified in the warrant. The warrant term extends until the
earlier of December 31, 2002 or the effective date of an initial public
offering of equity securities. The exercise price is $8.63345 per share.
The fair value of the warrants upon date of issuance was not material.
DEBT ISSUE COSTS--In connection with the Term Loan (see Note 3), the
Company issued a warrant to purchase up to 45,000 shares (subject to
adjustment under a formula defined in the warrant) of the Company's
Series D Preferred Stock. The warrant is exercisable under certain
conditions specified in the warrant. The warrant term extends until the
earlier of December 31, 2002 or the business day preceding an
acquisition. The exercise price is $7.19454 per share. The fair value of
the warrant upon date of issuance was not material.
F-15
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
7. STOCKHOLDERS' EQUITY (DEFICIT)
REINCORPORATION--In 1997, the Company changed its state of incorporation
from California to Delaware. In connection with this change, the outstanding
shares of the Company's no par value common and convertible preferred stock were
converted into and exchanged for an equal number of shares of $.001 par value
common and convertible preferred stock of the Delaware entity. The financial
statements have been restated for all periods presented to reflect this change.
COMMON STOCK--Holders of common stock are entitled to one vote per share.
The rights of the common stock are subject to prior rights of the preferred
stock.
CONVERTIBLE PREFERRED STOCK--The Company has Series A convertible preferred
stock outstanding with voting rights. The Series A Preferred Stock is subject to
the Stock Restriction Agreement dated February 1, 1995, as amended and the
Amended and Restated Certificate of Incorporation dated November 18, 1997 (the
"Certificate of Incorporation"). The rights of the Series A stockholders are
junior to the Series B, Series C and Series D stockholders. The Series A
stockholders have the right, at any time, to convert their shares into common
stock on a 1 for 1 basis, subject to adjustment as defined in the Certificate of
Incorporation. Should a liquidation take place, preferred stockholders have
preferential rights to distributions equal to $2.00 per share. Conversion
becomes automatic in the event: (1) the Company initiates a public offering with
aggregate net proceeds of $15 million, or (2) the majority of the holders of the
then outstanding preferred stock elect to convert their shares into common
stock. The holders have certain registration rights.
COMMON STOCK WARRANT--In connection with the Series B convertible redeemable
preferred stock issuance (see Note 6), the Company issued a warrant to purchase
up to 50,000 shares (subject to adjustment under a formula defined in the
warrant) of the Company's common stock. The warrant is exercisable under certain
conditions specified in the warrant. The warrant term extends until the earlier
of February 2, 2000 or the effective date of an initial public offering of
equity securities. The exercise price is $3.20511 per share. The total fair
value of the warrant upon date of issuance was not material.
1995 STOCK OPTION/STOCK ISSUANCE PLAN--On May 30, 1996, the stockholders of
the Company approved the 1995 Stock Option/Stock Issuance Plan (the "Plan"). The
Plan supersedes and incorporates all options outstanding under the 1993 Stock
Option Plan. The Plan provides for the issuance of incentive and nonstatutory
options and for the purchase of common stock for eligible individuals. The Board
of Directors administers the Plan. The stock issuable under the Plan is shares
of authorized but unissued or reacquired common stock. The maximum number of
shares of common stock which may be issued over the term of the Plan may not
exceed 306,147 shares. The total number of shares authorized, as well as shares
subject to outstanding options, will be adjusted in the event of certain changes
to the Company's capital structure, such as stock splits or dividends or other
recapitalization. In no event will any adjustment be made in connection with the
conversion of one or more outstanding shares of the Company's preferred stock
into shares of common stock.
The Plan is divided into two separate programs: (1) the option grant program
and (2) the stock issuance program. Participation in the Plan is limited to
employees, non-employee directors and consultants of the Company. The option
exercise price per share is fixed by the Plan administrator in accordance with
the following provisions: (1) the exercise price shall not be less than 85% of
the fair market value per share of the common stock on the date of grant, except
for incentive stock options, where the exercise price shall not be less than
100% of the fair market value of the common stock on
F-16
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
the date of grant, and (2) if the person to whom the option is granted is a 10%
stockholder, then the exercise price per share shall not be less than 110% of
the fair market value per share of the common stock on the option grant date.
The purchase price per share for stock issuances is determined by the Plan
administrator and must be at least 85% of the fair market value of a share of
common stock at the time of issuance.
Each option granted under the Plan has a maximum term of either five or ten
years (depending on stock ownership) and will be subject to earlier termination
in the event of the optionee's termination of service.
1998 STOCK OPTION/STOCK ISSUANCE PLAN--On March 27, 1998, the stockholders
of the Company approved the 1998 Stock Option/Stock Issuance Plan (the "1998
Plan"). The 1998 Plan provides for the issuance of incentive and nonstatutory
options and for the purchase of common stock for eligible individuals. The Board
of Directors administers the 1998 Plan. The stock issuable under the 1998 Plan
is shares of authorized but unissued or reacquired common stock. The number of
shares of common stock which may be issued over the term of the 1998 Plan,
including the authorization of an additional 200,000 shares for issuance on
March 18, 1999, may not exceed 368,853 shares. The total number of shares
authorized, as well as shares subject to outstanding options, will be adjusted
in the event of certain changes to the Company's capital structure, such as
stock splits or dividends or other recapitalization. In no event will any
adjustment be made in connection with the conversion of one or more outstanding
shares of the Company's preferred stock into shares of common stock.
The 1998 Plan is divided into two separate programs: (1) the option grant
program and (2) the stock issuance program. Participation in the 1998 Plan is
limited to employees, non-employee directors and consultants of the Company. The
option exercise price per share is fixed by the 1998 Plan administrator in
accordance with the following provisions: (1) the exercise price shall not be
less than 85% of the fair market value per share of the common stock on the date
of grant, except for incentive stock options, where the exercise price shall not
be less than 100% of the fair market value of the common stock on the date of
grant, and (2) if the person to whom the option is granted is a 10% stockholder,
then the exercise price per share shall not be less than 110% of the fair market
value per share of the common stock on the option grant date. The purchase price
per share for stock issuances is determined by the 1998 Plan administrator and
must be at least 85% of the fair market value of a share of common stock at the
time of issuance. The purchase price per share for stock issuances to a 10%
stockholder shall not be less than 110% of the fair market at the time of
issuance.
Each option granted under the 1998 Plan has a maximum term of either five or
ten years (depending on stock ownership) and will be subject to earlier
termination in the event of the optionee's termination of service.
1999 STOCK INCENTIVE PLAN--On March 18, 1999 and March 24, 1999, the Board
of Directors and the stockholders, respectively, of the Company approved the
1999 Stock Incentive Plan (the "1999 Plan"). The 1999 Plan will be effective
upon the execution of the underwriting agreement and pricing of the common stock
with respect to the Company's initial public offering. All outstanding options
under the 1993 Stock Option Plan, the 1995 Stock Option/Stock Issuance Plan and
the 1998 Stock Option/Stock Issuance Plan (collectively, the "predecessor
plans") will be incorporated into the 1999 Plan upon the effective date, and no
further grants will be made under the predecessor plans. Except as otherwise
F-17
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
noted below, the options previously granted under the predecessor plans will
have substantially the same terms as in effect for new grants made under the
1999 Plan.
The stock issuable under the 1999 Plan shall be shares of authorized but
unissued or reacquired common stock, including shares repurchased by the Company
on the open market. A total of 1,123,938 shares of common stock have been
authorized for issuance under the 1999 Plan, which includes the shares subject
to outstanding options under the predecessor plans. As of December 27, 1998,
145,860 options were available for grant under the predecessor plans. The number
of shares of common stock reserved for issuance under the 1999 Plan will
automatically increase on the first trading day in January each year, beginning
in calendar year 2000. The increase will be equal to 3% of the total number of
shares of common stock outstanding as of the last trading day in December of the
preceding year, not to exceed 450,000 shares in any given year. In addition, no
participant in the 1999 Plan may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances for more than
500,000 shares of common stock in the aggregate per calendar year. Each option
shall have a maximum term of either five or ten years, depending on the related
program, and will be subject to earlier termination in the event of the
optionee's termination of service.
The 1999 Plan is divided into five separate components; (1) the
discretionary option grant program, (2) the stock issuance program, (3) the
salary investment option grant program, (4) the automatic option grant program
and (5) the director fee option grant program.
The discretionary option grant and stock issuance programs provide for the
issuance of incentive and nonstatutory options for eligible employees. The
option exercise price per share is fixed by the 1999 Plan administrator in
accordance with the following provisions: (1) the exercise price shall not be
less than 100% of the fair market value per share of the common stock on the
date of grant, and (2) if the person to whom the option is granted is a 10%
stockholder, then the exercise price per share shall not be less than 110% of
the fair market value per share of the common stock on the date of grant. The
purchase price for stock issuances is determined by the 1999 Plan administrator
and shall not be less than 100% of the fair market value of a share of common
stock at the time of issuance. Each option shall be exercisable at such time or
times, during such period and for such number of shares as shall be determined
by the 1999 Plan administrator as set forth in the related individual option
agreements.
The salary investment option grant program, if activated, would be available
to executive officers and other highly compensated eligible employees. The
participants may elect, prior to the start of a calendar year, to reduce their
base salary by a specific dollar amount not less than $10,000 nor more than
$50,000. The options will be exercisable at a price equal to one-third of the
fair market value of the options at grant date. The options will vest monthly
for one year and are subject to full and immediate vesting upon certain changes
in ownership of the Company.
The automatic option grant program is available to non-employee board
members. When the 1999 Plan becomes effective, eligible individuals will
automatically receive an option grant for 15,000 shares on the date of joining
the board provided that they have not been previously employed by the Company.
In addition, at the date of each annual meeting of stockholders, each
non-employee board member will automatically be granted an option to purchase
5,000 shares of common stock, provided that the individual has served on the
board for at least six months. All grants under the automatic
F-18
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
option grant program vest immediately upon issuance. The exercise price per
share shall be equal to 100% of the fair market value of the common stock on the
date of grant.
The director fee option grant program allows, if activated, for non-employee
board members to apply any of their annual retainer fees to the acquisition of a
special option grant. The options will be exercisable at a price equal to
one-third of the fair market value of the options at the grant date. The options
will vest monthly for one year and are subject to full and immediate vesting
upon certain changes in ownership of the Company.
The board may amend or modify the 1999 Plan at any time, subject to any
required stockholder approval. The 1999 Plan will terminate at the earliest of
(1) March 17, 2009, (2) the date on which all shares available for issuance
under our 1999 Plan have been issued as fully-vested shares or (3) the
termination of all outstanding options in connection with certain ownership
changes.
1999 EMPLOYEE STOCK PURCHASE PLAN--On March 18, 1999 and March 24, 1999, the
Board of Directors and stockholders, respectively, approved the 1999 Employee
Stock Purchase Plan ("ESPP"). The ESPP will be effective upon the execution of
the underwriting agreement and pricing of the common stock with respect to the
Company's initial public offering. The ESPP allows eligible employees, as
specified in the ESPP, to purchase shares of common stock in semi-annual
intervals through payroll deductions under this plan. The accumulated payroll
deductions will be applied to the purchase of shares on the employee's behalf at
a price per share equal to 85% of the lower of (1) the fair market value of the
Company's common stock at the date of entry into the current offering period or
(2) the fair market value on the purchase date. An initial reserve of 200,000
shares of common stock has been authorized for issuance under the ESPP. The
Board of Directors may alter, suspend or discontinue the ESPP. However, certain
amendments to the ESPP may require stockholder approval.
F-19
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following is a summary of stock option activity for fiscal 1996, 1997
and 1998:
<TABLE>
<CAPTION>
SHARES
----------------------- WEIGHTED
OPTIONS AVERAGE EXERCISE
AVAILABLE OPTIONS PRICE
FOR GRANT OUTSTANDING PER SHARE
---------- ----------- -----------------
<S> <C> <C> <C>
Balance at January 1, 1996......................... 161,720 63,280 $ 0.86
Authorized....................................... 100,000 -- --
Granted.......................................... (125,060) 125,060 1.46
Exercised........................................ (10,107) 0.36
Forfeited........................................ 23,863 (23,863) 1.07
---------- -----------
Balance at December 29, 1996....................... 160,523 154,370 1.40
Authorized.......................................
Granted.......................................... (87,930) 87,930 1.54
Exercised........................................ (450) 1.00
Forfeited........................................ 17,200 (17,200) 1.50
---------- -----------
Balance at December 28, 1997....................... 89,793 224,650 1.33
Authorized....................................... 150,000
Granted.......................................... (137,140) 137,140 2.63
Exercised........................................ (38,043) 1.39
Forfeited........................................ 43,207 (43,207) 1.75
---------- -----------
Balance at December 27, 1998....................... 145,860 280,540 1.96
---------- -----------
---------- -----------
Exercisable, December 29, 1996..................... 14,945 1.01
-----------
-----------
Exercisable, December 28, 1997..................... 66,010 1.33
-----------
-----------
Exercisable, December 27, 1998..................... 92,585 1.46
-----------
-----------
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its employee stock option plans (see Note 1). Under APB Opinion
No. 25, the Company will record compensation expense resulting from the
difference between the respective grant price per share and the estimated fair
market value of the common stock at the dates of grant. Total deferred
compensation for fiscal 1998 grants was $300,540, and will be recorded ratably
over the vesting period of the respective options. For the year ended December
27, 1998 the Company recorded $22,881 of deferred compensation expense
associated with these option grants.
F-20
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following table summarizes the impact on the Company's net income (loss)
had compensation cost been determined based upon the fair value at the grant
date for awards under the stock option plans consistent with the methodology
prescribed under SFAS No. 123:
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------------
1996 1997 1998
---------- ------------- ----------
<S> <C> <C> <C>
Net income (loss) attributable to common stockholders:
Basic.............................................. $ 2,644 $ (1,095,105) $ 568,055
Diluted............................................ 2,644 (1,095,105) 915,288
As adjusted under SFAS No. 123:
Net income (loss):
Basic.............................................. $ (19,262) $ (1,127,202) $ 520,283
Diluted............................................ (19,262) (1,127,202) 867,516
Net income (loss) per share:
Basic.............................................. $ (0.02) $ (1.12) $ 0.50
Diluted............................................ (0.02) (1.12) 0.14
</TABLE>
The following table summarizes the weighted average fair value at grant date
for the options granted during fiscal 1996, 1997 and 1998 using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Expected dividend yield...................................... None None None
Expected stock price volatility.............................. None None None
Risk-free interest rate...................................... 6.00% 6.00% 5.60%
Assumed forfeiture rate...................................... 0% 20% 10%
Expected lives of options.................................... 10 years 8 years 5 years
Weighted average fair value per share........................ $0.64 $0.58 $0.57
</TABLE>
The estimated fair value of options granted is subject to the assumptions
made and if the assumptions changed, the estimated fair value amounts could be
significantly different.
F-21
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following table summarizes information as of December 27, 1998
concerning currently outstanding and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ------------------------
WEIGHTED AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE NUMBER CONTRACTUAL LIFE AVERAGE NUMBER EXERCISE
PRICES OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE PRICE
- ----------------------- ----------- ----------------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$1.00--$2.00........... 249,320 3 $ 1.62 92,585 $ 1.46
$4.00--$5.00........... 31,220 5 $ 4.64 -- --
----------- -----------
280,540... $ 1.96 92,585 $ 1.46
----------- -----------
----------- -----------
</TABLE>
8. EARNINGS PER SHARE
Reconciliation of basic and diluted earnings per share in accordance with
SFAS No. 128 (see Note 1) is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR PRO FORMA
----------------------------------------- 1998
1996 1997 1998 (UNAUDITED)
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Numerator
Basic:
Net income (loss)........................................... $ 71,602 $ (1,000,466) $ 915,288 $ 915,288
Accretion on redeemable convertible preferred stock......... (68,958) (94,639) (347,233) --
------------ ------------- ------------ ------------
Net income (loss) attributable to common stockholders..... 2,644 (1,095,105) 568,055 915,288
Diluted:
Reversal of accretion on redeemable convertible preferred
stock..................................................... -- -- 347,233 --
------------ ------------- ------------ ------------
Net income (loss) attributable to common stockholders..... $ 2,644 $ (1,095,105) $ 915,288 $ 915,288
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
F-22
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
8. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR PRO FORMA
----------------------------------------- 1998
1996 1997 1998 (UNAUDITED)
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Denominator
Basic:
Weighted average common shares
outstanding............................................... 1,007,639 1,010,483 1,033,469 1,033,469
Conversion of convertible preferred stock................... -- -- -- 5,262,885
Conversion of warrants into common stock.................... -- -- -- 37,677
------------ ------------- ------------ ------------
Total weighted average common shares outstanding.......... 1,007,639 1,010,483 1,033,469 6,334,031
Diluted:
Effect of dilutive securities:
Common stock options........................................ 17,949 -- 121,300 121,300
Conversion of convertible preferred stock................... -- -- 5,262,885 --
------------ ------------- ------------ ------------
Total weighted average common and potential common shares
outstanding............................................. 1,025,588 1,010,483 6,417,654 6,455,331
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Earnings (loss) per share:
Basic......................................................... $ -- $ (1.08) $ 0.55 $ 0.14
Diluted....................................................... $ -- $ (1.08) $ 0.14 $ 0.14
</TABLE>
9. SEGMENTED INFORMATION
The Company owns and operates high-quality, quick-service Mexican
restaurants under the name "Rubio's Baja Grill," with restaurants primarily in
California, Arizona and Nevada. In accordance with SFAS No. 131, the Company
currently considers its business to consist of one reportable operating segment.
********
F-23
<PAGE>
RUBIO'S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
MARCH 28, MARCH 28,
1999 1999
DECEMBER 27, ---------- ------------
1998
------------
(AUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 786,493 $1,124,061
Short-term investments................................................ 2,721,894 646,950
Other receivables..................................................... 169,688 379,817
Income taxes receivable............................................... 99,478 99,478
Inventory............................................................. 359,755 371,169
Prepaid expenses...................................................... 295,143 446,224
Deferred income taxes................................................. 53,485 53,485
------------ ----------
Total current assets................................................ 4,485,936 $3,121,184
INVESTMENTS............................................................. 3,391,490 2,525,880
PROPERTY--net........................................................... 17,133,392 19,052,820
OTHER ASSETS............................................................ 346,765 392,530
DEFERRED INCOME TAXES................................................... 393,914 342,125
------------ ----------
TOTAL............................................................... $25,751,497 $25,434,539
------------ ----------
------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................................... $2,942,970 $2,708,255
Accrued expenses and other liabilities................................ 2,150,424 2,201,124
Current portion of long-term debt..................................... 742,573 742,573
Income taxes payable.................................................. 105,235 40,477
------------ ----------
Total current liabilities........................................... 5,941,202 5,692,429
DEFERRED RENT........................................................... 805,054 891,111
LONG-TERM DEBT.......................................................... 1,113,860 928,217
------------ ----------
Total liabilities................................................... 7,860,116 7,511,757
------------ ----------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series B redeemable ($4.12 per share liquidation preference),
actual--$.001 par value, 1,092,007 shares authorized, issued and
outstanding; pro forma-- no shares authorized, issued or
outstanding......................................................... 3,408,810 3,424,008
Series C redeemable ($6.40 per share liquidation preference),
actual--$.001 par value, 793,640 shares authorized, issued and
outstanding; pro forma--no shares authorized, issued or
outstanding......................................................... 4,254,450 4,257,171
Series D redeemable ($7.93 per share liquidation preference),
actual--$.001 par value, 1,524,595 shares authorized, 1,452,491
issued and outstanding; pro forma--no shares authorized, issued or
outstanding......................................................... 10,032,065 10,100,954
------------ ----------
Total redeemable convertible preferred stock.......................... 17,695,325 17,782,133 $ --
------------ ---------- ------------
STOCKHOLDERS' EQUITY
Convertible preferred stock Series A ($2.00 per share liquidation
preference), acutal--$.001 par value, 1,973,395 shares authorized,
1,924,747 issued and outstanding; pro forma--no shares authorized,
issued or outstanding............................................... 1,925 1,925
Common stock, actual--$.001 par value, 7,298,725 shares authorized,
1,048,600 issued and outstanding in 1998 and 1,051,062 issued and
outstanding in 1999; pro forma--6,351,624 shares issued and
outstanding......................................................... 1,049 1,051 6,352
Paid-in capital....................................................... -- 2,893 17,781,650
Deferred compensation................................................. 22,881 39,014 39,014
Accumulated other comprehensive income................................ 44,271 11,278 11,278
Retained earnings..................................................... 125,930 84,488 84,488
------------ ---------- ------------
Total stockholders' equity.......................................... 196,056 140,649 $17,922,782
------------ ---------- ------------
------------
TOTAL............................................................... $25,751,497 $25,434,539
------------ ----------
------------ ----------
</TABLE>
See notes to unaudited consolidated financial statements.
F-24
<PAGE>
RUBIO'S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------
MARCH 29, 1998 MARCH 28, 1999
-------------- --------------
<S> <C> <C>
SALES............................................................................ $ 9,217,238 $ 14,382,898
COSTS AND EXPENSES:
Cost of sales.................................................................. 2,671,495 4,246,923
Restaurant labor, occupancy and other.......................................... 4,895,311 7,253,498
General and administrative expenses............................................ 1,428,142 2,074,890
Depreciation and amortization.................................................. 425,964 640,606
Pre-opening expenses........................................................... 50,732 94,394
-------------- --------------
OPERATING INCOME (LOSS).......................................................... (254,406) 72,587
OTHER INCOME (EXPENSE):
Interest and investment income................................................. 137,236 62,928
Interest expense............................................................... (58,004) (55,517)
Miscellaneous income (expense)................................................. 2,394 (400)
Gain (loss) on disposal/sale of property....................................... 5,725 (3,989)
-------------- --------------
Total other income (expense)................................................. 87,351 3,022
-------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES................................................ (167,055) 75,609
INCOME TAX EXPENSE............................................................... (12,999) (30,244)
-------------- --------------
NET INCOME (LOSS)................................................................ $ (180,054) $ 45,365
-------------- --------------
-------------- --------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS..................................... $ (266,862) $ (41,443)
-------------- --------------
-------------- --------------
HISTORIC NET LOSS PER SHARE:
Basic and diluted.............................................................. $ (0.26) $ (0.04)
-------------- --------------
-------------- --------------
HISTORIC SHARES USED IN CALCULATING HISTORIC NET LOSS PER SHARE:
Basic and diluted.............................................................. 1,012,731 1,049,790
-------------- --------------
-------------- --------------
PRO FORMA NET INCOME PER SHARE...................................................
(UNAUDITED):
Basic and diluted.............................................................. $ 0.01
--------------
--------------
PRO FORMA SHARES USED IN CALCULATING PRO FORMA NET INCOME PER SHARE
(UNAUDITED):
Basic.......................................................................... 6,350,352
--------------
--------------
Diluted........................................................................ 6,616,061
--------------
--------------
</TABLE>
See notes to unaudited consolidated financial statements.
F-25
<PAGE>
RUBIO'S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------------
MARCH 29, 1998 MARCH 28, 1999
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................................... $ (180,054) $ 45,365
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization............................................. 425,964 640,606
Deferred compensation..................................................... 7,627 16,133
(Gain) loss on disposal/sale of property.................................. (5,725) 3,989
Changes in assets and liabilities:
Other receivables....................................................... (11,578) (210,129)
Inventory............................................................... 3,663 (11,414)
Prepaid expenses........................................................ (47,329) (151,081)
Other assets............................................................ (20,311) (45,765)
Accounts payable........................................................ (83,809) (234,715)
Accrued expenses and other liabilities.................................. 189,002 50,700
Income taxes payable.................................................... 12,999 (64,758)
Deferred rent........................................................... 42,284 86,057
---------------- ----------------
Cash provided by operating activities................................. 332,733 124,988
---------------- ----------------
INVESTING ACTIVITIES:
Proceeds from sale of property.............................................. 7,200 --
Purchase of property........................................................ (1,332,870) (2,564,022)
Purchases of investments.................................................... (3,007,802) (8,969,694)
Sales and maturities of investments......................................... 4,102,130 11,929,044
---------------- ----------------
Cash provided by (used for) investing activities...................... (231,342) 395,328
---------------- ----------------
FINANCING ACTIVITIES:
Principal payments on long-term debt........................................ (205,990) (185,643)
Proceeds from exercise of stock options..................................... -- 2,895
Deferred offering costs..................................................... (4,608) --
---------------- ----------------
Cash used for financing activities.................................... (210,598) (182,748)
---------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. (109,207) 337,568
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............................. 866,160 786,493
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................... $ 756,953 $ 1,124,061
---------------- ----------------
---------------- ----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest...................................................... $ 55,630 $ 53,467
Cash paid related to income taxes........................................... $ 95,000
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
Holding gains on available-for-sale investments, before tax................. $ 18,796
----------------
----------------
</TABLE>
See notes to unaudited consolidated financial statements.
F-26
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 28, 1999
1. BASIS OF PRESENTATION
The accompanying consolidated financial information has been prepared by
Rubio's Restaurants, Inc. and its wholly-owned subsidiary (collectively, the
"Company") without audit, in accordance with the instructions to Form 10-Q and
therefore does not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
accordance with generally accepted accounting principles.
UNAUDITED INTERIM FINANCIAL DATA--In the opinion of management, the
unaudited consolidated financial statements for the interim periods presented
reflect all adjustments, consisting of only normal recurring accruals, necessary
for a fair presentation of the financial position and results of operations as
of and for such periods indicated. These consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this prospectus for the year
ended December 27, 1998. Results for the interim periods presented herein are
not necessarily indicative of results which may be reported for any other
interim period or for the entire fiscal year.
PRO FORMA NET INCOME PER SHARE--In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" (EPS), pro forma
basic net income per share is computed based on the weighted average of common
shares outstanding during the year, which includes the conversion of all
convertible preferred stock and the issuance of shares of common stock upon the
exercise of certain outstanding warrants (see "Unaudited Pro Forma Stockholders'
Equity") upon the consummation of the Company's planned initial public offering.
Pro forma diluted earnings per share is computed assuming the potential dilution
upon exercise of potential common shares using the treasury stock method, except
for the years where potential dilution is not assumed as the effect would be
antidilutive (see Note 4).
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY--On March 18, 1999, the Company's
Board of Directors approved an increase in the authorized shares of common stock
to 75,000,000 and authorized 5,000,000 shares of undesignated preferred stock.
The change in authorized shares will be effective upon the closing of the
company's planned initial public offering. Consolidated stockholders' equity as
of March 28, 1999 has been shown on a pro forma basis, assuming conversion of
5,262,885 shares of convertible preferred stock then outstanding into 5,262,885
shares of common stock, and the issuance of 37,677 shares of common stock upon
the exercise of certain outstanding warrants. The unaudited pro forma
consolidated balance sheet as of March 28, 1999 and pro forma net income per
share (see "Pro Forma Net Income Per Share"), reflect this conversion.
F-27
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 28, 1999
2. BALANCE SHEET DETAILS as of December 27, 1998 and March 28, 1999,
respectively:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
PROPERTY--at cost:
Building and leasehold improvements.......................... $ 11,209,218 $ 12,419,980
Equipment and furniture...................................... 10,319,498 12,062,713
Construction in process and related costs.................... 1,059,514 696,110
------------- -------------
22,588,230 25,178,803
Less: accumulated depreciation and amortization.............. (5,454,838) (6,125,983)
------------- -------------
Total........................................................ $ 17,133,392 $ 19,052,820
------------- -------------
------------- -------------
ACCRUED EXPENSES AND OTHER LIABILITIES:
Compensation................................................. $ 1,069,227 $ 817,744
Sales taxes.................................................. 334,157 422,606
Vacation pay................................................. 248,136 260,556
Unearned usage allowance..................................... 206,316 100,502
Other........................................................ 292,588 599,716
------------- -------------
Total...................................................... $ 2,150,424 $ 2,201,124
------------- -------------
------------- -------------
</TABLE>
3. LONG-TERM DEBT AND CREDIT FACILITIES
TERM LOAN--On April 1, 1999, the Company amended the Revolving Credit and
Term Loan Agreement (the "Term Loan"). The amendment eliminated the provision to
prepay the Term Loan including interest not later than 90 days after the
completion of an initial public offering. The amendment also provides for a
decrease in the interest rate, at the election of the Company, to a bank
reference rate plus 0.75% or an adjusted LIBOR plus 3.0% per annum. There was
$1,670,790 outstanding under the Term Loan as of March 28, 1999. Interest
expense was $55,517 under the Term Loan for the three months ended March 28,
1999. There are no additional amounts available to the Company under the Term
Loan. Principal and interest payments are due in quarterly installments through
April 1, 2001.
REVOLVING LINE OF CREDIT--On April 1, 1999, the Company amended the
Revolving Credit and Term Loan Agreement (the "Credit line"). The amendment
decreased the rate for any unused commitment fees to 0.375%. In addition, the
amendment provides for a decrease in the interest rate, at the election of the
Company, to a bank reference rate plus 0.75% or an adjusted LIBOR plus 3.0% per
annum. Principal and interest payments due under the Credit line are payable
before or upon maturity at May 12, 2001. There were no borrowings outstanding
against the Credit line at March 28, 1999. On April 9, 1999, the Company
borrowed $1.0 million against the Credit line.
F-28
<PAGE>
RUBIO'S RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 28, 1999
4. EARNINGS PER SHARE
Reconciliation of basic and diluted earnings per share in accordance with
SFAS No. 128 is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------
MARCH 29, 1998 MARCH 28,1999
----------------- ----------------- PRO FORMA
MARCH 28,1999
-----------------
(UNAUDITED)
<S> <C> <C> <C>
Numerator
Basic:
Net income (loss).................................... $ (180,054) $ 45,365 $ 45,365
Accretion on redeemable convertible preferred
stock.............................................. (86,808) (86,808) --
----------------- ----------------- -----------------
Net income (loss) attributable to common
stockholders..................................... (266,862) (41,443) 45,365
Diluted:
Reversal of accretion on redeemable convertible
preferred stock -- -- --
----------------- ----------------- -----------------
Net income (loss) attributable to common
stockholders..................................... $ (266,862) $ (41,443) $ 45,365
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Denominator
Basic:
Weighted average common shares outstanding......... 1,012,731 1,049,790 1,049,790
Conversion of convertible preferred stock.......... -- -- 5,262,885
Conversion of warrants into common stock........... -- -- 37,677
----------------- ----------------- -----------------
Total weighted average common shares
outstanding.................................... 1,012,731 1,049,790 6,350,352
Diluted:
Effect of dilutive securities:
Common stock options............................... -- -- 265,709
Conversion of convertible preferred stock.......... -- -- --
----------------- ----------------- -----------------
Total weighted average common and potential
common shares outstanding...................... 1,012,731 1,049,790 6,616,061
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Earnings (loss) per share:
Basic................................................ $ (0.26) $ (0.04) $ 0.01
Diluted.............................................. $ (0.26) $ (0.04) $ 0.01
</TABLE>
F-29
<PAGE>
REAR INSIDE COVER:
Photograph of a scene from the Baja peninsula, overlaid with pictures of our
restaurant interiors, as well as pictures of a Baja Bowl, lobster burrito and
nachos grande from our menu, with captions identifying the name of each product.
A copy of our menu will be attached to the inside back cover.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus or to which
we have referred you. Neither we nor any underwriter has authorized anyone to
provide you with information that is different. This prospectus is not an offer
to sell nor is it seeking an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted. The information contained in this
prospectus is correct only as of the date of this prospectus, even if this
prospectus is delivered to you after the prospectus date, or you buy our common
stock after the prospectus date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Forward-Looking Statements................................................ 13
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Dilution.................................................................. 15
Capitalization............................................................ 16
Selected Consolidated Financial Data...................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 18
Business.................................................................. 27
Management................................................................ 36
Certain Relationships and Related Transactions............................ 46
Principal Stockholders.................................................... 47
Selling Stockholders...................................................... 49
Description of Securities................................................. 50
Shares Eligible for Future Sale........................................... 55
Underwriting.............................................................. 56
Legal Matters............................................................. 59
Experts................................................................... 59
Where You Can Find More Information....................................... 59
Index to Consolidated Financial Statements................................ F-1
</TABLE>
Until , 1999, all dealers selling shares of our common stock, whether
or not participating in this offering, may be required to deliver a prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[LOGO]
Rubio's Restaurants, Inc.
3,150,000 Shares
Common Stock
---------------------
PROSPECTUS
---------------------
Thomas Weisel Partners LLC
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
U.S. Bancorp Piper Jaffray
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant are as follows. All amounts other
than the SEC registration fee, the NASD filing fees and the Nasdaq National
Market listing fee are estimates.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee.............................................................. $ 10,071
NASD filing fee................................................................... 4,123
Nasdaq National Market listing fee................................................ 17,000
Legal fees and expenses........................................................... 250,000
Accounting fees and expenses...................................................... 200,000
Printing and engraving............................................................ 150,000
Blue sky fees and expenses (including legal fees)................................. 5,000
Transfer agent fees............................................................... 5,000
Miscellaneous..................................................................... 58,806
----------
Total........................................................................... $ 700,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
specified circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933.
As permitted by the Delaware General Corporation Law, the Registrant's
Second Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of our directors for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any breach
of the director's duty of loyalty to the Registrant or our stockholders, (2) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (3) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases), or (4) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the bylaws of the
Registrant provide that (1) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to very limited exceptions, (2) the Registrant may
indemnify its other employees and agents as set forth in the Delaware General
Corporation Law, (3) the Registrant is required to advance expenses, as
incurred, to its directors and executive officers in connection with a legal
proceeding to the fullest extent permitted by the Delaware General Corporation
Law, subject to very limited exceptions and (4) the rights conferred in the
bylaws are not exclusive.
The Registrant has entered into indemnification agreements with each of its
directors and executive officers to give such directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
the Registrant's Amended and Restated Certificate of Incorporation and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.
II-1
<PAGE>
Reference is also made to Section 8 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, bylaws and the indemnification
agreements entered into between the Registrant and each of its directors and
executive officers may be sufficiently broad to permit indemnification of the
Registrant's directors and executive officers for liabilities arising under the
Securities Act of 1933.
The Registrant has applied for liability insurance for its officers and
directors.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere in this prospectus:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
- ----------------------------------------------------------------------------- -----------------
<S> <C>
Form of Underwriting Agreement............................................... 1.1
Form of Amended and Restated Certificate of Incorporation of Registrant...... 3.2
Form of Restated Bylaws of Registrant........................................ 3.4
Form of Indemnification Agreement--Directors................................. 10.25
Form of Indemnification Agreement--Officers.................................. 10.26
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities since January 1,
1996:
(1) The Registrant from time to time has granted stock options to employees
and consultants in reliance upon exemption from registration pursuant to
either (1) Section 4(2) of the Securities Act of 1933 or (2) Rule 701
promulgated under the Securities Act of 1933. The following table sets
forth certain information regarding such grants:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICES
----------- -------------
<S> <C> <C>
Fiscal year ended December 29, 1996................................ 125,060 $ 1.00-$1.50
Fiscal year ended December 28, 1997................................ 87,930 $ 1.50-$2.00
Fiscal year ended December 27, 1998................................ 137,140 $ 2.00-$5.00
Fiscal quarter ended March 28, 1999................................ 121,850 $ 7.00-$9.00
</TABLE>
For additional information concerning these transactions, please see
"Management--Benefit Plans" in the prospectus included in this
registration statement.
(2) On March 28, 1996 and June 30, 1996, the Registrant issued a total of
793,640 shares of Series C preferred stock to various venture
capitalists, accredited investors and insiders for an aggregate
consideration of $4,270,783.
(3) On November 19, 1997 and December 3, 1997, the Registrant issued a total
of 1,403,843 shares of Series D preferred stock to various venture
capitalists, accredited investors and insiders for an aggregate
consideration of $10,100,005.
(4) On December 31, 1997, the Registrant issued a warrant to purchase up to
27,104 shares of Series D preferred stock to NationsBanc Montgomery
Securities, LLC in consideration for services provided in the private
placement of the Registrant's Series D preferred stock.
(5) On May 7, 1998, the Registrant issued 25,000 shares of common stock to a
director upon exercise of options for a consideration of $37,500.
II-2
<PAGE>
(6) On May 11, 1998, the Registrant issued a warrant to purchase up to
45,000 shares of Series D preferred stock to FSC Corp. in connection with
its credit facility with BankBoston, N.A.
(7) On June 16, 1998, the Registrant issued 48,648 shares of Series D
preferred stock to accredited investors for an aggregate consideration of
$350,000.
The above securities were offered and sold by the Registrant in reliance
upon exemptions from registration pursuant to either (1) Section 4(2) of the
Securities Act of 1933 as transactions not involving any public offering, or (2)
Rule 701 promulgated under the Securities Act of 1933. No underwriters were
involved in connection with the sales of securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation, as amended.
3.2+ Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of this
offering.
3.3+ Bylaws, as amended.
3.4+ Form of Restated Bylaws to be in effect upon the closing of this offering.
4.1* Specimen common stock certificate.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1+ Series B Preferred Stock Purchase Agreement, dated February 1, 1995.
10.2+ Common Stock Purchase Warrant granted to Flemming & Lessard, Inc., dated February 2, 1995.
10.3+ Series C Preferred Stock Purchase Agreement, dated March 28, 1996.
10.4+ Amendment Number One to Series C Preferred Stock Purchase Agreement, dated June 30, 1996.
10.5+ Series D Preferred Stock Purchase Agreement, dated November 19, 1997.
10.6+ Amendment No. 1 to the Series D Preferred Stock Purchase Agreement, dated December 3, 1997.
10.7+ Amended and Restated Investors' Rights Agreement, dated November 19, 1997.
10.8+ Amendment No. 1 to the Amended and Restated Investors' Rights Agreement, dated December 31, 1997.
10.9 Amendment No. 2 to the Amended and Restated Investors' Rights Agreement, dated May 13, 1998.
10.10+ Amended and Restated Stock Restriction Agreement, dated November 19, 1997.
10.11+ Series D Preferred Stock Purchase Warrant granted to NationsBanc Montgomery Securities, LLC, dated
December 31, 1997.
10.12 Series D Preferred Stock Purchase Warrant granted to FSC Corp., dated May 11, 1998.
10.13+ Stock Purchase Agreement, dated June 16, 1998.
10.14 Revolving Credit and Term Loan Agreement between us and BankBoston, N.A., dated May 13, 1998, as
amended.
10.15+ Lease Agreement between us and Macro Plaza Enterprises, dated October 27, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.16+ First Amendment to Lease Agreement between us and Cornerstone Corporate Centre, LLC, dated October 16,
1998.
10.17++ Agreement between us and Service America Corporation, dated April 9, 1992.
10.18++ Test Agreement between us and Host International, Inc., dated August 4, 1995.
10.19++ General Purchasing Term Agreement between us and Pacific Basin Foods, Inc., dated October 21, 1996.
10.20++ Amendment to Agreement between us and Pacific Basin Foods, Inc., dated November 20, 1998.
10.21++ Agreement between us and Coca-Cola USA Fountain, dated March 10, 1998.
10.22++ Agreement between us and Dr. Pepper/Seven Up, Inc., dated June 23, 1998.
10.23++ Rental Agreement between us and Premier Food Services, Inc., dated July 10, 1998.
10.24+ Letter Agreement between us and Volume Service America, dated March 29, 1999.
10.25+ Form of Indemnification Agreement between us and each of our directors.
10.26+ Form of Indemnification Agreement between us and each of our officers.
10.27+ 1993 Stock Option/Stock Issuance Plan, as amended.
10.28+ 1993 Stock Option/Stock Issuance Plan Form of Notice of Grant of Stock Option.
10.29+ 1993 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.30+ 1993 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.31+ 1993 Stock Option/Stock Issuance Plan Form of Restricted Stock Issuance Agreement.
10.32+ 1995 Stock Option/Stock Issuance Plan.
10.33+ 1995 Stock Option/Stock Issuance Plan Form of Notice of Grant of Stock Option.
10.34+ 1995 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.35+ 1995 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.36 1995 Stock Option/Stock Issuance Plan Form of Restricted Stock Issuance Agreement.
10.37+ 1998 Stock Option/Stock Issuance Plan.
10.38+ 1998 Stock Option/Stock Issuance Plan Form of Notice of Grant of Stock Option.
10.39+ 1998 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.40+ 1998 Stock Option/Stock Issuance Plan Form of Addendum to Stock Option Agreement.
10.41+ 1998 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.42+ 1998 Stock Option/Stock Issuance Plan Form of Addendum to Stock Purchase Agreement.
10.43+ 1998 Stock Option/Stock Issuance Plan Form of Stock Issuance Agreement.
10.44+ 1998 Stock Option/Stock Issuance Plan Form of Addendum to Stock Issuance Agreement.
10.45 Form of 1999 Stock Incentive Plan.
10.46 Form of Employee Stock Purchase Plan.
11.1 Statement re: Computation of Basic and Diluted Net Income (Loss) Per Share.
21.1+ Subsidiary List.
23.1 Independent Auditors' Consent.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 Powers of Attorney (See Signature Page on Page II-6).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ We have sought confidential treatment pursuant to Rule 406 of portions of the
referenced exhibits.
+ Previously filed.
II-4
<PAGE>
(b) Financial Statement Schedules.
All financial statement schedules have been omitted because they are not
required, are not applicable or because the information required is included in
our consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance 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.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in San Diego,
California, on this 30th day of April, 1999.
<TABLE>
<S> <C> <C>
RUBIO'S RESTAURANTS, INC.
By: /s/ RALPH RUBIO
------------------------------------------
Ralph Rubio
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Rubio's Restaurants, Inc.,
hereby severally constitute and appoint Ralph Rubio, President and Chief
Executive Officer, and Joseph N. Stein, Chief Strategic and Financial Officer,
and each of them individually, with full powers of substitution and
resubstitution, our true and lawful attorneys, with full powers to them and each
of them to sign for us, in our names and in the capacities indicated below,
Amendment No. 1 to the Registration Statement on Form S-1 filed with the SEC,
and any and all subsequent amendments to said Registration Statement (including
post-effective amendments), and any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933 in connection with the registration
under the Securities Act of 1933 of our equity securities, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the SEC, granting unto said attorneys, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as each of them might or could do in person, and hereby
ratifying and confirming all that said attorneys, and each of them, or their
substitute or substitutes, shall do or cause to be done by virtue of this Power
of Attorney.
Pursuant to the requirements of the Securities Act of 1933 Amendment No. 1
to this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ RALPH RUBIO Officer and Director
- ------------------------------ (principal executive April 30, 1999
Ralph Rubio officer)
Chief Strategic and
/s/ JOSEPH N. STEIN Financial Officer
- ------------------------------ (principal financial and April 30, 1999
Joseph N. Stein accounting officer)
/s/ KYLE A. ANDERSON
- ------------------------------ Director April 30, 1999
Kyle A. Anderson
/s/ JASON M. FISH
- ------------------------------ Director April 30, 1999
Jason M. Fish
/s/ RAFAEL RUBIO
- ------------------------------ Director April 30, 1999
Rafael Rubio
/s/ ROBERT RUBIO
- ------------------------------ Director April 30, 1999
Robert Rubio
/s/ KIM LOPDRUP
- ------------------------------ Director April 30, 1999
Kim Lopdrup
/s/ TIMOTHY J. RYAN
- ------------------------------ Director April 30, 1999
Timothy J. Ryan
/s/ MICHAEL DOOLING
- ------------------------------ Director April 30, 1999
Michael Dooling
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation, as amended.
3.2+ Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of this
offering.
3.3+ Bylaws, as amended.
3.4+ Form of Restated Bylaws to be in effect upon the closing of this offering.
4.1* Specimen common stock certificate.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1+ Series B Preferred Stock Purchase Agreement, dated February 1, 1995.
10.2+ Common Stock Purchase Warrant granted to Flemming & Lessard, Inc., dated February 2, 1995.
10.3+ Series C Preferred Stock Purchase Agreement, dated March 28, 1996.
10.4+ Amendment Number One to Series C Preferred Stock Purchase Agreement, dated June 30, 1996.
10.5++ Series D Preferred Stock Purchase Agreement, dated November 19, 1997.
10.6+ Amendment No. 1 to the Series D Preferred Stock Purchase Agreement, dated December 3, 1997.
10.7+ Amended and Restated Investors' Rights Agreement, dated November 19, 1997.
10.8+ Amendment No. 1 to the Amended and Restated Investors' Rights Agreement, dated December 31, 1997.
10.9 Amendment No. 2 to the Amended and Restated Investors' Rights Agreement, dated May 13, 1998.
10.10+ Amended and Restated Stock Restriction Agreement, dated November 19, 1997.
10.11+ Series D Preferred Stock Purchase Warrant granted to NationsBanc Montgomery Securities, LLC, dated
December 31, 1997.
10.12 Series D Preferred Stock Purchase Warrant granted to FSC Corp., dated May 11, 1998.
10.13+ Stock Purchase Agreement, dated June 16, 1998.
10.14 Revolving Credit and Term Loan Agreement between us and BankBoston, N.A., dated May 13, 1998, as
amended.
10.15+ Lease Agreement between us and Macro Plaza Enterprises, dated October 27, 1997.
10.16+ First Amendment to Lease Agreement between us and Cornerstone Corporate Centre, LLC, dated October 16,
1998.
10.17++ Agreement between us and Service America Corporation, dated April 9, 1992.
10.18++ Test Agreement between us and Host International, Inc., dated August 4, 1995.
10.19++ General Purchasing Term Agreement between us and Pacific Basin Foods, Inc., dated October 21, 1996.
10.20++ Amendment to Agreement between us and Pacific Basin Foods, Inc., dated November 20, 1998.
10.21++ Agreement between us and Coca-Cola USA Fountain, dated March 10, 1998.
10.22++ Agreement between us and Dr. Pepper/Seven Up, Inc., dated June 23, 1998.
10.23++ Rental Agreement between us and Premier Food Services, Inc., dated July 10, 1998.
10.24+ Letter Agreement between us and Volume Services America, dated March 29, 1999.
10.25+ Form of Indemnification Agreement between us and each of our directors.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.26+ Form of Indemnification Agreement between us and each of our officers.
10.27+ 1993 Stock Option/Stock Issuance Plan, as amended.
10.28+ 1993 Stock Option/Stock Issuance Plan Form of Notice of Grant of Stock Option.
10.29+ 1993 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.30+ 1993 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.31+ 1993 Stock Option/Stock Issuance Plan Form of Restricted Stock Issuance Agreement.
10.32+ 1995 Stock Option/Stock Issuance Plan.
10.33+ 1995 Stock Option/Stock Issuance Plan Form of Notice of Grant of Stock Option.
10.34+ 1995 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.35+ 1995 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.36 1995 Stock Option/Stock Issuance Plan Form of Restricted Stock Issuance Agreement.
10.37+ 1998 Stock Option/Stock Issuance Plan.
10.38+ 1998 Stock Option/Stock Issuance Plan Form of Notice of Grant of Stock Option.
10.39+ 1998 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.40+ 1998 Stock Option/Stock Issuance Plan Form of Addendum to Stock Option Agreement.
10.41+ 1998 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.42+ 1998 Stock Option/Stock Issuance Plan Form of Addendum to Stock Purchase Agreement.
10.43+ 1998 Stock Option/Stock Issuance Plan Form of Stock Issuance Agreement.
10.44+ 1998 Stock Option/Stock Issuance Plan Form of Addendum to Stock Issuance Agreement.
10.45 Form of 1999 Stock Incentive Plan.
10.46 Form of Employee Stock Purchase Plan.
21.1+ Subsidiary List.
23.1 Independent Auditors' Consent.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 Powers of Attorney (See Signature Page on Page II-6).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ We have sought confidential treatment pursuant to Rule 406 of portions of the
referenced exhibits.
+ Previously filed.
<PAGE>
3,150,000 Shares
RUBIO'S RESTAURANTS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
Dated May __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Representations and Warranties of the Company . . . . . . . . . . . . . . 2
(a) Effective Registration Statement . . . . . . . . . . . . . . . . . . 2
(b) Contents of Registration Statement . . . . . . . . . . . . . . . . . 2
(c) Due Incorporation. . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(e) Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . 3
(f) Description of Capital Stock . . . . . . . . . . . . . . . . . . . . 3
(g) Authorized Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(h) Validly Issued Shares. . . . . . . . . . . . . . . . . . . . . . . . 3
(i) No Conflict. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(j) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . 4
(k) Legal Proceedings; Exhibits. . . . . . . . . . . . . . . . . . . . . 4
(l) Compliance with Securities Act . . . . . . . . . . . . . . . . . . . 4
(m) Not an Investment Company. . . . . . . . . . . . . . . . . . . . . . 4
(n) Compliance with Environmental Laws . . . . . . . . . . . . . . . . . 4
(o) No Environmental Costs . . . . . . . . . . . . . . . . . . . . . . . 5
(p) No Registration Rights . . . . . . . . . . . . . . . . . . . . . . . 5
(q) Cuban Business Statute . . . . . . . . . . . . . . . . . . . . . . . 5
(r) Absence of Material Changes. . . . . . . . . . . . . . . . . . . . . 5
(s) Good Title to Properties . . . . . . . . . . . . . . . . . . . . . . 5
(t) Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . 5
(u) Labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(v) Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(w) Governmental Permits . . . . . . . . . . . . . . . . . . . . . . . . 6
(x) Accounting Controls. . . . . . . . . . . . . . . . . . . . . . . . . 6
(y) Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . . . 6
(z) Compliance with Food and Beverage Laws . . . . . . . . . . . . . . . 7
(aa) Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. Representations and Warranties of the Selling Stockholders. . . . . . . . 7
(a) Due Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Selling Stockholder Documents. . . . . . . . . . . . . . . . . . . . 7
(c) No Conflict. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) Fully Paid Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e) Good Title to Shares . . . . . . . . . . . . . . . . . . . . . . . . 8
(f) Delivery of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 8
(g) No Registration Rights . . . . . . . . . . . . . . . . . . . . . . . 8
(h) No Price Stabilization or Manipulation . . . . . . . . . . . . . . . 8
(i) Disclosure in Registration Statement . . . . . . . . . . . . . . . . 9
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(j) Notification of Changes. . . . . . . . . . . . . . . . . . . . . . . 9
(k) No Adverse Information . . . . . . . . . . . . . . . . . . . . . . . 9
3. Purchase and Sale Agreements. . . . . . . . . . . . . . . . . . . . . . . 9
(a) Firm Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Additional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Market Standoff Provision. . . . . . . . . . . . . . . . . . . . . .10
(d) Terms of Public Offering . . . . . . . . . . . . . . . . . . . . . .10
4. Payment and Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . .11
(a) Firm Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
(b) Additional Shares. . . . . . . . . . . . . . . . . . . . . . . . . .11
(c) Delivery of Certificates . . . . . . . . . . . . . . . . . . . . . .11
5. Covenants of the Company. . . . . . . . . . . . . . . . . . . . . . . . .11
(a) Furnish Copies of Registration Statement and Prospectus. . . . . . .11
(b) Notification of Amendments or Supplements. . . . . . . . . . . . . .11
(c) Filings of Amendments or Supplements . . . . . . . . . . . . . . . .12
(d) Blue Sky Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
(e) Earnings Statement . . . . . . . . . . . . . . . . . . . . . . . . .12
(f) Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . .12
(g) Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . .12
(h) Periodic Reporting Obligations . . . . . . . . . . . . . . . . . . .12
(i) Exchange Act Compliance. . . . . . . . . . . . . . . . . . . . . . .12
6. Conditions to the Underwriters' Obligations . . . . . . . . . . . . . . .13
(a) Effective Registration Statement . . . . . . . . . . . . . . . . . .13
(b) Rule 462 Registration Statement. . . . . . . . . . . . . . . . . . .13
(c) Prospectus Filed with Commission . . . . . . . . . . . . . . . . . .13
(d) No Stop Order. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
(e) No NASD Objection. . . . . . . . . . . . . . . . . . . . . . . . . .13
(f) No Debt Downgrading. . . . . . . . . . . . . . . . . . . . . . . . .13
(g) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . .13
(h) Officer's Certificate. . . . . . . . . . . . . . . . . . . . . . . .14
(i) Opinion of Company Counsel . . . . . . . . . . . . . . . . . . . . .14
(j) Opinion of Selling Stockholders. . . . . . . . . . . . . . . . . . .14
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(k) Opinion of Underwriters' Counsel . . . . . . . . . . . . . . . . . .14
(l) Accountant's Comfort Letter. . . . . . . . . . . . . . . . . . . . .14
(m) Lock-Up Agreements . . . . . . . . . . . . . . . . . . . . . . . . .14
(n) Selling Stockholders Certificate . . . . . . . . . . . . . . . . . .15
(o) Selling Stockholder Documents. . . . . . . . . . . . . . . . . . . .15
(p) Additional Documents . . . . . . . . . . . . . . . . . . . . . . . .15
7. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
8. Indemnity and Contribution. . . . . . . . . . . . . . . . . . . . . . . .16
(a) Indemnification of the Underwriters. . . . . . . . . . . . . . . . .16
(b) Indemnification of the Selling Stockholders. . . . . . . . . . . . .17
(c) Indemnification by the Underwriters. . . . . . . . . . . . . . . . .17
(d) Indemnification Procedures . . . . . . . . . . . . . . . . . . . . .18
(e) Contribution Agreement . . . . . . . . . . . . . . . . . . . . . . .19
(f) Contribution Amounts . . . . . . . . . . . . . . . . . . . . . . . .19
(g) Survival of Provisions . . . . . . . . . . . . . . . . . . . . . . .20
(h) Claims for Indemnification . . . . . . . . . . . . . . . . . . . . .20
(i) Limitation of Selling Stockholder Liability. . . . . . . . . . . . .20
9. Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
10. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
11. Defaulting Underwriters . . . . . . . . . . . . . . . . . . . . . . . . .21
12. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
13. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
14. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
15. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
16. Partial Unenforceability. . . . . . . . . . . . . . . . . . . . . . . . .23
17. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
18. Failure of the Selling Stockholders to Sell and Deliver Shares. . . . . .24
iii
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19. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
20. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
21. Sophisticated Parties . . . . . . . . . . . . . . . . . . . . . . . . . .24
</TABLE>
SCHEDULES
A List of Underwriters
B List of Selling Stockholders
EXHIBITS
A Form of Legal Opinion of Company Counsel
B Form of Lock-Up Agreement
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May __, 1999
Thomas Weisel Partners LLC
Dain Rauscher Wessels
U.S. Bancorp Piper Jaffray, Inc.
