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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER: 0-8360
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IHOP CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-3038279
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
525 NORTH BRAND BOULEVARD, GLENDALE,
CALIFORNIA 91203-1903
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 240-6055
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
NONE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of January 31, 1998. $314 million
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AS OF
CLASS JANUARY 31, 1998
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<S> <C>
Common Stock, $.01 par value........................... 9,735,762
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Annual Meeting of Shareholders to be
held on Tuesday, May 12, 1998, (the "1998 Proxy Statement") are incorporated
by reference into Part III.
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<PAGE>
PART I
ITEM 1. BUSINESS.
General Development of Business
IHOP Corp. and its subsidiaries ("IHOP" or the "Company") develop, operate
and franchise International House of Pancakes restaurants, one of America's
best-known, national, family restaurant chains. As of December 31, 1997, the
Company had 787 restaurants, of which 571 were operated by franchisees, 145 by
area licensees and 71 by the Company. IHOP restaurants are located in 36
states, Canada and Japan.
IHOP Corp. was incorporated under the laws of the State of Delaware in 1976.
In July 1991, IHOP completed an initial public offering of its common stock.
There were no significant changes to the Company's corporate structure during
1997, nor material changes in the Company's method of conducting business.
Financial Information about Industry Segments
IHOP Corp. and its subsidiaries are engaged exclusively in the foodservice
industry, primarily in the United States, wherein IHOP develops, franchises
and operates restaurants. Information with respect to revenues, operating
profits and assets attributable to IHOP's sole industry segment is contained
under the caption "Five Year Financial Summary" in the Financial Information
Section beginning on page F-1 of this Annual Report on Form 10-K.
Narrative Description of Business
The Company develops, franchises and operates International House of
Pancakes restaurants. IHOP restaurants feature moderately-priced, high-quality
food and beverage items, and table service in an attractive and comfortable
atmosphere. Although IHOP restaurants are best known for their award-winning
pancakes, omelets and other breakfast specialties, IHOP restaurants are open
throughout the day and evening hours and offer a broad array of lunch, dinner
and snack items as well.
More than 90% of IHOP restaurants are operated by franchisees, who are
independent third parties. The Company's approach to franchising (discussed in
greater detail below) is founded on the franchisees' active involvement in the
day-to-day operations of their respective restaurants. The Company is
selective in granting franchises, preferring to franchise to individuals who
intend to be active in the management of their restaurant(s) and not to
passive investors or investment groups. This provides a quality of management
and dedication that, in the view of the Company, is generally unmatched by
salaried employees or absentee owners. In addition, IHOP itself develops most
new restaurants prior to franchising them and, following the franchising of
the restaurant, becomes the franchisee's landlord. This landlord/tenant
relationship provides IHOP with enhanced profits and greater control over its
franchise system.
Management seeks to increase revenues and profits by focusing on several
areas of the Company's business. These areas include the development and
franchising of new IHOP restaurants, improvements in sales levels at existing
restaurants through the attraction of new guests and retention of existing
customers, and restaurant-level operating changes designed to improve
profitability.
Restaurant Development
The Company intends to add restaurants to the IHOP system primarily through
the development of new restaurants in major markets where the Company already
has a core customer base. Management believes that by concentrating growth in
its existing markets, the Company will be able to achieve economies of scale
with respect to supervisory, advertising and distribution functions. New
restaurants are developed after a stringent site selection process which is
supervised by senior management. In addition, the Company may acquire non-IHOP
restaurants in existing markets for conversion to International House of
Pancakes restaurants. In 1997, the Company developed 45 new restaurants and
franchisees developed an additional 22 restaurants.
2
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IHOP secondarily looks to develop new markets in which it has no presence or
its presence is limited, primarily where such new markets are geographically
near to existing markets and are deemed to present significant business
opportunities. In such regard, management may consider proposals to acquire
several non-IHOP units in markets in which the Company has little or no
presence. Management evaluates such proposals on a case-by-case basis and may
elect to acquire such restaurants for conversion to International House of
Pancakes restaurants.
In 1997, the Company built two types of new restaurant buildings. The larger
format restaurant averages approximately 4,500 square feet with about 170
seats. The second building type is designed for use in smaller, high-potential
markets and is approximately 3,900 square feet in size and seats about 128
people. Of the 45 new IHOP restaurants built by the Company in 1997, 25 were
the larger format building, 13 were the smaller format building and 7 were
existing restaurants converted to International House of Pancakes restaurants
(restaurant conversions). The number of seats in a restaurant conversion is
variable by location, and, in 1997, averaged 175 seats per restaurant. In
comparison, IHOP's older A-Frame style restaurants, which have not been built
since 1985, average approximately 3,000 square feet with 100 seats. The new
restaurants feature larger kitchens designed to accommodate IHOP's continuing
expansion of its lunch and dinner business and to more efficiently service the
peak breakfast and brunch hours on weekends. To the greatest extent possible,
the Company continues to use its familiar signature blue color on the roof,
awnings and other exterior decor of its restaurants.
The table below sets forth the average development cost per restaurant in
1997. For leased restaurants, the discounted present value of the lease and
any "key money" have been allocated to land, building and site improvements
and other costs, as appropriate.
<TABLE>
<CAPTION>
AVERAGE PER
RESTAURANT
-----------
<S> <C>
Land............................................................. $ 509,000
Building......................................................... 750,000
Equipment........................................................ 328,000
Site improvements and other costs................................ 168,000
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Total.......................................................... $1,755,000
==========
</TABLE>
New restaurants opened in 1996 have realized, on average, sales of
$1,513,000 in their first twelve full months of operations.
Franchising
IHOP's approach to franchising is somewhat different from that of its
franchising competitors in the foodservice industry. In most franchise
systems, the franchisee is called upon to pay a modest initial fee and uses
his/her own capital to acquire a site, build and equip the restaurant and fund
working capital needs. While IHOP offers a Franchise Investor Program, which
affords certain experienced franchisees the opportunity to fund the
development of their own restaurants, the large majority of IHOP restaurants
are developed directly by IHOP. In this regard, IHOP generally (i) identifies
the site for the new restaurant, (ii) purchases the site or leases it from a
third party, (iii) builds the restaurant and equips it with all required
furniture, fixtures and equipment ("equipment"), (iv) selects the franchisee
and trains the franchisee and supervisory personnel who will run the
restaurant, (v) finances the purchase of the franchise, (vi) leases the
restaurant and equipment to the franchisee and (vii) provides continuing
support with respect to operations, marketing and new product development.
Although IHOP incurs substantial obligations in the development, franchising
and start-up operations of a new restaurant, its involvement in such
development allows the Company to command a substantial franchise and
development fee. In addition, IHOP derives income from the partial financing
of the franchise and development fee and from the leasing of property and
equipment to franchisees. IHOP's involvement in site selection and
development, the training and supervising of franchisees, as well as its
control over restaurant property, products and services, are an integral part
of the Company's operating philosophy.
3
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IHOP franchisees are predominantly owner/operators, not passive investors.
The majority of franchisees own only one restaurant and only eleven
franchisees (excluding area licensees) currently own more than six
restaurants. It is the Company's belief that franchisees who are actively
involved in the operation of their restaurants provide a quality of management
and commitment to our guests that cannot be matched by salaried managers. In
addition, a majority of new restaurants are franchised to current franchisees
or restaurant managers who already understand IHOP's approach to the
restaurant business. In the past five years sales to existing franchisees and
IHOP employees, or their immediate families, constituted approximately 85% of
franchise sales transactions.
IHOP's franchise agreements generally require the payment of an initial
franchise fee of approximately $200,000 to $350,000 for a newly developed
restaurant (depending on the site), of which approximately 20% is initially
paid in cash. The balance of the initial franchise fee is financed by the
Company over five to eight years. IHOP also receives continuing revenues from
the franchisee: a royalty equal to 4.5% of a franchisee's sales; income from
the leasing of the restaurant and related equipment; revenue from the sale of
certain proprietary products; a local advertising fee equal to about 2% of a
franchisee's sales (which is usually paid to a local advertising cooperative);
and a national advertising fee equal to 1% of a franchisee's sales. Franchise
agreements relating to restaurants developed directly by franchisees under the
Company's Franchise Investor Program provide for a reduced initial franchise
fee of $50,000, revenue from the sale of certain proprietary products, and
royalties and advertising fees in amounts similar to those described above.
The Company or its predecessor has entered into long-term area licensing
agreements covering the state of Florida and the Southern-most counties of
Georgia, the province of British Columbia, Canada and the country of Japan.
These agreements provide for royalties ranging from 0.5% to 2% of sales and
advertising fees equal to 0.25% of sales. The Company also derives revenue
from the sale of certain proprietary products to the area licensees.
Area licensing arrangements, similar to those described above, may be used
in the future for domestic and international expansion into areas where
neither the Company nor investor program franchisees are likely to develop
International House of Pancakes restaurants.
Restaurant Operations and Support
It is the Company's goal to make every dining experience at IHOP a
satisfying one. IHOP franchisees and operators strive always to exceed guests'
expectations, and hold firm to the belief that a satisfied customer will both
be a return customer and will tell others about our restaurants. To ensure
that our guests' expectations are fulfilled, all restaurants are operated in
accordance with uniform operating standards and specifications relating to the
quality and preparation of menu items, selection of menu items, maintenance,
repair and cleanliness of premises, and the appearance and conduct of
employees.
The Company's Operations Department is charged with insuring that these high
standards are met at all times. These operating standards are detailed in the
Company's Manual of Standard Operating Procedures and have been developed by
the Company in consultation with our franchisee operators. Each restaurant is
assigned an Operations Consultant who regularly visits and evaluates the
restaurant to ensure that it remains in compliance with the operating
guidelines and procedures. In addition to frequent visits to the restaurant,
the Operations Consultant conducts at least two annual comprehensive written
evaluations of every aspect of the restaurant's operations. The Operations
Consultant then meets with the franchisee or manager to discuss the results of
his review and develop a plan to address any areas for improvement.
The International House of Pancakes menu offers a large selection of high-
quality, moderately-priced products designed to appeal to a broad customer
base. These include a wide variety of pancakes, waffles, omelets and other
breakfast specialties, chicken, steak and sandwiches. In most restaurants,
IHOP offers special items for children and seniors at reduced prices. IHOP
restaurants are located throughout the United States, and, in recognition of
local tastes, most IHOP restaurants offer regional specialties that complement
the IHOP core
4
<PAGE>
menu. IHOP's Research and Development Department working together with
franchisees and the Company's Operations and Marketing departments continually
develop new menu ideas. These new menu items are thoroughly tested in the
Company's test kitchen and in limited regional tests before being introduced
throughout the system. The purpose of adding new items is to be responsive to
our guests' needs and requests, and to keep the menu fresh and appealing to
our customers.
Training is ongoing at all IHOP restaurants. Each prospective franchisee is
required to participate in an extensive training program before he/she is sold
a franchise. The training program involves classroom study in the Company's
training facility in San Dimas, California, and hands-on operational training
in one of our regional training restaurants. Each franchisee learns to cook,
wait on tables, serve as a host, wash dishes and each of the other myriad
tasks necessary to operate a successful restaurant. Field training teams and
new restaurant opening teams provide on-site instruction to Company and
franchised restaurant employees to assist in the opening of new IHOP
restaurants.
The Company's regional headquarters offer additional training courses from
time to time on subjects such as suggestive selling, improving service,
managing people and diversity.
Marketing and Advertising
Most IHOP franchisees and Company-operated restaurants contribute about 2%
of their sales to local advertising cooperatives and the Company provides
additional funding to these cooperatives. The advertising co-ops use these
funds to purchase television advertising time and place advertisements in
printed media or direct mail. For many years, IHOP's television advertising
has featured Cliff Bemis, as IHOP's affable spokesperson. The viewer's
response to Cliff has always been positive and the Company is continuing to
create new Cliff commercials. In these new commercials though, a greater
emphasis is being placed on the appetizing appearance, quality and taste of
the delicious IHOP food. In addition to television advertising, IHOP
encourages local area marketing by its franchisees. These marketing programs
include discounts and specials aimed at increasing customer traffic and
encouraging repeat business.
Company-Operated Restaurants
The pool of Company-operated restaurants consists of those restaurants
newly-developed by the Company which have not yet been franchised and those
restaurants re-acquired by the Company through negotiation or franchisee
defaults. The relative number and identity of restaurants in each group within
the pool, and the total number of restaurants in the pool, varies from time to
time as IHOP develops new restaurants, reacquires franchised restaurants and
franchises new and reacquired restaurants. Those restaurants that the Company
repossesses typically require investment in remodeling and rehabilitation by
the Company before being refranchised and may remain in the pool for a
substantial period of time. As a consequence of this adverse selection
process, some Company-operated restaurants may incur operating losses during
the period of their rehabilitation.
Remodeling and Refranchising Program
Restaurants reacquired by IHOP are usually underperforming as a result of
having been poorly operated, physically neglected and/or badly staffed. When a
restaurant enters the pool of Company-operated restaurants as a result of
negotiation or franchisee default, IHOP begins a multi-step rehabilitation
program for that restaurant. These restaurants are physically rehabilitated by
IHOP. IHOP also hires and trains the restaurant staff. The Company then
implements new marketing and operations programs designed to regain the
business of former guests and attract new patrons. After a restaurant has been
rehabilitated and its sales volume reaches acceptable levels, the restaurant
is refranchised to a qualified franchisee. In the past five years IHOP
reacquired a total of 61 restaurants from franchisees. In those same years
restaurants that were refranchised totaled 36.
5
<PAGE>
In the past five years IHOP has remodeled and updated approximately 33 then
Company-operated restaurants at an average cost per restaurant of
approximately $95,000. Management believes that, from 1991 through 1997,
average sales in remodeled Company-operated restaurants increased
approximately 14.7% in the 12 months subsequent to the remodeling. IHOP
intends to continue this remodeling program with respect to Company-operated
restaurants on an ongoing basis to facilitate the refranchising of these
restaurants and to enhance the chain's image and maintain and expand its
customer base.
IHOP also requires most of its franchisees, and strongly encourages all of
its franchisees, to periodically remodel their restaurants. In the past five
years 175 restaurants have been remodeled by franchisees.
Purchasing
To minimize costs, achieve economies of scale, and ensure food quality and
consistency, IHOP has set up informal purchasing cooperatives among
franchisees to negotiate bulk orders of food products. IHOP has also entered
into long-term supply contracts for various products, including pancake mixes,
coffee, soft drinks and juices, to ensure the availability of quality products
at competitive prices.
Competition and Markets
The restaurant business is highly competitive and is affected by, among
other things, changes in eating habits and preferences, local, regional and
national economic conditions, population trends and traffic patterns. The
principal bases of competition in the industry are the quality and price of
the food products served. Additionally, restaurant location, quality and speed
of service, advertising, name identification and attractiveness of facilities
are also important. The acquisition of sites is highly competitive as well,
with IHOP often competing with other restaurant chains and retail businesses
for suitable sites for the development of new restaurants.
The current structure of the U.S. restaurant and institutional foodservice
market is characterized by differentiated chains competing within their
segments against each other and local, single-outlet operators. Foodservice
chains in the United States include the following segments: quick-service
sandwich, chicken, pizza, family restaurant, dinner house, grill-buffet, hotel
restaurant and contract/catering. Information published in 1997 by an industry
trade publication ranked IHOP 34th out of the top 100 chains based on
estimated fiscal 1996 system-wide foodservice sales in the United States. The
same publication included twelve family restaurant chains in its top 100
chains, and IHOP ranked fourth in this segment. A national consumer survey,
performed by an independent restaurant industry publication in 1997, indicates
that approximately 80% of all Americans are familiar with International House
of Pancakes restaurants, making IHOP one of the two top family restaurant
chains in terms of consumer awareness. In December 1997, based on a nation-
wide sample of IHOP restaurants, the approximate guest check average per IHOP
customer was $6.15.
Trademarks and Service Marks
The Company has registered "International House of Pancakes," "IHOP" and
variations of each, as well as other trademarks and service marks, including
"Any Time's a Good Time for Breakfast at IHOP," "the Home of the Never Empty
Coffee Pot," "Rooty Tooty Fresh 'N Fruity," and "Harvest Grain 'N Nut" with
the United States Patents and Trademark Office. IHOP also registers new
trademarks and service marks from time to time. The Company is not aware of
any infringing uses that could materially affect its business or any prior
claim to these marks that would prevent IHOP from using or licensing the use
thereof for restaurants in any area of the United States. The Company has
registered its trademarks and service marks and variations thereof in Japan
and Canada for use by current licensees and, where feasible and appropriate,
registers its trademarks and service marks in other nations for future use.
The Company's current registered trademarks and service marks will expire,
unless renewed, at various dates from 1998 to 2013. IHOP routinely applies to
renew its active trademarks and service marks prior to their expiration.
6
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Seasonality
IHOP's business, like that of most restaurants, is seasonal in that
restaurants generally experience greater customer traffic and sales in the
warmer months and during the Thanksgiving and Christmas seasons.
Government Regulation
IHOP is subject to various federal, state and local laws affecting its
business as well as a variety of regulatory provisions relating to zoning of
restaurant sites, sanitation, health and safety. As a franchisor, the Company
is subject to state and federal laws regulating various aspects of franchise
operations and sales. These laws impose registration and disclosure
requirements on franchisors in the offer and sale of franchises and, in
certain cases, also apply substantive standards to the relationship between
franchisor and franchisee, including primarily defaults, termination and non-
renewal of franchises.
Various federal and state labor laws govern IHOP's relationships with its
employees, including such matters as minimum wage requirements, overtime and
other working conditions. Environmental requirements have not had a material
effect on the operations of the Company or those of its franchisees.
Significant additional government-imposed increases in minimum wages, paid
leaves of absence, mandated health benefits or increased tax reporting and tax
payment requirements in respect to employees who receive gratuities could,
however, be detrimental to the economic viability of franchisee-operated and
Company-operated International House of Pancakes restaurants.
Employees
At December 31, 1997, the Company employed approximately 2,600 persons, of
whom 233 were full-time, non-restaurant, corporate personnel. The Company
considers relations with its employees to be satisfactory.
7
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ITEM 2. PROPERTIES.
The table below shows the location and status of the 787 IHOP restaurants in
operation as of December 31, 1997:
<TABLE>
<CAPTION>
AREA
LOCATION UNITED STATES FRANCHISE COMPANY LICENSE TOTAL
- ---------------------- --------- ------- ------- -----
<S> <C> <C> <C> <C>
Alabama......................................... 3 1 0 4
Arizona......................................... 15 0 0 15
Arkansas........................................ 3 0 0 3
California...................................... 135 23 0 158
Colorado........................................ 17 0 0 17
Connecticut..................................... 6 0 0 6
Delaware........................................ 1 0 0 1
Florida......................................... 0 0 108 108
Georgia......................................... 32 1 1 34
Hawaii.......................................... 2 0 0 2
Idaho........................................... 0 1 0 1
Illinois........................................ 28 11 0 39
Indiana......................................... 4 2 0 6
Kansas.......................................... 1 1 0 2
Maine........................................... 1 0 0 1
Maryland........................................ 23 1 0 24
Massachusetts................................... 15 0 0 15
Michigan........................................ 10 1 0 11
Mississippi..................................... 5 0 0 5
Missouri........................................ 11 0 0 11
Nevada.......................................... 9 3 0 12
New Hampshire................................... 2 0 0 2
New Jersey...................................... 26 1 0 27
New Mexico...................................... 7 0 0 7
New York........................................ 31 1 0 32
North Carolina.................................. 21 0 0 21
Oklahoma........................................ 1 0 0 1
Oregon.......................................... 5 9 0 14
Pennsylvania.................................... 11 2 0 13
Rhode Island.................................... 1 1 0 2
South Carolina.................................. 10 0 0 10
Tennessee....................................... 11 0 0 11
Texas........................................... 88 0 0 88
Virginia........................................ 15 0 0 15
Washington...................................... 8 10 0 18
Wisconsin....................................... 2 2 0 4
<CAPTION>
INTERNATIONAL
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<S> <C> <C> <C> <C>
Canada(1)....................................... 11 0 0 11
Japan........................................... 0 0 36 36
--- --- --- ---
Totals...................................... 571 71 145 787
=== === === ===
</TABLE>
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(1) The Company reports restaurants in Canada as franchise restaurants
although the eleven restaurants are operated under an area license
agreement.
8
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As of December 31, 1997, of the 71 Company-operated restaurants, 6 were
located on Company-owned sites and 65 were located on Company-leased sites; of
the 571 franchisee-operated restaurants, 39 were located on Company-owned
sites, 425 were located on Company-leased sites and 107 were located on sites
owned or leased by franchisees; and all of the restaurants operated by area
licensees were located on sites owned or leased by area licensees.
IHOP's leases with its landlords generally provide for an initial term of 15
to 25 years, with most having one or more five-year renewal options in favor
of the Company. The leases typically provide for payment of rentals in an
amount equal to the greater of a fixed amount or a specified percentage of
gross sales and for payment by IHOP of taxes, insurance premiums, maintenance
expenses and certain other costs. Historically, IHOP generally has been
successful at renewing those leases that expire without further renewal
options. However, from time to time the Company chooses not to renew a lease
or is unsuccessful in negotiating satisfactory renewal terms, and, as a
result, the restaurant is closed and possession returned to the landlord.
IHOP leases its principal corporate offices in Glendale, California under a
lease having a remaining term of approximately three years with two five-year
options to renew. The Company also leases regional offices in Lyndhurst, New
Jersey; Norcross, Georgia; Lombard, Illinois; Dallas, Texas; Portland, Oregon
and Sylmar, California. The Sylmar office also houses the Company's Purchasing
and Product Development Departments, which includes a warehouse facility of
approximately 6,200 square feet and a test kitchen.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. The Company believes such claims and legal
actions, individually or in the aggregate, will not have a material adverse
effect on the business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
9
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded as a national market stock on the
Nasdaq Stock Market under the symbol "IHOP". As of January 31, 1998, there
were approximately 2,400 shareholders, including shareholders whose shares are
held in street name.
The following table sets forth the high and low prices of the stock as
reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW QUARTER ENDED HIGH LOW
- ------------- ------- ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C>
March 31, 1997................. $27 1/4 $23 5/8 March 31, 1996.............. $27 1/8 $21 1/2
June 30, 1997.................. 31 1/8 23 5/8 June 30, 1996............... 29 7/8 25
September 30, 1997............. 37 3/8 30 3/8 September 30, 1996.......... 27 1/8 22
December 31, 1997.............. 37 3/8 31 December 31, 1996........... 26 1/4 19 1/4
</TABLE>
The Company has not paid any dividends on its Common Stock in the last five
years and has no plans to do so in 1998. Any future determination to declare
dividends will depend on the Company's earnings, financial condition, cash
requirements, future prospects and other factors deemed relevant by the
Company's Board of Directors. The purchase agreements governing the Company's
7.79% senior notes, its 7.42% senior notes, and its credit agreement with its
bank limit the amount of retained earnings available for dividends and
investments. At December 31, 1997, approximately $42 million of retained
earnings was free of restriction as to distribution as dividends.
ITEM 6. SELECTED FINANCIAL DATA.
Certain selected financial data for each of the five years ended December
31, 1997, is contained under the caption "Five Year Financial Summary" in the
Financial Information Section beginning on page F-1 of this Annual Report on
Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
A discussion of the Company's financial condition, changes in financial
condition and results of operations is contained under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Financial Information Section beginning on page F-1 of this
Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated balance sheets of IHOP Corp. and Subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997, together with the related notes and the
report of Coopers & Lybrand, L.L.P., independent accountants, are contained in
the Financial Information Section beginning on page F-1 of this Annual Report
on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
10
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information appearing under the captions "Information Concerning Nominees
and Members of the Board of Directors," "Executive Officers of the Company"
and "Compliance with Section 16(a) of the Securities Exchange Act" contained
in the 1998 Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under the captions "Executive Compensation--Summary of
Compensation," "Executive Compensation--Stock Options and Stock Appreciation
Rights" and "Executive Officers of the Company--Employment Agreements"
contained in the 1998 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information appearing under the caption "Security Ownership of Certain
Beneficial Owners and Management" contained in the 1998 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under the caption "Certain Relationships and Related
Transactions" contained in the 1998 Proxy Statement is incorporated herein by
reference.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Consolidated Financial Statements
The following documents are contained in the Financial Information
Section beginning on page F-1 of this Annual Report on Form 10-K.
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Operations for each of the three years in the
period ended December 31, 1997.
Consolidated Statement of Shareholders' Equity for each of the three
years in the period ended December 31, 1997.
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1997.
Notes to the Consolidated Financial Statements.
Report of Independent Accountants.
(2) Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes
thereto.
(3) Exhibits
Exhibits not incorporated by reference are filed herewith. The remainder
of the exhibits have heretofore been filed with the Commission and are
incorporated herein by reference. Management contracts or compensatory
plans or arrangements are marked with an asterisk.
<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation of IHOP Corp.
3.2 Bylaws of IHOP Corp.
4.1 Senior Note Purchase Agreement, dated as of November 19, 1992, among
IHOP Corp., International House of Pancakes, Inc. ("IHOP, Inc.") and
Mutual Life Insurance Company of New York and other purchasers.
4.2 First Amendment to Senior Note Purchase Agreement, dated as of
November 1, 1996, among IHOP Corp., IHOP Inc., and Mutual Life
Insurance Company of New York and other purchasers. Exhibit 4.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, (the "1996 Form 10-K") is hereby incorporated by
reference.
4.3 $10,000,000 Letter Agreement among IHOP, Inc., IHOP Corp. and
Continental Bank, N.A., dated as of June 30, 1993.
4.4 First Amendment to Letter Agreement, dated as of December 31, 1994,
among IHOP, Inc., IHOP Corp. and Bank of America Illinois (successor
by merger to Continental Bank, N.A.).
4.5 Second Amendment to Letter Agreement, dated as of March 11, 1996,
among IHOP, Inc., IHOP Corp. and Bank of America Illinois.
4.6 Third Amendment to Letter Agreement, dated as of September 3, 1996,
among IHOP, Inc., IHOP Corp. and Bank of America Illinois. Exhibit
4.6 to the 1996 Form 10-K is hereby incorporated by reference.
4.7 Fourth Amendment to Letter Agreement, dated as of November 1, 1996,
among IHOP, Inc., IHOP Corp. and Bank of America Illinois. Exhibit
4.7 to the 1996 Form 10-K is hereby incorporated by reference.
</TABLE>
12
<PAGE>
<TABLE>
<C> <S>
4.8 Senior Note Purchase Agreement, dated as of November 1, 1996, among
IHOP, Inc., IHOP Corp. and Jackson National Life Insurance Company
and other purchasers. Exhibit 4.8 to the 1996 Form 10-K is hereby
incorporated by reference.
*10.1 IHOP Corp. Executive Incentive Plan effective January 1, 1998.
*10.2 IHOP Corp. 1991 Stock Incentive Plan as Amended and Restated
February 23, 1994.
*10.3 IHOP Corp. 1994 Stock Option Plan for Non-Employee Directors.
*10.4 Employment Agreement between the Company and Rand Michael Ferris.
Exhibit 10.6 to the 1996 Form 10-K is hereby incorporated by
reference.
*10.5 Employment Agreement between the Company and Susan Henderson-
Hernandez. Exhibit 10.7 to the 1996 Form 10-K is hereby
incorporated by reference.
*10.6 Employment Agreement between the Company and Richard K. Herzer.
Exhibit 10.8 to the 1996 Form 10-K is hereby incorporated by
reference.
*10.7 Employment Agreement between the Company and Dennis M. Leifheit.
Exhibit 10.9 to the 1996 Form 10-K is hereby incorporated by
reference.
*10.8 Employment Agreement between the Company and Naomi K. Shively.
Exhibit 10.10 to the 1996 Form 10-K is hereby incorporated by
reference.
*10.9 Employment Agreement between the Company and Frederick G. Silny.
Exhibit 10.11 to the 1996 Form 10-K is hereby incorporated by
reference.
*10.10 Employment Agreement between the Company and Anna G. Ulvan. Exhibit
10.12 to the 1996 Form 10-K is hereby incorporated by reference.
*10.11 Employment Agreement between the Company and Mark D. Weisberger.
Exhibit 10.13 to the 1996 Form 10-K is hereby incorporated by
reference.
*10.12 Employment Agreement between the Company and Richard C. Celio.
Exhibit 10 to the Form 10-Q for the quarterly period ended March
31, 1997, is hereby incorporated by reference.
*10.13 Employment Agreement between the Company and John Jordan.
10.14 Area Franchise Agreement, effective as of May 5, 1988, by and
between IHOP, Inc. and FMS Management Systems, Inc.
*10.15 International House of Pancakes Employee Stock Ownership Plan as
Amended and Restated as of July 12, 1991 ("the ESOP").
*10.16 Amendment No. 1 to the ESOP.
*10.17 Amendment No. 2 to the ESOP.
*10.18 Amendment No. 3 to the ESOP. Exhibit 10 to the Form 10-Q for the
quarterly period ended September 30, 1996, is hereby incorporated
by reference.
*10.19 Amendment No. 4 to the ESOP. Exhibit 10 to the Form 10-Q for the
quarterly period ended September 30, 1997, is hereby incorporated
by reference.
11.0 Statement Regarding Computation of Per Share Earnings.
21.0 Subsidiaries of the Company.
23.0 Consent of Coopers & Lybrand, L.L.P.
27.0 Financial Data Schedule.
</TABLE>
*Management contracts or compensatory plans or arrangements are marked with an
asterisk.
(b)No reports on Form 8-K were filed during the quarter ended December 31,
1997.
(c)The exhibits described above in Item 14(a)(3) are incorporated herein by
reference.
(d)Information regarding schedules described above in Item 14(a)(2) is
incorporated herein by reference.
13
<PAGE>
FINANCIAL INFORMATION SECTION
IHOP CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Five-Year Financial Summary............................................... F-2
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... F-3
Consolidated Balance Sheets............................................... F-10
Consolidated Statements of Operations..................................... F-11
Consolidated Statement of Shareholders' Equity............................ F-12
Consolidated Statements of Cash Flows..................................... F-13
Notes to the Consolidated Financial Statements............................ F-14
Report of Independent Accountants......................................... F-24
</TABLE>
F-1
<PAGE>
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues
Franchise operations...... $113,722 $102,368 $ 93,039 $ 83,868 $ 71,451
Company operations........ 61,839 53,677 43,001 40,732 47,557
Other..................... 39,897 34,051 28,283 25,394 23,537
-------- -------- -------- -------- --------
Total revenues.......... 215,458 190,096 164,323 149,994 142,545
-------- -------- -------- -------- --------
Costs and expenses
Franchise operations...... 50,614 47,104 43,519 39,733 33,775
Company operations........ 58,001 50,852 41,621 37,507 43,791
Field, corporate and
administrative........... 29,437 26,052 22,193 21,967 21,004
Depreciation and
amortization............. 10,029 8,279 6,918 6,382 5,738
Interest.................. 14,649 11,691 8,873 6,805 5,641
Other..................... 18,442 15,367 13,698 12,616 11,480
Severance charges......... -- -- 800 -- --
Nonrecurring charge....... -- -- -- -- 2,500
-------- -------- -------- -------- --------
Total costs and
expenses............... 181,172 159,345 137,622 125,010 123,929
-------- -------- -------- -------- --------
Income before income taxes.. $ 34,286 $ 30,751 $ 26,701(a) $ 24,984 $ 18,616(b)
-------- -------- -------- -------- --------
Net income.................. $ 20,914 $ 18,604 $ 16,154(a) $ 15,115 $ 10,733(b)
======== ======== ======== ======== ========
Net income per share(c)
Basic..................... $ 2.18 $ 1.97 $ 1.73(a) $ 1.65 $ 1.19(b)
======== ======== ======== ======== ========
Diluted................... $ 2.15 $ 1.95 $ 1.70(a) $ 1.60 $ 1.15(b)
======== ======== ======== ======== ========
Weighted average shares
outstanding(c)
Basic..................... 9,596 9,444 9,319 9,159 9,043
======== ======== ======== ======== ========
Diluted................... 9,743 9,523 9,488 9,444 9,310
======== ======== ======== ======== ========
BALANCE SHEET DATA (END OF
PERIOD)
Cash and cash equivalents. $ 5,964 $ 8,658 $ 3,860 $ 2,036 $ 1,179
Property and equipment,
net...................... 142,751 120,854 87,795 69,550 63,083
Total assets.............. 382,593 328,889 252,057 202,553 168,657
Long-term debt............ 54,950 58,564 30,584 34,855 36,981
Capital lease obligations. 102,578 80,673 61,836 43,180 29,424
Shareholders' equity(d)... 156,184 129,357 108,297 88,299 71,178
</TABLE>
- --------
(a) Includes severance charges associated with a realignment of
responsibilities in the Company's restaurant operations, restaurant
development and purchasing functions of $800,000, or $484,000 net of
income tax benefit, or $.05 per share.
(b) Includes a nonrecurring charge unrelated to the Company's prior or ongoing
restaurant and franchising activities pertaining to litigation of
$2,500,000, or $1,440,000 net of income tax benefit, or $.16 per share.
(c) Net income per share and weighted average shares outstanding for each of
the four years ended December 31, 1996, have been restated in accordance
with SFAS No. 128 (see Note 1 to the Consolidated Financial Statements).
(d) The Company has not paid any dividends on its common stock in the last
five years and has no plans to do so in 1998. Any future determination to
declare dividends will depend on the Company's earnings, financial
condition, cash requirements, future prospects and other factors deemed
relevant by the Company's Board of Directors.
F-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
IHOP's revenues are recorded in three categories: (i) franchise operations,
which includes payments from franchisees of rents, royalties and advertising
fees, proceeds from the sale of proprietary products to distributors and
franchisees, interest income received in connection with the financing of
franchise and development fees and equipment sales, and payments from area
licensees of royalties and advertising fees (except for restaurants in Japan
from which the Company does not receive advertising fees); (ii) Company
operations, which consists of retail sales at Company-operated restaurants;
and (iii) other revenues, which consists primarily of sales of franchises and
equipment and interest income received from direct financing leases on
franchised restaurant buildings.
Revenues from sales of franchises and equipment and their associated costs
of sales are affected by the mix and number of restaurants franchised, as
follows: (i) franchise rights with respect to restaurants newly developed by
IHOP normally sell for a franchise fee of $200,000 to $350,000, and such
restaurants have little if any franchise cost of sales and have equipment in
excess of $300,000 that is usually sold at a price that includes little or no
profit margin; (ii) franchise rights with respect to restaurants developed by
franchisees normally sell for a franchise fee of $50,000, and such restaurants
have minor associated franchise cost of sales and do not include an equipment
sale; and (iii) previously reacquired franchises normally sell for a franchise
fee of $100,000 to $300,000, include an equipment sale, and may have
substantial costs of sales associated with both the franchise and the
equipment. The timing of sales of franchises is affected by the timing of new
restaurant openings and the number of restaurants in the Company's "inventory"
of restaurants that are available for refranchising.
IHOP reports separately those expenses that are attributable to franchise
operations and Company operations. Certain expenses, such as those recorded
under field, corporate and administrative, depreciation and amortization, and
interest, relate to both franchise operations and Company operations. Other
expenses consist primarily of IHOP's investment in restaurants and equipment
which are sold as franchises.
IHOP's results of operations are impacted by the timing of additions of new
restaurants, and by the timing of the franchising of those restaurants. When a
restaurant is franchised, IHOP no longer includes in revenues the retail sales
from such restaurant, but receives a one-time franchise and development fee,
periodic interest on the portion of such fee financed by the Company and
recurring payments from franchisees described above and recorded under
franchise operations.
F-3
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data for IHOP restaurants.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Restaurant Data
Effective restaurants(a)
Franchise..................................... 540 503 463
Company....................................... 66 57 49
Area license.................................. 140 134 127
-------- -------- --------
Total....................................... 746 694 639
======== ======== ========
System-wide
Sales(b)....................................... $903,140 $796,555 $714,910
Percent increase.............................. 13.4 % 11.4 % 13.2%
Average sales per effective restaurant........ $ 1,211 $ 1,148 $ 1,119
Percent increase.............................. 5.5 % 2.6 % 4.2%
Comparable average sales per restaurant(c).... $ 1,248 $ 1,174 $ 1,120
Percent increase.............................. 3.7 % 1.7 % 0.9%
Franchise Sales................................. $709,420 $622,969 $548,784
Percent increase.............................. 13.9 % 13.5 % 13.5%
Average sales per effective restaurant........ $ 1,314 $ 1,239 $ 1,185
Percent increase.............................. 6.1 % 4.6 % 3.4%
Comparable average sales per restaurant(c).... $ 1,292 $ 1,207 $ 1,159
Percent increase.............................. 4.0 % 1.7 % 0.9%
Company Sales................................... $ 61,839 $ 53,677 $ 43,001
Percent increase.............................. 15.2 % 24.8 % 5.6%
Average sales per effective restaurant........ $ 937 $ 942 $ 878
Percent change................................ (0.5)% 7.3 % 3.4%
Area License Sales.............................. $131,881 $119,909 $123,125
Percent change................................ 10.0 % (2.6)% 15.0%
Average sales per effective restaurant........ $ 942 $ 895 $ 969
Percent change................................ 5.3 % (7.6)% 6.7%
</TABLE>
- --------
(a) "Effective restaurants" are the number of restaurants in a given fiscal
period adjusted to account for restaurants open only a portion of the
period.
(b) "System-wide sales" are retail sales of franchisees, area licensees and
Company-operated restaurants, as reported to the Company.
(c) "Comparable average sales" reflect sales for restaurants that are operated
for the entire fiscal period in which they are being compared. Comparable
average sales do not include data on restaurants located in Florida and
Japan.
F-4
<PAGE>
The following table summarizes the Company's restaurant development and
franchising activity:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RESTAURANT DEVELOPMENT ACTIVITY(A)
IHOP--beginning of year........................... 729 678 620 572 530
New openings
IHOP-developed................................ 45 45 40 30 38
Investor program.............................. 13 11 17 14 17
Area license.................................. 9 7 8 10 9
--- --- --- --- ---
Total new openings.............................. 67 63 65 54 64
--- --- --- --- ---
Closings
Company and franchise......................... (9) (10) (7) (5) (17)
Area license.................................. -- (2) -- (1) (5)
--- --- --- --- ---
IHOP--end of year................................. 787 729 678 620 572
=== === === === ===
Summary--end of year
IHOP
Franchise..................................... 571 535 496 451 407
Company....................................... 71 58 51 46 51
Area license.................................. 145 136 131 123 114
--- --- --- --- ---
Total IHOP...................................... 787 729 678 620 572
=== === === === ===
RESTAURANT FRANCHISING ACTIVITY(A)
IHOP-developed.................................... 45 41 36 32 30
Investor program.................................. 13 11 17 14 17
Rehabilitated and refranchised.................... 6 5 3 10 12
--- --- --- --- ---
Total restaurants franchised.................... 64 57 56 56 59
Reacquired by Company............................. (23) (11) (8) (10) (9)
Closed............................................ (5) (7) (3) (2) (13)
--- --- --- --- ---
Net addition.................................... 36 39 45 44 37
=== === === === ===
</TABLE>
- --------
(a) The Company reports restaurants in Canada as franchise restaurants
although the eleven restaurants are operated under an area license
agreement.
The following discussion and analysis provides information management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
notes thereto. Certain forward-looking statements are contained in this annual
report. They use such words as "may," "will," "expect," "believe," "plan," or
other similar terminology. These statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results to be
materially different than those expressed or implied in such statements. These
factors include, but are not limited to: availability, of suitable locations
and terms of the sites designated for development; legislation and government
regulation including the ability to obtain satisfactory regulatory approvals;
conditions beyond the Company's control such as weather or natural disasters;
availability and cost of materials and labor; cost and availability of
capital; competition; continuing acceptance of the International House of
Pancakes brand and concept by guests and franchisees; the Company's overall
marketing, operational and financial performance; economic and political
conditions; adoption of new, or changes in, accounting policies and practices
and other factors discussed from time to time in the Company's filings with
the Securities and Exchange Commission. Forward-looking information is
provided by the Company pursuant to the safe harbor established under the
Private Securities Litigation Reform Act of 1995 and should be evaluated in
the context of these factors. In addition, the Company disclaims any intent or
obligation to update these forward-looking statements.
F-5
<PAGE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
System-wide retail sales for 1997 grew 13.4% over system-wide retail sales
for 1996. This was due to increases of 7.5% in the number of effective
restaurants and 5.5% in the revenues per effective restaurant. System-wide
comparable average sales per restaurant (exclusive of area license
restaurants) for 1997 grew by 3.7% over those in 1996. Management continues to
pursue growth in sales through the Company's restaurant development program,
its advertising and marketing efforts, improvements in customer service and
operations, and the Company's remodeling program.
Franchise operations revenues for 1997 grew 11.1% over franchise operations
revenues for 1996. This was primarily due to increases in the number of
effective franchised restaurants of 7.4% and in the revenues per effective
franchised restaurant of 6.1%. Franchise operations costs and expenses for
1997 increased 7.5% over costs and expenses for 1996. As a result of franchise
revenues increasing in excess of franchise expenses, franchise margin rose to
55.5% in 1997 from 54.0% in 1996. The margin increased primarily because of
(a) improved rent margin due, in part, to an increase in the number of IHOP-
owned restaurants which do not have rent expense and (b) growth in interest-
income associated with IHOP's financing of sales of franchises and equipment
to its franchisees.
Company-operated restaurant revenues in 1997 grew 15.2% over revenues for
1996. This was primarily due to an increase in the effective number of
Company-operated restaurants of 15.8% mitigated by a decrease in the revenues
per effective Company-operated restaurant of 0.5%. Company-operated restaurant
costs and expenses for 1997 increased 14.1% from costs and expenses for 1996.
Margin at Company-operated restaurants in 1997 was 6.2% compared to 5.3% in
1996. The improvement in margin was primarily due to operating reductions in
food costs as a percentage of revenues.
Other revenues in 1997 grew 17.2% over other revenues for 1996 primarily due
to a 12.9% increase in sales of franchises and equipment augmented by an
increase in interest income from direct financing leases of 30.4%. Sales of
franchises and equipment in 1997 grew to $28,864,000 from $25,573,000 in the
prior year. IHOP franchised 64 restaurants in 1997 compared with 57 in 1996.
Other costs and expenses in 1997 increased 20.0% over 1996 primarily from the
increase in franchise and equipment costs of sales to $15,986,000 from
$14,334,000.
Field, corporate and administrative costs and expenses in 1997 increased
13.0% over costs and expenses in 1996. The rise in expenses was primarily due
to normal increases in salaries and wages and additions to headcount to
support the Company's growth. Field, corporate and administrative expenses
were 3.3% of system-wide sales in both 1997 and 1996.
Depreciation and amortization expense in 1997 increased 21.1% over that of
1996 primarily reflecting the addition of new, larger restaurants and an
increase in the number of Company-operated restaurants.
Interest expense increased 25.3% in 1997 over that of 1996 primarily due to
(a) interest associated with additional capital lease obligations and (b)
increased debt levels due to the private placement of $35 million in senior
notes in November 1996 (see Note 5 to the Consolidated Financial Statements).
Provision for income taxes was 39.0% and 39.5% of income before income taxes
in 1997 and 1996, respectively.
The balance of long-term receivables at December 31, 1997, has increased
over that of the prior year end primarily due to IHOP's financing activities
associated with the sale of franchises and equipment and the leasing of
restaurants to its franchisees.
Balances of property and equipment, net and capital lease obligations and
other at December 31, 1997, have increased over those of the prior year end
primarily due to new restaurant development and the Company's capital lease
obligations associated with that development.
F-6
<PAGE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
System-wide retail sales for 1996 grew 11.4% over system-wide retail sales
for 1995. This was due to increases of 8.6% in the number of effective
restaurants and 2.6% in the revenues per effective restaurant. The above
results were mitigated by an unfavorable change in the Japanese yen--U.S.
dollar exchange rate in 1996 versus the exchange rate in 1995. If the Japanese
sales were excluded from the comparison, system-wide sales in 1996 would have
grown by 13.2% over those in 1995.
System-wide comparable average sales per restaurant (exclusive of area
license restaurants) for 1996 grew by 1.7% over those in 1995. Comparable
average sales in the restaurant industry remained weak during 1996, however,
IHOP's performance in this area has been, in general, stronger than that of
our competitors. Management continues to pursue growth in sales through the
Company's restaurant development program, its advertising and marketing
efforts, improvements in customer service and operations, and the Company's
remodeling program.
Franchise operations revenues for 1996 grew 10.0% over franchise operations
revenues for 1995. This was primarily due to increases in the number of
effective franchised restaurants of 8.6% and in the revenues per effective
franchised restaurant of 4.6%. Franchise operations costs and expenses for
1996 increased 8.2% over costs and expenses for 1995. As a result of franchise
revenues increasing in excess of franchise expenses, franchise margin rose to
54.0% in 1996 from 53.2% in 1995. The margin improved primarily because of
increases in interest income associated with IHOP's financing of sales of
franchises and equipment to its franchisees.
Company-operated restaurant revenues in 1996 grew 24.8% over revenues for
1995. This was primarily due to increases in the effective number of Company-
operated restaurants of 16.3% and in the revenues per effective Company-
operated restaurant of 7.3%. Company-operated restaurant costs and expenses
for 1996 increased 22.2% from costs and expenses for 1995. Margin at Company-
operated restaurants in 1996 was 5.3% compared to 3.2% in 1995. The
improvement in margin was primarily due to operating reductions in food costs,
salaries and wages and other controllable costs as a percentage of revenues.
Other revenues in 1996 grew 20.4% over other revenues for 1995 primarily due
to a 15.2% increase in sales of franchises and equipment augmented by an
increase in interest income from direct financing leases of 38.3%. Sales of
franchises and equipment in 1996 grew to $25,573,000 from $22,202,000 in the
prior year. IHOP franchised 57 restaurants in 1996 compared with 56 in 1995.
Other costs and expenses in 1996 increased 12.2% over 1995 primarily from the
increase in franchise and equipment costs of sales to $14,334,000 from
$11,565,000.
Field, corporate and administrative costs and expenses in 1996 increased
17.4% over costs and expenses in 1995. The rise in expenses was primarily due
to (a) normal increases in salaries and wages and inflation, (b) additions to
headcount in the Company's restaurant operations, restaurant development and
training functions to support the Company's growth, and (c) additional travel
costs associated with growth in the number of restaurants in the IHOP system.
Field, corporate and administrative expenses were 3.3% of system-wide sales in
1996 compared to 3.1% in 1995.
Depreciation and amortization expense in 1996 increased 19.7% over that of
1995 primarily reflecting the addition of new, larger restaurants and an
increase in the number of Company-operated restaurants.
Interest expense increased 31.8% in 1996 over that of 1995 primarily due to
interest associated with additional capital lease obligations, although
interest associated with debt also increased. Interest associated with debt
rose due to higher levels of borrowings through most of the year under the
Company's bank revolving credit agreement and the private placement of $35
million in senior notes in November 1996 (see Note 5 to the Consolidated
Financial Statements).
Provision for income taxes was 39.5% of income before income taxes in both
1996 and 1995.
F-7
<PAGE>
The balance of long-term receivables at December 31, 1996, has increased
over that of the prior year end primarily due to IHOP's financing activities
associated with the sale of franchises and equipment and the leasing of
restaurants to its franchisees.
Balances of property and equipment, net and capital lease obligations and
other at December 31, 1996, have increased over those of the prior year end
primarily due to new restaurant development and the Company's capital lease
obligations associated with that development.
LIQUIDITY AND CAPITAL RESOURCES
The Company invests available funds into its business primarily through the
development of additional restaurants and, to a lesser extent, through the
remodeling of older Company-operated restaurants.
In 1997, IHOP and its franchisees and area licensees developed and opened 67
IHOP restaurants. Of these, the Company developed and opened 45 restaurants.
Capital expenditures in 1997, which included IHOP's portion of the above
development program, were $59.7 million. Funds for this investment primarily
came from operations, $41.6 million, and sale and leaseback arrangements of
restaurant land and buildings, $18.0 million. The Company also incurred
capital lease obligations of $22.8 million, a portion of which was due to the
sale and leaseback transactions, and all of which was related to the
acquisition of restaurant buildings.
In 1998, IHOP and its franchisees and area licensees plan to develop and
open approximately 70 to 85 restaurants. Included in that number are the
development of 50 to 60 new restaurants by the Company and the development of
20 to 25 restaurants by IHOP franchisees and area licensees. Capital
expenditure projections for 1998, which include IHOP's portion of the above
development program, are approximately $60 to $75 million. In November 1998,
the third annual installment of $4.6 million in principal becomes due on the
Company's senior notes due 2002. The Company expects that funds from
operations, sale and leaseback arrangements (estimated to be about $35
million) and its revolving line of credit will be sufficient to cover its
operating requirements, its budgeted capital expenditures and its principal
repayment on its senior notes in 1998. At December 31, 1997, $20 million was
available to be borrowed under the Company's unsecured bank revolving credit
agreement.
YEAR 2000 COMPLIANCE
The Year 2000 issue is a result of computer programs being written using two
digits, e.g. "98," to define a year. Date-sensitive software may recognize the
year "00" as the year 1900 rather than the year 2000. This would result in
errors and miscalculations or even system failure causing disruptions in
everyday business activities and transactions. Software is termed "Year 2000
compliant" when it is capable of performing transactions correctly in the year
2000.
Based on a recent assessment of the Company's computer systems software, it
has been determined that more than 90% of the Company's hardware and software
systems are either currently Year 2000 compliant or have an existing upgrade
available from the software vendor that is Year 2000 compliant. Included in
the more than 60% of the Company's systems that are now Year 2000 compliant
are the Company's financial systems for accounting and payroll and its point
of sale (POS) systems in its restaurants. All systems that are not currently
Year 2000 compliant will either be upgraded to be Year 2000 compliant or
replaced with alternative systems that are Year 2000 compliant over the next
eighteen months.
While achieving Year 2000 compliance will be a major task, it is not
expected to have a material impact on the Company's financial condition or
results of operations.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting
Comprehensive Income," which establishes standards for reporting and
F-8
<PAGE>
displaying comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements.
Comprehensive income includes net income and other comprehensive income
components which under generally accepted accounting principles (GAAP) bypass
the income statement and are reported in the balance sheet as a separate
component of equity. For the three years ended December 31, 1997, the Company
had no other comprehensive income components as defined in SFAS No. 130. SFAS
No. 130 does not apply to an enterprise that has no items of other
comprehensive income in any of the periods presented.
In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information," which changes current practice and
establishes a new framework, referred to as the "management" approach, on
which to base segment reporting. The management approach requires that
management identify the "operating segments" based on the way that management
disaggregates the entity for internal operating decisions. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997, and is not
required for interim statements in the first year of adoption. Management
believes that the adoption of this new standard will not have any material
impact on the Company's financial position or results of operations.
F-9
<PAGE>
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents.................................. $ 5,964 $ 8,658
Receivables................................................ 30,490 29,324
Reacquired franchises and equipment held for sale, net..... 2,321 1,474
Inventories................................................ 1,378 1,180
Prepaid expenses........................................... 629 676
-------- --------
Total current assets..................................... 40,782 41,312
-------- --------
Long-term receivables........................................ 171,967 143,338
Property and equipment, net.................................. 142,751 120,854
Reacquired franchises and equipment held for sale, net....... 13,151 8,352
Excess of costs over net assets acquired, net................ 12,481 12,908
Other assets................................................. 1,461 2,125
-------- --------
Total assets............................................. $382,593 $328,889
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Current maturities of long-term debt....................... $ 4,973 $ 4,731
Accounts payable........................................... 20,626 17,474
Accrued employee compensation and benefits................. 4,595 2,674
Other accrued expenses..................................... 4,602 5,024
Deferred income taxes...................................... 3,468 4,311
Capital lease obligations.................................. 1,062 870
-------- --------
Total current liabilities................................ 39,326 35,084
-------- --------
Long-term debt............................................... 54,950 58,564
Deferred income taxes........................................ 28,862 25,061
Capital lease obligations and other.......................... 103,271 80,823
Shareholders' equity
Preferred stock, $1 par value, 10,000,000 shares
authorized; issued and outstanding: 1997 and 1996, no
shares.................................................... -- --
Common stock, $.01 par value, 40,000,000 shares authorized;
shares issued and outstanding: 1997, 9,709,261 shares (net
of 1,539 treasury shares); 1996, 9,467,294 shares......... 97 95
Additional paid-in capital................................. 54,629 48,768
Retained earnings.......................................... 100,158 79,244
Contribution to ESOP....................................... 1,300 1,250
-------- --------
Total shareholders' equity............................... 156,184 129,357
-------- --------
Total liabilities and shareholders' equity............... $382,593 $328,889
======== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-10
<PAGE>
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues
Franchise operations rent......................... $ 33,692 $ 29,642 $ 27,986
Service fees and other............................ 80,030 72,726 65,053
-------- -------- --------
113,722 102,368 93,039
Company operations................................ 61,839 53,677 43,001
Other............................................. 39,897 34,051 28,283
-------- -------- --------
Total revenues.................................. 215,458 190,096 164,323
-------- -------- --------
Costs and Expenses
Franchise operations rent......................... 17,784 16,301 15,165
Other direct costs................................ 32,830 30,803 28,354
-------- -------- --------
50,614 47,104 43,519
Company operations................................ 58,001 50,852 41,621
Field, corporate and administrative............... 29,437 26,052 22,193
Depreciation and amortization..................... 10,029 8,279 6,918
Interest.......................................... 14,649 11,691 8,873
Other............................................. 18,442 15,367 13,698
Severance charges................................. -- -- 800
-------- -------- --------
Total costs and expenses........................ 181,172 159,345 137,622
-------- -------- --------
Income before income taxes.......................... 34,286 30,751 26,701
Provision for income taxes.......................... 13,372 12,147 10,547
-------- -------- --------
Net income...................................... $ 20,914 $ 18,604 $ 16,154
======== ======== ========
Net Income Per Share
Basic............................................. $ 2.18 $ 1.97 $ 1.73
======== ======== ========
Diluted........................................... $ 2.15 $ 1.95 $ 1.70
======== ======== ========
Weighted Average Shares Outstanding
Basic............................................. 9,596 9,444 9,319
======== ======== ========
Diluted........................................... 9,743 9,523 9,488
======== ======== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-11
<PAGE>
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN RETAINED CONTRIBUTION
SHARES AMOUNT CAPITAL EARNINGS TO ESOP TOTAL
--------- ------ ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 9,183,327 $92 $42,621 $ 44,486 $1,100 $ 88,299
--------- --- ------- -------- ------ --------
Issuance of shares to
ESOP................... 39,461 -- 1,100 -- (1,100) --
Issuance of shares
pursuant to stock
plans.................. 152,727 2 2,981 -- -- 2,983
Unearned compensation--
restricted stock....... -- -- (339) -- -- (339)
Contribution to ESOP.... -- -- -- -- 1,200 1,200
Net income.............. -- -- -- 16,154 -- 16,154
--------- --- ------- -------- ------ --------
Balance, December 31,
1995................... 9,375,515 94 46,363 60,640 1,200 108,297
--------- --- ------- -------- ------ --------
Issuance of shares to
ESOP................... 44,445 -- 1,200 -- (1,200) --
Issuance of shares
pursuant to
stock plans............ 47,334 1 1,092 -- -- 1,093
Unearned compensation--
restricted stock....... -- -- 113 -- -- 113
Contribution to ESOP.... -- -- -- -- 1,250 1,250
Net Income.............. -- -- -- 18,604 -- 18,604
--------- --- ------- -------- ------ --------
Balance, December 31,
1996 9,467,294 95 48,768 79,244 1,250 129,357
--------- --- ------- -------- ------ --------
Issuance of shares to
ESOP................... 46,083 1 1,249 -- (1,250) --
Issuance of shares
pursuant to
stock plans............ 197,423 1 4,719 -- 4,720
Unearned compensation--
restricted stock....... -- -- (68) -- -- (68)
Acquisition of treasury
shares................. (1,539) -- (39) -- -- (39)
Contribution to ESOP.... -- -- -- -- 1,300 1,300
Net income.............. -- -- -- 20,914 -- 20,914
--------- --- ------- -------- ------ --------
Balance, December 31,
1997 9,709,261 $97 $54,629 $100,158 $1,300 $156,184
========= === ======= ======== ====== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-12
<PAGE>
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 20,914 $ 18,604 $16,154
Adjustments to reconcile net income to cash provided
by operating activities
Depreciation and amortization...................... 10,029 8,279 6,918
Deferred taxes..................................... 2,958 4,441 5,790
Contribution to ESOP............................... 1,300 1,250 1,200
Change in current assets and liabilities:
Accounts receivable............................... 648 (6,250) (3,860)
Inventories....................................... (198) (388) 25
Prepaid expenses.................................. 47 (443) 435
Accounts payable.................................. 3,152 1,495 5,246
Accrued employee compensation and benefits........ 1,921 1,112 (759)
Other accrued expenses............................ (422) 1,697 477
Other, net......................................... 1,226 1,804 (302)
-------- -------- -------
Cash provided by operating activities............ 41,575 31,601 31,324
-------- -------- -------
Cash flows from investing activities:
Additions to property and equipment................. (59,687) (57,159) (42,024)
Proceeds from sale and leaseback arrangements....... 17,995 7,593 12,792
Additions to notes, equipment contracts and
direct financing leases receivable................. (10,209) (11,427) (8,610)
Principal receipts from notes, equipment contracts
and direct financing leases receivable............. 8,562 7,019 6,718
Additions to reacquired franchises held for sale.... (1,917) (339) (926)
-------- -------- -------
Cash used by investing activities................ (45,256) (54,313) (32,050)
-------- -------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............ 1,440 34,514 7,700
Repayment of long-term debt......................... (4,631) (7,478) (7,300)
Principal payments on capital lease obligations..... (487) (419) (492)
Exercise of stock options........................... 4,665 893 2,642
-------- -------- -------
Cash provided by financing activities............ 987 27,510 2,550
-------- -------- -------
Net change in cash and cash equivalents.............. (2,694) 4,798 1,824
Cash and cash equivalents at beginning of period..... 8,658 3,860 2,036
-------- -------- -------
Cash and cash equivalents at end of period....... $ 5,964 $ 8,658 $ 3,860
======== ======== =======
Supplemental disclosures:
Interest paid, net of capitalized amounts........... $ 14,478 $ 11,300 $ 8,953
Income taxes paid................................... 10,680 7,588 4,177
Capital lease obligations incurred.................. 22,778 19,786 19,423
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-13
<PAGE>
IHOP CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
IHOP Corp. and its subsidiaries ("IHOP" or the "Company") engage exclusively
in the food-service industry, primarily in the United States, wherein IHOP
franchises and operates restaurants. IHOP grants credit to its franchisees and
licensees, all of whom are in the restaurant business. In the majority of its
franchised operations, IHOP has developed restaurants on sites that it either
owns or controls through leases. IHOP then leases or subleases the restaurants
to its franchisees. Additionally, IHOP finances up to 80% of the initial
franchise fee, leases restaurant equipment and fixtures to its franchisees,
and sells proprietary products to its franchisees and licensees.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany accounts and transactions have been
eliminated.
Fiscal Periods
IHOP's fiscal year ends on the Sunday nearest to December 31 of each year.
For convenience, the Company reports all fiscal years as ending on December 31
and fiscal quarters as ending on March 31, June 30 and September 30. The
fiscal years ended December 31, 1997, 1996 and 1995, are comprised of 52 weeks
(364 days).
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company at times purchases highly liquid, investment-grade securities
with an original maturity of three months or less. These cash equivalents are
stated at cost which approximates market value. IHOP does not believe it is
exposed to any significant credit risk on cash and cash equivalents.
Inventories
Inventories consisting of merchandise and supplies are stated at the lower
of cost (on a first-in, first-out basis) or market.
Property and Equipment
Property and equipment are stated at cost and depreciated on the straight-
line method over the estimated useful lives as follows:
<TABLE>
<CAPTION>
CATEGORY DEPRECIABLE LIFE
-------- ----------------
<S> <C>
Buildings and improvements............... Shorter of lease term or 25 years
Leaseholds and improvements.............. 3-25 years
Equipment and fixtures................... 3-10 years
Properties under capital lease........... Primary lease term
</TABLE>
F-14
<PAGE>
IHOP CORP. AND SUBSIDIARIES
Leaseholds and improvements are amortized over a period not exceeding the
term of the lease.
Impairment losses to long-lived assets are recognized when the carrying
amount of the asset exceeds the estimated fair value of the asset in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
Excess of Costs Over Net Assets Acquired
The excess of costs over net assets acquired is amortized utilizing the
straight-line method over forty years. Accumulated amortization at December
31, 1997 and 1996, was $4,606,000 and $4,179,000, respectively.
Franchise Revenues
Revenue from the sale of franchises is recognized as income when IHOP has
substantially performed all of its material obligations under the franchise
agreement, and the franchisee has commenced operations. Continuing service
fees, which are a percentage of the net sales of franchised operations, are
accrued as income when earned.
Leasing
The Company leases restaurant equipment, furniture and fixtures (equipment)
to its franchisees and retains title to the leased equipment. These equipment
contracts are accounted for as sales-type leases upon acceptance of the
equipment by the franchisee. Leases of restaurant facilities are recorded as
direct financing leases upon acceptance.
Preopening Expenses
Expenditures related to the opening of new restaurants, other than those for
capital assets, are charged to expense when incurred.
Advertising
Advertising costs are expensed as incurred. Advertising expense for the
years ended December 31, 1997, 1996 and 1995, was $22,748,000, $20,450,000 and
$18,018,000, respectively.
Income Taxes
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities. They
are measured using the enacted marginal tax rates and laws that will be in
effect when the differences are expected to reverse.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
previous computational guidelines under Accounting Principles Board (APB)
Opinion No. 15, "Earnings Per Share." Among other changes, SFAS No. 128
eliminates the presentation of primary EPS and replaces it with basic EPS for
which common stock equivalents are not considered in the computation. It also
revises the computation of diluted EPS.
Basic net income per share is computed by dividing the net income
attributable to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted net income per share is computed
by dividing the net income attributable to common shareholders by the weighted
average number of
F-15
<PAGE>
IHOP CORP. AND SUBSIDIARIES
common and common equivalent shares outstanding during the period. Common
share equivalents included in the diluted computation represent shares
issuable upon assumed exercise of stock options using the treasury stock
method. Net income per share and weighted average shares outstanding for all
prior periods have been restated in accordance with SFAS No. 128.
New Accounting Standards
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive income
and its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. Comprehensive income includes net income
and other comprehensive income components which under GAAP bypass the income
statement and are reported in the balance sheet as a separate component of
equity. For the three years ended December 31, 1997, the Company had no other
comprehensive income components as defined in SFAS No. 130. SFAS No. 130 does
not apply to an enterprise that has no items of other comprehensive income in
any of the periods presented.
In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information," which changes current practice and
establishes a new framework, referred to as the "management" approach, on
which to base segment reporting. The management approach requires that
management identify the "operating segments" based on the way that management
disaggregates the entity for internal operating decisions. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997, and is not
required for interim statements in the first year of adoption. Management
believes that the adoption of this new standard will not have any material
impact on the Company's financial position or results of operations.
Reclassification
Certain reclassifications have been made to prior year information to
conform to the current year presentation.
2. RECEIVABLES
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable....................................... $ 20,881 $ 21,372
Notes receivable.......................................... 34,347 31,924
Equipment contracts receivable............................ 63,714 53,580
Direct financing leases receivable........................ 84,117 66,231
-------- --------
203,059 173,107
Less allowance for doubtful accounts...................... 602 445
-------- --------
202,457 172,662
Less current portion...................................... 30,490 29,324
-------- --------
Long-term receivables..................................... $171,967 $143,338
======== ========
</TABLE>
Notes receivable include franchise fee notes due in five to eight years in
the amount of $32,022,000 and $29,595,000 at December 31, 1997 and 1996,
respectively. Franchise fee notes are due in equal weekly installments,
primarily bear interest at 12.0% and are secured by the franchise. The term of
an equipment contract coincides with the term of the corresponding restaurant
building direct financing lease. Equipment contracts are due in equal weekly
installments, primarily bear interest at 11.0% and are secured by the
equipment. Where applicable, franchise fee notes, equipment contracts and
direct financing leases contain cross-default provisions wherein a default
under one constitutes a default under all. There is not a disproportionate
concentration of credit risk in any geographic area.
F-16
<PAGE>
IHOP CORP. AND SUBSIDIARIES
3. PROPERTY AND EQUIPMENT, AT COST
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land...................................................... $ 17,051 $ 17,512
Buildings and improvements................................ 33,603 32,529
Leaseholds and improvements............................... 79,025 66,295
Equipment and fixtures.................................... 11,853 10,776
Construction in progress.................................. 13,650 3,598
Properties under capital lease............................ 19,174 15,009
-------- --------
174,356 145,719
Less accumulated depreciation and amortization............ 31,605 24,865
-------- --------
Property and equipment, net............................... $142,751 $120,854
======== ========
</TABLE>
Accumulated depreciation and amortization includes accumulated amortization
for properties under capital lease in the amount of $2,326,000 and $1,740,000
at December 31, 1997 and 1996, respectively.
4. REACQUIRED FRANCHISES AND EQUIPMENT HELD FOR SALE
Reacquired franchises and equipment held for sale are accounted for on the
specific identification basis. At the date of reacquisition the franchise and
equipment are recorded at the lower of (i) the sum of the franchise
receivables and costs of reacquisition or (ii) the estimated net realizable
value. Pending the sale of such franchise, the carrying value is amortized
ratably over the remaining life of the asset or lease and the estimated net
realizable value is reassessed each year.
<TABLE>
<CAPTION>
1997 1996
------- ------
(IN THOUSANDS)
<S> <C> <C>
Franchises................................................... $ 8,596 $5,484
Equipment.................................................... 10,436 6,777
------- ------
19,032 12,261
Less amortization............................................ 3,560 2,435
------- ------
15,472 9,826
Less current portion......................................... 2,321 1,474
------- ------
Long-term reacquired franchises and equipment held for sale,
net......................................................... $13,151 $8,352
======= ======
</TABLE>
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Senior notes due November 2008, payable in equal annual
installments commencing November 2000, interest at 7.42%. $35,000 $35,000
Senior notes due November 2002, payable in equal annual
installments commencing November 1996, interest at 7.79%. 22,858 27,429
Other..................................................... 2,065 866
------- -------
Total debt................................................ 59,923 63,295
Less current maturities................................... 4,973 4,731
------- -------
Long-term debt............................................ $54,950 $58,564
======= =======
</TABLE>
F-17
<PAGE>
IHOP CORP. AND SUBSIDIARIES
In November 1996, IHOP completed a private placement of $35 million of
unsecured senior notes due November 2008. The notes have a fixed interest rate
of 7.42% with annual principal payments of $3,889,000 commencing November
2000. Proceeds from the sale of the senior notes were used, in part, to repay
$17.6 million outstanding under the Company's revolving credit agreement with
its bank, to pay $4.7 million in principal and accrued interest for the senior
notes due 2002, to fund capital expenditures for new restaurants and for
general corporate purposes. The senior notes due November 2002 are also
unsecured.
The Company has an unsecured $20 million revolving credit agreement with its
bank that was amended in June 1997 to extend the maturity date to June 2000.
Borrowings under the agreement bear interest at the bank's reference rate
(prime) or, at the Company's option, at the bank's quoted rate or at a
Eurodollar rate. A commitment fee of 0.375% per annum is payable on unborrowed
funds available under the agreement. There were no borrowings outstanding
under this agreement at December 31, 1997 and 1996. The largest amount
outstanding under the agreement during 1997 was $600,000.
The senior note agreements and the bank revolving credit agreement contain
certain restrictions and conditions, the most restrictive of which limit
dividends and investments. At December 31, 1997, approximately $42 million of
retained earnings was free of restriction as to distribution as dividends.
The prime rate was 8.5% at December 31, 1997, and 8.25% at December 31,
1996.
The Company's long-term debt maturities are as follows: 1998--$4,973,000;
1999--$5,344,000; 2000--$8,826,000; 2001--$8,784,000; 2002--$8,663,000; and
thereafter--$23,333,000.
6. LEASES
The Company leases the majority of its restaurants with the exception of
those where a franchisee enters into a lease directly with a landlord and
those associated with area license agreements. The restaurants are subleased
to franchisees or operated by IHOP. These noncancelable leases and subleases
consist primarily of land and buildings and improvements.
Net investment in direct financing leases receivable is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Total minimum rents receivable............................. $282,732 $224,554
Less unearned income....................................... 198,615 158,323
-------- --------
Net investment in direct financing leases receivable....... 84,117 66,231
Less current portion....................................... 693 615
-------- --------
Long-term direct financing leases receivable............... $ 83,424 $ 65,616
======== ========
</TABLE>
Contingent rental income for the years ended December 31, 1997, 1996 and
1995, was $14,812,000, $13,901,000 and $14,332,000, respectively.
F-18
<PAGE>
IHOP CORP. AND SUBSIDIARIES
Minimum future lease payments on noncancelable leases at December 31, 1997,
are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
1998......................................... $ 12,399 $ 18,632
1999......................................... 12,492 17,591
2000......................................... 12,617 16,839
2001......................................... 12,730 14,901
2002......................................... 12,880 13,762
Thereafter................................... 221,467 164,129
-------- --------
Total minimum lease payments................. 284,585 $245,854
========
Less interest................................ 180,945
--------
Capital lease obligations.................... 103,640
Less current portion......................... 1,062
--------
Long-term capital lease obligations.......... $102,578
========
</TABLE>
The minimum future lease payments shown above have not been reduced by the
future minimum rents to be received on noncancelable subleases and leases of
owned property at December 31, 1997, as follows:
<TABLE>
<CAPTION>
DIRECT
FINANCING LEASES OPERATING LEASES
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
1998....................................... $ 11,976 $ 21,252
1999....................................... 12,015 20,615
2000....................................... 12,136 20,078
2001....................................... 12,225 19,311
2002....................................... 12,364 19,049
Thereafter................................. 222,016 286,395
-------- --------
Total minimum rents receivable............. $282,732 $386,700
======== ========
</TABLE>
IHOP has noncancelable leases, expiring at various dates through 2048, that
require payment of contingent rents based upon a percentage of sales of the
related restaurant as well as property taxes, insurance and other charges.
Subleases to franchisees of properties under such leases are generally for the
full term of the Company's lease obligation at rents that include IHOP's
obligations for property taxes, insurance, contingent rents and other charges.
Generally, the noncancelable leases include renewal options. Contingent rent
expense for all noncancelable leases for the years ended December 31, 1997,
1996 and 1995, was $3,385,000, $3,161,000 and $3,391,000, respectively.
Minimum rent expense for all noncancelable operating leases for the years
ended December 31, 1997, 1996 and 1995, was $19,137,000, $17,557,000 and
$15,464,000, respectively.
7. SHAREHOLDERS' EQUITY
The Stock Incentive Plan (the "Plan" ) was adopted in 1991 and amended and
restated in 1994 to authorize the issuance of up to 1,380,000 shares of common
stock pursuant to options, restricted stock, and other long-term stock-based
incentives to officers and key employees of the Company. The Company will be
requesting approval from the Company's shareholders at the 1998 Annual Meeting
of Shareholders (scheduled for May 12, 1998) to ratify an amendment to the
Plan increasing the number of shares available for issuance thereunder from
1,380,000 to 1,880,000. Except for substitute stock options which were issued
in 1991 pursuant to the cancellation of a stock appreciation rights plan, no
option can be granted at an option price of less than 100% of fair market
value at the date of grant. Exercisability of options is determined at, or
after, the date of grant by the
F-19
<PAGE>
IHOP CORP. AND SUBSIDIARIES
administrator of the plan. Options granted under the Plan through December 31,
1997, become exercisable 1/3 after one year, 2/3 after two years and 100%
after three years or immediately upon change in control of the Company, as
defined by the Plan, except for the substitute stock options which were
immediately exercisable.
The Stock Option Plan for Non-Employee Directors (the "Directors Plan" ) was
adopted in 1994 to authorize the issuance of up to 200,000 shares of common
stock pursuant to options to non-employee members of the Company's Board of
Directors. Options are to be granted at an option price equal to 100% of the
fair market value of the stock on the date of grant. Options granted pursuant
to the Directors Plan vest and become exercisable 1/3 after one year, 2/3
after two years and 100% after three years. Options for the purchase of shares
are granted to each non-employee Director under the Directors Plan as follows:
(a) 7,500 on February 23, 1995, or on the Director's election to the Board of
Directors if he or she was not a Director on such date, and (b) 2,500
biennially in conjunction with the Company's Annual Meeting of Shareholders
for that year.
The following summarizes stock option activity in IHOP's stock option plans
for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES UNDER OPTION SHARES EXERCISE PRICE
------------------- -------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994.................. 749,540 $18.68
Granted........................................... 298,000 26.58
Exercised......................................... (139,697) 12.86
Terminated........................................ (31,935) 27.77
--------
Outstanding at December 31, 1995.................. 875,908 22.24
Granted........................................... 170,500 27.71
Exercised......................................... (47,334) 12.55
Terminated........................................ (50,129) 27.83
--------
Outstanding at December 31, 1996.................. 948,945 23.33
Granted........................................... 214,000 27.16
Exercised......................................... (186,427) 21.03
Terminated........................................ (43,275) 27.03
--------
Outstanding at December 31, 1997.................. 933,243 $24.45
======== ======
Exercisable at December 31, 1997.................. 551,546 $22.60
======== ======
</TABLE>
At December 31, 1997, the 933,243 outstanding shares under option have a
range of exercise prices from $7.14 to $35.88 and a weighted average
contractual life of 7.0 years.
There were 9,456 and 13,030 shares of restricted stock awarded in 1997 and
1995, respectively. No shares of restricted stock were awarded in 1996. At
December 31, 1997, there were 13,799 shares of restricted stock outstanding.
F-20
<PAGE>
IHOP CORP. AND SUBSIDIARIES
IHOP has adopted the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" and will continue to use the intrinsic value
based method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant date
for awards in 1995, 1996 and 1997 consistent with the provisions of SFAS No.
123, the Company's net earnings and diluted earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net earnings, as reported............................ $20,914 $18,604 $16,154
Net earnings, pro forma.............................. 19,956 17,930 15,768
Earnings per share--diluted, as reported............. 2.15 1.95 1.70
Earnings per share--diluted, pro forma............... 2.05 1.86 1.66
Weighted average fair value of options granted....... 27.16 27.71 26.58
</TABLE>
The fair value of each option grant issued in 1997, 1996 and 1995 is
estimated at the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Risk free interest rate........................... 6.25% 7.22% 7.22%
Expected volatility............................... 37.0% 37.0% 37.0%
Dividend yield.................................... -- -- --
Weighted average expected life.................... 3 years 3 years 3 years
</TABLE>
8. OTHER REVENUES
Other revenues include sales of franchises and equipment in the amount of
$28,864,000, $25,573,000, and $22,202,000, for the years ended December 31,
1997, 1996 and 1995, respectively.
9. SEVERANCE CHARGES
In the first quarter of 1995, the Company recognized severance charges of
$800,000 associated with a realignment of responsibilities in its restaurant
operations, restaurant development and purchasing functions. The effect of the
charges was $484,000, net of income tax benefit, or $.05 per share.
10. INCOME TAXES
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes
Current
Federal.......................................... $ 8,805 $ 6,368 $ 3,832
State and foreign................................ 1,608 1,338 925
------- ------- -------
10,413 7,706 4,757
------- ------- -------
Deferred
Federal.......................................... 2,022 3,383 4,997
State............................................ 937 1,058 793
------- ------- -------
2,959 4,441 5,790
------- ------- -------
Provision for income taxes........................... $13,372 $12,147 $10,547
======= ======= =======
</TABLE>
F-21
<PAGE>
IHOP CORP. AND SUBSIDIARIES
The provision for income taxes differs from the expected federal income tax
rates as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate......................... 35.0% 35.0% 35.0%
State and foreign income taxes, net of federal tax
benefit.................................................. 4.0 4.2 4.2
Other, net................................................ -- 0.3 0.3
---- ---- ----
Effective tax rate........................................ 39.0% 39.5% 39.5%
==== ==== ====
</TABLE>
Deferred tax liabilities (assets) consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Franchise and equipment sales, including differences in
capitalization and revenue recognition................... $39,558 $34,375
Property and equipment, including differences in
capitalization and depreciation and amortization......... 8,025 8,037
Reacquired franchises and equipment held for resale,
including differences in capitalization and depreciation
and amortization......................................... (6,148) (7,083)
Direct financing leases and capital lease obligations,
including differences in capitalization and application
of cash receipts and disbursements....................... (8,067) (6,315)
Federal tax benefit of net deferred state tax liability... (1,766) (1,516)
Other net liabilities..................................... 728 1,874
------- -------
Deferred tax liabilities.................................. $32,330 $29,372
======= =======
</TABLE>
11. EMPLOYEE BENEFIT PLANS
In 1987, IHOP adopted a noncontributory Employee Stock Ownership Plan
("ESOP"). The ESOP is a stock bonus plan under Section 401(a) of the Internal
Revenue Code. The plan covers IHOP employees who meet the minimum credited
service requirements of the plan except for those employees whose terms of
service are covered by a collective bargaining agreement (unless the terms of
such agreement specifically provide for participation in the ESOP).
The cost of the ESOP is borne by the Company through contributions
determined by the Board of Directors in accordance with the ESOP provisions
and Internal Revenue Service regulations. The contributions to the plan for
the years ended December 31, 1997, 1996 and 1995, were $1,300,000, $1,250,000,
and $1,200,000, respectively. The contribution for the year ended December 31,
1997, will be made in shares of the Company's common stock.
Shares of stock acquired by the ESOP are allocated to each eligible employee
and held by the ESOP. Upon the employee's termination after vesting, or in
certain other limited circumstances, the employee's shares are distributed to
the employee according to his or her direction.
12. COMMITMENTS AND CONTINGENCIES
The Company is subject to various claims and legal actions that have arisen
in the ordinary course of business. The Company believes such claims and legal
actions, individually or in the aggregate, will not have a material adverse
effect on the business or financial condition of the Company.
F-22
<PAGE>
IHOP CORP. AND SUBSIDIARIES
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
IHOP does not hold or issue financial instruments for trading purposes nor
is it a party to derivative transactions, interest rate swaps or other
transactions commonly utilized to manage interest rate or foreign currency
risk.
The estimated fair values of all cash and cash equivalents, notes receivable
and equipment contracts receivable as of December 31, 1997 and 1996,
approximated their carrying amounts in the Consolidated Balance Sheets as of
those dates. The estimated fair values of notes receivable and equipment
contracts receivable are based on current interest rates offered for similar
loans in the Company's present lending activities.
The estimated fair values of long-term debt are based on current rates
available to IHOP for similar debt of the same remaining maturities. The
carrying values of long-term debt at December 31, 1997 and 1996, were
$54,950,000 and $58,564,000, respectively; and the fair values at those dates
were $57,657,000 and $58,876,000, respectively.
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET INCOME NET INCOME
PER SHARE - PER SHARE -
REVENUES GROSS PROFIT NET INCOME BASIC (A) DILUTED (A)
-------- ------------ ---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
1997
1st Quarter........ $46,441 $16,379 $3,550 $.37 $.37
2nd Quarter........ 51,574 19,192 5,038 .53 .52
3rd Quarter........ 56,312 20,536 5,733 .59 .58
4th Quarter........ 61,131 22,265 6,593 .68 .67
1996
1st Quarter........ $40,292 $14,414 $3,062 $.32 $.32
2nd Quarter........ 44,465 16,159 4,369 .46 .46
3rd Quarter........ 51,569 18,495 5,389 .57 .56
4th Quarter........ 53,770 19,426 5,784 .61 .61
</TABLE>
- --------
(a) The quarterly amounts may not add to the full year amount due to rounding.
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders and Board of Directors
IHOP Corp.
We have audited the accompanying consolidated balance sheets of IHOP Corp.
and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IHOP Corp.
and Subsidiaries as of December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Los Angeles, California
February 13, 1998
F-24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on this 18th day
of March, 1998.
IHOP CORP.
/s/ Richard K. Herzer
By: _________________________________
Richard K. Herzer
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant, in the capacities indicated, on this 18th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ Richard K. Herzer Chairman of the Board,
____________________________________ President and Chief
Richard K. Herzer Executive Officer
(Principal Executive
Officer)
/s/ Frederick G. Silny Vice President--Finance and
____________________________________ Treasurer (Principal
Frederick G. Silny Financial Officer)
/s/ Gene A. Scott Controller (Principal
____________________________________ Accounting Officer)
Gene A. Scott
/s/ H. Frederick Christie Director
____________________________________
H. Frederick Christie
/s/ Frank Edelstein Director
____________________________________
Frank Edelstein
/s/ Michael S. Gordon Director
____________________________________
Michael S. Gordon
/s/ Neven C. Hulsey Director
____________________________________
Neven C. Hulsey
/s/ Larry Alan Kay Director
____________________________________
Larry Alan Kay
/s/ Dennis M. Leifheit Executive Vice President--
____________________________________ Operations, Chief Operating
Dennis M. Leifheit Officer and Director
/s/ Caroline W. Nahas Director
____________________________________
Caroline W. Nahas
/s/ Patrick W. Rose Director
____________________________________
Patrick W. Rose
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
------- -------------------- ------------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of IHOP Corp.
3.2 Bylaws of IHOP Corp.
4.1 Senior Note Purchase Agreement, dated as of November
19, 1992, among IHOP Corp., International House of
Pancakes, Inc. ("IHOP, Inc.") and Mutual Life Insurance
Company of New York and other purchasers.
4.2 First Amendment to Senior Note Purchase Agreement,
dated as of November 1, 1996, among IHOP Corp., IHOP
Inc., and Mutual Life Insurance Company of New York and
other purchasers. Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1996, (the "1996 Form 10-K") is hereby incorporated
by reference.
4.3 $10,000,000 Letter Agreement among IHOP, Inc., IHOP
Corp. and Continental Bank, N.A., dated as of June 30,
1993.
4.4 First Amendment to Letter Agreement, dated as of
December 31, 1994, among IHOP, Inc., IHOP Corp. and
Bank of America Illinois (successor by merger to
Continental Bank, N.A.).
4.5 Second Amendment to Letter Agreement, dated as of March
11, 1996, among IHOP, Inc., IHOP Corp. and Bank of
America Illinois.
4.6 Third Amendment to Letter Agreement, dated as of
September 3, 1996, among IHOP, Inc., IHOP Corp. and
Bank of America Illinois. Exhibit 4.6 to the 1996 Form
10-K is hereby incorporated by reference.
4.7 Fourth Amendment to Letter Agreement, dated as of
November 1, 1996, among IHOP, Inc., IHOP Corp. and Bank
of America Illinois. Exhibit 4.7 to the 1996 Form 10-K
is hereby incorporated by reference.
4.8 Senior Note Purchase Agreement, dated as of November 1,
1996, among IHOP, Inc., IHOP Corp. and Jackson National
Life Insurance Company and other purchasers.
Exhibit 4.8 to the 1996 Form 10-K is hereby
incorporated by reference.
*10.1 IHOP Corp. Executive Incentive Plan effective January
1, 1998.
*10.2 IHOP Corp. 1991 Stock Incentive Plan as Amended and
Restated February 23, 1994.
*10.3 IHOP Corp. 1994 Stock Option Plan for Non-Employee
Directors.
*10.4 Employment Agreement between the Company and Rand
Michael Ferris. Exhibit 10.6 to the 1996 Form 10-K is
hereby incorporated by reference.
*10.5 Employment Agreement between the Company and Susan
Henderson-Hernandez. Exhibit 10.7 to the 1996 Form 10-K
is hereby incorporated by reference.
*10.6 Employment Agreement between the Company and Richard K.
Herzer. Exhibit 10.8 to the 1996 Form 10-K is hereby
incorporated by reference.
*10.7 Employment Agreement between the Company and Dennis M.
Leifheit. Exhibit 10.9 to the 1996 Form 10-K is hereby
incorporated by reference.
*10.8 Employment Agreement between the Company and Naomi K.
Shively. Exhibit 10.10 to the 1996 Form 10-K is hereby
incorporated by reference.
*10.9 Employment Agreement between the Company and Frederick
G. Silny. Exhibit 10.11 to the 1996 Form 10-K is hereby
incorporated by reference.
*10.10 Employment Agreement between the Company and Anna G.
Ulvan. Exhibit 10.12 to the 1996 Form 10-K is hereby
incorporated by reference.
