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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IL FORNAIO (AMERICA) CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA (PRIOR TO
REINCORPORATION)
DELAWARE (AFTER REINCORPORATION) 5812 94-2766571
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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1000 SANSOME STREET, SUITE 200
SAN FRANCISCO, CALIFORNIA 94111
(415) 986-1505
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LAURENCE B. MINDEL
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
IL FORNAIO (AMERICA) CORPORATION
1000 SANSOME STREET, SUITE 200
SAN FRANCISCO, CALIFORNIA 94111
(415) 986-1505
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
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KENNETH L. GUERNSEY PETER LILLEVAND
CYDNEY S. POSNER LOWELL D. NESS
JAMES R. VIDANO ANDREW P. JOHNSON
LAURA M. RANDALL ORRICK, HERRINGTON & SUTCLIFFE LLP
COOLEY GODWARD LLP 400 SANSOME STREET
ONE MARITIME PLAZA, 20TH FLOOR SAN FRANCISCO, CA 94111
SAN FRANCISCO, CA 94111 (415) 392-1122
(415) 693-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement number for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock, $.001 par value.................... 1,725,000 shares $10.50 $18,112,500 $5,489
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(1) Includes 225,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED MARCH 19, 1997
1,500,000 SHARES
[IL FORNAIO LOGO]
COMMON STOCK
Of the 1,500,000 shares of Common Stock offered hereby, 1,000,000 are being
sold by Il Fornaio (America) Corporation ("Il Fornaio" or the "Company") and
500,000 are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $9.00 and $10.50 per share. See "Underwriting" for a
discussion of factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol "ILFO."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company (2) Stockholders
- ------------------------------------------------------------------------------------------
Per Share......... $ $ $ $
Total(3).......... $ $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $850,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 225,000 shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
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MONTGOMERY SECURITIES ALEX. BROWN & SONS
INCORPORATED
, 1997
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[ILLUSTRATIONS]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by its independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
Il Fornaio(R) and the Il Fornaio logo are registered marks of the Company
and Festa Regionale and Passaporto are marks used and owned by the Company.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Except as set forth in the financial statements or as
otherwise indicated herein, information in this Prospectus (i) gives effect to
the anticipated reincorporation of the Company from California to Delaware to be
effected prior to the closing of this offering, (ii) reflects the conversion of
all of the Company's outstanding shares of Preferred Stock into shares of Common
Stock, which will occur automatically upon the closing of this offering, and
(iii) assumes that the Underwriters' over-allotment option is not exercised. See
"Description of Capital Stock" and "Underwriting."
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Il Fornaio owns and operates 13 full-service, white tablecloth Italian
restaurants serving creatively prepared, premium quality Italian cuisine based
on authentic regional recipes. The Company's restaurants offer an extensive
menu, featuring house-made and imported pasta, poultry and game from a
wood-fired rotisserie, meat and fresh fish from a charcoal grill, pizza from a
wood-burning oven, soups, salads and desserts. The Il Fornaio dining experience
is complemented by fresh, hand-made breads, pastries and other baked goods that
are produced in the Company's restaurants and five wholesale bakeries. Il
Fornaio's wholesale bakeries also sell baked goods to quality grocery stores,
specialty retailers, hotels and other fine restaurants. In addition, the Company
operates a retail market in each restaurant, which sells baked goods, prepared
foods and a variety of Il Fornaio-brand products, allowing guests to recreate
the Il Fornaio dining experience at home.
The Company's objectives are to offer guests the most authentic Italian
dining experience available outside of Italy and to establish a brand identity
that provides a competitive advantage in every market in which the Company
operates. The Company's strategy to achieve these objectives includes the
following key elements: (i) serve high quality, authentic regional Italian
cuisine created by native-born Italian chefs and complemented by hand-made Il
Fornaio baked goods; (ii) build brand awareness through its wholesale bakeries
and retail markets, which reinforce the Company's image as a provider of high
quality, authentic Italian food and enable guests to recreate the Il Fornaio
dining experience at home; (iii) create a distinctive authentic Italian
atmosphere with restaurant designs unique to each location; (iv) consistently
execute Il Fornaio's high standards of food quality, service and cleanliness
through its employee-designed Five Star Service Program; and (v) foster a strong
corporate culture which attracts and retains highly qualified management, chefs
and hourly employees. The Company believes that these elements, combined with an
average check per guest of approximately $20.93, provide an excellent dining
value.
The Company operates 11 restaurants in California and has most recently
opened two restaurants in Portland and Las Vegas. The Company believes that its
restaurants provide superior unit economics. In 1996, the Company's 10
comparable restaurants generated average sales of approximately $4.5 million and
average cash flow of approximately $884,000, or 19.9% of restaurant sales. Since
1991, the Company's total investment per restaurant, net of landlord
contributions, has averaged approximately $1.7 million, with additional average
pre-opening costs per restaurant of approximately $200,000. The restaurants
range in size from 5,000 to 10,900 square feet, seat between 76 and 220 guests
and serve both lunch and dinner.
Il Fornaio intends to develop restaurants in both existing and new
geographic markets and to locate restaurants at sites in affluent urban and
suburban areas. The flexibility of the Il Fornaio concept enables the Company to
develop successful restaurants in a variety of locations, including residential
neighborhoods, shopping centers, office buildings and hotels. The Company
intends to open one additional restaurant in 1997 in Denver and three new
restaurants in 1998, including locations in Santa Monica and Danville,
California, for which leases have been signed. The Company expects that most of
its planned restaurants will range in size from 7,000 to 10,000 square feet. The
total investment by the Company per restaurant, net of anticipated
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landlord contributions, is estimated to be approximately $1.7 million, with
additional average pre-opening costs per restaurant of approximately $200,000.
Il Fornaio's business and expansion strategy has been developed and
implemented by an experienced senior management team with a record of successful
restaurant operations. In 1987, Laurence B. Mindel joined the Company as
Chairman, Chief Executive Officer and President, after spending over 15 years at
Spectrum Foods, where he created and operated innovative restaurants throughout
California, including Chianti, MacArthur Park, Harry's Bar and American Grill,
Ciao, Prego and Guaymas. In 1995, Michael J. Hislop joined the Company as
President and Chief Operating Officer, after serving as Chairman and Chief
Executive Officer of Chevy's Mexican Restaurants for four years and guiding its
expansion from 17 to 63 restaurants. These individuals, along with the seven
other members of senior management, have over 150 years of combined experience
in the restaurant and bakery businesses. Because of the experience level of its
senior management, the Company believes it has a competitive advantage in its
industry with respect to concept development and execution, site selection, unit
operations, training, product quality and service.
The Company was incorporated in California in June 1980, and intends to
reincorporate in Delaware prior to the closing of this offering. The Company's
executive office is located at 1000 Sansome Street, Suite 200, San Francisco,
California 94111. The Company's telephone number is (415) 986-1505.
THE OFFERING
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Common Stock offered by the Company............... 1,000,000 shares
Common Stock offered by the Selling
Stockholders.................................... 500,000 shares
Common Stock to be outstanding after the
offering........................................ 5,571,407 shares(1)
Use of proceeds................................... To finance the development of additional
restaurants and for general corporate purposes.
Proposed Nasdaq National Market symbol............ ILFO
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(1) Excludes, as of March 19, 1997, outstanding options to purchase 827,230
shares of Common Stock and outstanding warrants to purchase 32,487 shares of
Common Stock. See "Management -- Employee Benefit Plans" and "Description of
Capital Stock -- Warrants."
4
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SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE, OPERATING AND FOOTNOTE DATA)
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YEAR ENDED(1)
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DECEMBER 27, DECEMBER 29, DECEMBER 29, DECEMBER 31, DECEMBER 29,
1992 1993(2) 1994 1995(3)(4) 1996(5)
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STATEMENTS OF OPERATIONS DATA:
Revenues:
Restaurants..................... $ 30,737 $ 42,402 $ 39,485 $ 43,647 $50,599
Wholesale bakeries.............. 4,049 4,328 4,951 5,181 6,016
Retail bakeries................. 3,727 4,866 5,208 5,312 4,137
------- ------- ------- ------- -------
Total revenues.......... 38,513 51,596 49,644 54,140 60,752
Restaurant and bakery operating
income.......................... 4,027 3,729 5,892 7,028 6,948
Income (loss) before provision
(benefit) for income taxes...... 687 (2,820) 2,247 2,072 2,351
Provision (benefit) for income
taxes........................... 6 70 332 (2,432) 898
Net income (loss)................. 681 (2,890) 1,915 4,504 1,453
Net income (loss) per share (fully
diluted)........................ $ 0.20 $ (0.67) $ 0.43 $ 1.00 $ 0.32
Weighted average common shares
outstanding (fully diluted)..... 3,424 4,344 4,477 4,499 4,839
OPERATING DATA:
Comparable restaurant sales
increase (decrease)(6).......... 1.5% (4.8%) (3.4%) (1.7%) 4.8%
Restaurants open at end of
period(7)....................... 9 9 9 11 12
Wholesale bakeries open at end of
period.......................... 5 6 6 6 6
Retail bakeries open at end of
period.......................... 6 9 8 8 4
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DECEMBER 29, 1996
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ACTUAL AS ADJUSTED(8)
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BALANCE SHEET DATA:
Working capital.............................................................. $ 158 $ 8,376
Total assets................................................................. 34,855 43,073
Long-term debt (excluding current portion)................................... -- --
Stockholders' equity......................................................... 22,936 31,154
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(1) All years reported include 52 weeks, except the year ended December 31,
1995, which includes 53 weeks.
(2) Includes a $2.3 million pre-tax charge associated with the Company's
decision to dispose of its restaurant in Costa Mesa and a free-standing
retail bakery in Los Angeles. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Closure of Non-Core
Operations."
(3) Includes a $932,000 pre-tax charge associated with the default by the buyer
of the Company's Etrusca restaurant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Closure of
Non-Core Operations."
(4) Includes a tax benefit of $2.7 million as a result of the recognition of
deferred tax assets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
(5) Reflects the disposition of four of the Company's free-standing retail
bakeries in the third quarter of 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Closure of
Non-Core Operations."
(6) A new restaurant is included in the calculation of the change in comparable
restaurant sales after the first full month following the eighteenth month
of that restaurant's operation.
(7) During 1993, the Company opened two new restaurants and commenced the
disposition of two existing restaurants that differed from the Il Fornaio
restaurant concept. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Closure of Non-Core Operations."
(8) As adjusted to reflect the sale of 1,000,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $9.75
per share and the application of the estimated net proceeds therefrom.
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RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors in evaluating an
investment in the Company and its business before purchasing any shares of
Common Stock offered hereby. This Prospectus contains forward-looking statements
which involve risks and uncertainties. Prospective investors are cautioned that
the Company's actual events or results may differ materially from the results
discussed in the forward-looking statements. Factors that might cause actual
results to differ materially from those indicated by such forward-looking
statements may include the matters set forth below and elsewhere in this
Prospectus.
UNCERTAINTIES ASSOCIATED WITH FUTURE GROWTH
The Company has experienced limited growth in recent years, expanding from
nine restaurants at the end of 1993 to 12 restaurants at the end of 1996. The
Company is currently pursuing a more aggressive growth strategy. To date in
1997, the Company has opened its Las Vegas restaurant and a 12,000-square foot
wholesale bakery in Burlingame, California. The Company expects to open a
restaurant in Denver in the fourth quarter of 1997 and expects to open three
restaurants in 1998. The Company's ability to expand successfully will depend on
a number of factors, including the identification and availability of suitable
locations, the negotiation of favorable lease arrangements, timely development
and construction of any shopping center, hotel or other site in which the
restaurant or bakery may be located, management of the costs of construction and
development of new restaurants and bakeries, securing required governmental
approvals and permits, recruitment of qualified operating personnel
(particularly managers and chefs), general economic conditions and other
factors, some of which are beyond the control of the Company. Moreover, the
opening of additional restaurants and bakeries in the future will depend, in
part, upon the Company's ability to generate sufficient funds from existing
operations or to obtain sufficient equity or debt financing on favorable terms
to support such expansion.
The Company has opened only two restaurants located outside of California.
Over the next several years, the Company expects that some of its expansion will
involve opening restaurants in other states. Expansion into new geographic
regions involves a number of risks, in addition to those identified above,
including uncertainties related to local customs, demographics, legal
requirements, wages, costs and other economic conditions, the need to develop
relationships with local distributors and suppliers for fresh produce and other
ingredients, and potential difficulties related to management of operations
located in a number of broadly dispersed locations. There can be no assurance
that the Company will be successful in addressing these risks in each case, that
the Company will be able to open all of its planned new operations on a timely
basis, if at all, or, if opened, that those operations will be operated
profitably. Delays in opening, or failure to open, planned new restaurants could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's growth strategy may place a strain on the Company's
management, financial and other resources. To manage its growth effectively, the
Company must maintain its high level of quality and service at its existing and
future restaurants, continue to enhance its operational, financial and
management systems, and locate, hire, train and retain experienced and dedicated
operating personnel, particularly managers and chefs. There can be no assurance
that the Company will be able to effectively manage this expansion in any one or
more of these areas, and any failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH SMALL OPERATIONS BASE; GEOGRAPHIC CONCENTRATION
The Company currently operates 13 restaurants. Because of the relatively
small number of restaurants operated by the Company, adverse results experienced
by any one location could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's Las Vegas
restaurant opened in January 1997 and has performed at levels above that of any
other restaurant previously opened by the Company. There can be no assurance
that the Las Vegas restaurant will continue to perform at the level achieved to
date. In addition, the results achieved to date by the Company's relatively
small number
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of restaurants may not be indicative of those restaurants' long-term performance
or the potential market acceptance of restaurants in other geographic locations.
Eleven of the Company's 13 restaurants are located in California. Because
of this geographic concentration, the Company is susceptible to local and
regional risks, such as increased government regulation, adverse economic
conditions, adverse weather conditions, earthquakes and other natural disasters,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, in light of the
Company's current geographic concentration, adverse publicity relating to the
Company's restaurants could have a more pronounced adverse effect on the
Company's overall sales than might be the case if the Company's restaurants were
more broadly dispersed.
FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly operating results may fluctuate significantly as a
result of a variety of factors, including general economic conditions, consumer
confidence, changes in consumer preferences, competitive factors, weather
conditions, the timing of new restaurant openings and related expenses, net
sales contributed by new restaurants and increases or decreases in comparable
restaurant revenues. Accordingly, results for any one quarter are not
necessarily indicative of results to be expected for any other quarter or for
any year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Results."
A variety of factors affect the Company's comparable restaurant sales
results, including general economic conditions, consumer confidence, changes in
consumer preferences, competitive factors, weather conditions and the Company's
ability to execute its business strategy. The Company had a 4.8% increase in
comparable restaurant sales in 1996. While that trend has continued in 1997 to
date (with comparable restaurant sales up 8.7% in the first two months of 1997
as compared to the corresponding period in 1996), no assurance can be given that
comparable restaurant sales for any particular future period will not decrease.
CHANGES IN FOOD AND LABOR COSTS
The Company's profitability is dependent in part on its ability to
anticipate and react to changes in food and labor costs. Various factors beyond
the Company's control, including adverse weather conditions and governmental
regulation, may affect the Company's food costs. There can be no assurance that
the Company will be able to anticipate and react to changing food costs through
its purchasing practices and menu price adjustments in the future and failure to
do so could have a material adverse effect on the Company's business, financial
condition and results of operations.
A substantial number of the Company's employees are subject to various
minimum wage requirements. Many of the Company's employees work in restaurants
located in California and receive salaries equal to the California minimum wage.
In November 1996, California voters approved a proposal that raised the minimum
wage in California to $5.00 an hour effective March 1, 1997 and will increase it
to $5.75 an hour effective March 1, 1998. There can be no assurance that similar
proposals will not come before the voters in other jurisdictions in which the
Company operates or seeks to operate. In addition, recent federal legislation
increased the federal minimum wage from $4.25 an hour to $4.75 effective October
1, 1996 and will raise the minimum wage again to $5.15 effective September 1,
1997. In the fourth quarter of 1996, the Company introduced its first menu price
increase in three years due, in part, to increases in labor costs. There can be
no assurance that the Company will be able to pass additional increases in labor
costs through to its guests in the form of menu price adjustments in the future
and, accordingly, such minimum wage increases could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business will continue to be highly dependent
upon its key operating officers and employees, including Laurence B. Mindel, the
Company's Chairman of the Board and Chief Executive Officer, and Michael J.
Hislop, the Company's President and Chief Operating Officer. The
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Company currently maintains a $5.0 million term life insurance policy covering
Mr. Mindel and a $3.0 million term life insurance policy covering Mr. Hislop.
The Company's success in the future will be dependent on its ability to attract,
retain and motivate qualified management and operating personnel, including
restaurant managers and chefs. Failure by the Company to attract and retain such
key employees in the future could have a material adverse effect on the
Company's business, financial condition and results of operations.
COMPETITION AND INDUSTRY CONDITIONS
The restaurant and bakery industries are each intensely competitive with
respect to food quality, price-value relationships, ambiance, service and
location, and many restaurants and bakeries compete with the Company at each of
its locations. There are many well-established competitors with substantially
greater financial, marketing, personnel and other resources than the Company. In
addition, many of the Company's competitors are well established in the markets
where the Company's operations are, or in which they may be, located. While the
Company believes that its restaurants and bakeries are distinctive in design and
operating concept, other companies may develop restaurants and bakeries that
operate with similar concepts.
The restaurant business is often affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends, consumer
confidence in the economy, discretionary spending priorities, the weather,
tourist travel, traffic patterns, and the type, number and location of competing
restaurants. Changes in these factors could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Competition."
LONG-TERM, NON-CANCELABLE LEASES; TERMINATION PROVISIONS
The Company's current leases have annual base rents ranging from $60,000 to
$336,000, are non-cancelable and typically have terms of 10 to 15 years. Leases
entered into by the Company in the future will also be long-term and
noncancelable. If a decision is made to close any restaurant or bakery, the
Company may be committed to perform its obligations under the applicable lease,
which would include, among other things, payment of the base rent for the
balance of the lease term. In 1993 and 1995, the Company recorded provisions of
$2.3 million and $932,000, respectively, for liabilities associated with the
closure of facilities subject to non-cancelable, long-term leases. The Company
may incur liabilities of this nature in the future if a decision is made to
close one or more restaurants or bakeries, and such liabilities, if incurred,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, the Las Vegas restaurant lease contains provisions that allow
the hotel landlord to terminate the Company's lease without compensation if,
during any six-month period in which the hotel has achieved a specific occupancy
rate, the restaurant's monthly gross sales average less than a specified minimum
amount. To date, the Las Vegas restaurant's sales have been more than triple the
specified minimum amount, although there can be no assurance that restaurant
sales will continue to exceed the specified minimum. In addition, the lease
contains provisions allowing the landlord to relocate the Company's restaurant
to another site within the hotel possessing retail characteristics similar to
the site currently occupied by the Company. The landlord may not use the site
vacated for restaurant operations. Should the Company elect not to relocate the
restaurant, the lease may be terminated by the Company and, in that event, the
landlord is obligated to reimburse the Company for the unamortized cost of its
improvements to the site and any of the Company's furniture, fixtures and
equipment not removed by the Company. Such termination or relocation could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Properties."
GOVERNMENTAL REGULATION
The Company's operations are subject to regulation by federal agencies and
to licensing and regulation by state and local health, environmental, labor
relations, sanitation, building, zoning, safety, fire and other departments
relating to the development and operation of restaurants and retail
establishments. The Company's activities are also subject to the federal
Americans With Disabilities Act and related regulations, which prohibit
discrimination on the basis of disability in public accommodations and
employment. The Company is also subject to state "dram-shop" laws and
regulations, which generally provide that a person
8
<PAGE> 10
injured by an intoxicated person may seek to recover damages from an
establishment that wrongfully served alcoholic beverages to such person. Changes
in any or all of these laws or regulations, such as government-imposed increases
in minimum wages, paid leaves of absence or mandated health benefits, or
increased tax reporting and tax payment requirements for employees who receive
gratuities, could have a material adverse effect on the Company's business,
financial condition and results of operations. Delays or failures in obtaining
or maintaining the required construction and operating licenses, permits or
approvals could delay or prevent the opening of new restaurants or could
materially and adversely affect the operation of existing restaurants. In
addition, there can be no assurance that the Company will be able to obtain
necessary variances or amendments to required licenses, permits or other
approvals on a cost-effective and timely basis in order to construct and develop
restaurants and bakeries in the future. See "Business -- Governmental
Regulation."
UNINSURED LOSSES
The Company has comprehensive insurance, including general liability, fire
and extended coverage. However, there are certain types of losses that may be
uninsurable or that the Company believes are not economically insurable, such as
earthquakes and other natural disasters. In view of the location of many of the
Company's existing and planned restaurants in California, the Company's
operations are particularly susceptible to damage and disruption caused by
earthquakes. In the event of an earthquake or other natural disaster affecting
the Company's geographic area of operations, the Company could suffer a loss of
the capital invested in, as well as anticipated earnings from, the damaged or
destroyed properties. In addition, the Company does not currently maintain any
insurance coverage for employee-related litigation or the effects of adverse
publicity and such litigation or adverse publicity could have a material adverse
effect on the Company's business, financial condition and results of operations.
CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT
Following the closing of this offering, the Company's directors, officers
and their affiliates will beneficially own approximately 39% of the outstanding
Common Stock. As a result of such Common Stock ownership, the Company's
directors, officers and their affiliates, if they voted together, would be able
to exercise significant influence over the election of members of the Company's
Board of Directors and other corporate actions requiring stockholder approval.
See "Principal and Selling Stockholders."
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or,
if one develops, that it will be maintained. The initial public offering price
of the Common Stock will be established by negotiation among the Company, the
Selling Stockholders and the Underwriters. See "Underwriting" for factors to be
considered in determining the initial public offering price. The market price of
the shares of Common Stock could be subject to significant fluctuations in
response to the Company's operating results and other factors, including general
economic and market conditions. In addition, the stock market in recent years
has experienced and continues to experience extreme price and volume
fluctuations which have affected the market price of the stock of many companies
and which have often been unrelated or disproportionate to the operating
performance of these companies. These fluctuations, as well as a shortfall in
sales or earnings compared to securities analysts' expectations, changes in
analysts' recommendations or projections, and general economic and market
conditions, may adversely affect the market price of the Common Stock. In the
past, securities class action litigation has often been instituted following
periods of volatility in the market price for a company's securities. Such
litigation could result in substantial costs and a diversion of management
attention and resources, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") authorizes the Board of Directors to issue up to 5
million shares of Preferred Stock and to determine the price, rights,
preferences and privileges, including voting rights, of those shares without any
further vote or action by the stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected
9
<PAGE> 11
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The Restated Certificate and By-laws, among other things, provide for a
classified Board of Directors, require that stockholder actions occur at duly
called meetings of the stockholders, limit who may call special meetings of
stockholders, do not permit cumulative voting in the election of directors and
require advance notice of stockholder proposals and director nominations. These
and other provisions could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company, discourage a hostile bid or delay, prevent or deter a merger,
acquisition or tender offer in which the Company's stockholders could receive a
premium for their shares, or a proxy contest for control of the Company or other
change in the Company's management. See "Management" and "Description of Capital
Stock."
ADDITIONAL SHARES ELIGIBLE FOR FUTURE SALE IN THE PUBLIC MARKET
The sale of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock. Upon completion of this offering, the Company will have
outstanding an aggregate of 5,571,407 shares of Common Stock, assuming no
exercise of outstanding options and warrants. The 1,500,000 shares of Common
Stock sold in this offering will be freely tradeable without restriction under
the Securities Act of 1933, as amended (the "Securities Act").
The remaining 4,071,407 shares of Common Stock are "Restricted Shares" and
are subject to restrictions under the Securities Act, of which are
subject to lock-up agreements under which the holders have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the date
of this Prospectus without the prior written consent of Montgomery Securities.
In its sole discretion and at any time without notice, Montgomery Securities may
release all or any portion of the shares subject to the lock-up agreements.
Approximately Restricted Shares subject to lock-up agreements will
become available for sale in the public market immediately following expiration
of the 180-day lock-up period, subject to the volume and other limitations of
Rule 144, and the remaining Restricted Shares subject to lock-up agreements will
begin to be eligible for sale at various times thereafter pursuant to Rule 144.
An additional Restricted Shares are subject to contractual
restrictions with the Company similar to those contained in the lock-up
agreements, of which shares will become available for sale in the
public market beginning 120 days after the date of this Prospectus and
shares will become available for sale beginning 180 days after the
date of this Prospectus. Beginning 90 days after the date of this Prospectus,
approximately Restricted Shares not subject to lock-up agreements or
contractual restrictions will become available for sale in the public market,
subject to the volume and other limitations of Rule 144. The remaining
Restricted Shares not subject to lock-up agreements or contractual
restrictions will be eligible for sale in the public market pursuant to Rule
144(k) under the Securities Act as of the date of this Prospectus. In addition,
certain equityholders of the Company have the right to register shares of Common
Stock for sale in the public market, and the Company intends to register shares
of Common Stock authorized for issuance under the Company's equity incentive
plans. See "Shares Eligible for Future Sale."
DILUTION
The price to the public in this offering is substantially higher than the
book value per share of Common Stock. Investors purchasing shares of Common
Stock in this offering will therefore incur immediate and substantial dilution.
See "Dilution."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended. Such forward-looking statements may be deemed to include
the schedule of anticipated restaurant and wholesale bakery openings, the
projected costs and sizes of future restaurants and bakeries, plans for future
wholesale bakeries, and the adequacy of anticipated sources of cash, including
the proceeds from this offering, to fund the Company's future capital
requirements through 1998. Actual results or events could differ materially from
those anticipated in any forward-looking statements for the reasons discussed in
other portions of this "Risk Factors" section and elsewhere in this Prospectus.
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company at an assumed initial public offering price
of $9.75 per share are estimated to be approximately $8.2 million ($10.3 million
if the Underwriters' over-allotment option is exercised in full). The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders." The Company expects to
use the net proceeds of this offering for general corporate purposes, primarily
to finance the development of additional restaurants. Pending application of the
net proceeds as described above, the Company intends to invest the net proceeds
of the offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Board of Directors intends to retain earnings to support operations and to
finance expansion and does not intend to pay cash dividends on the Common Stock
for the foreseeable future. In addition, certain financial covenants contained
in the Company's bank line of credit restrict the Company's ability to pay cash
dividends.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 29, 1996, (i) on an actual basis and (ii) as adjusted to give effect to
the conversion of all outstanding shares of Preferred Stock into Common Stock
and to reflect the sale of 1,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $9.75 per share
and the application of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
DECEMBER 29, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (excluding current portion)..................... $ -- $ --
Stockholders' equity:
Convertible Preferred Stock, no par value, 3,500,000 shares
authorized, 2,308,196 shares outstanding; $.001 par value,
5,000,000 shares authorized, no shares outstanding, as
adjusted.................................................. 16,885 --
Common Stock, no par value, 15,000,000 shares authorized,
1,611,766 shares outstanding; $.001 par value, 20,000,000,
shares authorized, 5,524,687 shares outstanding, as
adjusted(1)............................................... 7,980 33,083
Accumulated deficit............................................ (1,929) (1,929)
------- -------
Total stockholders' equity........................... 22,936 31,154
------- -------
Total capitalization................................. $22,936 $31,154
======= =======
</TABLE>
- ---------------
(1) Excludes, as of March 19, 1997, outstanding options to purchase 827,230
shares of Common Stock and outstanding warrants to purchase 32,487 shares of
Common Stock. See "Management -- Employee Benefit Plans" and "Description of
Capital Stock -- Warrants."
11
<PAGE> 13
DILUTION
The net tangible book value of the Company at December 29, 1996 was
approximately $22.9 million or $5.07 per share of Common Stock. Net tangible
book value per share is equal to the Company's total tangible assets less its
total liabilities divided by the number of shares of Common Stock outstanding.
After giving effect to the sale by the Company of the 1,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $9.75 per
share and the receipt of the net proceeds therefrom, the pro forma net tangible
book value of the Company as of December 29, 1996 would have been $31.2 million,
or $5.64 per share. This represents an immediate increase in net tangible book
value of $0.57 per share to existing stockholders and an immediate dilution in
net tangible book value of $4.11 per share to new investors purchasing shares at
the assumed initial public offering price. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.............................. $ 9.75
Net tangible book value before offering.......................... $ 5.07
Increase attributable to new investors........................... 0.57
------
Pro forma net tangible book value after offering................... 5.64
------
Dilution to new investors.......................................... $ 4.11
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 29,
1996, the difference between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by the existing stockholders and by the new investors (at an assumed initial
public offering price of $9.75 per share for shares purchased in this offering):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)............ 4,524,687 81.9% $24,865,000 71.8% $5.50
New investors(2).................... 1,000,000 18.1 9,750,000 28.2 9.75
--------- ----- ----------- -----
Total..................... 5,524,687 100.0% $34,615,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) The foregoing computations assume no exercise of outstanding stock options
or warrants. As of March 19, 1997, options were outstanding to purchase
827,230 shares of Common Stock at a weighted average exercise price of $4.49
per share. At March 19, 1997, options to purchase 308,281 of such shares
were exercisable. Warrants were outstanding to purchase 32,487 shares of
Common Stock at an exercise price of $9.90 per share, all of which were
exercisable. To the extent that outstanding options are exercised, there
will be further dilution to new investors. See "Management -- Employee
Benefit Plans" and "Description of Capital Stock -- Warrants."
(2) Sales by the Selling Stockholders in the offering will reduce the number of
shares held by existing stockholders to 4,024,687 shares, or approximately
72.9% of the total shares of Common Stock outstanding, and will increase the
number of shares held by new investors to 1,500,000, or approximately 27.1%,
of the total shares of Common Stock outstanding after the offering. See
"Principal and Selling Stockholders."
12
<PAGE> 14
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE, OPERATING AND FOOTNOTE DATA)
The statement of operations data for each of the years in the three-year
period ended December 29, 1996 and the balance sheet data as of December 31,
1995 and December 29, 1996, have been derived from the audited financial
statements of the Company included elsewhere in this Prospectus that have been
audited by Deloitte & Touche LLP, independent auditors. The balance sheet data
as of December 27, 1992, December 29, 1993 and December 29, 1994 and the
statement of operations data for each of the years in the two-year period ended
December 29, 1993 have been derived from the audited financial statements of the
Company not included in this Prospectus. The data set forth below should be read
in conjunction with the Financial Statements of Il Fornaio (America)
Corporation, including the notes thereto, and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED(1)
------------------------------------------------------------------------
DECEMBER 27, DECEMBER 29, DECEMBER 29, DECEMBER 31, DECEMBER 29,
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Restaurants........................... $ 30,737 $ 42,402 $ 39,485 $ 43,647 $ 50,599
Wholesale bakeries.................... 4,049 4,328 4,951 5,181 6,016
Retail bakeries....................... 3,727 4,866 5,208 5,312 4,137
------ ------ ------ ------ ------
Total revenues................. 38,513 51,596 49,644 54,140 60,752
------ ------ ------ ------ ------
Costs and expenses:
Cost of sales......................... 9,320 12,097 11,300 12,772 14,792
Operating expenses.................... 23,121 32,258 29,290 31,036 35,152
Depreciation and amortization......... 2,045 3,512 3,162 3,304 3,860
------ ------ ------ ------ ------
Total costs and expenses....... 34,486 47,867 43,752 47,112 53,804
------ ------ ------ ------ ------
Restaurant and bakery operating
income................................ 4,027 3,729 5,892 7,028 6,948
Other (income) expenses:
General and administrative expenses... 3,311 4,060 3,592 4,083 4,724
Provision for store closures(2)(3).... -- 2,339 -- 932 --
Interest (income) expense, net........ 29 150 53 (59) (127)
------ ------ ------ ------ ------
Total other expenses........... 3,340 6,549 3,645 4,956 4,597
------ ------ ------ ------ ------
Income (loss) before provision (benefit)
for income taxes...................... 687 (2,820) 2,247 2,072 2,351
Provision (benefit) for income
taxes(4).............................. 6 70 332 (2,432) 898
------ ------ ------ ------ ------
Net income (loss)....................... $ 681 $ (2,890) $ 1,915 $ 4,504 $ 1,453
====== ====== ====== ====== ======
Net income (loss) per share (fully
diluted).............................. $ 0.20 $ (0.67) $ 0.43 $ 1.00 $ 0.32
====== ====== ====== ====== ======
Weighted average common shares
outstanding (fully diluted)........... 3,424 4,344 4,477 4,499 4,839
OPERATING DATA:
Comparable restaurant sales increase
(decrease)(5)......................... 1.5% (4.8%) (3.4%) (1.7%) 4.8%
Restaurants open at end of period(6).... 9 9 9 11 12
Wholesale bakeries open at end of
period................................ 5 6 6 6 6
Retail bakeries open at end of
period(7)............................. 6 9 8 8 4
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit)............... $ (9,779) $ (4,602) $ (496) $ 807 $ 158
Total assets............................ 29,623 29,723 30,164 34,194 34,855
Long-term debt (excluding current
portion).............................. -- -- 750 150 --
Stockholders' equity.................... 10,076 14,717 16,678 21,283 22,936
</TABLE>
13
<PAGE> 15
- ---------------
(1) All years reported include 52 weeks, except the year ended December 31,
1995, which includes 53 weeks.
(2) Includes a $2.3 million pre-tax charge in 1993 associated with the Company's
decision to dispose of its restaurant in Costa Mesa and a free-standing
retail bakery in Los Angeles. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Closure of Non-Core
Operations."
(3) Includes a $932,000 pre-tax charge in 1995 associated with the default by
the buyer of the Company's Etrusca restaurant. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Closure of
Non-Core Operations."
(4) Includes a tax benefit of $2.7 million in 1995 as a result of the
recognition of deferred tax assets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
(5) A new restaurant is included in the calculation of the change in comparable
restaurant sales after the first full month following the eighteenth month
of that restaurant's operation.
(6) During 1993, the Company opened two new restaurants and commenced the
disposition of two existing restaurants that differed from the Il Fornaio
restaurant concept. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Closure of Non-Core Operations."
(7) Reflects the disposition of four of the Company's free-standing retail
bakeries in the third quarter of 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Closure of
Non-Core Operations."
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
As of March 31, 1997, the Company owned and operated 13 restaurants and
five wholesale bakeries. Eleven of the restaurants and all of the wholesale
bakeries are located in California. One restaurant is located in Portland and
one restaurant is located in Las Vegas.
In 1993, management analyzed the economics of each of the Company's
business units and established criteria for future growth. Based on this
analysis, management developed a strategic plan to focus the Company's
operations on Il Fornaio restaurants and wholesale bakeries. The plan provided
for the disposition of two restaurants that differed from the Il Fornaio
restaurant concept. Management also concluded that, while the Company would
continue to evaluate its existing free-standing retail bakeries, no additional
free-standing retail bakeries would be developed. In 1995, Michael J. Hislop
joined the Company as President and Chief Operating Officer and implemented a
number of new strategic initiatives to accelerate Il Fornaio's restaurant growth
and facilitate its expansion into new geographic markets. Management also took
steps to develop the Company's infrastructure and to increase sales and guest
visit frequency by emphasizing service and implementing new marketing and
training programs. In addition, the decision was made to dispose of the
Company's free-standing retail bakery operations. These initiatives contributed
to comparable restaurant sales increases of 4.8% in 1996 and 8.7% for the first
two months of 1997. From 1995 through the first quarter of 1997, the Company
opened four new full-service restaurants, two in California and one each in
Portland and Las Vegas, as well as a large free-standing wholesale bakery in
Burlingame, California.
The Company's revenues consist of restaurant sales, wholesale bakery sales
and free-standing retail bakery sales. For fiscal 1996, restaurant sales were
approximately 83.3% of total revenues, and wholesale and free-standing retail
bakery sales were 9.9% and 6.8% of total revenues, respectively. In July 1996,
the Company disposed of its four Northern California free-standing retail
bakeries and, in February 1997, sold the balance of its free-standing retail
bakeries, all of which were located in Southern California.
Comparable restaurant sales are calculated to include a new restaurant only
after the first full month following the eighteenth month of its operation.
Locations closed for more than 30 days for renovation are not included in the
comparable restaurant comparison until the first full month after the eighteenth
month following re-opening. Comparable restaurant revenues may fluctuate
significantly as a result of a variety of factors. See "Risk
Factors -- Fluctuations in Operating Results."
Cost of sales is composed primarily of the cost of food and beverages.
Operating expenses include payroll and fringe benefit costs, occupancy costs,
marketing costs and other store-level costs. The majority of these costs are
variable and are expected generally to increase with sales volume. Occupancy
costs include both a fixed and percentage portion of rent. Depreciation and
amortization includes the amortization of pre-opening costs associated with the
opening of new locations. The Company capitalizes pre-opening expenses for each
of its new units and amortizes such costs over the 12-month period following the
opening of the unit. Pre-opening costs consist of direct costs related to hiring
and training the initial workforce and certain other direct costs related to
opening new restaurants. General and administrative expenses are composed of
expenses associated with all corporate and administrative functions that support
existing operations and provide an infrastructure to support future growth,
including management and staff salaries, employee benefits, travel, information
systems and training and market research. Certain expenses of recruiting and
training unit management personnel are also included as general and
administrative expenses.
This Prospectus contains forward-looking statements that involve risks and
uncertainties related to future events. Prospective investors are cautioned that
the Company's actual events or results may differ materially from the results
discussed in the forward-looking statements. Factors that might cause actual
events or results to differ materially from those indicated by such
forward-looking statements may include the matters set forth herein, in "Risk
Factors" and elsewhere in this Prospectus.
15
<PAGE> 17
RESULTS OF OPERATIONS
The operating results of the Company expressed as a percentage of total
revenues were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------
DECEMBER 27, DECEMBER 29, DECEMBER 29, DECEMBER 31, DECEMBER 29,
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurants....................... 79.8% 82.2% 79.5% 80.6% 83.3%
Wholesale bakeries................ 10.5 8.4 10.0 9.6 9.9
Retail bakeries................... 9.7 9.4 10.5 9.8 6.8
----- ----- ----- ----- -----
Total revenues............ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses:
Cost of sales..................... 24.2 23.4 22.8 23.6 24.3
Operating expenses................ 60.0 62.5 59.0 57.3 57.9
Depreciation and amortization..... 5.3 6.9 6.4 6.1 6.4
----- ----- ----- ----- -----
Total costs and
expenses................ 89.5 92.8 88.2 87.0 88.6
----- ----- ----- ----- -----
Restaurant and bakery operating
income............................ 10.5 7.2 11.8 13.0 11.4
Other (income) expenses:
General and administrative
expenses....................... 8.6 7.9 7.2 7.5 7.8
Provision for store closures...... 0.0 4.5 0.0 1.7 0.0
Interest (income) expense, net.... 0.1 0.3 0.1 (0.1) (0.2)
----- ----- ----- ----- -----
Total other expenses...... 8.7 12.7 7.3 9.1 7.6
----- ----- ----- ----- -----
Income (loss) before provision
(benefit) for income taxes........ 1.8 (5.5) 4.5 3.9 3.8
Provision (benefit) for income
taxes............................. 0.0 0.1 0.7 (4.5) 1.5
----- ----- ----- ----- -----
Net income (loss)................... 1.8% (5.6%) 3.8% 8.4% 2.3%
===== ===== ===== ===== =====
</TABLE>
1996 Compared to 1995
Revenues increased by $6.6 million, or 12.2%, to $60.8 million in 1996 from
$54.1 million in 1995. The increase primarily reflected sales of $5.8 million
attributable to the opening of three new restaurants, two of which opened in
1995 and one of which opened in 1996, as well as a 4.8% increase in comparable
restaurant sales and an 18.4% increase in comparable wholesale bakery sales.
These factors more than offset the decrease in revenues attributable to the
disposition in 1996 of four free-standing retail bakeries and the inclusion of
one additional accounting week in 1995 compared to 1996. The impact of menu
price increases in 1996 was negligible.
Cost of sales increased as a percentage of revenues to 24.3% in 1996 from
23.6% in 1995, primarily as a result of higher food costs that were not passed
through in corresponding menu price adjustments until December 1996.
Operating expenses increased as a percentage of revenues to 57.9% in 1996
from 57.3% in 1995, principally as a result of higher marketing costs associated
with the Festa Regionale marketing program. Depreciation and amortization
increased as a percentage of revenues to 6.4% in 1996 from 6.1% in 1995. This
increase was primarily the result of an increase in pre-opening amortization
related to the opening of two new restaurants (one of which opened in late
1995), offset in part by a decrease in depreciation as a percentage of revenues
as a result of an increase in comparable store revenues.
General and administrative expenses increased as a percentage of revenues
to 7.8% in 1996 from 7.5% in 1995. This increase was largely due to the
continued expansion of management infrastructure and training expenses, which
commenced in mid-1995 to help implement the Company's growth strategy.
16
<PAGE> 18
In 1995, the Company recorded a $932,000 provision for the write-down of
the fixed assets and rent liability for one restaurant that differed from the Il
Fornaio restaurant concept. See "-- Closure of Non-Core Operations" below.
The effective income tax rate for 1996 was 38.2%, which reflects the
statutory rates, net of investment tax credits. In 1995, in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), the Company recorded an income tax benefit of $2.7 million,
reflecting the recognition of various deductible deferred assets, including
prior years' net operating loss carryforwards, business tax credits and various
temporary accounting differences.
1995 Compared to 1994
Revenues increased by $4.5 million, or 9.1%, to $54.1 million during 1995
from $49.6 million in 1994. This increase primarily reflected sales of $4.4
million attributable to the opening of two new restaurants in 1995, as well as
revenues of $762,000 attributable to the inclusion of one additional accounting
week in 1995 compared to 1994. These increases more than offset the 1.7%
decrease in comparable restaurant sales. There were no menu price increases in
1995.
Cost of sales increased as a percentage of revenues to 23.6% in 1995 from
22.8% in 1994. This increase was principally a result of higher food costs
associated with the initial year of the Festa Regionale marketing program and
significant increases in coffee prices.
Operating expenses declined as a percentage of revenues to 57.3% in 1995
from 59.0% in 1994, largely as a result of labor efficiencies and reductions in
workers' compensation insurance expense. Depreciation and amortization decreased
to 6.1% in 1995 from 6.4% in 1994, principally as a result of reduced
amortization of pre-opening expenses due to the timing of opening of
restaurants.
General and administrative expenses increased as a percentage of revenues
to 7.5% in 1995 from 7.2% in 1994. This increase reflected compensation expense
associated with the addition of senior management and other key corporate
positions, as well as expenses related to the improvement of management
information systems, all of which were incurred to help implement the Company's
growth strategy.
In 1995, the Company recorded a $932,000 provision for the write-down of
the fixed assets and rent liability for one restaurant that differed from the Il
Fornaio restaurant concept.
In 1995, the Company recorded an income tax benefit of $2.7 million,
reflecting the recognition of various deductible deferred assets, including
prior years' net operating loss carryforwards, business tax credits and various
temporary accounting differences.
17
<PAGE> 19
Quarterly Results
The following tables set forth certain unaudited financial information by
quarter for 1995 and 1996. This quarterly information has been prepared on a
consistent basis with the audited financial statements and, in the opinion of
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information for the
periods presented. The Company's quarterly operating results may fluctuate
significantly as a result of a variety of factors, and operating results for any
quarter are not necessarily indicative of results for any future period. See
"Risk Factors -- Fluctuations in Operating Results."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 29, 1996
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $11,926 $13,790 $13,254 $15,170 $14,214 $16,010 $15,172 $15,356
Costs and expenses:
Cost of sales................... 2,760 3,222 3,123 3,667 3,426 3,847 3,735 3,784
Operating expenses.............. 7,009 7,825 7,674 8,528 8,451 9,118 8,748 8,835
Depreciation and amortization... 726 832 855 891 917 1,017 995 931
------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............... 10,495 11,879 11,652 13,086 12,794 13,982 13,478 13,550
------- ------- ------- ------- ------- ------- ------- -------
Restaurant and bakery operating
income.......................... 1,431 1,911 1,602 2,084 1,420 2,028 1,694 1,806
Other (income) expenses:
General and administrative
expenses...................... 885 979 968 1,251 1,125 1,198 1,203 1,198
Provision for store closures.... -- -- -- 932 -- -- -- --
Interest (income) expense,
net........................... 3 (9) (14) (39) (27) (17) (43) (40)
------- ------- ------- ------- ------- ------- ------- -------
Total other expenses
(net).................. 888 970 954 2,144 1,098 1,181 1,160 1,158
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before provision
(benefit) for income taxes...... 543 941 648 (60) 322 847 534 648
Provision (benefit) for income
taxes........................... 109 185 266 (2,992) 132 344 222 200
------- ------- ------- ------- ------- ------- ------- -------
Net income........................ $ 434 $ 756 $ 382 $ 2,932 $ 190 $ 503 $ 312 $ 448
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
CLOSURE OF NON-CORE OPERATIONS
As a result of a strategic review conducted in 1993, the Company decided to
dispose of a free-standing retail bakery located in Los Angeles and restaurants
located in San Francisco and Costa Mesa, California that differed from the Il
Fornaio restaurant concept. In 1993, in connection with the proposed disposition
of the retail bakery and Costa Mesa restaurant, the Company recorded a $2.3
million provision to cover anticipated write-offs and other expenses associated
with these dispositions. Thereafter, the Company actively sought to dispose of
both of these operations. The free-standing retail bakery was disposed of in
January 1995 and the Company expects to dispose of the Costa Mesa restaurant
during the second quarter of 1997. The results of operations of these two units
have not been included in the Company's statement of operations subsequent to
the end of 1993, and the Company expects that the remaining reserve is adequate
to cover all expenses that will be associated with the disposition of the Costa
Mesa restaurant.
In 1993, the net assets of the remaining restaurant designated for
disposition, the Etrusca restaurant located in San Francisco, were sold for cash
and a promissory note secured by the assets sold. In 1995, following a default
by the buyer, the Company reclaimed the remaining assets and once again became
primarily obligated on the lease. In connection therewith, the Company recorded
a provision of $932,000 to write off the remaining balance of the assets and
recognize the expenses expected to be incurred in connection with the
redisposition of this facility, currently expected to occur in the second
quarter of 1997. The Company believes that this reserve is adequate.
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<PAGE> 20
In July 1996, the Company disposed of its four Northern California
free-standing retail bakeries and, in February 1997, sold the balance of its
free-standing retail bakeries, all of which were located in Southern California.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its capital requirements over the past three years
with cash flow from operations. The Company's cash flow from operations was $5.1
million, $4.9 million and $5.0 million for 1994, 1995 and 1996, respectively.
The Company also has a credit agreement which provides for a $3.0 million line
of credit. The Company had no borrowings outstanding under the credit line
during the three-year period.
Net cash used in financing activities in 1994, 1995 and 1996 was $1.3
million, $702,000 and $400,000, respectively. In all three years, cash used in
financing activities related primarily to repayment of a term loan held by a
commercial bank. This loan, which had a balance of $150,000 as of December 29,
1996, was repaid in full as of March 1, 1997.
Capital expenditures were $971,000, $4.8 million and $5.8 million for 1994,
1995 and 1996, respectively. To date, the Company has opened one restaurant and
one wholesale bakery in 1997 and intends to open one additional restaurant and
to complete a major renovation of one of its existing restaurants in 1997. Total
capital expenditures are expected to be approximately $6.0 million in 1997. The
Company currently plans to open three restaurants in 1998. The Company expects
that most of its planned future restaurants will require a total investment by
the Company per restaurant, net of anticipated landlord contributions, of
approximately $1.7 million, with additional average pre-opening costs per
restaurant of approximately $200,000.
The Company's future capital requirements and the adequacy of its available
funds will depend on many factors, including the pace of expansion, the size of
restaurants developed and the nature of the arrangements negotiated with
landlords. Although no assurance can be given, the Company believes that
anticipated cash flow from operations, borrowings under the credit agreement and
proceeds from this offering will be sufficient to fund its capital requirements,
including planned expansion and ongoing maintenance and renovation of existing
restaurants, at least through 1998. In the event that additional capital is
required, the Company may seek to raise that capital through public or private
equity or debt financings. Future capital funding transactions may result in
dilution to purchasers in this offering. There can be no assurance that such
capital will be available on favorable terms, if at all.
INFLATION
The primary inflationary factors affecting the Company's operations are
food and labor costs. A large number of the Company's restaurant personnel are
paid at rates based on the applicable minimum wage, and increases in the minimum
wage directly affect the Company's labor costs. Minimum wage increases in 1996
led the Company to introduce its first menu price increase in three years. To
date, inflation has not had a material impact on the Company's results of
operations. See "Risk Factors -- Changes in Food and Labor Costs."
19
<PAGE> 21
BUSINESS
Il Fornaio owns and operates 13 full-service, white tablecloth Italian
restaurants serving creatively prepared, premium quality Italian cuisine based
on authentic regional recipes. The Company's restaurants offer an extensive
menu, featuring house-made and imported pasta, poultry and game from a
wood-fired rotisserie, meat and fresh fish from a charcoal grill, pizza from a
wood-burning oven, soups, salads and desserts. The Il Fornaio dining experience
is complemented by fresh, hand-made breads, pastries and other baked goods that
are produced in the Company's restaurants and five wholesale bakeries. Il
Fornaio's wholesale bakeries also sell baked goods to quality grocery stores,
specialty retailers, hotels and other fine restaurants. In addition, the Company
operates a retail market in each restaurant, which sells baked goods, prepared
foods and a variety of Il Fornaio-brand products, allowing guests to recreate
the Il Fornaio dining experience at home.
BACKGROUND
Il Fornaio, which means "the baker" in Italian, can trace its roots to a
bakers' school founded outside of Milan, Italy in the early 1970s by Carlo
Veggetti. In order to preserve the disappearing craft of Italian artisan baking,
Mr. Veggetti and his family gathered centuries-old recipes from every region in
Italy. The Il Fornaio baking school taught bakers these traditional recipes and
methods and provided them with the materials necessary to open their own
bakeries under the Il Fornaio name. Today, there are more than 2,500 Il Fornaio
bakeries in Italy.
The Il Fornaio bakery concept was brought to the United States in 1980 when
the Company acquired the exclusive rights in the United States to the Il Fornaio
trademark, as well as to certain recipes which continue to be central to the Il
Fornaio restaurant and bakery concept. The Company has no other formal
affiliation with Il Fornaio in Italy, although it has discussions from time to
time with the Veggetti family regarding baking techniques and equipment and the
potential hiring of employees from Italy. In addition, Mr. Veggetti holds
approximately 2% of the Company's outstanding equity. From 1980 to 1986, the
Company opened a number of Il Fornaio free-standing retail and wholesale
bakeries in California.
In 1987, Laurence B. Mindel joined Il Fornaio as Chairman, Chief Executive
Officer and President. In 1970, Mr. Mindel co-founded Spectrum Foods, which
created and operated innovative and successful restaurants throughout
California, including Chianti, MacArthur Park, Harry's Bar and American Grill,
Ciao, Prego and Guaymas, all of which remain in operation today. Upon the
acquisition of Spectrum Foods by Saga Corporation in 1985, Mr. Mindel became the
President of Saga Corporation's Restaurant Group, which included Stuart
Anderson's Black Angus, Velvet Turtle, Spoons, Hotel Food Services and the newly
acquired Spectrum Foods restaurants.
Mr. Mindel reorganized the Company and developed a new business strategy
which, in addition to the Company's free-standing retail bakeries, focused on
the development of full-service restaurants that showcased the baked goods
produced by the Company's bakeries and offered a varied menu of premium quality
Italian food and beverages. This strategy was predicated on the development of
an Il Fornaio brand based on
Il Fornaio's authentic Italian heritage. The Company decided to incorporate a
retail market into the design of each location to allow guests to purchase the
Company's baked goods, prepared foods and other branded products for consumption
at home. In 1987, the Company opened its first full-service restaurant in Corte
Madera, California and, through the end of 1992, had expanded to include nine
full-service restaurants in California.
In 1993, management analyzed the economics of each of the Company's
business units and established criteria for future growth. Based on this
analysis, management developed a strategic plan to focus the Company's
operations on Il Fornaio restaurants and wholesale bakeries. The plan provided
for the disposition of two restaurants that differed from the Il Fornaio
restaurant concept. Management also concluded that, while the Company would
continue to evaluate its existing free-standing retail bakeries, no additional
free-standing retail bakeries would be developed.
20
<PAGE> 22
In 1995, Michael J. Hislop joined the Company as President and Chief
Operating Officer. From 1991 to 1995, Mr. Hislop had served as the Chairman and
Chief Executive Officer of Chevy's Mexican Restaurants, guiding Chevy's
expansion from 17 to 33 units prior to the sale of Chevy's to PepsiCo in 1993.
Mr. Hislop continued to expand Chevy's as part of PepsiCo's full-service
restaurant division, entering new geographic markets and increasing the number
of restaurants to 63, prior to joining Il Fornaio in July 1995.
In 1995, Mr. Hislop implemented a number of new strategic initiatives to
accelerate Il Fornaio's restaurant growth and facilitate its expansion into new
geographic markets. Mr. Hislop also took steps to develop the Company's
infrastructure and to focus on increasing sales and guest visit frequency by
emphasizing service and implementing new marketing and training programs. In
addition, the decision was made to dispose of the Company's free-standing retail
bakery operations. These initiatives contributed to comparable restaurant sales
increases of 4.8% in 1996 and 8.7% for the first two months of 1997. From 1995
through the first quarter of 1997, the Company opened four new full-service
restaurants, two in California and one each in Portland and Las Vegas, as well
as a large free-standing wholesale bakery in Burlingame, California.
IL FORNAIO CONCEPT AND STRATEGY
The Company's objectives are to develop and operate full-service
restaurants and bakeries that offer guests the most authentic Italian dining
experience available outside of Italy and to establish a brand identity that
provides a competitive advantage in every market in which the Company operates.
To achieve these objectives, the Company has developed the following concept and
strategy:
Offer Premium Quality, Authentic Regional Italian Cuisine. Il Fornaio
seeks to differentiate its restaurants from other restaurants in the Italian
food segment by offering creatively prepared, premium quality Italian cuisine
based on authentic regional recipes. The core menu served at both lunch and
dinner consists of a variety of dishes, including house-made and imported pasta,
poultry and game from a wood-fired rotisserie, meat and fresh fish from a
charcoal grill, pizza from a wood-burning oven, soups, salads and desserts.
Native-born Italian chefs develop all of the core menu items, which vary
depending on the seasonal availability of raw ingredients. The Company's chefs
also develop special menus each month based on the local cuisine and culinary
style of one of Italy's 20 geographic regions as part of the Company's Festa
Regionale marketing program. Hand-made, preservative-free Il Fornaio baked
goods, based on centuries-old regional Italian recipes, are provided by Il
Fornaio's bakeries for use in a variety of menu items. Fresh breads and rolls
are served with each meal, providing an authentic and high quality complement to
the dining experience. Il Fornaio's restaurants have received numerous awards
and commendations, including "Best Italian Restaurant" in the San Francisco Bay
Area for five consecutive years and "Best Restaurant in Santa Clara County" for
three consecutive years as selected by readers of San Francisco Focus magazine.
Build Brand Awareness. The Company believes that its restaurants,
wholesale bakeries and retail markets work together to reinforce its image as a
provider of high quality, authentic Italian food, enhance Il Fornaio's brand
image and reputation and attract guests over a wide variety of occasions for
dining out or dining in. The Company's wholesale bakeries supply the same fresh,
award-winning breads and other baked goods served at the Company's restaurants
to quality grocery stores, specialty retailers, hotels and other fine
restaurants as well as to retail markets within Il Fornaio restaurants. The
restaurants' retail markets offer prepared foods and Il Fornaio brand items,
including fresh baked goods, oakwood-roasted coffee, pasta, risotto, extra
virgin olive oil and balsamic vinegar imported from Modena, Italy, enabling
guests to recreate the Il Fornaio dining experience at home. The retail markets
also offer an Il Fornaio-brand Chianti Classico from a Tuscan vineyard that was
originally planted in the 11th century and is designated for Il Fornaio's
exclusive use. The Company has implemented a number of marketing initiatives
designed to build brand awareness, including monthly mailings of its Festa
Regionale menus, food and wine tastings, baking classes, Italian culture
seminars and the Passaporto program, which rewards frequent guests with
complimentary menu items and commemorative plates.
Create a Distinctive Authentic Italian Atmosphere. The Company seeks to
create a distinctive authentic Italian atmosphere with restaurant designs that
are unique to each location. The restaurants' sophisticated, yet
21
<PAGE> 23
informal and friendly atmosphere is intended to be suitable for a variety of
meal occasions. Exhibition kitchens with wood-fired rotisseries, charcoal grills
and wood-burning pizza ovens are in full display of the guests and create
appealing cooking aromas that reinforce the guests' perceptions of quality,
freshness and authenticity. Retail markets located at the entrance to each
restaurant are designed to provide an inviting initial impression as well as to
enhance the perception of an authentic Italian dining experience through the
prominent display of Il Fornaio's Italian food. Design elements, which may
include terracotta or European slate floors, marble bars, mahogany trim, outdoor
piazzas, hand-painted ceilings and fine art, are selected to evoke the charm and
elegance of a memorable dining experience in Italy. Il Fornaio's Sacramento
restaurant was awarded the grand prize for best new restaurant design worldwide
by Hospitality Design magazine.
Focus on Five Star Service. The Company believes that its emphasis on
service through the implementation of its Five Star Service Program has been an
important factor in its success. The Company's Five Star Service Program,
designed by the Company's employees, defines Il Fornaio's high standards for
food quality, service and cleanliness. The Company has invested significant
resources in the training of its service personnel and staffs each restaurant
with an experienced management team to ensure attentive guest service and
consistent food quality. Through employee and guest questionnaires, the Company
receives valuable feedback and implements measures designed to reinforce its
commitment to outstanding service and guest satisfaction. Results of the Five
Star Service Program are considered in the evaluation and advancement of
restaurant management.
Foster a Strong Corporate Culture. The Company believes that qualified
employees are critical to its success. The Company believes that, by providing
extensive training, attractive compensation and significant opportunities for
employee feedback and advancement, it fosters a strong corporate culture that
helps to attract and retain highly qualified employees. In 1995, the Company
instituted a Partnership Program, which provides equity participation to chefs
and restaurant managers. The Company also provides medical, dental and other
benefits to hourly employees and believes that the availability of these
benefits contributes to an employee turnover rate that is below the industry
average.
Provide an Attractive Price-Value Relationship. The Company believes that
its restaurants provide guests with excellent value by offering high quality
authentic Italian food, a distinctive atmosphere and superior service, all for
an average check per guest in 1996 of $20.93 (including alcohol). As a result,
the Company's restaurants attract a broad variety of guests who desire a more
authentic Italian experience than may be available from other restaurants in the
Italian food segment, without a substantially higher cost.
UNIT ECONOMICS
For 1996, the Company's 10 restaurants that qualified as comparable
restaurants had average revenues of approximately $4.5 million, average
operating income of approximately $708,000, or 15.9% of restaurant sales, and
average cash flow of approximately $884,000, or 19.9% of restaurant sales. Cash
flow represents operating income before depreciation and amortization. The
Company's restaurants range in size from 5,000 square feet to 10,900 square
feet. Since 1991, the Company's total investment per restaurant, net of landlord
contributions, has averaged approximately $1.7 million, with additional average
pre-opening costs per restaurant of approximately $200,000. The Company expects
that most of its planned future restaurants will range in size from 7,000 to
10,000 square feet and that its total investment and pre-opening costs per
restaurant will be similar to these historical averages.
LOCATIONS
Il Fornaio owns and operates 13 full-service, white tablecloth Italian
restaurants and five wholesale bakeries. Four of these wholesale bakeries are
located adjacent to certain of the Company's restaurants and provide fresh
breads, pastries and other baked goods to the restaurants, as well as to a
variety of quality grocery stores, specialty retailers, hotels and other fine
restaurants. All restaurants and wholesale accounts in the San Francisco Bay
Area are supplied by the Company's recently opened 12,000-square foot wholesale
bakery located in Burlingame, California. Restaurants that cannot be supplied by
one of the
22
<PAGE> 24
Company's wholesale bakeries are designed with an in-house bakery. All of the
restaurants feature a retail market.
The following table provides information about the Company's current and
planned operations.
CURRENT OPERATIONS
<TABLE>
<CAPTION>
YEAR SIZE NUMBER OF
LOCATION OPENED (SQ. FT.) SEATS(1)
- --------------------------------------------- ------ --------- ---------
<S> <C> <C> <C>
Restaurants
Corte Madera, CA (2)....................... 1987 5,600 104
San Francisco, CA.......................... 1988 7,800 148
Del Mar, CA................................ 1989 5,700 110
Palo Alto, CA.............................. 1989 7,300 136
Irvine, CA................................. 1991 9,600 220
Beverly Hills, CA.......................... 1992 5,000 76
San Jose, CA............................... 1992 8,000 171
Pasadena, CA............................... 1993 8,000 152
Sacramento, CA............................. 1993 7,900 158
Burlingame, CA............................. 1995 9,200 185
Carmel, CA................................. 1995 7,500 120
Portland, OR............................... 1996 7,300 170
Las Vegas, NV.............................. 1997 10,900 218
Wholesale Bakeries
Beverly Hills, CA.......................... 1983 1,500
Irvine, CA................................. 1991 3,400
Pasadena, CA............................... 1993 3,400
Sacramento, CA............................. 1993 2,500
Burlingame, CA(3).......................... 1997 12,000
</TABLE>
PLANNED RESTAURANTS (4)
<TABLE>
<CAPTION>
SCHEDULED SIZE
LOCATION OPENING (SQ. FT.)
- ---------------------------------------------------- ------------------- ---------
<S> <C> <C>
Denver, CO.......................................... Fourth Quarter 1997 9,200
Santa Monica, CA.................................... 1998 7,500
Danville, CA........................................ 1998 8,200
Seattle, WA......................................... 1999 13,200
</TABLE>
- ---------------
(1) Excludes patio seating.
(2) In February 1997, the Company's Corte Madera restaurant closed for a
significant renovation and is expected to reopen in May 1997.
(3) In connection with opening the Burlingame wholesale bakery, the Company
closed its wholesale bakeries in San Francisco and Palo Alto.
(4) Leases have been executed for each identified location. The Company
anticipates opening one additional location in 1998 for which a lease has
not been signed.
EXPANSION STRATEGY AND SITE SELECTION
The Company intends to continue to expand its operations by addressing both
existing and new geographic markets. The Company plans to open one additional
restaurant in 1997 to be located in Denver,
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<PAGE> 25
and construction has commenced at this site. In addition, the Company is
currently renovating its Corte Madera restaurant, which is expected to reopen in
May 1997. The Company currently plans to open three new restaurants in 1998,
including restaurants in Santa Monica and Danville, California, for which leases
have been signed.
The Company believes that the location of each restaurant is critical to
its long-term success and devotes significant effort to finding appropriate
sites. The Company's site selection strategy is to locate restaurants in
affluent urban and suburban areas, often located near or on main traffic routes.
The Company takes into account a variety of local factors, including demand and
consumer preferences, competition, availability of suitable locations and
personnel, local demographics and household income levels, as well as specific
site characteristics, such as visibility, accessibility and traffic volume.
Senior management selects each restaurant site. The flexibility of the Il
Fornaio concept enables the Company to develop successful restaurants in a
variety of locations, including residential neighborhoods, shopping centers,
office buildings and hotels.
The Company currently expects that most of its planned future restaurants
will range in size from 7,000 to 10,000 square feet. The Company's total
investment per restaurant, net of anticipated landlord contributions, is
estimated to be approximately $1.7 million, with additional average pre-opening
costs per restaurant of approximately $200,000.
The Company's success in implementing its expansion plans will depend, in
each case, on the Company's ability to effectively address a number of risks.
There can be no assurance that the Company will be able to open all of its new
operations on a timely basis, if at all, or, if opened, that those operations
will be operated profitably. See "Risk Factors."
MENU
The Company's restaurants feature creatively prepared, premium quality
Italian food based on authentic regional recipes. All recipes are created by
native-born Italian chefs. As guests are seated, Il Fornaio breads and rolls are
placed on the table and served with Il Fornaio olive oil. Guests may then select
from a menu consisting of a variety of dishes, including house-made and imported
pasta, poultry and game from a wood-fired rotisserie, meat and fresh fish from a
charcoal grill, pizza from a wood-burning oven, soups, salads and desserts. The
core menu includes several flavorful low-salt and low-fat selections oriented
toward health- or diet-conscious guests. The restaurants also offer Italian
appetizers, creative desserts prepared on site, full liquor service and an
award-winning, extensive wine list emphasizing Italian and California varietals.
The wine list includes an Il Fornaio-brand Chianti Classico from a Tuscan
vineyard that was originally planted in the 11th century and is designated for
Il Fornaio's exclusive use. The core menu is virtually identical at most of its
restaurants. A daily insert, which varies by restaurant, lists specials
developed by chefs at each restaurant, featuring creative dishes inspired by
seasonal availability of fresh local produce, fish, meats and game. Il Fornaio's
restaurants have received numerous awards and commendations, including "Best
Italian Restaurant" in the San Francisco Bay Area for five consecutive years and
"Best Restaurant in Santa Clara County" for three consecutive years as selected
by readers of San Francisco Focus magazine.
In addition, for two weeks of every month, the restaurants feature the
Festa Regionale, innovative menus developed, on a rotating basis, by one of Il
Fornaio's Chef-Partners, based on authentic recipes of one of Italy's 20
geographic regions. Each menu is intended to capture both the unique flavors and
culinary style that characterize that region's local cuisine and includes menu
items based on produce, cheese, meat, poultry and seafood indigenous to the
region. Selected wines of the region are also offered to complement menu items.
The most popular menu items developed as part of Festa Regionale are frequently
added to the core menu. During 1996, revenues from the Festa Regionale menu
accounted for, on average, approximately 31% of total dinner sales (including
wine) during the periods in which the Festa Regionale menu was offered.
Il Fornaio's bakeries supply the restaurants with over 30 varieties of
breads and rolls, based on centuries-old, regional Italian recipes. Breads
include ciabatta (a long, flat loaf with a porous interior and crunchy crust),
panmarino (a dome-shaped loaf infused with rosemary and sprinkled with coarse
sea salt), filone (a classic Italian white bread with a light crust and soft
interior), pagnotta (a round, rustic loaf with a soft interior), pane all'uva (a
rich, moist bread filled with golden raisins), pane alle olive (a soft-textured
bread
24
<PAGE> 26
studded with green olives), and foccacia (a flat bread brushed with olive oil
and finished with a variety of fresh toppings). Pastries include cornetti
(croissants) and cannelle (cinnamon twists). The Company's authentic Italian
artisan breads have received numerous awards and commendations.
The Company's average check per guest in 1996 at its restaurants, including
alcoholic beverages, was $20.93. Four of the restaurants also offer breakfast
service which, during 1996, accounted for approximately 3% of restaurant
revenues. During the same period, wine sales represented approximately 18% of
restaurant revenues, while other alcoholic beverages accounted for approximately
6% of restaurant revenues.
Take-out prepared food and retail brand items accounted for approximately
10% of restaurant revenues in 1996. The restaurants' retail markets enable
guests to recreate the Il Fornaio dining experience at home by offering prepared
foods, including assorted cold pasta and risotto salads, Il Fornaio breads,
green salads, whole roasted chickens, stuffed artichokes, individual pizzette
and assorted Italian sandwiches, as well as Il Fornaio brand retail items,
including oakwood-roasted coffee, pasta, risotto, extra virgin olive oil,
balsamic vinegar imported from Modena, Italy, and Chianti Classico.
DECOR AND ATMOSPHERE
The Company seeks to create a distinctive, authentic Italian atmosphere
with restaurant designs that are unique to each location. The restaurants'
sophisticated, yet informal and friendly atmosphere is intended to be suitable
for a variety of meal occasions. Exhibition kitchens with wood-fired
rotisseries, charcoal grills and wood-burning pizza ovens in full display of the
guests create appealing cooking aromas that reinforce the guests' perceptions of
quality, freshness and authenticity. Retail markets located at the entrance to
each restaurant are designed to provide an inviting initial impression as well
as to enhance the perception of an authentic Italian dining experience through
the prominent display of Il Fornaio's Italian food. Design elements, which may
include terracotta or European slate floors, marble bars, mahogany trim,
hand-painted ceilings and fine art, are selected to evoke the charm and elegance
of a memorable dining experience in Italy. The tables are a mix of booths and
free-standing tables with chairs. White tablecloths and Italian flatware dress
the tables. Service is intended to be professional and friendly but not
intrusive. At each restaurant, servers in white cotton jackets with "Il Fornaio"
embroidered on the lapels take orders and deliver food. In addition to table
service, food is available at an indoor or outdoor liquor/coffee bar, as well as
at counter seats overlooking the large pizza oven and open kitchen. The
restaurants range in size from approximately 5,000 to 10,900 square feet with
indoor seating ranging from 76 to 220 guests. Outdoor piazzas provide additional
seating during warmer weather. Il Fornaio's Sacramento restaurant was awarded
the grand prize for best new restaurant design worldwide by Hospitality Design
magazine.
OPERATIONS
The Company seeks to create a fine dining experience through the careful
selection, training and supervision of personnel. The staff of a typical
restaurant consists of a Managing Partner, two or three managers, a
Chef-Partner, two or three sous chefs and approximately 65 to 125 hourly
employees, many of whom work part-time. The Managing Partner of each restaurant
is responsible for the day-to-day operation of that restaurant, including
hiring, training and development of personnel, as well as operating results. The
Chef-Partner is responsible for product quality, food costs and kitchen labor
costs. The Company requires its Managing Partners and Chef-Partners to have
significant experience in the full-service restaurant industry.
Comprehensive management manuals exist to ensure consistency in all facets
of restaurant operations, including food, service, safety and accounting.
Working in concert with Managing Partners and Chef-Partners, the Company's
senior management defines operations and performance objectives for each
restaurant and monitors implementation. The Company maintains quality and
consistency in its restaurants through its Five Star Service Program, which
establishes standards relating to food and beverage preparation, maintenance of
facilities and conduct of personnel. A restaurant survey firm regularly visits
the Company's restaurants and reports to senior management on the effectiveness
of the Five Star Service Program. In addition to the Five Star Service Program,
the Company's senior management regularly visit each restaurant and bakery to
ensure adherence to the Company's concept, strategy and standards of quality in
all aspects of restaurant operations.
25
<PAGE> 27
Senior management also meets once a month with Managing Partners and
Chef-Partners to discuss operational, marketing and financial issues, and to
review the Five Star Service Program.
The Company has implemented a comprehensive compensation and benefits
package in order to attract and retain highly qualified personnel. The Company
has a Partnership Program, which provides equity participation for Managing
Partners and Chef-Partners in the form of stock options, to encourage commitment
to the long-term success of the restaurants and the Company. The Company
believes that this equity participation differentiates the compensation package
from that of many of its competitors. The Company's bonus program is designed to
reward the restaurant management team for achievement of superior operating
results, and all members of management at the restaurant level are eligible to
participate. The bonus may provide a large percentage of management's total
compensation.
The Company has a comprehensive four-to-six week training program which all
operating management personnel are required to complete. The program emphasizes
the Company's operating strategy, philosophy, procedures and standards. The
training encompasses all aspects of both restaurant and kitchen management. As
part of the training program, a series of written tests is administered to
evaluate the trainee's progress. The trainee must achieve a certain score to
progress to the next section of the program. This training program is
administered by the Company's Director of Training in conjunction with the Vice
President of Operations and Executive Chef. The Managing Partners and
Chef-Partners are responsible for selecting and training employees for each
restaurant. The training period for new hourly employees lasts approximately one
to two weeks and utilizes training manuals and seminars developed by the
Company's training department. To foster a strong corporate culture and
encourage employee commitment and enthusiasm, management regularly solicits
employee suggestions concerning Company operations through extensive employee
feedback surveys.
WHOLESALE BAKERIES
The Company currently has five wholesale bakeries, four of which range in
size from 1,500 to 3,400 square feet and are located adjacent to certain of the
Company's restaurants. Bakery products are sold to quality grocery stores,
specialty retailers, hotels and other fine restaurants, in addition to the
Company's own restaurants. During 1996, the Company's wholesale bakeries
accounted for approximately 10% of gross revenues.
In March 1997, the Company commenced operation of a free-standing
12,000-square foot wholesale bakery, located in Burlingame, California. This
facility provides freshly baked goods to all restaurants and wholesale customers
throughout the San Francisco Bay Area. This bakery is designed to provide
efficiencies in production (both labor and ingredients) and distribution, as
well as the capacity to substantially grow this part of Il Fornaio's business.
This facility permits the Company to employ improved processes, which enhance
quality and consistency, while maintaining the Il Fornaio commitment to
preservative-free, hand-made authentic Italian breads. The Company's total
investment, net of landlord contributions, to construct this bakery, including
leasehold improvements, machinery and equipment, was approximately $800,000.
The Company's bakeries produce over 30 varieties of breads and rolls based
on regional Italian recipes, as well as a wide assortment of Italian cookies,
cakes and pastries. Recipes are standardized to ensure consistency. The
Company's bread doughs, based on centuries-old recipes, are mixed and then
fermented for up to 20 hours to increase flavor. Each loaf is hand-formed,
proofed, and baked in European deck ovens that eject steam around the bread at
timed intervals. The Company believes that these processes contribute to a
characteristically irregular-shaped and crusty bread. Bakers create a wide
variety of breads by varying proportions of ingredients, length and number of
risings, temperature of the oven and size and shape of the loaves. Some recipes
include fresh aromatic herbs and spices, such as rosemary or fennel, or other
ingredients, such as parmesan cheese, raisins, nuts and sesame seeds. To
maintain the high quality of its bakery products, the Company maintains strict
criteria for its ingredients.
The management staff of a typical wholesale bakery consists of a production
manager, an assistant production manager and a business manager. A wholesale
bakery employs 10 to 45 hourly employees, depending on the bakery's size. The
production manager carries responsibility for day-to-day results of the
wholesale bakery. Each production manager is required to have significant bread
baking experience in addition
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<PAGE> 28
to other general baking and management skills. Both the production manager and
the assistant production manager are also trained in the Company's systems,
recipes and procedures. The business manager is responsible for all accounting,
including the preparation of sales reports, which are electronically transmitted
to the corporate office on a daily basis. The business manager is also
responsible for customer service and distribution. Monthly financial statements
are prepared by the corporate office and reviewed with the wholesale bakery
management team by senior management. The Director of Wholesale Bakeries spends
significant time at each wholesale bakery, monitoring compliance with recipes
and procedures.
The Company maintains a fleet of vehicles for distribution of its products
to wholesale customers and Company locations. A majority of the products are
packed and delivered in the early morning to ensure timely delivery, and a
second delivery is normally scheduled for Company locations to provide
fresh-baked products for late afternoon and evening sale and consumption.
Restaurants that cannot be supplied by one of the Company's wholesale bakeries
are designed with in-house bakeries.
MARKETING
The Company believes that providing an authentic Italian dining experience
by offering quality food and bakery products, distinctive decor, Five Star
Service and an attractive price-value relationship is the most effective
approach to attracting new and repeat guests. Accordingly, Il Fornaio has relied
primarily on reputation, local reviews and awards, and word of mouth to promote
its restaurants and bakeries in each community in which it operates. The Company
has also implemented a program of marketing and public relations activities
designed to create awareness of the Il Fornaio name, encourage guests to
associate that name with authentic, high-quality Italian food and increase the
frequency of return visits to Il Fornaio.
To encourage repeat patronage, the Company has developed the Festa
Regionale program. As part of this program, innovative menus are developed
monthly by Chef-Partners, on a rotating basis, based on authentic recipes from
one of Italy's 20 geographic regions. Menu items are accompanied by selected
wines from the region and a regional bread is provided by the Company's
bakeries. Mailers describing each month's Festa Regionale offerings are sent
monthly to over 80,000 households identified by the Company through customer
mailing lists or geographic proximity to an Il Fornaio restaurant. The
Passaporto program also encourages frequent dining at the Company's restaurants
by rewarding those who dine in each month of the six-month program with a
commemorative plate. In addition, guests may receive a complimentary item, such
as a loaf of Il Fornaio bread or a glass of wine, from the regional menu.
The Company has developed a program that focuses marketing efforts on each
restaurant's immediate neighborhood. Under this program, each restaurant is
responsible for the execution of an annual Neighborhood Marketing Plan, which
includes initiatives to build awareness, sales and frequency from the immediate
trade area, typically defined as a one-mile radius around that location. These
initiatives include both on-site and off-site activities, such as large party,
special event and meeting planning promotion, bread and baked goods classes,
Italian culture seminars, food and wine tastings, anniversary parties, community
group fund-raisers as well as programs designed to encourage concierges from
local hotels and office buildings to recommend Il Fornaio to their clients.
Restaurant management, in conjunction with the Director of Neighborhood
Marketing, develops a calendar of events based on quarterly and annual sales
objectives. Each location is provided with a comprehensive Neighborhood
Marketing Resource Guide and Neighborhood Marketing Calendar designed to assist
management and staff with event planning, sales building strategies and guest
communication guidance. These programs and initiatives are specifically tailored
to the food service needs of the current and potential guests that are employed
or reside in the immediate trade areas. Other public relations activities
include special events, such as chef demonstrations at local stores, charitable
donations and participation in community activities, such as fundraisers for
schools, hospitals and other non-profit organizations.
MANAGEMENT INFORMATION SYSTEMS
The Company has developed and recently implemented an integrated management
information system that is utilized in all of its restaurants and bakeries. This
system currently includes a computerized point-of-
27
<PAGE> 29
sale system in its restaurant operations and a proprietary accounts receivable
system in its wholesale bakeries. The restaurant point-of-sale system
facilitates the movement of guest food and beverage orders between the guest
areas and kitchen and bar, controls cash, handles credit card authorizations and
provides management with revenue data. The integrated system electronically
transmits sales and guest counts to Company headquarters on a daily basis.