As Representatives of the several Underwriters
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Ladies and Gentlemen:
INTRODUCTION. Rubio's Restaurants, Inc., a Delaware corporation (the
"COMPANY"), proposes to issue and sell to the several underwriters named in
SCHEDULE A hereto (the "UNDERWRITERS"), and certain stockholders of the Company
(the "SELLING STOCKHOLDERS") named in SCHEDULE B hereto severally propose to
sell to the several Underwriters, an aggregate of 3,150,000 shares of the common
stock, par value $0.001 per share, of the Company (the "FIRM SHARES"), of which
2,250,000 shares are to be issued and sold by the Company and 900,000 shares are
to be sold by the Selling Stockholders, with each Selling Stockholder selling
the number of shares set forth opposite such Selling Stockholder's name in
SCHEDULE B hereto.
The Company and the Selling Stockholders also propose to sell to the
several Underwriters not more than an additional 472,500 shares of common stock,
par value $0.001 per share (the "ADDITIONAL SHARES"), with the Company issuing
and selling up to 186,748 shares of common stock and each Selling Stockholder
selling up to the number of shares of Common Stock set forth opposite such
Selling Stockholder's name in SCHEDULE B hereto, if and to the extent that you
shall have determined to exercise, on behalf of the Underwriters, the right to
purchase such shares of common stock granted to the Underwriters in Section 3(b)
hereof. The Firm Shares and the Additional Shares are hereinafter collectively
referred to as the "SHARES". The shares of common stock, par value $0.001 per
share, of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "COMMON STOCK". The
Company and the Selling Stockholders are hereinafter sometimes collectively
referred to as the "SELLERS". Thomas Weisel Partners LLC, Dain Rauscher Wessels
and U.S. Bancorp Piper Jaffray, Inc. have agreed to act as representatives of
the several Underwriters (in such capacity, the "REPRESENTATIVES") in connection
with the offering and sale of the Shares.
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The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement on Form S-1 (file no. 333-75087),
including a prospectus, relating to the Shares. The registration statement as
amended at the time it becomes effective, including the information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), is hereinafter referred to as the "REGISTRATION STATEMENT";
the prospectus in the form first used to confirm sales of Shares is hereinafter
referred to as the "PROSPECTUS". If the Company has filed a registration
statement to register additional shares of Common Stock pursuant to Rule 462(b)
under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"), then any
reference herein to the term "REGISTRATION STATEMENT" shall be deemed to include
such Rule 462 Registration Statement. All references in this Agreement to the
Registration Statement, the Rule 462 Registration Statement, a preliminary
prospectus, the Prospectus, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) EFFECTIVE REGISTRATION STATEMENT. The Registration Statement
has become effective; no stop order suspending the effectiveness of the
Registration Statement is in effect, and no proceedings for such purpose are
pending before or, to the best knowledge of the Company, threatened by the
Commission.
(b) CONTENTS OF REGISTRATION STATEMENT. (i) The Registration
Statement, when it became effective, did not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) the
Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set
forth in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(c) DUE INCORPORATION. The Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing
of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a
2
<PAGE>
material adverse effect on the Company and Subsidiary (as defined below),
taken as a whole (a "MATERIAL ADVERSE EFFECT").
(d) SUBSIDIARY. The Company has one subsidiary, Rubio's Restaurants
of Nevada, Inc., a Nevada corporation ("SUBSIDIARY"). Subsidiary has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business and is duly qualified
to transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. All of the issued
shares of capital stock of Subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable and are owned directly by the Company,
free and clear of all liens, encumbrances, equities or claims.
(e) UNDERWRITING AGREEMENT. This Agreement has been duly authorized,
executed and delivered by the Company, and is a valid and binding agreement of
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(f) DESCRIPTION OF CAPITAL STOCK. The authorized capital stock of
the Company conforms as to legal matters to the description thereof contained
in the Prospectus. There are no outstanding subscriptions, rights warrants,
options, calls, convertible securities, commitments of sale or liens granted
or issued by the Company or Subsidiary relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the
Company or Subsidiary, except as otherwise disclosed in the Registration
Statement.
(g) AUTHORIZED STOCK. The shares of Common Stock (including the
Shares to be sold by the Selling Stockholders) outstanding prior to the
issuance of the Shares to be sold by the Company and the Selling Stockholders
have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) VALIDLY ISSUED SHARES. The Shares to be sold by the Company
and the Selling Stockholders have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.
(i) NO CONFLICT. The execution and delivery by the Company of,
and the performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other instrument
binding upon the Company or Subsidiary that is material to the Company and
Subsidiary, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
Subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental
3
<PAGE>
body or agency is required for the performance by the Company of its
obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares.
(j) NO MATERIAL ADVERSE CHANGE. There has not occurred any
material adverse change, and no facts or circumstances have come to the
Company's or Subsidiary's attention which could reasonably be expected to
result in a material adverse change in the condition, financial or otherwise,
or in the earnings, business or operations of the Company and Subsidiary,
taken as a whole, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement).
(k) LEGAL PROCEEDINGS; EXHIBITS. There are no legal or
governmental proceedings pending or, to the best knowledge of the Company,
threatened to which the Company or Subsidiary is a party or to which any of
the properties of the Company or Subsidiary is subject that are required to
be described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not described
or filed as required.
(l) COMPLIANCE WITH SECURITIES ACT. Each preliminary prospectus
filed as part of the Registration Statement as originally filed or as part of
any amendment thereto, or filed pursuant to Rule 424 under the Securities
Act, complied when so filed in all material respects with the Securities Act
and the applicable rules and regulations of the Commission thereunder.
(m) NOT AN INVESTMENT COMPANY. The Company is not and, after
giving effect to the offering and sale of the Shares and the application of
the proceeds thereof as described in the Prospectus, will not be an
"investment company" as such term is defined in the Investment Company Act of
1940, as amended.
(n) COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company and
Subsidiary (i) are in compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply
with the terms and conditions of such permits, licenses or approvals would
not, individually or in the aggregate, have a Material Adverse Effect.
4
<PAGE>
(o) NO ENVIRONMENTAL COSTS. There are no costs or liabilities
associated with Environmental Laws (including, without limitation, any
capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties) which would, individually or in the aggregate,
have a Material Adverse Effect.
(p) NO REGISTRATION RIGHTS. There are no contracts, agreements or
understandings between the Company and any person granting such person the
right to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company or to require
the Company to include such securities with the Shares registered pursuant to
the Registration Statement other than as described in the Registration
Statement and as have been waived in writing in connection with the offering
contemplated hereby.
(q) CUBAN BUSINESS STATUTE. The Company has complied with all
provisions of Section 517.075, Florida Statutes relating to doing business
with the Government of Cuba or with any person or affiliate located in Cuba.
(r) ABSENCE OF MATERIAL CHANGES. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus (exclusive of amendments or supplements thereto subsequent to the
date of this Agreement), (1) the Company and Subsidiary have not incurred any
material liability or obligation, direct or contingent, nor entered into any
material transaction not in the ordinary course of business; (2) the Company
has not purchased any of its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on its capital stock
other than ordinary and customary dividends; and (3) there has not been any
material change, and no facts or circumstances have come to the Company's or
Subsidiary's attention which could reasonably be expected to result in a
material adverse change, in the capital stock, short-term debt or long-term
debt of the Company and Subsidiary, except in each case as described in the
Prospectus.
(s) GOOD TITLE TO PROPERTIES. The Company and Subsidiary have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to
the business of the Company and Subsidiary, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and
do not interfere with the use made and proposed to be made of such property
by the Company and Subsidiary; and any real property and buildings held under
lease by the Company and Subsidiary are held by them under valid and
subsisting leases which are enforceable against the Company and, to the
Company's knowledge, the other parties thereto, with such exceptions as are
not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and Subsidiary.
(t) INTELLECTUAL PROPERTY RIGHTS. The Company and Subsidiary own
or possess valid rights to, or can acquire on reasonable terms, all material
patents, patent rights, licenses,
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inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
neither the Company nor Subsidiary has received any notice of infringement of
or conflict with asserted rights of others with respect to any of the
foregoing which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect.
(u) LABOR. (i) No material labor dispute with the employees of
the Company or Subsidiary exists, or, to the knowledge of the Company, is
imminent; (ii) the Company is not aware of any existing, threatened or
imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that could have a Material Adverse
Effect; and (iii) to the Company's knowledge, neither the Company nor
Subsidiary is in violation or has violated the requirements of the U.S.
Immigration and Naturalization Service with respect to the Company's
employment practices, except for such violations that would not have a
Material Adverse Effect.
(v) INSURANCE. The Company and Subsidiary are insured by the
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
they are engaged; and neither the Company nor Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would
not have a Material Adverse Effect.
(w) GOVERNMENTAL PERMITS. The Company and Subsidiary possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities material to the conduct of their
respective business, and neither the Company nor Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, individually or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would have a
Material Adverse Effect.
(x) ACCOUNTING CONTROLS. The Company and Subsidiary maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (1) transactions are executed in accordance with management's
general or specific authorizations; (2) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability; (3) access to assets is permitted only in accordance with
management's general or specific authorization; and (4) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(y) YEAR 2000 COMPLIANCE. The Company has reviewed its operations
and that of Subsidiary and any third parties with which the Company or
Subsidiary has a material relationship to evaluate the extent to which the
business or operations of the Company or Subsidiary will be affected by the
Year 2000 Problem (defined below). As a result of such review, the Company
has no reason to believe, and does not believe, that the Year 2000 Problem
will have a Material Adverse
6
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Effect, or result in any material loss or interference with the Company's
business or operations. The "YEAR 2000 PROBLEM" as used herein means any
significant risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission or
other utilization of data or in the operation of mechanical or electrical
systems of any kind will not, in the case of dates or time periods occurring
after December 31, 1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000.
(z) COMPLIANCE WITH FOOD AND BEVERAGE LAWS. To the Company's
knowledge, the Company and Subsidiary are conducting their business in
compliance with the Fair Labor Standards Act, the rules and regulations of
the federal Food and Drug Administration, and all applicable federal, state
and local laws, rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all applicable local,
state and federal laws and regulations governing health, sanitation, safety,
the purchase and sale of alcoholic beverages (including, but not limited to,
liquor licenses, "tied house" statutes and "dram shop" statutes), zoning and
land use, except where the failure to be so in compliance would not have a
Material Adverse Effect.
(aa) TAXES. All material tax returns required to be filed by the
Company and Subsidiary in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or Subsidiary have been paid, other than those being contested in good
faith or for which adequate reserves have been provided.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
of the Selling Stockholders severally and not jointly, represents and
warrants to and agrees with each of the Underwriters that:
(a) DUE AUTHORIZATION. This Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder may
be limited by applicable law and except as the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or
by general equitable principles.
(b) SELLING STOCKHOLDER DOCUMENTS. The Custody Agreement and the
Power of Attorney have been duly authorized, executed and delivered by such
Selling Stockholder and are valid and binding agreements of such Selling
Stockholder enforceable in accordance with their respective terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
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(c) NO CONFLICT. The execution and delivery by such Selling
Stockholder of, and the performance by such Selling Stockholder of its
obligations under, this Agreement, the Custody Agreement signed by such
Selling Stockholder and U.S. Stock Transfer Corporation, as Custodian,
relating to the deposit of the Shares to be sold by such Selling Stockholder
(the "CUSTODY AGREEMENT") and the Power of Attorney appointing certain
individuals as such Selling Stockholder's attorneys-in-fact to the extent set
forth therein, relating to the transactions contemplated hereby and by the
Registration Statement (the "POWER OF ATTORNEY") will not contravene any
provision of applicable law, or any agreement or other instrument binding
upon such Selling Stockholder or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such Selling
Stockholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by such Selling Stockholder of its obligations under this
Agreement or the Custody Agreement or Power of Attorney of such Selling
Stockholder, except such as may be required by the federal securities laws or
securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares.
(d) FULLY PAID SHARES. The Shares to be sold by such Selling
Stockholder pursuant to this Agreement were fully paid for in accordance with
the terms of the agreement under which they were acquired by such Selling
Stockholder.
(e) GOOD TITLE TO SHARES. Such Selling Stockholder has, and on
each Closing Date will have, valid title to the Shares to be sold by such
Selling Stockholder and the legal right and power, and all authorization and
approval required by law, to enter into this Agreement, the Custody Agreement
and the Power of Attorney and to sell, transfer and deliver the Shares to be
sold by such Selling Stockholder, except for compliance with applicable
federal securities laws or securities or Blue Sky laws of the various states
in connection with the offer and sale of the Shares.
(f) DELIVERY OF SHARES. Delivery of the Shares to be sold by such
Selling Stockholder pursuant to this Agreement will pass title to such Shares
free and clear of any "Adverse Claims" as defined in Section 8-102(a)(1) of
the California Commercial Code (assuming that the transferee has purchased
the Shares without notice of any such "Adverse Claims").
(g) NO REGISTRATION RIGHTS. Such Selling Stockholder does not
have any registration or other similar rights to have any equity or debt
securities registered for sale by the Company under the Registration
Statement or included in the offering contemplated by this Agreement, other
than with respect to the Shares as described in the Registration Statement
and as have been waived in writing in connection with the offering
contemplated hereby.
(h) NO PRICE STABILIZATION OR MANIPULATION. Such Selling
Stockholder has not taken and will not take, directly or indirectly, any
action designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares.
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(i) DISCLOSURE IN REGISTRATION STATEMENT. Such Selling
Stockholder has no reason to believe that (i) the Registration Statement,
when it became effective, contained and, as amended or supplemented, if
applicable, will not contain, any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and (ii) the Prospectus
contained and, as amended or supplemented, if applicable, will not contain,
any untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this paragraph 2(i) do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(j) NOTIFICATION OF CHANGES. At any time during the period
described in Section 5(c), if there is any change in the information referred
to in Section 2(i) which comes to the attention of the Selling Stockholder,
such Selling Stockholder will immediately notify you of such change.
(k) NO ADVERSE INFORMATION. Such Selling Stockholder is not
prompted to sell any of the Shares hereunder by any material adverse
information concerning the Company which is not set forth in the Registration
Statement and the Prospectus.
3. PURCHASE AND SALE AGREEMENTS.
(a) FIRM SHARES. Each Seller, severally and not jointly, hereby
agrees to sell to the several Underwriters, and each Underwriter, upon the
basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, agrees, severally and not jointly, to
purchase from such Seller at $______ a share (the "PURCHASE PRICE") the
number of Firm Shares (subject to such adjustments to eliminate fractional
shares as you may determine) that bears the same proportion to the number of
Firm Shares to be sold by such Seller as the number of Firm Shares set forth
in SCHEDULE A hereto opposite the name of such Underwriter bears to the total
number of Firm Shares.
(b) ADDITIONAL SHARES. On the basis of the representations and
warranties contained in this Agreement, and subject to its terms and
conditions, the Company hereby agrees, and the Selling Stockholders severally
and not jointly hereby agree, to sell to the Underwriters the Additional
Shares, and the Underwriters shall have a one-time right to purchase,
severally and not jointly, up to 472,500 Additional Shares, with the Company
issuing and selling up to 186,748 shares of Common Stock and each Selling
Stockholder selling up to the number of shares of Common Stock set forth
opposite the name of each such Selling Stockholder on SCHEDULE B hereto; in
each case at the Purchase Price. In the event that the Underwriters elect to
purchase less than all of the Additional Shares, the number of Additional
Shares to be purchased from the Company and each Selling Stockholder shall be
determined by multiplying the maximum number of Additional Shares to be sold
by the Company and each Selling Stockholder as set forth on SCHEDULE B hereto
by a
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fraction, the numerator of which is the actual aggregate number of Additional
Shares being purchased by the Underwriters, and the denominator of which is
472,500. If you, on behalf of the Underwriters, elect to exercise such
option, you shall so notify the Company and such Selling Stockholders in
writing not later than thirty (30) days after the date of this Agreement,
which notice shall specify the number of Additional Shares to be purchased by
the Underwriters and the date on which such shares are to be purchased. Such
date may be the same as the Closing Date (as defined below) but not earlier
than the Closing Date nor later than ten (10) business days after the date of
such notice. Additional Shares may be purchased as provided in Section 3
hereof solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. If any Additional Shares are to be
purchased, each Underwriter agrees, severally and not jointly, to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
total number of Additional Shares to be purchased as the number of Firm
Shares set forth in SCHEDULE A hereto opposite the name of such Underwriter
bears to the total number of Firm Shares.
(c) MARKET STANDOFF PROVISION. Each Seller hereby agrees that,
without the prior written consent of Thomas Weisel Partners LLC (which
consent may be withheld in its sole discretion), it will not, during the
period ending 180 days after the date of the Prospectus, (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,
lend, 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 to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder,
(B) the issuance by the Company of shares of Common Stock upon the exercise
of options or warrants or the conversion of a security outstanding on the
date hereof which is described in the Prospectus, or (C) the grant of options
by the Company pursuant to the option plans described in the Registration
Statement and Prospectus, PROVIDED, such options are not exercisable for 180
days after the date of the Prospectus, or if such options are exercisable
within such period, such options are subject to lockup provisions
substantially the same as those set forth in this Section 3(c). In addition,
each Selling Stockholder, agrees that, without the prior written consent of
Thomas Weisel Partners LLC, it will not, during the period ending 180 days
after the date of the Prospectus, make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
security convertible into or exercisable or exchangeable for Common Stock.
(d) TERMS OF PUBLIC OFFERING. The Sellers are advised by you that
the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable.
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4. PAYMENT AND DELIVERY.
(a) FIRM SHARES. Payment for the Firm Shares to be sold by each
Seller shall be made to such Seller by wire transfer of immediately available
funds against delivery of such Firm Shares for the respective accounts of the
several Underwriters at 10:00 a.m., New York City time, on [T+3], 1999, or at
such other time on the same or such other date, not later than [T+3+5], 1999,
as shall be designated in writing by you. The time and date of such payment
are hereinafter referred to as the "CLOSING DATE".
(b) ADDITIONAL SHARES. Payment for any Additional Shares to be
sold by each Seller shall be made to such Seller by wire transfer of
immediately available funds in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on the date specified in the notice described
in Section 3(b) or at such other time on the same or on such other date, in
any event not later than [T+30+10], 1999, as shall be designated in writing
by you. The time and date of such payment are hereinafter referred to as the
"OPTION CLOSING DATE".
(c) DELIVERY OF CERTIFICATES. Certificates for the Firm Shares
and Additional Shares shall be in definitive form and registered in such
names and in such denominations as you shall request in writing not later
than one (1) full business day prior to the Closing Date or the Option
Closing Date, as the case may be. The certificates evidencing the Firm
Shares and Additional Shares shall be delivered to you on the Closing Date or
the Option Closing Date, as the case may be, for the respective accounts of
the several Underwriters, with any transfer taxes payable in connection with
the transfer of the Shares to the Underwriters duly paid, against the
irrevocable release of a wire transfer of immediately available funds for the
Purchase Price therefor.
5. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with
each Underwriter as follows:
(a) FURNISH COPIES OF REGISTRATION STATEMENT AND PROSPECTUS. To
furnish to you, without charge, four (4) signed copies of the Registration
Statement (including exhibits thereto) and for delivery to each other
Underwriter a conformed copy of the Registration Statement (without exhibits
thereto) and to furnish to you in _________________, without charge, prior to
10:00 a.m. New York City time on the business day next succeeding the date of
this Agreement and during the period mentioned in Section 5(c) below, as many
copies of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) NOTIFICATION OF AMENDMENTS OR SUPPLEMENTS. Before amending or
supplementing the Registration Statement or the Prospectus, to furnish to you
a copy of each such proposed amendment or supplement and not to file any such
proposed amendment or supplement to which you reasonably object, and to file
with the Commission within the applicable period specified in Rule 424(b)
under the Securities Act any prospectus required to be filed pursuant to such
rule.
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(c) FILINGS OF AMENDMENTS OR SUPPLEMENTS. If, during such period
after the first date of the public offering of the Shares as in the
reasonable opinion of counsel for the Underwriters the Prospectus is required
by law to be delivered in connection with sales by an Underwriter or dealer
(the "PROSPECTUS DELIVERY PERIOD"), any event shall occur or condition exist
as a result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if, in the
reasonable opinion of counsel for the Underwriters, it is necessary to amend
or supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) BLUE SKY LAWS. To endeavor to qualify the Shares for offer
and sale under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request.
(e) EARNINGS STATEMENT. To make generally available to its
security holders as soon as practicable, but in any event not later than
eighteen (18) months after the effective date of the Registration Statement
(as defined in Rule 158(c) under the Securities Act), an earnings statement
of the Company and Subsidiary (which need not be audited) complying with
Section 11(a) of the Securities Act and the rules and regulations thereunder
(including, at the option of the Company, Rule 158).
(f) USE OF PROCEEDS. The Company shall apply the net proceeds
from the sale of the Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) TRANSFER AGENT. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) PERIODIC REPORTING OBLIGATIONS. During the Prospectus
Delivery Period, the Company shall file, on a timely basis, with the
Commission and the Nasdaq National Market all reports and documents required
to be filed under the Exchange Act. Additionally, the Company shall file
with the Commission such information on Form 10-Q or Form 10-K as may be
required by Rule 463 under the Securities Act.
(i) EXCHANGE ACT COMPLIANCE. During the Prospectus Delivery
Period, the Company will file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Age in the manner
and within the time periods required by the Exchange Act.
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6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Sellers to sell the Shares to the several Underwriters and the several
obligations of the Underwriters to purchase and pay for the Shares on the
Closing Date are subject to the following conditions:
(a) EFFECTIVE REGISTRATION STATEMENT. The Registration Statement
shall have become effective not later than [__________] (New York City time)
on the date hereof.
(b) RULE 462 REGISTRATION STATEMENT. If the Company elects to
rely upon Rule 462(b), the Company shall file a Rule 462 Registration
Statement with the Commission in compliance with Rule 462(b) by 10:00 p.m.,
Washington, D.C. time, on the date of this Agreement, and the Company shall
at the time of filing either pay to the Commission the filing fee for the
Rule 462 Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Securities Act.
(c) PROSPECTUS FILED WITH COMMISSION. The Company shall have
filed the Prospectus with the Commission (including the information required
by Rule 430A under the Securities Act) in the manner and within the time
period required by Rule 424(b) under the Securities Act; or the Company shall
have filed a post-effective amendment to the Registration Statement
containing the information required by such Rule 430A, and such
post-effective amendment shall have become effective.
(d) NO STOP ORDER. No stop order suspending the effectiveness of
the Registration Statement, any Rule 462 Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in effect
and no proceedings for such purpose shall have been instituted or threatened
by the Commission.
(e) NO NASD OBJECTION. The NASD shall have raised no objection to
the fairness and reasonableness of the underwriting terms and arrangements.
(f) NO DEBT DOWNGRADING. There shall not have occurred any
downgrading, nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating accorded any of
the Company's securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2) under
the Securities Act.
(g) NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
change, or any development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and Subsidiary, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent to
the date of this Agreement) that, in your judgment, is material and adverse
and that makes it, in your judgment, impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus.
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(h) OFFICER'S CERTIFICATE. The Underwriters shall have received
on the Closing Date a certificate, dated the Closing Date and signed by the
Chief Executive Officer or President of the Company, (A) to the effect set
forth in Sections 6(d) and 6(f) above, (B) that the representations and
warranties of the Company contained in this Agreement are true and correct as
of the Closing Date, (C) that the Company has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date and (D) that there has not
occurred any change, or any development involving a prospective change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and Subsidiary, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement). Each certificate signed by an
officer of the Company and delivered to the Underwriters or counsel for the
Underwriters in accordance herewith shall be deemed to be a representation
and warranty by the Company to the Underwriters as to the matters covered
thereby.
(i) OPINION OF COMPANY COUNSEL. The Underwriters shall have
received on the Closing Date an opinion of Brobeck, Phleger & Harrison LLP,
counsel for the Company, dated the Closing Date, the form of which is
attached hereto as EXHIBIT A. The opinion shall be rendered to the
Underwriters at the request of the Company and shall so state therein.
(j) OPINION OF SELLING STOCKHOLDERS. The Underwriters shall have
received on the Closing Date an opinion of Preston Gates & Ellis, LLP,
counsel for the Selling Stockholders, dated the Closing Date, the form of
which is attached hereto as EXHIBIT B. The opinion shall be rendered to the
Underwriters at the request of the Selling Stockholders and shall so state
therein.
(k) OPINION OF UNDERWRITERS' COUNSEL. The Underwriters shall have
received on the Closing Date an opinion of Wilson Sonsini Goodrich & Rosati,
P.C., counsel for the Underwriters, dated the Closing Date, covering the
matters referred to in EXHIBIT A, paragraphs (vi), (vii), (ix) (but only as
to the statements in the Prospectus under "Description of Capital Stock" and
"Underwriters") and (xii). With respect to paragraph (xii) of EXHIBIT A,
such counsel may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification, except
as specified.
(l) ACCOUNTANT'S COMFORT LETTER. The Underwriters shall have
received, on each of the date hereof and the Closing Date, a letter dated the
date hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Underwriters, from Deloitte & Touche LLP, independent
public accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus; PROVIDED that the
letter delivered on the Closing Date shall use a "cut-off date" not earlier
than the date hereof.
(m) LOCK-UP AGREEMENTS. The "lock-up" agreements, each
substantially in the form of EXHIBIT C hereto, between you and certain
stockholders, officers and directors of the
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Company, delivered to you on or before the date hereof, shall be in full
force and effect on the Closing Date.
(n) SELLING STOCKHOLDERS CERTIFICATE. The Underwriters shall have
received on the Closing Date a certificate, dated the Closing Date and signed
by the Attorney-in-Fact of each Selling Stockholder, to the effect that the
representations and warranties of such Selling Stockholder contained in this
Agreement are true and correct as of the Closing Date and that such Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions on its or his part to be performed or satisfied hereunder on or
before the Closing Date. Each certificate signed by or on behalf of such
Selling Stockholder and delivered to the Underwriters or counsel for the
Underwriters in accordance herewith shall be deemed to be a representation
and warranty by such Selling Stockholder to the Underwriters as to the
matters covered thereby.
(o) SELLING STOCKHOLDER DOCUMENTS. On the date hereof, the
Company and the Selling Stockholders shall have furnished for review by the
Representatives copies of the Powers of Attorney and Custody Agreements
executed by each of the Selling Stockholders and such further information,
certificates and documents as the Representatives may reasonably request.
(p) ADDITIONAL DOCUMENTS. On the Closing Date, the
Representatives and counsel for the Underwriters shall have received such
information, documents and opinions as they may reasonably require for the
purposes of enabling them to pass upon the issuance and sale of the Shares as
contemplated herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the conditions
or agreements, herein contained.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction of each of the above conditions
on or prior to the Option Closing Date and to the delivery to you on the Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the Additional
Shares.
7. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of its and the
Selling Stockholders' obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Company's counsel, the Company's accountants
and counsel for the Selling Stockholders in connection with the registration and
delivery of the Shares under the Securities Act and all other fees or expenses
in connection with the preparation and filing of the Registration Statement, any
preliminary prospectus, the Prospectus and amendments and supplements to any of
the foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or legal investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
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qualification of the Shares for offer and sale under state securities laws as
contemplated by Section 5(d) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky or legal investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the NASD, (v) all fees and
expenses in connection with the preparation and filing of the registration
statement on Form 8-A relating to the Common Stock and all costs and expenses
incident to listing the Shares on the Nasdaq National Market, (vi) the cost
of printing certificates representing the Shares, (vii) the costs and charges
of any attorney-in-fact and custodian of the Selling Stockholders' Shares,
and of any transfer agent, registrar or depositary, (viii) the costs and
expenses of the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the Shares,
including, without limitation, expenses associated with the production of
road show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval of the
Company and travel and lodging expenses of the representatives and officers
of the Company and any such consultants, (ix) all expenses, if any, in
connection with any offer and sale of the Shares outside of the United
States, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters incurred in connection with qualifications of
such offers and sales outside of the United States, and (x) all other costs
and expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section. Each
Selling Stockholder severally and not jointly agrees to pay all expenses
incident to the performance of that Selling Stockholder's obligations
hereunder which the Company has not otherwise agreed to pay or cause to be
paid pursuant to the foregoing sentence or otherwise. It is understood,
however, that except as provided in this Section, Section 8 entitled
"Indemnity and Contribution", and the last paragraph of Section 11 below, the
Underwriters will pay all of their costs and expenses, including fees and
disbursements of their counsel and any advertising expenses connected with
any offers they may make.
The provisions of this Section shall not supersede or otherwise affect
any agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
8. INDEMNITY AND CONTRIBUTION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. The Sellers jointly and
severally agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
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misleading, except (i) insofar as such losses, claims, damages or liabilities
are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein and (ii) that with respect to any preliminary prospectus, the
foregoing indemnity agreement shall not inure to the benefit of any
Underwriter from whom the person asserting any loss, claim, damage or
liability purchased Shares, or any person controlling such Underwriter, if
copies of the Prospectus were timely delivered to the Underwriter pursuant to
Section 5 and a copy of the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) was
not sent or given by or on behalf of such Underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus
(as so amended or supplemented) would have cured the defect giving rise to
such loss, claim, damage, liability or expense.
(b) INDEMNIFICATION OF THE SELLING STOCKHOLDERS. The Company
agrees to indemnify and hold harmless each Selling Stockholder and each
person, if any, who controls such Selling Stockholder within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action or
claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to such
Selling Stockholder furnished to the Company in writing by such Selling
Stockholder expressly for use therein.
(c) INDEMNIFICATION BY THE UNDERWRITERS. Each Underwriter agrees,
severally and not jointly, to indemnify and hold harmless the Company, the
Selling Stockholders, the directors of the Company, the officers of the
Company who sign the Registration Statement and each person, if any, who
controls the Company or any Selling Stockholder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter
17
<PAGE>
through you expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto.
(d) INDEMNIFICATION PROCEDURES. In case any proceeding (including
any governmental investigation) shall be instituted involving any person in
respect of which indemnity may be sought pursuant to this Section 8, such
person (the "INDEMNIFIED PARTY") shall promptly notify the person against
whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and
the indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related
to such proceeding. In any such proceeding, any indemnified party shall have
the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party shall
not, in respect of the legal expenses of any indemnified party in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any,
who control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either
such Section and (iii) the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Selling Stockholders and all
persons, if any, who control any Selling Stockholder within the meaning of
either such Section, and that all such fees and expenses shall be reimbursed
as they are incurred. In the case of any such separate firm for the
Underwriters and such control persons of any Underwriters, such firm shall be
designated in writing by Thomas Weisel Partners LLC. In the case of any such
separate firm for the Company, and such directors, officers and control
persons of the Company, such firm shall be designated in writing by the
Company. In the case of any such separate firm for the Selling Stockholders
and such control persons of any Selling Stockholders, such firm shall be
designated in writing by the Selling Stockholders. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of
the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement or confirmed in writing to the
18
<PAGE>
indemnified party its obligation to provide such reimbursement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(e) CONTRIBUTION AGREEMENT. To the extent the indemnification
provided for in this Section 8 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under such paragraph, in
lieu of indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party or parties on the
other hand from the offering of the Shares or (ii) if the allocation provided
by clause 8(e)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(e)(i) above but also the relative fault of the
indemnifying party or parties on the one hand and of the indemnified party or
parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by any
Seller on the one hand and the Underwriters on the other hand in connection
with the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by such Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate
price to the public of the Shares. The relative fault of any Seller on the
one hand and the Underwriters 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 such Seller or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this
Section 8 are several in proportion to the respective number of Shares they
have purchased hereunder, and not joint.
(f) CONTRIBUTION AMOUNTS. The Sellers and the Underwriters agree
that it would not be just or equitable if contribution pursuant to this
Section 8 were determined by PRO RATA allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in Section 8(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities referred to
in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 8, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares
underwritten by it and
19
<PAGE>
distributed to the public were offered to the public exceeds the amount of
any damages that such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) SURVIVAL OF PROVISIONS. The indemnity and contribution
provisions contained in this Section 8 and the representations, warranties
and other statements of the Company and the Selling Stockholders contained in
this Agreement shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement, (ii) any investigation made by or
on behalf of any Underwriter or any person controlling any Underwriter, any
Selling Stockholder or any person controlling any Selling Stockholder, or the
Company, its officers or directors or any person controlling the Company and
(iii) acceptance of and payment for any of the Shares.
(h) CLAIMS FOR INDEMNIFICATION. The Company and each of the
Underwriters agree with each of the Selling Stockholders that any claim of
such Underwriter against such Selling Stockholder for indemnification
pursuant to Section 8(a) hereof shall first be sought by such Underwriter to
be satisfied in full by the Company and, subject to the limitation on the
aggregate liability of each Selling Stockholder set forth in Section 8(i)
hereof, shall be satisfied by the Selling Stockholders only to the extent
that such claim has not been satisfied in full by the Company within the
sixty (60) day period following the date requested for payment in accordance
with the terms of this Agreement.
(i) LIMITATION OF SELLING STOCKHOLDER LIABILITY. The aggregate
liability of each Selling Stockholder for breaches of representations and
warranties under Section 2 hereof and under the indemnity and contribution
provisions of this Section 8 shall be limited to an amount equal to the
aggregate initial public offering price of the Shares sold by such Selling
Stockholder, less the underwriting discount, as set forth on the front cover
page of the Prospectus. The Company and the Selling Stockholders may agree,
as among themselves and without limiting the rights of the Underwriters under
this Agreement, as to the respective amounts of such liability for which they
each shall be responsible. The Company and the Selling Stockholders agree
that that agreements by the Company and the Selling Stockholders hereunder
shall not reduce the obligations of the Company to indemnify the Selling
Stockholders pursuant to the Amended and Restated Investors' Rights Agreement
dated November 19, 1997.
9. EFFECTIVENESS. This Agreement shall become effective upon the
execution and delivery hereof by the parties hereto.
10. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery
of this Agreement and prior to the Closing Date (i) trading generally shall
have been suspended or materially limited on or by, as the case may
20
<PAGE>
be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of
Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of
Trade, (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York, Delaware or
California shall have been declared by either federal or New York, Delaware
or California state authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or
any calamity or crisis that, in your judgment, is material and adverse, or
(v) in the judgment of the Representatives, there shall have occurred any
material adverse change, or any development that could reasonably be expected
to result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects, whether or
not arising from transactions in the ordinary course of business, of the
Company and Subsidiary, taken as a whole, and (b) in the case of any of the
events specified in clauses 10(a)(i) through 10(a)(v), such event,
individually or together with any other such event, makes it, in your
judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
11. DEFAULTING UNDERWRITERS. If, on the Closing Date or the Option
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares that it has or they have agreed to purchase
hereunder on such date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the aggregate number of the Shares to be purchased on such
date, the other Underwriters shall be obligated severally in the proportions
that the number of Firm Shares set forth opposite their respective names in
SCHEDULE A bears to the aggregate number of Firm Shares set forth opposite the
names of all such non-defaulting Underwriters, or in such other proportions as
you may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; PROVIDED
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 11 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you, the Company and the Selling Stockholders for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholders. In any
such case either you or the relevant Sellers shall have the right to postpone
the Closing Date, but in no event for longer than seven (7) days, in order that
the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. If, on
the Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
Additional Shares or (ii) purchase not less than the number of Additional Shares
that such non-defaulting Underwriters would have been obligated to purchase in
the absence
21
<PAGE>
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply
with the Sellers' obligations under this Agreement (including without
limitation a failure of any Selling Stockholder to sell and deliver the
Shares covered in Section 18), or if for any reason any Seller shall be
unable to perform its obligations under this Agreement, the Sellers,
severally, will reimburse the Underwriters or such Underwriters as have so
terminated this Agreement with respect to themselves for all out-of-pocket
expenses (including the fees and disbursements of their counsel) reasonably
incurred by such Underwriters in connection with this Agreement or the
offering contemplated hereunder.
12. COUNTERPARTS. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
13. HEADINGS; TABLE OF CONTENTS. The headings of the sections of this
Agreement and the table of contents have been inserted for convenience of
reference only and shall not be deemed a part of this Agreement.
14. NOTICES. All communications hereunder shall be in writing and shall
be mailed, hand delivered or telecopied and confirmed to the parties hereto as
follows:
If to the Representatives:
Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Facsimile: (415) 364-2694
Attention: Mr. Jason Pedersen
with a copy to:
Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Facsimile: (415) 364-2694
Attention: David A. Baylor, Esq.
22
<PAGE>
If to the Company:
Rubio's Restaurants, Inc.
1902 Wright Place, Suite 300
Carlsbad, California 92008
Facsimile: (760) 452-0181
Attention: Mr. Ralph Rubio, President
and Chief Executive Officer
If to the Selling Stockholders:
U.S. Stock Transfer Corporation
[address]
Facsimile: [___________]
Attention: [___________]
with a copy to:
Preston Gates & Ellis, LLP
One Maritime Plaza, Suite 2400
San Francisco, California 94111
Attention: Lawrence B. Low, Esq.
Any party hereto may change the address for receipt of communications by
giving written notice to the others.
15. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 11 hereof, and to the benefit of the officers and
directors and controlling persons referred to in Section 8, and in each case
their respective successors, and no other person will have any right or
obligation hereunder as a third party beneficiary or otherwise. The term
"successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
16. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision
hereof. If any Section, paragraph or provision of this Agreement is for any
reason determined to be invalid or unenforceable, there shall be deemed to be
made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
23
<PAGE>
18. FAILURE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER SHARES. If
one or more of the Selling Stockholders shall fail to sell and deliver to the
Underwriters the Shares to be sold and delivered by such Selling Stockholders
at the Closing Date pursuant to this Agreement, then the Underwriters may at
their option, by written notice from the Representatives to the Company and
the Selling Stockholders, either (i) except as provided in Section 8,
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 7 and 8 hereof, the Company or the Selling
Stockholders, or (ii) purchase the shares which the Company and other Selling
Stockholders have agreed to sell and deliver in accordance with the terms
hereof. If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Shares to be sold and delivered by such
Selling Stockholders pursuant to this Agreement at the Closing Date or the
Option Closing Date, then the Underwriters shall have the right, by written
notice from the Representatives to the Company and the Selling Stockholders,
to postpone the Closing Date or the Option Closing Date, as the case may be,
but in no event for longer than seven (7) days in order that the required
changes, if any, to the Registration Statement and the Prospectus or any
other documents or arrangements may be effected.
19. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof.
20. AMENDMENTS. This Agreement may only be amended or modified in
writing, signed by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party
whom the condition is meant to benefit.
21. SOPHISTICATED PARTIES. Each of the parties hereto acknowledges
that it is a sophisticated business person who was adequately represented by
counsel during negotiations regarding the provisions hereof, including,
without limitation, the indemnification and contribution provisions of
Section 8, and is fully informed regarding said provisions. Each of the
parties hereto further acknowledges that the provisions of Section 8 hereto
fairly allocate the risks in light of the ability of the parties to
investigate the Company, its affairs and its business in order to assure that
adequate disclosure has been made in the Registration Statement, any
preliminary prospectus and the Prospectus (and any amendments and supplements
thereto), as required by the Securities Act and the Exchange Act.
[Remainder of page intentionally left blank]
24
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
Rubio's Restaurants, Inc.
By:
----------------------------------
Name:
Title:
The Selling Stockholders
named in Schedule B hereto,
acting severally
By:
----------------------------------
Attorney-in-Fact
Accepted as of the date hereof
Thomas Weisel Partners LLC
Dain Rauscher Wessels
U.S. Bancorp Piper Jaffray, Inc.
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule A hereto.
By: Thomas Weisel Partners LLC
By:
----------------------------------
Name:
Title:
25
<PAGE>
SCHEDULE A
<TABLE>
<S> <C>
Number of Firm
Shares
Underwriter To Be Purchased
----------- ---------------
Thomas Weisel Partners LLC
Dain Rauscher Wessels
U.S. Bancorp Piper Jaffray, Inc.
[NAMES OF OTHER UNDERWRITERS]
----------
Total . . . . . . .
----------
----------
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Number of Additional
Selling Firm Shares Shares to
Stockholder To Be Sold be Sold
----------- ------------ ----------
<S> <C> <C>
Rafael Rubio . . . . . . . . . . . . . . . . . . . . 300,000 35,752
Rosewood Capital, L.P. . . . . . . . . . . . . . . . 300,000 200,000
Funds affiliated with Farallon Capital:
Farallon Capital Partners, L.P.1. . . . . . . . . . 126,000 21,000
Farallon Institutional Partners, L.P. . . . . . . . 105,000 17,500
Farallon Capital Institutional Partners II, L.P . . 45,000 7,500
Farallon Capital Institutional Partners III, L.P. . 12,000 2,000
RR Capital Partners, L.P. . . . . . . . . . . . . . 12,000 2,000
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . 900,000 285,752
------- -------
------- -------
</TABLE>
<PAGE>
EXHIBIT A
FORM OF LEGAL OPINION OF COMPANY COUNSEL
THE FINAL OPINION IN DRAFT FORM SHOULD BE ATTACHED AS EXHIBIT A AT THE
TIME THIS AGREEMENT IS EXECUTED.
(i) The Company is duly incorporated and is validly existing and in
good standing under the laws of the State of Delaware; the Company has the
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto); the Company is duly
qualified to transact business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such qualification, except where the failure to so qualify does not
have a material adverse effect on the Company and Subsidiary, taken as a
whole ("MATERIAL ADVERSE EFFECT").
(ii) The Company has one subsidiary, Rubio's Restaurants of Nevada,
Inc., a Nevada corporation (the "SUBSIDIARY"); the Subsidiary has been duly
incorporated and is validly existing and in good standing under the laws of
the jurisdiction of incorporation; the Subsidiary has the corporate power and
authority to own, lease and operate its properties and to conduct the
business in which it is engaged; the Subsidiary is duly qualified to transact
business and is in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
qualification, except where the failure to so qualify does not have a
Material Adverse Effect; all of the issued shares of capital stock of
Subsidiary have been duly and validly authorized and issued, are fully paid
and nonassessable and are owned directly by the Company, free and clear of
all liens, encumbrances, equities and claims.
(iii) The statements set forth under the caption "Description of Capital
Stock" in the Prospectus, insofar as such statements purport to summarize
certain provisions of the capital stock of the Company, provide a fair
summary of such provisions; to our knowledge, except as described in the
Prospectus, there are no outstanding securities of the Company or the
Subsidiary convertible or exchangeable into, or evidencing the right to
purchase or subscribe for, any shares of capital stock of the Company or the
Subsidiary and there are no outstanding or authorized options, warrants or
rights of a similar character obligating the Company or the Subsidiary to
issue any shares of their respective capital stock or any securities
convertible or exchangeable into, or evidencing the right to purchase or
subscribe for, any shares of such stock.
(iv) All the shares of capital stock of the Company (including the
Shares to be sold by the Selling Stockholders) outstanding prior to the
issuance of the Shares have been duly authorized and validly issued, and are
fully paid and nonassessable.
<PAGE>
(v) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered to the Underwriters against payment therefor
in accordance with the terms of the Underwriting Agreement, will be validly
issued, fully paid and nonassessable and free of (A) any preemptive rights
arising under the Restated Certificate or the Delaware General Corporation
Law or (B) to our knowledge, similar rights that entitle or will entitle any
person to acquire any shares of capital stock of the Company upon the
issuance and sale of the Shares by the Company.
(vi) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
(vii) Neither the offer, sale or delivery of the Shares, the execution,
delivery or performance by the Company of the Underwriting Agreement,
compliance by the Company with the provisions of the Underwriting Agreement
nor consummation by the Company of the transactions contemplated by the
Underwriting Agreement (A) violates the Restated Certificate or the Bylaws,
or the organizational documents, of the Company, or (B) constitutes a breach
of, or a default under, any agreement, indenture, lease or other instrument
to which the Company is a party or by which the Company or any of its
properties is bound that is an exhibit to the Registration Statement, which
breach or default could reasonably be expected to have a Material Adverse
Effect or (C) will result in any violation of any existing law or regulation
(other than applicable state securities or Blue Sky laws, as to which we
express no opinion), or any ruling, judgment, injunction, order or decree
known to us and applicable to the Company or any of its properties.
(viii) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency, or official is required on the
part of the Company (except (A) as have been obtained under the Securities
Act and the Exchange Act or (B) such as may be required under state
securities or Blue Sky laws governing the purchase and distribution of the
Shares, as to which we express no opinion) for the valid issuance and sale of
the Shares to the Underwriters as contemplated by the Underwriting Agreement.
(ix) The statements set forth in (A) under the captions "Risk Factors -
Risks Related to this Offering - The large number of shares eligible for
public sale after this offering could cause our stock price to decline,"
"Management - Benefit Plans," "Shares Eligible for Future Sale," "Description
of Capital Stock" and "Underwriting" in the Prospectus, and (B) in the
Registration Statement in Items 14 and 15, insofar as such statements
constitute a summary of the legal matters, documents or proceedings referred
to therein, provide a fair summary of such legal matters, documents and
proceedings in all material respects.
(x) To our knowledge, (A) there are no legal or governmental
proceedings pending or threatened against the Company or the Subsidiary, or
to which the Company, the Subsidiary or any of their respective properties
are subject, which are required to be described in the Registration Statement
or Prospectus (or any amendment or supplement thereto) that are not so
described and (B) there are no agreements, contracts, indentures, leases or
other instruments that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement thereto)
2
<PAGE>
or to be filed as an exhibit to the Registration Statement that are not so
described or filed, as the case may be.
(xi) The Company is not an "investment company" or a person
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(xii) The Registration Statement and the Prospectus and any supplements
or amendments thereto (except for the consolidated financial statements and
the notes thereto and the schedules and other financial and statistical data
included therein, as to which we do not express any opinion) comply as to
form in all material respects with the requirements of the Securities Act and
the applicable rules and regulations of the Commission thereunder.
Such counsel (A) has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as to which
such counsel need not express any belief) the Registration Statement and the
prospectus include therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading and (B) has no reason to believe that
(except for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any belief) the
Prospectus contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading
With respect to paragraph (xii) of EXHIBIT A, such counsel may state
that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments
or supplements thereto and review and discussion of the contents thereof, but
are without independent check or verification, except as specified.
3
<PAGE>
EXHIBIT B
LEGAL OPINION OF SELLING STOCKHOLDERS' COUNSEL
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Stockholders.
(ii) The execution and delivery by each Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, the
Underwriting Agreement and the Custody Agreement and Powers of Attorney of
such Selling Stockholder will not contravene any provision of applicable law,
or, to our knowledge, any agreement or other instrument binding upon such
Selling Stockholder or, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over such Selling Stockholder, and
no consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by such Selling
Stockholder of its obligations under the Underwriting Agreement, the Custody
Agreement or Power of Attorney of such Selling Stockholder, except such as
may be required by federal securities laws, and the securities or Blue Sky
laws of the various states in connection with offer and sale of the Shares.
(iii) Each of the Selling Stockholders has valid title to the Shares
to be sold by such Selling Stockholder and the legal right and power, and all
authorization and approval required by law, to enter into the Underwriting
Agreement and the Custody Agreement and Power of Attorney of such Selling
Stockholder and to sell, transfer and deliver the Shares to be sold by such
Selling Stockholder.
(iv) The Custody Agreement and the Power of Attorney of each Selling
Stockholder have been duly authorized, executed and delivered by such Selling
Stockholder and are valid and binding agreements of such Selling Stockholder.
(v) Assuming the Underwriters, severally, acquire the Shares to be sold
by each Selling Stockholder pursuant to the Underwriting Agreement in good
faith and without actual notice of any adverse claims, upon the delivery to
the Underwriters of the certificates representing such Shares in accordance
with the instructions from the Representatives and payment for such Shares,
delivery of the Shares to be sold by each Selling Stockholder pursuant to the
Underwriting Agreement will pass title to such Shares free and clear of any
"Adverse Claims" as defined in Section 8302(2) of the California Commercial
Code.
Such counsel may rely with respect to factual matters and to the extent
such counsel deems appropriate, upon the representations of each Selling
Stockholder contained in the Underwriting Agreement and in the Custody
Agreement and Power of Attorney of such Selling Stockholder and in other
documents and instruments; provided that copies of such Custody Agreements
and Powers of
<PAGE>
Attorney and of any such other documents and instruments shall
be delivered to counsel to the Underwriters and shall be in form and
substance satisfactory to counsel to the Underwriters.
2
<PAGE>
EXHIBIT C
LOCK-UP AGREEMENT
March __, 1999
Thomas Weisel Partners LLC
Dain Rauscher Wessels
U.S. Bancorp Piper Jaffray, Inc.
As Representatives of the several Underwriters
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Re: LOCK-UP AGREEMENT (THE "AGREEMENT")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of certain
shares of common stock, par value $0.001 per share (the "COMMON STOCK"), of
Rubio's Restaurants, Inc., a Delaware corporation (the "COMPANY"), or
securities convertible into or exchangeable or exercisable for Common
Stock. The undersigned understands that you, as representatives (the
"REPRESENTATIVES"), propose to enter into an Underwriting Agreement on
behalf of the several Underwriters named in SCHEDULE A to such agreement
(collectively, the "UNDERWRITERS"), with the Company providing for a public
offering of the Common Stock of the Company pursuant to a Registration
Statement on Form S-1 to be filed with the Securities and Exchange
Commission (the "PUBLIC OFFERING"). The undersigned recognizes that the
Public Offering will be of benefit to the undersigned and will benefit the
Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other
Underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Public Offering
and in entering into underwriting arrangements with the Company with
respect to the Public Offering.
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering,
the undersigned hereby agrees that, without the prior written consent of
Thomas Weisel Partners (which consent may be withheld in its sole
discretion), it will not, during the period commencing on the date hereof
and ending 180 days after the date of the final prospectus relating to the
Public Offering (the "PROSPECTUS"), (1) 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, lend, 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 (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock,
<PAGE>
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. In addition, the undersigned agrees that, without the prior
written consent of Thomas Weisel Partners (which consent may be withheld in
its sole discretion), it will not, during the period commencing on the date
hereof and ending 180 days after the date of the Prospectus, make any demand
for or exercise any right with respect to, the registration of any shares of
Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock. With respect to the Public Offering, the undersigned
waives any registration rights relating to registration under the Securities
Act of 1933, as amended, of any Common Stock owned either of record or
beneficially by the undersigned, including any rights to receive notice of
the Public Offering.
The foregoing restrictions are expressly agreed to preclude the
undersigned from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a sale or
disposition of the Common Stock even if such Common Stock would be disposed
of by someone other than the undersigned. Such prohibited hedging or other
transactions would include without limitation any short sale or any purchase,
sale or grant of any right (including without limitation any put option or
put equivalent position or call option or call equivalent position) with
respect to any of the Common Stock or with respect to any security that
includes, relates to, or derives any significant part of its value from such
Common Stock.
Notwithstanding the foregoing, the undersigned may transfer shares of
Common Stock (i) as a bona fide gift or gifts, PROVIDED that the donee or
donees thereof agree to be bound by the restrictions set forth herein, (ii)
to any trust for the direct or indirect benefit of the undersigned or the
immediate family of the undersigned, PROVIDED that the trustee of the trust
agrees to be bound by the restrictions set forth herein, and PROVIDED FURTHER
that any such transfer shall not involve a disposition for value or (iii) to
the Underwriters pursuant to the Underwriting Agreement. For purposes of
this Agreement, "immediate family" shall mean any relationship by blood,
marriage or adoption, not more remote than first cousin. In addition,
notwithstanding the foregoing, if the undersigned is a corporation, the
corporation may transfer the capital stock of the Company to any wholly-owned
subsidiary of such corporation; PROVIDED, HOWEVER, that in any such case, it
shall be a condition to the transfer that the transferee execute an agreement
stating that the transferee is receiving and holding such capital stock
subject to the provisions of this Agreement and there shall be no further
transfer of such capital stock except in accordance with this Agreement, and
PROVIDED FURTHER that any such transfer shall not involve a disposition for
value.
The undersigned understands that whether or not the Public Offering
actually occurs depends on a number of factors, including stock market
conditions. The Public Offering will only be made pursuant to an
Underwriting Agreement, the terms of which are subject to negotiation among
the Company and the Underwriters.
The undersigned agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of shares of Common Stock or securities
2
<PAGE>
convertible into or exchangeable or exercisable for Common Stock held by the
undersigned except in compliance with the foregoing restrictions.
This agreement is irrevocable and will be binding on the
undersigned and the respective successors, heirs, personal representatives,
and assigns of the undersigned.
Very truly yours,
--------------------------------------
(Name)
--------------------------------------
(Address)
3
<PAGE>
[LETTERHEAD OF BROBECK, PHLEGER & HARRISON LLP]
April 29, 1999
Rubio's Restaurants, Inc.
1902 Wright Place, Suite 300
Carlsbad, CA 92008
Re: Rubio's Restaurants, Inc. Registration Statement on Form S-1
for 3,622,500 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to Rubio's Restaurants, Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance and sale
by the Company of up to 3,622,500 shares of the Company's Common Stock (the
"Shares"), including 472,000 Shares which the underwriters have the option to
purchase to cover overallotments, if any, pursuant to the Company's Registration
Statement on Form S-1 (the "Registration Statement") filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act").
This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
<PAGE>
Rubio's Restaurants, Inc.
Page 2
This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 10.9
RUBIO'S RESTAURANTS, INC.