</TABLE>
<PAGE>
EXHIBIT INDEX--(CONTINUED)
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
------- -------------------- ------------
<C> <S> <C>
*10.11 Employment Agreement between the Company and Mark D.
Weisberger. Exhibit 10.13 to the 1996 Form 10-K is
hereby incorporated by reference.
*10.12 Employment Agreement between the Company and Richard C.
Celio. Exhibit 10 to the Form 10-Q for the quarterly
period ended March 31, 1997, is hereby incorporated by
reference.
*10.13 Employment Agreement between the Company and John
Jordan.
10.14 Area Franchise Agreement, effective as of May 5, 1988,
by and between IHOP, Inc. and FMS Management Systems,
Inc.
*10.15 International House of Pancakes Employee Stock
Ownership Plan as Amended and Restated as of July 12,
1991 ("the ESOP").
*10.16 Amendment No. 1 to the ESOP.
*10.17 Amendment No. 2 to the ESOP.
*10.18 Amendment No. 3 to the ESOP. Exhibit 10 to the Form 10-
Q for the quarterly period ended September 30, 1996, is
hereby incorporated by reference.
*10.19 Amendment No. 4 to the ESOP. Exhibit 10 to the Form 10-
Q for the quarterly period ended September 30, 1997, is
hereby incorporated by reference.
11.0 Statement Regarding Computation of Per Share Earnings.
21.0 Subsidiaries of the Company.
23.0 Consent of Coopers & Lybrand, L.L.P.
27.0 Financial Data Schedule.
</TABLE>
- --------
* Management contracts or compensatory plans or arrangements are marked with an
asterisk.
<PAGE>
EXHIBIT I
RESTATED CERTIFICATE OF INCORPORATION
OF
IHOP CORP
IHOP CARP., a Delaware corporation organized under that name on May 7,
1976, hereby amends and restates its Certificate of Incorporation to read in
its entirety as set forth below:
FIRST: The name of the Corporation is IHOP Corp. (hereinafter the
-----
"Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is 32 Loockerman Square, Suite L-1OO, in the City of
Dover, County of Kent. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware
code (the "DGCL").
FOURTH: The total number of shares which the Corporation shall have
------
authority to issue is 50,000,000 shares, consisting of (a) 40,000,000
shares of common stock, par value $.01 per share (The "Common Stock"),
and (b) 10,000,000 shares of preferred stock, par value $1.00 per share (the
"Preferred Stock").
The Board of Directors of the Corporation (the "Board of Directors") is
expressly authorized, at any time and from time to time, to fix, by resolution
or resolutions, the following provisions for shares of any class or classes of
Preferred Stock of the Corporation or any series of any class of Preferred
Stock:
(a) the designation of such class or series, the number of shares
to constitute such class or series and the stated value thereof if different
from the par value thereof;
<PAGE>
(b) whether the shares of such class or series shall have voting
rights, in addition to any voting rights provided by law, and, if so, the terms
of such voting rights, which may (i) be general or limited, (ii) subject to
applicable law or regulation, including without limitation the rules of any
securities exchange on which securities of any class of the Corporation may be
listed, permit more than one vote per share, or (iii) vary among
stockholders of the same class based upon such factors as the Board of Directors
may determine including, without limitation, the size of a stockholder's
position and/or the length of time with respect to which such position has been
held:
(c) the dividends, if any, payable on such class or series,
whether any such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, the preference
or relation which such dividends shall bear to the dividends payable on any
shares of stock of any other class or any other series of the same class;
(d) whether the shares of such class or series shall be
subject to redemption by the Corporation, and, if so, the times, prices and
other conditions of such redemption;
(e) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such class or series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any distribution of
the assets, of the Corporation;
(f) whether the shares of such class or series shall be subject to
the operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such class or series for retirement or
other corporate purposes and the terms and provisions relative to the operation
thereof;
(g) whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of stock of any other class or any
other series of the same class or any other securities (including Common Stock)
and, if so, the price or prices or the rate or rates of conversion or exchange
and the method, if any,
2
<PAGE>
of adjusting the same and any other terms and conditions of conversion or
exchange;
(h) the limitations and restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of, the Common Stock or
shares of stock of any other class or any other series of the same class;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other series of
the same class or of any other class;
(j) the ranking (be it pari passu, junior or senior) of each
---- -----
class or series vis-a-vis any other class or series of any class of Preferred
Stock as to the payment of dividends, the distribution of assets and all other
matters; and
(k) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof, insofar as they are not inconsistent with the provisions
of this Restated Certificate of Incorporation, to the full extent permitted in
accordance with the laws of the State of Delaware.
The powers, preferences and relative, participating, optional and other
special rights of each class or series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
3
<PAGE>
(b) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the By-Laws of the
Corporation.
(c) The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors consisting of not less than
three nor more than 13 directors, the exact number of directors to be determined
from time to time by resolution adopted by the affirmative vote of a majority of
the directors then in office. The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire board of directors. Immediately following the adoption by the
Corporation of this Restated Certificate of Incorporation, a majority of the
Board of Directors shall elect Class I directors for a one-year term, Class II
directors for a two-year term and Class III directors for a three-year term. At
each annual meeting of stockholders beginning in 1992, successors to the class
of directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible, but in no case shall a decrease in
the number of directors shorten the term of any incumbent director. A director
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. Any vacancy on the Board of Directors that results from an increase
in the number of directors may be filled by a majority of the Board of Directors
then in office, provided that a quorum if present, and any other vacancy
occurring in the Board of Directors may be filled by a majority of the directors
then in office, even if less than a quorum, or by a sole remaining director. Any
director of any class elected to fill a vacancy resulting from an increase in
the number of directors in such class shall hold office for a term that shall
coincide with the remaining term of that class. Any director elected to fill a
vacancy not resulting from an increase in the number of directors shall have the
same remaining term as that of his predecessor.
4
<PAGE>
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation, if any, shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
FIFTH unless expressly provided by such terms.
(d) Directors of the Corporation may be removed by stockholders of
the Corporation only for cause.
(e) No director shall be personally liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this Article FIFTH by the stockholders of the Corporation shall
not adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.
(f) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject, nevertheless, to the provisions of the DGCL,
this Restated Certificate of Incorporation, and any By-Laws adopted by the
stockholders; provided, however, that no By-Laws hereafter adopted by the
-------- -------
stockholders shall invalidate any prior act of the directors which would have
been valid if such By-Laws had not been adopted.
SIXTH: Whenever a compromise or arrangement is proposed between the
-----
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
5
<PAGE>
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the DGCL, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing seventy-five percent (75%) in
value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
the Corporation, as the case may be, and also on the Corporation.
SEVENTH: Any action required or permitted to be taken by the
-------
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Special meetings of stockholders of the
Corporation may be called only by the Chairman of the Board, if there be one,
the President or the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption). Written notice
of a special meeting stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called shall be given not less than
ten (10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.
EIGHTH: The Corporation reserves the right to amend, alter, change or
------
repeal any provision contained in this Restated Certificate of Incorporation or
in the By-laws of the Corporation, in the manner now or hereafter
6
<PAGE>
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation, provided, however, that subject to the
-------- -------
powers and rights provided for herein with respect to Preferred Stock issued by
the Corporation, if any, but notwithstanding anything else contained in this
Restated Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least eighty percent (80%) of the combined voting power of all
of the then outstanding shares of capital stock entitled to vote generally in
the election of directors, voting together as a single class, shall be required
to alter, amend, rescind or repeal (i) Article FOURTH, Article FIFTH, Article
SIXTH, Article SEVENTH or this Article EIGHTH of this Restated Certificate of
Incorporation or to adopt any provision inconsistent therewith or (ii) Section 3
or 8 of Article II, Section 1, 2, 3 or 4 of Article III, Article VIII or Article
IX of the By-Laws of the Corporation or to adopt any provision inconsistent
therewith.
The foregoing Restated Certificate of Incorporation was duly adopted
in accordance with the provisions of Section 245 of the DGCL. The foregoing
Restated Certificate of Incorporation only restates and integrates and does not
further amend the provisions of the Corporation's Certificate of Incorporation
as heretofore amended or supplemented, and there is no discrepancy between those
provisions and the provisions of this Restated Certificate of Incorporation.
7
<PAGE>
IN WITNESS WHEREOF, IHOP Corp. has caused this Restated Certificate of
Incorporation to be duly executed in its corporate name this 30th day of July,
1992.
IHOP CORP.
By: /s/ Richard K. Herzer
----------------------------
Name: Richard K. Herzer
Title: President
ATTEST:
By: /s/ Larry Alan Kay
---------------------------
Name: Larry Alan Kay
Title: Secretary
8
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
IHOP CORP.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of the Corporation
--------- -----------------
shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at
--------- -------------
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders for the
---------- -----------------
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of Stockholders
---------- ---------------
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect, in accordance with Section 1 and Section
2 of Article III of these Bylaws, by a plurality vote those Directors belonging
to the class or classes of directors to be elected at such meeting, and transact
such other business as may properly be brought before the meeting. Written
notice of the Annual Meeting stating the place, date and hour of the meeting
shall be given to each stockholder
<PAGE>
entitled to vote at such meeting not less than ten (10) nor more than sixty (60)
days before the date of the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or
--------- ----------------
by the Restated Certificate of Incorporation, Special Meetings of Stockholders
may be called only by the Chairman of the Board, if there be one, the President
or the Board of Directors pursuant to a resolution adopted by a majority of the
entire board of directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board of Directors for adoption). Written notice of a Special Meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called shall be given not less than ten (10) nor more than
sixty (60) days before the date of the meeting to each stockholder entitled to
vote at such meeting. Business transacted at all special meetings shall be
confined to the purposes stated in the call.
Section 4. Quorum. Except as otherwise provided by law or by the
--------- ------
Restated Certificate of Incorporation, the holders of a majority of the capital
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder entitled to
vote at the meeting.
Section 5. Voting. Unless otherwise required by law, the Restated
--------- ------
Certificate of Incorporation or these By-Laws, (i) any question brought before
any
2
<PAGE>
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat and (ii) each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy but no proxy
shall be voted on or after three years from its date, unless such proxy provides
for a longer period. The Board of Directors, in its discretion, or the officer
of the Corporation presiding at a meeting of stockholders, in his discretion,
may require that any votes cast at such meeting shall be cast by written ballot.
Section 6. List of Stockholders Entitled to Vote. The officer of the
--------- -------------------------------------
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 7. Stock Ledger. The stock ledger of the Corporation shall
--------- ------------
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 6 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 8. Notice of Business. No business may be transacted at an
--------- ------------------
annual meeting of stockholders, other than business that is either (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors (or any duly authorized committee thereof),
(b) otherwise properly
3
<PAGE>
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 8 of this Article II and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 8 of this
Article II.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
-------- -------
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such
4
<PAGE>
stockholder intends to appear in person or by proxy at the annual meeting to
bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 8 of this Article II, provided, however,
-------- -------
that, once business has been properly brought before the annual meeting in
accordance with such procedures, nothing in this Section 8 of this Article II
shall be deemed to preclude discussion by any stockholder of any such business.
If the Chairman of an annual meeting determines that business was not properly
brought before the annual meeting in accordance with the foregoing procedures,
the Chairman shall declare to the meeting that the business was not properly
brought before the meeting and such business shall not be transacted.
ARTICLE III
DIRECTORS
---------
Section 1. Number and Election of Directors. The business and affairs
---------- --------------------------------
of the Corporation shall be managed by or under the direction of a Board of
Directors consisting of not less than three nor more than 13 directors, the
exact number of directors to be determined from time to time by resolution
adopted by the affirmative vote of a majority of the directors then in office.
The directors shall be divided into three classes, designated Class I, Class II
and Class III. Each class shall consist, as nearly as may be possible, of one-
third of the total number of directors constituting the entire Board of
Directors. Immediately following the adoption by the Corporation of the Restated
Certificate of Incorporation, a majority of the Board of Directors shall elect
Class I directors for a one-year term, Class II directors for a two-year term
and Class III directors for a three-year term. At each annual meeting of
stockholders beginning in 1992, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, but in no case shall a
5
<PAGE>
decrease in the number of directors shorten the term of any incumbent director.
A director shall hold office until the annual meeting for the year in which his
term expires and until his successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation, if any, shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of the Restated Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Section
1 of this Article III unless expressly provided by such terms.
Section 2. Nomination of Directors. Only persons who are nominated
---------- -----------------------
in accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the
Restated Certificate of Incorporation of the Corporation with respect to the
right of holders of preferred stock of the Corporation to nominate and elect a
specified number of directors in certain circumstances. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 2 of this Article III and on the record date
for the determination of stockholders entitled to vote at such meeting and (ii)
who complies with the notice procedures set forth in this Section 2 of this
Article III.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.
6
<PAGE>
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
-------- -------
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends
7
<PAGE>
to appear in person or by proxy at the meeting to nominate the persons named in
its notice and (v) any other information relating to such stockholder that would
be required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 2 of this Article III. If the Chairman of the meeting determines that a
nomination was not made in accordance with the foregoing procedures, the
Chairman shall declare to the meeting that the nomination was defective and such
defective nomination shall be disregarded.
Section 3. Removal of Directors. Directors of the Corporation may be
---------- --------------------
removed by stockholders of the Corporation only for cause.
Section 4. Vacancies. Any vacancy on the Board of Directors that
---------- ---------
results from an increase in the number of directors may be filled by a majority
of the Board of Directors then in office, provided that a quorum is present, and
any other vacancy occurring in the Board of Directors may be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director. Any director of any class elected to fill a vacancy
resulting from an increase in the number of directors in such class shall hold
office for a term that shall coincide with the remaining term of that class. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of his predecessor.
Section 5. Duties and Powers. The business of the Corporation
---------- -----------------
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Restated Certificate of Incorporation or
by these By-Laws directed or required to be exercised or done by the
stockholders.
8
<PAGE>
Section 6. Meetings. The Board of Directors of the Corporation may
---------- --------
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President or any two directors. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone, electronic facsimile or telegram on twenty-four (24)
hours' notice, or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances.
Section 7. Quorum. Except as may be otherwise specifically provided
---------- ------
by law, the Restated Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business, and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 8. Actions of Board. Unless otherwise provided by the
---------- ----------------
Restated Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 9. Meetings by Means of Conference Telephone. Unless
---------- -----------------------------------------
otherwise provided by the Restated Certificate of Incorporation or these By-
Laws, members of the Board of Directors of the Corporation, or any committee
designated by the Board of Directors, may participate in a meeting of the Board
of Directors or such committee
9
<PAGE>
by means of a conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 9 of this Article III shall
constitute presence in person at such meeting.
Section 10. Committees. The Board of Directors may, by resolution
----------- ----------
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
Section 11. Compensation. The directors may be paid their
----------- ------------
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation there-
for. Members of special or standing committees may be allowed like compensation
for attending committee meetings.
Section 12. Interested Directors. No contract or transaction
----------- --------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have
10
<PAGE>
a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof which authorizes the
contract or transaction, or solely because his or their votes are counted for
such purpose if (i) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be
---------- -------
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chairman
of the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. The
President or any Vice-President may appoint Assistant Secretaries and Assistant
Treasurers. Any number of offices may be held by the same person, unless
otherwise prohibited by law, the Restated Certificate of Incorporation or these
By-Laws. The officers of the Corporation need not be stockholders of the
Corporation nor, except in the case of the Chairman of the Board of Directors,
need such officers be directors of the Corporation.
11
<PAGE>
Section 2. Election. The Board of Directors at its first meeting
--------- --------
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
--------- ------------------------------------------
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and powers incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the
--------- ----------------------------------
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman
12
<PAGE>
of the Board of Directors shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these By-Laws
or by the Board of Directors.
Section 5. President. The President shall, subject to the control
--------- ---------
of the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute all bonds, mortgages, contracts and other instruments
of the Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these By-Laws, the Board of Directors or the President. In
the absence or disability of the Chairman of the Board of Directors, or if there
be none, the President shall preside at all meetings of the stockholders and the
Board of Directors. If there be no Chairman of the Board of Directors, the
President shall be the Chief Executive Officer of the Corporation. The President
shall also perform such other duties and may exercise such other powers as from
time to time may be assigned to him by these By-Laws or by the Board of
Directors.
Section 6. Vice Presidents. At the request of the President or in
--------- ---------------
his absence or in the event of his inability or refusal to act (and if there be
no Chairman of the Board of Directors), the Executive Vice President or the
Executive Vice Presidents if there is more than one (in the order designated by
the Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Executive Vice President shall perform such other duties and
have such other powers as the Board of Directors from time to time may
prescribe. If there be no Chairman of the Board of Directors and no Executive
Vice President, the Vice President or the Vice Presidents if there is more than
one (in the order designated by the Board of Directors) shall perform the duties
of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. Each Vice President shall
perform such other duties and have such
13
<PAGE>
other powers as the Board of Directors from time to time may prescribe. If
there be no Chairman of the Board of Directors, no Executive Vice President and
no Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of
---------- ---------
the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
---------- ---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of Direc-
14
<PAGE>
tors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise
---------- ---------------------
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there
----------- --------------------
be any, shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
15
<PAGE>
whatever kind in his possession or under his control belonging to the
Corporation.
Section 11. Other Officers. Such other officers as the Board of
---------- --------------
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
-----
Section 1. Form of Certificates. Every holder of stock in the
--------- --------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by (i)
--------- ----------
a transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a
--------- -----------------
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance
16
<PAGE>
thereof, require the owner of such lost, stolen or destroyed certificate, or his
legal representative, to advertise the same in such manner as the Board of
Directors shall require and/or to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 4. Transfers. Stock of the Corporation shall be
--------- ---------
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may
--------- -----------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
--------- -----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
17
<PAGE>
ARTICLE VI
NOTICES
-------
Section 1. Notices. Whenever written notice is required by law,
---------- -------
the Restated Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by electronic facsimile, telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by
---------- -----------------
law, the Restated Certificate of Incorporation or these By-Laws, to be given to
any director, member of a committee or stockholder, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
---------- ---------
Corporation, subject to the provisions of the Restated Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, and may be paid in cash, in property, or in shares of the
capital stock. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
---------- -------------
notes of the Corporation shall be signed by such officer or officers or such
other person
18
<PAGE>
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
--------- -----------
fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
--------- --------------
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 1. Power to Indemnify in Actions, Suits or Proceedings other
--------- ---------------------------------------------------------
Than Those by or in the Right of the Corporation. Subject to Section 3 of this
- ------------------------------------------------
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
---- ----------
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action
19
<PAGE>
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or
---------- ---------------------------------------------------------
in the Right of the Corporation. Subject to Section 3 of this Article VIII, the
- -------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification
---------- --------------------------------
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article VIII, as the case may be. Such determination shall be
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders. To the extent, however,
20
<PAGE>
that a director or officer of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
Section 4. Good Faith Defined. For purposes of any determination
---------- ------------------
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 of this
Article VIII shall mean any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise of which such person is or was
serving at the request of the Corporation as a director, officer, employee or
agent. The provisions of this Section 4 of this Article VIII shall not be deemed
to be exclusive or to limit in any way the circumstances in which a person may
be deemed to have met the applicable standard of conduct set forth in Section 1
or Section 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any
---------- --------------------------
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to any court of competent jurisdiction in the
State of Delaware for indemnification to the extent otherwise permissible under
Sections 1 and 2 of this Article VIII. The basis of such indemnification by a
court shall be a determination by such court
21
<PAGE>
that indemnification of the director or officer is proper in the circumstances
because he has met the applicable standards of conduct set forth in Section 1 or
Section 2 of this Article VIII, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this Article VIII nor the
absence of any determination thereunder shall be a defense to such application
or create a presumption that the director or officer seeking indemnification has
not met any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 of this Article VIII shall be given
to the Corporation promptly upon the filing of such application. If successful,
in whole or in part, the director or officer seeking indemnification shall also
be entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
---------- ---------------------------
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
---------- ----------------------------------------------------
Expenses. The indemnification and advancement of expenses provided by or
- --------
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be deemed
to preclude the indemnification or advancement of expenses of any person who is
not specified in Section 1 or Section 2 of this Article VIII but whom the
Corporation has the power or obligation to
22
<PAGE>
indemnify or advance expenses under the provisions of the General Corporation
Law of the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
--------- ---------
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability under the provisions of this
Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
--------- -------------------
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors and officers, so that any person who is or was a director or officer
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued. For purposes of this Article VIII, references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director or officer of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Article VIII.
23
<PAGE>
Section 10. Survival of Indemnification and Advancement of Expenses.
---------- -------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer of
the Corporation and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding anything
---------- -----------------------------
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 of this
Article VIII), the Corporation shall not be obligated to indemnify any director
or officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation
---------- ---------------------------------------
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
----------
Section 1. Except as otherwise provided in the Restated Certificate
---------
of Incorporation, these By-Laws may be altered, amended or repealed, in whole or
in part, or new By-Laws may be adopted by the stockholders or by the Board of
Directors, provided, however, that notice of such alteration, amendment, repeal
-------- -------
or adoption of new By-Laws be contained in the notice of such meeting of
stockholders or Board of Directors, as the case may be. Except as otherwise
provided in the Restated Certificate of Incorporation, all such amendments must
be approved by either the holders of at least eighty percent (80%) of the
combined voting power of all of the then outstanding capital stock entitled to
vote generally in the election
24
<PAGE>
of directors, voting together as a single class, or by a majority of the entire
Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article IX
--------- -------------------------
and in these By-Laws generally, the term "entire Board of Directors" means the
total number of directors which the Corporation would have if there were no
vacancies.
25
<PAGE>
-----------------------------------
IHOP CORP.
INTERNATIONAL HOUSE OF PANCAKES, INC.
-----------------------------------
-----------------------------------
SENIOR NOTE PURCHASE AGREEMENT
-----------------------------------
$32,000,000 7.79% SENIOR NOTES DUE 2002
-----------------------------------
Dated as of November 19, 1992
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<C> <S> <C>
1. Authorization and Issue of Notes.............................. 1
2. Purchase and Sale of Notes.................................... 2
3. Payments of Notes............................................. 2
3.1. Mandatory Payments of Principal........................ 2
3.2. Optional Prepayments of the Notes...................... 3
3.3. Notice of Prepayment of the Notes...................... 3
3.4. Allocation of Payments................................. 4
3.5. Surrender of Notes; Notation Thereon................... 4
3.6. Purchase of Notes...................................... 4
4. Representations and Warranties................................ 5
4.1. Corporate Existence and Power.......................... 5
4.2. Corporate Authority.................................... 5
4.3. Binding Effect......................................... 5
4.4. Capital Stock.......................................... 6
4.5. Business Operations and Other
Information; Financial Condition...................... 6
4.6. Subsidiaries........................................... 9
4.7. Litigation; No Violation of
Governmental Orders or Laws........................... 10
4.8. Outstanding Debt....................................... 10
4.9. Consents, Etc.......................................... 11
4.10. Title to Properties.................................... 11
4.11. Taxes.................................................. 12
4.12. No Conflicts with Agreements, Etc...................... 12
4.13. Disclosure............................................. 13
4.14. Offering of Securities................................. 13
4.15. Broker's or Finder's Commissions....................... 14
4.16. Labor Matters.......................................... 14
4.17. Environmental Matters.................................. 14
4.18. Margin Regulations..................................... 16
4.19. Compliance with ERISA.................................. 17
4.20. Material Contracts..................................... 18
4.21. Insurance.............................................. 19
4.22. Status Under Certain Laws.............................. 19
4.23. Legality............................................... 19
4.24. Possession of Franchises, Licenses,
Etc................................................... 19
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<C> <S> <C>
4.25. Franchises............................................. 19
4.26. Use of Proceeds........................................ 20
4.27. Patents and Tradernarks................................ 20
4.28. Compliance with Laws................................... 20
4.29. Franchisees............................................ 20
4.30. Other Agreements....................................... 20
4.31. Solvency............................................... 20
4.32. Foreign Assets Control Regulations..................... 21
5. Representations of Purchasers................................. 21
5.1. Authority.............................................. 21
5.2. Investment Intent...................................... 21
5.3. Source of Funds........................................ 21
5.4. Investor Status........................................ 22
6. Conditions to Obligation of Purchasers........................ 22
6.1. Proceedings Satisfactory............................... 22
6.2. Opinion of Purchasers' Special Counsel................. 22
6.3. Opinion of Counsel to the Borrower and
Holdings.............................................. 22
6.4. Representations and Warranties True, .
Etc.; Certificates.................................... 22
6.5. Absence of Material Adverse Change, Etc. . ............ 23
6.6. Consents and Approvals................................. 23
6.7. Absence of Litigation, Orders, Etc..................... 23
6.8. Other Purchasers....................................... 24
6.9. Legal Investment....................................... 24
6.10. Rating................................................. 24
6.11. Fees................................................... 24
6.12. PPN Number............................................. 24
6.13. Subsidiary Guarantee................................... 24
6.14. Corporate Status and Documentation..................... 24
6.15. Amended Bank Agreement................................. 26
6.16. Use of Proceeds........................................ 26
7. Condition to Obligations of Borrower.......................... 27
7.1. Representations and Warranties True, Etc............... 27
7.2. Absence of Litigation, Orders, Etc..................... 27
7.3. Other Purchasers....................................... 27
8. Financial Statements and Information.......................... 27
9. Inspection of Properties and Books............................ 32
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<C> <S> <C>
10. Affirmative Covenants......................................... 33
10.1. Payment of Principal, Prepayment Charge
and Interest; Etc..................................... 33
10.2. Payment of Taxes and Claims............................ 33
10.3. Maintenance of Properties and Corporate
Existence............................................. 34
10.4. Insurance.............................................. 34
11. Negative and Maintenance Covenants............................ 34
11.1. Restrictions on Liens.................................. 34
11.2. Limitation on Funded Debt.............................. 36
11.3. Consolidated Tangible Net worth........................ 37
11.4. Limitation on Debt of Subsidiaries..................... 37
11.5. Restricted Payments; Restricted
Investments........................................... 37
11.6. Sale of Assets......................................... 38
11.7. Consolidation or Merger................................ 39
11.8 Maintenance of Fixed Charge Coverage................... 40
11.9. Transactions with Affiliates........................... 41
11.10 Acquisition of Margin Securities....................... 41
11.11 Conduct of Business.................................... 41
12. Definitions................................................... 41
13. Events of Default............................................. 55
13.1. Events of Default; Remedies............................ 55
13.2. Acceleration of Notes.................................. 57
13.3. Rescission of Acceleration............................. 58
13.4. Suits for Enforcement.................................. 58
13.5. Remedies Cumulative.................................... 59
13.6. Remedies Not Waived.................................... 59
14. Registration, Exchange, and Transfer of Notes................. 59
15. Lost, Stolen, Damaged and Destroyed Notes..................... 59
16. Miscellaneous................................................. 60
16.1. Home Office Payment.................................... 60
16.2. Amendment and Waiver................................... 60
16.3. Expenses............................................... 61
16.4. Survival of Representations
and Warranties........................................ 62
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<C> <S> <C>
16.5. Successors and Assigns................................. 62
16.6. Notices................................................ 62
16.7. Governing Law.......................................... 63
16.8. Submission to Jurisdiction; Waiver
of Service and Venue.................................. 63
16.9. Indemnification........................................ 64
16.10. Integration and Severability........................... 65
16.11. Payments Due on Days not Business Days................. 65
16.12. Further Assurances..................................... 66
16.13. Counterparts........................................... 66
16.14. Guarantee of Holdings.................................. 66
16.15. Waiver of Right to Trial by Jury....................... 70
Signatures.............................................................. 70
</TABLE>
(iv)
<PAGE>
Schedules
---------
Schedule I - Purchaser Information and Payment Instructions
Schedule 4.5 - Interim Changes
Schedule 4.6 - Subsidiaries
Schedule 4.7 - Litigation
Schedule 4.8 - Existing Current and Funded Debt and Liens
Schedule 4.9 - Consents and Approvals
Schedule 4.11 - Taxes
Schedule 4.16 - Labor Matters
Schedule 4.17 - Environmental Matters
Schedule 4.19 - Compliance with ERISA
Schedule 4.25 - Non-Conforming Franchising Arrangements
Schedule 6.16 - Surviving Obligations
Schedule 12 - Existing Investments
Exhibits
--------
Exhibit A - Form of Note
Exhibit B - Form of Opinion of Counsel for the Purchaser
Exhibit C - Form of Opinion of Counsel for the Borrower
Exhibit D - Form of Subsidiary Guarantee
Exhibit E - Form of IHOP Realty Lease
Exhibit F-1 - Form of Quarterly Compliance Statement
Exhibit F-2 - Form of Compliance Certificate
(v)
<PAGE>
IHOP CORP.
INTERNATIONAL HOUSE OF PANCAKES, INC.
SENIOR NOTE PURCHASE AGREEMENT
November 19, 1992
To The Purchaser Whose Name
Appears in the Acceptance
Form at the End Hereof
Ladies and Gentlemen:
The undersigned, International House of Pancakes, Inc., a Delaware
corporation (the "Borrower"), and IHOP Corp., a Delaware corporation of which
the Borrower is a wholly owned Subsidiary ("Holdings"), hereby agree with you as
follows:
Section 1. Authorization and Issue of Notes. The Borrower has duly
--------------------------------
authorized the issue, sale and delivery of its 7.79% Senior Notes Due 2002 in
the aggregate principal amount of $32,000,000, to be dated the date of issue
thereof, to bear interest on the outstanding principal thereof (computed on the
basis of a 360-day year of twelve 30-day months) from such date, payable in
arrears in cash semi-annually on the 19th day of May and November in each year
(commencing May 19, 1993) and at maturity, at the rate of 7.79% per annum, and
to bear interest at a rate equal to the greater of 9.79% or the rate of interest
announced publicly from time to time by Citibank, N.A. in New York, New York as
its "prime rate" on any overdue principal and prepayment charge and, to the
extent permitted by applicable law, on any overdue interest (determined as of
the date such principal, payment charge or interest first becomes overdue),
until the same shall be paid in full, to mature on November 19, 2002, and to be
substantially in the form of Exhibit A hereto attached (all such Notes
---------
originally issued pursuant to this Agreement or the Other Agreements, or
delivered in substitution or exchange for any thereof, being collectively called
the "Notes" and individually a "Note").
You, together with the other purchasers named in Schedule I to this
----------
Agreement, are herein sometimes referred to collectively as the "Purchasers" and
individually as a "Purchaser" .
<PAGE>
Section 2. Purchase and Sale of Notes. Subject to the terms and
--------------------------
conditions herein set forth, the Borrower hereby agrees to sell to you and you
agree to purchase from the Borrower, Notes in the respective aggregate principal
amounts set forth opposite your name in Schedule I hereto, at a purchase price
----------
of 100% of the principal amount thereof.
The purchase and delivery of the Notes to be purchased by you shall take
place at the offices of Sonnenschein Nath & Rosenthal, 900 Third Avenue, New
York, New York 10022 at 10:00 a.m., New York time on November 19, 1992 (or such
other time and place as the parties shall agree provided however, that in no
event shall funding be provided after 3:00 p.m., New York time) (herein called
the "Closing Date"). On the Closing Date, the Borrower will deliver to you
Notes registered in your name or in the name of your nominee, each such Note to
be duly executed and dated the Closing Date, each to be in the respective
aggregate principal amounts to be purchased by you as specified above, in such
denominations (multiples of $1,000) as you may specify by timely notice to the
Borrower (or, in the absence of such notice, one Note registered in your name in
a principal amount equal to the aggregate principal amount of Notes to be
purchased by you), against your delivery to the Borrower of immediately
available funds in the amount of the aggregate purchase price therefor.
Section 3. Payments of Notes.
-----------------
3.1. Mandatory Payments of Principal. The principal amount of the Notes
-------------------------------
shall be prepaid by the Borrower in installments, payable on each of the dates
set forth below in the respective aggregate amounts set forth opposite such
dates:
<TABLE>
<CAPTION>
Payment Date Principal Amount
------------ ----------------
<S> <C>
November 19, 1996 $4,571,428.00
November 19, 1997 4,571,428.00
November 19, 1998 4,571,428.00
November 19, 1999 4,571,428.00
November 19, 2000 4,571,428.00
November 19, 2001 4,571,428.00;
</TABLE>
provided, however, that if Notes aggregating less than $32,000,000 in principal
- -------- -------
amount are issued and sold pursuant to this Agreement and the Other Agreements,
each of the prepayment amounts set forth above shall be reduced to an amount
which is equal to the product achieved by multiplying each amount set forth
above by a fraction, the numerator of which shall be the aggregate principal
amount of all Notes issued and sold pursuant to this Agreement and the Other
Agreements and the denominator of which shall be $32,000,000.
-2-
<PAGE>
The entire remaining principal amount of the Notes shall become due and
payable on November 19, 2002. Each payment of Notes made pursuant to this
Section 3.1 shall be allocated as provided in Section 3.4.
3.2. Optional Prepayments of the Notes. The Borrower, at its option, upon
---------------------------------
notice given as provided in Section 3.3, may, on any Interest Payment Date,
prepay all or any part of the principal amount of outstanding Notes (in the
minimum amount of $100,000 and additional increments of integral multiples of
$100,000), at a price equal to the sum of (i) the greater of the principal
amount of the Notes being so prepaid or the Present Value Amount of the Notes
being so prepaid, plus (ii) all accrued but unpaid interest on the outstanding
principal amount of the Notes being prepaid through the date of such prepayment.
Each prepayment made pursuant to this Section 3.2 shall be allocated as
provided in Section 3.4. All principal amounts prepaid pursuant to this Section
3.2 shall be applied to reduce the amounts of the mandatory payments of
principal thereafter due pursuant to Section 3.1 in the inverse order of
maturity of those mandatory payments.
3.3. Notice of Prepayment of the Notes. The Borrower shall call Notes for
---------------------------------
prepayment pursuant to Section 3.2 by giving written notice thereof to each
holder of Notes, which notice shall be given not less than 30 nor more than 60
days prior to the date fixed for such prepayment in such notice and shall
specify the principal amount so to be prepaid, the accrued interest applicable
to such prepayment and the date fixed for such prepayment. Notice of prepayment
having been so given, the aggregate amount to be paid as specified in such
notice (together with the prepayment charge, if any) shall become due and
payable on the specified prepayment date. At least three Business Days prior to
the date of any such prepayment, the Borrower shall furnish to each holder of
Notes, via telecopy (with delivery of the original by overnight courier on the
next Business Day), an Officer's Certificate of the Borrower setting forth
computations in reasonable detail showing an estimate of the prepayment charge,
if any, required to be paid in connection with such prepayment, and the manner
of calculation of the prepayment charge and attaching a copy of the source of
market data by reference to which the Treasury Yield was determined in
connection with such computations. No later than noon eastern time one Business
Day prior to the date of any such prepayment, the Borrower shall furnish to each
holder of Notes, via telecopy (with delivery of the original by overnight
courier on the next Business Day), a certificate of an Appropriate Officer of
the Borrower setting forth computations in reasonable detail showing the manner
of
-3-
<PAGE>
calculation of the actual prepayment charge, if any, required to be paid in
connection with such prepayment and attaching a copy of the source of market
data by reference to which the Treasury Yield was determined in connection with
such computations. Prior to 2:00 p.m. eastern time on the Business Day referred
to in the immediately preceeding sentence, the Borrower shall call each
Purchaser to confirm receipt of such certificate.
3.4. Allocation of Payments. In the event of any payment or prepayment of
----------------------
less than all of the outstanding Notes pursuant to Section 3.1 or Section 3.2,
the Borrower shall allocate the principal amount so to be paid or prepaid by it
(but only in units of $1,000) and the interest and prepayment charge, if any,
among the Notes in proportion, as nearly as may be practicable, to the
respective unpaid principal amounts thereof.
3.5. Surrender of Notes; Notation Thereon. Subject to the provisions of
------------------------------------
Section 16.1, the Borrower shall not, as a condition of payment of all or any
part of the principal of, prepayment charge (if any) and interest on, any Note,
require the holder to present such Note for notation of such payment or require
the surrender thereof. Upon receipt of payment in full of the principal of,
prepayment charge (if any) and interest on, any Note, such Note shall be deemed
to be automatically cancelled, without any further action on the part of the
Borrower or the Noteholder. However, each Noteholder shall make reasonable
efforts to promptly return all cancelled Notes.
3.6. Purchase of Notes. Except as set forth in Sections 3.1, 3.2 or the
-----------------
next following sentence of this Section 3.6, neither the Borrower nor Holdings
will, nor will either of them permit any of its Subsidiaries or Affiliates to,
acquire directly or indirectly by purchase or prepayment or otherwise any of the
outstanding Notes except by way of payment or prepayment in accordance with the
provisions of this Agreement. The Borrower may repurchase the Note or Notes of
any holder provided that, prior to any such repurchase, the Borrower offers, in
a written notice, to repurchase a Pro Rata Portion of each holder's Notes on the
same terms, and, at such time, the Borrower shall have sufficient funds then
available to it to repurchase such Notes. Each holder of Notes shall have ten
(10) Business Days after receipt of such written notice to accept or reject the
Borrower's offer set forth in such notice. Failure of any holder of Notes to
respond to any such notice within ten (10) Business Days after its receipt
thereof shall be deemed to be a rejection of the offer therein. In the event
that the Borrower has purchased less than the entire outstanding principal
balance of the Notes, the amount of the principal balance so purchased shall be
-4-
<PAGE>
multiplied by a fraction, the numerator of which is 1 and the denominator of
which is the number of scheduled principal payments pursuant to Section 3.1
(including the payment scheduled to be made on November 19, 2002) which have not
yet been made as of the date of the purchase of the Notes and such product shall
be deducted from each of the payments otherwise due following the date of the
purchase of the Notes. The remaining payments due after giving effect to this
deduction shall be allocated in accordance with Section 3.4.
Section 4. Representations and Warranties. The Borrower and Holdings,
------------------------------
jointly and severally, represent and warrant to the Purchasers that:
4.1. Corporate Existence and Power. Each of the Borrower, Holdings, and
------------------------------
each of their respective Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and is duly qualified to do business in each additional jurisdiction where the
failure to so qualify would have a Material Adverse Effect. Each of the
Borrower, Holdings and each of their respective Subsidiaries has all requisite
corporate power to own its Properties and to carry on its business as now being
conducted and as proposed to be conducted, and in the case of the Borrower and
Holdings to execute, deliver and perform its obligations under this Agreement
and the Other Agreements, in the case of the Borrower to execute, issue, sell,
deliver and perform its obligations under the Notes, in the case of IHOP Realty
to execute, deliver and perform its obligations under the Subsidiary Guarantee,
and in the case of each such Person to engage in the respective transactions
contemplated by this Agreement and the Other Agreements.
4.2. Corporate Authority. The execution, delivery and performance (a) by
-------------------
the Borrower of this Agreement, the Other Agreements and the Notes, (b) by
Holdings of this Agreement and the Other Agreements, and (c) by IHOP Realty of
the Subsidiary Guarantee, are within the respective corporate powers of such
Persons and have been duly authorized by all necessary corporate action on the
part of the respective Boards of Directors and stockholders of each of them.
4.3. Binding Effect. This Agreement and the Other Agreements are the
---------------
legal, valid and binding obligations of the Borrower and Holdings, and the Notes
when issued and delivered against payment therefor as herein provided will be
the legal, valid and binding obligations of the Borrower; and the Subsidiary
Guarantee will, when executed and delivered by IHOP Realty on the Closing Date
be the legal, valid and binding obligation of IHOP Realty; in each case
enforceable against
-5-
<PAGE>
such respective parties in accordance with their respective terms, except, in
each case, as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws relative to or affecting
the enforcement of creditors' rights generally in effect from time to time and
by general principles of equity.
4.4. Capital Stock. (a) On the Closing Date, the authorized capital stock
-------------
of the Borrower will consist of 1,000 shares of common stock, no par value, and
all of the capital stock of the Borrower is validly issued, fully paid and non-
assessable and owned, of record and beneficially, free and clear of any Liens,
by Holdings. On the Closing Date, the Borrower will not have outstanding any
securities convertible into or exchangeable for any of its capital stock, nor
will it have outstanding any rights to subscribe for or to purchase, or any
options or warrants for the purchase of, or any agreements (contingent or
otherwise) providing for the issuance of, or any calls, commitments or claims of
any character relating to, any of its capital stock or any securities
convertible into or exchangeable for any of its capital stock. The Borrower is
not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any of its capital stock, or to any obligation
(contingent or otherwise) evidencing the right of the holder thereof to purchase
any of its capital stock.
(b) On the Closing Date, the authorized capital stock of Holdings
will consist of 40,000,000 shares of common stock and 10,000,000 shares of
preferred stock. On the Closing Date, Holdings will not have outstanding any
securities convertible into or exchangeable for any of its capital stock, nor
will it have outstanding any rights to subscribe for or to purchase, or any
options or warrants for the purchase of, or any agreements (contingent or
otherwise) providing for the issuance of, or any calls, commitments or claims of
any character relating to, any of its capital stock or any securities
convertible into or exchangeable for any of its capital stock, except for
options and other securities issued pursuant to the IHOP Corp. 1991 Stock
Incentive Plan. Holdings is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any of its capital
stock, or to any obligation (contingent or otherwise) evidencing the right of
the holder thereof to purchase any of its capital stock.
4.5. Business Operations and Other Information; Financial Condition.
--------------------------------------------------------------
(a) The Borrower (or Continental Bank N.A., on behalf of the
Borrower) has delivered to you (or, in the case of clause (iv) below, made
available and delivered to the extent
-6-
<PAGE>
requested) true and complete copies of (i) the Confidential Private Placement
Memorandum dated September 1992 prepared by the Borrower and Continental Bank
N.A. in connection with the offering of the Notes to be purchased by you
hereunder (together with the Exhibits thereto, the "Confidential Memorandum"),
(ii) the audited consolidated balance sheets of Holdings and its Subsidiaries as
at December 31 for 1989, 1990 and 1991, and the related audited consolidated
statements of operations, shareholders' equity and cash flows for the fiscal
years ended December 31, 1989, 1990 and 1991, together with the notes thereto
and the reports thereon of Coopers & Lybrand (the "Audited Financial
Statements"), (iii) (A) the unaudited consolidating balance sheets of Holdings
and its Subsidiaries as at December 31, 1991 and the related consolidating
statements of operations for the fiscal year then ended and (B) the unaudited
consolidated balance sheet of Holdings and its Subsidiaries as at June 30, 1992,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the fiscal quarter then ended (the "Unaudited Financial
Statements"; the Audited Financial Statements and the Unaudited Financial
Statements are sometimes hereinafter collectively referred to as the "Financial
Statements"), (iv) the Financial Projections of Holdings and its Subsidiaries
for 1992 through 1995 (the "Projections"), and (v) the SEC Reports. The
Confidential Memorandum and the SEC Reports correctly describe in all material
respects the businesses, operations and principal Properties of Holdings, the
Borrower and their Subsidiaries. The Financial Statements have been prepared in
accordance with GAAP (except as noted thereon) consistently applied throughout
the periods involved, and fairly present the consolidated and consolidating
financial position of Holdings and its Subsidiaries as at each of the dates and
for each of the periods covered thereby, subject to, in the case of the
Unaudited Financial Statements, year-end audit adjustments and the notes
required by GAAP and, with respect to the consolidating statements, the failure
to prepare statements of cash flows and stockholders' equity and the failure to
include notes thereon as required by GAAP. As of the date of each of the
balance sheets included in the Financial Statements, neither Holdings, the
Borrower nor any of their Subsidiaries had any material Debt or liability,
absolute or contingent, liquidated or unliquidated, except Debt and liabilities
reflected or reserved against on the Financial Statements or described in the
notes thereto. Neither Holdings nor any of its Subsidiaries has made any filing
with the SEC on Form 8-K since December 31, 1991. The Projections were prepared
by the Borrower on the basis of assumptions which the Borrower reasonably
believes are fair and reasonable in light of the historical financial
performance of Holdings and its Subsidiaries and of current and reasonably
foreseeable business conditions.
-7-
<PAGE>
(b) Except as contemplated herein, or as disclosed in the
Confidential Memorandum or the SEC Reports or on Schedule 4.5 hereto, or
------------
reflected in the Financial Statements, since December 31, 1991, neither
Holdings, the Borrower nor any of their Subsidiaries has:
(1) incurred or assumed any Debt (other than draws of revolving Debt
pursuant to the Existing Agreement (as defined in Section 6.15) and the
documents pursuant to which the Debt owing to HomeFed (as defined in Section
6.16) was incurred which, when reduced by repayment of such Debt, during such
period do not increase the total amount of revolving Debt outstanding under each
of such facilities as reflected on the financial statements included in the
quarterly report on Form l0-Q as filed by Holdings with the SEC for the
quarterly period ended September 30, 1992 (the "September 30, 1992 10-Q")),
obligations or liabilities which are, individually or in the aggregate, material
(absolute, accrued, or contingent and whether due or to become due), except
current liabilities incurred in the ordinary course of business, except as set
forth in Schedule 4.8 attached hereto and except for Capitalized Leases not
------------
required to be disclosed on Schedule 4.8;
------------
(2) paid any Debt (other than reductions of outstanding revolving
Debt made during such period pursuant to the Existing Agreement (as defined in
Section 6.15) and the documents pursuant to which the Debt owing to HomeFed (as
defined in Section 6.16) was incurred), obligations or liabilities which are,
individually or in the aggregate, material, other than current liabilities in
the ordinary course of business, or discharged any Liens which are, individually
or in the aggregate, material, other than Liens securing current liabilities
discharged in the ordinary course of business;
(3) declared or paid any dividend or distribution to its
shareholders, or purchased or redeemed any of its shares, or incurred or paid
any management fee or similar charge, or obligated itself to do so;
(4) subjected any of its Property to any Lien other than Permitted
Liens;
(5) sold, disposed, transferred, licensed or released any of its
Property except in the ordinary course of business;
(6) suffered any physical damage, destruction, or loss (whether or
not covered by insurance) which had or could reasonably be expected to have a
Material Adverse Effect;
-8-
<PAGE>
(7) entered into any material transaction other than in the ordinary
course of business;
(8) encountered any strike, work stoppage or other adverse collective
labor action or any labor union organizing activities;
(9) issued or sold any shares or other securities or granted any
material options or similar rights with respect thereto, except for the issuance
or sale of shares or other securities pursuant to the 1991 IHOP Corp. Stock
Incentive Plan;
(10) made any change in accounting methods, practices or principles;
(11) waived, released, granted or transferred any rights having,
individually or in the aggregate, material value, or modified or changed in any
material respect any existing franchise, license, lease, contract or other
document, other than in the ordinary course of business; or
(12) agreed to do any of the foregoing.
4.6. Subsidiaries. Holdings has no direct equity interest in any Person
------------
other than the Borrower, and no indirect equity interest in any Person other
than the Subsidiaries of the Borrower. Set forth on Schedule 4.6 attached
------------
hereto is a true and complete list of all Subsidiaries of the Borrower (the
"Subsidiaries List"), setting forth as to each such Subsidiary its jurisdiction
of incorporation and the percentage of capital stock of each such Subsidiary
owned by the Borrower or a Subsidiary of the Borrower. On the Closing Date, (i)
except as disclosed in the Financial Statements, the Borrower will have no
direct or indirect equity interest in any Person other than the Subsidiaries
listed on the Subsidiaries List, the Borrower will have good title to all of the
shares it owns of each of its Subsidiaries, free and clear in each case of any
Lien, (ii) all such shares of each such Subsidiary will have been duly and
validly issued, and will be fully paid and non-assessable and owned of record or
beneficially by the Borrower and/or one or more of such Subsidiaries, and (iii)
there will be no securities outstanding that are convertible into or
exchangeable for any shares of the Borrower's Subsidiaries, nor will there be
outstanding any rights to subscribe for or purchase, or any options or warrants
for the purchase of, or any agreements (contingent or otherwise) providing for
the issuance of, or any calls, commitments or claims of any character relating
to, any shares of the Borrower's Subsidiaries or any securities convertible into
or exchangeable for any such shares.
-9-
<PAGE>
4.7. Litigation; No Violation of Governmental Orders or Laws. Except as
-------------------------------------------------------
set forth on Schedule 4.7:
(a) There are no actions, suits or proceedings pending, or, to the
knowledge of Holdings or the Borrower after due inquiry, threatened against or
affecting Holdings or any of its Subsidiaries or any Properties or rights of any
of them which, if adversely determined, individually or in the aggregate would
have a Material Adverse Effect.
(b) There are no actions, suits or proceedings pending, or, to the
knowledge of Holdings or the Borrower after due inquiry, threatened against or
affecting Holdings or any of its Subsidiaries which seek to enjoin, or otherwise
prevent the consummation of, the transactions contemplated herein or to recover
any damages or obtain any relief as a result of any of the transactions
contemplated herein in any court or before any arbitrator of any kind or before
or by any Governmental Body.
(c) Neither Holdings nor any of its Subsidiaries is or will be, after
or as a result of giving effect to the transactions contemplated herein, in
default under or in violation of any Order of any court, arbitrator or
Governmental Body or of any statute or law or of any rule or regulation of any
Governmental Body, which default or violation has or could reasonably be
expected to have a Material Adverse Effect; and none of them is subject to or a
party to any Order of any court or Governmental Body arising out of any action,
suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters.
(d) All cash payments required to be paid pursuant to that certain
Settlement Agreement entered into on November 7, 1973, together with all
amendments thereto, approved by an order dated November 29, 1973 of the United
States District Court for the Western District of Missouri, with respect to In
--
re: IHOP Franchise Litigation, M.D.L. Docket No. 77 have been paid, all
- -----------------------------
litigation regarding such Settlement Agreement has been settled or dismissed and
all payments required to be paid pursuant thereto have been paid, and all of the
Borrower's current documents evidencing its franchising arrangements with its
franchisees are in a form permitted by such Settlement Agreement.
4.8. Outstanding Debt. Schedule 4.8 sets forth a correct and complete
----------------- ------------
list and description of all Debt of Holdings and its Subsidiaries (after giving
effect to the use of proceeds from the sale and issuance of the Notes) other
than Capitalized Leases which (i) on any consolidated balance sheet of Holdings
and its Subsidiaries would have a capitalized value of less
-10-
<PAGE>
than $2.5 million and (ii) cover Property on which a restaurant unit operated by
the Borrower or a franchisee in the ordinary course is located and all Liens on
Property of Holdings or its Subsidiaries securing such Debt outstanding or
existing on the Closing Date (excluding any Debt evidenced by the Notes or any
Guaranty thereof), and there exists no breach or default or event of default in
the terms and provisions of any instrument, agreement or contract pertaining to
any such Debt.
4.9. Consents, Etc. No consent, approval or authorization of or
--------------
declaration, registration or filing with any Governmental Body or any
nongovernmental Person, including, without limitation, any creditor or
shareholder of Holdings or any of its Subsidiaries, is required in connection
with the execution or delivery of this Agreement, the Notes or the Subsidiary
Guarantee, or the performance by the Borrower, its Subsidiaries and Holdings of
their respective obligations hereunder and thereunder, or as a condition to the
legality, validity or enforceability of this Agreement or the Notes or the
Subsidiary Guarantee, except for any thereof as are set forth on Schedule 4.9,
------------
all of which have been made or obtained and are in full force and effect and
except for declarations, registrations or filings with Governmental Bodies
which, in accordance with law, are to be made following the Closing Date.
4.10. Title to Properties. Holdings and each of its Subsidiaries (after
--------------------
giving effect to the use of proceeds from the sale and issuance of the Notes)
have (i) good and marketable fee simple title to their respective real
Properties (other than real Properties which are leased from others), subject to
no Lien of any kind except Permitted Liens, and (ii) good title to all of their
other respective Properties and assets (other than Properties and assets leased
from others), subject to no Lien of any kind except Permitted Liens. Holdings
and each of its Subsidiaries have possession, not subject to encumbrances which
materially affect the rights of the lessee thereunder, under all leases under
which they are lessees (subject to the rights of sublessees, in their capacities
as sublessees under subleases entered into in the ordinary course of the
Borrower's business), whether of realty or personalty, to which they
respectively are parties, none of which contains any unusually burdensome
provisions, and all such leases are the legal, valid and binding obligations of
those of Holdings, the Borrower and their Subsidiaries which are parties thereto
and, to the knowledge of Holdings and the Borrower, the other parties thereto
and each is subsisting and in full force and effect. Neither Holdings nor any
of its Subsidiaries is in material breach or violation of the terms of any such
lease, and neither Holdings nor the Borrower knows of any material breach or
violation of any of such lease by any third party.
-11-
<PAGE>
Each of the leases under which Holdings or any of its Subsidiaries is
a lessee is in substantially the form of Exhibit E hereto, if IHOP
---------
Realty is the lessor. Each such lease is the legal, valid and binding
obligation of Holdings or of the Subsidiary of Holdings which is the lessee
thereunder and IHOP Realty. Neither Holdings nor the Borrower is aware of the
existence of a material breach or default under any such lease, and each such
lease is in full force and effect on the Closing Date.
Each lease or sublease under which Holdings or any of its Subsidiaries
is lessor or sublessor is free of unusually burdensome provisions and all such
leases and subleases are the legal, valid and binding obligations of those of
Holdings, the Borrower and their Subsidiaries which are parties thereto and, to
the knowledge of Holdings and the Borrower, the other parties thereto and each
is, to the knowledge of Holdings and the Borrower, subsisting and in full force
and effect. Neither Holdings nor any of its Subsidiaries is in material breach
or violation of the terms of any such lease, and neither Holdings nor the
Borrower knows of any breach or violation of any such lease by any third party,
which breach or violation could be expected to have, individually or in the
aggregate, a Material Adverse Effect.
4.11. Taxes. Holdings and each of its Subsidiaries has filed (or has had
-----
filed on its behalf), all federal, state and local tax returns, which are
required to have been filed by any of them, and there have been paid all taxes
shown to be due and payable on such returns and all other material taxes and
assessments payable by any of them, to the extent the same have become due and
payable and before they have become delinquent. Except as set forth in Schedule
--------
4.11, no material tax assessment against Holdings or any of its Subsidiaries has
- ----
been proposed and all of their respective tax liabilities are adequately
provided for or reserved against on their respective books and financial
statements in accordance with GAAP. Neither Holdings nor any of its
Subsidiaries have taken any reporting position for which it does not have a
reasonable basis. The tax returns of Holdings and its Subsidiaries are
currently being audited as set forth in Schedule 4.11. Schedule 4.11 sets
-------------- -------------
forth consents to the waiver or extension of relevant statutes of limitations.
4.12. No Conflicts with Agreements, Etc. Neither the execution and
----------------------------------
delivery of this Agreement, the Other Agreements, the Subsidiary Guarantee or
the Notes, nor the offering, issuance or sale of the Notes nor the fulfillment
of or compliance with the terms and provisions hereof or thereof, will conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a default under, or
-12-
<PAGE>
result in the creation of any Lien on any Properties or assets of Holdings or
any of its Subsidiaries, or cause Holdings or any of its Subsidiaries to be
unable to pay any of its Debt when due, or result in any violation of, or
require for its validity any authorization, consent, approval, exemption or
other action by, or notice to any Governmental Body or any of the stockholders
of Holdings or any of its Subsidiaries, pursuant to the charter or by-laws of
any of them, or pursuant to any award of any arbitrator, or pursuant to any
material contract, agreement, mortgage, indenture, lease, instrument, Order,
statute, law, rule or regulation to which any of them or any of their respective
assets is subject. Neither Holdings nor any of its Subsidiaries is in violation
of, or in default under, any (i) Order, law or administrative regulation binding
upon it or any of its Properties, or (ii) contract, mortgage, indenture, lease,
instrument or agreement binding upon it or any of its Properties, which breach,
conflict, violation or default could reasonably be expected to have a Material
Adverse Effect.
4.13. Disclosure. Neither this Agreement, the Subsidiary Guarantee nor
----------
any other document, certificate or statement furnished to any Purchaser by or on
behalf of the Borrower, Holdings or any of their Subsidiaries in connection
herewith, including the Confidential Memorandum and the SEC Reports, contained
(when taken together, to the extent that any later document supersedes or
supplements an earlier document), as of its respective date, or now contains,
any untrue statement of a material fact or as of any such date omitted, or now
omits, to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact known to the
Borrower or Holdings which now has or in the future could reasonably be expected
to have (so far as the Borrower or Holdings can reasonably foresee) a Material
Adverse Effect other than (i) facts with respect to economic conditions,
generally and (ii) facts that have been disclosed to the Purchasers in writing
in connection with this transaction.
4.14. Offering of Securities. None of Holdings, the Borrower, any of
----------------------
their Subsidiaries or any of their representatives has, directly or indirectly,
offered any of the Notes or any security similar to any of them for sale to, or
solicited any offers to buy any of the Notes, the Subsidiary Guarantee or any
security similar to any of them from, or otherwise approached or negotiated with
respect thereto with, more than 44 Persons including you, and none of Holdings,
the Borrower, any of their Subsidiaries or any such representative has taken or
will take any action which would subject the issuance or sale of any of the
Notes to the registration requirements of Section 5 of the Securities Act or
violate the
-13-
<PAGE>
provisions of any securities or Blue Sky laws of any applicable jurisdiction.
4.15. Broker's or Finder's Commissions. Neither the Borrower, Holdings
--------------------------------
nor any of their Subsidiaries has engaged any broker or finder other than
Continental Bank N.A. with respect to the issuance and sale of the Notes. The
Borrower and Holdings agree, jointly and severally, to indemnify you and hold
you harmless against any loss, cost, claim or liability (including, without
limitation, reasonable attorneys' fees and disbursements for the investigation
and defense of claims) arising out of or relating to any claim for a fee or
commission by any such actual or alleged broker or finder.
4.16. Labor Matters. Except as set forth in the Confidential Memorandum,
-------------
during the past five years there has been no strike, work stoppage, slowdown or
other labor dispute or grievance involving Holdings or any of its Subsidiaries,
or employees of any of such Persons, which has had or could reasonably be
expected to have a Material Adverse Effect, nor to the knowledge of Holdings or
the Borrower after due inquiry is any such action, dispute or grievance
currently pending or threatened against Holdings or its Subsidiaries. Except as
set forth in the Confidential Memorandum or on Schedule 4.16, none of Holdings
-------------
or any of its Subsidiaries is a party to any collective bargaining agreement and
none of them has any knowledge after due inquiry of any pending or threatened
effort to organize any employees of Holdings or any of its Subsidiaries. Except
as set forth in the Confidential Memorandum, there are currently no pending
retaliatory or wrongful discharge claims or federal, state or local employment
discrimination charges or complaints or administrative or judicial complaints
arising therefrom pending against Holdings or any of its Subsidiaries, or any
employees of any of such Persons, which has had or could reasonably be expected
to have a Material Adverse Effect, nor to the knowledge of the Borrower or
Holdings after due inquiry are any such charges or complaints threatened against
Holdings or any of its Subsidiaries. The Borrower and its Subsidiaries are in
compliance with all applicable federal, state and local statutes, laws, rules,
ordinances, regulations, codes, licenses and orders relating to the employment
of labor, including, without limitation, any provisions thereof relating to
wages, bonuses, collective bargaining agreements, equal pay, occupational safety
and health, equal employment opportunity and wrongful or retaliatory termination
of employment, except where non-compliance could not reasonably be expected to
have a Material Adverse Effect.
4.17. Environmental Matters. Except as disclosed in the SEC Reports or on
---------------------
Schedule 4.17,
- -------------
-14-
<PAGE>
(a) there is no Environmental Matter relating to Holdings or any of
its Subsidiaries or any Properties of any of such Persons, which could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, and Holdings and the Borrower are aware of no facts that could
reasonably be expected to result in any such Environmental Matter. Neither
Holdings nor any of its Subsidiaries has agreed to assume by contract with any
Person or consent order or other written agreement with a Governmental Body any
liability of any other Person for cleanup, compliance, or required capital
expenditures in connection with any Environmental Matter arising prior to the
date hereof and, to the best knowledge of Holdings and the Borrower, no such
liability has arisen by operation of law;
(b) the Properties presently and, to the best knowledge of Holdings
and the Borrower, previously used, owned, leased, operated, managed or
controlled by Holdings or any of its Subsidiaries are free of contamination from
Hazardous Materials, including, without limitation, any contamination of the
associated air, soil, groundwater or surface waters, except for such instances
of contamination as could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;
(c) Holdings and its Subsidiaries are currently in compliance in all
material respects with all applicable Environmental Laws, are not currently in
receipt of any notice of violation, are not currently in receipt of any notice
of any potential liability for cleanup of Hazardous Materials and are not now
subject to any investigation known to Holdings or the Borrower, or information
request by a Governmental Body concerning Hazardous Materials or any
Environmental Laws. Holdings and its Subsidiaries hold and are in compliance in
all material respects with all governmental permits, licenses, and
authorizations necessary to operate their businesses that relate to siting,
wetlands, coastal zone management, air emissions, discharges to surface or
ground water, discharges to any sewer or septic system, noise emissions, solid
waste disposal or the generation, use, transportation or other management of
Hazardous Materials. Neither Holdings nor any of its Subsidiaries has
generated, manufactured, refined, recycled, discharged, emitted, released,
buried, processed, produced, reclaimed, stored, treated, transported, or
disposed of any Hazardous Materials except in compliance with all applicable
laws and regulations, including permit requirements (except for such instances
of non-compliance as could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect);
-15-
<PAGE>
(d) no Properties of Holdings or any of its Subsidiaries are subject
to any material Lien or claim for material Lien in favor of any Person as a
result of any Environmental Matter or response thereto;
(e) no Hazardous Materials, including leachate and effluents,
generated, disposed of, transported, managed or released by Holdings or any of
its Subsidiaries have caused or are reasonably likely to cause in whole or in
part any contamination or injury to any Person, Property or the environment,
except for such contamination or injury as could not reasonably be expected to
have, individually, or in the aggregate, a Material Adverse Effect. Neither
Holdings nor any of its Subsidiaries has handled, transported, disposed of or
managed any Hazardous Material in any manner that may reasonably be expected to
form the basis for any present or future claim, demand or action seeking cleanup
of any site, location, or body of water, surface or subsurface, except for such
claims, demands or actions as could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, and none of them
has any material liabilities, absolute or contingent, on the date hereof with
respect thereto; and
(f) to the best knowledge of Holdings and the Borrower, all
facilities where any Person has treated, stored, disposed of, reclaimed, or
recycled any Hazardous Material on behalf of Holdings or any of its Subsidiaries
are in compliance in all material respects with all applicable Environmental
Laws.
4.18. Margin Regulations. None of Holdings or any of its Subsidiaries
------------------
owns or now intends to acquire any "margin stock" as defined in Regulation G of
the Board of Governors of the Federal Reserve System of the United States (12
CFR 207). No part of the proceeds from the sale of the Notes will be used, and
no part of the proceeds of any loans repaid with the proceeds from the sale of
the Notes was used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System of the United States (12 CFR 207), or
for the purpose of buying or carrying or trading in any securities under such
circumstances as to involve any of Holdings or any Subsidiary in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Neither Holdings, any of
its Subsidiaries nor any agent acting on behalf of Holdings or any such
Subsidiary has taken or will take any action which might cause this Agreement or
the Notes to violate Regulation G, Regulation X, Regulation T or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
the Exchange Act.
-16-
<PAGE>
in each case as in effect now or as the same may hereafter be in effect. As
used in this Section, the term "purpose of buying or carrying" has the meaning
assigned thereto in the aforesaid Regulation G.
4.19. Compliance with ERISA.
---------------------
(a) No Pension Plan which is subject to Part 3 of Subtitle B of Title
1 of ERISA or Section 412 of the Code had an accumulated funding deficiency (as
such term is defined in Section 302 of ERISA or Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of such
Pension Plan heretofore ended;
(b) no liability to the PBGC (other than required insurance premiums,
all of which have been paid) has been incurred and is outstanding with respect
to any Pension Plan, and there has not been any Reportable Event, or any other
event or condition, which presents a material risk of involuntary termination of
any Pension Plan by the PBGC;
(c) neither any Multiemployer Plan or Plan nor any trust created
thereunder, nor any trustee or administrator thereof, has, to the knowledge of
Holdings or the Borrower, engaged in a prohibited transaction (as such term is
defined in Section 4975 of the Code or Section 406 of ERISA) that could subject
Holdings or any of its Subsidiaries or ERISA Affiliates to any material tax or
penalty on prohibited transactions imposed under said Section 4975;
(d) no material liability has been incurred and is outstanding with
respect to any Multiemployer Plan as a result of the complete or partial
withdrawal by Holdings or any of its Subsidiaries or ERISA Affiliates from such
Multiemployer Plan under Title IV of ERISA, nor has Holdings or any of its
Subsidiaries or ERISA Affiliates been notified by any Multiemployer Plan that
such Multiemployer Plan is currently in reorganization or insolvency under and
within the meaning of Section 4241 or 4245 of ERISA or that such Multiemployer
Plan intends to terminate or has been terminated under Section 4041A of ERISA;
(e) Holdings and its Subsidiaries and ERISA Affiliates are in
compliance in all material respects with all applicable provisions of ERISA and
the Code and the regulations and published interpretations thereunder with
respect to all Plans and Multiemployer Plans;
(f) as of the Closing Date, the actuarial present value of all
benefit liabilities (as defined in Section 4001(a)(16) of ERISA) under all
Pension Plans that are subject
-17-
<PAGE>
to Title IV of ERISA did not exceed the fair market value of the assets
allocable to such liabilities, determined as if all such Plans were terminated
as of the Closing Date, and by using the Plan's actuarial assumptions as set
forth in the most recent actuarial report pertaining to each Plan;
(g) as of the Closing Date, none of Holdings, the Borrower or any of
their Subsidiaries or ERISA Affiliates is a party to a "multiple employer plan"
(as defined in 29 CFR 2530.210(c)(3)) or, except as set forth on Schedule 4.19,
-------------
a Multiemployer Plan. With respect to the Multiemployer Plan listed on Schedule
--------
4.19, as of the Closing Date, such Multiemployer Plan has no unfunded vested
- ----
benefits within the meaning of Section 4213(c) of ERISA for which Holdings, the
Borrower or any of their Subsidiaries or ERISA Affiliates is or could become
liable;
(h) no event has occurred with respect to any Plan or with respect to
any other employee benefit pension plan (as defined in Section 3(2) of ERISA)
established or maintained at any time during the five-year period immediately
preceding the Closing Date for the benefit of employees of Holdings or any of
its Subsidiaries or ERISA Affiliates which presents a risk of material liability
of Holdings or any of its Subsidiaries or ERISA Affiliates under Section 4069 of
ERISA;
(i) there are no material liabilities under the Plans that are
employee welfare benefit plans (as defined in Section 3(1) of ERISA) providing
for medical, health, life or other welfare benefits that are not insured by
fully paid non-assessable insurance policies, and no such Plan provides for
continued medical, health, life or other welfare benefits for employees after
they leave the employment of Holdings or any of its Subsidiaries or ERISA
Affiliates (other than any such welfare benefits required to be provided under
the Consolidated Omnibus Budget Reconciliation Act or other similar law); and
(j) Schedule 4.19 contains a complete and accurate list of each of
-------------
the employee benefit plans (as defined in Section 3(3) of ERISA) with respect to
which the Borrower or Holdings or any of their respective Subsidiaries or ERISA
Affiliates is a "party in interest" as defined in Section 3 of ERISA or a
"disqualified person" as defined in Section 4975 of the Code.
4.20. Material Contracts. Each of the Material Contracts is valid,
------------------
subsisting and in full force and effect, and neither Holdings nor any of its
Subsidiaries is in breach or violation of the terms, conditions or provisions of
any of the Material Contracts to which it is a party which is reasonably likely
to
-18-
<PAGE>
have a Material Adverse Effect. On the Closing Date, neither Holdings nor any
of its Subsidiaries will be a party to any Material Contract or be subject to
any restriction contained in the charter or by-laws of any of them which has or
is reasonably likely to have a Material Adverse Effect.
4.21. Insurance. All policies of workers compensation, general liability,
---------
fire, property, casualty, marine, business interruption, errors and omissions,
flood and other insurance carried by Holdings and its Subsidiaries are in full
force and effect on the date hereof, and neither Holdings nor any of its
Subsidiaries has received notice of cancellation with respect to any such
policy.
4.22. Status under Certain Laws. None of Holdings or any Subsidiary of
-------------------------
Holdings is an "investment company" or a "person directly or indirectly
controlled by or acting on behalf of an investment company" within the meaning
of the Investment Company Act of 1940, as amended, or a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
4.23. Legality. The Borrower, upon giving effect to the issuance of the
--------
Notes will be, a "solvent institution", as such term is used in Section 1405(c)
of the New York Insurance Law, whose "obligations are not in default as to
principal or interest", as such terms are used in Section 1405(c).
4.24. Possession of Franchises, Licenses, Etc. Holdings and its
----------------------------------------
Subsidiaries possess all franchises, certificates, licenses, permits,
registrations, and other authorizations from national, state and local
governmental or regulatory authorities, free from unusually burdensome
restrictions, that are necessary for the ownership, maintenance and operation of
their respective Properties and assets, and for the conduct of their respective
businesses as now conducted and as described in the Confidential Memorandum, and
none of Holdings or any of its Subsidiaries is in violation of any thereof in
any material respect.
4.25. Franchises. Except as set forth on Schedule 4.25, each of the
---------- -------------
Borrower's franchisees has entered into documents evidencing its franchising
arrangement with the Borrower (including the sublease, if any, from the Borrower
of the franchised premises) which, with respect to such arrangements initially
entered into prior to 1979 (or renewed, on substantially similar terms and
conditions since that date) were entered into (or renewed, as the case may be)
in accordance with all then applicable laws and regulations
-19-
<PAGE>
including, without limitation, all applicable disclosure periods and waiting
requirements and, with respect to such arrangements entered into since 1979, are
substantially in the forms of the exhibits to the Franchise Offering Circular
for Prospective Franchisees Required by the Federal Trade Commission as in
effect on the date such arrangements were entered into (the "Offering Circular")
and such documents have been entered into in accordance with all applicable laws
and regulations, including, without limitation, all applicable disclosure
requirements and waiting periods. All such franchising documents are in full
force and effect and neither Holdings nor the Borrower is aware of any breaches
of any such documents by the franchisees thereunder which could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
4.26. Use of Proceeds. The proceeds from the sale and issuance of the
---------------
Notes will be used (i) to repay substantially all of the existing Debt of the
Borrower's Subsidiary, IHOP Realty Corp., a Delaware corporation, (ii) to
refinance existing Debt of the Borrower, and (iii) for general corporate
purposes.
4.27. Patents and Trademarks. Holdings and each Subsidiary own or
----------------------
possess all the patents, trademarks, trade names, service marks, copyright,
licenses and rights with respect to the foregoing necessary for the present and
planned future conduct of their respective businesses, without any known
conflict with the rights of others.
4.28. Compliance with Laws. Neither Holdings nor any of its
--------------------
Subsidiaries is in violation of any federal, state or local law, statute,
regulation, ordinance or rule which violation could reasonably be expected to
have a Material Adverse Effect.
4.29. Franchisees. Except as disclosed in the SEC Reports, during the
-----------
fiscal year ended December 31, 1991, no franchisee accounted for more than 10%
of Holdings' consolidated revenues from sales of products or services.
4.30. Other Agreements. Simultaneously with the execution and delivery of
----------------
this Agreement, the Borrower and Holdings are entering into the Other
Agreements, which are identical in all respects with this Agreement (except for
the respective principal amounts of Notes to be purchased) with the other
Purchasers named in Schedule I hereto. The purchases by you and said other
----------
Purchasers are to be separate and several transactions.
4.31. Solvency. On the Closing Date, and after the payment of all
--------
estimated legal, investment banking, accounting
-20-
<PAGE>
and other fees related hereto, Holdings and each of its Subsidiaries will be
Solvent.
4.32. Foreign Assets Control Regulations. Neither the sale of the Notes
----------------------------------
by the Borrower hereunder nor the use of the proceeds thereof as contemplated
hereby will violate the Foreign Assets Control Regulations, the Transaction
Control Regulations, the Cuban Assets Control Regulations, the Iranian
Transactions Regulations, the Iranian Assets Control Regulations, the Libyan
Sanctions Regulations, the Iraqi Sanctions Regulations, or the Haitian
Transaction Regulations of the United States Treasury Department (31 CFR,
Subtitle B, Chapter V, as amended), or the restrictions on transactions with
Yugoslavia contained in Executive Orders 12808 and 12810, dated May 30, 1992 and
June 5, 1992, respectively.
Section 5. Representations of Purchasers. You represent, and in making
-----------------------------
this sale to you it is specifically understood and agreed, that:
5.1. Authority. You are authorized to enter into this Agreement and to
---------
perform your obligations hereunder and to consummate the transactions
contemplated hereby.
5.2. Investment Intent. You are purchasing the Notes being purchased
-----------------
hereunder for your own account and with no intention of distributing or
reselling such Notes or any part thereof in any transaction which would be in
violation of the securities laws of the United States of America or any state
thereof, without prejudice, however, to your rights at all times to sell or
otherwise dispose of all or any part of said Notes pursuant to an effective
registration statement under the Securities Act and other applicable state
securities laws, or under an exemption therefrom, and subject, nevertheless, to
the disposition of your property being at all times within your control.
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act, the
Notes shall bear a legend in substantially the following form:
THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM.
5.3. Source of Funds. No part of the funds to be used to purchase the
---------------
Notes being purchased by you hereunder constitutes assets of any employee
benefit plan such that the use of such
-21-
<PAGE>
assets constitutes a non-exempt prohibited transaction under ERISA. This
representation is made in reliance upon Schedule 4.19 and is based upon your
-------------
determination that a statutory or administrative exemption is applicable or that
the Borrower or Holdings are not parties in interest or disqualified persons
with respect to such employee benefit plan. As used in this paragraph, the
terms "employee benefit plan" and "party in interest" shall have the meanings
assigned to such terms in Section 3 of ERISA, and the term "disqualified person"
shall have the meaning assigned to such term in Section 4975 of the Code.
5.4. Investor Status. You are an "accredited investor" within the meaning
---------------
of Rule 501 under the Securities Act.
Section 6. Conditions to Obligations of the Purchasers. Your obligation to
-------------------------------------------
purchase and pay for the Notes to be purchased by you hereunder on the Closing
Date shall be subject to the satisfaction, on or before the Closing Date, of the
following conditions:
6.1. Proceedings Satisfactory. All corporate and other proceedings taken
------------------------
or to be taken by Holdings and its Subsidiaries in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to you and your special counsel,
and you and your special counsel shall have received all such counterpart
originals or certified or other copies of such documents as you or they may
reasonably request.
6.2. Opinion of Purchasers' Special Counsel. You shall have received from
-------------------------------------
Sonnenschein Nath & Rosenthal, who are acting as special counsel for you in
connection with this transaction, an opinion addressed to you and dated the
Closing Date, substantially in the form of Exhibit B. Such opinion shall also
---------
cover such other matters incident to the matters herein contemplated as you may
reasonably request.
6.3. Opinion of Counsel to the Borrower and Holdings. You shall have
-----------------------------------------------
received from Skadden, Arps, Slate, Meagher & Flom, special counsel to the
Borrower and Holdings, and Larry Alan Kay, general counsel to the Borrower and
Holdings, legal opinions addressed to you and dated the Closing Date. Such
opinions shall cover the matters set forth in the form of legal opinion attached
hereto as Exhibit C, and shall also cover such other matters incident to the
---------
matters herein contemplated as you may reasonably request.
6.4. Representations and Warranties True, Etc.;
------------------------------------------
Certificates. The representations and warranties contained in Section 4 of this
- ------------
Agreement shall be true on and as of the
-22-
<PAGE>
Closing Date with the same effect as if such representations and warranties had
been made on and as of the Closing Date. The Borrower shall have performed all
agreements on its part required to be performed under this Agreement prior to
the Closing Date; there shall exist on the Closing Date no Default or Event of
Default; the Borrower and Holdings shall have delivered to you an Officer's
Certificate, dated the Closing Date, to the effect of the foregoing clauses of
this Section 6.4, and Sections 6.5, 6.6 and 6.7, and certifying that, on the
Closing Date, giving effect to the transactions contemplated by this Agreement
and the Other Agreements, the Borrower and its Subsidiaries could incur $1.00 of
additional Debt pursuant to Section 11.2(c); and you shall have received such
certificates or other evidence as you may request to establish that the proceeds
of the sale of the Notes on the Closing Date will be applied as contemplated by
Section 4.26.
6.5. Absence of Material Adverse Change, Etc. Since December 31, 1991,
---------------------------------------
no change or changes shall have occurred to the business, operations,
Properties, assets, income, prospects or condition, financial or otherwise, of
Holdings and its Subsidiaries, taken as a whole, which you reasonably believe in
good faith to constitute a Material Adverse Effect.
6.6. Consents and Approvals. All necessary consents, approvals and
----------------------
authorizations of, and declarations, registrations and filings with,
Governmental Bodies and nongovernmental Persons required in order to consummate
the transactions contemplated herein shall have been obtained or made and shall
be in full force and effect except for declarations, registrations or filings
with Governmental Bodies which, in accordance with law, are to be made following
the Closing Date.
6.7. Absence of Litigation, Orders, Etc. Except as disclosed on Schedule
---------------------------------- --------
4.7 attached hereto, there shall not be pending or, to the knowledge of
- ---
Holdings or the Borrower after due inquiry, threatened, any action, suit,
proceeding, governmental investigation or arbitration against or affecting any
of Holdings or its Subsidiaries or their respective assets or Property (and, as
to any action, suit, proceeding, governmental investigation or arbitration so
disclosed, there shall not have occurred since the date of this Agreement any
development) which seeks to enjoin or restrain any of the transactions
contemplated herein or which you reasonably believe in good faith could have a
Material Adverse Effect. No Order of any court, arbitrator or Governmental Body
shall be effect which purports to enjoin or restrain any of the transactions
contemplated herein or which you reasonably believe in good faith to constitute
a Material Adverse Effect.
-23-
<PAGE>
6.8. Other Purchasers. The other Purchasers referred to in Section 1
----------------
shall have purchased and made payment for the Notes to be purchased by them
pursuant to the Other Agreements referred to in said Section.
6.9. Legal Investment. Your purchase of and payment for the Notes to be
----------------
purchased by you hereunder on the Closing Date shall be permitted by the laws
and regulations of the jurisdictions to which you are subject, including without
limitation all applicable laws and regulations regulating investments for life
insurance companies (without reference to any "basket" or "leeway" provision
which permits the making of an investment without restriction as to the
character of the particular investment being made); and you shall have received
such certificates or other evidence as you may request to establish compliance
with this condition.
6.10. Rating. The investment represented by the Notes shall have received
------
a preliminary designation of "2" or better from the National Association of
Insurance Commissioners and neither Holdings nor the Borrower has received an
indication from the National Association of Insurance Commissioners that such
designation has been, or is expected to be, rescinded.
6.11. Fees. The fees and out-of-pocket expenses and disbursements
----
incurred by Sonnenschein Nath & Rosenthal in connection with the preparation of
this Agreement and the transactions contemplated hereby shall be paid in full on
the Closing Date.
6.12. PPN Number. You shall have been supplied with a private placement
----------
number for the Notes from Standard and Poor's Corporation.
6.13. Subsidiary Guarantee. IHOP Realty shall have executed and delivered
--------------------
the Subsidiary Guarantee.
6.14. Corporate Status and Documentation.
----------------------------------
(a) CERTIFICATES OF INCORPORATION. You shall have received true and
-----------------------------
correct copies of the Certificates of Incorporation of Holdings, the Borrower
and IHOP Realty, together with all amendments thereto, certified as of a recent
date by the Secretary of State of the jurisdiction of incorporation of each such
Person.
(b) SECRETARY'S CERTIFICATE. You shall have received certificates
-----------------------
dated the Closing Date of the Secretary or an Assistant Secretary of each of
Holdings, the Borrower and IHOP Realty, duly certifying that:
-24-
<PAGE>
(i) attached thereto is a true, complete and correct copy of the
by-laws of such Person, which have been in full force and effect since the
date specified in such certificate and to which no amendments or
modifications have been made since such date;
(ii) attached thereto is an incumbency certificate, in a format
satisfactory to the Purchasers, duly executed by the Secretary or an
Assistant Secretary and those other officers of such Person who have
executed documents and agreements in connection with the transactions
hereby contemplated; and
(iii) attached thereto are true and correct copies of the
resolutions, in form and substance satisfactory to the Purchasers, adopted
by the Board of Directors or authorized Executive Committee of such Person
(with evidence of such authorization), evidencing, with respect to such
Person, approval of the transactions contemplated by this Agreement, the
Other Agreements, the Notes, the Subsidiary Guarantee and the other
documents and instruments executed and delivered in connection therewith or
pursuant thereto, and authorizing the appropriate officers of such Person
to negotiate the form of, and to execute and deliver, this Agreement, the
Other Agreements, the Notes, the Subsidiary Guarantee and such other
documents and instruments (in each case to the extent such Person is a
party thereto), with such modifications as such authorized officers shall
approve.
(c) GOOD STANDING CERTIFICATES. You shall have received a
--------------------------
certificate of recent date of the Secretary of State or other appropriate
official of the jurisdiction of incorporation of Holdings, the Borrower and IHOP
Realty certifying that each such Person is in good standing in its jurisdiction
of incorporation. You shall also have received certificates of recent date of
the appropriate governmental officials in each other jurisdiction in which
Holdings, the Borrower or IHOP Realty conducts business as a foreign corporation
or owns assets certifying that the Borrower, Holdings or IHOP Realty, as the
case may be, is in good standing as a foreign corporation in such jurisdiction,
except where the failure to so qualify would not have a Material Adverse Effect.
(d) BRING-DOWN AND OTHER CERTIFICATES. Each of the Borrower,
---------------------------------
Holdings and IHOP Realty shall have delivered to the Purchasers certifications,
each dated the Closing Date and duly executed by an Appropriate Officer of such
Person, to the effect that no amendments to or changes in its Certificate of
Incorporation have been made since the date certified by the Secretary of State
of the jurisdiction of its incorporation and that no dissolution proceedings
with respect to it have been commenced or are contemplated.
-25-
<PAGE>
6.15. New Credit Agreement. The Borrower and Holdings shall have entered
--------------------
into a Credit Agreement with Continental Bank N.A. (the "Bank") (the "Credit
Agreement"), which will replace in its entirety the existing loan agreement
dated April 7, 1992 with Bank of America National Trust and Savings Association
("B of A") (the "Existing Agreement") and IHOP Realty shall have executed a
subsidiary guarantee in respect of the Credit Agreement. Such Credit Agreement
will be substantially in the form of the draft of such Credit Agreement dated
November 16, 1992, except that such Credit Agreement shall not prohibit (i)
amendments or modifications to this Agreement, the Other Agreements, the Notes
or the Subsidiary Guarantee (except those which prohibit advancing any payment
due pursuant to Section 3.1 to a date sooner than January 31, 1994) or (ii) the
payment of principal of or interest or prepayment charges on the Notes in
accordance with the terms thereof and the terms of this Agreement and the Other
Agreements (except that optional prepayments may be prohibited prior to January
31, 1994), and you shall have received an Officer's Certificate of the Borrower
stating that the Existing Agreement has been terminated (together with the
Exhibits and Schedules thereto) and that the Credit Agreement (together with the
Exhibits and Schedules thereto) is in full force and effect, binding on the
Borrower and Holdings and to the best of their knowledge, on the Bank, in
accordance with its terms and you shall have received evidence satisfactory to
you that the Existing Agreement shall have been terminated in its entirety
(except as set forth in Schedule 6.16) and none of Holdings, the Borrower or any
-------------
of their Subsidiaries shall have any further obligations thereunder and all
Liens in favor of B of A have been released or terminated.
6.16. Use of Proceeds. You and your special counsel shall have received
---------------
evidence satisfactory to you that the proceeds of the issuance of the Notes are
being used substantially simultaneously with the closing of this transaction,
for the repayment in full of (i) the 12 1/4% Senior Subordinated Notes due 1997
issued by the Borrower, (ii) the Debt of the Borrower and IHOP Realty to HomeFed
Savings Bank, Federal Savings Bank, its successors and assigns ("HomeFed") and
(iii) the Debt of the Borrower to B of A and, in each case (except as set forth
on Schedule 6.16) there are no further obligations of Holdings or any of its
-------------
Subsidiaries thereunder and all commitments to lend in connection therewith
shall have been terminated and all Liens in favor of HomeFed or B of A on any
Property of Holdings or any of its Subsidiaries have been or substantially
contemporaneously herewith shall be released or terminated.