Additionally, the Company has developed a proprietary back-office system for
processing daily and weekly paperwork (sales, accounts payable, labor and
inventory). This system generates a weekly operating statement, which compares
both weekly and month-to-date results versus budget. The Company is also testing
a new computerized time management system which calculates the time worked by
each employee, allows management to gather data and schedule labor hours and
produces payroll reports. This system is also integrated with the Company's
point-of-sale system, allowing management to review labor compared with sales on
a real-time basis.
The Company has recently converted from a proprietary accounting system to
a scalable, relational database. The Company's automated restaurant and bakery
point-of-sale, time management and unit accounting system provides data for
posting directly to the Company's centralized system. The centralized database
provides flexibility in generating various management reports against
predetermined operating budgets. Such reporting includes (i) weekly reports of
revenues, cost of revenue and selected controllable operating budgets, (ii)
detailed monthly restaurant and bakery-level performance of revenues and
expenses and (iii) monthly reports of administrative expense performance. The
system allows management to review the mix of menu items in order to better
match guest preference and maximize profitability. Detailed monthly profit and
loss statements are compiled at the corporate office and reviewed with
restaurant and bakery management every month by senior management.
PURCHASING
The Company seeks to obtain ingredients of high quality at competitive
prices from reliable sources. To ensure freshness and quality, maintain low
inventory levels and facilitate the unique preparation of menu items, the
Company purchases most of its ingredients in an unprocessed state. In order to
maximize operating efficiencies and to provide the freshest ingredients for its
food products, the management team of each restaurant and bakery determines the
daily quantities of food items needed and orders accordingly. The Company's
purchasing department seeks to obtain the lowest possible prices available to
the Company by negotiating bulk purchasing contracts for a number of the
ingredients utilized by the restaurants and bakeries. Ingredients and supplies
are shipped directly to the restaurant or bakery, as the Company does not
maintain a central food product warehouse or commissary.
COMPETITION
The restaurant and bakery businesses are each intensely competitive with
respect to food quality, price-value relationships, ambiance, service and
location, and many existing restaurants and bakeries compete with the Company at
each of its locations. There are many well-established competitors with
substantially greater financial, marketing, personnel and other resources than
the Company. In addition, many of the Company's competitors are well established
in the markets where the Company's operations are, or in which they may be,
located. While the Company believes that its restaurants and bakeries are
distinctive in design and operating concept, other companies may develop
restaurants and bakeries that operate with similar concepts.
The restaurant business is often affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends, consumer
confidence in the economy, discretionary spending priorities, the weather,
tourist travel, traffic patterns, and the type, number and location of competing
restaurants. Changes in these factors could have a material adverse effect on
the Company's business, financial condition and results of operations.
PROPERTIES
All of the Company's operations are located in leased facilities. Current
restaurant and bakery leases have expiration dates ranging from 2000 to 2016,
with the majority of the leases providing for five-year options to
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<PAGE> 30
renew for at least one additional term. All of the Company's leases provide for
a minimum annual rent, and most leases require additional percentage rent based
on sales volume in excess of minimum levels at the particular location. Some of
the leases require the Company to pay the costs of insurance, taxes and a
portion of the lessors' operating costs. The Company's lease for its Las Vegas
restaurant contains certain termination and relocation provisions. See "Risk
Factors -- Long-Term, Non-Cancelable Leases; Termination Provisions."
The Company does not anticipate any difficulties renewing existing leases
as they expire. However, there can be no assurance that the Company will be able
to renew any leases on favorable terms, if at all. Inability of the Company to
renew a particular lease or closure of a facility subject to a long-term
non-cancelable lease could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's executive offices are located in approximately 6,850 square
feet of leased space in San Francisco, California under a lease expiring in May
1997.
EMPLOYEES
At February 28, 1997, the Company employed approximately 1,732 persons, 37
of whom were executive office personnel, 158 of whom were unit management
personnel and the remainder of whom were hourly restaurant or wholesale bakery
personnel. None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its employee relations to be good.
TRADEMARKS
The Company has registered and applied for registration with the United
States Patent and Trademark Office for a number of trademarks and service marks
used in connection with its business. The Italian corporation which owned the
rights to the Il Fornaio marks in the United States has assigned to the Company
all of its United States rights and related goodwill. The Company regards its
trademarks and related rights as having substantial value and as being an
important factor in the marketing of its Il Fornaio restaurants and brand items.
GOVERNMENTAL REGULATION
The Company's restaurants are subject to regulation by federal agencies and
to licensing and regulation by state and local health, sanitation, building,
zoning, safety, fire and other departments relating to the development and
operation of restaurants and retail establishments. These regulations include
matters relating to environmental, building construction, zoning requirements
and the preparation and sale of food and alcoholic beverages. The Company's
facilities are licensed and subject to regulation under state and local fire,
health and safety codes, and the operation of its trucks is subject to
Department of Transportation regulations.
The development and construction of additional restaurants and bakeries
will be subject to compliance with applicable zoning, land use and environmental
regulations. There can be no assurance that the Company will be able to obtain
necessary licenses or other approvals on a cost effective and timely basis in
order to construct and develop restaurants and bakeries in the future.
Various federal and state labor laws govern the Company's operations and
its relationship with its employees, including minimum wage, overtime, working
conditions, fringe benefit and citizenship requirements.
During 1996, approximately 24% of total restaurant revenues was
attributable to the sale of alcoholic beverages, primarily wine. The Company is
required to comply with the alcohol licensing requirements of the federal
government, states and municipalities where its restaurants are located.
Alcoholic beverage control regulations require applications to state authorities
and, in certain locations, county and municipal authorities for a license and
permit to sell alcoholic beverages. Typically, licenses must be renewed annually
and may be revoked or suspended for cause at any time. Alcoholic beverage
control regulations relate to numerous aspects of the daily operations of the
restaurants, including minimum age of guests and employees, hours of operation,
advertising, wholesale purchasing, inventory control and handling, storage and
dispensing of alcoholic
29
<PAGE> 31
beverages. Failure to comply with federal, state or local regulations could
cause the Company's licenses to be revoked or force it to terminate the sale of
alcoholic beverages at one or more of its restaurants.
The Company is subject to "dram-shop" laws in several of the states in
which it has restaurants. These laws generally provide that a person injured by
an intoxicated person may seek to recover damages from an establishment that
wrongfully served alcoholic beverages to such person. While the Company carries
liquor liability coverage as part of its existing comprehensive general
liability insurance, there can be no assurance that it will not be subject to a
judgment in excess of such insurance coverage or that it will be able to obtain
or continue to maintain such insurance coverage at reasonable costs, or at all.
The federal Americans With Disabilities Act prohibits discrimination on the
basis of disability in public accommodations and employment. The Company's
restaurants are currently designed to be accessible to the disabled and the
Company intends to continue to comply with the Act and future regulations
relating to accommodating the needs of the disabled.
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<PAGE> 32
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Information with respect to the executive officers and directors of the
Company is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- -----------------------------------------
<S> <C> <C>
Laurence B. Mindel....................... 59 Chairman of the Board and Chief Executive
Officer
Michael J. Hislop........................ 42 President, Chief Operating Officer and
Director
Paul J. Kelley........................... 41 Vice President, Finance, Chief Financial
Officer and Secretary
Michael J. Beatrice...................... 43 Vice President, Operations
Dean A. Cortopassi(2).................... 59 Director
W. Scott Hedrick(1)...................... 51 Director
F. Warren Hellman(2)..................... 62 Director
W. Howard Lester(1)...................... 61 Director
Pierre W. Mornell(1)..................... 62 Director
T. Gary Rogers(1)........................ 54 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Laurence B. Mindel joined the Company as Chairman of the Board, President
and Chief Executive Officer in January 1987. From 1964 to 1970, Mr. Mindel was
President and Chief Executive Officer of Caswell Coffee Company in San
Francisco. In 1970, Mr. Mindel co-founded Spectrum Foods, where he served as
Chairman of the Board, President and Chief Executive Officer. Under Mr. Mindel's
direction, Spectrum created fourteen restaurants in Northern and Southern
California, including Chianti, MacArthur Park, Harry's Bar and American Grill,
Ciao, Prego and Guaymas. In 1985, Saga Corporation acquired Spectrum Foods and
from that time until he joined the Company, Mr. Mindel served as President of
the Saga Restaurant Group, which included Stuart Anderson's Black Angus, Velvet
Turtle, Spoons, Hotel Food Services and the newly acquired Spectrum Foods
restaurants. In 1985, Mr. Mindel became the first person of non-Italian descent
and the first American to be awarded the Caterina di Medici medal. Awarded by
the Italian government, the medal recognizes persons who have excelled in
preserving the Italian heritage outside of Italy.
Michael J. Hislop joined the Company as President and Chief Operating
Officer in July 1995. From April 1991 to May 1995, Mr. Hislop served as Chairman
and Chief Executive Officer of Chevy's Mexican Restaurants which, under his
direction, grew from 17 locations to 63 locations nationwide. From 1982 to 1991,
Mr. Hislop was employed by El Torito Mexican Restaurants, Inc., serving first as
Regional Operator, then as Executive Vice President of Operations and for the
last three years as Chief Operating Officer. From 1979 to 1982, Mr. Hislop was
employed by T.G.I. Fridays Restaurants, Inc. as a Regional Manager.
Paul J. Kelley joined the Company as Vice President, Finance, Chief
Financial Officer and Secretary in April 1991. From 1988 to 1991, he served as
Vice President of Finance of Bon Appetit Management, a contract food service
operator. From 1977 to 1988, he served in a variety of positions for Saga
Corporation, most recently as Vice President and Controller of Velvet Turtle and
Spoons.
Michael J. Beatrice joined the Company as Vice President, Operations, in
April 1996. From 1994 to 1996, Mr. Beatrice was Vice President, Operations, for
an area developer of Boston Chicken, a restaurant company. From 1991 through
1994, he owned and operated an upscale, full-service Italian restaurant north of
Boston. From 1983 to 1991, he served in a variety of positions with El Torito
Mexican Restaurants, Inc., most recently as Regional Vice President.
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<PAGE> 33
Dean A. Cortopassi has been a director of the Company since April 1996. Mr.
Cortopassi founded and has served as Chief Executive Officer of San Tomo Group,
a holding company which owns and operates a number of food processing and
marketing companies, including Stanislaus Food Products, Gilroy Canning Company,
Sierra Quality Canners and Muir Glen Organics. Mr. Cortopassi is also a director
of the National Food Processors Association and Aidells' Sausage Company.
W. Scott Hedrick has been a director of the Company since 1987. Mr. Hedrick
co-founded InterWest Partners, a venture capital management firm, in 1979 and
has been a general partner of that firm since that time. From 1974 to 1979, Mr.
Hedrick was a partner of American-Euro Interfund, a venture capital corporation.
From 1970 to 1974, he was an Assistant Vice President with Small Business
Enterprise Company, a venture capital subsidiary of Bank of America NT & SA. Mr.
Hedrick is also a director of Office Depot, Inc.
F. Warren Hellman has been a director of the Company since 1983. Since
1984, he has been a general partner of Hellman & Friedman, an investment firm.
He has also been a partner of Matrix Partners, a venture capital firm, since
1982 and a partner of FWH Associates, an investment firm, since 1985. From 1962
to 1977, Mr. Hellman was a partner of Lehman Brothers in New York, where he
served at various times as head of Lehman's Investment Banking Division,
President and Director of Lehman Brothers, Inc., and Chairman of Lehman
Corporation, a closed-end investment company. From October 1981 to March 1984,
Mr. Hellman also served as Managing Director of Lehman Brothers Kuhn Loeb. Mr.
Hellman is also a director of Williams-Sonoma, Inc., Levi Strauss Associates
Inc., APL Limited, Eller Media Company, Franklin Resources, MobileMedia
Communications, Osterweis Capital Management, Powerfood, Inc., D.N.& E. Walter &
Co. and Young & Rubicam Holdings, Inc.
W. Howard Lester has been a director of the Company since 1980. Mr. Lester
has served as Chairman of the Board and Chief Executive Officer of
Williams-Sonoma, Inc., a retail kitchen furnishings and housewares company,
since 1978. Mr. Lester is also a director of The Good Guys, Inc., CKE (Carl's)
and Harold's Corporation.
Pierre Mornell has been a director of the Company since 1991. Since 1969,
Dr. Mornell has been a psychiatrist and a consultant in private practice. Since
1985, he has lectured in the IBM Advanced Management Seminar and International
Executive Programs. Dr. Mornell has also lectured at the Stanford University and
Harvard University business schools. Dr. Mornell was a founding director of the
Trust for Public Land. He has served as a consultant to a number of presidents
of organizations, including Northern Telecom (Canada), Intuit Inc. and Kinko's.
T. Gary Rogers has been a director of the Company since 1989. He has been
Chairman of the Board and Chief Executive Officer of Dreyer's Grand Ice Cream,
Inc., a manufacturer and distributor of premium ice cream products, since 1977.
In 1973, he founded Vintage Management Company, a restaurant company operating
Vintage House Restaurants, and served as its President until 1977.
OTHER KEY EMPLOYEES
In addition to directors and executive officers, the Company has the
following key employees:
Michael Mindel joined the Company in January 1990 as a restaurant manager
and, in February 1992, was promoted to Director of Retail Operations. In 1994,
Mr. Mindel became the Director of Marketing and served in that capacity until
1997, when he was promoted to Vice President of Marketing. His duties include
the development and management of marketing programs. Prior to joining the
Company, Mr. Mindel was employed by Chiat Day, a national advertising firm, as
an account manager. Laurence B. Mindel is the father of Michael Mindel.
Mark Walker joined the Company in March 1991 as Vice President, Operations,
a position he held until April 1996 when he assumed his current position as Vice
President, Concept Development. His duties include the management of purchasing
and construction programs. From 1989 to 1990, he served as President of Hodge
Food Services, Inc., a restaurant corporation. From 1981 to 1988, Mr. Walker was
employed at Spectrum Foods, most recently as Vice President, Operations.
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<PAGE> 34
Anne Goldberg joined the Company in December 1995 as Director of Wholesale
Bakeries. Her duties include directly supervising the wholesale bakeries
operations. Prior to joining the Company, Ms. Goldberg was an independent
consultant specializing in the food service industry and, from 1992 to 1995, she
was the general manager of Auntie Pasta, Inc., a manufacturer and retailer of
prepared foods.
Peter Hausback joined the Company in February 1992 as Controller. His
duties at the Company include supervising the accounting and tax functions.
Prior to joining the Company, Mr. Hausback was employed for five years with
Price Waterhouse LLP. He is a certified public accountant.
Maurizio Mazzon joined the Company in 1989 as Chef of Il Fornaio in Palo
Alto. Mr. Mazzon also served as Chef of Il Fornaio in San Jose from 1992 to
1995, when he was promoted to his current position as Executive Chef. As
Executive Chef, he is responsible for all menus, recipes and the supervision of
all Chef-Partners and other kitchen personnel.
Each officer serves at the discretion of the Board of Directors. The
Company's By-laws permit the Board of Directors to establish by resolution the
authorized number of directors, and the Company currently has eight directors
authorized. There are no family relationships among any of the directors or
executive officers of the Company.
BOARD COMPOSITION
The Company currently has authorized eight directors. In accordance with
the Company's Certificate of Incorporation, the Board of Directors will be
divided into three classes with staggered three-year terms. Class I will consist
of Mr. Hedrick, Mr. Lester and Mr. Mindel, Class II will consist of Mr. Hellman,
Mr. Hislop and Mr. Rogers, and Class III will consist of Mr. Cortopassi and Dr.
Mornell. At each annual meeting of stockholders after the closing of this
offering, the successors to directors whose term will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election. Any additional directorships resulting from
an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of the Board of Directors may have the effect
of delaying or preventing changes in control or management of the Company.
BOARD COMMITTEES
The Audit Committee of the Board of Directors, currently composed of Mr.
Cortopassi and Mr. Hellman, was formed in March 1992 to review the internal
accounting procedures of the Company and consult with and review the services
provided by the Company's independent auditors. The Compensation Committee of
the Board of Directors, currently composed of Mr. Hedrick, Mr. Lester, Dr.
Mornell, and Mr. Rogers, was formed in March 1992 to review and recommend to the
Board the compensation and benefits of all officers of the Company and review
general policy relating to compensation and benefits of employees of the
Company. The Compensation Committee also administers the issuance of stock
options and other awards under the Company's stock option and bonus plans.
DIRECTOR COMPENSATION
Directors who are not employees of the Company currently receive stock
options as compensation from the Company for their service as members of the
Board of Directors. Non-Employee Directors are eligible to receive options to
purchase Common Stock pursuant to the Company's 1997 Non-Employee Directors'
Stock Option Plan. See "Employee Benefit Plans -- 1997 Non-Employee Directors'
Stock Option Plan." In March 1996, the Company granted stock options pursuant to
a predecessor to the Plan to each of Mr. Hedrick, Mr. Hellman, Mr. Lester, Dr.
Mornell, Mr. Rogers and Mr. Cortopassi, to purchase 1,500 shares of the
Company's Common Stock at an exercise price of $5.00 per share.
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<PAGE> 35
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer and each of the Company's other
executive officers whose combined salary and bonus for 1996 exceeded $100,000
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL AWARDS
COMPENSATION(1) ---------------------
------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- -------------------------------------------------------- -------- -------- ---------------------
<S> <C> <C> <C>
Laurence B. Mindel...................................... $369,519 $122,500 17,695
Chairman of the Board and
Chief Executive Officer
Michael J. Hislop....................................... 313,615 105,000 15,200
President and Chief Operating Officer
Paul J. Kelley.......................................... 139,495 31,375 6,350
Vice President, Finance, Chief
Financial Officer and Secretary
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits received by the Named
Executive Officers that are available generally to all salaried employees of
the Company, and certain perquisites and other personal benefits received by
the Named Executive Officers that do not exceed the lesser of $50,000 or 10%
of any such officer's salary and bonus disclosed in this table.
OPTION GRANTS IN 1996
The following table sets forth certain information for each grant of stock
options made during 1996 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
-------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERMS
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION ------------------
NAME GRANTED (1) 1996(2) (3) DATE(4) 5% 10%
- ----------------------------- ----------- ------------- -------------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Laurence B. Mindel........... 17,695 10.84% $ 5.50 04/25/01 $26,888 $ 59,416
Michael J. Hislop............ 15,200 9.31 5.00 04/25/06 47,728 121,144
Paul J. Kelley............... 6,350 3.89 5.00 04/25/06 19,939 50,610
</TABLE>
- ---------------
(1) Options generally become exercisable on an annual basis at a rate of 20% per
year for five years. Options generally expire 10 years from the date of
grant or earlier upon termination of employment.
(2) Based on options to purchase an aggregate of 163,265 shares of Common Stock
granted to employees and directors of, and consultants to, the Company
during 1996, including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors except that, with respect to the option granted to Mr. Mindel, the
exercise price was equal to 110% of such fair market value.
(4) The potential realizable value is calculated based on the term of the option
at its date of grant (5 or 10 years). It is calculated based on the deemed
value at the date of grant and assumes that the deemed value appreciates
from the date of grant at the indicated annual rate compounded annually for
the entire term
34
<PAGE> 36
of the option and that the option is exercised and sold on the last day of
its term for the appreciated stock price. The 5% and 10% assumed rates of
appreciation are derived from the rules of the Commission and do not
represent the Company's estimate or projection of future Common Stock price.
AGGREGATED OPTION EXERCISES IN 1996 AND DECEMBER 29, 1996 OPTION VALUES
The following table sets forth certain information concerning the number
and value of unexercised stock options held as of December 29, 1996 by each of
the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 1996
AND DECEMBER 29, 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 29, 1996 DECEMBER 29, 1996 (1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Laurence B. Mindel......................... 26,665 50,714 $ 140,923 $ 244,919
Michael J. Hislop(2)....................... 184,000 291,200 966,000 1,521,200
Paul J. Kelley............................. 15,179 38,857 84,192 204,728
</TABLE>
- ---------------
(1) There was no public trading market for the Common Stock as of December 29,
1996. Accordingly, these values have been calculated, in accordance with the
rules of the Commission, on the basis of an assumed initial public offering
price of $9.75 per share minus the applicable exercise price per share.
(2) In April 1995, pursuant to the terms of an employment agreement between the
Company and Mr. Hislop, the Company granted Mr. Hislop an option to purchase
460,000 shares of the Company's Common Stock. As set forth in the employment
agreement, in the event of a change of control (as defined in the
agreement), the unvested portion of the option automatically accelerates and
Mr. Hislop has the right to exercise all or any portion of the option.
EMPLOYMENT AGREEMENT
In April 1995, the Company entered into an at-will employment agreement
with Michael J. Hislop as President and Chief Operating Officer. The agreement
provides for a base salary, annual bonus and a monthly car allowance, subject to
annual review. The agreement provides further that in the event Mr. Hislop's
employment is involuntarily terminated by the Company for any reason other than
death, disability or cause (as defined in the agreement) or in the event Mr.
Hislop voluntarily terminates his employment within 30 days of a change of
control (as defined in the agreement), Mr. Hislop will receive, in lieu of any
severance benefits which he may otherwise be entitled to receive under any
Company severance plan or program, a cash severance payment in an aggregate
amount equal to 100% of Mr. Hislop's annual base salary at the time of such
termination.
EMPLOYEE BENEFIT PLANS
1997 Equity Incentive Plan. In March 1997, the Board of Directors adopted,
subject to stockholder approval, the Company's 1997 Equity Incentive Plan (the
"1997 Plan"), as an amendment and restatement of the Company's existing 1992
Stock Option Plan and 1995 Stock Option Plan (collectively, the "Prior Plans"),
to be effective upon the closing of this Offering. An aggregate of 1,300,000
shares of Common Stock are authorized for issuance under the 1997 Plan, of which
options to acquire 795,605 shares are currently outstanding under the Prior
Plans. The terms of options granted under the Prior Plans are substantially
similar to options that may be granted under the 1997 Plan.
The 1997 Plan provides for the grant of incentive stock options under the
Internal Revenue Code of 1986, as amended (the "Code"), to employees (including
officers and employee-directors) and nonstatutory stock options to employees
(including officers and employee-directors), non-employee directors and
consultants of the Company. The 1997 Plan is administered by the Board of
Directors or a Committee appointed by the
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<PAGE> 37
Board (the "Committee") that determines recipients and types of options to be
granted, including the exercise price, number of shares subject to the option
and the exercisability thereof.
The terms of stock options granted under the 1997 Plan generally may not
exceed 10 years. The exercise price of options granted under the 1997 Plan is
determined by the Board or the Committee, provided that the exercise price for a
nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of the option grant, and the exercise price for an
incentive stock option cannot be less than 100% of the fair market value of the
Common Stock on the date of the option grant. Options granted under the 1997
Plan typically vest annually at the rate at 20% per year over five years. A
nonstatutory stock option may be transferred by the optionee if the stock option
agreement evidencing such option specifically provides for transferability. An
incentive stock option may not be transferred by the optionee other than by will
or the laws of descent or distribution. In addition, an optionee may designate a
beneficiary who may exercise the option (whether a nonstatutory or incentive
stock option) following the optionee's death. An optionee whose relationship
with the Company or any affiliate terminates for any reason (other than by death
or permanent and total disability) may generally exercise options in the
three-month period following such cessation (unless such options terminate or
expire sooner by their terms) or in such longer or shorter period as may be
determined by the Board or the Committee and evidenced in the option agreement.
Options may generally be exercised for up to 12 months after an optionee's
relationship with the Company or any affiliate terminates due to death or
disability.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant and the term of the option
does not exceed five years from the date of grant. The aggregate fair market
value, determined at the time of grant, of the shares of Common Stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year (under all such plans of the Company and
its affiliates) may not exceed $100,000.
Upon certain changes in control of the Company, unless otherwise specified
in the option agreement, all outstanding options under the 1997 Plan shall
either be assumed or substituted by the surviving entity. If the surviving
entity determines not to assume or substitute such options, then with respect to
persons then performing services as employees, directors or consultants, the
time during which such options may be exercised shall be accelerated and the
options terminated if not exercised prior to such change in control.
As of March 19, 1997, options to purchase 827,230 shares of Common Stock
were outstanding. Shares subject to stock options that have expired or otherwise
terminated without having been exercised in full again become available for the
grant of options under the 1997 Plan. The 1997 Plan will terminate in March 2007
unless sooner terminated by the Board of Directors.
1997 Non-Employee Directors' Stock Option Plan. In March 1997, the Board
of Directors adopted, subject to stockholder approval, the 1997 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"), which provides for the
automatic grant of options to purchase shares of Common Stock to non-employee
directors of the Company. The Directors' Plan is administered by the Board,
unless the Board delegates administration to the Committee.
The Directors' Plan provides for the issuance of up to 100,000 shares of
Common Stock. The Directors' Plan provides that each current non-employee
director will automatically be granted an option to purchase 4,500 shares of
Common Stock upon approval of the Plan by the stockholders, and each person who
is subsequently elected for the first time to be a non-employee director will
automatically be granted an option to purchase 4,500 shares upon the date of his
or her election to the Company's Board of Directors. On the third anniversary of
each such grant, each non-employee director will automatically be granted an
option to purchase an additional 4,500 shares of Common Stock. Options under the
Directors' Plan have a 10-year term and will vest ratably on an annual basis
over three years. The exercise price of options under the Directors' Plan must
equal the fair market value of the Common Stock on the date of grant. Options
granted under the Directors' Plan are generally nontransferable. Upon certain
changes of control of the Company, the exercisability of options granted under
the Directors' Plan will be accelerated and the options terminated if not
36
<PAGE> 38
exercised prior to such change of control. Unless otherwise terminated by the
Board of Directors, the Directors' Plan will terminate in March 2007.
As of the date of this Prospectus, options to purchase an aggregate of
62,000 shares of Common Stock have been granted under a predecessor to the
Directors' Plan to the Company's six non-employee directors at a weighted
average exercise price of $3.51 per share. The terms of these options are
substantially similar to those available under the Plan described above.
1997 Employee Stock Purchase Plan. In March 1997, the Board of Directors
adopted, subject to stockholder approval, the 1997 Employee Stock Purchase Plan
(the "Purchase Plan"). The Purchase Plan provides for the issuance of up to
300,000 shares of Common Stock to employees of the Company. The rights to
purchase Common Stock under the Purchase Plan are intended to qualify as options
issued under an "employee stock purchase plan" as that term is defined in
Section 423(b) of the Code. Unless terminated sooner by the Board, the Purchase
Plan will terminate in March 2007.
The Purchase Plan is administered by the Board of Directors or the
Committee, unless such authority is delegated to a committee composed of two or
more members of the Board. Subject to certain limitations, the Board has the
authority to determine when and how rights to purchase Common Stock will be
granted and the terms of each offering of such rights, and to amend or revoke
the rules and regulations for the administration of the Purchase Plan.
Under the Purchase Plan, all eligible employees are granted identical
rights to purchase Common Stock for each Board-authorized offering under the
Purchase Plan. Subject to limited exceptions, any person who has been employed
by the Company for at least one year and is customarily employed for at least 20
hours per week and 5 months per calendar year is eligible to participate in an
offering under the Purchase Plan. An eligible employee participates in the
Purchase Plan by authorizing payroll deductions of up to 15% of such employee's
earnings as defined in the Purchase Plan. The purchase price per share at which
shares are sold in an offering under the Purchase Plan cannot be less than the
lower of (i) 85% of the fair market value of a share of Common Stock on the date
of commencement of the offering or (ii) 85% of the fair market value of a share
of Common Stock on the date of purchase. Rights granted pursuant to any offering
under the Purchase Plan terminate immediately upon cessation of an employee's
employment for any reason and the Company will distribute to such employee all
of his or her net accumulated payroll deductions. In general, an employee may
withdraw from participation in an offering at any time during the purchase
period for such offering. Rights granted under the Purchase Plan are not
transferable and may be exercised only by the person to whom such rights are
granted.
In the event of certain changes of control, the Board of Directors has the
discretion to provide that each right under the Purchase Plan to purchase Common
Stock shall be assumed or substituted with an equivalent right by the acquiring
corporation, or the Board may shorten the offering and provide for all sums
collected to be applied toward the purchase of Common Stock immediately prior to
such change in control.
Bonus Plan. The Company has a bonus plan (the "Bonus Plan"), pursuant to
which certain members of corporate management of the Company are eligible to
receive annual cash bonuses based on a percentage of their respective base
salaries if certain performance targets established by management and approved
by the Board of Directors are met. The bonuses paid under the Bonus Plan are
subject to the approval of the Board of Directors. The bonuses paid to the
executive officers for services rendered in 1996 are included in the Summary
Compensation Table.
Management Incentive Plans. The Company has also established a number of
incentive plans under which restaurant and bakery managers of the Company are
eligible to receive bonuses at the end of each of the Company's fiscal quarters
if certain financial goals, set annually by senior management, are achieved.
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<PAGE> 39
CERTAIN TRANSACTIONS
INDEMNIFICATION AND LIMITATION OF DIRECTOR AND OFFICER LIABILITY
The Company has entered into indemnity agreements with each of the
Company's directors and executive officers which provide that the Company will
indemnify against any and all expenses of the director or executive officer who
incurred such expenses because of his or her status as a director or executive
officer, to the fullest extent permitted by the Company's By-laws and Delaware
law. In addition, the Company's By-laws provide that the Company shall indemnify
its directors and executive officers to the fullest extent permitted by Delaware
law, subject to certain limitations, and may also secure insurance, to the
fullest extent permitted by Delaware law, on behalf of any director, officer,
employee or agent against any expense, liability or loss arising out of his or
her actions in such capacity.
The Company's Restated Certificate provides that a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for any 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) for unlawful payment
of dividends or unlawful stock repurchases or redemptions, or (iv) for any
transaction from which the director derived an improper benefit. If the Delaware
law is amended to authorize corporate action further eliminating or limiting the
personal liability of a director, then the liability of a Company director shall
be eliminated or limited to the fullest extent permitted by the Delaware law, as
so amended. The provision in the Restated Certificate does not eliminate the
duty of care and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. The provision also does not affect a director's responsibilities
under any other law, such as the federal securities laws or state or federal
environmental laws.
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<PAGE> 40
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of February 28, 1997, certain
information regarding beneficial ownership of the Company's Common Stock by (i)
each person (or group of affiliated persons) who is known by the Company to be
the beneficial owner of more than 5% of the outstanding Common Stock, (ii) each
director of the Company, (iii) each of the Named Executive Officers, (iv) all
directors and executive officers as a group and (v) the Selling Stockholders.
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common Stock listed below, based on information furnished by such owners,
have sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR SHARES BENEFICIALLY
TO OFFERING SHARES OWNED AFTER OFFERING
DIRECTORS, EXECUTIVE OFFICERS AND 5% ----------------------- BEING -----------------------
STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
InterWest Partners(1)................ 768,149 16.8% 66,181 701,968 12.6%
Building Three, Suite 255
3000 Sand Hill Road
Menlo Park, CA 94025
Sequoia Capital(2)................... 287,800 6.3 24,791 263,009 4.7
Building Four, Suite 280
3000 Sand Hill Road
Menlo Park, CA 94025
Laurence B. Mindel(3)................ 705,516 15.3 -- 705,516 12.6
Michael J. Hislop(4)................. 187,040 3.9 -- 187,040 3.2
Paul J. Kelley(5).................... 46,723 1.0 -- 46,723 *
Michael J. Beatrice.................. 10,000 * -- 10,000 *
Dean A. Cortopassi(6)................ 60,795 1.3 -- 60,795 1.1
W. Scott Hedrick(1)(7)............... 779,650 17.0 66,181 713,469 14.0
F. Warren Hellman(8)................. 145,057 3.2 -- 145,057 2.6
W. Howard Lester(9).................. 186,703 4.1 -- 186,703 3.3
Pierre W. Mornell(10)................ 24,499 * -- 24,499 *
T. Gary Rogers(11)................... 52,963 1.2 -- 52,963 *
All executive officers and directors
as a group (10 persons)(12)........ 2,198,946 47.7 66,181 2,132,765 39.1
OTHER SELLING STOCKHOLDERS
- -------------------------------------
Mayfield Fund(13).................... 237,945 5.2 20,500 217,445 3.9
Wells Fargo Capital Markets, Inc..... 219,479 4.8 219,479 -- --
Other Selling Stockholders(14)....... 283,998 6.2 169,049 114,949 2.1
</TABLE>
- ---------------
* Less than one percent
(1) Includes 199,466 shares held of record by InterWest Partners I, 220,220
shares held of record by InterWest Partners II, 321,127 shares held of
record by InterWest Partners IV, 19,532 shares held of record by InterWest
Partners and 7,804 shares held of record by InterWest Entrepreneurs. HBH
Partners I is the general partner of InterWest Partners I, HBH Partners II
is the general partner of InterWest Partners II, InterWest Management
Partners IV is the general partner of InterWest Partners IV and InterWest
Partners II is the general partner of InterWest Entrepreneurs. Mr. Hedrick
is a general partner of HBH Partners I, HBH Partners II and InterWest
Management IV. Mr. Hedrick disclaims beneficial ownership of shares held by
such entities except to the extent of his pro rata interests in such
partnerships.
(2) Includes 270,532 shares held of record by Sequoia Capital Growth Fund and
17,268 shares held of record by Sequoia Technology Partners III. Sequoia
Capital is a general partner of each of these funds.
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<PAGE> 41
(3) Includes 7,196 shares held by the Mindel Family Trust and 2,587 shares held
by The Mindel Living Trust, of which Mr. Mindel is the trustee. Excludes
185,944 shares each held in trusts for five children of Mr. Mindel, as to
which Mr. Mindel is not a trustee and disclaims beneficial ownership.
Includes 42,141 shares issuable upon the exercise of stock options that are
exercisable within 60 days.
(4) Includes 187,040 shares issuable upon the exercise of stock options that
are exercisable within 60 days.
(5) Includes 25,986 shares issuable upon the exercise of stock options that are
exercisable within 60 days.
(6) Includes 57,795 shares held of record by Stanislaus Food Products Company,
a California Corporation. Mr. Cortopassi is Chief Executive Officer and
controlling shareholder of Stanislaus Food Products Company. Includes 3,000
shares issuable upon the exercise of stock options that are exercisable
within 60 days.
(7) Includes 11,500 shares issuable upon the exercise of stock options that are
exercisable within 60 days.
(8) Includes 123,557 shares held of record by FWH Associates, a California
Limited Partnership. Mr. Hellman is a general partner of FWH Associates.
Includes 11,500 shares issuable upon the exercise of stock options that are
exercisable within 60 days.
(9) Includes 23,535 shares held of record by Williams-Sonoma, Inc. Mr. Lester
is the Chairman of the Board and Chief Executive Officer of
Williams-Sonoma, Inc. Includes 11,500 shares issuable upon the exercise of
stock options that are exercisable within 60 days.
(10) Includes 1,700 shares held of record by an individual retirement account
for the benefit of Dr. Mornell's wife and 3,661 shares held by Pierre
Mornell, M.D., Sole Proprietor Profit Sharing Plan. Includes 11,500 shares
issuable upon the exercise of stock options that are exercisable within 60
days.
(11) Includes 5,487 shares held of record by Rogers Revocable Trust and 35,976
shares held of record by Four Rogers Trust. Mr. Rogers is a trustee of both
Rogers Revocable Trust and Four Rogers Trust. Includes 11,500 shares
issuable upon the exercise of stock options that are exercisable within 60
days.
(12) Includes 1,029,644 shares held by entities affiliated with directors.
Includes 315,667 shares issuable upon the exercise of stock options that
are exercisable within 60 days.
(13) Includes 228,428 shares held of record by Mayfield V and 9,517 shares held
of record by Mayfield Associates.
(14) Includes stockholders each of whom owned less than 1% of the Company's
Common Stock prior to the offering and will own less than 1% of the
Company's Common Stock following the offering. Such stockholders (and the
number of shares to be sold by such stockholders in the offering) include:
Donald L. Schwarz, Trustee FBO Candice E. Appleton Family Trust (6,310
shares); Andrew D. Berkey II (3,000 shares); Stephen W. Bershad (12,620
shares); Collingwood Partners (25,240 shares); Dorskind 1982 Trust (6,310
shares); Phyllis & Donald Epstein (6,310 shares); Oak Brook Bank, Trustee
Cust. FBO Arthur P. Frigo IRA (6,310 shares); Barry Goldfarb (12,620);
Bernard A. Greenberg (3,000 shares); C. Joseph LaBonte (3,046); C. Joseph
LaBonte Defined Benefit Plan (6,894); Edward N. Levine (8,000 shares); Mark
T. Lindee (6,000); Jerry Allan Magnin and Lois Magnin Declaration of Trust
(12,620); John and Ann Nadel (3,000); Delaware Charter Guarantee & Trust,
Trustee FBO Donald L. Schwarz IRA (5,000); Helene Spiegel, as Custodian for
Anthony Spiegel (15,993); Helene Spiegel, as Custodian for Evan Spiegel
(16,776) and Wilderness Associates (10,000).
40
<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, $.001 par value, and
5,000,000 shares of Preferred Stock, $.001 par value.
COMMON STOCK
As of March 19, 1997, there were 4,571,407 shares of Common Stock (after
giving effect to the conversion of Preferred Stock into Common Stock upon the
closing of this offering) outstanding held of record by 218 stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of the Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights and no right to convert their
Common Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon the closing of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Pursuant to the Company's Restated Certificate to be effective upon the
closing of this offering, the Board of Directors has the authority, without
further action by the stockholders, to issue up to 5,000,000 shares of Preferred
Stock in one or more series and to fix the designations, powers, preferences,
privileges and relative participating, optional or special rights and the
qualifications, limitations or restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the Common
Stock. The Board of Directors, without stockholder approval, can issue Preferred
Stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of Common Stock. Preferred Stock
could thus be issued quickly with terms calculated to delay or prevent a change
in control of the Company or make removal of management more difficult.
Additionally, the issuance of Preferred Stock may have the effect of decreasing
the market price of the Common Stock and may adversely affect the voting and
other rights of the holders of Common Stock. Upon the closing of this offering,
there will be no shares of Preferred Stock outstanding and the Company currently
has no plans to issue any of its Preferred Stock.
WARRANTS
As of March 19, 1997, there were warrants outstanding to purchase 32,487
shares of Common Stock at an exercise price of $9.90 per share. The warrants
expire December 31, 1997.
ANTITAKEOVER EFFECTS OF PROVISIONS OF CHARTER DOCUMENTS AND DELAWARE LAW
Charter Documents. The Restated Certificate and By-laws to be effective
upon the closing of this offering, include a number of provisions that may have
the effect of deterring hostile takeovers or delaying or preventing changes in
control or management of the Company. First, the Company's Board of Directors
will be classified into three classes of directors. The Restated Certificate
provides that directors may be removed for cause by the vote of the holders of a
majority of the voting power and without cause by the vote of the holders of
66 2/3% of the voting power. See "Management -- Executive Officers and
Directors." In addition, the Restated Certificate provides that all stockholder
action must be effected at a duly called meeting of stockholders and not by a
consent in writing. Further, the By-laws limit who may call special meetings of
the stockholders. The Company's Restated Certificate does not include a
provision for cumulative voting for directors. Under cumulative voting, a
minority stockholder holding a sufficient percentage of a class of shares may be
able to ensure the election of one or more directors. Finally, the By-laws
establish procedures,
41
<PAGE> 43
including advance notice procedures, with regard to stockholder proposals and
the nomination of candidates for election as directors. These and other
provisions of the Restated Certificate and By-laws and Delaware law could
discourage potential acquisition proposals and could delay or prevent a change
in control or management of the Company. See "Risk Factors -- Effects of Certain
Charter and By-law Provisions."
Delaware Takeover Statute. The Company is subject to the provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.
REGISTRATION RIGHTS
Following this offering, the holders of 2,553,703 shares of Common Stock
(the "Registrable Securities") and warrants to purchase 32,487 shares of Common
Stock are entitled to certain registration rights with respect to such shares.
Subject to certain exceptions, including the right of the Company to defer a
demand registration for a period of 120 days under certain conditions, the
holders of at least 40% of the Registrable Securities may require that the
Company use its best efforts to register for public resale under the Securities
Act beginning six months after the closing of this offering all Registrable
Securities requested to be registered. Subject to certain limitations, the
holders of at least 10% of the outstanding Registrable Securities may require on
two occasions, but not more than once in any 12-month period, that the Company
use its best efforts to register on Form S-3 for public resale all Registrable
Securities requested to be registered. In addition, subject to certain
limitations, in the event the Company elects to register any of its Common Stock
under the Securities Act, either for its own account or for the account of any
other stockholders, the Company is required to notify, and subject to certain
marketing and other limitations, is required to include in such registration the
Registrable Securities of holders requesting registration. The Company is
required to bear all registration expenses incurred in connection with the
registration of Registrable Securities in the one demand registration, in the
two S-3 registrations and in all Company registrations.
Subject to certain limitations, registration rights may be transferred to
an assignee or transferee who is an affiliate of the transferor who acquires a
minimum number of shares of the transferor's Registrable Securities. In
addition, registration rights may be assigned in connection with a distribution
by a transferor to a partner of the transferor, former partner or the estate of
any such partner regardless of the number of shares of the transfer's
Registrable Securities with notice.
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston has been appointed as the transfer agent
and registrar for the Company's Common Stock.
42
<PAGE> 44
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Company's
Common Stock. As described herein, only a limited number of shares will be
available for sale shortly after this offering because of certain contractual
and legal restrictions on resale. Sales of substantial amounts of Common Stock
of the Company in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future.
Upon the closing of this offering, the Company will have outstanding an
aggregate of 5,571,407 shares of Common Stock. Of these shares, all the shares
sold in this offering will be freely tradeable without restrictions or further
registration under the Securities Act and the remaining 4,071,407 shares of
Common Stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144 under the Securities Act (the "Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act.
Each officer, director and certain stockholders of the Company and holders
of options to acquire Common Stock have agreed with the representatives of the
Underwriters for a period of 180 days after the date of this Prospectus, subject
to certain exceptions, not to directly or indirectly sell, offer, contract or
grant any option to sell (including, without limitation, any short sale),
pledge, transfer, establish an open "put equivalent position" or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock, without the prior written consent of Montgomery Securities
(the "Lock-Up Agreements"). In its sole discretion and at any time without
notice, Montgomery Securities may release all or any portion of the shares
subject to the lock-up agreements. Approximately Restricted Shares are
subject to the Lock-Up Agreements, and approximately of these shares
will become available for sale in the public market immediately following
expiration of the 180-day lock-up period, subject to the volume and other
limitations of Rule 144. The remainder of the Restricted Shares subject to
Lock-Up Agreements will be eligible for sale from time to time thereafter upon
expiration of their respective one-year holding periods.
An additional Restricted Shares are subject to contractual
restrictions with the Company similar to those contained in the Lock-Up
Agreements, of which shares will become available for sale in the
public market beginning 120 days after the date of this Prospectus and
shares beginning 180 days after the date of this Prospectus. In
addition, beginning 90 days after the date of this Prospectus, approximately
Restricted Shares not subject to Lock-Up Agreements or such
contractual restrictions will become available for sale in the public market,
subject to the volume and other limitations of Rule 144. An additional
Restricted Shares not subject to Lock-Up Agreements or such
contractual restrictions will be eligible for sale in the public market pursuant
to Rule 144(k) under the Securities Act as of the date of this Prospectus. The
remainder of the Restricted Shares subject to Lock-Up Agreements will be
eligible for sale from time to time thereafter upon expiration of their
respective one-year holding periods.
The holders of approximately 2,553,703 shares of Common Stock and
outstanding warrants to purchase 32,487 shares of Common Stock have registration
rights with respect to such shares. See "Description of Capital
Stock -- Registration Rights."
As of March 19, 1997, there were 827,230 shares of Common Stock subject to
outstanding options. The Company intends to file registration statements under
the Securities Act to register shares of Common Stock reserved for issuance
under the employee benefit plans, thus permitting the sale of such shares by
non-affiliates in the public market without restriction under the Securities
Act. Such registration statements will become effective immediately upon filing.
In general, under Rule 144, as in effect as of April 29, 1997, beginning 90
days after the date of this Prospectus, any holder of Restricted Shares,
including an affiliate of the Company, as to which at least one year has elapsed
since the later of the date of acquisition of the shares from the Company or an
affiliate, would be entitled within any three-month period to sell a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock (approximately 55,700 shares immediately after the closing of
43
<PAGE> 45
this offering, or the average weekly trading volume of the Common Stock on the
Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. However, a person
(or persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the 90 days immediately preceding
the sale and who beneficially owns Restricted Shares is entitled to sell such
shares under Rule 144(k) without regard to the limitations described above,
provided that at least two years have elapsed since the later of the date the
shares were acquired from the Company or from an affiliate of the Company. The
foregoing is a summary of Rule 144 and is not intended to be a complete
description of it.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers prior to the closing of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to stock options granted by the Company
before this offering, along with the shares acquired upon exercise of such
options. Securities issued in reliance on Rule 701 are deemed to be Restricted
Shares and, beginning 90 days after the date of this Prospectus (unless subject
to the contractual restrictions described above), may be sold by persons other
than affiliates subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with its one-year minimum holding
period requirements.
44
<PAGE> 46
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities and
Alex. Brown & Sons Incorporated (the "Representatives"), have severally agreed,
subject to the terms and conditions set forth in the Underwriting Agreement, to
purchase from the Company and the Selling Stockholders the numbers of shares of
Common Stock indicated below opposite their respective names at the initial
public offering price less the underwriting discount set forth on the cover page
of this Prospectus. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---------------------------------------------------------------- ----------
<S> <C>
Montgomery Securities...........................................
Alex. Brown & Sons Incorporated.................................
---------
Total................................................. 1,500,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the Common Stock to the public
on the terms set forth on the cover page of this Prospectus. The Underwriters
may allow to selected dealers a concession of not more than $ per
share, and the Underwriters may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After
the initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Common Stock is offered subject to receipt
and acceptance by the Underwriters and to certain other conditions, including
the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of the Underwriting Agreement, to purchase up
to a maximum of 225,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the table above. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
Pursuant to the terms of the Lock-Up Agreements, the holders of
shares of Common Stock have agreed that, for a period of 180 days after the
effective date of this Prospectus, they will not, without the prior written
consent of Montgomery Securities, subject to certain exceptions, directly or
indirectly, sell, offer, contract or grant an option to sell (including, without
limitation, any short sale), pledge, transfer, establish an open "put equivalent
position" or otherwise dispose of any shares of Common Stock options, or
warrants to acquire shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock. In addition, the Company has agreed
that for a period of 180 days after the date of this Prospectus, it will not,
without the prior written consent of Montgomery Securities, directly or
indirectly, offer to sell, issue, distribute or otherwise dispose of any equity
securities or securities convertible into or exchangeable for equity securities
or any options, rights or warrants with respect to any equity securities except
for (i) shares of Common Stock offered hereby, (ii) shares of Common Stock
issued pursuant to exercise of outstanding options disclosed in the Prospectus
or (iii) options granted after the date of this Prospectus under the Company's
option plans described in the Prospectus. See "Shares Eligible for Future Sale."
45
<PAGE> 47
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations among the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in such negotiations will be
the history of, and the prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, its past and present
operations, its past and present financial performance, its prospects for future
earnings, the general condition of the securities markets at the time of the
offering and the market prices for publicly traded common stock of comparable
companies in recent periods and other factors deemed relevant.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority in excess of 5% of the shares of Common Stock offered hereby.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with this offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
As of the date of this Prospectus, Montgomery Securities beneficially owned
3,537 shares of Common Stock of the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by its counsel, Cooley Godward LLP ("Cooley Godward"), San
Francisco, California. Certain legal matters relating to the offering will be
passed upon for the Underwriters by Orrick, Herrington & Sutcliffe LLP, San
Francisco, California. As of the date of this Prospectus, GC&H Investments, an
investment partnership composed of certain partners of and persons associated
with Cooley Godward, beneficially owned 3,693 shares of Common Stock of the
Company and Cooley Godward beneficially owned 4,310 shares of Common Stock of
the Company.
EXPERTS
The financial statements as of December 29, 1996 and December 31, 1995 and
for each of the three years in the period ended December 29, 1996 included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the shares of Common Stock offered hereby has been filed by the
Company with the Commission under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other
46
<PAGE> 48
document referred to are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and copies of all or any part thereof may be
obtained from those offices upon the payment of certain fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
47
<PAGE> 49
IL FORNAIO (AMERICA) CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets as of December 31, 1995 and December 29, 1996.......................... F-3
Statements of Income for the years ended December 25, 1994, December 31, 1995 and
December 29, 1996................................................................... F-4
Statements of Changes in Stockholders' Equity for the years ended December 25, 1994,
December 31, 1995 and December 29, 1996............................................. F-5
Statements of Cash Flows for the years ended December 25, 1994, December 31, 1995 and
December 29, 1996................................................................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Il Fornaio (America) Corporation:
We have audited the accompanying balance sheets of Il Fornaio (America)
Corporation (the "Company") as of December 29, 1996 and December 31, 1995, and
the related statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Il Fornaio (America) Corporation at December
29, 1996 and December 31, 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 29, 1996 in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- --------------------------------------
San Francisco, California
March 3, 1997
F-2
<PAGE> 51
IL FORNAIO (AMERICA) CORPORATION
BALANCE SHEETS
DECEMBER 31, 1995 AND DECEMBER 29, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Current assets:
Cash and equivalents................................................... $ 2,690 $ 2,039
Accounts receivable.................................................... 1,118 1,271
Note receivable........................................................ -- 308
Inventories............................................................ 1,529 1,351
Prepaid expenses....................................................... 774 756
Deferred tax assets, net............................................... 1,372 579
------- -------
Total current assets........................................... 7,483 6,304
------- -------
Property and equipment, net.............................................. 24,881 26,179
Deferred tax assets, net................................................. 1,366 1,927
Other assets............................................................. 464 445
------- -------
Total assets................................................... $34,194 $34,855
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 2,107 $ 2,292
Accrued expenses....................................................... 3,969 3,704
Current portion of debt................................................ 600 150
------- -------
Total current liabilities...................................... 6,676 6,146
------- -------
Long-term debt........................................................... 150 --
Reserve for store closures............................................... 255 346
Deferred lease incentives:
Construction allowances................................................ 5,479 5,090
Deferred rent.......................................................... 351 337
------- -------
Total deferred lease incentives..................................... 5,830 5,427
------- -------
Commitments (Note 10)
Stockholders' equity:
Convertible preferred stock, no par value; 3,500,000 shares authorized;
2,316,296 and 2,308,196 shares issued and outstanding; aggregate
liquidation preference of $17,722 and $17,671 respectively.......... 16,936 16,885
Common stock, no par value; 15,000,000 shares authorized; 1,532,359 and
1,611,766 shares issued and outstanding respectively................ 7,729 7,980
Accumulated deficit.................................................... (3,382) (1,929)
------- -------
Total stockholders' equity..................................... 21,283 22,936
------- -------
Total liabilities and stockholders' equity..................... $34,194 $34,855
======= =======
</TABLE>
See notes to financial statements
F-3
<PAGE> 52
IL FORNAIO (AMERICA) CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Restaurants............................................. $ 39,485 $ 43,647 $ 50,599
Wholesale bakeries...................................... 4,951 5,181 6,016
Retail bakeries......................................... 5,208 5,312 4,137
-------- -------- --------
Total revenues.................................. 49,644 54,140 60,752
-------- -------- --------
Costs and expenses:
Cost of sales........................................... 11,300 12,772 14,792
Operating expenses...................................... 29,290 31,036 35,152
Depreciation and amortization........................... 3,162 3,304 3,860
-------- -------- --------
Total costs and expenses........................ 43,752 47,112 53,804
-------- -------- --------
Restaurant and bakery operating income.................... 5,892 7,028 6,948
Other (income) expenses:
General and administrative expenses..................... 3,592 4,083 4,724
Provision for store closures............................ -- 932 --
Interest income......................................... (71) (157) (167)
Interest expense........................................ 124 98 40
-------- -------- --------
Total other expenses, net............................ 3,645 4,956 4,597
-------- -------- --------
Income before provision (benefit)
for income taxes........................................ 2,247 2,072 2,351
Provision (benefit) for income taxes...................... 332 (2,432) 898
-------- -------- --------
Net income................................................ $ 1,915 $ 4,504 $ 1,453
======== ======== ========
Net income per share:
Primary................................................. $ 0.43 $ 1.01 $ 0.32
======== ======== ========
Fully-diluted........................................... $ 0.43 $ 1.00 $ 0.32
======== ======== ========
Weighted average number of common stock and common stock
equivalents
Primary.............................................. 4,467 4,460 4,839
Fully-diluted........................................ 4,477 4,499 4,839
</TABLE>
See notes to financial statements
F-4
<PAGE> 53
IL FORNAIO (AMERICA) CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- ------------------ ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
--------- ------- --------- ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 26, 1993.......... 2,296,486 $16,733 1,531,476 $7,785 $(9,801) $14,717
Issuance of common stock............ 10,756 42 42
Exercise of common stock options.... 8,859 22 22
Repurchase of common stock.......... (5,400) (18) (18)
Net income.......................... 1,915 1,915
--------- ------- --------- ------ ------- -------
BALANCE, DECEMBER 25, 1994.......... 2,296,486 16,733 1,545,691 7,831 (7,886) 16,678
Issuance of preferred stock......... 19,810 203 203
Issuance of common stock............ 3,450 16 16
Exercise of common stock options.... 18,209 39 39
Repurchase of common stock.......... (34,991) (157) (157)
Net income.......................... 4,504 4,504
--------- ------- --------- ------ ------- -------
BALANCE, DECEMBER 31, 1995.......... 2,316,296 16,936 1,532,359 7,729 (3,382) 21,283
Issuance of common stock............ 30,210 136 136
Conversion of preferred to common... (8,100) (51) 10,222 51
Exercise of common stock options.... 38,975 64 64
Net income.......................... 1,453 1,453
--------- ------- --------- ------ ------- -------
BALANCE, DECEMBER 29, 1996.......... 2,308,196 $16,885 1,611,766 $7,980 $(1,929) $22,936
========= ======= ========= ====== ======= =======
</TABLE>
See notes to financial statements
F-5
<PAGE> 54
IL FORNAIO (AMERICA) CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $1,915 $4,504 $1,453
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 3,162 3,304 3,860
Amortization of deferred lease incentives............ (351) (343) (403)
Provision for store closures......................... -- 932 --
Gain on sale of property and equipment............... -- -- (72)
Retirement of fixed assets........................... -- -- 253
Deferred income taxes................................ -- (2,738) 232
Changes in:
Accounts receivable.................................. 181 (299) (153)
Inventories.......................................... (127) (168) 178
Prepaid expenses..................................... 135 (518) (408)
Other assets......................................... 1 (24) 19
Accounts payable..................................... (76) 27 185
Accrued expenses..................................... 231 227 (174)
------ ------ ------
Net cash provided by operating activities............ 5,071 4,904 4,970
------ ------ ------
Cash flows from investing activities:
Capital expenditures.................................... (971) (4,807) (5,847)
Proceeds from sale of property and equipment............ -- -- 626
------ ------ ------
Net cash used in investing activities................ (971) (4,807) (5,221)
------ ------ ------
Cash flows from financing activities:
Payments on debt........................................ (1,331) (600) (600)
Proceeds from the issuance of common stock.............. 42 16 136
Exercise of stock options............................... 22 39 64
Repurchase of common stock.............................. (18) (157) --
------ ------ ------
Net cash used in financing activities................ (1,285) (702) (400)
------ ------ ------
Increase (decrease) in cash and equivalents............... 2,815 (605) (651)
Cash and equivalents, beginning of year................... 480 3,295 2,690
------ ------ ------
Cash and equivalents, end of year......................... $3,295 $2,690 $2,039
====== ====== ======
Interest paid............................................. $ 114 $ 105 $ 45
====== ====== ======
Income taxes paid......................................... $ 187 $ 308 $ 614
====== ====== ======
Noncash investing and financing activities
Issuance of preferred stock for restaurant assets....... $ 203 -- --
Issuance of note receivable for retail bakery assets.... -- -- $ 308
</TABLE>
See notes to financial statements
F-6
<PAGE> 55
IL FORNAIO (AMERICA) CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and nature of operations -- Il Fornaio (America) Corporation
(the "Company") is engaged in restaurant operations and the production and sale
of Italian bakery products for the wholesale and retail market. At December 29,
1996, the Company owned and operated 12 Italian white tablecloth restaurants,
four free-standing retail bakeries and six wholesale bakeries in California and
Portland, Oregon. In January 1997, the Company opened a new restaurant in Las
Vegas, Nevada and in February 1997, the Company disposed of its remaining four
free-standing retail bakeries.
Fiscal year -- The Company operates on a 52/53-week fiscal year ending on
the last Sunday in December. The fiscal year ended December 29, 1996 contained
52 weeks and the fiscal years ended December 31, 1995 and December 25, 1994
contained 53 and 52 weeks of operations, respectively.
Pre-opening costs consist of location setup, employee training and
promotion associated with the opening of new locations and are amortized over 12
months beginning in the month the location commences operations.
Cash and equivalents -- The Company considers all highly liquid debt
instruments with a maturity at the time of purchase of three months or less to
be cash equivalents. At December 29, 1996 and December 31, 1995, cash and
equivalents included $338,000 and $315,000, respectively, which represents
restricted cash for the Company's voluntary disability insurance plan.
Accounts receivable consist primarily of amounts due from wholesale
customers, which are net of allowances for doubtful accounts of $52,000 and
$42,000 as of December 29, 1996 and December 31, 1995, respectively.
Inventories, consisting primarily of wine, liquor, grocery products and
operating supplies, are stated at the lower of first-in, first-out method (FIFO)
cost or market.
Property and equipment are stated at cost and include interest on funds
borrowed to finance construction. Depreciation and amortization are computed
using the straight-line method over the following estimated useful lives:
leasehold improvements -- lesser of lease term or life of improvements;
furniture, fixtures and equipment -- 5 to 10 years. Leasehold improvements
reimbursed by the landlord through construction allowances are capitalized as
leasehold improvements. Such leasehold improvements and related construction
allowances are amortized on a straight-line basis over the lease term.
Deferred rent -- Certain leases contain fixed escalations of the minimum
annual lease payment during the original term of the lease. For these leases,
the Company recognizes rental expense on a straight-line basis and records the
difference between rent expense and the amount currently payable under the lease
as deferred rent.
Net income per share is based on the weighted average number of shares of
common stock outstanding and the dilutive effect of common stock equivalents,
which consist of preferred stock and common stock options.
Long-lived assets and long-lived assets to be disposed of -- In 1996, the
Company adopted Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable and that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. The implementation of this accounting standard did
not have an impact on the 1996 financial statements.
Advertising costs are expensed as incurred.
F-7
<PAGE> 56
IL FORNAIO (AMERICA) CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Accounting estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual amounts could differ from those estimates.
Income taxes are accounted for using the liability method, under which
deferred taxes are provided for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities.
Reserve for store closures includes management's best estimates of the net
costs to be incurred on the sale or disposal of the reserved store. The accrual
consists of future rentals on leases, to the extent they are not offset by
estimated sub-lease rentals, and other estimated costs directly associated with
the decision to close the stores. The costs the Company will ultimately incur
could differ materially from the amounts assumed in arriving at the reserve for
store closures.
Stock-based compensation -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Bulletin No. 25, Accounting for Stock Issued to Employees.
Reclassifications -- Certain fiscal 1994 and 1995 amounts have been
reclassified to conform with fiscal 1996 presentations.
2. NOTE RECEIVABLE
On July 28, 1996, the Company sold the net assets of four of its
free-standing retail bakeries for cash and a promissory note. The note bears
interest at 8%. Interest is due monthly from December 1996 to July 1997 when the
principal balance is due in full. The note is collateralized by the assets of
the retail bakeries. A gain of $72,000 was recognized as a result of this
transaction.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Leasehold improvements................................. $ 21,821 $ 22,090
Machinery and equipment................................ 12,375 12,660
Furniture and fixtures................................. 3,508 3,817
Construction in progress............................... 584 3,415
-------- --------
Total........................................ 38,288 41,982
Less -- accumulated depreciation and amortization...... (13,407) (15,803)
-------- --------
Property and equipment -- net.......................... $ 24,881 $ 26,179
======== ========
</TABLE>
F-8
<PAGE> 57
IL FORNAIO (AMERICA) CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Accrued payroll and related benefits....................... $2,323 $1,856
Gift certificates.......................................... 332 393
Accrued rent............................................... 353 385
Accrued taxes.............................................. 444 483
Other...................................................... 517 587
------ ------
Total accrued expenses..................................... $3,969 $3,704
====== ======
</TABLE>
5. DEBT
Debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Note payable................................................ $ 750 $ 150
Less: current portion....................................... (600) (150)
----- -----
Long-term portion........................................... $ 150 $ --
===== =====
</TABLE>
The Company's note payable to the bank is to be repaid with monthly
installments of $50,000. The note bears interest at 1% above the bank's
reference rate and is paid monthly. The Company has a $3,000,000 revolving line
of credit with a letter of credit sub-facility which expires on April 1, 1998
and bears interest at the bank's reference rate. There were no borrowings under
the credit line at December 29, 1996. The credit agreement requires compliance
with certain financial covenants and prohibits the payment of cash dividends.
The line of credit and note payable are collateralized by accounts receivable,
inventory, and property and equipment.
6. PROVISION FOR STORE CLOSURES
On October 15, 1993, the Company sold the net assets of one of its
restaurants for cash and a promissory note of $700,000. The note was
collateralized by the restaurant and shares of common stock of the debtor. The
debtor failed to make the required payments under the note agreement, including
sublease rental payments. In March 1995, the Company called the note and
regained control of the restaurant assets. The note was then reclassified to
property and equipment at the carrying value of the note receivable which is
less than the estimated fair value of the collateral. In December 1995, the
Company wrote off the non-performing asset and accrued for rent liability of
$232,000.
F-9
<PAGE> 58
IL FORNAIO (AMERICA) CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY
The Company's authorized, issued and outstanding common and preferred stock
as of December 29, 1996 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
ISSUED
AGGREGATE AND
LIQUIDATION AUTHORIZED OUTSTANDING
ISSUE PREFERENCE SHARES SHARES
----------------------------------------- ----------- ---------- ---------
<S> <C> <C> <C>
Common Stock............................. $ -- 15,000,000 1,611,766
========= =========
Preferred -- Series B.................... 2,443 542,225 529,884
Series C.................... 2,250 521,739 391,340
Series D.................... 750 521,739 130,399
Series E.................... 3,869 450,000 441,099
Series F.................... 8,359 825,000 815,474
Series not designated....... -- 639,297 --
------- --------- ---------
Total.................................... $17,671 3,500,000 2,308,196
======= ========= =========
</TABLE>
Preferred Stock -- In 1996, 5,600 shares of Series B preferred stock were
converted to 7,067 shares of common stock and 2,500 shares of Series F preferred
stock were converted to 3,155 shares of common stock.
In 1995, the Company issued 19,810 shares of Series F preferred stock for
$10.25 per share to purchase the assets of a restaurant.
Each outstanding share of Series B, C, E and F preferred stock is
convertible into 1.262 shares of common stock at the holder's option or
automatically upon the occurrence of a public offering meeting specific
criteria. Each share of Series D preferred stock is convertible into one share
of Series C preferred stock. The holders of Series B, C, E and F preferred stock
have voting rights equal in number to the shares of common stock issuable upon
conversion. All preferred shares are entitled to receive non-cumulative
dividends equivalent to any dividend declared on common shares.
Warrants -- As of December 29, 1996, there were warrants outstanding to
purchase 32,487 shares of Common Stock at an exercise price of $9.90 per share.
The warrants expire December 31, 1997.
8. STOCK PLANS
1988 Stock Option Plan -- The 1988 Plan, covering 103,680 shares of common
stock, provides for the granting of stock options to key employees. The exercise
price must equal at least 85% of the fair market value of the common stock, as
determined by the Board of Directors. Options vest over three to six years and
expire after five years.
1991 Incentive Stock Option Plan -- The 1991 Plan covers 126,200 shares of
common stock. Options are granted to officers and key employees at the fair
market value of such stock, as determined by the Board of Directors, on the day
preceding the date of the grant. Options vest over five years and expire after
five years. This Plan terminates upon an initial public offering.
1992 Stock Option Plan -- The 1992 Plan covers 300,000 shares of common
stock. The Plan provides for the grant of both incentive and nonstatutory stock
options. The exercise price of incentive options must equal at least the fair
market value of the common stock on the date of grant. Options vest over five
years and expire after ten years.
1995 Stock Option Plan -- The 1995 Plan covers 500,000 shares of common
stock. The Plan provides for the grant of both incentive and nonstatutory stock
options. The exercise price of incentive options must equal
F-10
<PAGE> 59
IL FORNAIO (AMERICA) CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
at least the fair market value of the common stock on the date of grant. Options
vest over five years and expire after ten years.
Non-employee Directors' Stock Option Plan -- In 1992, the Directors' Plan
was adopted to provide for the automatic grant of options to purchase up to
100,000 shares of common stock to non-employee directors of the Company. The
exercise price of the options must equal the fair market value of the common
stock on the date of grant. Options granted under the Plan are not subject to
any vesting restrictions and are fully exercisable as of the date of grant.
Options granted under the plan are immediately exercisable and expire ten years
from the date of grant.
The following table reflects the activity under the Company's stock option
plans: At December 29, 1994 and December 31, 1995, 97,282 and 207,210 stock
options, respectively, were exercisable under the plans.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
OPTIONS AVERAGE PRICE
--------- -------------
<S> <C> <C>
Balance, December 26, 1993........................... 191,646 $2.98
Granted.............................................. 48,905 4.12
Exercised............................................ (8,859) 2.44
Cancelled............................................ (30,554) 3.54
------- -----
Balance, December 25, 1994........................... 201,138 3.19
Granted.............................................. 529,045 4.51
Exercised............................................ (18,209) 2.11
Cancelled............................................ (3,240) 4.00
------- -----
Balance, December 31, 1995........................... 708,734 4.20
Granted.............................................. 163,265 5.05
Exercised............................................ (38,975) 1.64
Cancelled............................................ (3,200) 4.81
------- -----
Balance, December 29, 1996........................... 829,824 $4.49
======= =====
</TABLE>
Additional information regarding options outstanding as of December 29,
1996 was as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED AVG. OPTIONS EXERCISABLE
REMAINING ------------------------------
RANGE OF NUMBER CONTRACTUAL WEIGHTED AVG NUMBER WEIGHTED AVG.
EXERCISE PRICES OUTSTANDING LIFE (YRS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.58-3.00 21,588 1.9 $2.25 30,615 $ 2.36
4.00-4.50 642,171 5.7 4.44 265,107 4.27
4.95-5.50 166,065 7.0 5.03 15,153 4.99
------- -------
1.58-5.50 829,824 5.9 $4.49 310,875 4.12
======= =======
</TABLE>
At December 29, 1996, the number of shares available for future grants
under the various plans were as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE
FOR
GRANT
-------
<S> <C>
1988 stock option plan..................... --
1991 incentive stock option plan........... 14,638
1992 stock option plan..................... 70,440
Non-employee directors' stock option
plan..................................... 28,000
1995 stock option plan..................... 24,800
</TABLE>
F-11
<PAGE> 60
IL FORNAIO (AMERICA) CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Additional Stock Plan Information -- As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic value method
in accordance with Accounting Principles Board No. 25, Accounting for Stock
Issued to Employees and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements.
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) requires the disclosure of pro forma net
income and earnings per share had the Company adopted the fair value method as
of the beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely
tradeable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions: expected life, 120 months
following vesting, stock volatility, 1% in 1996 and 1995, respectively due to
non-public status of Company's stock; risk free interest rates, 6.3% in 1996 and
6.5% in 1995; and no dividends during the expected term. The Company's
calculations are based on a multiple option valuation approach and forfeitures
are recognized as they occur. If the computed fair values of the 1995 and 1996
awards had been amortized to expense over the vesting period of the awards, pro
forma net income would have been as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Net income (in thousands):
As reported.............................................. $4,504 $1,453
Pro forma................................................ 4,391 1,189
Primary earnings per share:
As reported.............................................. $ 1.01 $ 0.32
Pro forma................................................ 0.98 0.26
Fully diluted earnings earnings per share:
As reported.............................................. $ 1.00 $ 0.32
Pro forma................................................ 0.98 0.26
</TABLE>
However, the impact of outstanding non-vested stock options granted prior
to 1995 has been excluded from the pro forma calculation; accordingly, the 1995
and 1996 pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.
F-12
<PAGE> 61
IL FORNAIO (AMERICA) CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
The Company provides a deferred tax expense or benefit equal to the change
in the deferred tax liability during the year. Deferred income taxes reflect the
net tax effects of (a) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes, and (b) operating loss and tax credit carryforwards.
Significant components of the Company's net deferred tax balances as of December
29, 1996 and December 31, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 29
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Payroll related.................................... $ 346 $ 310
Reserves for store closures........................ 512 616
Deferred rent liability............................ 140 135
Net operating loss carryforwards................... 954 278
Tax credit carryforwards........................... 906 1,512
Other.............................................. 177 120
------ ------
Total deferred tax assets....................... 3,035 2,971
------ ------
Deferred tax liabilities:
Fixed assets....................................... (196) (348)
Pre-opening expenses............................... (101) (117)
------ ------
Total deferred tax liabilities.................. (297) (465)
------ ------
Valuation allowance.................................. -- --
------ ------
Net deferred tax assets.............................. $2,738 $2,506
====== ======
</TABLE>
The Company provided no valuation allowance against deferred tax assets
recorded as of December 29, 1995 and 1996, as the Company believes it is
"more-likely-than-not" that all deferred assets will be fully realized in future
periods.
As of December 29, 1996, the Company has available net operating loss
carryforwards for federal tax purposes of approximately $817,000. The net
operating loss carryforwards begin to expire in the year 2000. In addition, the
Company has unused investment and general business tax credits of approximately
$681,000 and alternative minimum tax credit carryforwards of approximately
$831,000. The investment tax credits will begin to expire in 1998. The Company's
utilization in any one year of the above net operating losses is limited under
the provisions of the Tax Reform Act of 1986 to $1,400,000 per year and may be
further limited if there are additional corporate ownership changes in the
future.
The components of income tax expense (benefit) for the years ended December
29, 1996 and December 31, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ------- ----
<S> <C> <C> <C>
Current provision:
Federal.......................................... $ 60 $ 179 $461
State............................................ 272 127 205
---- ------- ----
Total current................................. 332 306 666
Deferred tax assets, net........................... -- (2,738) 232
---- ------- ----
Income tax expense (benefit)....................... $332 $(2,432) $898
==== ======= ====
</TABLE>
F-13
<PAGE> 62
IL FORNAIO (AMERICA) CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The reconciliation between the Company's effective tax rate on earnings
before income taxes (benefits) and the statutory federal income tax rate of 34%
for the years ended December 26, 1996 and December 31, 1995 were as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----- ------- ----
<S> <C> <C> <C>
Federal income tax at 34% statutory rate.......... $ 768 $ 705 $801
State income tax.................................. 135 124 141
Investment and other tax credits.................. (113) (102) (71)
Valuation allowance............................... (447) (3,174) --
Other............................................. (11) 15 27
----- ------- ----
Total............................................. $ 332 $(2,432) $898
===== ======= ====
</TABLE>
10. COMMITMENTS
The Company leases all restaurant, retail bakery, production bakery and
office space under operating leases which extend through year 2017. Certain
leases require increased rental payments, generally related to changes in the
Consumer Price Index and increases in property taxes and certain leases also
provide for additional rent based on a percentage of sales. Total rent expense
for all operating leases was as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Minimum rentals.................................. $1,754 $1,971 $2,076
Contingent rentals............................... 786 732 772
------ ------ ------
Total rental expense............................. $2,540 $2,703 $2,848
====== ====== ======
</TABLE>
At December 29, 1996, future minimum lease payments under long-term
operating leases were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
ENDING DECEMBER
-------------------------------------------
<S> <C>
1997..................................... $ 2,301
1998..................................... 2,228
1999..................................... 2,183
2000..................................... 2,119
2001..................................... 2,130
Thereafter............................... 14,485
-------
Total.................................... $25,446
=======
</TABLE>
11. SUBSEQUENT EVENT
On February 14, 1997, the Company sold the net assets of its four remaining
free-standing retail bakeries for $815,000 which includes a promissory note of
$204,000. The note bears interest at 8.25% and is payable in twenty-four equal
monthly installment starting March 15, 1997. The note is collateralized by the
assets of the retail bakeries. The sales price approximates the carrying value
of the assets sold.
F-14
<PAGE> 63
======================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representation not contained in this
Prospectus, and if given or made, such information or representation must not be
relied upon as having been authorized by the Company, the Selling Stockholders
or any of the Underwriters. This Prospectus does not constitute an offer to
sell, or a solicitation of any offer to buy, any securities other than the
Common Stock to which it relates, or an offer to, or a solicitation of, any
person to whom it is unlawful to make such an offer or solicitation in any
jurisdiction. Neither the delivery of this Prospectus nor any offer or sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company or that the information contained
herein is correct at any time after the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Summary Financial and Operating
Data............................... 5
Risk Factors......................... 6
Use of Proceeds...................... 11
Dividend Policy...................... 11
Capitalization....................... 11
Dilution............................. 12
Selected Financial Data.............. 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 15
Business............................. 20
Management........................... 31
Certain Transactions................. 38
Principal and Selling Stockholders... 39
Description of Capital Stock......... 41
Shares Eligible for Future Sale...... 43
Underwriting......................... 45
Legal Matters........................ 46
Experts.............................. 46
Additional Information............... 46
Index to Financial Statements........ F-1
</TABLE>
----------------------------
Until , 1997 (25 days after the date of this Prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
======================================================
======================================================
1,500,000 SHARES
[IL FORNAIO LOGO]
COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
MONTGOMERY SECURITIES
ALEX. BROWN & SONS
INCORPORATED
, 1997
======================================================
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 5,489
NASD filing fee........................................................... 2,312
Nasdaq National Market application fee*...................................
Blue sky qualification fees and expenses*.................................
Printing and engraving expenses*..........................................
Legal fees and expenses*..................................................
Accounting fees and expenses*.............................................
Transfer agent and registrar fees*........................................
Fee for Custodian for Selling Stockholders*...............................
D&O Securities Act Liability Insurance*...................................
Miscellaneous*............................................................
-------
Total*..........................................................
=======
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
As permitted by Section 145 of the Delaware General Corporation Law, the
By-laws of the Company provide that (i) the Company is required to indemnify its
directors and executive officers to the fullest extent permitted by the Delaware
General Corporation Law, (ii) the Company may, in its discretion, indemnify
other officers, employees and agents as set forth in the Delaware General
Corporation Law, (iii) to the fullest extent permitted by the Delaware General
Corporation Law, the Company is required to advance all expenses incurred by its
directors and executive officers in connection with a legal proceeding (subject
to certain exceptions), (iv) the rights conferred in the By-laws are not
exclusive, (v) the Company is authorized to enter into indemnification
agreements with its directors, officers, employees and agents and (vi) the
Company may not retroactively amend the By-laws provisions relating to
indemnity.
The Company has entered into agreements with its directors and executive
officers that require the Company to indemnify such persons against expenses,
judgments, fines, settlements and other amounts that such person becomes legally
obligated to pay (including expenses of a derivative action) in connection with
any proceeding, whether actual or threatened, to which any such person may be
made a party by reason of the fact that such person is or was a director or
officer of the Company or any of its affiliated enterprises, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Company. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), or otherwise.
The Company maintains a directors and officers insurance policy. The policy
insures directors and officers against certain losses. The policy contains
various exclusions, none of which relate to the offering hereunder.
II-1
<PAGE> 65
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since December 29, 1993 the Registrant has sold and issued the following
unregistered securities:
1. During the period, the Company granted incentive and nonstatutory
stock options to key employees, officers and directors under its 1991
Incentive Stock Option Plan, 1992 Stock Option Plan, 1992 Nonemployee
Directors' Stock Option Plan, and 1995 Stock Option Plan (collectively,
"The Plans") covering an aggregate of 704,221 shares (net of cancellations)
of the Company's Common Stock, at an average exercise price ranging from
$4.00 to $5.50. These options vest over a period of time following their
respective dates of grant. The Company sold an aggregate of 67,988 shares
of its Common Stock to employees of the Company for consideration in the
aggregate amount of $127,807 pursuant to the exercise of stock options
granted under the Plans.
2. During the period, the Company sold 84,191 shares of Common Stock
to key employees and officers, at an average price per share varying from
$4.00 to $5.00, for an aggregate purchase price of $396,519. Of these
shares, 40,391 were subsequently repurchased by the Company at prices
ranging from $3.33 to $4.49 per share.
3. On March 6, 1996, the Company issued 8,100 shares of Common Stock
upon the conversion of 5,600 shares of Series B Preferred Stock and 2,500
shares of Series F Preferred Stock held by Seymour S. Mindel.
The Company claimed exemption from registration under the Securities
Act for the sales and issuances in the transactions described in paragraphs
(1) and (2) above under Rule 701 promulgated under the Securities Act, in
that they were issued pursuant to a written compensatory benefit plan, as
provided by Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Form of Agreement and Plan of Merger to be used in connection with the
Registrant's Reincorporation in Delaware.
3.1 Registrant's Certificate of Incorporation.
3.2 Restated Certificate of Incorporation to be effective upon closing of this
offering.
3.3 Restated By-laws to be effective upon closing of this offering.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2* Specimen stock certificate.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement between the Company and each executive officer and
director.
10.2 Summary of Bonus Plan.
10.3 1997 Equity Incentive Plan and forms of related agreements.
10.4 1997 Employee Stock Purchase Plan and form of offering related thereto.
10.5 1997 Non-Employee Director Stock Option Plan and form of related agreement.