AMENDMENT NO. 2 TO THE
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Amendment No. 2 ("Amendment") to the Amended and Restated
Investors' Rights Agreement, as amended (the "Agreement"), dated November 19,
1997, is made as of this 13th day of May, 1998 by and among RUBIO'S RESTAURANTS,
INC., a Delaware corporation (the "Company"), the investors listed on SCHEDULE A
of the Agreement (the "Existing Investors") and the investor listed on EXHIBIT A
attached hereto, (the "New Investor"). Capitalized terms used herein which are
not defined herein shall have the definition ascribed to them in the Agreement.
RECITALS
The Company desires to sell and issue to the New Investor a
warrant to purchase shares of the Company's Series D Preferred Stock.
The Existing Investors desire for the New Investor to invest
in the Company and, as a condition thereof and to induce such investment, the
Existing Investors and the Company are willing to enter into this Amendment to
permit the New Investor to become a party to the Agreement, as amended.
In consideration of the foregoing and the promises and
covenants contained herein and other good and valuable consideration the receipt
of which is hereby acknowledged, the parties hereto agree as follows:
1. ADDITIONAL PARTIES TO THE AGREEMENT.
The New Investor hereby enters into and becomes a party to the
Agreement. SCHEDULE A to the Agreement is amended to include the New Investor.
2. EFFECT OF AMENDMENT.
Except as amended and set forth above, the Agreement shall
continue in full force and effect.
3. COUNTERPARTS.
This Amendment may be executed in any number of counterparts,
each which will be deemed an original, and all of which together shall
constitute one instrument.
<PAGE>
4. SEVERABILITY.
If one or more provisions of this Amendment are held to be
unenforceable under applicable law, such provision(s) shall be excluded from
this Amendment and the balance of the Amendment shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
terms.
5. ENTIRE AGREEMENT.
This Amendment, together with the Agreement, constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof.
6. GOVERNING LAW.
This Amendment shall be governed by and construed under the
laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
[Remainder of This Page Intentionally Left Blank]
2
<PAGE>
This Amendment is hereby executed as of the date first above written.
RUBIO'S RESTAURANTS, INC.,
a Delaware corporation
By: /s/ Ralph Rubio
--------------------------------
Ralph Rubio, President
Address: 5151 Shoreham Place,
Suite 260
San Diego, CA 92122
Fax No.: (619) 452-0181
EXISTING INVESTORS:
ROSEWOOD CAPITAL, L.P.
By: Rosewood Capital Associates,
L.P., General Partner
By: /s/ Kyle Anderson
--------------------------------
Kyle A. Anderson, Principal
Address: One Maritime Plaza,
Suite 1330
San Francisco, CA 94111
Fax No: (415) 362-1192
FARALLON CAPITAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.,
its General Partner
By: /s/ Jason Fish
--------------------------------
Managing Member
Address: One Maritime Plaza
Suite 1325
San Francisco, CA 94111
Fax No: (415) 421-2133
Attention: Jason Fish and
Mark Wehrly
<PAGE>
FARALLON CAPITAL INSTITUTIONAL
PARTNERS, L.P.
By: Farallon Partners, L.L.C.,
its General Partner
By: /s/ Jason Fish
--------------------------------
Managing Member
Address: One Maritime Plaza
Suite 1325
San Francisco, CA 94111
Fax No: (415) 421-2133
Attention: Jason Fish and
Mark Wehrly
FARRALON CAPITAL INSTITUTIONAL
PARTNERS II, L.P.
By: Farallon Partners, L.L.C.,
its General Partner
By: /s/ Jason Fish
--------------------------------
Managing Member
Address: One Maritime Plaza
Suite 1325
San Francisco, CA 94111
Fax No: (415) 421-2133
Attention: Jason Fish and
Mark Wehrly
FARALLON CAPITAL INSTITUTIONAL
PARTNERS III, L.P.
By: Farallon Partners, L.L.C.,
its General Partner
By: /s/ Jason Fish
-------------------------------
Managing Member
Address: One Maritime Plaza
Suite 1325
San Francisco, CA 94111
Fax No: (415) 421-2133
Attention: Jason Fish and
Mark Wehrly
<PAGE>
RR CAPITAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.,
its General Partner
By: /s/ Jason Fish
--------------------------------
Managing Member
Address: One Maritime Plaza
Suite 1325
San Francisco, CA 94111
Fax No: (415) 421-2133
Attention: Jason Fish and
Mark Wehrly
RAFAEL R. RUBIO AND GLORIA G.
RUBIO, CO-TRUSTEES OF THE
RAFAEL R. RUBIO AND GLORIA G.
RUBIO FAMILY TRUST
By: /s/ Rafael Rubio
--------------------------------
Rafael R. Rubio
By: /s/ Gloria Rubio
--------------------------------
Gloria G. Rubio
Address: 5134 Pendelton Street
San Diego, CA 92109
Fax No:
-------------------
RALPH RUBIO AND DIONE RUBIO AS
TRUSTEES OF THE RALPH RUBIO AND
DIONE RUBIO FAMILY TRUST
By: /s/ Ralph Rubio
--------------------------------
Ralph Rubio, Trustee
By: /s/ Dione Rubio
--------------------------------
Dione Rubio, Trustee
Address: 1115 Los Caballitos
Del Mar, CA 92014
Fax No:
-------------------
<PAGE>
NEW INVESTOR:
FSC CORP.
By: /s/ illegible
-------------------------------
Title: Vice President
-----------------------------
Address: c/o BancBoston Capital
175 Federal Street, 18th
Floor
Boston, MA 02110
Fax No: (617) 434-1153
<PAGE>
EXHIBIT A
NEW INVESTOR
FSC CORP.
<PAGE>
EXHIBIT 10.12
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE HEREUNDER HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES, OR DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE COMPANY THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE
OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT OR UNLESS SOLD IN FULL COMPLIANCE
WITH RULE 144 UNDER THE ACT.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA OR
ANY OTHER STATE AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF
ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL, UNLESS THE SALE OF SUCH SECURITIES IS EXEMPT FROM QUALIFICATION BY
SECTION 25110, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE OR SUCH
PROVISIONS OF THE CORPORATIONS CODE OF ANY SUCH OTHER STATE. THE RIGHTS OF THE
HOLDER OF THIS WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
THIS WARRANT IS NOT TRANSFERABLE OR ASSIGNABLE IN ANY MANNER AND NO INTEREST IN
THIS WARRANT MAY BE PLEDGED OR OTHERWISE ENCUMBERED BY FSC CORP. WITHOUT THE
EXPRESS WRITTEN CONSENT OF THE COMPANY, WHICH MAY BE GIVEN OR WITHHELD BY THE
COMPANY IN ITS SOLE DISCRETION.
Warrant to Purchase
up to 45,000 Shares of
Series D Preferred Stock
(Subject to Adjustment)
RUBIO'S RESTAURANTS, INC.
SERIES D PREFERRED STOCK PURCHASE WARRANT
May 11, 1998
RUBIO'S RESTAURANTS, INC., a Delaware corporation (the "COMPANY"),
hereby certifies that for value received, FSC Corp., a Massachusetts securities
holding corporation ("FSC CORP.") is entitled, subject to the terms and
conditions set forth below to purchase from the Company shares of Series D
Preferred Stock of the Company, subject to adjustment as provided herein.
As used herein the following terms shall have the following respective
meanings:
<PAGE>
(a) The term "COMMON STOCK" shall mean the Common Stock of the
Company, and any other securities or property of the Company or of any other
person (corporate or otherwise) which FSC Corp. at any time shall be entitled to
receive upon the conversion of the Preferred Stock issuable upon the exercise of
this Warrant in lieu of or in addition to such Common Stock, or which at any
time shall be issuable in exchange for or in replacement of such Common Stock.
(b) The term "SERIES D PREFERRED STOCK" shall mean the Series D
Preferred Stock of the Company, and any other securities or property of the
Company or of any other person (corporate or otherwise) which FSC Corp. at any
time shall be entitled to receive upon the exercise of this Warrant in lieu of
or in addition to such Series D Preferred Stock, or which at any time shall be
issuable in exchange for or in replacement of such Series D Preferred Stock.
(c) The term "WARRANT SHARES" shall mean the shares of Series D
Preferred Stock issuable upon the exercise of this Warrant.
1. LOAN AGREEMENT. This Warrant is issued in connection with that
certain Revolving Credit and Term Loan Agreement dated May 11, 1998 (the "Loan
Agreement") by and between the Company and BankBoston, N.A., a national banking
association.
2. EXERCISE OF WARRANT. The terms and conditions upon which this
Warrant may be exercised, and the Series D Preferred Stock covered hereby may be
purchased, are as follows:
2.1 TERM. Subject to the terms hereof, this Warrant may be exercised
at any time after the date hereof, or from time to time, in whole or in part;
provided, however, that in no event may this Warrant be exercised later than
5:00 p.m. (Pacific Time) on the earlier of (i) the business day immediately
preceding the date of the closing of an acquisition of all or substantially all
of the Company's outstanding stock or assets by an unrelated entity, by merger
or otherwise (an "Acquisition") or (ii) December 31, 2002 (the "EXPIRATION
DATE"). The Exercise Price and the number of shares of Series D Preferred Stock
of the Company issuable upon exercise of this Warrant are subject to adjustment
as provided in Section 4 below. The Company shall notify FSC Corp. in writing,
in accordance with the notice requirements of Section 9.3 of this Warrant, at
least 20 days prior to the occurrence of the events described in sections (i)
and (ii) above. If the Company sends such notice less than 20 days prior to the
occurrence of such events, FSC Corp.'s right to exercise this Warrant shall be
extended for a period of 20 days after the date of notice, after which time FSC
Corp.'s rights under this Warrant shall terminate.
2.2 NUMBER OF SHARES. This Warrant may be exercised for the number
of shares of Series D Preferred Stock set forth below.
2.2.1 CLOSING OF LOAN AGREEMENT. Upon the closing of the
Loan Agreement, this Warrant will be exercisable for 25,000 shares of Series D
Preferred Stock.
2.2.2 $5,000,001 BORROWED UNDER LOAN AGREEMENT. In the event
that the Company borrows an aggregate of at least $5,000,001 under the Loan
Agreement, then this Warrant will be exercisable for an additional 10,000 shares
of Series D Preferred Stock (the "5M Shares") in excess of the Warrant Shares
referenced in Sections 2.2.1
2
<PAGE>
2.2.3 $7,500,001 BORROWED UNDER LOAN AGREEMENT. In the event
that the Company borrows an aggregate of at least $7,500,001 or more under the
Loan Agreement, then this Warrant will be exercisable for an additional 10,000
shares of Series D Preferred Stock (the "7.5M Shares") in excess of the Warrant
Shares referenced in Sections 2.2.1 and 2.2.2.
2.3 PURCHASE PRICE. The per share purchase price for the shares of
stock to be issued upon exercise of this Warrant (the "Exercise Price") shall be
$7.19454, subject to adjustment as provided herein; PROVIDED, HOWEVER, in the
event that the Company's EBITDA for the fiscal year ending December 27, 1998 is
greater than or equal to $3,176,000, the Exercise Price for the 5M Shares and
7.5M Shares, if any, to be issued upon exercise of this Warrant shall be $10.00
per share, subject to adjustment as provided herein.
3. METHOD OF EXERCISE.
3.1 EXERCISE OF WARRANT; PARTIAL EXERCISE. This Warrant may be
exercised in full or in part by FSC Corp. by surrender of this Warrant, together
with the form of subscription attached hereto as EXHIBIT A duly executed by FSC
Corp., to the Company at its principal office, accompanied by payment, in cash
or by certified or official bank check payable to the order of the Company, of
the Exercise Price of the Warrant Shares to be purchased hereunder. For any
partial exercise hereof, FSC Corp. shall designate in a subscription in the form
of EXHIBIT A attached hereto delivered to the Company the number of Warrant
Shares that it wishes to purchase. On any such partial exercise, the Company at
its expense shall forthwith issue and deliver to FSC Corp. a new warrant of like
tenor, in the name of FSC Corp., which shall be exercisable for such number of
Warrant Shares represented by this Warrant which have not been purchased upon
such exercise.
3.2 NET ISSUANCE.
3.2.1 RIGHT TO CONVERT. In addition to and without limiting
the rights of FSC Corp. under the terms of this Warrant, FSC Corp. shall have
the right to convert this Warrant or any portion thereof (the "Conversion
Right") into shares of Series D Preferred Stock as provided in this Section 3.2
at any time or from time to time prior to the Expiration Date.
Upon exercise of the Conversion Right with respect to a particular number of
shares subject to the Warrant (the "Converted Warrant Shares"), the Company
shall deliver to FSC Corp. (without payment by FSC Corp. of any exercise price
or any cash or other consideration) that number of shares of fully paid and
nonassessable Series D Preferred Stock computed using the following formula:
X = Y (A - B)
-------
A
Where: X = the number of shares of Series D Preferred Stock to
be delivered to FSC Corp.
Y = the number of Converted Warrant Shares
3
<PAGE>
A = the per share fair market value of the Series D
Preferred Stock on the Conversion Date (as defined
below)
B = the Exercise Price of the Warrant (as adjusted to
the Conversion Date)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to FSC Corp. an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
3.2.2 METHOD OF EXERCISE. The Conversion Right may be
exercised by FSC Corp. by the surrender of the Warrant at the principal office
of the Company together with a written statement specifying that FSC Corp.
thereby intends to exercise the Conversion Right and indicating the total number
of shares under the Warrant that FSC Corp. is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Company of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to FSC Corp. promptly
following the Conversion Date.
3.2.3 DETERMINATION OF FAIR MARKET VALUE. For purposes of
this Section 3.2, fair market value of a share of Series D Preferred Stock on
the Conversion Date shall mean:
(i) If the Conversion Right is exercised in connection with the
Company's initial public offering pursuant to a registration statement
(a "Public Offering"), and if the Company's Registration Statement
relating to such Public Offering has been declared effective by the
Securities and Exchange Commission, the initial "Price to Public"
specified in the final prospectus with respect to such offering times
the number of shares of Common Stock into which each Converted Warrant
Share is then convertible.
(ii) If the Conversion Right is exercised in connection with an
Acquisition, the effective per share consideration to be received in
an Acquisition by holders of the Common Stock, which price shall be as
specified in the agreement entered into with respect to such
Acquisition and determined assuming receipt of the aggregate exercise
price of all outstanding warrants to purchase equity securities of the
Company (the "Outstanding Warrants"), or if no such price is set forth
in the agreement concerning the Acquisition, than as determined in
good faith by the Company's Board of Directors upon a review of
relevant factors, including the aggregate exercise price of all
Outstanding Warrants.
4
<PAGE>
(iii) If the Conversion Right is not exercised in connection with an
Acquisition or in connection with and contingent upon a Public
Offering, then as follows:
(A) If such type of security is traded on a securities
exchange, the fair market value shall be deemed to be the average of
the closing prices of such type of security on such exchange over the
30-day period ending five business days prior to the Conversion Date;
(B) If such type of security is traded over-the-counter,
the fair market value shall be deemed to be the average of the closing
bid prices of such type of security over the 30-day period ending five
business days prior to the Conversion Date; and
(C) If there is no public market for such type of security,
then fair market value shall be determined by mutual agreement of FSC
Corp. and the Company, and if FSC Corp. and the Company are unable to
so agree, by an investment banker of national reputation selected by
the Company and reasonably acceptable to FSC Corp.. All fees and
expenses for such investment banker shall be paid for by FSC Corp..
3.3 WHEN EXERCISE EFFECTIVE. The exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
business day on which this Warrant and any other items necessary for the
effective exercise of this Warrant are surrendered to the Company as provided in
this Section 3, and at such time the person in whose name any certificate for
shares of Series D Preferred Stock are issuable upon such exercise, as provided
in Section 3.3, shall be deemed to be the record holder of such Series D
Preferred Stock for all purposes.
3.4 DELIVERY ON EXERCISE. As soon as practicable after the
exercise of this Warrant in full or in part, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to FSC Corp., or as FSC Corp. may direct, a
certificate or certificates for the number of fully paid and nonassessable full
shares of Series D Preferred Stock to which FSC Corp. shall be entitled on such
exercise.
4. ADJUSTMENTS TO SERIES D PREFERRED STOCK AND EXERCISE PRICE.
The number of shares of Series D Preferred Stock (or any shares of stock or
other securities which may be) issuable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
4.1 SPLITS AND SUBDIVISIONS. In the event the Company should at
any time or from time to time fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Series D Preferred Stock or the
determination of the holders of Series D Preferred Stock entitled to receive a
dividend or other distribution payable in additional shares of Series D
Preferred Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Series D
Preferred Stock ("SERIES D PREFERRED STOCK EQUIVALENTS") without payment of any
consideration by such holder for the additional shares of Series D Preferred
Stock or Series D Preferred Stock Equivalents (including the
5
<PAGE>
additional shares of Series D Preferred Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such split,
subdivision, dividend or other distribution if no record date is fixed), the
Exercise Price shall be appropriately decreased and the number of shares of
Series D Preferred Stock issuable upon exercise of this Warrant shall be
appropriately increased in proportion to such increase in outstanding shares
of Series D Preferred Stock.
4.2 COMBINATION OF SHARES. If the number of shares of Series D
Preferred Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Series D Preferred Stock, the Exercise
Price shall be appropriately increased and the number of shares of Series D
Preferred Stock issuable upon exercise of this Warrant shall be appropriately
decreased in proportion to such decrease in outstanding shares of Series D
Preferred Stock.
4.3 ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event the Company
shall declare a distribution payable to the holders of Series D Preferred Stock
in securities of other persons, evidences of indebtedness issued by the Company
or other persons, assets (excluding cash dividends) or options or rights not
referred to in Section 4.1, then, in each such case for the purpose of this
Section 4.3, upon exercise of this Warrant FSC Corp. shall be entitled to a
proportionate share of any such distribution as though FSC Corp. was the holder
of the number of shares of Series D Preferred Stock of the Company issuable upon
exercise of this Warrant as of the record date fixed for the determination of
the holders of Series D Preferred Stock entitled to receive such distribution.
4.4 RECLASSIFICATION OR REORGANIZATION. If the Series D Preferred
Stock (or any shares of stock or other securities which may be) issuable upon
exercise of this Warrant shall be changed into the same or different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for in Sections 4.1, 4.2 or 4.3 above, or an
acquisition of all or substantially all of the Company's outstanding stock or
assets by an unrelated entity, by merger or otherwise, prior to which this
Warrant shall cease to be exercisable as provided above), then and in each such
event FSC Corp. shall be entitled to receive upon the exercise of this Warrant
the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change, to which
a holder of the number of shares of Series D Preferred Stock (or any shares of
stock or other securities which may be) issuable upon exercise of this Warrant
would have received if this Warrant had been exercised immediately prior to such
reorganization, reclassification or other change.
4.5 NOTICE OF ADJUSTMENTS AND RECORD DATES. The Company shall
promptly notify FSC Corp. in writing of each adjustment or readjustment of the
Exercise Price and the number of shares of Series D Preferred Stock (or any
shares of stock or other securities which may be) issuable upon exercise of this
Warrant. Such notice shall state the adjustment or readjustment and show in
reasonable detail the facts on which the adjustment or readjustment is based.
In the event of any taking by the Company of a record of (a) the holders of
Series D Preferred Stock for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or (b) the holders
of the Company's outstanding capital stock for the purpose of approving any
acquisition of all or substantially all of the Company's outstanding stock or
assets by an unrelated entity, by merger or otherwise, the Company shall
6
<PAGE>
notify FSC Corp. in writing of such record date at least twenty (20) days
prior to such record date.
4.6 NO IMPAIRMENT. The Company will not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants that:
5.1 STOCK TO BE RESERVED. The Company will at all times reserve and
keep available out of its authorized Series D Preferred Stock and Common Stock,
solely for the purpose of issuance upon the exercise of this Warrant as herein
provided, such number of shares of Series D Preferred Stock as shall then be
issuable upon the exercise of this Warrant and such number of shares of Common
Stock as shall be issuable upon conversion of such Series D Preferred Stock.
The Company shall from time to time in accordance with applicable law increase
the authorized amount of its Series D Preferred Stock and/or Common Stock if at
any time the number of shares of Series D Preferred Stock and/or Common Stock
remaining unissued and available for issuance shall not be sufficient to permit
exercise of this Warrant and the conversion of such shares of Series D Preferred
Stock to Common Stock. The Company covenants that, upon issuance in accordance
with the terms of this Warrant, all shares of Series D Preferred Stock which
shall be so issued and any Common Stock issued upon the conversion of such
Series D Preferred Stock, shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Company will take all such action as may be necessary to assure that all such
shares of Series D Preferred Stock and Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which shares of capital stock of the Company
may be listed.
5.2 ISSUE TAX. The issuance of certificates for shares of Series D
Preferred Stock upon exercise of this Warrant shall be made without charge to
FSC Corp. for any issue tax in respect thereof provided that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of FSC Corp. of this Warrant.
5.3 CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of the shares of Series D Preferred Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.
7
<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF FSC CORP. FSC Corp. hereby represents
and warrants that:
6.1 AUTHORIZATION. FSC Corp. represents that it has full power and authority
to enter into this Warrant and that this Warrant constitutes a valid and
legally binding obligation of FSC Corp..
6.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Warrant is issued and sold to
FSC Corp. in reliance upon FSC Corp.'s representation to the Company, which
by FSC Corp.'s execution of this Warrant FSC Corp. hereby confirms, that this
Warrant, the Series D Preferred Stock issuable upon exercise hereof and the
Common Stock issuable upon conversion of such Series D Preferred Stock
(collectively, the "Securities") will be acquired for investment for FSC
Corp.'s own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that FSC Corp. has no present
intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Warrant, FSC Corp. further
represents that FSC Corp. does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participations to
such person or to any third person, with respect to any of the Securities.
6.3 RELIANCE UPON FSC CORP.'S REPRESENTATIONS. FSC Corp. understands that
this Warrant is not, and any Series D Preferred Stock acquired upon the
exercise hereof and any Common Stock acquired upon the conversion of any such
Series D Preferred Stock at time of issuance may not be, registered under the
Securities Act on the ground that the sale provided for in this Warrant and
the issuance of the Series D Preferred Stock hereunder is exempt from
registration under the Securities Act pursuant to Section 4(2) thereof or
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act, and that the Company's reliance on such exemption is
predicated on FSC Corp.'s representations set forth herein. FSC Corp.
realizes that the basis for the exemption may not be present if,
notwithstanding such representations, FSC Corp. has in mind merely acquiring
any of the Securities for a fixed or determinable period in the future, or
for a market rise, or for sale if the market does not rise. FSC Corp. has no
such intention.
6.4 RECEIPT OF INFORMATION. FSC Corp. believes it has received all the
information it considers necessary or appropriate for deciding whether to
purchase this Warrant. FSC Corp. further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of this Warrant and the business,
properties, prospects and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information
or could acquire it without unreasonable effort or expense) necessary to
verify the accuracy of any information furnished to it or to which it had
access.
6.5 INVESTMENT EXPERIENCE. FSC Corp. represents that it is experienced in
evaluating and investing in securities of companies in the development stage
and acknowledges that it is able to fend for itself, can bear the economic
risk of its investment, and has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the
investment in this Warrant. FSC Corp. also represents it has not been
organized for the purpose of acquiring this Warrant.
8
<PAGE>
6.6 RESTRICTED SECURITIES. FSC Corp. understands that this Warrant and the
Securities are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations this Warrant and the Securities may be resold without
registration under the Securities Act only in certain limited circumstances.
FSC Corp. has no need for liquidity of its investment in this Warrant or the
Securities. In this connection, FSC Corp. represents that it is familiar
with Securities and Exchange Commission Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
6.7 LEGENDS. To the extent applicable, any certificates for the shares of
Series D Preferred Stock issued upon exercise of this Warrant and the shares
of Common Stock issued upon conversion of such Series D Preferred Stock shall
be endorsed with the legends set forth below, and FSC Corp. covenants that,
except to the extent such restrictions are waived by the Company, FSC Corp.
shall not dispose of any interest in any of the shares of Series D Preferred
Stock issued upon exercise of this Warrant or the shares of Common Stock
issued upon conversion of such Series D Preferred Stock without complying
with the restrictions on transfer described in the legends endorsed on such
certificates:
6.7.1 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED
UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
6.7.2 Any legend required by (i) any other agreement with the
Company to which FSC Corp. is a party or (ii) the securities laws of any state
or other governmental or regulatory agency having authority over the issuance of
the shares of Series D Preferred Stock issued upon exercise of this Warrant or
the shares of Common Stock issued upon conversion of such Series D Preferred
Stock.
7. REPLACEMENT OF WARRANT. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver to FSC Corp., in lieu thereof, a new Warrant of
like tenor.
8. NO RIGHTS OR LIABILITY AS A STOCKHOLDER. This Warrant does not
entitle FSC Corp. hereof to any voting rights or other rights as a stockholder
of the Company. No provisions hereof, in the absence of affirmative action by
FSC Corp. to purchase the Series D Preferred Stock of the Company, and no
enumeration herein of the rights or privileges of FSC Corp., shall give rise to
any liability of FSC Corp. as a stockholder of the Company.
9
<PAGE>
9. MISCELLANEOUS.
9.1 TRANSFER OF WARRANT. This Warrant shall not be transferable or
assignable in any manner and no interest shall be pledged or otherwise
encumbered by FSC Corp. without the express written consent of the Company,
which may be given or withheld by the Company in its sole discretion, and any
such attempted disposition of this Warrant or any portion hereof shall be of no
force or effect.
9.2 TITLES AND SUBTITLES. The titles and subtitles used in this
Warrant are for convenience only and are not to be considered in construing or
interpreting this Warrant.
9.3 NOTICES. Any notice required or permitted under this Warrant shall be
given in writing and shall be deemed effectively given to the party to be
notified upon personal delivery by hand or professional courier service, upon
delivery by facsimile transmission or five (5) days after deposit with the
United States Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party on the signature page hereof, or at such other address as such party
may designate by ten (10) days' advance written notice to the other party.
9.4 ATTORNEYS' FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Warrant, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and disbursements
in addition to any other relief to which such party may be entitled.
9.5 AMENDMENTS AND WAIVERS. Any term of this Warrant may be
amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and FSC Corp..
9.6 SEVERABILITY. If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
9.7 GOVERNING LAW. This Warrant shall be governed by and construed
and enforced in accordance with the laws of the State of California, without
giving effect to its conflicts of laws principles.
9.8 ENTIRE AGREEMENT. This Warrant contains the entire agreement
between the Company and FSC Corp. with regard to the subject matter hereof, and
supersedes all prior agreements and understandings, whether written or oral,
with regard to the subject matter hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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9.9 COUNTERPARTS. This Warrant may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Date: May 11, 1998 Rubio's Restaurants, Inc.,
a Delaware corporation
By: /s/ Ralph Rubio
-----------------------------
Its: President and CEO
----------------------------
Address: 5151 Shoreham Place, Suite 260
San Diego, CA 92122
Fax No.: (619) 452-0181
ACKNOWLEDGED AND AGREED:
FSC Corp., a Massachusetts
securities holding corporation
By: /s/ Illegible
------------------------------------
Its: Vice President
-----------------------------------
Address: 175 Federal Street, 10th Floor
Boston, MA 02110
Fax No.: (617) 434-1153
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EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To: Rubio's Restaurants, Inc.
FSC Corp. hereby (a) irrevocably elects to exercise the purchase
rights represented by such Warrant for, and to purchase thereunder,
_____________________________* shares of Series D Preferred Stock of Rubio's
Restaurants, Inc., and herewith makes payment of $___________ therefor, (b)
requests that the certificates for such shares be issued in the name of, and
delivered to ________________________________, whose address is _____________
________________________________________________________, and (c) reaffirms
that all of the representations and warranties of FSC Corp. contained in Section
6 of the Warrant are true and correct as of the date hereof.
Dated: _________________
FSC Corp., a Massachusetts securities holding
corporation
By: _______________________________
Its: _______________________________
Address: ___________________________
____________________________________
Fax No.: ___________________________
- --------------
* Insert here the number of shares as to which the Warrant is being exercised.
A-1
<PAGE>
EXHIBIT 10.14
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
REVOLVING CREDIT AND TERM LOAN AGREEMENT
dated as of
May 13, 1998
between
Rubio's Restaurants, Inc.
and its Subsidiaries
and
BANKBOSTON, N.A.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.2 Terms Generally. . . . . . . . . . . . . . . . . . . . . . . . -13-
1.3 Accounting Terms; GAAP . . . . . . . . . . . . . . . . . . . . -13-
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
The Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
2.1 Revolving Credit and Term Loan Commitments . . . . . . . . . . -14-
2.2 Loans and Borrowings . . . . . . . . . . . . . . . . . . . . . -14-
2.3 Requests for Borrowings. . . . . . . . . . . . . . . . . . . . -15-
2.4 Termination and Reduction of Commitments . . . . . . . . . . . -15-
2.5 Repayment of Loans; Evidence of Debt . . . . . . . . . . . . . -16-
2.6 Prepayment of Loans. . . . . . . . . . . . . . . . . . . . . . -16-
2.7 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . -18-
2.8 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
2.9 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
2.10 Alternative Rate of Interest . . . . . . . . . . . . . . . . . -22-
2.11 Increased Costs. . . . . . . . . . . . . . . . . . . . . . . . -22-
2.12 Break Funding Payments . . . . . . . . . . . . . . . . . . . . -23-
2.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
2.14 Payments Generally . . . . . . . . . . . . . . . . . . . . . . -25-
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
Representations and Warranties. . . . . . . . . . . . . . . . . . . . -25-
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
3.1 Organization; Powers . . . . . . . . . . . . . . . . . . . . . -25-
3.2 Authorization; Enforceability. . . . . . . . . . . . . . . . . -25-
3.3 Governmental Approvals; No Conflicts . . . . . . . . . . . . . -26-
3.4 Financial Condition; No Material Adverse Change. . . . . . . . -26-
3.5 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
3.6 Litigation and Environmental Matters . . . . . . . . . . . . . -27-
3.7 Compliance with Laws and Agreements. . . . . . . . . . . . . . -27-
3.8 Investment and Holding Company Status. . . . . . . . . . . . . -28-
3.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
3.10 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
3.11 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
3.12 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . -29-
3.13 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . -29-
3.14 Material Indebtedness, Liens and Agreements. . . . . . . . . . -29-
3.15 Federal Reserve Regulations. . . . . . . . . . . . . . . . . . -29-
3.16 Burdensome Restrictions. . . . . . . . . . . . . . . . . . . . -29-
3.17 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . -29-
3.18 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . .-30-
3.19 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
4.1 ClosingDate. . . . . . . . . . . . . . . . . . . . . . . . . . -30-
4.2 Each Extension of Credit . . . . . . . . . . . . . . . . . . . -32-
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . -33-
5.1 Financial Statements and Other Information . . . . . . . . . . -33-
5.2 Notices of Material Events . . . . . . . . . . . . . . . . . . -35-
5.3 Existence; Conduct of Business . . . . . . . . . . . . . . . . -35-
5.4 Payment of Obligations . . . . . . . . . . . . . . . . . . . . -35-
5.5 Maintenance of Properties; Insurance . . . . . . . . . . . . . -36-
5.6 Books and Records; Inspection Rights . . . . . . . . . . . . . -36-
5.7 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . -36-
5.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . -36-
5.9 Compliance with Agreements . . . . . . . . . . . . . . . . . . -36-
5.10 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . -37-
5.11 Certain Obligations Respecting Collateral Security . . . . . . -37-
5.12 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
5.13 Communication with Accountants . . . . . . . . . . . . . . . . -38-
5.14 Intellectual Property. . . . . . . . . . . . . . . . . . . . . -38-
5.15 Landlord Consent . . . . . . . . . . . . . . . . . . . . . . . -38-
ARTICLE VI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . -38-
6.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . -38-
6.2 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
6.3 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . -40-
6.4 Fundamental Changes; Asset Sales; Permitted Acquisitions . . . -40-
6.6 Restricted Payments. . . . . . . . . . . . . . . . . . . . . . -41-
6.7 Transactions with Affiliates . . . . . . . . . . . . . . . . . -41-
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.8 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . -41-
6.9 Certain Financial Covenants. . . . . . . . . . . . . . . . . . -41-
6.10 Sale-Leaseback Transactions. . . . . . . . . . . . . . . . . . -42-
6.11 Lines of Business. . . . . . . . . . . . . . . . . . . . . . . -42-
6.12 Name and Location. . . . . . . . . . . . . . . . . . . . . . . -42-
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
7.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . -42-
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
8.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
8.2 Waivers; Amendments. . . . . . . . . . . . . . . . . . . . . . -45-
8.3 Expenses; Indemnity: Damage Waiver . . . . . . . . . . . . . . -46-
8.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . -47-
8.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
8.6 Counterparts; Integration; References to Agreement;
Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . -48-
8.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . -48-
8.8 Right of Setoff. . . . . . . . . . . . . . . . . . . . . . . . -48-
8.9 Governing Law; Jurisdiction; Consent to Service of Process . . -49-
8.10 Waiver of Jury Trial.. . . . . . . . . . . . . . . . . . . . . -49-
8.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . -49-
8.12 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . -50-
</TABLE>
(iv)
<PAGE>
LIST OF EXHIBITS/SCHEDULES
Exhibit A Revolving Credit Note
Exhibit B Term Note
Exhibit C Notice of Borrowing/Conversion
Exhibit D Security Agreement
Exhibit E Warrant
Exhibit F Intellectual Property Security Agreement
Exhibit G Landlord Waiver
Exhibit H Monthly Finished Goods Inventory Reports
Exhibit I Compliance Certificate
Schedule 3.3 Governmental Approvals
Schedule 3.4 Balance Sheets
Schedule 3.5 Properties
Schedule 3.6 Litigation and Environmental Matters
Schedule 3.11 Acquisition Agreement
Schedule 3.12 Capitalization
Schedule 3.13 Subsidiaries
Schedule 3.14 Material Indebtedness
Schedule 3.18 Labor Matters
Schedule 3.19 Brokers
Schedule 5.10 Existing Term Debt
Schedule 6.6 Stock Option Plans
Schedule 6.7 Transactions with Affiliates
Schedule 6.8 Distributions
(v)
<PAGE>
REVOLVING CREDIT AND TERM LOAN AGREEMENT
REVOLVING CREDIT AND TERM LOAN AGREEMENT dated as of May 13, 1998 between
Rubio's Finished Goods Inventorys, Inc. and its Subsidiary listed on Schedule
3.13, (collectively the "Borrower) and BANKBOSTON, N.A., (the "Bank").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms have
the meanings specified below:
"ADJUSTED BASE RATE" means, for any day, a rate per annum equal to the
greater of (a) the Base Rate in effect on such day, and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Adjusted
Base Rate due to a change in the BankBoston Base Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the BankBoston Base Rate or the Federal Funds Effective Rate,
respectively.
"ADJUSTED LIBO RATE" means, with respect to any LIBOR Borrowing for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
"AFFILIATE" means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
Notwithstanding the foregoing, (a) no individual shall be an Affiliate solely by
reason of his or her being a director, officer or employee of any Borrower or a
Subsidiary thereof and (b) none of the Borrower or its Subsidiaries shall be
Affiliates.
"BANKBOSTON" means BankBoston, N.A., a national banking association.
"BASE RATE" means the rate of interest per annum publicly announced from
time to time by BankBoston as its base rate in effect at its principal office in
Boston, Massachusetts; each change in the BankBoston Base Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"BASE RATE LOAN" means any Loan hereunder which bears interest at a rate
determined by reference to the Adjusted Base Rate.
"BOARD" means the Board of Governors of the Federal Reserve System of the
United States of America.
"BORROWER" means Rubio's Restaurants, Inc., a Delaware Corporation and the
Subsidiary listed on Schedule 3.13.
<PAGE>
"BORROWER'S ACCOUNTANT" means Deloitte, Touche LLP or such other accountant
reasonably satisfactory to the Bank.
"BORROWING" means Loans of a particular Class, made, converted or continued
on the same date and, in the case of LIBOR Loans, as to which a single Interest
Period is in effect.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or other day on
which commercial banks in Boston, Massachusetts are authorized or required by
law to remain closed;
Capital Expenditures.
"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"CASUALTY EVENT" means, with respect to any Property of any Person, any
loss of or damage to, or any condemnation or other taking of, such Property for
which such Person or any of its Subsidiaries receives insurance proceeds, or
proceeds of a condemnation award or other compensation.
"CHANGE IN LAW" means (a) the adoption of any law, rule or regulation after
the Closing Date, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the
Closing Date or (c) compliance by the Bank with any request, guideline or
directive (whether or not having the force of law) of any Governmental Authority
made or issued after the Closing Date.
"CLASS" when used in reference to any Loan, Borrowing or Commitment, refers
to whether such Loan or the Loans comprising such Borrowing are Revolving Credit
Loans or Term Loans.
"CLOSING DATE" means the date upon which all conditions set forth in
Section 4.1 are satisfied or have been waived by the Bank in writing or the Bank
permits the Borrower to complete at a date after the Closing Date in writing.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COLLATERAL" means, collectively, all of the Property (including capital
stock) in which Liens are granted pursuant to the Collateral Documents as
security for all obligations of the Borrower hereunder.
"COLLATERAL DOCUMENTS" means the Security Agreement, the Intellectual
Property Security Agreement, and all other instruments or documents delivered by
the Borrower or any shareholder pursuant to this Agreement or any of the other
Loan Documents in order to grant to the Bank a Lien on any real, personal or
mixed property of the Borrower as security for any of its obligations hereunder.
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<PAGE>
"COMMITMENTS" means the Revolving Credit Commitment and the Term Loan
Commitment, as applicable.
"COMPLIANCE CERTIFICATE" means a certificate required to be delivered by
the Borrower to the Bank pursuant to Section 5.1(d) signed by a Senior Officer,
in substantially the form of Exhibit I hereto.
"CONSOLIDATED CASH FLOW" means for any period, the amount equal to the sum
of (a) Consolidated EBITDAR for such period minus (b) cash payments for all
taxes paid during such period, plus (c) net proceeds of Dispositions of assets
minus (d) the aggregate amount of Maintenance Capital Expenditures during such
period (all of the forgoing on a consolidated basis with any Subsidiary of the
Borrower).
"CONSOLIDATED EBITDA" means, for any period, the sum of (a) Consolidated
Net Income of the Borrower and its Subsidiaries, if any, (determined in
accordance with GAAP), plus (b) the consolidated income tax expense and
consolidated Interest Expense of the Borrower and its Subsidiaries, if any,
plus, (c) consolidated depreciation and amortization expenses of the Borrower
and its Subsidiaries, if any, plus (d) other consolidated non-cash charges of
the Borrower and its Subsidiaries, if any, minus (e) other consolidated non-cash
credits of the Borrower and its Subsidiaries, if any (provided that all of the
forgoing shall be calculated without reference to any extraordinary and unusual
gain during such period).
"CONSOLIDATED EBITDAR" means, for any period, Consolidated EBITDA for any
period plus Consolidated Rental Expenses of the Borrower and its Subsidiaries,
if any.
"CONSOLIDATED FINANCIAL OBLIGATIONS" for any period, the sum of scheduled
payments of Indebtedness of the Borrower and its Subsidiaries, if any,
including, without limitation, payments of principal and interest (including the
interest portion of any payment under a Capital Lease Obligation), commitment or
similar fees on Indebtedness of the Borrower and its Subsidiaries, if any, and
Consolidated Rental Expenses for such period.
"CONSOLIDATED FUNDED INDEBTEDNESS" means the Indebtedness of the Borrower
and it Subsidiaries, if any, on a consolidated basis as described in clauses
(a), (b) and (c) of the definition of "Indebtedness.", plus the aggregate
maximum amount which can be drawn under all outstanding Letters of Credit, plus
(without duplication) all Indebtedness under clauses (e) and (f) of the
definition of "Indebtedness".
"CONSOLIDATED NET INCOME" means net income of the Borrower on a
consolidated basis with its Subsidiaries, if any, determined in accordance with
GAAP.
"CONSOLIDATED RENTAL EXPENSES" means for any period the total rental
payments on operating leases of the Borrower and its Subsidiaries, if any.
"CONTROL" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
-3-
<PAGE>
"DEFAULT" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"DISCLOSED MATTERS" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.6.
"DISPOSITION" means any sale, assignment, transfer or other disposition of
any property (whether now owned or hereafter acquired) by the Borrower to any
Person excluding (a) the granting of Liens to the Bank pursuant to the
Collateral Documents and (b) any sale, assignment, transfer or other disposition
of (i) any property sold or disposed of in the ordinary course of business and
on ordinary business terms, (ii) any property no longer used or useful in the
business of the Borrower and (iii) any Collateral under and as defined in the
Collateral Documents pursuant to an exercise of remedies by the Bank thereunder;
provided that the first $100,000 of such sales, transfers or other dispositions
of property in any twelve month period shall not be a Disposition for purposes
hereof and the proceeds may be retained by the Borrower.
"ENVIRONMENTAL LAWS" means all laws, rules, regulations, codes, ordinances,
orders, decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Material.
"ENVIRONMENTAL LIABILITY" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of any Borrower directly or indirectly resulting from
or based upon (a) violation of any Environmental Law, (b) the generation, use,
handling, transportation, storage, treatment or disposal of any Hazardous
Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any
contract, agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.
"EQUITY RIGHTS" means, with respect to any Person, any subscriptions,
options, warrants, commitments, preemptive rights or agreements of any kind
(including any stockholders' or voting trust agreements) for the issuance or
sale of, or securities convertible into, any additional shares of capital stock
of any class, or partnership or other ownership interests of any type in, such
Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not incorporated)
that, together with the Borrower, is treated as a single employer within the
meaning of Section 414(b), (c), (m) or (o) of the Code.
"ERISA EVENT" means (a) any "reportable event", as defined in Section 4043
of ERISA or the regulations issued thereunder with respect to any Pension Plan,
(b) the existence with respect to any Pension Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived, (c) the filing pursuant to Section
-4-
<PAGE>
412(d) of the Code or Section 303(d) of ERISA of an application for a waiver
of the minimum funding standard with respect to any Pension Plan, (d) the
incurrence by the Borrower or any of its ERISA Affiliates of any liability
under Title IV of ERISA with respect to the termination of any Pension Plan,
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a
plan administrator of any notice relating to an intention to terminate any
Pension Plan or Pension Plans or to appoint a trustee to administer any
Pension Plan or (f) the receipt by the Borrower or any ERISA Affiliate of any
notice, or the receipt by any Multiemployer Plan from the Borrower or any
ERISA Affiliate of any notice of Withdrawal Liability or a determination that
a Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA.
"EVENT OF DEFAULT" has the meaning assigned to such term in Section 7.1.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of Boston, or, if such rate is not so published
for any day that is a Business Day, the average (rounded upwards, if necessary,
to the next 1/100 of 1%) of the quotations for such day for such transactions
received by the Bank from three Federal funds brokers of recognized standing
selected by it.
"FIRST PRIORITY" means, with respect to any Lien purported to be created in
any Collateral pursuant to any Collateral Document, that such Lien is the most
senior Lien (other than Liens permitted pursuant to Section 6.2 to the extent
not perfected by filing of any UCC financing statements) to which such
Collateral is subject.
"GAAP" means generally accepted accounting principles in the United States
of America.
"GOVERNMENTAL AUTHORITY" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"GUARANTY" means a guaranty, an endorsement, a contingent agreement to
purchase or to furnish funds for the payment or maintenance of, or otherwise to
be or become contingently liable under or with respect to, the Indebtedness,
other obligations, net worth, working capital or earnings of any Person, or a
guaranty of the payment of dividends or other distributions upon the stock or
equity interests of any Person, or an agreement to purchase, sell or lease (as
lessee or lessor) property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, and including,
without limitation, causing a bank or other financial institution to issue a
letter of credit or other similar instrument for the benefit of another Person,
but excluding endorsements for collection or deposit in the ordinary course of
business. The terms "Guaranty" and "Guarantees" used as a verb shall have a
correlative meaning.
-5-
<PAGE>
"HAZARDOUS MATERIALS" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"INDEBTEDNESS" means, for any Person, without duplication: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
advance, the issuance and sale of debt securities or the sale of Property to
another Person subject to an understanding or agreement, contingent or
otherwise, to repurchase such Property from such Person); (b) obligations of
such Person to pay the deferred purchase or acquisition price of Property or
services, other than trade accounts payable (other than for borrowed money)
arising, and accrued expenses incurred, in the ordinary course of business so
long as such trade accounts are payable within 90 days after the date the
respective goods are delivered or the respective services are rendered; (c)
Capital Lease Obligations of such Person; (d) obligations of such Person in
respect of letters of credit or similar instruments issued or accepted by banks
and other financial institutions for the account of such Person; (e)
Indebtedness of others secured by a Lien on the Property of such Person, whether
or not the respective indebtedness so secured has been assumed by such Person;
and (f) Indebtedness of others Guarantied by such Person. The Indebtedness of
any Person shall include the Indebtedness of any other Person (including any
partnership other than an LLP in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT" means the Intellectual Property
Security Agreement in form attached as Exhibit F.
"INTEREST EXPENSE" means, for any period, the sum, for the Borrower and its
Subsidiaries, if any, on a consolidated basis (determined in accordance with
GAAP), of the following: (a) all interest in respect of Consolidated Funded
Indebtedness accrued, paid or capitalized during such period plus (b) all fees
due the Bank hereunder related to loans hereunder.
"INTEREST PAYMENT DATE" means (a) with respect to any Base Rate Loan, each
Quarterly Date and (b) with respect to any LIBOR Loan, the last Business Day of
the Interest Period applicable to the Borrowing of which such Loan is a part.
"INTEREST PERIOD" means with respect to any LIBOR Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect; provided, that (i) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (ii) any Interest Period
that commences on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the last calendar month of
such Interest Period) shall end on the last Business Day of the last calendar
month of such Interest Period. For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and thereafter shall
be the effective date of the most recent conversion or continuation of such
Borrowing. Notwithstanding the foregoing,
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<PAGE>
(x) if any Interest Period for any Revolving Credit Loan would
otherwise end after the Revolving Credit Maturity Date, such Interest
Period shall end on the Revolving Credit Maturity Date,
(y) no Interest Period for any Term Loan may commence before and end
after any Quarterly Date unless, after giving effect thereto, the aggregate
principal amount of the Term Loans having Interest Periods that end after
such Quarterly Date shall be equal to or less than the aggregate principal
amount of the Term Loans scheduled to be outstanding after giving effect to
the payments of principal required to be made on such Quarterly Date, and
(z) notwithstanding the foregoing clauses (x) and (y), no Interest
Period shall have a duration of less than one month and, if the Interest
Period for any LIBOR Loan would otherwise be a shorter period, such Loan
shall not be available hereunder as a LIBOR Loan for such period.
"INVESTMENT" means, for any Person: (a) the acquisition (whether for cash,
Property, services or securities or otherwise) of capital stock, bonds, notes,
debentures, partnership or other ownership interests or other securities of any
other Person or any agreement to make any such acquisition (including, without
limitation, any "short sale" or any sale of any securities at a time when such
securities are not owned by the Person entering into such short sale); (b) the
making of any deposit with, or advance, loan or other extension of credit to,
any other Person (including the purchase of Property from another Person subject
to an understanding or agreement, contingent or otherwise, to resell such
Property to such Person, but excluding any such advance, loan or extension of
credit having a term not exceeding 180 days representing the purchase price of
inventory or supplies sold by such Person in the ordinary course of business);
or (c) the entering into of any Guaranty of, or other contingent obligation with
respect to, Indebtedness or other liability of any other Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person. Notwithstanding the foregoing, Capital Expenditures shall not be deemed
"Investments" for purposes hereof.
"LANDLORD WAIVER" means, with respect to a letter from the Borrower's
lessors in the form of Exhibit G annexed hereto or such other form as may be
approved by the Bank in its sole discretion.
"LETTER OF CREDIT" means a documentary or standby letter of credit issued
by the Bank on behalf of the Borrower under the terms of this Agreement.
"LC DISBURSEMENT" means a payment made by the Bank pursuant to a Letter of
Credit.
"LC EXPOSURE" means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrower at such time.
"LIBOR" when used in reference to any Loan, refers to whether such Loan are
bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
-7-
<PAGE>
"LIBO RATE" means, with respect to any LIBOR Borrowing for any Interest
Period, the rate appearing on Page 3750 of the Dow Jones Markets (Telerate)
Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to U.S. dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for U.S.
dollar deposits with a maturity comparable to such Interest Period. In the
event that such rate is not available at such time for any reason, then the
"LIBO Rate" with respect to such LIBOR Borrowing for such Interest Period shall
be the rate at which U.S. dollar deposits of $5,000,000, and for a maturity
comparable to such Interest Period, are offered by the principal London office
of the Administrative Agent in immediately available funds in the London
interbank market at approximately 11:00 a.m., London time, two Business Days
prior to the commencement of such Interest Period.
"LIEN" means, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or
of such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (other than an
operating lease) (or any financing lease having substantially the same economic
effect as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.
"LOAN DOCUMENTS" means this Agreement, any promissory notes evidencing
Loans hereunder, the Collateral Documents and any other instruments or documents
delivered or to be delivered from time to time pursuant to this Agreement.
"LOANS" means the Revolving Credit Loans and the Term Loan.
"MAINTENANCE CAPITAL EXPENDITURES" means Capital Expenditures made by the
Borrower or any of its Subsidiaries related directly to the maintenance of the
existing properties in proper operating condition and in accordance with
recognized standards for similar properties and as required under Section 5.5 of
this Agreement.
"MATERIAL ADVERSE EFFECT" means a materially adverse effect on (a) the
business, assets (tangible or intangible), operations, prospects or condition,
financial or otherwise, of the Borrower taken as a whole, (b) the ability of the
Borrower to perform its obligations under this Agreement or the other Loan
Documents or (c) the rights of or benefits available to the Bank under this
Agreement and the other Loan Documents.
"MATERIAL INDEBTEDNESS" means Indebtedness of the Borrower in an aggregate
principal amount exceeding $100,000 and subject to specific dollar amounts set
forth else where in this Agreement.
"MONTHLY RESTAURANT REPORTS" means in form appended hereto as Exhibit H.
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<PAGE>
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"NET CASH PAYMENTS" means,
(i) with respect to any Casualty Event, the aggregate amount of
proceeds of insurance (excluding proceeds of business interruption
insurance), condemnation awards and other compensation received by the
Borrower in respect of such Casualty Event net of (A) reasonable expenses
incurred by the Borrower in connection therewith, (B) contractually
required repayments of Indebtedness to the extent secured by a Lien on such
property and (c) any income and transfer taxes payable by the Borrower in
respect of such Casualty Event; and
(ii) with respect to any Disposition, the aggregate amount of all cash
payments received by the Borrower or any its Subsidiaries directly or
indirectly in connection with such Disposition, whether at the time of such
Disposition or after such Disposition under deferred payment arrangements
or Investments entered into or received in connection with such
Disposition.
"NOTICE OF THE BORROWING" means a written request by the Borrower for a
Loan in accordance with Section 2.2 in the form attached as Exhibit C.
"OBLIGATIONS" means, any and all obligations of the Borrower to the Bank of
every kind and description, direct or indirect, absolute or contingent, primary
or secondary, due or become due, now existing or hereafter arising, regardless
of how they arise or by what agreement or instrument they may be evidenced or
whether evidenced by any agreement or instrument, and the Borrower's obligations
to perform acts and to refrain from acting as well as obligations to pay money.
"PENSION PLAN" means any Plan that is a defined benefit pension plan
subject to the provisions of Title IV of ERISA or Section 412 of the Code or
Section 302 of ERISA, and in respect of which the Borrower or any ERISA
Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"PERMITTED INVESTMENTS" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guarantied by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, the
highest credit rating obtainable from Standard and Poor's Ratings Service
or from Moody's Investors Service, Inc.;
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<PAGE>
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof which
has a combined capital and surplus and undivided profits of not less than
$250,000,000;
(d) fully collateralized repurchase agreements with a term of not
more than 30 days for securities described in clause (a) above and entered
into with a financial institution satisfying the criteria described in
clause (c) above;
(e) advances, loans and extensions of credit to any director, officer
or employee of a Borrower not to exceed $50,000.
(f) investments in money market mutual funds that are rated AAA by
Standard & Poor's Rating Service.
(g) investments made in accordance with the investment policy
delivered to the Bank by the Borrower prior to the execution of this
Agreement, which policy may not be amended without the consent of the Bank.
"PERMITTED NEW RESTAURANTS" means a new restaurant location opened by the
Borrower after the date of this agreement which (i) is financed in whole or in
part by Revolving Loans and (ii) is opened after demonstrating to the Bank that
90% of the existing restaurants, open for in excess of 9 calender months, of the
Borrower have Positive Store Cash Flow.
"PERSON" means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
"PLAN" means any employee benefit plan within the meaning of Section 3(3)
of ERISA in which the Borrower or any ERISA Affiliate is an "employer" as
defined in Section 3(5) of ERISA.
"POSITIVE STORE CASH FLOW" means that the results of operations for each
restaurant location show that gross sales exceed costs of goods sold plus
operating expenses, rent, payroll and facility related expenses (not otherwise
included in the forgoing), but excluding non-cash charges such as depreciation
and amortization.
"POST-DEFAULT RATE" means, for Base Rate Loans, a rate per annum equal to
the Adjusted Base Rate plus the Applicable Margin plus 3%
"PREPAYMENT PENALTY" is as defined in Section 2.8.
"PROPERTY" means any interest of any kind in property or assets, whether
real, personal or mixed, and whether tangible or intangible.
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"QUARTERLY DATES" means the last Business Day of March, June, September and
December of each year.
"RESTRICTED PAYMENTS" means (i) any dividend or other distribution, direct
or indirect, on account of any shares of any class of stock or membership
interest of the Borrower now or hereafter outstanding, except a dividend payable
solely in shares of that class of stock or membership interest to the holders of
that class or distribution consisting solely of a class of membership interests
to the owners of that class of membership interest, (ii) any redemption,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of stock of the Borrower
now or hereafter outstanding, (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of the Borrower now or hereafter outstanding, (iv)
any payment made to any Affiliates of the Borrower in respect of management,
consulting or other services provided to the Borrower.