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<PAGE>
Section 7. Conditions to Obligations of the Borrower. The Borrower's
-----------------------------------------
obligation to issue and sell the Notes to be sold by it hereunder on the Closing
Date shall be subject to the satisfaction, on or before the Closing Date, of the
following conditions:
7.1. Representations and Warranties True, Etc. The representations and
----------------------------------------
warranties contained in Section 5 of this Agreement shall be true on and as of
the Closing Date with the same effect as if such representations and warranties
had been made on and as of the Closing Date.
7.2. Absence of Litigation, Orders, Etc. There shall not be pending or,
----------------------------------
to the knowledge of Holdings or the Borrower after due inquiry, threatened, any
action, suit, proceeding, governmental investigation or arbitration against or
affecting any of Holdings or its Subsidiaries or their respective assets or
Property which seeks to enjoin or restrain any of the transactions contemplated
herein. No Order of any court, arbitrator or Governmental Body shall be in
effect which purports to enjoin or restrain any of the transactions contemplated
herein.
7.3. Other Purchasers. Notes representing no less than $29 million of
----------------
initial principal amount shall have been purchased by the Purchaser and
Purchasers purchasing Notes pursuant to the Other Agreements on the Closing
Date.
Section 8. Financial Statements and Information. The Borrower and
------------------------------------
Holdings will furnish to you and to any of your Purchaser Affiliates, so long as
you or such Purchaser Affiliate shall be obligated to purchase or shall hold any
Notes, and to each other institutional holder of any Notes (such a holder in any
such case being hereinafter called an "Eligible Holder"), in duplicate:
(A) as soon as available and in any event within 45 days after the
end of each of the first three quarterly accounting periods in each fiscal year
of Holdings ("quarterly accounting period"),
(1) either (a) copies of Holdings' Quarterly Report on Form l0-Q
for the quarterly accounting period then ended, as filed with the
Securities and Exchange Commission or (b) if Holdings is not subject to
Section 13 or 15(d) of the Exchange Act, copies of the consolidated balance
sheet of Holdings and its Subsidiaries as of the end of the quarterly
accounting period and of the related consolidated statements of operations,
shareholders' equity and cash flows for such accounting period, all in
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<PAGE>
reasonable detail and stating in comparative form the consolidated figures
as of the end of and for the corresponding date and period in the previous
fiscal year, all Certified by an Appropriate Officer of Holdings; and
(2) a written statement in the form of Exhibit F-1 hereto
-----------
executed by Appropriate Officers of Holdings and the Borrower setting forth
computations or other pertinent information in reasonable detail showing as at
the end of such quarterly accounting period (a) whether or not the financial
covenants set forth in Sections 11.2 through 11.8 hereof, inclusive, have been
met, accompanied by calculations setting forth the maximum amount of Funded Debt
that could have been incurred pursuant to Sections 11.2(B) and 11.2(C) hereof,
and the maximum amount of dividends or distributions that could have been
declared or paid pursuant to Section 11.5 hereof, and (b) whether or not Liens
on Property or assets of Holdings or its Subsidiaries or securing Debt of
Holdings or its Subsidiaries, as the case may be, exceed the threshold set forth
in Section 11.1(I) hereof, accompanied by calculations setting forth the maximum
amount of additional Funded Debt secured by Liens that could have been incurred
under Section 11.1(I) hereof (a "Quarterly Compliance Statement");
(B) as soon as available and in any event within 90 days after the
end of each fiscal year of Holdings,
(1) either (a) copies of Holdings' Annual Report on Form 10-K
and Annual Report to Shareholders, in each case, for the year then ended
and as filed with the Securities and Exchange Commission together with
copies of the consolidating balance sheets of Holdings and its Subsidiaries
as of the end of such fiscal year and the related consolidating statements
of operations, or (b) if Holdings is not subject to Section 13 or 15(d) of
the Exchange Act, copies of the consolidated and consolidating balance
sheets of Holdings and its Subsidiaries as of the end of such fiscal year,
and of the related consolidated and consolidating statements of operations
and the related consolidated statements of shareholders' equity and cash
flows, together with the notes to such consolidated statements, which
consolidated statements state in comparative form the respective
consolidated figures as of the end of and for the previous fiscal year, and
in the case of such consolidated financial statements referred to in
subclauses (a) or (b), accompanied by a report thereon of Coopers & Lybrand
or other independent public accountants of recognized national standing
selected by
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<PAGE>
Holdings (the "Accountants"), which report shall be unqualified as to going
concern and scope of audit and shall state that such consolidated financial
statements present fairly the consolidated financial position of Holdings
and its Subsidiaries as at the end of such fiscal year and the consolidated
results of operations and cash flow for such fiscal year in conformity with
GAAP, and that the examination by the Accountants in connection with such
consolidated financial statements has been made in accordance with
generally accepted auditing standards. Together with each delivery of
financial statements or Annual Reports required by this subparagraph (1),
the Accountants shall deliver to Holdings or the Borrower (which recipient
shall deliver the same to each Purchaser, Purchaser Affiliate and Eligible
Holder) their report (on which the Purchasers, Purchaser Affiliates and
Eligible Holders shall be entitled to rely) stating that, in making the
audit necessary to the certification of such financial statements, they
have obtained no knowledge of any Default or Event of Default or, if any
such Default or Event of Default has occurred, specifying the nature and
period of existence thereof; and
(2) a Quarterly Compliance Statement.
(C) concurrently with the financial statements or reports furnished
pursuant to Subsections A and B of this Section 8, a certificate of Appropriate
Officers of the Borrower and Holdings in the form of Exhibit F-2, stating that,
-----------
based upon such examination or investigation and review of this Agreement as in
the opinion of the signer is necessary to enable the signer to express an
informed opinion with respect thereto, no Default or Event of Default by
Holdings, the Borrower or any of their Subsidiaries in the fulfillment of any of
the terms, covenants, provisions or conditions of this Agreement exists or has
existed during such period or, if such a Default or Event of Default shall exist
or have existed, the nature and period of existence thereof and what action
Holdings, the Borrower or such Subsidiary, as the case may be, has taken, is
taking or proposes to take with respect thereto;
(D) promptly after the same are available and in any event within 15
days thereof, copies of all such proxy statements, financial statements, notices
and reports as Holdings or any of its Subsidiaries shall send or make available
generally to any of their securityholders, and copies of all regular and
periodic reports and of all registration statements which Holdings or any of its
Subsidiaries may file with the SEC or with any securities exchange;
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<PAGE>
(E) promptly (and in any event within 5 days) after becoming aware of
(1) the existence of any Default or Event of Default, a certificate of
Appropriate Officers of Holdings and the Borrower specifying the nature and
period of existence thereof and what action the Borrower or Holdings is taking
or proposes to take with respect thereto; or (2) any Debt of Holdings, the
Borrower or any Subsidiary being declared due and payable before its expressed
maturity, or any holder of such Debt having the right to declare such Debt due
and payable before its expressed maturity, because of the occurrence of any
default (or any event which, with notice and/or the lapse of time, shall
constitute any such default) under such Debt or the agreement pursuant to which
such Debt was issued, a certificate of an Appropriate Officer describing the
nature and status of such matters and what action Holdings or such Subsidiary is
taking or proposes to take with respect thereto; provided, however, that any
-------- -------
Default or Event of Default which is deemed to have arisen upon Holdings' or the
Borrower's failure to promptly notify the Purchasers of another Default or Event
of Default in accordance with this Section 8(E) shall be deemed to be waived so
long as (i) such underlying Default or Event of Default as to which notice is
required to be given (the "Underlying Default") has been completely cured; (ii)
the Underlying Default, if it had not been completely cured, would not have had
a Material Adverse Effect and (iii) notice of the Underlying Default is
delivered within 30 days of its occurrence;
(F) promptly and in any event within 10 days after Holdings or the
Borrower knows or, in the case of a Pension Plan has reason to know, that a
Reportable Event with respect to any Pension Plan has occurred, that any Pension
Plan or Multiemployer Plan is or may be terminated, reorganized, partitioned or
declared insolvent under Title IV of ERISA, or that Holdings or any of its
Subsidiaries or ERISA Affiliates will or may incur any material liability to or
on account of a Pension Plan or Multiemployer Plan under Title IV of ERISA or
any other material liability under ERISA has been asserted against Holdings or
any of its Subsidiaries or ERISA Affiliates, a certificate of an Appropriate
Officer of Holdings setting forth information as to such occurrence and what
action, if any, Holdings or such Subsidiary or ERISA Affiliate is required or
proposes to take with respect thereto, together with any notices concerning such
occurrences which are (a) required to be filed by Holdings or such Subsidiary or
ERISA Affiliate or the plan administrator of any such Pension Plan controlled by
Holdings or such Subsidiary or ERISA Affiliate with the Internal Revenue Service
or the PBGC, or (b) received by Holdings or such Subsidiary or ERISA Affiliate
from any plan administrator of a Pension Plan not under their control or from a
Multiemployer Plan;
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<PAGE>
(G) promptly after the Borrower or Holdings becomes aware of any
Material Adverse Effect with respect to which notice is not otherwise required
to be given pursuant to this Section 8, a certificate of an Appropriate Officer
setting forth the details of such Material Adverse Effect and stating what
action Holdings, the Borrower or any of their respective Subsidiaries has taken
or proposes to take with respect thereto;
(H) promptly (and in any event within 15 days) after the Borrower or
Holdings knows of (a) the institution of, or threat of, any action, suit,
proceeding, governmental investigation or arbitration against or affecting
Holdings or any of its Subsidiaries or any Property of any of them, or (b) any
material development in any such action, suit, proceeding, governmental
investigation or arbitration, which, in either case, is likely to have a
Material Adverse Effect, a certificate of an Appropriate Officer describing the
nature and status of such matter in reasonable detail;
(I) in the event that Borrower is no longer a consolidated Subsidiary
of Holdings, financial statements of Borrower and its consolidated Subsidiaries
at such times and in such form (together with such certifications) as are
required to be delivered pursuant to Sections 8(A), (B) and (C); and
(J) any other information, including financial statements and
computations, relating to the performance of obligations arising under this
Agreement and/or the affairs of Holdings, the Borrower or any of their
Subsidiaries that the Purchaser or any other Eligible Holder may from time to
time reasonably request and which is capable of being obtained, produced or
generated by Holdings, the Borrower or such Subsidiary or of which any of them
has knowledge, including, without limitation, a brief statement describing any
significant events relating to Holdings, the Borrower and their Subsidiaries for
any fiscal period.
It is further understood and agreed that, for the purpose of effecting
compliance with Rule 144A promulgated by the SEC in connection with any resales
of Notes that may hereafter be effected pursuant to the provisions of such Rule,
if Holdings is not subject to Section 13 or 15(d) of the Exchange Act, each
prospective purchaser of Notes designated by a holder thereof shall have the
right to obtain from Holdings and the Borrower, upon the written request of such
holder, the information required pursuant to Rule 144A(d)(4) under the
Securities Act.
Each of Holdings and the Borrower will keep at its principal executive
office a true copy of this Agreement, and cause the same to be available for
inspection at said offices
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<PAGE>
during normal business hours by any holder of any of the Notes or any
prospective purchaser of any thereof designated by the holder thereof.
Section 9. Inspection of Properties and Books. Each of the Borrower and
----------------------------------
Holdings agrees that you or any Qualified Holder who agrees to abide by the
confidentiality requirement set forth below in this Section may, so long as you
or such Qualified Holder owns any Notes, after giving reasonable notice to
Holdings and the Borrower, visit at your or its own expense the offices and
Properties of Holdings, the Borrower or any of their Subsidiaries, and may
examine and make copies of the relevant books and records, and discuss the
affairs, finances and accounts of such companies with their officers and public
accountants (and by this provision the Borrower and each Subsidiary hereby
authorizes said accountants to discuss with you or such Qualified Holder its
affairs, finances and accounts) all at reasonable times during normal business
hours as often as you or it may reasonably desire. At any time when a Default or
an Event of Default shall have occurred and be continuing, the Borrower shall be
required to pay or reimburse you or any such Qualified Holder for expenses which
you or such Qualified Holder may reasonably incur in connection with any such
visitation or inspection. You and any other Qualified Holder shall use such
information only for your own purposes, shall keep it confidential and shall not
disclose it to any third person (other than a Purchaser Affiliate or an
affiliate of a Qualified Holder or accountants engaged by you or such Qualified
Holder), except for disclosures to: (i) such Qualified Holder's or Purchaser
Affiliate's directors, trustees, partners, officers, employees, agents and
professional consultants, (ii) any other Noteholder, (iii) any Person to which
such Qualified Holder offers to sell such Note or any part thereof, (iv) any
Person to which such Qualified Holder sells or offers to sell a participation in
all or any part of such Note, (v) any Person from which such Qualified Holder
offers to purchase any security of the Borrower, (vi) any federal, state or
Canadian provincial regulatory authority having jurisdiction over such Qualified
Holder, (vii) the National Association of Insurance Commissioners or any similar
organization, (viii) any nationally recognized financial rating service that is
rating or reviewing the rating of the Notes or (ix) any other Person to which
such delivery or disclosure may be necessary or appropriate (a) in compliance
with any law, rule, regulation or order applicable to such Qualified Holder, (b)
in response to any subpoena or other legal process or informal investigative
demand, (c) in connection with any litigation to which such Qualified Holder is
a party, or (d) to protect such Qualified Holder's investment in the Notes;
provided, however, that, (1) prior
- --------- -------
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<PAGE>
to any disclosure of any such information to any Person described in clause
(iii), (iv) or (v) above, such Person agrees to keep any non-public information
so delivered to it confidential or (2) if you (or such Qualified Holder) is
required to disclose any such information in connection with judicial or
governmental proceedings, you (or such Qualified Holder) shall provide the
Borrower and Holdings with prompt prior notice of such requirement. Any bona
fide transferee of any Note (or any participant in your interest in the Notes),
by its acceptance thereof, shall be bound by the provisions of this Section 9 to
the same extent as you are bound.
Section l0. Affirmative Covenants. The Borrower and Holdings covenant and
---------------------
agree that so long as any of the Notes shall be outstanding:
10.1. Payment of Principal, Prepayment Charge and Interest; Etc. The
---------------------------------------------------------
Borrower will duly and punctually pay the principal of, prepayment charge (if
any) and interest on the Notes in accordance with the terms of such Notes and
this Agreement. The Borrower and Holdings will comply with all of the covenants,
agreements and conditions contained in this Agreement.
10.2. Payment of Taxes and Claims. Holdings and the Borrower will, and
---------------------------
will cause each of their respective Subsidiaries to, pay before they become
delinquent:
(A) all taxes (including excise taxes), assessments and governmental
charges or levies imposed upon it or its income or profits or upon its Property,
real, personal or mixed, or upon any part thereof;
(B) all claims for labor, materials and supplies which, if unpaid,
might result in the creation of a Lien upon its Property; and
(C) all claims, assessments, or levies required to be paid by any of
them pursuant to any agreement, contract, law, ordinance or governmental rule or
regulation governing any pension, retirement, profit-sharing or any similar
plan;
provided, that the taxes, assessments, charges and levies described in this
- --------
Section 10.2 need not be paid while being diligently contested in good faith and
by appropriate proceedings so long as adequate book reserves have been
established with respect thereto in accordance with GAAP. The Borrower and
Holdings will timely file, and will cause their Subsidiaries to file, all tax
returns required to be filed in
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connection with the payment of taxes required by this Section 10.2.
10.3. Maintenance of Properties and Corporate Existence. Holdings and the
-------------------------------------------------
Borrower will, and will cause each of their respective Subsidiaries to:
(A) maintain its Property in good condition and make all renewals,
repairs, replacements, additions, betterments, and improvements thereto as are
necessary in the reasonable opinion of management;
(B) keep books, records and accounts in accordance with GAAP;
(C) do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, rights and powers and
franchises including, without limitation thereof, any necessary qualification or
licensing in any foreign jurisdiction; and
(D) comply with all applicable statutes, regulations, franchises, and
Orders of, and all applicable restrictions imposed by, any Governmental Body
(all as now or at any time hereafter may be in effect), in respect of the
conduct of its business and the ownership of its Properties (including, without
limitation, applicable statutes, rules, ordinances, regulations and Orders
relating to Environmental Laws), except where non-compliance could not
reasonably be expected to have a Material Adverse Effect.
10.4. Insurance. Holdings and the Borrower will maintain, and will cause
---------
to be maintained on behalf of each Subsidiary, insurance coverage by financially
sound and reputable insurers, against such casualties and contingencies, of such
types (including without limitation public liability, workmens' compensation,
larceny and embezzlement or other criminal misappropriation insurance) and in
such amounts as are prudent, and in any event in such amounts as are adequate to
cover foreseeable losses to the business of Holdings, the Borrower and their
Subsidiaries. The Borrower or Holdings shall furnish to the Purchasers on or
prior to the Closing Date a summary of insurance presently in force in a
separate letter.
Section 11. Negative and Maintenance Covenants. The provisions of this
----------------------------------
Section 11 shall remain in effect so long as any Notes shall remain outstanding.
11.1. Restrictions on Liens. Holdings and the Borrower covenant that they
---------------------
will not, nor will they permit any
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<PAGE>
Subsidiary to, directly or indirectly, create, assume or suffer to exist any
Lien upon any of their respective Properties or assets whether now owned or
hereafter acquired, except for:
(A) Liens for taxes, assessments or governmental charges or claims
the payment of which is not at the time required by Section 10.2;
(B) Statutory Liens of landlords, and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law incurred in
the ordinary course of business for sums not yet delinquent or being diligently
contested in good faith, so long as a reserve or other appropriate provision, if
any, shall have been made therefor;
(C) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with obligations not due
or delinquent with respect to workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(D) Any attachment or judgment Lien (including judgment or appeal
bonds) which shall, within 30 days after the entry thereof, have been discharged
or execution thereof stayed pending appeal, or which shall have been discharged
within 30 days after the expiration of any such stay, or which is being
diligently contested in good faith so long as a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;
(E) Easements, rights-of-way, restrictions and other similar rights
in land which do not, individually or in the aggregate, materially detract from
the value of such Property and do not interfere with the ordinary conduct of the
business of Holdings, the Borrower or any of their Subsidiaries;
(F) Liens securing Debt of a Subsidiary to the Borrower or Holdings;
(G) Liens (other than Liens created pursuant to Capitalized Leases)
existing on the date hereof and described in Schedule 4.8 attached hereto,
------------
securing Debt
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<PAGE>
not exceeding $1,000,000 in the aggregate in principal amount;
(H) Liens pursuant to Capitalized Leases existing on the Closing Date
and Liens created following the Closing Date pursuant to Capitalized Leases so
long as, with respect to Liens pursuant to Capitalized Leases created following
the Closing Date, the Funded Debt represented by such Capitalized Leases is
permitted pursuant to Section 11.2(C); and
(I) Liens including Liens arising out of purchase money financing not
otherwise permitted by the foregoing clauses of this Section 11.1 securing Debt
(without duplication) of Holdings, the Borrower or any Subsidiary of Holdings or
the Borrower, provided that the sum of (i) the principal amount of such Debt
--------
plus (ii) unsecured Debt of Subsidiaries of Holdings (other than the Borrower)
and Subsidiaries of the Borrower not otherwise permitted under Section 11.4(A)
does not exceed at any time 15% of Consolidated Tangible Net Worth.
The Liens referred to in Section 11.1(A) through (I) are herein collectively
referred to as "Permitted Liens," individually, a "Permitted Lien."
11.2. Limitation on Funded Debt Holdings and the Borrower shall not, and
-------------------------
shall not permit (except to the extent permitted in Section 11.4) any Subsidiary
to, incur Funded Debt other than:
(A) the Notes, the Guarantee of Holdings as set forth herein and the
Subsidiary Guarantee and all Funded Debt of Holdings, the Borrower and their
Subsidiaries existing as of the Closing Date, as set forth on Schedule 4.8
------------
attached hereto;
(B) any replacement, refinancing or extension of any Funded Debt,
provided that the aggregate principal amount of such Funded Debt (or, if such
Funded Debt is issued with an original issue discount, the original issue price
of such Funded Debt) does not exceed the then outstanding principal amount of
the Funded Debt so replaced, refinanced or extended (or, if the Funded Debt
being replaced, refinanced or extended was issued with an original issue
discount, the original issue price plus the amortized portion of the original
issue discount to the date that such Funded Debt is replaced, refinanced or
extended); and
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(C) Additional Funded Debt of Holdings, the Borrower and their
Subsidiaries, provided that after giving effect to such incurrence (including
--------
payment of interest and principal following such incurrence) and to the
application of any proceeds thereof (i) the ratio of Consolidated Income
Available for Fixed Charges to Fixed Charges would be not less than that ratio
required to be maintained pursuant to Section 11.8 and (ii) the aggregate
consolidated Funded Debt (without duplication) of Holdings, the Borrower and
their Subsidiaries would not exceed 50% of Total Capitalization, measured in
each case on a pro forma basis as of the most recently ended fiscal quarter as
if such incurrence had occurred on the last day of such fiscal quarter.
11.3. Consolidated Tangible Net Worth. Holdings and its Subsidiaries
-------------------------------
shall not permit Consolidated Tangible Net Worth at any time to be less than the
sum of $40,000,000 plus 50% of Consolidated Net Income on a cumulative basis
from September 30, 1992, to and including any date of determination hereunder.
11.4. Limitation on Debt of Subsidiaries. Holdings and the Borrower shall
----------------------------------
not permit any of their Subsidiaries (other than the Borrower) to incur any Debt
other than:
(A) Debt owed to Holdings or the Borrower or to a wholly-owned
Subsidiary of Holdings or the Borrower in each case by a direct or indirect
wholly-owned Subsidiary of the creditor thereunder; and
(B) additional Debt, provided that the sum of the aggregate principal
amount of such Debt plus the aggregate principal amount of all other Debt
(without duplication) of Holdings, the Borrower and any of their Subsidiaries
which is secured by Liens not permitted by Sections 11.1(A) through (H) does not
exceed 15% of Consolidated Tangible Net Worth.
11.5. Restricted Payments; Restricted Investments. Holdings will not,
-------------------------------------------
directly or indirectly, through any Subsidiary or otherwise, (a) pay or declare
any dividend on any class of its capital stock (but may declare and pay
dividends payable solely in capital stock or warrants, rights or options to
acquire capital stock) or make any other distribution on account of any class of
its capital stock; retire, redeem, purchase or otherwise acquire, directly or
indirectly, any shares of any class of its capital stock or any warrants, rights
or options to acquire any such shares (other than any such redemption,
retirement, purchase or other acquisition in
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<PAGE>
which the consideration paid by Holdings or such Subsidiary consists solely of
shares of capital stock of Holdings); or make or provide for any mandatory
sinking fund payments required in connection with any class of its capital stock
(all of the foregoing being called "Restricted Payments") or (b) make any
Restricted Investment, unless after giving effect to any Restricted Payment or
Restricted Investment the cumulative aggregate amount of all Restricted Payments
and Restricted Investments made by Holdings and its Subsidiaries after September
30, 1992 would not exceed the sum of: (i) $2,000,000, plus (ii) 50% of
----
cumulative Consolidated Net Income from September 30, 1992 through the date of
determination (or if Holdings and its Subsidiaries on a consolidated basis have
a cumulative Consolidated Net Loss for such period, then minus 100% of such
-----
Consolidated Net Loss), plus (iii) the net proceeds from the issuance or sale of
----
any shares of any class of equity securities of Holdings which are not
mandatorily redeemable or otherwise subject to repurchase, retirement, call, put
or other reacquisition prior to or on the maturity date of the Notes (and not
subject to acceleration or redemption repurchase, retirement, call, put or other
reacquisition prior to the maturity date of the Notes) received after September
30, 1992; provided that at the time of any such Restricted Payment or
--------
Restricted Investment, both immediately before and immediately after giving
effect thereto, (a) no Default or Event of Default shall have occurred and be
continuing, and (b) Holdings, the Borrower and their Subsidiaries shall be able
to incur, pursuant to Section l1.2(C)(ii) above, at least $1 of additional
Funded Debt. So long as no Default or Event of Default has occurred or would be
continuing after giving effect thereto, this Section 11.5 shall not prevent (a)
the payment of any dividend within 60 days after the date of its declaration if
the dividend would have been permitted on the date of its declaration, or (b)
the acquisition, repurchase, retirement, call, put or redemption of any shares
of capital stock of Holdings out of the proceeds of the substantially concurrent
sale (other than to a Subsidiary of Holdings) of, shares of capital stock of
Holdings, provided that any such acquisition, repurchase, retirement, call, put
--------
or redemption shall be deemed to be a Restricted Payment for the purpose of
determining the ability of Holdings and its Subsidiaries to make future
Restricted Payments.
11.6. Sale of Assets. Holdings and the Borrower shall not, and shall not
--------------
permit any of their Subsidiaries to, effect a Disposition of any assets unless
(i) no Default or Event of Default has occurred (except in the case of subclause
(a) below) and is continuing, and (ii) one of the following applies:
(a) such Disposition is in the ordinary course of business, including,
without limitation, sales and leases of
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operating restaurants in accordance with the Borrower's ordinary course
franchising operations and is made pursuant to the reasonable business judgment
of the Borrower in accordance with past practice;
(b) in each fiscal year, Holdings, the Borrower and their respective
Subsidiaries may effect Dispositions of assets for Fair Market Value and which
(A) have an aggregate Book Value, together with all other assets disposed of in
that fiscal year (other than Dispositions permitted by clause (a), (c) or (d) of
this Section 11.6), of less than 10% of Gross Assets on a consolidated basis
determined as at the date of such sale; (B) generate, together with all other
assets disposed of in that fiscal year (other than Dispositions permitted by
clause (a), (c) or (d) of this Section 11.6), net income, which is less than 10%
of the Consolidated Net Income (in each case, determined as of the end of the
immediately preceding fiscal year); and (C) together with all assets previously
disposed of since September 30, 1992 (other than Dispositions permitted by
clause (a), (c) or (d) of this Section 11.6), have an aggregate Book Value of
less than 25% of Gross Assets on a consolidated basis determined as at the date
of such sale, provided that after giving effect to any Disposition described in
--------
this subsection (b), Holdings, the Borrower or any of their Subsidiaries could
incur at least $1 of additional Funded Debt without being in default of their
obligations under Section 11.2(C)(ii);
(c) such Dispositions are made for Fair Market Value and the proceeds of
such Disposition are used (i) within six months following such Disposition, to
purchase assets ("Business Asset Acquisition") used in the operations of the
Borrower or (ii) to repay Debt of Holdings or its Subsidiaries which is not
junior in right of payment to the Notes; or
(d) the assets disposed of were disposed of for Fair Market Value (taking
into consideration the rental rate to be paid by the Borrower in connection with
the Disposition and leaseback of the assets so disposed of) and were constructed
or acquired following September 30, 1992 and are immediately leased back from
the purchaser thereof by Holdings or any of its Subsidiaries; provided that no
--------
assets may be sold and leased back pursuant to this clause (d) following the
third anniversary of the acquisition or construction of such assets by Holdings,
the Borrower or any of their Subsidiaries.
11.7. Consolidation or Merger. Holdings and the Borrower covenant that
-----------------------
neither of them will, nor will they permit any of their respective Subsidiaries
to, enter into any transaction of merger or consolidation, whether in one
transaction or a series
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of related or unrelated transactions and whether at the same time or over a
period of time, provided that:
--------
(A) (i) the Borrower may merge with Holdings or any of Holdings'
other Subsidiaries, (ii) Holdings may merge with the Borrower or any of
Holdings' other Subsidiaries and (iii) any Subsidiary may merge with Holdings,
the Borrower or any other Subsidiary, so long as, with respect to any mergers of
Holdings, the Borrower or IHOP Realty in which such party is not the surviving
Person, (a) the surviving Person of such transaction shall be a solvent U.S. or
Canadian corporation, and such surviving Person shall have assumed in writing
all of the obligations of the Borrower, Holdings or IHOP Realty, as the case may
be, under this Agreement, the Notes and the Subsidiary Guarantee, as the case
may be, a copy of which writing shall be provided to you and each holder of
Notes not less than 10 Business Days prior to any such transaction and which
shall be acceptable in form and substance to the Majority Holders, (b) at the
time of, and immediately after giving effect to, any such consolidation or
merger, no Default or Event of Default shall have occurred and be continuing,
and (c) immediately after any such consolidation or merger, the surviving Person
could incur an additional $1 of Funded Debt pursuant to Section 1l.2(C)(ii)
hereof; and
(B) Holdings or the Borrower may merge with any other Person so long
as (i) the surviving Person of such transaction shall be a solvent U.S. or
Canadian corporation, and such surviving Person shall have assumed in writing
all of the obligations of the Borrower under the Notes and this Agreement or of
Holdings under this Agreement, as the case may be, a copy of which writing shall
be provided to you and each holder of Notes not less than 10 Business Days prior
to any such transaction and which shall be acceptable in form and substance to
the Majority Holders, (ii) at the time of, and immediately after giving effect
to, any such consolidation or merger, no Default or Event of Default shall have
occurred and be continuing, and (iii) immediately after any such consolidation
or merger, the surviving or continuing Person could incur an additional $1 of
Funded Debt pursuant to Section 11.2(C)(ii) hereof.
11.8. Maintenance of Fixed Charge Coverage. Holdings and the Borrower
------------------------------------
covenant that on the last day of any quarterly accounting period of Holdings and
its Subsidiaries, the ratio of Consolidated Income Available for Fixed Charges
to Fixed Charges for the period consisting of any four of the immediately
preceding five quarterly accounting periods shall not be less than:
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Ratio Fiscal Quarter Ending in the Period
----- -----------------------------------
1.40:1.00 from Closing Date through September 29, 1993; and
1.50:1.00 from September 30, 1993 and thereafter.
11.9. Transactions with Affiliates. Each of Holdings and the Borrower
----------------------------
covenants that it will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
Property or the rendering of any service), with any Affiliate on terms that are
less favorable to Holdings, the Borrower or such Subsidiary, as the case may be,
than those that would be obtainable at the time in an arms' length transaction
with any Person who is not such an Affiliate; provided, however, that this
-------- -------
Section shall not prohibit the payment of compensation and benefits to directors
and officers of Holdings, the Borrower and their Subsidiaries in the ordinary
course of business and consistent with past practices.
11.10. Acquisition of Margin Securities. Each of Holdings and the
--------------------------------
Borrower covenants that it will not, and will not permit any of its Subsidiaries
to, own, purchase or acquire (or enter into any contract to purchase or acquire)
any "margin security" as defined by any regulation of the Board of Governors of
the United States Federal Reserve System as now in effect or as the same may
hereafter be in effect unless, prior to any such purchase or acquisition or
entering into any such contract, the holders of the Notes shall have received an
opinion of counsel satisfactory to the holders of the Notes to the effect that
such purchase or acquisition will not cause this Agreement or the Notes to be in
violation of Regulation G or any other regulation of such Board then in effect.
11.11. Conduct of Business. Each of Holdings and the Borrower covenants
-------------------
that it will not, and will not permit any of its Subsidiaries to, engage in any
business activity if, such business activity would result in a substantial
change in the general nature of the business of Holdings and its Subsidiaries,
taken as a whole, from that described in the Confidential Memorandum.
Section 12. Definitions.
-----------
(A) For the purposes of this Agreement, the following terms shall
have the following respective meanings:
"Acceleration Price" is defined in Section 13.2(A) hereof.
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"Accountants" has the meaning specified in Section 8.
"Affiliate" shall mean any Person (other than a Subsidiary) (i) which
directly or indirectly controls, or is controlled by, or is under common control
with, Holdings, (ii) which beneficially owns or holds 10% or more of any class
of the Voting Stock of Holdings, (iii) 10% or more of the Voting Stock of which
is beneficially owned or held by Holdings or a Subsidiary of Holdings or (iv)
any officer or director of Holdings or any of its Subsidiaries. For purposes of
this definition, "control" of a Person shall mean the power, direct or indirect,
(i) to vote or direct the voting of a majority of the Voting Stock of such
Person, or (ii) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Appropriate Officer" shall mean, with respect to any corporation,
such corporation's President, Vice President, Chief Executive Officer, Chief
Financial Officer, Treasurer or Controller.
"Audited Financial Statements" has the meaning specified in Section
4.5(a).
"Bank" is defined in Section 6.15.
"B of A" is defined in Section 6.15.
"Board" means the Board of Directors of any corporation or a committee
of said corporation having authority to exercise, when the Board of Directors is
not in session, the powers of the Board of Directors (subject to any designated
limitations) in the management of the business and affairs of said corporation.
"Book Value" of an asset of any Person means the value of such asset
as reported in the books and records of such Person in accordance with GAAP.
"Borrower" means International House of Pancakes, Inc., a Delaware
corporation, or any successor thereto.
"Business Asset Acquisition" is defined in Section 11.6 hereof.
"Business Day" means any day except a Saturday, a Sunday or a legal
holiday in New York City.
"Capitalized Lease" means a lease of Property which in accordance with
GAAP should be capitalized on the balance sheet of any Person.
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<PAGE>
"Capitalized Lease Obligations" shall mean the aggregate rentals due
and to become due under all Capitalized Leases which any Person, as a lessee,
would be required to reflect as a liability on the consolidated balance sheet of
such Person in accordance with GAAP.
"Certified" when used with respect to any financial information of any
Person to be certified by any of its officers, indicates that such information
is to be accompanied by a certificate to the effect that such financial
information has been prepared in accordance with GAAP consistently applied,
subject in the case of interim financial information to non-recurring material
year-end audit adjustments, and presents fairly the information contained
therein as at the dates and for the periods covered thereby.
"Closing Date" has the meaning specified in Section 2.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Memorandum" has the meaning specified in Section 4.5(a).
"Consolidated Income Available for Fixed Charges" means the sum of (a)
Consolidated Net Income (b) consolidated income tax expense of Holdings and its
Subsidiaries in accordance with GAAP and (c) Fixed Charges.
"Consolidated Net Income or Loss" shall mean the Net Income or Loss of
Holdings, the Borrower and their Subsidiaries, as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean shareholders' equity of
Holdings and its Subsidiaries less intangible assets booked after the Closing
----
Date, less Restricted Investments in excess of 10% of shareholders' equity of
----
Holdings and its Subsidiaries at any date of determination, all as determined
for Holdings and its Subsidiaries on a consolidated basis in accordance with
GAAP.
"Debt" with respect to any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) the liability of such
Person created by granting a Lien to which the property or assets of such Person
are subject whether or not such Person has assumed or become legally liable for
the payment of any obligation (provided that, if such obligation has not been
assumed or become the legal liability of such Person, the amount of the
liability shall be deemed to
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<PAGE>
be in an amount not to exceed the Fair Market Value of the property to which the
Lien relates, as determined in good faith by such Person), (iii) Capitalized
Lease Obligations of such Person, to the extent such obligations exceed accounts
receivable by such Person as lessor under direct financing leases with
franchisees so long as such direct financing leases are, at the time of
determination to the best knowledge of the lessor thereunder, valid and
enforceable against their lessees and are current as to payment and not
otherwise in default to the extent that there is a reasonable likelihood that
any such lease would be terminated by the lessor prior to its stated expiration
and (iv) the aggregate amount of all Guarantees given by such Person with
respect to any of the foregoing.
"Default" means any event or condition which, with due notice or lapse
of time or both, would become an Event of Default.
"Disposition" shall mean any sale, transfer, assignment, lease,
conveyance or other disposition of any asset.
"Disposition Date" is defined in Section 11.6 hereof.
"Eligible Holder" has the meaning specified in Section 8.
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 to 9675, the Resource
Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 to 6992, the Emergency
Planning and Community Right to Know Act, 42 U.S.C. SS 11001 to 11050, the Safe
Drinking Water Act, 42 U.S.C. (S)(S) 300f to 300j-26, the Hazardous Materials
Transportation Act, 49 U.S.C.A. (S)(S) 1801 to 1819, the Clean Air Act, 42
U.S.C. (S)(S) 7401 to 7671q, the Clean Water Act, 33 U.S.C. (S)(S) 1251 to 1387,
the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S)(S) 136 to
136y, the Noise Control Act, 42 U.S.C. (S)(S) 4901 to 4918, the Occupational
Safety and Health Act, 29 U.S.C.A. (S)(S) 651 to 678, the Toxic Substances
Control Act, 15 U.S.C. (S)(S) 2601 to 2671, any so-called "Superfund" or
"Superlien" law, any regulation promulgated under any of the foregoing or any
other Federal, state, or local statute, law, ordinance, code, rule, regulation,
order, decree, common law or other requirement of any Governmental Body
regulating or imposing liability or standards of conduct concerning the
environment, health and safety, or any Hazardous Material.
"Environmental Matter" means any claim, investigation (known to
Holdings or the Borrower), litigation, administrative proceeding, whether
pending or, to the knowledge of Holdings or
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<PAGE>
the Borrower, threatened, or judgment or Order, relating to any Hazardous
Materials, the release thereof, or any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
from time to time amended.
"ERISA Affiliate" means any corporation or other Person which is a
member of the same controlled group (within the meaning of Section 414(b) of the
Code) of corporations or other Persons as Holdings or any of its Subsidiaries,
or which is under common control (within the meaning of Section 414(c) of the
Code) with Holdings or any of its Subsidiaries, or any corporation or other
Person which is a member of an affiliated service group (within the meaning of
Section 414(m) of the Code) with Holdings or any of its Subsidiaries, or any
corporation or other Person which is required to be aggregated with Holdings or
any of its Subsidiaries pursuant to Section 414(o) of the Code or the
regulations promulgated thereunder.
"Event of Default" has the meaning specified in Section 13.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar U.S. statute then in effect, and a reference to a particular
section thereof shall include a reference to the comparable section, if any, of
any such similar U.S. statute.
"Fair Market Value" means what a willing buyer would pay to a willing
seller in an arm's-length transaction.
"Financial Statements" has the meaning specified in Section 4.5(a).
"Fixed Charges" means the sum of (a) Interest Expense and (b) rental
expense under operating leases, all as determined for Holdings and its
Subsidiaries on a consolidated basis in accordance with GAAP.
"Funded Debt" shall mean (i) all Debt of a Person (other than
Guarantees) having a final maturity of more than one year from the date of
incurrence thereof (or which is renewable or extendable at the option of the
obligor for a period or periods of more than one year from the date of
incurrence), including all payments in respect thereof that are required to be
made within one year from the date of any determination of Funded Debt, whether
or not included in current liabilities, (ii) in the case of Guarantees, all
Guarantees of obligations maturing more than one year after the
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<PAGE>
date as of which the Guarantee is incurred, and (iii) the recourse portion, if
any, of obligations under sales of notes or receivables programs.
"GAAP" means generally accepted accounting principles in the United
States in effect from time to time.
"Governmental Body" means any federal, state, Canadian provincial,
county, city, town, village, municipal or other governmental department,
commission, board, bureau, agency, authority or instrumentality, domestic or
foreign.
"Gross Assets" means the total assets and Properties of Holdings and
its Subsidiaries less accumulated depreciation, as indicated on the audited
balance sheets of Holdings and its Subsidiaries for the fiscal year end
immediately prior to the date of any determination.
"Guarantee" means any guarantee or other contingent liability (other
than any endorsement for collection or deposit in the ordinary course of
business), direct or indirect, with respect to any obligations of another
Person, through an agreement or otherwise, including, without limitation, (a)
any other endorsement or discount with recourse or undertaking substantially
equivalent to or having economic effect similar to a guarantee in respect of any
such obligations and (b) any agreement (i) to purchase, or to advance or supply
funds for the payment or purchase of, any such obligations, (ii) to purchase,
sell or lease Property, products, materials or supplies, or transportation or
services, in respect of enabling such other Person to pay any such obligation or
to assure the owner thereof against loss regardless of the delivery or
nondelivery of the Property, products, materials or supplies or transportation
or services or (iii) to make any loan, advance or capital contribution to or
other investment in, or to otherwise provide funds to or for, such other Person
in respect of enabling such Person to satisfy any obligation (including any
liability for a dividend, stock liquidation payment or expense) or to assure a
minimum equity, working capital or other balance sheet condition in respect of
any such obligation. The amount of liability of any Person attributable to any
Guarantee shall be equal to the maximum amount for which such Person could be
liable under such Guarantee.
"Hazardous Material" and "Hazardous Materials" shall mean as follows:
(1) any "hazardous substance" as defined in, or for purposes of, the
Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C.A. (S)(S) 9601 & 9602,
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<PAGE>
as may be amended from time to time, or any other so-called "superfund" or
"superlien" law and any judicial interpretation of any of the foregoing;
(2) any "regulated substance" as defined pursuant to 40 C.F.R. Part
280;
(3) any "pollutant or contaminant" as defined in 42 U.S.C.A. (S)
9601(33);
(4) any "hazardous waste" as defined in, or for purposes of, the
Resource Conservation and Recovery Act;
(5) any "hazardous chemical" as defined in 29 C.F.R. Part 1910;
(6) any "hazardous material" as defined in, or for purposes of, the
Hazardous Materials Transportation Act; and
(7) any other substance, regardless of physical form, or form of energy
or pathogenic agent that is subject to any Environmental Law.
Without limiting the generality of the foregoing, the term "Hazardous
Material" thus includes, but is not limited to, any material, waste or substance
that contains petroleum or any fraction thereof, asbestos, or polychlorinated
biphenyls, or that is flammable, explosive or radioactive that is subject to any
Environmental Law.
"Holdings" means IHOP Corp., a Delaware corporation, or any successor
thereto.
"HomeFed" is defined in Section 6.16.
"IHOP Realty" means IHOP Realty Corp., a Delaware corporation which is
a wholly-owned Subsidiary of the Borrower.
"Interest Expense" shall mean interest expense, determined for Holdings
and its Subsidiaries on a consolidated basis in accordance with GAAP.
"Interest Payment Date" shall mean any date on which the payment of
interest on any Note becomes due and payable.
"Internal Revenue Service" means the United States Internal Revenue
Service and any successor or similar agency performing similar functions.
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"Investment" when used with reference to any investment of Holdings,
the Borrower or any of their Subsidiaries, means any investment so classified
under GAAP (and, specifically, shall not include trade receivables which are
classified as current assets under GAAP), and, whether or not so classified,
includes (a) any loan or advance made by Holdings, the Borrower or any of their
Subsidiaries to any other Person, and (b) any ownership or similar interest in
any other Person; and the amount of any Investment shall be the original
principal or capital amount thereof less all cash returns of principal or equity
thereof (and without adjustment by reason of the financial condition of such
other Person).
"Lien" means any security interest, mortgage, pledge, lien, claim,
charge, encumbrance, conditional sale or title retention agreement, lessor's
interest under a Capitalized Lease or analogous instrument, in, of or on any of
a Person's Property (whether held on the date hereof or hereafter acquired), or
any signed or filed financing statement which names such Person as the debtor,
or the execution of any security agreement or the like authorizing any other
Person as the secured party thereunder to file such a financing statement;
provided that neither (a) the interest of a lessee or a sublessee in its
- --------
capacity as lessee or sublessee under a lease or sublease entered into by
Holdings, the Borrower or any of their Subsidiaries in the ordinary course of
business nor (b) the rights of franchisees in their capacities as franchisees to
use and possession of certain properties and rights pursuant to franchise
documentation entered into by Holdings, the Borrower or any of their
Subsidiaries in the ordinary course of business shall be deemed to constitute a
Lien for purposes hereof.
"Majority Holders" means the holders of at least a majority in
principal amount of the Notes at the applicable time outstanding.
"Material Adverse Effect" means any change or changes or effect or
effects that individually or in the aggregate are or are likely to be materially
adverse to (i) the assets, business, operations, income, prospects or condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole or
the Borrower and its Subsidiaries taken as a whole, (ii) the transactions
contemplated by this Agreement, or (iii) taken as a whole, the ability of the
Borrower and Holdings to fulfill their respective obligations under this
Agreement and the Notes.
"Material Contracts" means all supply agreements, requirements
contracts, leases, customer agreements, franchise agreements, license
agreements, distribution agreements, joint
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venture agreements, asset purchase agreements, stock purchase agreements, merger
agreements, agency or advertising agreements and other contracts, agreements and
commitments to which Holdings or any of its Subsidiaries are parties, and which
are material to the respective businesses, assets or operations of Holdings and
its Subsidiaries.
"Multiemployer Plan" means a multiemployer plan as defined in Section
3(37) or Section 4001(a)(3) of ERISA or Section 414(f) of the Code contributed
to by Holdings or any of its Subsidiaries or ERISA Affiliates.
"Net Income or Loss" of any Person, with respect to any period, shall
mean the net income or net loss of such Person after excluding the sum of (i)
any net loss or any undistributed net income of any Person other than a
Subsidiary of such Person, (ii) the net income or net loss of any Subsidiary of
such Person earned or incurred prior to the date on which it became a Subsidiary
of such Person, (iii) the gain or loss (net of any tax effect) resulting from
the sale of any capital assets other than in the ordinary course of business,
and (iv) extraordinary or nonrecurring gains or losses (net of any tax effect),
all as determined for the relevant period in accordance with GAAP.
"Note" has the meaning specified in Section 1.
"Offering Circular" has the meaning specified in Section 4.25.
"Officer's Certificate" shall mean a certificate executed on behalf of
Holdings, the Borrower or any of their Subsidiaries, in each case by an
Appropriate Officer thereof.
"Order" means any order, writ, injunction, decree, judgment, award,
determination or written direction or demand of any court, arbitrator or
Governmental Body.
"Other Agreements" shall mean the agreements which are identical in all
respects with this Agreement (except for the respective principal amounts of the
Notes to be purchased) and executed and delivered to the other Purchasers named
in Schedule I hereto simultaneously with the execution and delivery of this
----------
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor agency or Governmental Body performing similar functions.
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"Pension Plan" means an employee pension benefit plan, as defined in
Section 3(2) of ERISA, excluding any Multiemployer Plans, maintained by or
contributed to by Holdings or any of its Subsidiaries or ERISA Affiliates.
"Permitted Lien" is defined in Section 11.1.
"Person" means and includes an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"Plan" and "Plans" means any employee benefit plan as defined in
Section 3(3) of ERISA, excluding a Multiemployer Plan, established or maintained
for the benefit of employees of Holdings or any of its Subsidiaries or ERISA
Affiliates.
"Present Value Amount" means at any time with respect to any Notes
being prepaid in whole or in part pursuant to Section 3.2 hereof or being
declared or becoming due and payable pursuant to Section 13.2(A) or (B) hereof,
the sum of the Present Values of (A) the aggregate amount of the principal being
so prepaid or being declared or becoming due and payable plus (B) each amount of
----
interest which would have been payable on the amount of such principal being
prepaid or being declared or becoming due and payable (assuming that all
payments and prepayments of principal and interest would have been made in
accordance with the terms of this Agreement and the Notes and that interest
accrued and unpaid on such principal to the date of prepayment or the date such
principal is declared or becomes due and payable has been paid). "Present
--------
Value", for any amount of principal or interest, shall be computed on a
- ------
semiannual basis at a discount rate equal to the Treasury Yield plus 50 basis
points. The "Treasury Yield" shall be determined by reference to (i) the yields
----------------
reported, as of 10:00 a.m. (New York City time) on the Business Day next
preceding the prepayment date or the date any such principal is declared or
becomes due and payable, on the display designated as "Page 500" on the Telerate
Service (or such other display as may replace Page 500 on the Telerate Service)
for actively traded U.S. Treasury securities having a constant maturity equal to
the then remaining Weighted Average Life to Maturity of the principal being
prepaid or being declared or becoming due and payable, or if such yields shall
not be reported as of such time or the yields reported as of such time shall not
be ascertainable, (ii) the most recent Federal Reserve Statistical Release H.15
(519) which has become available not more than two Business Days prior to the
date of prepayment or the date such principal becomes or is declared due and
payable (or, if such Statistical Release is no longer published, any publicly
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available source of similar market data acceptable to the Majority Holders), and
shall be the most recent yield on actively traded U.S. Treasury securities
adjusted to a constant maturity equal to the then remaining Weighted Average
Life to Maturity of the principal being prepaid or being declared or becoming
due and payable. If the Weighted Average Life to Maturity (so computed) is not
equal to the constant maturity of a U.S. Treasury security for which a yield is
given, the Treasury Yield shall be obtained by linear interpolation (calculated
to the nearest one-twelfth of a year) from the yields of U.S. Treasury
securities for which such yields are given, except that if the Weighted Average
Life to Maturity (so computed) is less than one year, the yield on actively
traded U.S. Treasury securities adjusted to a constant maturity of one year
shall be used.
"Pro Rata Portion" shall mean with respect to any Noteholder, the ratio
of the principal balance outstanding on the Note or Notes held by that
Noteholder on the date of determination to the aggregate principal balance
outstanding on all the Notes on the date of determination.
"Projections" is defined in Section 4.5 hereof.
"Property" with respect to any Person, means any interest in any kind
of property or asset, whether real, personal or mixed, tangible or intangible,
of such Person.
"Purchaser Affiliate" shall mean any Person (i) which directly or
indirectly controls, or is controlled by, or is under common control with, a
Purchaser, (ii) which beneficially owns or holds 5% or more of any class of the
Voting Stock of a Purchaser, or (iii) 5% or more of the Voting Stock of which is
beneficially owned or held by a Purchaser; provided, however, that a director,
officer or employee of a Purchaser shall not be deemed to control, to be
controlled by, or to be under common control with, a Purchaser for purposes
hereof solely by reason of such status. For purposes of this definition,
"control" of a Person shall mean the power, direct or indirect, (i) to vote or
direct the voting of a majority of the Voting Stock of such Person, or (ii) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise. For the purposes of this Agreement, the
Purchasers shall not be deemed to be Affiliates of Holdings or any of its
Subsidiaries.
"Qualified Holder" shall mean, as of any date of determination, any
original Purchaser or Purchaser Affiliate and any direct or indirect successor,
assign or transferee of any Purchaser or Purchaser Affiliate holding Notes
representing
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at least 10% of the aggregate principal amount of all Notes at the time
outstanding.
"quarterly accounting period" is defined in Section 8(A) hereof.
"Reportable Event" means any of the events set forth in Section 4043(b)
of ERISA or the regulations thereunder for which the 30-day notice requirement
applies.
"Restricted Investments" shall mean all Investments made by Holdings,
the Borrower or their Subsidiaries in or to any Person except (i) Investments in
notes of franchisees and receivables of franchisees in the ordinary course of
business other than notes and receivables held in settlement of franchise
obligations, and in Property of Holdings or its Subsidiaries to be used in the
ordinary course of business, (ii) Investments in Subsidiaries, (iii) Investments
in obligations issued or unconditionally guarantied by the U.S. or any agency
thereof, in each case maturing within one year from the date of acquisition
thereof; (iv) Investments in obligations issued by any political subdivision of
the U.S. or any public instrumentality thereof maturing within one year from the
date of acquisition thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from either Standard & Poor's Corporation or
Moody's Investors Service, Inc. or some other mutually agreeable rating system
if either of these entities no longer exists; (v) commercial paper maturing no
more than 270 days from the date of creation thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc. or some other
mutually agreeable rating system if either of these entities no longer exists;
(vi) certificates of deposit, repurchase agreements or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by the
Borrower's cash management concentration bank (provided that such bank is rated
investment grade or better by either Standard & Poor's Corporation or Moody's
Investors Services, Inc. or some other mutually agreeable rating system if
either of these entities no longer exists), Continental Bank N.A., or other
commercial banks located in the U.S. and Canada having combined capital, surplus
and undivided profits of not less than $100,000,000 and who have a rating at all
times from Standard & Poor's Corporation or Moody's Investors Service, Inc., or
some other mutually agreeable rating system if either of these entities no
longer exists, of "A-" or better; (vii) Investments in mutual funds and money
market accounts, which funds or accounts are traded on a national exchange or
are managed by a commercial bank and which invests solely in Investments which
satisfy the
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criteria set forth in the foregoing clauses (iii) through (vi); and (viii) other
Investments existing on the Closing Date and set forth on Schedule 12 hereto.
-----------
"SEC" means the Securities and Exchange Commission and any succeeding
agency, authority, commission or Governmental Body.
"SEC Reports" means, collectively, (a) the annual report on Form 10-K
as filed by Holdings with the Securities and Exchange Commission pursuant to
Section 13 or 15(d) of the Exchange Act, for the fiscal year ended December 31,
1991, (b) the quarterly report on Form l0-Q as filed by Holdings with the
Securities and Exchange Commission pursuant to Section 13 or 15(d) of the
Exchange Act, for the quarterly period ended June 30, 1992, and (c) the
quarterly report on Form l0-Q as filed by Holdings with the Securities and
Exchange Commission pursuant to Section 13 or 15(d) of the Exchange Act, for the
quarterly period ended September 30, 1992.
"Securities Act" means as of any date the Securities Act of 1933, as
amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall include a reference to the comparable section,
if any, of any such similar Federal statute.
"September 30, 1992 l0-Q" has the meaning specified in Section 4.5(b).
"Solvent" means, when used with respect to any Person, that:
(a) the present fair salable value of such Person's assets is in excess
of the total amount of such Person's liabilities;
(b) such Person is able to pay its debts as they become due; and
(c) such Person does not have unreasonably small capital to carry on
such Person's business as theretofore operated and all businesses in which such
Person is about to engage.
"Subsidiaries List" is defined in Section 4.6 hereof.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other entity (a) organized under the laws of the United States, the District of
Columbia or Canada or any state or political subdivision of any thereof, (b) all
or
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substantially all of whose assets and business operations are located or
conducted within the United States or Canada and (c) of which at least a
majority of the outstanding Voting Stock is at the time directly or indirectly
owned or controlled by such Person or by one or more of such Person's wholly-
owned Subsidiaries.
"Subsidiary Guarantee" shall mean the Subsidiary Guarantee in the form
of Exhibit D hereto.
---------
"Total Capitalization" shall mean the sum of (i) Funded Debt of
Holdings, the Borrower and their Subsidiaries and (ii) Consolidated
Tangible Net Worth.
"Unaudited Financial Statements" has the meaning specified in Section
4.5(a).
"U.S." means the United States of America.
"Voting Stock" with respect to any Person shall mean capital stock of
such Person of any class or classes, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of members of the
Board (or Persons performing similar functions) of such Person.
"Weighted Average Life to Maturity" means, with respect to any Debt, as
at any time of determination, the number of years obtained by dividing the then
Remaining Dollar-years of such Debt by the then outstanding principal balance of
such Debt (before giving effect to any prepayment to be made at the time of such
determination). For such purposes, the "Remaining Dollar-years" of any Debt
shall be determined by (1) multiplying (a) the amount of each required payment
of principal of such Debt (including each required installment payment or
mandatory prepayment thereof, if any, and payment of the principal balance
thereof at final maturity, but assuming no optional prepayments thereof are
made) by (b) the number of years (calculated to the nearest one-twelfth) which
will elapse between the time of determination and the date the respective
required payment or mandatory prepayment of principal is due, and (2) adding all
of the products so obtained.
(B) Accounting Terms. All accounting terms used in this Agreement
----------------
shall be applied on a consolidated basis for Holdings, the Borrower and their
Subsidiaries, unless otherwise specifically indicated herein. Any accounting
terms not specifically defined herein shall have the meanings customarily given
them in accordance with GAAP.
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Section 13. Events of Default.
-----------------
13.1. Events of Default; Remedies. If any of the following events shall
---------------------------
have occurred and be continuing (whatever the reason for such event and whether
it shall be voluntary or involuntary or by operation of law or otherwise), it
shall constitute an "Event of Default":
(A) the Borrower shall default in the due and punctual payment or
prepayment of all or any part of the principal of, or prepayment charge (if any)
on, any Note when and as the same shall become due and payable, whether at
stated maturity, by acceleration, by notice of prepayment or otherwise;
(B) the Borrower shall default in the due and punctual payment or
prepayment of any interest on any Note or any other sum or amount due under any
Note or this Agreement when and as such interest, sum or amount shall become due
and payable, and such default shall continue for a period of five (5) Business
Days;
(C) the Borrower shall default in the performance or observance of any
covenant, agreement or condition contained in Section 8(E) and Sections 11.1
through 11.11 hereof, inclusive;
(D) the Borrower shall default in the performance or observance of any
other covenant, agreement or condition contained in this Agreement and such
default shall continue for a period of 30 days following the earlier to occur of
(i) notice of such default from any holder of a Note or (ii) the date on which
any Authorized Officer of Holdings, the Borrower or any of their Subsidiaries
otherwise becomes aware of the existence of such default;
(E) any event shall occur or any condition shall exist in respect of
any Debt of Holdings, the Borrower or their Subsidiaries in excess of $2,000,000
in the aggregate for all such Debt (other than the Funded Debt evidenced by this
Agreement and the Notes), which constitutes a breach, default or event of
default under any agreement or document securing or relating to any such Debt
(following all applicable notice or grace periods), the effect of which is to
cause, or to permit any holder or holders of such Debt or an agent or trustee to
cause, the acceleration of the maturity of such Debt;
(F) final order, decree or judgment for the payment of money shall be
rendered by a court of competent jurisdiction against Holdings, the Borrower or
any of their Subsidiaries, and Holdings, the Borrower or such Subsidiary, as the
case may be, shall not discharge the same or provide for its discharge
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in accordance with its terms, or procure a stay of execution thereof, within 60
days from the date of entry thereof and within said period of 60 days, or such
longer period during which execution of such order, decree or judgment shall
have been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal, and such order, decree or judgment together with all other
such orders, decrees or judgments then existing shall exceed in the aggregate
$3,000,000 (net of insurance proceeds actually received, if any);
(G) any representation, warranty, certification or statement made by
or on behalf of the Borrower or Holdings in this Agreement or by or on behalf of
IHOP Realty in the Subsidiary Guarantee or in any certificate, instrument,
financial statement or other document now or hereafter delivered hereunder or
thereunder or pursuant to or in connection with any provision hereof or thereof
shall prove to be false or incorrect or breached in any material respect on the
date as of which made;
(H) a proceeding or case shall be commenced, without the application
or consent of Holdings, the Borrower or any of their Subsidiaries in any court
of competent jurisdiction, seeking (1) the liquidation, reorganization,
dissolution, winding up of any thereof or composition or readjustment of the
debts of any of them, or (2) similar relief in respect of Holdings, the Borrower
or any of their Subsidiaries under any law providing for the relief of debtors,
and such proceeding or case shall continue undismissed, or unstayed and in
effect, for a period of 90 days; or an order for relief shall be entered in an
involuntary case under the applicable bankruptcy laws against Holdings, the
Borrower or any of their Subsidiaries; or action under the laws of the
jurisdiction of organization of any of Holdings, the Borrower or any of their
Subsidiaries analogous to any of the foregoing shall be taken with respect to
any of Holdings, the Borrower or any of their Subsidiaries and shall continue
undismissed, or unstayed and in effect, for a period of 90 days;
(I) Holdings, the Borrower or any of their Subsidiaries shall (1)
apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its Property, (2) be generally unable to pay its debts as such debts
become due, (3) make a general assignment for the benefit of its creditors, (4)
commence a voluntary case under the applicable bankruptcy laws (as now or
hereafter in effect), (5) file a petition seeking to take advantage of any other
law providing for the relief of debtors, (6) fail to controvert in
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a timely or appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under such bankruptcy laws, (7) admit in
writing its inability to pay its debts generally as such debts become due, (8)
take any action under the laws of its jurisdiction of organization analogous to
any of the foregoing, or (9) take any requisite action for the purpose of
effecting any of the foregoing;
(J) A custodian, liquidator, trustee or receiver is appointed for
Holdings, the Borrower or any of their Subsidiaries or for all or a substantial
portion of the Property of any of them, without the application or consent of
Holdings or any such Subsidiary, and is not discharged within 90 days after such
appointment; or
(K) If either of the Subsidiary Guarantee or the Guarantee of Holdings
contained in Section 16.14 hereof shall cease to be in full force and effect or
either of Holdings or IHOP Realty or any Person acting by or on behalf of either
of them shall deny or disaffirm their respective obligations under such
Guarantees.
13.2. Acceleration of Notes.
---------------------
(A) Upon the occurrence of an Event of Default described in
Subsections (A) or (B) of Section 13.1 with respect to any Note, the holder of
any such Note may, by written notice to the Borrower, declare such Note to be,
and the same shall forthwith become, immediately due and payable, at a price
(the "Acceleration Price") equal to the sum of (i) the greater of the principal
amount being declared immediately due and payable or the Present Value Amount,
plus (ii) all accrued but unpaid interest on the principal amount being declared
immediately due and payable, all without presentment, demand, notice, protest or
other requirements of any kind, all of which are hereby expressly waived. If any
holder of any Note shall exercise the option specified in this Subparagraph (A),
the Borrower shall forthwith give written notice thereof to the holders of all
other outstanding Notes and each such holder may (whether or not such notice is
given or received), by written notice to the Borrower, declare the principal of
all Notes held by it to be, and the same shall forthwith become, immediately due
and payable, at a price equal to the Acceleration Price.
(B) Upon the occurrence of any Event of Default described in
Subsections 13.1(C), (D), (E), (F), (G) or (K) of Section 13.1, the Majority
Holders may, by written notice to the Borrower, declare all of the Notes to be,
and the same shall forthwith become, immediately due and payable, at a price
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equal to the Acceleration Price, without any presentment, demand, notice,
protest or other requirement of any kind, all of which are hereby expressly
waived.
(C) Upon the occurrence of an Event of Default described in
Subsections (H), (I) and (J) of Section 13.1, all of the Notes shall
automatically become immediately due and payable, at a price equal to the
Acceleration Price, without presentment, demand, notice, protest or other
requirements of any kind, all of which are hereby expressly waived.
13.3. Rescission of Acceleration. The provisions of Section 13.2 are
--------------------------
subject, however, to the condition that if, at any time after any Note shall
have become due and payable pursuant to Section 13.2, (i) the Borrower shall pay
all arrears of interest on the Notes and all payments on account of the
principal of and, to the extent permitted by law, prepayment charge (if any) on
the Notes which shall have become due otherwise than by acceleration (with
interest on all such overdue principal and prepayment charge, if any, and, to
the extent permitted by law, on overdue payments of interest, at the applicable
rate per annum provided for in the Notes or this Agreement in respect of overdue
amounts of principal, prepayment charge and interest), and (ii) the Borrower
shall pay to the Noteholders all amounts that are then due and owing pursuant to
this Agreement, and (iii) all Events of Default (other than nonpayment of
principal of, prepayment charge (if any) and accrued interest on the Notes, due
and payable solely by virtue of acceleration) shall be remedied or waived by the
Majority Holders, and (iv) no judgment or decree has been entered by any court
for the payment of any amounts due and owing under the Notes or pursuant to this
Agreement or the Subsidiary Guarantee, then, and in every such case, the
Majority Holders, by written notice to the Borrower, may rescind and annul any
such acceleration and its consequences with respect to the Notes; but no such
action shall affect any subsequent Default or Event of Default or impair any
right consequent thereon.
13.4. Suits for Enforcement. If any Event of Default shall have occurred
---------------------
and be continuing, the holder of any Note may proceed to protect and enforce its
rights, either by suit in equity or by action at law, or both, whether for the
specific performance of any covenant or agreement contained in this Agreement or
in aid of the exercise of any power granted in this Agreement, and the holder of
any Note may proceed to enforce the payment of all sums due upon such Note, and
such further amounts as shall be sufficient to cover the costs and expenses of
collection (including, without limitation, reasonable counsel fees and
disbursements), or to enforce any other legal or equitable right of the holder
of such Note.
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13.5. Remedies Cumulative. No remedy herein conferred upon you or the
-------------------
holder of any Note is intended to be exclusive of any other remedy and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
13.6. Remedies Not Waived. No course of dealing between the Borrower and
-------------------
you or the holder of any other Note and no delay or failure in exercising any
rights hereunder or under any Note in respect thereof shall operate as a waiver
of any of your rights or the rights of any holder of such Note.
Section 14. Registration, Exchange, and Transfer of Notes. The Borrower
---------------------------------------------
will keep at its principal executive office a register, in which, subject to
such reasonable regulations as it may prescribe, but at its expense (other than
transfer taxes, if any), the Borrower will provide for the registration and
transfer of Notes. Whenever any Note or Notes shall be surrendered either at the
principal executive office of the Borrower, or at the place of payment named in
the Note, for transfer or exchange, accompanied (if so required by the Borrower)
by a written instrument of transfer in form reasonably satisfactory to the
Borrower duly executed by the holder thereof or by such holder's attorney duly
authorized in writing, the Borrower will execute and deliver in exchange
therefor a new Note or Notes in such denominations (multiples of $100,000) as
may be requested by such holder, of like tenor and in the same aggregate unpaid
principal amount as the aggregate unpaid principal amount of the Note or Notes
so surrendered. Any Note issued in exchange for any other Note or upon transfer
thereof shall carry the rights to unpaid interest and interest to accrue which
were carried by the Note so exchanged or transferred, and neither gain nor loss
of interest shall result from any such transfer or exchange. Any transfer tax or
governmental charge relating to such transaction shall be paid by the holder
requesting the exchange. The Borrower and any of its agents may treat the Person
in whose name any Note is registered as the owner of such Note for the purpose
of receiving payment of the principal of, prepayment charge (if any) and
interest and other amounts on such Note and for all other purposes whatsoever,
whether or not such Note be overdue.
Section 15. Lost, Stolen, Damaged and Destroyed Notes. At the request of
-----------------------------------------
any holder of any Note, the Borrower will issue and deliver at its expense, in
replacement of any Note or Notes lost, stolen, damaged or destroyed, upon
surrender thereof, if mutilated, a new Note or Notes in the same aggregate
unpaid principal amount, and otherwise of the same tenor, as the Note or Notes
so lost, stolen, damaged or destroyed, duly executed
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by the Borrower. The Borrower may condition the replacement of a Note or Notes
reported by the holder thereof as lost, stolen, damaged or destroyed, upon the
receipt from such holder of an indemnity or security reasonably satisfactory to
the Borrower; provided, that if such holder shall be you or your nominee or
--------
another Eligible Holder or its nominee, your or such Eligible Holder's unsecured
agreement of indemnity shall be sufficient for purposes of this Section.
Section 16. Miscellaneous.
-------------
16.1. Home Office Payment. Notwithstanding anything to the contrary in
-------------------
this Agreement or in the Notes, the Borrower agrees that, so long as you or any
nominee designated by you shall hold any Notes, the Borrower shall cause all
payments of principal, prepayment charge (if any) and interest on the Notes to
be made to you in the manner and to the address specified in Schedule I hereto,
----------
or in such other manner or to such other address as you may designate in
writing. You agree that prior to the sale, transfer or disposition of any Note
you will make a notation thereon of the portion of the principal amount paid or
prepaid and the date to which interest has been paid thereon or surrender the
same in exchange for a new Note or Notes of the same tenor and of authorized
denominations in aggregate principal amount equal to the aggregate unpaid
principal amount of the Note or Notes so surrendered, duly executed by the
Borrower. Borrower shall enter into an agreement similar to that contained in
this Section with any other Eligible Holder (or nominee thereof).
16.2. Amendment and Waiver.
--------------------
(A) Any term, covenant agreement or condition of this Agreement or of
the Notes may, with the consent of the Borrower be amended, or compliance
therewith may be waived (either generally or in a particular instance and either
retroactively or prospectively), by one or more substantially concurrent written
instruments signed by the Majority Holders, except that
(1) no such amendment or waiver shall (a) change the principal of,
or the rate of interest on, any of the Notes, (b) change the time of payment
of all or any portion of the principal of or interest on or any prepayment
charge payable with respect to any of the Notes, (c) modify any of the
provisions of this Agreement or of the Notes with respect to the payment or
prepayment of the principal thereof or prepayment charge or interest
thereon, (d) change the percentage of Notes required with respect to any
such amendment or to effectuate any such waiver, (e) modify any provision of
this Section or (f) modify any
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provision of Section 13.1 or 16.14 hereof or of the Subsidiary Guarantee,
without in each case the specific prior written consent of the holders of
all of the Notes at the time outstanding; and
(2) no such waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon.
(B) Any amendment or waiver pursuant to Subsection (A) of this Section
16.2 shall apply equally to all holders of the Notes at the time outstanding and
shall be binding upon them, upon each future holder of any Note, and upon the
Borrower, in each case whether or not a notation thereof shall have been placed
on any Note.
(C) Notwithstanding any other provision contained in this Section 16.2
or elsewhere in this Agreement to the contrary, Notes which at any time are held
by Holdings, the Borrower or by any or their Subsidiaries or Affiliates shall
not be deemed outstanding for purposes of any vote, consent, approval, waiver or
other action required or permitted to be taken by the holders of Notes, or by
any of them, under the provisions of this Section 16.2 or Section 13 of this
Agreement, and none of Holdings, the Borrower or any such Subsidiary or
Affiliate shall be entitled to exercise any right as a holder of Notes with
respect to any such vote, consent, approval or waiver or to take or participate
in taking any such action at any time.
(D) The parties hereto agree that no amendments or waivers pursuant to
this Section 16.2 shall be granted unless each holder of Notes has had the
opportunity to participate in conferences and discussions with respect to any
such amendments or waivers, and has received the same information, drafts,
notices, memoranda and other written communications pertaining to such amendment
or waiver as are received by any other Purchaser or Eligible Holder.
16.3. Expenses. The Borrower agrees, whether or not the transactions
--------
hereby contemplated shall be consummated, to pay and save you harmless against
any and all liability for the payment of all reasonable out-of-pocket expenses
arising in connection with this Agreement, the Subsidiary Guarantee and the
other instruments and the transactions hereby contemplated, including without
limitation all such expenses incurred with respect to the enforcement of any
provision of any such agreement or instrument, any proposed amendments or
waivers (whether or not the same shall be signed or shall become effective)
under or in respect of any such agreement or
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instrument and the consideration of any legal questions relevant thereto, all
expenses incurred in connection with the reproduction of such agreements and
instruments and all stamp and other similar taxes (together in each case with
interest and penalties, if any) which may be payable in respect of the execution
and delivery of such agreement or instruments, or the issuance, delivery or
acquisition by you of any Note or otherwise pursuant to this Agreement, the
Subsidiary Guarantee, and expenses incurred in obtaining a private placement
number from Standard & Poor's Corporation and a rating from the National
Association of Insurance Commissioners, and the fees and disbursements of
Sonnenschein Nath & Rosenthal and of any special or local counsel in connection
with preparation of such agreements and instruments and the transactions hereby
and thereby contemplated (including, without limitation, in connection with any
such enforcement, amendment, waiver or consideration of legal questions), and
the fees and disbursements of the Accountants. The obligations of the Borrower
under this Section 16.3 shall survive the payment or transfer of any Note, the
enforcement of any provision hereof or thereof, any such amendments or waivers
and any such consideration of legal questions.
16.4. Survival of Representations and Warranties. All representations and
------------------------------------------
warranties contained herein or made in writing by or on behalf of any party to
this Agreement or otherwise in connection herewith, shall (i) survive the
execution and delivery of this Agreement and the delivery of the Notes to you
and shall continue in effect as long as any of the Notes is outstanding and
thereafter as provided in Section 16.3, and (ii) be deemed to be material to
your decision to enter into this transaction and to have been relied upon by
you, regardless of any investigation made by you or on your behalf.
16.5. Successors and Assigns. All representations, warranties, covenants
----------------------
and agreements in this Agreement contained by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not, except that you shall
not be obligated to purchase any Note from any issuer other than the Borrower.
The provisions of this Agreement are intended to be for the benefit of all
holders, from time to time, of any Notes purchased pursuant hereto, and shall be
enforceable by any such holder, whether or not an express assignment to such
holder of rights under this Agreement has been made by you or your successor or
assign.
16.6. Notices. All communications provided for hereunder shall be in
-------
writing and delivered by hand or sent by first
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class mail or sent by telex or telecopy (with such telex or telecopy to be
confirmed promptly in writing sent by first class mail), sent (i) if to you, to
the address or telex or telecopy number set forth by you for such communications
on Schedule I hereto, or to such other address or telex or telecopy number as
----------
you may have designated to the Borrower in writing; (ii) if to any other holder
of any Notes, to the address or telex or telecopy number (if any) of such holder
as set forth in the register maintained pursuant to Section 15; and (iii) if to
the Borrower or Holdings, to IHOP Corp., 525 North Brand Boulevard, Glendale,
California 91203-1903, Attention: Larry Alan Kay, Executive Vice President --
Administration, Secretary and General Counsel; facsimile # (818) 240-0270; or to
such other address or addresses or telex or telecopy number or numbers as the
Borrower may most recently have designated in writing to the holders of Notes by
such notice. All such communications shall be deemed to have been given or made
when so delivered by hand or sent by telex (answer back received) or telecopy,
or three Business Days after being so mailed.
16.7. Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
(WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE).
16.8. Submission to Jurisdiction: Waiver of Service and Venue.
-------------------------------------------------------
(A) EACH OF HOLDINGS AND THE BORROWER CONSENTS AND AGREES TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF NEW YORK,
STATE OF NEW YORK, AND WAIVES ANY OBJECTION BASED ON VENUE OR FORUM NON
----- ---
CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED THEREIN, AND AGREES THAT ANY
- ----------
DISPUTE CONCERNING THE RELATIONSHIP BETWEEN THE PURCHASER OR HOLDER OF NOTES, ON
THE ONE HAND, AND THE BORROWER OR HOLDINGS, ON THE OTHER HAND OR THE CONDUCT OF
ANY PARTY IN CONNECTION WITH THIS AGREEMENT OR OTHERWISE SHALL BE HEARD ONLY IN
THE COURTS DESCRIBED ABOVE.
(B) EACH OF HOLDINGS AND THE BORROWER HEREBY WAIVES PERSONAL SERVICE
OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY
BE MADE BY HAND DELIVERY OR MAIL TO HOLDINGS AND THE BORROWER AT ITS ADDRESS SET
FORTH IN, AND IN ACCORDANCE WITH, SECTION 16.6. EACH OF HOLDINGS AND THE
BORROWER HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID.
(C) NOTHING IN THIS SECTION 16.8 SHALL AFFECT THE RIGHT OF THE
PURCHASER OR ANY HOLDER OF NOTES TO SERVE LEGAL
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PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE
PURCHASER OR ANY HOLDER OF NOTES TO BRING ANY ACTION OR PROCEEDING AGAINST
HOLDINGS OR THE BORROWER OR THEIR RESPECTIVE PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
16.9. Indemnification. In consideration of the execution and delivery of
---------------
this Agreement by you, the Borrower and Holdings hereby agree, jointly and
severally, to defend, indemnify, exonerate and hold you and each of your and its
officers, directors, employees and agents (herein collectively called the
"Indemnitees") free and harmless from and against any and all actions, causes of
- ------------
action, suits, losses, liabilities and damages, and expenses in connection
therewith, including, without limitation, reasonable counsel fees and
disbursements (herein collectively called the "Indemnified Liabilities"),
incurred by the Indemnitees or any of them as a result of, or arising out of or
relating to:
(A) any transaction financed or to be financed in whole or in part
directly or indirectly with proceeds from the sale of any of the Notes, or
(B) any Environmental Matter, any Environmental Law or the actual or
alleged existence or release of any Hazardous Material, except for any such
Indemnified Liabilities arising on account of any Indemnitee's gross negligence
or willful misconduct, and if and to the extent that the foregoing undertaking
may be unenforceable for any reason, Holdings and the Borrower hereby agree to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
In addition to the foregoing, all payments required to be made by the
Borrower or Holdings under this Agreement, by IHOP Realty under the Subsidiary
Guarantee or by the Borrower under the Notes shall be made to the holder of the
Notes free and clear of, and without deduction for, any and all present and
future taxes, withholdings, levies, duties, interest, penalties and other
governmental charges of any nature whatsoever of Canada ("Withholding Taxes"),
excluding those Withholding Taxes which are imposed by any jurisdiction or
political subdivision thereof as a result of the relevant holder of the Notes
(a) carrying or deemed to be carrying on a trade or business therein or having
or being deemed to have a permanent establishment therein, (b) being organized
under the laws of such jurisdiction or any political subdivision thereof, (c)
being or being deemed resident in such jurisdiction, or which would not have
been imposed but for a failure of such Person to satisfy a relevant authority
that such Person was not a Person mentioned in (a), (b) or (c) above. If the
Borrower or
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Holdings or IHOP Realty is obligated to make any such withholding or deduction
from any such payment, it shall simultaneously pay to the relevant holder of the
Notes such additional amount or amounts as shall be necessary to ensure that the
payment that is made (including all such additional amounts) equals the amount
which would have been received or receivable by the relevant holder of the Notes
hereunder in the absence of such withholding or deduction. Upon request by the
holder of the Notes, the Borrower or Holdings or IHOP Realty shall furnish to
such holder a receipt for any such Withholding Taxes paid by the Borrower or
Holdings or IHOP Realty pursuant to this Section, or, if no such Withholding
Taxes are payable with respect to any payments required to be made by the
Borrower or Holdings under this Agreement, by IHOP Realty under the Subsidiary
Guarantee or by the Borrower under the Notes, either a certificate from each
appropriate taxing authority or an opinion of counsel, in either case stating
that such payment is exempt from or not subject to such Withholding Taxes. If
any such Withholding Taxes are paid by the holder of the Notes, the Borrower or
Holdings or IHOP Realty will, upon demand of the holder of the Notes, jointly
and severally indemnify the holder of the Notes for such payments, together with
any interest, penalties and expenses in connection therewith plus interest
thereon at the rate specified in the Notes (calculated as if such payments
constituted overdue amounts of principal as of the date of the making of such
payments).
The obligations of the Borrower and Holdings under this Section 16.9 shall
survive the payment or transfer of any Note and the enforcement of any
provision hereof or thereof.
16.10. Integration and Severability. This Agreement embodies the entire
----------------------------
agreement and understanding among you, the Borrower and Holdings, and supersedes
all prior agreements and understandings relating to the subject matter hereof.
In case any one or more of the provisions contained in this Agreement or in any
instrument contemplated hereby for such date, or any application thereof, shall
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein, and any
other application thereof, shall not in any way be affected or impaired thereby.
16.11. Payments Due on Days not Business Days. Whenever any payment
--------------------------------------
hereunder or under the Notes shall be stated to be due on a day other than a
Business Day, that payment shall be made on the next succeeding Business Day and
the extension of time shall be included in the computation of interest due
thereon.
-65-
<PAGE>
16.12. Further Assurances. Each of the Borrower and Holdings covenants
------------------
that, so long as you shall hold any of the Notes, it shall, and shall cause its
Subsidiaries to, cooperate with you and execute such further instruments and
documents as you shall reasonably request to carry out to your satisfaction the
transactions contemplated by this Agreement.
16.13. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same instrument.
16.14. Guarantee of Holdings.
---------------------
(a) Guarantees. Holdings, in consideration of the Purchaser's
----------
entering into this Agreement and purchasing Notes, unconditionally and
irrevocably guarantees to the Purchaser and each and every holder from time to
time of any of the Notes the due and punctual payment of all sums which may
become due or be stated in the Notes or in this Agreement to become due under
the terms and provisions of the Notes and this Agreement in respect of the
principal of and prepayment charge, if any, and interest on the Notes (including
interest on any overdue principal, prepayment charge, if any, and, to the extent
permitted by applicable law, on any overdue interest), whether at stated
maturity, by acceleration, by notice of prepayment or otherwise, and all other
sums which may become due from the Borrower or be stated to be or become so due
under the Notes or this Agreement. Holdings further guarantees to the Purchasers
and each holder as aforesaid the due performance and observance by the Borrower
of all covenants, agreements and conditions on the Borrower's part to be
performed under this Agreement and any other document from time to time
delivered by the Borrower pursuant to this Agreement. Holdings further
guarantees to the Purchasers and each holder as aforesaid payment of all other
amounts payable by the Borrower under this Agreement or the Notes, including
costs, expenses (including fees and expenses of counsel) and taxes (such
principal, prepayment charge, if any, interest and other obligations guaranteed
as aforesaid being hereinafter collectively called the "Obligations" and to the
-----------
extent lawful agrees to pay any and all expenses (including fees and expenses of
counsel) incurred by each holder of any Note in enforcing any rights in
connection with this Section.
(b) Waiver of Notice of Acceptance, Etc. Holdings hereby waives
-----------------------------------
notice of acceptance of this Agreement by any holder of a Note, of any action
taken or omitted in reliance hereon or of any default in the payment of any of
the Obligations or in the performance of any covenants and agreements of the
Borrower contained in this Agreement or the
-66-
<PAGE>
Notes, and any diligence, presentment, demand, protest, dishonor or notice of
any kind.
(c) Guarantees Absolute. The Guarantees of Holdings under this
-------------------
Agreement constitute present and continuing Guarantees of payment and not of
collectibility of the Obligations, and shall be absolute, primary, present and
unconditional, and to the extent permitted by applicable law, the Obligations
shall not be subject to any counterclaim, setoff, reduction or defense based
upon any claim Holdings may have against the Borrower, or any other Person, and
shall remain in full force and effect without regard to, and shall not be
released, discharged or in any way affected or impaired by any thing, event,
happening, matter, circumstance or condition whatsoever (whether or not Holdings
shall have any knowledge or notice thereof or shall consent thereto), including,
without limitation: (1) any amendment or other modification of or supplement to
any provision of this Agreement or the Subsidiary Guarantee or any of the Notes,
or any assignment or transfer thereof, including without limitation any renewal
or extension of the terms of payment of any of the Notes or the granting of time
in respect of any payment thereof, or any furnishing or acceptance of security
or any release of any security furnished or accepted for any of the Notes or in
respect of the Obligations of Holdings hereunder; (2) any waiver, consent,
extension, granting of time, forbearance, indulgence or other action or inaction
under or in respect of this Agreement or the Subsidiary Guarantee or any of the
Notes, or any exercise or nonexercise of any right, remedy or power in respect
hereof or thereof; (3) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceedings with respect to
Holdings, the Borrower or any other Person, or the properties or creditors of
any of them; (4) the occurrence of any Event of Default or event which, with the
giving of notice and/or lapse of time, would become an Event of Default, or any
invalidity or any unenforceability of, or any misrepresentation, irregularity or
other defect in, this Agreement or any of the Notes or any other agreement; (5)
any transfer of any assets to or from Holdings or the Borrower, including
without limitation any transfer or purported transfer to Holdings or the
Borrower from any Person, any invalidity, illegality of, or inability to
enforce, any such transfer or purported transfer, any consolidation or merger of
Holdings or the Borrower with or into any other corporation or entity, or any
change whatsoever in the objects, capital structure, constitution or business of
Holdings or the Borrower or any Affiliate or Subsidiary of Holdings or the
Borrower; (6) any disposition by Holdings of any capital stock of the Borrower;
(7) any failure on the part of the Borrower or any other Person to perform or
comply with any term of the Notes, this
-67-
<PAGE>
Agreement, or any other agreement; (8) any suit or other action brought by any
stockholder or creditor of, or by, Holdings, the Borrower or any other Person
for any reason whatsoever, including without limitation any suit or action in
any way attacking or involving any issue, matter or thing in respect of the
Notes, this Agreement or any other agreement; (9) any lack or limitation of
status or power, incapacity or disability of Holdings or the Borrower or of any
officer, director or agent of Holdings or the Borrower or any of their
respective stockholders; (10) the cessation from any cause whatsoever (other
than payment of the Obligations) of liability of the Borrower; (11) the
termination of, or release or compromise of this Agreement, any of the Notes or
any other agreement (other than as a result of payment of the Obligations); (12)
any lack or limitation of the genuineness, validity, regularity or
enforceability of the Notes, this Agreement, the Other Agreements, any other
documents and agreements executed or delivered in connection therewith or
pursuant thereto, or any other agreement; (13) any failure by any holder of
Notes to take any steps to preserve their rights with respect to the
Obligations; (14) any election by any holder of Notes, in any proceeding
instituted under Chapter 11 of Title 11 of the United States Code (11 U.S.C. (S)
101 et seq.) (the "Bankruptcy Code"), of the application of Section 1l11(b)(2)
-- ---
of the Bankruptcy Code; (15) the disallowance, under Section 502 of the
Bankruptcy Code, of all or any portion of any of the Holders' claims for
repayment of the Obligations; or (16) any other thing, event, happening, matter,
circumstance or condition whatsoever, not in any way limited to the foregoing,
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor.
(d) Obligations of the Borrower Independent. The obligations of
---------------------------------------
Holdings and the Borrower under the Notes and the other Sections of this
Agreement (other than this Section 16.14) are independent of the Obligations of
Holdings under this Section 16.14, and a separate action or actions may be
brought or prosecuted against Holdings irrespective of whether action is brought
against the Borrower and/or any other Guarantor or whether the Borrower and/or
any other Guarantor is joined in any action or actions.