10.6 Form of Series F Preferred Stock Purchase Agreement with Schedule of additional
Preferred Stock Purchase Agreements attached.
10.7 Form of Warrant to purchase shares of Series F Preferred Stock of the
Registrant.
10.8 Revised License Agreement, dated December 11, 1986 and Stock Purchase Agreement
dated March 6, 1987, between the Company and Veggetti S.r.1.
10.9 Assignment of Trademark Registrations Nunc Pro Tunc executed by Veggetti S.r.1.
</TABLE>
II-2
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -------------------------------------------------------------------------------
<C> <S>
10.10+ Lease Agreement, dated December 22, 1988, and Amendment, dated October 4, 1989,
between the Company and Cowper Square Partners, for Palo Alto Restaurant.
10.11+ Lease Agreement, dated November 21, 1991, between the Company and Hotel Sainte
Claire Partners, L.P., for Hotel Sainte Claire, San Jose.
10.12+ Lease Agreement dated April 15, 1996, between the Company and New York - New
York Hotel, LLC, for the Las Vegas Restaurant.
10.13 Food Service Operations Agreement dated November 21, 1991 between the Company
and Mobedshahi Hotel Group, Inc.
10.14 Loan Agreement dated October 30, 1996, between the Company, Bank of America
National Trust and Savings Association.
10.15 Employment Agreement dated April 1995, between the Company and Michael J.
Hislop.
11.1 Calculation of net income per share.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to pages II-4 and II-5.
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested for portions of this exhibit.
(B) SCHEDULES
nonapplicable
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus as filed as part of the registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act of 1933, each posteffective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, County of
San Francisco, State of California, on the 18th day of March, 1997.
IL FORNAIO (AMERICA) CORPORATION
By /s/ LAURENCE B. MINDEL
------------------------------------
Laurence B. Mindel
Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Laurence B. Mindel and Paul J. Kelley, as
his true and lawful attorney-in-fact and agent, each acting alone, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement on Form S-1, and to
any registration statement filed under Rule 462 under the Securities Act of
1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ---------------
<C> <S> <C>
/s/ LAURENCE B. MINDEL Chairman of the Board and March 18, 1997
- --------------------------------------------- Chief Executive Officer
Laurence B. Mindel (Principal Executive
Officer)
/s/ PAUL J. KELLEY Vice President, Finance and March 18, 1997
- --------------------------------------------- Chief Financial Officer and
Paul J. Kelley Secretary (Principal
Financial and Accounting
Officer)
/s/ MICHAEL J. HISLOP Director March 18, 1997
- ---------------------------------------------
Michael J. Hislop
/s/ DEAN A. CORTOPASSI Director March 18, 1997
- ---------------------------------------------
Dean A. Cortopassi
/s/ W. SCOTT HEDRICK Director March 19, 1997
- ---------------------------------------------
W. Scott Hedrick
/s/ F. WARREN HELLMAN Director March 18, 1997
- ---------------------------------------------
F. Warren Hellman
</TABLE>
II-4
<PAGE> 68
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ---------------
<C> <S> <C>
/s/ W. HOWARD LESTER Director March 18, 1997
- ---------------------------------------------
W. Howard Lester
/s/ PIERRE W. MORNELL Director March 18, 1997
- ---------------------------------------------
Pierre W. Mornell
/s/ T. GARY ROGERS Director March 19, 1997
- ---------------------------------------------
T. Gary Rogers
</TABLE>
II-5
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------ ------------------------------------------------------------------ ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement....................................
2.1 Form of Agreement and Plan of Merger to be used in connection with
the Registrant's Reincorporation in Delaware......................
3.1 Registrant's Certificate of Incorporation.........................
3.2 Restated Certificate of Incorporation to be effective upon closing
of this offering..................................................
3.3 Restated By-laws to be effective upon closing of this offering....
4.1 Reference is made to Exhibits 3.1 and 3.2.........................
4.2* Specimen stock certificate........................................
5.1* Opinion of Cooley Godward LLP.....................................
10.1 Form of Indemnity Agreement between the Company and each executive
officer and director..............................................
10.2 Summary of Bonus Plan.............................................
10.3 1997 Equity Incentive Plan and forms of related agreements........
10.4 1997 Employee Stock Purchase Plan and form of offering related
thereto...........................................................
10.5 1997 Non-Employee Director Stock Option Plan and form of related
agreement.........................................................
10.6 Series F Preferred Stock Purchase Agreement with Schedule of
additional Preferred Stock Purchase Agreements attached...........
10.7 Form of Warrant to purchase shares of Series F Preferred Stock of
the Registrant....................................................
10.8 Revised License Agreement, dated December 11, 1986 and Stock
Purchase Agreement dated March 6, 1987, between the Company and
Veggetti S.r.1....................................................
10.9 Assignment of Trademark Registrations Nunc Pro Tunc executed by
Veggetti S.r.1....................................................
10.10+ Lease Agreement, dated December 22, 1988, and Amendment, dated
October 4, 1989, between the Company and Cowper Square Partners,
for Palo Alto Restaurant..........................................
10.11+ Lease Agreement, dated November 21, 1991, between the Company and
Hotel Sainte Claire Partners, L.P., for Hotel Sainte Claire, San
Jose..............................................................
10.12+ Lease Agreement dated April 15, 1996, between the Company and New
York - New York Hotel, LLC, for the Las Vegas Restaurant..........
10.13 Food Service Operations Agreement dated November 21, 1991 between
the Company and Mobedshahi Hotel Group, Inc.......................
10.14 Loan Agreement dated October 30, 1996, between the Company, Bank
of America National Trust and Savings Association.................
10.15 Employment Agreement dated April 1995, between the Company and
Michael J. Hislop.................................................
11.1 Calculation of net income per share...............................
23.1 Consent of Deloitte & Touche LLP..................................
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1...............................................................
24.1 Power of Attorney. Reference is made to pages II-4 and II-5.......
27.1 Financial Data Schedule...........................................
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested for portions of this exhibit.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER(hereinafter called the "Merger
Agreement") is made as of March ___, 1997 by and between IL FORNAIO (AMERICA)
CORPORATION, a California corporation ("Il Fornaio California"), and IL FORNAIO
(AMERICA) DELAWARE, a Delaware corporation ("Il Fornaio Delaware"). Il Fornaio
California and Il Fornaio Delaware are sometimes referred to as the
"Constituent Corporations."
The authorized capital stock of Il Fornaio California consists of
fifteen million (15,000,000) shares of Common Stock and three million five
hundred thousand (3,500,000) shares of Preferred Stock. The authorized capital
stock of Il Fornaio Delaware consists of twenty million (20,000,000) shares of
Common Stock, $.001 par value, and five million (5,000,000) shares of Preferred
Stock, $.001 par value.
The directors of the Constituent Corporations deem it advisable and to
the advantage of said corporations that Il Fornaio California merge into Il
Fornaio Delaware upon the terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that Il Fornaio
California shall merge into Il Fornaio Delaware on the following terms,
conditions and other provisions:
1. TERMS AND CONDITIONS.
(a) MERGER. Il Fornaio California shall be merged with and into
Il Fornaio Delaware (the "Merger"), and Il Fornaio Delaware shall be the
surviving corporation (the "Surviving Corporation") effective upon the date
when this Merger Agreement is filed with the Secretary of State of Delaware
(the "Effective Date").
(b) NAME CHANGE. On the Effective Date, the name of Il Fornaio
Delaware shall be Il Fornaio (America) Corporation.
(c) SUCCESSION. On the Effective Date, Il Fornaio Delaware shall
continue its corporate existence under the laws of the State of Delaware, and
the separate existence and corporate organization of Il Fornaio California,
except insofar as it may be continued by operation of law, shall be terminated
and cease.
(d) TRANSFER OF ASSETS AND LIABILITIES. On the Effective Date,
the rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all of the disabilities,
duties and restrictions of or upon each of the Constituent Corporations; and
all and singular rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property, real, personal and mixed, of each
of the Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging
<PAGE> 2
to each of the Constituent Corporations shall be transferred to and vested in
the Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter the property
of the Surviving Corporation as they were of the Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason
of the Merger; provided, however, that the liabilities of the Constituent
Corporations and of their stockholders, directors and officers shall not be
affected and all rights of creditors and all liens upon any property of either
of the Constituent Corporations shall be preserved unimpaired, and any claim
existing or action or proceeding pending by or against either of the
Constituent Corporations may be prosecuted to judgment as if the Merger had not
taken place except as they may be modified with the consent of such creditors
and all debts, liabilities and duties of or upon each of the Constituent
Corporations shall attach to the Surviving Corporation, and may be enforced
against it to the same extent as if such debts, liabilities and duties had been
incurred or contracted by it.
(e) COMMON STOCK OF IL FORNAIO CALIFORNIA AND IL FORNAIO DELAWARE.
An the Effective Date, by virtue of the Merger and without any further action
on the part of the Constituent Corporations or their stockholders, (i) each
share of Common Stock of Il Fornaio California issued and outstanding
immediately prior thereto shall be changed and converted into one (1) fully
paid and nonassessable share of Common Stock of Il Fornaio Delaware; and (ii)
each share of Common Stock of Il Fornaio Delaware issued and outstanding
immediately prior thereto shall be canceled and returned to the status of
authorized but unissued shares.
(f) PREFERRED STOCK OF IL FORNAIO CALIFORNIA AND IL FORNAIO
DELAWARE. On the Effective Date, by virtue of the Merger and without any
further action on the part of the Constituent Corporations or their
stockholders, (i) each share of Series A Preferred Stock of Il Fornaio
California issued and outstanding immediately prior thereto shall be changed
and converted into one fully paid and nonassessable share of Series A Preferred
Stock of Il Fornaio Delaware, (ii) each share of Series B Preferred Stock of Il
Fornaio California issued and outstanding immediately prior thereto shall be
changed and converted into one fully paid and nonassessable share of Series B
Preferred Stock of Il Fornaio Delaware, (iii) each share of Series C Preferred
Stock of Il Fornaio California issued and outstanding immediately prior thereto
shall be changed and converted into one fully paid and nonassessable share of
Series C Preferred Stock of Il Fornaio Delaware, (iv) each share of Series D
Preferred Stock of Il Fornaio California issued and outstanding immediately
prior thereto shall be changed and converted into one fully paid and
nonassessable share of Series D Preferred Stock of Il Fornaio Delaware, (v)
each share of Series E Preferred Stock of Il Fornaio California issued and
outstanding immediately prior thereto shall be changed and converted into one
fully paid and nonassessable share of Series E Preferred Stock of Il Fornaio
Delaware, and (vi) each share of Series F Preferred Stock of Il Fornaio
California issued and outstanding immediately prior thereto shall be changed
and converted into one fully paid and non-assessable share of Series F
Preferred Stock of Il Fornaio Delaware.
(g) STOCK CERTIFICATES. On and after the Effective Date, all of
the outstanding certificates which prior to that time represented shares of the
Common Stock and Preferred Stock of Il Fornaio California shall be deemed for
all purposes to evidence ownership of and to represent the shares of Il Fornaio
Delaware into which the shares of Il Fornaio California
2.
<PAGE> 3
represented by such certificates have been converted as herein provided and
shall be so registered on the books and records of the Surviving Corporation or
its transfer agents. The registered owner of any such outstanding stock
certificate shall, until such certificate shall have been surrendered for
transfer or conversion or otherwise accounted for to the Surviving Corporation
or its transfer agent, have and be entitled to exercise any voting and other
rights with respect to and to receive any dividend and other distributions upon
the shares of Il Fornaio Delaware evidenced by such outstanding certificate as
above provided.
(h) WARRANTS OF IL FORNAIO CALIFORNIA. On and after the Effective
Date, the outstanding Warrants which prior to that time represented Warrants of
Il Fornaio California shall be deemed for all purposes to evidence ownership of
and to represent Warrants of Il Fornaio Delaware and shall be so registered on
the books and records of the Surviving Corporation or its transfer agents.
(i) OPTIONS OF IL FORNAIO CALIFORNIA. On the Effective Date, the
Surviving Corporation will assume and continue all of Il Fornaio California's
stock option plans in existence on the Effective Date, including, but not
limited to the 1997 Non-Employee Directors' Stock Option Plan and the 1997
Equity Incentive Plan, and the outstanding options to purchase Common Stock of
Il Fornaio California, including without limitation all options outstanding
under such stock option plans and any other outstanding options, shall become
options to purchase shares of Common Stock of Il Fornaio Delaware, subject to
applicable adjustment provisions with respect to the number of and price per
share, with no other changes in the terms and conditions of such options.
Effective on the Effective Date, Il Fornaio Delaware hereby assumes the
outstanding and unexercised portions of such options and the obligations of Il
Fornaio California with respect thereto.
(j) STOCK PURCHASE PLAN OF IL FORNAIO CALIFORNIA. On the
Effective Date, the Surviving Corporation will assume all obligations of and
continue Il Fornaio California's Employee Stock Purchase Plan.
(k) EMPLOYEE BENEFIT PLANS. On the Effective Date, the Surviving
Corporation shall assume all obligations of Il Fornaio California under any and
all employee benefit plans in effect as of such date. On the Effective Date,
the Surviving Corporation shall adopt and continue in effect all such employee
benefit plans upon the same terms and conditions as were in effect immediately
prior to the Merger and shall reserve that number of shares of Il Fornaio
Delaware Common Stock with respect to each such employee benefit plan as is
equal to the number of shares of Il Fornaio California Common Stock (if any) so
reserved on the Effective Date.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS.
(a) CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of Il Fornaio Delaware in effect on the Effective Date
shall continue to be the Certificate of Incorporation and Bylaws of the
Surviving Corporation, except that Article I of the Certificate of
Incorporation of the Surviving Corporation shall, effective upon the filing of
this Merger
3.
<PAGE> 4
Agreement with the Secretary of the State of Delaware, be amended to read in
its entirety as follows: "The name of this Corporation is Il Fornaio (America)
Corporation."
(b) DIRECTORS. The directors of Il Fornaio California immediately
preceding the Effective Date shall become the directors of the Surviving
Corporation on and after the Effective Date to serve until the expiration of
their terms and until their successors are elected and qualified.
(c) OFFICERS. The officers of Il Fornaio California immediately
preceding the Effective Date shall become the officers of the Surviving
Corporation on and after the Effective Date to serve at the pleasure of its
Board of Directors.
3. MISCELLANEOUS.
(a) FURTHER ASSURANCES. From time to time, and when required by
the Surviving Corporation or by its successors and assigns, there shall be
executed and delivered on behalf of Il Fornaio California such deeds and other
instruments, and there shall be taken or caused to be taken by it such further
and other action, as shall be appropriate or necessary in order to vest or
perfect in or to conform of record or otherwise, in the Surviving Corporation
the title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of Il Fornaio
California and otherwise to carry out the purposes of this Merger Agreement,
and the officers and directors of the Surviving Corporation are fully
authorized in the name and on behalf of Il Fornaio California or otherwise to
take any and all such action and to execute and deliver any and all such deeds
and other instruments.
(b) AMENDMENT. At any time before or after approval by the
stockholders of Il Fornaio California, this Merger Agreement may be amended in
any manner (except that, after the approval of the Merger Agreement by the
stockholders of Il Fornaio California, the principal terms may not be amended
without the further approval of the stockholders of Il Fornaio California) as
may be determined in the judgment of the respective Board of Directors of Il
Fornaio Delaware and Il Fornaio California to be necessary, desirable, or
expedient in order to clarify the intention of the parties hereto or to effect
or facilitate the purpose and intent of this Merger Agreement.
(c) CONDITIONS TO MERGER. The obligation of the Constituent
Corporations to effect the transactions contemplated hereby is subject to
satisfaction of the following conditions (any or all of which may be waived by
either of the Constituent Corporations in its sole discretion to the extent
permitted by law):
(i) the Merger shall have been approved by the
stockholders of Il Fornaio California in accordance with applicable provisions
of the General Corporation Law of the State of California; and
(ii) Il Fornaio California, as sole stockholder of Il
Fornaio Delaware, shall have approved the Merger in accordance with the General
Corporation Law of the State of Delaware; and
4.
<PAGE> 5
(iii) any and all consents, permits, authorizations,
approvals, and orders deemed in the sole discretion of Il Fornaio California to
be material to consummation of the Merger shall have been obtained.
(d) ABANDONMENT OR DEFERRAL. At any time before the Effective
Date, this Merger Agreement may be terminated and the Merger may be abandoned
by the Board of Directors of either Il Fornaio California or Il Fornaio
Delaware or both, notwithstanding the approval of this Merger Agreement by the
stockholders of Il Fornaio California or Il Fornaio Delaware or the prior
filing of this Merger Agreement with the Secretary of State of the State of
Delaware, or the consummation of the Merger may be deferred for a reasonable
period of time if, in the opinion of the Boards of Directors of Il Fornaio
California and Il Fornaio Delaware, such action would be in the best interests
of such corporations. In the event of termination of this Merger Agreement,
this Merger Agreement shall become void and of no effect and there shall be no
liability on the part of either Constituent Corporation or its Board of
Directors or stockholders with respect thereto, except that Il Fornaio
California shall pay all expenses incurred in connection with the Merger or in
respect of this Merger Agreement or relating thereto.
(e) COUNTERPARTS. In order to facilitate the filing and recording
of this Merger Agreement, the same may be executed in any number of
counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREO, this Merger Agreement, having first been fully
approved by the Board of Directors of Il Fornaio California and Il Fornaio
Delaware, is hereby executed on behalf of each said corporation and attested by
their respective officers thereunto duly authorized.
IL FORNAIO (AMERICA) CORPORATION,
ATTEST: a California corporation
By:
- ------------------------------ -------------------------------
Paul J. Kelley Laurence B. Mindel
Secretary Chairman of the Board and
Chief Executive Officer
IL FORNAIO DELAWARE CORPORATION,
ATTEST: a Delaware corporation
By:
- ------------------------------ -------------------------------
Paul J. Kelley Laurence B. Mindel
Secretary Chairman of the Board and
Chief Executive Officer
5.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
IL FORNAIO (AMERICA) DELAWARE CORPORATION
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is Il Fornaio (America) Delaware
Corporation.
II.
The address of the registered office of the corporation in the State
of Delaware is 15 East North Street, City of Dover, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at
such address is the Incorporating Services.
III.
The purpose of this 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.
IV.
A. This corporation is authorized to issue two classes of stock
to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the corporation is authorized to issue is
twenty-five million shares (25,000,000). Twenty million (20,000,000) shares
shall be Common Stock, each having a par value of one-tenth of one cent
($.001). Five million (5,000,000) shares shall be Preferred Stock, each having
a par value of one-tenth of one cent ($.001).
B. The Preferred Stock may be divided into such number of series
as the Board of Directors may determine. Subject to the provisions of
paragraph 6, the Board of Directors is authorized to determine and alter the
rights, preferences, privileges and restrictions granted to and
1.
<PAGE> 2
imposed upon the Preferred Stock or any series thereof with respect to any
wholly unissued class or series of Preferred Stock, and to fix the number of
shares of any series of Preferred Stock and the designation of any such series
of Preferred Stock. The Board of Directors, within the limits and restrictions
stated in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series, may increase or decrease
(but not below the number of shares of such series then outstanding) the number
of shares of any series subsequent to the issue of shares of that series.
C. Five hundred forty-two thousand two hundred twenty-five
(542,225) shares of Preferred Stock are designated as shares of "Series B
Preferred Stock." Five hundred twenty-one thousand seven hundred thirty-nine
(521,739) shares of Preferred Stock are designated as shares of "Series C
Preferred Stock." Five hundred twenty-one thousand seven hundred thirty-nine
(521,739) shares of Preferred Stock are designated as shares of "Series D
Preferred Stock." Four hundred fifty thousand (450,000) Shares of Preferred
Stock are designated as Shares of "Series E Preferred Stock." Eight hundred
twenty-five thousand (825,000) Shares of Preferred Stock are designated as
Shares of "Series F Preferred Stock."
D. The relative rights, preferences, privileges and restrictions
of the Common Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock, the Series E Preferred Stock and the
Series F Preferred Stock shall be in all respects identical, except for and
subject to the following provisions:
1. DIVIDENDS. Holders of the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred
Stock and the Series F Preferred Stock shall be entitled to receive, when and
as declared by the Board of Directors of the Corporation, out of any assets at
the time legally available therefor, any dividends or other distributions paid
with respect to the Common Stock of the Corporation (the "Common Stock") in the
same amount per share as holders of such Common Stock are entitled to receive,
for the number of shares into which each share of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock is convertible. Dividends on the Series B Preferred
Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E
Preferred Stock and the Series F Preferred Stock shall be payable in preference
and prior to any payment of any dividend on the Common Stock of the
Corporation. No dividends (other than those payable solely in Common Stock)
shall be paid on the Common Stock during any fiscal year of the Corporation
until all declared dividends on the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock and
the Series F Preferred Stock are paid or set aside. The right to dividends on
shares of the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock, the Series E Preferred Stock and the Series F
Preferred Stock shall not be cumulative, and no right shall accrue to holders
of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Series F Preferred Stock by reason of the
fact that dividends on said shares are not declared in any prior period.
2.
<PAGE> 3
2. LIQUIDATION PREFERENCE.
a. PREFERRED STOCKS.
(1) PREFERENCE. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be
entitled to receive, out of the assets of the Corporation, whether such assets
are capital or surplus of any nature, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of Common Stock of the Corporation, an amount equal to $4.6106 per
share, $5.75 per share, $5.75 per share, $8.77 per share and $10.25 per share,
respectively, plus a further amount equal to any dividends declared but unpaid
on such shares, and no more. If upon such liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation are insufficient to
provide for the full preferential amounts to the holders of Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock, then those assets of the Corporation
available to be distributed to the holders of Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock shall be distributed ratably among the holders of
Preferred Stock in accordance with the preferential amounts due them.
(2) CONSOLIDATION OR MERGER. A consolidation or
merger of the Corporation with or into any other corporation or corporations,
or a sale of all or substantially all of the assets of the Corporation, or a
series of related transactions in which more than 50% of the voting power of
the Corporation is disposed of, shall not be deemed to be a liquidation,
dissolution or winding up within the meaning of this subparagraph 2.a.
b. NONCASH DISTRIBUTIONS. If any of the assets of the
Corporation are to be distributed other than in cash under this paragraph 2 or
for any purpose, then the Board of Directors of the Corporation shall promptly
engage independent competent appraisers to determine the value of the assets to
be distributed to the holders of Preferred Stock or Common Stock. The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice to each holder of shares of Preferred Stock or Common Stock of
the appraiser's valuation.
3. VOTING RIGHTS.
a. COMMON STOCK. Holders of each share of Common Stock
shall be entitled to one vote per share and to vote together as a single class.
b. PREFERRED STOCK. Holders of each share of Series B
Preferred Stock, Series C Preferred Stock, Series E Preferred Stock and Series
F Preferred Stock shall be entitled to that number of votes equal to the number
of shares of Common Stock into which each share of Series B Preferred Stock,
Series C Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
could be converted, respectively, on the record date for the vote or written
consent of shareholders and, except as otherwise required by law, shall have
voting rights and
3.
<PAGE> 4
powers equal to the voting rights and powers of the Common Stock. Holders of
each share of Series D Preferred Stock shall not be entitled to voting rights,
except as otherwise required by law. The holder of each share of Series B
Preferred Stock, Series C Preferred Stock, Series E Preferred Stock and Series
F Preferred Stock shall be entitled to notice of any shareholders' meeting in
accordance with the bylaws of the Corporation and shall vote together as a
single class with holders of the Common Stock upon the election of directors
and upon any other matter submitted to a vote of shareholders, except those
matters required by law to be submitted to a class vote and as required under
paragraph 6. Fractional votes shall not, however, be permitted and any
fractional voting rights resulting from the above formula (after aggregating
all shares of Common Stock into which shares of Series B Preferred Stock,
Series C Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
held by each holder could be converted) shall be rounded to the nearest whole
number (with one-half rounded upward to one).
4. CONVERSION.
a. SERIES B PREFERRED STOCK AND SERIES C PREFERRED
STOCK. Each share of Series B Preferred Stock and Series C Preferred Stock
shall be convertible as follows:
(1) AUTOMATIC CONVERSION. Each share of Series B
Preferred Stock and Series C Preferred Stock shall automatically be converted
into 1.262 shares of Common Stock (adjusted from one (1) share of Common Stock
effective March 23, 1992), subject to adjustments as provided in subparagraph
4.a(3) below, as of the close of business on the day next preceding the day on
which the first, if any, of the following occurs:
(a) PUBLIC OFFERING. The closing of a
firm commitment public offering pursuant to a registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
the aggregate gross proceeds of which equal or exceed $7,500,000 filed with the
Securities and Exchange Commission or any successor agency or body performing
similar functions (hereinafter referred to as a "Public Offering"); or"
(b) ACQUISITION. The consummation of
(i) any merger or consolidation between the Corporation and any other
corporation which is not prior to that time an affiliate of the Corporation or
(ii) the sale, lease or exchange of all or substantially all of the assets of
the Corporation to or with any person where either one of the following
conditions is met (such transactions described in clauses (i) and (ii) above
being hereinafter collectively referred to as "Acquisitions"):
(A) such conversion to Common Stock
is approved by a vote of the majority of all outstanding shares of Preferred
Stock voting on an as-converted basis in accordance with paragraph 3.b. above;
or
(B) the fair market value of Common
Stock (appropriately adjusted for subdivisions and combinations of shares of
Common Stock), as determined by the Board of Directors, into which the Series B
Preferred Stock and Series C Preferred Stock is to be
4.
<PAGE> 5
converted is at least $12.10 per share (adjusted from $15.27 effective March
23, 1992) and shall be subject to adjustment from time to time for subdivisions
and combinations of shares of Common Stock.
For purposes of subparagraph 4.a(l) (b)
the term "person" shall include any individual, corporation, partnership,
association or other entity, and the term "affiliate" shall have the meaning
given in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934 as in effect on December 15, 1989. The Board of Directors
shall have the power and duty to determine conclusively whether any conditions
set forth in this subparagraph 4.a have been satisfied.
(c) CONVERSION MECHANICS. A holder of
shares of Series B Preferred Stock or Series C Preferred Stock whose shares
have been converted shall deliver the certificate(s) representing such shares
to the Corporation or its duly authorized agent (or if such certificates have
been lost, stolen or destroyed, such holder shall execute an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such conversion) specifying the place where
the Common Stock issued in conversion shall be sent. The endorsement of the
share certificate shall be in form satisfactory to the Corporation or such
agent, as the case may be. The conversion shall be deemed to have occurred
(whether or not certificates representing such shares are surrendered or
indemnity agreements with respect to such shares are executed) as of the close
of business on the day next preceding the day on which the first, if any, of
the events set forth in subparagraphs 4.a(l) (a) or 4.a(l) (b) occurs, and all
of the holders' rights with respect to such shares of Series B Preferred Stock
and Series C Preferred Stock shall cease as of such date.
(2) OPTIONAL CONVERSION.
(a) CONVERSION RATIO. Each share of
Series B Preferred Stock and Series C Preferred Stock shall, subject to
adjustments as provided in subparagraph 4.a(3) below, be convertible into 1.262
shares of Common Stock (adjusted from one (1) share of Common Stock effective
March 23, 1992) at the option of the holder thereof, at any time.
(b) CONVERSION MECHANICS. A holder of
shares of Series B Preferred Stock or Series C Preferred Stock desiring to
convert such shares shall deliver to the Corporation or its duly authorized
agent the certificate(s) representing such shares (or if such certificates have
been lost, stolen or destroyed, such holder shall execute an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such conversion) accompanied by a written
request to convert specifying the number of shares to be converted, the place
where the Common Stock issued in conversion thereof shall be sent, and the name
or names in which such holder wishes the certificate or certificates for Common
Stock to be issued. The endorsement of the share certificate and the request
to convert shall be in form satisfactory to the Corporation or such agent, as
the case may be. Such conversion shall be deemed to have occurred as of the
close of business on the day next preceding the date of such delivery of such
shares of Series B Preferred Stock or Series C Preferred Stock to be converted.
5.
<PAGE> 6
The person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock as of said date.
(3) ADJUSTMENTS. If the Corporation shall at any
time subdivide the outstanding shares of Common Stock, or shall issue as a
dividend on shares of Common Stock other shares of Common Stock, the number of
shares into which each share of Series B Preferred Stock and Series C Preferred
Stock is convertible immediately prior to such subdivision or the issuance of
such dividend shall be proportionately increased; and in case the Corporation
shall at any time combine the outstanding shares of Common Stock, the number of
shares into which each share of Series B Preferred Stock and Series C Preferred
Stock is convertible immediately prior to such combination shall be
proportionately decreased, effective at the close of business on the date of
such subdivision, dividend or combination, as the case may be.
(4) RESERVATION OF SHARES, ETC.
(a) RESERVATION OF SHARES. The
Corporation shall at all times reserve and keep available, out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Series B Preferred Stock and the Series C
Preferred Stock, the full number of shares of Common Stock deliverable upon
conversion of all shares of Series B Preferred Stock and Series C Preferred
Stock from time to time outstanding and the full number of shares of Common
Stock deliverable upon conversion of all shares of Series C Preferred Stock
that may potentially be outstanding as a result of the future conversion of all
shares of Series D Preferred Stock from time to time outstanding into such
shares of Series C Preferred Stock. The Corporation shall from time to time,
in accordance with the laws of the State of California, increase the authorized
amount of its shares of Common Stock if at any time the authorized number of
shares of Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of Series B Preferred Stock and Series C
Preferred Stock at the time outstanding.
(b) CANCELLATION OF SHARES OF SERIES.
All certificates evidencing Series B Preferred Stock and Series C Preferred
Stock surrendered for conversion shall be appropriately canceled on the books
of the Corporation, and the shares so converted shall be restored to the status
of authorized but unissued Preferred Stock of the Corporation.
(c) BOARD DETERMINATION. The Board of
Directors shall have the power and the duty to determine conclusively whether
any conditions set forth in this subparagraph 4.a have been satisfied.
b. SERIES D PREFERRED STOCK. Each share of Series D
Preferred Stock shall be convertible as follows:
(1) AUTOMATIC CONVERSION. Immediately prior to
the automatic conversion of shares of Series C Preferred Stock pursuant to
subparagraph 4.a(l) above, each share of Series D Preferred Stock shall
automatically be converted into one (1) share of Series C
6.
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Preferred Stock, subject to adjustment as provided in subparagraph 4.b(3)
below, as of the close of business on the day next preceding the day on which
the first, if any, of the following occurs:
(a) PUBLIC OFFERING. The closing of a
Public Offering as defined in subparagraph 4.a(1)(a) above; or
(b) ACQUISITION. The consummation of an
Acquisition as defined in subparagraph 4.a(1)(b) above.
(c) CONVERSION MECHANICS. A holder of
shares of Series D Preferred Stock whose shares have been converted shall
deliver the certificate(s) representing such shares to the Corporation or its
duly authorized agent (or if such certificates have been lost, stolen or
destroyed, such holder shall execute an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such conversion) specifying the place where the Series C
Preferred Stock issued in conversion thereof shall be sent. The endorsement of
the share certificate shall be in form satisfactory to the Corporation or such
agent, as the case may be. The conversion shall be deemed to have occurred
(whether or not certificates representing such shares are surrendered or
indemnity agreements with respect to such shares are executed) immediately
prior to the close of business on the day next preceding the day on which the
first, if any, of the events set forth in subparagraphs 4.a(1)(a) or 4.a(1)(b)
occurs, and all of the holders' rights with respect to such shares of Series D
Preferred Stock shall cease as of such date.
(2) OPTIONAL CONVERSION.
(a) CONVERSION RATIO. Each share of
Series D Preferred Stock shall, unless prohibited by law or regulation and
subject to adjustments as provided in subparagraph 4.b(3) below, be convertible
into one (1) share of Series C Preferred Stock at the option of the holder
thereof, at any time.
(b) CONVERSION MECHANICS. A holder of
shares of Series D Preferred Stock desiring to convert such shares shall
deliver to the Corporation or its duly authorized agent the certificate(s)
representing such shares (or if such certificates have been lost, stolen or
destroyed, such holder shall execute an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such conversion) accompanied by a written request to convert
specifying the number of shares to be converted, the place where the Series C
Preferred Stock issued in conversion thereof shall be sent, and the name or
names in which such holder wishes the certificate or certificates for Series C
Preferred Stock to be issued. The endorsement of the share certificate and the
request to convert shall be in form satisfactory to the Corporation or such
agent, as the case may be. Such conversion shall be deemed to have occurred as
of the close of business on the day next preceding the date of such delivery of
such shares of Series D Preferred Stock to be converted. The person or persons
entitled to receive the Series C Preferred Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
Series C Preferred Stock as of said date.
7.
<PAGE> 8
(3) ADJUSTMENTS.
(a) NO ADJUSTMENT UPON CHANGE IN COMMON
STOCK. The shares of Series D Preferred Stock are convertible into shares of
Series C Preferred Stock, which shares of Series C Preferred Stock are subject
to adjustment pursuant to, and upon the events described in, subparagraph
4.a(3). Therefore, upon such events, it is unnecessary to provide for, and the
Corporation shall not make, any further direct adjustment of the number of
shares of Series C Preferred Stock into which the Series D Preferred Stock is
convertible.
(b) ADJUSTMENT UPON CHANGE IN SERIES C
PREFERRED STOCK. In the event of any stock split, stock dividend or other
recapitalization that affects the Series C Preferred Stock without similarly
affecting the Common Stock so as to trigger an adjustment pursuant to
subparagraph 4.a(3), the number of shares of Series C Preferred Stock into
which each share of Series D Preferred Stock is convertible immediately prior
to such event shall be equitably adjusted, effective at the close of business
on the date of such event.
(4) RESERVATION OF SHARES, ETC.
(a) RESERVATION OF SHARES. The
Corporation shall at all times reserve and keep available, out of its
authorized but unissued shares of Series C Preferred Stock, solely for the
purpose of effecting the conversion of the Series D Preferred Stock, the full
number of shares of Series C Preferred Stock deliverable upon conversion of all
shares of Series D Preferred Stock from time to time outstanding. The
Corporation shall from time to time, in accordance with the laws of the State
of California, increase the authorized amount of its shares of Series C
Preferred Stock (and, consequently, its shares of Common Stock) if at any time
the authorized number of shares of Series C Preferred Stock (and, consequently,
its Common Stock) remaining unissued shall not be sufficient to permit the
conversion of all of the shares of Series D Preferred Stock at the time
outstanding.
(b) CANCELLATION OF SHARES OF SERIES.
All certificates evidencing Series D Preferred Stock surrendered for conversion
shall be appropriately canceled on the books of the Corporation, and the shares
so converted shall be restored to the status of authorized but unissued
Preferred Stock of the Corporation.
(c) BOARD DETERMINATION. The Board of
Directors shall have the power and the duty to determine conclusively whether
any conditions set forth in this subparagraph 4.b have been satisfied.
c. SERIES E AND SERIES F PREFERRED STOCK. Each share of
Series E Preferred Stock and Series F Preferred Stock shall be convertible as
follows:
(1) AUTOMATIC CONVERSION. Each share of Series E
Preferred Stock and Series F Preferred Stock, respectively, shall automatically
be converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $8.77 and $10.25,
8.
<PAGE> 9
respectively, by the Series E Conversion Price and Series F Conversion Price,
respectively, determined as hereinafter provided, in effect at the time of
conversion, as of the close of business on the day next preceding the day on
which the first, if any, of the following occurs:
(a) PUBLIC OFFERING. The closing of a
Public Offering as defined in subparagraph 4.a(1)(a) above; or
(b) ACQUISITION. The consummation of an
Acquisition as defined in subparagraph 4.a(l)(b) above.
(c) CONVERSION PRICE. The price at
which shares of Common Stock shall be deliverable upon conversion of the Series
E Preferred Stock (the "Series E Conversion Price") shall initially be
$6.949287 per share (adjusted from $8.77 per share effective March 23, 1992).
The price at which shares of Common Stock shall be deliverable upon conversion
of the Series F Preferred Stock (the "Series F Conversion Price") shall
initially be $8.122029 per share.
(d) CONVERSION MECHANICS. A holder of
shares of Series E Preferred Stock or Series F Preferred Stock whose shares
have been converted shall deliver the certificate(s) representing such shares
to the Corporation or its duly authorized agent (or if such certificates have
been lost, stolen or destroyed, such holder shall execute an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such conversion) specifying the place where
the Common Stock issued in conversion shall be sent. The endorsement of the
share certificate shall be in form satisfactory to the Corporation or such
agent, as the case may be. The conversion shall be deemed to have occurred
(whether or not certificates representing such shares are surrendered or
indemnity agreements with respect to such shares are executed) as of the close
of business on the day next preceding the day on which the first, if any, of
the events set forth in subparagraphs 4.c(l)(a) or 4.c(l)(b) occurs, and all of
the holders' rights with respect to such shares of Series E Preferred Stock or
Series F Preferred Stock, as appropriate, shall cease as of such date.
(2) OPTIONAL CONVERSION.
(a) CONVERSION. Each share of Series E
Preferred Stock or Series F Preferred Stock, as appropriate, shall be
convertible, at the option of the holder thereof, at any time into shares of
Common Stock at the then effective Series E Conversion Price or Series F
Conversion Price, as appropriate.
(b) CONVERSION MECHANICS. A holder of
shares of Series E Preferred Stock or Series F Preferred Stock desiring to
convert such shares shall deliver to the Corporation or its duly authorized
agent the certificate(s) representing such shares (or if such certificates have
been lost, stolen or destroyed, such holder shall execute an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such conversion) accompanied by a written
request to convert specifying the number of shares to
9.
<PAGE> 10
be converted, the place where the Common Stock issued in conversion thereof
shall be sent, and the name or names in which such holder wishes the
certificate or certificates for Common Stock to be issued. The endorsement of
the share certificate and the request to convert shall be in form satisfactory
to the Corporation or such agent, as the case may be. Such conversion shall be
deemed to have occurred as of the close of business on the day next preceding
the date of such delivery of such shares of Series E Preferred Stock or Series
F Preferred Stock, as appropriate, to be converted. The person or persons
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such Common Stock
as of said date.
(3) ADJUSTMENTS TO SERIES E CONVERSION PRICE OR
SERIES F CONVERSION PRICE FOR CERTAIN
DILUTING ISSUES.
(a) SPECIAL DEFINITIONS. For purposes
of this subparagraph 4.c, the following definitions shall apply:
(i) "OPTIONS" shall mean rights,
options or warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities (defined below).
(ii) "ORIGINAL ISSUE DATE" shall
mean the date on which a share of Series E Preferred Stock or Series F
Preferred Stock, as applicable, was first issued.
(iii) "CONVERTIBLE SECURITIES" shall
mean any evidences of indebtedness, shares (other than Common Stock, Series B
Preferred Stock, Series C Preferred Stock, Series E Preferred Stock and Series
F Preferred Stock) or other securities convertible into or exchangeable for
Common Stock.
(iv) "ADDITIONAL SHARES OF COMMON
STOCK" shall mean all shares of Common Stock issued (or, pursuant to
subparagraph 4.c(3)(c) deemed to be issued) by the Corporation after the
Original Issue Date, other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of
Series B Preferred Stock, Series C Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock.
(B) to officers, directors or
employees of, or consultants to, the Corporation pursuant to a stock grant,
option plan or purchase plan or other employee stock incentive program
(collectively, the "Plans") approved by the Board of Directors;
(C) as a dividend or distribution
on Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Series F Preferred Stock;
10.
<PAGE> 11
(D) by way of dividend or other
distribution on shares of Common Stock excluded from the definition of
Additional Shares of Common Stock by the foregoing clauses (A), (B) and (C) or
on shares of Common Stock so excluded.
(b) NO ADJUSTMENT OF CONVERSION PRICE.
No adjustment in the Series E Conversion Price or Series F Conversion Price,
respectively, of a particular share of Series E Preferred Stock or Series F
Preferred Stock, respectively, shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Series E Conversion Price or Series F Conversion
Price, as appropriate, in effect on the date of, and immediately prior to such
issue, for such share of Series E Preferred Stock or Series F Preferred Stock.
(c) DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK.
(i) OPTIONS AND CONVERTIBLE
SECURITIES. In the event the Corporation at any time or from time to time
after the Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible Securities, then
the maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such record
date, provided that Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined pursuant to
subparagraph 4.c(3)(e) hereof) of such Additional Shares of Common Stock would
be less than the Series E Conversion Price or Series F Conversion Price, as
appropriate, in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further, that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the
Series E Conversion Price or Series F Conversion Price, as appropriate, shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
decrease or increase in the number of shares of Common Stock issuable upon the
exercise, conversion or exchange thereof, the Series E Conversion Price or the
Series F Conversion Price, as appropriate, computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto) and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be
11.
<PAGE> 12
recomputed to reflect such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities (provided, however, that no such adjustment of the Series E
Conversion Price or the Series F Conversion Price shall affect Common Stock
previously issued upon conversion of the Series E Preferred Stock or the Series
F Preferred Stock, as appropriate);
(C) upon the expiration of any
such Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Series E Conversion Price
or the Series F Conversion Price, as appropriate, computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto)
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if:
(1) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange, and
(2) in the case of Options for
Convertible Securities, the only Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to subparagraph 4.c(3) (e)) upon the issue of
the Convertible Securities with respect to which such Options were actually
exercised;
(D) no readjustment pursuant to
clause (B) or (C) above shall have the effect of increasing the Series E
Conversion Price or the Series F Conversion Price to an amount which exceeds
the lower of (i) the Series E Conversion Price or the Series F Conversion
Price, as appropriate, on the original adjustment date, or (ii) the Series E
Conversion Price or the Series F Conversion Price, as appropriate, that would
have resulted from any issuance of Additional Shares of Common Stock between
the original adjustment date and such readjustment date.
(d) ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event this Corporation
shall issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to subparagraph 4.c(3)(c)) without
consideration or for a consideration per share less than the
12.
<PAGE> 13
Series E Conversion Price or the Series F Conversion Price, as appropriate, in
effect on the date of and immediately prior to such issue, then and in such
event, the Series E Conversion Price or the Series F Conversion Price, as
appropriate, shall be reduced, concurrently with such issue, to a price
determined by multiplying the Series E Conversion Price or the Series F
Conversion Price, as appropriate, by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at the Series E Conversion
Price or the Series F Conversion Price, as appropriate; and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock
so issued; provided, however, the Series E Conversion Price or the Series F
Conversion Price shall in no event be less than $4.56 per share (which was
adjusted from $5.75 effective March 23, 1992) (as adjusted for stock splits,
combinations and similar events) and provided further that, for the purposes of
this subparagraph 4.c(3)(d) all shares of Common Stock issuable upon conversion
of all outstanding Series E Preferred Stock or Series F Preferred Stock, as
appropriate, and all outstanding Convertible Securities, and upon exercise of
all outstanding Options bearing an exercise price which is lower than the price
at which the Additional Shares of Common Stock were issued (or deemed to be
issued), shall be deemed to be outstanding, and immediately after any
Additional Shares of Common Stock are deemed issued pursuant to subparagraph
4.c(3)(c) such Additional Shares of Common Stock shall be deemed to be
outstanding.
(e) DETERMINATION OF CONSIDERATION. For
purposes of this paragraph 4.c(3) the consideration received by the Corporation
for the issue of any Additional Shares of Common Stock shall be computed as
follows:
(1) CASH AND PROPERTY. Such
consideration shall:
(A) insofar as it consists of
cash, be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined by the Board of Directors in the good faith exercise
of its reasonable business judgment; and
(C) in the event Additional Shares
of Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, the proportion
of such consideration so received, computed as provided in clauses (A) and (B)
above, as determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE
SECURITIES. The consideration per share received by the Corporation for
Additional Shares of Common Stock
13.
<PAGE> 14
deemed to have been issued pursuant to subparagraph 4.c(3)(c)(i), relating to
Options and Convertible Securities, shall be determined by dividing
(X) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of such consideration) payable to the Corporation upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities by
(Y) the maximum number of shares
of Common Stock (as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(f) ADJUSTMENTS TO SERIES E CONVERSION
PRICE AND SERIES F CONVERSION PRICE FOR STOCK DIVIDENDS AND FOR COMBINATIONS OR
SUBDIVISIONS OF COMMON STOCK. In the event that this Corporation at any time
or from time to time after the Original Issue Date shall declare or pay,
without consideration, any dividend on the Common Stock payable in Common Stock
or in any right to acquire Common Stock for no consideration, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to acquire Common Stock)
or in the event the outstanding shares of Common Stock shall be combined or
consolidated by reclassification or otherwise, into a lesser number of shares
of Common Stock, then the Series E Conversion Price and the Series F Conversion
Price for any series of Preferred Stock in effect immediately prior to such
event shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. In the event that this
Corporation shall declare or pay, without consideration, any dividend on the
Common Stock payable in any right to acquire Common Stock for no consideration,
then the Corporation shall be deemed to have made a dividend payable in Common
Stock in an amount of shares equal to the maximum number of shares issuable
upon exercise of such rights to acquire Common Stock.
(g) ADJUSTMENTS FOR RECLASSIFICATION AND
REORGANIZATION. If the Common Stock issuable upon conversion of the Series E
Preferred Stock and the Series F Preferred Stock shall be changed into the same
or a different number of shares of any other class or classes of stock, whether
by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for in subparagraph 4.c(3)(f)
above), the Series E Conversion Price and the Series F Conversion Price, as
appropriate, then in effect shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted so that the
Series E Preferred Stock and the Series F Preferred Stock, as appropriate,
shall be convertible into, in lieu of the number of shares of Common Stock
which the holders
14.
<PAGE> 15
would otherwise have been entitled to receive, a number of shares of Common
Stock that would have been subject to receipt by the holders upon conversion of
the Series E Preferred Stock and the Series F Preferred Stock, as appropriate,
immediately before that change.
(4) NO IMPAIRMENT. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation but
will at all times in good faith assist in the carrying out of all the
provisions of this paragraph 4.c and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series E Preferred Stock and the Series F Preferred Stock
against impairment.
(5) CERTIFICATE AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Series E Conversion Price
or the Series F Conversion Price pursuant to this paragraph 4.c, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series E Preferred Stock or Series F Preferred Stock, as appropriate, a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series E Preferred
Stock or Series F Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Series E Conversion Price or the Series F Conversion Price, as
appropriate, at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of Series E Preferred Stock or the Series F
Preferred Stock, as appropriate.
(6) RESERVATION OF SHARES, ETC.
(a) RESERVATION OF SHARES. The
Corporation shall at all times reserve and keep available, out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Series E Preferred Stock and the Series F
Preferred Stock, the full number of shares of Common Stock deliverable upon
conversion of all shares of Series E Preferred Stock and Series F Preferred
Stock from time to time outstanding. The Corporation shall from time to time,
in accordance with the laws of the State of California, increase the authorized
amount of its shares of Common Stock if at any time the authorized number of
shares of Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of Series E Preferred Stock and Series F
Preferred Stock at the time outstanding.
(b) CANCELLATION OF SHARES OF SERIES.
Series E Preferred Stock and Series F Preferred Stock surrendered for
conversion shall be appropriately canceled on the books of the Corporation, and
the shares so converted shall be restored to the status of authorized but
unissued Preferred Stock of the Corporation.
15.
<PAGE> 16
(c) BOARD DETERMINATION. The Board of
Directors shall have the power and the duty to determine conclusively whether
any conditions set forth in this paragraph 4.c have been satisfied.
(d) FRACTIONAL SHARES. No fractional
shares of Common Stock shall be issued upon conversion of Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock or Series F Preferred Stock, and the number of shares of Common Stock to
be issued shall be rounded down to the nearest whole share. The Corporation
shall pay in cash to any stockholder who would be entitled to receive a
fractional share as a result of the action set forth in this Article the fair
market value of such fractional share as determined by the Board of Directors.
5. NOTICES.
a. EVENTS. If:
(1) There shall occur any subdivision or
combination of outstanding shares of Common Stock or a dividend in Common Stock
thereon; or
(2) There shall occur a voluntary or involuntary
dissolution, liquidation, or winding up of
the Corporation; or
(3) There shall occur any determination by the
Board of Directors to proceed with a Public Offering or an Acquisition;
then, and in each such case, the Corporation shall cause to be mailed to the
holders of record of the outstanding Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series
F Preferred Stock at least fifteen days prior to the date hereinafter
specified, a notice stating the date (i) which has been set as the record date
for the purpose of such subdivision, combination or dividend, or (ii) on which
such dissolution, liquidation, or winding up, Public Offering or Acquisition is
to take place or, if earlier, which is the record date as of which holders of
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or Common Stock of record
shall be entitled to participate in such transactions.
b. TRANSFER TAXES. The Corporation shall initially pay
any and all issue and other taxes that may be payable in respect of any
transfer involved in the issuance or delivery of shares of Common Stock or
Series C Preferred Stock, on conversion of shares of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock
and Series F Preferred Stock in a name, other than that in which the shares of
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock so converted or redeemed
were registered, and no such issuance or delivery shall be made unless and
until the person requesting such issuance has reimbursed the Corporation in the
amount of any such tax, or has established to the satisfaction of the
Corporation that such tax has been paid.
6. PROTECTIVE PROVISIONS. In addition to any vote that may be
required by law, so long as any of the Series B Preferred Stock, Series C
Preferred Stock, Series E Preferred Stock or Series F Preferred Stock shall be
outstanding, the Corporation shall not, without obtaining the approval (by vote
or written consent, as provided by law) of the holders of more than 50% of the
then outstanding shares of each such series of Preferred Stock ("Series B
Approval," "Series C Approval," "Series E Approval," and "Series F Approval,"
respectively) as indicated below:
16.
<PAGE> 17
a. subject to Series B Approval, alter or change the
rights, preferences or privileges of the Series B Preferred Stock; subject to
Series C Approval, alter or change the rights, preferences or privileges of the
Series C Preferred Stock; subject to Series E Approval, alter or change the
rights, preferences or privileges of the Series E Preferred Stock; or, subject
to Series F Approval, alter or change the rights, preferences or privileges of
the Series F Preferred Stock;
b. subject to Series B Approval, increase the authorized
number of shares of Series B Preferred Stock; subject to Series C Approval,
increase the authorized number of shares of Series C Preferred Stock; subject
to Series E Approval, increase the authorized number of shares of the Series E
Preferred Stock; or, subject to Series F Approval, increase the authorized
number of shares of the Series F Preferred Stock;
c. subject to Series B Approval, create any new class or
series of shares having preferences over Series B Preferred Stock as to
dividends or assets; subject to Series C Approval, create any new class or
series of shares having preferences over Series C Preferred Stock as to
dividends or assets; subject to Series E Approval, create any new class or
series of shares having preferences over Series E Preferred Stock as to
dividends or assets; or, subject to Series F Approval, create any new class or
series of shares having preferences over Series F Preferred Stock as to
dividends or assets;
d. subject to Series B Approval, Series C Approval,
Series E Approval and Series F Approval effect any sale or otherwise dispose of
all or substantially all of its assets or consolidate with or merge with any
other corporation or entity, or permit any other corporation or entity to
consolidate or merge with it, except that any subsidiary of the Corporation may
merge into any other subsidiary or into the Corporation;
e. subject to Series B Approval, Series C Approval,
Series E Approval and Series F Approval, effect any reclassification or
recapitalization in any of the Corporation's outstanding capital stock;
f. subject to Series C Approval, Series E Approval and
Series F Approval, create any new class or series of Preferred Stock; provided,
however, that (subject to subparagraph 6.c above) the Corporation may create
such new class or series of Preferred Stock upon obtaining the approval by the
shareholders of the Corporation as defined by Section 153 of the Corporations
Code; or
g. subject to the prior approval of the holders of more
than 50% of the then outstanding shares of Preferred Stock voting together as a
single class on an as-converted basis in accordance with paragraph 3.b, issue
any shares for consideration of less than $4.56 per share (which was adjusted
from $5.75 effective March 23, 1992) (appropriately adjusted for all
subdivisions and combinations of Common Stock) provided, however, that the
Corporation may issue shares of Common Stock pursuant to any present or future
stock option, stock purchase, bonus, savings, investment or other stock
incentive programs for the benefit of the employees of
17.
<PAGE> 18
the Corporation or any subsidiary of the Corporation as may be approved by the
Board of Directors of the Corporation.
V.
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
A.
(1) The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall
be fixed exclusively by one or more resolutions adopted by the Board of
Directors.
(2) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned
to each class in accordance with a resolution or resolutions adopted by the
Board of Directors. At the first annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term
of three years. At the second annual meeting of stockholders following the
Closing of the Initial Public Offering, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
Closing of the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(3) Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all of the then outstanding stock
of voting stock of the Corporation, entitled to vote at an election of
directors
18.
<PAGE> 19
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two thirds (66-2/3%) of the voting power of
all the then outstanding shares of Voting Stock.
(4) Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full
term of the director for which the vacancy was created or occurred and until
such director's successor shall have been elected and qualified.
B.
(1) Subject to paragraph (h) of Section 43 of the Bylaws,
the Bylaws may be altered or amended or new Bylaws adopted by the affirmative
vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power
of all of the then-outstanding shares of the Voting Stock. The Board of
Directors shall also have the power to adopt, amend, or repeal Bylaws.
(2) The directors of the corporation need not be elected
by written ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws.
(4) Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of the corporation shall be given in the manner
provided in the Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for any 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) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporate
action further eliminating or limiting the personal liability of directors,
then
19.
<PAGE> 20
the liability of a director shall be eliminated or limited to the fullest
extent permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect at
the time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B. of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal Articles V, VI and VII.
VIII.
The name and the mailing address of the Sole Incorporator is as
follows:
NAME MAILING ADDRESS
LAURA M. RANDALL Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
IN WITNESS WHEREO, this Certificate has been subscribed this 18th day
of March, 1997 by the undersigned who affirms that the statements made herein
are true and correct.
/s/ Laura M. Randall
---------------------------------
LAURA M. RANDALL
Sole Incorporator
20.
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
IL FORNAIO (AMERICA) CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
hereby certifies as follows:
1. The name of the corporation is Il Fornaio (America)
Corporation.
2. The corporation s original Certificate of Incorporation was
filed with the Secretary of State on March ___, 1997.
3. The Amended and Restated Certificate of Incorporation of this
corporation, in the form attached hereto as Exhibit A, has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and by the
stockholders of the corporation.
4. The Amended and Restated Certificate of Incorporation so
adopted reads in full as set forth in Exhibit A attached hereto and hereby
incorporated by reference.
IN WITNESS WHEREOF,Il Fornaio (America) Corporation has caused this
Amended and Restated Certificate of Incorporation to be signed by its Chairman
of the Board and Chief Executive Officer and attested to by its Secretary this
____ day of March, 1997.
----------------------------
LAURENCE B. MINDEL
Chairman of the Board and
Chief Executive Officer
ATTEST:
_______________________
PAUL J. KELLEY
Secretary
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
IL FORNAIO (AMERICA) CORPORATION
I.
The name of this corporation is Il Fornaio (America) Corporation.
II.
The address of the registered office of the corporation in the State
of Delaware is 15 East North Street, City of Dover, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at
such address is Incorporating Services.
III.
The purpose of this 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.
IV.
A. This corporation is authorized to issue two classes of stock
to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the corporation is authorized to issue is
twenty-five million (25,000,000) shares. Twenty million (20,000,000) shares
shall be Common Stock, each having a par value of one-tenth of one cent
($.001). Five million (5,000,000) shares shall be Preferred Stock, each having
a par value of one-tenth of one cent ($.001).
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate
(a "Preferred Stock Designation") pursuant to the Delaware General Corporation
Law, to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the
1.
<PAGE> 3
shares constituting such decrease shall resume the status that they had prior
to the adoption of the resolution originally fixing the number of shares of
such series.
V.
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall
be fixed exclusively by one or more resolutions adopted by the Board of
Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned
to each class in accordance with a resolution or resolutions adopted by the
Board of Directors. At the first annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term
of three years. At the second annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be entered for a full-term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then outstanding shares of
voting stock of the Corporation, entitled to vote at an election of directors
2.
<PAGE> 4
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of the then outstanding shares of Voting Stock.
4. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full
term of the director for which the vacancy was created or occurred and until
such director's successor shall have been elected and qualified.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws,
the Bylaws may be altered or amended or new Bylaws adopted by the affirmative
vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power
of all of the then-outstanding shares of voting stock of the Corporation
entitled to vote at an election of directors (the "Voting Stock"). The Board
of Directors shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected
by written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws and following the closing of the Initial Public
Offering no action shall be taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
VI.
A. A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for any 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) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to
3.
<PAGE> 5
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation
Law, as so amended.
B. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect at
the time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal Articles V, VI and VII.
4.
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
IL FORNAIO (AMERICA) DELAWARE CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 2
BYLAWS
OF
IL FORNAIO (AMERICA) DELAWARE CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be in the City of Dover, County of
Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business at such place as may be fixed
by the Board of Directors, and may also have offices at such other places, both
within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of
a die bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of
the corporation shall be held at such place, either within or without the State
of Delaware, as may be designated from time to time by the Board of Directors,
or, if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
1.
<PAGE> 3
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the
corporation, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(A) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (B) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the corporation
not later than the close of business on the sixtieth (60th) day nor earlier
than the close of business on the ninetieth (90th) day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that no annual meeting was held in the previous year or the date of
the annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to
such annual meeting or, in the event public announcement of the date of such
annual meeting is first made by the corporation fewer than seventy (70) days
prior to the date of such annual meeting, the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the corporation. A stockholder's notice to the
Secretary shall set forth as to each matter the 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 address, as they appear on
the corporation's books, of the stockholder proposing such business, (iii) the
class and number of shares of the corporation which are beneficially owned by
the stockholder, (iv) any material interest of the stockholder in such business
and (v) any other information that is required to be provided by the
stockholder pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "1934 Act"), in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the 1934 Act. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
paragraph (b). The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph (b),
and, if he should so determine, he shall so declare at the meeting that any
such business not properly brought before the meeting shall not be transacted.
2.
<PAGE> 4
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled to
vote in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 5. Such stockholder's
notice shall set forth (i) as to each person, if any, whom the stockholder
proposes to nominate for election or re-election as a director: (A) the name,
age, business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares of
the corporation which are beneficially owned by such person, (D) a description
of all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nominations are to be made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided
pursuant to paragraph (b) of this Section 5. At the request of the Board of
Directors, any person nominated by a stockholder for election as a director
shall furnish to the Secretary of the corporation that information required to
be set forth in the stockholder's notice of nomination which pertains to the
nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in
this paragraph (c). The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting, and the defective nomination
shall be disregarded.
(d) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the
corporation may be called, for any purpose or purposes, by (i) the Chairman of
the Board of Directors, (ii) the Chief Executive Officer, (iii) 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) or (iv) by the holders of shares entitled to
cast not less than fifty percent (50%) of the votes at the meeting and shall be
held at such place, on such date, and at such time as the Board of Directors,
shall fix.
3.
<PAGE> 5
(b) If a special meeting is called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may
be transacted at such special meeting otherwise than specified in such notice.
The Board of Directors shall determine the time and place of such special
meeting, which shall be held not less than thirty-five (35) nor more than one
hundred twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person
or persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called
by action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by
law or the Certificate of Incorporation, written notice of each meeting of
stockholders 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, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any meeting
of stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Any stockholder so waiving notice
of such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except
where otherwise provided by statute or by the Certificate of Incorporation, or
by these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote cast,
excluding abstentions, at any meeting at which a quorum is present shall be
valid and binding upon the corporation; provided, however, that directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled
4.
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to take action with respect to that vote on that matter and, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of stockholders, whether annual or special, may be adjourned from time
to time either by the chairman of the meeting or by the vote of a majority of
the shares casting votes, excluding abstentions. When a meeting is adjourned
to another time or place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the corporation may transact
any business which might have been transacted at the original meeting. 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 of record entitled to vote at the
meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the record date, as provided in Section 12
of these Bylaws, shall be entitled to vote at any meeting of stockholders.
Every person entitled to vote shall have the right to do so either in person or
by an agent or agents authorized by a proxy granted in accordance with Delaware
law. An agent so appointed need not be a stockholder. No proxy shall be voted
after three (3) years from its date of creation unless the proxy provides for a
longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety, or otherwise, or if two (2) or more persons
have the same fiduciary relationship respecting the same shares, unless the
Secretary is given written notice to the contrary and is furnished with a copy
of the instrument or order appointing them or creating the relationship wherein
it is so provided, their acts with respect to voting shall have the following
effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1)
votes, the act of the majority so voting binds all; (c) if more than one (1)
votes, but the vote is evenly split on any particular matter, each faction may
vote the securities in question proportionally, or may apply to the Delaware
Court of Chancery for relief as provided in the General Corporation Law of
Delaware, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a majority
or even-split for the purpose of subsection (c) shall be a majority or
even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, 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
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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 specified, at the place
where the meeting is to be held. The list shall be produced and kept at the
time and place of meeting during the whole time thereof and may be inspected by
any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of
signature of each stockholder who signs the consent, and no written consent
shall be effective to take the corporate action referred to therein unless,
within sixty (60) days of the earliest dated consent delivered to the
corporation in the manner herein required, written consents signed by a
sufficient number of stockholders to take action are delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, no such action by
written consent may be taken following the closing of the initial public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "1933 Act"), covering the offer and sale of Common
Stock of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent,
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a chairman of the meeting chosen by a majority in interest of the stockholders
entitled to vote, present in person or by proxy, shall act as chairman. The
Secretary, or, in his absence, an Assistant Secretary directed to do so by the
President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of
the meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the Certificate
of Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, following the
closing of the Initial Public Offering, the directors shall be divided into
three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class I directors shall
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expire and Class I directors shall be elected for a full term of three years.
At the second annual meeting of stockholders following the Closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the Closing of the
Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose
terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES. Unless otherwise provided in the
Certificate of Incorporation, any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other causes and any
newly created directorships resulting from any increase in the number of
directors, shall unless the Board of Directors determines by resolution that
any such vacancies or newly created directorships shall be filled by
stockholders, be filled only by the affirmative vote of a majority of the
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the director for which
the vacancy was created or occurred and until such director's successor shall
have been elected and qualified. A vacancy in the Board of Directors shall be
deemed to exist under this Bylaw in the case of the death, removal or
resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by the
Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the
Board of Directors. When one or more directors shall resign from the Board of
Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office for the unexpired portion of the term of the Director whose place shall
be vacated and until his successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
Subject to the rights of the holders of any series of Preferred Stock,
the Board of Directors or any individual director may be removed from office at
any time (i) with cause by the affirmative vote of the holders of a majority of
the voting power of all the then-outstanding shares of voting stock of the
corporation, entitled to vote at an election of directors (the "Voting Stock")
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or (ii) without cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all the
then-outstanding shares of the Voting Stock.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the
office of the corporation required to be maintained pursuant to Section 2
hereof. Unless otherwise restricted by the Certificate of Incorporation,
regular meetings of the Board of Directors may also be held at any place within
or without the State of Delaware which has been designated by resolution of the
Board of Directors or the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of
Directors, or of any committee thereof, may participate in a meeting by means
of 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 by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of
all special meetings of the Board of Directors shall be orally or in writing,
by telephone, facsimile, telegraph or telex, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent
in writing to each director by first class mail, charges prepaid, at least
three (3) days before the date of the meeting. Notice of any meeting may be
waived in writing at any time before or after the meeting and will be waived by
any director by attendance thereat, except when the director attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened.
(f) WAIVER OF NOTICE. The transaction of all business at
any meeting of the Board of Directors, or any committee thereof, however called
or noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
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SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a
greater number and except with respect to indemnification questions arising
under Section 43 hereof, for which a quorum shall be one-third of the exact
number of directors fixed from time to time in accordance with the Certificate
of Incorporation, a quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from time to time by the Board
of Directors in accordance with the Certificate of Incorporation; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for
the next regular meeting of the Board of Directors, without notice other than
by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different
vote be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing, and
such writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled
to such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of Directors,
a fixed sum and expenses of attendance, if any, for attendance at each regular
or special meeting of the Board of Directors and at any meeting of a committee
of the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
provided in the resolution of the Board of Directors shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, including without
limitation the power or authority to declare a dividend, to authorize the
issuance of stock and to adopt a certificate of ownership and merger, and may
authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation (except that a committee may, to
the extent authorized in the resolution or
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resolutions providing for the issuance of shares of stock adopted by the Board
of Directors fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the corporation or fix the
number of shares of any series of stock or authorize the increase or decrease
of the shares of any series), adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, from time to
time appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall such committee have the powers denied to the
Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of
Directors shall serve a term on the committee coexistent with such member's
term on the Board of Directors. The Board of Directors, subject to the
provisions of subsections (a) or (b) of this Bylaw may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date of
his death or voluntary resignation from the committee or from the Board of
Directors. The Board of Directors may at any time for any reason remove any
individual committee member and the Board of Directors may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. 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 the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) MEETINGS. Unless the Board of Directors shall
otherwise provide, regular meetings of the Executive Committee or any other
committee appointed pursuant to this Section 25 shall be held at such times and
places as are determined by the Board of Directors, or by any such committee,
and when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings of any such committee may be held at any place which has been
determined from time to time by such committee, and may be called by any
director who is a member of such committee, upon written notice to the members
of such committee of the time and place of such special meeting given in the
manner provided for the giving of written notice to members of the Board of
Directors of the time and
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place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time before or after
the meeting and will be waived by any director by attendance thereat, except
when the director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum
for the transaction of business, and the act of a majority of those present at
any meeting at which a quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation
shall include, if and when designated by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the
Treasurer, the Controller, all of whom shall be elected at the annual
organizational meeting of the Board of Directors. The Board of Directors may
also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant
Controllers and such other officers and agents with such powers and duties as
it shall deem necessary. The Board of Directors may assign such additional
titles to one or more of the officers as it shall deem appropriate. Any one
person may hold any number of offices of the corporation at any one time unless
specifically prohibited therefrom by law. The salaries and other compensation
of the officers of the corporation shall be fixed by or in the manner
designated by the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the
pleasure of the Board of Directors and until their successors shall have been
duly elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors, when present, shall preside at all meetings
of the stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly
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incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors shall designate from time to time. If
there is no President, then the Chairman of the Board of Directors shall also
serve as the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed in paragraph (c) of this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at
all meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is
present. Unless some other officer has been elected Chief Executive Officer of
the corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may
assume and perform the duties of the President in the absence or disability of
the President or whenever the office of President is vacant. The Vice
Presidents shall perform other duties commonly incident to their office and
shall also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. The President may
direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief
Financial Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of the
financial affairs of the corporation in such form and as often as required by
the Board of Directors or the President. The Chief Financial Officer, subject
to the order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume
and perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Treasurer and Assistant
Treasurer and each Controller and Assistant Controller shall perform other
duties commonly incident to his office and shall also perform such other duties
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and have such other powers as the Board of Directors or the President shall
designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may
from time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at
any time, either with or without cause, by the affirmative vote of a majority
of the directors in office at the time, or by the unanimous written consent of
the directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on behalf
of the corporation any corporate instrument or document, or to sign on behalf
of the corporation the corporate name without limitation, or to enter into
contracts on behalf of the corporation, except where otherwise provided by law
or these Bylaws, and such execution or signature shall be binding upon the
corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock owned by the corporation, shall be executed, signed or endorsed
by the Chairman of the Board of Directors, or the President or any Vice
President, and by the Secretary or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of Directors.
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All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All
stock and other securities of other corporations owned or held by the
corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors, or, in the absence
of such authorization, by the Chairman of the Board of Directors, the Chief
Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for
the shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant Treasurer
or the Secretary or Assistant Secretary, certifying the number of shares owned
by him in the corporation. Any or all of the signatures on the certificate may
be facsimiles. 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 with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue. Each certificate
shall state upon the face or back thereof, in full or in summary, all of the
powers, designations, preferences, and rights, and the limitations or
restrictions of the shares authorized to be issued or shall, except as
otherwise required by law, set forth on the face or back a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to this section or otherwise required by law or with
respect to this section a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Except as otherwise
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expressly provided by law, the rights and obligations of the holders of
certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates
shall be issued in place of any certificate or certificates 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. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
or to give the corporation a surety bond in such form and amount 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 36. TRANSFERS.
(a) Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and
perform any agreement with any number of stockholders of any one or more
classes of stock of the corporation to restrict the transfer of shares of stock
of the corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) 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, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. 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 38. REGISTERED STOCKHOLDERS. 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
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 the laws
of Delaware.
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ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures
and other corporate securities of the corporation, other than stock
certificates (covered in Section 34), may be signed by the Chairman of the
Board of Directors, the President or any Vice President, or such other person
as may be authorized by the Board of Directors, and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested by
the signature of the Secretary or an Assistant Secretary, or the Chief
Financial Officer or Treasurer or an Assistant Treasurer; provided, however,
that where any such bond, debenture or other corporate security shall be
authenticated by the manual signature, or where permissible facsimile
signature, of a trustee under an indenture pursuant to which such bond,
debenture or other corporate security shall be issued, the signatures of the
persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of
such persons. Interest coupons appertaining to any such bond, debenture or
other corporate security, authenticated by a trustee as aforesaid, shall be
signed by the Treasurer or an Assistant Treasurer of the corporation or such
other person as may be authorized by the Board of Directors, or bear imprinted
thereon the facsimile signature of such person. In case any officer who shall
have signed or attested any bond, debenture or other corporate security, or
whose facsimile signature shall appear thereon or on any such interest coupon,
shall have ceased to be such officer before the bond, debenture or other
corporate security so signed or attested shall have been delivered, such bond,
debenture or other corporate security nevertheless may be adopted by the
corporation and issued and delivered as though the person who signed the same
or whose facsimile signature shall have been used thereon had not ceased to be
such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to
law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
SECTION 41. DIVIDEND RESERVE. 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 their
absolute discretion, think 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 such other purpose as the Board of Directors
shall think conducive to the
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interests of the corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS,
OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation
shall indemnify its directors and executive officers (for the purposes of
this Article XI, "executive officers shall have the meaning defined in Rule
3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by
the Delaware General Corporation Law; provided, however, that the corporation
may modify the extent of such indemnification by individual contracts with its
directors and executive officers; and, provided, further, that the
corporation shall not be required to indemnify any director or executive
officer in connection with any proceeding (or part thereof) initiated by such
person unless (i) such indemnification is expressly required to be made by law,
(ii) the proceeding was authorized by the Board of Directors of the
corporation, (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the
Delaware General Corporation Law or (iv) such indemnification is required to be
made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was a director or executive officer, of the corporation, or is or was serving
at the request of the corporation as a director or executive officer of another
corporation, partnership, joint venture, trust or other enterprise, prior to the
final disposition of the proceeding, promptly following request therefor, all
expenses incurred by any director or executive officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person
18.
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to repay said amounts if it should be determined ultimately that such person is
not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith
or in a manner that such person did not believe to be in or not opposed to the
best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into
an express contract, all rights to indemnification and advances to directors
and executive officers under this Bylaw shall be deemed to be contractual
rights and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a director or executive
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. In connection with any claim
for indemnification, the corporation shall be entitled to raise as a defense to
any such action that the claimant has not met the standards of conduct that
make it permissible under the Delaware General Corporation Law for the
corporation to indemnify the claimant for the amount claimed. In connection
with any claim by an executive officer of the corporation (except in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled to
raise a defense as to any such action clear and convincing evidence that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation, or with respect to
any criminal action or proceeding that such person acted without reasonable
cause to believe that his conduct was lawful. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
19.
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(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on
any person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts with
any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any
person by this Bylaw shall continue as to a person who has ceased to be a
director, officer, employee or other agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the
Delaware General Corporation Law, the corporation, upon approval by the Board
of Directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each director and executive
officer to the full extent not prohibited by any applicable portion of this
Bylaw that shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw,
the following definitions shall apply:
(1) The term "proceeding" shall be broadly
construed and shall include, without limitation, the investigation,
preparation, prosecution, defense, settlement, arbitration and appeal of, and
the giving of testimony in, any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly
construed and shall include, without limitation, court costs, attorneys' fees,
witness fees, fines, amounts paid in settlement or judgment and any other costs
and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term 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, officers, and employees or agents, so that any person
who
20.
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is or was a director, officer, employee or agent 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 or other enterprise, shall stand in the same
position under the provisions of this Bylaw with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(4) References to a "director," "executive
officer," "officer," "employee," or "agent" of the corporation shall include,
without limitation, situations where such person is serving at the request of
the corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(5) References to "other enterprises" shall
include employee benefit plans; 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, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent 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 Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any
provisions of these Bylaws, notice is required to be given to any stockholder,
it shall be given in writing, timely and duly deposited in the United States
mail, postage prepaid, and addressed to his last known post office address as
shown by the stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given
to any director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such director shall have
filed in writing with the Secretary, or, in the absence of such filing, to the
last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing,
executed by a duly authorized and competent employee of the corporation or its
transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the
21.
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stockholder or stockholders, or director or directors, to whom any such notice
or notices was or were given, and the time and method of giving the same, shall
in the absence of fraud, be prima facie evidence of the facts therein
contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by
mail, as above provided, shall be deemed to have been given as at the time of
mailing, and all notices given by facsimile, telex or telegram shall be deemed
to have been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that
the same method of giving notice be employed in respect of all directors, but
one permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other or
others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation
of time within which any stockholder may exercise any option or right, or enjoy
any privilege or benefit, or be required to act, or within which any director
may exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS.
Whenever notice is required to be given, under any provision of law or the
Certificate of Incorporation or Bylaws of the corporation, to any stockholder
to whom (i) notice of two consecutive annual meetings, and all notices of
meetings or of the taking of action by written consent without a meeting to
such person during the period between such two consecutive annual meetings, or
(ii) all, and at least two, payments (if sent by first class mail) of dividends
or interest on securities during a twelve-month period, have been mailed
addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice to
such person shall not be required. Any action or meeting which shall be taken or
held without notice to such person shall have the same force and effect as if
such notice had been duly given. If any such person shall deliver to the
corporation a written notice setting forth his then current address, the
requirement that notice be given to such person shall be reinstated. In the
event that the action
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taken by the corporation is such as to require the filing of a certificate
under any provision of the Delaware General Corporation Law, the certificate
need not state that notice was not given to persons to whom notice was not
required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43
of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by
the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the Voting Stock.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money
to, or guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiaries, including any officer or
employee who is a Director of the corporation or its subsidiaries, whenever, in
the judgment of the Board of Directors, such loan, guarantee or assistance may
reasonably be expected to benefit the corporation. The loan, guarantee or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing in
these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty
or warranty of the corporation at common law or under any statute.
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TABLE OF CONTENTS
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ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 4. Place Of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 7. Notice Of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 9. Adjournment And Notice Of Adjourned Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 10. Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 11. Joint Owners Of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 12. List Of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 13. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 15. Number And Term Of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 16. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 17. Classes Of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 18. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 19. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 20. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 21. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Regular Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Telephone Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(e) Notice Of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(f) Waiver Of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 22. Quorum And Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 23. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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TABLE OF CONTENTS
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Section 24. Fees And Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 25. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(a) Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(c) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(d) Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 26. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 27. Officers Designated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 28. Tenure And Duties Of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Duties Of Chairman Of The Board Of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Duties Of President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Duties Of Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Duties Of Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(f) Duties Of Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 29. Delegation Of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 30. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 31. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION . . . . . . . . . . . 14
Section 32. Execution Of Corporate Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 33. Voting Of Securities Owned By The Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 34. Form And Execution Of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 35. Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 36. Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 37. Fixing Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 38. Registered Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
ii.
<PAGE> 27
TABLE OF CONTENTS
(CONTINUED)
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ARTICLE VIII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 39. Execution Of Other Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IX DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 40. Declaration Of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 41. Dividend Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE X FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 42. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 43. Indemnification Of Directors, Executive Officers, Other Officers, Employees And Other Agents . . 18
(a) Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Other Officers, Employees and Other Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(e) Non-Exclusivity Of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(f) Survival Of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(g) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(h) Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(i) Saving Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(j) Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 44. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) Notice To Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) Notice To directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(c) Affidavit Of Mailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Time Notices Deemed Given . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(e) Methods Of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(f) Failure To Receive Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(g) Notice To Person With Whom Communication Is Unlawful . . . . . . . . . . . . . . . . . . . . . . 22
(h) Notice To Person With Undeliverable Address . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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ARTICLE XIII AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 45. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XIV LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 46. Loans To Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
iv.
<PAGE> 1
EXHIBIT 10.1
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of March, 1997
by and between IL FORNAIO (AMERICA) CORPORATION, a Delaware corporation (the
"Corporation"), and ____________________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as a director of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware Corporation Law, as amended (the
"Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature,
permit contracts between the Corporation and its agents, officers, employees
and other agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as a director
of the Corporation, the Corporation has determined and agreed to enter into
this Agreement with Agent;
NOW, THEREFORE, in consideration of Agents continued service as a
director after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of
the Corporation or under separate contract, if any such contract exists, as a
director of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such
position (subject to any contractual obligation that Agent may have assumed
apart from this Agreement) and that the Corporation or any affiliate shall have
no obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Bylaws and the Code, as the same may be amended from time
to time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE> 2
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of
the indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys
fees), witness fees, damages, judgments, fines and amounts paid in settlement
and any other amounts that Agent becomes legally obligated to pay because of
any claim or claims made against or by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in
the right of the Corporation) to which Agent is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that Agent
is, was or at any time becomes a director, officer, employee or other agent of
Corporation, or is or was serving or at any time serves at the request of the
Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise; and
(b) otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the Code and
Section 43 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an
accounting of profits made from the purchase or sale by Agent of securities of
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agents conduct that was knowingly
fraudulent or deliberately dishonest or that constituted willful misconduct;
(c) on account of Agents conduct that constituted a
breach of Agent's duty of loyalty to the Corporation or resulted in any
personal profit or advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a
valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this
respect, both the Corporation and Agent have been advised that the Securities
and Exchange Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other
2.