"REVOLVING CREDIT AVAILABILITY PERIOD" means the period from and including
the Closing Date to but excluding the earlier of (a) the Revolving Credit
Maturity Date and (b) the date of termination of the Revolving Credit
Commitment.
"REVOLVING CREDIT COMMITMENT" means an amount not to exceed $10,000,000
less the original Term Loan Commitment; provided that the Revolving Credit
Commitment may exceed (i) $5,000,000 less the original Term Loan Commitment only
if the Warrant provides for an additional 10,000 shares of Series D Convertible
Preferred stock of Rubio's and (ii) $7,500,000 less the original Term Loan
Commitment only if the Warrant continues to provide for an additional 10,000
shares of Series D Convertible Preferred stock of Rubio's.
"REVOLVING CREDIT NOTE" means the note substantially in the form appended
hereto as Exhibit A.
"REVOLVING CREDIT LOAN" means a Loan made pursuant to Section 2.1(a) that
utilizes the Revolving Credit Commitment.
"REVOLVING CREDIT MATURITY DATE" means the earlier of May __, 2001 or the
date upon which the Borrower receives notice of redemption under any series of
preferred stock issued by the Borrower, unless extended in accordance with
Section 2.3(a), in which case the "Revolving Credit Maturity Date" shall be such
extended date.
"RUBIO'S" means Rubio's Restaurants, Inc. a Delaware Corporation.
"SECURITY AGREEMENT" means the Security Agreement executed and delivered by
the Borrower on the Closing Date and thereafter in accordance with Section 5.11,
substantially in the form of Exhibit D annexed hereto, as such agreements may be
amended, supplemented or otherwise modified from time to time.
"SENIOR OFFICER" means the President, or Chief Financial Officer or
Treasurer or Assistant Treasurer.
"SPECIAL COUNSEL" means Lawson & Weitzen, LLP.
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"STATUTORY RESERVE RATE" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Bank is subject with respect to the
Adjusted LIBO Rate, for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D. LIBOR
Loans shall be deemed to constitute eurocurrency funding and to be subject to
such reserve requirements. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"SUBSIDIARY" means, with respect to any Person at any date, any
corporation, limited liability company, partnership, association or other entity
the accounts of which would be combined with those of the parent in the parent's
combined financial statements if such financial statements were prepared in
accordance with GAAP as of such date, as well as any other corporation, limited
liability company, partnership, association or other entity (a) of which
securities or other ownership interests representing more than 50% of the
ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, controlled or held,
or (b) that is, as of such date, otherwise Controlled, by the parent or one or
more subsidiaries of the parent or by the parent and one or more subsidiaries of
the parent. References herein to "Subsidiaries" shall, unless the context
requires otherwise, be deemed to be references to Subsidiaries of the Borrower.
"TAXES" means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
"TERM LOAN" has the MEANING ASSIGNED TO SUCH TERM IN SECTION 2.1(B).
"TERM Loan Commitment" means the amount necessary and sufficient to pay off
Union Bank and Bank of Commerce in the approximate amount of $2,500,000.
"TERM NOTE" means the note substantially the form appended hereto as
Exhibit B.
"TRANSACTIONS" means, with respect to the Borrower, the execution, delivery
and performance by the Borrower of the Loan Documents to which it is a party,
the borrowing of Loans and the use of the proceeds thereof.
"UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.
"U.S. DOLLARS" or "$" refers to lawful money of the United States of
America.
"WARRANT" means that certain Series D Preferred Stock Purchase for up to
45,000 share of Series D Convertible Preferred Stock of Rubio's, in the form
appended hereto as Exhibit E, exercisable through December 31, 2002 at the
exercise prices under the circumstances provided in Exhibit E.
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"WHOLLY OWNED SUBSIDIARY" means, with respect to any Person at any date,
any corporation, limited liability company, partnership, association or other
entity of which securities or other ownership interests representing 100% of the
equity or ordinary voting power (other than directors' qualifying shares) or, in
the case of a partnership, 100% of the general partnership interests are, as of
such date, directly or indirectly owned, controlled or held by such Person or
one or more Wholly Owned Subsidiaries of such Person or by such Person and one
or more Wholly Owned Subsidiaries of such Person.
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
1.2 TERMS GENERALLY. The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The word
"will" shall be construed to have the same meaning and effect as the word
"shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
1.3 ACCOUNTING TERMS; GAAP. Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time; provided that, if the
Borrower notifies the Bank that the Borrower requests an amendment to any
provision hereof to eliminate the effect of any change occurring after the date
hereof in GAAP or in the application thereof on the operation of such provision,
regardless of whether any such notice is given before or after such change in
GAAP or in the application thereof, then such provision shall be interpreted on
the basis of GAAP as in effect and applied immediately before such change shall
have become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith.
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ARTICLE II
THE CREDITS
2.1 REVOLVING CREDIT AND TERM LOAN COMMITMENTS.
(a) REVOLVING CREDIT LOANS. Subject to the terms and conditions set
forth herein, the Bank agrees to make Revolving Credit Loans to the Borrower
from time to time during the Revolving Credit Availability Period in an
aggregate principal amount that will not result in the aggregate of all
Revolving Credit Loans plus Letters of Credit issued and outstanding to exceed
the Revolving Credit Commitment. Notwithstanding the forgoing, the Bank shall
not make any Revolving Credit Loan which does not comply with the use of
proceeds set forth in Section 5.10 of this Agreement. Within the foregoing
limits and subject to the terms and conditions set forth herein, the Borrower
may borrow, prepay and reborrow Revolving Credit Loans until maturity. The
Revolving Credit Loans shall be evidenced by a Revolving Credit Note in the form
appended hereto as EXHIBIT A.
(b) TERM LOAN. In addition to Revolving Credit Loans pursuant to
paragraph (a) above, and subject to the terms and conditions set forth herein,
the Bank shall make the Term Loan to the Borrower (the "TERM LOAN") to the
Borrower in the full amount of its Term Loan Commitment, on the Closing Date.
Principal amounts of Term Loan which have been repaid or prepaid may not be
reborrowed. The Term Loan will be evidenced by the Term Note in the form
appended hereto as EXHIBIT B.
2.2 LOANS AND BORROWINGS.
(a) Each Loan of a particular Class shall be made as part of a Borrowing
consisting of Loans of such Class made by the Bank.
(b) At the commencement of each Interest Period for a LIBOR Borrowing,
such Borrowing shall be in an aggregate amount at least equal to $100,000 or any
greater integer multiple of $100,000. At the time that each Base Rate Borrowing
is made, such Borrowing shall be in an aggregate amount that is at least equal
to $50,000 or any greater integer multiple of $50,000; provided that
notwithstanding the foregoing (i) a Base Rate Borrowing of Revolving Credit
Loans may be in an aggregate amount that is equal to the entire unused balance
of the total Revolving Credit Commitments and (ii) a Revolving Credit Base Rate
Borrowing may be in an amount that is required to finance the reimbursement of
an LC Disbursement as contemplated by Section 2.7(e). Borrowings of more than
one Class may be outstanding at the same time; provided that there shall not at
any time be more than a total of five LIBOR Borrowings outstanding for all
Loans.
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2.3 REQUESTS FOR BORROWINGS.
(a) Rubio's on behalf of the Borrower shall request a Revolving Credit
Borrowing by notifying the Bank of such request by telephone confirmed in
writing by delivery of a written notice substantially in the form of EXHIBIT C
annexed hereto executed by a Senior Officer (a "NOTICE OF BORROWING/CONVERSION")
with blanks appropriately completed, to the Bank (i) in the case of a LIBOR
Borrowing, not later than 1:00 p.m., Boston, Massachusetts time, two Business
Days before the date of the proposed Borrowing or (ii) in the case of a Base
Rate Borrowing not later than 1:00 p.m., Boston, Massachusetts time, on the date
of the proposed Borrowing. Each such Notice of Borrowing/Conversion shall be
irrevocable.
(b) The Borrower has requested a Term Loan of approximately
1,991,134.16 advance on the date hereof to repay all of the obligations of the
Borrower to Union Bank and may request a Term Loan (in the manner provided for
Revolving Loans under Section 2.3 (a) in an amount of approximately $236,316.86
for the sole purpose of repaying Bank of Commerce, but only if the request for
such Term Loan is accompanied by a payoff letter in form reasonably satisfactory
to the Bank (including terminations of all existing liens held by Bank of
Commerce).
(c) Each Notice of Borrowing/Conversion shall specify the following
information in compliance with Section 2.2:
(i) the aggregate amount of such Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Base Rate Borrowing or a
LIBOR Borrowing;
(iv) in the case of a LIBOR Borrowing, the initial Interest Period
to be applicable thereto, which shall be a period contemplated by the
definition of the term "Interest Period"; and
(v) the location and number of the account to which funds are to
be disbursed as required by Section 2.5.
If no election as to the Borrowing is specified, then the requested Borrowing
shall be a Base Rate Borrowing. If no Interest Period is specified with respect
to any requested LIBOR Borrowing, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
2.4 TERMINATION AND REDUCTION OF COMMITMENTS.
(a) Unless previously terminated, the Revolving Credit Commitment shall
terminate at the close of business on the Revolving Credit Maturity Date as it
may be extended by the Bank in the exercise of its sole discretion; PROVIDED
that, by written notice delivered by the Bank to the Borrower prior to the
Revolving Credit Maturity Date or any extended Revolving Credit Maturity Date,
the Bank may grant a one year extension of the Revolving Credit Maturity Date,
but only if accepted in writing by the Borrower prior to the then current
Revolving Credit Maturity Date.
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(b) The Borrower may, upon seven days prior written notice executed by a
Senior Officer and delivered to the Bank, at any time terminate, or from time to
time reduce, the Revolving Credit Commitment; PROVIDED that (i) each reduction
of the Revolving Credit Commitment shall be in an amount that is at least equal
to $50,000 or any greater integer multiple of $50,000, and (ii) the Borrower
shall not terminate or reduce the Revolving Credit Commitment if, after giving
effect to any concurrent repayment under Section 2.4(a) or prepayment of the
Revolving Credit Loans the total of the Revolving Credit Loans would exceed the
total Revolving Credit Commitment as reduced.
2.5 REPAYMENT OF LOANS; EVIDENCE OF DEBT.
(a) The Borrower hereby unconditionally promises to pay to the Bank then
unpaid principal amount of the Revolving Credit Loans on the Revolving Credit
Maturity Date. Also, if following any reduction in the Revolving Credit
Commitment the aggregate principal amount of the outstanding Revolving Credit
Loans shall exceed the aggregate Revolving Credit Commitment, the Borrower shall
pay Revolving Credit Loans in the amount of such excess.
(b) The Borrower hereby unconditionally promises to pay the Term Note in
principal installments of the final amount necessary to repay obligations to
Union Bank and Bank of Commerce (in an amount not to exceed $2,500,00) in equal
quarterly installments of principal based on the final amount so advance due on
each Quarterly Date with interest in arrears to the date of payment with all of
the principal and interest on the Term Note due on the earlier of April 1, 2001
or the date of any IPO.
(c) The Bank shall maintain accounts in which it shall record (i) the
amount of each Loan made hereunder, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower hereunder and
(iii) the amount of any sum received by the Bank hereunder.
(d) The entries made in the accounts maintained pursuant to paragraph
(c) of this Section 2.5 shall be prima facie evidence of the existence and
amounts of the obligations recorded therein absent manifest error; PROVIDED that
the failure of the Bank to maintain such accounts or any error therein shall not
in any manner affect the obligation of the Borrower to repay the Loans in
accordance with the terms of this Agreement.
2.6 PREPAYMENT OF LOANS.
(a) OPTIONAL PREPAYMENTS. The Borrower shall have the right at any time
upon one (1) day's notice to the Bank (in accordance with this Section 2.6(d)),
and from time to time to prepay any Revolving Credit Loan in whole or in part
without penalty. Each prepayment of Term Loans in full shall be subject to the
Prepayment Penalty. Any such prepayment shall be applied in accordance with
paragraph (c) of this Section 2.6.
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(b) Mandatory Prepayments. The Borrower shall make prepayments of the
Loans hereunder (and reduce the Commitments hereunder) as follows:
(i) CASUALTY EVENTS. Upon the date 30 days following the receipt
by the Borrower of the proceeds of insurance (other than business
interruption insurance), condemnation award or other compensation in
respect of any Casualty Event affecting any property of the Borrower (or
upon such earlier date as such Borrower, as the case may be, shall have
determined not to repair or replace the property affected by such Casualty
Event), the Borrower shall prepay the Term Loan in the inverse order of
maturity, in an amount equal to 100% of the Net Cash Payments from such
Casualty Event not theretofore applied or committed to be applied to the
repair or replacement of such property (it being understood that if Net
Cash Payments committed to be applied are not in fact applied within twelve
months of the respective Casualty Event, then such Proceeds shall be
applied to the prepayment of the Term Loan as herein provided at the
expiration of such twelve-month period), such prepayment and reduction to
be effected in each case in the manner and to the extent specified in
Section 2.9(c).
(ii) DISPOSITION. Within 30 days following the receipt by the
Borrower of the proceeds of any Disposition permitted under the terms of
this Agreement the Borrower shall deliver to the Bank 100% of Net Cash
Payments received. Thereafter, within thirty days of the receipt, to the
extent any Borrower shall receive Net Cash Payments in cash under deferred
payment arrangements entered into or received in connection with any
Disposition, an amount equal to (A) 100% of the aggregate amount of such
Net Cash Payments minus (B) any transaction expenses associated with
Dispositions and not previously deducted in the determination of Net Cash
Payments plus (or minus, as the case may be) (C) any other adjustment
received or paid by the Borrower pursuant to the respective agreements
giving rise to Dispositions and not previously taken into account in the
determination of the Net Cash Payments.
(iii) INCURRENCE OF DEBT. Without limiting the obligation of the
Borrower to obtain the consent of the Bank to any incurrence of
Indebtedness not otherwise permitted hereunder, the Borrower agrees, on or
prior to the closing of any incurrence of debt permitted hereunder to
deliver to the Bank a statement certified by a Senior Officer, in form and
detail reasonably satisfactory to the Bank, of the estimated amount of the
Net Cash Payments of such incurrence of debt that will (on the date of such
incurrence) be received by the Borrower in cash and within 30 days of the
receipt by the Borrower of the proceeds of such incurrence of debt. The
Borrower will prepay the Term Loan hereunder, upon the date of such
incurrence of debt, in an aggregate amount equal to 100% of such estimated
amount of the Net Cash Payments from such incurrence of debt received by
the Borrower, such prepayment and reduction to be applied to payments to be
applied first to the Prepayment Penalty and then to the payments of the
Term Loan in the inverse order of payment.
(iv) OFFERING OF EQUITY (OTHER THAN AN IPO). Without limiting the
obligation of the Borrower to obtain the consent of the Bank, any sale of
equity securities (other than an IPO) not otherwise permitted hereunder,
the Borrower agrees, on or prior to the sale of equity securities to
deliver to the Bank a statement certified by a Senior Officer, in form and
detail reasonably satisfactory to the Bank, of the estimated amount
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of the Net Cash Payments of such sale of equity securities that will (on
the date of such sale) be received by the Borrower in cash and within 30
days of the receipt by the Borrower of the proceeds of such offering of
equity. The Borrower will prepay the Term Loan hereunder, upon the date
of such sale of securities, in an aggregate amount equal to 50% of such
estimated amount of the Net Cash Payments from such sale of equity
securities received by the Borrower, such prepayment and reduction to be
applied to the payments of the Term Loan in the inverse order of
payment, without Prepayment Penalty.
(v) IPO. Not later than the date 90 days after the completion of
an IPO, the Borrower agrees to prepay the Term Loan in full with interest
to date, but without Prepayment Penalty.
(c) APPLICATION. In the event of any mandatory prepayment of Loans
pursuant to this Section 2.6(a) and (b)(i) and (ii), if such prepayment is made
at a time when the Term Loan remains outstanding, any such prepayment shall be
applied first to the Prepayment Penalty, if any, and then to the quarterly
principal installments due on the Term Loan in inverse order of maturity.
(d) NOTIFICATION OF PREPAYMENTS. The Borrower shall notify the Bank by
telephone (confirmed by telecopy) of any prepayment hereunder not later than
12:00 noon, Boston, Massachusetts time, the Business Day one day prior to the
date of prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date and the principal amount of each Loan or portion thereof to be
prepaid.
(e) PREPAYMENTS ACCOMPANIED BY INTEREST. Prepayments of LIBOR based
Borrowings and Term Loans ( as provided in this Agreement) shall be accompanied
by accrued interest and applicable prepayment penalties ( as provided in this
Agreement).
2.7 LETTERS OF CREDIT.
(a) GENERAL. Subject to the terms and conditions set forth herein, in
addition to the Revolving Credit Loans provided for in Section 2.1(a), the
Borrower may request the issuance of Letters of Credit for its own account by
the Bank, in a form reasonably acceptable to the Bank, at any time and from time
to time prior to the Revolving Credit Maturity Date. Letters of Credit issued
hereunder shall constitute utilization of the Revolving Credit Commitment. In
the event of any inconsistency between the terms and conditions of this
Agreement and the terms and conditions of any form of letter of credit
application or other agreement submitted by the Borrower to, or entered into by
the Borrower with the Bank relating to any Letter of Credit, the terms and
conditions of this Agreement shall control.
(b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL, EXTENSION; CERTAIN
CONDITIONS. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Bank) to the Bank
(reasonably in advance of the requested date of issuance, amendment, renewal or
extension) a notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, the date of
issuance, amendment, renewal or extension, the date on which such Letter of
Credit is to expire (which shall comply with
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paragraph (c) of this Section 2.7), the amount of such Letter of Credit, the
name and address of the beneficiary thereof, and such other information as
shall be necessary to prepare, amend, renew or extend such Letter of Credit.
As required by the Bank, the Borrower also shall submit a letter of credit
application on the Bank's standard form in connection with any request for a
Letter of Credit. A Letter of Credit shall be issued, amended, renewed or
extended only if (and upon issuance, amendment, renewal or extension of each
Letter of Credit the Borrower shall be deemed to represent and warrant that),
after giving effect to such issuance, amendment, renewal or extension (i) the
aggregate LC Exposure of the Bank (determined for these purposes without
giving effect to the participations therein of the Revolving Credit Lenders
pursuant to paragraph (d) of this Section 2.7) shall not exceed with all
outstanding Revolving Credit Loans the Revolving Credit Maximum Amount.
(c) EXPIRATION DATE. Each Letter of Credit shall expire (without giving
effect to any extension thereof by reason of an interruption of business) at or
prior to the close of business on the earlier of (i) the date 365 days after the
date of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, 365 days after such renewal or extension) provided that any
such Letter of Credit may provide for automatic extensions thereof to a date not
later than 365 days beyond its current expiration date, and (ii) the date that
is fifteen Business Days prior to the Revolving Credit Maturity Date. No Letter
of Credit may be extended beyond the date that is fifteen Business Days prior to
the Revolving Credit Maturity Date.
(d) REIMBURSEMENT. If the Bank shall make any LC Disbursement in
respect of a Letter of Credit, the Borrower shall reimburse the Bank in respect
of such LC Disbursement by paying to the Bank an amount equal to such LC
Disbursement not later than 1:30 p.m., Boston, Massachusetts time, on (i) the
Business Day that the Borrower receives notice of such LC Disbursement, if such
notice is received prior to 12:00 noon, Boston, Massachusetts time, or (ii) the
Business Day immediately following the day that the Borrower receives such
notice, if such notice is not received prior to such time, provided that the
Borrower may, subject to the conditions to borrowing set forth herein, request
in accordance with Section 2.3 that such payment be financed with a Base Rate
Revolving Credit Loan in an equivalent amount and, to the extent so financed,
the Borrower's obligation to make such payment shall be discharged and replaced
by the resulting Revolving Credit Loan.
(e) OBLIGATIONS ABSOLUTE.
(i) The Borrower's obligation to reimburse LC Disbursements as provided
in paragraph (d) of this Section 2.7 shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement under any and all circumstances whatsoever and irrespective of
(A) any lack of validity or enforceability of any Letter of Credit, or any term
or provision therein, (B) any draft or other document presented under a Letter
of Credit proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect, (C) payment by the
Bank under a Letter of Credit against presentation of a draft or other document
that does not comply strictly with the terms of such Letter of Credit and (D)
any other event or circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section 2.7, constitute a
legal or equitable discharge of the Borrower's obligations hereunder; provided
that the foregoing shall not waive the liability of the Bank under applicable
law or regulation
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requiring a reasonable review of documents and the Bank's obligation not to
honor any presentment which on its face does not conform to a reasonable
degree with requirements of the Letter of Credit.
(ii) The Bank shall have no liability or responsibility by reason of or
in connection with the issuance or transfer of any Letter of Credit by the Bank
or any payment or failure to make any payment thereunder (irrespective of any of
the circumstances referred to in clause (e)(i) above), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Bank; PROVIDED that the foregoing shall not be construed to excuse the Bank from
liability to the Borrower to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Bank's gross negligence or wilful misconduct when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. Subject in all respects to the foregoing,
the parties hereto expressly agree that:
(A) the Bank may accept documents that appear on their face to be
in substantial compliance with the terms of a Letter of Credit without
responsibility for further investigation, regardless of any notice or
information to the contrary, and may make payment upon presentation of
documents that appear on their face to be in substantial compliance with
the terms of such Letter of Credit;
(B) the Bank shall have the right, in its sole discretion, to
decline to accept such documents and to make such payment if such documents
are not in strict compliance with the terms of such Letter of Credit; and
(C) this clause (e)(ii) shall establish the standard of care to be
exercised by the Bank when determining whether drafts and other documents
presented under a Letter of Credit comply with the terms thereof (and the
parties hereto hereby waive, to the extent permitted by applicable law, any
standard of care inconsistent with the foregoing).
(f) DISBURSEMENT PROCEDURES. The Bank shall, promptly following its
receipt thereof, examine all documents purporting to represent a demand for
payment under any Letter of Credit. The Bank shall promptly notify the Borrower
by telephone (confirmed by telecopy) of such demand for payment and whether the
Bank has made or will make an LC Disbursement thereunder; PROVIDED that any
failure to give or delay in giving such notice shall not relieve the Borrower of
its obligation to reimburse the Bank with respect to any such LC Disbursement.
(g) INTERIM INTEREST. If the Bank shall make any LC Disbursement in
respect of any Letter of Credit, then, unless the Borrower shall reimburse such
LC Disbursement in full on the date such LC Disbursement is made, the unpaid
amount thereof shall bear interest, for each day from and including the date
such LC Disbursement is made to but excluding the date that the Borrower
reimburses such LC Disbursement, at the rate per annum then applicable to Base
Rate Revolving Credit Loans; PROVIDED that, if the Borrower fails to reimburse
such LC Disbursement
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when due pursuant to paragraph (d) of this Section 2.7, then interest at the
Post-Default Rate shall accrue on the unpaid amount thereof.
(h) CASH COLLATERALIZATION. If an Event of Default shall occur and be
continuing and the Borrower receives notice from the Bank demanding the deposit
of cash collateral pursuant to this paragraph, or the Borrower shall immediately
deposit with the Bank an amount in cash equal to the LC Exposure as of such date
plus any accrued and unpaid interest thereon; PROVIDED that the obligation to
deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other notice
of any kind, upon the occurrence of any Event of Default. Such deposit shall be
held by the Bank as collateral in the first instance for the LC Exposure under
this Agreement and thereafter for the payment of any other obligations of the
Borrower hereunder.
2.8 FEES.
(a) The Borrower agrees to pay to the Bank on the daily average unused
amount of the respective Revolving Credit Commitment, during each fiscal quarter
from and including the Closing Date any unused commitment fees equal to .50% per
annum. Accrued commitment fees shall be payable in arrears on each Quarterly
Date commencing on the first such date occurring after the date hereof. All
commitment fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).
(b) The Borrower agrees to pay an additional fee of $100,000 which is
due on the Closing Date but payable $50,000 at closing and an additional $25,000
on the first anniversary of the Closing Date and $25,000 on the second
anniversary of the Closing Date; provided that the entire remaining amount of
the additional fee shall be due and payable upon the repayment of the
Commitments.
(c) The Borrower agrees to pay to the Bank an additional fee (the
"Prepayment Penalty") as follows: (i) 3% of the amount prepaid if the Term Loan
is paid by the first anniversary of the Closing Date, (ii) 2% of the amount
prepaid if the Term Loan is paid on and after the first anniversary of the
Closing Date and prior to the second anniversary of the Closing Date and (iii)
1% of the amount prepaid if paid on or after the second anniversary of the
Closing Date.
(d) The Borrower agrees to pay the Bank with respect to Letters of
Credit a fee per annum equal 2.00% of the average daily amount of the Bank's LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements). Accrued fees shall be payable in arrears on each Quarterly Date
and on the date the Revolving Credit Commitment terminates, commencing on the
first such date to occur after the date hereof, PROVIDED that any such fees
accruing after the date on which the Revolving Credit Commitment terminates
shall be payable on demand.
(e) All fees payable hereunder shall be paid on the dates due, in
immediately available funds. Fees paid shall not be refundable under any
circumstances, absent manifest error in the determination thereof.
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2.9 INTEREST.
(a) The Loans comprising Revolving Credit Loans and Term Loans at the
Base Rate shall bear interest at a rate per annum equal to the Adjusted Base
Rate plus 1.00% per annum or the Adjusted Base Rate plus 1.50% for all Revolving
Credit Loans if there is no pledge of the stock of the Borrower to the Bank.
(b) The Loans comprising Revolving Credit Loans and Term Loans at the
LIBO Rate shall bear interest of a rate per annum equal to the Adjusted LIBO
Rate plus 3.50% per annum; provided that, if there is no pledge of the stock of
the Borrower to the Bank, Revolving Credit Loans which are at the LIBO Rate
shall bear interest at a rate per annum equal to the Adjusted LIBO Rate plus
4.00% per annum.
(c) Notwithstanding the foregoing all obligations shall bear interest
until paid in full at the Adjusted Base Rate plus 3.00% per annum (the
"Post-Default Rate") when any Event of Default shall have occurred and be
continuing after as well as before judgment.
(d) The Borrower shall pay the Bank a late payment fee equal to 5% of
the amount of any payment of principal or interest or any mandatory prepayment
not received by the Bank within ten (10) days of the date required for such
payment under this Agreement.
(e) Accrued interest on each Loan shall be payable quarterly in arrears
on each Interest Payment Date for such Loan; PROVIDED that (i) interest accrued
at the Post-Default Rate and any late payment fee shall be payable on demand,
(ii) in the event of any repayment or prepayment of any LIBOR Loan (or the
repayment or prepayment in full of the Term Loans), accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment, (iii) in the event of any conversion of any LIBOR Loan
prior to the end of the current Interest Period therefor, accrued interest on
such Loan shall be payable on the effective date of such conversion and (iv) all
accrued interest on Revolving Credit Loans shall be payable upon expiration of
the Revolving Credit Availability Period.
(f) All interest hereunder shall be computed on the basis of a year of
360 days, and in each case shall be payable for the actual number of days
elapsed (including the first day but excluding the last day). The applicable
Adjusted Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the
Bank, and such determination shall be conclusive absent manifest error.
2.10 ALTERNATIVE RATE OF INTEREST.
(a) if the Bank determines (which determination shall be conclusive
absent manifest error) that adequate and reasonable means do not exist for
ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such
Interest Period; or
(b) if the Bank determines that the Adjusted LIBO Rate or the LIBO Rate,
as applicable, will not adequately and fairly reflect the cost to the Bank of
making or maintaining Loans of a Class included in a Borrowing for any Interest
Period;
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(c) then the Bank shall give notice thereof to the Borrower by telephone
or telecopy as promptly as practicable thereafter and, until the Bank notifies
the Borrower that the circumstances giving rise to such notice no longer exist,
(i) any Interest Election Request that request the conversion of any Borrowing
to, or continuation of any Borrowing as, a LIBOR Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a LIBOR Borrowing, such Borrowing
shall be made as a Base Rate Borrowing.
2.11 INCREASED COSTS.
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit
or similar requirement against assets of, deposits with or for the account
of, or credit extended by, the Bank (except any such reserve requirement
reflected in the Adjusted LIBO Rate); or
(ii) impose on the Bank or the London interbank market any other
condition affecting this Agreement or LIBOR Loans made by the Bank or any
Letter of Credit;
and the result of any of the foregoing shall be to increase the cost to the Bank
of making or maintaining any LIBOR Loan (or of maintaining its obligation to
make any such Loan) or to increase the cost to the Bank, issuing or maintaining
any Letter of Credit or to reduce the amount of any sum received or receivable
by the Bank (whether of principal, interest or otherwise), then the Borrower
will pay to the Bank, such additional amount or amounts as will compensate the
Bank for such additional costs incurred or reduction suffered.
(b) If the Bank reasonably determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on such the Bank's capital or on the capital of the Bank holding company, if
any, as a consequence of this Agreement or the Loans made by, or participations
in Letters of Credit held by, the Bank or the Letters of Credit issued to a
level below that which such the Bank's holding company could have achieved but
for such Change in Law (taking into consideration the Bank's policies and the
policies of the Bank's holding company with respect to capital adequacy), then
from time to time the Borrower will pay to the Bank, such additional amount or
amounts as will compensate the Bank, or such the Bank's holding company, for
any such reduction suffered.
(c) A certificate of the Bank setting forth the amount or amounts
necessary to compensate the Bank or its holding company, as the case may be, as
specified in paragraph (a) or (b) of this Section 2.11 and setting forth in
reasonable detail the basis for such claim and a calculation of the amount
payable to the Bank shall be delivered to the Borrower and shall be conclusive
so long as it reflects a reasonable basis for the calculation of the amounts set
forth therein and does not contain any manifest error. The Borrower shall pay
the Bank the amount shown as due on any such certificate within 10 days after
receipt thereof.
(d) Failure or delay on the part of the Bank to demand compensation
pursuant to this Section 2.11 shall not constitute a waiver of the Bank's right
to demand such compensation; PROVIDED that the Borrower shall not be required to
compensate pursuant to this Section 2.11 for
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<PAGE>
any increased costs or reductions incurred more than six months prior to the
date that the Bank, notifies the Borrower of the Change in Law giving rise to
such increased costs or reductions and of the Bank's intention to claim
compensation therefor; PROVIDED FURTHER that, if the Change in Law giving rise
to such increased costs or reductions is (i) retroactive and (ii) occurred
within such six-month period, then the six-month period referred to above may be
extended to include the period of retroactive effect thereof, but in no event
any period prior to the Closing Date.
2.12 BREAK FUNDING PAYMENTS.
(a) In the event of (i) the payment of any principal of any LIBOR Loan
other than on the last day of an Interest Period applicable thereto (including
as a result of an Event of Default), (ii) the conversion of any LIBOR Loan other
than on the last day of the Interest Period applicable thereto or, (iii) the
failure to borrow, convert, continue or prepay any LIBOR Loan on the date
specified in any notice delivered pursuant hereto (regardless of whether such
notice is permitted to be revocable and is revoked in accordance herewith) in
any such event, the Borrower shall compensate the Bank for the loss, cost and
expense attributable to such event.
(b) In the case of a LIBOR Loan, the loss to the Bank attributable to
any such event shall be deemed to include an amount determined by the Bank to be
equal to the excess, if any, of
(i) the amount of interest that the Bank would pay for a deposit
equal to the principal amount of such Loan for the period from the date of
such payment, conversion, failure or assignment to the last day of the then
current Interest Period for such Loan (or, in the case of a failure to
borrow, convert or continue, the duration of the Interest Period that would
have resulted from such borrowing, conversion or continuation) if the
interest rate payable on such deposit were equal to the Adjusted LIBO Rate
for such Interest Period,
OVER
(iv) the amount of interest that such Lender would earn on such
principal amount for such period if the Bank were to invest such
principal amount for such period at the interest rate that would be bid
by the Bank (or an affiliate of the Bank) for U.S. dollar deposits from
other banks in the eurodollar market at the commencement of such period.
(c) A certificate of the Bank setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section 2.12 and setting
forth in reasonable detail the basis for such claim and a calculation of the
amount payable to such Lender shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender the amount
shown as due on any such certificate within 10 days after receipt thereof.
2.13 TAXES.
(a) Any and all payments by or on account of any obligation of the
Borrower hereunder shall be made free and clear of and without deduction for any
Taxes; PROVIDED that if the Borrower shall be required to deduct any Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions the Bank
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<PAGE>
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii)
the Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Bank, within 30 days after
written demand therefor, for the full amount of any Taxes which may become
payable as described in this Section 2.13(a) (other than taxes on income of
the Bank) paid by the Bank (and any penalties, interest and reasonable
expenses arising therefrom or with respect thereto during the period prior to
the Borrower making the payment demanded under this paragraph (c)), whether
or not such Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority. A certificate as to the amount of such
payment or liability delivered to the Borrower by the Bank shall be
conclusive absent manifest error.
(d) As soon as practicable after any payment of such Taxes by the
Borrower to a Governmental Authority, the Borrower shall deliver to the Bank the
original or a certified copy of a receipt issued by such Governmental Authority
evidencing such payment under Section 2.13(a), a copy of the return reporting
such payment or other evidence of such payment reasonably satisfactory to the
Bank.
2.14 PAYMENTS GENERALLY.
(a) The Borrower shall make each payment required to be made by them
hereunder prior to 4:00 p.m., Boston, Massachusetts time, on the date when due,
in immediately available funds, without set-off or counterclaim. Any amounts
received after such time on any date may, in the discretion of the Bank, be
deemed to have been received on the next succeeding Business Day for purposes of
calculating interest thereon. All such payments shall be made to the Bank at
such of its offices in Boston, Massachusetts as shall be notified to the
Borrower from time to time. If any payment hereunder shall be due on a day that
is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All
payments hereunder shall be made in U.S. dollars.
(b) If at any time insufficient funds are received by and available to
the Bank to pay fully all amounts of principal, interest and fees then due
hereunder under any circumstances, including, without limitation during, or as a
result of the exercise by the Bank of remedies under the Collateral Documents
and applicable law, such funds shall be applied (i) first, to pay interest and
fees then due hereunder and (ii) second, to pay principal.
(c) The Borrower authorizes the Bank to charge its deposit accounts
maintained by the Borrower with the Bank any Obligation due hereunder when due.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank, as to itself, that:
3.1 ORGANIZATION; POWERS. The Borrower is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. The Borrower has all requisite power and authority under its
organizational documents to carry on its business as now conducted and, except
where the failure to be so qualified or in good standing, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required.
3.2 AUTHORIZATION; ENFORCEABILITY. The Transactions are within the
corporate power of the Borrower and have been duly authorized by all necessary
corporate and, if required, stockholder action on the part of the Borrower.
This Agreement has been duly executed and delivered by the Borrower and
constitutes a legal, valid and binding obligation of such Borrower, enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at law.
3.3 GOVERNMENTAL APPROVALS; NO CONFLICTS. Except as set forth on
SCHEDULE 3.3, the Transactions (a) do not require any consent or approval of,
registration or filing with, or any other action by, any Governmental Authority
that has not been obtained, (b) will not violate any applicable law, policy or
regulation or the charter, by-laws or other organizational documents of the
Borrower or any order of any Governmental Authority, (c) will not violate or
result in a default under any indenture, agreement or other instrument binding
upon the Borrower, or any of its assets, or give rise to a right thereunder to
require any payment to be made by the Borrower, and (d) except for the Liens
created by the Collateral Documents, will not result in the creation or
imposition of any Lien on any asset of the Borrower.
3.4 FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.
(a) The Borrower has heretofore delivered to the Bank the following
financial statements:
(i) The audited balance sheet and statement of earnings (loss),
stockholder's deficit and cash flows of the Borrower, as of and for fiscal
years ending December 28, 1997 and December 29, 1996, respectively,
accompanied by an opinion of Deloitte, Touche LLP, independent public
accountants;
(ii) the unaudited balance sheet and statements of earnings (loss),
stockholders' deficit and cash flows of the Borrower as of and for the
three months ending four-week periods ended March 29, 1998, certified by a
Senior Officer that such financial statements fairly present (subject to
normal year-end audit adjustments) the financial condition of the Borrower
as at such dates and the results of the operations of
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the Borrower for the periods ended on such dates and that all such
financial statements, including the related schedules and notes thereto
have been prepared in accordance with GAAP applied consistently throughout
the periods involved; and
Such financial statements present fairly, in all material respects, the
respective actual or pro forma combined financial position and results of
operations and cash flows of the respective entities as of such respective dates
and for such periods in accordance with GAAP, subject to year-end audit
adjustments and the absence of footnotes in the case of such unaudited or pro
forma statements and are accurate and complete in all respects.
(b) Since the last day of the Borrower's most recent audited period,
there has been no material adverse change in the business, assets, operations,
prospects or condition, financial or otherwise, of the Borrower.
(c) The Borrower has furnished to the Bank annual combined financial
projections dated as of August 1997 and covering fiscal years 1998 through
2001. Such financial projections are based on good faith estimates and
assumptions made by the Borrower and its management, and on the Closing Date,
such parties believed that the projections were reasonable and attainable, it
being recognized by the Bank, however, that projections as to future events are
not to be viewed as facts and that actual results during the period or periods
covered by the projections may differ from the projected results and that the
differences may be material.
(d) The Borrower does not have on the date hereof any contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments in each case
that are material, except as referred to or reflected or provided for in the
balance sheets referred to above or as provided for in SCHEDULE 3.4 annexed
hereto, or as otherwise expressly provided in this Agreement, or as referred to
or reflected or provided for in the financial statements described in this
Section 3.4.
3.5 PROPERTIES.
(a) Except as set forth on SCHEDULE 3.5, the Borrower has good title to,
or valid, subsisting and enforceable leasehold interests in, all of its Property
material to its business.
(b) Except as set forth on Schedule 3.5, the Borrower owns, or is
licensed to use, all trademarks, service marks, tradenames, copyrights, patents
and other intellectual property ("PROPRIETARY RIGHTS") material to its business
and the use thereof by the Borrower does not infringe upon the rights of any
other Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect. All such trademark applications and registrations, trademarks,
registered copyrights, patents and patent applications which are owned by or
licensed to the Borrower are listed on SCHEDULE 3.5 annexed hereto ("REGISTERED
RIGHTS").
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<PAGE>
3.6 LITIGATION AND ENVIRONMENTAL MATTERS.
(a) There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of any
of the Borrower, threatened against or affecting the Borrower (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve any of the Loan Documents or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, the Borrower (i) has not failed
to comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law, (ii) has
not become subject to any Environmental Liability, (iii) has not received notice
of any claim with respect to any Environmental Liability or any inquiry,
allegation, notice or other communication from any Governmental Authority
concerning its compliance with any Environmental Law or (iv) does not know of
any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
3.7 COMPLIANCE WITH LAWS AND AGREEMENTS. The Borrower is in compliance
with all laws, regulations, policies and orders of any Governmental Authority
applicable to it or its property and all indentures, agreements and other
instruments binding upon it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
3.8 INVESTMENT AND HOLDING COMPANY STATUS. Neither the Borrower nor any
of its Affiliates is (a) an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940, as amended, (b) a "holding
company" as defined in, or subject to regulation under, the Public Utility
Holding Company Act of 1935, as amended or (c) a "bank holding company" as
defined in, or subject to regulation under, the Bank Holding Company Act of
1956, as amended.
3.9 TAXES. The Borrower has timely filed or caused to be filed all Tax
returns and reports required to have been filed and has paid or caused to be
paid all Taxes required to have been paid by it, except (a) Taxes that are being
contested in good faith by appropriate proceedings and for which such Borrower
has set aside on its books adequate reserves with respect thereto in accordance
with GAAP or (b) to the extent that the failure to do so could not reasonably be
expected to result in a Material Adverse Effect.
3.10 ERISA. No ERISA Event has occurred or is reasonably expected to
occur that, when taken together with all other such ERISA Events for which
liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the
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<PAGE>
most recent financial statements reflecting such amounts, exceed the fair
market value of the assets of such Plan.
3.11 DISCLOSURE. As of the Closing Date, the Borrower has disclosed to
the Bank all agreements, instruments and corporate or other restrictions to
which the Borrower is subject after the Closing Date, and all other matters
known to the Borrower, that, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect. A list of the senior
management of the Borrower is set forth on SCHEDULE 3.11 annexed hereto. The
information, reports, financial statements, exhibits and schedules furnished in
writing by or on behalf of the Borrower to the Bank on or prior to the Closing
Date in connection with the negotiation, preparation or delivery of this
Agreement and the other Loan Documents or included herein or therein or
delivered pursuant hereto or thereto, when taken as a whole do not contain any
untrue statement of material fact or omit to state any material fact necessary
to make the statements herein or therein, in light of the circumstances under
which they were made, not misleading. All written information furnished after
the Closing Date by the Borrower to the Bank in connection with this Agreement
and the other Loan Documents and the transactions contemplated hereby and
thereby will be true, complete and accurate in every material respect, or (in
the case of projections) based on reasonable estimates, on the date as of which
such information is stated or certified. There is no fact known to the Borrower
that could reasonably be expected to have a Material Adverse Effect that has not
been disclosed herein, in the other Loan Documents or in a report, financial
statement, exhibit, schedule, disclosure letter or other writing furnished to
the Bank for use in connection with the transactions contemplated hereby or
thereby.
3.12 CAPITALIZATION. On the Closing Date, the capital structure and
ownership of the Borrower are correctly described in SCHEDULE 3.12. The
authorized, issued and convertible preferred STOCK and other capital stock of
the Borrower consists, on the date hereof, of the stock described on SCHEDULE
3.12, all of which is duly and validly issued and outstanding, fully paid and
non-assessable. Except as set forth in SCHEDULE 3.12, as of the date hereof,
(x) there are no outstanding Equity Rights with respect to each of the Borrower
and (y) there are no outstanding obligations of any Borrower to repurchase,
redeem, or otherwise acquire any shares of capital stock of the Borrower nor are
there any outstanding obligations of the Borrower to make payments to any
Person, such as "phantom stock" payments, where the amount thereof is calculated
with reference to the fair market value or equity value of the Borrower.
3.13 SUBSIDIARIES. The Borrower has no Subsidiaries other than as listed
on SCHEDULE 3.13.
3.14 MATERIAL INDEBTEDNESS, LIENS AND AGREEMENTS.
(a) SCHEDULE 3.14 hereto is a complete and correct list, as of the date
of this Agreement, of all Material Indebtedness or any extension of credit (or
commitment for any extension of credit) to, or guaranty by, any Borrower the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $100,000, and the aggregate principal or face amount outstanding or that
may become outstanding with respect thereto is correctly described in SCHEDULE
3.14.
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(b) SCHEDULE 3.14 hereto is a complete and correct list, as of the date
of this Agreement, of each Lien securing Indebtedness of any Person and covering
any property of the Borrower, and the aggregate Indebtedness secured (or which
may be secured) by each such Lien and the Property covered by each such Lien is
correctly described in SCHEDULE 3.14.
3.15 FEDERAL RESERVE REGULATIONS. The Borrower is not engaged
principally or as one of its important activities in the business of extending
credit for the purpose of purchasing or carrying margin stock (as defined in
Regulation U of the Board). The value of all margin stock owned by the Borrower
does not constitute more than 25% of the value of the assets of the Borrower.
3.16 BURDENSOME RESTRICTIONS. The Borrower is not a party to or
otherwise bound by any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter, corporate or partnership
restriction which would reasonably foreseeably have a Material Adverse Effect.
3.17 FORCE MAJEURE. Since the date of the most recent financial
statements referred to in Section 3.4(a)(i) to the Closing Date, the business,
properties and other assets of the Borrower have not been materially and
adversely affected in any way as the result of any fire or other casualty,
strike, lockout or other labor trouble, embargo, sabotage, confiscation,
contamination, riot, civil disturbance, activity of armed forces or act of God.
3.18 LABOR MATTERS. Except as disclosed in SCHEDULE 3.18, (i) there are
no employee strikes, work stoppages or other similar labor disputes among the
Borrower and any of their respective employees, (ii) the Borrower is not a party
to any collective bargaining agreement or other labor union contract applicable
to persons employed by the Borrower, and (iii) to the Borrower's knowledge,
there are no organizational efforts presently being made involving any of the
employees of the Borrower. To the Borrower's knowledge, there is no pending or
threatened employee strike, work stoppage or other similar labor dispute with
respect to the employees of the Borrower. To the best of its knowledge, the
Borrower is in compliance with all material and applicable legal requirements
respecting employment and employment practices, terms and conditions of
employment, and wage and hour and labor management relations requirements.
3.19 BROKERS. Except as disclosed in SCHEDULE 3.19, no broker or finder
acting on behalf of any of the Borrower brought about the obtaining, making or
closing of the Loans or the transactions contemplated by the Loan Documents and
the Company has no obligation to any Person other than as disclosed in SCHEDULE
3.19 in respect of any finder's or brokerage fees in connection therewith.
ARTICLE IV
CONDITIONS
4.1 CLOSING DATE. The obligations of the Bank to make Loans hereunder
shall not become effective until the date on which each of the following
conditions is satisfied:
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(a) COUNTERPARTS OF AGREEMENT. The Bank shall have received from each
party hereto either (i) a counterpart of this Agreement signed on behalf of
such party or (ii) written evidence satisfactory to the Bank that such party
has signed a counterpart of this Agreement.
(b) NOTES. The Bank shall have received the Term Note and the Revolving
Credit Note duly completed and executed by the Borrower.
(c) CORPORATE STRUCTURE. The corporate organizational structure,
capital structure and ownership of the Borrower are set forth on SCHEDULE 3.12
annexed hereto.
(d) CORPORATE MATTERS. The Bank shall have received such documents and
certificates as the Bank or Special Counsel may reasonably request relating to
the organization, existence and good standing of the Borrower, the authorization
of the Transactions and any other legal matters relating to the Borrower, this
Agreement, the other Loan Documents or the Transactions, all in form and
substance reasonably satisfactory to the Bank and its counsel.
(e) SECURITY INTERESTS . The Bank shall have received evidence
satisfactory to it that the Borrower shall have taken or caused to be taken all
such actions, executed and delivered or caused to be executed and delivered all
such agreements, documents and instruments, and made or caused to be made all
such filings and recordings (other than the filing or recording of items
described in clauses (iii), (iv) and (v) below) that may be necessary or, in the
opinion of the Bank, desirable in order to create in favor of the Bank a valid
and (upon such filing and recording) perfected First Priority security interest
in the entire personal and mixed property Collateral. Such actions shall
include, without limitation, the following:
(i) COLLATERAL DOCUMENTS. Delivery to the Bank of all the
Collateral Documents, duly executed by the Borrower, together with accurate
and complete schedules to all such Collateral Documents;
(ii) WARRANT. Delivery to the Bank of the Warrant in form appended
hereto as Exhibit E with all additional documents and instruments or
agreements necessary to make the Warrant enforceable and exercisable as
provided in the Warrant.
(iii) LIEN SEARCHES AND UCC TERMINATION STATEMENTS. Delivery to the
Bank of (A) the results of a recent search, by a Person satisfactory to the
Bank, of all effective UCC financing statements and all judgment and tax
lien filings which may have been made with respect to any personal or mixed
property of the Borrower, together with copies of all such filings
disclosed by such search, and (B) UCC termination statements duly executed
by all applicable Persons for filing in all applicable jurisdictions as may
be necessary to terminate any effective UCC financing statements or fixture
filings disclosed in such search (other than any such financing statements
or fixture filings in respect of Liens permitted to remain outstanding
pursuant to the terms of this Agreement);
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(iv) UCC FINANCING STATEMENTS. Delivery to the Bank of UCC
financing statements duly executed by the Borrower with respect to all
personal and mixed property Collateral of the Borrower, for filing in all
jurisdictions as may be necessary or, in the opinion of the Bank, desirable
to perfect the security interests created in such Collateral pursuant to
the Collateral Documents;
(v) PERFECTION CERTIFICATE. Delivery to the Bank of a perfection
certificate for the Borrower dated the Closing Date substantially in the
form of SCHEDULE I to the form of Security Agreement annexed hereto as
Exhibit D duly executed by a senior officer of the Borrower.
(f) LANDLORD WAIVERS. The Borrower will use all of its best efforts to
deliver Landlord Waivers in the form appended hereto as EXHIBIT G for the
locations listed on Schedule 3.5.
(g) PAYOFF LETTERS. The following payoff letters and related
termination statements and releases shall have been duly executed and delivered
to the Bank:
(i) Union Bank Loan for $1,991,134.16 plus a 526.01 per diem on an
after May 11, 1998 until paid.
(h) EVIDENCE OF INSURANCE. The Bank shall have received a certificate
from the Borrower's insurance broker or other evidence satisfactory to it that
all insurance required to be maintained pursuant to Section 5.5 is in full force
and effect and that the Bank has been named as additional insured and loss payee
thereunder to the extent required under Section 5.5.
(i) MANAGEMENT; EMPLOYMENT AND CONSULTING CONTRACTS. The management
structure of the Borrower is set forth on Schedule 3.11, and the Bank shall have
received copies of, and shall be satisfied with the form and substance of (i)
any and all employment contracts with any senior management of the Borrower (ii)
any and all shareholders' agreements among any of the shareholders of the
Borrower, (iii) any and all consulting agreements with any Persons and (iv) any
stock option plans, phantom stock incentive programs and similar arrangements
provided by the Borrower, in each case as such will be in effect from and after
the Closing Date.
(j) NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS. The Borrower
shall have obtained all permits, licenses, authorizations or consents from all
Governmental Authorities and all consents of other Persons with respect to
Material Indebtedness, Liens and agreements listed on SCHEDULE 3.14 (and so
identified thereon) annexed hereto, in each case that are necessary or advisable
in connection with the Loan Documents and the continued operation of the
business conducted by the Borrower, in substantially the same manner as
presently conducted, and each of the foregoing shall be in full force and
effect, in each case other than those the failure to obtain or maintain which,
either individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect.
(k) NO MATERIAL ADVERSE EFFECT. There shall have occurred no Material
Adverse Effect (in the reasonable opinion of the Bank) since the end of fiscal
years ending December 29, 1996 and December 28, 1997, respectively, in the case
of the Borrower taken as a whole.
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(l) OPINION OF COUNSEL TO BORROWER. The Bank shall have received a
favorable written opinion (addressed to the Bank and dated the Closing Date) of
Brobeck, Phleger & Harrison, LLP, counsel to the Borrower covering such matters
relating to the Borrower, this Agreement, the other Loan Documents or the
Transactions as the Bank shall reasonably request (and the Borrower hereby
requests such counsel to deliver such opinion).
(m) FEES AND EXPENSES. The Bank shall have received all fees and other
amounts due and payable at or prior to the Closing Date, including, to the
extent invoiced, reimbursement or payment of all out-of-pocket expenses required
to be reimbursed or paid by the Borrower hereunder and payment of fees and
expenses due to Special Counsel which fees shall not exceed $20,000 and all out
of pocket expenses.
(n) FINANCIAL STATEMENTS. The Bank shall have received the financial
statements for fiscal year ending December 28, 1997, as audited by Borrower's
Accountant.
(o) OTHER DOCUMENTS. The Bank shall have received such other documents
as the Bank or any Lender or Special Counsel shall have reasonably requested.
4.2 EACH EXTENSION OF CREDIT. The obligation of the Bank to make a Loan
on the occasion of any Loan is subject to the satisfaction of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Borrower set forth in this Agreement and the other Loan Documents shall
be true and correct on and as of the date of such Loan, both before and after
giving effect thereto and to the use of the proceeds thereof (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, such representation or warranty shall be or have been true and
correct as of such specific date) unless the Borrower shall notify the Bank in
writing of any material changes to such representations and warranties.
(b) NO DEFAULTS. At the time of and immediately after giving effect to
such Loan no Default shall have occurred and be continuing.
The making of each Loan shall be deemed to be a representation and warranty
by the Borrower on the date of the Loan as to the accuracy of the facts referred
to in subsections (a) and (b) of this Section 4.2.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the principal of
and interest on each Loan and all fees payable hereunder shall have been paid in
full the Borrower covenants and agrees with the Bank that:
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5.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower will
furnish to the Bank:
(a) as soon as available and in any event within 90 days after the end
of each fiscal year of the Borrower:
(i) consolidated and consolidating statements of income, retained
earnings and cash flows of the Borrower for such fiscal year and the
related consolidated and consolidating balance sheets of the Borrower as at
the end of such fiscal year, setting forth in each case in comparative form
the corresponding consolidated and consolidating figures for the preceding
fiscal year;
(ii) an opinion of independent certified public accountants of
recognized standing (without a "going concern" or like qualification or
exception and without any qualification or exception as to the scope of
such audit) stating that said financial statements referred to in the
preceding clause (i) fairly present the financial condition and results of
operations of the Borrower as at the end of, and for, such fiscal year in
accordance with GAAP, and a statement of such accountants to the effect
that, in making the examination necessary for their opinion, nothing came
to their attention that caused them to believe that the Borrower was not in
compliance with Section 6.9, insofar as such Section relates to accounting
matters, and
(iii) a certificate of a Senior Officer stating that said financial
statements referred to in the preceding clause (i) fairly present the
financial condition and results of operations of the Borrower, in each case
in accordance GAAP consistently applied, as at the end of, and for, such
fiscal year;
(b) as soon as available and in any event within 45 days after the end
of each fiscal month of the Borrower, Monthly Restaurant Reports, in the form of
appended hereto as Exhibit H and the balance sheets of the Borrower as at the
end of such period, setting forth in each case in comparative form the
corresponding figures for the corresponding period in the preceding fiscal year
(except that, in the case of balance sheets, such comparison shall be to the
last day of the prior fiscal year),
(c) as soon as available and in any event within 45 days after the end
of the first three quarterly fiscal periods of each fiscal year of the Borrower:
(i) statements of income, retained earnings and cash flows of the
Borrower for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related balance
sheets of the Borrower as at the end of such period, setting forth in each
case in comparative form the corresponding combined and combining figures
for the corresponding period in the preceding fiscal year and a comparison
to the plan presented to the Bank, together with a "management discussion"
of the Borrower' results for such fiscal quarter,
(ii) a certificate of a Senior Officer, which certificate shall
state that said financial statements referred to in the preceding clause
(i) fairly present the financial condition and results of operations of the
Borrower and that said financial statements
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referred to in the preceding clause (i) fairly present the respective
individual uncombined financial condition and results of operations of
the Borrower, in each case in accordance with generally accepted
accounting principles, consistently applied, as at the end of, and for,
such period (subject to normal year-end audit adjustments and the omission
of footnotes);
(d) concurrently with any delivery of financial statements under clauses
(a), (b) (for the annual statements only) and (c) above, a Compliance
Certificate duly executed by a Senior Officer;
(e) as soon as available and in any event within 30 days after the
beginning of the fiscal year of the Borrower an annual operating budget for the
Borrower for each fiscal quarter in the current fiscal year, together with
supporting assumptions which were reasonable when made, as at the end of each
fiscal month or year, as applicable, all prepared in good faith in reasonable
detail and consistent with the Borrower's past practices in preparing
projections and otherwise reasonably satisfactory in scope to the Bank;
(f) promptly after the same become publicly available, copies of all
registration statements, regular periodic reports and press releases filed by
the Borrower with the Securities and Exchange Commission, or any Governmental
Authority succeeding to any or all of the functions of said Commission, or with
any national securities exchange;
(g) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed; and.