(e) Waiver of Certain Rights. Holdings expressly waives any right it
------------------------
may have to require any person seeking enforcement of its Obligations under this
Section 16.14 and the Guarantee in respect of any Note to (1) proceed against
the Borrower or any other Person, (2) proceed against or exhaust any security or
(3) pursue any other remedy in the power of the Person seeking such enforcement.
The Borrower waives the right to have any security first applied to the
discharge of the
-68-
<PAGE>
Obligations. The Purchasers and the other holders from time to time of the
Notes may, at their election, exercise any right or remedy they may have against
the Borrower or Holdings or the Company, including without limitation the right
to foreclose upon any such security by judicial or non-judicial sale, without
affecting or limiting in any way the liability of Holdings hereunder, except to
the extent the Obligations have been paid. Holdings waives any defense arising
out of the absence, impairment or loss of any right of reimbursement,
contribution or subrogation or any other rights or remedy of Holdings against
the Borrower, or any such security, whether resulting from such election by the
holders of the Notes or otherwise.
(f) Reinstatement. Holdings agrees that its obligations under this
-------------
Agreement shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of the Borrower or Holdings or IHOP Realty is
rescinded or must be otherwise restored by any holder of any Note, whether as a
result of any proceedings in bankruptcy or reorganization or otherwise. Holdings
further agrees that, without limiting the generality of such obligations, if an
Event of Default shall have occurred and be continuing and you or the holder of
any Note is prevented by applicable law from exercising any remedy under this
Agreement or under any of the Notes, the holders of the Notes shall be entitled
to receive from Holdings upon demand therefor, the sums which would have
otherwise been due from the Borrower had such remedies been exercised.
(g) Waiver of Subrogation. Holdings waives and releases any claim
---------------------
(within the meaning of 11 U.S.C (S) 101) which it may have against the Borrower
and agrees not to assert or take advantage of any subrogation rights or any
right to proceed against the Borrower for reimbursement. It is expressly
understood that the waivers and agreements of Holdings set forth above
constituted additional and cumulative benefits given to the Purchasers as
further inducement for the purchase of the Notes.
(h) Waiver of Certain Rights. Holdings hereby expressly waives any
------------------------
and all benefits under California Civil Code Sections 2809, 2810, 2819, 2845,
2847, 2848, 2849, 2850, 2899 and 3433, and California Code of Civil Procedure
Sections 580(a), 580(b), 580(d) and 726.
-69-
<PAGE>
16.15. Waiver of Right to Trial by Jury. THE BORROWER, HOLDINGS AND THE
--------------------------------
PURCHASER HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR (ii) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM IN RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. HOLDINGS, THE
BORROWER AND THE PURCHASER HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND
THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.
-70-
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below whereupon this letter shall become a
binding agreement between you and the undersigned.
Very truly yours,
IHOP CORP.
By: /s/ RICHARD K. HERZER
------------------------------------
Its: Richard K. Herzer, President
-----------------------------
INTERNATIONAL HOUSE OF PANCAKES, INC.
By: /s/ RICHARD K. HERZER
-----------------------------------
Its: Richard K. Herzer, President
-----------------------------
Accepted as of the date first
above written:
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
By: /s/ SUZANNE E. WALTON
--------------------------------
Name: SUZANNE E. WALTON
----------------------------
Title: Managing Director
---------------------------
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below whereupon this letter shall become a
binding agreement between you and the undersigned.
Very truly yours,
IHOP CORP.
By: /s/ RICHARD K. HERZER, PRESIDENT
-----------------------------------
Its: Richard K. Herzer, President
-----------------------------
INTERNATIONAL HOUSE OF PANCAKES, INC.
By: /s/ RICHARD K. HERZER, PRESIDENT
----------------------------------
Its: Richard K. Herzer, President
-----------------------------
Accepted as of the date first
above written:
MONY LIFE INSURANCE
COMPANY OF AMERICA
By: /s/ SUZANNE E. WALTON
-----------------------------------
Name: SUZANNE E. WALTON
-------------------------------
Title: Authorized Agent
------------------------------
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below whereupon this letter shall become a
binding agreement between you and the undersigned.
Very truly yours,
IHOP CORP.
By: /s/ RICHARD K. HERZER
------------------------------------
Its: Richard K. Herzer, President
------------------------------
INTERNATIONAL HOUSE OF PANCAKES, INC.
By: /s/ RICHARD K. HERZER
-----------------------------------
Its: Richard K. Herzer, President
------------------------------
Accepted as of the date first
above written:
THE MANUFACTURERS LIFE
INSURANCE COMPANY
By: /s/ D.W. PARKINSON
--------------------------------------
Name: D.W. Parkinson
----------------------------------
Title: Senior Vice President,
---------------------------------
U.S. Investments
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below whereupon this letter shall become a
binding agreement between you and the undersigned.
Very truly yours,
IHOP CORP.
By: /s/ RICHARD K. HERZER
---------------------------------------
Its: Richard K. Herzer, President
---------------------------------
INTERNATIONAL HOUSE OF PANCAKES, INC.
By: /s/ RICHARD K. HERZER
--------------------------------------
Its: Richard K. Herzer, President
---------------------------------
Accepted as of the date first
above written:
THE FRANKLIN LIFE INSURANCE COMPANY
By: /s/ DANIEL C. LEIMBACH
--------------------------------------
Name: Daniel C. Leimbach, Vice President
----------------------------------
Title:
---------------------------------
By: /s/ ELIZABETH E. ARTHUR
--------------------------------------------
Name: Elizabeth E. Arthur, Assistant Secretary
----------------------------------------
Title:
----------------------------------------
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below whereupon this letter shall become a
binding agreement between you and the undersigned.
Very truly yours,
IHOP CORP.
By: /s/ RICHARD K. HERZER
-----------------------------------
Its: Richard K. Herzer, President
-----------------------------
INTERNATIONAL HOUSE OF PANCAKES, INC.
By: /s/ RICHARD K. HERZER
----------------------------------
Its: Richard K. Herzer, President
-----------------------------
Accepted as of the date first
above written:
THE CANADA LIFE ASSURANCE COMPANY
By: /s/ G.N. ISAAC
----------------------------
Name: G.N. ISAAC
---------------------------
Title: Associate Treasurer
-----------------------------
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below whereupon this letter shall become a
binding agreement between you and the undersigned.
Very truly yours,
IHOP CORP.
By: /s/ RICHARD K. HERZER
----------------------------------------
Its: Richard K. Herzer, President
--------------------------------
INTERNATIONAL HOUSE OF PANCAKES, INC.
By: /s/ RICHARD K. HERZER
-----------------------------------
Its: Richard K. Herzer, President
Accepted as of the date first above written:
MODERN WOODMEN OF AMERICA
By: /s/ W.B. FOSTER
------------------------------------
Name: W.B. Foster
------------------------------
Title: President
-----------------------------
<PAGE>
SCHEDULE I
TO SENIOR NOTE PURCHASE AGREEMENT
----------------------------------
MANNER OF PAYMENT AND
COMMUNICATIONS TO PURCHASERS
This Schedule I shows the names and addresses of the Purchasers under the
foregoing Senior Note Purchase Agreement and the Other Agreements referred to
therein, and the respective principal amount of the Notes purchased, the name
under which the Notes will be registered and the purchase price thereof to be
purchased by each.
<TABLE>
<CAPTION>
Registered Name Principal Purchase
Appearing on Amount of Price of
Purchaser the Note the Note the Note
- ----------------- --------------- --------------- -------------
<S> <C> <C> <C>
The Mutual Life Insurance The Mutual LIfe $ 9,000,000 9,000,000
Company of New York Insurance Company
of New York
The Mutual Life Insurance The Mutual LIfe 3,000,000 3,000,000
Company of New York Insurance Company
of New York
MONY Life Insurance Company MONY Life Insurance 3,000,000 3,000,000
of America Company of America
The Manufacturers Life Hullbird & Co. 7,000,000 7,000,000
Insurance Company
The Franklin Life The Franklin Life 4,000,000 4,000,000
Insurance Company Insurance Company
The Canada Life Assurance Ince & Co. 1,000,000 1,000,000
Company
The Canada Life Assurance Ince & Co. 2,000,000 2,000,000
Company
Modern Woodmen of America Modern Woodmen of 3,000,000 3,000,000
America
</TABLE>
<PAGE>
Name of Noteholder
- ------------------
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
Manner of Payment
- -----------------
All payments on account of the Note shall be made by bank wire or transfer of
immediately available funds (identifying the issue upon which payment is being
made and the application of the payment as between interest, principal and
premium) to:
Chemical Bank, ABA #021000128, for credit to The Mutual Life Insurance Company
of New York's Security Remittance account No. 321-023803
Tax Identification No.: 13-1632487
Address for Communications for Notices of
- -----------------------------------------
Payments and Confirmation of Wire Transfers
- -------------------------------------------
All notices of payments and written confirmation of wire transfers should be
sent to:
Telecopy Confirms and Notices: (201) 907-6979
Attention: Securities Custody
- ---------
Mailing Confirms and Notices:
Glenpointe Marketing & Operations Center - MONY
Glenpointe Center West
500 Frank W. Burr Blvd.
Teaneck, NJ 07666-6888
Attention: Securities Custody
- ---------
Address for all Other Communications
- ------------------------------------
The Mutual Life Insurance Company of New York
1740 Broadway
New York, New York 10019
Attention: MONY Capital Management Unit
- ---------
Address for Delivery of Securities
- ----------------------------------
John R. McFeely, Esq.
The Mutual Life Insurance
Company of New York
1740 Broadway
New York, New York 10019
<PAGE>
Name of Noteholder
- ------------------
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
Manner of Payment
- -----------------
All payments on account of the Notes to be by bank wire or transfer of
immediately available funds (identifying the issue upon which payment is being
made and the application of the payment as between interest, principal and
premium) to:
Chemical Bank, ABA #021000128, for credit to The Mutual Life Insurance Company
of New York, account No. 323-161235
Tax Identification No.: 13-1632487
Address for Communications for Notices of
- -----------------------------------------
Payments and Confirmation of Wire Transfers
- -------------------------------------------
All notices of payments and written confirmation of wire transfers should be
sent to:
Telecopy Confirms and Notices: (201) 907-6979
Attention: Securities Custody
- ---------
Mailing Confirms and Notices:
Glenpointe Marketing & Operations Center - MONY
Glenpointe Center West
500 Frank W. Burr Blvd.
Teaneck, NJ 07666-6888
Attention: Securities Custody
- ---------
Address for all Other Communications
- ------------------------------------
The Mutual Life Insurance Company of New York
1740 Broadway
New York, New York 10019
Attention: MONY Capital Management Unit
- ---------
Address for Delivery of Securities
- ----------------------------------
John R. McFeely, Esq.
The Mutual Life Insurance Company of New York
1740 Broadway
New York, New York 10019
<PAGE>
Name of Noteholder
- ------------------
MONY LIFE INSURANCE COMPANY OF AMERICA
Manner of Payment
- -----------------
All payments on account of the Notes to be by bank wire or transfer of
immediately available funds (identifying the issue upon which payment is being
made and the application of the payment as between interest, principal and
premium) to:
Chemical Bank, ABA #021000128, for credit to MONY Life Insurance Company of
America, account No. 323-161243
TAX IDENTIFICATION NO.: 86-0222062
Address for Communications for Notices of
- -----------------------------------------
Payments and Confirmation of Wire Transfers
- -------------------------------------------
All notices of payments and written confirmation of wire transfers should be
sent to:
Telecopy Confirms and Notices: (201) 907-6979
Attention: Securities Custody
- ---------
Mailing Confirms and Notices:
Glenpointe Marketing & Operations Center - MONY
Glenpointe Center West
500 Frank W. Burr Blvd.
Teaneck, NJ 07666-6888
Attention: Securities Custody
- ---------
Address for all Other Communications
- ------------------------------------
MONY Life Insurance Company of America
c/o The Mutual Life Insurance
Company of New York
1740 Broadway
New York, New York 10019
ATTENTION: MONY CAPITAL MANAGEMENT UNIT
- ---------
Address for Delivery of Securities
- ----------------------------------
John R. McFeely, Esq.
The Mutual Life Insurance Company of New York
1740 Broadway
New York, New York 10019
<PAGE>
Name of Noteholder
- ------------------
HULLBIRD & CO.
(beneficial owner - The Manufacturers Life Insurance Company)
Manner of Payment
- -----------------
All payments on account of the Notes to be by bank wire or transfer of
immediately available funds (identifying the issue upon which payment is being
made and the application of the payment as between interest, principal and
premium) to:
State Street Bank & Trust Company, N.A.
Boston, Massachusetts 02101
ABA #011000028
BNF = New Money Private Placement Free
AC-4362-720-7
OBI = New Money Private Placement Free
Fund Number LN73
TAX IDENTIFICATION NO.: 38-0788610
Address for Communications for Notices of Payments and Confirmation of Wire
- ---------------------------------------------------------------------------
Transfers
- ---------
All notices of payments and written confirmation of wire transfers should be
sent to:
State Street Bank & Trust Company, N.A.
1776 Heritage Drive
A4E
North Quincy, MA 02171
Attention: Mutual Funds
- ---------
Re: The Manufacturers Life Insurance Company Fund No.LN73, New Money Private
Placement Free AC-4362-720-7
With copies to:
Manulife Financial
200 Bloor Street East
Toronto, Ontario Canada M4W 1E5
Attention: Securities Admin. NT5
<PAGE>
Address for all Other Communications
- ------------------------------------
The Manufacturers Life Insurance Company
200 Bloor Street East
North Tower 6
Toronto, Ontario, Canada M4W 1E5
Attention: U.S. Private Placements, Investment Division
- ---------
Telephone: (416) 926-5985
Fax: (416) 926-5262
Address for Delivery of Securities
- ----------------------------------
State Street Bank & Trust Company, N.A.
61 Broadway
New York, New York 10006
Concourse Level, Securities Cage
Re: LN73
The Manufacturers Life Insurance Company
Private Placement New Money Free
<PAGE>
Name of Noteholder
- ------------------
THE FRANKLIN LIFE INSURANCE COMPANY
Manner of Payment
- -----------------
All payments on account of the Notes to be by bank wire or transfer of
immediately available funds (identifying the issue upon which payment is being
made and the application of the payment as between interest, principal and
premium) to:
Morgan Guaranty Trust Company
of New York
23 Wall Street ABA #0210-0023-8
New York, New York 10015
Attention : Money Transfer Department For
- --------- The Franklin Life Insurance Company
Account No. 022-05-988
Tax Identification No.: 37-0281650
Address for Communications for Notices of
- -----------------------------------------
Payments and Confirmation of wire transfers
- -------------------------------------------
All notices of payments and written confirmation of wire transfers should be
sent to:
The Franklin Life Insurance Company
Franklin Square
Springfield, IL 62713
Attention: Investment Division
- ---------
Address for all Other Communications
- ------------------------------------
The Franklin Life Insurance Company
Franklin Square
Springfield, IL 62713
Attention: Investment Division
- ---------
Address For Delivery of Securities
- ----------------------------------
The Franklin Life Insurance Company
c/o Robert G. Spencer
Vice President and Treasurer
Franklin Square
Springfield, IL 62713
<PAGE>
Name of Noteholder
- ------------------
INCE & CO.
(beneficial owner - The Canada Life Assurance Company)
Manner of Payment
- -----------------
All payments on account of the Notes to be by bank wire or transfer of
immediately available funds (identifying the issue upon which payment is being
made and the application of the payment as between interest, principal and
premium) to:
Ince & Co.
c/o Morgan Guaranty Trust Company of New York
ABA #021 000 238
Account No. 999-99-024
Attn: Custody Collection
for: The Canada Life Assurance Company
Trust Account No. 41233
reference: Name of issuer, rate, type of security, maturity,
whether principal or interest, and due date
Tax Identification No.: 38-0397420
Address for Communications for Notices of
- -----------------------------------------
Payments and Confirmation of Wire Transfers
- -------------------------------------------
All notices of payments and written confirmation of wire transfers should be
sent to:
Morgan Guaranty Trust Company
60 Wall Street
New York, New York 10260
Attn: Patricia Ewing
copy to: The Canada Life Assurance Company
330 University Avenue
Toronto, Ontario, Canada MSG IR8
Attn: Supervisor, Securities Accounting
Address for all Other Communications
- ------------------------------------
The Canada Life Assurance Company
Investment Department, U-6
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Attn: U.S. Private Placements
<PAGE>
Address for Delivery of Securities
- ----------------------------------
Morgan Guaranty Trust Company
15 Broad Street
17th Floor
New York, N.Y. 10260-0023
Custody Incoming
Attn: Bob Havener
for: The Canada Life Assurance Company
Trust Account No. 41233
<PAGE>
Name of Noteholder
- ------------------
INCE & CO.
(beneficial owner - The Canada Life Assurance Company)
Manner of Payment
- -----------------
All payments on account of the Notes to be by bank wire or transfer of
immediately available funds (identifying the issue upon which payment is being
made and the application of the payment as between interest, principal and
premium) to:
Ince & Co.
c/o Morgan Guaranty Trust Company of New York
ABA #021 000 238
Account No. 999-99-024
Attn: Custody Collection
for : The Canada Life Assurance Company
Trust Account No. 41235
reference : Name of issuer, rate, type of security, maturity,
whether principal or interest, and due date
Tax Identification No.: 38-0397420
Address for Communications for Notices of
- -----------------------------------------
Payments and Confirmation of Wire Transfers
- -------------------------------------------
All notices of payments and written confirmation of wire transfers should be
sent to:
Morgan Guaranty Trust Company
60 Wall Street
New York, N.Y. 10260
Attn: Patricia Ewing
copy to: The Canada Life Assurance Company
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Attn: Supervisor, Securities Accounting
Address for all Other Communications
- ------------------------------------
The Canada Life Assurance Company
Investment Department, U-6
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Attn: U.S. Private Placements
<PAGE>
Address for Delivery of Securities
- ----------------------------------
Morgan Guaranty Trust Company
15 Broad Street
17th Floor
New York, N.Y. 10260-0023
Custody Incoming
Attn: Bob Havener
for: The Canada Life Assurance Company
Trust Account No. 41235
<PAGE>
Name of Noteholder
- ------------------
MODERN WOODMEN OF AMERICA
Manner of Payment
- -----------------
All payments on account of the Notes to be by bank wire or transfer of
immediately available funds (identifying the issue upon which payment is being
made and the application of the payment as between interest, principal and
premium) to:
Account No. 347-904-5
Harris Trust & Savings Bank
111 West Monroe Street
Chicago, IL 60690
ABA No. 071-000-288
For the account of Modern Woodmen of America
Tax Identification No.: 36-1493430
Address for Communications for Notices of
- -----------------------------------------
Payments and Confirmation of Wire Transfers
- -------------------------------------------
All notices of payments and written confirmation of wire transfers should be
sent to:
Modern Woodmen of America
1701 1st Avenue
Rock Island, IL 61201
Attn: Investment Department
Address for all Other Communications
- ------------------------------------
Modern Woodmen of America
1701 1st Avenue
Rock Island, IL 61201
Attn: Investment Department
Address for Delivery of Securities
- ----------------------------------
Modern Woodmen of America
1701 1st Avenue
Rock Island, IL 61201
Attn: Investment Department
<PAGE>
SCHEDULE 4.5
INTERIM CHANGES
1. Additional Debt in the amount of $1,727,000 incurred pursuant to the
Existing Agreement.
<PAGE>
SCHEDULE 4.6
IHOP CORP.
LIST OF DIRECT AND INDIRECT SUBSIDIARIES
<TABLE>
<CAPTION>
OWNERSHIP STATE OF
ENTITY PERCENTAGE INCORPORATION
- ------ ---------- -------------
<S> <C> <C>
International House of 100% owned by Delaware
Pancakes, Inc. IHOP Corp.
IHOP Realty Corp. 100% owned by Delaware
International House
of Pancakes, Inc.
Copper Penny Corporation 100% owned by Delaware
International House
of Pancakes, Inc.
III Industries of 100% owned by Canada
Canada, Ltd. International House
of Pancakes, Inc.
International Industries, Inc. 100% owned by California
International House
of Pancakes, Inc.
Blue Roof Advertising, Inc. 100% owned by California
International House
of Pancakes, Inc.
</TABLE>
<PAGE>
SCHEDULE 4.7
------------
LITIGATION SUMMARY
1. THE COASTAL GROUP v. VERNON CHEVALIER, SR., et al.
--------------------------------------------------
IHOP has been named as a defendant in a lawsuit filed by a real estate
developer that purchased certain real property in Sayreville, New Jersey, from
three individuals who had previously acquired the property from IHOP. The
plaintiff contends that it discovered petroleum hydrocarbon contaminants and
construction debris on the property. The plaintiff is seeking to recover
approximately $6 million from IHOP and numerous other defendants for the
remediation of the property and consequential damages, plus punitive damages in
an unspecified amount. IHOP has raised various defenses to the plaintiff's
claims and has asserted claims for contribution and indemnity against several of
the other named defendants, who in turn have asserted claims for contribution
and indemnity against IHOP. In addition, IHOP has commenced a third party action
against its liability insurers seeking damages and declaratory relief for the
insurers' refusal to defend and indemnify IHOP. In response to a motion for
partial summary judgment made by IHOP, in January 1992 the court entered an
order requiring three of IHOP's liability insurers to pay IHOP's past, present
and future expenses for the defense of the underlying lawsuit. An attempt by one
of the insurers to bring an interlocutory appeal of that order has been rejected
by an intermediate appellate court and the New Jersey Supreme Court. IHOP
intends to continue to contest these claims vigorously.
2. LORI A. HARRIS, et al. v. IHOP and JOE SMITH
--------------------------------------------
On February 7, 1992, 15 individuals filed suit against IHOP and one its
restaurant managers alleging discriminatory actions at a restaurant in
Milwaukee, Wisconsin, owned and operated by IHOP. IHOP petitioned for removal of
the case to the U.S. District Court. The plaintiffs have alleged that they were
denied admission to the International House of Pancakes restaurant on the basis
of their race and seek to have the case certified as a class action on behalf of
themselves and others similarly situated. IHOP's policies strictly prohibit race
discrimination and IHOP denies that any systematic or classwide discrimination
has occurred.
The plaintiffs' complaint does not specify the amount of damages to which
each plaintiff, or the plaintiffs as a class, allege entitlement, but seeks both
actual and punitive damages as well as injunctive relief prohibiting
discriminatory practices and requiring certain remedial actions by IHOP. The
plaintiffs also seek recovery of an unspecified amount of litigation costs and
expenses, including
-1-
<PAGE>
attorneys' fees, and statutory payments to the State of Wisconsin. Discovery has
been commenced by both the plaintiffs and IHOP.
A settlement has been agreed to by 19 of the 20 now-known plaintiffs, in
which IHOP will pay the amount of $185,000.00, include a summary of its non-
discrimination policy in the statement of policies formally acknowledged by
IHOP management employees, and take other steps to insure that IHOP employees
are aware of its non-discrimination policy. The settlement is subject to court
approval.
IHOP is seeking reimbursement from its insurance carrier for a portion or
all of the amount of the settlement plus its attorneys' fees and expenses,
although there are arguments that coverage may not be available.
3. SYDNEY MINE WASTE DISPOSAL SITE
-------------------------------
By letters dated August 17, 1992, and October 1, 1992, IHOP received
demands on behalf of certain parties who have incurred or will incur costs of
response with respect to the remediation of the Sydney Mine Waste Disposal Site
located in Hillsborough County, Florida. The demands seek reimbursement and/or
contribution from IHOP pursuant to CERCLA and Chapter 376, Florida Statutes.
According to the demands, the parties have incurred response costs of $7,300,000
in the aggregate. The basis of the demands is IHOP's alleged disposal of
materials at the disposal site. IHOP has notified the parties making the demands
that IHOP had little or no activity in the State of Florida during the period in
question, inasmuch as all of the IHOP restaurants operating in the State of
Florida during that time period and subsequently were owned and operated by
IHOP's Florida area franchisee, FMS Management Systems, Inc., and, therefore, it
is unlikely that IHOP directly or indirectly conducted any activity that could
impose any liability on IHOP pursuant to these statutes. IHOP has requested that
the parties furnish it with copies of the "trip tickets" so that IHOP can
investigate further.
-2-
<PAGE>
SCHEDULE 4.8
EXISTING CURRENT AND FUNDED DEBT AND LIENS
Mortgage Note by and Between IHOP Realty Corp.
and Pizza Hut of America for property in La Grange,
Illinois (IHOP #1281) $429,250
Obligations under Letters of Credit (Various) 208,494
<PAGE>
SCHEDULE 4.9
CONSENTS AND APPROVALS
None.
<PAGE>
SCHEDULE 4.11
TAXES
The Internal Revenue Service (the "Service") is presently auditing the tax
returns of Holdings and its Subsidiaries for the years 1987-1990. Although the
examination has not yet been completed, the Service has tentatively proposed
certain nonrecurring adjustments which, if agreed to by Holdings, would result
in an increased federal income tax liability (including interest) for such years
in the approximate amount of $350,000, and an increased state income tax
liability (including interest and net of federal income tax benefit) for such
years in the approximate amount of $125,000. Holding and the Service are
currently engaged in informal negotiations to resolve such issues at the audit
level. Tax returns of Holdings and/or of its Subsidiaries are currently being
audited as disclosed below. Consents waiving or extending the statute of
limitations with respect to taxes have been granted by Holdings and/or its
Subsidiaries as disclosed below.
<TABLE>
<CAPTION>
CURRENT AUDITS:
- --------------
<S> <C>
INTERNAL REVENUE SERVICE - INCOME TAXES - 1987 - 1990
STATE OF CALIFORNIA - INCOME TAXES - 1984 - 1986
STATE OF NEW YORK - INCOME TAXES - 1988 - 1990
STATE OF PENNSYLVANIA - SALES & USE TAXES - 1986-1992
COUNTY OF ADAMS, COLORADO - PERSONAL PROPERTY TAXES - 1991
COUNTY OF LARIMER, COLORADO - PERSONAL PROPERTY TAXES - 1991
CITY & COUNTY OF DENVER, CO - SALES & USE TAXES; BUSINESS
OCCUPATIONAL PRIVILEGE TAXES-
1989-1991
<CAPTION>
CONSENTS TO WAIVER OR EXTENSION OF THE STATUTE OF LIMITATIONS
- -------------------------------------------------------------
<S> <C> <C>
INTERNAL REVENUE SERVICES - 1987 - EXTENDED TO 12/31/93
- 1988 - EXTENDED TO 12/31/93
- 1989 - EXTENDED TO 12/31/93
STATE OF CALIFORNIA - 1984 - EXTENDED TO 10/15/93
- 1985 - EXTENDED TO 10/15/93
- 1986 - EXTENDED TO 10/15/93
- 1987 - EXTENDED TO 10/15/93
STATE OF NEW YORK - 1988 - EXTENDED TO 06/15/93
STATE OF PENNSYLVANIA - 1989 - EXTENDED TO 12/31/92
CITY & COUNTY OF DENVER, CO - 1989 - EXTENDED TO 11/30/92
- 1990 - EXTENDED TO 11/30/92
</TABLE>
<PAGE>
SCHEDULE 4.16
LABOR MATTERS
"Agreement Between Hotel Employees & Restaurant Employees Union Local 340 and
International House of Pancakes, September 1, 1990 Through June 30, 1992" which
continues in effect during negotiations on a successor agreement. This agreement
applies only to employees at IHOP #0648 in South San Francisco, CA.
<PAGE>
SCHEDULE 4.17
-------------
ENVIRONMENTAL MATTERS
---------------------
Please see Items 1 and 3 on Schedule 4.7.
IHOP #5 - 7006 Sunset Boulevard, Hol1ywood, CA
- ----------------------------------------------
Used prior to 1961 as auto shop, including UST's - UST's and petroleum
contamination discovered recently - investigation by IHOP is ongoing -
corrective action plan to be proposed.
<PAGE>
SCHEDULE 4.19
COMPLIANCE WITH ERISA
San Mateo Hotel Employees and Restaurant Employees Trust, a health and
welfare benefit plan
<PAGE>
SCHEDULE 4.25
-------------
1. License Agreement for All Japan
2. Area Franchise Agreement (Florida)
3. License Agreement for British Columbia, Canada
-1-
<PAGE>
SCHEDULE 6.16
SURVIVING OBLIGATIONS
---------------------
1. Obligations of the Borrower and Holdings pursuant to Section 12B of
the Purchase Agreement, dated as of April 15, 1987, by and among the Borrower,
Holdings and New York Life Insurance and Annuity Corporation, as amended.
2. Obligations of the Borrower and IHOP Realty pursuant to Sections
3.4, 3.5, 10.3, 10.8, 10.20 and 10.22 of the Loan Agreement, dated as of April
7, 1992, among the Borrower, IHOP Realty, Holdings and Bank of America National
Trust and Savings Association, as amended, to the extent such obligations
survive termination of such agreement; reimbursment obligations thereunder
pursuant to outstanding standby letters of credit not in excess of $210,000 in
aggregate principal amount; and the obligations of Holdings as guarantor of such
obligations.
3. Obligations of IHOP Realty, pursuant to Section 11.13 of the First
Amended and Restated Real Estate Credit Agreement, datid as of December 29,
1989, among IHOP Realty and HomeFed Bank, Federal Savings Bank, as amended, and
the obligations of the Borrower and Holdings as guarantors of such obligations
of IHOP Realty.
<PAGE>
SCHEDULE 12
RESTRICTED INVESTMENTS AT CLOSING DATE
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- ----------- ------
<S> <C>
Note Receivable (Anthony Talarico) $1,283,000
Cash Surrender Value of Life
Insurance Policy (Executive Life Insurance) 575,000
Ex-Franchisee Notes Receivable (various) 445,600
Employee Notes Receivable and Advances (various) 52,000
----------
Total Restricted Investments $2,355,600
==========
</TABLE>
<PAGE>
EXHIBIT A
Form of Note
THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM.
INTERNATIONAL HOUSE OF PANCAKES, INC.
7.79% Senior Note
Due November 19, 2002
No. R- ___ New York, New York
November 19, 1992
$________
INTERNATIONAL HOUSE OF PANCAKES, INC., a company incorporated under the laws
of the State of Delaware (the "Borrower"), for value received, hereby promises
to pay to ____________________________ (the "Lender") or registered assigns,
$__________, payable in annual installments of $_________ (subject to adjustment
pursuant to Section 3 of the Note Agreement, as hereinafter defined) commencing
on November 19, 1996, and on every November 19 thereafter through November 19,
2001, with a final payment of the remaining outstanding principal balance
payable at maturity on November 19, 2002 and to pay interest (computed on the
basis of a 360-day year of twelve 30-day months) on the principal amount from
time to time remaining unpaid hereon at the rate of 7.79% per annum, from the
date hereof until maturity, payable semi-annually on the 19th day of each May
and November in each year commencing May 19, 1993, and at maturity. The Borrower
agrees to pay interest on overdue principal and prepayment charge, if any, and
(to the extent legally enforceable) on any overdue installment of interest, at a
rate equal to the greater of 9.79% or the rate of interest announced publicly
from time to time by Citibank, N.A. in New York, New York, as its "prime rate"
after the due date, whether by acceleration or otherwise, until paid. Both the
principal hereof and interest hereon are payable to the Lender in the manner and
pursuant to the instructions indicated on Schedule l to the Note Agreement as
hereinafter defined, or in such other manner or pursuant to such other
instructions as shall be designated in writing in accordance with the terms of
the Note Agreement, in currency of the United States of America which at the
time of payment shall be legal tender for the payment of public and private
debts.
<PAGE>
This Note is issued pursuant to the terms and provisions of the Senior Note
Purchase Agreement, dated as of November __, 1992 (the "Note Agreement"),
entered into by the Borrower, IHOP Corp., a Delaware corporation of which the
Borrower is a wholly-owned Subsidiary ("Holdings"), and the Lender. Reference is
hereby made to the Note Agreement for a statement of such terms and provisions.
This Senior Note is guaranteed by (i) Holdings, as set forth in Section
16.14 of the Note Agreement and (ii) IHOP Realty Corp., a Delaware corporation
and a wholly-owned Subsidiary of the Borrower, pursuant to the Subsidiary
Guarantee of even date herewith.
This Note may be declared due prior to its maturity date and certain
prepayments may be made thereon, in the events, on the terms and conditions, and
in the amounts set forth in the Note Agreement.
This Note is not subject to prepayment or redemption at the option of the
Borrower prior to its maturity date except in the event, on the terms and
conditions, and in the amounts set forth in the Note Agreement.
This Note is registered on the books of the Borrower and is transferable
only by surrender thereof at the principal office of the Borrower at 525 North
Brand Boulevard, Glendale, California, 91203-1903, duly endorsed or accompanied
by a written instrument of transfer duly executed by the registered holder of
this Note or its attorney duly authorized in writing. Payment of or on account
of principal and interest on this Note shall be made only to or upon the order
in writing of the registered holder.
The Note Agreement and this Note shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of New York.
INTERNATIONAL HOUSE OF PANCAKES, INC.
By:
--------------------------------
Its
--------------------------------
-2-
<PAGE>
EXHIBIT B
November 19, 1992
To the Purchasers set forth on
Schedule I attached hereto
Ladies and Gentlemen:
We have acted as your special counsel in connection with the
transactions contemplated by the several Senior Note Purchase Agreements, each
dated as of November 19, 1992 (the "Purchase Agreements"), by and between
International House of Pancakes, Inc., a Delaware corporation (the "Company"),
IHOP Corp., a Delaware corporation of which the Company is a wholly-owned
subsidiary ("Holdings") and each of you. Any term used herein without a
definition shall have the meaning assigned to such term in the Purchase
Agreements. In acting as your special counsel, we have participated in the
preparation and negotiation of the Purchase Agreements, the Notes and the
Subsidiary Guarantee.
In connection with this opinion, we have examined the following
documents:
1. The Purchase Agreements.
2. The Notes.
3. The Subsidiary Guarantee.
4. The Restated Certificate of Incorporation of the Company certified by
the Delaware Secretary of State on October 21, 1992.
5. The By-Laws of the Company certified by the Secretary of the Company as
of the date hereof.
6. Resolutions of the Board of Directors of the Company, certified by the
Secretary of the Company as of the date hereof.
7. Long Form of Certificate of Good Standing of the Company certified by
the Delaware Secretary of State on October 22, 1992.
<PAGE>
To the Purchasers set forth on
Schedule I attached hereto
November 19, 1992
Page 2
8. Certificate of Incumbency for the officers of the Company certified by
the Secretary of the Company as of the date hereof.
9. The Restated Certificate of Incorporation of Holdings certified by the
Delaware Secretary of State on October 21, 1992.
10. The By-Laws of Holdings certified by the Secretary of Holdings as of
the date hereof.
11. Resolutions of the Board of Directors of Holdings, certified by the
Secretary of Holdings as of the date hereof.
12. Long Form of Certificate of Good Standing of Holdings certified by the
Delaware Secretary of State on October 22, 1992.
13. Certificate of Incumbency for the officers of Holdings certified by the
Secretary of Holdings as of the date hereof.
14. The Certificate of Incorporation of IHOP Realty Corp. (the
"Subsidiary") certified by the Delaware Secretary of State on October
21, 1992.
15. The By-Laws of the Subsidiary certified by the Secretary of the
Subsidiary as of the date hereof.
16. Resolutions of the Board of Directors of the Subsidiary, certified by
the Secretary of the Subsidiary as of the date hereof.
17. Long Form of Certificate of Good Standing of the Subsidiary certified
by the Delaware Secretary of State on October 22, 1992.
18. Certificate of Incumbency for the officers of the Subsidiary certified
by the Secretary of the Subsidiary as of the date hereof.
19. Legal opinion, dated November 19, 1992, from Skadden, Arps, Slate,
Meagher & Flom ("Skadden"), special counsel to the Company and
Holdings.
<PAGE>
To the Purchasers set forth on
Schedule I attached hereto
November 19, 1992
Page 3
20. Legal opinion, dated November 19, 1992, from Larry Alan Kay ("Kay"),
general counsel to the Company and Holdings.
We have also examined and relied upon the representations and warranties as
to factual matters contained in and made pursuant to the Purchase Agreements and
the Subsidiary Guarantee and have relied upon the originals or copies identified
to our satisfaction of such records, documents, certificates and other
instruments, and have made such other investigations as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below.
In giving our opinion set forth herein, we have assumed the legal capacity
of all natural persons, the genuineness of all signatures, the authenticity of
all documents examined by us, the conformity to original documents of all
documents submitted to us as copies, the due authorization, execution and
delivery of all documents and instruments by all parties thereto other than the
Company, Holdings and the Subsidiary, the accuracy of all representations and
warranties made by the Company, Holdings and you in the Purchase Agreements and
by the Subsidiary in the Subsidiary Guarantee and that the consideration to be
paid in connection with the transaction is adequate.
In addition, we attended the closing held today at our offices in New York,
New York at which delivery of the Notes and the other transactions contemplated
by the Purchase Agreements were effected, all in accordance with the Purchase
Agreements.
Based upon the foregoing and having regard to legal considerations that we
deem relevant, we render to you our opinion, as follows:
1. Based solely upon the opinions of Skadden and Kay and on our review of
certificates of good standing issued by the Secretary of State of the State of
Delaware and certified copies of the charter documents and by-laws of the
Company, Holdings and the Subsidiary, each of the Company, Holdings and the
Subsidiary is a corporation validly existing and in good standing under the laws
of the State of Delaware, has all requisite corporate power and authority to (a)
own and operate its properties, (b) to conduct its business as now being
conducted, (c) to enter into, to the extent each is a party
<PAGE>
To the Purchasers set forth on
Schedule I attached hereto
November 19, 1992
Page 4
thereto, the Purchase Agreements and the Subsidiary Guarantee, (d) to perform
its obligations under each of such documents to the extent each is a party
thereto and (e) in the case of the Company, to issue, sell and deliver the
Notes.
2. The Company has duly authorized by all requisite corporate action,
executed and delivered the Purchase Agreements and the Notes, and such
agreements and instruments constitute the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms.
3. Holdings has duly authorized by all requisite corporate action, executed
and delivered the Purchase Agreements, and such agreements constitute the legal,
valid and binding obligations of Holdings, enforceable against Holdings in
accordance with their terms.
4. The Subsidiary has duly authorized by all requisite corporate action,
executed and delivered the Subsidiary Guarantee, and such guarantee constitutes
the legal, valid and binding obligation of the Subsidiary, enforceable against
the Subsidiary in accordance with its terms.
5. Under existing circumstances, the execution and delivery by the Company
and Holdings of the Purchase Agreements, the issue, sale, execution and delivery
by the Company of the Notes, the execution and delivery by the Subsidiary of the
Subsidiary Guarantee and the performance by the Company, Holdings and the
Subsidiary of their respective obligations under such documents and instruments,
do not, as of the date hereof, contravene any provisions of their respective
charters or by-laws.
6. Assuming, with your permission, that (a) you are purchasing the Notes
for your own account for investment, and not with a view to the public resale or
distribution thereof, (b) the Notes were offered and sold in the manner
described in the letter of Continental Bank N.A. dated October 19, 1992 and
furnished to you, (c) the representations and warranties of the Purchasers in
Sections 5.2 and 5.4 of the Purchase Agreements and the representations and
warranties of the Company and Holdings in Section 4.14 of the Purchase
Agreements are true and correct, and (d) none of Holdings, the Company or anyone
acting on their behalf has offered or sold or will offer or sell any of the
Company's or Holdings' securities, or has solicited or will solicit any offer to
acquire any of the Company's or Holdings' securities from the Company or
Holdings,
<PAGE>
To the Purchasers set forth on
Schedule I attached hereto
November 19, 1992
Page 5
if the sale of any such securities and the sale of the Notes would be integrated
as a single offering for purposes of the Securities Act, the offering, issuance,
sale and delivery of the Notes under the circumstances contemplated by the
Purchase Agreements constitute exempt transactions under the registration
provisions of the Securities Act of 1933, as now in effect; and no qualification
of an Indenture with respect to the Notes under the Trust Indenture Act of 1939,
as now in effect, is required in connection therewith.
The opinions expressed above as to the enforceability of any agreement are
subject to the exceptions that such enforceability may be limited by the
application of general principles of equity and by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally.
We express no opinion as to the enforceability of the indemnification
provisions contained in Section 16.9 of the Purchase Agreements.
The opinions of Skadden and Kay, dated the date hereof and delivered to you
pursuant to Section 6.3 of the Purchase Agreements, are satisfactory to us in
form and scope with respect to the matters specified therein, and we believe
that you are justified in relying thereon.
We express no opinion as to the laws of any jurisdiction other than the
State of New York, the Federal laws of the United States of America and the
General Corporation Law of the State of Delaware.
Very truly yours,
<PAGE>
SONNENSCHEIN NATH & ROSENTHAL
SCHEDULE I
The Mutual Life Insurance
Company of New York
MONY Life Insurance Company
of America
The Manufacturers Life
Insurance Company
The Franklin Life
Insurance Company
The Canada Life Assurance
Company
Modern Woodmen of America
<PAGE>
EXHIBIT C
(Opinion of counsel of Holdings, the Borrower
and IHOP Realty addressed to each of the
Purchasers and Sonnenschein Nath & Rosenthal)
1. Holdings, the Borrower and each of their Subsidiaries are corporations
duly incorporated, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation, and each has the requisite corporate
power and authority to own, lease and operate its respective Properties and to
carry on its respective businesses as presently owned and conducted, and each is
duly qualified and in good standing in the jurisdictions in which the character
of the Properties owned or leased by it or the nature of the business transacted
by it makes such qualification necessary.
2. The Purchase Agreements, the Notes and the Subsidiary Guarantee have
been duly authorized, executed and delivered by Holdings, the Borrower and IHOP
Realty, to the extent each is party thereto and such documents constitute the
legal, valid and binding agreements of Holdings, the Borrower and IHOP Realty,
to the extent each is a party thereto, enforceable against Holdings, the
Borrower and IHOP Realty, to the extent each is a party thereto, in accordance
with their terms.
3. The issuance and sale of the Notes, the execution and delivery of, and
performance by Holdings and the Borrower of their respective contractually
required obligations and undertakings under, the Purchase Agreements and the
execution and delivery of, and performance by IHOP Realty of its contractually
required obligations and undertakings under, the Subsidiary Guarantee, do not
conflict with or result in any breach of any provision of, constitute a default
under, or result in the creation or imposition of any Lien upon any of the
respective Properties of Holdings, the Borrower or IHOP Realty or any of their
Subsidiaries pursuant to the provisions of the charter documents of any of them,
or any agreement, order, decree, indenture, judgment or other instrument or
document to which any of them is a party or by which any of them or their
respective Properties may be bound.
4. There are no proceedings pending or threatened against Holdings, the
Borrower or any of their Subsidiaries in any court or before any Governmental
Body or arbitration board or tribunal which could materially and adversely
affect the Properties, business, profits or condition (financial or otherwise)
of Holdings, the Borrower or any of their Subsidiaries or the ability of
Holdings or the Borrower to perform their respective obligations under the
Purchase
<PAGE>
Agreements or the Notes or the ability of IHOP Realty to perform its obligations
under the Subsidiary Guarantee.
5. The issuance, sale and delivery of the Notes and the Subsidiary Guarantee
under the circumstances contemplated by the Purchase Agreements constitute an
exempt transaction under the registration provisions of the Securities Act of
1933, as amended, and do not under existing law require the registration of the
Notes or the Subsidiary Guarantee under the Securities Act of 1933, as amended,
or the qualification of an indenture in respect thereof under the Trust
Indenture Act of 1939, as amended.
6. Assuming that the proceeds of the issuance and sale of the Notes are
utilized as set forth in Section 4.26 of the Purchase Agreements, neither the
issuance of the Notes nor the use of the proceeds from the sale thereof will
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulations issued pursuant thereto, including, without
limitation, Regulations G, T and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II.
7. No consent, approval, authorization, or order of, or other action by or
filing with, any Governmental Body is required in connection with the execution,
delivery or performance of the Purchase Agreements or the Subsidiary Guarantee,
the issuance of the Notes or compliance by Holdings, the Borrower and IHOP
Realty, to the extent each is a party thereto with the terms and provisions
thereof.
8. None of Holdings, the Borrower nor any of their Subsidiaries is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any franchising arrangement, material
lease, agreement, indenture or loan document to which it is a party, and no
condition exists which, with the giving of notice or the lapse of time or both,
would constitute such a default.
9. None of Holdings, the Borrower nor any of their Subsidiaries is, nor are
any of them directly or indirectly controlled by or acting on behalf of any
Person which is, an "investment company" within the meaning of the Investment
Company Act of 1940, and none of Holdings, the Borrower nor any of their
Subsidiaries is subject to any law, statute, rule or regulation limiting its
ability to incur indebtedness for money borrowed.
-2-
<PAGE>
10. All of the shares of issued and outstanding capital stock of the
Borrower are owned of record and, to our knowledge, beneficially, by Holdings
and all of the shares of issued and outstanding capital stock of IHOP Realty are
owned of record and, to our knowledge, beneficially, by the Borrower, in each
case free and clear of Liens.
-3-
<PAGE>
EXHIBIT D
SUBSIDIARY GUARANTEE
IHOP REALTY CORP.
FOR VALUE RECEIVED and in consideration of the purchase by the Purchasers
(as hereinafter defined) of those certain 7.79% Senior Notes Due 2002 (the
"Notes") of International House of Pancakes, Inc., a Delaware corporation
(herein called, together with its successors and assigns, the "Borrower"),
pursuant to the several senior Note Purchase Agreements, each dated as of
November 19, 1992, by and among the several purchasers named in Schedule I
thereto (the "Purchasers"), IHOP Corp., a Delaware corporation ("Holdings"), and
the Borrower, which is the wholly-owned subsidiary of Holdings (the "Purchase
Agreements"), the undersigned (the "Guarantor"), a wholly-owned Subsidiary of
the Borrower, unconditionally guarantees (a) the full and prompt payment, when
due, whether at maturity or earlier by reason of acceleration or otherwise, and
at all times thereafter of all obligations of the Borrower with respect to
payment of the principal of, prepayment charges (if any), and interest on the
Notes (including interest on any overdue principal and prepayment charges, if
any, and, to the extent permitted by law, on any overdue interest), and all
other amounts due, and (b) the prompt and faithful performance, discharge and
observance of all other obligations, covenants, agreements, conditions,
representations, warranties, indemnities and liabilities of the Borrower and
Holdings to be performed, discharged or observed by the Borrower and Holdings,
under or pursuant to the Purchase Agreements and all agreements, instruments and
documents executed or delivered in connection therewith or pursuant thereto (all
such obligations of the Borrower and Holdings guaranteed by the Guarantor herein
being hereinafter called the "Obligations"). In the event the Borrower or
Holdings defaults in the payment or performance, when due, of any of the
Obligations (whether at their stated maturity, by acceleration, or otherwise),
the Guarantor shall pay to the unpaid holders of the Notes ("Holders"), on
demand, the full amount of such Obligations in immediately available funds at
the place provided in the applicable Purchase Agreements or shall, on demand,
fully perform such Obligations. The Guarantor further agrees to pay (a) all
costs and expenses including, without limitation, all court costs and reasonable
attorneys' fees and expenses paid or incurred by each of the Holders in
endeavoring to collect all or any part of the Obligations from, or in
prosecuting any action against, Holdings, the Borrower, the Guarantor, or any
other guarantor of all or any part of the Obligations, and (b) to the extent
permitted by law, interest on the Obligations and such costs and expenses at the
applicable per annum rate set forth in the
<PAGE>
Purchase Agreements. Unless otherwise defined herein, the capitalized terms
used herein which are defined in the Purchase Agreements shall have the meanings
specified therein.
The Guarantor hereby represents and warrants that:
(a) The Guarantor has full power, authority and legal right to execute
this Guarantee.
(b) This Guarantee has been duly authorized, executed and delivered by
the Guarantor and constitutes a legal, valid and binding obligation of the
Guarantor enforceable in accordance with its terms.
(c) No consent, approval or authorization of or filing with any
Governmental Body or other Person on the part of the Guarantor is required in
connection with this Guarantee.
(d) The execution, delivery and performance of this Guarantee will not
violate any provision of any applicable law or regulation or of any order,
judgment, writ, award or decree of any court, arbitrator or Governmental Body,
domestic or foreign, or of the charter or by-laws of the Guarantor or of any
securities issued by the Guarantor or of any mortgage, indenture, lease,
contract, or loan agreement to which the Guarantor is a party, or any other
agreement, instrument or undertaking to which the Guarantor is a party or which
purports to be binding upon the Guarantor or upon any of its assets, and will
not result in the creation or imposition of any Lien on any of the assets of the
Guarantor except as contemplated by this Guarantee.
The Guarantor hereby waives notice of acceptance of this Guarantee by any
Holder, of any action taken or omitted in reliance hereon or of any default in
the payment of any of the Obligations or in the performance of any covenants and
agreements of the Borrower contained in the Purchase Agreements or the Notes,
and any diligence, presentment, demand, protest, dishonor or notice of any kind.
This Guarantee constitutes a present and continuing Guarantee of payment and
performance and not of collectability of the Obligations, and shall be absolute,
primary, present and unconditional, and to the extent permitted by applicable
law, shall not be subject to any counterclaim, setoff, reduction or defense
based upon any claim the Guarantor may have against the Borrower, or any other
Person, and shall remain in full force and effect without regard to, and shall
not be released, discharged or in any way affected or impaired by any thing,
event, happening, matter, circumstance or condition whatsoever (whether or not
the Guarantor shall have any knowledge or notice thereof or shall consent
thereto), including, without limitation:
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<PAGE>
(i) any amendment or other modification of or supplement to any
provision of the Purchase Agreements, any other agreements or documents executed
or delivered in connection therewith or pursuant thereto or any of the Notes or
any assignment or transfer thereof, including without limitation any renewal or
extension of the terms of payment of any of the Notes or the granting of time in
respect of any payment thereof, or any furnishing or acceptance of security or
any release of any security furnished or accepted for any of the Notes or in
respect the obligations of the Guarantor hereunder;
(ii) any waiver, consent, extension, granting of time, forbearance,
indulgence or other action or inaction under or in respect of this Guarantee or
any of the Notes or any exercise or nonexercise of any right, remedy or power in
respect hereof or thereof;
(iii) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceedings with respect to
the Guarantor, the Borrower or any other Person, or the properties or creditors
of any of them;
(iv) the occurrence of any Default or Event of Default, or any
invalidity or unenforceability of, or any misrepresentation, irregularity or
other defect in, the Purchase Agreements, any other agreement or document
executed or delivered in connection therewith or pursuant thereto, any of the
Notes or any other agreement;
(v) any transfer of any assets to or from the Guarantor, Holdings or
the Borrower, including without limitation any transfer or purported transfer to
the Guarantor, Holdings or the Borrower from any Person, any invalidity,
illegality of, or inability to enforce, any such transfer or purported transfer,
any consolidation or merger of the Guarantor, Holdings or the Borrower with or
into any other corporation or entity, or any change whatsoever in the objects,
capital structure, constitution or business of the Guarantor, Holdings or the
Borrower or any Affiliate or Subsidiary of the Guarantor, Holdings or of the
Borrower;
(vi) any failure on the part of the Borrower or any other Person to
perform or comply with any term of the Notes, the Purchase Agreements, or
any other agreement;
(vii) any suit or other action brought by the Guarantor, Holdings, the
Borrower or any other Person, or
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<PAGE>
by any stockholder or creditor of any of such Persons, for any reason
whatsoever, including without limitation any suit or action in any way attacking
or involving any issue, matter or thing in respect of the Notes, the Purchase
Agreements or any other agreement;
(viii) any lack or limitation of status or power, incapacity or
disability of the Guarantor, Holdings or the Borrower or of any officer,
director or agent of the Guarantor, Holdings or the Borrower or any of their
respective stockholders;
(ix) the cessation from any cause whatsoever (other than payment of
the Obligations) of liability of the Borrower;
(x) the termination of, or release or compromise of the Purchase
Agreements, any other agreement or document executed or delivered in connection
therewith or pursuant thereto, any of the Notes or any other agreement,
including, without limitation, the Guarantee of Holdings set forth in Section
16.14 of the Purchase Agreements (other than as a result of payment of the
Obligations);
(xi) any lack or limitation of the genuineness, validity, regularity
or enforceability of the Notes, the Purchase Agreements, any other agreement or
document executed or delivered in connection therewith or pursuant thereto, or
any other agreement;
(xii) any failure by any of the Holders to take any steps to perfect
or maintain their security interest (if any) in or Liens (if any) upon, or to
preserve their rights to, any security or collateral for the Obligations;
(xiii) any election by any of the Holders, in any proceeding
instituted under Chapter 11 of Title 11 of the United States Code (11 U.S.C.(S)
101 et seq.) (the "Bankruptcy Code"), of the application of Section 1111(b)(2)
-- ---
of the Bankruptcy Code;
(xiv) the disallowance, under Section 502 of the Bankruptcy Code, of
all or any portion of any of the Holders' claims for repayment of the
Obligations; or
(xv) any other thing, event, happening, matter, circumstance or
condition whatsoever, not in any way limited to the foregoing, which might
otherwise constitute a legal or equitable discharge or defense of a guarantor.
The liability of the undersigned Guarantor under this Guarantee shall not
exceed at any time the greater of (i) 95% of the Adjusted Net Assets (as
hereinafter defined) of the
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<PAGE>
Guarantor at the time of delivery hereof and (ii) 95% of the Adjusted Net Assets
of the Guarantor at the time of any payment hereunder. As used herein, the term
"Adjusted Net Assets" means at any time the lesser of (x) the amount by which
the fair market value of the assets of the Guarantor exceeds the total amount of
liabilities (including, without limitation, contingent liabilities, but
excluding liabilities under this Guarantee) of the Guarantor at such time, and
(y) the amount by which the present fair market value of the assets of the
Guarantor at such time exceeds the amount that will be required to pay the
probable liability of the Guarantor on its debts (excluding debt in respect of
this Guarantee), as they become absolute and matured. Contingent liabilities of
the Guarantor (including, without limitation, liabilities in respect of
guarantees, pension and other employee benefit plans and pending or threatened
litigation and claims), shall be valued at amounts which, in light of all the
facts and circumstances existing at the time, represent amounts which can
reasonably be expected to become actual or matured liabilities.
Notwithstanding anything to the contrary contained herein or in any other
agreement, document or instrument, the Guarantor hereby irrevocably waives all
rights of subrogation (whether such rights arise under common law, contract or
Federal law, including, without limitation, Section 509 of the Bankruptcy Code)
to the claims of the Holders against the Borrower, and waives all contractual,
statutory and common law rights of contribution, reimbursement, indemnification
and similar rights and claims (as such term is defined in the Bankruptcy Code)
against the Borrower which may arise in connection with, or as a result of, this
Guarantee.
The Guarantor expressly waives any and all benefits under California Civil
Code Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433 and
California Code of Civil Procedure Sections 580(a), 580(b), 580(d) and 726.
The Guarantor expressly waives any right it may have to require any Person
seeking enforcement of its obligations hereunder to (a) proceed against the
Borrower, Holdings or any other Person, (b) proceed against or exhaust any
security, or (c) pursue any other remedy in the power of the Person seeking such
enforcement, including without limitation, its remedies pursuant to the
Holdings' Guarantee set forth in Section 16.14 of the Purchase Agreements. The
Holders from time to time may, at their election, exercise any right or remedy
they may have against the Guarantor, including, without limitation, the right to
foreclose upon any such security by judicial or non-judicial sale, without
affecting or limiting in any way the liability of the Guarantor hereunder,
except to the extent the Obligations
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<PAGE>
have been paid. The Guarantor waives any defense arising out of the absence,
impairment or loss of any right of reimbursement, contribution or subrogation or
any other right or remedy of the Guarantor against the Borrower, Holdings or any
such security, whether resulting from such election by the Holders of the Notes
or otherwise.
The Guarantor agrees that its obligations hereunder shall be automatically
reinstated if and to the extent that for any reason any payment by or on behalf
of the Borrower, Holdings or the Guarantor is rescinded or must be otherwise
restored by any Holder of any Notes, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise. The Guarantor further agrees that,
without limiting the generality of the foregoing, if an Event of Default shall
have occurred and be continuing and the Holder is prevented by applicable law
from exercising any remedy under this Guarantee or under any of the Notes, such
Holder shall be entitled to receive from the Guarantor upon demand therefor, the
sums which would otherwise have been due from the Borrower had such remedies
been exercised.
The Guarantor agrees that this Guarantee shall continue in full force and
effect and may not be terminated or otherwise revoked by the Guarantor until the
Obligations shall have been fully discharged.
This Guarantee shall be binding upon the Guarantor and upon the successors
and assigns of the Guarantor and shall inure to the benefit of each of the
Purchasers and each other Holder and their respective successors and assigns;
all references herein to the Borrower, Holdings and to the Guarantor shall be
deemed to include their respective successors and assigns, including, without
limitation, a receiver, trustee or debtor-in-possession of or for the Borrower,
Holdings or the Guarantor. All references to the singular shall be deemed to
include the plural where the context so requires.
THIS GUARANTEE SHALL BE CONSTRUED IN ACCORDANCE WITH AND SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CHOICE OF LAW
PRINCIPLES OF SUCH STATE).
THE GUARANTOR CONSENTS AND AGREES TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT SITTING IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, AND WAIVES
ANY OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION
----- --- ----------
INSTITUTED THEREIN, AND AGREES THAT ANY DISPUTE CONCERNING THE RELATIONSHIP
BETWEEN ANY PURCHASER OR HOLDER OF NOTES, ON THE ONE HAND, AND THE GUARANTOR. ON
THE OTHER HAND, OR THE CONDUCT OF ANY PARTY IN CONNECTION WITH THIS GUARANTEE OR
OTHERWISE SHALL BE HEARD ONLY IN THE COURTS DESCRIBED ABOVE.
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<PAGE>
THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY HAND DELIVERY OR
MAIL TO THE GUARANTOR AT ITS ADDRESS SET FORTH BELOW. THE GUARANTOR HEREBY
CONSENTS TO SERVICE OF PROCESS AS AFORESAID.
NOTHING IN THIS GUARANTEE SHALL AFFECT THE RIGHT OF ANY PURCHASER OR HOLDER
OF NOTES TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF ANY PURCHASER OR HOLDER OF NOTES TO BRING ANY ACTION OR PROCEEDING
AGAINST THE GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
Wherever possible each provision of this Guarantee shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Guarantee shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guarantee.
THE GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS GUARANTEE OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
THE GUARANTOR IN RESPECT TO THIS GUARANTEE OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS
RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. THE GUARANTOR HEREBY AGREES
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS GUARANTEE WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE GUARANTOR TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
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<PAGE>
IN WITNESS WHEREOF, this Guarantee has been duly executed by the Guarantor
as of the __ day of November, 1992.
IHOP REALTY CORP.
By:
-------------------------
Title:
Address:
--------------------
----------------------------
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<PAGE>
EXHIBIT E
LEASE
-----
between
IHOP REALTY CORP.,
a Delaware corporation,
Lessor
and
INTERNATIONAL HOUSE OF PANCAKES, INC.,
a Delaware corporation,
Lessee
______________, 1992
<PAGE>
LEASE
-----
between
IHOP REALTY CORP.,
a Delaware corporation, Lessor,
and
INTERNATIONAL HOUSE OF PANCAKES, INC.,
a Delaware corporation, Lessee
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I - DEMISED PREMISES; TERM...................................... l
1.1 Demised Premises.............................................. l
1.2 Term.......................................................... l
1.3 Options to Extend Term........................................ l
1.4 Short Form of Lease........................................... l
ARTICLE II - RENT....................................................... l
2.1 Minimum Monthly Rental........................................ l
2.2 Percentage Rent............................................... 2
2.3 Statements of Gross Sales..................................... 2
2.4 "Gross Sales" Defined......................................... 2
2.5 Verification of Gross Sales; Audit............................ 2
ARTICLE III - TAXES AND ASSESSMENTS..................................... 6
3.1 Taxes and Assessments......................................... 6
3.2 Installment Payments ........................................ 8
3.3 Personal Property Taxes....................................... 8
3.4 Proration..................................................... 8
3.5 Contest....................................................... 8
ARTICLE IV - CONSTRUCTION OF IMPROVEMENTS; REPAIR AND MAINTENANCE;
ALTERATIONS AND IMPROVEMENTS............................... 9
4.1 Construction of Improvements.................................. 9
4.2 Repair and Maintenance........................................ 9
4.3 Alterations and Improvements.................................. 9
ARTICLE V - LIENS....................................................... 10
5.1 Discharge of Liens; Contest................................... 10
ARTICLE VI - USE OF PREMISES............................................ 11
6.1 Permitted Use................................................. 11
ARTICLE VII - LIABILITY INSURANCE....................................... 11
7.1 Lessee's Insurance............................................ 11
ARTICLE VIII - BANKRUPTCY............................................... 12
8.1 Continuation of Lease......................................... 12
ARTICLE IX - ASSIGNMENT AND SUBLETTING.................................. 12
9.1 Assignment.................................................... 12
9.2 Subletting.................................................... 13
ARTICLE X - REMEDIES IN THE EVENT OF DEFAULT............................ 13
10.1 Remedies...................................................... 13
ARTICLE XI - PROPERTY INSURANCE......................................... 16
11.1 Lessee to Obtain "All Risk" Insurance......................... 16
11.2 Blanket Policy................................................ 16
ARTICLE XII - DAMAGE AND DESTRUCTION.................................... 17
12.1 Abatement of Rent............................................. 17
12.2 Restoration of Improvements - Insured Loss.................... 17
12.3 Restoration of Improvements - Uninsured Loss.................. 17
12.4 Extension of Lease............................................ 18
</TABLE>
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<PAGE>
Table of Contents (continued)
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<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE XIII - CONDEMNATION............................................. 19
13.1 Complete Taking............................................ 19
13.2 Partial Taking............................................. 19
13.3 Allocation of Condemnation Award........................... 19
13.4 Rent Reduction in Case of Partial Taking................... 20
ARTICLE XIV - QUIET ENJOYMENT AND TITLE................................. 20
14.1 Covenant of Quiet Enjoyment................................ 20
14.2 Right to Possession........................................ 21
14.3 Superior Encumbrances...................................... 21
14.4 Ownership; Authority; Restrictions......................... 21
ARTICLE XV - TRADE FIXTURES............................................. 22
15.1 Ownership; Removal......................................... 22
ARTICLE XVI - SUBORDINATION............................................. 23
16.1 Subordination.............................................. 23
ARTICLE XVII - RIGHT OF FIRST REFUSAL................................... 24
17.1 Purchase................................................... 24
17.2 Lease...................................................... 24
17.3 Incorporation in Short Form of Lease....................... 25
ARTICLE XVIII - REMOVAL OF DISTINCTIVE FEATURES......................... 25
18.1 Removal; Repairs........................................... 25
ARTICLE XIX - PROHIBITION AGAINST COMPETITION AND
PROTECTION FOR EXPOSURE................................... 26
19.1 Lessor's Covenant.......................................... 26
19.2 Lessee's Remedies for Breach............................... 26
19.3 Incorporation in Short Form of Lease ...................... 27
ARTICLE XX - TITLE CONSIDERATIONS....................................... 27
20.1 CC&Rs; Lender's Lien....................................... 27
ARTICLE XXI - HAZARDOUS SUBSTANCE OR WASTE.............................. 29
21.1 Mutual Indemnity........................................... 29
ARTICLE XXII - REAL ESTATE COMMISSIONS.................................. 30
22.1 Payment; Mutual Indemnity.................................. 30
ARTICLE XXIII - NOTICES AND DEMANDS.................................... 31
23.1 To Lessor.................................................. 31
23.2 To Lessee.................................................. 31
ARTICLE XXIV - ATTORNEYS' FEES.......................................... 31
24.1 Paid to Prevailing Party................................... 31
ARTICLE XXV - GENERAL PROVISIONS........................................ 32
25.1 Binding on Successors...................................... 32
25.2 Severability............................................... 32
25.3 Entire Agreement........................................... 32
25.4 Captions................................................... 32
25.5 Gender and Number.......................................... 33
25.6 Approvals.................................................. 33
25.7 No Waiver.................................................. 33
25.8 Holdover................................................... 33
25.9 Time of Essence............................................ 33
25.10 Governing Law.............................................. 33
25.11 Counterparts............................................... 33
25.12 No Third Party Rights...................................... 33
25.13 Unexecuted Lease........................................... 34
25.14 Lessor's Right of Entry.................................... 34
25.15 Estoppel Certificates...................................... 34
25.16 Due Authorization.......................................... 34
25.17 Relationship of Parties.................................... 35
</TABLE>
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<PAGE>
E X H I B I T S
---------------
Exhibit "A" - Legal Description
Exhibit "B" - Permitted Exceptions
-iii-
<PAGE>
L E A S E
---------
AGREEMENT OF LEASE, made this __ day of _______, 1992, by and between
IHOP REALTY CORP., a Delaware corporation, having its principal place of
business at 525 N. Brand Boulevard, Third Floor, Glendale, California
91203-1903 (hereinafter called "Lessor"), and INTERNATIONAL HOUSE OF
PANCAKES, INC., a Delaware corporation, having its principal place of
business at 525 N. Brand Boulevard, Third Floor, Glendale, California
91203-1903 (hereinafter called "Lessee").
W I T N E S S E T H:
ARTICLE I
DEMISED PREMISES; TERM
1.1 Demised Premises. For and in consideration of the rents, taxes,
----------------
insurance and other charges and expenses to be paid by Lessee, and in
consideration of the performance by Lessee of the covenants herein set
forth, Lessor does hereby grant, demise and lease to Lessee all that
certain real property consisting of approximately _____________________
(________) square feet of land, together with the Improvements (as defined
in Article 4.1 (hereinbelow) constructed thereon and the rights appurtenant
thereto, located and situate in the City of _________, County of ________,
State of ____________, and more particularly described in Exhibit A
attached hereto and, by this reference, incorporated herein (hereinafter
referred to as the "Demised Premises").
1.2 Term. The term of this Lease shall commence on the date of the first
----
payment of rent pursuant to Article 2.1 hereinbelow and shall terminate
twenty-five (25) years thereafter.
1.3 Options to Extend Term. Provided it shall not then be in default
----------------------
under this Lease (beyond any applicable cure period) , Lessee shall have
the option to extend said term for an additional period of five (5) years
by giving notice to Lessor of its intention to exercise said option at
least ninety (90) days prior to the expiration of the original term.
Provided it shall not then be in default under this Lease (beyond any
applicable cure period), Lessee shall have the option to extend said term
for an additional period of five (5) years (less one day) by giving notice
to Lessor of its intention to exercise that option at least ninety (90)
days prior to the expiration of the first extended term. All of the terms
and conditions of this Lease shall apply during each of the aforedescribed
extended terms, except those pertaining to the initial construction of the
Improvements (as defined in Article 4.1 hereinbelow) and expired options to
extend the term of this lease.
1.4 Short Form of Lease. Upon the commencement date of the TERM hereof in
-------------------
accordance with Article 1.2 hereinabove, the parties AGREE to execute and
record a short form of this Lease, which shall incorporate the provisions
of Articles XVII and XIX hereinbelow. In no event shall the parties record
a long form lease.
ARTICLE II
RENT
2.1 Minimum Monthly Rental. Lessee agrees to pay to Lessor during the
----------------------
full term hereof a minimum monthly rental of _________
__________________________________ Dollars ($_________) (hereinafter
referred to as the "Minimum Monthly Rental"), payable in advance on the
first day of each calendar month. Said Minimum Monthly Rental shall
commence thirty (30) days after the date of
<PAGE>
completion of the Improvements (as defined in Article 4.1 herein-below) to
be erected on the Demised Premises or when Lessee opens for business,
whichever date is earlier. If the first day upon which rent becomes
payable is other than the first day of any calendar month, the rent for the
balance of said month shall be payable by Lessee at a daily rate based upon
the Minimum Monthly Rental.
2.2 Percentage Rent. In addition to the Minimum Monthly Rental agreed to
---------------
be paid by Lessee, Lessee shall pay to Lessor, at the time and in the
manner specified in this Lease, an additional rental in an amount
(hereinafter referred to as "Percentage Rent") equal to five percent (5%)
of the amount of Lessee's gross sales made in, upon or from the business on
the Demised Premises during each calendar year of the term hereof, less (a)
the aggregate amount of the Minimum Monthly Rental previously paid by
Lessee for said calendar year, (b) all real property taxes and general and
special assessments levied against the Demised Premises as provided in
Article 3.1 hereinbelow and paid by Lessee or accrued, (c) all expenses for
exterior maintenance and upkeep of the building and adjacent walkways and
landscape areas, (d) all premiums for insurance required hereby, and (e)
all similar costs and expenses, if any, arising under the terms of the
CC&Rs (as defined in Article 20.1 hereinbelow). If the amount of any such
deductions in any year exceeds the amount of Percentage Rent payable for
said year, then such excess shall be carried forward and applied to reduce
the amount of Percentage Rent payable in any succeeding year or portion
thereof should this Lease terminate prior to the expiration of a full year.
The term "exterior maintenance and upkeep" is not to be construed to
include any janitorial or regular maintenance service which is to be
provided by Lessee or its assignee without deduction or offset, but rather
is intended to include repairs and maintenance for wear and tear. The
Percentage Rent shall be paid quarterly (as herein provided) based upon
gross sales during such quarterly period. In the event the quarterly
payments of Percentage Rent do not in the aggregate equal the Percentage
Rent when calculated on an annual basis, then, in such event, an adjustment
shall be made within forty-five (45) days after the end of each year of the
term hereof, and the party owing money shall promptly pay the amount owed
to the other party. Percentage Rent shall be paid quarterly on the twenty-
fifth (25th) day of the month immediately following the quarterly period in
which the gross sales are made. Notwithstanding expiration or sooner
termination of this Lease, Lessee shall pay to Lessor the Percentage Rent
on the twenty-fifth (25th) day of the month immediately following
expiration or sooner termination for the last quarterly period of the term
of this Lease or fraction thereof. For the purposes of computing
Percentage Rent for the first and last quarterly periods of the term or
extended term of this Lease, if either is less than a full calendar
quarter, the prorated Minimum Monthly Rental and other expenses enumerated
above for such fractional period shall be deducted from the percentage of
sales realized during such fractional period.
2.3 Statements of Gross Sales. Together with the quarterly Percentage
-------------------------
Rent, Lessee shall furnish to Lessor a statement in writing, certified by
Lessee to be correct, showing the total gross sales made in, upon or from
said restaurant during the said calendar quarter or portion thereof.
2.4 "Gross Sales" Defined. The term "gross sales" as used herein shall
---------------------
include the entire receipts of each kind and nature from sales and services
made in, upon or from the said restaurant, whether upon credit or for cash,
whether operated by Lessee or by a sublessee or sublessees, or by a
concessionaire or concessionaires, excepting therefrom any rebates and/or
refunds to customers, and the amount of all sales tax or similar tax
receipts which have to be accounted for by Lessee or by any sublessee or
concessionaire to any government or governmental agency. Sales upon credit
shall be deemed cash sales and shall be included in the gross sales for the
period during which the merchandise is delivered to the customer, whether
or not
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<PAGE>
title to the merchandise passes with delivery. The term "gross sales"
shall not include sales from coin operated vending machines.
2.5 Verification of Gross Sales: Audit. Lessee shall keep full, complete
----------------------------------
and proper books, records and accounts of its daily gross sales, both for
cash and on credit, of each separate department and concession at any time
operated in the Demised Premises. Lessor and its agents and employees,
upon reasonable notice, shall have the right at any and all times, during
regular business hours, to examine and inspect all of the books and records
of Lessee (including any sales tax reports) pertaining to the business of
Lessee conducted in, upon or from the Demised Premises, which Lessee shall
produce upon demand by Lessor or Lessor's agents for the purpose of
investigating and verifying the accuracy of any statement of gross sales.
Lessor may once in any lease year cause an audit of the gross sales of
Lessee to be made by an independent certified accountant of Lessor's
selection, and if the statement of gross sales previously made to Lessor by
Lessee shall be found to be understated by more than five percent (5%),
Lessee shall immediately pay to Lessor the cost of such audit, not to
exceed Five Hundred Dollars ($500), as well as the additional rental shown
to be payable by Lessee to Lessor; otherwise the cost of such audit shall
be paid by Lessor. If the statement of gross sales previously made to
Lessor by Lessee shall otherwise be found to be incorrect, then the party
found to be owing money shall promptly pay over such sums to the other
party. It is understood and agreed that the Percentage Rent provisions
apply only to sales made in, upon or from the business to be operated upon
the Demised Premises and do not apply to sales of any other business.
ARTICLE III
TAXES AND ASSESSMENTS
3.1 Taxes and Assessments. Lessee shall pay, as additional rent, all real
---------------------
estate taxes and assessments (or installments thereof) coming due during
the term hereof under any general or special assessments created or imposed
during the term hereof, sewer rent and water charges, gas power, electric
current and all other taxes and charges in the same or similar categories
(sometimes hereinafter referred to collectively as "impositions" and
individually as "imposition") levied or imposed upon the Demised Premises
or Improvements (as defined in Article 4.1 hereinbelow), or arising from
the use and occupancy or possession of the Demised Premises or the
Improvements (as defined in Article 4.1 hereinbelow), it being the
intention of the parties that the Minimum Monthly Rental to be received by
Lessor shall be a net rental to Lessor and not subject to any deductions
whatsoever arising from the use and occupancy of the Demised Premises by
Lessee. Lessee shall pay such additional rent directly to the taxing
authorities, utility companies or other entities to whom such charges may
be payable, and shall, upon written request therefor, furnish to Lessor
reasonably satisfactory evidence of the payment of the same. In the event
that Lessee fails to make any such payment within the period (or grace
period) provided for the payment thereof, Lessor may, at its option, pay
the same, and Lessee shall immediately reimburse Lessor therefor.
3.2 Installment Payments. If any assessment is payable at the option of a
--------------------
taxpayer in installments, Lessee may pay it in equal annual installments as
they respectively become due; provided, however, that in no event shall
Lessee be required to reimburse Lessor for any installments attributable to
any period after the expiration of the term of this Lease.
3.3 Personal Property Taxes. Lessee shall also pay all personal property
-----------------------
tax levied upon the personal property on the Demised Premises during the
term of this Lease.
3.4 Proration. All of the above impositions (except utility or other
---------
charges attributable solely to Lessee's use) for the first
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year of the term hereof shall be prorated between the parties as of the
commencement date hereof, and during the last year of the term hereof,
shall be prorated as of the termination date.
3.5 Contest. Lessee, at its own expense, may contest any impositions in
-------
any manner permitted by law, in Lessee's name, and, whenever necessary, in
Lessor's name. Lessor will cooperate with Lessee and execute any documents
or pleadings required for such purpose. Such contest may include appeals
from any judgment(s), decree(s) or order(s) until a final determination is
made by a court or governmental department or authority having final
jurisdiction in the matter. Before commencing any such contest, Lessee
shall obtain a surety bond sufficient to cover the amount of the possible
imposition which would be due if the decision were adverse to Lessee.
ARTICLE IV
CONSTRUCTION OF IMPROVEMENTS; REPAIR AND MAINTENANCE;
ALTERATIONS AND IMPROVEMENTS
4.1 Construction of Improvements. Lessor has heretofore constructed upon
----------------------------
the Demised Premises, at Lessor's sole cost and expense, an air conditioned
restaurant together with a paved parking lot and a free-standing sign in
accordance with plans and specifications, as approved by all governmental
agencies having jurisdiction therefor, the master plans for which have been
heretofore approved by the parties hereto (hereinafter referred to as the
"Improvements").
4.2 Repair and Maintenance. Lessee agrees that during the term hereof it
----------------------
will make, at its own expense, all necessary repairs to the Improvements
upon the Demised Premises, including all parking areas and sidewalks, and
that it will keep the Demised Premises and the Improvements thereon in good
condition and repair throughout the entire term of this Lease.
4.3 Alterations and Improvements. Lessee shall have the right at any
----------------------------
time and from time to time during the term of this Lease, at its own
expense, to make changes or alterations, structural or otherwise, to the
Improvements on the Demised Premises and to erect, construct or install
upon the Demised Premises buildings and improvements in addition to or in
substitution for those now or hereafter located thereon, and to demolish
and remove the Improvements or any other structures hereafter located on
the Demised Premises for the purposes of replacing the same; provided,
however, that the fair market value of all improvements on the Demised
Premises following each such change, alteration, construction or
installation shall be at least equal to the fair market value of all
improvements on the Demised Premises immediately prior to such change,
alteration, construction or improvement. Lessee shall make no structural
changes or alterations at any given time of a cost in excess of Ten
Thousand Dollars ($10,000) without first having secured the consent of
Lessor, which consent shall not be unreasonably delayed or withheld.
ARTICLE V
LIENS
5.1 Discharge of Liens; Contest. Except as hereinafter provided, Lessor
---------------------------
reserves the fee in the Demised Premises and specifically does not consent
by virtue of this Lease that said fee or the remainder interest of Lessor
in the Demised Premises shall be subject to any lien for labor or materials
furnished to Lessee in the repair or improvement of the Demised Premises.
While the parties intend hereby that the interest of Lessor hereunder
cannot be subjected to any lien on account of Lessee's use of or actions
with respect to the Demised Premises and that any future modifications of
law to the contrary would constitute an impairment of vested rights
hereunder, nevertheless, should a court of competent
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Jurisdiction hold that, or should a valid statute be enacted whereby, any
interest of Lessor in the Demised Premises at any time hereafter shall be
subjected to any such lien, then Lessee shall, within thirty (30) days
after written notice to Lessee of the existence and perfection of said
lien, cause said lien to be bonded or discharged and shall otherwise save
Lessor harmless on account thereof; provided, however, that if Lessee
desires in good faith to contest the validity or correctness of any such
lien, it may do so and Lessor shall cooperate to whatever extent shall be
necessary, provided only that Lessee must indemnify Lessor against any
loss, liability or damage on account thereof.
ARTICLE VI
USE OF PREMISES
6.1 Permitted Use. Lessee, its sublessees or assignees, shall use the
-------------
Demised Premises for the purpose of conducting thereon the business of a
restaurant or a coffee shop and for incidental purposes related thereto,
or for any other legally permissible business or commercial venture;
provided, however, that Lessee shall not use the Demised Premises in such
manner as to knowingly violate the CC&Rs (as defined in Article 20.1
hereinbelow) or any applicable law, rule, ordinance or regulation of any
governmental body.
ARTICLE VII
LIABILITY INSURANCE
7.1 Lessee's Insurance. Lessee agrees that on or before the commencement
------------------
of the term of this Lease it will obtain for the mutual benefit of Lessor
and Lessee public liability insurance covering the Demised Premises from an
insurance company authorized (or admitted) to do business in the state in
which the Demised Premises are located. Said policy or policies shall be
for an amount of at least Two Million Dollars ($2,000,000) Combined Single
Limit for the death or injury to one (1) or more persons or property
damage, which said policy or policies to insurance shall name Lessor as an
additional assured thereunder, and Lessee agrees to maintain same at
Lessee's sole cost and expense in full force and effect during the entire
term of this Lease. Lessee shall furnish Lessor with a copy of such
insurance coverage, or with a certificate of the company issuing such
insurance, certifying that the same is in full force and effect. Lessee
may, at its option, bring its obligations to insure hereunder under any so-
called blanket policy or policies of insurance; provided, however, that the
interests of Lessor shall be as fully protected thereby as if Lessee
obtained individual policies of insurance.
ARTICLE VIII
BANKRUPTCY
8.1 Continuation of Lease. If at any time during the term hereof
---------------------
proceedings in bankruptcy, insolvency or other similar proceedings shall be
instituted by or against Lessee, whether or not such proceedings result in
an adjudication against Lessee, or should a receiver of the business or
assets of Lessee be appointed, such proceedings or adjudications shall not
affect the validity of this Lease, so long as the Minimum Monthly Rental
and additional rent reserved hereunder continues to be paid to Lessor and
the other terms, covenants and conditions of this Lease on the part of
Lessee to be performed, are performed, and in such event this Lease shall
continue to remain in full force and effect in accordance with the terms
herein contained.
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<PAGE>
ARTICLE IX
ASSIGNMENT AND SUBLETTING
9.1 Assignment. Lessee may not assign this Lease, in whole or in part,
----------
without first obtaining the prior written consent of Lessor, which consent
shall not be unreasonably delayed or withheld; provided, however, that
Lessee may, without such consent, assign this Lease, in whole or in part,
as security or otherwise to any national or state chartered bank or lending
institution or corporation controlled by, controlling, or under common
control with Lessee, it being understood that Lessee shall remain liable
hereunder, or to any surviving corporation resulting from a merger or
consolidation of Lessee with any other corporation, or to any corporation
which purchases or otherwise acquires all or substantially all of the
assets of Lessee. Any consent to any assignment shall not be deemed to be
a consent to any subsequent assignment. Any assignment by Lessee other than
in accordance with this Article IX shall be void.
9.2 Subletting. Lessee or its assignee shall have and is hereby given the
----------
unqualified right and privilege, at its option, of subletting the Demised
Premises, in whole or in part, subject to all of the rents, terms and
conditions of this Lease. It is specifically understood and agreed by and
between Lessor and Lessee that any subletting which Lessee or its assignees
make, as permitted herein, shall in no event relieve Lessee of the
obligations of Lessee hereunder, and that the right of subletting shall be
that of Lessee or its assignees only, and shall not extend to any
subtenant.
ARTICLE X
REMEDIES IN THE EVENT OF DEFAULT
10.1 Remedies. In the event of any breach of this Lease by Lessee which
--------
shall not have been cured within fifteen (15) days after Lessee shall have
received notice of such breach (or if such breach is not in payment of
money, if within such period Lessee shall not have commenced to cure said
breach and shall not thereafter continue its efforts with due diligence),
then Lessor may, at Lessor's option and without limiting Lessor in the
exercise of any other rights or remedies which Lessor may have at law or in
equity by reason of such default or breach, with or without notice of
demand:
(A) without terminating this Lease, reenter the Demised Premises with
or without process of law and take possession of the same and expel or
remove Lessee and all other parties occupying the Demised Premises,
and at any time and from time to time to relet the Demised Premises or
any part thereof for the account of Lessee, for such term, upon such
conditions and at such rental as Lessor may deem proper. In such
event Lessor may receive and collect the rent from such reletting and
apply it against any amounts due from Lessee hereunder (including,
without limitation, such expenses as Lessor may have incurred in
recovering possession of the Demised Premises, placing the same in
good order and condition, altering or repairing the same for
reletting, and all other expenses, commission and charges, including
attorney's fees, which Lessor may have paid or incurred in connection
with such repossession and reletting). Lessor may execute any Lease
made pursuant hereto in Lessor's name or in the name of Lessee, as
Lessor may see fit, and the Lessee thereunder shall be under no
obligation to see to the application by Lessor of any rent collected
by Lessor, nor shall Lessee have any right to collect any rent
thereunder. Whether or not the Demised Premises are relet, Lessee
shall pay to Lessor all amounts required to be paid by Lessee up to
the date of Lessor's reentry, and thereafter Lessee shall pay to
Lessor, until the end of the term hereof, the amount of all rent and
other charges required to be paid by Lessee hereunder, less the
proceeds of such reletting as provided
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<PAGE>
above. Such payments by Lessee shall be due at such times as are
provided elsewhere in this Lease, and Lessor need not wait until the
termination of this Lease to recover them by legal action or
otherwise. Lessor shall not, by any reentry or other act, be deemed
to have terminated this Lease or the liability of Lessee for the total
rent hereunder unless Lessor shall give Lessee written notice of
Lessor's election to terminate this Lease.
(B) terminate this Lease by giving written notice to Lessee of
Lessor's election to so terminate, reenter the Demised Premises with
or without process of law and take possession of the same and expel or
remove Lessee and all other parties occupying the Demised Premises. In
such event, Lessor shall thereupon be entitled to recover from Lessee:
(i) the worth at the time of award of any unpaid rent
which had been earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which (A),
the unpaid rent which would have been earned after termination
until the time of award, exceeds (B), the amount of such rental
loss Lessee proves could have been reasonably avoided; plus
(iii) the worth at the time of award of the amount by which (A),
the unpaid rent for the balance of the term after the time of
award, exceeds (B), the amount of such rental loss that Lessee
proves could be reasonably avoided; plus
(iv) any other amount reasonably necessary to compensate Lessor
for all the detriment proximately caused by Lessee's failure to
perform its obligations under this Lease or which, in the
ordinary course of things, would be likely to result therefrom.