<PAGE> 3
agents, unless (i) such indemnification is expressly required to be made by
law, (ii) the proceeding was authorized by the Board of Directors of the
Corporation, (iii) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Code, or (iv) the proceeding is initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of
the Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as
Agent shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving
in the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys fees), witness fees, damages, judgments, fines and
amounts paid in settlement and any other amounts that Agent becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 3 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Agent for the portion
thereof to which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit
or proceeding, Agent will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the
commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Agent otherwise than under
this Agreement. With respect to any such action, suit or proceeding as to
which Agent notifies the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate
therein at its own expense;
(b) except as otherwise provided below, the Corporation
may, at its option and jointly with any other indemnifying party similarly
notified and electing to assume such defense, assume the defense thereof, with
counsel reasonably satisfactory to Agent. After notice from the Corporation to
Agent of its election to assume the defense thereof, the Corporation will not
be liable to Agent under this Agreement for any legal or other expenses
subsequently incurred by Agent in connection with the defense thereof except
for reasonable costs of investigation or otherwise as provided below. Agent
shall have the right to employ separate counsel in such action, suit or
proceeding but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof shall be at the
expense of Agent unless (i) the employment of counsel by Agent has been
authorized by the Corporation, (ii) Agent shall have reasonably concluded that
there may be a conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in
fact have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of
3.
<PAGE> 4
Agent's separate counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which Agent
shall have made the conclusion provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify
Agent under this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that
it shall not settle any action or claim in any manner which would impose any
penalty or limitation on Agent without Agent's written consent, which may be
given or withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by Agent in connection with such proceeding upon receipt of
an undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted
by this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. Agent, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under Section 3 hereof
(other than an action brought to enforce a claim for expenses pursuant to
Section 8 hereof, provided that the required undertaking has been tendered to
the Corporation) that Agent is not entitled to indemnification because of the
limitations set forth in Section 4 hereof. Neither the failure of the
Corporation (including its Board of Directors or its stockholders) to have made
a determination prior to the commencement of such enforcement action that
indemnification of Agent is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Agent is not entitled to indemnification
under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by
this Agreement shall not be exclusive of any other right which Agent may have
or hereafter acquire under any statute, provision of the Corporation's
Certificate of Incorporation or Bylaws, agreement, vote of stockholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.
4.
<PAGE> 5
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. ENTIRE AGREEMENT. This Agreement and the agreements
referenced herein constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other written or oral
agreements existing between the parties hereto pertaining to the subject
matters hereof are superseded and expressly canceled.
15. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
16. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
17. IDENTICAL COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the
existence of this Agreement.
18. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
19. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after
5.
<PAGE> 6
the date on which such communication was mailed if mailed by certified or
registered mail with postage prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to
Il Fornaio (America) Corporation
1000 Sansome Street
San Francisco, CA 94111
or to such other address as may have been furnished to Agent by the
Corporation.
[Intentionally left blank]
6.
<PAGE> 7
IN WITNESS WHEREOF,the parties hereto have executed this Agreement on
and as of the day and year first above written.
IL FORNAIO (AMERICA) CORPORATION
By:
-------------------------------
Laurence B. Mindel
Chairman of the Board and
Chief Executive Officer
AGENT
----------------------------------
Name
Address: __________________________________
__________________________________
INDEMNITY AGREEMENT
<PAGE> 1
EXHIBIT 10.2
SUMMARY OF BONUS PLAN
Il Fornaio (America) Corporation (the "Company") has a bonus plan (the
"Bonus Plan") pursuant to which certain officers are eligible to receive annual
cash bonuses in amounts ranging from 20% to 35% of their respective base
salaries if certain performance targets established by management and approved
by the Board of Directors are met. Such performance targets may include, among
other things, the overall profitability of the Company and of particular
components of the Company's business, the completion of special projects or the
achievement of certain cost efficiencies. Prior to payment of any bonuses, the
Board of Directors must approve such amounts.
<PAGE> 1
Exhibit 10.3
IL FORNAIO (AMERICA) CORPORATION
1997 EQUITY INCENTIVE PLAN
ADOPTED MARCH 17, 1997
APPROVED BY STOCKHOLDERS ______________, 1997
INTRODUCTION.
This Plan is an amendment and restatement of the Company's existing 1992
Stock Option Plan (the "1992 Plan") and the 1995 Stock Option Plan (the "1995
Plan"), and shall become effective on the date of the Company's initial public
offering of its common stock (the "Effective Date"). No options shall be granted
under the 1992 Plan or the 1995 Plan from and after the Effective Date.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the common stock
of the Company ("Common Stock") through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to
purchase restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
1.
<PAGE> 2
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means Il Fornaio (America) Corporation, a Delaware
corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock exchange,
or traded on the Nasdaq National Market or The Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in Common Stock) on the last market trading day prior to determination,
as reported in the Wall Street Journal or such other source as the Board deems
reliable;
(2) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
2.
<PAGE> 3
(m) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(r) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan.
(s) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(t) "PLAN" means this 1997 Equity Incentive Plan.
(u) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(v) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(w) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3.
<PAGE> 4
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 12.
(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee or
committees ("Committee") of one or more members of the Board. In the discretion
of the Board, a Committee may consist solely of two (2) or more Outside
Directors, in accordance with Code Section 162(m), or solely of two (2) or more
Non-Employee Directors, in accordance with Rule 16b-3. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate one million three hundred (1,300,000) shares
of Common Stock. Such share reserve shall be comprised of (i) the options
granted under the 1992 Plan and the 1995 Plan which are
4.
<PAGE> 5
outstanding as of the Effective Date plus (ii) the shares available for grant
under the 1992 Plan and the 1995 Plan as of the Effective Date plus (iii) an
additional five hundred thousand (500,000) shares of common stock. If any Stock
Award shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full (or vested in the case of Restricted
Stock), the stock not acquired under such Stock Award shall revert to and again
become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted only to Employees, Directors
or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.
(c) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Stock Awards
covering more than five hundred thousand (500,000) shares of Common Stock in any
calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
5.
<PAGE> 6
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board. In the case of any deferred
payment arrangement, interest shall be payable at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
to the extent provided in the Option Agreement; provided that if the Option
Agreement does not expressly permit the transfer of a Nonstatutory Stock Option,
the Nonstatutory Stock Option shall not be transferable except by will, by the
laws of descent and distribution or pursuant to a domestic relations order
satisfying the requirements of Rule 16b-3, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person or any
transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option within such period of time designated by
the Board, which shall in no event be later than the expiration of the term of
the Option as set forth in the Option Agreement (the "Post-Termination Exercise
Period") and only to the extent that the Optionee was entitled to exercise the
Option on the date Optionee's Continuous Status as an Employee, Director or
Consultant terminates. In the case of an Incentive Stock Option, the Board shall
determine the Post-Termination Exercise Period
6.
<PAGE> 7
at the time the Option is granted, and the term of such Post-Termination
Exercise Period shall in no event exceed three (3) months from the date of
termination. In addition, the Board may at any time, with the consent of the
Optionee, extend the Post-Termination Exercise Period and provide for continued
vesting; provided however, that any extension of such period by the Board in
excess of three (3) months from the date of termination shall cause an Incentive
Stock Option so extended to become a Nonstatutory Stock Option, effective as of
the date of Board action. If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified in the Option Agreement or as otherwise determined above, the Option
shall terminate, and the shares covered by such Option shall revert to the Plan.
Notwithstanding the foregoing, the Board shall have the power to permit an
Option to continue to vest during the Post-Termination Exercise Period.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or
within a three (3)-month period after the termination of, the Optionee's
Continuous Status as an Employee, Director or Consultant, the Option may be
exercised to the extent vested by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date twelve (12) months following the date of death (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term of
such Option as set forth in the Option Agreement. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
7.
<PAGE> 8
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or Committee shall
deem appropriate. The terms and conditions of stock bonus or restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate agreements need not be identical, but each stock bonus or restricted
stock purchase agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance of each of the
following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if the agreement so provides, pursuant to a domestic
relations order satisfying the requirements of Rule 16b-3, so long as stock
awarded under such agreement remains subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or Committee in its discretion. Notwithstanding the foregoing, the Board
or Committee to which administration of the Plan has been delegated may award
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or Committee.
(e) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8.
<PAGE> 9
8. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such Stock Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director nor a Consultant nor any person to whom
a Stock Award is transferred in accordance with the Plan shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Consultant or other holder of
Stock Awards any right to continue in the employ of the Company or any
Affiliate, or to continue serving as a Consultant and Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's agreement with the Company or Affiliate or service as a Director
pursuant to the Company's By-Laws.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit
9.
<PAGE> 10
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred in accordance with the Plan,
as a condition of exercising or acquiring stock under any Stock Award, (1) to
give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
of the Company.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the maximum number of shares subject to
award to any person during any calendar year, and the outstanding Stock Awards
will be appropriately adjusted in the class(es) and number of shares and price
per share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board or Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
10.
<PAGE> 11
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then to the extent permitted by applicable law: (i) any surviving
corporation (or an Affiliate thereof shall assume any Stock Awards outstanding
under the Plan or shall substitute similar Stock Awards for those outstanding
under the Plan, or (ii) such Stock Awards shall continue in full force and
effect. In the event any surviving corporation (or an Affiliate) refuses to
assume or continue such Stock Awards, or to substitute similar Stock Awards for
those outstanding under the Plan, then, with respect to Stock Awards held by
persons then performing services as Employees, Directors or Consultants, the
time during which such Stock Awards may be exercised shall be accelerated and
the Stock Awards terminated if not exercised prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to certain
executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
11.
<PAGE> 12
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years from the date the Plan is
adopted by the Board or approved by the stockholders of the Company, whichever
is earlier. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
14. STOCKHOLDER APPROVAL.
No Stock Awards granted under the Plan shall be exercised unless and until
the Plan has been approved by the stockholders of the Company, which approval
shall be within twelve (12) months before or after the date the Plan is adopted
by the Board.
12.
<PAGE> 13
IL FORNAIO (AMERICA) CORPORATION
STOCK OPTION GRANT NOTICE
(1997 EQUITY INCENTIVE PLAN)
IL FORNAIO (AMERICA) CORPORATION (the "Company"), pursuant to its 1997 Equity
Incentive Plan (the "Plan"), hereby grants to Optionee an option to purchase the
number of shares of the Company's common stock set forth below. This option is
subject to all of the terms and conditions as set forth herein and in
Attachments I, II and III, which are incorporated herein in their entirety.
Optionee: _________________________________
Date of Grant: _________________________________
Vesting Commencement Date: _________________________________
Shares Subject to Option: _________________________________
Exercise Price Per Share: _________________________________
Expiration Date: _________________________________
____ Incentive Stock Option ____ Nonstatutory Stock Option
EXERCISE SCHEDULE: Exercisable as vested.
VESTING SCHEDULE: 5 equal annual installments commencing on the first
anniversary of the Vesting Commencement Date.
PAYMENT: Any or a combination of the following: (i) by cash or check, (ii)
pursuant to a Regulation T program, as set forth in the Stock Option Agreement
or (iii) delivering shares of previously-owned common stock, as set forth in the
Stock Option Agreement.
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionee acknowledges receipt
of, and understands and agrees to, this Grant Notice, the Stock Option Agreement
and the Plan. Optionee further acknowledges that as of the Date of Grant, this
Grant Notice, the Stock Option Agreement and the Plan set forth the entire
understanding between Optionee and the Company regarding the acquisition of
stock in the Company and supersedes all prior oral and written agreements on
that subject with the exception of (i) options previously granted and delivered
to Optionee under the Plan, and (ii) the following agreements only:
OTHER AGREEMENTS: ___________________________________________
___________________________________________
IL FORNAIO (AMERICA) CORPORATION OPTIONEE:
By:____________________________ __________________________________
Signature
Title:_________________________
Date: _________________________ Date: ____________________________
Attachment I: Stock Option Agreement
Attachment II: 1997 Equity Incentive Plan
Attachment III: Notice of Exercise
<PAGE> 14
STOCK OPTION AGREEMENT
Pursuant to the Grant Notice and this Stock Option Agreement, the Company
has granted you an option to purchase the number of shares of the Company's
common stock ("Common Stock") indicated in the Grant Notice at the exercise
price indicated in the Grant Notice. Defined terms not explicitly defined in
this Stock Option Agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option will
vest as provided in the Grant Notice, provided that vesting will cease upon the
termination of your Continuous Status as an Employee, Director or Consultant.
2. METHOD OF PAYMENT.
(a) PAYMENT OPTIONS. Payment of the exercise price by cash or check
is due in full upon exercise of all or any part of your option, provided that
you may elect, to the extent permitted by applicable law and the Grant Notice,
to make payment of the exercise price under one of the following alternatives:
(i) Payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds;
(ii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or
(iii) Payment by a combination of the above methods.
3. WHOLE SHARES. Your option may only be exercised for whole shares.
4. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.
<PAGE> 15
5. TERM. The term of your option commences on the Date of Grant and
expires upon the earliest of:
(i) the Expiration Date indicated in the Grant Notice;
(ii) the tenth (10th) anniversary of the Date of Grant;
(iii) eighteen (18) months after your death, if you die
during, or within three (3) months after the termination of your Continuous
Status as Employee, Director or Consultant;
(iv) twelve (12) months after the termination of your
Continuous Status as Employee, Director or Consultant due to disability;
(v) immediately after the termination of your Continuous
Status as Employee, Director or Consultant for Cause; or
(vi) three (3) months after the termination of your
Continuous Status as an Employee, Director or Consultant for any other reason,
provided that if during any part of such three (3)-month period the option is
not exercisable solely because of the condition set forth in paragraph 4
(Securities Law Compliance), in which event the option shall not expire until
the earlier of the Expiration Date or until it shall have been exercisable for
an aggregate period of three (3) months after the termination of Continuous
Status as an Employee, Director or Consultant.
For these purposes, "Cause" shall include, but not be limited to,
the commission of any act of fraud, embezzlement or dishonesty, any unauthorized
use or disclosure of confidential information or trade secrets of the Company,
or any other intentional misconduct adversely affecting the business or affairs
of the Company in a material manner. The foregoing definition shall not be
deemed to be inclusive of all the acts or omissions which the Company may
consider as ground for your dismissal or discharge.
To obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
grant date of the option and ending on the day three (3) months before the date
of the option's exercise, you must be an employee of the Company, except in the
event of your death or permanent and total disability. The Company cannot
guarantee that your option will be treated as an "incentive stock option" if you
exercise your option more than three (3) months after the date your employment
with the Company terminates.
6. EXERCISE.
(a) You may exercise the vested portion of your option during its
term (and the unvested portion of your option if the Grant Notice so permits) by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the
2.
<PAGE> 16
Company, or to such other person as the Company may designate, during regular
business hours, together with such additional documents as the Company may then
require.
(b) By exercising your option you agree that:
(i) as a condition to any exercise of your option, the
Company may require you to enter an arrangement providing for the payment by you
to the Company of any tax withholding obligation of the Company arising by
reason of (1) the exercise of your option; (2) the lapse of any substantial risk
of forfeiture to which the shares are subject at the time of exercise; or (3)
the disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of an incentive stock option that occurs within two
(2) years after the Date of Grant or within one (1) year after such shares of
Common Stock are transferred upon exercise of your option; and
(iii) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of the
offering of any securities of the Company under the Act, require that you not
sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement of the
Company filed under the Act as may be requested by the Company or the
representative of the underwriters. You further agree that the Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
7. TRANSFERABILITY. Your option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
8. OPTION NOT A SERVICE CONTRACT. Your option is not an employment
contract and nothing in your option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in your option shall obligate the Company, its shareholders, board of
directors, officers or employees to continue any relationship which you might
have as a director or consultant for the Company.
9. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.
3.
<PAGE> 17
10. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option,
including without limitation the provisions of the Plan relating to option
provisions, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
4.
<PAGE> 18
NONSTATUTORY STOCK OPTION
(CASH EXERCISE CONSIDERATION)
Optionee:
Il Fornaio (America) Corporation (the "Company"), pursuant to its 1995
Stock Option Plan (the "Plan") has this day granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is not intended to qualify and will not be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
employees (including officers, directors and consultants) and is intended to
comply with the provisions of Rule 701 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act").
The details of your option are as follows:
1. (a) The total number of shares of Common Stock subject to this
option is Three Hundred Forty-Eight Thousand Eight Hundred Ninety (348,890).
Subject to the limitations contained herein, this option shall be exercisable
with respect to each installment shown below on or after the date of vesting
(such vesting amount to be at least twenty percent (20%) per year of the total
number of shares subject to this option) applicable to such installment, as
follows:
<TABLE>
<CAPTION>
Number of Shares Date of Earliest Exercise
(Installment) (Vesting)
- ---------------- -------------------------
<S> <C>
</TABLE>
(b) Notwithstanding the foregoing and pursuant to Section 6(e)
of the Plan, in the event of a Change in Control (as defined below), the
unvested portion of this option shall automatically accelerate and Optionee
shall have the right to purchase all or any number of the shares subject to
this option, in addition to any portion of the option exercisable prior to such
event. A "Change of Control" of the Company shall be deemed to have occurred if
(i) the Company sells or otherwise disposes of all or substantially all of its
assets; (ii) there is a merger or consolidation of the Company with any other
corporation or corporations, provided that the shareholders of the Company, as
a group, do not hold, immediately after such event, at least fifty percent
(50%) of the surviving or successor corporation, or (iii) any person or entity,
including any "person" as such term is used
<PAGE> 19
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), acquires as the "beneficial owner" (as defined in the Exchange
Act) after the date of this option, more than fifty percent (50%) of the
combined voting power of the voting securities of the Company.
2. (a) The exercise price of this option is (_____) per share, being not
less than 100% of the fair market value of the Common Stock on the date of grant
of this option.
(b) Payment of the exercise price per share is due in full in cash
(including check) upon exercise of all or any part of each installment which
has become exercisable by you. Notwithstanding the foregoing, this option may
be exercised pursuant to a program developed under Regulation T as promulgated
by the Federal Reserve Board which results in the receipt of cash (or check) by
the Company prior to the issuance of Common Stock.
3. In no event may this option be exercised for any number of shares
which would require the issuance of anything other than whole shares.
4. Notwithstanding anything to the contrary contained herein, this
option may not be exercised unless the shares issuable upon exercise of this
option are then registered under the Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Act.
5. The term of this option commences on the date hereof and, unless
sooner terminated as set forth below or in the Plan, terminates on July 9, 2005
(which date shall be no more than ten (10) years from the date this option is
granted). In no event may this option be exercised on or after the date on
which it terminates. This option shall terminate prior to the expiration of its
term three (3) months after the termination of your employment with the Company
or an affiliate of the Company (as defined in the Plan) for any reason or for
no reason unless:
(a) such termination of employment is due to your permanent and
total disability (within the meaning of Section 22(e)(3) of the Code), in which
event the option shall terminate on the earlier of the termination date set
forth above or twelve (12) months following such termination of employment;
(b) such termination of employment is due to your death, in
which event the option shall terminate on the earlier of the termination date
set forth above or twelve (12) months after your death; or
(c) during any part of such three (3) month period the option
is not exercisable solely because of the condition set forth in paragraph 4
above, in which event the option shall not terminate until the earlier of the
termination date set forth
2
<PAGE> 20
above or until it shall have been exercisable for an aggregate period of three
(3) months after the termination of employment; or
(d) exercise of the option within three (3) months after
termination of your employment with the Company or with an affiliate would
result in liability under Section 16(b) of the Securities Exchange Act of 1934,
in which case the option will terminate on the earlier of (i) the termination
date set forth above, (ii) the tenth (10th) day after the last date upon which
exercise would result in such liability or (iii) six (6) months and ten (10)
days after the termination of your employment with the Company or an affiliate.
However, this option may be exercised following termination of
employment only as to that number of shares as to which it was exercisable on
the date of termination of employment under the provisions of paragraph 1 of
this option.
6. (a) This option may be exercised, to the extent specified above,
by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to Section 6(f) of the Plan.
(b) By exercising this option you agree that:
(i) the Company may require you to enter an arrangement
providing for the cash payment by you to the Company of any tax withholding
obligation of the Company arising by reason of: (1) the exercise of this
option; (2) the lapse of any substantial risk of forfeiture to which the shares
are subject at the time of exercise; or (3) the disposition of shares acquired
upon such exercise; and
(ii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (i) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians,
brokers or pledgees; (ii) may be acquired by you within sixty (60) days of the
Effective Date; (iii) are owned directly or indirectly, by or for your brothers
or sisters (whether by whole or half blood), spouse, ancestors and lineal
descendants; or (iv) are owned, directly or indirectly, by or for a
corporation, partnership, estate or trust of which you are a
3
<PAGE> 21
shareholder, partner or beneficiary, but only to the extent of your
proportionate interest therein as a shareholder, partner or beneficiary
thereof. You further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.
7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.
8. This option is not an employment contract and nothing in this option
shall be deemed to create in any way whatsoever any obligation on your part to
continue in the employ of the Company, or of the Company to continue your
employment with the Company. In the event that this option is granted to you in
connection with the performance of services as a consultant or director,
references to employment, employee and similar terms shall be deemed to include
the performance of services as a consultant or a director, as the case may be,
provided, however, that no rights as an employee shall arise by reason of the
use of such terms.
9. Any notices provided for in this option or the Plan shall be given
in writing and shall be deemed effectively given upon receipt or, in the case
of notices delivered by the Company to you, two (2) business days after the
postmark when deposited in the United States mail, postage prepaid, addressed
to you at the address specified below or at such other address as you hereafter
designate by written notice to the Company.
10. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated
and adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the _____ day of ________, 199_.
Very truly yours,
IL FORNAIO (AMERICA) CORPORATION
By:
------------------------------------
Duly authorized on behalf of the
Board of Directors
4
<PAGE> 22
ATTACHMENTS:
Il Fornaio (America) Corporation
1995 Stock Option Plan
Form of Exercise
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan;
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of the following agreements only:
NONE
-------------------------
(Initial)
OTHER
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------------
Optionee
Address:
---------------------------------
---------------------------------
5
<PAGE> 23
INCENTIVE STOCK OPTION
(CASH EXERCISE CONSIDERATION)
Optionee:
Il Fornaio (America) Corporation (the "Company"), pursuant to its 1995
Stock Option Plan (the "Plan") has this day granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
employees (including officers and directors) and is intended to comply with the
provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
The details of your option are as follows:
1. (a) The total number of shares of Common Stock subject to this
option is One Hundred Eleven Thousand One Hundred Ten (111,110). Subject to the
limitations contained herein, this option shall be exercisable with respect to
each installment shown below on or after the date of vesting (such vesting
amount to be at least twenty percent (20%) per year of the total number of
shares subject to this option):
<TABLE>
<CAPTION>
Number of Shares Date of Earliest Exercise
(Installment) (Vesting)
- ---------------- -------------------------
<S> <C>
</TABLE>
(b) Notwithstanding the foregoing and pursuant to Section 6(e) of the
Plan, in the event of a Change in Control (as defined below), the unvested
portion of this option shall automatically accelerate and Optionee shall have
the right to purchase all or any number of the shares subject to this option,
in addition to any portion of the option exercisable prior to such event. A
"Change of Control" of the Company shall be deemed to have occurred if (i) the
Company sells or otherwise disposes of all or substantially all of its assets;
(ii) there is a merger or consolidation of the Company with any other
corporation or corporations, provided that the shareholders of the Company, as
a group, do not hold, immediately after such event, at least fifty percent
(50%) of the surviving or successor corporation, or (iii)
<PAGE> 24
any person or entity, including any "person" as such term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), acquires as the "beneficial owner" (as defined in the Exchange Act)
after the date of this option, more than fifty percent (50%) of the combined
voting power of the voting securities of the Company.
2. (a) The exercise price of this option is Four Dollars and Fifty
Cents ($4.50) per share, being not less than the fair market value of the
Common Stock on the date of grant of this option.
(b) Payment of the exercise price per share is due in full in
cash (including check) upon exercise of all or any part of each installment
which has become exercisable by you. Notwithstanding the foregoing, this option
may be exercised pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company prior to the issuance of Common Stock.
3. In no event may this option be exercised for any number of
shares which would require the issuance of anything other than whole shares.
4. Notwithstanding anything to the contrary contained herein, this
option may not be exercised unless the shares issuable upon exercise of this
option are then registered under the Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Act.
5. The term of this option commences on the date hereof and,
unless sooner terminated as set forth below or in the Plan, terminates on July
9, 2005 (which date shall be no more than ten (10) years from the date this
option is granted). In no event may this option be exercised on or after the
date on which it terminates. This option shall terminate prior to the
expiration of its term three (3) months after the termination of your
employment with the Company or an affiliate of the Company (as defined in the
Plan) for any reason or for no reason unless:
(a) such termination of employment is due to your permanent and
total disability (within the meaning of Section 22(e)(3) of the Code), in which
event the option shall terminate on the earlier of the termination date set
forth above or twelve (12) months following such termination of employment; or
(b) such termination of employment is due to your death, in
which event the option shall terminate on the earlier of the termination date
set forth above or twelve (12) months after your death.
2
<PAGE> 25
However, this option may be exercised following termination of
employment only as to that number of shares as to which it was exercisable on
the date of termination of employment under the provisions of paragraph 1 of
this option.
6. (a) This option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to Section 6(f) of the Plan.
(b) By exercising this option you agree that:
(i) the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (A) the exercise of this option;
(B) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (C) the disposition of shares acquired upon
such exercise;
(ii) you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of this option that occurs within two (2) years
after the date of this option grant or within one (1) year after such shares of
Common Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (1) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians,
brokers or pledgees; (2) may be acquired by you within sixty (60) days of the
Effective Date; (3) are owned directly or indirectly, by or for your brothers
or sisters (whether by whole or half blood), spouse, ancestors and lineal
descendants; or (4) are owned, directly or indirectly, by or for a corporation,
partnership, estate or trust of which you are a shareholder, partner or
beneficiary, but only to the extent of your proportionate interest therein as a
shareholder, partner or beneficiary thereof. You further agree that the Company
may impose stop-transfer instructions with respect to securities
3
<PAGE> 26
subject to the foregoing restrictions until the end of such period.
7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.
8. This option is not an employment contract and nothing in this option
shall be deemed to create in any way whatsoever any obligation on your part to
continue in the employ of the Company, or of the Company to continue your
employment with the Company.
9. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, two (2) business days after the
postmark when deposited in the United States mail, postage prepaid, addressed to
you at the address specified below or at such other address as you hereafter
designate by written notice to the Company.
10. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the ____ day of ________, 199_.
Very truly yours,
IL FORNAIO (AMERICA) CORPORATION
By:
--------------------------------------
Duly authorized on behalf of the
Board of Directors
ATTACHMENTS:
Il Fornaio (America) Corporation
1995 Stock Option Plan
Form of Exercise
4
<PAGE> 27
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of the following agreements only:
NONE __________________________
(Initial)
OTHER _____________________________
_____________________________
_____________________________
____________________________________
Optionee
Address:
5
<PAGE> 1
EXHIBIT 10.4
IL FORNAIO (AMERICA) CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED MARCH 17, 1997
APPROVED BY THE STOCKHOLDERS ON _____________, 1997
1. PURPOSE.
(a) The purpose of this 1997 Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of Il Fornaio (America) Corporation, a
Delaware corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
1.
<PAGE> 2
(iii) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company and its Affiliates and to carry out the intent that the Plan be
treated as an "employee stock purchase plan" within the meaning of Section 423
of the Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of two (2) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate three hundred thousand
(300,000) shares of the Company's common stock (the "Common Stock"). If any
right granted under the Plan shall for any reason terminate without having been
exercised, the Common Stock not purchased under such right shall again become
available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide
for the grant of rights to purchase Common Stock of the Company under the Plan
to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all employees granted rights to purchase stock under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning
2.
<PAGE> 3
with the Offering Date, and the substance of the provisions contained in
paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee's customary employment with
the Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right
shall begin on its
Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
3.
<PAGE> 4
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or
the Committee may specify a maximum number of shares that may be purchased by
any employee as well as a maximum aggregate number of shares that may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering that contains more than one Purchase Date, the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
4.
<PAGE> 5
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's regular salary or wages
(including amounts thereof elected to be deferred by the employee, that would
otherwise have been paid, under any arrangement established by the Company
intended to comply with Section 401(k), Section 402(e)(3), Section 125, Section
402(h), or Section 403(b) of the Code, and also including any deferrals under a
non-qualified deferred compensation plan or arrangement established by the
Company), which shall include or exclude (as provided for each Offering) the
following items of compensation: bonuses, commissions, overtime pay, incentive
pay, profit sharing, other remuneration paid directly to the employee, the cost
of employee benefits paid for by the Company or an Affiliate, education or
tuition reimbursements, imputed income arising under any group insurance or
benefit program, traveling expenses, business and moving expense reimbursements,
income received in connection with stock options, contributions made by the
Company or an Affiliate under any employee benefit plan, and similar items of
compensation, as determined by the Board or Committee. The payroll deductions
made for each participant shall be credited to an account for such participant
under the Plan and shall be deposited with the general funds of the Company. A
participant may reduce (including to zero) or increase such payroll deductions,
and an eligible employee may begin such payroll deductions, after the beginning
of any Offering only as provided for in the Offering. A participant may make
additional payments into his or her account only if specifically provided for in
the Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility
5.
<PAGE> 6
to participate in any other Offerings under the Plan but such participant will
be required to deliver a new participation agreement in order to participate in
subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of a participant's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
8. EXERCISE.
(a) On each Purchase Date specified in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and other
securities and other laws applicable to the Plan. If on a Purchase Date in any
Offering hereunder the Plan is not so registered or in such compliance, no
rights granted under the Plan or any Offering shall be exercised on such
Purchase Date, and the Purchase Date shall be delayed until the Plan is subject
to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such compliance,
no rights granted under the Plan or any Offering shall be
6.
<PAGE> 7
exercised and all payroll deductions accumulated during the Offering (reduced to
the extent, if any, such deductions have been used to acquire stock) shall be
distributed to the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shares acquired upon exercise
of rights hereunder are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock
7.
<PAGE> 8
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; or (4) the acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or any Affiliate of the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors, then, as determined by the Board in its sole discretion (i) any
surviving or acquiring corporation may assume outstanding rights or substitute
similar rights for those under the Plan, (ii) such rights may continue in full
force and effect, or (iii) participants' accumulated payroll deductions may be
used to purchase Common Stock immediately prior to the transaction described
above and the participants' rights under the ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment if such amendment requires stockholder approval in order for the Plan
to obtain employee stock purchase plan treatment under Section 423 of the Code
or to comply with the requirements of Rule 16b-3 promulgated under the Exchange
Act.
(b) The Board may amend the Plan in any respect the Board deems
necessary or advisable to provide eligible employees with the maximum benefits
provided or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to employee stock purchase plans and/or to bring
the Plan and/or rights granted under it into compliance therewith.
(c) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
8.
<PAGE> 9
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at
any time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the Company's initial public
offering of shares of common stock (the "Effective Date"), but no rights granted
under the Plan shall be exercised unless and until the Plan has been approved by
the stockholders of the Company within twelve (12) months before or after the
date the Plan is adopted by the Board or the Committee, which date may be prior
to the Effective Date.
9.
<PAGE> 10
IL FORNAIO (AMERICA) CORPORATION
EMPLOYEE STOCK PURCHASE PLAN OFFERING
ADOPTED BY THE BOARD OF DIRECTORS ON MARCH 17, 1997
1. GRANT; OFFERING DATE.
(a) The Board of Directors (the "Board") of Il Fornaio (America")
Corporation (the "Company"), pursuant to the Company's Employee Stock Purchase
Plan (the "Plan"), hereby authorizes the grant of rights to purchase shares of
the common stock of the Company ("Common Stock") to all Eligible Employees (an
"Offering"). The first Offering shall begin on the effective date of the initial
public offering of the Company's Common Stock and end on [July 31, 1999] (the
"Initial Offering"). Thereafter, an Offering shall begin on [August 1] every two
(2) years, beginning with calendar year 1999, and shall end on the day prior to
the second anniversary of its Offering Date. The first day of an Offering is
that Offering's "Offering Date."
(b) Notwithstanding anything to the contrary, in the event that the
fair market value of a share of Common Stock on any Purchase Date during an
Offering is less than the fair market value of a share of Common Stock on the
Offering Date of the Offering, then following the purchase of Common Stock on
such Purchase Date (i) the Offering shall terminate, (ii) a new Offering shall
commence on the day following the Purchase Date and shall end on the day prior
to the second anniversary of such new Offering's Offering Date, and (iii) all
participants in the just-terminated Offering shall automatically be enrolled in
the new Offering.
(c) Prior to the commencement of any Offering, the Board (or the
committee described in subparagraph 2(c) of the Plan, if any) may change any or
all terms of such Offering and any subsequent Offerings. The granting of rights
pursuant to each Offering hereunder shall occur on each respective Offering Date
unless, prior to such date (a) the Board (or such Committee) determines that
such Offering shall not occur, or (b) no shares remain available for issuance
under the Plan in connection with the Offering.
2. ELIGIBLE EMPLOYEES.
(a) All employees of the Company and each of its Affiliates (as defined
in the Plan) incorporated in the United States shall be granted rights to
purchase Common Stock under each Offering on the Offering Date of such Offering,
provided that each such employee otherwise meets the employment requirements of
subparagraph 5(a) of the Plan (an "Eligible Employee"). Notwithstanding the
foregoing, the following employees shall not be Eligible Employees or be granted
rights under an Offering: (i) any person who has not been employed twelve
months by the Company, (ii) part-time or seasonal employees whose customary
1.
<PAGE> 11
employment is less than twenty (20) hours per week or five (5) months per
calendar year or (iii) 5% stockholders (including ownership through unexercised
options) described in subparagraph 5(c) of the Plan.
(b) Each person who first becomes an Eligible Employee during any
Offering and at least six (6) months prior to the final Purchase Date of the
Offering will, on the next [February 1] or [August 1] during that Offering,
receive a right under such Offering, which right shall thereafter be deemed to
be a part of the Offering. Such right shall have the same characteristics as any
rights originally granted under the Offering except that:
(1) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right; and
(2) the Offering for such right shall begin on its Offering
Date and end coincident with the end of the ongoing Offering.
3. RIGHTS.
(a) Subject to the limitations contained herein and in the Plan, on
each Offering Date each Eligible Employee shall be granted the right to purchase
the number of shares of Common Stock purchasable with up to fifteen percent
(15%) of such employee's Earnings paid during the period of such Offering
beginning after such Eligible Employee first commences participation; provided,
however, that no employee may purchase Common Stock on a particular Purchase
Date that would result in more than fifteen percent (15%) of such employee's
Earnings in the period from the Offering Date to such Purchase Date having been
applied to purchase shares under all ongoing Offerings under the Plan and all
other Company plans intended to qualify as "employee stock purchase plans" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). For
this Offering, "Earnings" means the total compensation paid to an employee,
including all salary, wages (including amounts elected to be deferred by the
employee, that would otherwise have been paid, under any cash or deferred
arrangement established by the Company), overtime pay, commissions, bonuses, and
other remuneration paid directly to the employee, but excluding profit sharing,
the cost of employee benefits paid for by the Company, education or tuition
reimbursements, imputed income arising under any Company group insurance or
benefit program, traveling expenses, business and moving expense reimbursements,
income received in connection with stock options, contributions made by the
Company under any employee benefit plan, and similar items of compensation.]
(b) Notwithstanding the foregoing, the maximum number of shares of
Common Stock an Eligible Employee may purchase on any Purchase Date in an
Offering shall be such number of shares as has a fair market value (determined
as of the Offering Date for such Offering) equal to (x) $25,000 multiplied by
the number of calendar years in which the right under such Offering
2.
<PAGE> 12
has been outstanding at any time, minus (y) the fair market value of any other
shares of Common Stock (determined as of the relevant Offering Date with respect
to such shares) which, for purposes of the limitation of Section 423(b)(8) of
the Code, are attributed to any of such calendar years in which the right is
outstanding. The amount in clause (y) of the previous sentence shall be
determined in accordance with regulations applicable under Section 423(b)(8) of
the Code based on (i) the number of shares previously purchased with respect to
such calendar years pursuant to such Offering or any other Offering under the
Plan, or pursuant to any other Company plans intended to qualify as "employee
stock purchase plans" under Section 423 of the Code, and (ii) the number of
shares subject to other rights outstanding on the Offering Date for such
Offering pursuant to the Plan or any other such Company plan.
(c) The maximum aggregate number of shares available to be purchased by
all Eligible Employees under an Offering shall be the number of shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
shares of Common Stock upon exercise of rights granted under the Offering would
exceed the maximum aggregate number of shares available, the Board shall make a
pro rata allocation of the shares available in a uniform and equitable manner.
4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Common Stock
on the Offering Date or eighty-five percent (85%) of the fair market value of
the Common Stock on the Purchase Date, in each case rounded up to the nearest
whole cent per share. For the Initial Offering, the fair market value of the
Common Stock at the time when the Offering commences shall be the price per
share at which shares of Common Stock are first sold to the public in the
Company's initial public offering as specified in the final prospectus with
respect to that offering.
5. PARTICIPATION.
(a) Except as otherwise provided in this paragraph 5 or in the Plan, an
Eligible Employee may elect to participate in an Offering only at the beginning
of the Offering or as of the day following a Purchase Date during such Offering.
An Eligible Employee shall become a participant in an Offering by delivering an
agreement authorizing payroll deductions. Such deductions must be in whole
percentages of Earnings, with a minimum percentage of one percent (1%) and a
maximum percentage of fifteen percent (15%). A participant may not make
additional payments into his or her account. The agreement shall be made on such
enrollment form as the Company provides, and must be delivered to the Company
prior to the date participation is to be effective, unless a later time for
filing the enrollment form is set by the Company for all Eligible Employees with
respect to a given participation date. For the Initial Offering, the time for
filing an enrollment form and commencing participation for individuals who are
Eligible Employees on
3.
<PAGE> 13
the Offering Date for the Initial Offering shall be determined by the Company
and communicated to such Eligible Employees.
(b) A participant may decrease his or her participation level during
the course of a six (6)-month purchase interval one (1) time, and only by
delivering notice to the Company at least ten (10) days in advance of the
Purchase Date in such form as the Company prescribes; provided that a
participant may (i) reduce his or her deductions to zero percent (0%) upon ten
(10) days' prior notice by delivering a notice in such form as the Company
provides, (ii) may increase or decrease his or her participation level at any
time to become effective on the day following the next subsequent Purchase Date
or (iii) may withdraw from an Offering and receive his or her accumulated
payroll deductions from the Offering (reduced to the extent, if any, such
deductions have been used to acquire Common Stock for the participant on any
prior Purchase Dates) without interest, at any time prior to the end of the
Offering, excluding only each ten (10) day period immediately preceding a
Purchase Date, by delivering a withdrawal notice to the Company in such form as
the Company provides. A participant who has withdrawn from an Offering shall not
again participate in such Offering, but may participant in subsequent Offerings
under the Plan in accordance with the terms thereof.
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date,
each participant's accumulated payroll deductions (without any increase for
interest) shall be applied to the purchase of whole shares of Common Stock, up
to the maximum number of shares permitted under the Plan and the Offering.
"Purchase Date" shall be defined as each July 31 and January 31, except that
the first Purchase Date under this Offering shall be January 31, 1998, and not
July 31, 1997.
7. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall
be given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering shall be deemed effectively given upon
receipt or, in the case of notices and agreements delivered by the Company, five
(5) days after deposit in the United States mail, postage prepaid.
8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of the
Plan by the stockholders as required for the Plan to obtain treatment as a
tax-qualified employee stock purchase plan under Section 423 of the Code and to
comply with the requirements of exemption from potential liability under Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
set forth in Rule 16b-3 promulgated under the Exchange Act.
4.
<PAGE> 14
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan), the provisions of the Plan
shall control.
5.
<PAGE> 1
EXHIBIT 10.5
IL FORNAIO (AMERICA) CORPORATION
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED AND EFFECTIVE MARCH 17, 1997
APPROVED BY STOCKHOLDERS APRIL [23], 1997
1. PURPOSE.
(a) The purpose of the 1997 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of Il Fornaio
(America) Corporation (the "Company") who is not otherwise at the time of grant
an employee of or consultant to the Company or of any Affiliate of the Company
(each such person being hereafter referred to as a "Non-Employee Director") will
be given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a committee
composed of two (2) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate one hundred thousand (100,000)
shares of the Company's common stock. If any option granted under the Plan shall
for any reason expire or otherwise terminate without
1.
<PAGE> 2
having been exercised in full, the stock not purchased under such option shall
again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is serving as a Non-Employee Director on the date
this Plan is approved by the stockholders of the Company (the "Approval Date")
and each person who is first elected or appointed to the Board thereafter shall
automatically be granted, on the Approval Date or such subsequent date of
initial election or appointment, an option to purchase four thousand five
hundred (4,500) shares of common stock of the Company on the terms and
conditions set forth herein (hereinafter, the "Initial Grants").
(b) Every thirty-six (36) months thereafter, measured with reference to
the date of each Initial Grant, a Non-Employee Director shall be granted an
option to purchase four thousand five hundred (4,500) shares of common stock of
the Company on the terms and conditions set forth herein, provided that such
Non-Employee Director has continuously served on the Board during such
preceding thirty-six (36)-month period (hereinafter, the "Subsequent Grants").
There shall be no limit on the number of Subsequent Grants a person may receive
under this Plan.
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten (10) years from the date of grant. If the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date twelve (12) months following
the date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death.
(b) The exercise price of each option shall be equal to one hundred
percent (100%) of the Fair Market Value of the stock (as such term is defined in
subsection 9(e)) subject to such option on the date such option is granted.
(c) The optionee may elect to make payment of the exercise price under
one of the following alternatives:
2.
<PAGE> 3
(i) Payment of the exercise price per share in cash at the
time of exercise;
(ii) Provided that at the time of the exercise the Company's
common stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its Fair Market
Value on the date preceding the date of exercise; or
(iii) Payment pursuant to a program developed under Regulation
T as promulgated by the Federal Reserve Board which results in the receipt of
cash (or check) by the Company either prior to the issuance of shares of the
Company's common stock or pursuant to the terms of irrevocable instructions
issued by the optionee prior to the issuance of shares of the Company's common
stock.
(iv) Payment by a combination of the methods of payment
specified in subparagraph 6(c)(i) through 6(c)(iii) above.
(d) An option shall be transferable only to the extent specifically
provided in the option agreement; provided, however, that if the option
agreement does not specifically provide for the transferability of an option,
then the option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person (or by his guardian or
legal representative) or transferee pursuant to such an order. Notwithstanding
the foregoing, the optionee may, by delivering written notice to the Company in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the optionee, shall thereafter be entitled to exercise the option.
(e) Both Initial Options and Subsequent Options shall become
exercisable and vested in three (3) equal annual installments, commencing on
the one (1)-year anniversary of the date of grant of the option, provided that
the optionee has, during the entire period prior to such vesting installment
date, continuously served as a Non-Employee Director or employee of or
consultant to the Company or any Affiliate of the Company, whereupon such
option shall become fully vested and exercisable in accordance with its terms
with respect to that portion of the shares represented by that Installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may require
any optionee to provide such other representations, written assurances or
information which the Company shall determine is necessary, desirable or
appropriate to comply with applicable securities laws as a condition of granting
an option to the optionee or permitting the optionee to exercise the option. The
Company may, upon advice of
3.
<PAGE> 4
counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate in any capacity or shall affect any right of the
Company, its Board or stockholders or any Affiliate, to remove any Non-Employee
Director pursuant to the Company's Bylaws and the provisions of Delaware General
Corporations Law.
(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest
4.
<PAGE> 5
in or to any option reserved for the purposes of the Plan except as to such
shares of common stock, if any, as shall have been reserved for him pursuant to
an option granted to him.
(d) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to the
Company to insure that the amount of any federal, state or local withholding tax
required to be withheld with respect to such sale or transfer, or such removal
or lapse, is made available to the Company for timely payment of such tax.
(e) As used in this Plan, "Fair Market Value" means, as of any date,
the value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap, the Fair Market Value of a share of
common stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in common stock) on the last market
trading day prior to the day of determination, as reported in the Wall Street
Journal or such other source as the Board deems reliable; or
(ii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored
5.
<PAGE> 6
or maintained by the Company or any Affiliate of the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors, then to the extent not prohibited by applicable law, the
time during which options outstanding under the Plan may be exercised shall be
accelerated prior to such event and the options terminated if not exercised
after such acceleration and at or prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan. However, except
as provided in paragraph 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary for the Plan to satisfy the
requirements of Rule 16b-3 under the Exchange Act or any Nasdaq or securities
exchange listing requirements.
(b) Rights and obligations under any option granted before any
amendment of the Plan shall not be impaired by such amendment unless (i) the
Company requests the consent of the person to whom the option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on March 16, 2007. No options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
6.
<PAGE> 7
IL FORNAIO (AMERICA) CORPORATION
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION
___________________________________, Optionee:
On __________________, 19___, an option was automatically granted to
you (the "optionee") pursuant to the Il Fornaio (America) Corporation (the
"Company") 1997 Non-Employee Directors' Stock Option Plan (the "Plan") to
purchase shares of the Company's common stock ("Common Stock"). This option is
not intended to qualify and will not be treated as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for Non-Employee Directors (as defined in
the Plan).
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
______________ ( ).
2. The exercise price of this option is _________________________
($________) per share, such amount being equal to the Fair Market Value (as
defined in the Plan) of the Common Stock on the date of grant of this option.
3. This option is immediately vested and exercisable for all of the
option shares.
4. If optionee's service as a Non-Employee Director or employee of or
consultant to the Company or any Affiliate terminates for any reason or for no
reason, this option shall terminate on the earlier of the Expiration Date or the
date twelve (12) months following the date of termination of all such service;
provided, however, that if such termination of service is due to optionee's
death, this option shall terminate on the earlier of the Expiration Date or
eighteen (18) months following the date of the optionee's death.
5. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to Section 6 of
the Plan. This option may only be exercised for whole shares.
(b) You may elect to pay the exercise price under one of the
following alternatives:
(i) Payment in cash or check at the time of exercise;
(ii) Provided that at the time of the exercise the Common
Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of Common Stock already owned by you, held for the
period required to avoid a charge to the Company's reported earnings,
1.
<PAGE> 8
and owned free and clear of any liens, claims, encumbrances or security
interest, which Common Stock shall be valued at its Fair Market Value on the
date preceding the date of exercise;
(iii) Payment pursuant to a program developed under Regulation
T as promulgated by the Federal Reserve Board which results in the receipt of
cash (or check) by the Company either prior to the issuance of shares of the
Common Stock or pursuant to the terms of irrevocable instructions issued by you
prior to the issuance of shares of the Common Stock; or
(iv) Payment by a combination of the methods of payment
specified in subparagraphs (i) through (iii) above.
(c) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax withholding obligation of the Company arising by reason of the
exercise of this option.
6. The term of this option is ten (10) years measured from the grant
date, subject, however, to earlier termination upon your termination of service,
as set forth in Section 6 of the Plan.
7. Any notices provided for in this option or the Plan shall be given
in writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
8. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
9. Notwithstanding anything to the foregoing, this option shall not be
exercisable in whole or in part unless and until the Plan has been approved by
the Company's stockholders.
Dated the ____ day of _______________________________, 19__.
Very truly yours,
Il Fornaio (America) Corporation
By: ________________________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENT:
1997 Non-Employee Directors' Stock Option Plan
2.
<PAGE> 9
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan;
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of Common Stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options and any other stock awards previously granted and
delivered to the undersigned under stock award plans of the Company, and (ii)
the following agreements only:
NONE:
--------------------------------------
(Initial)
OTHER:
--------------------------------------
--------------------------------------
--------------------------------------
-------------------------------
Optionee
Address:
-------------------------------
-------------------------------
3.
<PAGE> 10
NOTICE OF EXERCISE
Il Fornaio (America) Corporation
__________________
__________________ Date of Exercise:____________________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.
<TABLE>
<CAPTION>
Type of option: NONSTATUTORY
<S> <C>
Stock option dated:
Number of shares as
to which option is
exercised:
Certificates to be
issued in name of:
Total exercise price: $
Cash payment delivered
herewith: $
Value of ______ shares
of common stock delivered
herewith(1): $
</TABLE>
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the Company's 1997 Non-Employee
Directors' Stock Option Plan and (ii) to provide for the payment by me to you
(in the manner designated by you) of your withholding obligation, if any,
relating to the exercise of this option.
- --------
1 Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.
1.
<PAGE> 11
I hereby make the following certifications and representations with
respect to the number of shares of Common Stock (the "Shares"), which are being
acquired by me for my own account upon exercise of the Option as set forth
above:
I acknowledge that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and are deemed to
constitute "restricted securities" under Rule 701 and Rule 144 promulgated under
the Securities Act. I warrant and represent to the Company that I have no
present intention of distributing or selling said Shares, except as permitted
under the Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for
at least ninety (90) days after the stock of the Company becomes publicly traded
(i.e., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended) under Rule 701 and that more
restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the
Shares subject to the provisions of the Option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any legends
reflecting restrictions pursuant to the Company's Articles of Incorporation,
Bylaws and/or applicable securities laws.
I further agree that, if required by the Company (or a representative
of the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act, I will
not sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or the
representative of the underwriters. I further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
Very truly yours,
-----------------------------
2.
<PAGE> 1
EXHIBIT 10.6
IL FORNAIO (AMERICA) CORPORATION
SERIES F PREFERRED STOCK
PURCHASE AGREEMENT
JANUARY 27, 1993
<PAGE> 2
TABLE OF CONTENTS
PAGE
1. Authorization and Sale of the Securities............................. 1.
1.1 Authorization of the Securities................................ 1.
1.2 Sale of Securities............................................. 1.
2. Closing Date; Delivery............................................... 1.
2.1 Closing Date................................................... 1.
2.2 Delivery....................................................... 2.
3. Representations and Warranties of the Company........................ 2.
3.1 Organization and Standing...................................... 2.
3.2 Subsidiaries................................................... 2.
3.3 Capitalization................................................. 2.
3.4 Corporate Power; Authorization................................. 3.
3.5 Shares; Conversion Stock....................................... 4.
3.6 Litigation..................................................... 4.
3.7 Financial Statements........................................... 4.
3.8 Material Liabilities........................................... 4.
3.9 Absence of Changes............................................. 4.
3.10 Title.......................................................... 5.
3.11 Tax Returns.................................................... 6.
3.12 Infringements.................................................. 6.
3.13 Contracts, None Burdensome..................................... 6.
3.14 Material Breach................................................ 6.
3.15 Conflict of Interest........................................... 6.
3.16 Representations................................................ 7.
3.17 Intangible Property............................................ 7.
3.18 Employees...................................................... 7.
3.19 Insurance...................................................... 7.
3.20 Registration Rights............................................ 7.
3.21 Securities Laws; Governmental Consent.......................... 8.
3.22 Contracts and Other Commitments................................ 8.
4. Representations and Warranties of Purchasers......................... 8.
4.1 Binding Obligation............................................. 8.
4.2 Investment Experience.......................................... 8.
4.3 Investment Intent.............................................. 8.
4.4 Limitation on Disposition...................................... 9.
4.5 Lack of Public Market.......................................... 9.
4.6 Discussions with Management.................................... 9.
4.7 Confidentiality................................................ 9.
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
PAGE
4.8 Suitability of U.S. Purchasers................................. 9.
4.9 Suitability of Foreign Investors............................... 11.
5. Conditions to Closing................................................ 11.
5.1 Conditions to Purchasers' Obligations.......................... 11.
5.2 Conditions to Obligations of the Company....................... 12.
6. Further Agreements of the Parties.................................... 13.
6.1 Financial Statements........................................... 13.
6.2 Additional Information......................................... 14.
6.3 Assignment of Certain Rights................................... 14.
7. Registration Rights.................................................. 14.
7.1 Restrictions on Transferability................................ 14.
7.2 Certain Definitions............................................ 14.
7.3 Restrictive Legend............................................. 15.
7.4 Notice of Proposed Transfers................................... 17.
7.5 Requested Registration......................................... 17.
7.6 Company Registration........................................... 20.
7.7 Registration on Form S-3....................................... 21.
7.8 Expenses of Registration....................................... 22.
7.9 Registration Procedures........................................ 22.
7.10 Indemnification................................................ 23.
7.11 Information by Holder.......................................... 25.
7.12 Rule 144 Reporting............................................. 25.
7.13 Transfer of Registration Rights................................ 26.
7.14 Standoff Agreement............................................. 26.
7.15 Amendment of Registration Rights............................... 26.
8. Miscellaneous........................................................ 26.
8.1 Waivers and Amendments......................................... 26.
8.2 Governing Law.................................................. 27.
8.3 Survival....................................................... 27.
8.4 Successors and Assigns......................................... 27.
8.5 Entire Agreement............................................... 27.
8.6 Notices, etc................................................... 27.
8.7 Separability of Agreements; Severability of this Agreement..... 27.
8.8 Finder's Fees.................................................. 28.
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
PAGE
8.9 Information Confidential....................................... 28.
8.10 California Corporate Securities Law............................ 28.
8.11 Titles and Subtitles........................................... 29.
8.12 Counterparts................................................... 29.
8.13 Delays or Omissions............................................ 29.
8.14 Understanding Among the Purchasers............................. 29.
8.15 Stock Splits................................................... 29.
8.16 Expenses....................................................... 30.
8.17 Representation of Several Parties by a Single Firm of
Attorneys................................................... 30.
iii.
<PAGE> 5
IL FORNAIO (AMERICA) CORPORATION
SERIES F PREFERRED STOCK
PURCHASE AGREEMENT
This Agreement is made as of January 27, 1993, among Il Fornaio (America)
Corporation, a California corporation (the "Company"), with its executive
offices located at 1000 Sansome Street, Suite 200, San Francisco, California
94111, and the persons and entities listed on the Schedule of Purchasers
attached hereto as EXHIBIT A (the "Purchasers").
1. AUTHORIZATION AND SALE OF THE SECURITIES.
1.1 AUTHORIZATION OF THE SECURITIES. The Company has authorized, or
before the Closing, as defined in paragraph 2.1 hereof, will have authorized,
the issuance and sale of up to an aggregate of 798,164 shares of its Series F
Preferred Stock (collectively the "Series F Preferred Stock") at a purchase
price of $10.25 per share. The Series F Preferred Stock has, or before the
Closing will have, the rights provided for in the Amended and Restated Articles
of Incorporation attached hereto as EXHIBIT B (the "Amended and Restated
Articles").
1.2 SALE OF SECURITIES. Subject to the terms and conditions hereof,
the Company will severally issue and sell to each of the Purchasers, and each
Purchaser will severally purchase from the Company, the number of shares of
Series F Preferred Stock specified opposite such Purchaser's name in column 2 of
the Schedule of Purchasers at the aggregate purchase price set forth in column 3
of the Schedule of Purchasers. The total amount of Series F Preferred Stock sold
to the Purchasers pursuant to this Agreement is hereinafter referred to as the
"Shares." The total amount of Common Stock issuable upon conversion of the
Series F Preferred Stock is hereinafter referred to as the "Conversion Stock."
The Shares and the Conversion Stock are hereinafter collectively referred to as
the "Securities." The purchase price for the Shares may be paid in the form of
cash, cancellation of indebtedness or any combination thereof.
2. CLOSING DATE; DELIVERY.
2.1 CLOSING DATE. The closing of the purchase and sale of the Shares
hereunder (the "Closing") shall be held at the office of Cooley Godward Castro
Huddleson & Tatum, counsel to the Company, located at One Maritime Plaza, 20th
floor, San Francisco, California 94111, at 10:00 a.m., on January 27, 1993, or
at such other time and place as the Company and the Purchasers may mutually
agree (the "Closing Date"). If less than all of the 798,164 shares of Series F
Preferred Stock are sold at the Closing, then, subject to the terms and
conditions of this Agreement, the Company may sell, within twenty one (21) days
of the initial Closing, up to the balance of the unissued 798,164 shares of
Series F Preferred Stock to such persons as the Company may determine at the
same price per share as the Series F Preferred Stock purchased and sold at the
initial Closing. Any such sale shall be upon the same terms and conditions as
those contained herein and purchasers of such shares of Series F Preferred Stock
shall have the rights
1.
<PAGE> 6
and obligations of a Purchaser hereunder. In the event that there is more than
one Closing, the terms "Closing" and "Closing Date" shall apply to each such
Closing and Closing Date unless otherwise specified.
2.2 DELIVERY. At the Closing, the Company will deliver to each
Purchaser one or more certificates registered in such Purchaser's name,
representing the number of Shares designated in column 2 of the Schedule of
Purchasers to be purchased by such Purchaser from the Company. The Company and
the Purchaser agree that, in connection with the placement of the Shares,
Wertheim Schroder & Co. Incorporated (the "Placement Agent") may, in its
discretion, deduct from the purchase price for the Shares at the Closing the
amount of its fees and expenses as Placement Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedule of Exceptions to the
representations and warranties of the Company, delivered contemporaneously
herewith (the "Schedule of Exceptions"), the Company represents and warrants to
the Purchasers as follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized and validly existing under, and by virtue of, the laws of the State of
California and is in good standing as a domestic corporation under the laws of
said State. The Company has the requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as presently
conducted. The Company is not qualified to do business as a foreign corporation
in any jurisdiction, and the failure to be so qualified will not have a material
adverse effect on the Company's business as now conducted. The Company has made
available to the Purchasers copies of its Articles of Incorporation (the
"Articles of Incorporation") and Bylaws, each as amended to date ("Bylaws").
Such copies are true, correct and complete and contain all amendments through
the date hereof.
3.2 SUBSIDIARIES. The Company does not presently control, directly
or indirectly, or have an ownership interest in any other corporation,
partnership, business trust, association or other business entity.
3.3 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 15,000,000 shares of Common Stock and 3,000,000
shares of Preferred Stock. As of the date hereof, 1,472,059 shares of Common
Stock, no shares of Series A Preferred Stock, 535,484 shares of Series B
Preferred Stock, 391,340 shares of Series C Preferred Stock, 130,399 shares of
Series D Preferred Stock and 441,099 shares of Series E Preferred Stock are
outstanding. All of the outstanding shares of Common Stock and Preferred Stock
are duly authorized, validly issued, fully paid and nonassessable and have been
offered and sold in compliance with applicable federal and state securities
laws. Each share of Series D Preferred Stock is currently convertible into one
share of Series C Preferred Stock. Each share of Series B, Series C and Series E
Preferred Stock is currently convertible into and, as of the Closing, each share
of Series F Preferred Stock will be convertible into, approximately 1.262 shares
of Common
2.
<PAGE> 7
Stock. The Company has reserved sufficient shares of Common Stock for conversion
of all authorized Preferred Stock. In addition, 103,680, 126,200 and 300,000
shares of Common Stock have been authorized for issuance upon the exercise of
employee stock options under the 1988 Stock Option Plan, 1991 Incentive Stock
Option Plan, and 1992 Stock Option Plan, respectively, pursuant to which options
to purchase an aggregate of 189,800 shares are outstanding, (c) 100,000 shares
of Common Stock have been authorized for issuance under the Company's 1992
Non-Employee Directors' Stock Option Plan, pursuant to which options to purchase
33,000 shares are outstanding, and (d) 200,000 shares of Common Stock have been
authorized for issuance under the Company's 1992 Employee Stock Purchase Plan,
pursuant to which no rights are outstanding. Except as set forth herein or as
contemplated by this Agreement, no subscription, warrant, option or other right
(including without limitation, preemptive rights or rights of first refusal) to
purchase or acquire any shares of any class of capital stock of the Company or
securities convertible into or exchangeable for such capital stock is authorized
or outstanding. The Company is under no duty to redeem or to repurchase any
shares of any class or series of its capital stock.
Attached to the Schedule of Exceptions is an accurate list of the record
holders of the Company's outstanding Common Stock and Preferred Stock, and of
options and warrants to purchase Common Stock outstanding as of the date of this
Agreement, which list accurately reflects the shares of Common Stock held of
record by employees of the Company that are subject to repurchase by the Company
pursuant to the various stock purchase plans under which they were issued. The
Company has made available to the Purchasers copies of each stock purchase
agreement or stock option plan of the Company under which Common Stock has been
or may be issued, along with copies of the standard forms of all agreements
required under such plans as a condition to issuance of stock or options
thereunder.
3.4 CORPORATE POWER; AUTHORIZATION. The Company has all requisite
corporate power to execute and deliver this Agreement, to sell and issue the
Shares and to carry out and perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement by the Company and the
issuance, sale and delivery of the Shares and the Conversion Stock have been
duly authorized by all requisite corporate action. This Agreement constitutes
the legal, valid and binding obligation of the Company enforceable in accordance
with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization
or similar laws relating to or affecting the enforcement of creditors' rights
and the availability of equitable remedies, and (ii) the enforceability of the
indemnification provisions of Section 7.10 of this Agreement to the extent that
such provisions may be limited by public policy or applicable laws. The
execution, delivery and performance of this Agreement and compliance with the
provisions hereof, and the issuance, sale and delivery of the Shares and the
Conversion Stock by the Company do not materially conflict with, or result in a
material breach or violation of the terms, conditions or provisions of, or
constitute a material default (or an event which, with the giving of notice or
passage of time, or both, would result in a material default) under, or result
in the creation or imposition of any material lien pursuant to the terms of, the
Articles of Incorporation or Bylaws of the Company, or any material statute,
law, rule or regulation, any California or federal order, judgment, decree, or
any material indenture, mortgage, lease or other material agreement or
instrument to which the Company, or any of its properties, is subject.
3.
<PAGE> 8
3.5 SHARES; CONVERSION STOCK. The Shares, when issued in compliance
with the provisions of this Agreement, will be validly issued, fully paid and
nonassessable, free of all liens and encumbrances, and will have the rights,
preferences and privileges described in the Amended and Restated Articles. The
Conversion Stock presently required for full conversion of the Series F
Preferred Stock issued pursuant to the terms of this Agreement has been duly and
validly reserved for issuance. When the Conversion Stock is issued in accordance
with the terms of the Amended and Restated Articles, it will be validly issued
and outstanding, fully paid and nonassessable and free of any liens or
encumbrances.
3.6 LITIGATION. There is no action, proceeding or investigation
pending or, to the knowledge of the Company, threatened against the Company or
any of its properties or assets which questions the validity of this Agreement
or any action taken or to be taken in connection herewith, or which might result
in any material adverse effect on the financial condition, assets, liabilities,
earnings or business of the Company. No action, suit or proceeding is pending or
threatened by the Company. To the knowledge of the Company, the Company is in
compliance in all material respects with all material laws and regulations
applicable to it, its properties and its business as presently conducted.
3.7 FINANCIAL STATEMENTS. The Company has furnished to each
Purchaser its unaudited balance sheet and income statements as of November 22,
1992 (the "Unaudited Financial Statements") and its audited year end financial
statements as of December 29, 1991 (the "Audited Financial Statements"). The
Unaudited Financial Statements and the Audited Financial Statements are
hereinafter collectively referred to as the "Financial Statements." The
Financial Statements (i) are complete and correct in all material respects, (ii)
are in accordance with the Company's books and records, (iii) present fairly its
financial position as of the dates indicated and the results of its operations
for the periods indicated, and (iv) have been prepared in conformity with
generally accepted accounting principles consistently applied, except that the
Unaudited Financial Statements are not audited, do not include footnotes and do
not reflect year-end adjustments.
3.8 MATERIAL LIABILITIES. The Company has no material liabilities or
obligations, absolute or contingent (individually or in the aggregate), except
(i) the liabilities and obligations set forth in the Unaudited Financial
Statements, (ii) the liabilities and obligations under an Indemnity Agreement
with its president Laurence B. Mindel ("Mindel"), (iii) the liabilities and
obligations which have been incurred subsequent to November 22, 1992 in the
ordinary course of business which have not been, either in any case or in the
aggregate, materially adverse, and (iv) the liabilities and obligations under
various commercial leases and other contracts and arrangements entered into in
the ordinary course of business.
3.9 ABSENCE OF CHANGES.
Since November 22, 1992, there has not been:
4.
<PAGE> 9
(a) Any change in the assets, liabilities, financial condition
or operations of the Company except changes in the ordinary course of business
which have not been, either in any case or in the aggregate, materially adverse;
(b) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(c) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of the
Company;
(d) Any forgiveness or compromise by the Company of a material
debt owed to it;
(e) Any loans made by the Company to its employees, officers
or directors other than advances for travel or other business expenses made in
the ordinary course of business;
(f) Any changes in the compensation of the Company's
employees, officers or directors;
(g) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(h) Any redemption, repurchase, cancellation, grant or
issuance of or other change to, any of the capital stock of the Company or
options to purchase the same;
(i) Any resignation or termination of employment of any key
officer or any key employee of the Company, and the executive officers of the
Company do not know of any impending resignation or termination of employment of
any key officer or key employee;
(j) Any other event or condition of any character which has
materially and adversely affected the Company's business; or
(k) Any agreement or commitment by the Company to do any of
the things described in this Section 3.9.
3.10 TITLE. The Company has good title to its properties and assets.
Such properties and assets are not subject to any liens, mortgages, pledges,
encumbrances or charges of any kind except liens for current taxes and
assessments not delinquent. All leases pursuant to which the Company leases real
or personal property are in good standing and are valid and enforceable in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or
5.
<PAGE> 10
affecting enforcement of creditors' rights or by limitations on the availability
of equitable remedies. To the Company's knowledge, the Company is not in
material default thereunder.
3.11 TAX RETURNS. The Company has accurately prepared and timely
filed all federal, state and other tax returns which are required to be filed
and has paid all taxes which have become due and payable. The Company has not
been advised (i) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof, or (ii) of any deficiency in assessment
or proposed adjustment to its federal, state or other taxes. The Company has no
knowledge of any proposed tax to be imposed upon its properties or assets for
which there is not an adequate reserve reflected in the Unaudited Financial
Statements.
3.12 INFRINGEMENTS. The Company, to its knowledge, is not infringing
any third party's patent, trademark, trade secret, trade name or copyright and
has not received any notice of any claimed infringement. The Company, to its
knowledge, owns and possesses or is licensed under all patents, patent
applications, licenses, trademarks, service marks, trade names, inventions,
processes or copyrights necessary for the operation of its business as now
conducted.
3.13 CONTRACTS, NONE BURDENSOME. The Company is not a party to any
contract, agreement or instrument or, to its knowledge, subject to any judgment,
order, writ or injunction, which, in the opinion of the Company, is unduly
burdensome and substantially and adversely affects its business, operations or
financial condition and the Company is not presently aware, without conducting
any inquiry, of any contract, agreement or instrument to which it is a party, or
any judgment, order, writ or injunction to which it is subject, which, in the
opinion of the Company, will be unduly burdensome and will substantially and
adversely affect its business, operations or financial condition, as currently
planned or contemplated.
3.14 MATERIAL BREACH. The Company is not in violation or breach of
any of the terms, conditions or provisions of its Articles of Incorporation or
its Bylaws, or in any material respect of any material indenture, mortgage, deed
of trust or other material agreement, instrument, court order, judgment, or
decree to which it is a party. To the best knowledge of the Company, no event or
failure of performance has occurred which, with the passage of time or the
giving of notice, would constitute such a violation by the Company.
3.15 CONFLICT OF INTEREST. The Company and its executive officers
have no interest (other than as holders of securities of a publicly traded
company) either directly or indirectly, in any entity, including, without
limitation thereto, any corporation, partnership, joint venture, proprietorship,
firm, person, licensee, business or association (whether as an employee,
officer, director, shareholder, agent, independent contractor, security holder,
creditor, consultant or otherwise) that presently (i) provides any services, or
designs, produces and/or sells any products or product lines, or engages in any
activity which is the same, similar to or competitive with any activity or
business in which the Company is now engaged or currently intends to become
engaged; (ii) is a supplier, customer, or creditor of the Company, or has an
existing contractual relationship with any of the Company's executive officers;
(iii) has any direct or indirect material interest in any material asset or
property, real or personal, tangible or intangible,
6.
<PAGE> 11
of the Company or any property, real or personal, tangible or intangible, that
is used in the Company's business. Except as set forth on the Schedule of
Exceptions, no employee, shareholder, officer or director of the Company, or
their spouses or children, is indebted to the Company, nor is the Company
indebted to them.
3.16 REPRESENTATIONS. This Agreement, the Financial Statements, and
any document, statement, certificate or schedule furnished or to be furnished by
the Company pursuant hereto or in connection with transactions contemplated
hereby, when taken as a whole, do not or will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
3.17 INTANGIBLE PROPERTY. The Company has taken all reasonable
security measures to protect the secrecy, confidentiality and value of all
patents, licenses, trademarks, trade names, service marks, copyrights,
proprietary rights, trade secrets, know-how, inventions, designs, processes and
technical data required to conduct its business. The Company, to its knowledge,
has all right, title and interest in and to all intangible property and
technology or is able to obtain on reasonable terms all permits, licenses and
other authority necessary for the conduct of its business as presently conducted
and as proposed to be conducted. The Company has not been notified, and the
Company is not aware, that it or any of its officers or employees have
improperly used or are making improper use of any confidential information or
trade secrets of others, including those of any former employer of an officer or
employee. The Company is not aware of any violation by a third party of any of
its patents, licenses, trademarks, trade names, service marks, copyrights, trade
secrets or other proprietary rights.
3.18 EMPLOYEES. The Company does not have any collective bargaining
agreements with any of its employees and the Company is not aware of any labor
union organizing activity pending or threatened against the Company. To the
Company's knowledge, no employee is obligated under any agreement or judgment
that would conflict with such employee's obligation to use his best efforts to
promote the interests of the Company or would conflict with the Company's
business as conducted or proposed to be conducted. To the Company's knowledge,
no employee is in violation of the terms of any employment agreement,
proprietary information agreement, noncompetition agreement or any other
agreement relating to such employee's relationship with any previous employer.
Except as set forth in this Agreement or in the Schedule of Exceptions, the
Company is not a party to or bound by any currently effective employment
contract, deferred compensation agreement, bonus plan, incentive plan, profit
sharing plan, retirement agreement, or other employee compensation agreement.
3.19 INSURANCE. The Company has fire and casualty insurance policies
with financially sound and reputable insurers, with extended coverage,
sufficient in amount to allow it to replace any of its properties which might be
damaged or destroyed.
3.20 REGISTRATION RIGHTS. Except for the registration rights granted
in paragraph 7 hereof and the registration rights granted to the Other Investors
(as defined in paragraph 7.2
7.
<PAGE> 12
below) pursuant to the Series B Agreement, the Series C and D Agreement and the
Series E Agreement, the Company is not under any obligation to register any of
its presently outstanding securities or any of its securities which may
hereafter be issued pursuant to the Securities Act of 1933, as amended (the
"Act").
3.21 SECURITIES LAWS; GOVERNMENTAL CONSENT. The offer, sale and
issuance of the Shares and the Conversion Stock as provided in this Agreement,
are and will be exempt from the registration and prospectus delivery
requirements of the Act and are exempt from registration or qualification under
the applicable California state registration or qualification requirements.
Except for the notices required or permitted to be filed after the Closing Date
with the Securities and Exchange Commission and the California Commissioner of
Corporations, which notices the Company will file on a timely basis, no consent,
approval or authorization of, or designation, declaration or filing with, any
governmental authority on the part of the Company is required in connection with
the valid execution, delivery and performance of this Agreement or the offer,
sale or issuance of the Shares and the Conversion Stock, other than such as may
be required under the securities laws of states other than California.
3.22 CONTRACTS AND OTHER COMMITMENTS. Except as set forth in the
Schedule of Exceptions, the Company does not have any contract, agreement,
lease, or other commitment, written or oral, absolute or contingent, other than
(i) contracts for the purchase of supplies and services that were entered into
in the ordinary and usual course of business, that do not involve any of the
Company's officers, directors or affiliates (as that term is defined in Rule 405
under the Act), provided that such contracts do not involve more than $100,000,
and do not extend for more than one year beyond the date hereof, and (ii)
contracts terminable at will by the Company on no more than 30 days' notice
without cost or liability to the Company.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASERS. Each Purchaser, severally
and not jointly, represents and warrants to the Company with respect to his, her
or its purchase of the Securities as follows:
4.1 BINDING OBLIGATION. This Agreement constitutes the Purchaser's
valid and legally binding obligation, enforceable in accordance with its terms.
4.2 INVESTMENT EXPERIENCE. By virtue of its experience in evaluating
and investing in private placement transactions of securities in companies
similar to the Company, the Purchaser has such knowledge and experience in
financial and business matters that the Purchaser is capable of evaluating the
merits and risks of its investment in the Company and has the capacity to
protect its own interests.
4.3 INVESTMENT INTENT. The Purchaser is acquiring the Securities for
investment for its own account and not with a view to, or for resale in
connection with, any distribution thereof, and the Purchaser has no present
intention of selling or distributing the Securities. The Purchaser understands
that the Securities to be purchased have not been registered under the Act
8.
<PAGE> 13
by reason of a specific exemption from the registration provisions of the Act
that depends upon, among other things, the bona fide nature of the investment
intent as expressed herein.
4.4 LIMITATION ON DISPOSITION. The Purchaser acknowledges that the
Securities must be held indefinitely unless subsequently registered under the
Act, or unless an exemption from such registration is available. If the
Purchaser is a resident of the United States, such Purchaser is aware of the
provisions of Rule 144 promulgated under the Act that permit limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions. If the Purchaser is not a resident of the United States,
such Purchaser is aware of the provisions of Regulation S promulgated under the
Act that permit resale of securities purchased in a private placement except to
U.S. persons or for the account or benefit of a U.S. person during the period of
one year after such purchase and thereafter permit limited resale of such
securities to U.S. persons subject to the satisfaction of certain conditions.
4.5 LACK OF PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the Securities issued by the Company, and that it
is uncertain whether a public market will ever exist for the Securities.
4.6 DISCUSSIONS WITH MANAGEMENT. The Purchaser has had an
opportunity to discuss the Company's business, management, and financial affairs
with the Company's management and to review the Company's facilities and, to the
best of the Purchaser's knowledge, to obtain any additional information
necessary to verify the accuracy of the information provided to the Purchaser.
4.7 CONFIDENTIALITY. The Purchaser agrees that he, she or it will
keep confidential and will not disclose or divulge any confidential, proprietary
or secret information which such Purchaser may obtain from the Company pursuant
to financial statements, reports and other materials submitted by the Company
hereunder, or pursuant to visitation or inspection rights granted hereunder
unless such information is known, or until such information becomes known
(through no act or omission of the Purchaser), to the public or unless the
Company gives its written consent to the Purchaser's release of such
information; except that no such written consent shall be required (and the
Purchaser shall be free to release such information) if such information is to
be provided to the Purchaser's lawyer or accountant, or to an officer, director,
or general partner of a Purchaser, provided that each such person agrees to keep
such information confidential pursuant to the terms of this paragraph 4.7.
4.8 SUITABILITY OF U.S. PURCHASERS. If the Purchaser is a resident
of the United States, and unless otherwise indicated on Exhibit A, Purchaser is
an "accredited investor" as that term is defined in Regulation D promulgated
under the Act by virtue of falling within any of the following categories:
(1) A bank as defined in Section 3(a)(2) of the Act, or a savings
and loan association or other institution as defined in Section 3(a)(5)(A) of
the Act, whether acting in its individual or fiduciary capacity; a broker or
dealer registered pursuant to Section 15 of the
9.
<PAGE> 14
Securities Exchange Act of 1934; an insurance company as defined in Section
2(13) of the Act; an investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section 2(a)(48) of
that Act; a Small Business Investment Company licensed by the United States
Small Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; a plan established and maintained by a state, its
political subdivisions, for the benefit of its employees, if such plan has
assets in excess of $5,000,000; an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974, if the investment decision
is made by a plan fiduciary, as defined in Section 3(21) of that Act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made solely
by persons that are accredited investors;
(2) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(3) An organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the Series F
Shares with total assets in excess of $5,000,000;
(4) A director or executive officer of the Company;
(5) A natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of such person's purchase of the Series F
Shares exceeds $1,000,000;
(6) A natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(7) A trust, with total assets in excess of $5,000,000 not formed
for the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii) of
Regulation D; and
(8) An entity in which all of the equity owners are accredited
investors (as defined above).
As used in this paragraph 4.8, the term "net worth" means the excess of
total assets over total liabilities. In computing net worth for the purpose of
item (5) above, the principal residence of the Purchaser must be valued at cost,
including cost of improvements, or at the recently appraised value by an
institutional lender making a secured loan, net of encumbrances. In determining
joint income, a Purchaser should add to the Purchaser's and spouse's adjusted
gross income any amounts attributable to tax exempt income received, losses
claimed as a limited partner in any limited partnership, deductions claimed for
depletion, contributions to an IRA,
10.
<PAGE> 15
KEOGH or 401(k) retirement plan and alimony payments. In determining individual
income, the investor should exclude any amounts of income attributable to such
Purchaser's spouse or to property owned by such spouse.
4.9 SUITABILITY OF FOREIGN INVESTORS. Each Purchaser who is not a
resident of the United States hereby represents, warrants and agrees that (i)
such Purchaser is not a U.S. Person (as hereinafter defined); (ii) such
Purchaser is not acquiring the Shares for the account or benefit of any U.S.