(h) other information that may from time to time be reasonably requested
by the Bank.
5.2 NOTICES OF MATERIAL EVENTS. The Borrower will furnish to the Bank
prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting the
Borrower that, if adversely determined, could reasonably be expected to result
in a Material Adverse Effect;
(c) the occurrence of any ERISA Event;
(d) the acquisition or creation of any Subsidiary of the Borrower
(e) notice of any material change in annual operating budget delivered
hereunder, any amendment or modification of any of the agreements referred to in
Section 3.14, any new insurance policies and any change in the ownership of the
Borrower or agreements with key employees;
(f) the occurrence of any event that would require the Borrower to make
a prepayment of the Loans or reduce any Commitment; and
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(g) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect (provided such notice shall be
considered prompt if given within ten (10) days of the Borrower becoming aware
of such development).
Each notice delivered under this Section 5.2 shall be accompanied by a statement
of a Senior Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
5.3 EXISTENCE; CONDUCT OF BUSINESS. The Borrower will do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the rights, licenses, permits, privileges and franchises
(including without limitation patent and trademark registrations) material to
the conduct of its business unless curable and cured within thirty (30) days of
its renewable date.
5.4 PAYMENT OF OBLIGATIONS. The Borrower will pay its obligations,
including Tax Liabilities before the same shall become delinquent or in default,
except where (a) the validity or amount thereof is being contested in good faith
by appropriate proceedings, (b) the Borrower has set aside on its books adequate
reserves with respect thereto in accordance with GAAP and (c) the failure to
make payment pending such contest could not reasonably be expected to result in
a Material Adverse Effect.
5.5 MAINTENANCE OF PROPERTIES; INSURANCE. The Borrower will (a) keep
and maintain all property material to the conduct of its business in good
working order and condition, ordinary wear and tear excepted, and (b) maintain,
with financially sound and reputable insurance companies, such insurance as may
be required by law and such other insurance in such amounts and against such
risks as are customarily maintained by companies engaged in the same or similar
businesses operating in the same or similar locations, including, without
limitation, business interruption and product liability insurance. Without
limiting the generality of the foregoing, the Borrower will (i) maintain or
cause to be maintained flood insurance with respect to each Flood Hazard
Property, each in amounts required by the Flood Hazard Act, or provide evidence
acceptable to the Bank that such insurance is not available and (ii) maintain or
cause to be maintained replacement value casualty insurance on the Collateral
under such policies of insurance, in each case with such insurance companies, in
such amounts, with such deductibles, and covering such terms and risks as are at
all times satisfactory to the Bank in its commercially reasonable judgment.
Each such policy of insurance shall (x) name the Bank as an additional insured
thereunder as its interests may appear and (y) in the case of each business
interruption and casualty insurance policy, contain a loss payable clause or
endorsement, satisfactory in form and substance to the Bank that names the Bank
as the loss payee thereunder and provides for at least 30 days' prior written
notice to the Bank of any modifications or cancellation of such policy.
5.6 BOOKS AND RECORDS; INSPECTION RIGHTS. The Borrower will keep proper
books of record and account in which full, true and correct entries are made of
all dealings and transactions in relation to its business and activities. The
Borrower will permit any representatives designated by the Bank to visit and
inspect its properties, to examine and make extracts from its books and records,
and to examine its affairs, finances and condition with its officers and
independent accountants PROVIDED that, so long as no Default has occurred and is
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continuing, all such visits shall be at reasonable times during regular
business hours of the Borrower and shall be limited to no more than one per
year and PROVIDED FURTHER that after the occurrence and during the
continuance of any Default the Bank may visit and/or perform "examinations"
at any reasonable time and as often as the Bank reasonably deems necessary.
5.7 FISCAL YEAR. To enable the ready and consistent determination of
compliance with the covenants set forth in Section 6.9 hereof, the Borrower will
not change its fiscal year without the prior written consent of the Bank and the
Borrower, which consent may not be unreasonably withheld.
5.8 COMPLIANCE WITH LAWS. The Borrower will comply with (i) all laws,
rules, regulations and orders including, without limitation, Environmental Laws,
of any Governmental Authority and (ii) all contractual obligations, in each case
applicable to it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
5.9 COMPLIANCE WITH AGREEMENTS. The Borrower will comply in all
material respects with each term, condition and provision of all leases,
agreements and other instruments entered into in the conduct of its business
including any agreement listed on SCHEDULE 3.14; PROVIDED that the Borrower may
contest any such lease, agreement and other instrument in good faith so long as
adequate reserves are maintained in accordance with GAAP.
5.10 USE OF PROCEEDS. The proceeds of the Loans will be used only as
follows (i) the proceeds of the Term Loan will be used solely for the
refinancing of the existing term debt of the Borrower as set forth on SCHEDULE
5.10, (ii) no more than $1,000,000 outstanding at any one time of the Revolving
Loans may be used for working capital and general corporate purposes of the
Borrower, (iii) to fund Letters of Credit, and (iv) the balance of the Revolving
Loans may be used for Permitted New Restaurants. No part of the proceeds of any
Loan will be used, whether directly or indirectly, for any purpose that entails
a violation of any of the Regulations of the Board, including Regulations G, U
and X.
5.11 CERTAIN OBLIGATIONS RESPECTING COLLATERAL SECURITY.
(a) ADDITIONAL SUBSIDIARIES. In the event that the Borrower shall form
or acquire any new Subsidiary after the date hereof, the Borrower will cause
such new Subsidiary within five Business Days after such formation or
acquisition:
(i) to execute and deliver to the Bank the following documents:
(1) a counterpart to this Agreement (and thereby to become a party to this
Agreement, as a "Co-Borrower" or "Guarantor" hereunder), (2) a Security
Agreement, and (3) such other instruments documents and agreements as may
be required by the Bank; and
(ii) to take such action (including executing and delivering such
UCC financing statements) as shall be necessary to create and perfect valid
and enforceable first priority Liens consistent with the provisions of the
applicable Collateral Documents; and
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(iii) to deliver such proof of corporate action, incumbency of
officers and other documents as is consistent with those delivered by the
Borrower pursuant to Section 5.1 on the Closing Date or as the Bank shall
have reasonably requested.
(b) OWNERSHIP OF SUBSIDIARIES. Except as expressly permitted by this
Agreement, the Borrower shall not sell, transfer or otherwise dispose of any
shares of stock in any Subsidiary owned by it, nor permit any Subsidiary to
issue any shares of stock of any class whatsoever to any Person.
5.12 ERISA. The Borrower will maintain, and cause each Subsidiary to
maintain, each Plan in material compliance with all applicable requirements of
ERISA and of the Code and with all applicable rulings and regulations issued
under the provisions of ERISA and of the Code and will not and not permit any of
the ERISA Affiliates to (a) engage in any transaction with respect to any Plan
which would subject any Borrower to either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code, in any
amount, (b) fail to make full payment when due of all amounts which, under the
provisions of any Plan, the Borrower or any ERISA Affiliate is required to pay
as contributions thereto, or permit to exist any accumulated funding deficiency
(as such term is defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, with respect to any Pension Plan in any amount or (c)
fail to make any payments in any amount to any Multiemployer Plan that the
Borrower or any of the ERISA Affiliates may be required to make under any
agreement relating to such Multiemployer Plan or any law pertaining thereto.
5.13 COMMUNICATION WITH ACCOUNTANTS. The Borrower authorizes the Bank to
communicate directly with the independent certified public accountants to
disclose to the Bank any and all financial statements and other supporting
financial documents and schedules including copies of any management letter with
respect to the business, financial condition and other affairs of the Borrower.
On or before the Closing Date, on each anniversary of the Closing Date, and
promptly upon its engagement of new accountants and tax advisors, the Borrower
shall have delivered a letter addressed to such accountants and tax advisors,
which letter shall (a) provide that such accountants and tax advisors are
authorized and directed to disclose to the Bank any and all financial statements
and other supporting financial documents and schedules including copies of any
management letter with respect to the business, financial condition and other
affairs of the Borrower, (b) state that a primary intent of the Borrower is for
the financial statements prepared by such accountants to benefit or influence
the Bank and that the Bank will rely upon such financial statements, and (c)
instruct such accountants and tax advisors to communicate directly with the
Bank.
5.14 INTELLECTUAL PROPERTY. The Borrower will conduct its business and
affairs without infringement of or interference with any intellectual property
of any other Person.
5.15 LANDLORD WAIVER. The Borrower shall each use its reasonable efforts
to obtain a Landlord waiver from the lessor of each leased property where
Collateral is located. The Borrower shall timely and fully pay and perform its
obligations under all leases and other agreements with respect to each leased
location or public warehouse where any Collateral is or may be located.
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ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder have been paid in full, the
Borrower covenants and agrees with the Lenders that:
6.1 INDEBTEDNESS. The Borrower will not create, incur, assume or permit
to exist any Indebtedness, except:
(a) Indebtedness created hereunder;
(b) Indebtedness existing on the date hereof and set forth in Schedule
3.14 (excluding, however, following the making of the initial Loans hereunder,
the Indebtedness outstanding under the existing credit agreements with Union
Bank and if not refinanced by June 15, 1998 the existing credit agreements with
Bank of Commerce);and
(c) Indebtedness of the Borrower (determined on a combined basis without
duplication in accordance with GAAP) consisting of Capital Lease Obligations
and/or secured by Liens permitted under Section 6.2(h), in an aggregate
principal amount not in excess of $250,000 in fiscal year 1998 and an
additional $250,000 per year thereafter.
6.2 LIENS. The Borrower will not create, incur, assume or permit to
exist any Lien on any Property or asset now owned or hereafter acquired by it,
or assign or sell any income or revenues (including accounts receivable) or
rights in respect of any thereof, except:
(a) Liens created under the Collateral Documents;
(b) any Lien on any property or asset of the Borrower existing on the
date hereof and set forth on the Perfection Certificate attached to the Security
Agreements and/or listed on SCHEDULE 3.14 (excluding, however, following the
making of the initial Loans hereunder, the Liens securing Indebtedness under the
existing credit agreements with Union Bank and if not refinanced by June 15,
1998, the existing credit agreement with Bank of Commerce), PROVIDED that (i)
such Lien shall not apply to any other property or asset of any Borrower and
(ii) such Lien shall secure only those obligations which it secures on the date
hereof and extensions, renewals and replacements thereof that do not increase
the outstanding principal amount thereof;
(c) Liens imposed by any Governmental Authority for taxes, assessments
or charges not yet due or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are maintained
on the books of the Borrower in accordance with GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's, landlord's,
repairmen's or other like Liens, and vendors' Liens imposed by statute or common
law not securing the repayment of Indebtedness, arising in the ordinary course
of business which are not overdue for a period of more than 60 days or which are
being contested in good faith and by appropriate
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proceedings and Liens securing judgments (including, without limitation,
pre-judgment attachments) but only to the extent for an amount and for a
period not resulting in an Event of Default under Section 7.1(j) hereof;
(e) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(f) deposits to secure the performance of bids, tenders, trade contracts
(other than for borrowed money), leases (other than capital leases), statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the use
of Property or minor imperfections in title thereto which, in the aggregate, are
not material in amount, and which do not, in the aggregate, materially detract
from the value of the Property of the Borrower or interfere with the ordinary
conduct of the business of the Borrower;
(h) Liens on fixed or capital assets, including real or personal
property, acquired, constructed or improved by any Borrower, PROVIDED that (A)
such Liens secure Indebtedness (including Capital Lease Obligations) permitted
by Section 6.1(d), (B) such Liens and the Indebtedness secured thereby are
incurred prior to or within 90 days after such acquisition or the completion of
such construction or improvement, (C) the Indebtedness secured thereby does not
exceed the cost of acquiring, constructing or improving such fixed or capital
assets and (D) such security interests shall not apply to any other property or
assets of the Borrower.
6.3 CONTINGENT LIABILITIES. The Borrower will not guaranty the
Indebtedness or other obligations of any Person, or guaranty the payment of
dividends or other distributions upon the stock of, or the earnings of, any
Person, except:
(a) endorsements of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business,
(b) any guaranty in effect on the date hereof which is disclosed in
SCHEDULE 3.14, and any replacements thereof in amounts not exceeding such
Guaranty;
6.4 FUNDAMENTAL CHANGES; ASSET SALES; PERMITTED ACQUISITIONS. The
Borrower will not enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution) or acquire any business or property from, or capital
stock of, or be a party to any acquisition of, any Person except for purchases
by any Borrower of inventory and other property to be sold or used in the
ordinary course of business, Investments permitted under Section 6.5 and
Permitted New Restaurants. Borrower will not convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, any part
of its business or property, whether now owned or hereafter acquired (including,
without limitation, receivables and leasehold interests other than (x) obsolete
or worn-out property (including leasehold interests), tools or equipment no
longer used or useful in its business, (y) any inventory or other property sold
or disposed of in the ordinary course of
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business and on ordinary business terms and (z) other assets not included
under the preceding clauses (x) and (y), the fair market value of which does
not exceed an aggregate amount of (i) $100,000 in any fiscal year of the
Borrower or (ii) $100,000 cumulatively after the Closing Date.
6.5 INVESTMENTS
The Borrower will not make or permit to remain outstanding any
Investment, except:
(i) Permitted New Restaurants;
(ii) Permitted Investments; and
(iii) Checking and deposit accounts with banks used in the ordinary
course of business.
6.6 RESTRICTED PAYMENTS. The Borrower shall not declare or make any
Restricted Payment at any time without the prior written consent of the Bank,
other than salaries and bonus paid to employees who are shareholders at normal
and customary amounts and distributions of additional shares of the common or
convertible preferred shares of the Borrower under certain stock option plans
more fully described on SCHEDULE 6.6 hereto or as Distributions permitted under
Section 6.8.
6.7 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by this
Agreement, the Borrower will not directly or indirectly (a) make any Investment
in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
property to an Affiliate; (c) merge into or consolidate with an Affiliate, or
purchase or acquire property from an Affiliate; or (d) enter into any other
transaction directly or indirectly with or for the benefit of an Affiliate
(including, without limitation, guaranties and assumptions of obligations of an
Affiliate); PROVIDED that:
(i) any Affiliate who is an individual may serve as a director,
officer, employee or consultant of the Borrower, receive reasonable
compensation for his or her services in such capacity and benefit; or
(ii) the Borrower may engage in and continue the transactions with
or for the benefit of Affiliates which are described in SCHEDULE 6.7; or
(iii) Rubio's may make use of the liquor licenses held by Rubio's
Restaurants of Nevada, Inc.
6.8 DISTRIBUTIONS. The Borrower shall not issue additional shares of
any class except as provided in SCHEDULE 6.8 hereof.
6.9 CERTAIN FINANCIAL COVENANTS. All of the following covenants shall
be measured at the end of each fiscal quarter of the Borrower, based on the four
immediately preceding fiscal quarters of the Borrower, except as otherwise set
forth below.
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(a) FIXED CHARGE COVERAGE RATIO. The Borrower shall not permit the
ratio of Consolidated Cash Flow on the last day of each fiscal quarter for the
four quarters then ended to Consolidated Financial Obligations to be at the end
of:
Each fiscal quarter ending in fiscal year 1998, less than 1.25 to 1.00
Each fiscal quarter ending in fiscal year 1999, less than 1.4 to 1.00
Each fiscal quarter ending in fiscal year 2000, less than 1.6 to 1.00
Each fiscal quarter ending in fiscal year 2001, less than 1.7 to 1.00
(b) MINIMUM INTEREST COVERAGE RATIO. The Borrower will not permit the
ratio of Consolidated EBITDA on the last day of each fiscal quarter for the four
fiscal quarters then ending to Interest Expense to be less than 5.00 to 1.00.
(c) MAXIMUM TOTAL LEVERAGE RATIO. The Borrower will not permit the
ratio of Consolidated Funded Indebtedness to Consolidated EBITDA at the end of
each fiscal quarter for the four fiscal quarters then ended to exceed 1.40 to
1.00 through December 31, 1998 and 1.00 to 1.00 thereafter.
(d) CAPITAL EXPENDITURES. The Borrower shall not incur Capital
Expenditures in each of the following fiscal years which exceed: $10,000,000 in
fiscal year 1998, $13,000,000 in fiscal year 1999, $16,000,000 in fiscal year
2000, and $19,500,000 in fiscal year 2001; provided that notwithstanding any
other provision of this Agreement, including without limitation Section 5.10
hereof, the Borrower shall not open more than 27 new restaurants in fiscal year
1998, 35 new restaurants in fiscal year 1999, 45 new restaurants in fiscal year
2000 and 55 new restaurants in fiscal year 2001. Up to 50% of the total amount
of Capital Expenditures permitted hereunder which is not used in any fiscal year
may be carried forward to the next fiscal year, but not thereafter.
6.10 SALE-LEASEBACK TRANSACTIONS. The Borrower will not directly or
indirectly, enter into any arrangements with any Person whereby the Borrower
shall sell or transfer any property, real, personal or mixed, used or useful in
its business, whether now owned or hereafter acquired, and thereafter rent or
lease such property from any Person.
6.11 LINES OF BUSINESS. The Borrower shall not engage to any substantial
extent in any line or lines of business activity other than (i) the types of
businesses engaged in by the Borrower as of the Closing Date and businesses
directly related thereto and (ii) such other lines of business as may be
consented to by the Bank.
6.12 NAME AND LOCATION. Without thirty days' prior written notice to the
Bank, the Borrower shall not change its name, its federal tax identification
number or the location of its chief executive office.
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ARTICLE VII
EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT.
If any of the following events ("EVENTS OF DEFAULT") shall occur:
(a) the Borrower shall fail to pay to the Bank any principal of, or
interest on, any Loan or any other amount payable under this Agreement or any
fee payable under this Agreement or any other agreement, after the same shall
become due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof, by acceleration of such due or prepayment date, or
otherwise;
(b) any representation or warranty made or deemed made by or on behalf
the Borrower in or in connection with this Agreement, any of the other Loan
Documents or any amendment or modification hereof or thereof, or in any report,
certificate, financial statement or other document furnished pursuant to or in
connection with this Agreement, any of the other Loan Documents or any amendment
or modification hereof or thereof, shall prove to have been incorrect when made
or deemed made in any material respect;
(c) the Borrower (i) shall fail to observe or perform any covenant,
condition or agreement contained in Sections 5.1(a) through (g), inclusive, 5.2,
5.3, 5.4, 5.5, 5.6, 5.8, 5.10, 5.12, 5.15 or in Article VI, or (ii) shall fail
to observe or perform any other covenant, condition or agreement contained in
Article V and, in the case of events described in such clause (ii), such failure
shall continue unremedied for a period of 30 days after the earlier of (x)
actual knowledge by an officer of the Borrower or (y) notice thereof from the
Bank the Borrower;
(d) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement (other than those specified
in clauses (a), (b) or (c) of this Article) or any other Loan Document, and such
failure shall continue unremedied for a period of 30 days after notice thereof
from the Bank.
(e) the Borrower shall fail to make any payment (whether of principal or
interest and regardless of amount) in respect of any Material Indebtedness when
and as the same shall become due and payable, after giving effect to any grace
period with respect thereto;
(f) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables or
permits (with or without the giving of notice, the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled
maturity;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other relief
in respect of the Borrower or its debts, or of a substantial part of its assets,
under any Federal, state or foreign bankruptcy, insolvency,
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receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or for a substantial part of its assets,
and, in any such case, such proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the foregoing
shall be entered;
(h) the Borrower shall (i) voluntarily commence any proceeding or file
any petition seeking liquidation, reorganization or other relief under any
Federal, state or foreign bankruptcy, insolvency, receivership or similar law
now or hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition described
in clause (g) of this Article, (iii) apply for or consent to the appointment of
a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors or (vi)
take any action for the purpose of effecting any of the foregoing;
(i) the Borrower shall become generally unable, admits in writing, or
generally fails to pay its debts as they become due;
(j) a final judgment or judgments for the payment of money in excess of
$150,000 in the aggregate (exclusive of judgment amounts fully covered by
insurance where the insurer has admitted liability in respect of such judgment)
or in excess of $2,000,000 in the aggregate (regardless of insurance coverage)
shall be rendered by one or more courts, administrative tribunals or other
bodies having jurisdiction against any Borrower and the same shall not be
discharged (or provision shall not be made for such discharge), or a stay of
execution thereof shall not be procured, within 45 days from the date of entry
thereof and the relevant Borrower shall not, within said period of 45 days, or
such longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal;
(k) an ERISA Event shall have occurred;
(l) there shall have been asserted against the Borrower claims or
liabilities, whether accrued, absolute or contingent, based on or arising from
the generation, storage, transport, handling or disposal of Hazardous Materials
by the Borrower or Affiliates, or any predecessor in interest of the Borrower or
Affiliates, or relating to any site or facility owned, operated or leased by the
Borrower or any of its Affiliates, which claims or liabilities (insofar as they
are payable by the Borrower) are in an amount singly or in the aggregate,
reasonably likely to have a Material Adverse Effect;
(m) the failure of the current holders of the common stock of the
Borrower (x) to own collectively, beneficially and of record, at least 66% of
the capital stock of the Borrower or (y) to control at least 66% of the voting
rights in the Borrower; provided that upon the death of any of the foregoing, no
Event of Default shall occur if such stock or interest is transferred to members
of the deceased's immediate family or such person's personal representative and
it shall not be an Event of Default if the common stock ownership is reduced
after and as part of an IPO, provided that the Term Loan is repaid as provided
in Section 2.6 (b) (iv) hereof; or
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(n) any of the following shall occur: (i) the Liens created by the
Collateral Documents shall at any time (other than by reason of the Bank
relinquishing such Lien) cease to constitute valid and perfected Liens on the
Collateral intended to be covered thereby; (ii) except for expiration in
accordance with its respective terms, any Collateral Document shall for whatever
reason be terminated, or shall cease to be in full force and effect; or (iii)
the enforceability of any Collateral Document shall be contested by any
Borrower.
then, and in every such event (other than an event with respect to the Borrower
described in clause (g) or (h) of this Section 7.1), and at any time thereafter
during the continuance of such event, the Bank may by notice to the Borrower
take either or both of the following actions, at the same or different times:
(i) terminate the Commitments, and thereupon the Commitments shall terminate
immediately, (ii) declare the Loans then outstanding to be due and payable in
whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower, and (iii) the Bank may exercise all of the rights as secured party
and mortgagee under the Collateral Documents; and in case of any event with
respect to the Borrower described in clause (g) or (h) of this Section 7.1, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower, and the Bank shall be permitted
to exercise such rights as secured party and mortgagee under the Collateral
Documents to the extent permitted by applicable law.
ARTICLE VIII
MISCELLANEOUS
8.1 NOTICES. Except in the case of notices and other communications
expressly permitted to be given by telephone, all notices and other
communications provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed by certified or registered mail or
sent by telecopy, as follows:
(a) if to the Borrower, to James Stryker , Rubio's Restaurants, Inc.,
5151 Shoreham Place, Suite 260 San Diego, CA 92122 (Fax no.619-452-0181) with a
copy to Ray Nopper 5151 Shoreham Place, Suite 260 San Diego, CA 92122 (Fax
no.619-452-0181)
(b) if to the Bank, to BankBoston, N.A., 100 Federal Street, Mail Code
01-09-05, Boston, Massachusetts 02110, Attention: Debra Zurka, Director (Fax
No. (617) 434-0637 ), with a copy to Lawson & Weitzen LLP, 425 Summer Street,
Boston, Massachusetts 02210, Attention: Richard S. Rosenstein, Esq. (Fax No.
617-439-3987).
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by written notice to the other parties hereto. All
notices and other
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communications given to any party hereto in accordance with the provisions of
this Agreement shall be deemed to have been given on the date of receipt.
8.2 WAIVERS; AMENDMENTS.
(a) No failure or delay by the Bank in exercising any right or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Bank hereunder are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of this
Agreement or consent to any departure by any Borrower therefrom shall in any
event be effective unless the same shall be permitted in their entirety by the
Bank and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. Without limiting the generality
of the foregoing, the making of a Loan shall not be construed as a waiver of any
Default, regardless of whether the Bank may have had notice or knowledge of such
Default at the time.
(b) None of the Collateral Documents nor any provision thereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and by the Bank.
8.3 EXPENSES; INDEMNITY; DAMAGE WAIVER.
(a) The Borrower agrees to pay, or reimburse the Bank for paying, (i)
all reasonable out-of-pocket expenses incurred by the Bank including the
reasonable fees, charges and disbursements of Counsel to the Bank in connection
with the preparation of this Agreement and the other Loan Documents or any
amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable out-of-pocket expenses incurred by the Bank
including the reasonable fees, charges and disbursements of any counsel for the
Bank, in connection with the enforcement or protection of its rights in
connection with this Agreement and the other Loan Documents, including its
rights under this Section 8.3, or in connection with the Loans made hereunder,
including in connection with any workout, restructuring or negotiations in
respect thereof, (iv) all fees and reasonable out-of-pocket expenses of the Bank
(including per diem fees and expenses) for any and all "examinations" of the
properties, assets and records of the Borrower in each fiscal year, (v) all
Taxes levied by any Governmental Authority in respect of this Agreement or any
of the other Loan Documents or any other document referred to herein or therein
and (vi) all costs, expenses, taxes, assessments and other charges incurred in
connection with any filing, registration, recording or perfection of any
security interest contemplated by any Collateral Document or any other document
referred to therein.
(b) The Borrower agrees to indemnify the Bank and any persons acting for
and on behalf of the Bank (each such Person being called an "INDEMNITEE")
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the reasonable fees,
charges and disbursements of any counsel for any Indemnitee and settlement
costs, incurred by or asserted against any Indemnitee arising out of, in
connection with, or as a result of (i) the execution or delivery of this
Agreement, the other Loan Documents or any agreement or instrument contemplated
hereby, the performance by the parties hereto and
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thereto of their respective obligations hereunder or thereunder or the
consummation of the Transactions or any other transactions contemplated
hereby or thereby, (ii) any Loan or the use of the proceeds therefrom , (iii)
any actual or alleged presence or release of Hazardous Materials on or from
any property owned or operated by the Borrower or any of their subsidiaries,
or any Environmental Liability related in any way to the Borrower or any of
their subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based
on contract, tort or any other theory and regardless of whether any
Indemnitee is a party thereto; provided that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses (are determined by a court of competent
jurisdiction by final and non-appealable judgment to have) resulted from the
gross negligence or wilful misconduct of such Indemnitee.
(c) To the extent permitted by applicable law, the Borrower shall not
assert, and the Borrower hereby waives, any claim against any Indemnitee, on any
theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement, the other Loan Documents or any agreement or
instrument contemplated hereby or thereby, the Transactions, any Loan or Letter
of Credit or the use of the proceeds thereof.
(d) All amounts due under this Section 8.3 shall be payable promptly
after written demand therefor.
8.4 SUCCESSORS AND ASSIGNS.
(a) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that the Borrower may not assign or otherwise transfer
any of its rights or obligations hereunder without the prior written consent of
the Bank (and any attempted assignment or transfer by any Borrower without such
consent shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby and, to the
extent expressly contemplated hereby) any legal or equitable right, remedy or
claim under or by reason of this Agreement.
(b) The Bank may assign all of its rights and obligations under this
Agreement (including its Commitments and the Loans at the time owing to it),
subject to the consent of the Borrower (so long as no Default exists), which
consent shall not be unreasonably withheld.
(c) Upon acceptance of an assignment and from and after the effective
date specified in such assignment, the assignee thereunder shall be a party
hereto and, to the extent of the interest assigned by such assignment, have the
rights and obligations of the Bank under this Agreement, and the Bank shall, to
the extent of the interest assigned by such assignment, be released from its
obligations under this Agreement (and, in the case of an assignment covering all
of the Bank's rights and obligations under this Agreement, the Bank shall cease
to be a party hereto but shall continue to be entitled to the benefits of
Sections 2.10, 2.12 and 8.3).
(d) The Bank may sell participations to one or more banks or other
entities (a "PARTICIPANT") in all or a portion of the Bank's rights and
obligations under this Agreement (including all or a portion of its Commitments
and the Loans owing to it); PROVIDED that (i) such
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the Bank's obligations under this Agreement shall remain unchanged, (ii) the
Bank shall remain solely responsible to the other parties hereto for the
performance of such obligations and (iii) the Borrower shall continue to deal
solely and directly with the Bank in connection with the Bank's rights and
obligations under this Agreement. The Borrower agrees that each Participant
shall be entitled to the benefits of Sections 2.8, 2.9 and 2.10 to the same
extent as if it were the Bank and had acquired its interest by assignment
pursuant to paragraph (b) of this Section 8.4.
(e) The Bank may at any time pledge or assign a security interest in
all or any portion of its rights under this agreement to secure obligations of
the Bank, including any such pledge or assignment to a Federal Reserve Bank and
this Section shall not apply to any such pledge or assignment of a security
interest.
8.5 SURVIVAL. All covenants, agreements, representations and warranties
made by the Borrower herein and in the other Loan Documents, and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement and the other Loan Documents, shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the other Loan Documents and the making of any
Loans and shall continue in full force and effect so long as the principal of or
any accrued interest on any Loan or any fee or any other amount payable under
this Agreement or the other Loan Documents is outstanding and so long as the
Commitments have not expired or terminated. The provisions of Sections 2.10,
2.12 and 8.3 shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the Loans
and the Commitments or the termination of this Agreement or any other Loan
Document or any provision hereof or thereof.
8.6 COUNTERPARTS; INTEGRATION; REFERENCES TO AGREEMENT; EFFECTIVENESS.
This Agreement may be executed in counterparts (and by different parties hereto
on different counterparts), each of which shall constitute an original, but all
of which when taken together shall constitute a single contract. This Agreement
and the collateral Documents constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Whenever there is a reference in any Collateral Document or UCC
Financing Statement to the "Credit Agreement" to which the Bank and the Borrower
are parties, such reference shall be deemed to be made to this Agreement among
the parties hereto. Except as provided in Section 4.1, this Agreement shall
become effective when it shall have been executed by the Bank and when the Bank
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
8.7 SEVERABILITY. Any provision of this Agreement held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability
without affecting the validity, legality and enforceability of the remaining
provisions hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.
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8.8 RIGHT OF SETOFF. If an Event of Default shall have occurred and be
continuing, the Bank is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any of and all the obligations of the Borrower
now or hereafter existing under this Agreement held by such Lender, irrespective
of whether or not such Lender shall have made any demand under this Agreement
and although such obligations may be unmatured. The rights of each Lender under
this Section 8.8 are in addition to any other rights and remedies (including
other rights of setoff) which such Lender may have.
8.9 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(a) This Agreement shall be construed in accordance with and governed by
the law of the Commonwealth of Massachusetts (excluding its conflicts of laws
principles).
(b) Each party hereto hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of the courts
of the Commonwealth of Massachusetts and of the United States District Court
for the District of Massachusetts, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement or
the other Loan Documents, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such Massachusetts court (or, to the extent permitted by law,
in such Federal court). Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement shall affect any right
that the Bank may otherwise have to bring any action or proceeding relating
to this Agreement against the Borrower or its properties in the courts of any
jurisdiction.
(c) Each party hereto hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any court referred to in paragraph (b) of this Section 8.9. Each
of the parties hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 8.1. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
8.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
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REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
8.11 HEADINGS. Article and Section headings and the Table of Contents
used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
8.12 CONFIDENTIALITY. The Bank agrees to take, and to cause its
Affiliates to take, normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by the Borrower and provided to it by the Borrower, or by any agent on
the Borrower's behalf, under this Agreement or any other Loan Document, and
neither the Bank nor any of its Affiliates shall use any such information other
than in connection with or in enforcement of this Agreement and the other Loan
Documents or in connection with other business now or hereafter existing or
contemplated with the Borrower, except to the extent such information (i) was or
becomes generally available to the public other than as a result of disclosure
by the Bank, or (ii) was or becomes available on a non-confidential basis from a
source other than the Borrower, provided that such source is not bound by a
confidentiality agreement with the Borrower known to the Bank; provided,
however, that the Bank may disclose such information (A) at the request or
pursuant to any requirement of any Governmental Authority to which the Bank is
subject or in connection with an examination of the Bank by any such authority;
(B) pursuant to subpoena or other court process; (C) when required to do so in
accordance with the provisions of any applicable law; (D) to the extent
reasonably required in connection with any litigation or proceeding to which the
Bank or any of their respective Affiliates may be party; (E) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Loan Document; (F) to the Bank's independent auditors and other
professional advisors; (G) to any participant in or assignee or any Loans,
actual or potential, provided that such Person agrees in writing to keep such
information confidential to the same extent required of the Bank hereunder; (H)
as to the Bank or its Affiliates, as expressly permitted under the terms of any
other document or agreement regarding confidentiality to which the Borrower is
party or is deemed party with the Bank or such Affiliate; and (I) to its
Affiliates if they agree to be bound by this confidentially provision as though
it were the Bank.
8.13 ENTIRE AGREEMENT. This and the other Loan Documents comprise the
entire agreement between the Bank and the Borrower and supersede all prior
drafts, understandings or agreements.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
RUBIO'S RESTAURANTS, INC.
By /S/ RALPH RUBIO
------------------------------
Name: Ralph Rubio
Title: President
RUBIO'S RESTAURANTS OF NEVADA, INC.
By /S/ ROBERT RUBIO
------------------------------
Name: Robert Rubio
Title: President
BANKBOSTON, N.A.
By /S/ DEBRA ZURKA
------------------------------
Name: Debra Zurka
Title: Director
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EXHIBIT A
REVOLVING CREDIT NOTE
$7,500,000 Boston, Massachusetts
May , 1998
FOR VALUE RECEIVED, the undersigned, jointly and severally, (the
"Borrower") hereby promises to pay to BANKBOSTON, N.A. (the "Bank"), or
order, on the Revolving Credit Maturity Date as defined in the Credit
Agreement (defined below), the principal amount of Seven Million Five Hundred
Thousand Dollars ($7,500,000) or, if less, the aggregate unpaid principal
amount of all Revolving Credit Loans (as defined in the Credit Agreement
defined below) made by the Bank to the Borrower pursuant to the Credit
Agreement, together with interest (computed on the basis of the actual number
of days elapsed over a 360-day year) on the unpaid principal amount hereof
until paid in full at the rates provided in the Credit Agreement ("Interest
Rate"). Interest shall be payable as and when set forth in Section 2.9 of
the Credit Agreement.
If the unpaid principal hereof or any portion thereof is not paid when due,
then the unpaid balance of principal shall bear interest, to the extent
permitted by law, at the Post-Default Rate as defined in the Credit Agreement.
All payments under this Note shall be made at the head office of the Bank
at 100 Federal Street, Boston, Massachusetts 02110 (or at such other place as
the Bank may designate from time to time in writing) in lawful money of the
United States of America in federal or other immediately available funds. The
Borrower may prepay this Note in whole or in part at any time without premium.
Amounts so paid and other amounts may be borrowed and reborrowered by the
Borrower hereunder from time to time as provided in the Credit Agreement
referred to below and subject to the limitation provided in the Credit
Agreement.
This Note is issued pursuant to, is entitle to the benefits of, and is
subject to the provisions of a certain Revolving Credit and Term Loan Agreement
as of even date herewith by and between the undersigned and the Bank (herein, as
the same may from time to time be amended or extended, referred to as the
"Credit Agreement"), but neither this reference to the Credit Agreement nor any
provision thereof shall affect or impair the absolute and unconditional
obligation of the undersigned maker of this Note to pay the principal of and
interest on this Note as herein provided.
Upon an Event of Default, as defined in the Credit Agreement, the aggregate
unpaid balance of principal plus accrued interest may become or may be declared
to be due and payable in the manner and with the effect provided in the Credit
Agreement.
<PAGE>
The maker of this Note hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
WITNESS the execution of this Note under seal on the date first above
written.
RUBIO'S RESTAURANTS, INC.
By:
--------------------------
Title:
Witness:
----------------------
RUBIO'S RESTAURANTS OF NEVADA, INC.
By:
--------------------------
Title:
Witness:
----------------------
<PAGE>
EXHIBIT B
TERM NOTE
$2,227,720.01 Boston, Massachusetts
May , 1998
FOR VALUE RECEIVED, the undersigned, jointly and severally,
(collectively the "Borrower") hereby promises to pay to BANKBOSTON, N.A. (the
"Bank"), or order, the principal amount of One Million Nine Hundred Ninety
Two Thousand One Hundred Eighty Six and 18/100 Dollars ($1,992,186.18) plus
up to Two Hundred Thirty Five Thousand Five Hundred Thirty Three and 83/100
Dollars ($235,533.83) advanced hereunder by June 15, 1998, or such lesser
amount required to repay all of the obligation of the maker to Union Bank and
Bank of Commerce, payable in installments of principal as provided in the
Credit Agreement, together with interest (computed on the basis of the actual
number of days elapsed over a 360-day year) on the unpaid principal amount
hereof from the date that each of the respective two "advances" were made
that make up the principal balance of this Term Note until paid in full at
the rate or rates provided in the Credit Agreement ("Interest Rate").
Interest shall be payable as and when set forth in Section 2.9 of the Credit
Agreement. All principal outstanding hereunder and interest accrued thereon
and all other amounts outstanding hereunder shall be due and payable in full
on the earlier of April 1, 2001 or upon an IPO (as defined in the Credit
Agreement).
If the unpaid principal hereof or any portion thereof is not paid when due,
then the unpaid balance of principal shall bear interest, to the extent
permitted by law, at a Post-Default Rate as provided in the Credit Agreement
from and after the first Business Day on which the principal or such portion
thereof becomes overdue, such interest to be payable on demand.
All payments under this Note shall be made at the head office of the Bank
at 100 Federal Street, Boston, Massachusetts 02110 (or at such other place as
the Bank may designate from time to time in writing) in lawful money of the
United States of America in federal or other immediately available funds.
Amounts so paid and other amounts may not be reborrowed.
This Note is issued pursuant to, is entitled to the benefits of, and is
subject to the provisions of a certain Revolving Credit and Term Loan Agreement
of even date herewith by and between the undersigned and the Bank (herein, as
the same may from time to time be amended or extended, referred to as the
"Credit Agreement"), but neither this reference to the Credit Agreement nor any
provision thereof shall affect or impair the absolute and unconditional
obligation of the undersigned maker of this Note to pay the principal of and
interest on this Note as herein provided.
Prepayment of this note shall be subject to the Prepayment Penalty under
certain circumstances as more fully set forth in the Credit Agreement.
<PAGE>
Upon an Event of Default, as defined in the Credit Agreement, the aggregate
unpaid balance of principal plus accrued interest may become or may be declared
to be due and payable in the manner and with the effect provided in the Credit
Agreement.
The maker of this Note hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
WITNESS the execution of this Note under seal on the date first above
written.
RUBIO'S RESTAURANTS, INC
By:
--------------------------
Ralph Rubio
President
Witness
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RUBIO'S RESTAURANTS OF NEVADA, INC
By:
--------------------------
Robert Rubio
President
Witness
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EXHIBIT C
FORM OF NOTICE OF BORROWING/CONVERSION
RUBIO'S RESTAURANTS, INC.
5151 Shoreham Place
Suite 260
San Diego, CA 92122
[Date]
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
Re: NOTICE OF BORROWING/CONVERSION UNDER CREDIT AGREEMENT
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of May , 1998 (the
"AGREEMENT") among Rubio's Restaurants, Inc. and Rubio's Restaurants of Nevada,
Inc. (collectively, the "BORROWER"), and BankBoston, N.A. (the "Bank"). In
accordance with Section 2.3 of the Agreement the Borrowers hereby request the
following Borrowings or Conversion of the following Borrowings:
(1) Amount requested: $____________;
(2) Date of Borrowing or Conversion: [date]
(3) Type of Borrowing: [Base Rate][LIBOR Rate]
(4) Location and account number to which funds are to be disbursed (if
not a Conversion):
____________________________
____________________________
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(5) [The Interest Period applicable to said Loan will be [one] [two]
[three] months.](1)
(6) [Said Loan represents a converson/continuation of the [Base Rate]
[LIBOR] Loan in the same amount made on ______.](2)
(7) [The facts contained or referred to in Subsections (a) and (b),
Section 5.2 of the Agreement are true and accurate on and as of the
effective date of the Borrowing as though made at and as of such
dated (except to the extent that such representations and warranties
expressly relate to an earlier date).(3)
Terms used above in this Notice of Borrowing/Conversion are as defined in
the Agreement. The foregoing Notice of Borrowing/Conversion is in accordance
with the applicable provisions of the Agreement.
[Date]
-------------------------------------
[Name and Title of Financial Officer]
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(1) To be inserted in any request for a Eurodollar Borrowing.
(2) To be inserted in any request for a conversion or continuation.
(3) To be inserted on any request other than for a continuation.
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
THIS AGREEMENT, dated as of May , 1998, by and between Rubio's
Restaurants, Inc., a California corporation (the "Debtor"), having its principal
place of business at 5151 Shoreham Place, Suite 260, San Diego, California 92122
and BANKBOSTON, N.A., (the "Bank") under the Credit Agreement described below,
having an address at 100 Federal Street, Boston, Massachusetts 02110.
W I T N E S S E T H:
WHEREAS, the Debtor is the Borrower under the terms of a Revolving Credit
and Term Loan Agreement dated as of the date hereof (as amended from time to
time, the "CREDIT AGREEMENT") between Rubio's Restaurants, Inc. (the "Borrower")
and pursuant to which the Bank agreed, subject to the terms and conditions set
forth therein, to make Revolving Credit Loans and a Term Loan (as defined in the
Credit Agreement) to the Borrower (the "LOANS"); and
WHEREAS, the obligation of the Bank to make the Loans is subject to the
condition, among others, that the Debtor shall execute and deliver this
Agreement and grant the security interest hereinafter described;
NOW THEREFORE, in consideration of the willingness of the Bank to enter
into the Credit Agreement and to agree, subject to the terms and conditions set
forth therein, to make the Loans to the Borrower pursuant thereto, and for other
good and valuable consideration, receipt of which is hereby acknowledged, it is
hereby agreed, with the intent to be legally bound, as follows:
1. DEFINED TERMS. Except as otherwise expressly defined herein, all
capitalized terms shall have the meanings ascribed to them in the Credit
Agreement.
2. SECURITY INTEREST. As security for the Secured Obligations described
in Section 3 hereof, the Debtor hereby grants to the Bank a security interest in
and lien on all of the tangible and intangible personal property and fixtures of
the Debtor, including, without limitation, the property described below, whether
now owned or existing or hereafter acquired or arising, together with any and
all additions thereto and replacements therefor and proceeds and products
thereof (hereinafter referred to collectively as the "Collateral"):
(a) all of the Debtor's tangible personal property, including
without limitation all present and future goods, inventory (including, without
limitation, all inventory, merchandise, raw materials, work in process, finished
goods and supplies), equipment, merchandise, furniture, fixtures, office
supplies, equipment, vehicles, machinery, tools, computers, and associated
equipment now owned or hereafter acquired, including without limitation, the
tangible personal property used in the operation of the restaurant business of
the Debtor;
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(b) to the extent that such rights are assignable as collateral,
the Debtor's rights under all present and future authorizations, permits,
licenses and franchises issued, granted or licensed to the Debtor for the
operation of its business, including, without limitation, each of the
authorizations, permits, licenses and franchises listed on the Intellectual
Property Security Agreement, if any, executed this date from the Debtor to the
Bank;
(c) to the extent that such rights are assignable, all of the
Debtor's rights under all present and future service, financing or customer
contracts and all franchise, license, software, construction, engineering,
management and advertising and related agreements; and
(d) all of the Debtor's other personal property, including,
without limitation, all present and future accounts, accounts and notes
receivable, investment property, contract rights, general intangibles
(including, without limitation, all advertiser lists, goodwill, and other
printed materials, including all copies of catalogs, indexes, lists, data and
other documents and papers relating thereto, blue prints, designs and research
and development, included the Properties listed on the Intellectual Property
Security Agreement), any information stored on any medium, including electronic
medium, related to any of the personal property of the Debtor, all instruments,
documents and chattel paper, and all debts, obligations and liabilities in
whatever form owing to the Debtor from any person, firm or corporation or any
other legal entity, whether now existing or hereafter arising, now or hereafter
received by or belonging or owing to the Debtor, and all guaranties and security
therefor.
Any of the foregoing terms which are defined in the Uniform Commercial Code
shall have the meaning provided in the Uniform Commercial Code as supplemented
and expanded by the foregoing.
3. SECURED OBLIGATIONS. The security interest hereby granted shall
secure the prompt and punctual payment and faithful performance of the following
liabilities and obligations of the Debtor (herein called the "SECURED
OBLIGATIONS"):
(a) Principal of and premium, if any, and interest on the Loans;
(b) Any and all other obligations of the Borrower to the Bank
under the Credit Agreement or under any agreement or instrument relating
thereto, all as amended from time to time; and
(c) Any and all other Indebtedness of the Debtor to the Bank
whether direct or indirect, absolute or contingent, due or to become due or now
existing or hereafter arising.
4. PERFECTION CERTIFICATE. The Debtor has delivered to the Bank a
Perfection Certificate in the form appended hereto as SCHEDULE I attached
hereto. The Debtor represents that the completed Perfection Certificate
delivered to the Bank is true and correct in every respect and the facts
contained in such certificate are accurate. The Debtor shall supplement the
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<PAGE>
Perfection Certificate promptly after obtaining information which would require
a correction or addition to the Perfection Certificate.
5. SPECIAL WARRANTIES AND COVENANTS OF THE DEBTOR. The Debtor hereby
warrants and covenants to the Bank:
(a) The address shown at the beginning of this Agreement is the
current principal place of business of the Debtor, and all of the Debtor's
current additional places of business, if any, and the locations of all of the
Collateral currently are listed in SCHEDULE I. The Debtor will not change its
principal or any other place of business, or the location of any Collateral from
the locations set forth in SCHEDULE I, or make any change in the Debtor's name
or conduct the Debtor's business operations under any fictitious business name
or trade name, without, in any such case, at least thirty (30) days' prior
written notice to the Bank.
(b) Except for the security interest created hereunder and as
otherwise expressly disclosed in or permitted by the Credit Agreement, the
Debtor is the owner of the Collateral free from any lien, security interest or
encumbrance and the Debtor will defend the Collateral against all claims and
demands of all persons at any time claiming the same or any interest therein.
(c) Except as permitted by the Credit Agreement or otherwise
consented to in writing by the Bank, the Debtor will not sell or otherwise
dispose of any of the Collateral or any interest therein other than in the
ordinary course of business nor will the Debtor create, incur or permit to exist
any mortgage, lien, charge, encumbrance or security interest whatsoever with
respect to the Collateral.
(d) Except for Collateral that is obsolete or no longer used in
the Debtor's business, the Debtor will keep the Collateral in good order and
repair (normal wear excepted) and adequately insured at all times in accordance
with the provisions of the Credit Agreement. The Debtor will pay promptly when
due all taxes and assessments on the Collateral or for its use or operation,
except for taxes and assessments permitted to be contested as provided in
Section 5.4 of the Credit Agreement. The Bank may at its option discharge any
taxes, liens, security interests or other encumbrances to which any Collateral
is at any time subject, and may, upon the failure of the Debtor to do so in
accordance with the Credit Agreement, purchase insurance on any Collateral and
pay for the repair, maintenance or preservation thereof, and the Debtor agrees
to reimburse the Bank on demand for any payments or expenses incurred by the
Bank pursuant to the foregoing authorization and any unreimbursed amounts shall
constitute Secured Obligations for all purposes hereof.
(e) The Debtor will promptly execute and deliver to the Bank such
financing statements, certificates and other documents or instruments as may be
necessary to enable the Bank to perfect or from time to time renew the security
interest granted hereby, including, without limitation, such financing
statements, certificates and other documents as may be necessary to perfect a
security interest in any additional Collateral hereafter acquired by the Debtor
or in any replacements or proceeds thereof. The Debtor authorizes and appoints
the Bank
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<PAGE>
to execute such financing statements, certificates and other documents
pertaining to the Bank security interest in the Collateral in its stead, with
full power of substitution, as the Debtor's attorney in fact. The Debtor
further agrees that a carbon, photographic or other reproduction of a
security agreement or financing statement is sufficient as a financing
statement under this Agreement.
(f) The Debtor will give the Bank notice of each office at which
records of the Debtor pertaining to all intangible items of Collateral are
kept. Except as may be provided in such notice, the records concerning all
intangible Collateral are and will be kept at the address shown at the
beginning of this Agreement as the principal place of business of the Debtor.
6. FIXTURES, ETC. Debtor will take all such reasonable action or
actions as may be necessary consistent with past business practices to prevent
any of the Collateral from becoming fixtures and, in any event, subject to the
terms of real property leases.
7. EVENTS OF DEFAULT. The Debtor shall be in default under this
Agreement upon the happening of any of the following events or conditions
(herein called "Events of Default"):
(a) Default shall be made in the due and punctual payment of any
principal of or premium, if any, or interest on any of the Secured Obligations
as and when the same shall become due and payable (whether at maturity or at a
date fixed for any prepayment or installment or by declaration or acceleration
or otherwise) and such default shall continue beyond the expiration of the
applicable period of grace, if any; or
(b) The breach, violation or other non-performance of any term,
covenant, condition, agreement or obligation of the Debtor contained herein; or
(c) Any other Event of Default (as defined or provided in the
Credit Agreement) shall occur.
8. RIGHTS AND REMEDIES OF SECURED PARTIES. Upon the occurrence of any
Event of Default, such Event of Default not having previously been waived,
remedied or cured, the Bank shall have the following rights and remedies:
(a) All rights and remedies provided by law, including, without
limitation, those provided by the Uniform Commercial Code;
(b) All rights and remedies provided in this Agreement; and
(c) All rights and remedies provided in the Credit Agreement, or
in the Loans, or in the Collateral Documents, or in any other agreement,
document or instrument pertaining to the Secured Obligations.
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<PAGE>
9. RIGHT OF THE BANK TO DISPOSE OF COLLATERAL, ETC. Upon the
occurrence of any Event of Default, such Event of Default not having previously
been waived, remedied or cured, but subject to the provisions of the Uniform
Commercial Code or other applicable law, the Bank shall have the right to take
possession of the Collateral and, in addition thereto, the right to enter upon
any premises on which the Collateral or any part thereof may be situated and
remove the same therefrom. The Bank may require the Debtor to make the
Collateral (to the extent the same is moveable) available to the Bank at a place
to be designated by the Bank which is reasonably convenient to both parties or
transfer any information related to the Collateral to the Bank by electronic
medium. Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, the Bank will
give the Debtor at least ten (10) days' prior written notice at the address of
the Debtor set forth above (or to such other address or addresses as the Debtor
shall specify in writing to the Bank) of the time and place of any public sale
thereof or of the time after which any private sale or any other intended
disposition thereof is to be made. Any such notice shall be deemed to meet any
requirement hereunder or under any applicable law (including the Uniform
Commercial Code) that reasonable notification be given of the time and place of
such sale or other disposition.
10. CREDIT AGREEMENT. Notwithstanding any other provision of this
Agreement, the rights of the parties hereunder are subject to the provisions of
the Credit Agreement, including the provisions thereof pertaining to the rights
and responsibilities of the Bank.
11. RIGHT OF THE BANK TO USE AND OPERATE COLLATERAL, ETC. Upon the
occurrence of any Event of Default, such Event of Default not having
previously been waived, remedied or cured, but subject to the provisions of
the Uniform Commercial Code or other applicable law, the Bank shall have the
right and power to take possession of all or any part of the Collateral, and
to exclude the Debtor and all persons claiming under the Debtor wholly or
partly therefrom, and thereafter to hold, store, and/or use, operate, manage
and control the same. Upon any such taking of possession, the Bank may, from
time to time, at the expense of the Debtor, make all such repairs,
replacements, alterations, additions and improvements to and of the
Collateral as the Bank may deem proper. In any such case the Bank shall have
the right to manage and control the Collateral and to carry on the business
and to exercise all rights and powers of the Debtor in respect thereto as the
Bank shall deem best, including the right to enter into any and all such
agreements with respect to the operation of the Collateral or any part
thereof as the Bank may see fit; and the Bank shall be entitled to collect
and receive all rents, issues, profits, fees, revenues and other income of
the same and every part thereof. Such rents, issues, profits, fees, revenues
and other income shall be applied to pay the expenses of holding and
operating the Collateral and of conducting the business thereof, and of all
maintenance, repairs, replacements, alterations, additions and improvements,
and to make all payments which the Bank may be required or may elect to make,
if any, for taxes, assessments, insurance and other charges upon the
Collateral or any part thereof, and all other payments which the Bank may be
required or authorized to make under any provision of this Agreement
(including reasonable legal costs and attorneys' fees). The remainder of
such rents, issues, profits, fees, revenues and other income shall be applied
as provided in Section 13.