As used in Subsections (i) and (ii) above, the "worth at the time of
award" is computed by allowing interest at the rate of ten percent
(10%) per annum. As used in Subsection (iii) above, the "worth at the
time of award" is computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of
award, plus one percent (1%).
ARTICLE XI
PROPERTY INSURANCE
11.1 Lessee to Obtain "A1l Risk" Insurance. Lessee will, at Lessee's own
-------------------------------------
cost and expense, carry and maintain fire insurance with extended coverage
endorsement with an insurance company authorized (or admitted) to do
business in the state in which the Demised Premises are located, for the
mutual benefit of Lessee, Lessor, and its mortgagee, if any, on all
buildings erected upon the Demised Premises in an amount equal to at least
one hundred percent (100%) of the full replacement cost thereof, excluding
foundation and excavating costs. As often as any such policy or policies
shall expire or terminate, renewal or additional policies shall be procured
by Lessee in like manner and to like extent. Proceeds of any such
policies, in the event of fire or other casualty, shall be payable to
Lessor and Lessee, as their respective interests may appear, and in
accordance with the terms of Article XII hereinbelow. Lessee shall furnish
Lessor with a copy of such insurance coverage, or with a certificate of the
company issuing such insurance, certifying that the same is in full force
and effect.
11.2 Blanket Policy. Lessee may, at its option, bring its obligations to
--------------
insure under this Article XI within the coverage of any so-
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<PAGE>
called blanket policy or policies of insurance which it may now or
hereafter carry, by appropriate amendment, rider endorsement, or otherwise;
provided, however, that the interest of Lessor shall thereby be as fully
protected as they would otherwise be if this option to Lessee to use
blanket policies were not permitted.
ARTICLE XII
DAMAGE AND DESTRUCTION
12.1 Abatement of Rent. Notwithstanding any statute or rule of law of the
-----------------
state in which the Demised Premises are located to the contrary, in the
event of any damage or destruction to the Improvements, or any part
thereof, by fire or other casualty, this Lease shall continue in full force
and effect, except that until either such damage or destruction shall be
repaired, or in the alternative this Lease shall be terminated as
hereinafter provided in this Article XII, all rent, additional rent and
other charges payable hereunder by Lessee shall abate so that Lessee shall
be required to pay only a fraction thereof, the numerator of which shall be
the fair rental value of the Demised Premises and Improvements thereto
after such damage or destruction, and the denominator of which shall be the
fair rental value of the Demised Premises and Improvements thereto
immediately prior to such damage or destruction, provided, however, if the
damage or destruction is such that Lessee's business at the Demised
Premises cannot reasonably or lawfully be continued after the date of said
damage or destruction, said rent, additional rent and other charges
hereunder shall abate entirely.
12.2 Restoration of Improvements - Insured Loss. If the damage or
------------------------------------------
destruction of the Improvements was caused by a peril or perils covered
under a standard fire insurance policy, with "extended coverage"
endorsement, then Lessee shall proceed, within a reasonable period of time
after the date of the occurrence of such damage or destruction, to repair,
restore and replace said Improvements and shall have available to it any
proceeds from the property insurance to be maintained by Lessee pursuant to
Article 11.1 hereinabove.
12.3 Restoration of Improvements - Uninsured Loss. If the damage or
-------------------------------------------------
destruction of the Improvements was not caused by a peril or perils covered
under a standard fire insurance policy, with "extended coverage"
endorsement, then Lessor may, within thirty (30) days after the occurrence
of said damage or destruction, pay to Lessee such amount as shall be
required by Lessee to make such repair, restoration and replacement.
Lessee shall then proceed with due diligence to so repair, restore and
replace said Improvements. In the event Lessor shall elect not to pay such
amount, Lessor shall give Lessee written notice thereof within thirty (30)
days after the occurrence of said damage or destruction, and Lessee shall
then have fifteen (15) days to elect to pay such amount itself and to serve
Lessor with written notice of its said election. In the event Lessee
elects to pay such amount, then, in such event, Lessee shall, at its
option, be permitted to extend the term hereof for a period sufficient, if
required, to result in Lessee having a minimum term, including any
available options to extend, of ten (10) years remaining after the date of
completion of the repairs, replacement or restoration; said extended term
to be under the same terms and conditions in effect just prior to the
expiration of the preceding term. In the event Lessee elects to extend
said term pursuant to this Article XII, it shall serve Lessor with written
notice thereof within the same fifteen (15) day period during which Lessee
has the right to elect to pay the aforementioned amount. In the event
neither party shall elect to pay such amount, then, upon the expiration of
the fifteen (15) day period during which Lessee has the right to elect to
pay such amount, this Lease shall terminate.
12.4 Extension of Lease. In the event this Lease continues in full force
------------------
and effect and is not terminated or otherwise extended pursuant to the
provisions of this Article XII, and there has been an abatement of rent,
the then current term of this Lease shall be
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<PAGE>
extended by the total number of months during which there was such an
abatement; however, in no event shall the abatement of rent exceed six (6)
months duration in connection with each instance of damage or destruction
during the term or extended term hereof.
ARTICLE XIII
CONDEMNATION
13.1 Complete Taking. If at any time during the term of this Lease, or
---------------
any extension thereof, the whole of the Demised Premises shall be taken for
any public or quasi-public purpose by any lawful power or authority by the
exercise of the right of condemnation or eminent domain, including any such
taking by "inverse condemnation," then this Lease shall terminate as of the
date that title shall vest in the condemnor, and the rent and additional
rent payable hereunder shall be adjusted and paid to the date of such
termination.
13.2 Partial Taking. If at any time during the term of this Lease, or any
--------------
extension thereof, any part of the building, or twenty percent (20%) or
more of the designated parking spaces, or any part of a driveway or other
access way reasonably necessary for access to the business upon the Demised
Premises shall be so taken, Lessee shall have the right to terminate this
Lease as of the date that title shall vest in the condemnor, by giving
written notice of such termination to Lessor within ninety (90) days after
notice to Lessee of the date of such vesting. In such event, the rent and
additional rent payable hereunder shall be adjusted and paid to the date of
such termination.
13.3 Allocation of Condemnation Award. In the event of such a
--------------------------------
condemnation of the whole or a part of the Demised Premises, Lessor shall
have the unqualified right to pursue its remedies against the condemnor for
the full value of Lessor's fee interest and other property interests in and
to the Demised Premises. Similarly, Lessee shall have the unqualified
right to pursue its remedies against the condemnor for the full value of
Lessee's leasehold interest and other property interest in and to the
Demised Premises. If the laws of the state in which the Demised Premises
are located allow or require the recovery from the condemnor to be paid
into a common fund or to be paid to Lessor only, and if such recovery is so
paid into such common fund or to Lessor only, then in that event the
recovery so paid shall be apportioned between the parties according to the
value of their respective property interests as they existed on the date of
such condemnation. The provisions of this Article 13.3 shall survive any
termination of this Lease pursuant to the provisions of Articles 13.1 or
13.2 hereinabove.
13.4 Rent Reduction in Case of Partial Taking. If at any time during the
----------------------------------------
term of this Lease, or any extension thereof, a part of the Demised
Premises shall be taken by condemnation, and Lessee shall not be entitled
to or shall not exercise its right to terminate, this lease shall
continue in full force and effect, except that the net Minimum Monthly
Rental shall be reduced as of the date of vesting in the condemnor so that
Lessee shall pay, for the remainder of the term, only such portion of the
Minimum Monthly Rental as the rental value of the part remaining after
condemnation bears to the rental value of the entire demised premises at
the date of condemnation. Lessor shall have the obligation to pay for the
cost of and to perform the construction, repair, alteration or restoration
of the remaining part of the Demised Premises so the same shall constitute
a complete unit suitable for the use made by Lessee immediately prior to
said condemnation.
ARTICLE XIV
QUIET ENJOYMENT AND TITLE
14.1 Covenant of Quiet Enjoyment. Lessee, subject to the terms of this
---------------------------
Lease, upon paying the Minimum Monthly Rental and additional
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rent and performing the other terms, covenants and conditions of this
Lease, shall and may peaceably and quietly have, hold, occupy, possess and
enjoy the Demised Premises during the term of this Lease.
14.2 Right to Possession. Lessor covenants, warrants and represents that
-------------------
the Demised Premises are now unoccupied and tenant-free, and that absolute,
tenant-free possession of the Demised Premises will be delivered to Lessee
on the date of the commencement of the term hereof.
14.3 Superior Encumbrances. Lessor further covenants, warrants and
---------------------
represents that there are no liens, mortgages or encumbrances on the
Demised Premises superior to the rights of Lessee under this Lease, except
as set forth in Article 20.1 hereinbelow and for the lien of a first
mortgage which may have been heretofore or may hereafter be made by Lessor.
14.4 Ownership; Authority; Restrictions. Lessor further covenants,
----------------------------------
warrants and represents that Lessor is the owner in fee of the Demised
Premises and alone has the full right to lease the Demised Premises for the
term and/or extended term as aforesaid; that there are no existing
restrictions or encumbrances affecting the Demised Premises which would
prohibit the use and occupancy thereof as a restaurant; and that the
Demised Premises are not subject to any zoning laws or regulations which
would prohibit or restrict the construction, maintenance and operation of a
restaurant. It is expressly understood and agreed that these covenants by
Lessor constitute a warranty by Lessor, and that in case Lessor is not the
owner or has not the right aforesaid, or in case there are any such
restrictions, (a) this Lease, at the option of Lessee, shall become null
and void and no rent shall accrue for the term aforesaid or for any part
thereof, and (b) Lessee may pursue any remedy available at law or in equity
to recover damages or other relief.
ARTICLE XV
TRADE FIXTURES
15.1 Ownership Removal. Lessor and Lessee acknowledge, consent and agree
-----------------
that all furniture, fixtures, and equipment installed in or on or located
in or about the Improvements or other parts of the Demised Premises,
whether affixed to the Demised Premises or otherwise (hereinafter referred
to as the "Trade Fixtures"), are being leased by Lessor to Lessee under the
terms of that certain Equipment Master Lease of even date herewith between
Lessor, as lessor, and Lessee, as lessee, and the Trade Fixtures shall at
all times remain the property of Lessor and the same may not be removed by
Lessee at any time during the term hereof or upon the expiration or earlier
termination of the term hereof.
ARTICLE XVI
SUBORDINATION
16.1 Subordination. Provided that Lessor furnishes to Lessee an
-------------
agreement in writing and in recordable form from any present or future
mortgagee or holder of a deed of trust or other encumbrance with respect to
the Demised Premises, that:
(A) such person shall not for any reason disturb the possession, use
or enjoyment of the Demised Premises by Lessee, its successors and
assigns, so long as all of the obligations of Lessee are fully
performed in accordance with the terms of this Lease; and
(B) such person shall permit application of the insurance proceeds
and condemnation proceeds in accordance with Articles XII and XIII
hereinabove, respectively, in the
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<PAGE>
event of damage or destruction to the Improvements or condemnation of
the Improvements or any part of the Demised Premises,
Lessee agrees to subordinate its rights hereunder to the lien of such
mortgage, deed of trust or other encumbrance which may now or hereafter
affect the Demised Premises. Provided such agreement is obtained, Lessee
shall, upon demand, promptly execute and deliver to Lessor any instrument
which may be necessary to effectuate such subordination.
ARTICLE XVII
RIGHT OF FIRST REFUSAL
17.1 Purchase. If at any time after the date of the mutual execution of
--------
this Lease and prior to the date of the expiration of the term or extended
term of this Lease, Lessor shall desire to sell the Demised Premises or the
property of which the Demised Premises are a part, Lessee shall have the
right of first refusal as follows: Lessor shall give to Lessee a notice in
writing specifying the terms and conditions upon which it desires to sell
the Demised Premises and offering to sell same to Lessee upon said terms
and conditions. Within ten (10) days after receipt of said notice, Lessee
shall either accept or reject said offer. If Lessee shall reject said
offer, then for a period of ninety (90) days after the expiration of said
ten (10) day period Lessor shall be free to sell to any other person upon
the terms and conditions specified in said notice. If the sale is to be
made on terms and conditions other than so specified, then the right to
purchase shall again be offered to Lessee as set forth above. The
rejections of any one or more such offers by Lessee shall not affect its
right of first refusal as to any other sales by Lessor or its successors or
assigns.
17.2 Lease. If at any time after the date of the mutual execution of this
-----
Lease and prior to the date of the expiration of the term or extended term
of this Lease, Lessor shall desire to lease the Demised Premises for a term
commencing after the expiration of the term or extended term hereof, Lessee
shall have the right of first refusal as follows: Lessor shall give to
Lessee a notice in writing specifying the terms and conditions upon which
it desires to lease the Demised Premises and offering to lease same to
Lessee upon said terms and conditions. Within ten (10) days after receipt
of said notice, Lessee shall either accept or reject said offer. If Lessee
shall reject said offer, then for a period of ninety (90) days after the
expiration of said ten (10) day period Lessor shall be free to lease to any
other person upon the terms and conditions specified in said notice. If
the lease is to be made on terms and conditions other than so specified,
then the right to lease shall again be offered to Lessee as set forth
above. The rejections of any one or more such offers by Lessee shall not
affect its right of first refusal as to any other proposed Leases by Lessor
or its successors or assigns.
17.3 Incorporation in Short Form of Lease. The provisions of Articles
------------------------------------
17.1 and 17.2 hereinabove shall be included in the short form of this lease
provided in Article 1.4 hereinabove.
ARTICLE XVIII
REMOVAL OF DISTINCTIVE FEATURES
18.1 Removal; Repairs. Lessor agrees that upon the expiration of the
----------------
term of this lease, or any extension thereof, or upon the earlier
termination thereof as provided for herein, Lessee shall have the
unqualified right to remove from the Demised Premises and the Improvements
thereon all signs or other distinctive features or Lessee's operation.
Lessee shall, at its expense, repair any damage to the building caused by
such removal. In addition, Lessee, at its sole cost and expense, shall have
the right, but not the obligation,
-11-
<PAGE>
to paint the Improvements in a neutral color. Lessor agrees that Lessor
will not thereafter cause, permit or suffer the Improvements to be painted
the colors or combination of colors associated with the operations of
Lessee or its corporate affiliates.
ARTICLE XIX
PROHIBITION AGAINST COMPETITION AND PROTECTION FOR EXPOSURE
19.1 Lessor's Covenant. Lessor agrees that during the term or extended
-----------------
term of this Lease it will not permit, lease, allow or use, either by
itself or any tenants thereof, directly or indirectly, any portion of the
property of which the Demised Premises are a part or any property within
one (1) mile of the Demised Premises now or hereafter owned or controlled
by Lessor for any kind of restaurant, diner, coffee shop, luncheonette or
any other business involving "on the premises consumption of food or
beverage."
19.2 Lessee's Remedies for Breach. The covenant of Lessor contained in
----------------------------
Article 19.1 hereinabove is a material inducement for Lessee to enter into
this Lease, and upon any breach by Lessor of said covenant, which breach is
not cured within thirty (30) days after written notice thereof by Lessee to
Lessor, Lessee shall have the right to pursue all of its rights available
at law or in equity, including cancellation of this Lease, a suit for
damages, and/or a suit for injunctive relief (it being understood that the
enumeration of the foregoing rights and remedies shall not preclude the
exercise of any other rights or remedies which might be available at law or
in equity).
19.3 Incorporation in Short Form of Lease. The provisions of Articles
------------------------------------
19.1 and 19.2 hereinabove shall be included in the short form of this Lease
provided in Article 1.4 hereinabove.
ARTICLE XX
TITLE CONSIDERATIONS
20.1 CC&Rs; Lender's Lien. Lessee hereby acknowledges, consents and
--------------------
agrees that the Demised Premises and this Lease shall be subject and
subordinate to all of those covenants, conditions, restrictions, easements
and other matters specified on Exhibit B attached hereto and, by this
---------
reference, incorporated herein (hereinbefore and hereinafter collectively
referred to as the "CC&Rs"), as well as the lien of any mortgage, deed to
secure debt, or deed of trust, as the case may be, securing the obligations
of Lessor under the terms of any credit agreement between Lessor, as
borrower, and any third party, as lender, that may heretofore or hereafter
be secured against the Demised Premises. Additionally, Lessee hereby
agrees to perform and abide by all of the terms, covenants, conditions,
obligations and undertakings of Lessor under the CC&Rs.
ARTICLE XXI
HAZARDOUS SUBSTANCE OR WASTE
21.1 Mutual Indemnity. Lessor hereby represents and warrants that, to
----------------
the best of its knowledge, there does not exist on, in or under the Demised
Premises (including the parking area) any "hazardous substance" or
"hazardous waste as those terms are used under the various federal and
state environmental laws (hereinafter referred to as the "hazardous
substance/waste"); and in the event such Hazardous Substance/Waste is
discovered at any time during the term of this Lease or extensions thereof
under circumstances where it is reasonably clear that such hazardous
Substance/Waste became present on or before the commencement of the term
hereof, Lessor shall indemnify, defend (with counsel reasonably
satisfactory to Lessee), and hold and save Lessee and its sublessees
harmless from and against all claims, liabilities, actions, judgments,
responsibilities and damages of every kind and nature arising from or
-12-
<PAGE>
related to the presence of said Hazardous Substance/Waste; and in the event
such Hazardous Substance/Waste is discovered at any time during the term of
this Lease or extensions thereof, or any time thereafter, under
circumstances where it is reasonably clear that such Hazardous
Substance/Waste became present at any time after the commencement of the
term hereof until the expiration or earlier termination of this Lease,
Lessee shall indemnify, defend (with counsel reasonably satisfactory to
Lessor) and hold and save Lessor harmless from and against all claims,
liabilities, actions, judgments, responsibilities and damages of every kind
and nature arising from or related to the presence of said Hazardous
Substance/Waste during said period.
ARTICLE XXII
REAL ESTATE COMMISSIONS
22.1 Payment; Mutual Indemnity. Each party represents to the other party
--------------------------
that it has not dealt with any real estate broker or other person acting in
a similar capacity who might be entitled to a commission or finder's fee in
this transaction; and each party hereby indemnifies the other party and
agrees to hold the other party harmless from any commission and/or finder's
fee claims arising through actions of the indemnifying party in derogation
of the representations contained herein.
ARTICLE XXIII
NOTICES AND DEMANDS
23.1 To Lessor. Any notices or demands required or permitted by law or
---------
any provisions of this Lease shall be in writing, and, if the same is to be
served upon Lessor, may be deposited in the United States mail, registered
or certified, with return receipt requested, postage prepaid, and addressed
to Lessor at the address first above stated or at such other address as
Lessor may designate in writing, or in lieu of mailing any such notice or
demand, the same may be personally delivered to said party at such address.
At all times, Lessor may designate in writing any person(s), firm(s) or
corporation(s) to receive all notices and demands, and service upon any one
of those persons, firms or corporations as so designated shall constitute
sufficient service upon Lessor.
23.2 To Lessee. Any such notice or demand to be served upon Lessee shall
---------
be in writing and in duplicate, and shall be served either personally to
the attention of the Legal Department at 525 N. Brand Boulevard, Third
Floor, Glendale, California 91203-1903, or by deposit in the United States
mail, registered or certified, return receipt requested, postage prepaid,
addressed to Lessee attention of Legal Department, at P.O. Box 29018,
Glendale, California 91209-9018, or any other address that Lessee may
designate in writing.
ARTICLE XXIV
ATTORNEYS' FEES
24.1 Paid to Prevailing Party. In the event any action or proceeding is
------------------------
commenced with respect to any claim or controversy by the parties hereto
arising from the breach, interpretation, or enforcement of this Lease or
the exhibits attached hereto, the prevailing party or parties in such
action or proceeding shall receive and be entitled to, in addition to any
and all other relief, all costs and expenses, including reasonable
attorneys' fees, incurred by it in such action or proceeding.
-13-
<PAGE>
ARTICLE XXV
GENERAL PROVISIONS
25.1 Binding on Successors. All of the covenants, agreements, provisions
---------------------
and conditions of this Lease shall inure to the benefit of and be binding
upon the parties hereto, their successors, legal representatives and
assigns.
25.2 Severability. If any term or provision of this Lease or the
------------
application thereof to any persons or circumstances shall, to any extent,
be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable shall not be
affected thereby, and each term and provision of this Lease shall be valid
and be enforced to the fullest extent permitted by law.
25.3 Entire Agreement. This Lease and the exhibits attached hereto
----------------
contain the entire agreement between the parties and shall not be modified
in any manner except by an instrument in writing executed by the parties
hereto or their respective successors in interest.
25.4 Captions. The captions are inserted only as a matter of convenience
--------
and for reference, and in no way define, limit or describe the scope of
this Lease or the intention of the parties hereto, nor do they in any way
affect this Lease.
25.5 Gender and Number. Words of any gender in this Lease shall be held
-----------------
to include any other gender, and words in the singular number shall be held
to include the plural when the sense requires.
25.6 Approvals. Wherever Lessor's approval or consent is required
---------
herein, approval or consent shall not be unreasonably delayed or withheld.
25.7 No Waiver. No waiver by Lessor or Lessee of any breach of any
---------
provision of this Lease shall be deemed a waiver of any breach of any other
provision hereof or of any subsequent breach by Lessee or Lessor of the
same or any other provision.
25.8 Holdover. In the event Lessee shall hold over after the term of
--------
this Lease with the consent, express or implied, of Lessor, such holding
over shall be construed to be a tenancy only from month to month, and
Lessee shall pay the rent, additional rent and other sums as herein
required for such further time as Lessee may continue its occupancy. The
foregoing does not affect Lessor's right of reentry or any rights of Lessor
hereunder or as otherwise provided by law.
25.9 Time of Essence. Time is of the essence of this Lease and the
---------------
exhibits attached hereto and every provision herein and therein.
25.10 Governing Law. This agreement shall be governed by and construed in
-------------
accordance with the laws of the state in which the Demised Premises are
located.
25.11 Counterparts. This Lease may be executed in any number of
------------
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
25.12 No Third Party Rights. The terms and provisions of this Lease
---------------------
shall not be deemed to confer any rights upon, nor obligate any parties
hereto to, any person or entity other than the parties hereto.
25.13 Unexecuted Lease. The submission of this Lease for review or
----------------
execution does not constitute a reservation of or option for the rights
conferred herein. This Lease shall become effective as a lease only upon
execution and delivery thereof by both Lessor and Lessee.
-14-
<PAGE>
25.14 Lessor's Right of Entry. Lessor reserves the right to enter upon
-----------------------
the Demised Premises at any time during business hours to inspect same or
for the purpose of exhibiting same to prospective purchasers, mortgagees,
and, during the last six (6) months of the term hereof or any extensions
thereof, to prospective lessees. Lessor may post any customary sign stating
"for lease" or "for sale" during the last six (6) months of the term or
extended term hereof.
25.15 Estoppel Certificates. Lessor and Lessee agree that within fifteen
---------------------
(15) days following the written request by either, or both, to the other,
to execute and deliver to the requesting party a certificate (a) certifying
that this Lease is unmodified and in full force and effect, or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect, and the date to which
the rent and other charges hereunder are paid in advance, if any, and (b)
acknowledging that there are not, to the certifying party's knowledge, any
uncured defaults hereunder on the part of the requesting party, or so
specifying such defaults, if any, as are claimed by the certifying party.
25.16 Due Authorization. Each person executing this Lease on behalf of
-----------------
Lessor and Lessee, respectively, warrants and represents that the
partnership, joint venture or corporation, as the case may be, for whom he
or she is acting, has duly authorized the transactions contemplated herein
and the execution of this Lease by him or her.
25.17 Relationship of Parties. Nothing contained in this Lease shall be
-----------------------
deemed to constitute a partnership or joint venture between Lessor and
Lessee, and Lessor and Lessee's relationship herein shall only be deemed to
be one of landlord and tenant.
IN WITNESS WHEREOF, the parties have hereunto set their hands the day
and year first above written.
LESSOR:
IHOP REALTY CORP., a Delaware corporation
By:______________________________________
Richard K. Herzer
Its: President
-------------------------------------
LESSEE:
INTERNATIONAL HOUSE OF PANCAKES, INC.,
a Delaware corporation
By:______________________________________
Richard K. Herzer
Its: President
-------------------------------------
-15-
<PAGE>
State of California )
County of Los Angeles )
On ____________ , 1992, before me, _____________________ ,
personally appeared RICHARD K. HERZER, President of IHOP REALTY
CORP., personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed
to the within instrument and acknowledged to me that he executed
the same in his authorized capacity, and that by his signature on
the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
Signature _______________________________________ (Seal)
State of California )
County of Los Angeles )
On ___________, 1992, before me, ____________________ ,
personally appeared RICHARD K. HERZER President of INTERNATIONAL
HOUSE OF PANCAKES, INC., personally known to me (or proved to me
on the basis of satisfactory evidence) to be the parson whose
name is subscribed to the within instrument and acknowledged to
me that he executed the same in his authorized capacity, and that
by his signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature _______________________________________ (SEAL)
-16-
<PAGE>
EXHIBIT F-1
Form of Quarterly Compliance Statement
THE UNDERSIGNED, ____________ ________________ of International House of
Pancakes, Inc., a Delaware corporation (the "Borrower"), and ____________,
_________________ of IHOP Corp., a Delaware corporation ("Holdings"), pursuant
to Section 8(A)(2) of the several Senior Note Purchase Agreements, dated as of
November 19, 1992 (the "Purchase Agreements"), among the Borrower, Holdings, and
the Purchasers listed in Schedule l thereto, do hereby certify as follows
(capitalized terms used herein shall have the meanings ascribed thereto in the
Purchase Agreements):
(a) as at the end of the quarterly accounting period ending __________,
the financial covenants set forth in Sections 11.2 through 11.8 of the Purchase
Agreements, inclusive, have [have not] been met, and the maximum amount of
dividends or distributions that could have been declared or paid pursuant to
Section 11.5 of the Purchase Agreements is $________________, and attached
hereto as Exhibit A are computations and other pertinent information
demonstrating the accuracy of the matters set forth in this clause (a);
(b) attached hereto as Exhibit B are calculations setting forth the
maximum amount of Funded Debt that could have been incurred as at the end of the
quarterly accounting period ending _____________, pursuant to Sections 11.2(B)
and 11.2(C) of the Purchase Agreements;
(c) as at the end of the quarterly accounting period ending __________,
the Liens on Property or assets of Holdings or its Subsidiaries or securing Debt
of Holdings or its Subsidiaries, as the case may be, do [do not] exceed the
threshold set forth in Section 11.1(I) of the Purchase Agreements, and attached
hereto as Exhibit C are computations and other pertinent information
demonstrating the accuracy of the matters set forth in this clause (c); and
(d) attached hereto as Exhibit D are calculations (and materials in
support of the basis therefor) setting forth the maximum amount of additional
Funded Debt secured by Liens that could have been incurred under Section 11.1(I)
of the Purchase Agreements.
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed their names this _______
day of ___________, ______.
INTERNATIONAL HOUSE OF PANCAKES, INC.
By:______________________________________
Name:
Title:
IHOP CORP.
By:______________________________________
Name:
Title:
<PAGE>
EXHIBIT F-2
Form of Compliance Certificate
THE UNDERSIGNED, ______________, ______________ of International House of
Pancakes, Inc., a Delaware corporation (the "Borrower"), and ____________
_____________ of IHOP Corp., a Delaware corporation ("Holdings"), pursuant to
Section 8(C) of the several Senior Note Purchase Agreements, dated as of
November ___, 1992 (the "Purchase Agreements"), among the Borrower, Holdings and
the Purchasers listed in Schedule I thereto, do hereby certify as follows
(capitalized terms used herein shall have the meanings ascribed thereto in the
Purchase Agreements):
Based upon such examination or investigation and review of the Purchase
Agreements as in the opinion of the undersigned is necessary to enable the
undersigned to express an informed opinion with respect thereto, no Default or
Event of Default by Holdings, the Borrower or any of their Subsidiaries in the
fulfillment of any of the terms, covenants, provisions or conditions of the
Purchase Agreements exists or has existed during the period ending ___________
[, other than Default[s] or Event[s] of Default arising under Section(s) ______
of the Purchase Agreements, as more fully described on Annex A hereto].*
IN WITNESS WHEREOF, the undersigned have signed their names this ____ day
of _________, ____.
INTERNATIONAL HOUSE OF PANCAKES, INC.
By: _____________________________________
Name:
Title:
IHOP CORP.
By: _____________________________________
Name:
Title:
- -------------------
* In the event such a Default or Event of Default exists or has existed,
Annex A to this certificate shall specify the nature and period of
existence thereof and what action Holdings, the Borrower or such
Subsidiary, as the case may be, has taken, is taking or proposes to take
with respect thereto.
<PAGE>
================================================================================
$10,000,000 Letter Agreement
among
INTERNATIONAL HOUSE OF PANCAKES, INC.,
IHOP CORP.
and
CONTINENTAL BANK N.A.
================================================================================
Dated as of June 30, 1993
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. Term of Agreement.................................................... 1
2. Making the Loans; Issuance of Letters of Credit...................... 2
3. Note................................................................. 3
4. Interest, etc........................................................ 3
(a) Reference Rate.................................................. 3
(b) Quoted Rate..................................................... 4
(c) Eurodollar Rate................................................. 4
(d) Interest Periods................................................ 4
(e) Default Rate.................................................... 4
(f) Conversion/Continuation Procedures.............................. 5
5. Reduction of the Commitment; Repayment of Loans
and Letter of Credit Drawings........................................ 5
6. Prepayments.......................................................... 6
7. Increased Costs, Funding Losses, etc................................. 7
8. Capital Adequacy..................................................... 8
9. Indemnification...................................................... 9
10. Fees................................................................. 9
11. Representations and Warranties....................................... 10
12. Financial Reporting.................................................. 11
13. Affirmative Covenants................................................ 13
13.1. Payment of Principal, Prepayment Charge
and Interest; Etc............................................ 13
13.2. Payment of Taxes and Claims.................................. 13
13.3. Maintenance of Properties and Corporate Existence............ 14
13.4. Insurance.................................................... 14
14. Negative and Maintenance Covenants................................... 15
14.1. Restrictions on Liens......................................... 15
14.2. Limitation on Consolidated Debt............................... 16
14.3. Consolidated Tangible Net Worth............................... 16
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C> <C>
14.4. Limitation on Debt of Subsidiaries.................. 17
14.5. Restricted Payments; Restricted Investments......... 17
14.6. Sale of Assets...................................... 18
14.7. Consolidation or Merger............................. 19
14.8. Maintenance of Fixed Charge Coverage................ 20
14.9. Transactions with Affiliates........................ 20
14.10. Acquisition of Margin Securities.................... 21
14.11. Conduct of Business................................. 21
14.12. Further Undertakings................................ 21
14.13. Ownership of the Borrower........................... 22
15. Conditions Precedent........................................ 22
16. Events of Default........................................... 23
17. IHOP Guarantee.............................................. 24
18. Definitions................................................. 28
19. Miscellaneous............................................... 38
</TABLE>
-ii-
<PAGE>
Dated as of June 30, 1993
International House of Pancakes, Inc.
525 North Brand Boulevard
Glendale, California 91203
IHOP Corp.
525 North Brand Boulevard
Glendale, California 91203
Attention: Mr. Frederick G. Silny
Vice President - Finance and Treasurer
Re: $10,000,000 Letter Agreement
Gentlemen:
It is our pleasure to confirm that Continental Bank N.A. (the "Bank") will,
----
upon the terms and conditions hereinafter set forth, make loans to, and issue
standby letters of credit for the account of, International House of Pancakes,
Inc. (the "Borrower"). All loans made hereunder (the "Loans") and standby
-------- -----
letters of credit issued hereunder (the "Letters of Credit") will be subject to
-----------------
the terms and conditions set forth herein. At no time (a) shall the outstanding
amount of Letters of Credit exceed $2,000,000 (the "L/C Commitment") or (b)
--------------
shall the sum of the outstanding amount of Letters of Credit plus unreimbursed
----
drawings under Letters of Credit plus the aggregate principal amount of all
----
Loans exceed $10,000,000 (the "Commitment Amount"). Capitalized terms used
-----------------
herein and not otherwise defined shall have the meanings ascribed thereto in
Section 18 hereof.
- ----------
Section 1. Term of Agreement. So long as the Borrower is in compliance
-----------------
with the terms of this letter agreement (the "Agreement"), the commitment of the
---------
Bank shall terminate on June 30, 1995 (the "Maturity Date"). Between April 1 and
-------------
April 30 of each year, commencing April 1, 1994, the Borrower may request a one-
year extension of the Maturity Date (either beyond the initial Maturity Date
hereunder or beyond a Maturity Date as previously extended pursuant to the terms
hereof). The decision whether to grant the requested extension of the Maturity
Date may be made by the Bank in its sole and absolute discretion. In the
-1-
<PAGE>
event that the Maturity Date is extended, at the time of such extension the
Borrower will pay an extension fee of .125% of the Commitment Amount. All
Letters of Credit and Loans shall be used for the Borrower's working capital and
other general corporate purposes.
Section 2. Making the Loans; Issuance of Letters of
----------------------------------------
Credit.
- ------
(a) The Bank shall receive written notice, telegraphic notice
or telephonic notice from the Borrower (to be immediately confirmed
in writing) not later than (a) noon, Chicago time, on the date
requested for each proposed Reference Rate Loan of the proposed
amount and date (which must be a Business Day) of such proposed Loan,
(b) noon, Chicago time, two Business Days preceding the date
requested for each Eurodollar Rate Loan specifying the proposed
amount and date (which must be a Business Day) of such Loan and the
Interest Period for such Loan, and (c) noon, Chicago time, on the
date requested for each proposed Quoted Rate Loan specifying the
proposed amount and date (which must be a Business Day) of such Loan
and the Interest Period for such Loan. Not later than 12:30 p.m.,
Chicago time, the Bank shall advise the Borrower by telephone of the
interest rate that would be applicable to the proposed Quoted Rate
Loan. At that time, the Borrower shall accept or reject the interest
rate offered by the Bank for the proposed Quoted Rate Loan.
(b) All Loans shall be in a minimum amount of $100,000 and an
integral multiple of $100,000 and shall be made by crediting the
Borrower's account number 74-02988 maintained at the Bank (herein
called the "Account"), upon receipt of information as to the date,
-------
type and amount of the proposed Loan and, in the case of Eurodollar
Rate Loans and Quoted Rate Loans, the Interest Period applicable
thereto, communicated to the Bank in a writing in the form of Exhibit
-------
B hereto (herein called a "Confirmation") or by telephone from any
- ------------
one of the individuals listed in Exhibit C hereto (herein
---------
individually called an "Authorized Officer" and collectively called
------------------
the "Authorized Officers"). The Borrower further agrees to confirm
-------------------
any telephonic request for a Loan by delivering to the Bank no later
than the following Business Day a Confirmation indicating the date,
type and the amount of such Loan and, in the case of Eurodollar Rate
Loans and Quoted Rate Loans, the Interest Period applicable thereto
and the revised principal balance of the Note and signed by one of
the Authorized Officers. If a Loan request is made by an
-2-
<PAGE>
Authorized Officer by telephone, the Confirmation therefor must come
from a different Authorized Officer.
(c) On any Business Day occurring prior to the Maturity Date, the
Borrower may irrevocably request that a Letter of Credit be issued by
the Bank by delivering to the Bank a Letter of Credit application in
the Bank's then standard form, completed to the reasonable
satisfaction of the Bank, and such other certificates, documents and
papers as the Bank may reasonably request; provided, however, that no
--------- -------
Letter of Credit shall be issued if after giving effect to the
issuance thereof, the aggregate face amount of outstanding Letters of
Credit would exceed $2,000,000. Each request for a Letter of Credit
and each Letter of Credit shall be subject to the Uniform Customs and
Practice for Documentary Credits (1983 Revision), International
Chamber of Commerce Publication No. 400. No Letter of Credit shall
have an expiration date later than the Maturity Date.
Section 3. Note. All Loans by the Bank to the Borrower pursuant to this
----
Agreement shall be evidenced by a note in the form of Exhibit A hereto (the
---------
"Note"). The date, type, amount and interest rate of each Loan made by the Bank
and of each repayment of principal thereon received by the Bank may be recorded
by the Bank in its records, and all such information so recorded shall be
conclusive and binding upon the Borrower (absent manifest error). The failure to
record, or any error in recording, any such information shall not, however,
limit or otherwise affect the Borrower's obligations under this Agreement or the
Note to repay the principal amount of the Loans under this Agreement together
with all interest accruing thereon.
Section 4. Interest, etc. Interest will accrue on the unpaid principal
-------------
amount of each Loan from the date such Loan is made until such principal amount
is paid in full (after, as well as before, judgment). Interest on each Loan
shall be computed for the actual number of days elapsed on the basis of a year
consisting of 360 days. Payments of accrued interest and the determinations of
applicable interest rates and Interest Periods relative thereto will be made as
set forth below:
(a) Reference Rate. The Borrower may from time to time elect to
--------------
pay interest on any Loan at the Alternative Reference Rate. Interest
on each Loan bearing interest at the Alternative Reference Rate (a
"Reference Rate Loan") will be payable on the last Business Day of
-------------------
each calendar month and on the Maturity Date.
-3-
<PAGE>
(b) Quoted Rate. Subject to the terms hereof, the Borrower may elect
-----------
to accept the Quoted Rate offered by the Bank for a Quoted Rate Loan. Interest
on each Quoted Rate Loan will be payable on the last day of the Interest Period
for such Loan and, in the case of any Quoted Rate Loan having an Interest Period
longer than 90 days, on the 90th day of such Interest Period.
(c) Eurodollar Rate. The Borrower may from time to time elect to pay
---------------
interest on any Loan at the Eurodollar Rate. Interest on each Loan bearing
interest at the Eurodollar Rate (a "Eurodollar Rate Loan", and together with
--------------------
each Quoted Rate Loan, collectively, the "Fixed Rate Loans") will be payable on
----------------
the last day of the Interest Period for such Loan.
(d) Interest Periods. Interest on each Fixed Rate Loan shall be
----------------
determined for a specified period (an "Interest Period") chosen by the Borrower
----------------
in accordance with this Agreement. The first day of any Interest Period for any
Fixed Rate Loan will be
(i) in the case of the initial Interest Period for any such
Loan, the date such Loan is made, and
(ii) for each subsequent Interest Period for any such Loan, the
last day of the then current Interest Period for such Loan.
The duration of each Interest Period shall be
(iii) in the case of a Quoted Rate Loan, not more than 180
days, and
(iv) in the case of a Eurodollar Rate Loan 1, 2, or 3
months,
provided, however, that the Borrower may not select an Interest Period that
- --------- -------
would extend beyond the Maturity Date; and provided, further, that whenever the
-----------------
last day of any Interest Period would occur on a day other than a Business Day,
the last day of such Interest Period will be extended to occur on the next
succeeding Business Day, except that, in the case of any Interest Period
relating to a Eurodollar Rate Loan, if such extension would cause the last day
of such Interest Period to occur in the next following calendar month, the last
day of such Interest Period will occur on the next preceding Business Day.
(e) Default Rate. On any overdue principal amount of any Loan, the
------------
Borrower will pay interest (after, as well as before, judgment) payable on
demand, at a fluctuating
-4-
<PAGE>
interest rate per annum (the "Default Rate") equal to 2 1/2% per annum
------------
over the Alternative Reference Rate in effect from time to time (but not
less than the Alternative Reference Rate in effect at the time of the
applicable default).
(f) Conversion/Continuation Procedures. At the Borrower's election
----------------------------------
pursuant to notice received by the Bank not later than 12:30 p.m.
Chicago time:
(i) all, or any portion in a minimum amount of $100,000 and an
integral multiple of $100,000, of the outstanding principal amount of
any Reference Rate Loan may be converted from a Reference Rate Loan
into a Quoted Rate Loan; and
(ii) on the expiration of the Interest Period applicable to any
Fixed Rate Loan, all, or any portion in a minimum amount of $100,000
and an integral multiple of $100,000, of the outstanding principal
amount of such Fixed Rate Loan may be converted into a Reference Rate
Loan or converted into or continued as a Quoted Rate Loan.
At the Borrower's election pursuant to notice received by the Bank not
later than noon, Chicago time, on not less than two Business Days notice,
all or any portion in a minimum amount of $100,000 and an integral
multiple of $100,000 of the outstanding principal amount of any Reference
Rate Loan or Quoted Rate Loan may be converted into a Eurodollar Rate Loan
or the outstanding principal amount of any Eurodollar Rate Loan may be
continued as a Eurodollar Rate Loan.
Section 5. Reduction of the Commitment; Repayment of Loans and Letter of
-------------------------------------------------------------
Credit Drawings.
- ---------------
(a) The Borrower may, upon at least five Business Days' notice,
terminate or permanently reduce the unused portion of the commitment,
provided that each partial reduction must be in a minimum amount of
--------
$1,000,000 and an integral multiple of $1,000,000. On the Maturity Date,
the then aggregate outstanding principal amount of all Loans will be due
and payable in full.
(b) The Borrower agrees to reimburse the Bank for each draft that is
paid under any Letter of Credit for the amount of (a) such draft and (b)
any reasonable taxes (excluding taxes imposed on the Bank's income), fees,
charges or other costs and expenses incurred by the Bank in connection
with such payment. If the Bank shall notify the
-5-
<PAGE>
Borrower prior to 11:30 a.m., Chicago time on any day that payment has
been made under any Letter of Credit, the Borrower shall reimburse the
Bank on the third Business Day following the date of such payment. If
such notice to the Borrower shall be given after 11:30 a.m., Chicago time,
the Borrower shall reimburse the Bank not later than the fourth Business
Day following the date of such payment. Each payment by the Borrower
shall be made to the Bank in immediately available funds and subject to
all other terms of this Agreement. Interest shall be payable on any and
all unreimbursed amounts advanced by the Bank under this Section from the
date such amounts have been advanced by the Bank until payable at the
Alternative Reference Rate. After such amounts have become payable
(whether at stated maturity, by acceleration or otherwise), such amounts
shall accrue interest until paid in full at the Default Rate.
The payment obligations of the Borrower under this Agreement shall be
unconditional and irrevocable and shall be paid strictly in accordance
with the terms of this Agreement under all circumstances, including
without limitation, the following circumstances:
(i) the existence of any claim, set-off, defense or other right
which the Borrower may have at any time against any beneficiary, or
any transferee, of any Letter of Credit (or any Persons for whom any
such beneficiary or any such transferee may be acting), the Bank or
any other Person, whether in connection with this Agreement, the
transactions contemplated herein, or any unrelated transaction;
(ii) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
unenforceable in any respect or any statement therein being untrue or
inaccurate in any respect; provided that the Bank's reliance thereon
--------
shall not have constituted gross negligence or wilful misconduct on
the part of the Bank; or
(iii) payment by the Bank under any Letter of Credit against
presentation of a draft or certificate which does not comply with the
terms of such Letter of Credit; provided that such payment shall not
--------
have constituted gross negligence or willful misconduct on the part
of the Bank.
Section 6. Prepayments The Borrower may, not later than 1:00 p.m.,
-----------
Chicago time, on any Business Day prepay the outstanding principal amount
of any Reference Rate Loan, in whole
-6-
<PAGE>
or in part, on such Business Day with accrued interest to the date of such
prepayment on the principal amount prepaid; provided, however, that each partial
--------- -------
prepayment shall be in a principal amount not less than $100,000 and in an
integral multiple of $100,000. In the event that it becomes unlawful for the
Bank to fund or continue to fund or maintain any Eurodollar Rate Loans or to
perform the Bank's obligations hereunder with respect to Eurodollar Rate Loans,
then upon demand by the Bank the Borrower will prepay in full all Eurodollar
Rate Loans, with accrued interest thereon, and upon such demand the Bank's
obligation to make Eurodollar Rate Loans shall terminate.
Section 7. Increased Costs. Funding Losses. etc. In the event that as
------------------------------------
a result of either
(a) the introduction of, or any change (including, any change by way
of imposition or increase of reserve requirements referred to in the
definition of "Eurodollar Rate Reserve Percentage") in, or in the
interpretation of, any law or regulation; or
(b) the compliance by the Bank with any request from any central bank
or other governmental authority
there is any increase in the Bank's cost of agreeing to issue or maintain any
Letter of Credit or to make, fund or maintain any Loans, then the Borrower will
from time to time, upon demand by the Bank, pay to the Bank additional amounts
sufficient to indemnify the Bank against such increased cost. In the event that
the Bank incurs any loss or expense (including any loss or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
the Bank to make, continue or maintain any portion of the principal amount of
any Loan as, or to convert any portion of the principal amount of any Loan into,
a Fixed Rate Loan) as a result of
(c) the repayment or prepayment (whether pursuant to Section 6 or for
---------
any other reason) of the principal amount of any Fixed Rate Loan on a date
other than the scheduled last day of the Interest Period applicable
thereto;
(d) any conversion of all or any portion of the outstanding principal
amount of any Fixed Rate Loans into Reference Rate Loans pursuant to
Section 4 prior to the expiration of the Interest Period then applicable
---------
thereto;
(e) any Loans not being made as Fixed Rate Loans in accordance with
the borrowing request therefor (other than as a result of a breach by the
Bank of its obligations hereunder); or
-7-
<PAGE>
(f) any Loans not being continued as, or converted into, Fixed Rate
Loans in accordance with the request given therefor pursuant to Section 4
---------
(other than as a result of a breach by the Bank of its
obligations hereunder), then, upon the Bank's written request to the
Borrower, the Borrower will reimburse the Bank for such loss or expense.
A certificate submitted by the Bank to the Borrower as to the amount of any such
increased cost, loss or expense (including calculations thereof in reasonable
detail) will be conclusive and binding, absent manifest error. If the Bank
shall ever determine that
(g) U.S. dollar deposits in the relevant amount and for the relevant
Interest Period are not available to the Bank in the Bank's relevant
market;
(h) by reason of circumstances affecting the Bank's relevant market,
adequate means do not exist for ascertaining the interest rate applicable
hereunder to Eurodollar Rate Loans; or
(i) the introduction of or any change in or in the interpretation of
any law makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for the Bank to make or continue any
Loans as, or to convert any Loans into, Eurodollar Rate Loans,
then, upon notice from the Bank to the Borrower, the Bank's obligations to make
or continue any Loans as, or to convert any Loans into, Eurodollar Rate Loans
shall forthwith be suspended until the Bank shall notify the Borrower that the
circumstances causing such suspension no longer exist.
Section 8. Capital Adequacy. If any change in, or the introduction,
----------------
adoption, effectiveness, interpretation, reinterpretation or phase-in of, any
law or regulation, directive, guideline, decision or request (whether or not
having the force of law) of any court, central bank, regulator or other
governmental authority affects or would affect the amount of capital required or
expected to be maintained by the Bank or any entity controlling the Bank, and
the Bank determines (in its sole and absolute discretion) that the rate of
return on its or such controlling entity's capital as a consequence of its
commitment hereunder, the Letters of Credit issued hereunder, or the Loans made
by the Bank is reduced to a level below that which the Bank or such controlling
entity could have achieved but for the occurrence of any such circumstance,
then, in any such case upon notice from time to time by the Bank to the
- ----
Borrower, the Borrower shall immediately pay directly to the Bank additional
amounts sufficient to compensate the Bank or such controlling
-8-
<PAGE>
entity for such reduction in rate of return. A statement of the Bank as to any
such additional amount or amounts (including calculations thereof in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Borrower. In determining such amount, the Bank may use any method of
averaging and attribution that it (in its sole and absolute discretion) shall
deem applicable.
Section 9. Indemnification. The Borrower agrees that in all events it
---------------
will indemnify and hold harmless the Bank and its affiliates, officers,
directors, employees and agents (each an "Indemnified Person") against all
------------------
losses, claims, damages, liabilities and expenses which may be incurred by or
asserted against any of them in connection with or arising out of this Agreement
or the transactions contemplated hereby, and reimburse each Indemnified Person
upon its demand for any reasonable legal or other expenses incurred in
connection with investigating, defending or participating in any such loss,
claim, damage, liability or action or other proceeding, whether commenced or
threatened (whether or not any such Indemnified Person is a party to any action
or proceeding out of which any such expenses arise), or in any way related to
the extension of the financings contemplated by this Agreement or from any use
or intended use of any of the proceeds thereof except, in the case of any
Indemnified Person, to the extent any such loss, claim, damage or liability
arises from the gross negligence or willful misconduct of such Indemnified
Person. Neither the Bank nor any other Indemnified Person shall be responsible
or liable to the Borrower, any successor, assignee or third party beneficiary of
the Borrower or any other person asserting claims derivatively through the
Borrower, for indirect, punitive, exemplary or consequential damages which may
be alleged as a result of this Agreement or the transactions contemplated
hereby. The foregoing provisions of this Section shall be in addition to any
rights that the Bank or any other Indemnified Person may have at common law or
otherwise, including, without limitation, any rights to contribution.
Section 10. Fees.
----
(a) The Borrower agrees to pay to the Bank on the date hereof a fee in
the amount of .25% of the Commitment Amount. The fee shall be
nonrefundable.
(b) The Borrower agrees to pay to the Bank a commitment fee equal to
.50% per annum on the average daily unused portion of the Commitment
Amount. The commitment fee shall commence on the date of this Agreement,
shall be calculated on the actual number of days elapsed on the basis of a
year consisting of 360 days and shall be payable, in arrears, on the first
day of each calendar quarter,
-9-
<PAGE>
beginning October 1, 1993, and continuing until termination of the Bank's
commitment hereunder.
(c) The Borrower agrees to pay to the Bank, (a) a letter of credit
fee in respect of each Letter of Credit issued for the account of the
Borrower equal to 1.25% per annum of the undrawn amount of each Letter of
Credit, payable in arrears on the last Business Day of each month; provided
that in no event shall the amount payable by the Borrower under this
subsection during any fiscal quarter be less than $75, and (b) all of the
Bank's usual administrative charges in connection with the issuance and
processing of Letters of Credit as issued from time to time in accordance
with its customary practice.
Section 11. Representations and Warranties. IHOP and the Borrower,
------------------------------
jointly and severally, warrant to the Bank (and each request from the Borrower
for a Loan under this Agreement shall constitute the Borrower's warranty to the
Bank) that
(a) each of the Borrower and IHOP has been duly incorporated and is a
validly existing corporation under the laws of the State of Delaware, has
full legal right, power and authority to enter into this Agreement and to
carry out and consummate all transactions contemplated by this Agreement;
(b) this Agreement has been duly authorized and is a valid and
binding obligation of the Borrower and IHOP, enforceable in accordance with
its terms, and the Note has been duly authorized and is a valid and binding
obligation of the Borrower enforceable in accordance with its terms;
(c) this Agreement will not conflict with or constitute a breach of
or default under their respective articles of incorporation or by-laws, or
any material agreement to which the Borrower or IHOP is a party or by which
the Borrower or IHOP or any of their respective properties are bound, or
any rule or regulation of any court or governmental agency or body having
jurisdiction over the Borrower or IHOP or any of their respective
activities or properties;
(d) there has been no material adverse change in the financial
condition, operations, assets, business, properties, or prospects of IHOP
or any of its subsidiaries since December 31, 1992;
(e) neither IHOP nor any of its subsidiaries is in default in any
material respect under any material contract, lease, loan agreement,
indenture, mortgage, security
-10-
<PAGE>
agreement or other material agreement or obligation to which it is a party
or by which any of its properties is bound;
(f) each of IHOP and its subsidiaries has filed all material tax
returns and reports required by law to have been filed by it and has paid
all taxes and governmental charges thereby shown to be owing, except any
such taxes or charges which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with
generally accepted accounting principles shall have been set aside on its
books;
(g) each of IHOP and its subsidiaries has good and marketable title
to all of its properties and assets, real and personal, tangible and
intangible, of any nature whatsoever (including patents, trademarks, trade
names, service marks and copyrights) reflected in the consolidated balance
sheet of IHOP and its subsidiaries as at December 31, 1992, free and clear
of all Liens except for (i) assets sold or otherwise disposed of by IHOP or
its subsidiaries subsequent to December 31, 1992 in the ordinary course of
business and (ii) Permitted Liens;
(h) each of IHOP and its subsidiaries has complied with all the
relevant provisions of the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time; and
(i) each of IHOP and its subsidiaries are in material compliance with
all applicable federal, state or local statutes, laws, ordinances, codes,
rules, regulations and guidelines (including consent decrees and
administrative orders) relating to public health and safety and protection
of the environment, except where the failure to so comply would not have a
material adverse effect on the financial condition, operations, assets,
business, properties or prospects of IHOP or such subsidiary.
Section 12. Financial Reporting IHOP agrees with the Bank that, until the
-------------------
Bank's commitment hereunder has been terminated and all indebtedness of the
Borrower to the Bank has been paid in full and all fees and expenses billed by
the Bank to the Borrower have been paid in full, IHOP will furnish, or will
cause to be furnished, to the Bank copies of the following financial statements,
reports, notices and information:
(a) as soon as available and in any event within 45 days after the
end of each of the first three fiscal quarters of each fiscal year of
IHOP, as of the end of any such fiscal quarter,
-11-
<PAGE>
(i) Form 10-Q for IHOP, consolidated balance sheets of IHOP and
its Subsidiaries as of the end of each such fiscal quarter and consolidated
statements of earnings and cash flow of IHOP and its Subsidiaries for such
fiscal quarter and for the period commencing at the end of the previous
fiscal year and ending with the end of such fiscal quarter, certified by
the chief financial officer of IHOP, together with consolidated cash flow
projections for IHOP and its Subsidiaries for the 9 weeks following the end
of such fiscal quarter; and
(ii) a written statement executed by the chief financial officer of
IHOP and the Borrower setting forth computations or other pertinent
information in reasonable detail showing as at the end of such fiscal
quarter (a) whether or not the financial covenants set forth in Sections
--------
14.2 through 14.8 hereof, inclusive, have been met, accompanied by
---- ----
calculations setting forth the maximum amount of Debt that could have been
incurred pursuant to Section 14.2 hereof, and the maximum amount of
------------
dividends or distributions that could have been declared or paid pursuant
to Section 14.5 hereof, and (b) whether or not Liens on property or assets
------------
of IHOP or its Subsidiaries or securing Debt of IHOP or its Subsidiaries,
as the case may be, exceed the threshold set forth in Section 14.1(i)
--------------
hereof, accompanied by calculations setting forth the maximum amount of
additional Debt secured by Liens that could have been incurred under
Section 14.1(i) hereof, (a "Quarterly Compliance Statement");
-------------- ------------------------------
(b) as soon as available and in any event within 90 days after the end of
each fiscal year-end of IHOP, a Quarterly Compliance Statement as of such
year end and a copy of the annual report to shareholders for such fiscal
year for IHOP and its Subsidiaries, including therein consolidated balance
sheets of IHOP and its Subsidiaries as of the end of such fiscal year and
consolidated statements of operations and cash flow of IHOP and its
Subsidiaries for such fiscal year, in each case certified (without any
material qualification) in a manner reasonably acceptable to the Bank by
Coopers & Lybrand, another of the so-called "Big 6" accounting firms or any
other accounting firm reasonably acceptable to the Bank, and consolidating
balance sheets of IHOP and its Subsidiaries as of the end of such fiscal
year and consolidating statements of operations of IHOP and its
Subsidiaries as of the end of such fiscal year, certified by the chief
financial officer of IHOP;
-12-
<PAGE>
(c) as soon as available and in any event within 5 days, any
information filed with the Securities and Exchange Commission;
(d) as soon as available, any other public information released
generally to financial or investment institutions, brokers, investment
bankers or any other entity in the financial community;
(e) not later than 90 days after the end of each fiscal year-end of
IHOP, a budget for IHOP and its Subsidiaries covering their following
fiscal year, in a form reasonably satisfactory to the Bank; and
(f) as soon as possible after an Appropriate Officer (as defined in
the Note Purchase Agreement) of IHOP or the Borrower has knowledge of the
occurrence of an Event of Default or any event which, with the passage of
time and/or the giving of notice, could result in an Event of Default, IHOP
or the Borrower shall furnish the Bank with the details thereof.
In addition to the foregoing, IHOP and the Borrower shall furnish the Bank with
copies of such other statements, reports, notices and information as the Bank
may from time to time reasonably request in writing. The Bank agrees to keep
confidential any nonpublic information furnished by the Borrower to the Bank and
to use such information only for the purposes contemplated under this Agreement.
Section 13. Affirmative Covenants. The Borrower and IHOP covenant and
---------------------
agree that until the Bank's commitment hereunder has been terminated and all
indebtedness of the Borrower to the Bank under this Agreement has been paid in
full and all fees and expenses under this Agreement billed by the Bank to the
Borrower on or prior to the time of the commitment termination have been paid in
full,
13.1. Payment of Principal, Prepayment Charge and Interest; Etc. The
---------------------------------------------------------
Borrower will duly and punctually pay the principal of, prepayment charge (if
any) and interest on the Note in accordance with the terms of the Note and this
Agreement. The Borrower and IHOP will comply with all of the covenants,
agreements and conditions contained in this Agreement.
13.2. Payment of Taxes and Claims. IHOP and the Borrower will, and will
---------------------------
cause each of their respective Subsidiaries to, pay before they become
delinquent:
(a) all taxes (including excise taxes), assessments and governmental
charges or levies imposed upon it or its
-13-
<PAGE>
income or profits or upon its Property, real, personal or mixed, or upon
any part thereof;
(b) all claims for labor, materials and supplies which, if unpaid,
might result in the creation of a Lien upon its Property; and
(c) all claims, assessments, or levies required to be paid by any of
them pursuant to any agreement, contract, law, ordinance or governmental
rule or regulation governing any pension, retirement, profit-sharing or
any similar plan;
provided, that the taxes, assessments, charges and levies described in this
- --------
Section 13.2 need not be paid while being diligently contested in good faith and
- ------------
by appropriate proceedings so long as adequate book reserves have been
established with respect thereto in accordance with GAAP. The Borrower and IHOP
will timely file, and will cause their Subsidiaries to file, all tax returns
required to be filed in connection with the payment of taxes required by this
Section 13.2.
- ------------
13.3. Maintenance of Properties and Corporate Existence. IHOP and the
-------------------------------------------------
Borrower will, and will cause each of their respective Subsidiaries to:
(a) maintain its Property in good condition and make all renewals,
repairs, replacements, additions, betterments, and improvements thereto as
are necessary in the reasonable opinion of management;
(b) keep books, records and accounts in accordance with GAAP;
(c) do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, rights and powers and
franchises including, without limitation thereof, any necessary
qualification or licensing in any foreign jurisdiction; and
(d) comply with all applicable statutes, regulations, franchises, and
Orders of, and all applicable restrictions imposed by, any Governmental
Body (all as now or at any time hereafter may be in effect), in respect of
the conduct of its business and the ownership of its Properties (including,
without limitation, applicable statutes, rules, ordinances, regulations and
Orders relating to Environmental Laws), except where non-compliance could
not reasonably be expected to have a Material Adverse Effect.
13.4. Insurance. IHOP and the Borrower will maintain, and will cause to
---------
be maintained on behalf of each Subsidiary,
-14-
<PAGE>
insurance coverage by financially sound and reputable insurers, against such
casualties and contingencies, of such types (including without limitation public
liability, workmens' compensation, larceny and embezzlement or other criminal
misappropriation insurance) and in such amounts as are prudent, and in any event
in such amounts as are adequate to cover foreseeable losses to the business of
IHOP, the Borrower and their Subsidiaries.
Section 14. Negative and Maintenance Covenants. The provisions of this
----------------------------------
Section 14 shall remain in effect until all indebtedness of the Borrower to
- ----------
the Bank under this Agreement has been paid in full and all fees and expenses
under this Agreement billed by the Bank to the Borrower on or prior to the time
of the commitment termination have been paid in full.
14.1. Restrictions on Liens. IHOP and the Borrower covenant that they
---------------------
will not, nor will they permit any Subsidiary to, directly or indirectly,
create, assume or suffer to exist any Lien upon any of their respective
Properties or assets whether now owned or hereafter acquired, except for:
(a) Liens for taxes, assessments or governmental charges or claims
the payment of which is not at the time required by Section 13.2;
------------
(b) Statutory Liens of landlords, and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being diligently contested in good faith, so long as a reserve or other
appropriate provision, if any, shall have been made therefor;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
obligations not due or delinquent with respect to workers' compensation,
unemployment insurance and other types of social security, or to secure
the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(d) Any attachment or judgment Lien (including judgment or appeal
bonds) which shall, within 30 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or which shall have
been discharged within 30 days after the expiration of any such stay, or
which is being diligently contested in good faith so long as
-15-
<PAGE>
a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor;
(e) Easements, rights-of-way, restrictions and other similar rights in
land which do not, individually or in the aggregate, materially detract
from the value of such Property and do not interfere with the ordinary
conduct of the business of IHOP, the Borrower or any of their
Subsidiaries;
(f) Liens securing Debt of a Subsidiary to the Borrower or IHOP;
(g) Liens (other than Liens created pursuant to Capitalized Leases)
existing on the date hereof, securing Debt not exceeding $1,000,000 in
the aggregate in principal amount;
(h) Liens pursuant to Capitalized Leases existing on the Closing Date
and Liens created following the Closing Date pursuant to Capitalized
Leases so long as, with respect to Liens pursuant to Capitalized Leases
created following the Closing Date, the Debt represented by such
Capitalized Leases is permitted pursuant to Section 14.2; and
------------
(i) Liens including Liens arising out of purchase money financing not
otherwise permitted by the foregoing clauses of this Section 14.1
------------
securing Debt (without duplication) of IHOP, the Borrower or any
Subsidiary of IHOP or the Borrower, provided that the sum of (i) the
--------
principal amount of such Debt plus (ii) unsecured Debt of Subsidiaries of
IHOP (other than the Borrower) and Subsidiaries of the Borrower not
otherwise permitted under Section 14.4(a) does not exceed at any time
--------------
15% of Consolidated Tangible Net Worth.
The Liens referred to in Section 14.1(a) through (i) are herein collectively
--------------
referred to as "Permitted" Liens," and individually, as a "Permitted Lien."
14.2. Limitation on Consolidated Debt. IHOP and the Borrower shall not
-------------------------------
permit the ratio of (i) Consolidated Debt to (ii) Total Capitalization to
exceed .55 to 1.00 as of the last day of any quarterly accounting period of
IHOP and its Subsidiaries.
14.3. Consolidated Tangible Net Worth. IHOP and the Borrower shall not
-------------------------------
permit Consolidated Tangible Net Worth at any time to be less than the sum
of $50,000,000 plus 50% of Consolidated Net Income on a cumulative basis
from June 30, 1993, to and including any date of determination hereunder.
-16-
<PAGE>
14.4. Limitation on Debt of Subsidiaries. IHOP and the Borrower shall not
----------------------------------
permit any of their Subsidiaries (other than the Borrower) to incur any
Debt other than:
(a) Debt owed to IHOP or the Borrower or to a wholly-owned Subsidiary
of IHOP or the Borrower in each case by a direct or indirect wholly-
owned Subsidiary of the creditor thereunder; and
(b) additional Debt, provided that the sum of the aggregate principal
amount of such Debt plus the aggregate principal amount of all other
Debt (without duplication) of IHOP, the Borrower and any of their
Subsidiaries which is secured by Permitted Liens permitted by Section
-------
14.1(i) does not exceed 15% of Consolidated Tangible Net Worth.
------
14.5. Restricted Payments; Restricted Investments. IHOP will not,
-------------------------------------------
directly or indirectly, through any Subsidiary or otherwise, (a) pay or declare
any dividend on any class of its capital stock (but may declare and pay
dividends payable solely in capital stock or warrants, rights or options to
acquire capital stock) or make any other distribution on account of any class of
its capital stock; retire, redeem, purchase or otherwise acquire, directly or
indirectly, any shares of any class of its capital stock or any warrants, rights
or options to acquire any such shares (other than any such redemption,
retirement, purchase or other acquisition in which the consideration paid by
IHOP or such Subsidiary consists solely of shares of capital stock of IHOP); or
make or provide for any mandatory sinking fund payments required in connection
with any class of its capital stock (all of the foregoing being called
"Restricted Payments") or (b) make any Restricted Investment, unless after
giving effect to any Restricted Payment or Restricted Investment the cumulative
aggregate amount of all Restricted Payments and Restricted Investments made by
IHOP and its Subsidiaries after September 30, 1992 would not exceed the sum of:
(i) $2,000,000, plus (ii) 50% of cumulative Consolidated Net Income from
----
September 30, 1992 through the date of determination (or if IHOP and its
Subsidiaries on a consolidated basis have a cumulative Consolidated Net Loss for
such period, then minus 100% of such Consolidated Net Loss), plus (iii) the net
----- ----
proceeds from the issuance or sale of any shares of any class of equity
securities of IHOP which are not mandatorily redeemable or otherwise subject to
repurchase, retirement, call, put or other reacquisition prior to or on the
maturity date of the Fixed Rate Notes (and not subject to acceleration or
redemption, repurchase, retirement, call, put or other reacquisition prior to
the maturity date of the Fixed Rate Notes) received after September 30, 1992;
provided that at the time of any such Restricted Payment or Restricted
- --------
Investment, both immediately before and immediately after giving effect thereto,
no Default or Event of Default shall have
-17-
<PAGE>
occurred and be continuing. So long as no Default or Event of Default has
occurred or would be continuing after giving effect thereto, this Section 14.5
------------
shall not prevent (a) the payment of any dividend within 60 days after the date
of its declaration if the dividend would have been permitted on the date of its
declaration, or (b) the acquisition, repurchase, retirement, call, put or
redemption of any shares of capital stock of IHOP out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary of IHOP) of, shares of
capital stock of IHOP, provided that any such acquisition, repurchase,
--------
retirement, call, put or redemption shall be deemed to be a Restricted Payment
for the purpose of determining the ability of IHOP and its Subsidiaries to make
future Restricted Payments.
14.6. Sale of Assets. IHOP and the Borrower shall not, and shall not
--------------
permit any of their Subsidiaries to, effect a Disposition of any assets unless
(i) no Default or Event of Default has occurred (except in the case of subclause
(a) below) and is continuing, and (ii) one of the following applies:
(a) such Disposition is in the ordinary course of business,
including, without limitation, sales and leases of operating restaurants in
accordance with the Borrower's ordinary course franchising operations and
is made pursuant to the reasonable business judgment of the Borrower in
accordance with past practice;
(b) in each fiscal year, IHOP, the Borrower and their respective
Subsidiaries may effect Dispositions of assets for Fair Market Value and
which (A) have an aggregate Book Value, together with all other assets
disposed of in that fiscal year (other than Dispositions permitted by
clause (a), (c) or (d) of this Section 14.6), of less than 10% of Gross
------------
Assets on a consolidated basis determined as at the date of such sale; (B)
generate, together with all other assets disposed of in that fiscal year
(other than Dispositions permitted by clause (a), (c) or (d) of this
Section 14.6), net income, which is less than 10% of the Consolidated Net
------------
Income (in each case, determined as of the end of the immediately preceding
fiscal year); and (C) together with all assets previously disposed of since
September 30, 1992 (other than Dispositions permitted by clause (a), (c) or
(d) of this Section 14.6), have an aggregate Book Value of less than 25% of
------------
Gross Assets on a consolidated basis determined as at the date of such
sale, provided that after giving effect to any Disposition described in
--------
this subsection (b), IHOP, the Borrower or any of their Subsidiaries could
incur at least $1 of additional Debt without being in default of their
obligations under Section 14.2;
------------
-18-
<PAGE>
(c) such Dispositions are made for Fair Market Value and the proceeds
of such Disposition are used (i) within six months following such
Disposition, to purchase assets ("Business Asset Acquisition") used in the
--------------------------
operations of the Borrower or (ii) to repay Debt of IHOP or its
Subsidiaries which is not junior in right of payment to the Note; provided
--------
that if the aggregate principal amount of all outstanding Loans, Letters of
Credit and unreimbursed drawings under Letters of Credit shall exceed
$4,000,000, then the proceeds of such disposition shall be used to repay
the Note until the aggregate principal amount of all outstanding Loans,
Letters of Credit and unreimbursed drawings under Letters of Credit shall
have been reduced to $4,000,000; or
(d) the assets disposed of were disposed of for Fair Market Value
(taking into consideration the rental rate to be paid by the Borrower in
connection with the Disposition and leaseback of the assets so disposed of)
and were constructed or acquired following September 30, 1992 and are
immediately leased back from the purchaser thereof by IHOP or any of its
Subsidiaries; provided that no assets may be sold and leased back pursuant
--------
to this clause (d) following the third anniversary of the acquisition or
construction of such assets by IHOP, the Borrower or any of their
Subsidiaries.
14.7. Consolidation or Merger. IHOP and the Borrower covenant that
-----------------------
neither of them will, nor will they permit any of their respective Subsidiaries
to, enter into any transaction of merger or consolidation, whether in one
transaction or a series of related or unrelated transactions and whether at the
same time or over a period of time, provided that:
--------
(a) (i) the Borrower may merge with IHOP or any of IHOP's other
Subsidiaries, (ii) IHOP may merge with the Borrower or any of IHOP's other
Subsidiaries and (iii) any Subsidiary may merge with IHOP, the Borrower or
any other Subsidiary, so long as, with respect to any mergers of IHOP, the
Borrower or IHOP Realty in which such party is not the surviving Person,
(a) the surviving Person of such transaction shall be a solvent U.S. or
Canadian corporation, and such surviving Person shall have assumed in
writing all of the obligations of the Borrower, IHOP or IHOP Realty, as the
case may be, under this Agreement, the Note and the Subsidiary Guarantee,
as the case may be, a copy of which writing shall be provided to the Bank
not less than 10 Business Days prior to any such transaction and which
shall be acceptable in form and substance to the Bank, (b) at the time of,
and immediately after giving effect to, any such consolidation or merger,
no Default or Event of Default
-19-
<PAGE>
shall have occurred and be continuing, and (c) immediately after any such
consolidation or merger, the surviving Person could incur an additional $1
of Debt pursuant to Section 14.2 hereof; and
------------
(b) IHOP or the Borrower may merge with any other Person so long as
(i) the surviving Person of such transaction shall be a solvent U.S. or
Canadian corporation, and such surviving Person shall have assumed in
writing all of the obligations of the Borrower under the Note and this
Agreement or of IHOP under this Agreement, as the case may be, a copy of
which writing shall be provided to the Bank not less than 10 Business Days
prior to any such transaction and which shall be acceptable in form and
substance to the Bank, (ii) at the time of, and immediately after giving
effect to, any such consolidation or merger, no Default or Event of Default
shall have occurred and be continuing, and (iii) immediately after any such
consolidation or merger, the surviving or continuing Person could incur an
additional $1 of Debt pursuant to Section 14.2 hereof.
------------
14.8. Maintenance of Fixed Charge Coverage. IHOP and the Borrower
------------------------------------
covenant that on the last day of any quarterly accounting period of IHOP and its
Subsidiaries, the ratio of Consolidated Income Available for Fixed Charges to
Fixed Charges for the period consisting of any four of the immediately preceding
five quarterly accounting periods shall not be less than:
Ratio Fiscal Quarter Ending in the Period
----- -----------------------------------
1.40:1.00 from Closing Date through September 29,
1993; and
1.50:1.00 from September 30, 1993 and thereafter.
14.9. Transactions with Affiliates. Each of IHOP and the Borrower
----------------------------
covenants that it will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
Property or the rendering of any service), with any Affiliate on terms that are
less favorable to IHOP, the Borrower or such Subsidiary, as the case may be,
than those that would be obtainable at the time in an arms' length transaction
with any Person who is not such an Affiliate; provided, however, that this
-----------------
Section shall not prohibit the payment of compensation and benefits to directors
and officers of IHOP, the Borrower and their Subsidiaries in the ordinary course
of business and consistent with past practices.
-20-
<PAGE>
14.10. Acquisition of Margin Securities. Each of IHOP and the Borrower
--------------------------------
covenants that it will not, and will not permit any of its Subsidiaries to, own,
purchase or acquire (or enter into any contract to purchase or acquire) any
"margin security" as defined by any regulation of the Board of Governors of the
United States Federal Reserve System as now in effect or as the same may
hereafter be in effect unless, prior to any such purchase or acquisition or
entering into any such contract, the Bank shall have received an opinion of
counsel satisfactory to the Bank to the effect that such purchase or acquisition
will not cause this Agreement or the Note to be in violation of Regulation G or
any other regulation of such Board then in effect.
14.11. Conduct of Business. Each of IHOP and the Borrower covenants that
-------------------
it will not, and will not permit any of its Subsidiaries to, engage in any
business activity if, such business activity would result in a substantial
change in the general nature of the business of IHOP and its Subsidiaries, taken
as a whole, from that engaged in as of November 19, 1992.
14.12. Further Undertakings. The Borrower will not, without prior
--------------------
written approval of the Bank:
(a) incur capital expenditures in excess of $30,000,000 per fiscal
year;
(b) expend more than $5,000,000 in any fiscal year in connection with
the purchase of the capital stock of, or the acquisition of all or
substantially all of the assets of, any other Person; provided, however
-------- -------
that to the extent that IHOP's capital stock is given in connection with
any such acquisition, the value of such stock shall be excluded from this
calculation and provided, further that expenditures incurred by the
-------- -------
Borrower in connection with the acquisition of restaurants or leasehold
interests for restaurants or with the reacquisition of franchises in the
ordinary course of the Borrower's business shall also be excluded from this
calculation;
(c) amend the amortization schedule in Section 3.1 of the Note
Purchase Agreement to require payments of principal thereunder prior to the
Maturity Date;
(d) make any optional prepayment of the principal of any indebtedness
outstanding under the Note Purchase Agreement prior to the Maturity Date
unless, after giving effect thereto, the aggregate principal amount of all
outstanding Loans, Letters of Credit and unreimbursed drawings under
Letters of Credit does not exceed $4,000,000; or
-21-
<PAGE>
<PAGE>
(e) notwithstanding the provisions of Section 14.6 hereof, make any
------------
Disposition of any of its accounts receivable or general intangibles.
14.13. Ownership of the Borrower. IHOP agrees with the Bank that, until
-------------------------
the Bank's commitment hereunder has been terminated and all indebtedness of
the Borrower to the Bank under this Agreement has been paid in full and all
fees and expenses under this Agreement billed by the Bank to the Borrower
on or prior to the time of the commitment termination have been paid in
full, IHOP will continue to own of record and beneficially all of the
issued and outstanding capital stock of the Borrower.
Section 15. Conditions Precedent.
--------------------
(a) The effectiveness of this Agreement is conditioned upon receipt
by the Bank of all the following documents, each in form and substance
satisfactory to the Bank:
(i) The Note;
(ii) A certificate, substantially in the form set forth in
Exhibit C hereto, of the Secretary or the Assistant Secretary of
---------
Borrower;
(iii) A certificate, substantially in the form set forth in
Exhibit D hereto, of the Secretary or the Assistant Secretary of
---------
Borrower;
(iv) The Subsidiary Guarantee;
(v) A certificate, substantially in the form set forth in Exhibit
-------
F hereto, of the Secretary or the Assistant Secretary of IHOP;
-
(vi) A certificate, substantially in the form set forth in
Exhibit G hereto, of the Secretary or the Assistant Secretary of
---------
IHOP Realty;
(vii) The opinion of Larry Alan Kay, Esq., counsel to IHOP, IHOP
Realty and the Borrower, covering the matters described in
Exhibit H hereto; and
---------
(viii) Such other documents as the Bank shall have reasonably
requested in writing.
(b) The obligation of the Bank to make any Loan (including the
initial Loan) or to issue any Letter of Credit shall be subject to the
condition precedent that, both before and after giving effect to such Loan
(i) the representations and warranties of the Borrower set forth in
-22-
<PAGE>
this Agreement shall be true and correct with the same effect as if then
made and (ii) no Event of Default, and no event which, with the passage of
time and/or the giving of notice, could result in an Event of Default,
shall have occurred and be continuing.
Section 16. Events of Default. The Borrower agrees that if any of the
-----------------
following events of default (an "Event of Default") shall occur:
----------------
(a) Default in the payment when due of any interest on the Note, and
the continuance of such default for five business days; or default in
the payment when due of any principal of the Note or of any amount
payable under this Agreement (other than interest on the Note);
(b) Any representation, warranty or statement made by or on behalf of
IHOP or the Borrower in this Agreement or by or on behalf of IHOP Realty in
the Subsidiary Guarantee or in any certificate, instrument, financial
statement or other document now or hereafter delivered hereunder or
thereunder or pursuant to or in connection with any provision hereof or
thereof shall prove to be false or incorrect or breached in any material
respect on the date as of which made;
(c) The Borrower shall default in the performance or observance of
any covenant, agreement or condition contained in Section 14 hereof;
----------
(d) The Borrower shall default in the performance or observance of
any other covenant, agreement or condition contained in this Agreement and
such default shall continue for a period of 30 days following the earlier
to occur of (i) notice of such default from the Bank or (ii) the date on
which any Authorized Officer of Borrower otherwise becomes aware of the
existence of such default;
(e) IHOP or any of its subsidiaries becomes insolvent or generally
fails to pay, or admits in writing its inability to pay, its debts as they
become due; IHOP or any of its subsidiaries applies for a trustee, receiver
or other custodian for it or a substantial part of its property; a trustee,
receiver or other custodian is appointed for IHOP or any of its
subsidiaries or for a substantial part of the property of any thereof, and
is not discharged within 90 days after such appointment; or any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution or liquidation proceeding,
is commenced by IHOP or any of its subsidiaries; or any bankruptcy,
reorganization, debt arrangement, or other case or
-23-
<PAGE>
<PAGE>
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding, is commenced, without the application or consent of
IHOP or any its subsidiaries, in any court of competent jurisdiction and
such proceeding shall continue undismissed, or unstayed and in effect, for
a period of 90 days;
(f) A default shall occur in the payment when due (subject to any
applicable grace period), whether by acceleration or otherwise, of any
obligation of IHOP or any of its subsidiaries now or hereafter existing and
having a principal amount in the aggregate in excess of $2,000,000; or a
default shall occur in the performance or observance of any covenant or
condition with respect to such obligation if the effect of such default is
to cause, or to permit the holder or holders of such obligation, or any
trustee or agent for such holders, to cause, such obligation to become due
and payable prior to its expressed maturity; or
(g) If either of the Subsidiary Guarantee or the Guarantee of IHOP
contained herein shall cease to be in full force and effect or either of
IHOP Realty or IHOP or any person acting by or on behalf of either of them
shall deny or disaffirm their respective obligations under such documents;
then, if any Event of Default set forth in the preceding clause (e) shall
- ----
occur, the commitment of the Bank to make Loans and to issue Letters of Credit
hereunder shall automatically terminate and all of the Borrower's obligations
under this Agreement shall automatically become due and payable, and, if any
other Event of Default shall occur and be continuing, the Bank may declare all
of the Borrower's obligations under this Agreement (including, without
limitation, all reimbursement obligations of the Borrower for any outstanding
Letters of Credit) to be due and payable and the commitment of the Bank to make
Loans and to issue Letters of Credit hereunder (if not theretofore terminated)
to be terminated, whereupon such obligations shall become immediately due and
payable and such commitment shall terminate, without notice of any kind.
Section 17. IHOP Guarantee.
--------------
(a) IHOP, in consideration of the Bank's entering into this
Agreement, unconditionally and irrevocably guarantees to the Bank and each
and every holder from time to time of the Note the due and punctual payment
of all sums which may become due or be stated in the Note or in this
Agreement to become due under the terms and provisions of the Note and this
Agreement in respect of the principal of and prepayment charge, if any, and
interest on the Note (including interest
-24-
<PAGE>
on any overdue principal, prepayment charge, if any, and, to the extent
permitted by applicable law, on any overdue interest), and in respect of all
obligations of the Borrower under, or in connection with, any Letter of Credit
issued under this Agreement, whether at stated maturity, by acceleration, by
notice of prepayment or otherwise, and all other sums which may become due from
the Borrower or be stated to be or become so due under the Note or this
Agreement. IHOP further guarantees to the Bank and each holder as aforesaid the
due performance and observance by the Borrower of all covenants, agreements and
conditions on the Borrower's part to be performed under this Agreement and any
other document from time to time delivered by the Borrower pursuant to this
Agreement. IHOP further guarantees to the Bank and each holder as aforesaid
payment of all other amounts payable by the Borrower under this Agreement or the
Note, including costs, expenses (including fees and expenses of counsel) and
taxes (such principal, prepayment charge if any, interest and other obligations
guaranteed as aforesaid being hereinafter collectively called the "Obligations")
------------
and to the extent lawful agrees to pay any and all expenses (including fees and
expenses of counsel) incurred by the Bank in enforcing any rights in connection
with this Section.
(b) IHOP hereby waives notice of acceptance of this Agreement by the Bank,
of any action taken or omitted in reliance hereon or of any default in the
payment of any of the Obligations or in the performance of any covenants and
agreements of the Borrower contained in this Agreement or the Note, and any
diligence, presentment, demand, protest, dishonor or notice of any kind.
(c) The guarantee of IHOP under this Agreement constitutes the present and
continuing guarantee of payment and not of collectibility of the Obligations,
and shall be absolute, primary, present and unconditional, and to the extent
permitted by applicable law, the Obligations shall not be subject to any
counterclaim, setoff, reduction or defense based upon any claim IHOP may have
against the Borrower, or any other person, and shall remain in full force and
effect without regard to, and shall not be released, discharged or in any way
affected or impaired by any thing, event, happening, matter, circumstance or
condition whatsoever (whether or not IHOP shall have any knowledge or notice
thereof or shall consent thereto), including, without limitation: (1) any
amendment or other modification of or supplement to any provision of this
Agreement or the Subsidiary Guarantee or the Note, or any assignment or transfer
thereof, including without limitation any renewal or extension of the terms of
payment of the Note
-25-
<PAGE>
or the granting of time in respect of any payment thereof, or any furnishing or
acceptance of security or any release of any security furnished or accepted for
the Note or in respect of the Obligations of IHOP hereunder; (2) any waiver,
consent, extension, granting of time, forbearance, indulgence or other action or
inaction under or in respect of this Agreement or the Subsidiary Guarantee or
the Note, or any exercise or nonexercise of any right, remedy or power in
respect hereof or thereof; (3) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or similar proceedings with
respect to IHOP, the Borrower or any other person, or the properties or
creditors of any of them; (4) the occurrence of any Event of Default or event
which, with the giving of notice and/or lapse of time, would become an Event of
Default, or any invalidity or any unenforceability of, or any misrepresentation,
irregularity or other defect in, this Agreement or the Note or any other
agreement; (5) any transfer of any assets to or from IHOP or the Borrower,
including without limitation any transfer or purported transfer to IHOP or the
Borrower from any Person, any invalidity, illegality of, or inability to
enforce, any such transfer or purported transfer, any consolidation or merger of
IHOP or the Borrower with or into any other corporation or entity, or any change
whatsoever in the objects, capital structure, constitution or business of IHOP
or the Borrower or any affiliate or subsidiary of IHOP or the Borrower; (6) any
disposition by IHOP of any capital stock of the Borrower; (7) any failure on the
part of the Borrower or any other Person to perform or comply with any term of
the Note, this Agreement, or any other agreement; (8) any suit or other action
brought by any stockholder or creditor of, or by, IHOP, the Borrower or any
other Person for any reason whatsoever, including without limitation any suit or
action in any way attacking or involving any issue, matter or thing in respect
of the Note, this Agreement or any other agreement; (9) any lack or limitation
of status or power, incapacity or disability of IHOP or the Borrower or of any
officer, director or agent of IHOP or the Borrower or any of their respective
stockholders; (10) the cessation from any cause whatsoever (other than payment
of the Obligations) of liability of the Borrower; (11) the termination of, or
release or compromise of this Agreement, the Note, any Letter of Credit or any
other agreement (other than as a result of payment of the Obligations); (12) any
lack or limitation of the genuineness, validity, regularity or enforceability of
the Note, this Agreement, any Letter of Credit, any other documents and
agreements executed or delivered in connection therewith or pursuant thereto, or
any other agreement; (13) any failure by any holder of the Note to take any
steps to preserve their rights with respect
-26-
<PAGE>
to the Obligations; (14) any election by any holder of the Note, in any
proceeding instituted under Chapter 11 of Title 11 of the United States Code (11
U.S.C.(S) 101 et seq.) (the "Bankruptcy Code"), of the application of Section
-- ---
1111(b)(2) of the Bankruptcy Code; (15) the disallowance, under Section 502 of
the Bankruptcy Code, of all or any portion of any of the Bank's claims for
repayment of the Obligations; or (16) any other thing, event, happening, matter,
circumstance or condition whatsoever, not in any way limited to the foregoing,
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor.