Person; and (iii) such Purchaser shall not sell or transfer the Shares to, or
for the account or benefit of, a U.S. Person during a period of one year after
the Closing Date. As used herein, "U.S. Person" means a (i) A natural person
resident in the United States; (ii) A partnership or corporation organized or
incorporated under the laws of the United States, or formed under the laws of
any foreign jurisdiction by a U.S. person principally for the purpose of
investing in securities not registered under the Act unless it is owned by
accredited investors (as defined in Rule 501(a) of Regulation D under the Act),
none of which is a natural person, trust or estate; (iii) A trust or estate of
which the trustee or executor, respectively, is a U.S. person, unless, in the
case of a trust or estate that is administered by a professional fiduciary who
is a U.S. person, the trustee or executor, respectively, is not a U.S. person
and has sole or shared investment discretion with respect to the trust or estate
assets and, in the case of an estate, is governed by foreign law and, in the
case of a trust, no beneficiary (or settlor of a revocable trust) is a U.S.
person; (iv) An agency or branch of a foreign entity located in the United
States; (v) A non-discretionary account or similar account (other than a trust
or estate) held by a dealer or other fiduciary for the benefit or account of a
U.S. person; or (vi) A discretionary account or similar account (other than a
trust or estate) held by a dealer or other fiduciary organized, incorporated, or
(if an individual) resident in the United States. As used herein, "United
States" shall include the states, territories, possessions and all areas under
the jurisdiction of the United States of America.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS. The Purchasers'
obligations to purchase the Shares at the Closing are subject to the
satisfaction, on or prior to the Closing Date, of all of the following
conditions, any of which may be waived in whole or in part by the Purchasers:
(a) The representations and warranties made by the Company in
paragraph 3 hereof shall be true and correct, in all material respects, when
made and, except as otherwise contemplated by this Agreement, on the Closing
Date with the same force and effect as if they had been made on and as of the
Closing Date; the business and assets of the Company shall not have been
adversely affected in any material respect prior to the Closing, and the Company
shall have performed all obligations and conditions herein required to be
performed by it on or prior to the Closing Date.
11.
<PAGE> 16
(b) The Purchasers shall have received from Cooley Godward
Castro Huddleson & Tatum, counsel to the Company, an opinion letter addressed to
them, dated the Closing Date, substantially in the form attached hereto as
EXHIBIT C.
(c) The Company shall have obtained all consents, permits and
waivers necessary for consummation of the transactions contemplated by this
Agreement, other than such as may be required under the securities laws of
states other than California. Except for the notices required or permitted to be
filed with the Securities and Exchange Commission and the California
Commissioner of Corporations, which notices the Company will file on a timely
basis, the Company shall have obtained all approvals of any federal or state
governmental authority or regulatory body that are required in connection with
the lawful sale and issuance of the Shares, other than such as may be required
under the securities laws of states other than California.
(d) At the Closing, the purchase of the Shares by the
Purchasers hereunder shall be legally permitted by all laws and regulations to
which the Purchasers or the Company are subject.
(e) The Amended and Restated Articles of Incorporation in
substantially the same form attached as EXHIBIT B shall have been filed with the
Secretary of State of the State of California.
(f) The Company shall have delivered to the Purchasers a
certificate or certificates, executed by the President of the Company, dated the
Closing Date, certifying to the satisfaction of the conditions specified in
subparagraphs (a), (c), (e) and (g) of this paragraph 5.1.
(g) The Purchasers shall have tendered, in the aggregate, at
the Closing, consideration of not less than $3,000,000 (in cash or cancellation
of indebtedness); provided, however, that such consideration may be reduced by
amounts payable to the Placement Agent pursuant to Section 2.2.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares at the Closing is subject to the
satisfaction on or prior to the Closing Date of the following conditions, any of
which may be waived in whole or in part by the Company:
(a) The Company shall have obtained all consents, permits and
waivers necessary or appropriate for consummation of the transactions
contemplated by this Agreement. Except for the notices required or permitted to
be filed after the Closing Date with certain federal and state securities
commissions, the Company shall have obtained all approvals of any federal or
state governmental authority or regulatory body that are required in connection
with the lawful sale and issuance of the Shares.
12.
<PAGE> 17
(b) At the Closing, the purchase of the Shares by the
Purchasers hereunder shall be legally permitted by all laws and regulations to
which the Purchasers or the Company are subject.
(c) The Amended and Restated Articles of Incorporation in
substantially the form attached as EXHIBIT B shall have been filed with the
Secretary of State of the State of California.
(d) The representations made by the Purchasers in Section 4
hereof shall be true and correct, in all material respects, when made and on the
Closing Date with the same force and effect as if they had been made on and as
of the Closing Date.
6. FURTHER AGREEMENTS OF THE PARTIES.
6.1 FINANCIAL STATEMENTS. Until a Purchaser no longer owns at least
39,865 Shares and/or the Conversion Stock into which such Shares are
convertible, or in the case of Section 6.1(b), 5,000 Shares and/or the
Conversion Stock into which such Shares are convertible or until the closing of
a public offering pursuant to an effective registration statement under the Act,
whichever first occurs, the Company shall furnish to such Purchaser the
following financial statements and reports, such financial statements to be
prepared in accordance with generally accepted accounting principles
consistently applied:
(a) as soon as available, and in any event within 45 days
after the end of each month, an unaudited income statement and balance sheet of
the Company for the portion of such fiscal year ended with the last day of such
month prepared in accordance with generally accepted accounting principles
(except that no footnotes need be provided) and certified by the chief financial
officer of the Company, subject, however, to normal year-end audit adjustments
together with a comparison of such statements to the Company's annual budget
then in effect and approved by the Board of Directors; and
(b) as soon as available, and in any event within 120 days
after the end of each fiscal year of the Company, a balance sheet of the Company
as of the end of such fiscal year, a statement of operations of the Company for
such fiscal year, and a statement of cash flows of the Company for such fiscal
year, all in reasonable detail and stating in comparative form the figures as of
the end of such fiscal year and for the previous fiscal year and accompanied by
an opinion addressed to the Company from independent certified public
accountants of national standing and a copy of such public accountant's
management letter prepared in connection therewith.
In the event that the Company at any time hereafter shall be required, by
law or by generally accepted accounting principles to consolidate its financial
statements with those of a subsidiary corporation, the Company shall thereafter
furnish the financial statements required by this paragraph 6.1 on a
consolidated basis, and the monthly and annual financial statements specified
above shall be furnished with consolidating financial statements.
13.
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6.2 ADDITIONAL INFORMATION. Until a Purchaser no longer owns at
least 100,000 Shares and/or the Conversion Stock into which such Shares are
convertible or until the closing of a public offering pursuant to an effective
registration statement under the Act, whichever first occurs, the Company shall
(i) furnish to such Purchaser such information concerning the Company as such
Purchaser may from time to time reasonably request; (ii) offer such Purchaser
the right to visit the properties of the Company at reasonable times, to
interview management of the Company at their places of employment at reasonable
times, to examine the books of account of the Company and to make copies
therefrom; (iii) furnish such Purchaser, upon request, with a complete and
correct copy of the minutes of proceedings of the shareholders or Board of
Directors, and (iv) allow one representative designated by the Purchaser to
attend all meetings of the Company's Board of Directors in a non-voting,
observer capacity, and in connection therewith give such representative copies
of all notices, minutes, consents and other materials, financial or otherwise,
that it provides to its Board of Directors.
6.3 ASSIGNMENT OF CERTAIN RIGHTS. The rights granted pursuant to
paragraphs 6.1 and 6.2 may not be assigned or otherwise conveyed by any
Purchaser or by any subsequent transferee of any such rights without the prior
written consent of the Company; provided, however, that any Purchaser may
assign, without such consent to its constituent partners, former partners or the
estate of any such partners, other than a competitor of the Company, the rights
granted pursuant to paragraphs 6.1 and 6.2. The number of Shares and/or
Conversion Stock held by a Purchaser and its affiliated investment entities
shall be aggregated in order to determine such Purchaser's rights under this
paragraph 6.
7. REGISTRATION RIGHTS.
7.1 RESTRICTIONS ON TRANSFERABILITY. The Shares and the Conversion
Stock shall not be sold, assigned, transferred or pledged except upon the
conditions specified in this paragraph 7, which conditions are intended to
ensure compliance with the provisions of the Act. Each Purchaser will cause any
proposed purchaser, assignee, transferee, or pledgee of the Shares or such
Conversion Stock held by a Purchaser to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this paragraph 7.
7.2 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Act.
"HOLDER" shall mean any Purchaser holding Registrable
Securities (including Shares) and any person holding Registrable Securities to
whom the rights under this paragraph 7 have been transferred in accordance with
paragraph 7.13.
"INITIATING HOLDERS" shall mean any Holders who in the
aggregate possess more than 40% of the Registrable Securities.
14.
<PAGE> 19
"OTHER SECURITIES" shall mean (i) any shares of Preferred
Stock issued to the Other Investors and (ii) any common stock issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of, the Preferred Stock issued to the Other Investors.
"OTHER INVESTORS" shall mean the existing or future holders of
outstanding Preferred Stock of the Company (other than Series F Preferred Stock)
who purchased said stock pursuant to a stock purchase agreement granting
"demand" or "piggyback" registration rights, or are permitted transferees of
such registration rights under the terms thereof.
"REGISTRABLE SECURITIES" shall mean (i) the Conversion Stock;
and (ii) any Common Stock of the Company issued or issuable in respect of the
Conversion Stock or other securities issued or issuable pursuant to the
conversion of the Shares upon any stock split, stock dividend, recapitalization,
or similar event, or any Common Stock otherwise issued or issuable with respect
to the Shares; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold or are
available for sale in the opinion of counsel to the Company in a transaction
exempt from the registration and prospectus delivery requirements of the Act so
that all transfer restrictions and restrictive legends with respect thereto are
removed upon the consummation of such sale in compliance with any requirements
of such exemption.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, except as
otherwise stated below, incurred by the Company in complying with paragraphs
7.5, 7.6 and 7.7 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which
compensation shall be paid in any event by the Company) and the reasonable fees
and expenses of one special counsel for all Holders in the event of the exercise
of a requested registration provided for in Sections 7.5 and 7.7 hereof and in
the event of a Company registration pursuant to Section 7.6 hereof.
"RESTRICTED SECURITIES" shall mean the securities of the
Company required to bear the legend set forth in paragraph 7.3 hereof.
"SELLING EXPENSES" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders.
7.3 RESTRICTIVE LEGEND.
15.
<PAGE> 20
(a) Each certificate held by a Purchaser that is a resident of
the United States and representing (i) the Shares, (ii) the Conversion Stock and
(iii) any other securities issued in respect of the Shares or the Conversion
Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of paragraph 7.4 below) be stamped or otherwise imprinted with a
legend in the following form (in addition to any legend required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT (UNLESS SUCH OPINION IS NOT
REQUIRED PURSUANT TO PARAGRAPH 7.4 OF THE AGREEMENT) STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT. COPIES OF THE AGREEMENT COVERING
THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
(b) Each certificate held by a Purchaser that is not a
resident of the United States and representing (i) the Shares, (ii) the
Conversion Stock and (iii) any other securities issued in respect of the Shares
or the Conversion Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall be stamped or otherwise imprinted
with a legend in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES, OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS,
UNTIL ONE YEAR AFTER _____________, 1993, EXCEPT IN ACCORDANCE WITH
REGULATION S UNDER THE ACT. TERMS USED ABOVE HAVE THE MEANINGS GIVEN
TO THEM BY REGULATION S.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD IN
CANADA OR TO CANADIAN CITIZENS FOR A PERIOD OF ONE YEAR FROM THEIR
ORIGINAL PURCHASE.
16.
<PAGE> 21
The Company will not register any transfer of such securities, except transfers
in compliance with Regulation S.
7.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this paragraph 7.4. Prior to any proposed
sale, assignment, transfer or pledge of any Restricted Securities, unless there
is in effect a registration statement under the Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and (other than in
connection with (i) a transfer not involving a change in beneficial ownership,
(ii) a transaction involving the pro rata distribution of Restricted Securities
by any Purchaser that is a general or limited partnership to any of its
partners, or retired partners, or to the estate of any of its partners or
retired partners, so long as such transaction does not involve the disposition
of such Restricted Securities for value, (iii) a transfer in compliance with
Rule 144, so long as the Company is furnished with evidence of compliance with
such Rule satisfactory to the Company, determined reasonably and in good faith,
(iv) transfers by any holder who is an individual to a trust for the benefit of
such holder or his family, (v) transfers by gift, will or intestate succession
to the spouse, lineal descendants or ancestors of any holder or spouse of a
holder, and (vi) transfers in accordance with the legends set forth in Section
7.3(b) above), shall be accompanied, at such holder's expense, by either (i) an
unqualified written opinion of legal counsel who shall, and whose legal opinion
shall be, reasonably satisfactory to the Company and to the effect that the
proposed transfer of the Restricted Securities may be effected without
registration under the Act, or (ii) a "no action" letter from the Commission to
the effect that the transfer of such securities without registration will not
result in a recommendation by the staff of the Commission that action be taken
with respect thereto, whereupon the holder of such Restricted Securities shall
be entitled to transfer such Restricted Securities in accordance with the terms
of the notice delivered by the holder to the Company. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear,
except if such transfer is made pursuant to Rule 144, the appropriate
restrictive legend(s) set forth in paragraph 7.3 above, except that such
certificate shall not bear such restrictive legend(s) if in the opinion of
counsel for such holder and the Company such legend(s) is not required in order
to establish or preserve compliance with any provision of the Act.
7.5 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall receive from
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to shares of Registrable Securities
having an expected aggregate offering price of at least $5,000,000, the Company
will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders and Other Investors; and
17.
<PAGE> 22
(ii) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws of up to fifteen states and appropriate compliance with applicable
regulations issued under the Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities or Other Securities of any Holders or Other Investors joining in such
request as are specified in a written request received by the Company within 20
days after receipt of such written notice from the Company;
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this paragraph 7.5:
(A) In any particular jurisdiction in which the
Company would be required to execute a general
consent to service of process in effecting such
registration, qualification or compliance unless
the Company is already subject to service in such
jurisdiction and except as may be required by the
Act;
(B) Prior to six months after the effective date of
the Company's first registered public offering of
its stock;
(C) During the period starting with the date sixty
(60) days prior to the Company's estimated date of
filing of, and ending on the date six (6) months
immediately following the effective date of, any
registration statement pertaining to securities of
the Company (other than a registration of
securities in a Rule 145 transaction or with
respect to an employee benefit plan), provided
that the Company is actively employing in good
faith all reasonable efforts to cause such
registration statement to become effective;
(D) After the Company has effected one such
registration pursuant to this paragraph 7.5(a),
and such registration has been declared or ordered
effective;
(E) If the Company shall furnish to such Holders and
Other Investors a certificate signed by the
President of the Company stating that in the good
faith judgment of the Board of Directors it would
be seriously detrimental to the Company or its
shareholders for a registration statement to be
filed at such time, then the Company's obligation
to use its best efforts to register, qualify or
comply under this
18.
<PAGE> 23
paragraph 7.5 shall be deferred for a period not
to exceed 120 days from the date of receipt of
written request from the Initiating Holders;
provided, however, that the Company may not make
such certification more often than once every
twelve (12) months.
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders and in any event within one hundred twenty (120) days
after receipt of such request.
(b) UNDERWRITING. In the event that a registration pursuant to
paragraph 7.5 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders and Other Investors as part of the notice
given pursuant to paragraph 7.5(a)(i). In such event, the right of any Holder or
Other Investor to registration pursuant to paragraph 7.5 shall be conditioned
upon such Holder's or Other Investor's participation in the underwriting
arrangements required by this paragraph 7.5, and the inclusion of such Holder's
Registrable Securities or Other Investor's Other Securities in the underwriting
to the extent requested shall be limited to the extent provided herein.
The Company shall (together with all Holders and other shareholders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company, but subject to the reasonable
approval by a majority in interest of the Initiating Holders. Notwithstanding
any other provision of this paragraph 7.5, if the managing underwriter advises
the Initiating Holders in writing that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities or Other Securities to be included in such registration;
provided, however, that with respect to any offering involving an underwriting
of Registrable Securities being sold by the Holders pursuant to this paragraph
7.5, then no such limitation shall be made with respect to the shares of such
Holders' Registrable Securities until shares of Other Securities of the Company
to be included in such registration (but for this provision) have been reduced
or excluded. The Company shall so advise all holders of Registrable Securities
and Other Securities, and the number of shares of Registrable Securities and
Other Securities that may be included in the registration and underwriting (in
accordance with the principle of allocation set forth in the preceding sentence)
shall be allocated among all participants thereof (except those Holders and
other shareholders who have indicated to the Company their decision not to
distribute any of their Registrable Securities or Other Securities through such
underwriting) in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities and Other Securities held by such Holders and Other
Investors at the time of filing the registration statement. No Registrable
Securities or Other Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder or Other Investor to the nearest 100 shares.
19.
<PAGE> 24
If any Holder of Registrable Securities or Other Investor disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Initiating
Holders. The Registrable Securities and/or other securities so withdrawn shall
also be withdrawn from registration, and such Registrable Securities and/or
Other Securities shall not be transferred in a public distribution prior to 90
days after the effective date of such registration, or such other period of time
as the underwriters may require.
7.6 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to time the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) in
connection with the Company's initial public offering, or (ii) a registration
relating solely to employee benefit plans, or (iii) a registration relating
solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance) and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 20 days after receipt of such written notice from the
Company, by any Holder.
(b) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to paragraph 7.6(a)(i). In such event, the right of any Holder to
registration pursuant to paragraph 7.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this paragraph 7.6, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit the Registrable
Securities or other securities to be included in such registration; provided,
however, that with respect to any offering involving an underwriting of shares
being sold pursuant to the exercise of "demand" registration rights
substantially similar to those provided in Section 7.5 by the holders of any
series of Preferred Stock of the Company other than Series F Preferred Stock,
then no such limitation shall be made with respect to the shares of such other
series of Preferred Stock until all other shares of Preferred Stock of the
Company to be included in such registration, other than pursuant to the exercise
of such demand registration rights, have been reduced or excluded. The Company
shall so advise all Holders and other holders distributing their securities
through such underwriting and the number of shares of Registrable Securities
(included in accordance with the principle of allocation
20.
<PAGE> 25
set forth in the preceding sentence) and other securities that may be included
in the registration and underwriting shall be allocated among all Holders and
such other holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities and other securities held by such Holders and
such other holders at the time of filing the registration statement. To
facilitate the allocation of shares in accordance with the above provisions, the
Company may round the number of shares allocated to any Holder or holder to the
nearest 100 shares. If any Holder or holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 90 days after the effective date
of the registration statement relating thereto, or such other period of time as
the underwriters may require.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
paragraph 7.6 prior to the effectiveness of such registration whether or not any
Holder has elected to include Registrable Securities in such registration.
7.7 REGISTRATION ON FORM S-3.
(a) If Holders of at least 10% of the Registrable Securities request
that the Company file a registration statement on Form S-3 (or any successor
form to Form S-3) for a public offering of shares of the Registrable Securities
the reasonably anticipated aggregate price to the public of which, net of
underwriting discounts and commissions, would exceed $500,000, and the Company
is a registrant entitled to use Form S-3 to register the Registrable Securities
for such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as the
Holder or Holders may reasonably request; provided, however, that the Company
shall not be required to effect more than one registration pursuant to this
paragraph 7.7 in any twelve month period. The substantive provisions of
paragraph 7.5(b) shall be applicable to each registration initiated under this
paragraph 7.7.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this paragraph 7.7: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Act; or (ii) if the
Company, within ten (10) days of the receipt of the request of the initiating
Holders, gives notice of its bona fide intention to effect the filing of a
registration statement with the Commission within ninety (90) days of receipt of
such request (other than with respect to a registration statement relating to a
Rule 145 transaction, an offering solely to employees or any other registration
which is not appropriate for the registration of Registrable Securities)
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective; or (iii)
during the period starting with the date sixty (60) days prior to the Company's
estimated date of filing of,
21.
<PAGE> 26
and ending on the date six (6) months immediately following, the effective date
of any registration statement pertaining to securities of the Company (other
than a registration of securities in a Rule 145 transaction or with respect to
an employee benefit plan), provided that the Company is actively employing in
good faith all reasonable efforts to cause such registration statement to become
effective; or (iv) after the Company has effected two such registrations
pursuant to this paragraph 7.7, and such registration has been declared or
ordered effective; or (v) if the Company shall furnish to such Holder a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for registration statements to be filed at such
time, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed 90 days from
the receipt of the request to file such registration by such Holder, provided
that the Company may not make such certification more than once every twelve
months.
7.8 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with (i) one registration pursuant to paragraph 7.5, and (ii) all
registrations pursuant to paragraph 7.6 and (iii) two registrations pursuant to
paragraph 7.7 shall be borne by the Company. All Selling Expenses relating to
securities registered on behalf of the Holders, including without limitation
those incurred in connection with registrations pursuant to paragraph 7.7, shall
be borne by the Holders of such securities pro rata on the basis of the number
of shares so registered.
7.9 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this paragraph
7, the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective for at least ninety (90)
days or until the distribution described in the registration statement has been
completed;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them;
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of up to fifteen states,
22.
<PAGE> 27
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering (which each
Holder participating in such underwriting shall also enter into and perform its
obligations under);
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing; and
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this paragraph 7, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this paragraph 7, (i) an opinion,
dated such date, of the counsel representing the Company for the purposes of
such registration, in form and substance as is customarily given to underwriters
in an underwritten public offering to such effects as counsel for the Company
and counsel for the managing underwriter shall agree, addressed to the
underwriters, if any, and, if requested, to the Holders requesting registration
of Registrable Securities and (ii) a letter dated such date, from the
independent accountants of the Company, in form and substance as is customarily
given by independent accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
7.10 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Act, with respect to which registration,
qualification or compliance has been effected pursuant to this paragraph 7, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Act, against all expenses, claims, losses,
damages or liabilities (or actions in respect thereof) including any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
federal, state or common law rule or regulation applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company
23.
<PAGE> 28
will reimburse each such Holder, each of its officers and directors, and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder, controlling person or underwriter and stated to be
specifically for use therein.
(b) Each Holder and Other Investor will, if Registrable
Securities and Other Securities held by such Holder and Other Investor are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Act, and each other such
Holder or such Other Investor, each of its officers and directors and each
person controlling such Holder or such Other Investor within the meaning of
Section 15 of the Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders or such Other Investors, such directors, officers,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder or such Other Investor and stated to be
specifically for use therein. Notwithstanding the foregoing, the liability of
each Holder or Other Investor under this subsection (b) shall be limited in an
amount equal to the public offering price of the shares sold by such Holder or
such Other Investor, unless such liability arises out of or is based on willful
conduct by such Holder or such Other Investor. A Holder or Other Investor will
not be required to enter into any agreement or undertaking in connection with
any registration under this paragraph 7 providing for any indemnification or
contribution on the part of such Holder or such Other Investor greater than the
Holder's or Other Investor's obligations under this paragraph 7.10(b).
(c) Each party entitled to indemnification under this
paragraph 7.10 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved
24.
<PAGE> 29
by the Indemnified Party (whose approval shall not unreasonably be withheld) and
the Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall bear the expense of
independent counsel for the Indemnified Party if the Indemnified Party
reasonably determines that representation of both parties by the same counsel
would be inappropriate due to actual or potential conflicts of interest, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this paragraph 7 unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action and
provided further, that the Indemnifying Party shall not assume the defense for
matters as to which there is a conflict of interest or separate and different
defenses. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
7.11 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this paragraph 7.
7.12 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Act, at all times after the
effective date that the Company becomes subject to the reporting requirements of
the Act or the Securities Exchange Act of 1934, as amended;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Act and the Securities Exchange Act of 1934, as amended (at any time after it
has become subject to such reporting requirements);
(c) So long as a Purchaser owns any Restricted Securities, to
furnish to the Purchaser forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public) and of the Act and the Securities Exchange Act of 1934 (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Purchaser may
25.
<PAGE> 30
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Purchaser to sell any such securities without
registration.
7.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted Purchasers under paragraphs 7.5, 7.6 and
7.7 may be assigned to a transferee or assignee in connection with any transfer
or assignment of Registrable Securities by a Purchaser provided that: (i) such
transfer may otherwise be effected in accordance with applicable securities
laws, and (ii) such assignee or transferee acquires at least 39,865 Shares
and/or the Conversion Stock into which the Shares are convertible.
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned, in connection with a distribution by such Purchaser,
to any partner, former partner, or the estate of any such partner without
compliance with item (ii) above, provided written notice thereof is promptly
given to the Company.
7.14 STANDOFF AGREEMENT. Each Holder agrees, in connection with the
Company's initial public offering of the Company's securities that, upon request
of the Company or the underwriters managing any underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Common Stock of the
Company (other than those included in the registration) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed one hundred eighty (180) days) from the
effective date of such registration as may be requested by the underwriters;
provided, that all other Holders of at least one percent (1%) of the Company's
outstanding voting equity securities and all of the officers and directors of
the Company who own stock of the Company also agree to such restrictions.
7.15 AMENDMENT OF REGISTRATION RIGHTS. Without the written consent
of the holders of more than 50% of the then outstanding Registrable Securities
and Other Securities, taken together as a group, the Company shall not amend
this paragraph 7, or enter into any agreement with any holder or prospective
holder of any securities of the Company which either (i) would allow such holder
or prospective holder to include such securities as Registrable Securities under
this Agreement or (ii) does not include provisions substantially similar to
those contained in paragraphs 7.5(b) and 7.6(b) with respect to the allocation
of Registrable Securities and Other Securities in an underwritten public
offering if market factors require limitation on the number of such securities
to be included in such an offering.
8. MISCELLANEOUS.
8.1 WAIVERS AND AMENDMENTS. With the written consent of the record
holders of more than 50% of the Securities then outstanding, the obligations of
the Company and the rights of the holders of the Securities under this Agreement
may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely) and with the same consent the Company, when authorized by
resolution of its Board of Directors, may enter into a supplemental agreement
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement;
26.
<PAGE> 31
provided, however, that no such waiver or supplemental agreement shall (i)
reduce the aforesaid percentage of Securities, the holders of which are required
to consent to any waiver or supplemental agreement, or (ii) increase any
obligations of the holders of the Securities under this Agreement, without the
consent of the record or beneficial holders of all of the Securities. Upon the
effectuation of each such waiver, consent, agreement, amendment or modification,
the Company shall promptly give written notice thereof to the record holders of
the Securities whose consent thereto in writing was not previously solicited.
Neither this Agreement nor any provisions hereof may be changed, waived,
discharged or terminated orally, but only by a signed statement in writing.
8.2 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
8.3 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the Closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder as of the date of such certificate or instrument.
8.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
8.5 ENTIRE AGREEMENT. This Agreement (including the exhibits
attached hereto and schedules delivered pursuant hereto) constitutes the
complete, final and exclusive understanding and agreement between the parties
with regard to the subjects hereof.
8.6 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be effective upon receipt and shall be in writing and
may be delivered in person, by telecopy, electronic mail, overnight delivery
service or U.S. mail, in which event it may be mailed by first-class, certified
or registered, postage prepaid, addressed (a) if to a Purchaser, at such
Purchaser's address set forth in the Schedule of Purchasers, or at such other
address as such Purchaser shall have furnished the Company in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such shares who has so furnished an address to the
Company, or (b) if to the Company, at its address set forth at the beginning of
this Agreement, or at such other address as the Company shall have furnished to
the Purchasers and each such other holder in writing.
8.7 SEPARABILITY OF AGREEMENTS; SEVERABILITY OF THIS AGREEMENT. The
Company's agreement with each of the Purchasers is a separate agreement and the
sale of the Securities to each of the Purchasers is a separate sale. Unless
otherwise expressly provided herein, the rights of each Purchaser hereunder are
several rights, not rights jointly held with any
27.
<PAGE> 32
of the other Purchasers. Any invalidity, illegality or limitation on the
enforceability of the Agreement or any part thereof, by any Purchaser whether
arising by reason of the law of the respective Purchaser's domicile or
otherwise, shall in no way affect or impair the validity, legality or
enforceability of this Agreement with respect to other Purchasers. If any
provision of this Agreement shall be judicially determined to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
8.8 FINDER'S FEES.
(a) The Company (i) represents and warrants that it has
retained no finder or broker other than the Placement Agent in connection with
the transactions contemplated by this Agreement and (ii) hereby agrees to
indemnify and to hold the Purchasers harmless of and from any liability for
commission or compensation in the nature of a finder's fee to any placement
agent, finder or broker or other person or firm (and the costs and expenses of
defending against such liability or asserted liability) for which the Company,
or any of its employees or representatives, are responsible, provided, however,
that the Company and the Purchasers acknowledge and agree that the commission
payable to the Placement Agent may be deducted from funds paid to the Company or
wired to an escrow account by the Purchasers in payment of the purchase price
for the Shares.
(b) Each Purchaser (i) represents and warrants that such
Purchaser has retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and to hold
the Company and the other Purchasers harmless of and from any liability for any
commission or compensation in the nature of a finder's fee to any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which such Purchaser, or any of his
employees or representatives, are responsible.
8.9 INFORMATION CONFIDENTIAL. Except as otherwise provided in
paragraph 4.7, each Purchaser acknowledges that the information received by it
pursuant hereto is confidential and for its use only, and such Purchaser will
not use such information in violation of the Securities Exchange Act of 1934 or
reproduce, disclose or disseminate such information to any other person, except
in connection with the exercise of rights under this Agreement, unless the
Company has made such information available to the public generally, such
information has otherwise been made generally available through no act or
omission of Purchaser, or such Purchaser is required to disclose such
information by a governmental body.
8.10 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT MAY NOT HAVE BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE
28.
<PAGE> 33
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
8.11 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
8.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.13 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to the Purchasers, upon any breach
or default of the Company under this Agreement, shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach or
default, or any acquiescence therein, or of any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of
any kind or character by a Purchaser of any breach or default under this
Agreement, or any waiver by a Purchaser of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in writing and that all remedies, either under this
Agreement, or by law or otherwise afforded to a Purchaser, shall be cumulative
and not alternative.
8.14 UNDERSTANDING AMONG THE PURCHASERS. The determination by each
of the Purchasers to purchase Shares pursuant to this Agreement has been made by
such Purchaser independently of the other Purchasers, and independently of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company which may have been made or given by the other Purchasers or by any
agent or employee of the other Purchasers. In addition, it is acknowledged by
each of the Purchasers that the other Purchasers have not acted as such
Purchaser's agent in connection with making its investment hereunder and that
the other Purchasers will not be acting as such Purchaser's agent in connection
with monitoring such Purchaser's investment hereunder.
8.15 STOCK SPLITS. All references to the number of shares and prices
in this Agreement shall be appropriately adjusted to reflect any stock split,
stock dividend or other change in the capital stock which may be made by the
Company after the Closing Date.
29.
<PAGE> 34
8.16 EXPENSES. The Company shall, promptly after being billed
therefor, pay the reasonable legal fees, costs and expenses of one counsel
representing the Purchasers.
8.17 REPRESENTATION OF SEVERAL PARTIES BY A SINGLE FIRM OF
ATTORNEYS. Each Purchaser hereby confirms its consent to Wilson, Sonsini,
Goodrich & Rosati ("WSG&R) acting as special counsel hereunder, as special
counsel to the other Purchasers, and as special counsel to Wertheim Schroder &
Co. Incorporated as the Placement Agent. In connection therewith, each Purchaser
consents and understands that (i) WSG&R has acted and is currently acting as
counsel to the Placement Agent and that WSG&R may continue to act as counsel to
the Placement Agent in the future, and (ii) as a result of the representation
referred to in clause (i), the Placement Agent and each, if not all, of the
Purchasers may have interests that differ, and WSG&R may have obtained
confidential information regarding the Placement Agent, or certain Purchasers,
which it is unable to disclose to the Purchasers, or the other Purchasers, as
the case may be.
30.
<PAGE> 35
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first written above.
IL FORNAIO (AMERICA) CORPORATION
By: /s/ Charles A. Frank
------------------------------------
CHARLES A. FRANK, PRESIDENT
31.
<PAGE> 36
COUNTERPART SIGNATURE PAGE
I have read and understand the foregoing Series F Preferred Stock Purchase
Agreement of Il Fornaio (America) Corporation dated as of the day and year first
written above and the Schedule of Exceptions to the Corporation's
representations and warranties contained in paragraph 3 thereof delivered
contemporaneously herewith.
-------------------------------
Date: By:
--------------------------- -------------------------------
Number of Shares of
Series F Preferred Stock
Purchase:
-------------
<PAGE> 37
EXHIBIT A
Schedule of Purchasers
<TABLE>
<CAPTION>
========================================================================================
SHAREHOLDER NUMBER OF SHARES
- ----------------------------------------------------------------------------------------
<S> <C>
InterWest Partners IV 24,390.00
- ----------------------------------------------------------------------------------------
FWH Associates 24,390.00
- ----------------------------------------------------------------------------------------
Mayfield V 14,049.00
- ----------------------------------------------------------------------------------------
Mayfield Associates 585.00
- ----------------------------------------------------------------------------------------
Stanislaus Food Products Company 10,796.00
- ----------------------------------------------------------------------------------------
Bertram Tonkin 10,000.00
- ----------------------------------------------------------------------------------------
USI Investments Partners II 10,000.00
- ----------------------------------------------------------------------------------------
Laurence B. Mindel 7,000.00
- ----------------------------------------------------------------------------------------
James A. McMahan 7,318.00
- ----------------------------------------------------------------------------------------
Donn Conner 7,318.00
- ----------------------------------------------------------------------------------------
Cooley Godward Castro Huddleson 3,415.00
& Tatum
- ----------------------------------------------------------------------------------------
GC&H Investments 2,926.00
- ----------------------------------------------------------------------------------------
Jack Sullivan 4,878.00
- ----------------------------------------------------------------------------------------
Revocable Trust of Jeffery D. and 4,878.00
Peyton Z. Stein
- ----------------------------------------------------------------------------------------
Nathan Bessin 4,879.00
- ----------------------------------------------------------------------------------------
Nisa Trust, Wells Fargo Bank, 4,879.00
Trustee
- ----------------------------------------------------------------------------------------
Pierre Mornell 3,963.00
- ----------------------------------------------------------------------------------------
Seymour Mindel 2,500.00
- ----------------------------------------------------------------------------------------
Joseph and Teresa Hyman 2,500.00
- ----------------------------------------------------------------------------------------
Thomas Hyde 2,500.00
- ----------------------------------------------------------------------------------------
The Zellerbach Living Trust Dated 2,500.00
2/14/91
- ----------------------------------------------------------------------------------------
Andrea Bartolozzi 2,500.00
- ----------------------------------------------------------------------------------------
Irvin J. Mindel 2,500.00
- ----------------------------------------------------------------------------------------
Armand Marciano 5,000.00
- ----------------------------------------------------------------------------------------
</TABLE>
1.
<PAGE> 38
<TABLE>
<CAPTION>
========================================================================================
SHAREHOLDER NUMBER OF SHARES
- ----------------------------------------------------------------------------------------
<S> <C>
Banca Agricola Montovana 5,000.00
- ----------------------------------------------------------------------------------------
Banca Popolare di Luino e di Varese 5,000.00
- ----------------------------------------------------------------------------------------
Banca C. Steinhauslin & C. S.p.A. 10,000.00
- ----------------------------------------------------------------------------------------
Banca Unione Di Credito 5,000.00
- ----------------------------------------------------------------------------------------
Bank Cantrade, Ormund, Burrus 5,000.00
S.A.
- ----------------------------------------------------------------------------------------
Banque Cantonale Vaudoise 15,000.00
- ----------------------------------------------------------------------------------------
Bank Cantrade A.G. 10,000.00
- ----------------------------------------------------------------------------------------
Banque Cantrade Lausanne S.A. 10,000.00
- ----------------------------------------------------------------------------------------
Banque Federative du Credit Mutuel 60,000.00
- ----------------------------------------------------------------------------------------
Barry Goldfarb 10,000.00
- ----------------------------------------------------------------------------------------
Bernard A. Greenberg 5,000.00
- ----------------------------------------------------------------------------------------
BSI - Banca della Svizzera Italiana 35,000.00
- ----------------------------------------------------------------------------------------
CCM Banca di Credito Commerciale e Mobiliare S.A. 10,000.00
- ----------------------------------------------------------------------------------------
Cole Taylor Bank Cust. FBO Arthur 5,000.00
P.Frigo IRA #8417
- ----------------------------------------------------------------------------------------
Collingwood Partners 20,000.00
- ----------------------------------------------------------------------------------------
Confide Finance S.A. 10,000.00
- ----------------------------------------------------------------------------------------
Courcoux Bouvet 5,000.00
- ----------------------------------------------------------------------------------------
Credit Suisse 25,000.00
- ----------------------------------------------------------------------------------------
Dennis S. Bookshester 5,000.00
- ----------------------------------------------------------------------------------------
Donald L. Schwarz, Ttee FBO 5,000.00
Candice E. Appleton Family Trust
- ----------------------------------------------------------------------------------------
Dorskind 1982 Trust 5,000.00
- ----------------------------------------------------------------------------------------
Doug Appleton 5,000.00
- ----------------------------------------------------------------------------------------
Fauchier-Magnan Durant Des 20,000.00
Aulnois S.A.
- ----------------------------------------------------------------------------------------
Fields Trust 5,000.00
- ----------------------------------------------------------------------------------------
</TABLE>
2.
<PAGE> 39
<TABLE>
<CAPTION>
========================================================================================
SHAREHOLDER NUMBER OF SHARES
- ----------------------------------------------------------------------------------------
<S> <C>
FSI Corporation 25,000.00
- ----------------------------------------------------------------------------------------
General Consulting Management, 5,000.00
Inc.
- ----------------------------------------------------------------------------------------
Helene Spiegel 10,000.00
c/f Anthony Spiegel
- ----------------------------------------------------------------------------------------
Helene Spiegel 10,000.00
c/f Evan Spiegel
- ----------------------------------------------------------------------------------------
Master Trust Pursuant to the 20,000.00
Hewlett-Packard Deferred Profit
Sharing Plan and Supplemental
Pension Plan
- ----------------------------------------------------------------------------------------
Jerry Magnin 10,000.00
- ----------------------------------------------------------------------------------------
Delaware Charter Guarantee & Trust 10,000.00
Company Ttee FBO Jerry Magnin
- ----------------------------------------------------------------------------------------
John & Mary Ellen Cosgrove 5,000.00
- ----------------------------------------------------------------------------------------
John Cosgrove 5,000.00
- ----------------------------------------------------------------------------------------
Julie Isdaner 5,000.00
- ----------------------------------------------------------------------------------------
Julie Isdaner c/f Remy,Alexander 5,000.00
and Danee Isdaner
- ----------------------------------------------------------------------------------------
Kenneth Grossman 5,000.00
- ----------------------------------------------------------------------------------------
Larry S. Flax 5,000.00
- ----------------------------------------------------------------------------------------
Larry Levy 5,000.00
- ----------------------------------------------------------------------------------------
Marilyn H. Karsten 5,000.00
- ----------------------------------------------------------------------------------------
Maurice Marciano 5,000.00
- ----------------------------------------------------------------------------------------
Metallbank GMBH 20,000.00
- ----------------------------------------------------------------------------------------
Nisa Trust, Wells Fargo Bank, 50,000.00
Trustee
- ----------------------------------------------------------------------------------------
PASFIN Servizi Finanziari S.p.A. 10,000.00
- ----------------------------------------------------------------------------------------
Paul Marciano 5,000.00
- ----------------------------------------------------------------------------------------
Perry S. Herst, Jr. 5,000.00
- ----------------------------------------------------------------------------------------
Phyllis & Donald Epstein 5,000.00
- ----------------------------------------------------------------------------------------
</TABLE>
3.
<PAGE> 40
<TABLE>
<CAPTION>
========================================================================================
SHAREHOLDER NUMBER OF SHARES
- ----------------------------------------------------------------------------------------
<S> <C>
Rainbow Fund 5,000.00
- ----------------------------------------------------------------------------------------
Richard L. Rosenfield 5,000.00
- ----------------------------------------------------------------------------------------
Ronald Braverman 10,000.00
- ----------------------------------------------------------------------------------------
Rosenfield Children's Trust 5,000.00
- ----------------------------------------------------------------------------------------
Saul Brandman, Ttee of the Saul 5,000.00
Brandman Revocable Trust Dtd
7-20-87
- ----------------------------------------------------------------------------------------
Scarlotti, Ltd. 5,000.00
- ----------------------------------------------------------------------------------------
Vivaldi, Ltd. 5,000.00
- ----------------------------------------------------------------------------------------
Romano Chietti 2,500.00
- ----------------------------------------------------------------------------------------
BSI - Banca della Svizzera Italiana 15,000.00
- ----------------------------------------------------------------------------------------
Stephen W. Bershad 10,000.00
- ----------------------------------------------------------------------------------------
Thomas F. Mann 5,000.00
- ----------------------------------------------------------------------------------------
Platinum Venture Partners I, L.P. 25,000.00
- ----------------------------------------------------------------------------------------
Andrew J. Filipowski 5,000.00
- ----------------------------------------------------------------------------------------
Mark T. Lindee 5,000.00
- ----------------------------------------------------------------------------------------
Julie Isdaner c/f Remy, Alexandra 5,000.00
and Danee Isdaner
- ----------------------------------------------------------------------------------------
John E. Herman 2,500.00
- ----------------------------------------------------------------------------------------
Andrew M. Herman 1,000.00
- ----------------------------------------------------------------------------------------
Steven J. Herman 1,000.00
- ----------------------------------------------------------------------------------------
Egger & Co. 5,000.00
- ----------------------------------------------------------------------------------------
Seymour S. Mindel, Trustee of the 2,500.00
Seymour S. Mindel Revocable Trust
- ----------------------------------------------------------------------------------------
</TABLE>
4.
<PAGE> 41
<TABLE>
<CAPTION>
========================================================================================
SHAREHOLDER NUMBER OF SHARES
- ----------------------------------------------------------------------------------------
<S> <C>
OSF International, Inc. and Kirann 19,810.00
Co., a General Partnership
- ----------------------------------------------------------------------------------------
Jerry Allen Magnin and Lois Magnin 10,000.00
Declaration of Trust
- ----------------------------------------------------------------------------------------
Banque Cantonale Vaudoise, 10,000.00
Lausanne
- ----------------------------------------------------------------------------------------
Consulting & Management Services, 10,000.00
Ltd.
- ----------------------------------------------------------------------------------------
Oak Brook Bank Trustee FBO 5,000.00
Arthur P. Frigo
IRA# 6900 5477 372
- ----------------------------------------------------------------------------------------
Carolyn M. Herman, Trustee Under 2,500.00
The C.M. Herman Living Trust
Dated December 23, 1995
- ----------------------------------------------------------------------------------------
Columbia Charitable Foundation 77,000.00
- ----------------------------------------------------------------------------------------
Michael M. Abrums 3,000.00
- ----------------------------------------------------------------------------------------
Gerlach & Co. 15,000.00
- ----------------------------------------------------------------------------------------
Gerlach & Co. 10,000.00
========================================================================================
</TABLE>
5.
<PAGE> 42
EXHIBIT B
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
IL FORNAIO (AMERICA) CORPORATION
CHARLES A. FRANK and PAUL J. KELLEY certify that:
1. They are the President and the Secretary, respectively, of Il Fornaio
(America) Corporation, a California corporation.
2. The articles of incorporation of this corporation are amended and
restated to read in full as follows:
ONE. The name of the Corporation is Il Fornaio (America) Corporation.
TWO. 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 California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated by
the California Corporations Code.
THREE. (A) The Corporation is authorized to issue two classes of
shares, designated "Common Stock" and "Preferred Stock," respectively. The
number of shares of Common Stock authorized to be issued is 15,000,000 and the
number of shares of Preferred Stock authorized to be issued is 3,500,000.
(B) The Preferred Stock may be divided into such number of
series as the Board of Directors may determine. Subject to the provisions of
paragraph 6, the Board of Directors is authorized to determine and alter the
rights, preferences, privileges and restrictions granted to and imposed upon the
Preferred Stock or any series thereof with respect to any wholly unissued class
or series of Preferred Stock, and to fix the number of shares of any series of
Preferred Stock and the designation of any such series of Preferred Stock. The
Board of Directors, within the limits and restrictions stated in any resolution
or resolutions of the Board of Directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
1.
<PAGE> 43
(C) Five hundred forty-two thousand two hundred twenty-five
(542,225) shares of Preferred Stock are designated as shares of "Series B
Preferred Stock." Five hundred twenty-one thousand seven hundred thirty-nine
(521,739) shares of Preferred Stock are designated as shares of "Series C
Preferred Stock." Five hundred twenty-one thousand seven hundred thirty-nine
(521,739) shares of Preferred Stock are designated as shares of "Series D
Preferred Stock." Four hundred fifty thousand (450,000) Shares of Preferred
Stock are designated as Shares of "Series E Preferred Stock." Eight hundred
twenty-five thousand (825,000) Shares of Preferred Stock are designated as
Shares of "Series F Preferred Stock."
(D) The relative rights, preferences, privileges and
restrictions of the Common Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock and
the Series F Preferred Stock shall be in all respects identical, except for and
subject to the following provisions:
1. DIVIDENDS. Holders of the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock and
the Series F Preferred Stock shall be entitled to receive, when and as declared
by the Board of Directors of the Corporation, out of any assets at the time
legally available therefor, any dividends or other distributions paid with
respect to the Common Stock of the Corporation (the "Common Stock") in the same
amount per share as holders of such Common Stock are entitled to receive, for
the number of shares into which each share of Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F
Preferred Stock is convertible. Dividends on the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred
Stock and the Series F Preferred Stock shall be payable in preference and prior
to any payment of any dividend on the Common Stock of the Corporation. No
dividends (other than those payable solely in Common Stock) shall be paid on the
Common Stock during any fiscal year of the Corporation until all declared
dividends on the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock, the Series E Preferred Stock and the Series F
Preferred Stock are paid or set aside. The right to dividends on shares of the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock, the Series E Preferred Stock and the Series F Preferred Stock shall not
be cumulative, and no right shall accrue to holders of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock by reason of the fact that dividends on said shares are
not declared in any prior period.
2. LIQUIDATION PREFERENCE.
a. PREFERRED STOCKS.
(1) PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock shall be entitled to receive, out
of the assets of the Corporation, whether such assets are capital or surplus of
any nature, prior and in preference to any distribution of any of the assets or
surplus
2.
<PAGE> 44
funds of the Corporation to the holders of Common Stock of the Corporation, an
amount equal to $4.6106 per share, $5.75 per share, $5.75 per share, $8.77 per
share and $10.25 per share, respectively, plus a further amount equal to any
dividends declared but unpaid on such shares, and no more. If upon such
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation are insufficient to provide for the full preferential amounts to the
holders of Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, then
those assets of the Corporation available to be distributed to the holders of
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock shall be distributed
ratably among the holders of Preferred Stock in accordance with the preferential
amounts due them.
(2) CONSOLIDATION OR MERGER. A consolidation or merger of the
Corporation with or into any other corporation or corporations, or a sale of all
or substantially all of the assets of the Corporation, or a series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, shall not be deemed to be a liquidation, dissolution or winding up
within the meaning of this subparagraph 2.a.
b. NONCASH DISTRIBUTIONS. If any of the assets of the Corporation
are to be distributed other than in cash under this paragraph 2 or for any
purpose, then the Board of Directors of the Corporation shall promptly engage
independent competent appraisers to determine the value of the assets to be
distributed to the holders of Preferred Stock or Common Stock. The Corporation
shall, upon receipt of such appraiser's valuation, give prompt written notice to
each holder of shares of Preferred Stock or Common Stock of the appraiser's
valuation.
3. VOTING RIGHTS.
a. COMMON STOCK. Holders of each share of Common Stock shall be
entitled to one vote per share and to vote together as a single class.
b. PREFERRED STOCK. Holders of each share of Series B Preferred
Stock, Series C Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock shall be entitled to that number of votes equal to the number of shares of
Common Stock into which each share of Series B Preferred Stock, Series C
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock could be
converted, respectively, on the record date for the vote or written consent of
shareholders and, except as otherwise required by law, shall have voting rights
and powers equal to the voting rights and powers of the Common Stock. Holders of
each share of Series D Preferred Stock shall not be entitled to voting rights,
except as otherwise required by law. The holder of each share of Series B
Preferred Stock, Series C Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall be entitled to notice of any shareholders' meeting in
accordance with the bylaws of the Corporation and shall vote together as a
single class with holders of the Common Stock upon the election of directors and
upon any other matter submitted to a vote of shareholders, except those matters
required by law to be submitted to a class vote and as required under paragraph
6. Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares of
3.
<PAGE> 45
Common Stock into which shares of Series B Preferred Stock, Series C Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock held by each holder
could be converted) shall be rounded to the nearest whole number (with one-half
rounded upward to one).
4. CONVERSION.
a. SERIES B PREFERRED STOCK AND SERIES C PREFERRED STOCK. Each share
of Series B Preferred Stock and Series C Preferred Stock shall be convertible as
follows:
(1) AUTOMATIC CONVERSION. Each share of Series B Preferred
Stock and Series C Preferred Stock shall automatically be converted into 1.262
shares of Common Stock (adjusted from one (1) share of Common Stock effective
March 23, 1992), subject to adjustments as provided in subparagraph 4.a(3)
below, as of the close of business on the day next preceding the day on which
the first, if any, of the following occurs:
(a) PUBLIC OFFERING. The closing of a firm commitment
public offering pursuant to a registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock the aggregate
gross proceeds of which equal or exceed $7,500,000 filed with the Securities and
Exchange Commission or any successor agency or body performing similar functions
(hereinafter referred to as a "Public Offering"); or"
(b) ACQUISITION. The consummation of (i) any merger or
consolidation between the Corporation and any other corporation which is not
prior to that time an affiliate of the Corporation or (ii) the sale, lease or
exchange of all or substantially all of the assets of the Corporation to or with
any person where either one of the following conditions is met (such
transactions described in clauses (i) and (ii) above being hereinafter
collectively referred to as "Acquisitions"):
(A) such conversion to Common Stock is approved by
a vote of the majority of all outstanding shares of Preferred Stock voting on an
as-converted basis in accordance with paragraph 3.b. above; or
(B) the fair market value of Common Stock
(appropriately adjusted for subdivisions and combinations of shares of Common
Stock), as determined by the Board of Directors, into which the Series B
Preferred Stock and Series C Preferred Stock is to be converted is at least
$12.10 per share (adjusted from $15.27 effective March 23, 1992) and shall be
subject to adjustment from time to time for subdivisions and combinations of
shares of Common Stock.
For purposes of subparagraph 4.a(l) (b) the term
"person" shall include any individual, corporation, partnership, association or
other entity, and the term "affiliate" shall have the meaning given in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934 as in effect on December 15, 1989. The Board of Directors
4.
<PAGE> 46
shall have the power and duty to determine conclusively whether any conditions
set forth in this subparagraph 4.a have been satisfied.
(c) CONVERSION MECHANICS. A holder of shares of Series B
Preferred Stock or Series C Preferred Stock whose shares have been converted
shall deliver the certificate(s) representing such shares to the Corporation or
its duly authorized agent (or if such certificates have been lost, stolen or
destroyed, such holder shall execute an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such conversion) specifying the place where the Common Stock
issued in conversion shall be sent. The endorsement of the share certificate
shall be in form satisfactory to the Corporation or such agent, as the case may
be. The conversion shall be deemed to have occurred (whether or not certificates
representing such shares are surrendered or indemnity agreements with respect to
such shares are executed) as of the close of business on the day next preceding
the day on which the first, if any, of the events set forth in subparagraphs
4.a(l) (a) or 4.a(l) (b) occurs, and all of the holders' rights with respect to
such shares of Series B Preferred Stock and Series C Preferred Stock shall cease
as of such date.
(2) OPTIONAL CONVERSION.
(a) CONVERSION RATIO. Each share of Series B Preferred
Stock and Series C Preferred Stock shall, subject to adjustments as provided in
subparagraph 4.a(3) below, be convertible into 1.262 shares of Common Stock
(adjusted from one (1) share of Common Stock effective March 23, 1992) at the
option of the holder thereof, at any time.
(b) CONVERSION MECHANICS. A holder of shares of Series B
Preferred Stock or Series C Preferred Stock desiring to convert such shares
shall deliver to the Corporation or its duly authorized agent the certificate(s)
representing such shares (or if such certificates have been lost, stolen or
destroyed, such holder shall execute an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such conversion) accompanied by a written request to convert
specifying the number of shares to be converted, the place where the Common
Stock issued in conversion thereof shall be sent, and the name or names in which
such holder wishes the certificate or certificates for Common Stock to be
issued. The endorsement of the share certificate and the request to convert
shall be in form satisfactory to the Corporation or such agent, as the case may
be. Such conversion shall be deemed to have occurred as of the close of business
on the day next preceding the date of such delivery of such shares of Series B
Preferred Stock or Series C Preferred Stock to be converted. The person or
persons entitled to receive the Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
as of said date.
(3) ADJUSTMENTS. If the Corporation shall at any time
subdivide the outstanding shares of Common Stock, or shall issue as a dividend
on shares of Common Stock other shares of Common Stock, the number of shares
into which each share of Series B Preferred Stock and Series C Preferred Stock
is convertible immediately prior to such subdivision or the issuance of such
dividend shall be proportionately increased; and in case the Corporation shall
at
5.
<PAGE> 47
any time combine the outstanding shares of Common Stock, the number of shares
into which each share of Series B Preferred Stock and Series C Preferred Stock
is convertible immediately prior to such combination shall be proportionately
decreased, effective at the close of business on the date of such subdivision,
dividend or combination, as the case may be.
(4) RESERVATION OF SHARES, ETC.
(a) RESERVATION OF SHARES. The Corporation shall at all
times reserve and keep available, out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the Series B
Preferred Stock and the Series C Preferred Stock, the full number of shares of
Common Stock deliverable upon conversion of all shares of Series B Preferred
Stock and Series C Preferred Stock from time to time outstanding and the full
number of shares of Common Stock deliverable upon conversion of all shares of
Series C Preferred Stock that may potentially be outstanding as a result of the
future conversion of all shares of Series D Preferred Stock from time to time
outstanding into such shares of Series C Preferred Stock. The Corporation shall
from time to time, in accordance with the laws of the State of California,
increase the authorized amount of its shares of Common Stock if at any time the
authorized number of shares of Common Stock remaining unissued shall not be
sufficient to permit the conversion of all of the shares of Series B Preferred
Stock and Series C Preferred Stock at the time outstanding.
(b) CANCELLATION OF SHARES OF SERIES. All certificates
evidencing Series B Preferred Stock and Series C Preferred Stock surrendered for
conversion shall be appropriately canceled on the books of the Corporation, and
the shares so converted shall be restored to the status of authorized but
unissued Preferred Stock of the Corporation.
(c) BOARD DETERMINATION. The Board of Directors shall
have the power and the duty to determine conclusively whether any conditions set
forth in this subparagraph 4.a have been satisfied.
b. SERIES D PREFERRED STOCK. Each share of Series D Preferred Stock
shall be convertible as follows:
(1) AUTOMATIC CONVERSION. Immediately prior to the automatic
conversion of shares of Series C Preferred Stock pursuant to subparagraph 4.a(l)
above, each share of Series D Preferred Stock shall automatically be converted
into one (1) share of Series C Preferred Stock, subject to adjustment as
provided in subparagraph 4.b(3) below, as of the close of business on the day
next preceding the day on which the first, if any, of the following occurs:
(a) PUBLIC OFFERING. The closing of a Public Offering as
defined in subparagraph 4.a(1)(a) above; or
(b) ACQUISITION. The consummation of an Acquisition as
defined in subparagraph 4.a(1)(b) above.
6.
<PAGE> 48
(c) CONVERSION MECHANICS. A holder of shares of Series D
Preferred Stock whose shares have been converted shall deliver the
certificate(s) representing such shares to the Corporation or its duly
authorized agent (or if such certificates have been lost, stolen or destroyed,
such holder shall execute an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
conversion) specifying the place where the Series C Preferred Stock issued in
conversion thereof shall be sent. The endorsement of the share certificate shall
be in form satisfactory to the Corporation or such agent, as the case may be.
The conversion shall be deemed to have occurred (whether or not certificates
representing such shares are surrendered or indemnity agreements with respect to
such shares are executed) immediately prior to the close of business on the day
next preceding the day on which the first, if any, of the events set forth in
subparagraphs 4.a(1)(a) or 4.a(1)(b) occurs, and all of the holders' rights with
respect to such shares of Series D Preferred Stock shall cease as of such date.
(2) OPTIONAL CONVERSION.
(a) CONVERSION RATIO. Each share of Series D Preferred
Stock shall, unless prohibited by law or regulation and subject to adjustments
as provided in subparagraph 4.b(3) below, be convertible into one (1) share of
Series C Preferred Stock at the option of the holder thereof, at any time.
(b) CONVERSION MECHANICS. A holder of shares of Series D
Preferred Stock desiring to convert such shares shall deliver to the Corporation
or its duly authorized agent the certificate(s) representing such shares (or if
such certificates have been lost, stolen or destroyed, such holder shall execute
an agreement satisfactory to the Corporation to indemnify the Corporation from
any loss incurred by it in connection with such conversion) accompanied by a
written request to convert specifying the number of shares to be converted, the
place where the Series C Preferred Stock issued in conversion thereof shall be
sent, and the name or names in which such holder wishes the certificate or
certificates for Series C Preferred Stock to be issued. The endorsement of the
share certificate and the request to convert shall be in form satisfactory to
the Corporation or such agent, as the case may be. Such conversion shall be
deemed to have occurred as of the close of business on the day next preceding
the date of such delivery of such shares of Series D Preferred Stock to be
converted. The person or persons entitled to receive the Series C Preferred
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Series C Preferred Stock as of said date.
(3) ADJUSTMENTS.
(a) NO ADJUSTMENT UPON CHANGE IN COMMON STOCK. The
shares of Series D Preferred Stock are convertible into shares of Series C
Preferred Stock, which shares of Series C Preferred Stock are subject to
adjustment pursuant to, and upon the events described in, subparagraph 4.a(3).
Therefore, upon such events, it is unnecessary to provide for, and the
Corporation shall not make, any further direct adjustment of the number of
shares of Series C Preferred Stock into which the Series D Preferred Stock is
convertible.
7.
<PAGE> 49
(b) ADJUSTMENT UPON CHANGE IN SERIES C PREFERRED STOCK.
In the event of any stock split, stock dividend or other recapitalization that
affects the Series C Preferred Stock without similarly affecting the Common
Stock so as to trigger an adjustment pursuant to subparagraph 4.a(3), the number
of shares of Series C Preferred Stock into which each share of Series D
Preferred Stock is convertible immediately prior to such event shall be
equitably adjusted, effective at the close of business on the date of such
event.
(4) RESERVATION OF SHARES, ETC.
(a) RESERVATION OF SHARES. The Corporation shall at all
times reserve and keep available, out of its authorized but unissued shares of
Series C Preferred Stock, solely for the purpose of effecting the conversion of
the Series D Preferred Stock, the full number of shares of Series C Preferred
Stock deliverable upon conversion of all shares of Series D Preferred Stock from
time to time outstanding. The Corporation shall from time to time, in accordance
with the laws of the State of California, increase the authorized amount of its
shares of Series C Preferred Stock (and, consequently, its shares of Common
Stock) if at any time the authorized number of shares of Series C Preferred
Stock (and, consequently, its Common Stock) remaining unissued shall not be
sufficient to permit the conversion of all of the shares of Series D Preferred
Stock at the time outstanding.
(b) CANCELLATION OF SHARES OF SERIES. All certificates
evidencing Series D Preferred Stock surrendered for conversion shall be
appropriately canceled on the books of the Corporation, and the shares so
converted shall be restored to the status of authorized but unissued Preferred
Stock of the Corporation.
(c) BOARD DETERMINATION. The Board of Directors shall
have the power and the duty to determine conclusively whether any conditions set
forth in this subparagraph 4.b have been satisfied.
c. SERIES E AND SERIES F PREFERRED STOCK. Each share of Series E
Preferred Stock and Series F Preferred Stock shall be convertible as follows:
(1) AUTOMATIC CONVERSION. Each share of Series E Preferred
Stock and Series F Preferred Stock, respectively, shall automatically be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $8.77 and $10.25, respectively, by the Series
E Conversion Price and Series F Conversion Price, respectively, determined as
hereinafter provided, in effect at the time of conversion, as of the close of
business on the day next preceding the day on which the first, if any, of the
following occurs:
(a) PUBLIC OFFERING. The closing of a Public Offering as
defined in subparagraph 4.a(1)(a) above; or
(b) ACQUISITION. The consummation of an Acquisition as
defined in subparagraph 4.a(l)(b) above.
8.
<PAGE> 50
(c) CONVERSION PRICE. The price at which shares of
Common Stock shall be deliverable upon conversion of the Series E Preferred
Stock (the "Series E Conversion Price") shall initially be $6.949287 per share
(adjusted from $8.77 per share effective March 23, 1992). The price at which
shares of Common Stock shall be deliverable upon conversion of the Series F
Preferred Stock (the "Series F Conversion Price") shall initially be $8.122029
per share.
(d) CONVERSION MECHANICS. A holder of shares of Series E
Preferred Stock or Series F Preferred Stock whose shares have been converted
shall deliver the certificate(s) representing such shares to the Corporation or
its duly authorized agent (or if such certificates have been lost, stolen or
destroyed, such holder shall execute an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such conversion) specifying the place where the Common Stock
issued in conversion shall be sent. The endorsement of the share certificate
shall be in form satisfactory to the Corporation or such agent, as the case may
be. The conversion shall be deemed to have occurred (whether or not certificates
representing such shares are surrendered or indemnity agreements with respect to
such shares are executed) as of the close of business on the day next preceding
the day on which the first, if any, of the events set forth in subparagraphs
4.c(l)(a) or 4.c(l)(b) occurs, and all of the holders' rights with respect to
such shares of Series E Preferred Stock or Series F Preferred Stock, as
appropriate, shall cease as of such date.
(2) OPTIONAL CONVERSION.
(a) CONVERSION. Each share of Series E Preferred Stock
or Series F Preferred Stock, as appropriate, shall be convertible, at the option
of the holder thereof, at any time into shares of Common Stock at the then
effective Series E Conversion Price or Series F Conversion Price, as
appropriate.
(b) CONVERSION MECHANICS. A holder of shares of Series E
Preferred Stock or Series F Preferred Stock desiring to convert such shares
shall deliver to the Corporation or its duly authorized agent the certificate(s)
representing such shares (or if such certificates have been lost, stolen or
destroyed, such holder shall execute an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such conversion) accompanied by a written request to convert
specifying the number of shares to be converted, the place where the Common
Stock issued in conversion thereof shall be sent, and the name or names in which
such holder wishes the certificate or certificates for Common Stock to be
issued. The endorsement of the share certificate and the request to convert
shall be in form satisfactory to the Corporation or such agent, as the case may
be. Such conversion shall be deemed to have occurred as of the close of business
on the day next preceding the date of such delivery of such shares of Series E
Preferred Stock or Series F Preferred Stock, as appropriate, to be converted.
The person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock as of said date.
9.
<PAGE> 51
(3) ADJUSTMENTS TO SERIES E CONVERSION PRICE OR SERIES F
CONVERSION PRICE FOR CERTAIN DILUTING ISSUES.
(a) SPECIAL DEFINITIONS. For purposes of this
subparagraph 4.c, the following definitions shall apply:
(i) "OPTIONS" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities (defined below).
(ii) "ORIGINAL ISSUE DATE" shall mean the date on
which a share of Series E Preferred Stock or Series F Preferred Stock, as
applicable, was first issued.
(iii) "CONVERTIBLE SECURITIES" shall mean any
evidences of indebtedness, shares (other than Common Stock, Series B Preferred
Stock, Series C Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock) or other securities convertible into or exchangeable for Common Stock.
(iv) "ADDITIONAL SHARES OF COMMON STOCK" shall
mean all shares of Common Stock issued (or, pursuant to subparagraph 4.c(3)(c)
deemed to be issued) by the Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series B
Preferred Stock, Series C Preferred Stock, Series E Preferred Stock or Series F
Preferred Stock.
(B) to officers, directors or employees of,
or consultants to, the Corporation pursuant to a stock grant, option plan or
purchase plan or other employee stock incentive program (collectively, the
"Plans") approved by the Board of Directors;
(C) as a dividend or distribution on Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or Series F Preferred Stock;
(D) by way of dividend or other distribution
on shares of Common Stock excluded from the definition of Additional Shares of
Common Stock by the foregoing clauses (A), (B) and (C) or on shares of Common
Stock so excluded.
(b) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in
the Series E Conversion Price or Series F Conversion Price, respectively, of a
particular share of Series E Preferred Stock or Series F Preferred Stock,
respectively, shall be made in respect of the issuance of Additional Shares of
Common Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Series E Conversion Price or Series F Conversion Price, as appropriate, in
effect on the date
10.
<PAGE> 52
of, and immediately prior to such issue, for such share of Series E Preferred
Stock or Series F Preferred Stock.
(c) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK.
(i) OPTIONS AND CONVERTIBLE SECURITIES. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to subparagraph 4.c(3)(e)
hereof) of such Additional Shares of Common Stock would be less than the Series
E Conversion Price or Series F Conversion Price, as appropriate, in effect on
the date of and immediately prior to such issue, or such record date, as the
case may be, and provided further, that in any such case in which Additional
Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Series E
Conversion Price or Series F Conversion Price, as appropriate, shall be made
upon the subsequent issue of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
decrease or increase in the number of shares of Common Stock issuable upon the
exercise, conversion or exchange thereof, the Series E Conversion Price or the
Series F Conversion Price, as appropriate, computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto) and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the Series
E Conversion Price or the Series F Conversion Price shall affect Common Stock
previously issued upon conversion of the Series E Preferred Stock or the Series
F Preferred Stock, as appropriate);
(C) upon the expiration of any such Options
or any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Series E Conversion Price or the Series F
Conversion Price, as appropriate, computed upon the original issue thereof (or
upon the occurrence of a record date with respect
11.
<PAGE> 53
thereto) and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(1) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such conversion or exchange, and
(2) in the case of Options for
Convertible Securities, the only Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue of such Options, and
the consideration received by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the consideration actually
received by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to subparagraph 4.c(3) (e)) upon the issue of
the Convertible Securities with respect to which such Options were actually
exercised;
(D) no readjustment pursuant to clause (B)
or (C) above shall have the effect of increasing the Series E Conversion Price
or the Series F Conversion Price to an amount which exceeds the lower of (i) the
Series E Conversion Price or the Series F Conversion Price, as appropriate, on
the original adjustment date, or (ii) the Series E Conversion Price or the
Series F Conversion Price, as appropriate, that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
(d) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event this Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to subparagraph 4.c(3)(c)) without consideration or
for a consideration per share less than the Series E Conversion Price or the
Series F Conversion Price, as appropriate, in effect on the date of and
immediately prior to such issue, then and in such event, the Series E Conversion
Price or the Series F Conversion Price, as appropriate, shall be reduced,
concurrently with such issue, to a price determined by multiplying the Series E
Conversion Price or the Series F Conversion Price, as appropriate, by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued would purchase at
the Series E Conversion Price or the Series F Conversion Price, as appropriate;
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number
12.
<PAGE> 54
of such Additional Shares of Common Stock so issued; provided, however, the
Series E Conversion Price or the Series F Conversion Price shall in no event be
less than $4.56 per share (which was adjusted from $5.75 effective March 23,
1992) (as adjusted for stock splits, combinations and similar events) and
provided further that, for the purposes of this subparagraph 4.c(3)(d) all
shares of Common Stock issuable upon conversion of all outstanding Series E
Preferred Stock or Series F Preferred Stock, as appropriate, and all outstanding
Convertible Securities, and upon exercise of all outstanding Options bearing an
exercise price which is lower than the price at which the Additional Shares of
Common Stock were issued (or deemed to be issued), shall be deemed to be
outstanding, and immediately after any Additional Shares of Common Stock are
deemed issued pursuant to subparagraph 4.c(3)(c) such Additional Shares of
Common Stock shall be deemed to be outstanding.
(e) DETERMINATION OF CONSIDERATION. For purposes of this
paragraph 4.c(3) the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined by the Board of Directors in the good faith exercise of its
reasonable business judgment; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to subparagraph 4.c(3)(c)(i),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
13.
<PAGE> 55
(y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(f) ADJUSTMENTS TO SERIES E CONVERSION PRICE AND SERIES
F CONVERSION PRICE FOR STOCK DIVIDENDS AND FOR COMBINATIONS OR SUBDIVISIONS OF
COMMON STOCK. In the event that this Corporation at any time or from time to
time after the Original Issue Date shall declare or pay, without consideration,
any dividend on the Common Stock payable in Common Stock or in any right to
acquire Common Stock for no consideration, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by stock split, reclassification or otherwise than by payment of a
dividend in Common Stock or in any right to acquire Common Stock) or in the
event the outstanding shares of Common Stock shall be combined or consolidated
by reclassification or otherwise, into a lesser number of shares of Common
Stock, then the Series E Conversion Price and the Series F Conversion Price for
any series of Preferred Stock in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately decreased
or increased, as appropriate. In the event that this Corporation shall declare
or pay, without consideration, any dividend on the Common Stock payable in any
right to acquire Common Stock for no consideration, then the Corporation shall
be deemed to have made a dividend payable in Common Stock in an amount of shares
equal to the maximum number of shares issuable upon exercise of such rights to
acquire Common Stock.
(g) ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION.
If the Common Stock issuable upon conversion of the Series E Preferred Stock and
the Series F Preferred Stock shall be changed into the same or a different
number of shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares provided for in subparagraph 4.c(3)(f) above), the Series
E Conversion Price and the Series F Conversion Price, as appropriate, then in
effect shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series E Preferred
Stock and the Series F Preferred Stock, as appropriate, shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the Series
E Preferred Stock and the Series F Preferred Stock, as appropriate, immediately
before that change.
(4) NO IMPAIRMENT. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation but will at all times in good
faith assist in the carrying out of all the provisions of this paragraph 4.c and
in the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series E Preferred Stock and
the Series F Preferred Stock against impairment.
14.
<PAGE> 56
(5) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series E Conversion Price or the Series F
Conversion Price pursuant to this paragraph 4.c, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of Series E Preferred Stock or
Series F Preferred Stock, as appropriate, a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series E Preferred Stock or Series F
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Series E Conversion Price or the Series F Conversion Price, as appropriate, at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of Series E Preferred Stock or the Series F Preferred Stock, as
appropriate.
(6) RESERVATION OF SHARES, ETC.
(a) RESERVATION OF SHARES. The Corporation shall at all
times reserve and keep available, out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the Series E
Preferred Stock and the Series F Preferred Stock, the full number of shares of
Common Stock deliverable upon conversion of all shares of Series E Preferred
Stock and Series F Preferred Stock from time to time outstanding. The
Corporation shall from time to time, in accordance with the laws of the State of
California, increase the authorized amount of its shares of Common Stock if at
any time the authorized number of shares of Common Stock remaining unissued
shall not be sufficient to permit the conversion of all of the shares of Series
E Preferred Stock and Series F Preferred Stock at the time outstanding.
(b) CANCELLATION OF SHARES OF SERIES. Series E Preferred
Stock and Series F Preferred Stock surrendered for conversion shall be
appropriately canceled on the books of the Corporation, and the shares so
converted shall be restored to the status of authorized but unissued Preferred
Stock of the Corporation.
(c) BOARD DETERMINATION. The Board of Directors shall
have the power and the duty to determine conclusively whether any conditions set
forth in this paragraph 4.c have been satisfied.
5. NOTICES.
a. EVENTS. If:
(1) There shall occur any subdivision or combination of
outstanding shares of Common Stock or a dividend in Common Stock thereon; or
15.
<PAGE> 57
(2) There shall occur a voluntary or involuntary dissolution,
liquidation, or winding up of the Corporation; or
(3) There shall occur any determination by the Board of
Directors to proceed with a Public Offering or an Acquisition;
then, and in each such case, the Corporation shall cause to be mailed to the
holders of record of the outstanding Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock at least fifteen days prior to the date hereinafter specified, a
notice stating the date (i) which has been set as the record date for the
purpose of such subdivision, combination or dividend, or (ii) on which such
dissolution, liquidation, or winding up, Public Offering or Acquisition is to
take place or, if earlier, which is the record date as of which holders of
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or Common Stock of record
shall be entitled to participate in such transactions.
b. TRANSFER TAXES. The Corporation shall initially pay any and all
issue and other taxes that may be payable in respect of any transfer involved in
the issuance or delivery of shares of Common Stock or Series C Preferred Stock,
on conversion of shares of Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
in a name, other than that in which the shares of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock so converted or redeemed were registered, and no such
issuance or delivery shall be made unless and until the person requesting such
issuance has reimbursed the Corporation in the amount of any such tax, or has
established to the satisfaction of the Corporation that such tax has been paid.
6. PROTECTIVE PROVISIONS. In addition to any vote that may be required by
law, so long as any of the Series B Preferred Stock, Series C Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock shall be outstanding, the
Corporation shall not, without obtaining the approval (by vote or written
consent, as provided by law) of the holders of more than 50% of the then
outstanding shares of each such series of Preferred Stock ("Series B Approval,"
"Series C Approval," "Series E Approval," and "Series F Approval," respectively)
as indicated below:
a. subject to Series B Approval, alter or change the rights,
preferences or privileges of the Series B Preferred Stock; subject to Series C
Approval, alter or change the rights, preferences or privileges of the Series C
Preferred Stock; subject to Series E Approval, alter or change the rights,
preferences or privileges of the Series E Preferred Stock; or, subject to Series
F Approval, alter or change the rights, preferences or privileges of the Series
F Preferred Stock;
b. subject to Series B Approval, increase the authorized number of
shares of Series B Preferred Stock; subject to Series C Approval, increase the
authorized number of shares of Series C Preferred Stock; subject to Series E
Approval, increase the authorized number of
16.
<PAGE> 58
shares of the Series E Preferred Stock; or, subject to Series F Approval,
increase the authorized number of shares of the Series F Preferred Stock;
c. subject to Series B Approval, create any new class or series of
shares having preferences over Series B Preferred Stock as to dividends or
assets; subject to Series C Approval, create any new class or series of shares
having preferences over Series C Preferred Stock as to dividends or assets;
subject to Series E Approval, create any new class or series of shares having
preferences over Series E Preferred Stock as to dividends or assets; or, subject
to Series F Approval, create any new class or series of shares having
preferences over Series F Preferred Stock as to dividends or assets;
d. subject to Series B Approval, Series C Approval, Series E
Approval and Series F Approval effect any sale or otherwise dispose of all or
substantially all of its assets or consolidate with or merge with any other
corporation or entity, or permit any other corporation or entity to consolidate
or merge with it, except that any subsidiary of the Corporation may merge into
any other subsidiary or into the Corporation;
e. subject to Series B Approval, Series C Approval, Series E
Approval and Series F Approval, effect any reclassification or recapitalization
in any of the Corporation's outstanding capital stock;
f. subject to Series C Approval, Series E Approval and Series F
Approval, create any new class or series of Preferred Stock; provided, however,
that (subject to subparagraph 6.c above) the Corporation may create such new
class or series of Preferred Stock upon obtaining the approval by the
shareholders of the Corporation as defined by Section 153 of the Corporations
Code; or
g. subject to the prior approval of the holders of more than 50% of
the then outstanding shares of Preferred Stock voting together as a single class
on an as-converted basis in accordance with paragraph 3.b, issue any shares for
consideration of less than $4.56 per share (which was adjusted from $5.75
effective March 23, 1992) (appropriately adjusted for all subdivisions and
combinations of Common Stock) provided, however, that the Corporation may issue
shares of Common Stock pursuant to any present or future stock option, stock
purchase, bonus, savings, investment or other stock incentive programs for the
benefit of the employees of the Corporation or any subsidiary of the Corporation
as may be approved by the Board of Directors of the Corporation.
FOUR. The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law. The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the Corporations Code) for breach of duty to the
Corporation and its stockholders through bylaw provisions or through agreements
with the agents, or both, in excess of the indemnification otherwise permitted
by Section 317 of the Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the Corporations Code.
17.
<PAGE> 59
* * * * *
3. The foregoing amendment and restatement of articles of incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of articles of incorporation
has been duly approved by the required vote of shareholders in accordance with
Sections 902 and 903 of the Corporations Code. The corporation has two classes
of shares outstanding and there are four series of the class of Preferred Stock.
The number of outstanding shares of each such class and series is 1,472,059
shares of Common Stock, 535,484 shares of Series B Preferred Stock, 391,340
shares of Series C Preferred Stock, 130,399 shares of the non-voting Series D
Preferred Stock, and 441,099 shares of Series E Preferred Stock, for a total
number of outstanding voting shares of the corporation (on an as-converted
basis) of 3,198,378. The Common Stock of the corporation is entitled to vote as
a class, the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock of the corporation are entitled to
vote together as a class, the Series B Preferred Stock, Series C Preferred Stock
and Series E Preferred Stock are each entitled to vote separately as a series,
and all the outstanding voting shares are entitled to vote together, with
respect to the amendment and restatement of articles of incorporation set forth
herein. The percentage vote required for the approval of the amendment and
restatement set forth herein was more than 50% of each class of outstanding
shares entitled to vote, more than 50% of all the outstanding shares and more
than 50% of the Series B Preferred Stock, Series C Preferred Stock and Series E
Preferred Stock, each voting as a separate series. The number of shares of
outstanding stock, the number of shares of each class of outstanding
18.
<PAGE> 60
stock and the number of shares of each of the Series B Preferred Stock, Series C
Preferred Stock and Series E Preferred Stock voting in favor of the amendment
and restatement equaled or exceeded the vote required.
19.
<PAGE> 61
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date:______________________ _____________________________
CHARLES A. FRANK,
President
_____________________________
PAUL J. KELLEY,
Secretary
20.
<PAGE> 62
EXHIBIT C
January 27, 1993
Series F Preferred Stock
Investors Listed on the
Attached Schedule I
RE: IL FORNAIO (AMERICA) CORPORATION SERIES F PREFERRED STOCK FINANCING.