12. COLLECTION OF ACCOUNTS RECEIVABLE, ETC. At any time after an Event
of Default, upon notice to the Debtor from the Bank, all of the proceeds of the
Debtor's accounts receivable
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<PAGE>
and all other proceeds of Collateral of any nature, whether now existing or
hereafter arising, and domestic cash receipts in the Debtor's possession
shall be paid into a lock box account with the Bank or under an agency
agreement with other institutions, and after an Event of Default, the Bank
may take any other steps which the Bank deems necessary or advisable to
collect any or all such accounts receivable or other Collateral or proceeds
thereof.
13. PROCEEDS OF COLLATERAL. After deducting all costs and expenses of
collection, storage, custody, sale or other disposition and delivery (including
reasonable legal costs and attorneys' fees) and all other charges against the
Collateral, the residue of the proceeds of any such sale or disposition shall be
applied to the payment of the Secured Obligations in such order of priority as
the Bank shall determine and any surplus shall be returned to the Debtor or to
any person or party lawfully entitled thereto. By way of enlargement and not by
way of limitation of the rights of the Bank under applicable law or the Loans,
Credit Agreement or Collateral Documents, but notwithstanding any provision of
the Loans, Credit Agreement or Collateral Documents to the contrary, the Bank
shall be entitled to allocate its application of the Collateral, and the
proceeds thereof, to the Secured Obligations (including without limitation
either or both of the Loans) in such proportions and in such order as the Bank,
in its sole discretion, shall decide. In the event the proceeds of any sale,
lease or other disposition of the Collateral hereunder are insufficient to pay
all of the Secured Obligations in full, the Debtor will be liable for the
deficiency, together with interest thereon at the maximum rate provided in the
Credit Agreement, and the cost and expenses of collection of such deficiency,
including (to the extent permitted by law), without limitation, reasonable
attorneys' fees, expenses and disbursements.
14. WAIVERS, ETC. The Debtor hereby waives presentment, demand, notice,
protest and, except as is otherwise provided herein, all other demands and
notices in connection with this Agreement or the enforcement of the Bank's
rights hereunder or in connection with any Secured Obligations or any
Collateral; consents to and waives notice of the granting of renewals,
extensions of time for payment or other indulgences to the Debtor or to any
account debtor in respect of any account receivable or to any other third party,
or substitution, release or surrender of any Collateral, the addition or release
of persons primarily or secondarily liable on any Secured Obligation or on any
account receivable or other Collateral, the acceptance of partial payments on
any Secured Obligation or on any account receivable or other Collateral and/or
the settlement or compromise thereof. No delay or omission on the part of the
Bank in exercising any right hereunder shall operate as a waiver of such right
or of any other right hereunder. Any waiver of any such right on any one
occasion shall not be construed as a bar to or waiver of any such right on any
future occasion. THE DEBTOR FURTHER WAIVES ANY RIGHT IT MAY HAVE UNDER THE
CONSTITUTION OF THE COMMONWEALTH OF MASSACHUSETTS, UNDER THE CONSTITUTION OF ANY
STATE IN WHICH ANY OF THE COLLATERAL MAY BE LOCATED, OR UNDER THE CONSTITUTION
OF THE UNITED STATES OF AMERICA, TO NOTICE (OTHER THAN ANY REQUIREMENT OF NOTICE
PROVIDED HEREIN) OR TO A JUDICIAL HEARING PRIOR TO THE EXERCISE OF ANY RIGHT OR
REMEDY PROVIDED BY THIS AGREEMENT TO THE BANK AND WAIVES ITS RIGHTS, IF ANY, TO
SET ASIDE OR INVALIDATE ANY SALE DULY CONSUMMATED IN ACCORDANCE WITH THE
FOREGOING PROVISIONS HEREOF ON THE GROUNDS (IF SUCH BE THE CASE) THAT THE SALE
WAS CONSUMMATED WITHOUT A PRIOR JUDICIAL HEARING. The Debtor's waivers under
this section have
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been made voluntarily, intelligently and knowingly and after the Debtor has
been apprised and counseled by its attorneys as to the nature thereof and its
possible alternative rights.
15. TERMINATION; ASSIGNMENT, ETC. This Agreement and the security
interest in the Collateral created hereby shall terminate when all of the
Secured Obligations have been paid and finally discharged in full. In such
event, the Bank agrees to execute appropriate releases of liens on the
Collateral. No waiver by the Bank or by any other holder of Secured Obligations
of any Default shall be effective unless in writing nor operate as a waiver of
any other Default or of the same Default on a future occasion. In the event of
a sale or assignment of part or all of the Secured Obligations by the Bank, the
Bank may assign or transfer its rights and interest under this Agreement in
whole or in part to the purchaser or purchasers of such Secured Obligations,
whereupon such purchaser or purchasers shall become vested with all of the
powers and rights of the Bank hereunder.
16. REINSTATEMENT. Notwithstanding the provisions of Section 15, this
Agreement shall continue to be effective or be reinstated, as the case may be,
if at any time any amount received by the Bank in respect of the Secured
Obligations is rescinded or must otherwise be restored or returned by the Bank
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Debtor or upon the appointment of any intervener or conservator of, or
trustee or similar official for, the Debtor or any substantial part of its
properties, or otherwise, all as though such payments had not been made.
17. GOVERNMENTAL APPROVAL. Prior to or, where permitted, upon the
exercise by the Bank of any power, right, privilege or remedy pursuant to this
Agreement which requires any consent, approval, registration, qualification or
authorization of any governmental authority or instrumentality, the Debtor at
the request of the Bank will execute and deliver, or will cause the execution
and delivery of, all applications, certificates, instruments and other documents
and papers that the Debtor may be reasonably required to obtain for such
governmental consent, approval, registration, qualification or authorization.
18. NOTICES. All notices, consents, approvals, elections and other
communications hereunder shall be in writing (whether or not the other
provisions of this Agreement expressly so provide) and shall be deemed to have
been duly given if delivered in accordance with the terms of the Credit
Agreement.
19. MISCELLANEOUS. This Agreement shall inure to the benefit of and be
binding upon the Bank and the Debtor and their respective successors and
assigns. In case any provision in this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions hereof shall not in any way be affected or impaired
thereby. This Agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.
20. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL. This Agreement,
including the validity hereof and the rights and obligations of the parties
hereunder, shall be construed in
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accordance with and governed by the laws of the Commonwealth of Massachusetts
(excluding its conflicts of laws principles). The Debtor, to the extent that
it may lawfully do so, hereby consents to service of process, and to be sued,
in the Commonwealth of Massachusetts and consents to the jurisdiction of the
courts of the Commonwealth of Massachusetts and the United States District
Court for the District of Massachusetts, as well as to the jurisdiction of
all courts to which an appeal may be taken from such courts, for the purpose
of any suit, action or other proceeding arising out of any of the Secured
Obligations or with respect to the transactions contemplated hereby, and
expressly waives any and all objections it may have as to venue in any such
courts. The Debtor further agrees that a summons and complaint commencing an
action or proceeding in any of such courts shall be properly served and shall
confer personal jurisdiction if served personally or by certified mail to it
at its address provided in Section 18 hereof or as otherwise provided under
the laws of the Commonwealth of Massachusetts.
THE DEBTOR IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
PROCEEDING HEREAFTER INSTITUTED BY OR AGAINST THE DEBTOR IN RESPECT OF ITS
OBLIGATIONS HEREUNDER OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RUBIO'S RESTAURANTS, INC.
By:
----------------------------
Name:
Title:
BANKBOSTON, N.A.
By:
----------------------------
Name: Debra Zurka
Title: Director
<PAGE>
SCHEDULE I
PERFECTION CERTIFICATE
(UCC Financing Statements)
The undersigned, the President of Rubio's Restaurants, Inc., a California
corporation (the "Debtor"), hereby certifies, with reference to a certain
Security Agreement dated as of May __, 1998 (terms defined in such Security
Agreement having the same meanings herein as specified therein), between the
Debtor and BANKBOSTON, N.A., as follows:
1. NAMES. (a) The exact corporate name of the Debtor as that name
appears on its Certificate of Incorporation is as follows:
Source: UCC Section 9-402(7) (first sentence)
(b) The following is a list of all other names (including trade names or
similar appellations) used by the Debtor, or any other business or organization
to which the Debtor became the successor by merger, consolidation, acquisition,
change in form, nature or jurisdiction of organization or otherwise, now or at
any time during the past five years:
Source: UCC Section 9-402(7) (second and third sentences)
(c) The following is the Debtor's federal employer identification
number:
2. CURRENT LOCATIONS. (a) The chief executive office of the Debtor is
located at the following address:
Source: UCC Sections 9-103(3), 9-103(4), 9-401(6)
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(b) The following are all other locations in the United States of
America in which the Debtor maintains and books or records relating to any of
the Collateral consisting of accounts, contract rights, chattel paper, general
intangibles or mobile goods:
Source: UCC Sections 9-103(3), 9-103(4), 9-401(6)
(c) The following are all other places of business of the Debtor in the
United States of America:
Source: UCC Section 9-401(1) (Third Alternative)
(d) The following are all other locations in the United States of
America where any of the Collateral consisting of Inventory or equipment is
located:
Source: UCC Section 9-103(1)
(e) The following are the names and addresses of all persons or entities
other than the Debtor, such as lessees, consignees, warehousemen or purchasers
of chattel paper, which have possession or are intended to have possession of
any of the Collateral consisting of chattel paper, inventory or equipment:
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Source: UCC Sections 9-103(1), 9-103(4), 9-304(2) and 9-304(3); see
also UCC Sections 2-326(3), 9-114, 9-305, 9-308 and 9-408
(f) The following are the names and addresses of all persons or entities
which hold leases or other ownership interest in personal property held and used
by the Debtor, such as lessors, consignors or conditional sales vendors with
purchase money liens on Collateral consisting of chattel paper, inventory or
equipment:
Source: UCC 9-312,
3. PRIOR LOCATIONS. (a) Set forth below is the information required
by subparagraphs (a), (b) and (c) of Section 2 with respect to each location or
place of business previously maintained by the Debtor at any time during the
past five years in a state in which the Debtor has previously maintained a
location or place of business at any time during the past four months:
Source: UCC Sections 9-103(3)(e) and 9-401(3)
(b) Set forth below is information required by subparagraphs (d) and (e)
of Section 2 with respect to each other location at which, or other person or
entity with which, any of the Collateral consisting of inventory or equipment
has been previously held at any time during the past four months:
Source: UCC Sections 9-103(1)(d) and 9-401(3)
4. UNUSUAL TRANSACTIONS. Except for those purchases, acquisitions and
other transactions described on SCHEDULE 4 attached hereto, all of the
Collateral has been originated by the Debtor in the ordinary course of the
Debtor's business or consists of goods which have been
-3-
<PAGE>
acquired by the Debtor in the ordinary course from a person in the business
of selling goods of that kind.
Source:UCC Sections 1-201(9), 9-306(2) and 9-402(7) (third sentence); see
also UCC
5. FILE SEARCH REPORTS. Attached hereto as SCHEDULE 5 is a true copy
of a file search report from the Uniform Commercial Code filing officer (or, if
such officer does not issue such reports, from an experienced Uniform Commercial
Code search organization acceptable to the Bank) (i) in each jurisdiction
identified in Section 2 or 3 above with respect to each name set forth in
Section 1 above and (ii) in each jurisdiction in which any of the transactions
described in SCHEDULE 4 took place with respect to the legal name of the person
from which the Debtor purchased or otherwise acquired nay of the Collateral.
6. UCC FILINGS. A duly signed financing statement on Form UCC-1 in
form acceptable to the Bank and containing the description of the Collateral set
forth on SCHEDULE 6 has been duly filed in the Uniform Commercial Code filing
office in each jurisdiction identified in Section 2 hereof.
7. TERMINATION STATEMENTS. A duly signed termination statement on Form
UCC-3 in form acceptable to the Bank has been duly filed in each applicable
jurisdiction identified in Section 2 hereof or on Schedule 4 hereto has been
delivered to the Bank.
IN WITNESS WHEREOF, we have hereunto signed this Certificate on April __, 1998
RUBIO'S RESTAURANTS, INC.
By:
-----------------------------
Name:
Title:
-4-
<PAGE>
SCHEDULE I
PERFECTION CERTIFICATE
(UCC Financing Statements)
The undersigned, the President of Rubio's Restaurants of Nevada, Inc., a Nevada
corporation (the "Debtor"), hereby certifies, with reference to a certain
Security Agreement dated as of May __, 1998 (terms defined in such Security
Agreement having the same meanings herein as specified therein), between the
Debtor and BANKBOSTON, N.A., as follows:
1. NAMES. (a) The exact corporate name of the Debtor as that name
appears on its Certificate of Incorporation is as follows:
Rubio's Restaurants of Nevada, Inc.
Source: UCC Section 9-402(7) (first sentence)
(b) The following is a list of all other names (including trade names or
similar appellations) used by the Debtor, or any other business or organization
to which the Debtor became the successor by merger, consolidation, acquisition,
change in form, nature or jurisdiction of organization or otherwise, now or at
any time during the past five years:
Rubio's Baja Grill
Rubio's Fish Tacos
Rubio's
Rubio's Restaurants, Inc.
Source: UCC Section 9-402(7) (second and third sentences)
(c) The following is the Debtor's federal employer identification
number:
88-0377609
<PAGE>
2. CURRENT LOCATIONS. (a) The chief executive office of the Debtor is
located at the following address:
Rubio's Restaurants, Inc.
5151 Shoreham Place, Suite 260
San Diego, CA 92122
Source: UCC Sections 9-103(3), 9-103(4), 9-401(6)
(b) The following are all other locations in the United States of
America in which the Debtor maintains and books or records relating to any of
the Collateral consisting of accounts, contract rights, chattel paper, general
intangibles or mobile goods:
Certain books and records are maintained at the location
of restaurants operated by the Debtor. A list of the
addresses of all restaurants owned or operated by the
Debtor or its parent, Rubio's Restaurants, Inc., is
attached hereto as EXHIBIT A.
Source: UCC Sections 9-103(3), 9-103(4), 9-401(6)
(c) The following are all other places of business of the Debtor in the
United States of America:
See EXHIBIT A for a list of all restaurants owned or
operated by the Debtor or its parent, Rubio's
Restaurants, Inc.
Source: UCC Section 9-401(1) (Third Alternative)
(d) The following are all other locations in the United States of
America where any of the Collateral consisting of Inventory or equipment is
located:
See EXHIBIT A for a list of all restaurants owned or
operated by the Debtor or its parent, Rubio's
Restaurants, Inc.
Source: UCC Section 9-103(1)
-2-
<PAGE>
(e) The following are the names and addresses of all persons or entities
other than the Debtor, such as lessees, consignees, warehousemen or purchasers
of chattel paper, which have possession or are intended to have possession of
any of the Collateral consisting of chattel paper, inventory or equipment:
None
Source: UCC Sections 9-103(1), 9-103(4), 9-304(2) and 9-304(3); see
also UCC Sections 2-326(3), 9-114, 9-305, 9-308 and 9-408
(f) The following are the names and addresses of all persons or entities
which hold leases or other ownership interest in personal property held and used
by the Debtor, such as lessors, consignors or conditional sales vendors with
purchase money liens on Collateral consisting of chattel paper, inventory or
equipment:
(1) Coca Cola USA Fountain, 6 Executive Circle, Suite
100, Irvine, California 92714, owns certain
equipment installed or located at certain of
Debtor's restaurants that are neither owned nor
leased by the Debtor.
(2) Everay, Inc., dba Speedy Fountain Service, P.O. Box
6219, Long Beach, California 90806, leases certain
CO2 tanks with Fill Stations to the Debtor.
(3) Airgas Beverages Service, Inc., dba Speedy Fountain
Service, P.O. Box 6219, Long Beach, California
90806, leases certain CO2 tanks with Fill Stations
to the Debtor.
Source: UCC 9-312,
-3-
<PAGE>
3. PRIOR LOCATIONS. (a) Set forth below is the information required
by subparagraphs (a), (b) and (c) of Section 2 with respect to each location or
place of business previously maintained by the Debtor at any time during the
past five years in a state in which the Debtor has previously maintained a
location or place of business at any time during the past four months:
None.
Source: UCC Sections 9-103(3)(e) and 9-401(3)
(b) Set forth below is information required by subparagraphs (d) and (e)
of Section 2 with respect to each other location at which, or other person or
entity with which, any of the Collateral consisting of inventory or equipment
has been previously held at any time during the past four months:
None.
Source: UCC Sections 9-103(1)(d) and 9-401(3)
4. UNUSUAL TRANSACTIONS. Except for those purchases, acquisitions and
other transactions described on SCHEDULE 4 attached hereto, all of the
Collateral has been originated by the Debtor in the ordinary course of the
Debtor's business or consists of goods which have been acquired by the Debtor in
the ordinary course from a person in the business of selling goods of that kind.
Source: UCC Sections 1-201(9), 9-306(2) and 9-402(7) (third sentence);
see also UCC Section 9-301 (1)(c)
5. FILE SEARCH REPORTS. Attached hereto as SCHEDULE 5 is a true copy
of a file search report from the Uniform Commercial Code filing officer (or, if
such officer does not issue such reports, from an experienced Uniform Commercial
Code search organization acceptable to the Bank) (i) in each jurisdiction
identified in Section 2 or 3 above with respect to each name set forth in
Section 1 above and (ii) in each jurisdiction in which any of the transactions
described in SCHEDULE 4 took place with respect to the legal name of the person
from which the Debtor purchased or otherwise acquired nay of the Collateral.
-4-
<PAGE>
6. UCC FILINGS. A duly signed financing statement on Form UCC-1 in
form acceptable to the Bank and containing the description of the Collateral set
forth on SCHEDULE 6 has been duly EXECUTED AND IS AVAILABLE TO BE filed in the
Uniform Commercial Code filing office in each jurisdiction identified in Section
2 hereof.
7. TERMINATION STATEMENTS. A duly signed termination statement on Form
UCC-2 in form acceptable to the Bank has been EXECUTED AND IS AVAILABLE TO BE
filed in each applicable jurisdiction identified in Section 2 hereof or on
SCHEDULE 4 hereto has been delivered to the Bank, PENDING FILING WHEN SUCH
SECURED CREDITOR HAS BEEN PAID OFF WITH THE PROCEEDS OF THE LOANS FROM
BANKBOSTON, N.A..
IN WITNESS WHEREOF, we have hereunto signed this Certificate on May __, 1998
RUBIO'S RESTAURANTS OF NEVADA, INC.
By:
-----------------------------------
Name:
Title:
-5-
<PAGE>
SCHEDULE 4: UNUSUAL TRANSACTIONS
None.
-6-
<PAGE>
<TABLE>
<S> <C> <C> <C>
MISSION BAY #1 CARMEL MOUNTAIN RANCH #15 CARLSBAD #29 HENDERSON #43
4604 E. Mission Dr. 12002 Carmel Mtn. Rd #260 2604-A El Camino Real 1500 N. Green Valley Pkwy
San Diego, CA 92109 San Diego, CA 92128 Carlsbad, CA 92008 Bldg 200, Suite 210
Phone 272-2801 Phone 675-9388 Phone 760-434-6298 Henderson, NV 89014
Phone 702-270-6097
S.D.S.U. #2 TEMECULA #16 LA HABRA #30 SAN CLEMENTE #44
5157 College Suite C 27480 Ynez Road, Ste 0-2 1401 Imperial Hwy. #A 638 Camino de los Mares #D1
San Diego, CA 92115 Temecula, CA 92591 La Habra, CA 90631 San Clemente, CA 92673
Phone 286-3844 Phone 909-694-9948 Phone 562-697-4356 Phone 949-661-8683
PACIFIC BEACH #3 COSTA MESA #17 HILLLCREST #31 RANCHO BERNARDO #45
910 Grand Avenue 1836 Newport Blvd., #D-158 3900 5th Ave, Suite 120 16588 Bernardo Ctr Dr #100
San Diego, CA 92109 Costa Mesa, CA 92627 San Diego, CA 92103-3112 San Diego, CA 92128
Phone 270-4800 Phone 949-648-6992 Phone 619-299-8873 Phone 619-613-7785
POINT LOMA #4 LAGUNA NIGUEL #18 CYPRESS/STANTON #32 NORTHRIDGE #46
3555 Rosecrans St#101B 27000 Alicia Pkwy #A 7063 Katelia Ave 19500 Plummer St #B3
San Diego, CA 92110 Laguna Niguel, CA 92677 Stanton, CA 90680 Northridge, CA 91324
Phone 223-2631 Phone 949-448-7622 Phone 714-827-6495 Phone 818-998-6704
SAN MARCOS #5 ANAHEIM #19 BELMONT #33 YORBA LINDA #47
763 Center Dr., Sta. #102 520 North Euclid Avenue 4702 E. 2nd St 20355 Yorba Linda Bl #F
San Marcos, CA 92069 Anaheim, CA 92801-5587 Long Beach, CA 90803 Yorba Linda, CA 92866
Phone 760-746-2962 Phone 714-899-1525 Phone 562-439-8317 SCHEDULED TO OPEN 8-98
CHULA VISTA #6 MISSION VALLEY #2O MISSION VIEJO #34 VILLA PARK #48
481 Broadway 2075-A Camino De La Reina 25482 Marguerita PK#104 2318 North Tustin St #A
Chula Vista, CA 91910 San Diego, CA 92108 Mission Viejo,CA 92692 Orange, CA 92865
Phone 427-3811 Phone 619-299-6502 Phone 949-588-6085 Phone 714-685-0013
ENCINITAS #7 ENCINO #21 AHWATUKEE #35 GILBERT #49
252 El Camino Real 17200 Ventura Blvd. #224-5 4906 E. Ray Road, STE.101 84 West Warner Road #88
Encinitas, CA 92024 Encino, CA 91316 Ahwatukee, AZ 85044 Gilbert, AZ 86234
Phone 760-632-7396 Phone 818-784-1497 Phone 602-961-0621 SCHEDULED TO OPEN 5-98
EL CAJON #8 IRVINE SPECTRM #22 CERRITOS #36 CHANDLER #50
399 Magnolia Ave 31 Fortune Drive, Suite 210 12751 Towne Ctr Dr., #N-1 5055 West Ray Road, Ste. 3-4
El Cajon, CA 92020 Irvine, CA 92618 Cerritos, CA 90701 Chandler, AZ
Phone 440-3325 Phone 949-727-9627 Phone 582-924-0334 SCHEDULED TO OPEN 9-98
KEARNY MESA #9 GROSSMONT CENTER #23 TORRANCE #37 SUMMERLIN #51
7420 Clairmontt Mesa #111 5500 Grossmont Ctr Dr #D22 25366 Crenshaw Blvd. 1910 Village Center Dr #M9
San Diego, CA 92111 La Mesa, CA 91942 Torrance, CA 90606 Summerlin, NV 81928
Phone 268-5770 Phone 697-1286 Phone 310-891-1811 SCHEDULED TO OPEN 6-98
SAN DIEGO MANHATTAN BEACH #24 SCOTTSDALE #38
8935 Towne Center Dr#100 2000 S. Sepulveda Blvd. 15704 N. Pima Rd., #C8-9
San Diego, CA 92122 Manhattan Beach, CA 90266 Scottsdale, AZ 85260
Phone 453-1666 Phone 310-939-7098 Phone 602-348-0195
TUSTIN #11 LA JOLLA #25 VISTA #39 TEMPE #53
2955 El Camino Real 8855 Villa La Jolla Dr#404-06 1711 Unversity Dr. #110 SCHEDULE TO OPEN 11-98
Tustin, CA 92782 La Jolla, CA 92037 Vista, CA 92083
Phone 714-838-0902 Phone 546-3377 760-724-5341
IRVINE #12 SANTA ANA #26 ONTARIO #40 FASHION VALLEY #54
17565 Harvard Ave 2841 West MacArthur Bl #A 980 No Ontario Mills Dr #A 7007 FRIARS ROAD #931
Irvine, CA 92714 Santa Ana, CA 92704 Ontario, CA 91764 SAN DIEGO, CA 92108
Phone 949-261-1016 Phone 714-751-0981 Phone 909-484-0484 Phone 718-9975
SOLANA BEACH #13 HALL OF JUSTICE #27 RANCHO CUCAMONGA #41 CITY MILLS #55
437 South Highway 101, #117 330 W. Broadway 10798 Foothill Blvd., #120 20 City Blvd West Bldg G3,F8
Solana Beach, CA 92075 1st FLR. West Wing Food Court Rancho Cucamonga, CA 91730 Orange, CA 92868
Phone 259-26111 San Diego, CA 92101 Phone 909-989-3949 SCHEDULED TO OPEN 11-98
Phone 338-8081, 8082
DOWNTOWN #14 MARINA DEL REY #28 MISSION GORGE #42 RANCHO SAN DIEGO #56
101 4th Ave 4250-4252 Lincoln Blvd. 10460 Friars Road, Suite A 2961 Jamacha Road #20
San Diego, CA 92101 Marina Del Rey, CA 90292 San Diego, CA 92120 El Cajon, CA 92019
Phone 231-7731, 231-7742 Phone 310-574-1420 Phone 619-285-9985 SCHEDULED TO OPEN 10-98
</TABLE>
Revised 5-05-98
EXHIBIT A
<PAGE>
RUBIO'S RESTAURANTS, INC.
LANDLORD/PROPERTY MANAGEMENT LIST
<TABLE>
<CAPTION>
Name Center Company Contact
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Mission Bay N/A Larry & Margaret Eddington Larry Eddington
- ----------------------------------------------------------------------------------------------------------------------------------
2 SDSU Commons East SDSU Foundation Facilities Mgmt. Norma Clark
- ----------------------------------------------------------------------------------------------------------------------------------
3 Pacific Beach N/A Don Russell Beach Properties Don Russell
- ----------------------------------------------------------------------------------------------------------------------------------
4 Point Loma Rosecrans Center John Burnham & Co. Colleen Labertew
- ----------------------------------------------------------------------------------------------------------------------------------
5 San Marcos Vallecitos Center A & J Vallecitos Partnership Harry Sinanian
- ----------------------------------------------------------------------------------------------------------------------------------
6 Chula Vista N/A c/o Boyd Commercial Brokerage Tracy Clark
- ----------------------------------------------------------------------------------------------------------------------------------
7 Encinitas Welgand Plaza Burnham Pacific Properties Terry Hall
- ----------------------------------------------------------------------------------------------------------------------------------
8 El Cajon El Cajon Towne Center Harmon Realtors Julie Godsey
- ----------------------------------------------------------------------------------------------------------------------------------
9 Kearny Mesa Crossroads Center Commercial Facilities Greg Cartwright
- ----------------------------------------------------------------------------------------------------------------------------------
10 U.T.C. Renaissance Center Monarch Management Co. Julie Richards
- ----------------------------------------------------------------------------------------------------------------------------------
11 Tustin Tustin Marketplace Donahue Schriber Carol Reedy
- ----------------------------------------------------------------------------------------------------------------------------------
12 Irvine Harvard Place Hollis & Associates Lori Stites
- ----------------------------------------------------------------------------------------------------------------------------------
13 Solana Beach Beach Walk Business Real Estate Management Elizabeth Soder
- ----------------------------------------------------------------------------------------------------------------------------------
14 Downtown N/A Meissner Jacquet Andrea Webb
- ----------------------------------------------------------------------------------------------------------------------------------
15 Carmel Mountain N/A Community Centers One LLC Diana Lawless
- ----------------------------------------------------------------------------------------------------------------------------------
16 Temecula Towne Center Randor West Pagt Snow
- ----------------------------------------------------------------------------------------------------------------------------------
17 Costa Mesa Costa Mesa Courtyard Festival Management Corp. Melissa Chesney
- ----------------------------------------------------------------------------------------------------------------------------------
18 Laguna Niguel The Market Place Shapell Industries, Inc. Linda Remley
- ----------------------------------------------------------------------------------------------------------------------------------
19 Anaheim Anaheim Plaza Ralf Woebken
- ----------------------------------------------------------------------------------------------------------------------------------
20 Mission Valley N/A Terra Enterprises Kevin Nell
- ----------------------------------------------------------------------------------------------------------------------------------
21 Encino Encino Towne Center Encino Management Group Jacob Kohanzadah
- ----------------------------------------------------------------------------------------------------------------------------------
22 Irvine Spect. Irvine Spectrum Hollis & Associates Michelle Sumudin
- ----------------------------------------------------------------------------------------------------------------------------------
23 Grossmont Grossmont Center Grossmont Center Thomas Magee
- ----------------------------------------------------------------------------------------------------------------------------------
24 Manhattan Beach N/A West America Nick Brown
- ----------------------------------------------------------------------------------------------------------------------------------
25 La Jolla Village La Jolla Village Donahue Schriber Pamela Hartwell X18
- ----------------------------------------------------------------------------------------------------------------------------------
26 Santa Ana South Coast Markektplace Donahue Schriber Realty Group Jackie Check
- ----------------------------------------------------------------------------------------------------------------------------------
27 Hall of Justice Food Court Samanda LLC Mark Freed
- ----------------------------------------------------------------------------------------------------------------------------------
28 Marina DelRey N/A Sachse Real Estate Co., Inc. Diane Harris
- ----------------------------------------------------------------------------------------------------------------------------------
29 Carlsbad N/A Plaza South Associates Matt Waken
- ----------------------------------------------------------------------------------------------------------------------------------
30 La Habra La Habra Marketplace M&H Property Management Debbie Thornton
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Phone/Fax Address City, State Zip
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 T (619) 756-1433 3330 Dove Hollow Road Olivehain, CA 920224
F (619) 759-0483
- -------------------------------------------------------------------------------------------------------------
2 T (619) 594-5761 5250 Campanile Dr. San Diego, CA 92182
F (619) 759-0483
- -------------------------------------------------------------------------------------------------------------
3 T (619) 459-5382 5746 Dolphin Place La Jolla, CA 92037
- -------------------------------------------------------------------------------------------------------------
4 T (619) 525-2745 610 Ash Street, Ste. #2000 San Diego, CA 92101
- -------------------------------------------------------------------------------------------------------------
5 T (818) 996-9666 18980 Ventura Boulevard, Ste. #200 Tarzana, CA 91356
F (818) 705-7914
- -------------------------------------------------------------------------------------------------------------
6 T (619) 498-4596 660 Bay Blvd., Ste. #210 Chula Vista, CA 91910
- -------------------------------------------------------------------------------------------------------------
7 T (619) 652-4728 610 Ash Street, Ste. #1600 San Diego, CA 92112-1551
F (619) 652-4711
- -------------------------------------------------------------------------------------------------------------
8 T (619) 454-0101 7835 Ivanhoe Ave. La Jolla, CA 92037
F (619) 454-7777
- -------------------------------------------------------------------------------------------------------------
9 T (619) 452-1231 10951 Sorrento Valley Rd., Ste. #2-A San Diego, CA 92121
F (619) 452-7361
- -------------------------------------------------------------------------------------------------------------
10 T (619) 457-2167 4510 Executive Drive, Ste. #125 San Deigo, CA 92121-3022
F (619) 452-2404
- -------------------------------------------------------------------------------------------------------------
11 T (714) 730-4124 2777 El Camino Real Tustin, CA 92782
F (714) 730-9690
- -------------------------------------------------------------------------------------------------------------
12 T (714) 857-2606 4672 Barranca Parkway Irvine, CA 92604
F (714) 857-2789
- -------------------------------------------------------------------------------------------------------------
13 T (619) 931-1134 703 Palomar Airport Rd. Ste. 250 Carlsbad, CA 92009
F (619) 931-7634
- -------------------------------------------------------------------------------------------------------------
14 T (619) 576-1665 3870 Murphy Canyon Rd. Ste. #300 San Diego, CA 92122
F (619) 541-0479
- -------------------------------------------------------------------------------------------------------------
15 T (619) 247-4700 34555 Chagrin Blvd. Moreland Hills, OH 44022
F (619) 247-1118
- -------------------------------------------------------------------------------------------------------------
16 T (808) 308-2700 2745 Ynez Road. Stec. 314 Temecula, CA 92591
- -------------------------------------------------------------------------------------------------------------
17 T (714) 548-0638 1835 Newport Blvd. D-252 Costa Mesa, CA 92627
F (714) 548-3102
- -------------------------------------------------------------------------------------------------------------
18 T (714) 448-0061 2715K Alicia Pkwy. Laguna Niguel, CA 92677
F (714) 448-0059
- -------------------------------------------------------------------------------------------------------------
19 T (714) 635-3431 530 N. Euclid Street Anaheim, CA 92801
F (714) 758-1374
- -------------------------------------------------------------------------------------------------------------
20 T (619) 282-6814 P.O. Box 60087 San Diego, CA 92160-0807
F (619) 282-6790
- -------------------------------------------------------------------------------------------------------------
21 T (818) 788-6100 17200 Ventura Blvd., #115 Encino, CA 91316
- -------------------------------------------------------------------------------------------------------------
22 T (714) 721-2022 550 N. Newport Center Dr., Ste. 125 Newport Beach, CA 92660
F (714) 820-3350
- -------------------------------------------------------------------------------------------------------------
23 T (619) 465-2900 5500 Grossmont Center Dr., Ste. #213 La Mesa, CA 91942
F (619) 465-9207
- -------------------------------------------------------------------------------------------------------------
24 T (310) 652-8288 8929 Wilshire Blvd. Ste. #400 Beverly Hills, 90211
- -------------------------------------------------------------------------------------------------------------
25 T (619) 458-1300 12925 El Camino Real, #122 San Diego, CA 29130
F (619) 458-4238
- -------------------------------------------------------------------------------------------------------------
26 T (714) 854-2100 3501 Jamboree Rd. Ste. 300 Newport Beach, CA 92660
F (714) 854-4251
- -------------------------------------------------------------------------------------------------------------
27 T (619) 299-2071 2850 Sixth Avenue, Stc. #602 San Diego, CA 92103
F (619) 299-2151
- -------------------------------------------------------------------------------------------------------------
28 T (310) 284-7100 315 South Beverly Drive, Suite 415 Beverly Hills, 90212
F (310) 284-7817
- -------------------------------------------------------------------------------------------------------------
29 T (818) 574-7430 150 n. Santa Anita Ave. Ste. #645 Arcadia, CA 91006
F (818) 574-5872
- -------------------------------------------------------------------------------------------------------------
30 T (310) 691-0737 1721 West Imperial Hwy., #G La Habra, CA 90631
F (310) 691-2172
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name Center Company Contact
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
31 Hillcrest Union Bank Bldg. 5th & University Partners Ron Pearlman
- ----------------------------------------------------------------------------------------------------------------------------------
32 Cypress/Stanton N/A Y & W Enterprises Linda McDonald
- ----------------------------------------------------------------------------------------------------------------------------------
33 Belmont Shore Sunrise Plaza Henry Meyer Henry Meyer
- ----------------------------------------------------------------------------------------------------------------------------------
34 Mission Viejo MV Village Plaza Black Equities Marilyn Zanelli
- ----------------------------------------------------------------------------------------------------------------------------------
35 Ahwatukee, AZ Ahwahkee Foothills Towne Vestar Property Management Tina Gaede
Center
- ----------------------------------------------------------------------------------------------------------------------------------
36 Cerritos Cerritos Towne Center Vestar Property Management Mike Gamer
- ----------------------------------------------------------------------------------------------------------------------------------
37 Torrance Rolling Hills Plaza Rolling Hills Plaza Management Erwin Becy
Shopping Center
- ----------------------------------------------------------------------------------------------------------------------------------
38 N. Scottsdale, AZ Sonora Village Shopping Pederson Group Shari Burson
Center
- ----------------------------------------------------------------------------------------------------------------------------------
39 Vista North County Square Newport National Corporation Gary Elam/Lynn Halber
- ----------------------------------------------------------------------------------------------------------------------------------
40 Ontario Daybreak Plaza Daybreak Properties Ben Day
- ----------------------------------------------------------------------------------------------------------------------------------
41 Rancho Cucamonga Terra Vista Town Center Lewis Holmes Management Corp. Jan Jasper
- ----------------------------------------------------------------------------------------------------------------------------------
42 Mission Gorge Friars Village Triarc Steve Grady X 303
- ----------------------------------------------------------------------------------------------------------------------------------
43 Henderson, NV Pebble Marketplace American Nevada Corp. Natalie Allred
- ----------------------------------------------------------------------------------------------------------------------------------
44 San Clemente, CA Ocean View Plaza M & H Property Management Robin Carnsin
- ----------------------------------------------------------------------------------------------------------------------------------
45 Rancho Bernardo, CA N/A Boardwalk Development Phil Ladman
- ----------------------------------------------------------------------------------------------------------------------------------
46 Northridge, CA L'Plaza d'Northridge Williams Real Estate Management Inc. Audrey Williams
- ----------------------------------------------------------------------------------------------------------------------------------
47 Yorba Linda Eastlake Village Shappell Industries Linda Remley
- ----------------------------------------------------------------------------------------------------------------------------------
48 Villa Park, CA Orange Mall Michael Grant Co. Michael Grant
- ----------------------------------------------------------------------------------------------------------------------------------
49 Gilbert, AZ Bayshore Plaza Vestar Property Management Pat McGinley
- ----------------------------------------------------------------------------------------------------------------------------------
50 Chandler, AZ Harmon Ranch Plaza Harmon Ranch Plaza LLC Bob Klepinger
- ----------------------------------------------------------------------------------------------------------------------------------
51 Summerlin, NV Trails Village Center Trails Village Center Company Jim Christensen
- ----------------------------------------------------------------------------------------------------------------------------------
53 Tempe, AZ Plaza on Guadalupe McMahon & Oliphant Ron McMahon
- ----------------------------------------------------------------------------------------------------------------------------------
54 Fashion Valley, CA Fashion Valley Mall The Yarmouth Group Linda Cantrell
- ----------------------------------------------------------------------------------------------------------------------------------
55 City Mills City Mills The Mills Corporation Nancy Barnes
- ----------------------------------------------------------------------------------------------------------------------------------
56 Rancho San Diego Rancho San Diego Town Vestar Property Management Kathy Kirk X114
Center
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Phone/Fax Address City, State Zip
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
31 T (619) 454-3139 3900 Fifth Avenue, Ste. #200 San Diego, CA 92103
F (619) 454-8206
- -------------------------------------------------------------------------------------------------------------
32 T (714) 449-1000 311 S. Highland Ave. Fullerton, CA 92832
F (714) 447-2946
- -------------------------------------------------------------------------------------------------------------
33 T (562) 433-7070 256 Park Ave. Long Beach, CA 90803
F (310) 437-2199
- -------------------------------------------------------------------------------------------------------------
34 T (310) 278-5333 433 North Camden Dr., Ste. #1070 Beverly Hills, CA 90210
F (310) 274-4017
- -------------------------------------------------------------------------------------------------------------
35 T (602) 993-1626 2425 E. Camelback Rd. Ste. #750 Phoenix, AZ 84016
F (602) 955-2298
- -------------------------------------------------------------------------------------------------------------
36 T (562) 403-4624 12731 Towne Center Dr., Ste. 1 Cerritos, CA 90703
F (562) 403-4638
- -------------------------------------------------------------------------------------------------------------
37 T (310) 534-4441 2601 Airport Drive, Ste. 300 Torrance, CA 90505-7035
F (310) 534-8549
- -------------------------------------------------------------------------------------------------------------
38 T (602) 265-2888 2800 N. Central Ave. 15th floor. Phoenix, AZ 85004
F (602) 265-2889
- -------------------------------------------------------------------------------------------------------------
39 T (760) 438-4242 5050 Avenida Encinas, Ste 350 Carlsbad, CA 92008
F (760) 438-0016
- -------------------------------------------------------------------------------------------------------------
40 T (425) 861-7714 2831 134th Avenue NE Bellvue, WA 98005
F (425) 881-1662
- -------------------------------------------------------------------------------------------------------------
41 T (909) 949-6750 1156 N. Mountain Ave., P.O. Box 670 Upland, CA 91785-0670
- -------------------------------------------------------------------------------------------------------------
42 T (619) 595-1600 2445 Fifth Ave., Suite 240 San Deigo, CA 92101
F (619) 595-1723
- -------------------------------------------------------------------------------------------------------------
43 T (702) 458-8855 901 North Green Valley Parkway, Suite 200 Henderson, NV 89014
F (702) 435-6605
- -------------------------------------------------------------------------------------------------------------
44 T (619) 259-9909 12555 Highbluff Drive Suite 385 San Diego, CA 92130
F (619) 259-8886
- -------------------------------------------------------------------------------------------------------------
45 T (619) 453-4444 5405 Morehouse Drive, Suite 320 San Diego, CA 92121
F (619) 453-9442
- -------------------------------------------------------------------------------------------------------------
46 T (714) 261-2423 3636 Birch Street Suite 200 Newport Beach, CA 92660
F (714) 261-2824
- -------------------------------------------------------------------------------------------------------------
47 T (714) 448-0061 27150K Alicia Pkwy. Laguna Niguel, CA 92677
F (714) 448-0059
- -------------------------------------------------------------------------------------------------------------
48 T (619) 874-0067 PO Box 1982 La Jolla, CA 92038-1982
F (619) 874-0101
- -------------------------------------------------------------------------------------------------------------
49 T (602) 553-2619 2425 Camelback Road., Suite 750 Phoenix, AZ 85016
F (602)
- -------------------------------------------------------------------------------------------------------------
50 T (818) 409-0115 100 West Broadway, Suite 990 Glendale, CA 91210
F (619) 409-0904
- -------------------------------------------------------------------------------------------------------------
51 T (714) 979-8800 3146 Redhill Ave., Suite 200A Costa Mesa, CA 92626
F (714) 979-4318
- -------------------------------------------------------------------------------------------------------------
53 T (619) 350-0204 380 Stevens Ave., Suite 313 Solana Beach, CA 92075
F (619) 350-0220
- -------------------------------------------------------------------------------------------------------------
54 T (619) 297-3381 452 Fashion Valley San Diego, CA 92108-1282
F (619) 294-8291
- -------------------------------------------------------------------------------------------------------------
55 T (714) 704-1635 1300 Wilson Blvd., Suite 400 Arlington, VA 22209
F (714) 704-1630
- -------------------------------------------------------------------------------------------------------------
56 T (619) 583-5313 3450 College Ave, Suite 321 San Diego, CA 92115
F (619) 583-2381
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE>
EXHIBIT E
RUBIO'S RESTAURANTS, INC.
FORM OF SERIES D STOCK PURCHASE WARRANT
(See Exhibit 10.12 to Registration Statement on Form S-1)
<PAGE>
EXHIBIT F
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "AGREEMENT"), is made
as of May __, 1998, by and between Rubio's Restaurants, Inc., a California
corporation having its principal place of business at 5151 Shoreham Place, Suite
260 San Diego, CA 92122 5151 Shoreham Place, Suite 260 San Diego, CA 92122
("PLEDGOR"), in favor of BANKBOSTON, N.A., having an office at 100 Federal
Street, Boston, Massachusetts 02110 (the "SECURED PARTY").
RECITALS
A. Pursuant to that certain Revolving Credit and Term Loan Agreement
dated as of the date hereof (as amended or otherwise modified from time to time
in accordance with the terms thereof and in effect, the "CREDIT AGREEMENT") by
and between Rubio's Restaurants, Inc. and Rubio's Restaurants of Nevada, Inc.
(together the "Borrower") and Lenders party thereto and the Secured Party, the
Secured Party agreed to make a Revolving Credit Loan and Term Loan to the
Borrower. Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to them in the Credit Agreement.
B. Pledgor is the owner of the Pledged Collateral (as defined herein).
C. It is a condition precedent to the Secured Party' obligations to make
a Revolving Credit Loan and Term Loan that Pledgor shall execute and deliver the
applicable Loan Documents, including this Agreement.
D. This Agreement is given by Pledgor in favor of the Secured Party to
secure the payment and performance of all of the Secured Obligations (as defined
in Section 2 of this Agreement).
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor and the Secured Party hereby agree as follows:
Section 1. PLEDGE. Pledgor hereby pledges and grants to the Secured Party
for itself and for the benefit of the other Secured Party a continuing first
priority security interest in and conditionally assigns, but does not transfer
title to, the Secured Party all of Pledgor's right, title and interest, whether
now existing or hereafter acquired, in and to the following property
(collectively, the "PLEDGED COLLATERAL") to secure payment and performance of
all of the Secured
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Obligations of Pledgor (and Borrower) to the Secured Party, whether such
obligations are direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter existing.
The collateral shall consist of the following:
(a) Trademarks (including service marks), federal and state trademark
registrations and applications made by Pledgor (excluding Federal Intent To
Use Applications), common law trademarks and trade names owned by or
assigned to Pledgor, all registrations and applications for the foregoing
and all exclusive licenses from third parties of the right to use
trademarks of such third parties, including, without limitation, the
registrations, applications, unregistered trademarks, service marks and
exclusive licenses listed on SCHEDULE A hereto, as the same may be updated
hereafter from time to time along with any and all (1) renewals and
extensions thereof, (2) income, royalties, damages and payments now and
hereafter due and/or payable with respect thereto, including, without
limitation, damages, claims and payments for past or future infringements
thereof, (3) rights (without obligation) to sue or bring opposition or
cancellation proceedings for past, present and future infringements
thereof, and (4) trademarks, trademark registrations, and trade name
applications for any thereof and any other rights corresponding thereto
throughout the world (collectively, "TRADEMARKS");
(b) Copyrights, whether statutory or common law, owned by or assigned
to Pledgor, and all exclusive licenses to Pledgor from third parties to use
copyrights owned by such third parties, including, without limitation, the
registrations, applications and exclusive licenses listed on SCHEDULE A as
the same may be updated hereafter from time to time hereto, along with any
and all (1) renewals and extensions thereof, (2) income, royalties,
damages, claims and payments now and hereafter due and/or payable with
respect thereto, including, without limitation, damages and payments for
past, present or future infringements thereof, (3) rights to sue for past,
present and future infringements thereof, and (4) copyrights and any other
rights corresponding thereto throughout the world (collectively,
"COPYRIGHTS");
(c) The entire goodwill of Pledgor's business and other general
intangibles (including know-how, trade secrets, customer lists, proprietary
information, inventions, methods, procedures and formulae) connected with
the use of and symbolized by Trademarks of Pledgor; and
(d) All Proceeds (as defined under the Uniform Commercial Code as in
effect in any relevant jurisdiction (the "UCC") or other relevant law) of
any of the foregoing, (including, without limitation, any and all (1)
proceeds of any insurance, indemnity, warranty or guaranty payable to the
Secured Party or to Pledgor from time to time with respect to any of the
Pledged Collateral, (2) payments (in any form whatsoever) made or due and
payable to Pledgor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Pledged Collateral by any Governmental Authority (or any person acting on
behalf of a
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Governmental Authority), (3) instruments representing amounts
receivable in respect of any Trademarks or Copyrights, (4) products of the
Pledged Collateral and (5) other amounts from time to time paid or payable
under or in connection with any of the Pledged Collateral.
Section 2. SECURED OBLIGATIONS. The security interest hereby granted
shall secure the due and punctual payment and performance of the following
liabilities and obligations of the Debtor (herein called the "SECURED
OBLIGATIONS"):
(1) Principal of and premium, if any, and interest on the loans made
to Borrower under the Credit Agreement (the "Loans");
(2) Any and all other obligations of the Borrower owed to the Secured
Party under the Credit Agreement or under any agreement or instrument
relating thereto, all as amended from time to time; and
(3) Any and all other Indebtedness of the Pledgor or the Borrower to
the Secured Party whether direct or indirect, absolute or contingent, due
or to become due or now existing or hereafter arising, including, without
limitation, any and all other fees, premiums, or penalties.
Section 3. NO RELEASE. Nothing set forth in this Agreement shall relieve
Pledgor from the performance of any term, covenant, condition or agreement on
Pledgor's part to be performed or observed under or in respect of any of the
Pledged Collateral or from any liability to any Person under or in respect of
any of the Pledged Collateral or impose any obligation on the Secured Party to
perform or observe any such term, covenant, condition or agreement on Pledgor's
part to be so performed or observed or impose any liability on the Secured Party
for any act or omission on the part of Pledgor relating thereto or for any
breach of any representation or warranty on the part of Pledgor contained in
this Agreement or any other Loan Document or under or in respect of the Pledged
Collateral or made in connection herewith or therewith. The obligations of
Pledgor contained in this Section 3 shall survive the termination of this
Agreement and the discharge of Pledgor's other obligations hereunder and under
the other Loan Documents.
Section 4. SUPPLEMENTS; FURTHER ASSURANCES. Pledgor (1) agrees that it
will join with the Secured Party in executing and, at its own expense, will file
and refile, or permit the Secured Party to file and refile, such financing
statements, continuation statements and other documents (including, without
limitation, this Agreement and exclusive licenses to use software and other
property protected by copyright), in such offices (including, without
limitation, the United States Patent and Trademark Office, appropriate state
trademark offices and the United States Copyright Office), as the Secured Party
may reasonably deem necessary or appropriate, wherever required or permitted by
law in order to perfect and preserve the rights and interests granted to the
Secured Party hereunder, and (2) hereby authorizes the Secured Party to file
financing statements and amendments, relative to all or any part thereof,
without the signature of
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Pledgor where permitted by law and agrees to do such further acts and things,
and to execute and deliver to the Secured Party such additional assignments,
agreements, powers and instruments, as the Secured Party may reasonably
require to carry into effect the purposes of this Agreement or better to
assure and confirm unto the Secured Party its respective rights, powers and
remedies hereunder. Pledgor shall, upon the reasonable request of the
Secured Party, and hereby authorizes the Secured Party to take any and all
such actions as may be deemed advisable by the Secured Party to perfect and
preserve the rights and interests granted to the Secured Party with respect
to the Pledged Collateral wherever located. All of the foregoing shall be at
the sole cost and expense of Pledgor.
Section 5. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor hereby
represents and warrants to the Secured Party as follows:
(a) Pledgor is, and, as to Pledged Collateral acquired by it from
time to time after the date hereof, Pledgor will be, the sole and exclusive
owner or, as applicable, licensee of all Pledged Collateral (except insofar
as another pledgor of such collateral to Secured Party is an owner or
licensee of such Pledged Collateral). The pledge and security interest
created by this Agreement shall not at any time be subject to any prior
lien, pledge, security interest, encumbrance, license, assignment,
collateral assignment or charge of any kind, including, without limitation,
any filing or agreement to file a financing statement as debtor under the
UCC or any similar statute or any subordination arrangement in favor of any
party other than Pledgor (collectively, "LIENS") and except as expressly
permitted hereunder and under the Credit Agreement ("Credit Agreement
Liens"). Pledgor further represents and warrants to the Secured Party that
SCHEDULE A hereto, respectively, are true, correct and complete lists as of
the date hereof.
(b) Pledgor has full corporate power, authority and legal right to
pledge and grant a security interest in the Pledged Collateral in
accordance with the terms of this Agreement and this Agreement constitutes
the legal, valid and binding obligation of Pledgor, enforceable against
Pledgor in accordance with its terms.
(c) Except for filings with the United States Patent and Trademark
Office, the filing of financing statements with the Secretary of State
under the UCC and under applicable foreign law, no authorization, consent,
approval, license, qualification or formal exemption from, nor any filing,
declaration or registration with, any court (other than in connection with
the exercise of judicial remedies), governmental agency or regulatory
authority, or with any securities exchange or any other Person is required
in connection with (1) the pledge by Pledgor of the Pledged Collateral
pursuant to this Agreement, or the execution, delivery or performance by
Pledgor of this Agreement, (2) the grant, and of a security interest
(including the priority thereof when the appropriate filings have been made
and accepted) in, the Pledged Collateral by Pledgor in the manner and for
the purpose contemplated by this Agreement or the Credit Agreement; or (3)
the exercise of the rights and remedies of the Secured Party created
hereby.
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(d) Pledgor has made and will continue to make all necessary filings
and recordations from time to time and use appropriate statutory notice to
protect its interests in the Pledged Collateral, including, without
limitation, recordations of all its interests in the Trademarks in the
United States Patent and Trademark Office and in corresponding offices
throughout the world and its claims to Copyrights in the United States
Copyright Office, in each case including exclusive licenses and as
otherwise requested from time to time by the Secured Party and in a manner
consistent with prudent business practices.
(e) Pledgor owns or has rights to use all the Pledged Collateral and
all rights with respect to any of the foregoing used in, necessary for or
material to Pledgor's business as currently conducted and as contemplated
to be conducted pursuant to the Loan Documents. To Pledgor's best
knowledge after due inquiry, the use of such Pledged Collateral and all
rights with respect to the foregoing by Pledgor does not infringe on the
rights of any Person and no material claim has been made and remains
outstanding that Pledgor's use of the Pledged Collateral does or may
violate the rights of any third person.
(f) Upon filings and the acceptance thereof in the appropriate
offices under the UCC and in the United States Patent and Trademark Office
and the United States Copyright Office, this Agreement will create a valid
and duly perfected first priority lien and security interest in the United
States in the Pledged Collateral on such property and to the extent that a
lien can be perfected by such filings, subject to no liens other than
Credit Agreement Liens. This Agreement has been duly and validly executed
and delivered by Pledgor, constitutes the legal, valid and binding
obligation of Pledgor and is enforceable against Pledgor in accordance with
its terms.
(g) Pledgor has used and will continue to use proper statutory notice
in connection with each of the trademarks.
Section 6. COVENANTS.