(d) The obligations of IHOP and the Borrower under the Note and the other
Sections of this Agreement (other than this Section 17) are independent of
----------
the Obligations of IHOP under this Section 17, and a separate action or
----------
actions may be brought or prosecuted against IHOP irrespective of whether action
is brought against the Borrower and/or any other guarantor or whether the
Borrower and/or any other guarantor is joined in any action or actions.
(e) IHOP expressly waives any right it may have to require any person
seeking enforcement of its Obligations under this Section 17 and the guarantee
----------
in respect of the Note to (1) proceed against the Borrower or any other Person,
(2) proceed against or exhaust any security or (3) pursue any other remedy in
the power of the person seeking such enforcement. The Borrower waives the right
to have any security first applied to the discharge of the Obligations. The Bank
and the other holders from time to time of the Note may, at their election,
exercise any right or remedy they may have against the Borrower or IHOP
including without limitation the right to foreclose upon any such security by
judicial or non-judicial sale, without affecting or limiting in any way the
liability of IHOP hereunder, except to the extent the Obligations have been
paid. IHOP waives any defense arising out of the absence, impairment or loss of
any right of reimbursement, contribution or subrogation or any other rights or
remedy of IHOP against the Borrower, or any such security, whether resulting
from such election by the holder of the Note or otherwise.
(f) IHOP agrees that its obligations under this Agreement shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of the Borrower or IHOP or IHOP Realty is rescinded or must be
otherwise restored by the holder of the Note, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise. IHOP further agrees
that, without limiting the generality of such obligations, if an Event of
Default shall have occurred and be continuing and the Bank or the holder
-27-
<PAGE>
of the Note is prevented by applicable law from exercising any remedy under this
Agreement or under the Note, the holder of the Note shall be entitled to receive
from IHOP upon demand therefor, the sums which would have otherwise been due
from the Borrower had such remedies been exercised.
(g) IHOP hereby expressly waives any and all benefits under California
Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and
3433 and California Code of Civil Procedure Sections 580(a), 580(b), 580(d) and
726.
(h) IHOP waives and releases any claim (within the meaning of 11 U.S.C (S)
101) which it may have against the Borrower and agrees not to assert or take
advantage of any subrogation rights or any right to proceed against the Borrower
for reimbursement. It is expressly understood that the waivers and agreements of
IHOP set forth above constituted additional and cumulative benefits given to the
Bank as further inducement for the Bank to enter into this Agreement.
Section 18. Definitions.
-----------
(a) For the purposes of this Agreement, the following terms shall have the
following respective meanings:
"Account" is defined in Section 2.
---------
"Affiliate" shall mean any Person (other than a Subsidiary) (i) which
directly or indirectly controls, or is controlled by, or is under common control
with, IHOP, (ii) which beneficially owns or holds 10% or more of any class of
the Voting Stock of IHOP, (iii) 10% or more of the Voting Stock of which is
beneficially owned or held by IHOP or a Subsidiary of IHOP or (iv) any officer
or director of IHOP or any of its Subsidiaries. For purposes of this definition,
"control" of a Person shall mean the power, direct or indirect, (i) to vote or
direct the voting of a majority of the Voting Stock of such Person, or (ii) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Agreement" is defined in Section 1.
---------
"Alternative Reference Rate" shall mean, for any day a fluctuating rate
per annum (rounded to the nearest 1/8 of 1% if not already an integral multiple
of 1/8 of 1%) equal to the greater of (i) the rate of interest then most
recently announced by the Bank at its principal office in Chicago, Illinois as
its "reference rate" or (ii) the Federal Funds Effective Rate in effect on such
day plus 1/2 of 1% per
----
-28-
<PAGE>
annum. "Federal Funds Effective Rate" shall mean, for any day, an interest rate
----------------------------
per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a business day,
the average of the quotations for such day on such transactions received by the
Bank from three Federal funds brokers of recognized standing selected by it. In
the case of a day which is not a business day, the Federal Funds Effective Rate
for such day shall be the Federal Funds Effective Rate for the next preceding
business day. For purposes of this Agreement, any change in the Alternative
Reference Rate due to a change in the Federal Funds Effective Rate shall be
effective on the effective date of such change in the Federal Funds Effective
Rate.
"Appropriate Officer" shall mean, with respect to any corporation, such
corporation's President, Vice President, Chief Executive Officer, Chief
Financial Officer, Treasurer or Controller.
"Authorized Officers" is defined in Section 2.
---------
"Bank" is defined in the preamble.
"Board" means the Board of Directors of any corporation or a committee of
said corporation having authority to exercise, when the Board of Directors is
not in session, the powers of the Board of Directors (subject to any designated
limitations) in the management of the business and affairs of said corporation.
"Book Value" of an asset of any Person means the value of such asset as
reported in the books and records of such Person in accordance with GAAP.
"Borrower" is defined in the preamble.
"Business Asset Acquisition" is defined in Section 14.6 hereof.
------------
"Business Day" means any day except a Saturday, a Sunday or a legal holiday
in Chicago, Illinois.
"Capitalized Lease" means a lease of Property which in accordance with GAAP
should be capitalized on the balance sheet of any Person.
-29-
<PAGE>
"Capitalized Lease Obligations" shall mean the aggregate rentals due and to
become due under all Capitalized Leases which any Person, as a lessee, would be
required to reflect as a liability on the consolidated balance sheet of such
Person in accordance with GAAP.
"Closing Date" means November 19, 1992.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitment Amount" is defined in the preamble.
"Confirmation" is defined in Section 2.
---------
"Consolidated Debt" shall mean the Debt of IHOP, the Borrower and their
Subsidiaries, as determined on a consolidated basis in accordance with GAAP.
"Consolidated Income Available for Fixed Charges" means the sum of (a)
Consolidated Net Income, (b) consolidated income tax expense of IHOP and its
Subsidiaries in accordance with GAAP and (c) Fixed Charges.
"Consolidated Net Income or Loss" shall mean the Net Income or Loss of
IHOP, the Borrower and their Subsidiaries, as determined on a consolidated basis
in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean shareholders' equity of IHOP
and its Subsidiaries less intangible assets booked after the Closing Date,
----
less Restricted Investments in excess of 10% of shareholders' equity of IHOP
- ----
and its Subsidiaries at any date of determination, all as determined for IHOP
and its Subsidiaries on a consolidated basis in accordance with GAAP.
"Debt" with respect to any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) the liability of such
Person created by granting a Lien to which the property or assets of such Person
are subject whether or not such Person has assumed or become legally liable for
the payment of any obligation (provided that, if such obligation has not been
assumed or become the legal liability of such Person, the amount of the
liability shall be deemed to be in an amount not to exceed the Fair Market Value
of the property to which the Lien relates, as determined in good faith by such
Person), (iii) Capitalized Lease Obligations of such Person, to the extent such
obligations exceed accounts receivable by such Person
-30-
<PAGE>
as lessor under direct financing leases with franchisees so long as such direct
financing leases are, at the time of determination to the best knowledge of the
lessor thereunder, valid and enforceable against their lessees and are current
as to payment and not otherwise in default to the extent that there is a
reasonable likelihood that any such lease would be terminated by the lessor
prior to its stated expiration and (iv) the aggregate amount of all Guarantees
given by such Person with respect to any of the foregoing.
"Default" means any event or condition which, with due notice or lapse of
time or both, would become an Event of Default.
"Default Rate" is defined in Section 4.
---------
"Disposition" shall mean any sale, transfer, assignment, lease, conveyance
or other disposition of any asset except for sales, transfers, assignments,
leases conveyances or other dispositions solely between IHOP, the Borrower
and/or IHOP Realty.
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 to 9675, the Resource
Conservation and Recovery Act, 42 U.S. C. (S)(S) 6901 to 6992, the Emergency
Planning and Community Right to Know Act, 42 U.S.C. (S)(S) 11001 to 11050, the
Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f to 300j-26, the Hazardous
Materials Transportation Act, 49 U.S.C.A. (S)(S) 1801 to 1819, the Clean Air
Act, 42 U.S.C. (S)(S) 7401 to 7671q, the Clean Water Act, 33 U.S.C. (S)(S) 1251
to 1387, the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S)(S)
136 to 136y, the Noise Control Act, 42 U.S.C.(S)(S) 4901 to 4918, the
Occupational Safety and Health Act, 29 U.S.C.A. (S)(S) 651 to 678, the Toxic
Substances Control Act, 15 U.S.C. (S)(S) 2601 to 2671, any so-called "Superfund"
or "Superlien" law, any regulation promulgated under any of the foregoing or any
other Federal, state, or local statute, law, ordinance, code, rule, regulation,
order, decree, common law or other requirement of any Governmental Body
regulating or imposing liability or standards of conduct concerning the
environment, health and safety, or any Hazardous Material.
"ERISA" means the Employee Retirement Income Security Act of 1974, as from
time to time amended.
"Eurodollar Rate" means, for any Interest Period for any Eurodollar Rate
Loan, an interest rate per annum equal at all times during such Interest
Period to the sum of (i)
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<PAGE>
1.50% per annum, plus (ii) the rate per annum obtained by dividing (x) the rate
----
of interest per annum equal to the average (rounded upward, if necessary, to the
nearest 1/16 of 1%) of the rates per annum at which deposits in United States
dollars in immediately available funds are offered to the Bank's principal
office in Chicago, Illinois as at or about 10:00 a.m., Chicago time, two
Business Days before the first day of such Interest Period, in an amount
approximately equal to the amount of such Loan and for a period approximately
equal to such Interest Period, by (y) a percentage equal to 100% minus the
Eurodollar Rate Reserve Percentage for such Interest Period.
"Eurodollar Rate Reserve Percentage" for any Interest Period for any
Eurodollar Rate Loan is the reserve percentage equal to the maximum aggregate
reserve requirements (including all basic, emergency, supplemental, marginal and
other reserves and taking into account any transitional adjustments or other
scheduled changes in reserve requirements) specified under regulations issued
from time to time by the Board of Governors of the Federal Reserve System (and
any successor thereto) and then applicable to assets or liabilities consisting
of and including "Eurocurrency Liabilities", as currently defined in Regulation
D of the Board of Governors of the Federal Reserve System (and any successor
thereto), having a term approximately equal or comparable to such Interest
Period.
"Event of Default" is defined in Section 16.
----------
"Fair Market Value" means what a willing buyer would pay to a willing
seller in an arm's-length transaction.
"Fixed Charges" means the sum of (a) Interest Expense and (b) rental
expense under operating leases, all as determined for IHOP and its
Subsidiaries on a consolidated basis in accordance with GAAP.
"Fixed Rate Loans" is defined in Section 4.
---------
"Fixed Rate Notes" means the Borrower's 7.79% senior notes due in 2002 in
the original aggregate principal amount of $32,000,000 issued on November 19,
1992 pursuant to the Note Purchase Agreements.
"GAAP" means generally accepted accounting principles in the United States
in effect from time to time.
"Governmental Body" means any federal, state, Canadian provincial, county,
city, town, village, municipal or other
-32-
<PAGE>
governmental department, commission, board, bureau, agency, authority or
instrumentality, domestic or foreign.
"Gross Assets" means the total assets and Properties of IHOP and its
Subsidiaries less accumulated depreciation, as indicated on the audited
balance sheets of IHOP and its Subsidiaries for the fiscal year end
immediately prior to the date of any determination.
"Guarantee" means any guarantee or other contingent liability (other than
any endorsement for collection or deposit in the ordinary course of business),
direct or indirect, with respect to any obligations of another Person, through
an agreement or otherwise, including, without limitation, (a) any other
endorsement or discount with recourse or undertaking substantially equivalent to
or having economic effect similar to a guarantee in respect of any such
obligations and (b) any agreement (i) to purchase, or to advance or supply funds
for the payment or purchase of, any such obligations, (ii) to purchase, sell or
lease Property, products, materials or supplies, or transportation or services,
in respect of enabling such other Person to pay any such obligation or to assure
the owner thereof against loss regardless of the delivery or nondelivery of the
Property, products, materials or supplies or transportation or services or (iii)
to make any loan, advance or capital contribution to or other investment in, or
to otherwise provide funds to or for, such other Person in respect of enabling
such Person to satisfy any obligation (including any liability for a dividend,
stock liquidation payment or expense) or to assure a minimum equity, working
capital or other balance sheet condition in respect of any such obligation. The
amount of liability of any Person attributable to any Guarantee shall be equal
to the maximum amount for which such Person could be liable under such
Guarantee.
"Hazardous Material" and "Hazardous Materials" shall mean as follows:
(1) any "hazardous substance" as defined in, or for purposes of, the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.A.(S)(S) 9601 & 9602, as may be amended from time to time, or any other
so-called "superfund" or "superlien" law and any judicial interpretation of
any of the foregoing;
(2) any "regulated substance" as defined pursuant to 40 C.F.R. Part 280;
-33-
<PAGE>
(3) any "pollutant or contaminant" as defined in 42
US.CA.(S) 9601(33);
(4) any "hazardous waste" as defined in, or for purposes of, the Resource
Conservation and Recovery Act;
(5) any "hazardous chemical" as defined in 29 C.F.R. Part 1910;
(6) any "hazardous material" as defined in, or for purposes of, the
Hazardous Materials Transportation Act; and
(7) any other substance, regardless of physical form, or form of energy or
pathogenic agent that is subject to any Environmental Law.
Without limiting the generality of the foregoing, the term "Hazardous
Material" thus includes, but is not limited to, any material, waste or substance
that contains petroleum or any fraction thereof, asbestos, or polychlorinated
biphenyls, or that is flammable, explosive or radioactive that is subject to any
Environmental Law.
"IHOP" means IHOP Corp., a Delaware corporation, or any successor thereto.
"IHOP Realty" means IHOP Realty Corp., a Delaware corporation which is a
wholly-owned Subsidiary of the Borrower.
"Indemnified Person" is defined in Section 9.
---------
"Interest Expense" shall mean interest expense, determined for IHOP and its
Subsidiaries on a consolidated basis in accordance with GAAP.
"Interest Period" is defined in Section 4.
---------
"Investment" when used with reference to any investment of IHOP, the
Borrower or any of their Subsidiaries, means any investment so classified under
GAAP (and, specifically, shall not include trade receivables which are
classified as current assets under GAAP), and, whether or not so classified,
includes (a) any loan or advance made by IHOP, the Borrower or any of their
Subsidiaries to any other Person, and (b) any ownership or similar interest in
any other Person; and the amount of any Investment shall be the original
principal or capital amount thereof less all cash returns of principal or equity
thereof (and without adjustment by reason of the financial condition of such
other Person).
-34-
<PAGE>
"L/C Commitment" is defined in the preamble.
"Letters of Credit" is defined in the preamble.
"Lien" means any security interest, mortgage, pledge, lien, claim, charge,
encumbrance, conditional sale or title retention agreement, lessor's interest
under a Capitalized Lease or analogous instrument, in, of or on any of a
Person's Property (whether held on the date hereof or hereafter acquired), or
any signed or filed financing statement which names such Person as the debtor,
or the execution of any security agreement or the like authorizing any other
Person as the secured party thereunder to file such a financing statement;
provided that neither (a) the interest of a lessee or a sublessee in its
- --------
capacity as lessee or sublessee under a lease or sublease entered into by IHOP,
the Borrower or any of their Subsidiaries in the ordinary course of business nor
(b) the rights of franchisees in their capacities as franchisees to use and
possession of certain properties and rights pursuant to franchise documentation
entered into by IHOP, the Borrower or any of their Subsidiaries in the ordinary
course of business shall be deemed to constitute a Lien for purposes hereof.
"Loan" is defined in the preamble.
"Material Adverse Effect" means any change or changes or effect or effects
that individually or in the aggregate are or are likely to be materially adverse
to (i) the assets, business, operations, income, prospects or condition
(financial or otherwise) of IHOP and its Subsidiaries taken as a whole or the
Borrower and its Subsidiaries taken as a whole, (ii) the transactions
contemplated by this Agreement, or (iii) taken as a whole, the ability of the
Borrower and IHOP to fulfill their respective obligations under this Agreement
and the Note.
"Maturity Date" is defined in Section 1.
---------
"Net Income or Loss" of any Person, with respect to any period, shall mean
the net income or net loss of such Person after excluding the sum of (i) any net
loss or any undistributed net income of any Person other than a Subsidiary of
such Person, (ii) the net income or net loss of any Subsidiary of such Person
earned or incurred prior to the date on which it became a Subsidiary of such
Person, (iii) the gain or loss (net of any tax effect) resulting from the sale
of any capital assets other than in the ordinary course of business, and (iv)
extraordinary or
-35-
<PAGE>
nonrecurring gains or losses (net of any tax effect), all as determined for the
relevant period in accordance with GAAP.
"Note" is defined in Section 3.
---------
"Note Purchase Agreements" means the several Senior Note Purchase
Agreements dated as of November 19, 1992 among the Borrower, IHOP and the
purchasers identified in Schedule I thereto.
"Obligations" is defined in Section 17.
----------
"Order" means any order, writ, injunction, decree, judgment, award,
determination or written direction or demand of any court, arbitrator or
Governmental Body.
"Permitted Lien" is defined in Section 14.1.
------------
"Person" means and includes an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
"Property" with respect to any Person, means any interest in any kind of
property or asset, whether real, personal or mixed, tangible or intangible, of
such Person.
"Quoted Rate" shall mean, with respect to any Quoted Rate Loan for any
Interest Period, the rate per annum quoted by the Bank to the Borrower for
delivery on the first day of such Interest Period, for the number of days
comprised in such Interest Period and in an amount equal to the amount of such
Quoted Rate Loan to be outstanding during such Interest Period.
"Quoted Rate Loan" shall mean any Loan which bears interest at a Quoted
Rate.
"Reference Rate Loan" shall mean any Loan which bears interest at or by
reference to the Alternative Reference Rate.
"Restricted Investments" shall mean all Investments made by IHOP, the
Borrower or their Subsidiaries in or to any Person except (i) Investments in
notes of franchisees and receivables of franchisees in the ordinary course of
business other than notes and receivables held in settlement of franchise
obligations, and in Property of :HOP or its Subsidiaries to be used in the
ordinary course of business, (ii) Investments in Subsidiaries, (iii) Investments
in obligations issued or unconditionally guarantied by the U.S.
-36-
<PAGE>
or any agency thereof, in each case maturing within one year from the date of
acquisition thereof; (iv) Investments in obligations issued by any political
subdivision of the U.S. or any public instrumentality thereof maturing within
one year from the date of acquisition thereof and, at the time of acquisition,
having one of the two highest ratings obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc. or some other mutually agreeable
rating system if either of these entities no longer exists; (v) commercial paper
maturing no more than 270 days from the date of creation thereof and, at the
time of acquisition, having one of the two highest ratings obtainable from
either Standard & Poor's Corporation or Moody's Investors Service, Inc. or some
other mutually agreeable rating system if either of these entities no longer
exists; (vi) certificates of deposit, repurchase agreements or bankers'
acceptances maturing within one year from the date of acquisition thereof issued
by the Borrower's cash management concentration bank (provided that such bank is
rated investment grade or better by either Standard & Poor's Corporation or
Moody's Investors Services, Inc. or some other mutually agreeable rating system
if either of these entities no longer exists), Continental Bank NA., or other
commercial banks located in the U.S. and Canada having combined capital, surplus
and undivided profits of not less than $100,000,000 and who have a rating at all
times from Standard & Poor's Corporation or Moody's Investors Service, Inc., or
some other mutually agreeable rating system if either of these entities no
longer exists, of "A-" or better; (vii) Investments in mutual funds and money
market accounts, which funds or accounts are traded on a national exchange or
are managed by a commercial bank and which invests solely in Investments which
satisfy the criteria set forth in the foregoing clauses (iii) through (vi); and
(viii) other Investments existing on the Closing Date.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other entity (a) organized under the laws of the United States, the District of
Columbia or Canada or any state or political subdivision of any thereof, (b) all
or substantially all of whose assets and business operations are located or
conducted within the United States or Canada and (c) of which at least 51% of
the outstanding Voting Stock is at the time directly or indirectly owned or
controlled by such Person or by one or more of such Person's wholly-owned
Subsidiaries.
"Subsidiary Guarantee" shall mean the Subsidiary Guarantee from IHOP Realty
in the form of Exhibit E hereto.
---------
-37-
<PAGE>
"Total Capitalization" shall mean the sum of (i) Consolidated Debt of
IHOP, the Borrower and their Subsidiaries and (ii) Consolidated Tangible
Net Worth.
"U.S." means the United States of America.
"Voting Stock" with respect to any Person shall mean capital stock of
such Person of any class or classes, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of
members of the Board (or Persons performing similar functions) of such
Person.
(b) Accounting Terms. All accounting terms used in this Agreement
----------------
shall be applied on a consolidated basis for IHOP, the Borrower and their
Subsidiaries, unless otherwise specifically indicated herein. Any
accounting terms not specifically defined herein shall have the meanings
customarily given them in accordance with GAAP.
Section 19. Miscellaneous. No delay on the part of the Bank or on the
-------------
part of any other holder of the Note in the exercise of any right, power or
remedy shall operate as a waiver thereof, nor shall any single or partial
exercise by the Bank or such holder of any right, power or remedy preclude other
or further exercise thereof, or the exercise of any other right, power or
remedy. No amendment, modification or waiver of, or consent with respect to, any
provision of this Agreement or the Note shall in any event be effective unless
the same shall be in writing and signed and delivered by IHOP, the Borrower and
the Bank. This Agreement shall be a contract made under and governed by the
internal laws of the State of Illinois. All obligations of IHOP and the Borrower
and rights of the Bank and the rights of any other holder of the Note expressed
herein or in the Note shall be in addition to and not in limitation of those
provided by applicable law. This Agreement shall be binding upon IHOP and the
Borrower, and shall inure to the benefit of the Bank and its successors and
assigns. The Borrower shall pay on demand all the reasonable fees and out-of-
pocket expenses of the Bank's counsel in connection with the execution and
delivery of this Agreement, the Note and all other instruments or documents
provided for herein or delivered or to be delivered hereunder or in connection
herewith and in connection with all waivers hereof and amendments hereto, and
all reasonable attorneys' fees and legal expenses incurred by the Bank in
connection with the enforcement of this Agreement, the Note or any such other
instruments or documents. In addition, the Borrower agrees to pay, and to save
the Bank harmless from all liability for, any stamp or other transfer taxes
which may be payable in connection with the execution or delivery of this
Agreement, the borrowings hereunder, or the issuance of the Note or of any other
-38-
<PAGE>
instruments or documents provided for herein or delivered or to be delivered
hereunder or in connection herewith. All obligations provided for in this
Section and in Section 9 shall survive any termination of this Agreement and all
---------
obligations of the Borrower provided under Sections 7 and 8 shall survive for a
---------- -
period of six months after any termination of the Agreement; provided that if
--------
the Bank shall have made a claim for compensation thereunder within 6 months
after the termination of this Agreement, then the obligations with respect to
such claim shall survive until such claim has been resolved. The Borrower and
IHOP waive any right to a trial by jury in any action or proceeding to enforce
or defend any rights under this Agreement or any instrument, document or
agreement delivered in connection herewith or arising from any banking
relationship existing in connection with this Agreement, and agree that any such
action or proceeding shall be tried before a court and not before a jury.
If the foregoing correctly sets forth our understanding kindly sign and
return to us one copy of this letter.
Very truly yours,
CONTINENTAL BANK N.A.
By /s/ J. E. Smith
--------------------------
Its Vice President
-----------------------
Confirmed and agreed to:
INTERNATIONAL HOUSE OF PANCAKES, INC.
By: /s/ Richard K. Herzer
---------------------------------
Its: President
----------------------------
IHOP CORP.
By: /s/ Richard K. Herzer
---------------------------------
Its: President
----------------------------
-39-
<PAGE>
EXHIBIT A
---------
NOTE
$10,000,000 June 30, 1993
Chicago, Illinois
For value received, the undersigned INTERNATIONAL HOUSE OF PANCAKES, INC.
promises to pay to the order of CONTINENTAL BANK N.A. (herein called the "Bank")
on the Maturity Date (as such term is defined in the hereinafter defined Credit
Agreement) at its offices in Chicago, Illinois, TEN MILLION DOLLARS, or if less,
the aggregate unpaid principal amount of all loans made by the Bank to the
undersigned from time to time under the letter agreement dated as of June 30,
1993 among the undersigned, IHOP Corp. and the Bank (herein, as amended or
modified from time to time, the "Credit Agreement").
----------------
The date, type, amount, interest period and interest rate of each loan made
by the Bank under the Credit Agreement and of each repayment of principal
received thereon may, at the option of the Bank, be recorded by the Bank in its
records and all such information so recorded shall be conclusive and binding
upon the Borrower (absent manifest error). The failure to record any such
information shall not, however, limit or otherwise affect the obligations of the
undersigned hereunder to repay the principal amount of all loans under the
Credit Agreement together with all interest accruing thereon.
The aggregate unpaid principal amount from time to time outstanding of
loans made by the Bank to the undersigned under the Credit Agreement shall bear
interest at such rates as provided in the Credit Agreement. Interest on this
Note shall be computed and paid as provided in the Credit Agreement.
This Note evidences indebtedness incurred under the Credit Agreement.
Reference is made to the Credit Agreement for a statement of the prepayment
rights of the undersigned, and for a statement of the terms and conditions upon
which the due date of the amounts outstanding hereunder may be accelerated. Upon
the occurrence of any Event of Default as specified in the Credit Agreement, the
principal balance hereof and the interest accrued hereon may be declared to be
forthwith due and payable.
Payments of both principal and interest hereon shall be made in lawful
money of the United States of America in immediately available funds.
<PAGE>
Notwithstanding anything to the contrary herein or in the Credit Agreement,
the undersigned further agrees, subject only to any limitation imposed by
applicable law, to pay all expenses, including reasonable attorneys' fees and
legal expenses, incurred by the holder of this Note in endeavoring to collect
any amounts payable hereunder which are not paid when due, whether by
acceleration or otherwise.
This Note is made under and governed by the internal laws of the State of
Illinois.
Address: INTERNATIONAL HOUSE OF
PANCAKES, INC.
525 North Brand Boulevard
Glendale, California 91203
By: _________________________
Its: ____________________
-2-
<PAGE>
EXHIBIT B
---------
_______________, 199_
Continental Bank N.A.
231 South LaSalle Street
Chicago, Illinois 60697
Attention: __________________
Reference is made to that certain letter agreement, dated as of June 30,
1993 (as the same may be amended from time to time, the "Agreement"), among
---------
the undersigned, IHOP Corp. and you. All terms used herein which are defined in
the Agreement shall have the same meaning herein.
Pursuant to the terms of the Agreement, we hereby confirm the following:
1. A [Reference/Eurodollar/Quoted] Rate Loan in the amount of $___________
was requested on _______________, 199_. [Such Loan shall have an Interest Period
of __ days/__ months].
2. A repayment of principal on the Note in the amount of $_____________
was authorized on _____________, 199_. Such repayment shall be applied to
[outstanding Reference Rate Loans) [the Quoted Rate/the Eurodollar Rate Loan
having an Interest Period expiring on such date].
[Complete number 1 and/or 2 above as applicable.)
3. After giving effect to the foregoing transactions, the unpaid principal
balance of the Note will be $__________________.
Very truly yours,
INTERNATIONAL HOUSE OF
PANCAKES, INC.
By: _______________________
Its: ___________________
<PAGE>
EXHIBIT C
---------
CERTIFICATE
IDENTIFYING AUTHORIZED OFFICERS
I, Larry Alan Kay, Secretary of International House of Pancakes, Inc.
hereby certify as follows:
Pursuant to the letter agreement dated as of June 30, 1993 (the "Credit
------
Agreement") among Continental Bank N.A. (the "Bank"), IHOP Corp. and
- ---------- ----
International House of Pancakes, Inc. (the "Borrower"), each of the persons
--------
named in Section 1 below is authorized to request Loans from the Bank and to
execute Confirmations (in the form of Exhibit B as referred to in the Credit
Agreement) called for under the Credit Agreement and each of the persons named
in Section 2 below is authorized only to request Loans from the Bank. The
signatures set forth opposite their respective names below are their genuine
signatures.
Section 1.
- ----------
Name Title Signature
- ---- ----- ---------
Richard K. Herzer President __________________________
Larry Alan Kay Executive V.P. - __________________________
Administration
Frederick G. Silny V.P. - Finance __________________________
Gene A. Scott Controller __________________________
Diane M. Stempora Director of __________________________
Financial Planning
Section 2.
- ---------
Robert H. Dickson Assistant Director __________________________
of Financial
Planning
<PAGE>
INTERNATIONAL HOUSE OF
PANCAKES, INC.
By: ________________________
Its: Secretary
Date: June 30, 1993
-2-
<PAGE>
EXHIBIT D
---------
Certificate of Larry Alan Kay
I, the undersigned, Secretary of INTERNATIONAL HOUSE OF PANCAKES, INC. (the
"Borrower"), DO HEREBY CERTIFY that:
--------
1. This Certificate is furnished pursuant to Section 15 of that certain
----------
letter agreement dated as of June 30, 1993 (the "Agreement"), among the
---------
Borrower, IHOP Corp. and Continental Bank N.A. (the "Bank"). Unless otherwise
----
defined herein, capitalized terms used in this Certificate have the meanings
assigned to such terms in the Agreement.
2. Attached hereto as Exhibit I are true, correct and complete copies of
---------
the certificate of incorporation of the Borrower and the by-laws of the
Borrower as in effect on the date hereof.
3. Attached hereto as Exhibit II is a true, correct and complete copy of
----------
resolutions duly adopted by the Board of Directors of the Borrower, which
resolutions have not been revoked, modified, amended or rescinded and are still
in full force and effect.
4. The persons named in Exhibit III attached hereto have been duly
-----------
elected, have duly qualified as and at all times since June 1, 1993 (to and
including the date hereof) have been officers of the Borrower holding the
respective offices set forth therein opposite their names.
5. I know of no proceeding for the dissolution or liquidation of the
Borrower or threatening its existence.
WITNESS my hand this 30th day of June, 1993.
_______________________________
Secretary
<PAGE>
I, the undersigned, President of the Borrower, DO HEREBY CERTIFY that Larry
Alan Kay is the duly elected and qualified Secretary of the Borrower and
the signature above is his genuine signature.
WITNESS my hand on this 30th day of June, 1993.
________________________________
President
-2-
<PAGE>
EXHIBIT E
---------
SUBSIDIARY GUARANTEE
IHOP REALTY CORP.
FOR VALUE RECEIVED and in consideration of the agreement by Continental
Bank N.A. (the "Bank") to extend credit to International House of Pancakes,
----
Inc., a Delaware corporation (herein called, together with its successors and
assigns, the "Borrower"), pursuant to the letter agreement dated as of June 30,
--------
1993, by and among the Bank, IHOP Corp., a Delaware corporation ("IHOP"), and
----
the Borrower, which is the wholly-owned Subsidiary of IHOP (the "Credit
------
Agreement"), the undersigned (the "Guarantor"), a wholly-owned Subsidiary of the
- --------- ---------
Borrower, unconditionally guarantees (a) the full and prompt payment, when due,
whether at maturity or earlier by reason of acceleration or otherwise, and at
all times thereafter of all obligations of the Borrower with respect to payment
of the principal of, prepayment charges (if any), and interest on the promissory
note (the "Note") executed pursuant to the Credit Agreement (including interest
----
on any overdue principal and prepayment charges, if any, and, to the extent
permitted by law, on any overdue interest), and all other amounts due, and (b)
the prompt and faithful performance, discharge and observance of all other
obligations, covenants, agreements, conditions, representations, warranties,
indemnities and liabilities of the Borrower and IHOP to be performed, discharged
or observed by the Borrower and IHOP, under or pursuant to the Credit Agreement
and all agreements, instruments and documents executed or delivered in
connection therewith or pursuant thereto (all such obligations of the Borrower
and IHOP guaranteed by the Guarantor herein being hereinafter called the
"Obligations"). In the event the Borrower or IHOP defaults in the payment or
-----------
performance, when due, of any of the Obligations (whether at their stated
maturity, by acceleration, or otherwise), the Guarantor shall pay to the Bank,
on demand, the full amount of such Obligations in immediately available funds at
the place provided in the Credit Agreement or shall, on demand, fully perform
such Obligations. The Guarantor further agrees to pay (a) all costs and expenses
including, without limitation, all court costs and reasonable attorneys' fees
and expenses paid or incurred by the Bank in endeavoring to collect all or any
part of the Obligations from, or in prosecuting any action against, IHOP, the
Borrower, the Guarantor, or any other guarantor of all or any part of the
Obligations, and (b) to the extent permitted by law, interest on the Obligations
and such costs and expenses at the applicable per annum rate set forth in the
Credit Agreement. Unless otherwise
<PAGE>
defined herein, the capitalized terms used herein which are defined in the
Credit Agreement shall have the meanings specified therein.
The Guarantor hereby represents and warrants that:
(a) The Guarantor has full power, authority and legal right to execute
this Guarantee.
(b) This Guarantee has been duly authorized, executed and delivered by
the Guarantor and constitutes a legal, valid and binding obligation of the
Guarantor enforceable in accordance with its terms.
(c) No consent, approval or authorization of or filing with any
governmental body or other person on the part of the Guarantor is required in
connection with this Guarantee.
(d) The execution, delivery and performance of this Guarantee will not
violate any provision of any applicable law or regulation or of any order,
judgment, writ, award or decree of any court, arbitrator or governmental body,
domestic or foreign, or of the charter or by-laws of the Guarantor or of any
securities issued by the Guarantor or of any mortgage, indenture, lease,
contract, or loan agreement to which the Guarantor is a party, or any other
agreement, instrument or undertaking to which the Guarantor is a party or which
purports to be binding upon the Guarantor or upon any of its assets, and will
not result in the creation or imposition of any Lien on any of the assets of the
Guarantor except as contemplated by this Guarantee.
The Guarantor hereby waives notice of acceptance of this Guarantee by the
Bank, of any action taken or omitted in reliance hereon or of any default in the
payment of any of the Obligations or in the performance of any covenants and
agreements of the Borrower contained in the Credit Agreement or the Note, and
any diligence, presentment, demand, protest, dishonor or notice of any kind.
This Guarantee constitutes a present and continuing Guarantee of payment
and performance and not of collectability of the Obligations, and shall be
absolute, primary, present and unconditional, and to the extent permitted by
applicable law, shall not be subject to any counterclaim, setoff, reduction or
defense based upon any claim the Guarantor may have against the Borrower, or any
other person, and shall remain in full force and effect without regard to, and
shall not be released, discharged or in any way affected or impaired by any
thing, event, happening, matter, circumstance or condition whatsoever (whether
-2-
<PAGE>
or not the Guarantor shall have any knowledge or notice thereof or shall consent
thereto), including, without limitation:
(i) any amendment or other modification of or supplement to any
provision of the Credit Agreement, any other agreements or documents
executed or delivered in connection therewith or pursuant thereto or the
Note or any assignment or transfer thereof, including without limitation
any renewal or extension of the terms of payment of the Note or the
granting of time in respect of any payment thereof, or any furnishing or
acceptance of security or any release of any security furnished or accepted
for the Note or in respect of the obligations of the Guarantor hereunder;
(ii) any waiver, consent, extension, granting of time,
forbearance, indulgence or other action or inaction under or in respect of
this Guarantee or the Note or any exercise or nonexercise of any right,
remedy or power in respect hereof or thereof;
(iii) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceedings with respect
to the Guarantor, the Borrower or any other person, or the properties or
creditors of any of them;
(iv) the occurrence of any Default or Event of Default, or any
invalidity or unenforceability of, or any misrepresentation, irregularity
or other defect in, the Credit Agreement, any other agreement or document
executed or delivered in connection therewith or pursuant thereto, the Note
or any other agreement;
(v) any transfer of any assets to or from the Guarantor, IHOP or
the Borrower, including without limitation any transfer or purported
transfer to the Guarantor, IHOP or the Borrower from any person, any
invalidity, illegality of, or inability to enforce, any such transfer or
purported transfer, any consolidation or merger of the Guarantor, IHOP or
the Borrower with or into any other corporation or entity, or any change
whatsoever in the objects, capital structure, constitution or business of
the Guarantor, IHOP or the Borrower or any affiliate or Subsidiary of the
Guarantor, IHOP or of the Borrower;
(vi) any failure on the part of the Borrower or any other person to
perform or comply with any term of the Note, the Credit Agreement, or any
other agreement;
-3-
<PAGE>
(vii) any suit or other action brought by the Guarantor, IHOP, the
Borrower or any other Person, or by any stockholder or creditor of any of such
Persons, for any reason whatsoever, including without limitation any suit or
action in any way attacking or involving any issue, matter or thing in respect
of the Note, the Credit Agreement or any other agreement;
(viii) any lack or limitation of status or power, incapacity or
disability of the Guarantor, IHOP or the Borrower or of any officer, director or
agent of the Guarantor, IHOP or the Borrower or any of their respective
stockholders;
(ix) the cessation from any cause whatsoever (other than payment of
the Obligations) of liability of the Borrower;
(x) the termination of, or release or compromise of the Credit
Agreement, any other agreement or document executed or delivered in connection
therewith or pursuant thereto, the Note or any other agreement, including,
without limitation, the guarantee of IHOP set forth in Section 17 of the Credit
Agreement (other than as a result of payment of the Obligations);
(xi) any lack or limitation of the genuineness, validity,
regularity or enforceability of the Note, the Credit Agreement, any other
agreement or document executed or delivered in connection therewith or pursuant
thereto, or any other agreement;
(xii) any failure by the Bank to take any steps to perfect or
maintain their security interest (if any) in or Liens (if any) upon, or to
preserve their rights to, any security or collateral for the Obligations;
(xiii) any election by the Bank, in any proceeding instituted under
Chapter 11 of Title 11 of the United States Code (11 U.S.C. (S) 101 et seq.)
-- ---
(the "Bankruptcy Code"), of the application of Section 1111(b)(2) of the
Bankruptcy Code;
(xiv) the disallowance, under Section 502 of the Bankruptcy Code, of
all or any portion of any of the Bank's claims for repayment of the Obligations;
or
(xv) any other thing, event, happening, matter, circumstance or
condition whatsoever, not in any way limited
-4-
<PAGE>
to the foregoing, which might otherwise constitute a legal or equitable
discharge or defense of a guarantor.
The liability of the undersigned Guarantor under this Guarantee shall not
exceed at any time the greater of (i) 95% of the Adjusted Net Assets (as
hereinafter defined) of the Guarantor at the time of delivery hereof and (ii)
95% of the Adjusted Net Assets of the Guarantor at the time of any payment
hereunder. As used herein, the term "Adjusted Net Assets" means at any time the
lesser of (x) the amount by which the fair market value of the assets of the
Guarantor exceeds the total amount of liabilities (including, without
limitation, contingent liabilities, but excluding liabilities under this
Guarantee) of the Guarantor at such time, and (y) the amount by which the
present fair market value of the assets of the Guarantor at such time exceeds
the amount that will be required to pay the probable liability of the Guarantor
on its debts (excluding debt in respect of this Guarantee), as they become
absolute and matured. Contingent liabilities of the Guarantor (including,
without limitation, liabilities in respect of guarantees, pension and other
employee benefit plans and pending or threatened litigation and claims), shall
be valued at amounts which, in light of all the facts and circumstances existing
at the time, represent amounts which can reasonably be expected to become actual
or matured liabilities.
Notwithstanding anything to the contrary contained herein or in any other
agreement, document or instrument, the Guarantor hereby irrevocably waives all
rights of subrogation (whether such rights arise under common law, contract or
Federal law, including, without limitation, Section 509 of the Bankruptcy Code)
to the claims of the Bank against the Borrower, and waives all contractual,
statutory and common law rights of contribution, reimbursement, indemnification
and similar rights and claims (as such term is defined in the Bankruptcy Code)
against the Borrower which may arise in connection with, or as a result of, this
Guarantee.
The Guarantor expressly waives any right it may have to require any Person
seeking enforcement of its obligations hereunder to (a) proceed against the
Borrower, IHOP or any other Person, (b) proceed against or exhaust any security,
or (c) pursue any other remedy in the power of the Person seeking such
enforcement, including without limitation, its remedies pursuant to the IHOP
guarantee set forth in Section 17 of the Credit Agreement. The Bank from time to
time may, at its election, exercise any right or remedy it may have against the
Guarantor, including, without limitation, the right to foreclose upon any such
security by judicial or non-judicial sale, without affecting or limiting in any
way the liability of the Guarantor
-5-
<PAGE>
hereunder, except to the extent the Obligations have been paid. The Guarantor
waives any defense arising out of the absence, impairment or loss of any right
of reimbursement, contribution or subrogation or any other right or remedy of
the Guarantor against the Borrower, IHOP or any such security, whether resulting
from such election by the Bank or otherwise.
The Guarantor agrees that its obligations hereunder shall be automatically
reinstated if and to the extent that for any reason any payment by or on behalf
of the Borrower, IHOP or the Guarantor is rescinded or must be otherwise
restored by the Bank, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise. The Guarantor further agrees that, without limiting
the generality of the foregoing, if an Event of Default shall have occurred and
be continuing and the Holder is prevented by applicable law from exercising any
remedy under this Guarantee or under the Note, the Bank shall be entitled to
receive from the Guarantor upon demand therefor, the sums which would otherwise
have been due from the Borrower had such remedies been exercised.
The Guarantor hereby expressly waives any and all benefits under California
Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and
3433 and California Code of Civil Procedure Sections 580(a), 580(b), 580(d) and
726.
The Guarantor agrees that this Guarantee shall continue in full force and
effect and may not be terminated or otherwise revoked by the Guarantor until the
Obligations shall have been fully discharged.
This Guarantee shall be binding upon the Guarantor and upon the successors
and assigns of the Guarantor and shall inure to the benefit of the Bank and its
successors and assigns; all references herein to the Borrower, IHOP and to the
Guarantor shall be deemed to include their respective successors and assigns,
including, without limitation, a receiver, trustee or debtor-in-possession of or
for the Borrower, IHOP or the Guarantor. All references to the singular shall be
deemed to include the plural where the context so requires.
THIS GUARANTEE SHALL BE CONSTRUED IN ACCORDANCE WITH AND SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO THE CHOICE OF LAW
PRINCIPLES OF SUCH STATE).
THE GUARANTOR CONSENTS AND AGREES TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT SITTING IN THE COUNTY OF COOK, STATE OF ILLINOIS, AND WAIVES ANY
OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION
----- --- ----------
INSTITUTED THEREIN, AND
-6-
<PAGE>
AGREES THAT ANY DISPUTE CONCERNING THE RELATIONSHIP BETWEEN ANY PURCHASER OR
HOLDER OF NOTE, ON THE ONE HAND, AND THE GUARANTOR, ON THE OTHER HAND, OR THE
CONDUCT OF ANY PARTY IN CONNECTION WITH THIS GUARANTEE OR OTHERWISE SHALL BE
HEARD ONLY IN THE COURTS DESCRIBED ABOVE.
THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT
AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY HAND DELIVERY OR
MAIL TO THE GUARANTOR AT ITS ADDRESS SET FORTH BELOW. THE GUARANTOR HEREBY
CONSENTS TO SERVICE OF PROCESS AS AFORESAID.
NOTHING IN THIS GUARANTEE SHALL AFFECT THE RIGHT OF THE BANK TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE BANK TO
BRING ANY ACTION OR PROCEEDING AGAINST THE GUARANTOR OR ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTION.
Wherever possible each provision of this Guarantee shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Guarantee shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guarantee.
THE GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING UNDER THIS GUARANTEE OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
THE GUARANTOR IN RESPECT TO THIS GUARANTEE OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS
RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. THE GUARANTOR HEREBY AGREES
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS GUARANTEE WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE GUARANTOR TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
-7-
<PAGE>
IN WITNESS WHEREOF, this Guarantee has been duly executed by the Guarantor
as of the 30th day of June, 1993.
IHOP REALTY CORP.
By: __________________________
Title:
525 North Brand Boulevard
Glendale, California 91203
-8-
<PAGE>
EXHIBIT F
---------
Certificate of Larry Alan Kay
I, the undersigned, Secretary of IHOP CORP. ("IHOP"), DO HEREBY CERTIFY
----
that:
1. This Certificate is furnished pursuant to Section 15 of that certain
----------
letter agreement dated as of June 30, 1993 (the "Agreement"), among IHOP,
---------
International House of Pancakes, Inc. and Continental Bank N.A. (the "Bank").
----
Unless otherwise defined herein, capitalized terms used in this Certificate have
the meanings assigned to such terms in the Agreement.
2. Attached hereto as Exhibit I are true, correct and complete copies of
---------
the certificate of incorporation of IHOP and the by-laws of IHOP as in effect on
the date hereof.
3. Attached hereto as Exhibit II is a true, correct and complete copy of
----------
resolutions duly adopted by the Board of Directors of IHOP, which resolutions
have not been revoked, modified, amended or rescinded and are still in full
force and effect.
4. The persons named in Exhibit III attached hereto have been duly
-----------
elected, have duly qualified as and at all times since June 1, 1993 (to and
including the date hereof) have been officers of IHOP holding the respective
offices set forth therein opposite their names.
5. I know of no proceeding for the dissolution or liquidation of IHOP or
threatening its existence.
WITNESS my hand this 30th day of June, 1993.
_________________________________
Secretary
I, the undersigned, President of IHOP, DO HEREBY CERTIFY that Larry Alan
Kay is the duly elected and qualified Secretary of IHOP and the signature above
is his genuine signature.
WITNESS my hand on this 30th day of June, 1993.
_________________________________
President
<PAGE>
EXHIBIT G
---------
Certificate of Larry Alan Kay
I, the undersigned, Secretary of IHOP REALTY CORP. ("Realty"), DO HEREBY
------
CERTIFY that:
1. This Certificate is furnished pursuant to Section 15 of that certain
----------
letter agreement dated as of June 30, 1993 (the "Agreement"), among IHOP,
---------
International House of Pancakes, Inc. and Continental Bank N.A. (the "Bank").
----
Unless otherwise defined herein, capitalized terms used in this Certificate have
the meanings assigned to such terms in the Agreement.
2. Attached hereto as Exhibit I are true, correct and complete copies of
---------
the certificate of incorporation of Realty and the by-laws of Realty as in
effect on the date hereof.
3. Attached hereto as Exhibit II is a true, correct and complete copy of
----------
resolutions duly adopted by the Board of Directors of Realty, which resolutions
have not been revoked, modified, amended or rescinded and are still in full
force and effect.
4. The persons named in Exhibit III attached hereto have been duly
-----------
elected, have duly qualified as and at all times since June 1, 1993 (to and
including the date hereof) have been officers of Realty holding the respective
offices set forth therein opposite their names.
5. I know of no proceeding for the dissolution or liquidation of Realty or
threatening its existence.
WITNESS my hand this 30th day of June, 1993.
____________________________________
Secretary
I, the undersigned, President of Realty, DO HEREBY CERTIFY that Larry Alan
Kay is the duly elected and qualified Secretary of Realty and the signature
above is his genuine signature.
WITNESS my hand on this 30th day of June, 1993.
____________________________________
President
<PAGE>
EXHIBIT H
---------
[Opinion of counsel to IHOP, the Borrower and
IHOP Realty Corp. addressed to the Bank
and Mayer, Brown & Platt)
1. IHOP, the Borrower and each of their subsidiaries are corporations duly
incorporated, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation, and each has the requisite corporate
power and authority to own, lease and operate its respective properties and to
carry on its respective businesses as presently owned and conducted, and each is
duly qualified and in good standing in the jurisdictions in which the character
of the properties owned or leased by it or the nature of the business transacted
by it makes such qualification necessary.
2. The Credit Agreement, the Note and the Subsidiary Guarantee have been
duly authorized, executed and delivered by IHOP, the Borrower and IHOP Realty
Corp., to the extent each is a party thereto and such documents constitute the
legal, valid and binding agreements of IHOP, the Borrower and IHOP Realty Corp,
to the extent each is a party thereto, enforceable against IHOP, the Borrower
and IHOP Realty Corp., to the extent each is a party thereto, in accordance with
their terms.
3. The execution of the Note, the execution and delivery of, and
performance by IHOP and the Borrower of their respective contractually required
obligations and undertakings under, the Credit Agreement and the execution and
delivery of, and performance by IHOP Realty Corp. of its contractually required
obligations and undertakings under, the Subsidiary Guarantee, do not conflict
with or result in any breach of any provision of, constitute a default under, or
result in the creation or imposition of any Lien upon any of the respective
Properties of IHOP, the Borrower or IHOP Realty Corp. or any of their
Subsidiaries pursuant to the provisions of the charter documents of any of them,
or any agreement, order, decree, indenture, judgment or other instrument or
document to which any of them is a party or by which any of them or their
respective properties may be bound.
4. There are no proceedings pending or threatened against IHOP, the
Borrower or any of their subsidiaries in any court or before any governmental
body or arbitration board or tribunal which could materially and adversely
affect the properties, business, profits or condition (financial or otherwise)
of IHOP, the Borrower or any of their subsidiaries or the ability of IHOP
<PAGE>
or the Borrower to perform their respective obligations under the Credit
Agreement or the Note or the ability of IHOP Realty Corp. to perform its
obligations under the Subsidiary Guarantee.
5. No consent, approval, authorization, or order of, or other action by
or filing with, any governmental body is required in connection with the
execution, delivery or performance of the Credit Agreement or the Subsidiary
Guarantee, the execution and delivery of the Note or Compliance by IHOP, the
Borrower and IHOP Realty Corp., to the extent each is a party thereto, with the
terms and provisions thereof.
6. None of IHOP, the Borrower nor any of their subsidiaries is in default
in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any franchising arrangement, material
lease, agreement, indenture or loan document to which it is a party, and no
condition exists which, with the giving of notice or the lapse of time or
both, would constitute such a default.
7. None of IHOP, the Borrower nor any of their subsidiaries is, nor are
any of them directly or indirectly controlled by or acting on behalf of any
person which is, an "investment company" within the meaning of the
Investment Company Act of 1940, and none of IHOP, the borrower nor any of
their subsidiaries is subject to any law, statute, rule or regulation
limiting its ability to incur indebtedness for money borrowed.
8. All of the shares of issued and outstanding capital stock of the
Borrower are owned of record and, to our knowledge, beneficially, by IHOP
and all of the shares of issued and outstanding capital stock of IHOP
Realty Corp. are owned of record and, to our knowledge, beneficially, by
the Borrower, in each case free and clear of liens.
-2-
<PAGE>
FIRST AMENDMENT TO LETTER AGREEMENT
------------------------- ---------
THIS FIRST AMENDMENT TO LETTER AGREEMENT is made and dated as of
December 31, 1994 (the "AMENDMENT") among INTERNATIONAL HOUSE OF PANCAKES, INC.,
(the "BORROWER"), IHOP CORP, as Guarantor (the "GUARANTOR") and BANK OF
AMERICA ILLINOIS, a state chartered banking association, as successor by merger
to Continental Bank N.A. ("Bank") and amends that certain $10,000,000 Letter
Agreement dated as of June 30, 1993 (as amended or modified from time to time,
the "AGREEMENT").
RECITALS
--------
WHEREAS, the Borrower has requested, and the Bank has agreed, on the
terms and conditions set forth herein, to amend the Agreement to modify certain
financial covenants, all as more fully described herein, and the Bank is willing
to do so, on the terms and conditions set forth herein;
WHEREAS, certain other modifications to the Agreement are necessary to
reflect the merger of Continental Bank N.A. into Bank of America Illinois;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All capitalized terms used herein shall have the same
-----
meanings as in the Agreement unless otherwise defined herein.
2. Amendments to Agreement. The parties hereto agree that the
-----------------------
Agreement is amended as follows:
2.1 All references to Continental Bank N.A. in the Agreement, the
Letters of Credit, Subsidiary Guarantee, the Note, and all other documents or
instruments delivered pursuant to any of them, shall be amended, and shall
hereinafter be deemed to be, references to Bank.
2.2 The first paragraph of the Agreement is hereby amended by
deleting "$2,000,000" and inserting "$5,000,000" in lieu thereof.
2.3 Section 1 is hereby amended by deleting "June 30, 1995" and
inserting "June 30, 1996"; provided however, that any Letter of Credit issued
-------- -------
hereunder shall have an expiry date not later than December 31, 1996" in lieu
thereof.
2.4 Section 2(a) is hereby amended by deleting the references to
"noon, Chicago time" therein and inserting "10:00 a.m., San Francisco time" in
lieu thereof, and deleting the reference to "12:30 p.m., Chicago time" and
inserting "10:30 a.m., San Francisco time" in lieu thereof.
-1-
<PAGE>
2.5 Section 2(c) is hereby amended by deleting "$2,000,000" and
inserting "$5,000,000", by deleting "1983" and inserting "1993" in lieu thereof,
and by deleting "Publication No. 400" and inserting "Publication No.500" in lieu
thereof.
2.6 Section 4(f) is hereby amended by deleting the reference to "12:30
p.m. Chicago time" in the first sentence thereof and inserting "10:00 a.m., San
Francisco time" in lieu thereof, and deleting the reference to "noon, Chicago
time" in the second sentence thereof and inserting "10:30 a.m., San Francisco
time" in lieu thereof.
2.7 Section 5(b) is amended by deleting the references to "11:30
a.m., Chicago time" and inserting "9:30 a.m., San Francisco time" in lieu
thereof.
2.8 Section 6 is amended by deleting the reference to "1:00 p.m.,
Chicago time" and inserting 10:30 a.m., San Francisco time" in lieu thereof.
2.9 Section 14.3 is hereby amended and restated in its entirety as
follows:
"14.3 Consolidated Tangible Net Worth. IHOP and the
----------------------------------
Borrower shall not permit Consolidated Tangible Net Worth at any
time to be less than the sum of $60,000,000 plus 50% of the
----
Consolidated Net Income on a cumulative basis from December 31,
1994, to and including any date of determination, less intangible
----
assets booked after December 31, 1994."
2.10 Section 14.8 is hereby amended and restated in its entirety
as follows:
"14.8 Maintenance of Fixed Charge Coverage.
----------------------------------------
IHOP and the Borrower covenant that on the last day of any quarterly
accounting period of IHOP and its Subsidiaries, the ratio of
Consolidated Income Available for Fixed Charges (excluding
extraordinary losses or gains or non-recurring charges) to Fixed
Charges for the immediately preceding four quarterly accounting
periods shall not be less than 1.50:1.00."
2.11 Section 14.12(a) is hereby amended by deleting "$30,000,000"
and inserting "$35,000,000, net of all expenditures relating to sale leaseback
transactions" in lieu thereof.
2.12 Section 18 is hereby amended by deleting the definition of
"Alternative Reference Rate" and amending and restating such definition in its
entirety as follows:
"Alternative Reference Rate" shall mean, for any day, the higher
of:
(a) the rate of interest in effect for such day as publicly
announced from time to time by the Bank in San Francisco,
California, as its "reference rate." It is a rate set by the Bank
based upon various factors including the Bank's costs and desired
return, general economic conditions and other factors, and is
used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate; and
(b) 0.50% per annum above the latest Federal Funds Effective
Rate.
-2-
<PAGE>
Any change in the reference rate announced by the Bank shall take
effect at the opening of business on the day specified in the
public announcement of such change."
2.13 Section 18 is hereby amended by deleting "Chicago, Illinois" from
the definition of "Business Day" and inserting "San Francisco, California" in
lieu thereof.
2.14 Section 18 is hereby amended by deleting "1.50%" in clause (i) of
the definition of "Eurodollar Rate" and inserting "1.25%" in lieu thereof, and
deleting the reference to "10:00 a.m., Chicago time" and inserting "10:00 a.m.,
San Francisco time".
2.15 Section 19 is hereby amended by deleting the sixth sentence
thereof in its entirety and amending and restating such sentence in its entirety
as follows:
"The Borrower shall pay on demand all reasonable fees and
expenses of the Bank's counsel (including, without limitation,
the allocated fees and expenses of in-house staff counsel and the
reasonable fees and out-of pocket expenses of outside counsel) in
connection with the execution and delivery of the Agreement, the
Note and all other instruments or documents provided for herein
or delivered or to be delivered hereunder or in connection
herewith and in connection with all waivers hereof and amendments
hereto, and in connection with the administration, "workout" or
enforcement of this Agreement, the Note or any such other
instruments or documents."
2.16 The Subsidiary Guarantee is hereby amended by deleting the third
sentence thereof and amending and restating such sentence in its entirety as
follows:
"The Guarantor further agrees to pay (a) all costs and expenses
including, without limitation, all court costs and reasonable
attorneys fees and expenses paid or incurred by the Bank
(including, without limitation, the allocated fees and expenses
of in-house staff counsel and the reasonable fees and out-of
pocket expenses of outside counsel) in endeavoring to collect all
or any part of the Obligations from, or in prosecuting any action
against, IHOP, the Borrower, the Guarantor, or any other
guarantor of all or any part of the Obligations, and (b) to the
extent permitted by law, interest on the Obligations and such
costs and expenses at the applicable per annum rate set forth in
the Credit Agreement."
3. Reaffirmation of IHOP Guaranty. IHOP does hereby reaffirm and
------------------------------
restate that the terms and provisions of Section 17 of the Agreement, as amended
and modified by this Amendment, continue in full force and effect and are
ratified and confirmed in all respects on and as of the date hereof, after
giving effect to this Amendment.
4. Reaffirmation of Guaranty. IHOP Realty does hereby reaffirm and
-------------------------
restate that the terms and provisions of that certain Guaranty, dated as of June
30, 1993 as amended and modified by this Amendment, continue in full force and
effect and are ratified and confirmed in all respects on and as of the date
hereof, after giving effect to this Amendment.
-3-
<PAGE>
5. Representations and Warranties. IHOP and the Borrower do hereby
------------------------------
represent and warrant as follows:
(a) each of the Borrower and IHOP has been duly incorporated and
is a validly existing corporation under the laws of the State of Delaware, has
full legal right, power and authority to enter into this Amendment and to carry
out and consummate all transactions contemplated by the Agreement and this
Amendment;
(b) This Amendment has been duly authorized and is a valid and
binding obligation of the Borrower and IHOP, enforceable in accordance with its
terms;
(c) This Amendment will not conflict with or constitute a breach
of or default under their respective articles of incorporation or by-laws, or
any material agreement to which the Borrower or IHOP is a party or by which the
Borrower or IHOP or any of their respective properties are bound, or any rule or
regulation of any court or governmental agency or body having jurisdiction over
the Borrower or IHOP or any of their respective activities or properties;
(d) No Event of Default under the Agreement has occurred and is
continuing.
(e) The representations and warranties in Section 11 of the
Agreement are true and correct in all respects on and as of the date hereof as
though made on and as of the date hereof.
6. Conditions, Effectiveness. The effectiveness of this
-------------------------
Amendment and the obligations of Bank to make any credits pursuant to the
Agreement shall be subject to the compliance by Borrower with the agreements
herein and therein contained, and the receipt by Bank of the extension fee in
the amount of $12,500.00 in immediately available funds.
7. Miscellaneous.
-------------
(a) Except as hereby expressly amended, the Agreement shall
remain in full force and effect and is hereby ratified and confirmed in all
respects.
(b) This Amendment is specific in time and in intent and does not
constitute, nor should it be construed as, a waiver of any other right, power or
privilege under the Agreement, or under any agreement, contract, indenture,
document or instrument mentioned in the Agreement; nor does it preclude other or
further exercise hereof or the exercise of any other right, power or privilege,
nor shall any waiver of any right, power, privilege or default hereunder, or
under any agreement, contract, indenture, document or instrument mentioned in
the Agreement, constitute a waiver of any other default of the same or of any
other term or provision.
(c) This amendment may be executed in any number of counterparts
and all of such counterparts taken together shall be deemed to constitute one
and the same instrument. This amendment shall not become effective until
Borrower, IHOP and IHOP Realty shall each have signed a copy hereof, whether the
same or counterparts, and the same shall have been delivered to Bank.
8. Governing Law. This Amendment shall be a contract made under
-------------
and governed by the internal laws of the state of Illinois.
-4-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused its
respective duly authorized officer to execute and deliver this Amendment as of
the date first written above.
BANK OF AMERICA ILLINOIS
By: /s/ YVONNE C. DENNIS
-------------------------------
Name: YVONNE C. DENNIS
-----------------------------
Title: VICE PRESIDENT
----------------------------
By: /s/ SABUR MOINI
-------------------------------
Name: SABUR MOINI
-----------------------------
Title: ASSISTANT VICE PRESIDENT
----------------------------
INTERNATIONAL HOUSE OF PANCAKES, INC.
By: /s/ Richard K. Herzer
-------------------------------
Richard K. Herzer President and Chief
Executive Officer
IHOP CORP.
By /s/ Richard K. Herzer
--------------------------------
Richard K. Herzer President and Chief
Executive Officer
-5-
<PAGE>
CONSENT BY GUARANTORS
Each of the undersigned Guarantors does hereby consent to the foregoing First
Amendment dated as of December 31, 1994 to Letter Agreement dated as of June 30,
1993 and hereby reaffirms, ratifies and confirms its respective Guarantee, which
continues in full force and effect on and as of the date hereof, after giving
effect to such First Amendment.
Date: Feb. 23, 1995
--------
IHOP REALTY CORP.
By: /s/ Richard K. Herzer
--------------------------------
Richard K. Herzer President and Chief
Executive Officer
IHOP CORP.
By: /s/ Richard K. Herzer
---------------------------------
Richard K. Herzer President and Chief
Executive Officer
-6-
<PAGE>
INDEX
-----
FIRST AMENDMENT TO
$10,000,000 LETTER AGREEMENT
DATED AS OF
DECEMBER 31, 1994
INTERNATIONAL HOUSE OF PANCAKES, INC.
1. First Amendment to Letter Agreement made and dated as of December 31, 1994
2. Evidence of payment of extension fee pursuant to Section 6 of First
Amendment to Letter Agreement
<PAGE>
SECOND AMENDMENT TO LETTER AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO LETTER AGREEMENT (this "Second Amendment") is
made and dated as of March 11, 1996 among INTERNATIONAL HOUSE OF PANCAKES, INC.,
(the "Borrower"), IHOP CORP., as Guarantor (the "Guarantor") and BANK OF AMERICA
ILLINOIS ("Bank"), and amends that certain Letter Agreement dated as of June 30,
1993, as amended by a letter dated July 15, 1993 from Continental Bank to the
Borrower and a First Amendment to Letter Agreement dated as of December 31, 1994
(as so amended, the "Agreement").
RECITAL
-------
The Borrower has requested that the Bank increase the Commitment
Amount, extend the Maturity Date and amend certain financial covenants, and the
Bank is willing to do so on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All capitalized terms used herein shall have the same
-----
meanings as in the Agreement unless otherwise defined herein. All references to
the Agreement shall mean the Agreement as hereby amended.
2. Amendments to Agreement. The parties hereto agree that the
-----------------------
Agreement is hereby amended as follows:
2.1 The first paragraph of the Agreement is amended by deleting
"$10,000,000" and inserting "$20,000,000" in lieu thereof.
2.2 Section 1 of the Agreement is amended by deleting "June 30, 1996"
and inserting "June 30, 1999" in lieu thereof.
2.3 Section 3 of the Agreement is amended and restated in its
entirety as follows:
"Section 3. Loan Accounts. All Loans made by the Bank to the
-------------
Borrower pursuant to this Agreement shall be evidenced by one or more loan
accounts or records maintained by the Bank in the ordinary course of business.
The loan accounts or records maintained by the Bank shall be conclusive and
binding on the
-1-
<PAGE>
Borrower (absent manifest error). The failure to record, or any error
in recording, any information shall not, however, limit or otherwise
affect the Borrower's obligations under this Agreement to repay the
principal amount of the Loans under this Agreement together with all
interest accruing thereon."
2.4 Section 10(b) of the Agreement is amended by deleting ".50%" and
inserting ".375%" in lieu thereof.
2.5 Section 14.2 of the Agreement is amended by deleting ".55 to
1.00" and inserting ".50 to 1.00" in lieu thereof.
2.6 Section 14.3 of the Agreement is amended and restated in its
entirety as follows:
"14.3 Consolidated Tangible Net Worth. IHOP and the Borrower
-------------------------------
shall not permit Consolidated Tangible Net Worth at any time to
be less than the sum of $95,000,000 plus 50% of the Consolidated
----
Net Income on a cumulative basis from December 31, 1995, to and
including any date of determination."
2.7 Section 14.12(a) of the Agreement is amended by deleting
"$35,000,000 net of all expenditures relating to sale leaseback transactions"
and inserting "$45,000,000 net of all proceeds relating to sale leaseback
transactions" in lieu thereof.
2.8 The definition of "Debt" in Section 18 of the Agreement is
amended by inserting "95% of the amount of" immediately before "accounts
receivable" in clause (iii) thereof.
2.9 The definition of "Eurodollar Rate" in Section 18 of the Agreement
is hereby amended by deleting "1.25%" in clause (i) thereof and inserting
"1.20%" in lieu thereof.
2.10 Exhibit A to the Agreement is deleted, and any references to the
Note in the Agreement or in any document or agreement relating thereto are
deemed to be references to the Agreement and amounts owing thereunder. Amounts
evidenced by the Note are deemed continued owing under the Agreement and
evidenced by the loan accounts referred to in Section 3 of the Agreement, as
amended hereby. The Note shall be deemed superseded and continued by such loan
accounts.
3. Reaffirmation of IHOP Guaranty. IHOP does hereby reaffirm that
------------------------------
the terms and provisions of Section 17 of the Agreement continue in full force
and effect and are ratified and
-2-
<PAGE>
confirmed in all respects on and as of the date hereof, after giving effect to
this Second Amendment. IHOP agrees that any references to the Note in the
Agreement, including without limitation Section 17 of the Agreement, shall be
deemed a reference to the Agreement and amounts owing thereunder, as evidenced
by the loan accounts referred to in Section 3 of the Agreement, as amended
hereby.
4. Representations and Warranties. IHOP and the Borrower do hereby
------------------------------
represent and warrant as follows:
4.1 Authority. Each of the Borrower and IHOP has been duly
---------
incorporated and is a validly existing corporation under the laws of the State
of Delaware, has full legal right, power and authority to enter into this Second
Amendment and to carry out and consummate all transactions contemplated by the
Agreement and this Second Amendment.
4.2 Enforceability. This Second Amendment has been duly authorized
--------------
and is a valid and binding obligation of the Borrower and IHOP, enforceable in
accordance with its terms.
4.3 No Conflict. This Second Amendment will not conflict with or
-----------
constitute a breach of or default under their respective articles of
incorporation or by-laws, or any material agreement to which the Borrower or
IHOP is a party or by which the Borrower or IHOP or any of their respective
properties are bound, or any rule or regulation of any court or governmental
agency or body having jurisdiction over the Borrower or IHOP or any of their
respective activities or properties.
4.4 No Event of Default. No Event of Default under the Agreement has
-------------------
occurred and is continuing.
4.5 Representations and Warranties. The representations and
------------------------------
warranties in Section 11 of the Agreement are true and correct in all respects
on and as of the date hereof as though made on and as of the date hereof.
5. Conditions, Effectiveness. The effectiveness of this Second
-------------------------
Amendment shall be subject to the compliance by the Borrower with its agreements
herein contained, and to the delivery of the following to the Bank in form and
substance satisfactory to the Bank:
5.1 Resolutions; Incumbency Certificate. A certified copy of
-----------------------------------
resolutions of the Borrower's and IHOP's board of directors, evidencing the
authority of the Borrower and IHOP to execute and deliver this Second Amendment,
and any document or instrument required or delivered pursuant hereto, together
with a
-3-
<PAGE>
certificate of a secretary or assistant secretary of the Borrower and IHOP
certifying as to the incumbency and specimen signature of the officer signing
this Second Amendment.
5.2 Extension Fee. Receipt of an extension fee equal to 12.5 basis
-------------
points of the Commitment Amount, as increased by this Second Amendment.
5.3 Other Evidence. Such other evidence with respect to the
--------------
Borrower, IHOP and any other person as the Bank may reasonably request in
connection with this Second Amendment and the compliance with the conditions set
forth herein.
6. Miscellaneous.
-------------
(a) Except as hereby expressly amended, the Agreement shall remain in
full force and effect and is hereby ratified and confirmed in all respects.
(b) This Second Amendment is specific in time and in intent and does
not constitute, nor should it be construed as, a waiver of any other right,
power or privilege under the Agreement, or under any agreement, contract,
indenture, document or instrument mentioned in the Agreement; nor does it
preclude other or further exercise hereof or the exercise of any other right,
power or privilege, nor shall any waiver of any right, power, privilege or
default hereunder, or under any agreement, contract, indenture, document or
instrument mentioned in the Agreement, constitute a waiver of any other default
of the same or of any other term or provision.
(c) This amendment may be executed in any number of counterparts and
all of such counterparts taken together shall be deemed to constitute one and
the same instrument. This amendment shall not become effective until Borrower,
IHOP and IHOP Realty shall each have signed a copy hereof, whether the same or
counterparts, and the same shall have been delivered to Bank.
7. Governing Law. This Second Amendment shall be a contract made
-------------
under and governed by the internal laws of the state of Illinois.
-4-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused its
respective duly authorized officer to execute and deliver this Second Amendment
as of the date first written above.
INTERNATIONAL HOUSE OF PANCAKES, INC.
By: /s/ Richard K. Herzer
----------------------------
Richard K. Herzer
President and
Chief Executive Officer
IHOP CORP.
By: /s/ Richard K. Herzer
----------------------------
Richard K. Herzer
President and
Chief Executive Officer
BANK OF AMERICA ILLINOIS
By: /s/ Yvonne Dennis
----------------------------
Yvonne Dennis
Vice President
-5-
<PAGE>
CONSENT OF GUARANTOR
--------------------
The undersigned Guarantor does hereby consent to the foregoing Second Amendment
to Letter Agreement dated as of June 30, 1993 and hereby reaffirms, ratifies and
confirms that its Subsidiary Guarantee continues in full force and effect on and
as of the date hereof and after giving effect to such Second Amendment. The
undersigned agrees that any references to the Note in the Guarantee and the
Agreement shall be deemed a reference to the Agreement and amounts owing
thereunder, as evidenced by the loan accounts referred to in Section 3 of the
Agreement, as amended hereby.
Date: February 8, 1996
IHOP REALTY CORP.
By: /s/ Richard K. Herzer
----------------------------
Richard K. Herzer
President and
Chief Executive Officer
-6-
<PAGE>
CONSENT OF GUARANTOR
--------------------
The undersigned Guarantor does hereby consent to the foregoing Second Amendment
to Letter Agreement dated as of June 30, 1993 and hereby reaffirms, ratifies and
confirms that its Subsidiary Guarantee continues in full force and effect on and
as of the date hereof and after giving effect to such Second Amendment. The
undersigned agrees that any references to the Note in the Guarantee and the
Agreement shall be deemed a reference to the Agreement and amounts owing
thereunder, as evidenced by the loan accounts referred to in Section 3 of the
Agreement, as amended hereby.
Date: March 11, 1996
IHOP REALTY CORP.
By: /s/ Richard K. Herzer
----------------------------
Richard K. Herzer
President and
Chief Executive Officer
-6-
<PAGE>
EXHIBIT 10.1
IHOP CORP
EXECUTIVE INCENTIVE PLAN
<PAGE>
EFFECTIVE DATE
The Executive Incentive Plan is effective January 1, 1998, and supersedes all
previously implemented plans.
MODIFICATION OF THE PLAN
IHOP CORP reserves the right to modify, terminate or make exceptions to the
Executive Incentive Plan at any time without prior notice. The Plan will be
reviewed on an annual basis allowing for updates or revisions to be considered.
The Plan and this Plan Document do not constitute or imply an employment
contract, and participants accrue no interest, right or any benefit in the Plan,
except as specifically set forth in this document.
ELIGIBILITY
The Plan includes the President, Vice Presidents, Directors and all manager
level reports to the Directors, Vice Presidents or President, including legal
counsels of the IHOP Corporation and its subsidiaries; except those otherwise
covered by another plan. Any director or manager level employee not qualifying
to the previous conditions may become eligible with the written approval of the
President. Participants must be actively employed with IHOP Corp. and its
subsidiaries through the plan year of the bonus plan. The last day worked is
the last day an employee is considered active. In the case of termination,
vacation or other payments can not be used to extend the last day worked.
The incentive calculations are based on the position held at the end of the
fiscal year the incentive was earned, unless otherwise stated below.
NEW HIRES/RE-HIRES
New hires and re-hires eligible for the Plan will have the incentive amount
prorated based on the number of whole months worked in the fiscal year. If the
participant begins work on the first calendar or workday of the month, they will
be credited for a whole month worked. In the event an eligible employee is
terminated and re-hired in the same fiscal year, the re-hire date will be used
to determine the number of whole months to be prorated for the given year. For
re-hired participants, incentive will not consider any time worked prior to the
re-hire date.
PROMOTIONS
Any employee promoted to an eligible position during the fiscal year will have
an incentive prorated based on the number of whole months in the fiscal year.
If the participant is promoted on the first calendar or workday of the month,
they will be credited for a whole month worked. The effective date of the
promotion will be used to determine the number of whole months worked.
DEMOTIONS
When an employee is demoted from one eligible position to another the incentive
will be calculated using the base pay at the end of the fiscal year. The
percentage multiplier will be derived from the factor that relates to the
specific job at the end of the fiscal year. Therefore, the calculations for the
incentive will be based on the attributes of the current job. There will be no
prorated incentives for individuals demoted during the fiscal year to an
eligible position.
JOB CHANGE TO A NON-ELIGIBLE POSITION
Any employee changing from an eligible position to a non-eligible position
during the fiscal year will have an incentive prorated based on the number of
whole months in the fiscal year. The effective date of the job change will be
used to determine the number of whole months worked. If the participant changed
positions on the first calendar or workday of the month, the previous month will
be used to determine the last whole month worked.
2
<PAGE>
SHORT-TERM OR LONG-TERM DISABILITY, WORKERS' COMPENSATION AND OTHER LEAVES OF
ABSENCE
Any participant on leave of absence, or otherwise not actively working during
the fiscal year will have an incentive prorated excluding the period on leave.
The date the leave is effective and the date ending leave will be used to
calculate the number of whole months worked in the fiscal year. This incentive
will only be paid upon the employees returning to active duty.
TERMINATION DUE TO DEATH OR RETIREMENT
Any incentive earned will be prorated for the fiscal year earned and awarded
with the normal distribution of incentives. The incentive amount will be based
on the number of whole months worked in the fiscal year earned.
PLAN DESCRIPTION
The Executive Incentive Plan is an annual incentive based on the profitability
growth of IHOP Corp. and on the achievement of specific individual business
objectives of the participants.
DETERMINING INCENTIVE
The incentive award is a percentage of base salary which is dependent on the
position of the participant (see "Bonus Allocation Table"). The Target Payout %
multiplied by the participants base salary on the last day of the fiscal year is
the Target Incentive in dollars. Any eligible participant that is not an
Officer will have an incentive based on the Directors Target Payout as a
percentage of Base Salary. The incentive weighting for the CEO is solely based
on Company Performance. The incentive weighting for Executive Vice President,
Vice Presidents, and Directors is 40% Individual Business Objectives and 60%
Company Performance.
<TABLE>
<CAPTION>
BONUS ALLOCATION TABLE
CEO EXECUTIVE VICE VICE PRESIDENTS DIRECTORS
PRESIDENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TARGET PAYOUT
AS A % OF BASE 60% 50% 35% 20%
SALARY
- -----------------------------------------------------------------------------------------------------
</TABLE>
INCENTIVE PAYOUT CALCULATION
The incentive payout is based solely on performance, therefore no limiting
factors will be used in calculating the incentive. The Level of Performance is
always based on the last whole percentage actually achieved.
Examples of incentive calculations in various scenarios are attached to the Plan
Document.
COMPANY PERFORMANCE
The Company Performance is based on a comparison of the actual profit before
taxes and extraordinary items to the budgeted figure for the Plan Year. To
determine the Profit Achievement for the organization divide the actual profit
before taxes, any bonus payout and extraordinary items by the budgeted profit.
Refer to the "Company Payout Table" to determine the bonus achieved for Company
portion of the incentive. The bonus achieved is multiplied by the percentage
weighting for the respective position (see "Determining Incentive") and then
multiplied by the individual's base salary to determine the company portion of
the payout.
3
<PAGE>
<TABLE>
<CAPTION>
COMPANY PAYOUT TABLE
ACTUAL PROFIT ACHIEVED % OF BONUS ACHIEVED
- ---------------------------------------------------------------------------------
<S> <C>
Less than 90 % 0 %
- ---------------------------------------------------------------------------------
90 % 75.0%
- ---------------------------------------------------------------------------------
91 % 77.5%
- ---------------------------------------------------------------------------------
92 % 80.0%
- ---------------------------------------------------------------------------------
93 % 82.5%
- ---------------------------------------------------------------------------------
94 % 85.0%
- ---------------------------------------------------------------------------------
95 % 87.5%
- ---------------------------------------------------------------------------------
96 % 90.0%
- ---------------------------------------------------------------------------------
97 % 92.5%
- ---------------------------------------------------------------------------------
98 % 95.0%
- ---------------------------------------------------------------------------------
99 % 97.5%
- ---------------------------------------------------------------------------------
100 % 100.0%
- ---------------------------------------------------------------------------------
101 % 105.0%
- ---------------------------------------------------------------------------------
102 % 110.0%
- ---------------------------------------------------------------------------------
103 % 115.0%
- ---------------------------------------------------------------------------------
104 % 120.0%
- ---------------------------------------------------------------------------------
105 % 125.0%
- ---------------------------------------------------------------------------------
106 % 130.0%
- ---------------------------------------------------------------------------------
107 % 135.0%
- ---------------------------------------------------------------------------------
108 % 140.0%
- ---------------------------------------------------------------------------------
109 % 145.0%
- ---------------------------------------------------------------------------------
110 % 150.0%
- ---------------------------------------------------------------------------------
111 % 155.0%
- ---------------------------------------------------------------------------------
112 % 160.0%
- ---------------------------------------------------------------------------------
113 % 165.0%
- ---------------------------------------------------------------------------------
114 % or more 170.0%
- ---------------------------------------------------------------------------------
</TABLE>
INDIVIDUAL BUSINESS OBJECTIVES
Annually, each eligible participant in the plan sets individual business
objectives in conjunction with his or her immediate supervisor in December of
each year. During this process challenging, measurable objectives that
significantly impact the Company business objectives are to be mutually
determined.
After the fiscal year, a percentage of Achievement is then established by the
immediate supervisor and approved by the CEO. This percentage of Achievement is
multiplied by the percentage weighting for the respective position (see
"Determining Incentive") and then multiplied by the individual's base salary to
determine the individual portion of the payout.
In addition to the calculated individual portion of the incentive, an award may
be granted at the discretion of the President to individuals exceeding expected
levels of performance.
PAYMENT DISTRIBUTION
4
<PAGE>
Incentive payouts will be distributed as soon as possible following the closing
of the fiscal year. Payouts will be paid in a separate check from the regular
payroll check, and is subject to normal withholding deductions.
PLAN ADMINISTRATION
The Executive Incentive plan is administered by the IHOP Human Resources
Department. This Plan Document and its provisions regulate all plan guidelines
and participant eligibility. Any special circumstances must be submitted in
writing to the Human Resources Department and approved by the President at the
time of the exception.
5
<PAGE>
INCENTIVE CALCULATION SCENARIOS
-------------------------------
6
<PAGE>
EXAMPLE #1: LOW INDIVIDUAL ACHIEVER & LOW COMPANY
Assume a Vice President has a Base Salary of $170,000.
INDIVIDUAL COMPONENT
- --------------------
The Individual Performance was reviewed and found 1 out of 4 goals were
achieved. Assuming each goal was weighted equally, the Individual Component is
25%. Assume the EPS growth for the fiscal year was 11%.
COMPANY COMPONENT
- -----------------
Profit Before Taxes and Extraordinary Items for the year is 95% of the Target
Amount. Therefore, the Bonus Achieved is 87.5% for the Company Component (see
"Company Payout Table" on page 4 of the Plan) .
Step # 1 - Target Payout
- --------------------------
Base Salary * Target Payout % = Target Payout
$170,000 * (35%) = $59,500
Step # 2 - Individual Payout
- ----------------------------
Individual * Weighted as 40% = Individual Payout
Component of Target Payout
25% * (40% * $59,500) = $5,950
Step # 3 - Company Payout
- -------------------------
Company * Weighted as 60% = Company Target
Component of Target
87.5% * (60% * $59,500) = $31,237.50
Step # 4 - Incentive Payout
- ---------------------------
Individual Payout + Company Payout = Incentive Payout
$5,950 + $31,237.50 = $37,187.50
7
<PAGE>
EXAMPLE #2: HIGH INDIVIDUAL ACHIEVER & HIGH COMPANY
Assume a Vice President has a Base Salary of $170,000.
INDIVIDUAL COMPONENT
- --------------------
The Individual Performance was reviewed and found 4 out of 4 goals were
achieved. Assuming each goal was weighted equally, the Individual Component is
100%. Assume the EPS growth for the fiscal year was 17%.
COMPANY COMPONENT
- -----------------
Profit Before Taxes and Extraordinary Items for the year is 108% of the Target
Amount. Therefore, the Bonus Achieved is 140% for the Company Component (see
"Company Payout Table" on page 4 of the Plan).
Step # 1 - Target Payout
- --------------------------
Base Salary * Target Payout % = Target Payout
$170,000 * (35%) = $59,500
Step # 2 - Individual Payout
- ----------------------------
Individual * Weighted as 40% = Individual Payout
Component of Target Payout
100% * (40% * $59,500) = $23,800
Step # 3 - Company Payout
- -------------------------
Company * Weighted as 60% = Company Target
Component of Target
140% * (60% * $59,500) = $49,980
Step # 4 - Incentive Payout
- ---------------------------
Individual Payout + Company Payout = Incentive Payout
$23,800 + $49,980 = $73,780
8
<PAGE>
EXHIBIT 10.2
IHOP CORP.
1991 STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED FEBRUARY 23, 1994
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the IHOP Corp. 1991 Stock Incentive Plan (the
"Plan"). The Plan was adopted by the Board on June 17, 1991, subject to the
approval of IHOP Corp. (the "Company") stockholders, which stockholder approval
was obtained on June 17, 1991. The Plan was amended by the Board on February
23, 1994, subject to stockholder approval, which approval was obtained on May
11, 1994. The purpose of the Plan is to enable the Company and its Subsidiaries
to obtain and retain competent personnel who will contribute to the Company's
success by their ability, ingenuity and industry and to provide incentives to
the participating officers and other key employees that are linked directly to
increases in stockholder value and will therefore inure to the benefit of all
stockholders of the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Administrator" means the Board, or if the Board does not
administer the Plan, the Committee in accordance with Section 2.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
(d) "Committee" means the Compensation Committee of the Board plus
such additional individuals as the Board shall designate in order to
fulfill the Disinterested Persons requirement of Rule 16b-3 as promulgated
by the Securities and Exchange Commission under the Securities Exchange
Act of 1934, and as such Rule may be amended from time to time, or any
successor definition adopted by the Commission, or any other Committee the
Board may subsequently appoint to administer the Plan. The Committee shall
be composed entirely of members who meet the qualifications referred to in
Rule 16b-3. If at any time the Board shall not administer the Plan, then
the functions of the Board specified in the Plan shall be exercised by the
Committee.
(e) "Company" means IHOP Corp., a corporation organized under the
laws of the State of Delaware (or any successor corporation).
(f) "Deferred Stock" means an award made pursuant to Section 7 below
of the right to receive Stock at the end of a specified deferral period.
(g) "Disability" means permanent and total disability as determined
under the Company's disability program or policy.
(h) "Disinterested Person" shall have the meaning set forth in Rule
16b-3, and as such Rule may be amended from time to time, or any successor
definition adopted by the Commission.
(i) "Effective Date" shall mean the date provided pursuant to Section
12.
(j) "Eligible Employee" means an employee of the Company or any
Subsidiary eligible to participate in the Plan pursuant to Section 4.
(k) "Fair Market Value" means, as of any given date, with respect to
any awards granted here under, at the discretion of the Administrator and
subject to such limitations as the Administrator may impose, (A) the
closing sale price of the Stock on such date as reported in the Western
Edition of the Wall Street Journal Composite Tape or (B) the average on
such date of the closing price of the Stock on each day on which the Stock
is traded over a period of up to twenty trading days immediately prior to
such date.