Ladies and Gentlemen:
We have acted as counsel for Il Fornaio (America) Corporation, a California
corporation (the "Company"), in connection with the issuance and sale of 730,664
shares of the Company's Series F Preferred Stock (the "Shares"), to the
Purchasers under the Series F Preferred Stock Purchase Agreement dated as of
January 27, 1993 (the "Agreement"). We are rendering this opinion pursuant to
Section 5.1(b) of the Agreement. Except as otherwise defined herein, capitalized
terms used herein have the respective meanings given to them in the Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Agreement by the various parties and originals or copies
certified to our satisfaction, of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to the best of our knowledge" or concerning an item "known to us" or
our opinion otherwise refers to our knowledge, it is based solely upon (i) an
inquiry of attorneys within this firm who perform legal services for the
Company, (ii) receipt of a certificate executed by an officer of the Company
covering such matters, and (iii) such other investigation, if any, that we
specifically set forth herein.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement), where authorization, execution and delivery
are prerequisites to the effectiveness of such documents. We have also assumed:
that all individuals executing and delivering documents had the legal capacity
to so execute and deliver; that you have received all documents you were to
receive under the Agreement; that the Agreement is an obligation binding upon
you;
<PAGE> 63
Series F Preferred Stock Investors
Listed on the Attached Schedule I
January 27, 1993
Page 2
if you are a corporation or other entity, that you have filed any required
California franchise or income tax returns and have paid any required California
franchise or income taxes; and that there are no extrinsic agreements or
understandings among the parties to the Agreement that would modify or interpret
the terms of the Agreement or the respective rights or obligations of the
parties thereunder.
Our opinion is expressed only with respect to the federal laws of the United
States of America and the laws of the State of California. We express no opinion
as to whether the laws of any particular jurisdiction apply, and no opinion to
the extent that the laws of any jurisdiction other than those identified above
are applicable to the subject matter hereof. We are not rendering any opinion as
to compliance with any antifraud law, rule or regulation relating to securities,
or to the sale or issuance thereof.
With regard to our opinion in paragraph 4 below, we have examined and relied
upon a certificate executed by an officer of the Company, to the effect that the
consideration for all outstanding shares of capital stock of the Company was
received by the Company in accordance with the provisions of the applicable
Board of Directors resolutions and any plan or agreement relating to the
issuance of such shares, and we have undertaken no independent verification with
respect thereto.
With regard to our opinion in paragraph 4 below, we express no opinion (a) with
respect to the 80,895 shares of Common Stock and Series A Preferred Stock listed
on Attachment A to the Schedule of Exceptions attached to the Agreement (the
"Schedule of Exceptions"), as to whether such shares are outstanding, duly
authorized, validly issued, fully paid or nonassessable as a result of the
effect of the absence from the Company's records of documentation of waiver or
satisfaction of certain preemptive rights as specified in the Schedule of
Exceptions attached to the Agreement, or (b) the effect of the failure of the
stock records of the Company to include executed assignments with respect to
75,922 shares of Common Stock.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company has been duly incorporated and is a validly existing corporation
in good standing under the laws of the State of California.
<PAGE> 64
Series F Preferred Stock Investors
Listed on the Attached Schedule I
January 27, 1993
Page 3
2. The Company has the requisite corporate power to own or lease its property
and assets and to conduct its business as it is currently being conducted and,
to the best of our knowledge, is qualified as a foreign corporation to do
business and is in good standing in each jurisdiction in the United States in
which the ownership of its property or the conduct of its business requires such
qualification and where any statutory fines or penalties or any corporate
disability imposed for the failure to qualify would materially and adversely
affect the Company, its assets, financial condition or operations.
3. The Agreement has been duly and validly authorized, executed and delivered by
the Company and constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as rights
to indemnity in Sections 7.10 and 8.8 of the Agreement may be limited by
applicable laws and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws affecting creditors' rights, and subject to general equity principles and
to limitations on availability of equitable relief, including specific
performance.
4. The Company's authorized capital stock consists of 15,000,000 shares of
Common Stock, without par value, of which 1,472,059 shares are issued and
outstanding, and (b) 3,500,000 shares of Preferred Stock, without par value, of
which (i) no shares are designated Series A Preferred Stock, (ii) 542,225 shares
have been designated Series B Preferred Stock, 535,484 of which shares are
issued and outstanding, (iii) 521,739 shares have been designated Series C
Preferred Stock, 391,340 of which shares are issued and outstanding, (iv)
521,739 shares have been designated Series D Preferred Stock, 130,399 of which
shares are issued and outstanding, (v) 450,000 shares have been designated
Series E Preferred Stock, 441,099 of which shares are issued and outstanding,
and (vi) 825,000 shares have been designated Series F Preferred Stock, none of
which shares are issued and outstanding (excluding the shares issued under the
Agreement). The rights, preferences and privileges of the Series B, Series C,
Series D, Series E and Series F Preferred Stock are as stated in the Company's
Amended and Restated Articles of Incorporation. The outstanding shares of Common
Stock and Preferred Stock have been duly authorized and validly issued, and are
fully paid and nonassessable. The Shares have been duly authorized, and upon
issuance and delivery against payment therefor in accordance with the terms of
the Agreement, the Shares will be validly issued, outstanding, fully paid and
nonassessable. The shares of Common Stock issuable upon conversion of the Shares
have been duly authorized and, upon issuance and delivery against payment
<PAGE> 65
Series F Preferred Stock Investors
Listed on the Attached Schedule I
January 27, 1993
Page 4
therefor in accordance with the terms of the Shares, will be validly issued,
outstanding, fully paid and nonassessable. To the best of our knowledge, except
as disclosed in the Schedule of Exceptions, there are no options, warrants,
conversion privileges, preemptive rights or other rights presently outstanding
to purchase any of the authorized but unissued capital stock of the Company,
other than (i) the conversion privileges of the Series B, Series C, Series D,
and Series E Preferred Stock, (ii) rights created in connection with the
transactions contemplated by the Agreement, (iii) 103,680, 126,200 and 300,000
shares of Common Stock authorized for issuance upon the exercise of employee
stock options under the 1988 Stock Option Plan, 1991 Incentive Stock Option Plan
and 1992 Stock Option Plan, respectively, (iv) 100,000 shares of Common Stock
authorized for issuance under the Company's 1992 Non-Employee Directors' Stock
Option Plan and (v) 200,000 shares of Common Stock authorized for issuance under
the Company's 1992 Employee Stock Purchase Plan.
5. The execution and delivery of the Agreement by the Company and the issuance
of the Shares pursuant thereto do not violate any provision of the Company's
Amended and Restated Articles of Incorporation or Bylaws, and do not constitute
a material default under the provisions of any material agreement known to us to
which the Company is a party or by which it is bound.
6. To the best of our knowledge, except as disclosed in the Schedule of
Exceptions attached to the Agreement, there is no action, proceeding or
investigation pending or overtly threatened against the Company before any court
or administrative agency that questions the validity of the Agreement or might
result, either individually or in the aggregate, in any material adverse change
in the assets, financial condition, or operations of the Company.
7. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required for the consummation by the Company of the
transactions contemplated by the Agreement, have been made or obtained, except
(a) for the filing of a Notice of Transaction Pursuant To Section 25102(f) of
the California Corporate Securities Law of 1968 and any applicable filings
required under the securities laws of other states and (b) for the filing of an
amendment to a Form D pursuant to Securities and Exchange Commission Regulation
D.
8. The offer and sale of the Shares (and the Common Stock issuable upon
conversion thereof) is exempt from the registration requirements of the
Securities Act
<PAGE> 66
Series F Preferred Stock Investors
Listed on the Attached Schedule I
January 27, 1993
Page 5
of 1933, as amended, subject to the timely filing of a Form D pursuant to
Securities and Exchange Commission Regulation D and the qualification
requirements of the California Corporate Securities Law of 1968, subject to the
timely filing of a Notice of Transaction Pursuant To Section 25102(f).
This opinion is intended solely for your benefit and is not to be made available
to or be relied upon by any other person, firm, or entity without our prior
written consent.
Very truly yours,
COOLEY GODWARD CASTRO
HUDDLESON & TATUM
By ______________________
Mark L. Perry
<PAGE> 67
SCHEDULE I
Il Fornaio (America) Corporation
Series F Preferred Stock Investors
<PAGE> 68
SCHEDULE OF PREFERRED STOCK PURCHASE AGREEMENTS
This schedule sets forth a list of the Company's Preferred Stock Purchase
Agreements that are substantially identical in all material respects to the
Series F Stock Purchase Agreement filed as Exhibit 10.6. The material details
in which such documents differ from the Series F Preferred Stock Purchase
Agreement are set forth in the table below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MARKET
SCHEDULE OF NUMBER OF PER SHARE STAND-OFF
PURCHASE AGREEMENT DATE PURCHASERS SHARES PRICE PERIOD
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Series B Preferred Stock 3/20/87 See Exhibit A 542,225 $4.6106 120 days
Purchase Agreement attached
- -----------------------------------------------------------------------------------------------------
Series C & D Preferred 1/19/88 See Exhibit B 391,340/Series C $5.75 120 days
Stock Purchase attached 130,399/Series D
Agreement
- -----------------------------------------------------------------------------------------------------
Series E Preferred Stock 1/30/90 See Exhibit C 434,762 $8.77 120 days
Purchase Agreement attached
- -----------------------------------------------------------------------------------------------------
</TABLE>
1.
<PAGE> 69
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NUMBER OF AMOUNT OF
NAME SHARES PURCHASED CONSIDERATION
- ------------------------------------ ------------------ -------------------
<S> <C> <C>
W. Howard Lester 82,610 $380,881.67
James A. McMahan 72,217 332,963.70
Robert J. Masi and Marie Britz 1,022 4,712.03
Matrix Partners, L.P. 119,293 550,012.31
InterWest Partners 120,729 556,633.13
Warburg, Pincus Associates, L.P. 119,293 550,012.31
FWH Associates, a California Limited 10,845 50,001.96
Partnership
A. Chapman Dix 400 1,844.24
Bill Mather 120 553.27
Italo Cassini 241 1,111.15
Gustar Asmann 431 1,987.17
To Be Sold 15,024 69,269.65
---------- -------------
542,225 $2,499,982.59
========== =============
</TABLE>
1.
<PAGE> 70
EXHIBIT B
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NUMBER OF SHARES PURCHASED
----------------------------------
AMOUNT OF
NAME SERIES C SERIES D CONSIDERATION
- ----------------------------- ---------------- ------------- --------------
<S> <C> <C> <C>
Wells Fargo Capital Markets 43,515 130,399 $1,000,005.50
Mayfield V 173,914 -- 1,000,005.50
InterWest Partners II 104,379 -- 600,179.25
InterWest Entrepreneurs 5,494 -- 31,590.50
Matrix Partners 57,971 -- 333,333.25
FWH Associates 5,652 -- 32,499.00
William W. Mather 130 -- 747.50
Italo P. Casini 250 -- 1,437.50
Angelo Ferrari 35 -- 201.25
--------- --------- -------------
391,340 130,399 $2,999,999.25
========= ========= =============
</TABLE>
1.
<PAGE> 71
EXHIBIT C
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF AMOUNT OF
NAME SERIES E PREFERRED STOCK CONSIDERATION
- ---------------------------------------------------------- --------------------
<S> <C> <C>
Sequoia Capital Growth Fund 214,368 $1,880,007.36
Sequoia Technology Partners III 13,683 119,999.91
InterWest Partners II 57,013 500,004.01
FWH Associates 49,131 430,878.87
Mindel Family Trust 5,702 50,006.54
Four Rogers Trust 28,507 250,006.39
Stephen A. Boyden 11,403 100,004.31
Stanislaus Parnters 35,000 306,950.00
Thomas W. Ford 11,403 100,004.31
John Berggruen 8,552 75,001.04
-------- -------------
TOTAL 434,762 3,812,862.74
</TABLE>
1.
<PAGE> 1
EXHIBIT 10.7
FOR A HOLDER (AS DEFINED BELOW) WHO IS A U.S. RESIDENT:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
FOR A HOLDER WHO IS NOT A U.S. RESIDENT:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OR BENEFIT OF, UNITED
STATES PERSONS, UNTIL ONE YEAR AFTER FEBRUARY 9, 1993, EXCEPT IN ACCORDANCE WITH
REGULATION S UNDER THE ACT. TERMS USED ABOVE HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S.
IL FORNAIO (AMERICA) CORPORATION
WARRANT TO PURCHASE SERIES F PREFERRED STOCK
(VOID AFTER DECEMBER 31, 1997)
This certifies that ("Holder") or assigns, for value received, is
entitled to purchase from Il Fornaio (America) Corporation, a California
corporation (the "Company"), at any time prior to 5:00 p.m. (San Francisco time)
on December 31, 1997, fully paid and nonassessable shares of Series F Preferred
Stock of the Company ("Series F Preferred Stock"), at a purchase price per share
of $12.49 (the "Warrant Price"), upon surrender of the form of Subscription
Notice attached hereto duly filled in and signed.
This Warrant is subject to the following terms and conditions:
1. The purchase rights represented by this Warrant are exercisable at
the option of the holder of record hereof, either as an entirety, or from time
to time for any part of the shares of Series F Preferred Stock (but not for a
fraction of a share) which may be purchased hereunder; provided, however, that
the minimum exercisable at any one time shall be 50
1.
<PAGE> 2
shares, or the shares remaining exercisable under this Warrant, whichever is
less. In case of a purchase of less than all the shares which may be purchased
under this Warrant, the Company shall cancel this Warrant and execute and
deliver a new Warrant or Warrants of like tenor for the balance of the shares
purchasable under the Warrant surrendered upon such purchase.
2. The holder of record hereof may, to the extent permitted by
applicable statutes and regulations, elect to receive shares of Series F
Preferred Stock equal to the value (as determined below) of this Warrant by
surrender of the Warrant at the principal office of the Company together with
notice of such election in which event the Company shall issue to such holder
that number of shares of Series F Preferred Stock computed using the following
formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Series F Preferred Stock to
be issued to such holder.
Y = the number of shares of Series F Preferred Stock
issuable upon exercise of this Warrant.
A = the fair market value of one share of the Company's
Series F Preferred Stock.
B = Warrant Price (assuming any adjustment pursuant to
Section 6 hereof).
For the purposes of this Section 2, fair market value of the Company's
Series F Preferred stock as of a particular date (the "Determination Date")
shall mean:
(i) If the Company's Series F Preferred Stock is traded on an
exchange or is quoted on the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ")
National Market System, then the closing or last sale price,
respectively, reported for the business day immediately
preceding the Determination Date.
(ii) If the Company's Series F Preferred Stock is not traded
on an exchange or on the NASDAQ National Market System but is
traded in the over-the-counter market, then the mean of the
closing bid and asked prices reported for the business day
immediately preceding the Determination Date.
(iii) Except as provided in paragraph (iv) below, if the
Company's Series F Preferred Stock is not publicly traded,
then as determined in good faith by the Company's Board of
Directors upon a review of relevant factors.
2.
<PAGE> 3
(iv) If the Determination Date is the date on which the
Company's Series F Preferred Stock is first sold to the public
by the Company in a firm commitment public offering under the
Act, then the initial public offering price (before deducting
commissions, discounts or expenses) at which the Series
Preferred Stock is sold in such offering.
3. The Company agrees at all times following issuance of this Warrant
to reserve a sufficient number of shares of authorized but unissued Series F
Preferred Stock (and Common Stock issuable upon conversion thereof) when and as
required for the purpose of complying with the terms of this Warrant.
4. Nothing contained in this Warrant in and of itself shall be
construed as conferring upon the holder hereof or any other person the right to
vote or to consent or to receive notice as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or any other
matters or any rights whatsoever as a shareholder of the Company; and no
dividends or interest shall be payable or accrued in respect of this Warrant or
the interest represented hereby or the shares purchasable hereunder until, and
only to the extent that, this Warrant shall have been exercised.
5. This Warrant is transferable on the books of the Company at its
principal office by the above named holder of record in person or by duly
authorized attorney, upon surrender of this Warrant, properly endorsed, subject
to the requirements of Section 11 below.
6. In the event of changes in the outstanding Series F Preferred Stock
of the Company by reason of stock dividends, split-ups, recapitalizations,
reclassifications, mergers, consolidations, combinations or exchanges of shares,
reorganizations, liquidations, conversion of all outstanding shares of Series F
Preferred Stock into Common Stock or any other class of shares, or the like, the
number and class of shares available under the Warrant in the aggregate and the
Warrant Price shall be correspondingly adjusted by the Board of Directors of the
Company. The adjustment shall be such as will give the holder of the Warrant on
exercise, for the same aggregate Warrant Price, the total number, class and kind
of shares as he would have owned had the Warrant been exercised prior to the
event and had he continued to hold such shares until after the event requiring
adjustment; provided, however, that this Warrant shall expire unless exercised
prior to the closing of any consolidation or merger of the Company with another
corporation, or the closing of the sale of all or substantially all of the
Company's assets to another corporation (collectively, "Reorganization"),
provided that the holder of this Warrant is given written notice of such
Reorganization at least fifteen (15) days prior to the closing thereto. In the
event that all of the outstanding Series F Preferred Stock is converted into
Common Stock of the Company prior to the exercise of this Warrant and during the
period in which this Warrant is exercisable, this Warrant shall thereafter be
exercisable at the same aggregate Warrant Price for the number of shares of
Common Stock of the Company (or any other class of shares) as the holder of this
Warrant would have owned upon conversion of the Series F Preferred Stock had the
Warrant been exercised prior to the conversion of the Series F Preferred Stock.
Appropriate adjustments to the number and class of shares available
3.
<PAGE> 4
under this Warrant after such conversion event shall continue to apply as
heretofore specified in this Section 6 as if this Warrant had originally been
exercisable for Common Stock of the Company and all references to Series F
Preferred Stock herein shall thereafter be deemed to be references to such
Common Stock.
7. No fractional share shall be issued upon exercise of this Warrant.
The Company shall, in lieu of issuing any fractional share, pay the holder
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of exercise (as determined in good faith by the Board of
Directors of the Company).
8. In each case of an adjustment or readjustment of the Series F
Conversion Price (as defined in the Company's Amended and Restated Articles of
Incorporation (the "Articles")) for the Series F Preferred Stock, the number of
shares of Common Stock or other securities issuable upon conversion of the
Series F Preferred Stock or exercise of this Warrant at such time as it may be
exercisable for Common Stock, or the number or type of securities or other
property issuable upon exercise of this Warrant, the Company shall compute such
adjustment or readjustment in accordance herewith and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to the registered holder of this Warrant at
the holder's address as shown in the Company's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based including a statement of (i) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock (as defined in the Articles) issued or sold or deemed to
have been issued or sold, (ii) the Series F Conversion Price (as defined in the
Articles) at the time in effect for the Series F Preferred Stock, and (iii) the
number of Additional Shares of Common Stock and the type and amount, if any, of
other property that at the time would be received upon conversion of the Series
F Preferred Stock.
9. In the event of any reclassification or recapitalization of the
capital stock of the Company, any merger or consolidation of the Company, or any
transfer of all or substantially all of the assets of the Company to any other
corporation, entity, or person, or any voluntary or involuntary dissolution,
liquidation, or winding up of the Company, the Company shall mail to the holder
of this Warrant at least fifteen (15) days prior to the applicable record date
for determining shareholders entitled to participate in or vote on such
transaction, , a notice specifying (i) the date on which any such
reclassification, recapitalization, merger, consolidation, transfer,
dissolution, liquidation or winding up is expected to become effective, and (ii)
the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reclassification, recapitalization, merger, consolidation, transfer,
dissolution, liquidation or winding up.
10. The Company will pay all taxes and other governmental charges that
may be imposed in respect of the issue or delivery of shares of Series F
Preferred Stock or Common Stock upon exercise of this Warrant, excluding,
however, any tax or other charge imposed in
4.
<PAGE> 5
connection with any transfer involved in the issue and delivery of shares of
Series F Preferred Stock or Common Stock in a name other than that in which this
Warrant was so registered.
11. This Warrant has not been registered under the Act. Neither this
Warrant nor any interest herein may be sold, offered for sale, pledged,
hypothecated or otherwise transferred unless an effective registration statement
under the Act is in effect as to the transfer of Warrant or an opinion of
counsel satisfactory to the Company that registration is unnecessary in order
for the transfer of the Warrant to comply with the Act. If this Warrant is held
by a Holder who is a resident of the United States, then each certificate
representing any shares of Series F Preferred Stock or Common Stock issued upon
the exercise of this Warrant shall bear the following legend (in addition to any
legend required under applicable state securities laws):
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT."
If this Warrant is held by a Holder who is not a resident of the United States,
then each certificate representing any shares of Series F Preferred Stock or
Common Stock issued upon the exercise of this Warrant shall bear the following
legends:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, OR TO OR FOR THE
ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS, UNTIL ONE YEAR AFTER
FEBRUARY 9, 1993, EXCEPT IN ACCORDANCE WITH REGULATION S UNDER THE ACT.
TERMS USED ABOVE HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S.
12. This Warrant is issued in and shall be governed by the laws of the
State of California, as applied to contracts entered into in California between
California residents and to be performed entirely within California.
13. Any provision of this Warrant may be amended, waived or modified,
discharged or terminated by an instrument in writing signed by the party against
whom the enforcement is sought.
5.
<PAGE> 6
14. All notices referred to in this Warrant shall be in writing and
shall be delivered personally or by certified or registered mail, return receipt
requested, postage prepaid and will be deemed to have been given when so
delivered or mailed (i) to the Company, at its principal executive offices and
(ii) to the holder of this Warrant, at such holder's address as it appears in
the records of the Company (unless otherwise indicated by such holder).
6.
<PAGE> 7
IN WITNESS WHEREOF the Company has caused this Warrant to be duly
executed by its officers thereunto duly authorized this 9th day of February,
1993.
IL FORNAIO (AMERICA) CORPORATION
By: ____________________________
Laurence B. Mindel
Chief Executive Officer
ATTEST:
______________________
Paul J. Kelley
Secretary
7.
<PAGE> 8
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO IL FORNAIO (AMERICA) CORPORATION:
The undersigned, the holder of the attached Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________________ shares of Series F Preferred Stock of Il
Fornaio (America) Corporation, and herewith makes payment of $__________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ________________________* whose address is
_____________________________.
Dated: __________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
__________________________________
(Address)
Signed in the presence of
_________________________
_________________________
*Insert here the number of shares (all or part of the number of shares
called for on the face of the Warrant) as to which the Warrant is being
exercised without making any adjustment for additional Series F Preferred stock
or any other stock or other securities or property or cash which, pursuant to
the adjustment provisions of the Warrant, may be deliverable.
<PAGE> 1
EXHIBIT 10.8
REVISED LICENSE AGREEMENT
This Revised License Agreement (the "Agreement") is made and entered
into this 11 day of December, 1986, by and between Veggetti S.r.l., of
Milan, Italy (a "Licensor") and Il Fornaio (America) Corporation, a California
corporation ("Company" or "Licensee"), of San Mateo, California, U.S.A., with
reference to the following facts:
A. Licensor is the owner of the Italian trademark
"IL FORNAIO" and of all designs, phrases, signs and related items using the
term "Il Fornaio" as presently utilized in Italy by Licensor (collectively the
"Il Fornaio Marks").
B. Licensor has developed certain operating procedures,
techniques and strategies through substantial investment of time and money for
the operation of stores engaged in the retail merchandising of bread and other
baked goods (the "Operating Procedures"). Although the operating Procedures
are the property of Licensor, they have not been reduced to writing. The
Operating Procedures include, without limitation, basic designs for store
layouts and for fixturization, advertising strategies, sales techniques,
procedures for quality control, recipes, operating routines, packaging and
display techniques, and the utilization of raw materials, supplies and
technical
<PAGE> 2
equipment. Company has been afforded the opportunity to use the operating
Procedures and deems them to be of value for use in the Territory (as that term
is defined herein).
C. Licensor has heretofore licensed to Company (through
various interim assignments) the exclusive rights in and for the territory of
the United States of America (the "Territory") to utilize the Il Fornaio Marks
and the Operating Procedures in connection with the operation of stores in the
Territory to be engaged in the retail sales of bread and other baked goods.
The parties now desire to terminate and cancel said previous license agreement,
including any royalty or other payment due thereunder, and to enter into this
Agreement.
NOW, THEREFORE, in consideration of the above premises and mutual
premises contained herein the parties hereto agree as follows:
1. Grant of Exclusive License for Use of the Il Fornaio Marks and the
Operating Procedures.
1.1 Subject to the terms and conditions hereof, Licensor
hereby grants to Company a perpetual, exclusive and royalty free license (i) to
use and to sublease the use of the operating Procedures in the Territory, and
(ii) to use and to sublease the use of the Il Fornaio Marks in the Territory.
company shall have the right to establish stores in any location in the
Territory it deems desirable in the sole and absolute
2
<PAGE> 3
exercise of its discretion, utilizing, however, the basic criteria suggested by
Licensor so as not to disrupt the image of the I1 Fornaio stores already
existing in Italy and elsewhere in Europe.
1.2 Licensor agrees that it shall not grant to any third
party any rights in or to the use of the operating Procedures or the Il Fornaio
Marks for the territory of Canada without first offering to Company the right
to acquire such interest at the same bona fide price and pursuant to the same
bona fide terms as may be offered by any responsible, prospective and unrelated
third party. Licensor shall give written notice to company of any such bona
fide offer (which notice shall set forth the name of the offeror, the price and
all other terms of such offer) and also shall give to Company a copy of any
such offer, and Company shall have thirty (30) days after receipt of such
notice in which to notify Licensor whether or not it desires to acquire such
rights at the price and pursuant to the terms set forth in such notice. In the
event Company fails to give written notice within said thirty (30) day period
that it is exercising its option to acquire such rights, Licensor shall have
the right to accept the offer by the third party, but only as set forth in its
notice to Company hereunder, and provided that if Licensor does not accept such
offer by execution of a binding agreement with such third party with respect
thereto within ninety (90) days after the expiration of said thirty (30) day
period, the
3
<PAGE> 4
procedure set forth in this paragraph shall again be followed before
disposition of such rights.
1.3 Subject to the terms and conditions hereof: (a)
Licensor agrees not to use or license to any third party the right to use in
the Territory any of the Operating Procedures or any of the Il Fornaio Marks;
and (b) Licensor agrees not to establish in the Territory any stores engaged in
the retail merchandising of bread and/or other baked goods; and (c) Licensor
agrees not to use the Il Fornaio Marks or any confusingly similar marks in the
Territory for any purpose whatsoever; and (d) Licensor agrees not to disclose
to any person or entity other than the Company any information, ideas or
expressions relating to the operation and/or licensing in the Territory of
stores engaged in the retail merchandising of bread and/or other baked goods,
including but not limited to any of the Operating Procedures; and (e) Licensor
agrees to observe complete confidentiality with respect to all aspects of the
Operating Procedures, including without limitation, not disclosing or otherwise
permitting access to the operating Procedures to any person or entity other
than a person or entity expressly authorized in writing by Company to have
access to the operating Procedures.
1.4 In order to induce Company to enter into this License
Agreement and as a means of helping to insure that the unique aspects of the
Company's stores (including without
4
<PAGE> 5
limitation the Furnishings and Fixtures as that term is defined herein, and
style of design and decor) are not exploited by any third party and that the
exclusive nature of the license herein granted to Company is effectuated fully,
Licensor agrees that, except as otherwise specifically provided herein, neither
it nor any of its subsidiaries, related companies or persons or entities
controlled directly or indirectly by any of the foregoing, shall sell or convey
to any party known by Licensor to be engaged in a business competitive with
Company in the Territory any Furnishings and Fixtures, signs, promotional items
or devices without Company's prior written consent.
1.5 Notwithstanding the provisions of Paragraph 1.4,
Licensor shall be entitled to sell or convey in the Territory Furnishings and
Fixtures for use in connection with the operation of stores engaged in the
retail merchandising of bread and other baked goods (herein sometimes referred
to as "Furnishings and Fixtures") manufactured by Licensor to any third party
provided that such Furnishings and Fixtures are not:
(a) similar to those being utilized in any Store
which Licensee has theretofore opened or sublicensed to any third party the
right to open; and
(b) likely to be confused by the public with any
Furnishings and Fixtures located in any Store which Licensee has theretofore
opened or sublicensed to any third party the right to open; and
5
<PAGE> 6
1.6 In consideration for the license and in full and
complete satisfaction of all claims that licensor has or may have against the
Company that arose prior to the effective date of this Agreement, Company
agrees to pay Licensor $25,000 (U.S.) upon the execution of this Agreement and
to pay an additional $25,000 (U.S.) on or before December 31, 1986 to Oriensta
S.A., a Liberian corporation, or to such other person nominated by Licensor.
2. Services by Licensor.
2.1 Licensor shall make available to Company without
charge or cost to Company except as otherwise specified herein:
2.1.1 Initial specifications and plans for the following
items for each store as well as advice and consultation with respect thereto:
furnishings, decor and signs exhibiting the Il Fornaio Marks. At Company's
request (which shall be reasonable with respect to the required date such plans
must be delivered and with respect to requests for more than one set of plans at
any one time, shall be reasonable in light of Licensor's then existing
capacities and which shall in any event not exceed such rate per month),
Licensor shall cause to be prepared and submitted to Company detailed
architectural plans and
6
<PAGE> 7
specifications for each Store to be opened in the Territory, in which case
Company shall pay Licensor a fee of $2,500 (U.S.) within ten (10) days
following receipt of such final plans. Said $2,500 (U.S.) fee shall be subject
to good faith renegotiation by Licensor and Company on the second anniversary
of the date of this License Agreement (and at the end of each succeeding two
year period thereafter), solely to reflect any additional out-of-pocket, direct
costs then being incurred by Licensor to prepare such plans.
2.1.2 A training program designed by Licensor and
currently conducted by Licensor in Italy, for any and all personnel that
Company shall designate, provided that Company shall be responsible for and
shall pay all out-of-pocket travel and lodging expenses incurred by such
personnel in connection with the training program; and provided further that
Licensor shall not be obligated to contemporaneously train at one time any more
than five persons designated by Company. Licensor's obligations under this
Paragraph 2.1 after the tenth anniversary of the date of this License Agreement
shall be limited to the training of one person in each calendar year.
2.1.3 Advice based upon Licensor's experience in
Italy relating to any or all of the following: the location and size of Stores;
the range, type and assortment of merchandise to be sold in the Stores; window
displays, advertising and promotion; employee uniforms; recipes; methods of
wrapping
7
<PAGE> 8
merchandise; suppliers of flours and other ingredients and raw materials; types
of flours and other ingredients and raw materials; equipment and furnishings;
promotional items and devices; pricing policies; quality control.
2.1.4 Training sessions conducted by consultants
furnished by Licensor at the Stores and supervision and assistance by such
consultants in connection with the opening and operation of each Store provided
that Company shall pay reasonable travel and lodging expenses for any
consultant provided by Licensor and a reasonable consulting fee to be agreed
upon in writing by Licensor and Company in advance of the performance of
consulting services by any individual other than Carlo Veggetti ("CV"),
Adolpho Veggetti ("AV"), Renato Veggetti ("V") for whose salaries Licensor shall
be solely responsible; provided, however, that Licensor shall not be obligated
to furnish such consultants for more than an aggregate of 45 days in the United
States and in any year, and provided further that Licensor shall have no further
obligations to provide assistance to Company under this Paragraph 2.1.4 after
January 26, 1991.
2.1.5. Recipes for bread and other baked goods.
2.2 Licensor shall make available to Company for
8
<PAGE> 9
purchase at the lowest price then being charged by Licensor to any other
purchaser all price tags, promotional items, uniforms, wrapping materials,
supplies or other items for use in the Stores which Licensor may manufacture or
purchase for use in connection with its operations; provided, however, that
Company's purchase orders are reasonable with respect to delivery dates and
quantities in light of Licensor's then existing capacities. Company shall be
under no obligation to purchase any of the foregoing from licensor and Company
shall have the right to purchase any or all of such items from any third party.
Notwithstanding the foregoing, at Company's request at any time, Licensor shall
introduce Company to any persons or entities who shall supply any of the items
described in this paragraph 2.2 to Licensor and use its best efforts to enable
Company to purchase any such items from such suppliers at the same prices paid
therefor by Licensor.
3. Compliance with United States Federal and State Statutes. In the event
that it is determined that this License Agreement or any agreement between
Company and any sublicensee with respect to the subject matter hereof is subject
to regulation or control pursuant to any federal statute or regulation or any
state statute or regulation in the United States relating to franchising and/or
business opportunity ventures, Licensor agrees to cooperate fully with Company
in supplying any information required and in complying with any and
9
<PAGE> 10
all registration, disclosure, filing and similar requirements, the costs of
which shall be borne equally by Licensor and Company.
4. Limitations of Licensor's Obligations and Liabilities. etc.
4.1 It is understood and agreed that although the
Operating Procedures being licensed to Company hereunder have been successful
in Italy, no assurance can be given Company that such Operating Procedures will
actually be successful in the United States.
4.2 Licensor hereby represents, warrants and agrees that
Licensor is the true and lawful owner of the Il Fornaio Marks and the Operating
Procedures, has the power to enter into this License Agreement and to grant all
rights granted to Licensee hereunder and has not granted (and shall not except
as otherwise specified herein, grant so long as this License Agreement remains
in effect) any rights or agreements to any third party which would in any way
conflict with or abridge the rights of Company hereunder. Licensor hereby
indemnifies and
10
<PAGE> 11
agrees to save Company harmless from and against any liabilities, costs or
expenses incurred by Company as a result of Licensor's breach of any of the
foregoing representations, warranties and agreements. Licensor also hereby
agrees to defend Company's right to use the Il Fornaio Marks and the Operating
Procedures against anyone claiming to have acquired such rights directly or
indirectly from Licensor or any of its present shareholders or from companies
or entities controlled directly or indirectly by any of the foregoing. Company
shall be entitled to institute and prosecute any appropriate legal proceedings
(including but not limited to an infringement action) in the name of Licensor
against any person asserting rights in conflict with those granted Company
hereunder, the costs of which shall be borne by Company. Notwithstanding the
foregoing, Licensor only agrees to use its best efforts to cause the Il Fornaio
mark to be registered as a trademark at its cost and expense in the United
States, and Licensor shall have no liability to Company if it fails to do so
after having so used its best efforts. If Company shall acquire the right to
use or sublicense the right to use the Il Fornaio Marks and the Operating
Procedures in the territory of Canada pursuant to the provisions of Paragraph
1.2 of this License Agreement, then all of the foregoing provisions of this
Paragraph 4.2 shall apply with equal force and effect to Canada.
4.3 It is understood and agreed that the operating Procedures being licensed by
Licensor to company
11
<PAGE> 12
hereunder have not yet been reduced to writing by Licensor in the form of
manuals, books or other formal operating procedures. Licensor shall have no
obligation hereunder to reduce such Operating Procedures to writing. However,
in the event Licensor shall do so while this License Agreement remains in
effect, it shall furnish complete copies thereof. It is further understood and
agreed that the Operating Procedures are actual, practical methods of operating
and that Company shall at all times be given full access to all of Licensor's
knowledge, know-how and experience with respect thereto. In addition, all
developments, improvements, additions, deletions, changes and enhancements in
and to the Operating Procedures (the "Developments") shall promptly be
communicated to Company; and for all purposes of this License Agreement, the
term "Operating Procedures" shall include all such Developments; provided,
however, that in no event shall Company's rights to use or sublicense the use
of Operating Procedures be reduced or in any way abridged as a result of any
such developments.
4.4 It is understood and agreed that Licensor's
obligation to furnish the Consulting services in the United States of persons
other than CV, AV and shall be subject to the willingness and availability of
such other persons to perform such service. Nevertheless, Licensor agrees to
use its best efforts to cause such other persons to perform such services. As
for the above named persons, it is understood that each of them
12
<PAGE> 13
shall not be required to be in the United States for more than twenty (20) days
per year in the aggregate, and for more than five (5) days at a time.
5. Miscellaneous.
5.1 This License Agreement shall be construed and
enforced in accordance with the laws of the State of California applicable to
contracts fully executed and to be performed within its jurisdiction and may be
amended or modified only by a writing executed by all parties hereto.
5.2 Captions used herein are for convenience only and
shall not be deemed a part of this License Agreement or be used to construe any
of the provisions hereof. Where the context so requires, the masculine gender
shall include the feminine or neuter, and. the singular shall include the
plural and the plural the singular.
5.3 This License Agreement may be executed in one or more
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.4 Performance of any obligation required of a party
hereunder may be waived only by a written waiver signed by the other party,
which waiver shall be effective only with respect to the other specific
obligation described therein.
5.5 This License Agreement constitutes the entire
understanding and contract between the parties hereto and
13
<PAGE> 14
supersedes any and all other prior or contemporaneous oral or written
representations or communications with respect to the subject matter hereof.
5.6 In the event that any provision hereof is found
invalid or unenforceable either as a result of arbitration or judicial decree,
the remainder of this License Agreement shall remain valid and enforceable
according to its terms.
5.7 This License Agreement shall be binding upon and
inure to the benefit of each of the parties hereto and their respective legal
successors and permitted assigns. Any sublicense granted by Licensee hereunder
shall be subject to and shall be consistent with the provisions of this License
Agreement.
5.8 All notices, requests or other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given or made if delivered personally or by telex or
by addressing them to the parties at the respective addresses first above
written, and by depositing such by air mail, postage prepaid, in the
appropriate governmental mail system, or by delivering them, toll prepaid, to a
telegraph or cable company, and if so telexed, mailed, telegraphed or cabled,
shall be deemed to have been received seventy-two (72) hours after the date of
mailing or twenty-four (24) hours after the date of the telex or delivery to
the telegraph or cable company. Any party hereto may designate a
14
<PAGE> 15
different address for the receipt of notices, requests or other communications
hereunder by giving the other party notice thereof pursuant to this Paragraph
5.8.
5.9 Because of the unique nature of the rights granted to
Company and the services to be performed by Licensor hereunder, it is
acknowledged and agreed that Company's remedies at law for a breach of any
provision of this Agreement (with the exception of Paragraphs 2 and 3 hereof)
would be inadequate and that Company shall, in such event, be entitled to
equitable relief, including without limitation injunctive relief, specific
performance or other equitable remedies in addition to all other remedies
provided at law or in equity. No remedy provided hereunder is intended to be
exclusive of any other remedy available at law or in equity.
5.10 This Agreement shall not be assigned by Licensor to
any other party (other than a corporation organized under the laws of a State
within or without the Territory, which is controlled by Licensor, CV, AV and
any other persons who are shareholders of Licensor on the date of such
assignment), in whole or in part, without the prior written consent of Company
in each instance. Notwithstanding any assignment by Licensor, Licensor shall
remain fully liable on this License Agreement and shall not be released from
performing any of the terms, covenants and conditions of this License
Agreement.
5.11 It is understood and agreed that at any time
15
<PAGE> 16
while this License Agreement remains in effect Company shall be entitled
without making any payment therefor to Licensor to change its corporate name to
include or to do business under a fictitious name including the name "Il
Fornaio"; provided, however, that in the event this License Agreement shall be
terminated as a result of Company's wrongful breach thereof, company shall
within a reasonable period of time eliminate the name "Il Fornaio" from its
corporate name or such fictitious name, unless otherwise agreed by Licensor.
5.12 In the event of the liquidation, winding-up or
dissolution of Licensor, all rights granted to Company hereunder shall survive
and remain in full force and effect, although the shareholders of Licensor
shall have no personal obligation to perform the agreements of Licensor set
forth in paragraphs 2 and 3 thereof.
5.13 This Agreement shall only be terminated upon the
occurrence of one of the following events:
(A) If Licensor shall commit a material breach of
this License Agreement and shall have failed to cure such breach within thirty
(30) days following its receipt of written notice thereof from Company (which
notice shall specify in precise detail the nature and extent of such breach)
and Company shall within ninety (90) days following Licensor's receipt of such
notice give written notice of the date such termination shall be effective; or
16
<PAGE> 17
(B) If Company shall commit a material breach of
this Agreement and shall have failed to cure such breach within thirty (30)
days following its receipt of written notice thereof from Licensor (which
notice shall specify in precise detail the nature and extent of such breach)
and Licensor shall within ninety (90) days following Company's receipt of such
notice give written notice of the date such termination shall be effective.
IN WITNESS WHEREOF, the parties hereto have executed this License
Agreement as of the date first above written.
<TABLE>
<S> <C>
COMPANY LICENSOR
IL FORNAIO (AMERICA) CORPORATION VEGGETTI S.r.l.
By: /s/ HOWARD LESTER By: /s/ CARLO VEGGETTI
------------------------------ --------------------------------
Howard Lester Carlo Veggetti
Title: Chairman of the Board Title:
-----------------------------
ATTEST: ATTEST:
--------------------------- -----------------------------
(Signature) [ILLEGIBLE] (Signature) [ILLEGIBLE]
----------------------- ------------------------
</TABLE>
17
<PAGE> 18
AGREEMENT FOR PURCHASE OF STOCK
This Agreement for Purchase of Stock (the "Agreement") is made and
entered into this 6th day of March, 1987, by and between E.F.B.T., AG., of
Giubiasco, Switzerland, a Swiss corporation ("EFBT") and Il Fornaio (America)
Corporation, a California corporation ("Company") of San Francisco, California,
U.S.A.
1. issuance of Stock
In consideration of the Revised License Agreement between the Company
and Veggetti S.r.l. of Milan, Italy ("Veggetti") and the release of the Company
from various claims that Veggetti might otherwise have made under the License
Agreement made and entered into on January 26, 1981 between Veggetti and The
Salad Store, Inc., a California corporation, which had been previously assigned
to the Company, the Company hereby agrees to issue EFBT, a subsidiary of
Veggetti, 82,155 shares of common stock of the Company, which shall constitute
at least five percent of the issued and outstanding shares of capital stock of
the Company as of the date of this Agreement after giving effect to the
contemplated reorganization in March, 1987, which will involve an investment in
the Company of $2,700,000 (U.S.). Such reorganization is outlined in the
attached Exhibit "A."
<PAGE> 19
2. Financial Information
Until the earlier of (a) the fourth anniversary of this Agreement, or
(b) the date on which a registration statement of the Securities Act of 1933,
as amended, with respect to a public offering of the Company's equity
securities has been filed with the Securities and Exchange Commission or any
successor agency or body performing similar functions, or (c) the consummation
of (i) any merger or consolidation between the Company and any other
corporation which is not prior to that time an affiliate of-the Company, (ii)
the sale, lease, or exchange or all or substantially all of the assets of the
Company to or with any person, or (iii) the acquisition by any person or
persons of securities representing (or which would represent, upon exercise of
any conversion rights, warrants, options or other rights pertaining thereto or
issued in connection therewith) more than fifty percent of the voting power of
the Company, whether such securities are acquired upon issuance by the Company
or by transfer from a holder thereof, the Company shall allow representatives
of EFBT, after a reasonable notice to the Company, to inspect during normal
business hours such financial reports and other information that may be
reasonably requested, provided that t he person inspecting such financial
information executes a confidentiality and non-disclosure agreement in a form
that may be reasonably requested by the Company.
2
<PAGE> 20
3. Governing Law
This Agreement shall be construed under and in accordance with the
laws of the State of California, U.S.A.
4. Modification; Waiver
No modification or waiver of any provision of this Agreement or
consent to departure therefrom, shall be effective unless in writing and
approved by the Company and EFBT.
5. Successors and Assigns
All covenants and agreements of the parties contained in this
Agreement shall be binding upon and inure to the benefit of their respective
successors and assigns.
6. Further Assurances
The Company and EFBT agree to cooperate fully in taking such further
actions and executing all such further instruments and documents as either
party may reasonably request in order to carry out the transactions contemplated
by this Agreement.
7. Entire Agreement
This Agreement, including exhibits, contains all the terms
and conditions agreed upon by the parties relating to the subject matter of
this Agreement and supercedes all prior and contemporaneous agreements,
negotiations, correspondence, undertakings and communications of the parties,
whether oral or written, respecting that subject matter.
3
<PAGE> 21
8. Severability
In the event that one or more of the provisions contained in this
Agreement or any document executed in connection herewith should be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provision contained therein shall not in any
way be affected thereby.
IN WITNESS WHEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE
EXECUTED AND EFFECTIVE AS OF THE DATE FIRST ABOVE WRITTEN.
IL FORNAIO (AMERICA) CORPORATION
By: /s/ LAURENCE B. MINDEL
------------------------------------
Laurence B. Mindel, President
Date: March, 6, 1987.
E.F.B.T., A.G.
By: /s/ CARLO VEGGETTI
------------------------------------
Carlo Veggetti
Title:
Date: 20/3, 1987.
4
<PAGE> 22
February 25, 1987
IL FORNAIO (AMERICA) CORPORATION
Pro Forma Capitalization
After Proposed Reorganization
<TABLE>
<CAPTION>
Number
of Shares Percentage
--------- -----------
<S> <C> <C>
(1) Existing Common Stock 129,921
(includes 8,055 shares of
Common Stock issued upon
conversion of Class B
Common Stock)
(2) Conversion of debentures 92,593
into Common Stock
(3) Class B Common Stock 0
(4) Class C Common Stock 1,000
(5) Series A Preferred Stock 55,814
--------- ---
SUBTOTAL 279,328 17%
(6) Veggetti (Common Stock) 82,155 5
(7) Mindel (Common Stock) 657,243 40
(8) Series B Preferred Stock 542,225 33
($4.6106 per share)
(9) Management Stock (Common Stock) 82,155 5
--------- ---
1,643,106 100%
</TABLE>
Note: In addition to the above, there are outstanding, or shortly will be
issued, warrants to purchase up to 5% of the Common Stock of the Company at
$4.6106 per share.
5
<PAGE> 23
AGREEMENT RE LICENSE AND PURCHASE OF STOCK
This Agreement Re License (the "Agreement") is made and
entered into this day of , 1987 by
and between Veggetti S.r.l. of Milan, Italy ("Veggetti") and Il Fornaio
(America) Corporation, a California corporation ("Company") of San Francisco,
California, U.S.A.
1. Revised License Agreement
The parties hereby terminate and cancel the license agreement made and
entered into on January 26, 1981 between Veggetti and The Salad Store, Inc., a
California corporation (the "License Agreement"), which has been previously
assigned to the Company. In lieu and in replacement of said License Agreement,
the parties hereby enter into the revised license agreement that is attached as
Exhibit A and incorporated herein (the "Revised License Agreement").
2. Stock Purchase Agreement
Veggetti declares that the right to participate in the capital of the
Company will be executed by a Company controlled and named "EFBT-Einrichtungen
Fuer Baeckereien und Tea - Rooms"
6
<PAGE> 24
A.G., based in Giubiasco, CH. ("EFBT"). Veggetti hereby represents that EFBT
is a subsidiary of the Veggetti for operations in foreign markets.
3. Release
Veggetti, on behalf of itself and its successors and assigns, hereby
releases the Company, its agents, employees, officers, and directors,
predecessors in interest and assigns, from any and all liability, damages,
causes of action, whether known or unknown, that arise out of or in any way
relate to the License Agreement, except to the extent such matters are included
in the Revised License Agreement. Veggetti hereby represents and warrants that
it is fully entitled to give this complete release and discharge.
4. Shareholders' Agreement
The Shareholders' Agreement between Veggetti and various other
shareholders date January 26, 1981, is hereby cancelled in its entirety.
TO BE EXECUTED AND EFFECTIVE AS OF THE DATE FIRST ABOVE WRITTEN.
7
<PAGE> 25
IL FORNAIO, (AMERICA) CORPORATION
By: /s/ LAURENCE B. MINDEL
-------------------------------
Laurence B. Mindel, President
Date: March 6, 1987
VEGGETTI,
By: /s/ CARLO VEGGETTI
---------------------------------
Carlo Veggetti
Title:
Date: 20/3, 1987.
8
<PAGE> 1
EXHIBIT 10.9
ASSIGNMENT OF TRADEMARK REGISTRATIONS NUNC PRO TUNC
WHEREAS, VEGGETTI S.R.L., an Italian limited liability company of Via
Raffaello Sanzio, 18, Barlassina, Milano, Italy, owns the following trademarks
which are registered in the United States Patent and Trademark Office:
<TABLE>
<CAPTION>
Reg. No. Mark Dated
<S> <C> <C>
1,234,608 IL FORNAIO (stylized) April 12, 1983
1,271,995 IL FORNAIO March 27, 1984
</TABLE>
WHEREAS, IL FORNAIO (AMERICA) CORPORATION, a California corporation,
of 1000 Sansome Street, San Francisco, CA 94111, acquired said marks on
December 11, 1986, and the registrations thereof;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, VEGGETTI S.R.L. did assign unto IL FORNAIO (AMERICA)
CORPORATION all right, title and interest in and to the said marks, together
with the goodwill of the business symbolized by the marks and the
above-identified registrations thereof.
VEGGETTI S.R.L.
Dated: 2/3/92 By [SIGNED]
------------------------ --------------------------------
Title.
State of California )
City and County of ) ss:
San Francisco )
On this 3rd day of February, 1992, before me, a notary public,
personally appeared Veggetti, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person who executed the within
instrument as ___________ or on behalf of the company therein named and
acknowledged to me that the company executed it.
[SEAL] NOTARY PUBLIC
LINDA A. COOPER
<PAGE> 1
EXHIBIT 10.10
COMMERCIAL LEASE
LANDLORD: COWPER SQUARE PARTNERS, a California limited
partnership
TENANT: IL FORNAIO (AMERICA) CORPORATION, a
California corporation
<PAGE> 2
COMMERCIAL LEASE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. LEASE ........................................................ 1
2. PREMISES ..................................................... 1
2.1 Ownership ........................................... 1
2.2 Premises ............................................ 1
2.3 Additional Space .................................... 1
2.4 Courtyard and Sidewalk Areas ........................ 2
3. USE .......................................................... 2
4. TERM ......................................................... 2
5. RENTAL ....................................................... 3
5.1 Minimum Rent ........................................ 3
5.2 Cost of Living Adjustment ........................... 3
5.3 Partial Months ...................................... 4
5.4 Percentage Rent ..................................... 4
5.5 Late Charge ......................................... 8
6. PAYMENT OF RENTAL ............................................ 8
7. TAXES AND ASSESSMENTS ........................................ 8
7.1 Personal Property Taxes ............................. 8
7.2 Real Property Taxes ................................. 9
7.3 Tax Disputes ........................................ 9
7.4 Payment ............................................. 10
8. FIXTURES AND EQUIPMENT ....................................... 10
9. BUSINESS HOURS ............................................... 10
10. OPERATION OF TENANT'S BUSINESS ............................... 10
11. USES PROHIBITED .............................................. 11
11.1 General ............................................. 11
11.2 Toxic Materials ..................................... 12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
12. ASSIGNMENT AND SUBLETTING .................................... 12
12.1 Restriction ......................................... 12
12.2 Procedures .......................................... 12
12.3 Reasonable Consent .................................. 12
12.4 Release of Tenant ................................... 13
12.5 Sale of Stock ....................................... 13
12.6 Assumption of Obligations ........................... 13
12.7 Consent by Westinghouse ............................. 13
13. INSOLVENCY ................................................... 13
14. ALTERATIONS .................................................. 14
15. ABANDONMENT .................................................. 14
16. INDEMNIFICATION .............................................. 14
17. UTILITIES .................................................... 15
18. REPAIRS ...................................................... 15
18.1 Tenant's Obligations ................................ 15
18.2 Landlord's Obligations .............................. 16
19. LIENS ........................................................ 16
20. ENTRY BY LESSOR .............................................. 16
21. COMPLIANCE WITH GOVERNMENTAL REGULATIONS ..................... 16
22. INSURANCE .................................................... 17
22.1 Premises ............................................ 17
22.2 Building ............................................ 18
23. DEFAULT ...................................................... 18
24. AS-IS CONDITION OF PREMISES .................................. 19
25. EXTERIOR COMMON AREAS ........................................ 19
25.1 Description ......................................... 19
25.2 Maintenance Obligation .............................. 19
</TABLE>
iii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
25.3 Use ................................................. 20
25.4 Rules ............................................... 20
26. SUBORDINATION ................................................ 20
27. TENANT'S CERTIFICATE ......................................... 20
28. ATTORNEYS' FEES .............................................. 21
29. SIGNS ........................................................ 21
30. AWNING, CANOPY ............................................... 21
31. HOLDING OVER ................................................. 21
32. DESTRUCTION .................................................. 22
32.1 Premises ............................................ 22
32.2 Building ............................................ 22
32.3 Uninsured Casualty .................................. 23
32.4 Damage Near End of Term ............................. 23
33. EMINENT DOMAIN ............................................... 24
34. ENJOYMENT .................................................... 24
35. WAIVER ....................................................... 24
36. REMEDIES CUMULATIVE .......................................... 24
37. WAIVER OF SUBROGATION ........................................ 25
38. BURGLAR ALARM ................................................ 25
39. NOTICES ...................................................... 25
40. CALIFORNIA LAW ............................................... 25
41. INVALIDITY ................................................... 25
42. LANDLORD AND TENANT .......................................... 25
</TABLE>
iv
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
43. CAPTIONS ..................................................... 25
44. TIME ......................................................... 25
45. SUCCESSORS AND ASSIGNS ....................................... 25
46. BROKERAGE .................................................... 26
47. PARKING ...................................................... 26
48. NO JOINT VENTURE INTENDED .................................... 26
49. OPTIONS TO EXTEND ............................................ 26
49.1 Options ............................................. 26
49.2 Adjustments ......................................... 27
50. SHARED EXPENSES .............................................. 27
51. RELATED TRANSACTIONS ......................................... 27
51.1 Option to Purchase .................................. 27
51.2 Catering Service .................................... 27
52. SALE BY LANDLORD ............................................. 28
53. FORCE MAJEURE ................................................ 28
54. TENANT REPRESENTATIONS ....................................... 28
55. CONDITIONS TO LEASE .......................................... 28
56. INITIAL IMPROVEMENT OF PREMISES .............................. 29
56.1 Working Drawings and Permits ........................ 29
56.2 Construction ........................................ 29
</TABLE>
v
<PAGE> 6
EXHIBITS
Exhibit A - Plat Maps
Exhibit B - Legal Description
vi
<PAGE> 7
COMMERCIAL LEASE
THIS LEASE is made this day of December, 1988, by and between
COWPER SQUARE PARTNERS, a California limited partnership ("Landlord"), and IL
FORNAIO (AMERICA) CORPORATION, a California corporation ("Tenant").
1 LEASE. Landlord hereby leases to Tenant and Tenant hires from
Landlord those Premises described below in Section 2.2 in accordance with the
following terms and conditions.
2 PREMISES.
2.1 Ownership. Landlord represents that it is the owner in fee
of all that certain real property and interests in real property located in the
City of Palo Alto and the County of Santa Clara, State of California, shown on
the plat attached hereto marked Exhibit "A" and made a part hereof and more
particularly described in Exhibit "B" attached hereto, and made a part hereof.
(All of said property is hereinafter referred to as "the Building".)
2.2 Premises. The Premises consist of approximately 6,725
square feet located in the Building and shown as shaded and labeled on said
Exhibit "A". Landlord reserves unto itself, however, the use of the roof,
exterior walls, the area beneath and the area above the demised premises
together with the right to install, maintain, use, repair and replace pipes,
ducts, conduits and wires leading through the demised premises in locations
which will not materially interfere with Tenant's use thereof and servicing
other parts of the Building containing the demised Premises. Landlord further
reserves the right to revise Exhibit "A" prior to commencement of Tenant's work
in the Premises, provided such changes do not materially alter the size and
dimensions of the Premises and Tenant reasonably approves such changes. Tenant
reserves the right to verify the square footage of the Premises and the accuracy
of Exhibit "A."
2.3 Additional Space. Landlord further grants to Tenant the
right to use the following areas: (a) no less than five hundred (500) square
feet of storage area in the basement that is accessible via the elevator that
services the Premises (the "Storage Area"); (b) the separate kitchen facility
that serves the Garden Court Hotel located in the Building (the "Hotel Kitchen")
subject to the mutual approval of Landlord and Tenant pursuant to Section 51.2;
and (c) approximately five hundred and seventy-five square (575) feet occupied
by the beauty salon in the Building (the "Salon Space"), provided that the Salon
Space shall not become a part of the Premises until the earlier of (i) the
expiration of the existing lease with the tenants of the Salon Space, or (ii)
the date Landlord obtains possession (for any reason) of the Salon Space. All
references in this Lease to "Premises" or "demised premises," including, without
limitation, all references in Sections 16 and 22 hereof, shall include the
Storage Area, the Hotel Kitchen and Salon Space; provided that the conditions of
(b) and (c) above are satisfied and Tenant has the right to occupy such space;
and further provided
1
<PAGE> 8
that Tenant shall not be required to pay any rent or fee for the Hotel Kitchen
nor shall the Hotel Kitchen be included for purposes of calculating Tenant's
percentage share of taxes.
2.4 Courtyard and Sidewalk Areas. Landlord grants Tenant the
exclusive right to use the courtyard area designated as such in Exhibit "A" for
restaurant use. Tenant agrees that it will stop seating new customers in the
courtyard area after 8:30 p.m. on Monday through Thursday and after 9:00 p.m. on
Friday and Saturday. The parties agree that this limitation in late seating will
only prevent new parties after the above times and Tenant may allow any
customers who are seated at the tables prior to these hours to finish their
meals and beverages. Tenant will use its best efforts to prevent loud and
unreasonable music or noise in the courtyard area. Landlord further grants
Tenant the exclusive right to use (1) the sidewalk area in front of the entrance
to the Premises on the east side of Exhibit "A" and (2) the area in the
southwest corner of Exhibit "A" for restaurant use.
3 USE. Tenant shall use and occupy the Premises solely for the
purpose of conducting therein the business of a restaurant, retail and wholesale
bakery, bar, kitchen and/or retail store offering on-sale and off-sale items
consistent with the above uses to the general public, and for no other purpose,
without the prior written consent of Landlord. Landlord hereby grants Tenant the
exclusive right to the uses described above, and will not permit any other
person to operate businesses selling similar or competitive goods or services in
the Building. Notwithstanding the foregoing, Landlord may permit another tenant
to operate a specialty wine and cheese store in the Building, provided that the
goods sold by such store do not materially conflict with the exclusive rights
granted to Tenant herein. Landlord further agrees that it will not permit any
owner, operator, agent or licensee of the hotel in the Building to provide hotel
guests with continental or other breakfast foods, except to the extent ordered
through room service operated by the hotel.
4 TERM. The term of this Lease shall be for two hundred forty
(240) months, commencing on the earlier of (a) the date that Tenant opens for
business to the public or (b) June 1, 1989, provided that the June 1, 1989 date
shall be extended by (i) the number of days, if any, between September 1, 1988
and the date when a binding and definitive lease agreement is executed by the
parties plus (ii) the number of days, if any, between March 1, 1989 and the date
when the Premises are delivered to Tenant to begin demolition and construction
activities. Notwithstanding the foregoing, if the day that the term of this
Lease commences as provided above is on a day other than the first day of a
calendar month, then the term of this Lease shall continue for the period of
months specified above from the first day of the calendar month following said
date of commencement. The parties hereto agree to sign a memorandum setting
forth the date of the commencement of the term of this Lease within thirty (30)
days after said date of commencement. If the Landlord does not make the Premises
available for Tenant to begin demolition and construction activities on or
before April 1, 1989, then Tenant may terminate this Lease, in which event
Landlord shall reimburse Tenant for all expenses for professional services
incurred by Tenant in connection with the Premises.
5 RENTAL. Tenant agrees to pay to Landlord rental for the
demised premises as follows:
2
<PAGE> 9
5.1 Minimum Rent. Minimum fixed rental in the amount of
[***], is payable on the first day of each and every successive calendar
month during the term of this Lease, each of which payments shall constitute the
minimum fixed rental for that month and shall be adjusted in accordance with
changes in the Consumer Price Index (as defined below) and supplemented by
additional percentage rentals as hereinafter set forth.
5.2 Cost of Living Adjustment. Commencing on the first day of
the Accounting Year (as defined in Section 5.4(F)) that commences more than
thirty-three (33) months after the commencement date during the term of this
Lease, and on the first day of each and every third Accounting Year thereafter
during the term of this Lease, the minimum rent shall be increased by the same
percentage that the revised Consumer Price Index for Urban Wage Earners and
Clerical Workers of the United States Bureau of Labor Statistics for all items
for the San Francisco-Oakland, California area (1982-1984 base)(the "Consumer
Price Index") most recently published as of the first day of such Accounting
Year has increased, if at all, over the Consumer Price Index most recently
published as of the first day of the prior three year period. Any such increase
shall remain in effect until such time as a further adjustment of rental is
required pursuant to the terms hereof. In no event, however, shall the minimum
monthly rental be less than that for the preceding period nor shall any such
increase be greater than eighteen percent (18%) for any thirty-six (36) month
period. In the event that said Consumer Price Index shall be discontinued, then
the successor or most nearly comparable index thereto shall be used. Landlord's
failure to make this adjustment for any Accounting Year or partial Accounting
Year shall not preclude Landlord from including the adjustment for such
Accounting Year in a later adjustment, provided Tenant receives written notice
from Landlord within three years from the date of the initial omission of the
adjustment.
5.3 Partial Months. Should the term of this Lease commence on
a day other than the first day of a calendar month, then upon the commencement
of said term Tenant shall pay unto Landlord, as the minimum fixed rental for the
fractional period of the month beginning with said day of commencement and
ending with the last day of said month, that proportion of said minimum fixed
monthly rental payable for the first full calendar month of the term of this
Lease which the number of days in the fractional period bears to thirty (30).
5.4 Percentage Rent.
(A) In the event Tenant's Gross Sales during any
Accounting Year (as defined in Section 5.4(F) below) exceeds the sum of
[***] (which amount shall be adjusted in the same manner and at the same
time as minimum rent pursuant to Section 5.2 and shall be referred to herein as
the "Breakpoint"), Tenant shall pay to Landlord at the times and in the manner
hereinafter specified, percentage rent in an amount equal to (1) the product of
(a) the Calculation Percentages (as defined hereafter) and (b) the amount of
Tenant's Gross Sales during such Accounting Year minus (2) the aggregate amount
of minimum rent paid by Tenant to Landlord during such Accounting Year pursuant
to Section 5.1 above (collectively, the "Percentage Rent").
*** Confidential treatment requested
3
<PAGE> 10
(B) The percentages to be applied to Gross Sales for
purposes of calculating Percentage Rent shall be as follows:
(1) Five percent (5%) on food and beverages sold
for consumption on the premises ("On
Premises Sales);
(2) Four percent (4%) on non-consumables and
food and beverages, including bread and
baked goods, sold for consumption off the
premises ("Off Premises Sales"); and
(3) No percentage rent (0%) shall be paid on
Intra-Company transfers.
(The percentages described in (1) and (2) shall
hereafter collectively be referred to as the "Calculation Percentages.")
(C) Percentage Rent shall be computed and paid as
follows:
(1) Within thirty (30) days after the end of
each Accounting Quarter (as defined in
Section 5.4(F) below) during the term
hereof, Tenant shall furnish to Landlord a
statement of Gross Sales during such quarter
together with all of the information
required by Subsection 5.4(C)(2) below.
(2) Within sixty (60) days immediately following
the end of each Accounting Year during the
term hereof, Tenant shall furnish to
Landlord a statement setting forth the Gross
Sales during the preceding Accounting Year,
the aggregate of the amount of minimum rent
paid and authorized deductions, and the
Percentage Rent due for such Accounting
Year, together with payment to Landlord for
the Percentage Rent due.
(3) Tenant shall establish such accounting
procedures as are reasonably necessary to
identify and separately report On Premises
Sales and Off Premises Sales. Tenant shall
specify in each Accounting Quarter sales
statement and annual sales statement what
percentage of total Gross Sales reported
therein are from On Premises Sales and what
percentage are from Off Premises Sales. The
Calculation Percentages to be applied to the
Gross Sales during any Accounting Year shall
be applied in the same ratio as On Premises
Sales and Off Premises Sales bear to total
Gross Sales during such Accounting Year.
(4) (a) The term "Gross Sales," as used
herein (subject to the exceptions
and authorized deductions that are
hereinafter set
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<PAGE> 11
forth), is defined as the gross
selling price, whether for cash,
credit or otherwise, of all sales
of retail merchandise or services,
the entire amount of the rental or
other charges for all items leased
or rented, and all other receipts
whatsoever of all business
conducted on or from the Premises,
minus the following:
(i) The amount of any sales
tax or any excise or other
tax on gross sales paid by
Tenant to any governmental
authority;
(ii) The amount of any actual
refunds or credits made by
Tenant to a purchaser for
return merchandise or
unacceptable services, the
amount of which previously
were included in Gross
Sales;
(iii) Receipts from vending
machines; and
(iv) Credit card fees.
(b) Gross Sales shall not include the
following:
(i) Meals provided to
employees;
(ii) Promotional or
complimentary meals;
(iii) "Intra-Company transfers,"
which shall refer to items
transferred from the
premises to another
location owned or operated
by Tenant or an affiliate
or franchisee of Tenant;
(iv) Tips and gratuities;
(v) Wholesale sales (except to
the extent required by
Section 5.4(C)(4)(c)
below); and
(vi) Catering sales to the
hotel.
(c) Gross Sales shall include all
retail sales from the bakery, and
Tenant agrees that at least twenty
percent (20%) of the total retail
and wholesale sales directly from
the bakery (excluding any
Intra-Company transfers) shall be
included as Gross Sales, despite
the fact that this might require
the inclusion of a portion of
bakery wholesale sales if the
wholesale revenue
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becomes greater than 80% of the
total bakery sales.
(D) Each statement of Gross Sales furnished by Tenant
pursuant to the above paragraphs shall be certified as correct by Tenant or an
employee or agent of Tenant authorized so to certify and shall show the
computations of Tenant's Gross Sales, On Premises Sales and Off Premises Sales.
Tenant shall keep and maintain full, complete and accurate books of accounts and
records of the Gross Sales, On Premises Sales, Off Premises Sales and business
relating to the Premises in accordance with standard accounting practices
consistently applied, which books and records shall be readily accessible to and
open for inspection by Landlord, its auditors or other authorized
representatives at all reasonable times upon reasonable advance notice from
Landlord. Copies of all sales and other excise tax reports that Tenant may be
required to provide to any governmental authority shall be provided to Landlord
upon Landlord's written request and shall also be open for inspection by
Landlord, its auditors or other authorized representatives at all reasonable
times at Tenant's corporate headquarters.
(E) Not more than once each Accounting Year, Landlord
shall have the right to audit and examine the books and records of Tenant as
necessary for proper determination of the amount of Gross Sales, and all such
books and records shall be made available for such purpose at Tenant's corporate
headquarters upon reasonable advance notice from Landlord. Tenant shall retain
and preserve books and records on which any statement of Gross Sales is based
for a period of at least two (2) years after such statement is rendered. Such
records shall include all sales records which would normally be examined by an
independent accountant pursuant to accepted auditing standards in performing an
audit of Tenant's sales at the Premises. If any statements of Gross Sales
previously made by Tenant to Landlord for the Accounting Year shall be found in
an audit conducted by or for Landlord to be more than five percent (5%) less
than the actual amount of Gross Sales for such period, Tenant shall promptly pay
to Landlord the costs of such audit as well as the additional Percentage Rent
therein shown to be payable by Tenant; otherwise the costs of such audit shall
be paid by Landlord. If the audit proves that the Gross Sales are incorrect by
less than the above 5%, Tenant shall only pay the additional Percentage Rent, if
any, due Landlord. In the event there is found to be any excess payment by
Tenant, Landlord shall credit such amount to the next installment of fixed
monthly minimum rent due from Tenant or if no further such installments are due,
Landlord shall promptly return such amount to Tenant. Landlord shall provide a
copy of all working papers and audit records to Tenant regardless of whether the
audit is completed. If at any time Tenant shall cause an audit of Tenant's
business at the Premises to be made by a certified public accountant, Tenant
shall, without cost or expense to Landlord, furnish Landlord with a copy of such
audit.
(F) For the purpose of this Lease, "Accounting
Quarter" shall be defined as the quarterly time period beginning on the Tenant's
first day of its fiscal year (the day following the last Sunday in May) and
continuing for thirteen (13) weeks, with each successive thirteen-week quarter
to be considered an Accounting Quarter; and "Accounting Year" shall be defined
as Tenant's fiscal year which is each approximate twelve-month period during the
term hereof ending on the last Sunday in May, provided that the first Accounting
Year shall commence upon the commencement
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<PAGE> 13
of the term hereof and shall end on the last Sunday in May following the
commencement date, and the last Accounting Year shall end upon expiration of the
term hereof. The Breakpoint shall be prorated to reflect partial Accounting
Years at the beginning and end of Tenant's occupancy of the premises. In the
event Tenant changes its Accounting Quarter or the day on which the Accounting
Quarter ends, Tenant and Landlord shall equitably adjust the Accounting Year,
the dates upon which it ends, and the due dates of all statements and payments
due Landlord herein.
(G) The acceptance by Landlord of any moneys paid to
Landlord by Tenant as additional rental for the Premises as shown by any
statement furnished by Tenant shall not be an admission of the accuracy of said
statement or of any of the monthly statements furnished by Tenant during the
year reported therein, or of the sufficiency of the amount of said additional
rental payment and Landlord reserves all right to question the sufficiency of
the amount thereof and/or the accuracy of the statement or statements furnished
by Tenant to justify the same.
5.5 Late Charge. In the event Tenant assigns its interest in
the Lease where Landlord's consent is required pursuant to Section 12, a late
charge will become enforceable with respect to the new tenant and any of its
successors and assigns. If and when minimum monthly rent or Percentage Rent is
due and payable by the successor tenant pursuant to the terms of this Lease, and
when such amount remains due and unpaid ten (10) days after said amount is due,
the amount of such unpaid rent shall bear interest at the rate of eighteen
percent (18%) from the date due until paid.
6 PAYMENT OF RENTAL. Tenant agrees to pay the rental herein
reserved at the times hereinabove set forth, without deduction or offset, in
lawful money of the United States of America, to Cowper Square Partners, c/o
Innkeeper Associates, Three China Basin, 185 Berry Street, Suite 264, San
Francisco, California, or to such other person and/or at such other place as
Landlord may from time to time designate in writing.
7 TAXES AND ASSESSMENTS.
7.1 Personal Property Taxes. Tenant agrees to pay, prior to
delinquency, any and all taxes and assessments levied or assessed during the
term hereof upon or against (i) all furniture, fixtures, equipment and any other
personal property installed or located within the Premises, (ii) all
alterations, additions or improvements of whatsoever kind or nature, if any,
made by Tenant to the Premises, and (iii) the rentals and other charges payable
hereunder by Tenant to Landlord (other than Landlord's Federal and State income
taxes thereon) provided that Tenant has received notice of such taxes or
assessments. If at any time during the term of this Lease any of such taxes or
assessments are levied or assessed upon or against the land and buildings or any
part thereof comprising the Building, Tenant shall pay to Landlord the amount
thereof, provided that Tenant has received notice of such taxes or assessments.
7.2 Real Property Taxes. Tenant agrees to pay to Landlord a
percentage (equal to the square feet for the Premises as described in
Subsections 2.2 and 2.3 divided by the total square
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<PAGE> 14
footage of the interior of the Building, which the Landlord represents to be
approximately 67,000 square feet) of all real estate taxes and assessments
levied or assessed during the term hereof upon or against the land and buildings
or any part thereof comprising the Building; provided, however, that the full
amount of any increase in real estate taxes directly attributable to the
renovation, refurbishment or improvement of the Building (not including the
Premises) during the term of this Lease shall be paid by Landlord and shall not
be included in the percentage paid by Tenant. Tenant further agrees to pay to
Landlord the full amount of any increase in real estate taxes (in excess of the
taxes for the current restaurant) directly attributable to the initial
renovation completed prior to opening for business to the public and any
renovation, refurbishment or improvement of the Premises during the term of this
Lease. Said real estate taxes and assessments levied or assessed for the fiscal
tax year in which the term of this Lease commences and for the fiscal tax year
in which the term of this Lease ends shall be prorated. As used herein "taxes"
shall mean real estate taxes, assessments and special assessments imposed upon
said land or building by any governmental bodies or authorities including, by
way of illustration and not by way of limitation, real and personal property
taxes payable by Landlord and any tax (other than a tax related to net profit or
profits) levied wholly or partially in lieu of real or personal property taxes.
Notwithstanding the foregoing provisions of this Section 7.2, however, in the
event that real estate taxes on the Building are increased during the term of
this Lease due to any sale or transfer of the Building by Landlord, Tenant shall
not be obligated to pay any increases in real estate taxes occurring as a result
of such sale. Any increase in taxes attributable to such events shall not be the
obligation of Tenant.
7.3 Tax Disputes. In the event Landlord contests any real
estate taxes or assessments levied or assessed during the term hereof upon or
against said Building and/or land, Tenant agrees to pay to Landlord the
percentage set forth in Section 7.2 hereof of all reasonable costs incurred by
Landlord in connection therewith.
7.4 Payment. Landlord shall have the right to bill Tenant for
any amount payable by Tenant to Landlord under this paragraph in periodic
installments, from time to time, but not more often than monthly. In the event
the amount of the real estate taxes and assessments for any fiscal tax year upon
or against the Building containing the Premises and the land underlying said
Building has not been made known to Landlord by the assessor at the time of
billing, Landlord shall have the right to estimate the amount thereof and to
base its billing to Tenant upon said estimated amount and in such event Landlord
agrees to adjust such billing when the actual amount of such real estate taxes
and assessments is made known to Landlord by the assessor. The failure of Tenant
to pay any amount payable to Landlord under this paragraph within ten (10) days
after receipt by Tenant from Landlord of a bill therefor shall carry with it the
same consequences as failure to pay any installment of rental. Notwithstanding
the foregoing, Tenant shall be billed periodically for real estate taxes at an
accrual rate that shall not exceed the real estate taxes for the previous year;
provided, however, in the event Landlord receives notification of a supplemental
increase in real estate taxes, Tenant shall be billed for such increase at that
time.
8 FIXTURES AND EQUIPMENT. Tenant agrees to provide, install and
maintain in the Premises, at its own cost and expense, all suitable furniture,
fixtures, equipment and other
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<PAGE> 15
personal property reasonably required for the conduct of Tenant's business
therein in a good and businesslike manner in accordance with plans and
specifications approved in writing by Landlord prior to installation.
Notwithstanding the foregoing, Landlord shall provide, at no cost to Tenant, all
furniture, fixtures, equipment and governmental permits used in the operation of
the restaurant that was located at the Premises. Any chairs provided by Landlord
that are not used in Tenant's business within a reasonable time after the
Commencement Date shall revert to Landlord, who shall remove the same at its
sole cost and expense. In the event of an assignment of Tenant's interest
pursuant to Section 12, the successor tenant(s) shall at all times keep the
Premises in first class condition, replacing carpeting, painting and wall
covering when necessary; provided, however, that no such obligation shall apply
during the final five (5) years of the Lease term.
9 BUSINESS HOURS. Tenant covenants that throughout the entire
term of this Lease, Tenant will use its best efforts to be open for breakfast,
lunch and dinner, Monday through Friday, dinner on Saturday and breakfast on
Sunday. In addition to such business hours, Tenant may remain open at such
additional times as Tenant shall determine. The provisions of this Section 9
shall not apply if the Premises shall be temporarily closed on account of
strikes, lockouts, damages, shortages, construction or causes beyond the
reasonable control of Tenant.
9
<PAGE> 16
10 OPERATION OF TENANT'S BUSINESS. Tenant shall maintain all
wall, floor and ceiling coverings, furnishings, fixtures and merchandise in a
clean, neat and orderly state of repair. Tenant agrees to perform the following
at its own expense: (i) Tenant shall employ a pest control agency, duly licensed
by the State of California, to provide service regularly and as necessary for
the purpose of preventing and/or eliminating rodents and pests from the
premises; (ii) Tenant shall retain a dependable bonded degreasing service on a
regular basis and as needed throughout the term to clean and degrease Tenant's
entire kitchen area, ranges, cooking equipment, broilers, stoves, hoods, fans,
exhausts and blower systems, filters and flue stacks, whether or not within the
Premises; (iii) Tenant shall maintain all Tenant's motors and blowers, whether
or not within the Premises, in such a manner as not to transmit unreasonable
noises or vibrations to other parts of the Building or transmit noxious
emissions directly into the Building; (iv) Tenant shall at all times maintain a
state of cleanliness throughout the premises in accordance with standards
established by any health department having jurisdiction over the premises or
Tenant's operation therein; (v) Tenant shall clean the grease trap for the
Premises; and (vi) Tenant shall provide suitable receptacles for garbage and
garbage procedures eliminating all garbage from the Premises at least once
daily. The collection of garbage shall be arranged by Tenant at Tenant's
expense. Any spillage of garbage shall be immediately cleaned by Tenant.
11 USES PROHIBITED.
11.1 General. Tenant shall not use, or permit the Premises or
any part thereof to be used, for any purpose other than the purpose for which
said Premises are hereby leased, and no use shall be made or permitted to be
made of said Premises, nor acts done therein, which will increase the then
existing rate of insurance upon the Building or cause a cancellation of any
insurance policy covering said Building, or any part thereof, nor shall Tenant
sell, or permit to be kept, used or sold, in or about said Premises, any article
which may be prohibited by the standard form of fire insurance policy. Tenant
shall, at its sole cost and expense, comply with any and all requirements,
pertaining to said Premises, of any insurance organization or company, necessary
for the maintenance of reasonable fire and public liability insurance, covering
said Building and appurtenances. Tenant shall not conduct or permit to be
conducted any sale by auction or any liquidation, going out of business, fire or
bankruptcy sale in the Premises. Tenant shall not commit, or suffer to be
committed, any waste upon the Premises. Tenant shall not create a nuisance or do
any other act or thing in or about the Premises which may unreasonably disturb
the quiet enjoyment of any other tenant in the Building.