(a) On a continuing basis, Pledgor will, at the expense of Pledgor,
subject to any prior licenses, Liens and restrictions make, execute, acknowledge
and deliver, and file and record in the proper filing and recording offices, all
such instruments or documents, including, without limitation, appropriate
financing and continuation statements, exclusive licenses and collateral
agreements, and take all such action (limited, as aforesaid, if applicable) as
may reasonably be deemed necessary or appropriate by the Secured Party (1) to
carry out the intent and purposes of this Agreement, (2) to assure and confirm
to the Secured Party the grant or perfection of a security interest in the
Pledged Collateral for the benefit of the Secured Party, and (3) during the
continuation of an Event of Default, to enable the Secured Party to exercise and
enforce their rights and remedies hereunder with respect to any Pledged
Collateral. Without limiting the generality of the foregoing, Pledgor:
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(A) will not enter into any agreement that would impair or conflict
with Pledgor's obligations hereunder;
(B) will, from time to time, upon the Secured Party's request, cause
its books and records to be marked with such legends or segregated in such
manner as the Secured Party may specify and take or cause to be taken such
other action and adopt such procedures as the Secured Party may specify to
give notice or to perfect the security interest in the Pledged Collateral
intended to be conveyed hereby;
(C) will, promptly following its becoming aware thereof, notify the
Secured Party of
(i) any materially adverse determination in any proceeding in
the United States Patent and Trademark Office or United States
Copyright Office with respect to any Trademark or Copyright material
to Pledgor's business; or
(ii) the institution of any proceeding or any materially adverse
determination in any federal, state, local or foreign court or
administrative bodies regarding Pledgor's claim of ownership in or
right to use any of the Pledged Collateral, its right to register the
Pledged Collateral, or its right to keep and maintain such
registration in full force and effect;
(D) will properly maintain and protect the Pledged Collateral to the
extent necessary or appropriate for the conduct of Pledgor's business (as
presently conducted and as contemplated by the Loan Documents) and
consistent with Pledgor's current practice, in accordance with applicable
statutory requirements;
(E) will not grant or permit to exist any Lien upon or with respect
to the Pledged Collateral or any portion thereof except Liens in favor of
the Secured Party for itself and the Secured Party or as permitted under
this Agreement and Liens permitted by Section 7 hereof or with the express
consent of the Secured Parties, and will not execute any security agreement
or financing statement covering any of the Pledged Collateral except in the
name of the Secured Party for itself and the Secured Party or as permitted
under this Agreement;
(F) except in accordance with prudent business practices, will not
permit to lapse or become abandoned, settle or compromise any pending or
future litigation or administrative proceeding with respect to the Pledged
Collateral without the consent of the Secured Party, or contract for sale
or otherwise dispose of the Pledged Collateral or any portion thereof
except pursuant to Section 7 hereof;
(G) upon Pledgor obtaining knowledge thereof, will promptly notify
the Secured Party in writing of any event which may reasonably be expected
to materially affect the value or utility of the Pledged Collateral or any
portion thereof, the ability of
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Pledgor or the Secured Party to dispose of the Pledged Collateral or any
portion thereof or the rights and remedies of the Secured Party in
relation thereto including, without limitation, a levy or threat of levy
or any legal process against the Pledged Collateral or any portion
thereof;
(H) until the Secured Party exercises its rights to make collection,
will diligently keep adequate records respecting the Pledged Collateral;
(I) subject to the first sentence of this Section 6(a), hereby
authorizes the Secured Party, in its sole discretion, to file one or more
financing or continuation statements and amendments thereto, relative to
all or any part of the Pledged Collateral without the signature of Pledgor
where permitted by law;
(J) will furnish to the Secured Party from time to time statements
and amended schedules further identifying and describing the Pledged
Collateral and such other materials evidencing or reports pertaining to the
Pledged Collateral as the Secured Party may from time to time request, all
in reasonable detail;
(K) will pay when due any and all taxes, levies, maintenance fees,
charges, assessments, licenses fees and similar taxes or impositions
payable in respect of the Pledged Collateral unless contesting in good
faith pursuant to Section 5.4 of the Credit Agreement; and
(L) will comply in all material respects with all laws, rules and
regulations applicable to the Pledged Collateral.
(b) If, before the Secured Obligations shall have been paid and satisfied
in full in cash or cash equivalents, Pledgor shall, (1) obtain any rights to any
additional Pledged Collateral as identified in SCHEDULE A hereto and as from
time to time amended, or (2) become entitled to the benefit of any additional
Pledged Collateral or any renewal or extension thereof, the provisions of this
Agreement shall automatically apply thereto and any item enumerated in clause
6(b)(1) or clause 6(b)(2) with respect to Pledgor shall automatically constitute
Pledged Collateral if such would have constituted Pledged Collateral at the time
of execution of this Agreement, and be subject to the assignment, Lien and
security interest created by this Agreement without further action by any party
to this agreement. Pledgor shall promptly provide to the Secured Party written
notice of any of the foregoing. Pledgor shall, at least once in each calendar
quarter, provide written notice to the Secured Party of all applications for
registration of Trademarks or Copyrights made during the preceding calendar
quarter. Pledgor agrees, promptly following the written request by the Secured
Party, to confirm the attachment of the Lien and security interest created by
this Agreement to any rights described in clause 6(b)(1) or clause 6(b)(2) above
if such would have constituted Pledged Collateral at the time of execution of
this Agreement by execution of an instrument in form acceptable to the Secured
Party.
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(c) Pledgor authorizes the Secured Party to modify this Agreement by
amending SCHEDULE A annexed hereto as appropriate to include any future Pledged
Collateral of Pledgor. The provisions of this Agreement shall automatically
apply to any future Pledged Collateral.
(d) Pledgor shall commence and prosecute diligently in its own name, as
the real party in interest, for its own benefit, all applications for Trademarks
or Copyrights now or hereafter pending that would be useful or beneficial to the
business of Pledgor to which any such applications pertain, and to do all acts
necessary to preserve and maintain all rights in the Pledged Collateral unless
such Pledged Collateral has become obsolete to Pledgor's business, as reasonably
determined by Pledgor consistent with prudent business practices. Pledger shall
bear any expenses incurred in connection with future applications for trademark
registrations. Any and all costs and expenses incurred in connection with any
such actions shall be borne by Pledgor. Except in accordance with prudent
business practices, Pledgor shall not abandon any right to file a Trademark or
Copyright application or any pending Trademark or Copyright application or any
Trademark or Copyright without the consent of the Secured Party.
Section 7. TRANSFERS AND OTHER LIENS. Pledgor will not (a) sell, convey,
assign or otherwise dispose of, or grant any option with respect to, any of the
Pledged Collateral except for licensing in the ordinary course of business and
such other transactions as may be permitted under the Credit Agreement or (b)
create or permit to exist any Lien upon or with respect to any of the Pledged
Collateral, except for Liens for taxes, assessments or government charges or
claims the payment of which is not at the time required and inchoate Liens
imposed by law (each of which shall, except to the extent otherwise required by
law, be subordinate to the lien created by this Agreement) and the lien granted
to the Secured Party under this Agreement.
Section 8. REMEDIES UPON DEFAULT.
(a) If any Event of Default shall have occurred and be continuing, the
Secured Party may to the full extent permitted by law, (1) exercise any and all
rights as beneficial and legal owner of the Pledged Collateral, including,
without limitation, perfecting assignment of any and all consensual rights and
powers with respect to the Pledged Collateral and (2) sell or assign or grant a
license to use, or cause to be sold or assigned or a license granted to use any
or all of the Pledged Collateral (in the case of Trademarks, along with the
goodwill associated therewith) or any part thereof, in each case, free of all
rights and claims of Pledgor therein and thereto. In accordance with such
rights, the Secured Party shall have the (A) right to cause any or all of the
Pledged Collateral to be transferred of record into the name of the Secured
Party or its nominee and (B) the right to impose (i) such limitations and
restrictions on the sale or assignment of the Pledged Collateral as the Secured
Party may deem to be necessary or appropriate to comply with any law, rule or
regulation (federal, state or local) having applicability to the sale or
assignment, and (ii) any necessary or appropriate requirements for any required
governmental approvals or consents.
(b) Except as provided in this Section 8 and other express notice
provisions of the Loan Documents, Pledgor hereby expressly waives, to the
fullest extent permitted by applicable
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law, any and all notices, advertisements, hearings or process of law in
connection with the exercise by the Secured Party of any of their rights and
remedies hereunder.
(c) Pledgor agrees that, to the extent notice of sale shall be required by
law, ten (10) days' written notice from the Secured Party of the time and place
of any public sale or of the time after which a private sale or other intended
disposition is to take place shall be commercially reasonable notification of
such matters. In addition to the rights and remedies provided in this Agreement
and in the other Loan Documents, the Secured Party shall have all the rights and
remedies of a secured party under the UCC.
(d) Any sale of, or the grant of options to purchase, or any other
realization upon, any Pledged Collateral shall operate to divest all right,
title, interest, claim and demand, either at law or in equity, of Pledgor
therein and thereto, and shall be a perpetual bar both at law and in equity
against Pledgor and against any and all Persons claiming or attempting to claim
the Pledged Collateral so sold, optioned or realized upon, or any part thereof,
from, through or under Pledgor.
Section 9. APPLICATION OF PROCEEDS. The proceeds of any Pledged
Collateral obtained pursuant to the exercise of any remedy set forth in Section
8 shall be applied, together with any other sums then held by the Secured Party
pursuant to this Agreement, promptly by the Secured Party:
FIRST, to the payment of all reasonable costs and expenses, fees,
commissions and taxes of such sale, collection or other realization,
including, without limitation, reasonable reimbursement to the Secured
Party, the Secured Party and its agents and counsel for all expenses, fees,
liabilities and advances made or incurred by them in connection therewith
and all expenses, liabilities and advances made or incurred by the Secured
Party in connection therewith, together with interest on each such amount
at the highest rate then in effect under the Credit Agreement;
SECOND, to the payment of all other reasonable costs and expenses of
such sale, collection or other realization, including, without limitation,
reasonable reimbursement to the Secured Party and its agents and counsel
for all expenses, fees, liabilities and advances made or incurred by them
in connection therewith and all costs, liabilities and indebtedness made or
incurred by the Secured Party in connection therewith together with
interest on each such amount at the highest rate then in effect under the
Credit Agreement;
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THIRD, to the indefeasible payment in full in cash of the Secured
Obligations, ratably according to the unpaid amounts thereof, without
preference or priority of any kind among amounts so due and payable; and
FOURTH, to Pledgor, or its successors or assigns, or to whomsoever may
be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such Proceeds.
Section 10. NO WAIVER; CUMULATIVE REMEDIES. (a) No failure on
the part of the Secured Party to exercise, no course of dealing with respect
to, and no delay on the part of the Secured Party 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 hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. The remedies herein provided are cumulative and are
not exclusive of any remedies provided by law.
(b) In the event the Secured Party shall have instituted any proceeding to
enforce any right, power or remedy under this instrument by foreclosure, sale,
entry or otherwise, and such proceeding shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the Secured
Party, then and in every such case, Pledgor and the Secured Party shall, to the
extent permitted by applicable law, be restored to their respective former
positions and rights hereunder with respect to the Pledged Collateral, and all
rights, remedies and powers of the Secured Party shall continue as if no such
proceeding had been instituted.
Section 11. THE SECURED PARTY MAY PERFORM; THE SECURED PARTY APPOINTED
ATTORNEY-IN-FACT. If Pledgor shall fail to do any act or thing that it has
covenanted to do hereunder or any warranty on the part of Pledgor contained
herein shall be breached, the Secured Party may (but shall not be obligated to)
do the same or cause it to be done or remedy any such breach, and may expend
funds for such purpose. Any and all amounts so expended by the Secured Party
shall be paid by Pledgor promptly upon demand therefor, with interest at the
highest rate then in effect under the Credit Agreement during the period from
and including the date on which such funds were so expended to the date of
repayment. Pledgor's obligations under this Section 11 shall survive the
termination of this Agreement and the discharge of Pledgor's other obligations
hereunder. Pledgor hereby appoints the Secured Party, its attorney-in-fact with
an interest, with full authority in the place and stead of Pledgor and in the
name of Pledgor, or otherwise, from time to time in the Secured Party's
reasonable discretion to take any action and to execute any instruments
consistent with the terms of this Agreement and the other Loan Documents which
the Secured Party may deem necessary or advisable to accomplish the purposes of
this Agreement. The foregoing grant of authority is a power of attorney coupled
with an interest and such appointment shall be irrevocable for the term of this
Agreement. Pledgor hereby ratifies all that such attorney shall lawfully do or
cause to be done by virtue hereof.
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Section 12. INDEMNITY.
(a) INDEMNITY. Pledgor agrees to indemnify, reimburse and hold the
Secured Party and its successors, assigns, employees, agents and servants
(collectively, "Indemnities") harmless from and against any and all liabilities,
obligations, damages, injuries, penalties, claims, demands, actions, suits,
judgments and any and all reasonable costs and expenses (including, without
limitation, attorneys' fees and expenses and the allocated costs of internal
counsel) of what ever kind and nature imposed on, asserted against or incurred
by any of the Indemnities in any way relating to or arising out of this
Agreement or in any other way connected with the administration of the
transactions contemplated hereby or the enforcement of any of the terms hereof,
or the preservation of any rights hereunder, or in any way relating to or
arising out of the manufacture, processing, ownership, ordering, purchase,
delivery, control, acceptance, lease, financing, possession, operation,
condition, sale, return or other disposition, or use of the Pledged Collateral
(including, without limitation, latent or other defects, whether or not
discoverable, any claim for trademark, trade secret or copyright infringement),
the violation of the laws of any country, state or other governmental body or
unit, any tort (including, without limitation, claims arising or imposed under
the doctrine of strict liability, or for or on account of injury to or the death
of any Person (including any Indemnitee)), or property damage, or contract
claim; provided that Pledgor shall have no obligation to an Indemnitee hereunder
to the extent it is finally judicially determined that such indemnified
liabilities arise solely from the gross negligence or willful misconduct of that
Indemnitee. Upon written notice by any Indemnitee of the assertion of such a
liability, obligation, damage, injury, penalty, claim, demand, action, judgment
or suit, Pledgor shall assume full responsibility for the defense thereof. If
any action, suit or proceeding arising from any of the foregoing is bought
against any Indemnitee, Pledgor shall, if requested by such Indemnitee, resist
and defend such action, suit or proceeding or cause the same to be resisted and
defended by counsel reasonably satisfactory to such Indemnitee. Each Indemnitee
shall, unless any other Indemnitee has made the request described in the
preceding sentence and such request has been complied with, have the right to
employ its own counsel (or internal counsel) to investigate and control the
defense of any matter covered by the indemnity set forth in this Section 12 and
the reasonable fees and expenses of such counsel shall be paid by Pledgor;
provided that, only to the extent that no conflict exists between or among the
Indemnities as reasonably determined by the Indemnitee, Pledgor shall not be
obligated to pay the fees and expenses of more than one counsel for all
Indemnitees as a group with respect to any such matter, action, suit or
proceeding.
(b) MISREPRESENTATIONS. Without limiting the application of subsection
12(a), Pledgor agrees to pay, indemnify and hold each Indemnitee harmless from
and against any loss, costs, damages and expenses which such Indemnitee may
suffer, expend or incur in consequence of or growing out of any material
misrepresentation by Pledgor in this Agreement or any of the other Loan
Documents or in any statement or writing contemplated by or made or delivered
pursuant to or in connection with this Agreement or any of the other Loan
Documents.
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(c) CONTRIBUTION. If and to the extent that the obligations of Pledgor
under this Section 12 are unenforceable for any reason, Pledgor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations that is permissible under applicable law.
(d) SURVIVAL. The obligations of Pledgor contained in this Section 12
shall survive the termination of this Agreement and the discharge of Pledgor's
other obligations hereunder and under the other Loan Documents.
(e) REIMBURSEMENT. Any amounts paid by any Indemnitee as to which such
Indemnitee has the right to reimbursement shall constitute Secured Obligations
secured by the Pledged Collateral.
Section 13. LITIGATION. (a) Pledgor shall have the right to commence and
diligently prosecute in its own name, as real party in interest, for its own
benefit and at its own expense, such applications for protection of Pledged
Collateral, suits, administrative proceedings or other actions for infringement,
counterfeiting, unfair competition, dilution or other damage as are in its
reasonable business judgment necessary to protect the Pledged Collateral.
Pledgor shall promptly notify the Secured Party in writing as to the
commencement and prosecution of any such actions, or threat thereof relating to
the Pledged Collateral and shall provide to the Secured Party such information
with respect thereto as may be reasonably requested. The Secured Party shall
provide all reasonable and necessary cooperation in connection with any such
suit, proceeding or action, including, without limitation, joining as a
necessary party.
(b) Upon the occurrence and during the continuation of an Event of
Default, the Secured Party shall have the right but shall in no way be obligated
to file applications for protection of the Pledged Collateral and/or bring suit
in the name of Pledgor, the Secured Party or the Secured Party to enforce the
Pledged Collateral and any license thereunder; in the event of such suit,
Pledgor shall, at the request of the Secured Party, do any and all lawful acts
and execute any and all documents required by the Secured Party in aid of such
enforcement and Pledgor shall promptly, upon demand, reimburse and indemnify the
Secured Party, as the case may be, for all reasonable costs and expenses
incurred by the Secured Party in the exercise of its rights under this Section
13. In the event that the Secured Party shall elect not to bring suit to
enforce the Pledged Collateral, Pledgor agrees to use all measures, whether by
action, suit, proceeding or otherwise, to prevent the infringement,
counterfeiting or other diminution in value of any of the Pledged Collateral by
others and for that purpose agrees to diligently maintain any action, suit or
proceeding against any person so infringing necessary to prevent such
infringement as is in the reasonable business judgment of Pledgor necessary to
protect the Pledged Collateral and the Secured Party shall provide, at Pledgor's
expense, all necessary and reasonable assistance to Pledgor to maintain such
action.
12
<PAGE>
Section 14. MODIFICATIONS IN WRITING. No amendment, modification,
supplement, termination or waiver of or to any provision of this Agreement, nor
consent to any departure by Pledgor therefrom, shall be effective unless the
same shall be in writing and signed by the Secured Party. Any amendment,
modification or supplement of or to any provision of this Agreement, any waiver
of any provision of this Agreement, and any consent to any departure by Pledgor
from the terms of any provision of this Agreement, shall be effective only in
the specific instance and for the specific purpose for which made or given.
Except where notice is specifically required by this Agreement or any other Loan
Document, no notice to or demand on Pledgor in any case shall entitle Pledgor to
any other or further notice or demand in similar or other circumstances.
Section 15. TERMINATION; RELEASE. When all the Secured Obligations
(other than Secured Obligations in the nature of continuing Indemnitee or
expense reimbursement obligations not yet due and payable) have been paid in
full and have been terminated and the Revolving Credit Loan Commitments of
the Secured Party to make any Loan under the Credit Agreement have expired,
this Agreement shall terminate. Upon termination of this Agreement or any
release of Pledged Collateral in accordance with the provisions of the Credit
Agreement, the Secured Party shall, upon the request and at the expense of
Pledgor, forthwith assign, transfer and deliver to Pledgor against receipt
and without recourse to or warranty by the Secured Party, such of the Pledged
Collateral to be released (in the case of a release) as may be in the
possession of the Secured Party and as shall not have been sold or otherwise
applied pursuant to the terms hereof, on the order of and at the expense of
Pledgor, and proper instruments (including UCC termination statements on Form
UCC-2 and documents suitable for recordation in the United States Patent and
Trademark Office, the United States Copyright Office or similar domestic or
foreign authority) acknowledging the termination of this Agreement or the
release of such Pledged Collateral, as the case may be.
Section 16. REINSTATEMENT. Notwithstanding the provisions of Section 15,
this Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any amount received by the Secured Party in respect of the
Secured Obligations is rescinded or must otherwise be restored or returned by
the Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of Pledgor or upon the appointment of any intervenor or
conservator of, or trustee or similar official for, Pledgor or any substantial
part of its properties, or otherwise, all as though such payments had not been
made.
Section 17. CREDIT AGREEMENT. Notwithstanding any other provision of this
Agreement, the rights of the parties hereunder are subject to the provisions of
the Credit Agreement, including the provisions thereof pertaining to the rights
and responsibilities of the Secured Party.
Section 18. NOTICES. Unless otherwise provided herein or in the Credit
Agreement (with respect to the Secured Party), any notice or other communication
herein required or permitted to be given shall be in writing and may be
personally served, telecopied, telexed or sent by United States mail, if to
Pledgor, addressed to it at the address set forth in the Credit Agreement, if to
the
13
<PAGE>
Secured Party, addressed to it at the address set forth on the signature page
of this Agreement, or as to any party at such other address as shall be
designated by such party in a written notice to the other party complying as
to delivery with the terms of this Section 18. All such notices and other
communications shall be deemed to have been given when delivered in person,
or received by telecopy or telex; or four Business Days after deposit in the
United States mail, registered or certified, with postage prepaid and
properly addressed; provided that notices to the Secured Party shall not be
effective until received by the Secured Party.
Section 19. CONTINUING SECURITY INTEREST; ASSIGNMENT. This Agreement
shall create a continuing security interest in the Pledged Collateral and shall
(a) remain in full force and effect until the payment in full in cash of all
Secured Obligations, and release in accordance with section 15 of this Agreement
if in accordance with the provisions of the Credit Agreement, (b) be binding
upon Pledgor, its successors and assigns, and (c) inure, together with the
rights and remedies of the Secured Party hereunder, to the benefit of the
Secured Party and its successors, transferees and assigns; no other Persons
(including, without limitation, any other creditor of Pledgor) shall have any
interest herein or any right or benefit with respect hereto. Without limiting
the generality of the foregoing clause 19(c), any the Secured Party may assign
or otherwise transfer any indebtedness held by it secured by this Agreement to
any other Person, and such other Person shall thereupon become vested with all
the benefits in respect thereof granted to the Secured Party, herein or
otherwise, subject however, to the provisions of the Credit Agreement.
SECTION 20. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER IN RESPECT OF ANY PARTICULAR
INTELLECTUAL PROPERTY ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
COMMONWEALTH OF MASSACHUSETTS.
SECTION 21. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST PLEDGOR WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
COMMONWEALTH OF MASSACHUSETTS AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT
PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY,
AND PLEDGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
14
<PAGE>
FORUM NON CONVENIENCE, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. IN THE EVENT THAT
PLEDGOR DESIGNATES AND APPOINTS ANY PERSON AS ITS AGENT AND SUCH PERSON
IRREVOCABLY AGREES IN WRITING TO SO SERVE AS PLEDGOR'S AGENT TO RECEIVE ON
PLEDGOR'S BEHALF, SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH
COURT, SUCH SERVICE IS HEREBY ACKNOWLEDGED BY PLEDGOR TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO PLEDGOR AT ITS ADDRESS PROVIDED FOR IN SECTION 18
HEREOF. IF ANY AGENT APPOINTED BY PLEDGOR REFUSES TO ACCEPT SERVICE, PLEDGOR
HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE.
NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE SECURED PARTY TO BRING
PROCEEDINGS AGAINST PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION.
Section 22. SEVERABILITY OF PROVISIONS. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 23. EXECUTION IN COUNTERPARTS. This Agreement and any amendments,
waivers, consents or supplements hereto may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, but all
such counterparts together shall constitute one and the same agreement.
Section 24. HEADINGS. The Section headings used in this Agreement are for
convenience of reference only and shall not affect the construction of this
Agreement.
Section 25. OBLIGATIONS ABSOLUTE. To the extent permitted by applicable
law, all obligations of Pledgor hereunder shall be absolute and unconditional
irrespective of:
(a) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition liquidation or the like of Pledgor or any subsidiary of Pledgor;
(b) any lack of validity or enforceability of the Credit Agreement, any
other Loan Document, or any other agreement or instrument relating thereto;
(c) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Loan
Document, or any other agreement or instrument relating thereto;
15
<PAGE>
(d) any exchange, release or non-perfection of any other collateral, or
any release or amendment or waiver of or consent to any departure from any
guarantee, for all or any of the Secured Obligations; or
(e) any exercise or non-exercise, or any waiver of any right, remedy,
power or privilege under or in respect of this Agreement or any other Loan
Document except as specifically set forth in a waiver granted pursuant to the
provisions of Section 14 hereof.
Section 26. FUTURE ADVANCES. This Agreement shall secure the payment of
any amounts advanced from time to time pursuant to the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
RUBIO'S RESTAURANTS, INC.
Pledgor
By:
--------------------------------------
Name:
Title:
BANKBOSTON, N.A.
By:
--------------------------------------
Name:
Title:
16
<PAGE>
SCHEDULE A
RUBIO'S RESTAURANTS, INC.
<TABLE>
<CAPTION>
Matter # Opened Description
-------- ------ -----------
<S> <C> <C>
0337005 5/22/86 "HOME OF THE FISH TACO" (U.S. SM)
Reg. No.: 1,429,640
0337007 5/22/86 "STYLIZED REPRESENTATION OF A FISH CHARACTER"
(U.S. SM) Reg. No.: 1,427,957
0337009 1/21/88 "RUBIO'S" (CA SM)
0337011 1/21/88 "RUBIO'S" & DESIGN (U.S. SM)
Reg. No.: 1,503,438
0337014 8/5/88 "PESKY" (CARTOON CHARACTER) (CA SM)
Reg. No.: 088,641
0337015 8/5/88 "TEAM PESKY" & DESIGN (CA SM)
Reg. No.: 089,467
0337016 2/10/92 "RUBIO'S" & DESIGN (U.S TM)
Reg. No.: 1,843,810
0337017 4/7/92 "PESKY" & DESIGN (U.S TM)
Reg. No.: 1,753,012
0337019 2/2/93 "HEALTH MEX" (U.S. SM)
Reg. No.: 1,842,535
0337021 11/1/94 "BEST OF BAJA" (U.S. SM)
Reg. No.: 1,974,667
0337022 4/20/95 "RUBIO'S" & DESIGN (U.S. TM)
Reg. No.: 1,973,747
0337023 4/20/95 "HEALTH MEX" (U.S. ITU TM)
SN: 74/670,967 - FILED: 5/8/95
0337024 4/20/95 "HEALTH MEX" (U.S. TM)
Reg. No.: 1,988,288
0337025 6/26/95 "CABO COMBO" (U.S. TM)
SN: 74/723,213 - FILED: 8/13/95
0337026 8/9/95 "RUBIO'S" AND DESIGN (MEXICO SM)
SN: 240,200 - FILED: 8/16/95
0337027 10/1/96 "BAJA GRILL" (U.S. TM) (ASSIGNED FROM VON'S)
Reg. No.: 1,850,443
(Original - 12/4/92)
</TABLE>
<PAGE>
EXHIBIT G
LANDLORD WAIVER
The undersigned, ____________, under ____________, dated ____________,,
recorded in ____________, Registry of Deeds in Book ____________, Page
____________, ("the Landlord"), with a principal office ____________, is the
Landlord under the certain lease, dated ____________, as amended ____________,
which, expires ____________,(the "Lease") with ____________,(the "Borrower")
covering certain property (the "Leased Premises") located at ____________, and
more fully described in the Lease. The Landlord represents that the Lease in
the form attached hereto as EXHIBIT A, is in full force and effect and has not
been assigned, modified, supplemented or amended in any way, [except], that no
lien exists on the property, and that it is unaware of any current condition
constituting a default under the Lease or which would permit Landlord to
terminate the Lease.
It is understood and acknowledged that BANKBOSTON, N.A. (the "Bank") has
entered into an Revolving Credit and Term Loan Agreement (the ____________
"Credit Agreement") and related documents and instruments (collectively, the
"Loan Documents") with the Borrower, secured, INTER ALIA, by all of the
Borrower's tangible and intangible personal property, now owned or hereafter
acquired, as set forth on Schedule A hereto (collectively, the "Collateral").
For valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Landlord does hereby waive any and all rights in the
Collateral which the Landlord may have under statute, case law or by contract
and hereby agrees that the Collateral shall remain personal property of the
Borrower at all times, notwithstanding that the Collateral, or any part thereof,
may now be or hereafter become in any manner affixed or attached to, or embedded
in, or permanently resting on, real property or any building thereon, or
attached in any manner to that which is permanent by any means.
The Landlord at all times during the term of the Lease shall permit the
Bank and its agents and representatives to come on to the Leased Premises to
dispose of, remove or conduct the sale of the Collateral, and further agrees
that if the Landlord shall commence any action to gain possession of the Leased
Premises or to terminate the Lease, that it shall notify the Bank of such action
and shall permit the Bank and its agents and representatives to come on the
Leased Premises after the Landlord has regained possession of the Leased
Premises to dispose of, remove or conduct the sale of the Collateral for up to
sixty (60) days upon payment of the basic rent due under the Lease (as in effect
immediately prior to such repossession by the Landlord) on a per diem basis for
the number of days the Bank is in possession, unless the Borrower has already
paid for such period. The Bank shall use due care during any such period in
which it is on the Leased Premises and shall, in a workman like manner, repair
any damage caused to the Leased Premises by the Bank's removal of the Collateral
from the Leased Premises.
The Landlord further agrees that it will notify the Bank if the Borrower
defaults on its obligations under the Lease and allow the Bank ten (10) days
from the Bank's receipt of such
<PAGE>
notice to cure or cause the Borrower to cure any payment default and thirty
(30) days from its receipt of notice to cure or cause the Borrower to cure
any other such defaults.
Without limiting the foregoing, nothing contained herein shall limit or
modify the current or future obligations of any nature due from the Borrower to
the Lender.
IN WITNESS WHEREOF, the Landlord has executed these presents this __ day of
_____________, 1998.
By:
Title:
Accepted and Agreed to:
BANKBOSTON, N.A.
By: Debra Zurka
Its: Director
<PAGE>
EXHIBIT H
MONTHLY RESTAURANT REPORTS
TO COME FROM BANKBOSTON
<PAGE>
EXHIBIT I
COMPLIANCE CERTIFICATE
OF
RUBIO'S RESTAURANTS, INC.
RUBIO'S RESTAURANTS OF NEVADA, INC.
BankBoston, N.A.,
100 Federal Street
Boston, MA 02110
Attention: Debra Zurka
Ladies and Gentlemen:
As required by Section 5.1(d) of the Revolving Credit and Term Loan
Agreement dated as of May , 1998 (the "Credit Agreement") among Rubio's
Restaurants, Inc and Rubio's Restaurants of Nevada, Inc. and BankBoston, N.A., a
review of the activities of the Borrower for the fiscal year and/or fiscal
quarter and/or calendar month ending ___________, _____ (the "FISCAL PERIOD")
has been made under my supervision to determine whether the Borrower has
performed and/or maintained all of its obligations under the Credit Agreement.
Based upon such review, I hereby certify to you, as a Senior Officer, that the
Borrower has performed and maintained all such Obligations under the Credit
Agreement for the Fiscal Period and, to the best of my knowledge, no event has
occurred that constitutes a Default or an Event of Default as defined in the
Credit Agreement.
As required by Section [5.1(a)][5.1(b)][5.1 (c)] of the Credit Agreement,
financial statements of the Company (the "FINANCIAL STATEMENTS") for the Fiscal
Period and other information required by such sections accompany this
certificate. The Financial Statements present fairly the financial position of
the Credit Parties as of the date thereof and the statements of operation of the
Credit Parties for the Fiscal Period covered thereby. No change in GAAP or in
the application thereof has occurred since the date of the financial statements
delivered pursuant to Section 3.4 (a)(ii) of the Credit Agreement.
I further certify to you, as a Senior Officer, that the figures set forth
below accurately represent the amounts required to be calculated under the
various provisions or covenants of the Credit Agreement, each as of the last day
of the Fiscal Period unless otherwise indicated.
<PAGE>
<TABLE>
<C> <S> <S> <S>
A. USE OF PROCEEDS (Section 5.10)
1. Revolving Loan for Working Capital Purposes $ (4)
---------------
2. Total Restaurants
---------------
3. Number open more than nine months
---------------
4. Number with Positive Store Cash Flow (5)
---------------
5. Percentage of A4 divided by A3
---------------
6. Total Outstanding Revolving Loans during
period $
---------------
7. Highest total outstanding Revolving Loans
during the period $
---------------
B. FIXED CHARGED COVERAGE RATIO (Section 6.9(a)) REQUIRED ___:1.00
1. CONSOLIDATED CASH FLOW (for Four Fiscal Quarter Ending on __/__/__):
Consolidated Net Income $
---------------
PLUS deductions for cash income taxes
and tax payments during period $
---------------
PLUS Interest Expense $
---------------
PLUS depreciation and amortization $
---------------
PLUS non-cash income or charges $
---------------
PLUS Consolidated Rental Expenses $
---------------
EBITDAR $
---------------
EBITDAR
LESS cash payments of taxes $
---------------
PLUS net proceeds of Dispositions $
---------------
LESS aggregate amount of Maintenance
</TABLE>
- ------------------
(4) Not to exceed $1,000,000 at any time
(5) As shown on Exhibit H appended hereto for the month ending at the current
fiscal period.
<PAGE>
<TABLE>
<C> <S> <S> <S>
Capital Expenditures $
---------------
Operating Cash Flow $
---------------
2. Consolidated Financial Obligations (for the four quarters ending as of __/__/__):
a. Regular Schedule Principal Payments $
---------------
b. Payments on Capital Leases $
---------------
c. Consolidated Rental Expense $
---------------
d. Interest Expense $
---------------
CONSOLIDATED FINANCIAL OBLIGATIONS (a+b+c+d) $
---------------
FIXED CHARGE COVERAGE RATIO
(Ratio of Consolidated Cash Flow to Consolidated Financial Obligations)
---------------
C. MINIMUM INTEREST COVERAGE RATIO (Section 6.9(b)) REQUIRED: 5.00:1.00
1. EDITDA
(for four fiscal quarters Ending on __/__/__):
FOUR QUARTER EBITDA (EBITDAR less
Consolidated Rental Expense) $
---------------
2. INTEREST EXPENSE
(for Four Fiscal Quarters Ending on __/__/__):
Interest Expense $
---------------
MINIMUM INTEREST COVERAGE RATIO _______________
(Ratio of EBITDA to Interest Expense)
---------------
D. MAXIMUM TOTAL LEVERAGE RATIO (Section 6.9(c)) REQUIRED: ______:1.00
1. Consolidated Funded Debt (as of __/__/__):
a. Obligations for borrowed money $
---------------
</TABLE>
<PAGE>
<TABLE>
<C> <S> <S> <S>
b. Obligations for differed purchase $
---------------
c. Capital Lease Obligations $
---------------
d. Letters of Credit $
---------------
e. Secured by Liens $
---------------
f. Guaranties $
---------------
Consolidated Funded Debt (a+b+c+d+e+f) $
---------------
2. CONSOLIDATED EDITDA
(as of __/__/__)
Consolidated EBITDA $
---------------
MAXIMUM TOTAL LEVERAGE RATIO
(Ratio of Consolidated Funded Debt to Consolidated EBITDA)
---------------
Maximum Leverage Ratio required
---------------
E. CAPITAL EXPENDITURES (Section 6.9 (d)) PERMITTED:$______________ Number of
New Restaurants Permitted ________
(for Period Ending on __/__/__):
Total Capital Expenditures to Date for fiscal year $
---------------
Total Number of Restaurant opened fiscal year to date
---------------
</TABLE>
Terms used herein shall have the meanings ascribed to them in the Credit
Agreement dated as of May , 1998 among Rubio's Restuarants, Inc. and Rubio's
Restaurants of Nevada, Inc. and BankBoston, N.A.
RUBIO'S RESTAURANTS. INC
__, ______ By:____________________________
Name:
Title:
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT dated as of April 1, 1999 (this
"AMENDMENT"), among RUBIO'S RESTAURANTS, INC AND RUBIO'S RESTAURANTS OF
NEVADA (collectively the "BORROWERS") and BANKBOSTON, N.A., (the "Bank").
WHEREAS, pursuant to the Credit Agreement (as defined below), the Bank
has agreed to make Revolving Credit Loans and a Term Loan to the Borrower as
provided in the Credit Agreement ( as defined below);
WHEREAS, the Borrower and the Bank wish to revise certain provisions of
the Credit Agreement as provided below lowering the interest rate, lowering
the unused commitment fee and permitting the Borrower to engage in an IPO, as
defined in the Credit Agreement (as defined below), without repaying the Term
Loan;
NOW, THEREFORE, in consideration of the foregoing and the agreements
contained herein, the parties hereby agree as follows:
1. REFERENCE TO CREDIT AGREEMENT.
Reference is made to the Revolving Credit and Term Loan Agreement dated
as of May 13, 1998 (as the same may be further amended and restated from time
to time, the "CREDIT AGREEMENT") among the Borrower and the Bank.
Capitalized terms used herein which are defined in the Credit Agreement have
the same meanings herein as therein, except to the extent that such meanings
are amended hereby.
2. AMENDMENTS.
The Borrower and the Bank agree that the Credit Agreement is hereby
amended, effective as of the date hereof, as follows:
(a) AMENDMENT OF SECTION 2.6 (b) (v) OF THE CREDIT AGREEMENT. Section
2.6 (b) (v) is deleted in its entirety.
(b) AMENDMENT TO SECTION 2.8 (a) OF THE CREDIT AGREEMENT. The
following is hereby substituted for Section 2.8 (a) of the Credit Agreement:
2.8 (a) The Borrower agrees to pay to the Bank on the daily average
unused amount of the respective Revolving Credit Commitment, during
each fiscal quarter from and including the Closing Date any unused
commitment fees equal to .375% per annum. Accrued commitment fees
shall be payable in arrears on each Quarterly Date commencing on the
first such date occurring after the date hereof. All commitment fees
shall be computed on the basis of a year of 360 days and shall be
payable for the actual number of days elapsed (including the first day
but excluding the last day).
(c) AMENDMENT OF SECTIONS 2.9 (a) AND (b) OF THE CREDIT AGREEMENT. The
following is hereby substituted for Section 2.9 (a) and (b) of the Credit
Agreement:
(a) The Loans comprising Revolving Credit Loans and Term Loans at the
Base Rate shall bear interest at a rate per annum equal to the Adjusted
Base Rate PLUS .75% per annum or the Adjusted Base Rate PLUS 1.00% for all
Revolving Credit Loans if there is no pledge of the stock of the Borrower
to the Bank.
(b) The Loans comprising Revolving Credit Loans and Term Loans at the
LIBO Rate shall bear interest of a rate per annum equal to the Adjusted
LIBO Rate plus 2.50% per annum; provided that, if there is no pledge of the
stock of the Borrower to the Bank, Revolving Credit Loans which are at the
LIBO Rate shall bear interest at a rate per annum equal to the Adjusted
LIBO Rate plus 3.00% per annum.
<PAGE>
(d) AMENDMENT OF SECTION 6.4 OF THE CREDIT AGREEMENT. Section 6.4 of
the Credit Agreement is amended by adding the following to the end thereof:
Notwithstanding the foregoing, an IPO shall not be a violation of any
of the provisions of this Section 6.4.
(e) AMENDMENT OF SECTION 6.8 OF THE CREDIT AGREEMENT. Section 6.8 of
the Credit Agreement is amended to read as follows:
6.8 DISTRIBUTIONS. The Borrower shall not ISSUE additional shares of
any class except as provided in SCHEDULE 6.8 hereof or in conjunction
with an IPO.
(f) AMENDMENT OF SECTION 7.1 (m) OF THE CREDIT AGREEMENT. Section
7.1(m) of the Credit Agreement is amended to read as follows:
(m) the failure of the current holders of the common stock of
the Borrower (x) to own collectively, beneficially and of record, at
least 66% of the capital stock of the Borrower or (y) to control at
least 66% of the voting rights in the Borrower; PROVIDED that upon the
death of any of the foregoing, no Event of Default shall occur if such
stock or interest is transferred to members of the deceased's
immediate family or such person's personal representative and it shall
not be an Event of Default if the common stock ownership is reduced
after and as part of an IPO.
3. NO DEFAULT; REPRESENTATIONS AND WARRANTIES, ETC.
The Borrower hereby confirms that: (a) the representations and
warranties of the Borrower contained in th the Credit Agreement are true on
and as of the date hereof as if made on such date (except to the extent that
such representations and warranties expressly relate to an earlier date);
provided that Schedule 3.12 shall no longer be accurate after and IPO and
will no longer need to be updated after an IPO; (b) the Borrower is in
compliance in all material respects with all of the terms and provisions set
forth in the Credit Agreement on their part to be observed or performed
thereunder; and (c) after giving effect to this Amendment, no Event of
Default, nor any event which with the giving of notice or expiration of any
applicable grace period or both would constitute such an Event of Default,
shall have occurred and be continuing.
4. CONDITIONS TO THIS AMENDMENT.
Concurrently herewith (and as conditions to the Bank's consent to this
Amendment), the Borrower will furnish the Bank with the following:
(a) Appropriate corporate resolutions, if necessary, and such other
certificates, instruments and documents as the Bank may reasonably request
for the purpose of implementing or effectuating the provisions of the Credit
Agreement, as hereby amended, or this Amendment.
(b) Such other documents and instruments as the Bank may reasonably
require in order to put this Amendment into full force and effect.
5. MISCELLANEOUS.
(a) Except to the extent specifically amended hereby, the Credit
Agreement, the Loan Documents and all related documents shall remain in full
force and effect. Whenever the terms or sections amended hereby shall be
referred to in the Credit Agreement, Loan Documents or such other documents
(whether directly or by incorporation into other defined terms), such defined
terms shall be deemed to refer to those terms or sections as amended by this
Amendment.
(b) This Amendment may be executed in any number of counterparts, each
of which, when executed and delivered, shall be an original, but all
counterparts shall together constitute one instrument.
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<PAGE>
(c) This Amendment shall be governed by the laws of the Commonwealth of
Massachusetts and shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
(d) This Amendment shall be effective as of April 1, 1999.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
which shall be deemed to be a sealed instrument as of the date first above
written.
RUBIO'S RESTAURANTS, INC.
By /s/ Ralph Rubio
-------------------------------------
Name: Ralph Rubio
Title: President
RUBIO'S RESTAURANTS OF NEVADA,
INC.
By /s/ Robert Rubio
-------------------------------------
Name: Robert Rubio
Title: President
BANKBOSTON, N.A.
By /s/ Debra Zurka
-------------------------------------
Name: Debra Zurka
Title: Director
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<PAGE>
EXHIBIT 10.24
[LOGO]
VOLUME SERVICES AMERICA
March 29, 1999
Steve Sather
Rubio's Restaurant's, Inc.
1902 Wright Place, Suite 300
Carlsbad, Ca. 92008-6528
Dear Steve,
This letter will confirm our mutual agreement that Volume Services America
will begin paying *** beginning *** as outlined in section 1. e in our 1992
contract. Section 3 a. shall be elinated, however we hope to secure a longer
term pending your commitment with the *** and or *** .
Congratulations on Rubio's pending I.P.O., and we look forward to another
*** of partnership with your company.
Sincerely,
/s/ Ken Wilson
General Manager
cc: Carmen Torzon
Dan Guest
File
SAN DIEGO QUALCOMM STADIUM
--------------------------
9449 Friars Road - P.O. Box 600750 - San Diego, CA 92160-0750
Telephone: 619-641-6000 - Facsimile: 619-641-6099
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT 10.36
RUBIO'S RESTAURANTS, INC.
RESTRICTED STOCK ISSUANCE AGREEMENT
AGREEMENT made as of this ____ day of _____________, 199__, by
and among Rubio's Restaurants, Inc., a California corporation (the
"Corporation"), ____________________________, a participant ("Participant") in
the Corporation's 1995 Stock Option/Stock Issuance Plan (the "Plan") and
____________________________, the Participant's spouse.
I. PURCHASE OF SHARES
1.1 PURCHASE. The Participant hereby purchases, and the
Corporation hereby sells to Participant, __________ shares (the "Shares") of the
Corporation's common stock ("Common Stock") at a purchase price of $_________
per share (the "Purchase Price") pursuant to the provisions of the Plan.
1.2 PAYMENT. Concurrently with the execution of this
Agreement, the Participant shall deliver to the Corporate Secretary of the
Corporation (i) the aggregate Purchase Price payable for the Shares in cash or
cash equivalent and (ii) a duly-executed blank Assignment Separate from
Certificate (in the form attached hereto as Exhibit A).
1.3 DELIVERY OF CERTIFICATES. The certificates representing
the Shares hereunder shall be held in escrow by the Secretary of the Corporation
as provided in Article VII hereof.
1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation
actually exercises its repurchase right, rights of first refusal or special
purchase right under this Agreement, Participant (or any successor in interest)
shall have all the rights of a shareholder (including voting and dividend
rights) with respect to the Shares, including the Shares held in escrow under
Article VII, subject, however, to the transfer restrictions of Article IV.
II. SECURITIES LAW COMPLIANCE
2.1 EXEMPTION FROM REGISTRATION. The Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
are accordingly being issued to Participant in reliance upon the exemption from
such registration provided by Rule 701 of the Securities and Exchange Commission
for stock issuances under compensatory benefit plans such as the Plan.
Participant hereby acknowledges receipt of a copy of the documentation for such
Plan in the form of Exhibit B attached hereto.
<PAGE>
2.2 RESTRICTED SECURITIES.
A. Participant hereby confirms that Participant has
been informed that the Shares are restricted securities under the 1933 Act and
may not be resold or transferred unless the Shares are first registered under
the Federal securities laws or unless an exemption from such registration is
available. Accordingly, Participant hereby acknowledges that Participant is
prepared to hold the Shares for an indefinite period and that Participant is
aware that Rule 144 of the Securities and Exchange Commission issued under the
1933 Act is not presently available to exempt the sale of the Shares from the
registration requirements of the 1933 Act.
B. Upon the expiration of the ninety (90)-day period
immediately following the date on which the Corporation first becomes subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Shares, to the extent vested under Article V, may be
sold (without registration) pursuant to the applicable requirements of Rule 144.
If Participant is at the time of such sale an affiliate of the Corporation for
purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144
(including the volume limitation on the number of shares sold, the
broker/market-maker sale requirement and the requisite notice to the Securities
and Exchange Commission); however, the two-year holding period requirement of
the Rule will not be applicable. If Participant is not at the time of the sale
an affiliate of the Corporation nor was such an affiliate during the preceding
three (3) months, then none of the requirements of Rule 144 (other than the
broker/market-maker sale requirement for Shares held for less than three (3)
years following payment in cash of the Purchase Price therefor) will be
applicable to the sale.
C. Should the Corporation not become subject to the
reporting requirements of the Exchange Act, then Participant may, provided
he/she is not at the time an affiliate of the Corporation (nor was such an
affiliate during the preceding three (3) months), sell the Shares (without
registration) pursuant to paragraph (k) of Rule 144 after the Shares have been
held for a period of three (3) years following the payment in cash of the
Purchase Price for such shares.
2.3 DISPOSITION OF SHARES. Participant hereby agrees that
Participant shall make no disposition of the Shares (other than a permitted
transfer under paragraph 4.1) unless and until there is compliance with all of
the following requirements:
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<PAGE>
(a) Participant shall have notified the Corporation of the
proposed disposition and provided a written summary of the terms and
conditions of the proposed disposition.
(b) Participant shall have complied with all requirements of
this Agreement applicable to the disposition of the Shares.
(c) Participant shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (i) the proposed disposition does not require
registration of the Shares under the 1933 Act or (ii) all appropriate
action necessary for compliance with the registration requirements of the
1933 Act or of any exemption from registration available under the 1933
Act (including Rule 144) has been taken.
(d) Participant shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that the proposed disposition will not result in the
contravention of any transfer restrictions applicable to the Shares
pursuant to the provisions of the Commissioner Rules identified in
paragraph 2.5.
The Corporation shall NOT be required (i) to transfer on its books
any Shares which have been sold or transferred in violation of the provisions of
this Article II NOR (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have been
transferred in contravention of this Agreement.
2.4 RESTRICTIVE LEGENDS. In order to reflect the restrictions
on disposition of the Shares, the stock certificates for the Shares will be
endorsed with restrictive legends, including one or more of the following
legends:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be
sold or offered for sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a 'no action' letter of the
Securities and Exchange Commission with respect to such sale or offer, or
(c) satisfactory assurances to the Corporation that registration under
such Act is not required with respect to such sale or offer."
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<PAGE>
(ii) "It is unlawful to consummate a sale or transfer of
this security, or any interest therein, or to receive any consideration
therefor, without the prior written consent of the Commissioner of
Corporations of the State of California, except as permitted in the
Commissioner's Rules."
(iii) "The shares represented by this certificate are
unvested and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement dated ____________, 19__, between the
Corporation and the registered holder of the shares (or the predecessor
in interest to the shares). Such agreement grants certain repurchase
rights and rights of first refusal to the Corporation (or its assignees)
upon the sale, assignment, transfer, encumbrance or other disposition of
the Corporation's shares or upon termination of service with the
Corporation. The Corporation will upon written request furnish a copy of
such agreement to the holder hereof without charge."
2.5 RECEIPT OF COMMISSIONER RULES. Participant hereby
acknowledges receipt of a copy of Section 260.141.11 of the Rules of the
California Corporations Commissioner, a copy of which is attached as Exhibit C
to this Agreement.
III. SPECIAL TAX PROVISIONS
3.1 SECTION 83(B) ELECTION. The Participant understands that
under Section 83 of the Code, the excess of the fair market value of the Shares
on the date any forfeiture restrictions applicable to such shares lapse over the
Purchase Price for such Shares will be reportable as ordinary income on such
lapse date. For this purpose, the term "forfeiture restrictions" includes the
right of the Corporation to repurchase the Shares pursuant to the Repurchase
Right provided under Article V of this Agreement. Participant understands that
he/she may elect under Section 83(b) of the Internal Revenue Code of 1986, as
amended (the "Code") to be taxed at the time the Shares are acquired hereunder,
rather than when and as such Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of this Agreement. Even if the fair
market value of the Shares on the date of this Agreement equals the Purchase
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as Exhibit D hereto. Participant understands that failure to make this
filing within the thirty (30)-day period will result in the
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<PAGE>
recognition of ordinary income by the Participant as the forfeiture
restrictions lapse.
3.2 PARTICIPANT ACKNOWLEDGES THAT IT IS PARTICIPANT'S SOLE
RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER
SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE CORPORATION OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON HIS/HER BEHALF. This filing should be
made by registered or certified mail, return receipt requested, and Participant
must retain two (2) copies of the completed form for filing with his/her State
and Federal tax returns for the current tax year and an additional copy for
his/her personal records.
IV. TRANSFER RESTRICTIONS
4.1 RESTRICTION ON TRANSFER. Participant shall not
transfer, assign, encumber or otherwise dispose of any of the Shares which
are subject to the Corporation's Repurchase Right under Article V. In
addition, Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise made the subject of
disposition in contravention of the Corporation's First Refusal Right under
Article VI. Such restrictions on transfer, however, shall NOT be applicable
to (i) a gratuitous transfer of the Shares made to the Participant's spouse
or issue, including adopted children, or to a trust for the exclusive benefit
of the Participant or the Participant's spouse or issue, PROVIDED AND ONLY IF
the Participant obtains the Corporation's prior written consent to such
transfer, (ii) a transfer of title to the Shares effected pursuant to the
Participant's will or the laws of intestate succession or (iii) a transfer to
the Corporation in pledge as security for any purchase-money indebtedness
incurred by the Participant in connection with the acquisition of the Shares.
4.2 TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Shares are transferred by means of one of the
permitted transfers specified in paragraph 4.1 must, as a condition precedent
to the validity of such transfer, acknowledge in writing to the Corporation
that such person is bound by the provisions of this Agreement and that the
transferred shares are subject to (i) both the Corporation's Repurchase Right
and the Corporation's First Refusal Right granted hereunder and (ii) the
market stand-off provisions of paragraph 4.4, to the same extent such Shares
would be so subject if retained by the Participant.
4.3 DEFINITION OF OWNER. For purposes of Articles IV, V, VI
and VII of this Agreement, the term "Owner" shall include the Participant and
all subsequent holders of the Shares who derive their chain of ownership through
a permitted transfer from the Participant in accordance with paragraph 4.1.
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<PAGE>
4.4 MARKET STAND-OFF PROVISIONS.
A. In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Shares without the prior written consent of the Corporation or
its underwriters. Such limitations shall be in effect for such period of time
from and after the effective date of such registration statement as may be
requested by the Corporation or such underwriters; PROVIDED, however, that in no
event shall such period exceed one hundred-eighty (180) days. The limitations
of this paragraph 4.4 shall remain in effect for the two-year period immediately
following the effective date of the Corporation's initial public offering and
shall thereafter terminate and cease to have any force or effect.
B. Owner shall be subject to the market stand-off provisions
of this paragraph 4.4 PROVIDED AND ONLY IF the officers and directors of the
Corporation are also subject to similar arrangements.
C. In the event of any stock dividend, stock split,
recapitalization or other change affecting the Corporation's outstanding Common
Stock effected without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Shares shall be
immediately subject to the provisions of this paragraph 4.4, to the same extent
the Shares are at such time covered by such provisions.
D. In order to enforce the limitations of this paragraph 4.4,
the Corporation may impose stop-transfer instructions with respect to the Shares
until the end of the applicable stand-off period.
V. REPURCHASE RIGHT
5.1 GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date the Participant ceases for any reason to remain in Service or
(if later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Purchase Price all or (at the discretion of the
Corporation and with the consent of the Participant) any portion of the Shares
in which the Participant has not acquired a vested interest in accordance with
the vesting provisions of paragraph 5.3 below (such shares to be hereinafter
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<PAGE>
called the "Unvested Shares"). For purposes of this Agreement, the Participant
shall be deemed to remain in Service for so long as the Participant continues to
render periodic services to the Corporation or any parent or subsidiary
corporation, whether as an employee, a non-employee member of the board of
directors, or an independent contractor or consultant.
5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right
shall be exercisable by written notice delivered to the Owner of the Unvested
Shares prior to the expiration of the applicable sixty (60)-day period specified
in paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one
or more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock certificates
(either from escrow in accordance with paragraph 7.3 or from Owner as herein
provided), pay to Owner in cash or cash equivalents (including the cancellation
of any purchase-money indebtedness), an amount equal to the Purchase Price
previously paid for the Unvested Shares which are to be repurchased.