B-1
<PAGE>
(l) "Incentive Stock Option" means any Stock Option intended to be
designated as an "incentive stock option" within the meaning of Section 422
of the Code.
(m) "Limited Stock Appreciation Right" means a Stock Appreciation Right
that can be exercised only in the event of a "Change of Control" (as defined
in Section 10 below).
(n) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option, including any Stock Option that provides (as of the
time such option is granted) that it will not be treated as an Incentive
Stock Option.
(o) "Parent Corporation" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
combined voting power of all classes of stock in one of the other
corporations in the chain.
(p) "Participant" means any Eligible Employee selected by the
Administrator, pursuant to the Administrator's authority in Section 2 below,
to receive grants of Stock Options, Stock Appreciation Rights, Limited Stock
Appreciation Rights, Restricted Stock awards, Deferred Stock awards,
Performance Shares or any combination of the foregoing.
(q) "Performance Share" means an award of shares of Stock pursuant to
Section 7 that is subject to restrictions based upon the attainment of
performance objectives.
(r) "Restricted Stock" means an award of shares of Stock that is
subject to restrictions under Section 7 that will lapse with the passage of
time.
(s) "Stock" means the common stock, $.01 par value, of the Company.
(t) "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to receive an amount equal to the difference
between (i) the Fair Market Value, as of the date such Stock Appreciation
Right or portion thereof is surrendered, of the shares of Stock covered by
such right or such portion thereof and (ii) the aggregate exercise price of
such right or such portion thereof.
(u) "Stock Option" means any option (including Substitute Stock
Options) to purchase shares of Stock granted pursuant to Section 5.
(v) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(w) "Substitute Stock Option" means any option to purchase shares of
Stock granted in substitution for stock appreciation rights ("Units") that
were granted under the IHOP Corp. Incentive Appreciation Plan, established
effective as of January 2, 1989.
SECTION 2. Administration.
The Plan shall be administered by the Board in accordance with the
requirements of Rule 16b-3, or by a Committee which shall be appointed by the
Board and which shall serve at the pleasure of the Board.
The Administrator shall have the power and authority to grant to Eligible
Employees, pursuant to the terms of the Plan: (a) Stock Options, (b) Stock
Appreciation Rights or Limited Stock Appreciation Rights, (c) Restricted Stock,
(d) Performance Shares, (e) Deferred Stock or (f) any combination of the
foregoing.
In particular, the Administrator shall have the authority:
(i) to select those employees of the Company or any Subsidiary who
are Eligible Employees;
(ii) to determine whether and to what extent Stock Options, Stock
Appreciations Rights, Limited Stock Appreciation Rights, Restricted Stock,
Deferred Stock, Performance Shares or a combination of the foregoing, are to
be granted to Eligible Employees hereunder;
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(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not limited
to, (x) the restricted period applicable to Restricted or Deferred Stock awards
and the date or dates on which restrictions applicable to such Restricted or
Deferred Stock shall lapse during such period and (y) the performance goals and
periods applicable to the award of Performance Shares); and
(v) to determine the terms and conditions, not inconsistent with the
terms of the Plan, which shall govern all written instruments evidencing the
Stock Options (including Substitute Stock Options), Stock Appreciation Rights,
Limited Stock Appreciation Rights, Restricted Stock, Deferred Stock, Performance
Shares or any combination of the foregoing.
The Administrator shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it
shall from time to time deem advisable; to interpret the terms and provisions of
the Plan and any award issued under the Plan or the terms of any Substitute
Stock Option (and any agreements relating thereto); and to otherwise supervise
the administration of the Plan.
All decisions made by the Administrator pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company, any
Subsidiaries and the Participants.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for issuance
under the Plan shall be 1,380,000 (including the number of shares of Stock
issuable pursuant to Substitute Stock Option grants). Such shares may consist,
in whole or in part, of authorized and unissued shares or treasury shares.
To the extent that (i) a Stock Option expires or is otherwise terminated
without being exercised or (ii) any shares of Stock subject to any Restricted
Stock, Deferred Stock or Performance Share award granted hereunder are
forfeited, such shares shall again be available for issuance in connection with
future awards under the Plan. If any shares of Stock have been pledged as
collateral for indebtedness incurred by a Participant in connection with the
exercise of a Stock Option and such shares are returned to the Company in
satisfaction of such indebtedness, such shares shall again be available for
issuance in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, or other change in corporate structure
affecting the Stock, a substitution or adjustment shall be made in (i) the
aggregate number of shares reserved for issuance under the Plan, and (ii) the
kind, number and option price of shares subject to outstanding Stock Options
granted under the Plan as may be determined by the Administrator, in its sole
discretion, provided that the number of shares subject to any award shall always
be a whole number. Such other substitutions or adjustments shall be made as may
be determined by the Administrator, in its sole discretion. An adjusted option
price shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right or Limited Stock Appreciation Right
associated with any Stock Option.
SECTION 4. Eligibility.
Officers and other key employees of the Company or Subsidiaries who are
responsible for or contribute to the management, growth and/or profitability of
the business of the Company or its Subsidiaries shall be eligible to be granted
Stock Options, Stock Appreciation Rights, Limited Stock Appreciation Rights,
Restricted Stock awards, Deferred Stock awards or Performance Shares hereunder.
The Participants under the Plan shall be selected from time to time by the
Administrator, in its sole discretion, from among Eligible Employees recommended
by the senior management of the Company, and the Administrator shall determine,
in its sole discretion, the number of shares covered by each award.
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SECTION 5. Stock Options.
Stock Options may be granted alone or in addition to other awards under the
Plan. Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve, and the provisions of Stock
Option awards need not be the same with respect to each optionee. Recipients
of Stock Options shall enter into a stock option agreement with the Company, in
such form as the Administrator shall determine, which agreement shall set forth,
among other things, the exercise price of the option, the term of the option and
provisions regarding exercisability of the option granted thereunder.
The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
The Administrator shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of Stock Options (in
each case with or without Stock Appreciation Rights or Limited Stock
Appreciation Rights). To the extent that any Stock Option does not qualify as
an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock
Option. More than one option may be granted to the same optionee and be
outstanding concurrently hereunder; provided, however, that the aggregate number
of shares of Stock for which options may be granted to any individual during any
calendar year may not, subject to adjustment as provided in Section 3 hereof,
exceed 25% of the shares of Stock reserved for the purposes of the Plan in
accordance with the provisions of Section 3 hereof.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Administrator at the time
of grant but shall be not less than 100% of the Fair Market Value of the
Stock on such date; provided, however, that the option price per share of
Stock purchasable under a Substitute Stock Option shall not be less than
50% of the Fair Market Value of the Stock at the time of grant. If an
employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 425(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Parent
Corporation or Subsidiary and an Incentive Stock Option is granted to such
employee, the option price of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no less than 110% of
the Fair Market Value of the Stock on the date such Incentive Stock Option
is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Administrator, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted; provided, however, that if an
employee owns or is deemed to own (by reason of the attribution rules of
Section 425(d) of the Code) more than 10% of the combined voting powers of
all classes of stock of the Company or any Parent Corporation or Subsidiary
and an Incentive Stock Option is granted to such employee, the term of such
Incentive Stock Option (to the extent required by the Code at the time of
grant) shall be no more than five years from the date of grant; and
provided, further, that in the case of Substitute Stock Options, the term
shall expire on December 31, 1998.
(c) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by
the Administrator at or after grant; provided, however, that, except as
provided herein or unless otherwise determined by the Administrator at or
after grant, Stock Options shall be exercisable one year following the date
of grant of the option. If the Administrator provides, in its discretion,
that any Stock Option is exercisable only in installments, the
Administrator may waive such installment exercise provisions at any time in
whole or in part based on such factors as the Administrator may determine
in its sole discretion.
(d) Method of Exercise. Subject to Section 5(c) above, Stock Options
may be exercised in whole or in part at any time during the option period,
by giving written notice of exercise to the Company specifying the number
of shares to be purchased, accompanied by payment in full of the purchase
price in cash or its equivalent as determined by the Administrator. As
determined by the Administrator, in its sole
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discretion, payment in whole or in part may also be made in the form of
unrestricted Stock already owned by the optionee, or, in the case of the
exercise of a Non-Qualified Stock Option, Restricted Stock or Performance Shares
subject to an award hereunder (based, in each case, on the Fair Market Value of
the Stock on the date the option is exercised); provided, however, that in the
case of an Incentive Stock Option, the right to make payment in the form of
already owned shares may be authorized only at the time of grant. If payment of
the option exercise price of a Non-Qualified Stock Option is made in whole or in
part in the form of Restricted Stock or Performance Shares, the shares received
upon the exercise of such Stock Option (to the extent of the number of shares of
Restricted Stock or Performance Shares surrendered upon exercise of such Stock
Option) shall be restricted in accordance with the original terms of the
Restricted Stock or Performance Share award in question except that the
Administrator may direct that such restrictions shall apply only to that number
of shares equal to the number of shares surrendered upon the exercise of such
option. An optionee shall generally have the rights to dividends and other
rights of a stockholder with respect to shares subject to the option only after
the optionee has given written notice of exercise, has paid in full for such
shares, and, if requested, has given the representation described in paragraph
(a) of Section 11.
The Administrator may require the voluntary surrender of all or a portion
of any Stock Option granted under the Plan as a condition precedent to a grant
of a new Stock Option. Subject to the provisions of the Plan, such new Stock
Option shall be exercisable at the price, during such period and on such other
terms and conditions as are specified by the Administrator at the time the new
Stock Option is granted; provided, however, should the Administrator so require,
the number of shares subject to such new Stock Option shall not be greater than
the number of shares subject to the surrendered Stock Option. Upon their
surrender, the Stock Options shall be canceled and the shares previously subject
to such canceled Stock Options shall again be available for the grants of Stock
Options and other awards hereunder.
(e) Loans. The Company may make loans available to Stock Option holders as
the Administrator, in its discretion, may determine in connection with the
exercise of outstanding options granted under the Plan. Such loans shall (i) be
evidenced by promissory notes entered into by the holders in favor of the
Company, (ii) be subject to the terms and conditions set forth in this Section
5(e) and such other terms and conditions, not inconsistent with the Plan, as the
Administrator shall determine, (iii) bear interest, if any, at such rate as the
Administrator shall determine and (iv) be subject to Board approval. In no
event may the principal amount of any such loan exceed the sum of (x) the
exercise price less the par value of the shares of Stock covered by the option,
or portion thereof, exercised by the holder and (y) any Federal, state, local
income tax attributable to such exercise. The initial term of the loan, the
schedule of payments of principal and interest under the loan, the extent to
which the loan is to be with or without recourse against the holder with respect
to principal or interest and the conditions upon which the loan will become
payable in the event of the holder's termination of employment shall be
determined by the Administrator; provided, however, that the term of the loan,
including extensions, shall not exceed seven years. Unless the Administrator
determines otherwise, when a loan shall have been made, shares of Common Stock
having a Fair Market Value at least equal to the principal amount of the loan
shall be pledged by the holder to the Company as security for payment of the
unpaid balance of the loan, and such pledge shall be evidenced by a pledge
agreement, the terms of which shall be determined by the Administrator, in its
discretion; provided, however, that each loan shall comply with all applicable
laws, regulations and rules of the Board of Governors of the Federal Reserve
System and any other governmental agency having jurisdiction.
(f) Non-transferability of Options. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution or pursuant to a "qualified domestic relations order," as such term
is defined in the Employee Retirement Income Security Act of 1974, as amended,
and all Stock Options shall be exercisable, during the optionee's lifetime, only
by the optionee or in accordance with the terms of a qualified domestic
relations order.
(g) Termination by Death. If an optionee's employment with the Company
and any Subsidiary terminates by reason of death, the Stock Option may
thereafter be immediately exercised, to the extent
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then exercisable (or on such accelerated basis as the Administrator shall
determine at or after grant), by the legal representative of the estate or
by the legatee of the optionee under the will the optionee, for a period of
twelve months (or such shorter period as the Administrator shall specify at
grant) from the date of such death or until the expiration of the stated
term of such Stock Option, whichever period is shorter.
(h) Termination by Reason of Disability. If an optionee's employment
with the Company or any Subsidiary terminates by reason of Disability, any
Stock Option held by such optionee may thereafter be exercised, to the
extent it was exercisable at the time of such termination (or on such
accelerated basis as the Administrator shall determine at the time of
grant), for a period of twelve months (or such shorter period as the
Administrator shall specify at grant) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is shorter; provided, however, that, if the optionee dies
within such twelve-month period (or such shorter period as the
Administrator shall specify at grant) and prior to the expiration of the
stated term of such Stock Option, any unexercised Stock Option held by such
optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve months (or such
shorter period as the Administrator shall specify at grant) from the time
of death or until the expiration of the stated term of such Stock Option,
whichever period is shorter. In the event of a termination of employment by
reason of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422
of the Code, such Stock Option will thereafter be treated as a Non-
Qualified Stock Option.
(i) Other Termination. Except as otherwise provided in this
paragraph or otherwise determined by the Administrator, if an optionee's
employment with the Company, or any Subsidiary terminates for any reason
other than death or Disability, the Stock Option may be exercised until the
earlier to occur of (A) three months from the date of such termination or
(B) the expiration of such Stock Option's term.
(j) Annual Limit on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the shares of Stock with respect to which Incentive
Stock Options granted under this Plan and all other option plans of the
Company, its Parent Corporation and any Subsidiary become exercisable for
the first time by an Optionee during any calendar year exceed $100,000,
such options shall be treated as Non-Qualified Stock Options.
SECTION 6. Stock Appreciation Rights and Limited Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights and Limited Stock
Appreciation Rights may be granted either alone ("Free Standing Rights") or in
conjunction with all or part of any Stock Option granted under the Plan
("Related Rights"). In the case of a Non-Qualified Stock Option, Related Rights
may be granted either at or after the time of the grant of such Stock Option.
In the case of an Incentive Stock Option, Related Rights may be granted only at
the time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted with respect to a
given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise provided by the Administrator at the time of grant, a Related Right
granted with respect to less than the full number of shares covered by a related
Stock Option shall only be reduced if and to the extent that the number of
shares covered by the exercise or termination of the related Stock Option
exceeds the number of shares not covered by the Stock Appreciation Right.
A Related Right may be exercised by an optionee, in accordance with
paragraph (b) of this Section 6, by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(b) of this Section 6. Stock Options which have been so surrendered, in whole
or in part, shall no longer be exercisable to the extent the Related Rights have
been exercised.
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(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Administrator, including the
following:
(i) Stock Appreciation Rights that are Related Rights ("Related Stock
Appreciation Rights") shall be exercisable only at such time or times and
to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 and this Section
6 of the Plan; provided, however, that any Related Stock Appreciation Right
shall not be exercisable during the first six months of the term of the
Related Stock Appreciation Right, except that this additional limitation
shall not apply in the event of death or Disability of the optionee prior
to the expiration of the six-month period.
(ii) Upon the exercise of a Related Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an amount
in cash or that number of shares of Stock (or in some combination of cash
and shares of Stock) equal in value to the excess of the Fair Market Value
of one share of Stock over the option price per share specified in the
related Stock Option multiplied by the number of shares in respect of which
the Related Stock Appreciation Right shall have been exercised, with the
Administrator having the right to determine the form of payment.
(iii) Related Stock Appreciation Rights shall be transferable only
when and to the extent that the underlying Stock Option would be
transferable under paragraph (f) of Section 5 of the Plan.
(iv) Upon the exercise of a Related Stock Appreciation Right, the
Stock Option or part thereof to which such Related Stock Appreciation Right
is related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of shares of
Stock to be issued under the Plan, but only to the extent of the number of
shares issued under the Related Stock Appreciation Right.
(v) A Related Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market price
of the Stock subject to an Incentive Stock Option exceeds the exercise
price of such Stock Option.
(vi) Stock Appreciation Rights that are Free Standing Rights ("Free
Standing Stock Appreciation Rights") shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by
the Administrator at or after grant; provided, however, that Free Standing
Stock Appreciation Rights shall not be exercisable during the first six
months of the term of the Free Standing Stock Appreciation Right, except
that this limitation shall not apply in the event of death or Disability
of the recipient of the Free Standing Stock Appreciation Right prior to
the expiration of the six-month period.
(vii) The term of each Free Standing Stock Appreciation Right shall
be fixed by the Administrator, but no Free Standing Stock Appreciation
Right shall be exercisable more than ten years after the date such right
is granted.
(viii) Upon the exercise of a Free Standing Stock Appreciation Right,
a recipient shall be entitled to receive up to, but not more than, an
amount in cash or that number of shares of Stock (or any combination of
cash or shares of Stock) equal in value to the excess of the Fair Market
Value of one share of Stock over the price per share specified in the
Free Standing Stock Appreciation Right (which shall be no less than 100%
of the Fair Market Value of the Stock on the date of grant) multiplied by
the number of shares in respect to which the right is being exercised,
with the Administrator having the right to determine the form of payment.
(ix) No Free Standing Stock Appreciation Right shall be transferable
by the recipient otherwise than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order, and all
such rights shall be exercisable, during the recipient's lifetime, only
by the recipient or in accordance with the terms of a qualified domestic
relations order.
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(x) In the event of the termination of an employee who has received
Free Standing Stock Appreciation Rights, such rights shall be exercisable
to the same extent that a Stock Option would have been exercisable in the
event of the termination of the optionee.
(xi) Limited Stock Appreciation Rights can only be exercised within
the 30-day period following a "Change of Control" (as defined in Section 10
below) and with respect to Limited Stock Appreciation Rights that are
Related Rights ("Related Limited Stock Appreciation Rights") only to the
extent that the Stock Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section 6 of the Plan;
provided, however, that any Related Limited Stock Appreciation Right shall
not be exercisable during the first six months of the term of the Related
Limited Stock Appreciation Right, except that this additional limitation
shall not apply in the event of death or Disability of the optionee prior
to the expiration of the six-month period.
(xii) Upon the exercise of a Limited Stock Appreciation Right, the
recipient shall be entitled to receive an amount in cash equal in value to
the excess of the "Change of Control Price" (as defined in Section 10
below) of one share of Stock on the date of exercise over (A) the option
price per share specified in the related Stock Option, or (B) in the case
of a Limited Stock Appreciation Right which is a Free Standing Stock
Appreciation Right, the price per share specified in the Free Standing
Stock Appreciation Right, such excess to be multiplied by the number of
shares in respect of which the Limited Stock Appreciation Right shall have
been exercised.
SECTION 7. Restricted Stock, Deferred Stock and Performance Shares.
(a) General. Restricted Stock, Deferred Stock or Performance Share awards
may be issued either alone or in addition to other awards granted under the
Plan. The Administrator shall determine the Eligible Employees to whom, and the
time or times at which, grants of Restricted Stock, Deferred Stock or
Performance Share awards will be made; the number of shares to be awarded; the
price, if any, to be paid by the recipient of Restricted Stock, Deferred Stock
or Performance Share awards; the Restricted Period (as defined in paragraph (c)
hereof) applicable to Restricted Stock or Deferred Stock awards; the performance
objective applicable to Performance Share or Deferred Stock awards; the date or
dates on which restrictions applicable to such Restricted Stock or Deferred
Stock awards shall lapse during such Restricted Period; and all other conditions
of the Restricted Stock, Deferred Stock and Performance Share awards. The
Administrator may also condition the grant of Restricted Stock, Deferred Stock
awards or Performance Shares upon the exercise of Stock Options, or upon such
other criteria as the Administrator may determine, in its sole discretion. The
provisions of Restricted Stock, Deferred Stock awards or Performance Share
awards need not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a Restricted
Stock, Deferred Stock or Performance Share award shall not have any rights with
respect to such award, unless and until such recipient has executed an agreement
evidencing the award (a "Restricted Stock Award Agreement," "Deferred Stock
Award Agreement," or "Performance Share Award Agreement," as appropriate) and
has delivered a fully executed copy thereof to the Company, within a period of
sixty days (or such other period as the Administrator may specify after the
award date). Except as otherwise provided below in this Section 7(b), (i) each
Participant who is awarded Restricted Stock or Performance Shares shall be
issued a stock certificate in respect of such shares of Restricted Stock or
Performance Shares; and (ii) such certificate shall be registered in the name of
the Participant, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such award, substantially in the
following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the IHOP Corp. 1991 Stock Incentive Plan and a Restricted
Stock Award Agreement or Performance Share Award Agreement entered into
between the registered owner and IHOP Corp. Copies of such Plan and
Agreement are on file in the offices of IHOP Corp."
The Company shall require that the stock certificates evidencing such
shares be held in the custody of the Company until the restrictions thereon
shall have lapsed, and that, as a condition of any Restricted Stock
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award of Performance Share award, the Participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
With respect to Deferred Stock awards, at the expiration of the Restricted
Period, stock certificates in respect to such shares of Deferred Stock shall be
delivered to the participant, or his legal representative, in a number equal to
the shares of Stock covered by the Deferred Stock award.
(c) Restrictions and Conditions. The Restricted Stock, Deferred Stock and
Performance Share awards granted pursuant to this Section 7 shall be subject to
the following restrictions and conditions:
(i) Subject to the provisions of the Plan and the Restricted Stock,
Deferred Stock or Performance Share award agreements, during such period as
may be set by the Administrator commencing on the grant date (the
"Restricted Period"), the Participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock, Performance Shares
or Deferred Stock awarded under the Plan. Within these limits, the
Administrator may, in its sole discretion, provide for the lapse of such
restrictions in installments and may accelerate or waive such restrictions
in whole or in part based on such factors and such circumstances as the
Administrator may determine, in its sole discretion, including, but not
limited to, the attainment of certain performance related goals, the
Participant's termination, death or Disability or the occurrence of a
"Change of Control" as defined in Section 10 below.
(ii) Except as provided in paragraph (c)(i) of this Section 7, the
Participant shall have, with respect to the shares of Restricted Stock or
Performance Shares, all of the rights of a stockholder of the Company,
including the right to vote the shares, and the right to receive any
dividends thereon during the Restricted Period. With respect to Deferred
Stock awards, the Participant shall generally not have the rights of a
shareholder of the Company, including the right to vote the shares during
the Restricted Period; provided, however, that dividends declared during
the Restricted Period with respect to the number of shares covered by a
Deferred Stock award shall be paid to the Participant. Certificates for
shares of unrestricted Stock shall be delivered to the Participant promptly
after, and only after, the Restricted Period shall expire without
forfeiture in respect of such shares of Restricted Stock, Performance
Shares or Deferred Stock, except as the Administrator shall otherwise
determine.
(iii) Subject to the provisions of the Restricted Stock, Deferred Stock
or Performance Share award agreement and this Section 7, upon termination
of employment for any reason during the Restricted Period, all shares still
subject to restriction shall be forfeited by the Participant, and the
Participant shall only receive the amount, if any, paid by the Participant
for such Restricted Stock or Performance Shares, plus simple interest at 8%
per year.
SECTION 8. Amendment and Termination.
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of the
Participant under any award theretofore granted without such Participant's
consent, or that without the approval of the stockholders (as described below)
would:
(a) except a provided in Section 3, increase the total number of shares
of Stock reserved for the purpose of the Plan;
(b) except as provided in this Plan, decrease the option price of any
Stock Option to less than 100% of the Fair Market Value on the date of grant
of the option;
(c) change the employees or class of employees eligible to participate
in the Plan; or
(d) extend the maximum option period under paragraph (b) of Section 5
of the Plan.
Notwithstanding the foregoing, stockholder approval under this Section 8
shall only be required at such time as Rule 16b-3, as promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
and as such Rule may be amended from time to time, shall require the approval of
the stockholders of a company of any material amendment to any employee benefit
plan of such company.
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The Administrator may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to Section 3 above, no such
amendment shall impair the rights of any holder without his or her consent.
SECTION 9. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant or
optionee by the Company, nothing contained herein shall give any such
Participant or optionee any rights that are greater than those of a general
creditor of the Company.
SECTION 10. Change of Control.
The following acceleration and valuation provisions shall apply in the
event of a "Change of Control" as defined in paragraph (b) of this Section 10:
(a) In the event of a "Change of Control," unless otherwise
determined by the Administrator of the Board in writing at or after grant
(including under any individual agreement), but prior to the occurrence of
such Change of Control:
(i) any Stock Appreciation Rights outstanding for at least
six months and any Stock Options awarded under the Plan not
previously exercisable and vested shall become fully exercisable and
vested;
(ii) the restrictions applicable to any Restricted Stock,
Deferred Stock or Performance Share awards under the Plan shall lapse,
and such shares and awards shall be deemed fully vested;
(iii) any indebtedness incurred pursuant to Section 5(e) above
shall be forgiven and the collateral pledged in connection with any
such loan shall be released; and
(iv) the value of all outstanding Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, and Restricted
Stock, Deferred Stock and Performance Share awards shall, to the
extent determined by the Administrator at or after grant, be cashed
out on the basis of the "Change of Control Price" (as defined in
paragraph (c) of this Section 10) as of the date the Change of Control
occurs or such other date as the Administrator may determine prior to
the Change of Control.
(b) For purposes of paragraph (a) of this Section 10, a "Change of
Control" shall be deemed to have occurred if:
(i) any "person," as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(other than the Company; any trustee or other fiduciary holding
securities under an employee benefit plan of the Company; or any
company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
Stock of the Company) is or becomes after the Effective Date the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company (not including in
the securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates) representing 25%
or more of the combined voting power of the Company's then outstanding
securities; or
(ii) during any period of two consecutive years (not including
any period prior to the Effective Date), individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii) or (iv) of this Section
10(b)) whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof,
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<PAGE>
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no person acquires more than 50% of the combined voting power
of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
(c) For purposes of this Section 10, "Change of Control Price" means
the higher of (i) the highest price per share paid or offered in any
transaction related to a Change of Control of the Company or (ii) the
highest price per share paid in any transaction reported on the exchange
or national market system on which the Stock is listed, at any time during
the preceding sixty day period as determined by the Administrator, except
that, in the case of Incentive Stock Options and Stock Appreciation Rights
or Limited Stock Appreciation Rights relating to Incentive Stock Options,
such price shall be based only on transactions reported for the date on
which the Administrator decides to cash out such options.
SECTION 11. General Provisions.
(a) The Administrator may require each person purchasing shares pursuant to
a Stock Option to represent to and agree with the Company in writing that such
person is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the Administrator
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
law, and the Administrator may cause a legend or legends to be placed on any
such certificates to make appropriate reference to such restrictions.
(b) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan shall
not confer upon any employee of the Company or any Subsidiary any right to
continued employment with the Company or a Subsidiary, as the case may be, nor
shall it interfere in any way with the right of the Company or a Subsidiary to
terminate the employment of any of its employees at any time.
(c) Each Participant shall, no later than the date as of which the value of
an award first becomes includible in the gross income of the Participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to the
award. The obligations of the Company under the Plan shall be conditional on
such payment or arrangements, and the Company (and, where applicable, its
Subsidiaries) shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the Participant.
(d) No member of the Board or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Administrator and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
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SECTION 12. Effective Date of Plan.
The Plan became effective (the "Effective Date") on June 17, 1991, the date
the Company's stockholders formally approved the Plan.
SECTION 13. Term of Plan.
No Stock Option, Stock Appreciation Right, Limited Stock Appreciation
Right, Restricted Stock, Deferred Stock or Performance Share award shall be
granted pursuant to the Plan on or after the tenth anniversary of the Effective
Date, but awards theretofore granted may extend beyond that date.
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<PAGE>
EXHIBIT 10.3
IHOP CORP.
1994 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
SECTION 1. General Purpose of the Plan; Definitions.
The name of this plan is the IHOP Corp. 1994 Stock Option Plan for
Non-Employee Directors (the "Plan"). The Plan was adopted by the Board on
February 23, 1994, subject to the approval of the Company's shareholders, which
approval was obtained on May 11, 1994. The purpose of the Plan is to enhance
the Company's ability to attract and retain the services of experienced, able
and knowledgeable persons to serve as directors by providing present and
prospective directors who are not employed by the Company with the opportunity
to obtain equity ownership interests in the Company through the exercise of
stock options to purchase shares of the Company's Common Stock.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
(c) "Committee" means the Non-Employee Directors Stock Option Plan
Committee of the Board, or any other committee the Board may subsequently
appoint to administer the Plan. The Committee shall be composed entirely of
directors selected in accordance with Section 2 of the Plan. If no
Committee shall be in office, then the functions of the Committee specified
in the Plan shall be exercised by the Board.
(d) "Company" means IHOP Corp., a corporation organized under the
laws of the State of Delaware (or any successor corporation).
(e) "Fair Market Value" means, as of any given date, with respect to
any awards granted hereunder, at the discretion of the Committee and
subject to such limitations as the Committee may impose, (i) the closing
sale price of the Stock on such date as reported in the Western Edition of
the Wall Street Journal Composite Tape, or (ii) the average of the closing
price of the Stock on each day on which the Stock was traded over a period
of up to twenty trading days immediately prior to such date.
(f) "Nonqualified Stock Option" means any Stock Option that is not an
"incentive stock option" within the meaning of Section 422 of the Code.
(g) "Stock" means the common stock, $0.01 par value, of the Company.
(h) "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
SECTION 2. Administration.
The Plan shall be administered by a Committee of not less than two persons,
who shall be appointed by the Board and who shall serve at the pleasure of the
Board.
The Committee shall have the authority, in its discretion, to adopt, alter
and repeal such administrative rules, guidelines and practices governing the
Plan as it shall from time to time deem advisable; to interpret the terms and
provisions of the Plan and any award issued under the Plan (and any agreements
relating thereto); and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and all
recipients of Stock Options hereunder.
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SECTION 3. Stock Subject to the Plan.
The total number of shares of Stock reserved and available for issuance
under the Plan shall be 200,000. Such shares may consist, in whole or in part,
of authorized and unissued shares or treasury shares.
In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, or other change in corporate structure
affecting the Stock, a substitution or adjustment shall be made in (i) the
aggregate number of shares reserved for issuance under the Plan and (ii) the
kind, number and option price of shares subject to outstanding Stock Options
granted under the Plan as may be determined by the Committee, provided that the
number of shares subject to any award shall always be a whole number.
SECTION 4. Eligibility.
Each non-employee member of the Board shall receive Nonqualified Stock
Options in accordance with the provisions of Section 5.
SECTION 5. Stock Options.
Recipients of Stock Options shall enter into a stock option agreement with
the Company, which agreement shall set forth, among other things, the exercise
price of the option, the term of the option and provisions regarding
exercisability of the option granted thereunder.
The Stock Options granted under the Plan are Nonqualified Stock Options and
shall be subject to the following terms and conditions:
(a) Initial Option Grants. (i) On February 23, 1994, each non-employee
member of the Board shall be granted a Nonqualified Stock Option to purchase
7,500 shares of Stock; (ii) upon first being elected to the Board of
Directors, each new Non-Employee Director shall be granted a Non-Qualified
Stock Option to purchase 7,500 shares of Stock (subject to substitution or
adjustment as provided in Section 3 of the Plan).
(b) Bi-Annual Grants. (i) On the first day after the 1996 Annual
Shareholders Meeting and on the first day after every second annual
shareholders meeting thereafter, each non-employee member of the Board shall
be granted a Nonqualified Stock Option to purchase 2,500 shares of Stock.
(c) Exercise of Options. The option price per share of Stock
purchasable under a Stock Option shall be 100% of the Fair Market Value of
the Stock on the date of grant. Each option granted under the Plan shall
vest and become exercisable as follows: one-third of the total shares
subject to the option on the first anniversary of the date of grant, one-
third of the total shares subject to the option on the second anniversary of
the date of grant, and one-third of the total shares subject to the option
on the third anniversary of the date of grant. Once vested, options shall be
exercisable up to the amount of the vested portion, in whole or in part, by
giving written notice to the Company specifying the number of shares to be
purchased, accompanied by payment in full of the purchase price in cash.
(d) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted.
(e) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution or pursuant to a "qualified domestic relations
order," as such term is defined in the Employee Retirement Income Security
Act of 1974, as amended, and all Stock Options shall be exercisable, during
the optionee's lifetime, only by the optionee or in accordance with the
terms of a qualified domestic relations order.
SECTION 6. Amendment and Termination.
The Board may not amend, alter, or discontinue the Plan without the
approval of the shareholders more than once every six (6) months, other than to
comport with changes in the Code, the Employment Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
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<PAGE>
SECTION 7. Unfunded Status of the Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to any optionee by the
Company, nothing contained herein shall give any such optionee any rights that
are greater than those of a general creditor of the Company.
SECTION 8. General Provisions.
(a) Each person purchasing shares pursuant to a Stock Option must
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof. The certificates for such
shares shall include such legends as are appropriate to reflect any restrictions
on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions under the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Stock is then listed, and any applicable
federal or state securities law, and a legend or legends shall be put on any
such certificates to make appropriate reference to such restrictions.
(b) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to shareholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan shall
not confer upon any member of the Board any right to continued membership on the
Board.
(c) Each recipient of Stock Options shall, no later than the date as of
which the value of an award first becomes includible in the gross income of the
recipient for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any federal,
state, or local taxes of any kind required by law to be withheld with respect to
the award. The obligations of the Company under the Plan shall be conditional
on such payment or arrangements, and the Company shall, to the extent permitted
by law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the recipient.
(d) No member of the Board or the Committee, nor any officer or employee
of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination, or interpretation taken or made
in good faith with respect to the Plan, and all members of the Board or the
Committee and each and any officer or employee of the Company acting on their
behalf shall, to the extent permitted by law, be fully indemnified and protected
by the Company in respect of any such action, determination or interpretation.
SECTION 9. Effective Date of Plan.
The Plan shall be effective as of February 23, 1994, the date it was
adopted by the Board (the "Effective Date"), subject to approval by the
Company's shareholders.
SECTION 10. Term of Plan.
No Stock Option shall be granted pursuant to the Plan on or after the tenth
anniversary of the Effective Date, but awards theretofore granted may extend
beyond that date.
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<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into as of the 28th
day of April, 1997 (the "Effective Date"), between IHOP CORP., a Delaware
corporation (the "Company"), and John Jordan (the "Employee").
Whereas, the Board of Directors of the Company (the "Board") has approved
and authorized the entry into this Agreement with the Employee; and
Whereas, the parties desire to enter into this Agreement setting forth the
terms and conditions for the employment relationship of the Employee with the
Company.
Now, Therefore, in consideration of the promises and mutual covenants and
agreements herein contained and intending to be legally bound hereby, the
Company and the Employee hereby agree as follows:
1. Employment. The Employee is employed as Division Vice President of the
Company from the Effective Date through the Term of this Agreement (as defined
in Section 2 hereof). In this capacity, the Employee shall have such duties and
responsibilities as may be designated to him by the Board from time to time and
as are not inconsistent with the Employee's position with the Company, including
the performance of duties with respect to any subsidiaries of the Company, as
may be designated by the Board. During the Employee's period of employment
hereunder, the Employee shall be based in the principal offices of the Company
in the Atlanta, Georgia area, and shall not be required to relocate outside of
the Atlanta, Georgia area to perform services hereunder, except for travel as
reasonably required in the performance of his duties hereunder.
2. Term. The "initial term" of this Agreement shall be for the period
commencing on the Effective Date and ending on the first anniversary of the
Effective Date; provided, however, that on the first anniversary of the
Effective Date, and on each subsequent anniversary date thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than 90 days prior to such applicable anniversary date, the Company or
the Employee shall give notice not to extend this Agreement; and provided
further, however, that, if a Change in Control (as defined in Section 11(g))
occurs prior to the expiration of the Term of this Agreement, this Agreement
shall remain in full force and effect and shall not expire prior to the last day
of the 24th month following the date of such Change in Control. The "Term of
this Agreement" or "Term" shall mean, for purposes of this Agreement, both the
"initial term" (as hereinbefore described) and any additional term (created by
extension, as
<PAGE>
described above), and the Term of this Agreement shall not be affected by the
Employee's termination of employment.
3. Salary. Subject to the further provisions of this Agreement, the
Company shall pay the Employee during the Term of this Agreement a salary at an
annual rate equal to $170,000, with such salary to be increased at such times,
if any, and in such amounts as determined by the Board, which increases shall be
consistent with the historical business practices of the Company and the salary
adjustments for other senior executives of the Company. Such salary shall be
payable by the Company to the Employee not less frequently than monthly and
shall not be decreased at any time during the Term of this Agreement.
Participation in deferred compensation, discretionary bonus, retirement, and
other employee benefit plans and in fringe benefits shall not reduce the salary
payable to the Employee under this Section.
4. Participation in Bonus, Retirement and Employee Benefit Plans. The
Employee shall be entitled to participate equitably with other senior executives
in any plan of the Company relating to bonuses, stock options, stock purchases,
pension, thrift, profit sharing, life insurance, medical coverage, education, or
other retirement or employee benefits that the Company has adopted or may adopt
for the benefit of its senior executives. For purposes of the Company's
Executive Incentive Plan, Employee's target bonus will be 35% of his base pay.
5. Hiring Incentives.
(a). Upon the Effective Date, or as soon as practicable thereafter,
Employee shall receive a sign on bonus equal to $15,000 less all applicable
withholdings and taxes.
(b). Upon the Effective Date, or as soon as practicable thereafter,
Employee shall receive an option to purchase a total of 20,000 shares of
IHOP Corp. common stock. Such stock option shall be subject to the terms
of the IHOP Corp. 1991 Stock Incentive Plan, as amended, and a Stock Option
Agreement setting forth, among other things, the option exercise vesting
schedule and option exercise price.
(c) The Company agrees to reimburse Employee for any loss on the sale
of his current residence in Scottsdale, Arizona, up to a maximum of
$30,000, plus the amount of any income taxes associated with such
reimbursement. Employee shall furnish the Company with documentation
establishing his actual cost basis in the residence,
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<PAGE>
including any improvements, and data on comparable home sales in the
vicinity of his residence.
(d) The Employee shall be entitled to certain Relocation Benefits, in
accordance with the Company's Corporate Relocation Policy, as summarized on
Exhibit "A" hereto.
6. Fringe Benefits; Automobile. The Employee shall be entitled to receive
all other fringe benefits which are now or may be provided to the Company's
senior executives. In addition, the Company shall provide the Employee during
the Term of this Agreement with a car allowance of $700 per month, plus
reimbursement of all automobile expenses such as gasoline, maintenance,
insurance and vehicle registration, in accordance with the Company's general
policy on providing cars to senior executives. Notwithstanding the foregoing,
the benefits provided under this Section 6 shall cease upon the Employee's Date
of Termination (as defined in Section 11(d)).
7. Vacations. The Employee shall be entitled to an annual paid vacation
of three (3) weeks during the initial term of this Agreement and four (4) weeks
per year during any renewal term of this Agreement.
8. Business Expenses. During such time as the Employee is rendering
services hereunder, the Employee shall be entitled to incur and be reimbursed
for all reasonable business expenses and be provided allowances as are furnished
to the Company's most senior executives under the Company's then current
policies. The Company agrees that it will reimburse the Employee for all such
expenses upon the presentation by the Employee, from time to time, of an
itemized account of such expenditures, setting forth the date, the purposes for
which incurred, and the amounts thereof, together with such receipts showing
payments in conformity with the Company's established policies. Reimbursement
shall be made within a reasonable period after the Employee's submission of an
itemized account.
9. Insurance and Indemnity. The Employee shall be added as an additional
named insured under all appropriate insurance policies now in force or hereafter
obtained covering any officers or directors of the Company. The Company shall
indemnify and hold the Employee harmless from any cost, expense or liability
arising out of or relating to any acts or decisions made by the Employee on
behalf of or in the course of performing services for the Company to the same
extent the Company indemnifies and holds harmless other senior executive
officers and directors of the Company and in accordance with the Company's
established policies.
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<PAGE>
10. Legal and Accounting Advice. The Employee shall be entitled to
reimbursement by the Company for expenses incurred by him for personal legal,
accounting, investment or estate planning services in an amount to be determined
by the Board, but in no event greater than $5,000 annually (or a pro rata
portion of such amount for any period of employment less than a full year);
provided, however, that no reimbursement shall be made for any such expenses
incurred by the Employee after such Employee's Date of Termination.
11. Termination.
(a) Disability. If, as a result of the Employee's incapacity due to
physical or mental illness, he shall have been absent from the full-time
performance of his duties with the Company for 90 consecutive days or 180
days within any 12-month period, his employment may be terminated by the
Company for "Disability."
(b) Cause. Subject to the notice provisions set forth below, the
Company may terminate the Employee's employment for "Cause" at any time.
"Cause" shall mean termination upon: (1) the willful failure by the
Employee to substantially perform his duties with the Company (other than
any such failure resulting from his incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to him by the Board, which demand specifically identifies the manner in
which the Board believes that he has not substantially performed his
duties; (2) the Employee's willful misconduct that is demonstrably and
materially injurious to the Company, monetarily or otherwise; or (3) the
Employee's commission of such acts of dishonesty, fraud, misrepresentation
or other acts of moral turpitude as would prevent the effective performance
of his duties. For purposes of this subsection (b), no act, or failure to
act, on the Employee's part shall be deemed "willful" unless done, or
omitted to be done, by him not in good faith and without the reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Employee shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered
to him a copy of a resolution duly adopted by the affirmative vote of a
majority of the non-employee members of the Board at a meeting of such
members (after reasonable notice to him and an opportunity for him,
together with his counsel, to be heard before such members of the Board),
finding that he has engaged in the conduct set forth above in this
subsection (b) and specifying the particulars thereof in detail.
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<PAGE>
(c) Notice of Termination. Any termination of the Employee's
employment by the Company or by the Employee shall be communicated by
written Notice of Termination to the other party hereto in accordance with
Section 15. "Notice of Termination" shall mean a notice that indicates
the specific termination provision in this Agreement relied upon and sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for the termination of the Employee's employment under the provision
so indicated.
(d) Date of Termination. "Date of Termination" shall mean: (1) if
the Employee's employment is terminated by his death, the date of his
death; (2) if the Employee's employment is terminated for Disability, 30
days after Notice of Termination is given; and (3) if the Employee's
employment is terminated for any other reason, the date specified in the
Notice of Termination.
(e) Dispute Concerning Termination. If within the later of (i)
fifteen (15) days after Notice of Termination is given, or (ii) fifteen
(15) days prior to the Date of Termination (as determined without regard to
this Section 11(e), the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning a termination by the
Employee for Good Reason (as defined in Section 11(h)) following a Change
in Control (as defined in Section 11(g)), the Date of Termination shall be
the earlier of the expiration date of the Agreement, or the date on which
the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time
for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence.
(f) Compensation During Dispute. If a purported termination by the
Employee for Good Reason occurs following a Change in Control and during
the Term of this Agreement, and such termination is disputed in accordance
with Section 11(e) hereof, the Company shall continue to pay the Employee
the full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, salary) and continue the Employee
as a participant in all compensation, benefit and insurance plans in which
the Employee was participating when the notice giving rise to the dispute
was given, until the dispute is finally resolved in accordance with
Section 11(e) hereof or, if earlier, the expiration date of
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<PAGE>
the Agreement. Amounts paid under this Section 11(f) are in addition to all
other amounts due under this Agreement (other than those due under Section
12(b) hereof) and shall not be offset against or reduce any other amounts
payable under this Agreement.
(g) Change in Control. A "Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:
(i) any "person" (as such term is used in Sections 14(d) and 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (other than the Company; any trustee or other fiduciary hold
ing securities under an employee benefit plan of the Company; or any
Company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
the stock of the Company) is or becomes after the Effective Date the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company (not including in
the securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates) representing 25%
or more of the combined voting power of the Company's then outstanding
securities; or
(ii) during any period of two consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning
of such period constitute the Board and any new director (other than a
director designated by a person who has entered into an agreement
with the Company to effect a transaction described in subparagraph
(i), (iii) or (iv) of this Section 11(g)) whose election by the Board
or nomination for election by the Company's stockholders was approved
by a vote of at least 2/3 of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), in
combination with the ownership of any trustee or other fiduciary
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<PAGE>
holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation, or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no person acquires more than 50% of the combined voting power
of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company's assets.
(h) Good Reason. At any time following a Change in Control, the
Employee may terminate his employment hereunder for "Good Reason." "Good
Reason" shall mean the occurrence (without the Employee's express written
consent) of any material breach of this Agreement, including, without
limitation, any one of the following acts by the Company, or failures by
the Company to act, unless, in the case of any act or failure to act
described in subsections (i), (iv), (v), (vi) or (vii) below, such act or
failure to act is corrected prior to the Date of Termination specified in
the Notice of Termination given in respect thereof:
(i) the assignment to the Employee of any duties inconsistent with
the Employee's status as a senior executive of the Company or a
substantially adverse alteration in the nature or status of the
Employee's responsibilities from those in effect immediately prior to
the Change in Control;
(ii) a reduction by the Company in the Employee's annual base salary
as in effect on the date hereof or as the same may be increased from
time to time;
(iii) the relocation of the Company's principal offices to a location
outside Southern California (or, if different, the metropolitan area
in which such offices are located immediately prior to the Change in
Control) or the Company's requiring the Employee to be based anywhere
other than the Company's principal executive offices, except for
required travel on the Company's business to an extent substantially
consistent with the Employee's present business travel obligations;
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<PAGE>
(iv) the failure by the Company to pay to the Employee any portion
of the Employee's current compensation, or to pay to the Employee any
portion of an installment of deferred compensation under any deferred
compensation program of the Company, within seven days of the date
such compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which the Employee participates immediately prior
to the Change in Control which is material to the Employee's total
compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such
plan, or the failure by the Company to continue the Employee's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of the Employee's participation
relative to other participants, as existed immediately prior to the
Change in Control;
(vi) the failure by the Company to continue to provide the Employee
with benefits substantially similar to those enjoyed by the Employee
under any of the Company's pension, life insurance, medical, health
and accident, or disability plans in which the Employee was
participating immediately prior to the Change in Control; or the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the Employee of any
material fringe benefit enjoyed by the Employee immediately prior to
the Change in Control;
(vii) any purported termination of the Employee's employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of this Agreement; for purposes of this Agreement, no
such purported termination shall be effective; or
(viii) any failure by the Company to comply with and satisfy Section
13(b) of this Agreement.
The Employee's right to terminate the Employee's employment for Good
Reason shall not be affected by the Employee's incapacity due to physical
or mental illness. The Employee's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
-8-
<PAGE>
(i) Voluntary Termination. The Employee may terminate his employment
hereunder ("Voluntary Termination") upon a material breach of this
Agreement by the Company, unless the Company shall fully correct such
breach within 30 days of the Employee's Notice of Termination given in
respect thereof.
12. Compensation Upon Termination or During Disability. The Employee
shall be entitled to the following benefits during a period of disability, or
upon termination of his employment, as the case may be, provided that such
period or termination occurs during the Term of this Agreement:
(a) During any period that the Employee fails to perform his full-
time duties with the Company as a result of incapacity due to physical or
mental illness, he shall continue to receive his base salary at the rate in
effect at the commencement of any such period, together with all
compensation payable to him under the Company's disability plan or program
or other similar plan during such period, until his employment is
terminated pursuant to Section 11 hereof. Thereafter, or in the event the
Employee's employment shall be terminated by reason of his death, his
benefits shall be determined under the Company's retirement, insurance and
other compensation programs then in effect in accordance with the terms of
such programs.
(b) If at any time the Employee's employment shall be terminated:
(i) by the Company for Cause or Disability or (ii) by him for any reason
(other than in a Voluntary Termination or for Good Reason following the
occurrence of a Change in Control), the Company shall pay him his full base
salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given, plus all other amounts to which he is
entitled through the Date of Termination under any compensation plan of
the Company at the time such payments are due, and the Company shall have
no further obligations to him under this Agreement.
(c) If the Employee's employment should be terminated: (1) by reason
of his death, (2) by the Company other than for Cause or Disability or (3)
by the Employee in a Voluntary Termination, he shall be entitled to the
benefits provided below:
(i) the Company shall pay to the Employee or the appropriate payee
(as determined in accordance with Section 13(c)) (A) his full
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base salary through the Date of Termination at the rate in effect at
the time Notice of Termination is given; plus (B)(x) in the case of
death or a Voluntary Termination all salary and bonus payments that
would have been payable to the Employee pursuant to this Agreement for
the remaining Term of this Agreement, or (y) in all other cases, all
salary and bonus payments that would have been payable to the Employee
had the Employee continued to be employed for a period of 12 months,
assuming for the purpose of such payments that his salary for such
remaining period is equal to his salary at the Date of Termination and
that his annual bonus for such remaining Term is equal to the average
of the annual bonuses paid to him by the Company with respect to the
three fiscal years ended immediately prior to the fiscal year in which
the Date of termination occurs; plus (C) all other amounts to which he
is entitled under any compensation plan of the Company, in cash in a
lump sum no later than the 15th day following the Date of Termination;
(ii) for a 12-month period after the Date of Termination, the Company
shall arrange to provide the Employee with life, disability, accident
and health insurance benefits substantially similar to those which the
Employee and his covered family members are receiving immediately
prior to the Notice of Termination (without giving effect to any
reduction in such benefits subsequent to a Change in Control);
provided, however, that such continued benefits shall be reduced to
the extent comparable benefits are actually received by or made
available to the Employee without cost during the 12-month period
following the Employee's termination of employment (and the Employee
agrees that he shall promptly report any such benefits actually
received to the Company); and
(iii) the Company shall continue in effect for the benefit of the
Employee all insurance or other provisions for indemnification and
defense of officers or directors of the Company which are in effect on
the date the Notice of Termination is sent to the Employee with
respect to all of his acts and omissions while an officer or director
as fully and completely as if such termination had not occurred, and
until the final expiration or running of all periods of limitation
against actions which may be applicable to such acts or omissions.
-10-
<PAGE>
(d) If the Employee's employment should be terminated by the Employee
for Good Reason following a Change in Control, he shall be entitled to the
benefits provided below:
(i) the Company shall pay to the Employee or the appropriate payee
(as determined in accordance with Section 13(c)) (A) his full base
salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given; plus (B)(x) in the case of death
or a Voluntary Termination all salary and bonus payments that would
have been payable to the Employee pursuant to this Agreement for the
remaining Term of this Agreement, or (y) in all other cases, all
salary and bonus payments that would have been payable to the Employee
had the Employee continued to be employed for a period of 24 months,
assuming for the purpose of such payments that his salary for such
remaining period is equal to his salary at the Date of Termination and
that his annual bonus for such remaining Term is equal to the average
of the annual bonuses paid to him by the Company with respect to the
three fiscal years ended immediately prior to the fiscal year in which
the Date of termination occurs; plus (C) all other amounts to which he
is entitled under any compensation plan of the Company, in cash in a
lump sum no later than the 15th day following the Date of Termination;
(ii) for a 24-month period after the Date of Termination, the Company
shall arrange to provide the Employee with life, disability, accident
and health insurance benefits substantially similar to those which the
Employee and his covered family members are receiving immediately
prior to the Notice of Termination (without giving effect to any
reduction in such benefits subsequent to a Change in Control);
provided, however, that such continued benefits shall be reduced to
the extent comparable benefits are actually received by or made
available to the Employee without cost during the 24-month period
following the Employee's termination of employment (and the Employee
agrees that he shall promptly report any such benefits actually
received to the Company); and
(iii) the Company shall continue in effect for the benefit of the
Employee all insurance or other provisions for indemnification and
defense of officers or directors of the Company which are in effect on
the date the Notice of Termination is sent to the Employee with
respect to all of his acts and omissions while an officer or director
as
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<PAGE>
fully and completely as if such termination had not occurred, and
until the final expiration or running of all periods of limitation
against actions which may be applicable to such acts or omissions.
(e) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the
Employee in connection with the termination of the Employee's employment
(whether such benefit is pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, and all such
payments and benefits being hereinafter called "Total Payments") would not
be deductible (in whole or part), by the Company as a result of the
application of Section 280G of the Internal Revenue Code of 1986, as
amended ("Code"), then, to the extent necessary to make the nondeductible
portion of the Total Payments deductible, (i) the cash payments under this
Agreement shall first be reduced (if necessary, to zero), and (ii) all
other non-cash payments under this Agreement shall next be reduced (if
necessary, to zero).
(f) If it is established as described in the preceding subsection (d)
that the aggregate benefits paid to or for the Employee's benefit are in an
amount that would result in any portion of such "parachute payments" not
being deductible by reason of Section 280G of the Code, then the Employee
shall have an obligation to pay the Company upon demand an amount equal to
the sum of: (i) the excess of the aggregate "parachute payments" paid to
or for the Employee's benefit over the aggregate "parachute payments" that
could have been paid to or for the Employee's benefit without any portion
of such "parachute payments" not being deductible by reason of Section 280G
of the Code; and (ii) interest on the amount set forth in clause (i) of
this sentence at the rate provided in Section 1274(b)(2)(B) of the Code
from the date of the Employee's receipt of such excess until the date of
such payment.
(g) The Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or
otherwise.
(h) If the employment of the Employee is terminated by the Company
without Cause or the Employee's employment is terminated by the Employee
under conditions entitling him to payment hereunder and the Company fails
to make timely payment of the amounts then owed to the Employee under this
Agreement, the Employee shall be entitled to interest on such amounts at
the rate of 1% above the prime rate (defined
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<PAGE>
as the base rate on corporate loans at large U.S. money center commercial
banks as published by the Wall Street Journal), compounded monthly, for the
period from the date such amounts were otherwise due until payment is made
to the Employee (which interest shall be in addition to all rights which
the Employee is otherwise entitled to under this Agreement).
13. Assignment.
(a) This Agreement is personal to each of the parties hereto. No
party may assign or delegate any rights or obligations hereunder without
first obtaining the written consent of the other party hereto, except that
this Agreement shall be binding upon and inure to the benefit of any
successor corporation to the Company.
(b) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes this Agreement by operation of
law, or otherwise.
(c) This Agreement shall inure to the benefit of and be enforceable by
the Employee and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Employee should die while any amount would still be payable to him
hereunder had he continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
14. (a) Confidential Information. During the Term of this Agreement
and thereafter, the Employee shall not, except as may be required to
perform his duties hereunder or as required by applicable law, disclose to
others for use, whether directly or indirectly, any Confidential
Information regarding the Company. "Confidential Information" shall mean
information about the Company, its subsidiaries and affiliates, and their
respective clients and customers that is not available to the general
public and that was learned by the Employee in the course of his employment
by the Company, including (without limitation) any data,
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<PAGE>
formulae, information, proprietary knowledge, trade secrets and client and
customer lists and all papers, resumes, records and the documents
containing such Confidential Information. The Employee acknowledges that
such Confidential Information is specialized, unique in nature and of great
value to the Company, and that such information gives the Company a
competitive advantage. Upon the termination of his employment, the Employee
will promptly deliver to the Company all documents (and all copies thereof)
containing any Confidential Information.
(b) Noncompetition. The Employee agrees that during the Term of this
Agreement, and for a period of one year thereafter, he will not, directly
or indirectly, without the prior written consent of the Company, provide
consultative service with or without pay, own, manage, operate, join,
control, participate in, or be connected as a stockholder, partner, or
otherwise with any business, individual, partner, firm, corporation, or
other entity which is then in competition with the Company or any present
affiliate of the Company; provided, however, that the "beneficial
ownership" by the Employee, either individually or as a member of a
"group," as such terms are used in Rule 13d of the General Rules and
Regulations under the Exchange Act, of not more than 1% of the voting stock
of any publicly held corporation shall not be a violation of this
Agreement. It is further expressly agreed that the Company will or would
suffer irreparable injury if the Employee were to compete with the Company
or any subsidiary or affiliate of the Company in violation of this
Agreement and that the Company would by reason of such competition be
entitled to injunctive relief in a court of appropriate jurisdiction, and
the Employee further consents and stipulates to the entry of such
injunctive relief in such a court prohibiting the Employee from competing
with the Company or any subsidiary or affiliate of the Company in violation
of this Agreement.
(c) Right to Company Materials. The Employee agrees that all styles,
designs, recipes, lists, materials, books, files, reports, correspondence,
records, and other documents ("Company Material") used, prepared, or made
available to the Employee, shall be and shall remain the property of the
Company. Upon the termination of his employment or the expiration of this
Agreement, all Company Materials shall be returned immediately to the
Company, and Employee shall not make or retain any copies thereof.
(d) Antisolicitation. The Employee promises and agrees that during
the Term of this Agreement, and for a period of one year thereafter,
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<PAGE>
he will not influence or attempt to influence customers, franchisees,
landlords, or suppliers of the Company or any of its present or future
subsidiaries or affiliates, either directly or indirectly, to divert their
business to any individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any subsidiary or
affiliate of the Company.
15. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other
addresses as either party may have furnished to the other in writing in
accordance herewith, except that notice of a change of address shall be
effective only upon actual receipt:
Company: IHOP Corp.
525 North Brand Blvd.
Glendale, California 91203-1903
to the attention of the Board;
with a copy to: the Secretary of the Company
Employee: John Jordan
525 North Brand Boulevard
Glendale California 91203.
16. Amendments or Additions. No amendments or additions to this Agreement
shall be binding unless in writing and signed by both parties hereto.
17. Section Headings. The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
18. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
19. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but both of which together will
constitute one and the same instrument.
20. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
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<PAGE>
conducted before a panel of three arbitrators in Los Angeles, California, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Employee shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
21. Attorneys' Fees. The Company shall pay to the Employee all out-of-
pocket expenses, including attorneys' fees, incurred by the Employee in
connection with any claim, legal action or proceeding involving this Agreement
in which the Employee prevails in whole or in part, whether brought by the
Employee or by or on behalf of the Company or by another party. The Company
shall pay prejudgment interest on any money judgment obtained by the Employee
calculated at 3% above the prime rate (defined as the base rate on corporate
loans at large U.S. money center commercial banks as published by the Wall
Street Journal), from the date that payment(s) to the Employee should have been
made under this Agreement.
22. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Employee and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement and this
agreement shall supersede any prior understanding or agreement either written or
oral, will respect to the subject matter hereto. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California without regard to its conflicts of law principles. All
references to sections of the Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of the
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Company under Section 12 and Section 20 and the obligations of the Employee
under Section 14 and Section 20 shall survive the expiration of the Term of this
Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
on the date first indicated above.
ATTEST: IHOP CORP.
/s/ Mark D. Weisberger By:/s/ Richard K. Herzer
- --------------------------- --------------------------------
Mark D. Weisberger Richard K. Herzer
Secretary President
EMPLOYEE:
/s/ John Jordan
-----------------------------------
John Jordan
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John Jordan
Relocation Assistance
. House Hunting Trip - IHOP will reimburse reasonable expenses for a maximum of
two (2) five day advance trips for househunting at the new location.
. IHOP will reimburse reasonable interim living expenses for you and your
family at the new location while awaiting permanent housing, not to exceed
sixty (60) days.
. An additional allowance for miscellaneous relocation expenses in the amount
of $6,538 will also be provided.
. Temporary Living - The company will pay the costs for reasonable temporary
living expense for a maximum period of ninety (90) days.
. Return Visits Home - IHOP will cover the cost of airfare for trips home for a
maximum period of ninety (90) days.
. Sale of Residence at Old Location - IHOP will reimburse reasonable expenses
for the sale, such as real estate commissions, legal fees, mortgage
penalties, transfer tax payments and other miscellaneous closing costs not to
exceed 7% of the gross sales price of the home being sold.
. Household Goods - IHOP will pay reasonable charges for packing and
transportation costs for one (1) pick-up at origin and one (1) delivery at
destination, plus insurance coverage at $2.00 per pound and normal appliance
servicing.
. Automobiles - IHOP will reimburse expenses to ship/transport your two cars to
Atlanta, GA.
. Travel Expenses - IHOP will reimburse reasonable expenses transporting you
and your family to the new location. Reimbursement will be based on the most
direct route.
. Purchase of New Residence - Reimbursement up to a maximum of three (3%) of
the purchase price of the new home.
. In the event you voluntarily terminate prior to two years following
relocation, you agree to repay IHOP for all your relocation expenses.
EXHIBIT "A"
<PAGE>
AREA FRANCHISE AGREEMENT
------------------------
This Agreement by and between INTERNATIONAL HOUSE OF PANCAKES, INC., a
Delaware corporation, successor in interest to THE INTERNATIONAL HOUSE OF
PANCAKES COMMISSARY, (hereinafter referred to as "Franchisor") and FMS
MANAGEMENT SYSTEMS, INC., a Florida corporation, successor in interest to ABE
FINKEL and CORINNE FINKEL, A.J.A. CORPORATION, (hereinafter referred to as
"Franchisee") is made with reference to the following facts:
A. Franchisor has developed and is continuing to develop certain unique
systems, products, methods, techniques and other trade secrets (hereinafter
referred to as the "Systems") for operating restaurants selling pancakes and
various other food products under the names "The International House of
Pancakes" and "International House of Pancakes Restaurant" (hereinafter referred
to as "IHOP"). The System, conducted in accordance with the provisions of this
Agreement and Franchisor's Operations Manual, Operations Bulletins, and all
notices, amendments and supplements relating thereto (collectively referred to
herein as "Operations Bulletins") will enable such businesses to compete more
effectively in their respective marketplaces;
B. Franchisor now owns and hereafter will develop or purchase valuable
trademarks, service marks, trade names, logotypes and other commercial symbols
used to identify the System (hereinafter referred to as the "Trademarks"); and
C. Franchisor or its predecessor in interest has granted to Franchisee
or its predecessor in interest an exclusive franchise and license to operate
and/or subfranchise International House of Pancakes restaurants within the area
hereinafter described pursuant to an Area Franchise Agreement dated July 1,
1960, (hereinafter referred to as "Old Agreement"); and
D. The parties now desire to modify the terms of the Old Agreement by
terminating same and entering into a new agreement (hereinafter "Agreement") to
use the System and Trademarks associated therewith in connection with the
operation and/or subfranchising of IHOP restaurants within the area hereinafter
described under the names "The International House of Pancakes" and
"International House of Pancakes Restaurants" and Franchisor is willing to grant
said Area Franchise under the terms and subject to the conditions hereinafter
set forth.
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WHEREFORE, IT IS AGREED for and in consideration of Ten Dollars ($10.00)
each to the other in hand paid, and for the mutual covenants and promises
contained herein to the following:
I
GRANT OF FRANCHISE
1.01 Franchised Area. Franchisor hereby grants to Franchisee, and
---------- ----
Franchisee hereby accepts, in accordance with the provisions of this Agreement
and any ancillary documents pertaining hereto, an exclusive franchise and
license to operate and/or to subfranchise the operation of International House
of Pancakes restaurants within the following area of the United States:
All Counties of the State of Florida and the Counties of Glynn, Wayne,
Camden, Charlton, Decatur, Grady, Miller, Seminole, Thomas, Berrien, Brooks,
Cook, Echols, Lanier, Lowndes, Appling, Atkinson, Bacon, Branskey, Clinch,
Coffee, Jeff Davis, Pierce, and Ware, Georgia.
1.02 Exclusive Territory. So long as Franchisee faithfully
--------- ---------
performs and observes each and all of the obligations and conditions to be
performed and observed by Franchisee under or in connection with this Agreement,
Franchisor, during the term of this Agreement, shall not own, operate, franchise
or license any "International House of Pancakes" restaurant within that area
described above (hereinafter "Franchised Area"). Franchisee acknowledges and
agrees that Franchisor, or its direct or indirect parent, subsidiary, or
affiliated corporations, may now or hereafter own, operate, franchise and
license both within and without the Franchised Area other restaurants under
different trademarks, and trade names, or service marks, including without
limitation, Copper Penny Family Coffee Shop, and that such other restaurants
offer products similar to those which are or may be offered by the Franchised
Restaurants.
1.03 Use of System. The franchise granted hereby is a license to use
--- -- ------
and/or license others to use Franchisor's trade name, goodwill, and trade
secrets in the operation of pancake specialty restaurants solely within the area
specified herein and in strict compliance with the terms hereof. Nothing herein
contained shall be construed so as to require Franchisor to divulge any secret
processes, formulas, or ingredients, except pursuant to this Agreement. It is
expressly agreed that the ownership of all right, title and interest in and to
2
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said trade name, goodwill, and trade secrets is and shall remain vested solely
in Franchisor.
II
TERM OF FRANCHISE
2.01 Term. The term of this Agreement shall commence on the date
----
hereof and shall terminate on June 30, 2010, unless otherwise terminated
pursuant to the provisions of this Agreement, but shall be subject to extension
or reduction of the term as provided in Section IV hereinbelow.
III
SERVICES OF FRANCHISOR
3.01 Disclosure of Procedures. Franchisor will disclose to
---------- -- ----------
Franchisee its standard operating procedures and, in connection therewith, will
furnish copies of all manuals, bulletins, instruction sheets, forms, etc.
3.02 Training. Franchisee acknowledges that it has previously
---------
undergone training conducted by Franchisor for the operation of an IHOP
restaurant. If Franchisee shall require additional training for any of its
personnel, Franchisor shall provide said training to be given at an IHOP
restaurant or a training center designated from time to time by Franchisor.
Franchisor will pay no compensation for any services performed by trainee during
such training period and all expenses incurred by Franchisee or said trainee in
connection with such training, including, but not limited to, air fare and other
transportation costs, meals, lodging and other living expenses, shall be at the
sole expense of the Franchisee, and Franchisee shall also pay Franchisor's then
applicable training fee, which as of this date is Five Thousand Dollars
($5,000.00).
3.03 Additional Assistance. In addition to the foregoing,
---------- ----------
Franchisor shall provide Franchisee with additional assistance from the staff of
Franchisor or its corporate affiliates upon Franchisee's request and subject
to staff availability, at the then prevailing price per person, per day, as
shall be specified from time to time in the Operations Bulletins, plus
reasonable transportation and living expenses.
3.04 Sale of Food Products and Supplies. Franchisor shall either
---- -- ---- -------- --- --------
sell to Franchisee or make available to Franchisee through an authorized
supplier, at standard prices and terms which shall be no higher nor more onerous
3
<PAGE>
than the prices and terms granted to any other area franchisee, for authorized
distributor (but subject to Section 5.07 (a) below) all dry pancake mixes, and
IHOP logo items including but not limited to imprinted paper goods, and custom
patterned china, that Franchisee shall need for use in its own operations and
for resale to or use by subfranchisees.
3.05 Improvements. All improvements made by Franchisor in its
------------
products, procedures or designs will be made available to Franchisee.
3.06 Indemnification. In the event that any third party makes any
---------------
claim, by suit or otherwise, against the Franchisee because of the Franchisee's
use in accordance with this Agreement of the Trademarks, the Franchisee shall
immediately notify the Franchisor in writing. After receipt of said notice,
Franchisor shall promptly take such action as may be necessary to protect and
defend Franchisee against any such claim, suit or demand, and Franchisor shall
protect, indemnify and save Franchisee harmless from any loss, costs or expenses
arising out of or relating to any such claim, demand, or suit. Franchisee shall
have no right to settle, compromise, or litigate any such claim except in strict
compliance with any specific directives provided by Franchisor relating to such
specific claim. Franchisor shall have the right to defend, compromise or settle
any such claim at Franchisor's sole cost and expense, using attorneys of its own
choosing, and Franchisee agrees to cooperate fully with Franchisor in
connection with the defense of any such claim.
IV
FEES AND EXTENSIONS OR REDUCTIONS OF TERM
4.01 Continuing Royalty. For and in consideration of Franchisor's
---------- -------
execution and performance of this Agreement, Franchisee shall pay in United
States Do1lars to Franchisor a Continuing Royalty equal to one percent (1%) of
all Franchisee's monthly Gross Sales as hereinafter defined. Should the annual
Continuing Royalty paid to Franchisor by Franchisee under this Agreement in
respect of any fiscal year of Franchisee (commencing with Franchisee's fiscal
year beginning October 1, 1987) be less than Three Hundred Thousand Dollars
($300,000.00) ("minimum Continuing Royalty") in respect of eighty-eight (88)
International House of Pancakes Restaurants operated or subfranchised by
Franchisee as of December 31, 1987, ("existing units"), Franchisee will lose one
(1) year of any extension of the term hereof earned by Franchisee pursuant to
4
<PAGE>
Section 4.06 below; provided, however:
(a) Franchisee can avoid any such loss of extension(s) earned
pursuant to Section 4.06 below by paying to Franchisor within ninety (90) days
of the end of its fiscal year the difference between Three Hundred Thousand
Dollars ($300,000.00) and the amount of Continuing Royalty actually paid in
respect of such fiscal year; and
(b) the Three Hundred Thousand Dollar ($300,000.00) per annum
minimum Continuing Royalty as stated above shall be reduced by the amount of the
last full year's royalty paid in respect of any existing unit(s) lost as a
result of condemnation, eminent domain, any government action, or unforeseeable
"Acts of God;" and
(c) there shall be no minimum Continuing Royalty whatsoever from
and after October 1, 1997.
4.02 Advertising Fee. In addition to Franchisee's obligation to
----------- ---
pay a Continuing Royalty as set forth above, Franchisee shall pay to Franchisor,
for national advertising and for the preservation, promotion and enhancement of
the value of all franchises and goodwill attached thereto, a sum equal to one-
quarter of one percent (.25%) of Franchisee's monthly Gross Sales as hereinafter
defined.
4.03 Payments. Payments of said Continuing Royalty and the
--------
Advertising Fee for each monthly period shall be due no later than forty-five
(45) days after the day ending the month in which such Gross Sales were earned.
All such payments shall be accompanied by a statement in such form and detail as
shall be from time to time required by Franchisor from its Franchisees, showing
how such Continuing Royalty was computed for such month, and accompanied by a
copy of Franchisee's monthly sales tax reports. All payments measured by Gross
Sales shall be accompanied above by a statement of Gross Sales, itemized by
restaurant location, certified to be correct by Franchisee.
4.04 Definition of Gross Sales. The term "Gross Sales," as used in
---------- -- ----- -----
this Agreement, shall mean the total revenues derived by Franchisee in and from
all IHOP restaurants in the Franchised Area, operated by virtue of this
Agreement whether operated by Franchisee or a subfranchisee (which restaurants
are hereinafter referred to as "Franchised Restaurants"), whether for cash sales
of food and other merchandise or otherwise (whether or not payment is received
5
<PAGE>
therefor), or charge sales thereof, or revenues from any source arising out of
the operation of the Franchised Restaurants, deducting therefrom: (a) all
refunds and allowances, if any; (b) any sales or excise taxes which are
separately stated and which the Franchisee or its subfranchisees collects from
customers and pays to any federal, state or local taxing authority; and (c) any
amounts deposits in any vending machines or pay telephones which are located in
or about the Franchised Restaurants.
4.05 Records.
-------
(a) Franchisee or its subfranchisees shall record all sales on
individual machine serial numbered guest checks and shall keep and maintain
accurate records thereof. Franchisee shall cause all such sales to be registered
upon a nonresettable cash register of the type specified by Franchisor, having a
lock-in running total, and shall, at any time, at Franchisor's sole discretion,
provide to Franchisor or its authorized representatives, a key to permit reading
of the running total of the cash register.
(b) Franchisee shall keep and preserve for a period of not less
than thirty-six (36) months after the end of each calendar year or any longer
period as may be required by applicable law, all business records, including,
but not limited to, cash register tape readings, standardized numbered guest
checks, sales tax or other tax returns, bank books, and other evidence of Gross
Sales and business transactions for such year. Franchisor shall have the right
at any time, notwithstanding the terms contained in Paragraph 5.04, to enter
Franchisee's or its subfranchisees' premises to inspect, audit and make or
request copies of books of account, bank statements, documents, records, tax
returns, papers and files of Franchisee relating to Gross Sales and business
transacted and, upon request by Franchisor, Franchisee shall make any such
materials available for inspection at Franchisee's premises. If Franchisor
should cause an audit to be made and the Gross Sales and business transacted as
shown by Franchisee's statements should be found to be understated by any
amount, Franchisee shall immediately pay to Franchisor the additional amount
payable as shown by such audit, plus interest thereon at the highest rate of
interest allowed by law, and if they are found to be understated by two percent
(2%) or more, Franchisee shall also immediately pay to Franchisor the cost of
such audit; otherwise, the cost of the audit shall be paid by Franchisor. If
6
<PAGE>
Franchisee should at any time cause an audit of Franchisee's business or any
IHOP restaurant operated by Franchisee or any subfranchisee of Franchisee to be
made by a public accountant, Franchisee shall furnish the Franchisor with a copy
of said audit, without any cost or expense to the Franchisor.
(c) Franchisee agrees to allow Franchisor access to the state,
federal and local income tax returns of the Franchisee and Franchisee hereby
waives any privilege pertaining thereto.
(d) Within forty-five (45) days after the expiration of each three
(3) month period, franchisee shall furnish Franchisor with Franchisee's
unaudited profit and loss statement for such quarter and within one hundred
eighty (180) days after the end of each fiscal year, Franchisee shall furnish
Franchisor with an audited profit and loss statement and balance sheet of
Franchisee for such fiscal year. All such financial statements shall be prepared
in accordance with Generally Accepted Accounting Principles ("GAAP")
consistently applied from applicable period to period and shall be certified by
Franchisee's Chief Executive Officer or Chief Financial Officer, as being true
and correct, and as being prepared in accordance with GAAP consistently applied
from applicable period to period. All such financial statements shall all comply
with any specific requirements as Franchisor may from time to time designate.
Franchisee hereby irrevocably consents to Franchisor's use of said financial
statements, at Franchisor's election, in Franchisor's offering circular for the
offer and sale of franchises.
4.06 Extensions of Term: For each International House of Pancakes
------------------
Restaurant (in excess of the eighty-eight (88) International House of Pancakes
Restaurants operated or subfranchised by Franchisee as of December 31, 1987,)
opened for operation, directly or through a subfranchisee, by Franchisee from
and after the date of execution hereof through June 30, 1993, two (2) years
shall be added to the term hereof. For each such restaurant opened for
operation, directly by Franchisee or through a subfranchisee, by Franchisee for
the period beginning July 1, 1993, and ending June 30, 2003, a period of one (l}
year shall be added to the term hereof. For each such unit opened for operation,
directly or through a subfranchisee, by Franchisee from and after July 1, 2003,
a period of six (6) months shall be added to the term hereof. Additionally, in
respect of a net of five (5) units which were added to the
7
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International House of Pancakes Restaurants operated or subfranchised by
Franchisee for the period from January 1, 1987, through December 31, 1987, a
period of five (5) years shall be and is hereby added to the term hereof.
V
DUTIES OF FRANCHISEE
5.01 Compliance with Laws and Operations Bulletins. Franchisee
---------- ---- ---- --- ---------- ---------
shall, and shall cause its subfranchisees to, operate the Franchised Restaurants
in strict compliance with all applicable laws, rules and regulations of duly
constituted governmental authorities and in strict compliance with the standard
procedures, policies, rules and regulations established by Franchisor and
incorporated herein, or in Franchisor's Operations Bulletins. Such standard
procedures, policies, rules and regulations established by Franchisor may be
revised from time to time as circumstances warrant, and may exist from time to
time as though they were specifically set forth in this Agreement, and when
incorporated in Franchisor's Operations Bulletins, the same shall be deemed
incorporated herein by reference. By way of illustration and without limitation,
such standard procedures, policies, rules and regulations may or will specify
accounting records and information, payment procedures, specifications for
required supplies and purchases, including Trademarked Products, hours of
operation (which may vary from location to location), advertising and promotion,
cooperative programs, specifications regarding required insurance, minimum
standards and qualifications for employees, design and color of uniforms, menu
items, methods of production and food presentation, including the size and
serving thereof, standards of sanitation, maintenance and repair requirements,
specifications of furniture, fixtures and equipment, flue cleaning, and fire
prevention service, appearance and cleanliness of premises, accounting and
inventory methods and controls, forms and reports, and in general will govern
all matters that, in Franchisor's judgment, require standardization and
uniformity in all IHOP restaurants. Franchisor will furnish Franchisee with
Franchisor's current Operations Bulletins upon the execution of this Agreement.
Said Operations Bulletins and all notices, amendments and supplements relating
thereto shall at all times remain the property of Franchisor. Upon termination
or expiration of this Agreement, Franchisee shall deliver all copies of said
Operations Bulletins to Franchisor. Franchisee further acknowledges that said
8
<PAGE>
Operations Bulletins contain trade secrets of Franchisor and Franchisee shall,
and shall cause its subfranchisees to, at all times maintain as confidential the
contents of said Operations Bulletins. Franchisee shall not, and shall not
permit subfranchisees to, vary any of such standard procedures without
Franchisor's prior written consent. If a variance is required, on account of
local conditions or otherwise, such consent will not be unreasonably withheld.
5.02 Subfranchisees. From and after the date of execution hereof, all
--------------
agreements between Franchisee and its subfranchisees shall be made expressly
subject to the provisions of this Agreement, including the right of Franchisor
to terminate for cause. Franchisee shall deliver to Franchisor a true copy of
each such agreements when it is executed. In addition, Franchisee shall deliver
to Franchisor a true copy of each Franchise Offering Circular prepared by
Franchisee for its prospective subfranchisees.
5.03 Location. Franchisee shall keep Franchisor currently informed as
--------
to the location of each restaurant operated or subfranchised.
5.04 Inspection. Franchisee expressly authorizes Franchisor and its
----------
authorized agents and representatives to enter any IHOP restaurant in the
Franchised Area, to inspect the premises, fixtures, furnishings, equipment,
books, and records of any restaurant operated by Franchisee or any of its
subfranchisees at any time said restaurant is open for business, without notice,
and to examine and inspect the operations in all respects to determine
compliance with this Agreement and with Franchisor's Standard Operating
Procedures, rules, policies, and regulations. All records, including cash
register readings, relating to Gross Sales shall be preserved for at least three
(3) years.
Franchisee shall inspect the operations of its subfranchisees at
frequent intervals, and shall take such action, including legal proceedings, as
may be necessary to correct any breach or nonconformity with Franchisor's
standard procedures, policies, rules or regulations.
5.05 Indemnification of Franchisor. Franchisee shall indemnify
--------------- -- ----------
Franchisor and hold it harmless from any claims, demands, causes of action,
costs or expenses of any kind arising out of any act or omission of Franchisee
or of any of its subfranchisees.
5.06 Sales and Service of Food Products. Franchisee and its
----- --- ------- -- ---- --------
subfranchisees shall sell, serve and dispense only those items and
products as
9
<PAGE>
shall be designated by Franchisor in the Operations Bulletins. In connection
therewith, the parties agree that Franchisor may, from time to time, recommend
or suggest the prices to be charged by Franchisee or its subfranchisees for each
menu item sold or offered at IHOP restaurants; and, for purposes of economy and
cost saving to those Franchisees who elect to follow such recommendations, may
cause the production of prepriced menus and standardized numbered guest checks
which Franchisor shall offer for sale to Franchisee. Such recommended or
suggested prices are not binding in any respect upon Franchisee or its
subfranchisees, and Franchisee and its subfranchisees are and shall be at all
times, free to charge prices entirely of its or their own choosing, regardless
of whether the same do or do not conform to the recommended or suggested prices.
Franchisee and its subfranchisees shall not be required to use or to purchase
any prepriced menus or prepriced standardized number guest checks, and shall be
entirely free to procure menus and standardized numbered guest checks with
prices of its or their own choosing; provided, however, that such menus and
standardized numbered guest checks shall, in all respects except as to prices,
strictly comply with the specifications therefor contained in the Operations
Bulletins.
5.07 Required Purchases of Proprietary Products.
-------- --------- -- ----------- --------
(a) Franchisee and its subfranchisees shall purchase only from
Franchisor (if offered directly to Franchisees by Franchisor) or from Franchisor
approved distributors who have purchased such products from Franchisor, all of
their requirements for buckwheat flour, waffle mix, egg batter, buttermilk mix,
and such other future products as may then be required by Franchisor, all of
which embody and shall embody secret formulas owned by the Franchisor
(collectively referred to as "Required Products"). Franchisor shall not charge
Franchisee a price (exclusive of freight charges) in excess of that charged
approved distributors for required products, provided that geographic price
differences cannot be invoked to reduce Franchisor's net profit in respect of
required products.
(b) For purposes of insuring consistency and uniformity of product,
Franchisee and its subfranchisees shall purchase only from Franchisor (if
offered directly to Franchisees by Franchisor) or from Franchisor designated
suppliers, all of their requirements for coffee. Further, Franchisee or its
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<PAGE>
subfranchisees shall purchase only such blends of coffee as Franchisor shall
from time to time designate.
(c) Except as provided in Paragraphs 5.07(a) and (b), Franchisee and
its subfranchisees shall purchase for use in the operation of the Franchised
Restaurants certain products which bear IHOP Trademarks that may include, as
provided in the Operations Bulletins, dishware, silverware, napkins, placemats,
coasters and other items (herein referred to as "Trademarked Products"). All
such required Trademarked Products shall comply with the specifications set
forth in the Operations Bulletins. Franchisee or its subfranchisees may purchase
Trademarked Products from Franchisor, if made available by Franchisor, suppliers
designated by Franchisor, or suppliers chosen by Franchisee as provided in
Paragraph 5.08 below, provided such suppliers execute a royalty free trademark
license in a form reasonably satisfactory to the Franchisor.
5.08 Compliance with Franchisor's Specifications.
---------- ---- ------------ --------------
(a) All food products, services, supplies, equipment, and
materials, including standardized numbered guest checks and menus, permitted or
required to be used in the operation of the Franchised Restaurants shall be in
full compliance with the specifications set forth in the Operations Bulletins
and, excepting only those items referred to in Paragraphs 5.07 (a) and (b),
shall be purchased and procured by Franchisee and its subfranchisees from
Franchisor (if offered by Franchisor), or from suppliers designated by
Franchisor, or from suppliers selected by Franchisee and not disapproved in
writing by Franchisor. With respect to each supplier designated by Franchisor,
such suppliers shall only be those who have demonstrated, to the reasonable
satisfaction of Franchisor, (i) the ability to supply a product meeting the
specifications of Franchisor, (ii) reliability with respect to the quality of
product or service, and (iii) willingness and agreement to permit Franchisor to
make periodic inspections, reasonable in respect of frequency, time and manner
of inspection, to assure continued conformity to specifications.
(b) In the event that Franchisee or any of its subfranchisees should
desire to procure any food product other than those described in Paragraphs
5.07(a) and (b), service, supply, equipment, or material from any supplier other
than Franchisor or a supplier designated by Franchisor, Franchisor shall, upon
request of Franchisee, furnish to Franchisee specifications, by established
brand name wherever possible, for all such times. Franchisee shall deliver
11
<PAGE>
written notice to Franchisor of its desire to do so, which notice shall identify
the name and address of such supplier and the items desired to be purchased from
such supplier. Should Franchisor not deliver to Franchisee, within ten (10) days
after its receipt of such notice, a written statement of disapproval with
respect to such supplier, it shall be deemed that such supplier is approved by
Franchisor as a supplier of the goods described in the notice until such time as
Franchisor may subsequently withdraw such approval. Franchisor shall be entitled
to disapprove or to subsequently withdraw its approval of any supplier selected
by Franchisee only upon the ground that such supplier has failed to meet one or
more of the requirements hereinabove set forth. Once Franchisee has delivered a
notice of its desire to purchase the specified items from any such supplier, it
shall be entitled to purchase same from such supplier until it shall have
received a timely statement of disapproval from Franchisor; provided, however,
that should Franchisee designate a supplier in any such notice who shall
previously have been disapproved by Franchisor, it shall not be permitted to
purchase from such supplier unless and until the ten (10) day period from
delivery of such notice shall have expired without delivery from Franchisor of a
statement of disapproval.
(c) In some instances, the Franchisor's specifications may be such that
only a single supplier or a limited number of suppliers can meet such
specifications. With respect to such products, Franchisee shall purchase such
products only from the source or sources designated by Franchisor.
5.09 Insurance.
---------
(a) Franchisee agrees to procure and maintain at Franchisee's or
its subfranchisees' expense during the term hereof, policies of liability
insurance meeting minimum standards, coverages, and limits and insuring
Franchisee or its subfranchisees against the insurable risks prescribed in
Franchisor's Operations Bulletins. All such policies of liability insurance
shall name Franchisor and such other nominees of Franchisor as it may designate
as additional insureds, as their interests may appear.
(b) If Franchisee fails or refuses to purchase insurance conforming
to the requirements prescribed by the Operations Bulletins, Franchisor may but
shall not be obligated to obtain, through agents and insurance companies of its
own choosing, such insurance as is necessary to meet
12
<PAGE>
such requirements. Payments for such insurance shall be borne by Franchisee.