11.2 Toxic Materials. Except for conditions or hazardous
wastes that may exist on the Premises prior to the Commencement Date which shall
be the sole responsibility of the Landlord, Tenant shall comply at its own cost
with all laws pertaining to the creation, generation, use, emission, disposal,
or release on the Premises of any toxic or hazardous gaseous, liquid or solid
material or waste ("Toxic Material"), including without limitation, material or
substance which is listed on any of the Environmental Protection Agency's lists
of hazardous wastes or which are identified in Sections 66680 through 66685 of
Title 22 of the California Administrative Code as the
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same may be amended from time to time. Tenant shall indemnify and hold Landlord
harmless from any claims, liabilities, costs, or expenses incurred or suffered
by Landlord arising from the breach of this section of the Lease. Subject to the
foregoing, Landlord acknowledges that Tenant will be utilizing charcoal,
firewood and other cooking fuels on the Premises.
12 ASSIGNMENT AND SUBLETTING.
12.1 Restriction. Tenant shall not voluntarily or by operation
of law, sell, assign, sublet, encumber, pledge or otherwise transfer or
hypothecate any interest in or rights with respect to Tenant's leasehold estate
hereunder (collectively, "Assignment") without Landlord's prior written consent
in each instance.
12.2 Procedures. If Tenant desires at any time to enter into
an Assignment of this Lease of all or any portion of the Premises, Tenant shall
first give notice to Landlord of its desire to do so, which notice shall contain
(i) the name and address of the proposed assignee, (ii) the nature of the
proposed assignee's business to be carried on in the premises, (iii) the terms
and provisions of the proposed Assignment and (iv) such financial information as
Landlord may reasonably request concerning the proposed assignee. Landlord shall
consent or object to the proposed Assignment in writing within fifteen (15)
business days of receipt of notice from Tenant. If Landlord objects to the
proposed Assignment, Landlord must state the basis of its objection. Tenant may,
within ninety (90) days after Landlord's consent, but not later than the
expiration of such ninety (90) days, enter into an Assignment upon substantially
the same terms and conditions set forth in the notice furnished by Tenant to
Landlord pursuant to Section 12.2.
12.3 Reasonable Consent. Landlord agrees that its consent to a
proposed assignment shall not be unreasonably withheld. The parties hereby agree
that it shall be reasonable for Landlord to withhold its consent to a proposed
Assignment based on any of the following factors:
(A) The use of the Premises by the proposed assignee
will not comply with the use of the premises in accordance with the provisions
of Section 3; or
(B) The proposed assignee lacks sufficient business
reputation or experience to operate a successful business of the type and
quality permitted or required under the lease;
(C) The percentage rental that Landlord reasonably
anticipates receiving from the proposed assignee is materially less than that
which Landlord has received from Tenant during the twelve (12) months prior to
the proposed assignment; or
(D) Tenant is in default under the Lease.
12.4 Release of Tenant. In the event an Assignment or other
transfer is made pursuant to this Section 12 as to which Landlord is required to
consent, Tenant shall be released from
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<PAGE> 18
all obligations and liabilities accruing under this Lease subsequent to the
effective date of such Assignment or other transfer. The consent by Landlord to
any Assignment shall not relieve the successor tenant from the obligation to
obtain Landlord's express consent to any other Assignment. Any Assignment that
fails to comply with this Section 12 shall be void.
12.5 Sale of Stock. Any sale or other transfer, whether
voluntary or by operation of law, of voting stock of Tenant, if Tenant is a
corporation, or the transfer of a partnership interests in Tenant, if Tenant is
a partnership, shall not be considered an Assignment for purposes of this
Section 12.
12.6 Assumption of Obligations. Each assignee shall assume all
obligations of Tenant under this Lease; provided, however, that the assignee,
sublessee or other transferee shall be liable to Landlord for rent and
additional charges only in the amount set forth in the Assignment.
12.7 Consent by Westinghouse. As a condition of continuing
Westinghouse Credit Corporation's ("WCC") non-disturbance clause, in the event
of a proposed Assignment, WCC, as long as it is the mortgagee of the Building,
reserves the right to approve any Assignment. WCC shall be subject to all the
restrictions and procedures imposed upon Landlord in this Section 12.
13 INSOLVENCY. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant: the making
by Tenant of any general assignment or general arrangement for the benefit of
creditors; or the filing of any action by or against Tenant under any
insolvency, bankruptcy, reorganization, moratorium, or other debtor relief
statute, whether now or hereafter existing (unless, in the case of such action
taken against Tenant, the same is dismissed within sixty (60) days); or the
appointment of a trustee or a receiver to take possession of substantially all
of Tenant's assets located at the premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty (30) days; or the admission by
Tenant in writing of the inability to pay its debts as they become due.
14 ALTERATIONS. Tenant shall not make, or suffer to be made, any
change in Tenant's store front or any other alteration, addition or improvement
to the Premises, or any part thereof, without the written consent of Landlord
having been first had and obtained, which consent shall not be unreasonably
withheld. Landlord's consent shall not be required to alterations, improvements
or additions, the cost of which does not exceed $10,000, which amount shall be
increased by any increase in the Consumer Price Index (as defined in Section 5.2
hereof) during the term of the Lease, and which do not materially affect the
structural portions of the Building or the exterior appearance of the premises
or the Building. Any such changes, alterations, additions and improvements shall
be done solely in accordance with plans and specifications approved in writing
by Landlord prior to the commencement of any work. Tenant agrees that all
alterations, additions or improvements of whatsoever kind or nature made by it
to the Premises, other than trade fixtures and equipment, shall belong to and
become the property of Landlord upon the expiration of the term
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<PAGE> 19
of this Lease or sooner termination hereof. Landlord shall have the right to
post and keep posted on the Premises any notices of non-responsibility that may
be proper for Landlord's protection.
15 ABANDONMENT. Tenant shall not vacate or abandon the Premises
at any time during the term hereof; and if Tenant shall abandon, vacate or
surrender said Premises, or be dispossessed by process of law, or otherwise, any
personal property belonging to Tenant and left on said premises shall be deemed
to be abandoned, at the option of Landlord, or Landlord may store the same in
the name and at the cost of and without notice to Tenant.
16 INDEMNIFICATION. Tenant hereby waives any claim against
Landlord for and shall hold and save Landlord harmless from and defend Landlord
against any and all loss or damage which may be occasioned to any goods, wares
or merchandise, effects or property of any and all kinds or character, whether
belonging to Tenant or any other person or persons whomsoever, in or upon the
Premises, and further agrees to hold and save Landlord harmless from and defend
Landlord against any and all loss or damage or claim therefor arising from
personal injuries received by or death caused to any person or persons
whomsoever, including Tenant, in or upon the Premises, and further agrees that
acceptance of possession of the Premises by it shall conclusively establish that
the Premises and said appurtenances are delivered in a safe and tenantable
condition, and all dangerous places and defects in and upon the Premises are to
be remedied and made secure and kept in such condition by Tenant. The
indemnification and waiver set forth in this Section 16 of Landlord by Tenant
shall exclude negligence, intentional acts or omissions by Landlord, Landlord's
agents and latent defects in the Premises not discoverable upon reasonable
inspection by Tenant. The maintenance of insurance in accordance with the terms
of Section 22 hereof in no way releases Tenant's liability for indemnification
hereunder, to the extent such insurance coverage is not sufficient to discharge
Tenant's indemnity obligations hereunder.
17 UTILITIES. All water, electricity, power or other public
utilities used upon or furnished to the Premises and any sewer charges shall be
paid for by Tenant, provided the Premises are separately metered. Tenant shall
also pay its share of utilities used on the Premises (other than the Hotel
Kitchen) even if not separately metered provided such consumption can be
determined with reasonable accuracy by an independent engineer. Notwithstanding
the foregoing, Landlord shall pay for all utility charges for the Hotel Kitchen,
regardless of whether such utilities are separately metered. Landlord will
provide but not pay for hot water for heating and condenser water for cooling
the Premises. Landlord shall pay for all costs and expenses of operating
(excluding gas, electricity or other utility costs that are paid by Tenant
pursuant to the first two sentences of this Section), maintaining, repairing and
replacing the boiler, cooling tower, primary circulation system and all other
utility systems (except the fan coil system and ducts within the Premises)
serving the Premises.
18 REPAIRS.
18.1 Tenant's Obligations. Tenant agrees to keep the Premises,
each and every part thereof, and any and all appurtenances thereto save the roof
and exterior walls (excepting therefrom
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the interior faces thereof, any glazing, show windows, doors and other
entrances, frames for any of the foregoing and store fronts) and likewise
including said excepted items, in good condition and repair during the term of
this Lease, ordinary wear and tear alone excepted, hereby expressly waiving all
rights to make repairs at the expense of Landlord as provided for in Civil Code
Sections 1941 and 1942 and or any amendment thereof or any other statute or law
which may be hereafter passed during the term of this Lease, and agrees upon the
expiration of the term of this Lease or sooner termination hereof to surrender
unto Landlord the Premises in the same condition as received and improved by
Tenant, ordinary wear and tear and damage thereto by fire, earthquake, act of
God or the elements alone excepted. If Tenant fails to make said repairs in a
reasonable time period and manner, Landlord may make said repairs at Tenant's
expense, and Tenant shall reimburse Landlord within ten (10) days after receipt
by Tenant of a bill therefor.
18.2 Landlord's Obligations. Subject to the provisions of
Sections 32 and 33 hereof, Landlord shall during the term of this Lease keep in
first class order, condition and repair the foundations, the exterior surfaces
of exterior walls and surfaces of the Premises (excepting therefrom the interior
faces thereof, any glazing show windows, doors and other entrance frames for any
of the foregoing and storefronts), downspouts, gutters and roofs of the
buildings, except for any damage thereto caused by any negligent act or omission
of Tenant or its agents, employees, or invitees and except for reasonable wear
and tear; provided, however, that Landlord shall have no obligation to make
repairs of which Landlord is unaware until a reasonable time after the receipt
by Landlord of written notice of the need for repairs. Tenant waives the
provisions of any law permitting Tenant to make repairs at Landlord's expense.
19 LIENS. Tenant shall keep the premises and the Building in
which the Premises are situated, free from any liens arising out of any work
performed, materials furnished, or obligations incurred by or for Tenant and
shall remove the lien or post a lien release bond within thirty (30) days of
Tenant's receipt of written notice of the filing of the lien, and shall
reimburse Landlord for all costs and expenses, if any, which may be incurred by
Landlord by reason of the filing of any such liens and/or the removal of the
same, within ten (10) days after receipt by Tenant from Landlord of a bill
setting forth the amount thereof. The failure of Tenant to pay any such amount
to Landlord within said ten (10) day period shall carry with it the same
consequences as failure to pay any installment of rental.
20 ENTRY BY LESSOR. Landlord reserves and shall at any and all
times during business hours have the right to enter the Premises to inspect the
same, to submit them to a prospective purchaser or tenant, to post notices of
non-responsibility, and to alter or repair the Building, provided that such
entry does not unreasonably interfere with Tenant's business.
21 COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Landlord represents
and warrants that as of the date of execution of this Lease, the Premises and
the restaurant previously operating therein conform to all laws and ordinances,
Municipal, State and Federal, and all lawful requirements and orders of any
properly constituted Municipal, State or Federal Board or Authority. Tenant
agrees that it will comply with and conform to all laws and ordinances,
Municipal, State and
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Federal, and any and all lawful requirements and orders of any properly
constituted Municipal, State or Federal Board or Authority, present or future,
in anywise relating to the condition, use or occupancy of the Premises
throughout the entire term of this Lease. Any and all costs incurred or fines
levied against Tenant in connection with the foregoing sentence shall be paid by
Tenant, provided, however, that Tenant's obligations to correct the Premises
shall not exceed the duty to make structural repairs as described in Section
18.1 hereof. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action or proceeding against Tenant, whether Landlord
be a party thereto or not, that Tenant has violated any such law, ordinance,
requirement or order in the use of the Premises, shall be conclusive of that
fact as between Landlord and Tenant.
22 INSURANCE.
22.1 Premises. Tenant agrees to carry and keep in force during
the term, at Tenant's sole expense, comprehensive general liability insurance
including contractual liability, personal injury (libel, slander, false arrest,
wrongful eviction), and broad form property damage liability with a total limit
not less than $1,000,000 per occurrence (with an umbrella policy with limits of
$10,000,000), bodily injury and property damage combined, insuring against any
and all liability for property damage and for injuries to or death of persons
occurring in, on or about the Premises or arising out of the maintenance, use or
occupancy of the Premises. Tenant agrees that at the end of each three (3) year
period after the Commencement Date, Tenant shall adjust the minimum limits of
its liability coverage to be consistent with what is commercially reasonable for
restaurant operations similar to Tenant's. All such comprehensive general
liability insurance shall specifically insure the performance by Tenant of its
indemnity obligations under this Lease with respect to liability for injury to
or death of persons and for damage to property. Tenant shall also carry all-risk
insurance in an amount not less than ninety percent (90%) of the replacement
value of Tenant's furniture, fixtures, equipment, merchandise, inventory and
other property of Tenant on the Premises. Tenant shall also carry plate glass
insurance and workers compensation insurance as required by applicable law
during all such times. Said insurance shall be written in the joint names of
Landlord and Tenant and shall name Landlord as an additional named insured and
Westinghouse Credit Corporation as an additional insured; and Tenant agrees to
pay the premiums therefor and to deliver the policies of such insurance, or
duplicates thereof, to Landlord, and the failure of Tenant either to effect said
insurance in the names herein called for or to pay the premiums therefor or to
deliver said policies or duplicates thereof unto Landlord shall permit of
Landlord itself effecting said insurance and paying the requisite premiums
therefor, which premiums shall be repayable by Tenant unto Landlord within
thirty (30) days after receipt by Tenant from Landlord of a bill setting forth
the amount thereof.
Each insurer mentioned in this paragraph shall agree, by
endorsement upon the policy or policies issued by it, or by independent
instrument furnished to Landlord, that it will give Landlord thirty (30) days'
written notice before the policy or policies in question shall be altered or
cancelled.
22.2 Building. Landlord agrees, during the full term of this
Lease, to keep the Building insured against loss or damage due to fire in an
amount equal to one hundred percent
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(100%) of the replacement cost of said Building (exclusive of excavations,
foundations and footings) and against loss or damage due to all perils insured
against under standard endorsements usually added to fire insurance policies in
Northern California, including, without limiting the generality of the
foregoing, extended coverage, sprinkler leakage, vandalism and malicious
mischief endorsements. However, Landlord shall also have the right, but shall
not be required, to insure said Building against loss or damage due to any other
peril or perils, including earthquake, which Landlord, in Landlord's reasonable
judgment, shall deem necessary in order to assure the continuous existence of
said Building in good condition and repair. Landlord shall pay for all such
insurance and Tenant shall have no obligation to reimburse Landlord for any such
insurance expenses.
23 DEFAULT. Tenant agrees that should Tenant fail to pay rental
herein required to be paid to Landlord for a period of ten (10) days after
written notice thereof by Landlord to Tenant, or should Tenant default in the
performance of any other covenants or conditions on Tenant's part herein
contained and such default is not cured within twenty (20) days after written
notice thereof by Landlord to Tenant, or if Tenant does not commence within said
twenty (20) day period to cure said default and cure the same with all
reasonable dispatch, Landlord shall have the right to (i) terminate this Lease
and Tenant's right to possession of the Premises in which event, upon such
termination, Landlord shall have the right to recover from the Tenant (a) the
worth at the time of award of the unpaid rent which had been earned at the time
of termination; (b) the worth at the time of award of the amount by which the
minimum rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Tenant proves could have
been reasonably avoided; (c) the worth at the time of award of the amount by
which the minimum rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Tenant proves could be
reasonably avoided; and (d) any other amount necessary to compensate the
Landlord for all the detriment proximately caused by the Tenant's failure to
perform Tenant's obligations under this Lease; or (ii) have this Lease continue
in effect for so long as the Landlord does not terminate this Lease and the
Tenant's right to possession of the Premises, in which event the Landlord shall
have the right to enforce all of Landlord's rights and remedies under this
Lease, including the right to recover the rent as it becomes due under this
Lease, and Tenant shall have the right to assign Tenant's interest in this Lease
for the uses permitted hereby in accordance with Section 12.
24 AS-IS CONDITION OF PREMISES. Landlord and Tenant hereby
acknowledge Landlord is leasing the Premises to Tenant "as is" and Tenant shall
make any alterations, changes, or additions ("alterations") to the Premises at
Tenant's sole cost and expense. Tenant and its agents shall have the right to
enter the Premises prior to the commencement date during reasonable business
hours in order to inspect same and to design tenant improvements for the
premises. In carrying out any such alterations, Tenant shall comply with all
provisions of this Lease, including without limitation Tenant's insurance
obligations pursuant to Section 22 above.
25 EXTERIOR COMMON AREAS.
25.1 Description. The term "exterior common areas" shall mean
those portions of
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the Building owned or controlled by Landlord and held for the common use and
benefit of the public and all tenants and owners within the Building, all as
designated and delineated on the plat attached hereto and marked Exhibit "A" and
made a part hereof.
25.2 Maintenance Obligation. Landlord shall operate and
maintain said exterior common areas, or cause the same to be operated and
maintained, including, without limiting the generality of the foregoing, the
surface, lighting and landscaping thereof and shall keep the same as clean as
reasonably proper. Landlord shall also carry such public liability, property
damage and other insurance covering said exterior common areas in at least the
same amount as Tenant is required to maintain for similar coverage within the
Premises. Such insurance shall cover Landlord and Tenant and may cover all other
owners, tenants and occupants of the Building. Landlord's cost of operating and
maintaining the exterior common areas of the Building, including, without
limiting the generality of the foregoing, the lighting, cleaning, depreciation
on mechanical equipment, insurance, landscaping, policing, wages, supplies,
personal property taxes and real estate taxes and assessments on said exterior
common areas shall be the responsibility of Landlord, and Tenant shall have no
obligation to reimburse Landlord for such costs.
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25.3 Use. The exterior common areas of the Building shall be
available for the common use and benefit of the public and Tenant and its
customers, vendors and agents.
25.4 Rules. Tenant agrees to abide by and comply with all
rules and regulations which Landlord may from time to time promulgate pertaining
to the use of the exterior common areas by the persons referred to in Section
25.3.
26 SUBORDINATION. This Lease, at Landlord's option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation for security now or hereafter placed upon the real property of
which the Premises are a part and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof; provided that the ground lessor or lender thereunder agrees
in writing that Tenant's right to quiet possession of the Premises shall not be
disturbed if Tenant is not in default and so long as Tenant shall pay the rent
and observe and perform all of the provisions of this Lease, unless this Lease
is otherwise terminated pursuant to its terms. If any mortgagee, trustee or
ground lessor shall elect to have this Lease prior to the lien of its mortgage,
deed of trust or ground lease, and shall give written notice thereto to Tenant,
this Lease shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease is dated prior or subsequent to the date of said
mortgage, deed of trust or ground lease or the date of recording thereof. Tenant
agrees to execute any documents reasonably required to effectuate such
subordination or to make this Lease prior to the lien of any mortgage, deed of
trust or ground lease, as the case may be. Tenant shall automatically be and
become the Tenant of the successor in interest to the Landlord on the same terms
as are contained in this Lease and shall attorn to such successor thereto at the
option of such successor in interest.
27 TENANT'S CERTIFICATE. Tenant shall, without charge once during
any twelve month period, at any time and from time to time, within twenty (20)
business days after receipt by Tenant from Landlord of written request therefor
followed by a second notice addressed to the President at Tenant's address for
notice giving Tenant ten (10) days additional notice, deliver a duly executed
and acknowledged certificate to Landlord or any other person, firm or
corporation designated by Landlord, certifying: (i) that this Lease is
unmodified and in full force and effect, or if there has been any modification,
that the same is in full force and effect as modified, and stating any such
modification; (ii) whether or not there is then existing any claim of Landlord's
default hereunder and, if so, specifying the nature thereof; (iii) the dates to
which the rent and other charges payable hereunder by Tenant have been paid;
(iv) that Tenant has accepted the Premises (or if Tenant has not done so, that
Tenant has not accepted the premises and specifying the reason for not accepting
them); and (v) the commencement and expiration dates of this Lease. If Tenant
fails to execute, acknowledge and deliver any such certificate within the time
required, it shall be conclusive against Tenant that this Lease is in full force
and effect, without modification. If Landlord requests a certificate more than
once in any twelve month period, Landlord shall reimburse Tenant, for all
reasonable attorney's fees and costs.
28 ATTORNEYS' FEES. In the event that Landlord should institute
any suit against Tenant for violation of any of the covenants or conditions of
this Lease or for recovery of possession
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of the Premises, or should Tenant institute any suit against Landlord for
violation of any of the covenants or conditions of this Lease, or should either
party institute a suit against the other for a declaration of rights hereunder,
or should either party intervene in any suit in which the other is a party, to
enforce or protect its interest or rights hereunder, the prevailing party in any
such suit shall be entitled to the fees of its attorneys in the reasonable
amount thereof, to be determined by the court and taxed as a part of the costs
therein.
29 SIGNS. Any sign(s) that Tenant affixes to the exterior of the
Premises shall conform to the criteria reasonably approved by Landlord for the
size, content, design and location thereof and shall be subject to the prior
written approval of Landlord, which shall not be unreasonably withheld.
30 AWNING, CANOPY. Tenant agrees not to erect any awning, canopy
or other protruding object on any exterior wall of the demised premises without
the prior written consent of Landlord, which shall not be unreasonably withheld.
31 HOLDING OVER. Tenant shall not hold over the term hereby
created without the prior written consent of Landlord. Any holding over by
Tenant after the expiration date with the prior consent of Landlord shall be
construed to be a tenancy from month to month on all of the terms, covenants,
and conditions herein specified but at a rent equal to (a) one hundred
twenty-five percent (125%) of the minimum monthly rent in effect immediately
prior to the expiration date, provided that Landlord provides Tenant with
written notice of such increase at least thirty (30) days in advance of the date
such increase is to become effective, and otherwise at the minimum monthly rent
specified herein, plus (b) percentage rent calculated in accordance with Section
5.4 hereof, if applicable. Landlord may terminate the month to month tenancy
upon delivery of thirty (30) days written notice.
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32 DESTRUCTION.
32.1 Premises. In the event of a partial destruction of the
Premises during the term hereof, from any cause whatsoever (including, without
limitation, the causes described in Section 53 hereof), the Premises shall
forthwith be repaired provided such repairs can be made within one hundred
twenty (120) working days (unless a force majeure event occurs during such
120-day period in which event the period shall be extended pursuant to the terms
of Section 53 hereof) under the laws and regulations of State, Federal, County
or Municipal authorities, but such partial destruction shall in nowise annul or
void this Lease, except that Tenant shall be entitled to a proportionate
reduction of the minimum monthly fixed rental while such repairs are being made,
such proportionate reduction to be based upon the extent to which the making of
such repairs shall interfere with the business carried on by Tenant in the
Premises. If such repairs cannot be made in one hundred twenty (120) working
days, this Lease may be terminated at the option of either party. The
obligations of the Landlord and Tenant in connection with the repair of the
demised premises shall be as follows: Landlord shall forthwith commence and
carry to completion with all due diligence the repair of any damage or
destruction to that portion of the Premises originally constructed by Landlord
other than any work performed by Landlord on Tenant's behalf and at Tenant's
cost and expense. Tenant shall forthwith commence and carry to completion with
all due diligence the repair of any damage or destruction to the remainder of
the Premises. The portion of the proceeds of the insurance carried by Landlord
attributable to the damage or destruction of the portion of the Premises to be
repaired by Tenant, as aforesaid, shall be remitted by Landlord to Tenant. In
the event that the Building is destroyed to the extent of not less than
thirty-three and one-third percent (33-1/3%) of the replacement cost thereof,
Landlord may elect to terminate this Lease, whether the demised premises be
injured or not. In the event of any dispute between Landlord and Tenant relative
to the provisions of this paragraph, they shall each select an arbitrator, the
two arbitrators so selected shall select a third arbitrator and the three
arbitrators so selected shall hear and determine the controversy and their
decision thereon shall be final and binding upon both Landlord and Tenant, who
shall bear the cost of such arbitration equally between them.
32.2 Building. In the event that repairs made by Landlord to
the Building (without any repairs being made to the Premises) which are carried
out under the provisions of Section 32.1 hereof interfere with the business
carried on by Tenant in the Premises, Tenant shall be entitled to a
proportionate reduction of the minimum monthly fixed rental while such repairs
are being made, such proportionate reduction to be based upon the extent of such
interference; provided, further, that if it can be reasonably anticipated that
Tenant will be unable to operate in the Premises at a profit during such period
on account of such interference and the losses to be sustained by Tenant will
exceed the total minimum monthly rental payable during such period, Tenant shall
be permitted to close the business with full abatement of minimum fixed monthly
rental during the period of closure until substantial completion of said repairs
so interfering with Tenant's business. In the event of any dispute between
Landlord and Tenant relative to the provisions of this paragraph, the same shall
be determined by arbitration in the manner specified in Section 32.1 hereof and
the decision in such arbitration shall be final and binding both upon Landlord
and Tenant.
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32.3 Uninsured Casualty. In the event the Premises are damaged
by any flood, earthquake, act of war, nuclear reaction or other casualty or
event not covered in full or substantial part by Landlord's insurance, Landlord
must notify Tenant within thirty (30) days following the date of such damage of
Landlord's intent to either commence reconstruction and continue this Lease in
full force and effect, or elect not to perform such reconstruction in which
event this Lease shall terminate. In the event Landlord elects to reconstruct,
Tenant may terminate this Lease if reconstruction is reasonably expected to take
more than one hundred twenty (120) working days to complete from the date of the
casualty. If the Lease is terminated by Landlord as permitted by this subsection
32.3 and, within two (2) years following the date of such termination, Landlord
either commences reconstruction of the Building or commences the solicitation of
new tenants for the Building, Landlord shall so notify Tenant in writing, and
Tenant shall have the right and option to lease space in the Building, when
reconstructed by Landlord, comparable to the size, quality, character and finish
of the Premises (or shall have the right to lease the space comprising the
Premises if the Premises were not damaged, destroyed or taken) and otherwise
upon such terms and conditions (including rent) as are contained herein, except
the primary term of such new lease shall be equivalent to the unexpired portion
of the term of the Lease existing as of the date of termination hereof by
Landlord, and Tenant shall have the same option or options to extend such term
as remained unexercised under the original terms and conditions hereof as of the
date of termination hereof by Landlord.
32.4 Damage Near End of Term. Notwithstanding the foregoing,
should a partial or complete destruction of the Building occur during the
twenty-four months prior to the end of the second option period, Landlord shall
not be obligated to reconstruct the Building in which event either party may
terminate this Lease upon thirty (30) days written notice.
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33 EMINENT DOMAIN. Should the Premises or any portion thereof be
taken for public use by right of eminent domain with or without litigation, any
award for compensation and/or damages, whether attained by agreement prior to or
during the time of trial, or by judgment or verdict after trial, applying to the
leasehold estate created hereby (other than that portion of said award, if any,
based upon the loss of Tenant's business or a taking of Tenant's improvements or
movable trade fixtures) shall belong and be paid to Landlord, and Tenant hereby
assigns, transfers and sets over to Landlord all of the right, title and
interest which it might otherwise have therein. In the event of a taking of the
entire Premises this Lease shall automatically terminate. In the event the
portion of the Premises so taken shall be more than ten percent (10%) of the
floor area of the Premises, either party hereto shall have the option, to be
exercised by written notice given to the other party hereto within thirty (30)
days after the date of such taking, to terminate this Lease. In the event that
more than ten percent (10%) of the floor area of the Premises shall be so taken
and Tenant does not so elect to terminate this Lease, or if less than ten
percent (10%) of the floor area of the Premises is so taken, then the minimum
fixed monthly rental payable under this Lease shall be reduced in the same
proportion as the amount of said floor area is reduced by such taking and
Landlord shall make such reconstruction of the Premises as may be required to
the extent of the aforesaid award. A sale by Landlord to any governmental
authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for all purposes under this section.
34 ENJOYMENT. Landlord agrees that so long as Tenant is not in
default hereunder Tenant shall have the quiet enjoyment of the Premises without
hindrance on the part of Landlord, and Landlord will warrant and defend Tenant
in the peaceful and quiet enjoyment of the Premises against the lawful claims of
all persons claiming by, through or under Landlord.
35 WAIVER. No covenant or condition of this Lease can be waived
except by the written consent of Landlord, and forbearance or indulgence by
Landlord in any regard whatsoever shall not constitute a waiver of the covenant
or condition to be performed by Tenant to which the same may apply, and, until
complete performance by Tenant of said covenant or condition, Landlord shall be
entitled to invoke any remedy available unto it under this Lease or by law,
despite said forbearance or indulgence.
36 REMEDIES CUMULATIVE. All remedies herein conferred upon
Landlord shall be deemed cumulative and no one exclusive of the other or of any
other remedy conferred by law.
37 WAIVER OF SUBROGATION. So long as the applicable policy is not
affected and the cost thereof is not increased thereby each of the parties
hereto does hereby waive its entire right of recovery against the other for any
damages caused by an occurrence insured against by such party and the rights of
any insurance carrier to be subrogated to the rights of the insured under the
applicable policy.
38 BURGLAR ALARM. A burglar alarm system may be installed by
Tenant only in accordance with plans and specifications approved in writing by
Landlord prior to installation.
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39 NOTICES. Any notice required hereunder or by law to be served
upon either of the parties hereto shall be sufficiently served by personal
delivery, or mailing the same three business days after postmark by certified or
registered mail, return receipt requested, postage prepaid, addressed to said
office of Landlord, in the instance of Landlord, and, in the instance of Tenant,
at its corporate headquarters or to such other address as may be from time to
time furnished in writing by Landlord to Tenant, or by Tenant to Landlord, each
of the parties hereto waiving personal or any other service than as provided for
in this paragraph.
40 CALIFORNIA LAW. This Lease shall be governed by and construed
in accordance with the laws of the State of California.
41 INVALIDITY. The invalidity or unenforceability of any
provision of this Lease shall not affect the validity or enforceability of the
remainder of this Lease.
42 LANDLORD AND TENANT. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular, and the neuter shall
include the masculine and feminine genders, and if there be more than one
tenant, the obligations hereunder imposed upon the Tenant shall be joint and
several.
43 CAPTIONS. The captions of this Lease are for convenience only
and are not a part of this Lease and do not in any way limit or amplify the
terms and provisions of this Lease.
44 TIME. Time is of the essence of this Lease and each and all of
its provisions.
45 SUCCESSORS AND ASSIGNS. This Lease shall inure to the benefit
of and be binding upon the heirs, executors, administrators, successors and
assigns of the respective parties hereto, always providing that nothing in this
paragraph contained shall impair any of the provisions hereinabove set forth
inhibiting assignment without the written consent of Landlord.
46 BROKERAGE. Tenant and Landlord represent and warrant to each
other that they have had no dealings with any real estate broker or agent in
connection with the negotiation of this Lease and they know of no real estate
broker or agent who is entitled to a commission in connection with this Lease.
Tenant and Landlord each agree to indemnify and hold each other harmless from
and against any and all claims, demands, losses, liabilities, lawsuits,
judgments, costs and expenses (including reasonable attorneys' fees) with
respect to any leasing commission or equivalent compensation alleged to be owing
on account of the indemnifying party's dealings with any real estate broker or
agent.
47 PARKING. Landlord shall provide, at no cost to Tenant, a valet
parking service that will include three valet parkers on duty at all times
during lunch and dinner, and two valet parkers on duty at all times during
breakfast unless Tenant agrees, in its sole discretion, that fewer valet parkers
can provide efficient and fast parking services. The above number of valet
parkers will service the entire parking garage and will be the sole valet
parkers for the garage. In addition,
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Landlord will guarantee that Tenant will have the use of a minimum of fifty (50)
parking spaces in the structure in which the Premises are located for lunch and
dinner and twenty-five (25) spaces for breakfast. In the event that the parking
needs of the restaurant and the hotel exceed the garage's capacity, and Tenant
requests more than the minimum spaces specified in the previous sentence,
Landlord agrees to use its best efforts to obtain additional parking spaces that
are convenient to the restaurant. If the cost and terms of such additional
parking are acceptable to Tenant, Tenant will reimburse Landlord for the actual
cost of obtaining additional spaces reserved for the exclusive use of Tenant.
48 NO JOINT VENTURE INTENDED. It is expressly understood that
Landlord does not, in any way or for any purpose, become a partner of Tenant in
the conduct of Tenant's business, or otherwise, or joint venturer or member of a
joint enterprise with Tenant, and that the provisions of this Lease relating to
the payment of the annual percentage rental are included solely for the purpose
of providing a method whereby part of the rental is to be measured and
ascertained.
49 OPTIONS TO EXTEND.
49.1 Options. Tenant shall have two (2) successive options
(individually a "Renewal Option" and collectively the "Renewal Options") to
extend the term for two successive periods of five (5) years each (individually
a "Renewal Term" and collectively the "Renewal Terms"). The Renewal Options
shall be effective only if Tenant is not in default under any of the terms or
conditions of this Lease, either at the time of exercise of the Renewal Option
or the time of commencement of the Renewal Term. Each Renewal Option must be
exercised, if at all, by written notice from Tenant to Landlord given not more
than eighteen (18) months nor less than three (3) months prior to the expiration
of the term. Each Renewal Term shall be upon the same terms and conditions as
the original term, except that Section 49.2 below shall govern the calculation
of the Breakpoint. If Tenant fails to exercise a Renewal Option in a timely
manner as provided for above, the Renewal Option and any further Renewal Options
shall be void.
49.2 Adjustments. The Breakpoint for the purpose of
calculating Percentage Rent shall be an amount equal to a breakpoint of
$3,500,000 adjusted by the Consumer Price Index from the original commencement
date of this Lease to the commencement date of the Option Period.
50 SHARED EXPENSES. Landlord and Tenant agree to each bear
one-half (1/2) the cost of the liquor license that Tenant obtains for the
premises and one-half (1/2) of any payment needed to induce the current tenant
operating the Salon Space to vacate such premises on or before March 1, 1989,
provided that the negotiations with the Salon Space tenant shall be conducted
and controlled by Tenant. In the event that Landlord and Tenant satisfy
themselves within sixty (60) days of the date this Lease is signed that they can
share a liquor license under applicable law and regulations, then Landlord will
share its liquor license with Tenant and Tenant will pay up to $15,000 of
Landlord's share of any payment to the Salon Space tenant. In the event the
parties agree to share the liquor license, they will enter into an addenda
describing such sharing relationship in a manner that will satisfy the Alcohol
and Beverage Control Department of California.
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51 RELATED TRANSACTIONS. Landlord agrees to meet and confer with
Tenant at mutually convenient times between the execution of the Lease and
February 28, 1989 in a good faith effort to agree upon the following:
51.1 Option to Purchase. The price and other terms and
conditions whereby Tenant will receive an option to purchase the Building during
the term of the Lease, but in no event shall Landlord be required to agree to an
option purchase price at or below the fair market value of the Building. Tenant
understands and acknowledges that Landlord must obtain the approval of its
limited partners prior to entering into an option agreement; and
51.2 Catering Service. The terms and conditions upon which
Tenant shall have the exclusive right to procure and prepare all food for the
hotel's catering business at the kitchen door, provided that as part of such an
agreement, the Hotel Kitchen will be included in the Premises in accordance with
Section 2.3 hereof and Landlord shall provide all dishes, glassware, and
cutlery, and all service, beverage, marketing, accounting, and administrative
functions related to such catering services.
52 SALE BY LANDLORD. In the event of a sale or conveyance by
Landlord of the Building containing the Premises, the same shall operate to
release Landlord from any future liability upon any of the covenants or
conditions, express or implied, herein contained in favor of Tenant, and in such
event Tenant agrees to look solely to the responsibility of the successor in
interest of Landlord in and to this Lease. If any security be given by Tenant to
secure the faithful performance of all or any of the covenants of this Lease on
the part of Tenant, Landlord may transfer and/or deliver the security, as such,
to the purchaser of the Building, and thereupon Landlord shall be discharged
from any further liability in reference thereto.
53 FORCE MAJEURE. Any prevention, delay, or stoppage due to
strikes, lockouts, labor disputes, acts of God or Nature, governmental
restrictions, governmental regulations, governmental controls, judicial orders,
enemy or hostile governmental action, civil commotion, fire or other casualty,
and other causes beyond the reasonable control of the party obligated to
perform, shall excuse the performance by such party for a period equal to any
such prevention, delay or stoppage. Notwithstanding the foregoing (unless the
provisions of Section 32 apply or it is otherwise impossible for Tenant to
conduct business due to the acts of Landlord) the occurrence of such events
shall not excuse the obligation imposed with regard to rent and other charges to
be paid by Tenant (including abatement thereof) pursuant to this Lease, and
Tenant shall not be allowed an excuse of performance, if it is unable to timely
obtain use or building permits for the restaurant. Notwithstanding the
foregoing, if despite its good faith effort Tenant is unable to obtain both a
use and a building permit, Tenant may terminate this Lease upon written notice
delivered to Landlord. If Tenant terminates this Lease pursuant to the foregoing
sentence, Tenant shall not have the right to recover any rent paid to the
Landlord as of the termination date.
54 TENANT REPRESENTATIONS. Tenant represents and warrants to
Landlord the following: (i) Tenant is duly authorized and empowered to enter
into and perform the Lease, and (ii)
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Tenant shall not record the Lease without the prior written consent of Landlord.
55 CONDITIONS TO LEASE. It is expressly understood that this
Lease is effective only upon the satisfaction of each of the following
conditions: (i) the approval of the terms and conditions of the Lease by
Westinghouse Credit Corporation, the mortgagee of the Building. In the event
Westinghouse Credit Corporation does not approve this Lease or the initial
tenant improvements proposed by Tenant, thereby preventing Tenant from opening
for business, Landlord shall reimburse Tenant for all expenses for professional
services incurred by Tenant in connection with the Premises; and (ii) Landlord
obtains possession of the Salon Space within ninety (90) days of the date of
execution of this Lease. Pursuant to Section 50, the negotiations with the Salon
Space tenant shall be conducted by Tenant, and Landlord's share of any
settlement amount paid to the Salon Space tenant to induce it to vacate shall
not exceed $35,000. Any share of the settlement amount due Tenant from Landlord
shall be paid in the form of credit against the rental payments described in
Section 5. This Lease shall terminate if the Salon Space tenant does not vacate
within the above ninety (90) day period; provided, however, if Tenant materially
demolishes the Premises for its Tenant Improvements, this condition shall be
deemed satisfied. In the event Tenant alters the Premises (but does not
materially demolish it), and the Salon Space tenant does not vacate, the Tenant
shall restore the Premises to the same condition as received.
56 INITIAL IMPROVEMENT OF PREMISES.
56.1 Working Drawings and Permits. Prior to commencing
construction, Tenant shall provide Landlord's architect with detailed plans and
specifications (the "Working Drawings") showing the specific tenant improvements
(the "Tenant Improvements") which Tenant proposes to construct on the Premises
prior to the Commencement Date. All Working Drawings shall be subject to
Landlord's prior written approval, which approval shall not be unreasonably
withheld. Landlord shall review the same and notify Tenant of any objections
thereto within ten (10) days of receipt thereof. Tenant agrees after such
written notification to submit revised and/or corrected plans and specifications
to Landlord. Thereafter, Landlord shall notify Tenant of any objections thereto
within five (5) days of receipt thereof. Tenant shall submit all requisite
applications to obtain building permits and other required approvals for the
construction of its Tenant Improvements, and Tenant shall prosecute the same
with due diligence. Landlord shall cooperate with Tenant and provide all
reasonable information to Tenant in connection with the foregoing permit
approval process. Tenant represents and warrants that it will expend no less
than $650,000 to complete the Tenant Improvements.
56.2 Construction. During the construction of the Tenant
Improvements, Tenant will not unreasonably disturb the guests of the Garden
Court Hotel; provided, however, that Landlord acknowledges and understands the
loud and dirty nature of the required construction, and Tenant is not required
to take additional precautions or expend sums that are unreasonable given the
nature of the Tenant Improvements. In the event Tenant is prevented from
completing the Tenant Improvements by the Commencement Date because it must slow
down or reduce the construction by less than the Tenant's construction timetable
to comply with the disturbance restrictions herein,
26
<PAGE> 33
the Commencement Date will be extended one (1) day for each day of delay. Tenant
agrees to repair any structural or property damages to the Garden Court Hotel
caused by the construction of the Tenant Improvements. During the construction
of the Tenant Improvements, Tenant shall maintain insurance for the Premises
equivalent to that required in Section 22 hereof and shall maintain builder's
risk completed value coverage for 100% of the contract price, deleting all
co-insurance penalties (only if commercially reasonable), against all risks
insured against pursuant to Section 22.2 hereof. Tenant or Tenant's contractor
shall procure worker's compensation insurance and other insurance coverage
customary in the construction industry to cover all the activities of all
persons engaged in the construction of the Tenant Improvements.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals the day and year first above written.
"Landlord" COWPER SQUARE PARTNERS,
a California limited partnership
By /s/ Norman L. Rosenblatt
------------------------
Its General Partner
---------------------
"Tenant" IL FORNAIO (AMERICA) CORPORATION,
a California corporation
By /s/ Laurence B. Mindel
---------------------
Its President
---------------------
27
<PAGE> 34
Page 1 and 2 of Exhibit A
Exhibit A is a picture of a plat map depicting the real property owned by the
landlord. The premises subject to the lease, consisting of approximately 6,725
square feet, are located in the building shown by the shaded portions of the
map.
<PAGE> 35
LEGAL DESCRIPTION:
Real property situated in the city of Palo Alto, County of Sante Clara, State
of California, described as follows:
Parcel One:
Portion of Lot 4, in Block 28, as shown upon that certain Map entitled,
Original Map showing subdivision of University Park (now Palo Alto) Sante Clare
Co., California, which Map was filed for record in the Office of the Recorder
of the County of Santa Clara, State of California on February 27, 1889 in Book
D of Maps, at Page 69, and more particularly described as follows:
Commencing at a point on the Southwesterly line of Cowper Street, distant
thereon, 72.50 feet Southeasterly from the intersection thereof with the
Southeasterly line of University Avenue, running thence Southeasterly along the
Southwesterly line of Cowper Street 127.50 feet to the dividing line between
Lots 3 and 4, in Block 28 of said City thence, at right angles Southwesterly and
along the dividing line between Lots 3 and 4 in said Block, 200 feet; thence at
right angles Northwesterly and parallel to the Southwesterly line of Cowper
Street 127.50 feet; thence at right angles Northeasterly and parallel to the
Southeasterly line of University Avenue, 200 feet to the point of commencement.
Parcel Two:
A right of way over the following described parcel of land:
Commencing at a point on the Southwesterly line of Cowper Street, distant
thereon 72.50 feet Southeasterly from the intersection thereof with the
Southeasterly line of University Avenue; thence Northwesterly along the
Southwesterly line of Cowper Street 10 feet; thence at right angles
Southwesterly parallel with the Southeasterly line of University Avenue, 200
feet; thence at right angles Southeasterly parallel to the Southwesterly line of
Cowper Street 10 feet, and thence at right angles Northeasterly parallel to the
Southwesterly line of University Avenue, 200 feet is the point of commencement.
Parcel Three:
An easement for the purpose of providing underground utilities within the
following described real property.
Commencing at a point on the Southwesterly line of Cowper Street, distant
thereon 72.50 feet Southeasterly from the intersection thereof with the
Southeasterly line of University Avenue; thence Northwesterly along the
Southwesterly line of Cowper Street 10 feet; thence at right angles
Southwesterly parallel with the Southeasterly line of University Avenue, 130
feet; thence at right angles Southeasterly parallel to the Southwesterly line of
Cowper Street 10 feet, and thence at right angles Northeasterly parallel to the
Southwesterly line of University Avenue, 130 feet to the point of commencement.
APN: 120-16-72
<PAGE> 36
MEMORANDUM
On December 22, 1988 Il Fornaio (America) Corporation and Cowper Square Partner
(CSP) entered into an agreement regarding lease of space at 520 Cowper Street,
Palo Alto, California.
In accordance with paragraph 4 of that lease, the parties hereby agree that the
date of commencement of the term of the lease will be September 21, 1989.
COWPER SQUARE PARTNERS IL FORNAIO (AMERICA) CORPORATION
/s/ NORMAN L. ROSENBLATT /s/ LAURENCE B. MINDEL
- --------------------------- ---------------------------------
Norman L. Rosenblatt
General Partner Title Chairman
---------------------------
Date 11/12/89 Date 11/9/89
----------------------- -----------------------------
10/26/89
csp.246
file csp.2015
<PAGE> 37
MEMORANDUM
On December 22, 1988 Il Fornaio (America) Corporation and Cowper Square Partner
(CSP) entered into an agreement regarding lease of space at 520 Cowper Street,
Palo Alto, California.
In accordance with paragraph 4 of that lease, the parties hereby agree that the
date of commencement of the term of the lease will be September 21, 1989.
COWPER SQUARE PARTNERS IL FORNAIO (AMERICA) CORPORATION
/s/ Norman L. Rosenblatt /s/ Laurence B. Mindel
- ----------------------------- ------------------------------------
Norman L. Rosenblatt Laurence B. Mindel
General Partner Title Chairman
------------------------------------
Date 11/12/89
------------------------ Date 11/9/89
-------------------------------
<PAGE> 38
FIRST AMENDMENT OF COMMERCIAL LEASE
This AMENDMENT of lease is made on October 4, 1989, by and between
COWPER SQUARE PARTNERS, & California limited partnership ("Landlord") and IL
FORNAIO (AMERICA) CORPORATION, a California corporation ("Tenant").
R E C I T A L S
A. Landlord and Tenant entered into a written lease dated December 22,
1988 (the "Lease"), in which Landlord leased to Tenant and Tenant leased from
Landlord, premises located in the city of Palo Alto, County of Santa Clara,
State of California, consisting of 6,725 square feet located in the building
(the "Building") situated on the real property shown on the plat attached
hereto marked Exhibit "A" and made a part hereof and more particularly
described in Exhibit "B" attached hereto and made a part hereof.
B. The parties desire to amend the Lease in several respects.
NOW, THEREFORE, the parties agree as follows:
1. Expansion of Premises. The Premises under the Lease are hereby
expanded to include the dining room located on the floor above the existing
premises consisting of approximately 250 square feet, and space adjacent to the
existing premises consisting of approximately 380 square feet and outlined in
red on Exhibit "C" attached hereto and made a part hereof. Tenant shall not be
obligated to pay additional rent for such additional space unless that certain
Banquet Agreement between Landlord and Tenant dated July 24, 1989, is terminated
by Tenant. If said Banquet Agreement is terminated by Tenant, Tenant shall at
its option either vacate the 250 square feet on the floor above the existing
premises or pay to Landlord as additional monthly Minimum Rent for the expanded
premises described in this Paragraph 1 the product of $1.75 times the number of
usable square feet in the upstairs dining room, plus pro rata taxes described in
Paragraph 7 of the Lease and utilities, insurance and other expenses in
accordance with Paragraphs 17 and 22 of the Lease. Such additional rent shall be
subject to increases for cost of living adjustments in accordance with the Lease
commencing as of the date Tenant begins to pay such rent. Landlord shall make
such expanded premises available for Tenant's occupancy not later than October
1, 1989.
<PAGE> 39
2. Termination by Landlord. Landlord may terminate the Banquet
Agreement only for good cause and after Tenant has had thirty (30) days to cure
such problem after written notice (including a description of the problem with
the food or the nature of the breach) from Landlord to Tenant. For the purpose
of this paragraph only, "good cause" shall be defined as Tenant's continued
failure to provide adequate quality food in a timely manner or Tenant's
repeated and material breach of the Banquet Agreement. Any dispute regarding
the existence of good cause, Tenant's cure, or the Landlord's right to
terminate the Banquet Agreement shall be resolved by an arbitrator to be chosen
by the parties hereto. If the parties are unable to agree upon an arbitrator,
each party shall choose an arbitrator, and each arbitrator shall then choose a
third arbitrator, whose decision shall be binding upon the parties. If said
Banquet Agreement is terminated by Landlord for good cause after concurrence by
the arbitrator, beginning with the month following the full satisfaction of the
credit for prepayment of rent to which Tenant is entitled pursuant to Paragraph
3 herein, Tenant shall be obligated to pay such additional rent described in
Paragraph 1.
3. Prepayment of Rent. In consideration of the expansion of the
Premises described in Paragraph 1 hereof, Tenant agrees to advance to Landlord
up to the Sum of [ * ] for purposes of improving the ground floor of the
Building as hereinafter described. Such advances shall be made upon Landlord's
request during the one hundred twenty (120) day period following the date of
this Amendment, and only against presentation by Landlord to Tenant of invoices
for the construction of improvements to the portion of the ground floor space
in the Building not subject to the Lease. Such advance or advances by Tenant to
Landlord shall constitute prepayments of rent which shall be credited against
Tenant's obligation to pay minimum and percentage rent under the Lease
according to the following schedule: any amounts payable by Tenants as
Percentage Rental and [ * ] per month against eight successive monthly
installments of Minimum Rent commencing February 1, 1990 and [ * ] per
month thereafter against successive monthly installments of Minimum Rent until
the amount credited against rent equals the amount advanced by Tenant, the
final credit reflecting only the remaining balance.
4. In all other respects the terms and conditions of the Lease shall
remain unchanged.
2
* Confidential Treatment Requested
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment of Commercial Lease the day and year first above written.
"Landlord" COWPER SQUARE PARTNERS,
a California limited partnership
By /s/ Norman Rosenblatt,
---------------------------------
Norman Rosenblatt,
General Partner
"Tenant" IL FORNAIO (AMERICA) CORPORATION,
a California corporation
By /s/ Laurence B. Mindel, President
---------------------------------
Laurence B. Mindel, President
3
<PAGE> 1
EXHIBIT 10.11
RESTAURANT LEASE
This Restaurant Lease ("Lease") is made and entered into this 21st day
of November, 1991 ("Effective Date") , by and between HOTEL SAINTE CLAIRE
PARTNERS, L.P., a California limited partnership ("Landlord"), and IL FORNAIO
(AMERICA) CORPORATION, a California corporation ("Tenant"), who agree as
follows:
ARTICLE 1
BASIC LEASE PROVISIONS
The following basic lease provisions supplement and summarize provisions
elsewhere in this Lease. They are presented to facilitate convenient reference
by the parties to this Lease, subject to further definition and discussion in
the referenced sections and elsewhere in this Lease. Although the basic lease
provisions are part of this Lease, if there is any conflict between the basic
lease provisions and provisions contained in the balance of this Lease, the
provisions contained elsewhere will control.
<TABLE>
<S> <C> <C>
Use: Restaurant (Sec. 5.1)
Tenant's Trade Name: Il Fornaio (Sec. 5.1)
Hotel - Name: Hotel Sainte Claire (Sec. 2.2)
- Location: San Jose (Sec. 2.2)
Santa Clara County
California
Premises - Address: 302 So. Market Street (Sec. 2.1)
San Jose, California (Sec. 2.1)
Term - Primary Term: 20 year (Sec. 3.2)
- Option Periods: 2 x 5 year (Sec. 3.3)
Landlord Contribution: * (Exh. "C")
Tenant Contribution: $1,550,000 (Exh. "C")
</TABLE>
* Confidential treatment requested.
<PAGE> 2
<TABLE>
<S> <C> <C>
Rent - Initial Minimum Rent: * (Sec. 4.2)
- Percentage Rent: * (Sec. 4.3)
Exhibits: "A" Floor Plan
"B" Confirmation of Term
"C" Initial Construction
</TABLE>
ARTICLE 2
PREMISES
2.1 Leased Property. Landlord leases to Tenant and Tenant leases
from Landlord those portions of the Hotel St. Claire located in San Jose,
California ("Hotel") which are situated on the ground floor thereof and
designated as "Restaurant Area" and "Main Kitchen Area" on the floor plan
attached hereto as Exhibit "A" and which are situated on the roof thereof and
designated as the "Roof Area" on the floor plan attached hereto as Exhibit
"A-1" (collectively, "Premises").
2.2 Appurtenant Rights; Food Service Operations Agreement.
Tenant shall have the right, in connection with the operation of a restaurant or
restaurants (in accordance with Article 5) within the Premises, to utilize any
and all nonexclusive easements which the Hotel has retained for deliveries,
maintenance and related functions. Tenant's restaurant guests shall have the
right to use the ground floor common public areas of the Hotel to the extent
such uses are consistent with the patronage of Tenant's restaurant(s) within the
Premises.
Landlord shall also provide to Tenant additional areas within the
Hotel for storage, locker and restroom facilities for Tenant's employees and an
office for sales and banquet activities (collec-
2
* Confidential treatment requested.
<PAGE> 3
tively, "Incidental Areas"). The location and dimensions of the Incidental
Areas are set forth in the plan attached hereto as Exhibit "A-2". The
Incidental Areas may be relocated in equivalent space in the Hotel as Landlord
shall reasonably determine from time to time.
Concurrently with the execution of this Lease, Landlord's affiliated
corporation, MOBEDSHAHI HOTEL GROUP, INC. ("MHG"), and Tenant have entered into
a "Food Service Operations Agreement" providing for Tenant's performance of
services in connection with the operation of food and beverage functions
throughout portions of the Hotel which are not part of the Premises ("Food
Service Operations Agreement"). Landlord hereby guarantees the performance of
all obligations of MHG under the Food Service Operations Agreement. In the
event of a default, bankruptcy, or other event that prevents MHG from
discharging its obligations under the Food Service Operations Agreement,
Landlord shall enter into an identical agreement directly with Tenant.
2.3 Landlord's Title and Authority. Tenant acknowledges that
Landlord's interest in the real property on which the Hotel is located
consists, or will consist, of a leasehold interest granted to Tenant pursuant
to that certain Ground Lease ("Ground Lease") entered into, or to be entered
into, by and between the Redevelopment Agency of the City of San Jose
("Agency"), as ground lessor, and Landlord, as ground lessee. Tenant hereby
acknowledges that all of Tenant's rights, obligations, and interests in this
Lease shall be subject to the Ground Lease and subordinated to the rights and
interests of the Agency thereunder. The Landlord represents and warrants that
Landlord's interest in the Ground Lease and in
3
<PAGE> 4
the real property upon which it is located shall be, and at all times shall
remain, free and clear of all liens and encumbrances, other than (a) those
exceptions listed in that certain title binder issued by First American Title
Insurance Company #505630 on August 30, 1991 (the "Title Binder"), (b) any
matter created by Tenant, (c) any refinancing of loans encumbering the Hotel,
and (d) any other matter arising in the ordinary course of Landlord's ownership
and operation of the Hotel to the extent such matters do not or will not have a
material impact on tenant's rights under this Lease. Landlord hereby
represents and warrants that none of the encroachments or other matters set
forth in Item 10 of the Title Binder will have a material and adverse impact on
the renovations, uses, or operations contemplated by the DDA, the Ground
Lease, or this Lease. Landlord has the full right and lawful authority to make
this Lease. At all times during the Lease Term, Landlord agrees to abide by
and perform all its obligations under the Ground Lease, the Acquisition
Disposition and Development Agreement with the Redevelopment Agency of the City
of San Jose with respect to the Hotel (the "DDA") , and the Hotel Operating
Agreement with Mobedshahi Hotel Group, including the continuous operation of
the Hotel in a first class manner as required by Sections 302 and 305 of the
Ground Lease.
2.4 Quiet Enjoyment. So long as Tenant is not in default under
the terms of this Lease, Tenant will have full, quiet, and peaceful possession
of the Premises for Tenant's use and enjoyment of the Premises and all rights
granted in this Lease without interference or interruption, including the
exclusive right to sell
4
<PAGE> 5
and serve food and beverages in the Hotel as provided in the Food Service
Operations Agreement.
2.5 Landlord's Access. Landlord will have the right to enter upon
the Premises for the purposes of inspection, serving or posting notices, making
any necessary repairs to the Premises, complying with laws, ordinances, or
regulations, protecting the Premises, or any other lawful purpose.
Landlord will exercise such rights reasonably, upon reasonable advance
notice (except in the case of emergencies), during ordinary business hours,
and in such manner as not to interfere unreasonably with the business of
Tenant.
ARTICLE 3
TERM
3.1 Commencement Date. This Lease will be effective upon its
execution by the last of the parties to so execute and the delivery to each
party of a fully executed original. If all of the conditions set forth in
Section 3.4 have been timely satisfied or waived pursuant to Section 3.6, the
term of this Lease and Tenant's obligation to pay rent will commence on the
date which is the date on which Tenant opens the Premises for business to the
public ("Commencement Date"). Tenant agrees to use its best efforts to open
for business on or before October 1, 1992. When the Commencement Date is
ascertained, the parties will promptly execute a confirmation of the term,
including options, substantially in the form and content of Exhibit "B"
("Confirmation of Term").
3.2 Primary Term. The main term ("Primary Term") will be for a
period of twenty (20) years beginning on the Commencement Date. If the
Commencement Date is not the first day of a calendar
5
<PAGE> 6
month, the Primary Term will be extended for the number of days remaining in
the month in which the Commencement Date occurs.
3.3 Options. Tenant will have options to extend the Primary Term
for two (2) consecutive, five (5) year periods ("Option Periods") on all the
provisions contained in this Lease, including the adjustment of Minimum Rent,
by giving Landlord written notice of the exercise of the option at least one
hundred eighty (180) days prior to the expiration of the Primary Term or the
then-current Option Period. Tenant's exercise of an option is conditioned upon
the Lease being in effect without existing default on the part of Tenant (a)
when notice of exercise is given, and (b) on the date immediately preceding the
first day of the subject Option Period.
3.4 Conditions to Commencement. The Commencement Date is
conditioned upon the following conditions:
(a) Permits and Licenses. Receipt by Tenant, within sixty
(60) days of the Effective Date, of all permits and licenses necessary for
Tenant to construct its improvements. The permits and licenses are to be
validly and irrevocably granted on terms and conditions reasonably satisfactory
to Tenant and no longer subject to appeal. Landlord agrees to execute any
applications or other documents reasonably requested by Tenant in order to
obtain the permits and licenses. Tenant will defend, indemnify and hold
Landlord harmless from all claims and liabilities arising from Landlord's
execution of the documents. Tenant will proceed with its best efforts to
secure the permits and licenses as soon as possible following the Effective
Date, at Tenant's sole cost and expense.
6
<PAGE> 7
(b) Landlord's Construction. Completion of Landlord's Work
(as defined in Section 6.1); provided, however, that Landlord shall only be
required, for the purpose of this condition, to have two (2) floors of guest
rooms completed as part of Landlord's Work.
(c) Possession. Delivery of possession of the Premises for
commencement of Tenant's construction of its improvements within ten (10)
business days following the Effective Date.
3.5 Conditions to Lease. The effectiveness of this Lease and
Tenant's obligations hereunder are subject to the approval by Tenant, on or
before December 31, 1991, of each and all of the following.
(a) The Lease by Tenant's Board of Directors.
(b) Non-disturbance Agreement from Agency.
(c) Non-disturbance Agreement from the Bank of
California.
(d) A title insurance policy for the benefit of Agency
as required by the DDA.
(e) The Disbursement Agreement between Landlord, Tenant
and Agency with respect to all funds needed for the renovation to the Hotel and
all Landlord's Work and Tenant's Work, as defined below.
(f) All consents and approvals of Agency to this Lease,
including Tenant's Work, the right of first refusal, and the Tenant's share of
profits on sale.
3.6 Satisfaction of Conditions. If any of the conditions set
forth in Section 3.4 or 3.5 are not satisfied by the particular time specified,
Tenant will have the right to notify Landlord within five (5) days, and this
Lease will be terminated as of
7
<PAGE> 8
Tenant's notice, or at Tenant's option, the Commencement Date shall be extended
until such conditions are satisfied. Tenant may waive satisfaction of any of
the conditions, each of which is for the benefit of Tenant. Failure to notify
Landlord timely of the failure of any of the conditions to be satisfied will be
deemed a waiver of the condition.
ARTICLE 4
RENT
4.1 Lease Year. The term "Lease Year" means a period of twelve
(12) consecutive full calendar months. The first Lease Year will begin on the
Commencement Date if the Commencement Date occurs on the first day of a
calendar month; if not, the first Lease Year will commence on the first day of
the calendar month next following the Commencement Date. Each succeeding Lease
Year will commence upon the anniversary of the first Lease Year.
4.2 Minimum Rent.
(a) Tenant will pay to Landlord for each Lease Year, as
minimum yearly base rent ("Minimum Rent"), without deduction, setoff, or prior
notice or demand, the sum of * (subject to adjustment as provided in (b)
below), payable in twelve (12) equal monthly installments, each in advance on or
before the first day of each and every calendar month. Notwithstanding the
foregoing, there shall be no Minimum Rent due and payable for any Lease Year, or
any portion of a Lease Year, until the 1st day of the month following the month
during which Gross Sales have cumulatively, since the Commencement Date, totaled
* . At such time, the Minimum Rent, as provided herein, shall commence. The
Minimum Rent during each
* Confidential Treatment Requested
8
<PAGE> 9
Option Period will be * percent * of the total of (a) the
average Minimum Rent for the three (3) Lease Years immediately preceding the
subject Option Period and (b) the average yearly Percentage Rent collected for
the three (3) Lease Years immediately preceding the subject Option Period, but
in no event less than the Minimum Rent in effect immediately prior to the
Option Period. On the first day of the second Lease Year of each such Option
Period, and on the first day of each Lease Year thereafter during said Option
Period, the Minimum Rent shall be adjusted as provided in Section 4.2(b) below.
(b) Commencing on the first day of the second Lease Year
and on the first day of each Lease Year thereafter (each an "Adjustment Date")
during the term of this Lease (including any Option Periods, if applicable), the
Minimum Rent shall be increased in accordance with the percentage increase, if
any, occurring over the twelve (12) month period preceding each Adjustment Date
in the Consumer Price Index-Urban Wage Earners and Clerical Workers (San
Francisco-Oakland-San Jose Area; Base 1982-84 = 100) ("Index") , as published by
the United States Department of Labor, Bureau of Labor Statistics; provided,
however, that in no event shall the percentage increase for any such twelve (12)
month period exceed five percent (5%) of the Minimum Rent amount in effect
prior to the applicable Adjustment Date. In no event shall the Minimum Rent, as
adjusted, be less than the Minimum Rent for the immediately preceding Lease
Year. Should the Bureau of Labor Statistics discontinue the publication of the
Index, publish the same less frequently or alter the same in some other manner,
then a substi-
9
<PAGE> 10
tute index or procedure which reasonably reflects and monitors consumer prices
shall be used.
4.3 Percentage Rent. Tenant shall pay to Landlord for each
Accounting Year, without deduction, setoff, or prior notice or demand,
"Percentage Rent" in an amount equal to * percent * of Gross Sales (as defined
in section 4.4 below) until Gross Sales, from the Commencement Date, have on a
cumulative basis exceeded *, at which time the Percentage Rent shall be *
percent * of Gross Sales. Percentage Rent shall be credited with the amount of
any Minimum Rent paid by Tenant in the Accounting Year in question. Percentage
Rent shall be paid on a monthly basis within ten (10) business days following
the end of each calendar month. At such time as the year-end statement is
provided by Tenant to Landlord pursuant to Section 4.5 below, Tenant shall pay
to Landlord any additional sums required to be paid as Percentage Rent to the
extent such sums have not been paid during the course of the previous Accounting
Year.
4.4 Gross Sales. The term Gross Sales means the gross selling
price of all food, beverages, goods, and services sold in or from the Premises
and Hotel by Tenant, its permitted subtenants, licensees, or concessionaires,
whether for cash or on credit (whether collected or not), including the gross
amount received by reason of orders taken on the Premises although filled
elsewhere, and whether made by employees or vending machines, and the value of
any food or beverage items, goods or services provided in exchange or trade for
other goods and services received by Tenant, and all Gross Revenues, as defined
in the Food Service Operations Agreement. Gross Sales do not include, or if
included there will be
*Confidential treatment requested
10
<PAGE> 11
deducted therefrom (but only to the extent included), the following: (i) cash or
credit refunds to customers; (ii) goods returned to sources or transferred to
other locations owned by or affiliated with Tenant when such exchange is not
made for the purpose of consummating a sale made in, at, or from the Premises;
(iii) refundable deposits and gift certificates or similar vouchers except as
converted into by a sale by redemption; (iv) sales of fixtures, machinery,
equipment, or other property which are not for sale or trade in the ordinary
course of Tenant's business; (v) sums or credits received in settlement of
claims for loss or damage to Tenant's goods; (vi) receipts from cigarette
vending machines and other machines and devices selling goods or services beyond
Tenant's net receipts; (vii) the value of meals furnished to Tenant's employees;
(viii) allowances, complimentary meals, coupons, and discounts in the ordinary
course of business to the extent there is no receipt of payment, goods or
services therefor; (ix) gratuities or service charges in lieu thereof given to
Tenant's employees; (x) taxes of whatever nature imposed on the sale of goods or
services, (xi) service charges paid to financial institutions on account of
credit card, debit card, or similar noncash purchases by customers; and (xii)
the value of food or services donated or sold, at an amount not exceeding the
approximate cost, for charitable purposes or non-profit community functions.
4.5 Statement of Gross Sales. Tenant will furnish to
Landlord statements of Gross Sales within thirty (30) days after the close of
each Accounting Quarter and an annual statement certified as accurate by an
officer of Tenant within ninety (90)
11
<PAGE> 12
days after the close of each Accounting Year. The annual statements will show
the determination of the Percentage Rent based on the Gross Sales of Tenant and
any sums paid to Landlord as Percentage Rent for the Accounting year. Tenant
will also furnish to Landlord an audited annual statement for each fiscal year
of Tenant promptly following the completion of said audit.
4.6 Records. Tenant will keep full and accurate books, records,
and other pertinent data which would normally be examined by an independent
accountant pursuant to generally accepted auditing standards in performing an
audit of Tenant's Gross Sales. All such books, records, and data will be
retained and preserved for at least thirty-six (36) months after the end of the
Accounting Year to which they relate. All statements provided pursuant to
Section 4.5 above shall be certified by an officer of Tenant as true and
correct.
4.7 Audit. Landlord is entitled, at any time and from time to
time during the term of this Lease, but no more frequently than one time per
year, and once after the expiration or termination of this Lease, to an
independent audit by an auditor designated by Landlord of Tenant's books,
records, and other pertinent data to determine Tenant's Gross Sales. The audit
may be at any reasonable time upon at least twenty (20) days' prior written
notice to Tenant, will be limited to the determination of Gross Sales, and will
be conducted during normal business hours at a mutually agreeable location.
Tenant will promptly pay to Landlord any deficiency or Landlord will promptly
refund to Tenant any overpayment, as the case may be, which is established by
the audit. The costs of the audit will be borne by Landlord unless the audit
12
<PAGE> 13
shows that Tenant understated Gross Sales by more than three percent (3%) for
the period examined, in which case the costs will be borne by Tenant. Any
previous understatements which have been disclosed and paid by Tenant will be
credited and thereby eliminated from a subsequent determination of
understatement. Any funds to be paid or refunded, as set forth herein, shall
be paid with interest at the rate set forth in Section 15.6 below, accruing
from the date of overpayment or underpayment, as the case may be.
4.8 Confidentiality of Information. Landlord will maintain the
confidentiality of and not disclose to third parties the information furnished
or revealed as the result of Sections 4.3 through 4.7 except as may be required
for the exercise of Landlord's rights under this Lease, or as may be required
by the Ground Lease with the Agency, by law, or for disclosure to prospective
lenders or purchasers, provided that any such recipients execute a
confidentiality agreement reasonably satisfactory to Tenant.
4.9 Accounting Year. For purposes of this Lease, the term
"Accounting Quarter" shall be defined as the quarterly time period beginning on
the first day of Tenant's fiscal year (the day following the last Sunday in
May) and continuing for thirteen (13) weeks thereafter, with each successive
thirteen (13) week quarter to be considered an Accounting Quarter, and the term
"Accounting Year" shall be defined as Tenant's fiscal year, which is each
approximate twelve (12) month period during the term ending on the last Sunday
in May, provided that the first Accounting Year shall commence on the
Commencement Date and shall end on the last Sunday
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in May following the Commencement Date, and the last Accounting Year shall end
upon the expiration of the Term. The Minimum Rent shall be prorated as of the
commencement and termination of each Accounting Year for the purposes of
determining Percentage Rental payable by Tenant during such Accounting Year of
the Term. In the event Tenant changes its Accounting Quarter or the day on
which the Accounting Quarter ends, Landlord and Tenant shall equitably adjust
the Accounting Year, the dates upon which it ends, and the due dates of all
statements and payments due Landlord hereunder.
4.10 Abatement. For each day following the Commencement Date that
the Hotel does not operate, Tenant may cease to operate or, if Tenant elects
to continue operations, minimum Rent shall abate and Percentage Rate shall be
* percent * of Gross Sales.
ARTICLE 5
USE
5.1 Use. The Premises will continuously (subject to the terms
hereof) be used for the operation of a public restaurants and any purposes
incidental to such purpose. Landlord acknowledges that Tenant intends to
operate an Italian restaurant in the Restaurant Area of the Premises ("Ground
Floor Restaurant") and a restaurant in the Roof Area of the Premises ("Roof Top
Restaurant"). Such restaurants will include the service of alcoholic beverages
to the extent permitted by law. Tenant will not use or permit the Premises to
be used for any other purpose or under any other trade name without Landlord's
consent. Tenant shall operate the aforesaid restaurants in a first class
manner with service predominately oriented to seated dining service by
*Confidential treatment requested
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uniformly attired waiters, waitresses and/or wine stewards. Tenant shall not
operate on the Premises any game machines, pinball machines, pool tables or
other form of gaming. Tenant shall only have such entertainment on the
Premises which is consistent with a first class dining establishment. The
Ground Floor Restaurant shall, at all times, be operated under a name that
includes "Il Fornaio," which name shall not be changed without the prior
written consent of Landlord, which consent shall not be unreasonably withheld.
The name of the Roof Top Restaurant shall be subject to the reasonable approval
of Landlord. Operation of the restaurants in accordance with the foregoing
provisions is sometimes hereinafter referred to as the "First Class Standard".
Tenant shall not deviate from the First Class Standard as established in this
section without the prior written consent of Landlord, which consent may be
withheld in Landlord's reasonable discretion.
5.2 Compliance with Laws. Tenant will comply with all laws
concerning the use, condition, and occupancy of the Premises during the term.
Tenant shall, at its sole cost and expense, obtain and maintain any and all
permits to operate its business on the Premises, including, without limitation,
any conditional use permits and liquor licenses. Landlord agrees, however,
that Tenant may, without cost or expense to Landlord, and by appropriate
proceedings diligently conducted in good faith, contest the validity or
application of any law or instrument of record affecting the Premises, provided
neither Landlord nor the Premises would be in any danger of civil or criminal
liability or the filing and foreclosure of any lien for noncompliance.
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5.3 Conduct of Business. Subject to the First Class Standard set
forth above, Tenant will during the entire Term conduct its business upon the
Premises in accordance with its discretion as to the normal and customary
operation of its business and prudent business judgment so as to maximize its
profitability. Tenant will offer breakfast, lunch, and dinner daily at
locations and times to be established from time to time by Tenant. Unless it
elects to do so, Tenant will not operate in the Premises (i) if it is prevented
from doing so because of force majeure considerations, (ii) while refurbishment
or alterations are being made to the Premises, (iii) on legal holidays,
Thanksgiving, the day after Thanksgiving, Christmas and one other selected day
per Lease Year, and (iv) for a reasonable period of time to facilitate
inventory and at the end of the term to facilitate moving out, restoration, and
other activities incidental to Tenant winding up business at the Premises.
Tenant will carry on its business at all times in an efficient, quality, and
reputable manner for the type of business for which the Premises are leased,
including maintenance of an adequate number of employees and sufficient
inventory. Tenant will not use the Premises in any manner that will constitute
waste, nuisance, or unreasonable annoyance to other guests or patrons of the
Hotel, or which is inconsistent with the provisions of the Ground Lease with
the Agency. Landlord agrees that noise, odors and exhaust incidental to a
restaurant, excluding odors of deteriorating food, will not be deemed a
nuisance or objectionable.
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ARTICLE 6
IMPROVEMENTS
6.1 Landlord's Work. Landlord, at its sole cost and expense, will
construct the improvements described in Section 1.1 of Exhibit "C" ("Landlord's
Work"), subject to the terms thereof.
6.2 Tenant's Work. Tenant will construct the improvements and
provide the fixtures, furnishings, and equipment described in Section 1.2 of
Exhibit "C" ("Tenant's Work"), subject to the terms thereof.
6.3 Signs. Tenant will have the right to erect and maintain
upon the Premises any signs Tenant deems appropriate to the normal conduct
of its business, subject to compliance with applicable laws, including
approvals required by such laws, and the prior approval of the Agency and
Landlord. Landlord makes no representation with respect to the availability
of such approvals. Landlord's approval shall not be unreasonably withheld.
Tenant shall, at its sole cost, maintain and repair all of its signs consistent
with the First Class Standard.
6.4 Alterations. Tenant will not make any alterations, additions,
or improvements (collectively, "Alterations") to the Premises without the prior
written consent of Landlord, except that Tenant may make any nonstructural
Alterations to the Premises which do not diminish the then fair market value of
the Premises and do not exceed a cost of Twenty-five Thousand Dollars
($25,000.00) per Lease Year (as adjusted for inflation as provided in Section
4.2(b) during the Lease Term) without the prior written consent of Landlord if
such Alterations are internal to the Premises and do not alter, modify, or
affect the outside aesthetics of the
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Building. Except as otherwise provided for in this Lease, all Alterations which
may be made or installed upon the Premises will remain upon and be surrendered
with the Premises and become the property of Landlord at the termination of
this Lease. If Landlord requests removal of any Alterations at the time such
Alterations are approved by Landlord, or if approval is not required and
Landlord gives notice to Tenant at least one hundred eighty (180) days prior to
termination of this Lease, Tenant will remove the same at Tenant's expense.
6.5 Work Standards. All construction work done by Landlord and
Tenant will be performed in a good and workmanlike manner, in compliance with
all governmental requirements, with due diligence, and in such manner as to
cause a minimum of interference with other construction in progress and with
the transaction of business in the Hotel.
6.6 Mechanics' Liens.
(a) Discharge of Lien. Neither Landlord or Tenant shall
create or permit or suffer to be created or to remain, and will discharge, any
lien (including, but not limited to, the liens of mechanics, laborers,
materialmen, suppliers or vendors for work or materials alleged to be done or
furnished in connection with the Premises or the Hotel and the improvements
thereon), encumbrances or other charges upon the Premises or the Hotel and the
improvements thereon, or any part thereof, or upon the Ground Lease or Tenant's
leasehold interest; provided, however, that neither party shall be required to
discharge any such liens, encumbrances or charges as may be placed upon the
Premises or the Hotel by the act of the other party.
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(b) Right to Contest Liens. Landlord and Tenant shall
each have the independent right to contest in good faith and by appropriate
legal proceedings the validity or amount of any mechanics', laborers',
materialmen's, suppliers' or vendors' lien or claimed lien; provided that the
party contesting such claim shall utilize all reasonable means (including the
posting of adequate security for payment) to protect the Premises and the Hotel
and any part thereof or improvements thereon against foreclosure, and shall
indemnify and hold harmless the other party from any adverse effects resulting
from such lien.
(c) Protection of Landlord. Nothing in this Lease shall
be construed as constituting the consent of Landlord expressed or implied, to
the performance of any labor or the furnishing of any materials or any specific
improvements, alterations of or repairs to the Premises or the Hotel or the
improvements thereon, or any part thereof, by any contractor, subcontractor,
laborer or materialman, nor as giving Tenant or any other person any right,
power or authority to act as agent of or to contract for, or permit the
rendering of, any services or the furnishing of any materials in such manner as
would give rise to the filing of mechanics' liens or other claims against the
fee of the Premises or the Hotel or the improvements thereon, or the Ground
Lease. Landlord shall have the right at all times to post, and keep posted, on
the Premises any notices which Landlord may deem necessary for the protection
of Landlord and of the Premises and the Hotel and the improvements thereon from
mechanics' liens or other claims. In addition, but subject to Section 6.6(b)
hereof, Tenant shall make, or cause to be made, prompt payment of all
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monies due and legally owing to all persons doing any work or furnishing any
materials or supplies to Tenant or any of its contractors or subcontractors in
connection with the Premises and the improvements thereon.
ARTICLE 7
MAINTENANCE OF PREMISES
7.1 Tenant's obligations. Subject to the provisions of this Lease
concerning Landlord's maintenance and repair obligations and concerning
destruction and condemnation and any required approvals of Landlord, Tenant
will make all necessary repairs and replacements to maintain the Premises in
good order, condition, and repair, reasonable wear and tear excepted, and in
accordance with the First Class Standard. This obligation includes service
areas located on the Premises. Except as provided below, Landlord does not
have any responsibility to maintain the Premises and Tenant waives the
provisions of California Civil Code Sections 1941 and 1942.
7.2 Landlord's Right to Make Repairs. If Tenant fails to perform
its maintenance obligations within thirty (30) days after written notice from
Landlord, Landlord may perform such maintenance and Tenant will promptly
reimburse (as additional rent under this Lease) Landlord for its expenses
within ten (10) days after delivery of a statement reasonably detailing such
expenses.
7.3 Landlord's Obligations. Subject to the provisions of this
Lease concerning destruction and condemnation, Landlord, at its expense, shall
maintain the foundations, bearing and exterior walls, concrete sub-floors and
roofs of the Hotel, the loading dock, electrical, plumbing, and HVAC systems
that serve the
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Premises, elevators, the sidewalk in front of the Premises (except any sidewalk
repair or maintenance which is the responsibility of a person or entity other
than Landlord or Tenant) in good repair (collectively, the "Structural
Portions") ; except that Landlord (a) shall not be required to repair any
damage to the Structural Portions caused by the act or omission of Tenant or
its representatives, (b) shall not be required to maintain or repair any
specialized systems, components, or structure within the Premises which are
dedicated solely for providing and/or preparing food and beverages, and (c)
shall not be required to maintain or repair any items which are the
responsibility of Tenant under the Food Service Operations Agreement. Subject
to the foregoing, Landlord shall also maintain or repair all other portions of
the Hotel, other than the Premises and the Incidental Areas, including without
limitation, all public areas and the adjacent parking structure for as long as
Landlord has the right to use such structure.