5.3 TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under paragraph 5.2. In addition, the Repurchase Right shall
terminate, and cease to be exercisable, with respect to any and all Shares in
which the Participant vests in accordance with the schedule below. Accordingly,
as the Participant continues in Service, the Participant shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to, the Shares in
installments in accordance with the following provisions:
(i) The Participant shall not acquire any vested
interest in, nor shall the Repurchase Right lapse with respect to, any
Shares unless and until the Participant has completed twelve (12)
months of Service measured from _________________, 199__.
(ii) Upon the completion of the twelve (12) month
Service period specified in subparagraph (i) above, the Participant
shall acquire a vested interest in, and the Repurchase Right shall
lapse with respect to, 25% of the Shares.
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<PAGE>
(iii) The Participant shall acquire a vested interest
in, and the Repurchase Right shall lapse with respect to, the
remaining Shares in a series of successive equal monthly installments
over each of the next thirty-six (36) months of Service completed by
the Participant after the initial vesting date under subparagraph
(ii) above.
All Shares as to which the Repurchase Right lapses shall,
however, continue to be subject to (i) the First Refusal Right and (ii) the
market stand-off provisions of paragraph 4.4.
5.4 FRACTIONAL SHARES. No fractional shares shall be
repurchased by the Corporation. Accordingly should the Repurchase Right extend
to a fractional share (in accordance with the vesting computation provisions of
paragraph 5.3) at the time the Participant ceases Service, then such fractional
share shall be added to any fractional share in which the Participant is at such
time vested in order to make one whole vested share no longer subject to the
Repurchase Right.
5.5 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event
of any stock dividend, stock split, recapitalization or other change affecting
the Corporation's outstanding Common Stock as a class effected without receipt
of consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Shares shall
be immediately subject to the Repurchase Right, but only to the extent the
Shares are at the time covered by such right. Appropriate adjustments to
reflect the distribution of such securities or property shall be made to the
number of Shares at the time subject to the Repurchase Right hereunder and to
the price per share to be paid upon the exercise of the Repurchase Right in
order to reflect the effect of any such transaction upon the Corporation's
capital structure; PROVIDED, however, that the aggregate Purchase Price shall
remain the same.
5.6 CORPORATE TRANSACTION.
A. Immediately prior to the consummation of any of the
following shareholder-approved transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which more than fifty
percent (50%) of the Corporation's outstanding voting stock is
transferred to a person or persons different from those who held the
stock immediately prior to such transaction, or
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<PAGE>
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation,
the Repurchase Right shall automatically lapse in its
entirety, except to the extent the Repurchase Right is to be assigned to the
successor corporation (or its parent company) in connection with such Corporate
Transaction.
B. To the extent the Repurchase Right remains in effect
following such Corporate Transaction, it shall apply to the new capital stock or
other property (including cash) received in exchange for the Shares in
consummation of the Corporate Transaction, but only to the extent the Shares are
at the time covered by such right. Appropriate adjustments shall be made to the
price per share payable upon exercise of the Repurchase Right to reflect the
effect of the Corporate Transaction upon the Corporation's capital structure;
PROVIDED, however, that the aggregate Purchase Price shall remain the same.
VI. RIGHT OF FIRST REFUSAL
6.1 GRANT. The Corporation is hereby granted the right of
first refusal (the "First Refusal Right"), exercisable in connection with any
proposed transfer of the Shares in which the Participant has vested in
accordance with the vesting provisions of Article V. For purposes of this
Article VI, the term "transfer" shall include any sale, assignment, pledge,
encumbrance or other disposition for value of the Shares intended to be made by
the Owner, but shall not include any of the permitted transfers under paragraph
4.1.
6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner
desires to accept a bona fide third-party offer for any or all of the Shares
(the shares subject to such offer to be hereinafter called the "Target Shares"),
Owner shall promptly (i) deliver to the Corporate Secretary of the Corporation
written notice (the "Disposition Notice") of the terms and conditions of the
offer, including the purchase price and the identity of the third-party offeror
and (ii) provide satisfactory proof that the disposition of the Target Shares to
such third-party offeror would not be in contravention of the provisions set
forth in Articles II and IV of this Agreement.
6.3 EXERCISE OF RIGHT. The Corporation (or its assignees)
shall, for a period of twenty-five (25) days following receipt of the
Disposition Notice, have the right to repurchase any or all of the Target Shares
specified in the Disposition Notice upon substantially the same terms and
conditions specified therein or upon terms and conditions which do not
materially vary
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<PAGE>
from those specified therein. Such right shall be exercisable by delivery of
written notice (the "Exercise Notice") to Owner prior to the expiration of
the twenty-five (25)-day exercise period. If such right is exercised with
respect to all the Target Shares specified in the Disposition Notice, then
the Corporation (or its assignees) shall effect the repurchase of the Target
Shares, including payment of the purchase price, not more than five (5)
business days after delivery of the Exercise Notice; and at such time Owner
shall deliver to the Corporation the certificates representing the Target
Shares to be repurchased, each certificate to be properly endorsed for
transfer. To the extent any of the Target Shares are at the time held in
escrow under Article VII, the certificates for such shares shall
automatically be released from escrow and delivered to the Corporation for
purchase.
6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is
not given to Owner within twenty-five (25) days following the date of the
Corporation's receipt of the Disposition Notice, Owner shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Target
Shares to the third-party offeror identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; PROVIDED,
however, that any such sale or disposition must not be effected in contravention
of the provisions of Article II of this Agreement. To the extent any of the
Target Shares are at the time held in escrow under Article VII, the certificates
for such shares shall automatically be released from escrow and surrendered to
the Owner. The third-party offeror shall acquire the Target Shares free and
clear of the Corporation's Repurchase Right under Article V and the
Corporation's First Refusal Right hereunder, but the acquired shares shall
remain subject to (i) the securities law restrictions of paragraph 2.2(a) and
(ii) the market stand-off provisions of paragraph 4.4. In the event Owner does
not effect such sale or disposition of the Target Shares within the specified
thirty (30) day period, the Corporation's First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses in accordance with paragraph 6.7.
6.5 PARTIAL EXERCISE OF RIGHT. In the event the Corporation
(or its assignees) makes a timely exercise of the First Refusal Right with
respect to a portion, but not all, of the Target Shares specified in the
Disposition Notice, Owner shall have the option, exercisable by written notice
to the Corporation delivered within thirty (30) days after the date of the
Disposition Notice, to effect the sale of the Target Shares pursuant to one of
the following alternatives:
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(i) sale or other disposition of all the Target Shares
to the third-party offeror identified in the Disposition Notice, but
in full compliance with the requirements of paragraph 6.4, as if the
Corporation did not exercise the First Refusal Right hereunder; or
(ii) sale to the Corporation (or its assignees) of the
portion of the Target Shares which the Corporation (or its assignees)
has elected to purchase, such sale to be effected in substantial
conformity with the provisions of paragraph 6.3.
Failure of Owner to deliver timely notification to the Corporation
under this paragraph 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (i) above.
6.6 RECAPITALIZATION/MERGER.
(a) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Corporation's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Purchased Shares shall be
immediately subject to the Corporation's First Refusal Right hereunder, but only
to the extent the Purchased Shares are at the time covered by such right.
(b) In the event of any of the following transactions:
(i) a merger or consolidation in which the
Corporation is not the surviving entity,
(ii) a sale, transfer or other disposition of all
or substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is
the surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to person or persons other
than those who held such securities immediately prior to the merger, or
(iv) any transaction effected primarily to change
the State in which the Corporation is incorporated, or to create a
holding company structure,
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<PAGE>
the Corporation's First Refusal Right shall remain in full
force and effect and shall apply to the new capital stock or other property
received in exchange for the Purchased Shares in consummation of the transaction
but only to the extent the Purchased Shares are at the time covered by such
right.
6.7 LAPSE. The First Refusal Right under this Article VI shall
lapse and cease to have effect upon the EARLIEST to occur of (i) the first date
on which shares of the Corporation's Common Stock are held of record by more
than five hundred (500) persons, (ii) a determination is made by the
Corporation's Board of Directors that a public market exists for the outstanding
shares of the Corporation's Common Stock, or (iii) a firm commitment
underwritten public offering pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of the Corporation's Common
Stock in the aggregate amount of at least $5,000,000. However, the market
stand-off provisions of paragraph 4.4 shall continue to remain in full force and
effect following the lapse of the First Refusal Right hereunder.
VII. ESCROW
7.1 DEPOSIT. Upon issuance, the certificates for any Unvested
Shares purchased hereunder shall be deposited in escrow with the Corporation to
be held in accordance with the provisions of this Article VII. Each deposited
certificate shall be accompanied by a duly executed Assignment Separate from
Certificate in the form of Exhibit A. The deposited certificates, together with
any other assets or securities from time to time deposited with the Corporation
pursuant to the requirements of this Agreement, shall remain in escrow until
such time or times as the certificates (or other assets and securities) are to
be released or otherwise surrendered for cancellation in accordance with
paragraph 7.3. Upon delivery of the certificates (or other assets and
securities) to the Corporation, the Owner shall be issued an instrument of
deposit acknowledging the number of Unvested Shares (or other assets and
securities) delivered in escrow to the Corporation.
7.2 RECAPITALIZATION. All regular cash dividends on the
Unvested Shares (or other securities at the time held in escrow) shall be paid
directly to the Owner and shall not be held in escrow. However, in the event of
any stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the Unvested Shares shall be immediately
delivered to the Corporation to be held in escrow under this
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<PAGE>
Article VII, but only to the extent the Unvested Shares are at the time subject
to the escrow requirements of paragraph 7.1.
7.3 RELEASE/SURRENDER. The Unvested Shares, together with any
other assets or securities held in escrow hereunder, shall be subject to the
following terms and conditions relating to their release from escrow or their
surrender to the Corporation for repurchase and cancellation:
(i) Should the Corporation (or its assignees) elect to
exercise the Repurchase Right under Article V with respect to any
Unvested Shares, then the escrowed certificates for such Unvested Shares
(together with any other assets or securities issued with respect
thereto) shall be delivered to the Corporation, concurrently with the
payment to the Owner, in cash or cash equivalent (including the
cancellation of any purchase-money indebtedness), of an amount equal to
the aggregate Purchase Price for such Unvested Shares, and the Owner
shall cease to have any further rights or claims with respect to such
Unvested Shares (or other assets or securities attributable to such
Unvested Shares).
(ii) Should the Corporation (or its assignees) elect to
exercise its First Refusal Right under Article VI with respect to any
vested Target Shares held at the time in escrow hereunder, then the
escrowed certificates for such Target Shares (together with any other
assets or securities attributable thereto) shall, concurrently with the
payment of the paragraph 6.3 purchase price for such Target Shares to the
Owner, be surrendered to the Corporation, and the Owner shall cease to
have any further rights or claims with respect to such Target Shares (or
other assets or securities).
(iii) Should the Corporation (or its assignees) elect NOT
to exercise its First Refusal Right under Article VI with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
disposition in accordance with the provisions of paragraph 6.4.
(iv) As the interest of the Participant in the Unvested
Shares (or any other assets or securities attributable thereto) vests in
accordance with the provisions of Article V, the certificates for such
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<PAGE>
vested shares (as well as all other vested assets and securities) shall
be released from escrow and delivered to the Owner in accordance with the
following schedule:
a. The initial release of vested shares (or
other vested assets and securities) from escrow shall be
effected within thirty (30) days following the expiration
of the initial twelve (12)-month period measured from the
initial vesting date under paragraph 5.3.
b. Subsequent releases of vested shares (or
other vested assets and securities) from escrow shall be
effected at semi-annual intervals thereafter, with the
first such semi-annual release to occur six (6) months
after the initial paragraph 5.3 vesting date.
c. Upon the Participant's cessation of Service,
any escrowed Shares (or other assets or securities) in
which the Participant is at the time vested shall be
promptly released from escrow.
d. Upon any earlier termination of the
Corporation's Repurchase Right in accordance with the
applicable provisions of Article V, the Shares (or other
assets or securities) at the time held in escrow hereunder
shall promptly be released to the Owner as fully-vested
shares or other property.
(v) All Shares (or other assets or securities) released
from escrow in accordance with the provisions of subparagraph (iv) above
shall nevertheless remain subject to (I) the Corporation's First Refusal
Right under Article VI until such right lapses pursuant to paragraph 6.7,
(II) the market stand-off provisions of paragraph 4.4 until such
provisions terminate in accordance therewith and (III) the Special
Purchase Right under Article VIII.
VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION
8.1 GRANT. In connection with the dissolution of the
Participant's marriage or the legal separation of the Participant and the
Participant's spouse, the Corporation shall have the right (the "Special
Purchase Right"), exercisable at any time
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<PAGE>
during the thirty (30)-day period following the Corporation's receipt of the
required Dissolution Notice under paragraph 8.2, to purchase from the
Participant's spouse, in accordance with the provisions of paragraph 8.3, all
or any portion of the Shares which would otherwise be awarded to such spouse
in settlement of any community property or other marital property rights such
spouse may have in such shares.
8.2 NOTICE OF DECREE OR AGREEMENT. The Participant shall
promptly provide the Secretary of the Corporation with written notice (the
"Dissolution Notice") of (i) the entry of any judicial decree or order resolving
the property rights of the Participant and the Participant's spouse in
connection with their marital dissolution or legal separation or (ii) the
execution of any contract or agreement relating to the distribution or division
of such property rights. The Dissolution Notice shall be accompanied by a copy
of the actual decree of dissolution or settlement agreement between the
Participant and the Participant's spouse which provides for the award to the
spouse of one or more Shares in settlement of any community property or other
marital property rights such spouse may have in such shares.
8.3 EXERCISE OF SPECIAL PURCHASE RIGHT. The Special Purchase
Right shall be exercisable by delivery of the Purchase Notice to the Participant
and the Participant's spouse within thirty (30) days after the Corporation's
receipt of the Dissolution Notice. The Purchase Notice shall indicate the
number of shares to be purchased by the Corporation, the date such purchase is
to be effected (such date to be not less than five (5) business days, nor more
than ten (10) business days, after the date of the Purchase Notice), and the
fair market value to be paid for such Shares. The Participant (or the
Participant's spouse, to the extent such spouse has physical possession of the
Shares) shall, prior to the close of business on the date specified for the
purchase, deliver to the Corporate Secretary of the Corporation the certificates
representing the shares to be purchased, each certificate to be properly
endorsed for transfer. To the extent any of the shares to be purchased by the
Corporation are at the time held in escrow under Article VII, the certificates
for such shares shall be promptly delivered out of escrow to the Corporation.
The Corporation shall, concurrently with the receipt of the stock certificates,
pay to the Participant's spouse (in cash or cash equivalents) an amount equal to
the fair market value specified for such shares in the Purchase Notice.
If the Participant's spouse does not agree with the fair market
value specified for the shares in the Purchase Notice, then the spouse shall
promptly notify the Corporation in writing of such disagreement and the fair
market value of such
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<PAGE>
shares shall thereupon be determined by an appraiser of recognized standing
selected by the Corporation and the spouse. If they cannot agree on an
appraiser within twenty (20) days after the date of the Purchase Notice, each
shall select an appraiser of recognized standing, and the two appraisers
shall designate a third appraiser of recognized standing whose appraisal
shall be determinative of such value. The cost of the appraisal shall be
shared equally by the Corporation and the Participant's spouse. The closing
shall then be held on the fifth business day following the completion of such
appraisal; PROVIDED, however, that if the appraised value is more than
fifteen percent (15%) greater than the fair market value specified for the
shares in the Purchase Notice, the Corporation shall have the right,
exercisable prior to the expiration of such five (5) business-day period, to
rescind the exercise of the Special Purchase Right and thereby revoke its
election to purchase the shares awarded to the spouse.
8.4 LAPSE. The Special Purchase Right under this Article VIII
shall lapse and cease to have effect upon the EARLIER to occur of (i) the first
date on which the First Refusal Right under Article VI lapses or (ii) the
expiration of the thirty (30)-day exercise period specified in paragraph 8.3, to
the extent the Special Purchase Right is not timely exercised in accordance with
such paragraph.
IX. GENERAL PROVISIONS
9.1 ASSIGNMENT. The Corporation may assign its Repurchase
Right under Article V, its First Refusal Right under Article VI and/or its
Special Purchase Right under Article VIII to any person or entity selected by
the Corporation's Board of Directors, including (without limitation) one or more
shareholders of the Corporation.
If the assignee of the Repurchase Right is other than a one
hundred percent (100%) owned subsidiary corporation of the Corporation or the
parent corporation owning one hundred percent (100%) of the Corporation, then
such assignee must make a cash payment to the Corporation, upon the assignment
of the Repurchase Right, in an amount equal to the excess (if any) of (i) the
fair market value of the Unvested Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for Unvested
Shares thereunder.
9.2 DEFINITIONS. For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:
(i) Any corporation (other than the Corporation) in an
unbroken chain of corporations
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<PAGE>
ending with the Corporation shall be considered to be a PARENT
corporation of the Corporation, provided each such corporation in the
unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the
other corporations in such chain.
(ii) Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a SUBSIDIARY of the Corporation, provided each such
corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
9.3 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this
Agreement or in the Plan shall confer upon the Participant any right to continue
in the Service of the Corporation (or any parent or subsidiary corporation
employing or retaining Participant) for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any parent or subsidiary corporation employing or retaining Participant) or
the Participant, which rights are hereby expressly reserved by each, to
terminate the Participant's Service at any time for any reason whatsoever, with
or without cause.
9.4 NOTICES. Any notice required in connection with (i) the
Repurchase Right, the Special Purchase Right or the First Refusal Right or (ii)
the disposition of any Shares covered thereby shall be given in writing and
shall be deemed effective upon personal delivery or upon deposit in the United
States mail, registered or certified, postage prepaid and addressed to the party
entitled to such notice at the address indicated below such party's signature
line on this Agreement or at such other address as such party may designate by
ten (10) days advance written notice under this paragraph 9.4 to all other
parties to this Agreement.
9.5 NO WAIVER. The failure of the Corporation (or its
assignees) in any instance to exercise the Repurchase Right granted under
Article V, or the failure of the Corporation (or its assignees) in any instance
to exercise the First Refusal Right granted under Article VI, or the failure of
the Corporation (or its assignees) in any instance to exercise the Special
Purchase Right granted under Article VIII shall not constitute a waiver of any
other repurchase rights and/or rights of first refusal that may subsequently
arise under the provisions of this
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<PAGE>
Agreement or any other agreement between the Corporation and the Participant
or the Participant's spouse. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature.
9.6 CANCELLATION OF SHARES. If the Corporation (or its
assignees) shall make available, at the time and place and in the amount and
form provided in this Agreement, the consideration for the Shares to be
repurchased in accordance with the provisions of this Agreement, then from and
after such time, the person from whom such shares are to be repurchased shall no
longer have any rights as a holder of such shares (other than the right to
receive payment of such consideration in accordance with this Agreement), and
such shares shall be deemed purchased in accordance with the applicable
provisions hereof and the Corporation (or its assignees) shall be deemed the
owner and holder of such shares, whether or not the certificates therefor have
been delivered as required by this Agreement.
X. MISCELLANEOUS PROVISIONS
10.1 PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may in its judgment deem necessary or advisable in order to carry
out or effect one or more of the obligations or restrictions imposed on either
the Participant or the Shares pursuant to the express provisions of this
Agreement.
10.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes
the entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
10.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State without resort
to that State's conflict-of-laws rules.
10.4 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and the Participant and the Participant's legal
representatives, heirs, legatees, distributees, assigns and transferees by
operation of law, whether or not any such person shall have become a party to
this Agreement and have agreed in writing to join herein and be bound by the
terms and conditions hereof.
10.6 POWER OF ATTORNEY. Participant's spouse hereby appoints
Participant his or her true and lawful attorney in fact, for him or her and in
his or her name, place and stead, and for his or her use and benefit, to agree
to any amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Participant's spouse further gives and
grants unto Participant as his or her attorney in fact full power and authority
to do and perform every act necessary and proper to be done in the exercise of
any of the foregoing powers as fully as he or she might or could do if
personally present, with full power of substitution and revocation, hereby
ratifying and confirming all that Participant shall lawfully do and cause to be
done by virtue of this power of attorney.
[Remainder of this page is left intentionally blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.
RUBIO'S RESTAURANTS, INC.
By ________________________________
Title _____________________________
Address: ___________________________________
___________________________________
___________________________________
Participant 1
Address: ___________________________________
___________________________________
The undersigned spouse of Participant has read and hereby approves
the foregoing Restricted Stock Purchase Agreement. In consideration of the
Corporation's granting the Participant the right to acquire the Shares in
accordance with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms and provisions of such Agreement, including,
(specifically) the right of the Corporation (or its assignees) to purchase any
and all interest or right the undersigned may otherwise have in such shares
pursuant to community property laws or other marital property rights.
___________________________________
Participant's Spouse
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(1) I have executed the Section 83(b) election that was attached hereto
as Exhibit D. As set forth in Article III, I understand that I, and NOT the
Corporation, will be responsible for completing the form and filing the election
with the appropriate offices of the federal and state tax authorities and that
if such filing is not completed within thirty (30) days after the date of this
Agreement, I will not be entitled to the tax benefits provided by Section 83(b).
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EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ________________ hereby sell(s), assign(s) and
transfer(s) unto Rubio's Restaurants, Inc. (the "Corporation") _________________
__________________ (____________) shares of the Common Stock of the Corporation
standing in his\her name on the books of the Corporation represented by
Certificate No. __________ herewith and do hereby irrevocably constitute and
appoint ____________________ Attorney to transfer the said stock on the books of
the Corporation with full power of substitution in the premises.
Dated: ___________________
Signature ________________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Corporation to exercise the
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Participant.
A-1
<PAGE>
EXHIBIT B
1995 STOCK OPTION\STOCK ISSUANCE PLAN
(See Exhibit 10.32 to Registration Statement on Form S-1)
B-1
<PAGE>
EXHIBIT C
SECTION 260.141.11
TITLE 10, CALIFORNIA ADMINISTRATIVE CODE
260.141.11 Restriction on Transfer. (a) The issuer of any
security upon which a restriction on transfer has been imposed pursuant to
Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to
be delivered to each issuee or transferee of such security at the time the
certificate evidencing the security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to
consummate a sale or transfer of such security, or any interest therein,
without the prior written consent of the Commissioner (until this condition is
removed pursuant to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102
of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or
any custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on
death;
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the knowledge of
the broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
C-1
<PAGE>
(9) if the interest sold or transferred is a pledge or other
lien given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113 or 25121 of the Code, of the securities to be transferred, provided that
no order under Section 25140 or Subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112
or 25113 of the Code, provided that no order under Section 25140 or Subdivision
(a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
C-2
<PAGE>
(c) The certificates representing all such securities subject
to such a restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently stamped or
printed thereon in capital letters of not less than 10-point size, reading as
follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
C-3
<PAGE>
REPURCHASE RIGHTS
EXHIBIT D
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name: ________________
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
________________ shares of the common stock of Rubio's Restaurants, Inc.
(3) The property was issued on ______________________, 19__.
(4) The taxable year in which the election is being made is the calendar year
19__.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of annual
and monthly installments over a four (4) year period ending on
____________________________.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $________ per share.
(7) The amount paid for such property is $________ per share.
(8) A copy of this statement was furnished to Rubio's Restaurants, Inc. for
whom taxpayer rendered the service underlying the transfer of property.
(9) This statement is executed as of: ______________________, 19__.
- -------------------------------- ----------------------------------------
Spouse (if any) Taxpayer
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Restricted Stock Issuance
Agreement.
D-1
<PAGE>
EXHIBIT 10.45
RUBIO'S RESTAURANTS, INC.
1999 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the interests
of Rubio's Restaurants, Inc., a Delaware corporation, by providing eligible
persons in the Corporation's service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in
the Corporation as an incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options
to purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,
- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus
for services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at
designated intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-employee
Board members may elect to have all or any portion of their annual retainer
fee otherwise payable in cash applied to a special stock option grant.
<PAGE>
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option
Grant and Stock Issuance Programs with respect to all other persons eligible
to participate in those programs may, at the Board's discretion, be vested in
the Primary Committee or a Secondary Committee, or the Board may retain the
power to administer those programs with respect to all such persons.
However, the Board acting by a disinterested majority shall have the
exclusive authority to make any discretionary option grants or stock
issuances to members of the Primary Committee.
B. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate
the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of
those programs and any outstanding options or stock issuances thereunder as
it may deem necessary or advisable. Decisions of the Plan Administrator
within the scope of its administrative functions under the Plan shall be
final and binding on all parties who have an interest in the Discretionary
Option Grant and Stock Issuance Programs under its jurisdiction or any option
or stock issuance thereunder.
C. The Primary Committee shall have the sole and exclusive
authority to determine which Section 16 Insiders and other highly compensated
Employees shall be eligible for participation in the Salary Investment Option
Grant Program for one or more calendar years. However, all option grants
under the Salary Investment Option Grant Program shall be made in accordance
with the express terms of that program, and the Primary Committee shall not
exercise any discretionary functions with respect to the option grants made
under that program.
D. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No
member of the Primary Committee or the Secondary Committee shall be liable
for any act or omission made in good faith with respect to the Plan or any
option grants or stock issuances under the Plan.
E. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under
those programs.
2.
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any
Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or
a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares
and the maximum term for which the option is to remain outstanding and (ii)
with respect to stock issuances under the Stock Issuance Program, which
eligible persons are to receive such issuances, the time or times when the
issuances are to be made, the number of shares to be issued to each
Participant, the vesting schedule (if any) applicable to the issued shares
and the consideration for such shares.
D. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as
non-employee Board members at one or more Annual Stockholders Meetings held
after the Underwriting Date. A non-employee Board member who has previously
been in the employ of the Corporation (or any Parent or Subsidiary) shall not
be eligible to receive an option grant under the Automatic Option Grant
Program at the time he or she first becomes a non-employee Board member, but
shall be eligible to receive periodic option grants under the Automatic
Option Grant Program while he or she continues to serve as a non-employee
Board member.
F. All non-employee Board members shall be eligible to
participate in the Director Fee Option Grant Program.
3.
<PAGE>
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The number of shares of
Common Stock initially reserved for issuance over the term of the Plan shall
not exceed 1,123,938 shares. Such reserve shall consist of (i) the number of
shares estimated to remain available for issuance, as of the Plan Effective
Date, under the Predecessor Plans as last approved by the Corporation's
stockholders, including the shares subject to outstanding options under that
Predecessor Plans, (ii) plus an additional increase of approximately 500,000
shares to be approved by the Corporation's stockholders prior to the
Underwriting Date.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of
January each calendar year during the term of the Plan, beginning with
calendar year 2000, by an amount equal to three percent (3%) of the total
number of shares of Common Stock outstanding on the last trading day in
December of the immediately preceding calendar year, but in no event shall
any such annual increase exceed 450,000 shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances
for more than 500,000 shares of Common Stock in the aggregate per calendar
year.
D. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plans)
shall be available for subsequent issuance under the Plan to the extent (i)
those options expire or terminate for any reason prior to exercise in full or
(ii) the options are cancelled in accordance with the cancellation-regrant
provisions of Article Two. Unvested shares issued under the Plan and
subsequently cancelled or repurchased by the Corporation at the original
issue price paid per share, pursuant to the Corporation's repurchase rights
under the Plan shall be added back to the number of shares of Common Stock
reserved for issuance under the Plan and shall accordingly be available for
reissuance through one or more subsequent option grants or direct stock
issuances under the Plan. However, should the exercise price of an option
under the Plan be paid with shares of Common Stock or should shares of Common
Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the
exercise of an option or the vesting of a stock issuance under the Plan, then
the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the gross number of shares for which the option is
exercised or which vest under the stock issuance, and not by the net number
of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article
Three, Section II of Article Five or Section III of Article Six of the Plan
shall NOT be available for subsequent issuance under the Plan.
E. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as
a class without the Corporation's receipt of
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consideration, appropriate adjustments shall be made by the Plan
Administrator to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the Plan per calendar
year, (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and price
per share in effect under each outstanding option incorporated into this Plan
from the Predecessor Plans and (vi) the maximum number and/or class of
securities by which the share reserve is to increase automatically each
calendar year pursuant to the provisions of Section V.B of this Article One.
Such adjustments to the outstanding options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits under
such options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms specified below. Each document
evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Seven and the documents evidencing the option, be payable in one or
more of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised
for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently
provide irrevocable instructions to (a) a Corporation-
designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price
payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such
exercise and (b) the Corporation to deliver the certificates
for the purchased shares directly to such brokerage firm in
order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
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C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of
the Optionee's cessation of Service for any reason shall
remain exercisable for such period of time thereafter as
shall be determined by the Plan Administrator and set forth
in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option
term.
(ii) Any option held by the Optionee at the
time of death and exercisable in whole or in part at that
time may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent
and distribution or by the Optionee's designated beneficiary
or beneficiaries of that option.
(iii) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held
by the Optionee shall terminate immediately and cease to be
outstanding.
(iv) During the applicable post-Service
exercise period, the option may not be exercised in the
aggregate for more than the number of vested shares for
which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate
and cease to be outstanding for any vested shares for which
the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for vested
shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which
the option is to remain exercisable following the Optionee's
cessation of Service from the limited exercise period
otherwise in effect for that option to such greater period
of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only
with respect to the number of vested shares of Common Stock
for which such option is exercisable at the time of the
Optionee's cessation of Service but also with respect to one
or more additional installments in which the Optionee would
have vested had the Optionee continued in Service.
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D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS.
1. During the lifetime of the Optionee, Incentive Options
shall be exercisable only by the Optionee and shall not be assignable or
transferable other than by will or by the laws of descent and distribution
following the Optionee's death. However, a Non-Statutory Option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
2. The Optionee may also designate one or more persons as
the beneficiary or beneficiaries of his or her outstanding options under this
Article Two, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred
option, including (without limitation) the limited time period during which
the option may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall NOT be subject to the terms of this Section
II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
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B. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan
(or any other option plan of the Corporation or any Parent or Subsidiary) may
for the first time become exercisable as Incentive Options during any one
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are
granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Stockholder, then the exercise price per share shall not
be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for the total number of shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. However, an outstanding option shall
NOT become exercisable on such an accelerated basis if and to the extent:
(i) such option is, in connection with the Corporate Transaction, to be
assumed by the successor corporation (or parent thereof) or (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing at the time of the Corporate Transaction
on any shares for which the option is not otherwise at that time exercisable
and provides for subsequent payout in accordance with the same
exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the
Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments to reflect such Corporate Transaction
shall also
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be made to (i) the exercise price payable per share under each outstanding
option, PROVIDED the aggregate exercise price payable for such securities
shall remain the same, (ii) the maximum number and/or class of securities
available for issuance over the remaining term of the Plan and (iii) the
maximum number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year and (iv) the maximum
number and/or class of securities by which the share reserve is to increase
automatically each calendar year.
E. The Plan Administrator shall have the discretionary authority
to structure one or more outstanding options under the Discretionary Option
Grant Program so that those options shall, immediately prior to the effect
date of such Corporate Transaction, become fully exercisable for the total
number of shares of Common Stock at the time subject to those options and may
be exercised for any or all of those shares as fully vested shares of Common
Stock, whether or not those options are to be assumed in the Corporate
Transaction. In addition, the Plan Administrator shall have the
discretionary authority to structure one or more of the Corporation's
repurchase rights under the Discretionary Option Grant Program so that those
rights shall not be assignable in connection with such Corporate Transaction
and shall accordingly terminate upon the consummation of such Corporate
Transaction, and the shares subject to those terminated rights shall
thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option
Grant Program so that those options shall become fully exercisable for the
total number of shares of Common Stock at the time subject to those options
in the event the Optionee's Service is subsequently terminated by reason of
an Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Corporate Transaction in
which those options are assumed and do not otherwise accelerate. Any options
so accelerated shall remain exercisable for fully vested shares until the
EARLIER of (i) the expiration of the option term or (ii) the expiration of
the one (1) year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may structure one or more
of the Corporation's repurchase rights so that those rights shall immediately
terminate with respect to any shares held by the Optionee at the time of his
or her Involuntary Termination, and the shares subject to those terminated
repurchase rights shall accordingly vest in full at that time.
G. The Plan Administrator shall have the discretionary authority
to structure one or more outstanding options under the Discretionary Option
Grant Program so that those options shall, immediately prior to the effect
date of a Change in Control, become fully exercisable for the total number of
shares of Common Stock at the time subject to those options and may be
exercised for any or all of those shares as fully vested shares of Common
Stock. In addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights
under the Discretionary Option Grant Program so that those rights shall
terminate automatically upon the consummation of such Change in Control, and
the shares subject to those terminated rights shall thereupon vest in full.
Alternatively, the Plan Administrator may condition the automatic
acceleration of one or more outstanding options under the Discretionary
Option Grant Program and the termination of one or more of the
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Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control. Each option so
accelerated shall remain exercisable for fully vested shares until the
EARLIER of (i) the expiration of the option term or (ii) the expiration of
the one (1) year period measured from the effective date of Optionee's
cessation of Service.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as
an Incentive Option only to the extent the applicable One Hundred Thousand
Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
Predecessor Plans) and to grant in substitution new options covering the same
or different number of shares of Common Stock but with an exercise price per
share based on the Fair Market Value per share of Common Stock on the new
grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted
the right, exercisable upon such terms as the Plan
Administrator may establish, to elect between the exercise
of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (a) the
Fair Market Value (on the option surrender date) of the
number of shares in which the Optionee is at the time vested
under the surrendered option (or surrendered portion
thereof) over (b) the aggregate exercise price payable for
such shares.
(ii) No such option surrender shall be
effective unless it is approved by the Plan Administrator,
either at the time of the actual option surrender or at any
earlier time. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be
made in shares of
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Common Stock valued at Fair Market Value on the option surrender date,
in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not
approved by the Plan Administrator, then the Optionee shall
retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any
time prior to the LATER of (a) five (5) business days after
the receipt of the rejection notice or (b) the last day on
which the option is otherwise exercisable in accordance with
the terms of the documents evidencing such option, but in no
event may such rights be exercised more than ten (10) years
after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be
granted limited stock appreciation rights with respect to
their outstanding options.
(ii) Upon the occurrence of a Hostile Take-
Over, each individual holding one or more options with such
a limited stock appreciation right shall have the
unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each
such option to the Corporation. In return for the
surrendered option, the Optionee shall receive a cash
distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common
Stock at the time subject to such option (whether or not the
Optionee is otherwise vested in those shares) over (B) the
aggregate exercise price payable for those shares. Such
cash distribution shall be paid within five (5) days
following the option surrender date.
(iii) At the time such limited stock
appreciation right is granted, the Plan Administrator shall
pre-approve any subsequent exercise of that right in
accordance with the terms of this Paragraph C. Accordingly,
no further approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender
and cash distribution.
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ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; PROVIDED, however,
that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A DIVIDED BY (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the Optionee's base
salary for the calendar year to be in effect pursuant to this
program, and
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B is the Fair Market Value per share of Common Stock on the
option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the EARLIER of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution
or by the designated beneficiary or beneficiaries of such option. Such right of
exercise shall lapse, and the option shall terminate, upon the EARLIER of (i)
the expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee's cessation of Service. However,
the option shall, immediately upon the Optionee's cessation of Service for any
reason, terminate and cease to remain outstanding with respect to any and all
shares of Common Stock for which the option is not otherwise at that time
exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for the total number of
shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common
Stock. Each such outstanding option shall terminate immediately following
the Corporate Transaction, except to the extent assumed by the successor
corporation (or parent thereof) in such Corporate Transaction. Any option so
assumed and shall remain exercisable for the fully-vested shares until the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable for the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the EARLIEST to occur of (i) the expiration of the
ten
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(10)-year option term, (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Service, (iii) the
termination of the option in connection with a Corporate Transaction or (iv)
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, PROVIDED the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article
Seven, shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to
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the Participant's unvested shares of Common Stock and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock
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subject to those terminated rights shall immediately vest, in the event the
Participant's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Corporate Transaction in
which those repurchase rights are assigned to the successor corporation (or
parent thereof).
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
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ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 25,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held
after the Underwriting Date, each individual who is to continue to serve as an
Eligible Director, whether or not that individual is standing for re-election to
the Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 5,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 5,000 share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received one or
more stock option grants from the Corporation prior to the Underwriting Date
shall be eligible to receive such annual option grants over their period of
continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall be payable in one or more of
the alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares as fully-vested
shares.
E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Five may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be
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exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned
portion shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate. The Optionee may
also designate one or more persons as the beneficiary or beneficiaries of his
or her outstanding options under this Article Three, and those options
shall, in accordance with such designation, automatically be transferred to
such beneficiary or beneficiaries upon the Optionee's death while holding
those options. Such beneficiary or beneficiaries shall take the transferred
options subject to all the terms and conditions of the applicable agreement
evidencing each such transferred option, including (without limitation) the
limited time period during which the option may be exercised following the
Optionee's death.
F. TERMINATION OF BOARD SERVICE. The Optionee (or, in the event of
Optionee's death, the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution or the
designated beneficiary or beneficiaries of such option) shall have a twelve
(12)-month period following the date the Optionee ceases to serve as a Board
member in which to exercise each option the Optionee holds at the time of such
cessation of Board service. In no event shall the option remain exercisable
after the expiration of the option term.
II. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. Immediately following the consummation of any Corporate
Transaction, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the surrender of the option to the Corporation. Stockholder
approval of the Plan shall constitute pre-approval of the grant of each such
limited cash-out right and the subsequent exercise of that right in accordance
with the terms of this Paragraph D. Accordingly, no approval or consent of the
Board or any Plan Administrator shall be required at the time of the actual
option surrender and cash distribution.
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, PROVIDED the aggregate exercise price
payable for such securities shall remain the same.
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D. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board for that year to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A DIVIDED BY (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and
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B is the Fair Market Value per share of Common Stock on the
option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) equal monthly installments upon the
Optionee's completion of each month of Board service over the twelve (12)-month
period measured from the grant date. Each option shall have a maximum term of
ten (10) years measured from the option grant date.
D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Six may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as
the beneficiary or beneficiaries of his or her outstanding options under this
Article Three, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
E. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as
a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the EARLIER of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior
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to death), by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution or
by the designated beneficiary or beneficiaries of such option. Such right of
exercise shall lapse, and the option shall terminate, upon the EARLIER of (i)
the expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under
this Director Fee Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for the total number of
shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common
Stock. Each such outstanding option shall terminate immediately following
the Corporate Transaction, except to the extent assumed by the successor
corporation (or parent thereof) in such Corporate Transaction. Any option so
assumed and shall remain exercisable for the fully-vested shares until the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable for the total number of shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the EARLIEST to occur of (i) the expiration of the
ten (10)-year option term, (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service, (iii) the
termination of the option in connection with a Corporate Transaction or (iv)
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. Stockholder approval of the Plan shall constitute
pre-approval of the grant of each such limited cash-out right and the subsequent
exercise of that right in accordance with the terms of this Paragraph C.
Accordingly, no approval or consent of the Board or any Plan Administrator shall
be required at the time of the actual option surrender and cash distribution.
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D. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder
in either or both of the following formats:
STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
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III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan Effective
Date. However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate. Options may be granted under the Discretionary
Option Grant at any time on or after the Plan Effective Date. However, no
options granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders.
If such stockholder approval is not obtained within twelve (12) months after the
Plan Effective Date, then all options previously granted under this Plan shall
terminate and cease to be outstanding, and no further options shall be granted
and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plans,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plans after the Plan Effective Date. All options outstanding under
the Predecessor Plans on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plans which do not otherwise contain such provisions.
D. The Plan shall terminate upon the EARLIEST to occur of (i) March
17, 2009, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully-vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on March 17, 2009, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess
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shares actually issued under those programs shall be held in escrow until
there is obtained stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under
the Plan. If such stockholder approval is not obtained within twelve (12)
months after the date the first such excess issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price
paid for any excess shares issued under the Plan and held in escrow, together
with interest (at the applicable Short Term Federal Rate) for the period the
shares were held in escrow, and such shares shall thereupon be automatically
cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under Article Five of the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or
indirectly by any person or related group of persons (other
than the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control with,
the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders, or
(ii) a change in the composition of the
Board over a period of thirty-six (36) consecutive months or
less such that a majority of the Board members ceases, by
reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A)
have been Board members continuously since the beginning of
such period or (B) have been elected or nominated for
election as Board members during such period by at least a
majority of the Board members described in clause (A) who
were still in office at the time the Board approved such
election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which
securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding
securities are transferred to a person or persons different
from the persons holding those securities immediately prior
to such transaction, or
(ii) the sale, transfer or other
disposition of all or substantially all of the Corporation's
assets in complete liquidation or dissolution of the
Corporation.
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G. CORPORATION shall mean Rubio's Restaurants, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Rubio's Restaurants, Inc. which shall by appropriate
action adopt the Plan.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under Article Two of the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Articles One and Five.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time
traded on the Nasdaq National Market, then the Fair Market
Value shall be the closing selling price per share of Common
Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for
the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time
listed on any Stock Exchange, then the Fair Market Value
shall be the closing selling price per share of Common Stock
on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there
is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of any option grants made
on the Underwriting Date, the Fair Market Value shall be
deemed to be equal to the price per share at which the
Common Stock is to be sold in the initial public offering
pursuant to the Underwriting Agreement.
A-2
<PAGE>
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary
dismissal or discharge by the Corporation for reasons other
than Misconduct, or
(ii) such individual's voluntary
resignation following (A) a change in his or her position
with the Corporation which materially reduces his or her
duties and responsibilities or the level of management to
which he or she reports, (B) a reduction in his or her level
of compensation (including base salary, fringe benefits and
target bonus under any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or
(C) a relocation of such individual's place of employment by
more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the
Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
A-3
<PAGE>
U. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1999 Stock Incentive Plan, as
set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. PLAN EFFECTIVE DATE shall mean the date the Plan shall become
effective and shall be coincident with the Underwriting Date.
AA. PREDECESSOR PLANS shall mean the Corporation's Amended and
Restated 1993 Stock Option/Stock Issuance Plan, 1995 Stock Option/Stock Issuance
Plan and 1998 Stock Option/Stock Issuance Plan, each as in effect immediately
prior to the Plan Effective Date hereunder.
BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
CC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under Article Three of the Plan.
DD. SECONDARY COMMITTEE shall mean a committee of one or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
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<PAGE>
EE. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
GG. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
HH. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
II. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under Article Four of the Plan.
JJ. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
KK. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
LL. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
MM. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
NN. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
OO. WITHHOLDING TAXES shall mean the Federal, state and local income
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
A-5
<PAGE>
EXHIBIT 10.48
RUBIO'S RESTAURANTS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Rubio's Restaurants, Inc., a Delaware Corporation, by providing
eligible employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall be limited to
Two Hundred Thousand (200,000) shares.
B. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date, (iii) the maximum number
and class of securities purchasable by all Participants in the aggregate on any
one Purchase Date, and (iv) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
<PAGE>
B. Each offering period shall be of such duration (not to
exceed twenty-four (24) months) as determined by the Plan Administrator prior to
the start date of such offering period. However, the initial offering period
shall commence at the Effective Time and terminate on the last business day in
July 2001. The next offering period shall commence on the first business day in
August 2001, and subsequent offering periods shall commence as designated by the
Plan Administrator.
C. Each offering period shall be comprised of a series of one
or more successive Purchase Intervals. Purchase Intervals shall run from the
first business day in February each year to the last business day in July of the
same year and from the first business day in August each year to the last
business day in January of the following year. However, the first Purchase
Interval in effect under the initial offering period shall commence at the
Effective Time and terminate on the last business day in January 2000.
D. Should the Fair Market Value per share of Common Stock on
any Purchase Date within an offering period be less than the Fair Market Value
per share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new
offering period shall have a duration of twenty (24) months, unless a shorter
duration is established by the Plan Administrator within five (5) business days
following the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start
date of any offering period under the Plan may enter that offering period on
such start date or on any subsequent Semi-Annual Entry Date within that offering
period, provided he or she qualifies as an Eligible Employee at that time.
B. Each individual who first becomes an Eligible Employee after
the start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
qualifies as an Eligible Employee.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
2.
<PAGE>
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Cash Earnings paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
ten percent (10%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with
the Plan Administrator. The Participant may not, however, effect more
than one (1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement
of any new Purchase Interval within the offering period, increase the
rate of his or her payroll deduction by filing the appropriate form
with the Plan Administrator. The new rate (which may not exceed the
fifteen percent (10%) maximum) shall become effective on the start
date of the first Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the
Participant's book account under the Plan, but no interest shall be paid on the
balance from time to time outstanding in such account. The amounts collected
from the Participant shall not be required to be held in any segregated account
or trust fund and may be commingled with the general assets of the Corporation
and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan
on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
3.
<PAGE>
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall
be automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant on each such Purchase Date. The
purchase shall be effected by applying the Participant's payroll deductions for
the Purchase Interval ending on such Purchase Date to the purchase of whole
shares of Common Stock at the purchase price in effect for the Participant for
that Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which
Common Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall be equal to eighty-five percent (85%) of the
LOWER of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the Fair Market Value
per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of
Common Stock purchasable by a Participant on each Purchase Date during the
offering period shall be the number of whole shares obtained by dividing the
amount collected from the Participant through payroll deductions during the
Purchase Interval ending with that Purchase Date by the purchase price in effect
for the Participant for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed One Thousand Five Hundred (1,500) shares, subject to periodic
adjustments in the event of certain changes in the Corporation's capitalization.
In addition, the maximum aggregate number of shares of Common Stock purchasable
by all Participants on any one Purchase Date shall not exceed Fifty Thousand
(50,000) shares, subject to periodic adjustments in the event of certain changes
in the Corporation's capitalization. However, the Plan Administrator shall have
the discretionary authority, exercisable prior to the start of any offering
period under the Plan, to increase or decrease the limitations to be in effect
for the number of shares purchasable per Participant and in the aggregate by all
Participants on each Purchase Date during that offering period.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any
payroll deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in the
aggregate on the Purchase Date shall be promptly refunded.
4.
<PAGE>
F. TERMINATION OF PURCHASE RIGHT. The following provisions
shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the
next scheduled Purchase Date in the offering period, terminate his or
her outstanding purchase right by filing the appropriate form with the
Plan Administrator (or its designate), and no further payroll
deductions shall be collected from the Participant with respect to the
terminated purchase right. Any payroll deductions collected during
the Purchase Interval in which such termination occurs shall, at the
Participant's election, be immediately refunded or held for the
purchase of shares on the next Purchase Date. If no such election is
made at the time such purchase right is terminated, then the payroll
deductions collected with respect to the terminated right shall be
refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted.
In order to resume participation in any subsequent offering period,
such individual must re-enroll in the Plan (by making a timely filing
of the prescribed enrollment forms) on or before his or her scheduled
Entry Date into that offering period.
(iii) Should the Participant cease to remain an
Eligible Employee for any reason (including death, disability or
change in status) while his or her purchase right remains outstanding,
then that purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the Purchase Interval in which
the purchase right so terminates shall be immediately refunded.
However, should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then the Participant
shall have the right, exercisable up until the last business day of
the Purchase Interval in which such leave commences, to (a) withdraw
all the payroll deductions collected to date on his or her behalf for
that Purchase Interval or (b) have such funds held for the purchase of
shares on his or her behalf on the next scheduled Purchase Date. In
no event, however, shall any further payroll deductions be collected
on the Participant's behalf during such leave. Upon the Participant's
return to active service (x) within ninety (90) days following the
commencement of such leave or (y) prior to the expiration of any
longer period for which such Participant's right to reemployment with
the Corporation is guaranteed by either statute or contract, his or
her payroll deductions under the Plan shall automatically resume at
the rate in effect at the time the leave began, unless the Participant
withdraws from the Plan prior to his or her return. An individual who
returns to active employment following a leave of absence which
exceeds in duration the applicable (x) or (y) time period will be
treated as a new Employee for purposes of subsequent participation in
the Plan and must accordingly re-enroll in the Plan (by making a
timely filing of the prescribed enrollment forms) on or before his or
her scheduled Entry Date into the offering period.
5.
<PAGE>
G. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the LOWER of (i) the Fair Market Value per share of Common
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in the
aggregate.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only
by the Participant and shall not be assignable or transferable by the
Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. TRANSFER RESTRICTIONS
A. Unless the Plan Administrator determines otherwise prior to
the start of any offering period, the shares of Common Stock purchased by a
Participant on each purchase date within that offering period must be held by
the Participant for at least a one year period following the purchase date.
Accordingly, the Participant shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise
dispose or transfer for value or otherwise agree to engage in any of the
foregoing transactions with respect to any shares purchased by the
Participant under the Plan (the "Purchased Shares") until those shares have
been held for at least a one year period measured from their applicable
Purchase Date. This transfer restriction shall hereafter be referred to as
the "Holding Period Requirement."
6.
<PAGE>
B. Any new, substituted or additional securities which are, by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, distributed
with respect to the Purchased Shares shall be immediately subject to the Holding
Period Requirement applicable to those shares.
C. In order to enforce the Holding Period Requirement, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the one (1) year period.
D. The stock certificates for the Purchased Shares shall be
endorsed with the following restrictive legend:
"The shares represented by this certificate are subject to
certain transfer restrictions granted to the Corporation and
accordingly may not be sold, assigned, transferred, encumbered, or in
any manner disposed of except in conformity with the terms of a
written agreement between the Corporation and the registered owner of
the shares. A copy of such agreement is maintained at the
Corporation's principal corporate officers."
IX. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000.00) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on
each successive Purchase Date during the offering period on which such
right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one or more other purchase rights at a rate equal
to Twenty-Five Thousand Dollars ($25,000.00) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the
date or dates of grant) for each calendar year such rights were at any
time outstanding.
7.
<PAGE>
C. If by reason of such accrual limitations, any purchase right
of a Participant does not accrue for a particular Purchase Interval, then the
payroll deductions which the Participant made during that Purchase Interval with
respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
X. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on March 18, 1999 and
shall become effective at the Effective Time, PROVIDED no purchase rights
granted under the Plan shall be exercised, and no shares of Common Stock shall
be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected, within
twelve (12) months after the date on which the Plan is adopted by the Board, the
Plan shall terminate and have no further force or effect, and all sums collected
from Participants during the initial offering period hereunder shall be
refunded.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the EARLIEST of (i) the last business day in July, 2009, (ii) the
date on which all shares available for issuance under the Plan shall have been
sold pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
XI. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at
any time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the recognition of compensation
expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following
amendments or revisions to the Plan without the approval of the Corporation's
stockholders: (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) alter the purchase price
8.
<PAGE>
formula so as to reduce the purchase price payable for the shares of Common
Stock purchasable under the Plan or (iii) modify the eligibility requirements
for participation in the Plan.
XII. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation; however, each Plan Participant shall bear
all costs and expenses incurred by such individual in the sale or other
disposition of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
9.
<PAGE>
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Rubio's Restaurants, Inc.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, profit-sharing distributions and
other incentive-type payments received during such period. Such Cash Earnings
shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any and all contributions made by the Participant to any
Code Section 401(k) salary deferral plan or Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall NOT include any contributions made on
the Participant's behalf by the Corporation or any Corporate Affiliate to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions).
C. CHANGE IN CONTROL shall mean a change in ownership of the
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by an person
or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by or is under
common control with the Corporation) of beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
A-1.
<PAGE>
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
G. CORPORATION shall mean Rubio's Restaurants, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Rubio's Restaurants, Inc., which shall by appropriate
action adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and the Common Stock priced for the initial public
offering. Any Corporate Affiliate which becomes a Participating Corporation
after such Effective Time shall designate a subsequent Effective Time with
respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a). However, no individual serving as an officer of the Company with a
title of Vice President or above shall qualify as an Eligible Employee during
such period of service.
J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
A-2.
<PAGE>
(iii) For purposes of the initial offering period which
begins at the Effective Time, the Fair Market Value shall be deemed to
be equal to the price per share at which the Common Stock is sold in
the initial public offering pursuant to the Underwriting Agreement.
L. HOLDING PERIOD REQUIREMENT shall have the meaning assigned to
such term in Section VIII, Paragraph A.
M. 1933 ACT shall mean the Securities Act of 1933, as amended.
N. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
O. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
P. PLAN shall mean the Corporation's 1999 Employee Stock Purchase
Plan, as set forth in this document.
Q. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
R. PURCHASE DATE shall mean the last business day of each Purchase
Interval. The initial Purchase Date shall be January 31, 2000.
S. PURCHASED SHARES shall have the meaning assigned to such term in
Section VIII, Paragraph A.
T. PURCHASE INTERVAL shall mean each successive six (6)-month period
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
U. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
February and August each year on which an Eligible Employee may first enter an
offering period.
V. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
W. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-75087 of Rubio's Restaurants, Inc. of our report dated March 25, 1999
appearing in the Prospectus, which is a part of such Registration Statement,
and to the reference to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
April 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 28, 1999 AND THE RELATED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 28, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> MAR-28-1999
<CASH> 1,124,061
<SECURITIES> 646,950
<RECEIVABLES> 379,817
<ALLOWANCES> 0
<INVENTORY> 371,169
<CURRENT-ASSETS> 3,121,184
<PP&E> 25,178,803
<DEPRECIATION> 6,125,983
<TOTAL-ASSETS> 25,434,539
<CURRENT-LIABILITIES> 5,692,429
<BONDS> 0
17,782,133
1,925
<COMMON> 1,051
<OTHER-SE> 137,673
<TOTAL-LIABILITY-AND-EQUITY> 25,434,539
<SALES> 14,382,898
<TOTAL-REVENUES> 14,382,898
<CGS> 4,246,923
<TOTAL-COSTS> 14,310,311
<OTHER-EXPENSES> 4,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,517
<INCOME-PRETAX> 75,609
<INCOME-TAX> 30,244
<INCOME-CONTINUING> 75,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,365
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