Nothing herein shall be construed or deemed to impose any duty or obligation on
Franchisor to obtain such insurance or as an undertaking or representation by
Franchisor that such insurance as may be obtained by Franchisee or by Franchisor
for Franchisee will insure Franchisee against any or all insurable risks of loss
which may or can arise out of, or in connection with the Franchised Restaurants.
Franchisee may obtain such other or additional insurance as Franchisee deems
proper in connection with the operation of its business.
5.10 Taxes. Franchisee agrees to pay and to cause its subfranchisees
-----
to pay in full any and all city, county, state and federal taxes arising in
connection with or levied or assessed by any of said governmental bodies in
connection with all or any part of this Agreement, or the operation of any IHOP
restaurant in the Franchised Area, or all or any of the merchandise and assets
being sold hereunder, promptly when due, and prior to any delinquency.
VI
TRADEMARKS
6.01 Nature of Grant. Franchisor hereby grants to Franchisee and its
------ -- -----
subfranchisees, and Franchisee hereby accepts, the right, during the term
hereof, upon the terms and conditions contained herein, to use and display IHOP
service marks, Trademarks, trade names and insignia and the labels and designs
pertaining thereto (herein called the "Trademarks"), and to use Franchisor's
trade secrets, formulae, processes, methods of operation and goodwill, but only
in connection with the retail sale at IHOP restaurants in the Franchised Area of
those items contained on the standard menu of IHOP restaurants as established in
the Operations Bulletins from time to time. Nothing herein shall give Franchisee
or its subfranchisees any right, title or interest in or to said service marks,
Trademarks, trade names, insignia, labels or designs, trade secrets, formulae,
processes, methods of operation or goodwill, or any of the same except a mere
privilege and license, during the term hereof, to display and use the same
according to the foregoing limitations and upon the terms, covenants and
conditions contained herein. Upon the expiration or termination of this
Agreement for any reason, Franchisee and its subfranchisees shall deliver and
surrender up to Franchisor each and all manuals, bulletins, instruction sheets,
forms, marks, devices, and Trademarks, and shall not
13
<PAGE>
thereafter use any of the same or any such trade secrets, formulae, processes,
methods of operation, goodwill, or any of them; provided Franchisor shall
purchase from Franchisee and its subfranchisees at a price equal to Franchisee's
book value, consisting of Franchisee's cost therefor less depreciation computed
in accordance with GAAP, paper goods, dishes, and other similar, small items of
personal property purchased by Franchisee and its subfranchisees in the
ordinary course of their business which are, in Franchisor's reasonable
judgment, in good, usable condition, and which bear any Trademarks of
Franchisor. Franchisee acknowledges that the material and information now and
hereafter provided or revealed to it pursuant to this Agreement are revealed in
confidence and Franchisee expressly agrees to keep and respect the confidence so
reposed. Nothing herein contained shall be construed so as to require Franchisor
to divulge any secret processes, formulae or ingredients. Franchisor expressly
reserves all rights with respect to IHOP's goods, products, Trademarks, trade
secrets, formulae, processes, ingredients and methods of operation, except as
may be expressly granted to Franchisee herein.
6.02 Acts in Derogation of Franchisor's Trademark.
---- -- ---------- -- ------------ ---------
(a) Franchisee agrees that, as between Franchisor and Franchisee,
the Trademarks of Franchisor are the sole and exclusive property of Franchisor
and Franchisee now asserts no claim and will hereafter assert no claim to any
goodwill, reputation or ownership thereof by virtue of Franchisee's licensed use
thereof. Franchisee agrees that it will not do or permit any act or thing to be
done in derogation of any of the Franchisor's rights in connection with the
same, either during the term of this Agreement or thereafter, and that it will
use same only for the uses and in the manner licensed hereunder and as herein
provided.
(b) From and after the date of execution hereof, Franchisee shall
not use, or permit the use by subfranchisees, as part of the name of any
Franchisee or subfranchisee corporation, the phrases "IHOP," "International
House of Pancakes," "House of Pancakes," or any phrase or combination of words
confusingly similar thereto.
6.03 Prohibition Against Disputing Franchisor's Rights. Franchisee
----------- ------- --------- ------------ ------
agrees that it will not, during or after the term of this Agreement, in any way,
dispute or impugn the validity of the Trademarks licensed hereunder, or the
rights of Franchisor thereto, or the right of Franchisor and other franchisees
14
<PAGE>
of Franchisor to use the same both during the term of this Agreement and
thereafter.
6.04 Use of Franchisor's Name. Franchisee agrees that the
--- -- ------------ -----
restaurants herein franchised shall be named the "International House of
Pancakes" or "International House of Pancakes Restaurant," as specified by
Franchisor, without any suffix or prefix attached thereto and all signs,
advertising and slogans will only bear the name "International House of
Pancakes," or "International House of Pancakes Restaurant," or such other
Trademarks as Franchisor may hereafter specify in its Operations Bulletins.
Franchisee shall and shall cause its subfranchisees to use Franchisee's or its
subfranchisees' correct name on all invoices, orders, vouchers, checks,
letterheads, and other similar materials, identifying the franchise as being a
franchise of Franchisor which is independently owned and operated by Franchisee
or its subfranchisee(s).
6.05 Relationship of Franchisee to Franchisor. It is expressly
------------ -- ---------- -- ----------
agreed that the parties intend by this Agreement to establish between Franchisor
and Franchisee the relationship of Franchisor and Franchisee, and that it is not
the intention of either party to undertake a joint venture or to make Franchisee
or any of its subfranchisees in any sense an agent, partner, employee or
affiliate of Franchisor. It is further agreed that Franchisee has no authority
to create or assume in Franchisor's name or on behalf of Franchisor any
obligation, express or implied, or to act or purport to act as agent or
representative on behalf of Franchisor for any purpose whatsoever.
VII
ASSIGNMENT
7.01 Assignment by Franchisee. Franchisee shall have the right to
---------- -- ----------
assign this Agreement, entirely or partially, to any party only with the prior
written consent of Franchisor, which shall not be unreasonably withheld. Any
sale, assignment or other transfer in the aggregate of more than forty-nine
percent (49%) of the stock of Franchisee shall be deemed an assignment
hereunder, except that transfers among CORINNE FINKEL, LESLIE FREEDMAN, NATHAN
FINKEL and MARTIN B. FREEDMAN and their children shall not be prohibited.
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VIII
REMEDIES FOR BREACH
8.01 Strict Performance. Franchisee acknowledges that strict
------ -----------
performance of all of the terms of this Agreement is necessary not only for the
protection of Franchisor but also for the protection of all operators of
International House of Pancakes Restaurants. It is therefore agreed that strict
and exact performance by Franchisee of each of its promises, covenants, and
obligations hereunder is a condition precedent to the continuance of this
franchise.
8.02 Right of Termination After Notice of Default. If Franchisee
----- -- ----------- ----- ------ -- -------
shall be in default in the performance of any of the terms of this Agreement,
and such default shall not be cured within thirty (30) days after it shall be
determined that there is a default as hereinafter provided, or if bankruptcy,
debtor, or insolvency proceedings are commenced by or against Franchisee, or if
Franchisee makes an assignment for benefit of creditors, or if a receiver is
appointed to take possession of the business of Franchisee, or if Franchisee
transfers a substantial part of its business voluntarily without Franchisor's
consent or involuntarily, then in any such event, in addition to all other
remedies it may have at law or in equity, Franchisor may terminate this
Agreement.
8.03 Franchisee's Obligations Upon Termination. Upon termination of
------------ ----------- ---- -----------
this Agreement, whether by lapse of time, default, or other cause, Franchisee
shall immediately discontinue all use of Franchisor's trade name, trade secrets,
and procedures, shall assign to Franchisor all rights (excluding those in
equipment, tangible personal property and real estate holdings) it may have in
or to its Agreements with its subfranchisees, shall remove from its own
restaurants, at its sole cost and expense, all signs, decor and decoration
characteristic of Franchisor's operations, and shall not thereafter operate or
do business under any name or in any manner that might tend to give the general
public the impression that it is dispensing, selling, or serving any of
Franchisor's products, or that it is operating a restaurant similar to an
"International House of Pancakes." Franchisee expressly recognizes and
acknowledges the right of Franchisor at its election and in addition to all
other remedies, to obtain a permanent injunction to enforce the foregoing
16
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provisions.
Expiration or termination of this Agreement shall be without prejudice
to the rights of Franchisor against Franchisee, nor shall such expiration or
termination relieve Franchisee of any of its obligations to Franchisor existing
at the time of expiration or termination.
8.04 Form of Notice. A default by Franchisee shall be determined in
---- -- ------
the following manner: Franchisor shall give notice, in writing, to Franchisee of
any claimed default in the performance of this Agreement. Franchisee shall
perform the work required or otherwise comply with Franchisor's demands within
thirty (30) days after the mailing of such written notice. If the default shall
be other than in the payment of money, and if it shall be of such a nature that
it cannot reasonably be cured within said thirty (30) day period, then
Franchisee shall commence to cure said default within said thirty (30) day
period and shall diligently proceed to do such acts as may be necessary to cure
said default. If Franchisee shall in good faith believe that it is not in
default as claimed by Franchisor, it shall within said thirty (30) day period
proceed to initiate an arbitration proceeding as provided in Article IX hereof.
If Franchisee shall neither cure the default nor initiate arbitration within the
period aforementioned, then the existence of the default shall be deemed
conclusively determined. If Franchisee shall initiate arbitration, the default
shall not be deemed determined until the arbitration shall have been completed
and the Franchisee shall have failed to perform the arbitrator's award in the
time specified by the arbitrator.
8.05 Conformity With Laws. If any law or regulation by any competent
---------- ---- ----
authority with jurisdiction over this Agreement shall limit Franchisor's rights
of termination or require a longer or different notice than that specified in
this Article VIII, same shall be deemed amended to conform with the minimum
requirements of such law or regulation.
IX
ARBITRATION AND REMEDIES
9.01 Arbitration. Any controversy or claim arising out of or
-----------
relating to this Agreement, or any agreement relating thereto, or any breach of
this Agreement including without limitation any claim that this Agreement or any
portion thereof is invalid, illegal or otherwise voidable, shall be submitted to
17
<PAGE>
arbitration before and in accordance with the rules of the American Arbitration
Association provided that the jurisdiction of the arbitrators shall be limited
to a decision rendered pursuant to California common and statutory law and
judgment upon the award may be entered in any court having jurisdiction thereof;
provided, however, that this clause shall not limit Franchisor's right to obtain
any provisional remedy, including without limitation injunctive relief or
similar relief, from any court of competent jurisdiction, as Franchisor deems to
be necessary or appropriate in Franchisor's sole subjective judgment, to compel
Franchisee to comply, or to prohibit Franchisee's noncompliance, with its
obligations hereunder, or to protect the Trademarks or other property rights of
Franchisor. Franchisor may, as part of such action or proceeding, seek damages,
costs and expenses caused to or incurred by it by reason of the act or action or
nonaction of Franchisee which caused Franchisor to institute such action or
proceeding. The institution of any such action or proceeding by Franchisor shall
not be deemed a waiver on its part to institution of an arbitration proceeding
pursuant to the provisions of this Article.
X
RIGHT TO CURE DEFAULTS
10.01 General. In addition to all other remedies herein granted, if
-------
Franchisee shall default in the performance of any of its obligations or breach
any term or condition of this Agreement or any related agreement, Franchisor
may, at its election, immediately or at anytime thereafter, without waiving any
claim for breach hereunder and without notice to Franchisee cure such default
for the account and on behalf of Franchisee, and the cost to Franchisor thereof
shall be due and payable on demand and shall be deemed to be additional
compensation due to Franchisor hereunder and shall be added to the amount of
compensation next accruing hereunder, at the election of Franchisor.
XI
SERVICE OF PROCESS
11.01 General. Franchisee, by the execution and delivery hereof,
-------
hereby irrevocably authorizes and confers power on The Prentice Hall Corporation
System, Inc., at Los Angeles, California, to accept in the name and on behalf of
Franchisee service of process issued in any action or proceeding instituted
18
<PAGE>
against Franchisee by Franchisor pertaining directly or indirectly to this
Agreement or any matter arising therefrom. A copy of any such process shall be
mailed to Franchisee by registered mail. Time to answer shall be according to
California law.
XII
OBLIGATIONS UPON TERMINATION
12.01 General. In the event of the termination or expiration of this
-------
Agreement for whatever reason, the Franchisee and its subfranchisees shall
forthwith discontinue the use of the Franchisor's Trademarks and shall not
thereafter operate or do business under any name or in any manner that might
tend to give the general public the impression that they are either directly or
indirectly associated, affiliated, franchised or licensed by or related to, the
IHOP restaurant system, and shall not, either directly or indirectly, use any
name, logotype, symbol or format confusing similar to the IHOP Trademarks or
formats. In addition, since Franchisor's restaurants have a distinctive color
scheme, Franchisee shall promptly upon demand by Franchisor repaint or cause its
subfranchisees to repaint the IHOP restaurants, if Franchisee retains control
thereof, in a different color scheme. Further, upon such expiration or
termination, the Franchisee and its subfranchisees shall not, either directly or
indirectly, for any purpose whatsoever, use any of the Franchisor's trade
secrets, procedures, techniques, or materials acquired by the Franchisee by
virtue of the relationship created by this Franchise Agreement, including, but
without limitation, (a) recipes, formulae and descriptions of food products; (b)
the Operations Bulletins and all manuals, bulletins, instruction sheets, and
supplements thereto; (c) all forms, advertising matter, marks, devises,
insignias, slogans and designs used from time to time in connection with IHOP
restaurauts; and (d) all copyrights, Trademarks and patents now or hereafter
applied for or granted in connection with the operation of IHOP restaurants.
XIII
NON-COMPETITION
13.01 General. Franchisee shall not during the term of this
-------
Agreement, or any extension or renewal thereof, directly or indirectly, own,
operate, control or have any financial interest in any pancake house or coffee
shop with more than three (3) varieties of pancakes and shall devote its best
efforts to the International House of Pancakes restaurant system. The
foregoing prohibition
19
<PAGE>
shall not apply to ownership by Franchisee of less than three percent (3%) of
the issued and outstanding stock of any company whose shares are listed for
trading over any public exchange or over-the-counter market and whose business
includes the owning, operating, or franchising of pancake houses, or coffee
shops, with more than three (3) varieties of pancakes, provided Franchisee does
not control any such company. Franchisee also agrees that it will not at any
time communicate, divulge, or use for the benefit of itself or any other person
or entity, other than in the course of conduct of the restaurant franchised
hereunder, any information or knowledge which it may have acquired in connection
with the operation of the Franchised Restaurants, and that it will not do any
act prejudicial or injurious to the business or goodwill of Franchisor, or any
other IHOP franchisee.
XIV
INDEMNITY BY FRANCHISEE
14.01 General. Franchisee agrees to defend, indemnify and hold
-------
Franchisor harmless from and against any and all claims, demands, losses,
damages, costs, liabilities and expenses (including, but not limited to,
attorneys' fees and costs of suit) of whatever kind or character, on account of
any actual or alleged loss, injury or damage to any person, firm or corporation
or to any property arising out of or in connection with the operation of the
Franchised Restaurants.
XV
ENTIRE AGREEMENT
15.01 General. This Agreement contains all of the terms and
-------
conditions agreed upon by the parties hereto with reference to the specific
subject matter hereof; provided, however, that for purposes of default, with
respect to any other agreements relating hereto, which were entered into prior
to, contemporaneously with, or subsequent to the date hereof between Franchisee
and Franchisor, or between Franchisee and third parties, any material default
thereof shall also be a material breach of this Agreement. No officer or
employee or agent of Franchisor has any authority to make any representation or
promise not contained in this Agreement, and Franchisee agrees that it has
executed this Agreement without reliance upon any such representation or
20
<PAGE>
promise. This Agreement cannot be modified or changed except by written
instrument expressly referring to this Agreement, signed by all of the parties
hereto.
XV
SEVERABILITY
16.01 General. Nothing contained in this Agreement shall be construed
-------
as requiring the commission of any act contrary to law. Whenever there is any
conflict between any provisions of this Agreement or the Operations Bulletins
and any present or future statute, law, ordinance, regulation, or judicial
decision, contrary to which the parties have no legal right to contract, the
latter shall prevail, but in such event the provision of this Agreement or the
Operations Bulletins thus affected shall be curtailed and limited only to the
extent necessary to bring it within the requirements of the law. In the event
that any part, Article, paragraph, sentence or clause of this Agreement or the
Operations Bulletins shall be held to be indefinite, invalid or otherwise
unenforceable, the indefinite, invalid or unenforceable provision shall be
deemed deleted, and the remaining part of the Agreement shall continue in full
force and effect, unless said provision pertains to the payment of fees,
pursuant to Article IV hereof, in which case this Agreement shall, at
Franchisor's option, terminate.
XVII
WAIVER AND DELAY
17.01 General. No waiver by Franchisor of any breach or series of
-------
breaches or defaults in performance by Franchisee and no failure, refusal or
negiect of Franchisor either to exercise any right, power or option given to it
hereunder or to insist upon strict compliance with or performance of
Franchisee's obligations under this Agreement or the Operations Bulletins, shall
constitute a waiver of the provisions of this Agreement or the Operations
Bulletins with respect to any prior, concurrent or subsequent breach thereof or
a waiver by Franchisor of its rights at any time thereafter to require exact and
strict compliance with the provisions thereof.
21
<PAGE>
XVIII
SURVIVAL OF COVENANTS
18.01 General. The covenants contained in this Agreement which by
-------
their terms require performance by the parties after the expiration or
termination of this Agreement shall be enforceable notwithstanding said
expiration or other termination of this Agreement for any reason whatsoever.
XIX
SUCCESSORS AND ASSIGNS
19.01 General. This Agreement shall be binding upon and inure to the
-------
benefit of the successors and assigns of the Franchisor and shall be binding
upon and inure to the benefit of the Franchisee and its or their respective
heirs, executors, administrators, successors and assigns, subject to the
restrictions on assignment contained herein.
XX
JOINT AND SEVERAL LIABILITY
20.01 General. If the Franchisee consists of more than one person or
-------
entity, or a combination thereof, the obligations and liabilities of each such
person or entity to the Franchisor are joint and several.
XXI
GOVERNING LAW
21.01 General. This Agreement and the legal relations among the
-------
parties hereto shall be governed by and construed in accordance with the laws of
the State of California without giving effect to conflict of laws.
XXII
COUNTERPARTS
22.01 General. This Agreement may be executed in any number of
-------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
XXIII
FEES AND EXPENSES
23.01 General. Should any party hereto commence any action or
-------
proceeding for the purpose of enforcing, or preventing the breach of, any
22
<PAGE>
provision hereof, whether by arbitration, judicial or quasi-judicial action or
otherwise, or for damages for any alleged breach of any provision hereof, or for
a declaration of such party's rights or obligations hereunder, or commence any
appeal therefrom, then the prevailing party shall be reimbursed by the losing
party for all costs and expenses incurred in connection herewith, including, but
not limited to, reasonable attorneys' fees for the services rendered to such
prevailing party.
XXIV
NOTICES
24.01 General. All notices which Franchisor is required or may desire
-------
to give to Franchisee under or in connection with this Agreement may be
delivered to Franchisee or may be sent by certified or registered mail, postage
prepaid, addressed to Franchisee at 2655 N. E. 189th Street, North Miami Beach,
Florida 33180, Attention: Chief Operating Officer.
All notices which Franchisee is required or may desire to give to
Franchisor under or in connection with this Agreement, must be sent by certified
or registered mail, postage prepaid, addressed to Franchisor as follows:
General Counsel
International House of Pancakes, Inc.
6837 Lankershim Boulevard
North Hollywood, California 91605
The addresses herein given for notice may be changed at any time by
either party by written notice given to the other party as herein provided.
Notices shall be deemed effective five (5) days after deposit in the United
States mails.
XXV
SUBMISSION OF AGREEMENT
25.01 General. The submission of this Agreement does not constitute
-------
an offer, and this Agreement shall become effective only upon the execution
thereof by the Franchisor and the Franchisee. THIS AGREEMENT SHALL NOT BE
BINDING ON THE FRANCHISOR UNLESS AND UNTIL IT SHALL HAVE BEEN ACCEPTED AND
SIGNED BY AN AUTHORIZED OFFICER OF THE FRANCHISOR. THIS AGREEMENT SHALL NOT
BECOME EFFECTIVE UNTIL AND UNLESS THE FRANCHISEE SHALL HAVE RECEIVED A FRANCHISE
OFFERING CIRCULAR IN SUCH FORM AND MANNER AS MAY BE REQUIRED UNDER OR PURSUANT
23
<PAGE>
TO APPLICABLE LAW.
IN WITNESS WHEREOF, the Franchisor and the Franchisee have caused this
Agreement to be executed as of the day and year written below.
WITNESSES: FRANCHISOR
INTERNATIONAL HOUSE OF PANCAKES, INC.
/s/ Catherine P. Celano a Delaware corporation
- ---------------------------
BY: /s/ Richard K. Herzer
/s/ Joseph J. London -----------------------------
- --------------------------- RICHARD K. HERZER
Its: President Date: 4-27-88
----------
ATTEST: /s/ Larry Kay
-------------------------
LARRY KAY, SECRETARY
(CORPORATE SEAL)
I HEREBY ACKNOWLEDGE THAT AT MY FIRST PERSONAL MEETING WITH FRANCHISOR, AT
LEAST TEN (10) BUSINESS DAYS PRIOR TO THE DATE THAT I HAVE EXECUTED THIS
AGREEMENT, OR HAVE PAID ANY CONSIDERATION THEREFOR, I RECEIVED, AND HAVE SINCE
READ, THE FRANCHISOR'S UNIFORM FRANCHISE OFFERING CIRCULAR; I HEREBY ALSO
ACKNOWLEDGE THAT I RECEIVED A COMPLETELY PREPARED COPY OF THIS AGREEMENT MORE
ThAN FIVE (5) BUSINESS DAYS PRIOR TO THE DATE I HAVE EXECUTED SAME.
WITNESSES: FRANCHISEE
FMS MANAGEMENT SYSTEMS, INC.
/s/ Charlene A. Kirsch BY: /s/ Nathan Finkel
- --------------------------- ------------------------------
NATHAN FINKEL
/s/ Valerie A. Slaughter
- --------------------------- Its: Vice President Date: May 5, 1988
(As to NATHAN FINKEL) -----------
BY: /s/ Martin B. Freedman
------------------------------
MARTIN B. FREEDMAN
Its: Vice President Date: May 5, 1988
-------------
/s/ Charlene A. Kirsch
- ----------------------------
/s/ Valerie A. Slaughter ATTEST: /s/ Mary DeJesus
- ---------------------------- ---------------------------------
(As to Martin B. Freedman) MARY DEJESUS, Assistant Secretary
(CORPORATE SEAL)
24
<PAGE>
INTERNATIONAL HOUSE OF PANCAKES
-------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------
As Amended and Restated as of July 12, 1991
-------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
1. Nature of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------------------
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
3. Eligibility and Participation . . . . . . . . . . . . . . . . . . . . . . 6
-----------------------------
4. Employer Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------------------
5. Investment of Trust Assets . . . . . . . . . . . . . . . . . . . . . . . 9
--------------------------
6. Allocations to Participants' Accounts .. . . . . . . . . . . . . . . . . 10
-------------------------------------
7. Allocation Limitation .. . . . . . . . . . . . . . . . . . . . . . . . . 12
---------------------
8. Voting IHOP Stock .. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------------
9. Disclosure to Participants .. . . . . . . . . . . . . . . . . . . . . . 14
--------------------------
10. Vesting and Forfeitures .. . . . . . . . . . . . . . . . . . . . . . . . 16
-----------------------
11. Credited Service and Break in Service .. . . . . . . . . . . . . . . . . 17
-------------------------------------
12. When Capital Accumulation Will Be Distributed .. . . . . . . . . . . . . 18
---------------------------------------------
13. In-Service Distributions .. . . . . . . . . . . . . . . . . . . . . . . 19
------------------------
14. How Capital Accumulation Will be Distributed .. . . . . . . . . . . . . 21
--------------------------------------------
15. Leveraging Provisions .. . . . . . . . . . . .. . . . . . . . . . . . . 23
---------------------
16. No Assignment of Benefits .. . . . . . . . . . . . . . . . . . . . . . 28
-------------------------
17. Administration .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
--------------
18. Claims Procedure .. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
----------------
19. Limitation on Participants' Rights . . . . . . . . . . . . . . . . . . 34
----------------------------------
20. Future of the Plan .. . . . . . . . . . . . . . . . . . . . . . . . . . 34
------------------
21. "Top-Heavy" Contingency Provisions .. . . . . . . . . . . . . . . . . . 36
----------------------------------
22. Governing Law .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-------------
23. Execution .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
---------
</TABLE>
<PAGE>
INTERNATIONAL HOUSE OF PANCAKES
-------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------
Section 1. Nature of the Plan.
------------------
The purpose of this Plan is to enable participating Employees to share in
the growth and prosperity of IHOP Corp. ("IHOP") and to provide Participants
with an opportunity to accumulate capital for their future economic security.
The primary purpose of the Plan is to enable Participants to acquire stock
ownership interests in IHOP. Therefore, the Plan is designed to invest
primarily in IHOP Stock.
The Plan, originally adopted effective as of May 7, 1987, is hereby amended
and restated, in connection with the initial public offering of IHOP Stock,
effective as of July 12, 1991. The Plan is a stock bonus plan under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code") and is also
an employee stock ownership plan under Section 4975(e) (7) of the Code.
All Trust Assets held under the Plan will be administered, distributed,
forfeited and otherwise governed by the provisions of this Plan and the related
Trust Agreement. The Plan is administered by an Administrative Committee for the
exclusive benefit of Participants (and their Beneficiaries).
Section 2. Definitions.
-----------
In this Plan, whenever the context so indicates, the singular or plural
number and the masculine, feminine or neuter gender
<PAGE>
shall be deemed to include the other, the terms "he," "his" and "him" shall
refer to a Participant, and the capitalized terms shall have the following
meanings:
Account................... One of two accounts maintained to record the
interest of a Participant under the Plan. See
Section 6.
Allocation Date........... The Sunday closest to December 31st of each year
(the last day of each Plan Year).
Approved Absence.......... A leave of absence (without pay) granted to an
Employee by IHOP under its established leave
policy. See Section 3(c).
Beneficiary............... The person (or persons) entitled to receive any
benefit under the Plan in the event of a
Participant's death. See Section 14(b).
Board of Directors........ The Board of Directors of IHOP Corp.
Break in Service.......... A period of time commencing with the date on
which an Employee's Service terminates and
ending on the date he resumes Service. See
Section 11(b).
Capital Accumulation...... A Participant's vested, nonforfeitable interest
in his Accounts under the Plan. Each
Participant's Capital Accumulation shall be
determined in accordance with the provisions of
Section 10 and distributed as provided in
Sections 12, 13 and 14.
Code....................... The Internal Revenue Code of 1986, as amended.
Committee.................. The Administrative Committee appointed by the
Board of Directors to administer the Plan. See
Section 17.
Compensation............... The compensation of a Participant received from
IHOP during the
-2-
<PAGE>
calendar year ending on or about the end of the
Plan Year, as reported on the Participant's Wage
and Tax Statement (Form W-2), including amounts
paid in cash as salary, wages, bonuses, overtime
pay, tips and taxable fringe benefits, but
excluding any amount in excess of $222,220 (as
adjusted after 1991 for increases in the cost of
living pursuant to Section 401(a)(17) of the
Code). For purposes of applying this $222,220
limit, the Compensation of a 5% owner or of a
Highly Compensated Employee who is one of the
ten most highly compensated Highly Compensated
Employees shall be aggregated with the
Compensation of his spouse and his lineal
descendants who are under age 19.
Credited Service............ The elapsed period of an Employee's Service,
excluding Service prior to January 1, 1987. See
Section 11(a).
Disability.................. The incapability of an Employee to perform his
duties as an Employee as a result of a medically
determinable physical or mental impairment that
may be expected to result in death or to be of
long, continued duration, determined by the
Committee based upon the opinion of a physician
approved by the Committee. The decision of the
Committee made in good faith shall be final.
Employee.................... Any common-law employee of IHOP. A leased
employee, as described in Section 414(n) of the
Code, is not an Employee for purposes of this
Plan.
Employer Contributions...... Payments made to the Trust by IHOP. See Section
4.
ERISA....................... The Employee Retirement Income Security Act of
1974, as amended.
Fair Market Value........... The fair market value of IHOP Stock, determined
by the Committee by reference to prevailing
market
-3-
<PAGE>
prices on the National Association of Securities
Dealers Automated Quotation System, National
Market System; provided, that, if IHOP Stock is
traded on a national securities exchange which
is registered under Section 6 of the Securities
Exchange Act of 1934, fair market value shall be
determined by reference to prevailing market
prices on such exchange.
Forfeiture.................. A Participant's Accounts which do not become his
Capital Accumulation and which are forfeited
under Section 10(b).
Highly Compensated
Employee.................... An Employee who (1) is a 5% owner, (2) has
Compensation in excess of $90,803, (3) has
Compensation in excess of $60,535 and is in the
top-paid 20% group of Employees, or (4) is an
officer of IHOP and has Compensation in excess
of 50% of the dollar amount in effect under
Section 415(b)(1)(A) of the Code for the Plan
Year, as determined in accordance with Section
414(q) of the Code. The $90,803 and $60,535
amounts shall be adjusted after 1991 for
increases in the cost of living pursuant to
Section 414(q)(1) of the Code.
Hour of Service............. Each hour of Service for which an Employee is
credited under the Plan, as described in Section
3(d).
IHOP........................ IHOP Corp., a Delaware corporation, and
International House of Pancakes, Inc., a
Delaware corporation which is a wholly-owned
subsidiary of IHOP Corp.
IHOP Stock.................. Shares of Common Stock, par value $.01 per
share, issued by IHOP Corp.
IHOP Stock Account.......... The Account which reflects each Participant's
interest in IHOP Stock held under the Plan. See
Section 6.
-4-
<PAGE>
Other Investments
Account..................... The Account which reflects each Participant's
interest under the Plan attributable to Trust
Assets other than IHOP Stock. See Section 6.
Participant................. Any Employee or former Employee who has met the
applicable eligibility requirements of Section
3(a) and who has not yet received a complete
distribution of his Capital Accumulation.
Plan........................ The International House of Pancakes Employee
Stock Ownership Plan, which includes this Plan
and the Trust Agreement.
Plan Year................... The 52- or 53-week period ending on each
Allocation Date (and coinciding with each fiscal
year of IHOP), which period shall also be the
"limitation year" for purposes of Section 415 of
the Code.
Retirement.................. Termination of Service after attaining age 65.
Service..................... Employment with IHOP.
Statutory Compensation...... The total remuneration paid to an Employee by
IHOP during the Plan Year for personal services
rendered, excluding employer contributions to a
plan of deferred compensation, amounts realized
in connection with stock options and amounts
which receive special tax benefits.
Statutory Dollar Amount..... For any Plan Year, $30,000, as may be increased
pursuant to Section 415(c)(1)(A) of the Code.
Trust....................... The International House of Pancakes Employee
Stock Ownership Trust, maintained pursuant to
the Trust Agreement entered into between IHOP
Corp. and the Trustee.
Trust Agreement............. The Agreement between IHOP and the Trustee
specifying the duties of the Trustee.
-5-
<PAGE>
Trust Assets................ The IHOP Stock (and other assets) held in the
Trust for the benefit of Participants. See
Section 5.
Trustee..................... The Trustee (and any successor Trustee)
appointed by the Board of Directors to hold the
Trust Assets.
Section 3. Eligibility and Participation.
-----------------------------
(a) Each Participant on July 12, 1991, shall continue as a Participant in
the Plan. Each other Employee shall become a Participant in the Plan on the
first Entry Date coinciding with or next following the date on which he has
completed one full year of Service (in which he is credited with at least 1000
Hours of Service). For purposes of this Section 3(a), Entry Date shall mean the
first day of each Plan Year and the date six months after the first day of each
Plan Year. For this purpose, the eligibility computation period for determining
the one year of Service shall initially be the period of 12 consecutive months
beginning on the Employee's initial date of Service and thereafter shall be the
period of 12 consecutive months beginning on each anniversary of his initial
date of Service.
An Employee whose terms of Service are covered by a collective bargaining
agreement shall not be eligible to participate in the Plan unless the terms of
such agreement specifically provide for coverage under the Plan.
(b) A Participant is entitled to share in the allocations of Employer
Contributions and Forfeitures under Section 6(a) for each Plan Year in which he
is credited with more than 500 Hours of Service (regardless of whether he is an
Employee on the
-6-
<PAGE>
Allocation Date). A Participant is also entitled to share in the allocations
of Employer Contributions and Forfeitures for the Plan Year of his Retirement,
Disability or death.
(c) A former Participant who is reemployed by IHOP shall become a
Participant as of the date of his reemployment if he is then in the class of
Employees eligible to participate in the Plan. An Employee who is on an Approved
Absence shall not become a Participant until the end of his Approved Absence,
but a Participant who is on an Approved Absence shall continue as a Participant
during the period of his Approved Absence.
(d) Hours of Service - For purposes of determining the Hours of Service to
----------------
be credited to an Employee under the Plan, the following rules shall be applied:
(1) Hours of Service shall include each hour of Service for which an
Employee is paid (or entitled to payment) for the performance of
duties; each hour of Service for which an Employee is paid (or
entitled to payment) for a period during which no duties are
performed due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty or paid
leave of absence; and each additional hour of Service for which
back pay is either awarded or agreed to (irrespective of
mitigation of damages); provided, however, that not more than 501
Hours of Service shall be credited for a single continuous period
during which an Employee does not perform any duties.
(2) The crediting of Hours of Service shall be determined in
accordance with the rules set forth in paragraphs (b) and (c) of
Section 2530.200b-2 of the regulations prescribed by the
Department of Labor, which rules shall be consistently applied
with respect to all Employees within the same job classification.
(3) Hours of Service shall not be credited to an Employee for a
period during which no duties are performed if payment is made or
due under a plan
-7-
<PAGE>
maintained solely for the purpose of complying with applicable
worker's compensation, unemployment compensation or disability
insurance laws, and Hours of Service shall not be credited on
account of any payment made or due an Employee solely in
reimbursement of medical or medically-related expenses.
Section 4. Employer Contributions.
----------------------
(a) Employer Contributions shall be paid to the Trustee for each Plan Year
in such amounts (or under such formula) as may be determined by the Board of
Directors; provided, however, that Employer Contributions shall not be made for
any Plan Year in amounts which can be allocated to no Participant's Accounts by
reason of the allocation limitation described in Section 7 or in amounts which
are not deductible under Section 404(a) of the Code.
(b) Employer Contributions for each Plan Year shall be paid to the Trustee
not later than the due date (including extensions) for filing IHOP's Federal
income tax return for the Plan Year. Employer Contributions may be paid in cash
and/or in shares of IHOP Stock, as determined by the Board of Directors.
(c) Any Employer Contributions which are not deductible under Section
404(a) of the Code may be returned to IHOP by the Trustee (upon the direction of
IHOP) within one year after the deduction is disallowed or after it is
determined that the deduction is not available. In the event that Employer
Contributions are paid to the Trust by reason of a mistake of fact, such
Employer Contributions may be returned to IHOP by the Trustee
-8-
<PAGE>
(upon the direction of IHOP) within one year after the payment to the Trust.
(d) No Participant shall be required or permitted to make contributions to
the Trust.
Section 5. Investment of Trust Assets.
--------------------------
(a) In General - Trust Assets will be invested by the Trustee primarily
----------
(or exclusively) in IHOP Stock in accordance with directions from the Committee.
Employer Contributions (and other Trust Assets) may be used to acquire shares of
IHOP Stock from any IHOP stockholder (through open-market purchases or
privately-negotiated transactions) or from IHOP. The Trustee may also invest
Trust Assets in such other prudent investments as the Committee deems to be
desirable for the Trust, or Trust Assets may be held temporarily in cash. All
purchases of IHOP Stock by the Trustee shall be made only as directed by the
Committee and only at prices which do not exceed Fair Market Value. The
Committee may direct the Trustee to invest and hold up to 100% of the Trust
Assets in IHOP Stock.
(b) Sales of IHOP Stock - Subject to the approval of the Board of
-------------------
Directors, the Committee may direct the Trustee to sell shares of IHOP Stock to
any person (including IHOP); provided that any such sale must be made at a price
not less than Fair Market Value as of the date of the sale; provided, further
that any such sale shall comply with all applicable Federal and state securities
laws. Any decision by the Committee to direct the Trustee to sell IHOP Stock
under this Section 5(b) or under
-9-
<PAGE>
Section 15(c) must comply with the fiduciary duties applicable under Section
404(a)(l) of ERISA. Any sale of IHOP Stock pursuant to a tender or exchange
offer shall be subject to the provisions of Section 8(b).
Section 6. Allocations to Participants' Accounts.
-------------------------------------
An IHOP Stock Account and an Other Investments Account shall be maintained
to reflect the interest of each Participant under the Plan.
IHOP Stock Account - The IHOP Stock Account maintained for each Participant
------------------
will be credited annually with his allocable share of IHOP Stock (including
fractional shares) purchased and paid for by the Trust or contributed in kind to
the Trust as an Employer Contribution, with any Forfeitures from IHOP Stock
Accounts and with any stock dividends on IHOP Stock allocated to his IHOP Stock
Account.
Other Investments Account - The Other Investments Account maintained for
-------------------------
each Participant will be credited annually with his allocable share of Employer
Contributions that are not in the form of IHOP Stock, with any Forfeitures from
Other Investments Accounts, with any cash dividends on IHOP Stock allocated to
his IHOP Stock Account (other than currently distributed dividends) and any net
income (or loss) of the Trust. Such Account will be debited for the
Participant's share of any cash payments made by the Trustee for the acquisition
of IHOP Stock.
The allocations to Participants' Accounts for each Plan Year will be made
as follows:
-10-
<PAGE>
(a) Employer Contributions and Forfeitures - Employer Contributions under
--------------------------------------
Section 4(a) and Forfeitures under Section 10(b) for each Plan Year will be
allocated as of the Allocation Date among the Accounts of Participants so
entitled under Section 3(b) in the ratio that the Compensation of each such
Participant bears to the total Compensation of all such Participants, subject to
the allocation limitation described in Section 7.
(b) Net Income (or Loss) of the Trust - The net income (or loss) of the
---------------------------------
Trust for each Plan Year will be determined as of the Allocation Date. Prior to
the allocation of Employer Contributions and Forfeitures for the Plan Year, each
Participant's share of any net income (or loss) will be allocated to his Other
Investments Account in the ratio that the total balance of both his Accounts on
the preceding Allocation Date (reduced by any distribution of Capital
Accumulation from such Account during the Plan Year) bears to the sum of such
Account balances for all Participants as of that date. The net income (or loss)
of the Trust includes the increase (or decrease) in the fair market value of
Trust Assets (other than IHOP Stock), interest income, dividends and other
income and gains (or losses) attributable to Trust Assets (other than any
dividends on allocated IHOP Stock) since the preceding Allocation Date, reduced
by any expenses charged to the Trust Assets for that Plan Year.
(c) Dividends on IHOP Stock - Any cash dividends received on shares of
-----------------------
IHOP Stock allocated to Participants' IHOP Stock Accounts will be allocated to
the respective Other Investments
-11-
<PAGE>
Accounts of such Participants. Any cash dividends received on unallocated
shares of IHOP Stock shall be included in the computation of the net income (or
loss) of the Trust. Any stock dividends received on IHOP Stock shall be
credited to the Accounts to which such IHOP Stock was allocated. Any cash
dividends which are currently distributed to Participants (or their
Beneficiaries) under Section 13(a) shall not be credited to their Other
Investments Accounts.
(d) Accounting for Allocations - The Committee shall establish accounting
--------------------------
procedures for the purpose of making the allocations to Participants' Accounts
provided for in this Section 6. The Committee shall maintain adequate records of
the aggregate cost basis of IHOP Stock allocated to each Participant's IHOP
Stock Account. From time to time, the Committee may modify the accounting
procedures for the purposes of achieving equitable and nondiscriminatory
allocations among the Accounts of Participants in accordance with the general
concepts of the Plan, the provisions of this Section 6 and the requirements of
the Code and ERISA.
Section 7. Allocation Limitation.
---------------------
The Annual Additions for each Plan Year with respect to any Participant may
not exceed the lesser of:
(1) 25% of his Statutory Compensation; or
(2) the Statutory Dollar Amount.
-12-
<PAGE>
For this purpose, "Annual Additions" shall be the total of the Employer
Contributions and Forfeitures (including any income attributable to Forfeitures)
allocated to the Accounts of a Participant for the Plan Year. In determining
such Annual Additions, Forfeitures of IHOP Stock shall be included at the Fair
Market Value as of the Allocation Date.
Any Forfeitures which can be allocated to no Participant's Accounts by
reason of this limitation shall be credited to a "Forfeiture Suspense Account"
and allocated as Forfeitures under Section 6(a) for the next succeeding Plan
Year (prior to the allocation of Employer Contributions for such succeeding Plan
Year).
Section 8. Voting IHOP Stock; Tender Offers.
--------------------------------
(a) Voting Rights - All IHOP Stock in the Trust shall be voted by the
-------------
Trustee only as directed in accordance with the provisions of this Section 8(a).
Each Participant (or Beneficiary) will be entitled to instruct the Trustee as to
the manner in which shares of IHOP Stock then allocated to his IHOP Stock
Account are to be voted. Each Participant (or Beneficiary) shall be provided
with the proxy statement and other materials provided to IHOP's stockholders in
connection with each stockholder meeting, together with a form upon which
confidential voting instructions may be given to the Trustee. The Trustee shall
not disclose the voting instructions of any individual Participant (or
Beneficiary) to IHOP or the Committee. Any allocated shares of IHOP Stock with
respect to which voting
-13-
<PAGE>
instructions are not received from Participants (or Beneficiaries) and any
shares of IHOP Stock which are not then allocated to Participants' Accounts
shall be voted by the Trustee in the same proportions as the shares with respect
to which instructions are received from Participants (or Beneficiaries).
(b) Tender Offer - In the event that there should be a tender or exchange
------------
offer for IHOP Stock, the response to such an offer with respect to shares held
in the Trust shall be determined as provided in this Section 8(b). Each
Participant (or Beneficiary) will be entitled to instruct the Trustee as to the
manner in which to respond to any such offer with respect to shares of IHOP
Stock then allocated to his IHOP Stock Account, as well as a proportionate
number of any shares of IHOP Stock which are not then allocated to Participants'
IHOP Stock Accounts. Each Participant (or Beneficiary) shall be provided with
the tender or exchange offer materials provided to IHOP's stockholders in
connection with the tender or exchange offer, together with a form upon which
confidential instructions relating to the tender or exchange offer may be given
to the Trustee. The Trustee shall not disclose the instructions of any
individual Participant (or Beneficiary) to IHOP or the Committee. Any shares of
IHOP Stock with respect to which Participants (or Beneficiaries) do not provide
instructions will not be tendered.
Section 9. Disclosure to Participants.
--------------------------
(a) Summary Plan Description - Each Participant shall be furnished with the
------------------------
summary plan description of the Plan required
-14-
<PAGE>
by Sections 102(a)(l) and 104(b)(1) of ERISA. Such summary plan description
shall be updated from time to time as required under ERISA and Department of
Labor regulations thereunder.
(b) Summary Annual Report - Within nine months after each Allocation Date,
---------------------
each Participant shall be furnished with the summary annual report of the Plan
required by Section 104(b) (3) of ERISA, in the form prescribed in regulations
of the Department of Labor.
(c) Annual Statement - Following each Allocation Date, each Participant
----------------
shall be furnished with a statement reflecting the following information:
(1) The balances (if any) in his Accounts as of the beginning of the
Plan Year.
(2) The amount of Employer Contributions and Forfeitures allocated to
his Accounts for that Plan Year.
(3) The adjustments to his Accounts to reflect his share of dividends
(if any) on IHOP Stock and any net income (or loss) of the Trust
for that Plan Year.
(4) The new balances in his Accounts, including the number of shares
of IHOP Stock allocated to his IHOP Stock Account and the Fair
Market Value as of that Allocation Date.
(5) His number of years of Credited Service and his vested percentage
in his Account balances (under Sections 10 and 11) as of that
Allocation Date.
(d) Additional Disclosure - IHOP shall make available for examination by
---------------------
any Participant copies of the Plan, the Trust Agreement and the latest annual
report of the Plan filed (on Form 5500) with the Internal Revenue Service. Upon
written request of any Participant, IHOP shall furnish copies of such
-15-
<PAGE>
documents and may make a reasonable charge to cover the cost of furnishing such
copies, as provided in regulations of the Department of Labor.
Section 10. Vesting and Forfeitures.
-----------------------
(a) Vesting - A Participant's interest in his Accounts shall become 100%
-------
vested and nonforfeitable if he (1) is employed by IHOP on or after his 65th
birthday, (2) incurs a Disability while employed by IHOP, (3) dies while
employed by IHOP, or (4) completes five years of Credited Service (after 1986).
(b) Forfeitures - If a Participant is not vested in the final balances in
-----------
his Accounts, his Account balances will become a Forfeiture upon his termination
of Service. All Forfeitures will be reallocated to the Accounts of remaining
Participants, as provided in Section 6(a), as of the Allocation Date coinciding
with or next following a Participant's termination of Service.
(c) Restoration of Forfeited Amounts - If a Participant is reemployed prior
--------------------------------
to the occurrence of a five-consecutive-year Break in Service, the balance of
his Accounts (attributable to the prior period of Service) that was forfeited
shall be restored as if there had been no Forfeiture. Such restoration shall be
made out of Forfeitures occurring in the Plan Year of reemployment (prior to
allocation under Section 6(a)). To the extent such Forfeitures are not
sufficient, IHOP shall make a special contribution to the Participant's restored
Accounts. Any amount so restored to a Participant shall not constitute an Annual
Addition under Section 7.
-16-
<PAGE>
Section 11. Credited Service and Break in Service.
-------------------------------------
(a) General Rule - An Employee's Credited Service shall include each period
------------
of his Service, computed (in full years and days) from the date he is first
credited with an Hour of Service until the date on which his Service terminates;
provided, however, that Credited Service shall not include Service with IHOP
prior to January 1, 1987. An Employee's Credited Service shall be determined by
aggregating all the periods required to be taken into account under this Section
11. A Break in Service that does not exceed one year and the first year of an
Approved Absence shall be included in an Employee's Credited Service.
(b) Break in Service - A one-year Break in Service shall occur one year
----------------
after the date of an Employee's termination of Service. A five-year Break in
Service shall occur five years after the date of an Employee's termination of
Service. A Break in Service shall end in the event of an Employee's
reemployment. For purposes of determining the period of an Employee's Break in
Service, the period of a maternity/paternity absence (beginning after January 1,
1985) not exceeding one year, described in Section 411(a)(6)(E)(i) of the Code,
shall not be treated as a Break in Service. An Approval Absence shall not be a
Break in Service.
(c) Reemployment - If a former Employee is reemployed after a one-year
------------
Break in Service, his Credited Service will include his Credited Service
accumulated prior to the Break in Service after he completes one year of
Credited Service following reemployment. In the case of an Employee who is
reemployed after a five-year Break in Service and who has not attained a vested
-17-
<PAGE>
interest under the Plan, Service prior to the Break in Service shall not be
included in determining his Credited Service.
Section 12. When Capital Accumulation Will Be Distributed.
---------------------------------------------
(a) Except as otherwise provided in Sections 12(c) and 13, a Participant's
Capital Accumulation will be distributed following his termination of Service,
but only at the time and in the manner determined by the Committee. If the value
of a Participant's Capital Accumulation exceeds $3,500, or exceeded that amount
at the time of a prior distribution, no portion of his Capital Accumulation may
be distributed to him before he attains age 65 without his written consent.
(b) In the event of a Participant's Retirement, Disability or death,
distribution of his Capital Accumulation shall be made in a lump sum no later
than the Allocation Date of the Plan Year following the Plan Year in which his
Retirement, Disability or death occurs. If a Participant's Service terminates
for any other reason, distribution of his Capital Accumulation shall be made in
a lump sum no later than the Allocation Date of the sixth Plan Year following
the Plan Year in which his Service terminates (unless he is reemployed by IHOP).
(c) Unless the Committee permits a Participant to elect otherwise,
distribution of his Capital Accumulation shall commence not later than 60 days
after the Allocation Date coinciding with or next following his 65th birthday
(or his termination of Service, if later). The distribution of the Capital
Accumulation of any Participant who attains age 70 1/2 in a calendar year must
-18-
<PAGE>
commence not later than April 1st of the next calendar year (even if he has not
terminated Service) and must be made in accordance with the regulations under
Section 401(a)(9) of the Code, including Section 1.401(a)(9)-2. If the amount
of a Participant's Capital Accumulation cannot be determined (by the Committee)
by the date on which a distribution is to commence, or if the Participant cannot
be located, distribution of his Capital Accumulation shall commence within 60
days after the date on which his Capital Accumulation can be determined or after
the date on which the Committee locates the Participant.
(d) If any part of a Participant's Capital Accumulation is retained in the
Trust after his Service ends, his Accounts will continue to be treated as
described in Section 6. However, except as otherwise provided in Section 3(b),
such Accounts shall not be credited with any additional Employer Contributions
and Forfeitures. If a Participant whose Capital Accumulation exceeds $3,500
fails to consent to a distribution before he attains age 65, his entire Capital
Accumulation may be segregated and invested in assets other than IHOP Stock (as
determined by the Committee).
Section 13. In-Service Distributions.
------------------------
(a) Cash Dividends - If so determined by the Board of Directors, any cash
--------------
dividends payable on IHOP Stock allocated to the IHOP Stock Accounts of
Participants may be paid currently (or within 90 days after the end of the Plan
Year in which the dividends are paid to the Trust) in cash by the Trustee to
such
-19-
<PAGE>
Participants (or their Beneficiaries) on a nondiscriminatory basis, or IHOP may
pay such dividends directly to the Participants (or Beneficiaries). Such
distribution (if any) of cash dividends may be limited to Participants who are
vested and/or who are still Employees, or may be applicable to cash dividends on
shares allocated to all Participants' IHOP Stock Accounts.
(b) Diversification Withdrawals - Effective as of January 1, 1997, a
---------------------------
Participant who has attained age 55 and completed at least ten years of
participation in the Plan shall be notified of his right to elect to receive a
distribution of a portion of the balance in his IHOP Stock Account, as provided
in Section 401(a)(28)(B) of the Code. An election must be made on the prescribed
form and filed with the Committee within the 90-day period immediately following
the Allocation Date of a Plan Year in the Election Period. For purposes of this
Section 13(b), the "Election Period" means the period of six consecutive Plan
Years beginning with the Plan Year in which the Participant first becomes
eligible to make an election.
For each of the first five Plan Years in the Election Period, the
Participant may elect to receive a distribution of up to 25% of the number of
shares of IHOP Stock allocated to his IHOP Stock Account since the inception of
the Plan, less the number of shares (if any) which have previously been
distributed under this Section 13(b). In the case of the sixth Plan Year in the
Election Period, the Participant may elect to receive a distribution of up to
50% of the number of shares of IHOP Stock allocated to his IHOP Stock Account
since the inception of the
-20-
<PAGE>
Plan, less the number of shares (if any) which have previously been distributed
under this Section 13(b). No election shall be permitted if the balance in a
Participant's IHOP Stock Account as of the Allocation Date of the first Plan
Year in the Election Period has a Fair Market Value of $500 or less, unless and
until the balance in his IHOP Stock Account as of a subsequent Allocation Date
in the Election Period exceeds $500. Any distribution of IHOP Stock under this
Section 13(b) shall be made only from shares which have been allocated to the
electing Participant's IHOP Stock Account for more than six months.
Any distribution of IHOP Stock under this Section 13(b) shall occur within
90 days after the 90-day period in which the election may be made and shall be
subject to the provisions of Section 14(c).
Section 14. How Capital Accumulation Will Be Distributed.
--------------------------------------------
(a) The Trustee will make distributions from the Trust only as directed by
the Committee. Distribution of a Participant's Capital Accumulation will be made
in whole shares of IHOP Stock, cash or a combination of both, as determined by
the Committee; provided, however, that the Committee shall notify the
Participant of his right to demand distribution of his Capital Accumulation
entirely in whole shares of IHOP Stock (with only the value of any fractional
share paid in cash). Shares of IHOP Stock distributed by the Trustee shall be
readily tradable on an established securities market.
-21-
<PAGE>
(b) Distribution of a Participant's Capital Accumulation will be made to the
Participant if living, and if not, to his Beneficiary. In the event of a
Participant's death, his Beneficiary shall be his surviving spouse, or if none,
his estate. A Participant (with the written consent of his spouse, if any,
acknowledging the effect of the consent and witnessed by a notary public) may
designate a different Beneficiary or Beneficiaries from time to time by filing a
written designation with the Committee. A Participant may also designate a
contingent Beneficiary by filing a written designation with the Committee. A
deceased Participant's entire Capital Accumulation shall be distributed to his
Beneficiary within five years after his death, except to the extent that
distribution has previously commenced in accordance with Section 12(b) (2).
(c) IHOP shall furnish the recipient of a distribution with the tax
consequences explanation required by Section 402(f) of the Code and shall comply
with the withholding requirements of Section 3405 of the Code and of any
applicable state law with respect to distributions from the Trust (other than
any dividend distributions under Section 13(a)).
(d) Shares of IHOP Stock held or distributed by the Trustee may include
such legend restrictions on transferability as IHOP may reasonably require in
order to assure compliance with applicable Federal and state securities law. No
shares of IHOP Stock held or distributed by the Trustee may be subject to a put,
call or other option, or buy-sell or similar arrangement. The provisions of this
Section 14(d) shall continue to be applicable
-22-
<PAGE>
to IHOP Stock held by the Trustee even if the Plan ceases to be an employee
stock ownership plan under Section 4975(e)(7) of the Code.
Section 15. Leveraging Provisions.
---------------------
(a) The Plan is designed to be available as a technique of corporate
finance to IHOP. Accordingly, it may be used to receive loans or other
extensions of credit ("Acquisition Loans") to finance the acquisition of IHOP
Stock ("Financed Shares"), with such loans to be repaid by Employer
Contributions to the Trust and dividends received on Financed Shares. The
provisions of this Section 15 shall become applicable if the Plan incurs an
Acquisition Loan.
(b) Acquisition Loans - The Committee may direct the Trustee to incur
-----------------
Acquisition Loans from time to time to finance the acquisition of Financed
Shares or to repay a prior Acquisition Loan. An installment obligation incurred
in connection with the purchase of IHOP Stock shall be treated as an Acquisition
Loan, and all indebtedness incurred to acquire IHOP Stock in a single
transaction shall be treated as one Acquisition Loan. An Acquisition Loan shall
be for a specific term, shall bear a reasonable rate of interest and shall not
be payable on demand except in the event of default. An Acquisition Loan may be
secured by a pledge of the Financed Shares so acquired (or acquired with the
proceeds of a prior Acquisition Loan which is being refinanced) . No other Trust
Assets may be pledged as collateral for an Acquisition Loan, and no lender shall
have
-23-
<PAGE>
recourse against Trust Assets other than any Financed Shares remaining subject
to pledge. Any pledge of Financed Shares must provide for the release of the
shares so pledged as payments on the Acquisition Loan are made by the Trustee
and such Financed Shares are allocated to Participants' IHOP Stock Accounts
under Section 15(d). If the lender is a party in interest (as defined in
ERISA), the Acquisition Loan must provide for a transfer of Trust Assets to the
lender on default only upon and to the extent of the failure of the Trust to
meet the payment schedule of the Acquisition Loan.
(c) Acquisition Loan Payments - Payments of principal and/or interest on
-------------------------
any Acquisition Loan shall be made by the Trustee (as directed by the Committee)
only from Employer Contributions paid in cash to enable the Trust to repay such
Acquisition Loan, from earnings attributable to such Employer Contributions and
from any cash dividends received by the Trust on the Financed Shares (whether
allocated or unallocated) purchased with the proceeds of such Acquisition Loan;
and the payments made with respect to an Acquisition Loan for a Plan Year must
not exceed the sum of such Employer Contributions, earnings and dividends for
that Plan Year (and prior Plan Years), less the amount of such payments for
prior Plan Years. If IHOP is the lender with respect to an Acquisition Loan,
Employer Contributions may be paid in the form of cancellation of indebtedness
under the Acquisition Loan. If IHOP is not the lender with respect to an
Acquisition Loan, IHOP may elect to make payments
-24-
<PAGE>
on the Acquisition Loan directly to the lender and to treat such payments as
Employer Contributions.
Notwithstanding the other provisions of this Section 15(c), the Committee
may direct the Trustee to apply the proceeds from the sale of unallocated
Financed Shares to repay the Acquisition Loan (incurred to finance the purchase
of such Financed Shares) in the event of the sale of IHOP or the termination of
the Plan or if the Plan ceases to be an employee stock ownership plan under
Section 4975(e)(7) of the Code. If the Trustee is unable to make payments of
principal and/or interest on an Acquisition Loan when due, the Committee may
direct the Trustee either to sell (with the approval of the Board of Directors)
any Financed Shares that have not yet been allocated to Participants' IHOP Stock
Accounts or to obtain a new Acquisition Loan in an amount sufficient to make
such payments.
(d) Allocation of Financed Shares - Any Financed Shares acquired by the
-----------------------------
Trust shall initially be credited to a "Loan Suspense Account" and will be
allocated to the IHOP Stock Accounts of Participants only as payments on the
Acquisition Loan are made by the Trustee. The number of Financed Shares to be
released from the Loan Suspense Account for allocation to Participants' IHOP
Stock Accounts for each Plan Year shall be determined by the Committee (as of
each Allocation Date) as follows:
(1) Principal/Interest Method - The number of Financed Shares held in
-------------------------
the Loan Suspense Account immediately before the release for the current Plan
Year shall be multiplied by a frac-
-25-
<PAGE>
tion. The numerator of the fraction shall be the amount of principal and/or
interest paid on the Acquisition Loan for that Plan Year. The denominator of
the fraction shall be the sum of the numerator plus the total payments of
principal and interest on that Acquisition Loan projected to be paid for all
future Plan Years. For this purpose, the interest to be paid in future years is
to be computed by using the interest rate in effect as of the current Allocation
Date.
(2) Principal Only Method - The Committee may elect (as to each
---------------------
Acquisition Loan) or the provisions of the Acquisition Loan may provide for the
release of Financed Shares from the Loan Suspense Account based solely on the
ratio that the payments of principal for each Plan Year bear to the total
principal amount of the Acquisition Loan. This method may be used only to the
extent that: (A) the Acquisition Loan provides for annual payments of principal
and interest at a cumulative rate that is not less rapid at any time than level
annual payments of such amounts for ten years; (B) interest included in any
payment on the Acquisition Loan is disregarded only to the extent that it would
be determined to be interest under standard loan amortization tables; and (C)
the entire duration of the Acquisition Loan repayment period does not exceed ten
years, even in the event of a renewal, extension or refinancing of the
Acquisition Loan.
In each Plan Year in which Trust Assets are applied to make payments on an
Acquisition Loan, the Financed Shares released from the Loan Suspense Account in
accordance with the provisions of this Section 15(d) shall be allocated among
the IHOP Stock
-26-
<PAGE>
Accounts of Participants in the manner determined by the Committee based upon
the source of funds (Employer Contributions, earnings attributable to such
Employer Contributions and cash dividends on Financed Shares allocated to
Participants' IHOP Stock Accounts or cash dividends on Financed Shares credited
to the Loan Suspense Account) used to make the payments on the Acquisition Loan.
If cash dividends on Financed Shares allocated to a Participant's IHOP Stock
Account are used to make payments on an Acquisition Loan, Financed Shares
(representing that portion of such payments and whose Fair Market Value is at
least equal to the amount of such dividends) released from the Loan Suspense
Account shall be allocated to that Participant's IHOP Stock Account.
(e) Net Income (or Loss) and Dividends - The determination of the net
----------------------------------
income (or loss) of the Trust shall not take into account any interest paid by
the Trust under an Acquisition Loan. Any cash dividends received on any Financed
Shares credited to the Loan Suspense Account shall be included in the
computation of the net income (or loss) of the Trust. Any stock dividends
received on IHOP Stock in the Loan Suspense Account shall be credited to the
Loan Suspense Account. The Committee shall keep separate records of Financed
Shares and of Employer Contributions (and any earnings thereon) made for the
purpose of enabling the Trust to repay any Acquisition Loan.
(f) Allocation Limitation - Any Employer Contributions which are used by
---------------------
the Trust (not later than the due date, including extensions, for filing IHOP's
Federal income tax return
-27-
<PAGE>
for that Plan Year) to pay interest on an Acquisition Loan, and any Financed
Shares which are allocated as Forfeitures, shall not be included as Annual
Additions under Section 7; provided, however, that the provisions of this
Section 15(f) shall be applicable for any Plan Year only if not more than one-
third of the Employer Contributions applied to pay principal and/or interest on
an Acquisition Loan are allocated to Participants who are Highly Compensated
Employees; and the Committee shall reallocate such Employer Contributions to the
extent needed to satisfy this special rule.
(g) Distributions - For purposes of Section 12(b) and except as otherwise
-------------
provided in Section 12(c), if a Participant's Capital Accumulation includes
Financed Shares, the Committee may elect to defer the distribution of that
portion of his Capital Accumulation attributable to such Financed Shares until
the Allocation Date of the Plan Year in which the Acquisition Loan (incurred to
acquire such Financed Shares) has been fully repaid.
Section 16. No Assignment of Benefits.
-------------------------
A Participant's Capital Accumulation may not be anticipated, assigned
(either at law or in equity), alienated or subject to attachment, garnishment,
levy, execution or other legal or equitable process, except in accordance with a
"qualified domestic relations order" (as defined in Section 414(p) of the Code).
-28-
<PAGE>
Section 17. Administration.
--------------
(a) Administrative Committee - The Plan will be administered by an
------------------------
Administrative Committee composed of one or more individuals appointed by the
Board of Directors to serve at its pleasure and without compensation. The
members of the Committee shall be the named fiduciaries with authority to
control and manage the operation and administration of the Plan. Members of the
Committee need not be Employees or Participants. Any Committee member may resign
by giving notice, in writing, to the Board of Directors.
(b) Committee Action - Committee action will be by vote of a majority of
----------------
the members at a meeting or in writing without a meeting. A Committee member who
is a Participant shall not vote on any question relating specifically to
himself.
The Committee shall choose from its members a Chairman and a Secretary.
The Chairman or the Secretary of the Committee shall be authorized to execute
any certificate or other written direction on behalf of the Committee. The
Secretary shall keep a record of the Committee's proceedings and of all dates,
records and documents pertaining to the administration of the Plan.
(c) Powers and Duties of the Committee - The Committee shall have all
----------------------------------
powers necessary to enable it to administer the Plan and the Trust Agreement in
accordance with their provisions, including without limitation the following:
(1) resolving all questions relating to the eligibility of Employees
to become Participants;
(2) determining the appropriate allocations to Participants' Accounts
pursuant to Sections 6 and 15;
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<PAGE>
(3) determining the amount of benefits payable to a Participant (or
Beneficiary), and the time and manner in which such benefits are
to be paid;
(4) authorizing and directing all disbursements of Trust Assets by
the Trustee;
(5) establishing procedures in accordance with Section 414(p) of the
Code to determine the qualified status of domestic relations
orders and to administer distributions under such qualified
orders;
(6) engaging any administrative, legal, accounting, clerical or other
services that it may deem appropriate;
(7) construing and interpreting the Plan and the Trust Agreement and
adopting rules for administration of the Plan that are consistent
with the terms of the Plan documents and of ERISA and the Code;
(8) compiling and maintaining all records it determines to be
necessary, appropriate or convenient in connection with the
administration of the Plan;
(9) reviewing the performance of the Trustee with respect to the
Trustee's administrative duties, responsibilities and obligations
under the Plan and Trust Agreement; and
(10) executing agreements and other documents on behalf of the Plan
and Trust.
The Committee shall be responsible for directing the Trustee as to the
investment of Trust Assets. The Committee may delegate to the Trustee the
responsibility for investing Trust Assets other than IHOP Stock. The Committee
shall establish a funding policy and method for directing the Trustee to acquire
IHOP Stock (and for otherwise investing the Trust Assets) in a manner that is
consistent with the objectives of the Plan and the requirements of ERISA.
The Committee shall perform its duties under the Plan and the Trust
Agreement solely in the interests of the Participants
-30-
<PAGE>
(and their Beneficiaries) . Any discretion granted to the Committee under any
of the provisions of the Plan or the Trust Agreement shall be exercised only in
accordance with rules and policies established by the Committee which shall be
applicable on a nondiscriminatory basis.
(d) Expenses - All reasonable expenses of administering the Plan and Trust
--------
shall be charged to and paid out of the Trust Assets. IHOP may, however, pay all
or any portion of such expenses directly, and payment of expenses by IHOP shall
not be deemed to be Employer Contributions.
(e) Information to be Submitted to the Committee - To enable the Committee
--------------------------------------------
to perform its functions, IHOP shall supply full and timely information to the
Committee on all matters as the Committee may require, and shall maintain such
other records as the Committee may determine are necessary or appropriate in
order to determine the benefits due or which may become due to Participants (or
Beneficiaries) under the Plan.
(f) Delegation of Fiduciary Responsibility - The Committee from time to
--------------------------------------
time may allocate to one or more of its members and/or may delegate to any other
persons or organizations any of its rights, powers, duties and responsibilities
with respect to the operation and administration of the Plan that are permitted
to be so delegated under ERISA; provided, however, that responsibility for
investment of the Trust Assets may not be allocated or delegated other than as
provided in Section 17(c). Any such allocation or delegation shall be made in
writing, shall be reviewed periodically by the Committee and shall be terminable
-31-
<PAGE>
upon such notice as the Committee in its discretion deems reasonable and proper
under the circumstances.
(g) Bonding, Insurance and Indemnity - To the extent required under
--------------------------------
Section 412 of ERISA, IHOP shall secure fidelity bonding for the fiduciaries of
the Plan.
IHOP (in its discretion) or the Trustee (as directed by the Committee) may
obtain a policy or policies of insurance for the Committee (and other
fiduciaries of the Plan) to cover liability or loss occurring by reason of the
act or omission of a fiduciary. If such insurance is purchased with Trust
Assets, the policy must permit recourse by the insurer against the fiduciary in
the case of a breach of a fiduciary obligation by such fiduciary. IHOP hereby
indemnifies each member of the Committee (to the extent permitted by law)
against any personal liability or expense resulting from his service on the
Committee, except such liability or expense as may result from his own willful
misconduct.
(h) Notices, Statements and Reports - IHOP Corp. shall be the "Plan
-------------------------------
Administrator" (as defined in Section 3(16)(A) of ERISA and Section 414(g) of
the Code) for purposes of the reporting and disclosure requirements of ERISA and
the Code. The Committee shall assist IHOP Corp., as requested, in complying with
such reporting and disclosure requirements. The Committee shall be the
designated agent of the Plan for the service of legal process.
-32-
<PAGE>
Section 18. Claims Procedure.
----------------
A Participant (or Beneficiary) who does not receive a distribution of
benefits to which he believes he is entitled may present a claim to the
Committee. The claim for benefits must be in writing and addressed to the
Committee or to IHOP. If the claim for benefits is denied, the Committee shall
notify the Participant (or Beneficiary) in writing within 90 days after the
Committee initially received the benefit claim. Any notice of a denial of
benefits shall advise the Participant (or Beneficiary) of the basis for the
denial, any additional material or information necessary for the Participant (or
Beneficiary) to perfect his claim and the steps which the Participant (or
Beneficiary) must take to have his claim for benefits reviewed.
Each Participant (or Beneficiary) whose claim for benefits has been denied
may file a written request for a review of his claim by the Committee. The
request for review must be filed by the Participant (or Beneficiary) within 60
days after he receives the written notice denying his claim. The decision of the
Committee will be made within 60 days after receipt of a request for review and
shall be communicated in writing to the claimant. Such written notice shall set
forth the basis for the Committee's decision. If there are special circumstances
(such as the need to hold a hearing) which require an extension of time for
completing the review, the Committee's decision shall be rendered not later than
120 days after receipt of a request for review.
-33-
<PAGE>
Section 19. Limitation on Participants' Rights.
----------------------------------
A Participant's Capital Accumulation will be based solely upon his vested
interest in his Accounts and will be paid only from the Trust Assets. IHOP, the
Committee and the Trustee shall have no duty or liability to furnish the Trust
with any funds, securities or other assets, except as expressly provided in the
Plan.
The adoption and maintenance of the Plan shall not be deemed to constitute
a contract of employment or otherwise between IHOP and any Employee, or to be a
consideration for, or an inducement or condition of, any employment. Nothing
contained in this Plan shall be deemed to give an Employee the right to be
retained in the Service of IHOP or to interfere with the right of IHOP to
discharge, with or without cause, any Employee at any time.
Section 20. Future of the Plan.
------------------
IHOP reserves the right to amend or terminate the Plan (in whole or in
part) and the Trust Agreement at any time, by action of the Board of Directors;
provided, however, that the provisions of the Plan relating to the allocation of
IHOP Stock to the Accounts of Participants may not be amended more than once
every six months (other than as may be required to comply with changes in the
Code, ERISA or the rules thereunder). Neither amendment nor termination of the
Plan shall retroactively reduce the vested rights of Participants or permit any
part of the Trust Assets to be diverted to or used for any purpose other than
for the exclusive benefit of the Participants (and their Beneficiaries).
-34-
<PAGE>
IHOP specifically reserves the right to amend the Plan and the Trust
Agreement retroactively in order to satisfy any applicable requirements of
the Code and ERISA.
If the Plan is terminated (or partially terminated), participation of
Participants affected by the termination will end. If Employer Contributions are
not replaced by contributions to a comparable plan which satisfies the
requirements of Section 401(a) of the Code, the Accounts of only those
Participants who are Employees on the effective date of the termination will
become nonforfeitable as of that date. A complete discontinuance of Employer
Contributions shall be deemed to be a termination of the Plan for this purpose.
The Capital Accumulations of those Participants whose Service terminated prior
to the effective date of Plan termination will continue to be determined
pursuant to Section 10(a); and, to the extent that such Participants are not
vested, the balances in their Accounts will become Forfeitures to be reallocated
as of the effective date of Plan termination.
After termination of the Plan, the Trust will be maintained until the
Capital Accumulations of all Participants have been distributed. Capital
Accumulations may be distributed following termination of the Plan or
distributions may be deferred as provided in Section 12, as IHOP shall
determine. In the event that IHOP Stock is sold in connection with the
termination of the Plan or the amendment of the Plan to become a qualified
employee plan that is not a stock bonus plan, all Capital Accumulations will be
distributed in cash.
-35-
<PAGE>
In the event of the merger or consolidation of this Plan with another plan,
or the transfer of Trust Assets (or liabilities) to another plan, the Account
balances of each Participant immediately after such merger, consolidation or
transfer must be at least as great as immediately before such merger,
consolidation or transfer (as if the Plan had then terminated).
Section 21. "Top-Heavy" Contingency Provisions.
---------------------------------
(a) The provisions of this Section 21 are included in the Plan pursuant to
Section 401(a)(10)(B)(ii) of the Code and shall become applicable only if the
Plan becomes a "top-heavy plan" under Section 416(g) of the Code for any Plan
Year.
(b) The determination as to whether the Plan becomes "top-heavy" for any
Plan Year shall be made as of the Allocation Date of the immediately preceding
Plan Year. The Plan shall be "top-heavy" only if the total Account balances for
"key employees" as of the determination date exceeds 60% of the total Account
balances for all Participants. For such purpose, Account balances shall be
computed and adjusted pursuant to Section 416(g) of the Code. "Key employees"
shall be certain Participants (who are officers or stockholders of IHOP) and
Beneficiaries described in Section 416(i)(1) or (5) of the Code.
In determining whether the Plan is "top-heavy," the Plan shall be
aggregated with any other qualified plan (including terminated plans) maintained
by IHOP in which a key employee participates in the Plan Year containing the
relevant Allocation Date, or any of the four preceding Plan Years, and each
other
-36-
<PAGE>
qualified plan maintained by IHOP which, during this period, enables any plan in
which a key employee participates to meet the requirements of Section 401(a) (4)
or 410 of the Code.
(c) For any Plan Year in which the Plan is "top-heavy," each Participant
who is an Employee on the Allocation Date (and who is not a "key employee")
shall receive a minimum allocation of Employer Contributions and Forfeitures
which is equal to the lesser of:
(1) 3% of his Statutory Compensation; or
(2) the same percentage of his Statutory Compensation as the
allocation to the "key employee" for whom the percentage is the
highest for that Plan Year.
(d) As of the first day of any Plan Year in which the Plan has become
"top-heavy," the five-year vesting provision in Section 10 (a) (4) shall be
applied (with respect to any Employee who is credited with at least one Hour of
Service after the Plan has become "top-heavy") by providing for vesting after
three years of Credited Service.
If the Plan ceases to be "top-heavy," the Capital Accumulation of a
Participant who, at that time, has less than three years of Service shall
thereafter be determined under the five-year vesting provision of Section 10 (a)
(4), instead of the three-year vesting provision in this Section 21(d). If the
Plan ceases to be "top-heavy," the Capital Accumulation of a Participant who, at
that time, has three or more years of Service shall continue to be determined
under the three-year vesting provision of this Section 21(d).
-37-
<PAGE>
Section 22. Governing Law.
-------------
The provisions of this Plan and the Trust Agreement shall be construed,
administered and enforced in accordance with the laws of the State of Delaware,
to the extent such laws are not superseded by ERISA.
Section 23. Execution.
---------
To record the amendment and restatement of the Plan, IHOP has caused this
document to be executed on this 12th day of December, 1991.
IHOP CORP.
By /s/ Richard K. Herzer
---------------------------
Richard K. Herzer
President
By /s/ Larry Alan Kay
---------------------------
Larry Alan Kay
Executive Vice-President
INTERNATIONAL HOUSE OF PANCAKES, INC.
By /s/ Richard K. Herzer
---------------------------
Richard K. Herzer
President
By /s/ Larry Alan Kay
---------------------------
Larry Alan Kay
Executive Vice-President
-38-
<PAGE>
INTERNATIONAL HOUSE OF PANCAKES
-------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------
As Amended and Restated as of July 12, 1991
-------------------------------------------
Amendment No. 1 to ESOP
-----------------------
WHEREAS, IHOP Corp. (the "Company") maintains the International House of
Pancakes Employee Stock Ownership Plan (the "ESOP"), as amended and restated
effective as of July 12, 1991, for the benefit of its employees;
WHEREAS, the Company wishes to modify the allocation of forfeiture rules
contained in the ESOP;
NOW, THEREFORE, the ESOP is hereby amended by restating Section 10(b) to
read as follows, effective for Plan Years ending on and after December 30, 1990:
"(b) Forfeitures - If a Participant is not vested in the final
-----------
balances in his Accounts, his Account balances will become a Forfeiture as of
the date on which he incurs a one-year Break in Service. All Forfeitures will be
reallocated to the Accounts of remaining Participants, as provided in Section
6(a), as of the Allocation Date coinciding with or next following the date the
Forfeitures occurred."
<PAGE>
To record the adoption of this Amendment No. 1 to the ESOP, the Company has
caused it to be executed this 12th day of December, 1991.
---- --------
IHOP CORP.
By /s/ RICHARD K. HERZER
------------------------------
RICHARD K. HERZER
PRESIDENT
By /s/ LARRY ALAN KAY
------------------------------
LARRY ALAN KAY
EXECUTIVE VICE PRESIDENT
-2-
<PAGE>
INTERNATIONAL HOUSE OF PANCAKES
-------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------
As Amended and Restated as of July 12, 1991
-------------------------------------------
Amendment No. 2 to ESOP
-----------------------
WHEREAS, IHOP Corp. ("Company") maintains the International House of
Pancakes Employee Stock Ownership Plan ("ESOP"), as amended and restated
effective as of July 12, 1991, for the benefit of its employees; and
WHEREAS, it is desirable to amend the ESOP in order to permit
participation in the ESOP by the eligible employees of designated affiliates of
the Company and to make additional changes required by the Internal Revenue
Service as a condition to the issuance of a favorable determination letter:
NOW, THEREFORE, the ESOP is hereby amended as follows:
1. The second paragraph of Section 1 is modified by adding the
following, effective January 1, 1989:
"Notwithstanding the foregoing, the amendment and restatement of the
Plan shall be effective as of January 1, 1989, to the extent required to
conform to the requirements of the Tax Reform Act of 1986, and the
regulations, rulings and announcements published by the Internal Revenue
Service in connection therewith. "
<PAGE>
2. The definitions of "Compensation," "IHOP" and "Service" in Section 2
of the ESOP are hereby restated to read as follows, and a new defined term,
"Affiliate," is added, effective as of January 3, 1994:
"Affiliate............ Any corporation which is a member of a
controlled group of corporations (within
the meaning of Section 414(b) of the
Code) or a group of trades or businesses
(whether or not incorporated) that are
under common control (within the meaning
of Section 414(c) of the Code) of which
IHOP Corp. is also a member.
Compensation.......... The compensation of a Participant
received from IHOP during the calendar
year ending on or about the end of the
Plan Year, as reported on the
Participant's Wage and Tax Statement
(Form W-2), including amounts paid in
cash as salary, wages, bonuses, overtime
pay, tips and taxable fringe benefits,
but excluding any amount in excess of
$222,220 (as adjusted after 1991 for
increases in the cost of living pursuant
to Section 401(a)(17) of the Code) and
excluding any amount in excess of
$150,000 (as adjusted after 1994 for
increases in the cost of living) for
Plan Years beginning after December 31,
1993. For purposes of applying these
limitations, the Compensation of a 5%
owner or of a Highly Compensated
Employee who is one of the ten most
Highly Compensated Employees shall be
aggregated with the Compensation of his
spouse and his lineal descendants who
are under age 19.
IHOP.................. IHOP Corp., a Delaware corporation,
International House of Pancakes, Inc., a
Delaware corporation, and any other
affiliate which is desig-
-2-
<PAGE>
nated by the Board of Directors and
which adopts the Plan for the bene-
fit of its Employees.
Service.......... Employment with IHOP or an Affili-
ate."
3. The second sentence of Section 3(a) is modified, effective January 1,
1989, by replacing the words "...one full year of Service..." with the words
"...one year of Service...."
4. The fourth sentence of Section 3(a) is restated to read as follows,
effective as of January 1, 1989:
"For this purpose, the eligibility computation period for determining the
one year of Service shall initially be the period of 12 consecutive months
beginning with the Employee's initial Hour of Service and thereafter shall
be the period of 12 consecutive months beginning on each anniversary of his
completion of his initial hour of Service."
5. Section 10(a) is restated in its entirety to read as follows, effective
as of January 3, 1994:
"(a) Vesting - A Participant's interest in his Accounts shall become
100% vested and nonforfeitable if he (1) is employed by IHOP or an Affiliate on
or after his 65th birthday, (2) incurs a Disability while employed by IHOP or an
Affiliate, (3) dies while employed by IHOP or an Affiliate
-3-
<PAGE>
or (4) completes five years of Credited Service (after 1986)."
6. Section 10(b) is modified by adding the following:
"For this purpose, a Participant who is not vested in the final
balances is his Accounts will be deemed to have received a complete
distribution of his Account balances as of the date on which he incurs a
one-year Break in Service."
7. Section 11(a) is modified by deleting the words "...with IHOP..."
from the first sentence thereof, effective as of January 3, 1994.
8. Section 14(c) is modified by adding the following, effective as of
January 1, 1993:
"A distribution may commence less than 30 days after the notice required
under section 1.411(a)-11(c) of the regulations under the Code is given
provided that the Participant is informed that he has a right to a period
of at least 30 days after receiving the notice to consider whether or not
to consent to a distribution (or a particular distribution option) and the
Participant affirmatively elects to receive a distribution after receiving
the notice."
-4-
<PAGE>
9. Section 14 of the ESOP is modified by adding the following thereto,
effective as of January 1, 1993:
"(e) If a distribution of a Participant's Capital Accumulation occurs
after December 31, 1992, and is neither one of a series of annual installments
over a period of ten years (or more) nor the minimum amount required to be
distributed pursuant to the second sentence of Section 12(c), the Committee
shall notify the Participant (or any spouse or former spouse who is his
alternate payee under a "qualified domestic relations order" (as defined in
Section 414(p) of the Code)) of his right to elect to have the distribution paid
directly to any individual retirement account or annuity, a qualified defined
contribution plan or a qualified annuity plan. If such a distribution is to be
made to the Participant's surviving spouse, the Committee shall notify the
surviving spouse of his right to elect to have the distribution paid directly to
an individual retirement account or annuity. Any election under this Section
14(e) shall be made and effected in accordance with such rules and procedures as
may be established from time to time by the Committee in order to comply with
Section 401(a)(31) of the Code."
10. Section 21 is modified by adding the following new paragraph (e),
effective as of January 1, 1989:
-5-
<PAGE>
"(e) For any Plan Year in which the Plan is "top-heavy," Statutory
Compensation of each Employee for purposes of the Plan shall not take into
account any amount in excess of (1) $200,000 for Plan Years ending before
December 31, 1993 (as adjusted for increases in the cost of living) or (2)
$150,000 for any Plan Year beginning after December 31, 1993 (as adjusted
for increases in the cost of living)."
To record the adoption of this Amendment No. 2 to the ESOP, the Company
and International House of Pancakes, Inc. have caused it to be executed this
25th day of February, 1994.
IHOP CORP.
By /s/ Richard K. Herzer
--------------------
By /s/ Mark D. Weisberger
--------------------
INTERNATIONAL HOUSE OF
PANCAKES, INC.
By /s/ Richard K. Herzer
--------------------
By /s/ Mark D. Weisberger
--------------------
-6-
<PAGE>
EXHIBIT 11.0
IHOP CORP. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
NET INCOME PER COMMON SHARE - BASIC
Weighted average shares outstanding 9,596 9,444 9,319
======= ======= =======
Net income available to common shareholders $20,914 $18,604 $16,154
======= ======= =======
Net income per share - basic $ 2.18 $ 1.97 $ 1.73
======= ======= =======
NET INCOME PER COMMON SHARE - DILUTED
Weighted average shares outstanding 9,596 9,444 9,319
Net effect of dilutive stock options
based on the treasury stock method
using the average market price 147 79 169
------- ------- -------
Total 9,743 9,523 9,488
======= ======= =======
Net income available to common shareholders $20,914 $18,604 $16,154
======= ======= =======
Net income per share - diluted $ 2.15 $ 1.95 $ 1.70
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 21.0
IHOP CORP. and SUBSIDIARIES
List of Subsidiaries
Listed below are the subsidiaries of IHOP Corp. which are directly or indirectly
100% owned as of December 31, 1997.
Blue Roof Advertising, Inc. United States
IHOP Investments, Inc. United States
IHOP Properties, Inc. United States
IHOP Realty Corp. United States
IHOP Restaurants, Inc. United States
III Industries of Canada, Ltd. Canada
International House of Pancakes, Inc. United States
<PAGE>
EXHIBIT 23.0
[LETTERHEAD OF COOPERS & LYBRAND]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement of IHOP Corp. and Subsidiaries on Form S-8 (File No. 33-46361) of our
report dated February 13, 1998, on our audits of the consolidated financial
statements of IHOP Corp. and Subsidiaries as of December 31, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997, which report
is included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Los Angeles, California
March 16, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF IHOP CORP. AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,964
<SECURITIES> 0
<RECEIVABLES> 30,490
<ALLOWANCES> 0
<INVENTORY> 1,378
<CURRENT-ASSETS> 40,782
<PP&E> 142,751
<DEPRECIATION> 0
<TOTAL-ASSETS> 382,593
<CURRENT-LIABILITIES> 39,326
<BONDS> 158,221
0
0
<COMMON> 97
<OTHER-SE> 156,087
<TOTAL-LIABILITY-AND-EQUITY> 382,593
<SALES> 0
<TOTAL-REVENUES> 215,458
<CGS> 0
<TOTAL-COSTS> 127,057
<OTHER-EXPENSES> 10,029
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,649
<INCOME-PRETAX> 34,286
<INCOME-TAX> 13,372
<INCOME-CONTINUING> 20,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,914
<EPS-PRIMARY> 2.18<F1>
<EPS-DILUTED> 2.15
<FN>
<F1>REPRESENTS BASIC EARNINGS PER SHARE.
</FN>
</TABLE>