7.4 Emergency Repairs. In the event of any life or property
threatening emergency, Landlord will have the immediate right to enter the
Premises to effect emergency repairs without prior notice to Tenant.
ARTICLE 8
COMMON AREAS
8.1 Definition. The term Common Areas means all public areas and
facilities within the Hotel that are provided for and designated by Landlord
from time to time for the common use of Hotel guests and patrons.
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8.2 Development. Landlord will use its best efforts to complete
its renovation of the ground floor Common Areas by October 1, 1992.
8.3 Modifications. Landlord may make no material changes to or on
the portion of the Common Areas demarcated as Tenant's Area of Control on the
Floor Plan without Tenant's prior written consent. Landlord will refrain from
doing or permitting to be done any act which would in any way materially impair
the visibility of or access to the Premises.
8.4 Tenant's Right to Use. Landlord gives Tenant and its
representatives, customers, and invitees the nonexclusive right to use the
Common Areas in common with Hotel guests and others to whom Landlord has
granted or will grant a similar right. Tenant and Tenant's employees shall
only use those portions of the Hotel not used by Hotel guests or patrons or
which are otherwise designated for "Hotel Staff."
8.5 Landlord's Maintenance and Management. At all times Landlord
will adequately insure the Common Areas and, except as set forth in Article 7
and as to items maintained by Tenant under the Food Service Operations
Agreement, maintain the Common Areas in good condition, including keeping the
Common Areas neat and clean, properly lighted (through the expected departure
of Tenant's employees after Tenant's normal business hours) and repaired.
Landlord will have the exclusive right to:
(a) Rules and Regulations. Establish and enforce
reasonable rules and regulations applicable to all non-Hotel guests and patrons
concerning the maintenance, management, use, and operation of the Common Areas.
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(b) Maintenance Closure. Close temporarily any of the
Common Areas for maintenance. Landlord will, however, use its best efforts to
maintain free access to the Premises during Tenant's normal business hours and
to minimize any disruption to Tenant's business operations.
(c) Dedication Avoidance. Close any of the Common Areas
to whatever extent required, in the opinion of Landlord's counsel, to prevent a
dedication of any of the Common Areas or the accrual of any rights of any
person or of the public to the Common Areas.
(d) Contracts. Enter into contracts with third parties
to insure and maintain the Common Areas.
(e) Management Agreements. Enter into operating
agreements with third parties to manage the maintenance, operation, and
security of the Common Areas in Landlord's behalf upon such terms and
conditions as Landlord elects in exercise of reasonable business judgment.
(f) Make Changes. Subject to Section 8.3, make changes
to the Common Areas.
ARTICLE 9
UTILITIES
9.1 Utilities. Tenant will pay the appropriate suppliers for all
water, electricity, gas, telephone, and other utility and communication
services used by Tenant on the Premises during the term. All such services
will be separately metered and billed to Tenant. If any such services are not
separately metered and billed to Tenant directly by suppliers, then, within
thirty (30) days following substantial completion of the improvements within
the
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Premises, and every year thereafter, Landlord and Tenant shall meet and confer
in good faith to establish Tenant's percentage of utilities that are not
separately metered. If the parties are unable to agree within thirty (30)
days, they shall engage an energy consultant reasonably acceptable to both
Landlord and Tenant for purposes of determining Tenant's use or expected use of
such services and establishing Tenant's percentage share of the same.
Thereafter, Tenant shall pay to Landlord as additional rent Tenant's percentage
share of the cost of such services within ten (10) days of Landlord's written
demand therefor. The cost of the energy consultant shall be shared equally by
Landlord and Tenant.
ARTICLE 10
TAXES AND ASSESSMENTS
10.1 Personal Property. Tenant will pay all taxes levied and
assessed against furnishings, trade fixtures, equipment, and other personal
property of Tenant kept upon the Premises that become payable during the term.
The parties will seek to cause Tenant's personal property to be assessed and
billed separately from Landlord's real property. If Tenant's personal property
is assessed and taxed with Landlord's real property, Tenant will pay Landlord
- -the portion of such taxes attributable to Tenant's personal property.
Landlord will furnish Tenant with a copy of the tax bill, a written statement
setting forth the amount of personal property taxes due from Tenant, and the
method of calculation of such amount. Tenant will thereafter pay the amount of
its taxes to Landlord not later than ten (10) days prior to the date of
delinquency or thirty (30) days after receipt of the billing from Landlord,
whichever is later.
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10.2 Real Property.
(a) Obligation. In each Lease Year and as additional
rent, Tenant will pay fourteen percent (14%) of all Real Property Taxes
(defined in (b) below) levied and assessed against the Hotel not later than ten
(10) days prior to the date of delinquency or, if tax bills are not sent
directly to Tenant from the tax collector, thirty (30) days after receipt of
the bill from Landlord, whichever is later.
(b) Definition. The term Real Property Taxes includes
any form of real estate taxes, general or special assessments, and any license
fee, commercial rental tax, improvement bonds, levy, or tax imposed on the
Premises by any authority having the direct power to tax, including any city,
county, state, or federal government or any school, agricultural, sanitary,
fire, street, drainage, or other improvement or assessment district of the
governmental authority, as against (i) the legal or equitable interest of
Landlord in the Premises and the Hotel, (ii) Landlord's right to rent or other
income from the Premises, (iii) the act of entering into this Lease, or (iv)
the occupancy of the Premises by Tenant. If at any time during the term the
laws concerning Real Property Taxes are changed such that any other
governmental imposition, however described, including a so-called value-added
tax, is imposed on the Premises, the Hotel, or Landlord as a direct
substitution, in whole or in part, for, or in addition to, any Real Property
Taxes, Tenant will pay such imposition in the same manner and Tenant's
allocation of liability for any such imposition will be substantially the same
as Tenant's allocation liability for Real Property Taxes as provided in this
Lease.
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(c) Exclusions. Tenant will have no obligation to pay
(i) for penalties and interest other than those attributable to Tenant's
failure to comply timely with its payment obligations pursuant to this Lease,
(ii) any tax which may be levied upon net income, profits, or business of
Landlord or any personal property taxes, gift, franchise, inheritance, estate,
succession, capital levy, or transfer taxes which may be levied against any
estate or interest of Landlord, (iii) land development fees and assessments for
utilities and special improvements installed in connection with the development
of the Premises and the Hotel exclusive of Tenant's hook-up charges, or (iv)
increases in Real Property Taxes (whether the increases result from increased
rate, valuation, or both) attributable to (a) additional improvements to the
Hotel unless constructed for any food and/or beverage service area, or (b) a
transfer or sale by Landlord of any interest in the property upon which the
Hotel is located.
10.3 Apportionment. Any and all personal property taxes and Real
Property Taxes will be prorated and apportioned according to the number of days
in the fiscal tax year which were included in the Lease term.
10.4 Right to Contest. Tenant, at its own expense, may contest by
appropriate proceedings the amount of such taxes required to be paid by Tenant
pursuant to this Article and Tenant may endeavor at any time or times by
appropriate proceedings to obtain a reduction in the assessed valuation of the
Premises for tax purposes, and in any such event Landlord agrees, at the
request of Tenant, to join with Tenant, at Tenant's expense, in the
proceedings, and Landlord agrees to sign and deliver such papers
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and instruments as may be necessary to prosecute such proceedings. Tenant will
have the right to contest the amount of any such tax and to withhold payment of
the tax if the statute under which Tenant is contesting the tax so permits. In
the event of any such contest, Tenant will indemnify and hold Landlord harmless
with respect to any cost, damage, or expense, including attorneys' fees, in
connection with any such proceedings. Tenant, upon final determination of such
contest, will immediately pay and discharge any judgment rendered against it,
together with all costs and incidental charges.
10.5 Obligation of Landlord. Except to the extent Tenant fails to
comply with this Article 10, any taxes not directly payable by Tenant to the
tax collector relating to the Premises and Common Areas will be timely paid by
Landlord so as not to jeopardize Tenant's quiet enjoyment of the Premises
pursuant to the provisions of this Lease.
ARTICLE 11
INDEMNITY AND INSURANCE
11.1 Landlord Exculpation. Landlord will not be liable to Tenant
for any damage to Tenant or Tenant's property from any cause, and Tenant waives
all claims against Landlord for damage to person or property arising from any
reason, except that Landlord will be liable to Tenant for damage to Tenant
resulting from the negligence or willful misconduct of Landlord or its
representatives.
11.2 Tenant's Indemnity. Tenant will defend, indemnify, and hold
Landlord and its representatives harmless from and against any and all costs,
expenses (including attorneys' fees and court
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costs), losses, liabilities, damages, claims, and demands of every kind or
nature (collectively, "Losses"), arising in any way from (i) construction on or
use or occupancy of the Hotel by Tenant or any person claiming under Tenant,
(ii) the conduct of Tenant's business and any activity, work, or thing done at
the direction of Tenant in or about the Hotel, (iii) negligence or willful
misconduct of Tenant or its representatives, or (iv) any breach or default in
the performance of any obligation on Tenant's part to be performed under this
Lease. Tenant will defend any such action or proceeding brought against
Landlord or its representatives at Tenant's expense with counsel reasonably
satisfactory to Landlord. Tenant's foregoing indemnity obligation will,
however, exclude Losses arising in any way from the negligence or willful
misconduct of Landlord or its representatives.
11.3 Landlord's Indemnity. Landlord will defend, indemnify, and
hold Tenant and its representatives harmless from and against any and all
Losses arising in any way from (i) construction on or use of the Common Areas
and/or the Hotel (excluding the Premises and the Incidental Areas), (ii) the
management of the Common Areas and/or the Hotel and any activity, work, or
thing done or permitted by Landlord in or about the Common Areas and/or the
Hotel (excluding any activity, work or thing done by Tenant under the Food
Service Operations Agreement), (iii) negligence or willful misconduct of
Landlord or its representatives, or (iv) any breach or default in the
performance of any obligation on Landlord's part to be performed under this
Lease. Landlord will defend any such action or proceeding brought against
Tenant or its representatives at Landlord's expense with counsel reasonably
satisfactory to
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Tenant. Landlord's foregoing indemnity obligation will, however, exclude
Losses arising in any way from the negligence or willful misconduct of Tenant
or its representatives.
11.4 Tenant's Insurance. Tenant will, at all times after the
delivery of the Premises to Tenant, carry at its expense:
(a) Liability Insurance. Comprehensive general liability
insurance providing bodily injury and property damage including dram
shop/liquor liability coverage in the amount of the greater of the maximum
coverage currently maintained by Tenant or at least Two Million Dollars
($2,000,000.00) combined single limit insuring against all legal liability
(subject to usual policy exclusions, terms, and conditions) of Tenant and its
representatives arising out of the use, occupancy, or condition of the
Premises. Such insurance will name Landlord as an additional insured for the
specified amount. Tenant will have the right to effect all or any part of such
insurance by endorsement on any general liability insurance maintained by or on
behalf of Tenant or by a separate policy or policies of insurance. Not more
frequently than each three (3) years if, in Landlord's reasonable opinion, the
limit for general liability insurance coverage at that time is materially
inadequate, Tenant will increase such insurance coverage to an amount not to
exceed the amount of insurance coverage customarily required for like
businesses and properties.
(b) Fire Insurance. Insurance providing against loss or
damage to the Premises and Tenant's personal property, improvements, and
alterations in, on, or about the Premises (including, without limit, all of
Tenant's Work as described in Exhibit "C" and all of Tenant's FF&E (as defined
in Exhibit "C")) by (i) fire, (ii)
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perils included in the Extended Coverage endorsement in common use for
commercial structures, (iii) vandalism & malicious mischief, and (iv) sprinkler
leakage coverage, in an amount not less than the full replacement value. The
insurance policy will cover Tenant, Landlord, and their lenders, as their
interests may appear.
(c) Worker's Compensation. Worker's compensation
insurance as required by law.
(d) Business Interruption. Business interruption or
rental loss insurance providing for the payment of Minimum Rent and Percentage
Rent (calculated as the average of Percentage Rent in the two previous Lease
Years, but in no event less than the then applicable amount of Minimum Rent)
for a period of not less than twelve (12) months for any period in which the
Premises are inoperable due to a casualty to be insured pursuant to the
insurance described in subparagraph (b) above.
11.5 Certificates. Tenant will deliver to Landlord, prior to
delivery of possession of the Premises to Tenant, a certificate or certificates
of insurance evidencing the types of coverage, carriers, limits, and effective
dates of coverage. Each policy will be with insurance carriers reasonably
satisfactory to Landlord and will provide not less than ten (10) days' prior
notice to Landlord of cancellation, nonrenewal, or material modification of
that insurance. Tenant will provide current certificates or other satisfactory
evidence of renewal to Landlord throughout the term of this Lease.
11.6 Waivers of Subrogation. Landlord and Tenant hereby release
any rights each may have against the other in connection with any of the damage
occasioned to Landlord or Tenant, as the
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case may be, to their respective property, the Premises, or its contents or to
other portions of the Hotel arising from any risk generally covered by fire,
Extended Coverage endorsement, vandalism & malicious mischief, and sprinkler
leakage coverage. In addition, the parties each, on behalf of their respective
insurance companies insuring the property or its contents of either Landlord or
Tenant against any such damage, waive any right of subrogation that it may have
against Landlord or Tenant, as the case may be.
ARTICLE 12
ASSIGNMENT AND SUBLETTING
12.1 General Prohibition. Tenant will not voluntarily, by
operation of law, or otherwise, assign or sublet all or any portion of the
Premises or Tenant's interest in this Lease or suffer or permit all or any part
of the Premises to be operated, managed, or otherwise used by a third party
without Landlord's prior written consent. An "assignment or sublet" shall
include any sale, transfer, assignment, encumbrance or hypothecation of the
Premises, or all or any portion of Tenant's interest therein or in the Lease.
Tenant hereby acknowledges that Landlord has entered into this Lease with
Tenant because of Tenant's unique experience and expertise in the restaurant
business. For this reason, Tenant acknowledges that, except as expressly
provided in this Article 12, any proposed assignment or sublet by Tenant is
subject to Landlord's prior written consent, which consent may not be
unreasonably withheld. In this regard, Landlord will be deemed to have
reasonably rejected or denied any proposed assignment or sublet where it has
not been demonstrated that the proposed transferee (a) holds the requisite
experience and expertise to operate a restau-
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rant and food and beverage service throughout the Hotel in accordance with the
First Class Standard, (b) has other operating restaurants similar to those
operated on the Premises which are operating profitably, and (c) will staff the
Premises with management personnel possessing at least ten (10) years
experience in operating first class restaurants. The foregoing is not intended
to limit grounds upon which Landlord may reasonably reject any proposed
assignment or sublet.
12.2 Landlord's Consent Not Required. Landlord's consent is not
required for Tenant to assign this Lease or sublet the Premises to any entity
which (i) is Tenant's parent organization, (ii) is any corporation a majority
of whose voting stock is owned, directly or indirectly, by Tenant or Tenant's
parent organization, (iii) as a result of consolidation, merger, or other
reorganization with Tenant or Tenant's parent organization, will own all or
substantially all of the voting stock of Tenant or Tenant's parent corporation,
(iv) acquires all or substantially all of the voting stock of Tenant, (v)
acquires all or substantially all of the assets of Tenant, or (vi) acquires
three or more separate restaurant locations of Tenant in one transaction.
12.3 Information. When requesting Landlord's consent pursuant to
this Article 12, Tenant will submit in writing to Landlord (i) the name,
address, and legal composition of the proposed assignee or subtenant (ii) the
proposed effective date, (iii) the nature of the assignee's or subtenant's
business to be carried on at the Premises, (iv) the terms and provisions of the
proposed assignment or sublease, (v) reasonable financial information as
Landlord may request concerning the proposed assignee or
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subtenant, and (vi) such other information as Landlord may reasonably request
to determine the character and financial responsibility of the proposed
assignee or subtenant. Each assignment or sublease to which there has been
consent will be in writing and in a form reasonably satisfactory to Landlord.
12.4 No waiver or Release. Except as Landlord may otherwise agree
in writing, Landlord's consent to any assignment or sublease will neither waive
the requirement of Landlord's consent to any subsequent assignment or sublease
nor release Tenant from Tenant's payment and performance obligations in this
Lease. Tenant will remain jointly and severally liable for such payment and
performance. Any assignment or sublease requiring but lacking Landlord's prior
written consent will be void at Landlord's option.
12.5 Collection. Any rental payments or other sums received and
accepted by Landlord from Tenant or any other person in connection with
Tenant's obligations under this Lease will be conclusively presumed to have
been paid by Tenant or on Tenant's behalf. Tenant hereby assigns to Landlord
all rent or other sums received from any subletting of the Premises for
application by Landlord pursuant to the provisions of Article 15; provided,
however, that until the occurrence of any such default, Tenant will have the
right to collect such sums.
ARTICLE 13
DAMAGE AND DESTRUCTION
13.1 Obligation to Repair. In the event of (i) the partial or
total damage or destruction of the Premises or (ii) the Premises being declared
unfit or unsafe for occupancy by any authorized public authority, Tenant will,
at its sole cost and expense,
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promptly commence and diligently prosecute to completion such repairs as are
necessary to restore the Premises to substantially the same condition as it was
in immediately prior to such damage or destruction, but only if any insurance
proceeds Tenant receives for such damage are adequate to complete such repairs,
provided Tenant has complied with all insurance requirements in this Lease.
Likewise, Landlord will promptly commence and diligently prosecute to
completion such repairs as are necessary to correct any damage or destruction
of portions of the Hotel which render the Hotel totally or partially
inaccessible, unusable, or which materially and adversely affect Tenant's
business, but only if any insurance proceeds Landlord receives are adequate to
complete such repairs, provided Landlord has complied with the insurance
requirements of this Lease.
13.2 Option to Terminate.
(a) By Landlord. If the Hotel is damaged or destroyed
during (i) the last five (5) years of the term (unless Tenant exercises an
option, if any, such that a minimum of five (5) years remains in the term of
this Lease) or (ii) at any time during the term by a casualty which is not
ordinarily insurable, in either case to an extent in excess of thirty percent
(30%) of the replacement cost of the Hotel (exclusive of foundations and
footings), then Landlord may terminate this Lease by written notice to Tenant
given within thirty (30) days following the date such damage or destruction
occurs.
(b) By Either Party. If Landlord's and Tenant's repairs
cannot be made and completed within one hundred eighty (180) days after such
damage or destruction, then either party may
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terminate this Lease by written notice to the other given within thirty (30)
days following the date such damage or destruction occurs. In such event, this
Lease will be deemed terminated as of the date such damage occurred and all
rental will be prorated as of such date.
13.3 Insurance Proceeds. If either party elects to terminate this
Lease as allowed under Section 13.2, Tenant will deliver the Premises to
Landlord in its damaged condition and neither party will have any obligation to
repair or rebuild. In such event, Tenant's insurance proceeds, if any, will
belong to Landlord except any portion covering loss of or damage to Tenant's
personal property or loss of income. If this Lease is not so terminated, any
insurance proceeds remaining after complying with the provisions of this
Article 13 will be Tenant's sole property.
13.4 Continued Operation. Unless this Lease is terminated pursuant
to Section 13.2, Tenant will continue the operation of its business during any
such period to the extent reasonably practicable from the standpoint of prudent
and profitable business management. Unless this Lease is so terminated, there
will be no abatement or reduction of rent.
13.5 Statutory Waiver. Tenant waives the provisions of any statute
including California Civil Code Sections 1932(2) and 1933(4), with respect to
any rights or obligations concerning damage or destruction in absence of any
express agreement among the parties, and any similar statute now or hereafter
in effect will have no application to this Lease for any damage or
destruction to all or any part of the Premises.
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13.6 Deemed Sale of Building. In the event that Landlord elects to
terminate this Lease as provided in 13.2(a) or (b), any insurance proceeds
actually received by the Landlord shall be deemed to be gross cash proceeds
received from the sale of an interest in the Hotel within the meaning of
Section 18.3 and Landlord shall either immediately list the Hotel for sale and
use its best efforts to market and sell the Hotel in a commercially reasonable
manner, or have the then fair market value of the Hotel determined by an
appraiser appointed by the Agency which shall be deemed to be sales proceeds.
ARTICLE 14
EMINENT DOMAIN
14.1 Definitions. The term taking means (i) the exercise of any
governmental power, by legal proceedings or otherwise, by any public or
quasi-public authority or private corporation or individual in the exercise of
eminent domain and (ii) the voluntary sale or transfer under the threat of
exercise of eminent domain. The term date of taking means the earlier of the
date of taking of actual physical possession by the condemning authority or the
date the condemning authority gives notice that it is deemed to have taken
possession. The term total taking means a taking of so much of the Premises or
Hotel as, in Tenant's reasonable opinion, to render the Premises to be
unsuitable for Tenant's continued use as a restaurant. The term partial taking
means a taking of the Premises or Hotel which does not constitute a total
taking. The term temporary taking means a taking for less than one hundred
eighty (180) days.
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14.2 Determination of Taking. If there is a total taking, this
Lease will terminate on the date of taking. Within sixty (60) days after the
date the nature and extent of the taking are finally determined and Tenant
receives notice of such determination, Tenant must notify Landlord that Tenant
considers, in its sole discretion, a taking of less than the entire Premises or
Hotel to be a total taking; otherwise the taking will be deemed to be a partial
taking.
14.3 Partial Taking. If there is a partial taking, this Lease will
terminate as to the portion of the Premises taken and continue in full force
and effect as to the remainder of the Premises. Rent paid prior to the taking
with respect to the portion of the Premises taken will be promptly returned to
Tenant by Landlord. Rent, except Percentage Rent, after a partial taking will
be equitably reduced based on the extent to which the taking, including
restoration activity, interferes with Tenant's business on the Premises. To
the extent of any condemnation award paid to Landlord, Landlord will promptly
make all necessary repairs or alterations to make the remaining Premises a
complete architectural element and will promptly restore the Common Areas as
appropriate.
14.4 Temporary Taking. If there is a temporary taking, this Lease
will not terminate but rent, except Percentage Rent, will be equitably reduced
based on the extent to which the taking interferes with Tenant's business in
the Premises.
14.5 Award. In the event of any taking, Landlord and Tenant may
separately pursue their claims against the condemning authority. Tenant will
be entitled to receive, and Landlord will have no right to pursue for itself,
any award for claims based on (i) the adjusted book value (deemed to be
the unamortized or
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undepreciated value for book purposes) of construction of the Premises (except
to the extent paid for by Landlord under the Lease) and Alterations which
Tenant has no right to remove pursuant to the provisions of this Lease, (ii)
the value of Tenant's Alterations to the Premises which Tenant has the right to
remove pursuant to the provisions of this Lease but elects not to remove, (iii)
loss of or damage to Tenant's personal property, (iv) loss to Tenant because
of interruption of business, (v) Tenant's loss of goodwill, and (vi) Tenant's
cost of removal and relocation. Tenant will have no right to pursue a claim
based upon the residual value of the Land or pursue claims or retain any award
to which Landlord is entitled so as to diminish Landlord's award, except as
provided in Section 18.3.
14.6 Notice to Tenant. After Landlord has knowledge of the
intention of any authority to effect a taking, Landlord will promptly give
notice of such to Tenant.
ARTICLE 15
DEFAULT
15.1 Events of Default. The occurrence of any of the following
will constitute a default by Tenant:
(a) Abandonment. Abandonment of the Premises by Tenant
or vacation of the Premises by Tenant for ten (10) consecutive days, except as
permitted in Section 5.3.
(b) Nonpayment of Rent. Failure by Tenant to pay rent
when due if the failure continues for ten (10) days after written notice has
been given to Tenant that the rent is delinquent. "Rent" includes Minimum
Rent, Percentage Rent, and any and all
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items described herein as "additional rent" or which are otherwise payable by
Tenant to Landlord.
(c) Other Obligations. Failure by Tenant to perform any
provision of this Lease required of it other than (a) and (b) above if the
failure is not cured within a reasonable time not to exceed thirty (30) days
after notice has been given to Tenant. If, however, the failure cannot
reasonably be cured within the cure period, Tenant will not be in default of
this Lease if Tenant commences to cure the failure within the cure period and
diligently and in good faith continues to cure the failure.
(d) General Assignment. A general assignment for the
benefit of creditors by Tenant.
(e) Bankruptcy. A petition to have Tenant adjudicated a
bankrupt, or a petition for reorganization or arrangement under the federal
bankruptcy laws is filed by Tenant or against Tenant and not be dismissed
within sixty (60) days from the date of such filing.
(f) Receivership. The assumptions of the assets of
Tenant or of the business conducted by Tenant on the Premises by a trustee,
receiver, or other person where possession is not restored to Tenant within
thirty (30) days.
(g) Attachment. The attachment, execution, or other
judicial seizure of substantially all of Tenant's assets located at the
Premises or Tenant's interest in the Lease, where such seizure is not
discharged within thirty (30) days.
(h) Insolvency. The admission by Tenant of its inability
to pay its debts as they become due.
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Notices given under this Section 15.1 will (i) specify the
alleged breach and the applicable Lease provisions and (ii) demand that Tenant
perform the provisions of this Lease or pay the rent that is delinquent, as the
case may be, within the applicable period of time, or quit the Premises. No
such notice will be deemed a forfeiture or a termination of this Lease unless
Landlord so elects in the notice. The purpose of the notice requirements in
this Section 15.1 is to extend the notice requirements of the unlawful detainer
statutes. Such notice will not be in lieu of, but are in addition to, any
notice required under the unlawful detainer statutes.
15.2 Landlord's Remedies. Landlord will have the following
remedies if Tenant commits a default. These remedies are not exclusive; they
are cumulative in addition to any remedies now or later allowed by law.
(a) Recover Possession. Landlord can terminate Tenant's
right to possession of the Premises at any time. No act by Landlord other than
giving notice to Tenant will terminate this Lease. Acts of maintenance,
efforts to relet the Premises, or the appointment of a receiver on Landlord's
initiative to protect Landlord's interest under this Lease will not constitute
a termination of Tenant's right to possession. On termination, Landlord has
the right to recover from Tenant:
(b) The worth, at the time of the award, of the unpaid
rent that had been earned at the time of termination of this Lease.
(c) The worth, at the time of the award, of the amount by
which the unpaid rent that would have been earned after
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the date of termination of this Lease until the time of award exceeds the
amount of the loss of rent that Tenant proves could have been reasonably
avoided.
(d) The worth, at the time of the award, of the
amount by which unpaid rent for the balance of the term after the time of award
exceeds the amount of the loss of rent that Tenant proves could have been
reasonably avoided.
(e) Any other amount, including court costs,
necessary to compensate Landlord for all detriment proximately caused by
Tenant's default.
The phrase "worth at the time of the award" as used in (i) and (ii)
above is to be computed by allowing interest at the prime commercial rate being
charged by the Bank of America N.T. & S.A. plus two percent (2%) per annum, but
not to exceed the then maximum legal rate of interest. The same phrase as used
in (iii) above is to be computed by discounting the amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (1%).
(f) Continuation of Lease. Landlord can continue this
Lease in full force and effect, and the Lease will continue in effect as long
as Landlord does not terminate Tenant's right to possession, and Landlord will
have the right to collect rent when due. During the period Tenant is in
default, Landlord can enter the Premises and relet them, or any part of them,
to third parties for Tenant's account. Tenant will be liable immediately to
Landlord for all costs Landlord incurs in reletting the Premises, including
brokers' commissions, and expenses of remodeling the Premises required to make
it rentable, but not improvements for a new
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tenant. Reletting can be for a period shorter or longer than the remaining
term of the Lease. Tenant will pay to Landlord the Minimum Rent due under this
Lease on the dates the rent is due, less the rent Landlord receives from any
reletting. No act by Landlord allowed by this Section 15.2(b) will terminate
this Lease unless Landlord notifies Tenant that Landlord elects to terminate
this Lease. After Tenant's default and for as long as Landlord does not
terminate Tenant's right to possession of the Premises, if Tenant obtains
Landlord's consent, Tenant will have the right to assign or sublet its interest
in this Lease, but Tenant will not be released from liability under this Lease.
If Landlord elects to relet the Premises as provided in this Section 15.2(b),
rent that Landlord receives from reletting will be applied to the payment of:
(i) first, any indebtedness from Tenant to Landlord other than rent due from
Tenant; (ii) second, all costs, including for maintenance, incurred by Landlord
in reletting; (iii) third, rent due and unpaid under the Lease. After
deducting the payments referred to in this Section 15.2(b), any sum remaining
from the rent Landlord receives from reletting will be held by Landlord and
applied in payment of future rent as rent becomes due under this Lease. In no
event will Tenant be entitled to any excess rent received by Landlord. If, on
the date rent is due under this Lease, the rent received from the reletting is
less than the Minimum Rent due on that date, Tenant will pay to Landlord, in
addition to the remaining minimum Rent due, all costs, including for
maintenance, Landlord incurred in reletting which remain after applying the
rent received from the reletting.
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(g) Right to Remedy. Landlord may, after expiration of
Tenant's cure period in Section 15.1(c) unless there is an emergency, correct
or remedy any failure of Tenant not timely cured. The reasonable cost paid by
Landlord to correct or remedy any such default will immediately become due and
payable to Landlord as additional rent.
15.3 Default by Landlord. Landlord will commit a default if
Landlord fails to perform any provision of this Lease required of it and the
failure is not cured within a reasonable time not to exceed thirty (30) days
after notice has been given to Landlord. If, however, the failure cannot
reasonably be cured within the cure period, Landlord will not be in default of
this Lease if Landlord commences to cure the failure within the cure period and
diligently and in good faith continues to cure the failure. Notices given
under this Section 15.3 will specify the alleged breach and the applicable
Lease provisions. Tenant may, after expiration of the cure period unless there
is an emergency, correct or remedy any failure of Landlord not timely cured and
the reasonable cost paid by Tenant will immediately become due and payable to
Tenant by Landlord.
15.4 Mitigation. Landlord and Tenant will each exercise best
efforts to mitigate the damages caused by the other party's breach of this
Lease. Efforts to mitigate damages will not be construed as a waiver of the
nonbreaching party's right to recover damages.
15.5 Lender's Right to Cure. The respective lenders of each party
will have the right, in the party's behalf, to cure the party's alleged breach
within the same time period allocated under this Lease.
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15.6 Interest Charges. Any amount not paid by one party to the
other when due to the other party will bear interest from the date due at the
lesser of (i) the prime commercial rate being charged by the Bank of America N.
T. & S. A. in effect on the date due plus two percent (2%) per annum or (ii)
the maximum rate permitted by law.
15.7 Late Charges. If either party fails to pay any amount due to
the other within ten (10) days after notice the amount is delinquent, the
delinquent party will pay to other party, as a late charge and in consideration
of the additional costs and record keeping incurred or required by the other, a
sum equal to $150. Such late charge shall be due in addition to interest
payable on delinquent amounts.
15.8 Limitation of Landlord's Liability. If Landlord is in default
of this Lease and as a consequence Tenant recovers a money judgment against
Landlord, the judgment will be satisfied only out of the proceeds of sale
received on execution of the judgment and levy against the right, title, and
interest of Landlord in the land and improvements which constitute the Hotel
and out of rent or other income from such real property receivable by Landlord
following occurrence of the default or out of the net consideration, after
payment of the first lien mortgage and reasonable costs of sale, received by
Landlord from the sale or other disposition of all or any part of Landlord's
right, title, and interest in the land and improvements which constitute the
Hotel. The foregoing limitations shall apply only in the event that the
Landlord has not placed, or suffered to be placed upon the Hotel parcel or
Landlord's leasehold estate in the Ground Lease,
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any lien or other encumbrance except as allowed under Section 902 of the Ground
Lease without the Ground Lessor's approval. In the event Landlord places or
allows an encumbrance to be placed upon the Hotel parcel or Landlord's
leasehold estate in the Ground Lease that would otherwise invalidate the
limitations in this Section 15.8, Landlord may at the time of Landlord's
agreement to such encumbrance, agree to permit Tenant to deduct and set off any
out-of-pocket expenses or judgments that Tenant may obtain against rent
otherwise due under this Lease, despite the prohibition against such a
deduction or offset found in Sections 4.2 and 4.3 of this Lease; provided,
however, that Landlord's right to so agree to the deduction and offset will be
effective only if the Minimum Rent thereafter due under the remaining term of
the Lease (or an option if the Tenant has exercised such option) equals or
exceeds the out-of-pocket expenses or judgments, if any, that Tenant then seeks
to recover against Landlord. Landlord's right to allow a deduction or offset,
as provided above, shall be exercisable in Landlord's sole discretion and, upon
such exercise, the limits of liability in the first sentence of this Section
15.8 shall apply notwithstanding encumbrances on the Hotel.
ARTICLE 16
SUBORDINATION, ESTOPPEL
16.1 Subordination. The Lease is and will be subordinate to any
encumbrance now of record and any encumbrance recorded after the date of this
Lease affecting the Premises and Hotel, subject to any written agreement that
provides that if Tenant is not in default under this Lease, Tenant will not be
disturbed in its
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peaceful enjoyment of the Premises pursuant to the provisions of this Lease.
16.2 Attornment. Provided the successor executes a non-disturbance
agreement reasonably approved by Tenant, Tenant will attorn to the successor in
interest of Landlord following any transfer of such interest, either
voluntarily or by operation of law, and recognize such successor as Landlord
under this Lease. If, however, any lender elects to have the Lease prior to
its encumbrance, the Lease will be deemed prior in lien to such encumbrance.
16.3 Documentation. Tenant will execute the written agreement and
any other documents required by the encumbrancer to accomplish the purposes of
Sections 16.1 and 16.2.
16.4 Successor Liability. Notwithstanding any other provision in
this Lease, if any lender or its successor in title succeeds to the interest of
Landlord under this Lease, the liability of such lender or successor will exist
only for matters relating to the duration it is the owner of any interest in
the Premises or is tenant under the Ground Lease.
16.5 Estoppel Certificates. Each party, within twenty (20) days
after notice from the other party, will execute and deliver to the other
party, or such other addressee as the other party may designate, a statement
certifying that the Lease is unmodified and in full force and effect, or in
full force and effect as modified and stating the modifications, and certifying
as to such other matters relating to the Lease and in such form, as the party
may reasonably request. Any such statement may be relied upon by any lender,
purchaser, or other interested party, other than the party requesting same.
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16.6 Quitclaim Deed. Tenant will execute in recordable form and
deliver to Landlord on the termination of this Lease, promptly after Landlord's
presentation, a quitclaim deed to the Premises designating Landlord as
transferee.
ARTICLE 17
ARBITRATION
17.1 Submission to Arbitration. Any disputes which arise between
Landlord and Tenant under this Lease as to any matter concerning the granting
or withholding of an approval or consent by a party (including, without
limitation, any matter involving a party's discretion), or any matter in
which the only issue is whether a party has complied with a non-monetary
covenant or condition of this Lease and does not involve a claim of monetary
damages (other than reasonable out-of-pocket expenses arising out of the cure
of a non-monetary default), shall be subject to final, binding arbitration upon
written request by either party in accordance with this Article 17. The
dispute will be submitted before the American Arbitration Association ("AAA")
within thirty (30) days after the requesting notice in accordance with the
Commercial Rules of the AAA as modified by this Article; a decision will be
issued within thirty (30) days after the close of the record; and judgment upon
the award may be entered in any court having jurisdiction over the judgment.
The substantive law of the state where the Premises are located will be applied
by the arbitrator, and this requirement will be deemed jurisdictional. This
arbitration provision will be deemed self-executing. If either party fails to
appear at any properly noticed arbitration proceeding, an award may be entered
against such party notwith-
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standing such failure to appear. Following any determination that a party has
failed to comply with a non-monetary covenant, the other party may pursue any
remedies provided in this Lease or at law or in equity.
17.2 Selection of Arbitrator. If the parties disagree on the
choice for an arbitrator, the parties will jointly request the AAA to furnish a
list of five available attorneys, businessmen, or both, experienced generally
in commercial matters. After receipt of such list and an opportunity to
consider the names, each party may designate in writing to the AAA not more
than two names to be eliminated from the selection process. If more than one
name remains after such eliminations are made, the selection of the arbitrator
will be made by lot from the remaining names.
17.3 Location. If either party makes demand upon the other for
arbitration, the arbitration will be conducted at the AAA offices in the city
nearest to the Premises in which the AAA maintains an office. The parties may
mutually agree to another location.
17.4 Costs. The expenses, wages, and other compensation of any
witnesses called before the arbitrator will be borne by the party calling the
witnesses. Other expenses incurred, including wages of participants, and
preparation of briefs and data to be presented to the arbitrator, will be borne
separately by the respective parties. The fee for the arbitration, the
arbitrator's fees and expenses, the cost of any hearing room, and the cost of a
shorthand or similar reporter and the original transcript will be borne by
Landlord and Tenant equally.
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ARTICLE 18
SALE, RIGHT OF FIRST REFUSAL, WORKING CAPITAL
18.1 Right of First Refusal. Notwithstanding any other term or
provision of this Lease, in the event that during the Lease term, Tenant
receives a bona fide offer (which it intends to accept) to acquire Tenant's
interest in the restaurants operated on the Premises (and no other assets or
interests of Tenant), or Landlord receives a bona fide offer (which it intends
to accept) to acquire Landlord's interest in the Hotel, then the party
receiving the offer ("Offering Party") shall submit such offer ("Bona Fide
offer") to the other party. The other party shall have a period of twenty (20)
business days in which to accept the Bona Fide Offer submitted by the Offering
Party. If the other party so accepts the Bona Fide Offer, then the Offering
Party shall sell the offered interest to the other party at a price and in
accordance with the terms and provisions set forth in the Bona Fide Offer. If
the other party rejects the Bona Fide Offer or fails to respond to the Offering
Party within the aforesaid twenty (20) business day period, then the Offering
Party shall be free to transfer the offered interest to the third party
originally submitting the Bona Fide Offer in accordance with the terms and
provisions thereof, provided that such transfer is consummated within one
Hundred Eighty (180) days following the end of the aforesaid twenty (20) day
period. If the Offering Party does not consummate a transaction pursuant to
the Bona Fide Offer on substantially the same terms (with no more than a five
percent (5%) reduction in the purchase price), within the aforesaid One Hundred
Eighty (180) days, then any contemplated transfer thereafter shall be subject
to
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the terms and provisions of this Section 18.1. In the event Landlord rejects
any offer from Tenant pursuant to this Section 18.1, Tenant's right thereafter
to transfer any interest in the Premises to a third party shall nevertheless be
subject to the terms and provisions of Article 12 above.
18.2 Working Capital Reserves. Commencing with the Commencement
Date, Tenant shall commit or make available, as the case may be, in connection
with the restaurants in the Premises and all of the food and beverage services
contemplated under the Food Service Operations Agreement, (i) not less than One
Hundred Fifty Thousand Dollars ($150,000) for pre-opening costs and expenses,
(ii) not less than One Hundred Thousand Dollars ($100,000) for inventories, and
(iii) not less than Four Hundred Thousand Dollars ($400,000) as working capital
to cover any operating deficits in the restaurants and the food and beverage
operations for the Hotel until Tenant's business at the Premises has been
profitable for a calendar quarter.
18.3 Hotel Sale Proceeds. If Landlord, at any time during the
Lease Term, hypothecates, encumbers, sells or agrees to sell or transfer all or
any portion of its interest in the Hotel to any party other than Tenant, or of
the Hotel is condemned, all proceeds shall be disbursed as provided below and
thereafter Tenant shall be entitled to receive an amount equal to 5.3% of
either the Net Financing Proceeds or the Net Sale Proceeds (both as defined
below), as received by Landlord or any affiliate of Landlord in connection with
such transaction. "Net Financing Proceeds" shall mean the gross cash proceeds
received from a mortgage, deed of trust, or other encumbrance placed against
the Hotel, less (a) all
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amounts required to pay any and all encumbrances permitted under Section 902 of
the Ground Lease that do not require the consent of the Lessor under the Ground
Lease or encumbrances the proceeds of which were used to reduce the amounts of
(a) through (d) hereof or the net proceeds from which Tenant received a share
as provided herein, (b) the sum of $1,350,000 plus interest at the rate of
twelve percent (12%) per annum from February 28, 1991, minus any previous
distributions, to the partners of Landlord, (c) all amounts due to the Agency
pursuant to the Ground Lease, (d) all commissions, fees and other costs of the
financing, and (e) to Tenant the sum of (i) $1,000,000, reduced by $250,000 on
each anniversary of the Effective Date of this Lease, plus interest at the rate
of twelve percent (12%) per annum from the date Tenant has expended $1,000,000
on Tenant's Initial Work (minus any previous distributions to Tenant on account
of this item (e)(i)), and (ii) $550,000 minus the product of one and one-half
percent (1 1/2%) times the Gross Sales from the Commencement Date to the date
of such financing or sale ("Tenant's Preferred Return"). "Net Sales Proceeds"
shall mean the gross cash proceeds (or the cash equivalent of any property)
received from a sale or transfer of an interest in the Hotel, less (a) all
amounts required to pay any and all encumbrances permitted under Section 902 of
the Ground Lease that do not require the consent of the Lessor under the Ground
Lease, or encumbrances the proceeds of which were used to reduce the amounts of
(a) through (d) hereof or from which Tenant has received a share of Net
Financing Proceeds, (b) the sum of $1,350,000 plus interest at the rate of
twelve percent (12%) per annum from February 28, 1991, minus any previous
distributions, to
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the partners of Landlord, (c) all amounts due to the Agency pursuant to the
Ground Lease, (d) all commissions and other costs of the sale, and (e) to
Tenant, Tenant's Preferred Return. In the event that there is more than one
financing or a sale of partial interests, this provision shall apply to each
such financing and/or sale on a cumulative basis.
In the event of a financing or sale of the Hotel by Landlord, the
proceeds of any such financing or sales shall be disbursed in accordance with
the priority established in the foregoing definitions. In the event that
Tenant receives the Tenant's Preferred Return, then the Minimum Rent shall be
as provided in Section 4.2 above, irrespective of the then cumulative amount of
Gross Sales to date, commencing in the first calendar month following the
closing of such financing or sale, and the Percentage Rent provided for in
Section 4.3 above shall, commencing in the first calendar month following the
closing of such financing or sale, be increased to five percent (5%)
irrespective of the then cumulative amount of Gross Sales.
18.4 Sale of Premises. If Landlord sells or otherwise transfers
all of its interest in the Premises, excluding a transfer for security purposes
only, Landlord will be relieved of all liability accruing after the
consummation of the transfer under the Lease on the part of Landlord for acts,
occurrences, or omissions which occur after the consummation of the transfer if
the transferee has assumed in writing, for the benefit of Tenant, Landlord's
obligations under the Lease. The foregoing limitations shall apply only in the
event that the Landlord has not placed, or suffered to be placed upon the Hotel
parcel or Landlord's leasehold estate in
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the Ground Lease, any lien or other encumbrance except as allowed under Section
902 of the Ground Lease without the Ground Lessor's approval. In the event
Landlord places or allows an encumbrance to be placed upon the Hotel parcel or
Landlord's leasehold estate in the Ground Lease that would otherwise invalidate
the limitations in this Section 18.4, Landlord may nevertheless be relieved of
liability as provided above if at the time of Landlord's agreement to such
encumbrance, Landlord agrees to permit Tenant to deduct and set off any
out-of-pocket expenses or judgments resulting from a breach by Landlord of its
obligations under this Lease against rent otherwise due under this Lease,
despite the prohibition against such a deduction or offset found in Sections
4.2 and 4.3 of this Lease; provided, however, that Landlord's right to so agree
to the deduction and offset will be effective only if the minimum Rent
thereafter due under the remaining term of the Lease (or an option if the
Tenant has exercised such option) equals or exceeds the out-of-pocket expenses
or judgments, if any, that Tenant then seeks to recover against Landlord.
18.5 Surrender of Premises. Upon termination of this Lease, Tenant
will surrender the Premises to Landlord in good and clean condition, ordinary
wear and tear and damage not required to be repaired excepted. Tenant will
remove all of its furnishings, trade fixtures, and other personal property and,
if applicable, those Alterations designated to be removed by Landlord pursuant
to Section 6.4, and may remove or reasonably alter or obliterate evidence of
its trademarks and distinctive trade dress. Tenant will correct any damage
arising from its removal activity.
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18.6 Holding over. Any holding over after the termination of this
Lease without Landlord's consent will be construed as a tenancy from
month-to-month at the rents specified in this Lease plus twenty-five percent
(25%) of the Minimum Rent and otherwise upon the terms and conditions specified
in the Lease, so far as applicable. The foregoing sentence will not be
construed as Landlord's consent for Tenant to hold over.
ARTICLE 19
INTEGRATION OF AGREEMENT
19.1 Entire Agreement. This Lease constitutes the entire agreement
between the parties on the subject matter of this Lease and supersedes any
prior negotiation, understanding, representation, or agreement.
19.2 Amendment. This Lease may not be amended orally, but may be
amended only by a written instrument signed by both parties.
ARTICLE 20
HAZARDOUS SUBSTANCES
20.1 Tenant shall not cause or permit the following to occur:
(a) Any violation of any federal, state, or local law, ordinance
or regulation now or hereafter enacted, related to environmental conditions on,
under, or about the Premises, or arising, from Tenant's use or occupancy of the
Premises, including, but not limited to, soil and ground water conditions; or
(b) Any violation of any federal, state, or local law, ordinance
or regulation now or hereafter enacted, relating to the use, generation,
release, manufacture, refining, production, processing, storage or disposal of
any hazardous substances, petroleum products and other petrochemicals,
asbestos, polychlorin-
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ated biphenyls, or any other hazardous or toxic materials or waste
(hereinafter collectively referred to as "Hazardous Substances") on, under, or
about the Premises, or the transportation to or from the Premises of any
Hazardous Substances.
Tenant shall, at Tenant's sole cost and expense, comply with all laws,
ordinances and regulations regulating the use, generation, storage,
transportation, or disposal of Hazardous Substances ("Laws"). Tenant shall, at
Tenant's own expense, make all submissions to, provide all information required
by, and comply with all requirements of all governmental authorities
("Authorities") under the Laws. Should any Authorities or any third party
demand that a cleanup plan be prepared and that a cleanup be undertaken because
of any deposit, spill, discharge or other release of Hazardous Substances that
occurs during the term of this Lease, at or from the Premises, or which arises
at any time from Tenant's use or occupancy of the Premises, then Tenant shall,
at Tenant's sole cost and expense, prepare and submit the required plans and
all related bonds and other financial assurances; and Tenant shall carry out
all such cleanup plans at Tenant's sole cost and expense.
Tenant shall promptly provide all information regarding the use,
generation, storage, transportation or disposal of Hazardous Substances that
Tenant intends to use. If Tenant fails to fulfill any duty imposed under this
Article 20 within a reasonable time, Landlord may do so; and in such case,
Tenant shall cooperate with Landlord in order to prepare all documents Landlord
deems necessary or appropriate to determine the applicability of the Laws to
the Premises and Tenant's use thereof, and of compliance therewith, and
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Tenant shall execute all documents promptly upon Landlord's request. No such
action by Landlord and no attempt made by Landlord to mitigate damages under
any Laws shall constitute a waiver of any of Tenant's obligations under this
Article 20.
Tenant shall indemnify, defend, and hold harmless Landlord, the
manager of the property, and their respective officers, directors,
beneficiaries, shareholders, partners, agents and employees from any and all
damages, losses, liabilities, obligations, penalties, claims, litigation,
demands, defenses, judgments, suits, proceedings, costs, disbursements and
expenses of any kind or of any nature whatsoever (including, without
limitation,, attorneys and experts fees and disbursements) which may at any
time be imposed upon, incurred by or asserted or warranted against Landlord
arising from or out of any deposit, spill, discharge, or other release of
Hazardous Substances that occurs during the term of this Lease, at or from the
Premises, or which arises at any time from Tenant's use or occupancy of the
Premises, or from Tenant's failure to provide all information, make all
submissions, and take all steps required by all Authorities under the Laws and
all other environmental laws, unless such discharge was caused by Landlord or
the act or omission of an agent or representative of Landlord. Tenant's
obligations and liabilities under this Article 20 shall survive the expiration
or sooner termination of this Lease.
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ARTICLE 21
MISCELLANEOUS
21.1 Limitation on Other Restaurants. During the term of this
Lease, Tenant, or any subsidiary of Tenant shall not own, operate or manage any
full service restaurant for or on behalf of itself, or a subsidiary of Tenant,
within a three (3) mile radius of the Hotel if such restaurant uses in its
trade name "Il Fornaio." Nothing herein shall prevent Tenant from operating a
cafe or Veloce-style business within such restricted area.
21.2 Notices. Any notice, request, or other communication required
or permitted by this Lease will be in writing and will be deemed given if
personally delivered, mailed by registered or certified mail (return receipt
requested), delivered by national overnight delivery courier, or sent by
facsimile or similar transmission which is confirmed by mail or the recipient,
addressed as follows:
To Landlord: ___________________________________
___________________________________
___________________________________
Attention:_________________________
FAX:___________________________________
To Tenant: ___________________________________
___________________________________
Attention:_________________________
FAX:___________________________________
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with copy to: __________________________________
__________________________________
__________________________________
FAX: __________________________________
and: __________________________________
__________________________________
__________________________________
FAX: __________________________________
Service by registered or certified mail will be deemed given three business
days after mailing absent proof of sooner delivery. Service by national
overnight delivery courier will be deemed given the next business day. Either
party, by written notice, may change the place or places for future notices.
Each recipient must have a street address for notice purposes.
21.3 Construction and Interpretation.
(a) Governing Law. This Lease is to be construed in
accordance with the laws of the state within which the Premises are located.
(b) Captions. Exhibits. The titles and subtitles of the
various articles and sections of this Lease are inserted for convenience and
will not be deemed to affect the meaning or construction of this Lease in any
way. The Exhibits are made part of this Lease by the respective references to
them.
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(c) Plain Meaning. Unless defined otherwise, the words
used in this Lease will be construed according to their plain meaning in the
English language. The language used in this Lease will not be interpreted
strictly for or against either party. The word will is used as a command. The
word including is used in a nonexclusive sense. The word law includes federal,
state, and local constitutions, statutes, orders, writs, injunction, decrees,
ordinances, requirements, laws, rules and regulations. The word termination is
used in an all inclusive sense, that is, it includes the concepts of the
expiration of this Lease by lapse of time, rescission, and ending by reason of
default. The word transfer is used in an all inclusive sense, that is, it
includes each and every manner of disposing of any interest in or rights,
privileges, or obligations under any part of this Lease, including any sale,
gift, or assignment. The word notice means notices, request demands, and other
communications and includes all payments to be made and all materials to be
submitted for review or approval and all approvals or disapprovals. The term
rent means Minimum Rent, Percentage Rent and all other sums required to be paid
by Tenant pursuant to the terms of this Lease. The term representative means
officers, directors, partners, employees, agents, and authorized contractors of
a party when acting in such capacity.
(d) Conflicting Construction. If any provision of this
Lease is capable of two constructions, one of which would render the provision
void and the other of which would render the provision valid, then the
provision will have the meaning that renders it valid.
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(e) Singular and Plural, Gender. The singular includes
the plural and vice versa, and the masculine includes the feminine and neuter,
whenever the context so requires.
21.4 Time of Essence. Time is of the essence of each provision of
this Lease.
21.5 Severability. Nothing in this Lease will be construed as
requiring the commission of any act contrary to law. If there is any conflict
between any provision of this Lease and any present or future law, such
provision will be limited only to the extent necessary to bring it within the
requirement of the law. If any part of this Lease is held to be indefinite,
invalid, or otherwise unenforceable, the balance of this Lease will continue in
full force and effect. This Lease will be valid and enforceable and the
parties agree to be bound by and perform it.
21.6 Effect of Waiver. The failure of either party to exercise any
power reserved to it by this Lease or to insist on strict compliance by the
other party with any obligation or condition under the Lease, and no custom or
practice of the parties at variance with the terms of the Lease, will
constitute a waiver of the party's right to demand exact compliance thereafter
with each term of this Lease. Waiver by either party of any default by the
other will not affect or impair the waiving party's rights with respect to any
other default of a like, similar, or different nature. Any delay, forbearance,
or omission of a party to exercise any power or right arising out of any
default by the other of any provision of this Lease will not affect or impair
the party's rights to declare any subsequent default and to terminate this
Lease.
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21.7 Counterparts. This Lease may be executed in any number of
counterparts, each of which will be deemed to be an original and all of which
together will be deemed to be one and the same instrument.
21.8 Brokers. Each party represents and warrants that it has not
dealt with or taken any other action with any party in a manner so as to give
rise to any valid claim against either party for a broker's commission or
finder's fee in connection with the execution of this Lease. Each of the
party's will defend, indemnify, and hold the other harmless from and against
all liabilities from any other claims for broker's commissions or finder's fees
arising out of its breach of the foregoing representation and warranty.
21.9 Attorneys' Fees. If any action or proceeding is necessary to
enforce the provisions of this Lease, including any claim or demand or
declaratory relief action to interpret this Lease, the prevailing party will be
entitled to reasonable attorneys' fees, costs, and necessary disbursements, as
may be fixed by the court having jurisdiction over the matter, in addition to
any other relief to which it may otherwise be entitled.
21.10 Force Majeure. Except for payment obligations imposed
pursuant to this Lease, if there is any prevention, delay, or stoppage of an
act required of a party pursuant to this Lease because of strikes, lockouts,
other labor disputes, material shortages, embargoes, civil unrest, governmental
regulations, governmental controls, enemy or hostile governmental action,
judicial order, public emergency, fire, earthquake, other Acts of God, and
other causes beyond the reasonable control of the party
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obligated to perform, performance of the act will be excused for the period of
the delay.
21.11 Consent. Whenever the consent or approval of either party is
required pursuant to this Lease, such consent or approval will not be
unreasonably withheld or delayed. The failure to respond to a request for
consent or approval within the time period specified within this Lease or, if
none is specified, fifteen (15) days after the requesting notice, will be
deemed to be consent or approval of the request.
21.12 Relationship of Parties. This Lease, including the method of
computing rent, is not intended to create any relationship of partnership,
joint venture, principal-and-agent, or otherwise than the relationship of
landlord and tenant.
21.13 Successors. This Lease will be binding on and inure to the
benefit of the parties and their successors and assigns, subject to the
restrictions as to assignment pursuant to this Lease.
21.14 No Merger. The surrender of this Lease by Tenant, the mutual
cancellation of this Lease by agreement, or the termination of this Lease on
account of Tenant's default, will not work a merger and will, at Landlord's
option, terminate any subtenancies or operate as an assignment of any such
subtenancies to Landlord.
21.15 Nondiscrimination. Tenant herein covenants by and for itself,
its heirs, executors, administrators and assigns, and all persons claiming
under or through it, and this Lease is made and accepted upon and subject to
the following conditions:
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That there shall be no discrimination against or segregation of any person or
group of persons on account of race, color, creed, religion, sex, marital
status, age, handicap, ancestry or national origin in the leasing, subleasing,
transferring, use, occupancy, tenure or enjoyment of the Premises, nor shall
the Tenant itself, or any person claiming under or through it, establish or
permit any such practice or practices of discrimination or segregation with
reference to the selection, location, number, use or occupancy of tenants,
lessees, sublessees, subtenants or vendees in the Premises.
21.16 Memorandum of Lease. The parties shall execute a memorandum
of lease in recordable form upon the execution of this Lease.
21.17 Parking. Landlord shall, either directly or through MHG,
provide parking for employees, patrons and guests of Tenant in the adjacent
parking structure and/or the convention center as provided in Section 11 of the
Food Service Operations Agreement.
21.18 Submission. The submission of this document for consideration
does not vest legal rights in either party. This document will become
effective as of the Effective Date only after mutual execution and delivery of
this document to each party.
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The undersigned parties have caused this Agreement to be signed on the
respective dates set forth below.
LANDLORD: HOTEL SAINTE CLAIRE TENANT: IL FORNAIO (AMERICA)
PARTNERS, L.P., a CORPORATION
California Limited
Partnership
By: Manco Investment, a
California Corporation
By: /s/ Manouchehr Mobedshahi By: /s/ Laurence B. Mindel
------------------------------ --------------------------------
Manouchehr Mobedshahi Laurence B. Mindel
President Chairman of the Board
Date 11/21/1991 Date 11/21/1991
----------------------------- -------------------------------
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EXHIBIT A
[Floor plan of main Kitchen and Restaurant.]
<PAGE> 66
Exhibit A-1
Floor Plan of Roof Garden
<PAGE> 67
Exhibit A2
(page 1 of 2)
Floor Plan of Il Fornaio
Basement Area.
<PAGE> 68
Exhibit A-2
(page 2 of 2)
[Floor Plan of Second Floor,
identifying pantry, banquet
storage and sales office.]
<PAGE> 69
EXHIBIT "B"
CONFIRMATION OF TERM
This Confirmation of Term, dated for reference purposes
_________________________ 19___, is by and between ___________________________
("Landlord") and _________________________ ("Tenant").
1. Landlord and Tenant have entered into a lease dated
_____________________, 19__ ("Lease") for the Premises (as defined in
Section 2.1 of the Lease) commonly known as ________________________________.
2. Commencement Date (as defined in Section 3.1 of the Lease) is
_____________________, 19__, and the Primary Term (as defined in Section 3.2 of
the Lease) expires on __________________________.
3. Tenant has 2 options to extend the Primary Term of the Lease
for two (2) consecutive, five (5) year periods.
Landlord and Tenant have executed this Confirmation of Term as of the
respective dates set forth below.
LANDLORD:________________________ TENANT:___________________________
_________________________________ __________________________________
By_______________________________ By________________________________
Its______________________________ Its_______________________________
Date_____________________________ Date______________________________
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EXHIBIT "C"
INITIAL CONSTRUCTION
1. CONSTRUCTION.
1.1 Landlord. Landlord shall, at its sole cost and expense, and
except for the items which are included within Tenant's Work (as described in
Section 1.2 below), carry out the work of renovation of the Hotel in accordance
with the plans and specifications as approved by the Agency pursuant to the
Ground Lease, including Section 216 of the DDA with Agency ("Landlord's Work").
The items set forth in Exhibit C-1 are those items within the Premises which
are included within Landlord's Work.
1.2 By Tenant. Except for those items in Exhibit C-1 that are
part of Landlord's Work, Tenant shall carry out all work of improvement
necessary to construct within the Premises a fully fixturized, furnished and
equipped Ground Floor Restaurant and the Roof Top Restaurant, which restaurants
shall be constructed in compliance with the First Class Standard and in
accordance with plans and specifications which have been reviewed and approved
by Landlord ("Tenant's Work"). Tenant's Work as it relates to all portions of
the Premises, excluding the Roof Top Restaurant, is referred to as the
"Tenant's Initial Work."
2. COST OF CONSTRUCTION
2.1 Landlord's Contribution.
(a) Tenant's Initial Work. Landlord will be responsible
in the manner provided below, but not otherwise, for *
of Tenant's cost of construction
of the Tenant's Initial Work ("Landlord's Initial Contribution") . Landlord's
Initial Contribution shall be available
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* Confidential Treatment Requested
<PAGE> 71
for Tenant's Initial Work in the manner provided in the Disbursement Agreement
(defined below).
(b) Roof Top Restaurant. Landlord will be responsible in
the manner provided below, but not otherwise, for [*] of Tenant's cost of
construction of the Roof Top Restaurant ("Landlord's Roof Top Contribution").
2.2 Included Costs of Construction. As used in this
Lease, "cost of construction" for Tenant's Initial Work shall include the
following:
(a) The actual direct construction costs for labor and
materials to Tenant for the building of Tenant's Work;
(b) Plans and specifications (including reproduction
costs), fees, permits, licenses, inspection fees, plan check fees and
certificates required for the improvements by any governmental authority;
architects', engineers', surveyors' and consultants' fees and expenses; the
cost to install and hook up all utilities to serve Tenant's Work; and
(c) Costs for all of Tenant's Fixtures, Furnishings &
Equipment ("FF&E") included within Tenant's Work.
2.3 Excluded Costs of Construction. Landlord shall purchase and
install an elevator to the Roof Garden as part of Landlord's Work. Cost of
construction for the purpose of this Lease will not include any other items
paid or incurred by Tenant which will be the sole responsibility and expense of
Tenant, including the following: any costs of financing Tenant's share of the
cost of construction, attorneys' fees, or any amounts attributable to the work
to be performed by Landlord under Section 1.1 above.
*Confidential Treatment Requested
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3. PLANS AND SPECIFICATIONS.
3.1 Plans and Specifications for Tenant's Initial Work. The
Tenant's Initial Work shall be carried out in accordance with plans and
specifications prepared by Tenant's architect, which plans and specifications
are subject to review and approval by Landlord and the Agency (in accordance
with the DDA).
3.2 Plans and Specifications for Roof Top Restaurant. Plans and
specifications for the Roof Top Restaurant shall be prepared by Tenant's
architect, which plans and specifications are subject to the review and
approval by Landlord and the Agency. Tenant shall prepare the plans and
specifications for the Roof Top Restaurant and submit the same to Landlord and
the Agency for review and approval not later than six (6) months following the
opening date of the Ground Floor Restaurant. Tenant's costs and expenses
incurred in connection with preparation of the plans and specifications for the
Roof Top Restaurant shall be a credit to Tenant's Roof Top Contribution.
3.3 Change Orders. Tenant will be entitled, subject to Landlord's
approval to the extent that the cost of the change will exceed $25,000, to make
such changes as it may reasonably desire in the plans and specifications for
Tenant's Work, but the cost of construction will be adjusted to reflect such
changes by, as applicable, adding the cost of all such changes and by deducting
any appropriate credits; provided, however, that any resulting increase in the
cost of construction shall not increase Landlord's Contribution.
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4. COURSE OF CONSTRUCTION
4.1 Time for Completion for Tenant's Initial Work. Tenant will
use its best efforts to cause construction to be commenced by Tenant's general
contractor (which contractor shall be previously approved by Landlord) by a
date ("Construction Commencement Date") that will enable final completion of
the Tenant's Initial Work, fixturization, and opening for business by not later
than October 1, 1992, and, following the commencement of such construction,
will at all times continuously cause the construction to be prosecuted to final
completion with all due diligence. Notwithstanding the preceding sentence to
the contrary, if Tenant is unable to cause construction to be completed for
opening of business by October 1 1992 due to causes beyond the reasonable
control of Tenant, Tenant shall at all times continue to cause such
construction to be prosecuted to final completion with all due diligence and
otherwise in strict compliance with this Agreement.
4.2 Time for Completion of Roof Top Restaurant. Tenant shall use
its best efforts to cause construction of the Roof Top Restaurant to be
commenced by a date that will enable the final completion of the Roof Top
Restaurant, fixturization, and opening f or business not later than twelve (12)
months following the opening of the Ground Floor Restaurant and, following the
commencement of such construction, will at all times continuously cause such
construction to be prosecuted to final completion with all due diligence.
4.3 Permits and Approvals. Tenant will be responsible, at its
sole cost and expense, for obtaining all governmental approvals of the plans
and specifications to the full extent necessary for
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the issuance of a building permit for the improvements based upon such plans
and specifications. The actual cost of issuance of such building permit will
be included in the "cost of construction" as defined in Section 2.2 above.
Upon request of Tenant, Landlord will join, without cost or liability to
Landlord, in any and all applications for the building permit. Thereafter,
Tenant will also cause to be obtained all other necessary approvals and permits
from all governmental agencies having authority over the construction and
installation of the improvements in accordance with the approved plans and
specifications, and will undertake all things necessary to ensure that the
construction of the improvements is accomplished in strict compliance with all
laws applicable to such construction and the requirements and standards of any
insurance carrier who will provide insurance coverage on the Premises pursuant
to the Lease. Tenant shall also be responsible, at its sole cost and expense,
to assure that Tenant's Work is designed, developed and constructed in
accordance with the terms and provisions of the Ground Lease with the Agency.
Tenant shall also be responsible, at its sole cost and expense, for obtaining
any and all other permits and licenses (including any conditional use permits
and any on-sale liquor licenses) which are or may be necessary-in connection
with the operation of a food and beverage service in the Premises.
4.4 Workmanship. All work will be done in a good and workmanlike
manner with appropriate materials and in strict accordance with the approved
plans and specifications.
4.5 Inspections by Landlord. Landlord, through its agents and/or
architect, will have the right to inspect the construction
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work to be conducted by Tenant during its progress. If Landlord gives notice
of faulty construction or any other material deviation from the plans and
specifications, Tenant will cause its contractors or subcontractors to make
corrections promptly. However, neither this privilege granted to Landlord to
make such inspections, nor the making of such inspections by Landlord, will
operate as a waiver of any right of Landlord to require good and workmanlike
construction and improvements erected in accordance with the plans and
specifications.
4.6 Temporary Signs. Subject to the Ground Lease and any
applicable governmental requirements, Tenant may install temporary advertising
signs prior to or during the course of construction and will remove them within
a reasonable time after the installation of Tenant's permanent signs. All
signs are subject to approval of Landlord prior to installations.
4.7 Fixturization by Tenant. Tenant will promptly, upon
substantial completion of the Tenant's Initial Work and the Roof Top
Restaurant, at Tenant's sole cost and expense, install in and affix to the
completed areas such furnishings, fixtures, equipment,
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and signs as Tenant may deem desirable. All such furnishings, fixtures,
equipment, and signs, including additions and replacements, will be and remain
the sole property of Tenant and not subject to any lien or encumbrance which
may be placed upon the Premises by Landlord, even if such property is attached
to the realty, and may be removed by Tenant at any time. This Lease does not
grant a contractual lien or any other security interest to Landlord with
respect to Tenant's property. Landlord agrees from time to time during the
term, upon written request from Tenant, to execute and deliver any instrument,
release, or other document that may be required by any equipment supplier or
vendor whereby Landlord waives and/or releases any rights it may have or
acquire with respect to any equipment or trade fixtures which may be affixed to
the Premises and agrees that the same do not constitute realty regardless of
the manner some are attached.
5. COMPLETION OF CONSTRUCTION
5.1 Substantial Completion. "Substantial completion" means with
respect to Tenant's Work, that all construction in accordance with the plans
and specifications approved by Landlord and the Agency have been completed so
as to make the Premises ready for the installation of FF&E, subject to punch
list items.
5.2 Final Completion. Upon final completion of Tenant's Work in
good condition and repair, Tenant will furnish (a) a final certificate executed
by Tenant's architect or engineer certifying the final completion of the entire
work of improvement, and (b) a certificate of occupancy or its equivalent
providing that the Premises can be occupied lawfully by Tenant for the purposes
set forth in the Lease. "Final completion" means, as to Tenant's Work,
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that the entire work of improvement has been fully completed in accordance with
the plans and specifications approved by Landlord and the Agency.
6. FINANCING CONSTRUCTION OF THE IMPROVEMENTS.
6.1 Funding Contributions; Disbursements.
(a) Tenant's Initial Work. Upon the Effective Date of this Lease,
Landlord shall cause the funding of Landlord's Initial Contribution so that
such contribution will be available and ready for distribution to Tenant in
connection with Tenant's Initial Work at the time and in the manner provided in
the Disbursement Agreement. Tenant acknowledges that Landlord may fund
Landlord's Initial Contribution from funds advanced by the Agency pursuant to
the DDA. Upon the removal of all conditions set forth in Section 3.5 of the
Lease, Tenant shall provide to the Agency Tenant's Financial Confirmations (as
defined below) and, upon the commencement of construction of the Tenant's
Initial Work, Tenant shall be obligated to, in a prompt and timely manner, pay
all costs of construction related to such work. At such time as Tenant has
expended one Million Five Hundred Fifty Thousand Dollars ($1,550,000) in
connection with costs of construction for the Tenant's Initial Work, Tenant
shall provide an appropriate verification thereof to Landlord and the Agency.
Tenant shall be thereafter entitled to submit draw requests for Landlord's
Initial Contribution, which requests will be made and paid pursuant to the
Disbursement Agreement.
(b) Roof Top Restaurant. Upon the commencement of construction of
the Roof Top Restaurant, Landlord shall deposit Landlord's Roof Top
contribution into a joint account or accounts
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established pursuant to the Disbursement Agreement for the funding of
construction costs of the Roof Top Restaurant. Likewise, upon the commencement
of construction of the Roof Top Restaurant, the amount, if any, of Landlord's
Initial Contribution that remains undisbursed according to the Disbursement
Agreement after the completion of Tenant's Initial Work may be used for the
funding of construction costs of the Roof Top Restaurant.
6.2 Tenant's Financial Confirmations. Upon the removal of all
conditions set forth in Section 3.5 of the Lease (the "Conditions"), Tenant
shall provide to Landlord and the Agency the following items (collectively,
"Tenant's Financial Confirmations");
(a) Confirmation from Security Pacific Bank that Tenant
has an established and available line of credit to fund construction costs for
the Tenant's Initial Work in an amount not less than One Million Five Hundred
Fifty Thousand Dollars ($1,550,000);
(b) The audited financial statements of Tenant for its
fiscal year ended May 31, 1991;
(c) A letter of credit from Security Pacific Bank showing
the Agency as beneficiary in the amount of One Million Five Hundred Fifty
Thousand Dollars ($1,550,000) ("Tenant's Letter of Credit"), which letter of
credit shall: (i) be irrevocable and stand-by for a period of not less than
one year following the commencement of construction of the Tenant's Initial
Work; (ii) provide for the right on the part of the Agency to draw upon the
letter of credit on October 1, 1992, of the difference between One Million Five
Hundred Fifty Thousand Dollars ($1,550,000) and amounts actually expended by
Tenant in connection with the Tenant's Initial work; (iii) provide that the
balance of the face amount of
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the letter of credit will decline in accordance with funds expended by Tenant
pursuant to 6.1(a) above. The cost of the Letter of Credit shall be paid by
Landlord.
(d) Landlord agrees that the Letter of Credit may be
amended monthly as Tenant completes Tenant's Initial Work. Upon the submission
by Tenant to Landlord of evidence of the payment by Tenant for such work (in
the form required by the Disbursement Agreement) , Landlord shall execute an
amendment to the Letter of Credit reducing the amount of the Letter of Credit
by the amount paid by Tenant.
6.3 Landlord's Financial confirmations. Upon the Effective Date,
Landlord shall provide to Tenant either of the following items ("Landlord's
Financial Confirmations");
(a) The personal guaranty of Manou Mobedshahi in a form
reasonably acceptable to Tenant for Landlord's Roof Top Contribution; or
(b) A letter of credit from Security Pacific Bank or an
equivalent national bank reasonably acceptable to Tenant showing the Tenant as
beneficiary in the amount of Two Hundred Eighty Thousand Dollars ($280,000),
which letter of credit shall: (i) be irrevocable and stand-by for a period of
not less than one year following the commencement of construction of the Roof
Top Restaurant; (ii) provide for the right on the part of the Tenant to draw
upon the letter of credit in the event Landlord does not make the deposit
required by Section 6.2(b) above; and (iii) provide that any funds drawn on the
letter of credit be paid into the appropriate account established in the
Disbursement Agreement.
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6.4 Compliance with Disbursement Agreement. Tenant will timely
comply with the requirements of the Agency for the funding of amounts pursuant
to the Disbursement Agreement, such as submittal of draw requests approved by
appropriate architects and engineers, certificates of Tenant's contractor as to
amounts due and payment of subcontractors and materialmen, title insurance date
downs, conditional lien releases during the course of construction and
unconditional lien waivers upon final completion.
6.5 Financing of Construction by Tenant and Tenant Responsibility
for all Costs of Constructing the Improvements in Excess of Landlord's
Contribution. Except as provided in Section 1.1 and 2.1 above, Tenant will be
responsible, at Tenant's sole cost and expense, for the full cost of
constructing Tenant's Work. By reason of the foregoing, Tenant shall be
responsible for all costs of construction (together with those costs which, as
provided in Section 2.3 above, are not regarded as "costs of construction")
associated with the Tenant's Initial Work which are in excess of the Two
Million Four Hundred Thirty-Two Thousand Dollars ($2,432,000) and, further,
Tenant shall be responsible for all costs of construction (together with those
costs which, as provided in Section 2.3 above are not regarded as "costs of
construction") relating to the Roof Top Restaurant which are in excess of the
amount funded as provided in Section 6.1 (b) above. Tenant will have no
authority, express or implied, to create or place any lien or encumbrance, of
any kind or nature whatsoever, upon, or in any manner to bind the interest of
Landlord in the Premises or to change the rentals payable hereunder for any
claim in favor of any person dealing with Tenant, including those who may
furnish
11
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materials or perform labor for any construction or repairs. Rather, each such
claim will affect and each such lien will attach to, if at all, only the
leasehold interest granted to Tenant by this Lease and will be inferior and
subject to the rights, titles, and interests of Landlord. Any right or
authority given to Tenant in accordance with any of the provisions of this
instrument to erect or cause to be erected, the improvements on the Premises,
or to make any alterations or repairs to the improvements, will not constitute
an express or implied agency in Tenant to bind Landlord's interest in any way.
Tenant will pay or cause to be paid all sums legally due and payable by it, or
in the alternative post a bond, on account of any labor performed on the
Premises on which any lien is or can validly and legally be asserted against
its leasehold interest in the Premises or the improvements and that it will
save Landlord harmless from any and all asserted claims or liens against the
leasehold estate or against the rights, titles, and interests of Landlord in
the Premises or under the terms of this Lease which are created by, under, or
through Tenant. Notwithstanding the foregoing or anything to the contrary
herein, the improvements (exclusive of FF&E) will at all times belong to and be
the property of Landlord.
6.6 Cost Verification. Tenant will deliver or cause to be
delivered to Landlord copies of invoices to Tenant by the general contractor
and all other persons or firms whose labor, material, or service are part of
the cost of construction of the improvements and who will bill Tenant directly
for such cost and, in addition, any changes, additions, or deletions in the
invoices.
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6.7 General Contractors. Landlord has given Tenant pre-approval
to proceed to contract on a negotiated basis with as general contractor for
the improvements. If any other general contractor will be engaged to
construct the improvements, Tenant must obtain Landlord's prior approval.
LANDLORD: HOTEL SAINTE CLAIRE TENANT: IL FORNAIO (AMERICA)
PARTNERS, L.P., a CORPORATION
California Limited
Partnership
By: Manco Investment, a
California Corporation
By: /s/ MANOUCHEHR MOBEDSHAHI By: /s/ LAWRENCE B. MINDEL
------------------------------ -----------------------------------
Manouchehr Mobedshahi Lawrence B. Mindel
President Chairman of the Board
Date 11/21/1991 Date 11/21/91
----------------------------- --------------------------------
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<PAGE> 83
LANDLORD'S WORK - EXCLUSIVE OF $2,423,000 BUDGET:
1. Build-out of 3,600 square feet of basement area for employee lounge and
restrooms, also shared with hotel staff, storage rooms, employee locker
rooms, storage rooms to Il Fornaio operational needs and Santa Clara
County Health Department requirements. Build-out of basement garbage area
for location of Il Fornaio's trash compactor. Build-out of upstairs
banquet pantry ready for Il Fornaio's equipment installation. Total
allocated budget for these improvements to be $77,000, bringing the
total restaurant budget to $2,500,000. Improvement costs in excess of
$77,000 for this work to be Landlord responsibility and not attributable
to restaurant budget.
2. 800 Amp, 208 Volt, 3-phase, 4-wire electrical service, separately metered,
to Il Fornaio basement area with pull cords in conduits from stub-out
location to step-down transformer, if required, which is to be located
outside tenant's premises. If roof garden is added, electrical service to
be 1,000 Amp capacity.
3. *Separately metered natural gas service sized to Il Fornaio's requirements
and stubbed to tenant's premises at a location mutually agreed upon.
4. *Separately metered two-inch domestic water service stubbed to premises at
a location designated by Il Fornaio.
5. Six-inch sanitary sewer line stubbed to premises at a location which is
mutually agreed upon. Il Fornaio shall be allowed to route any
appropriate waste lines to kitchen's existing grease trap.
6. Fire sprinkler system of sufficient capacity for a minimum of Ordinary
Hazard Group II rating throughout tenant's premises.
7. (2) 1-inch diameter conduits with pull cords from building's main
telephone back board to a location designated by Il Fornaio.
8. Location in the laundry room area adjacent to the existing remote
refrigeration rack for placement of Il Fornaio's remote refrigeration
rack. Il Fornaio to take out existing units in said area and provide
appropriate air intake.
9. If any governmental agency requires that kitchen exhaust be "scrubbed" by
means of electronic precipitators, charcoal filtration, or any other
"scrubbing" device, said equipment, including periodic on-going
maintenance thereof, to be provided and installed and maintained by Il
Fornaio and located outside of tenant's premises. If the Landlord requires
that kitchen exhaust be "scrubbed", as defined above, equipment and
periodic on-going maintenance will be provided, installed and maintained
by Landlord.
10. Architecture budget of $75,000 is based upon total architectural fees
which include reimbursibles and liability insurance surcharge.
Architectural fee above the $75,000 level to be a Landlord cost not
attributable to restaurant budget.
* If separate meters are not installed, then an energy audit will be
conducted to ascertain utility use.
EXHIBIT "C-1"
<PAGE> 1
EXHIBIT 10.12
LEASE AGREEMENT
BETWEEN
NEW YORK - NEW YORK HOTEL, LLC
A NEVADA LIMITED LIABILITY COMPANY
"LANDLORD"
AND
IL FORNAIO (AMERICA) CORPORATION
"TENANT"
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I
DESCRIPTION AND LOCATION OF PREMISES............................... 1
1.1 Premises .......................................... 1
1.2 Relocation of Premises ............................ 1
1.3 Modification of Premises .......................... 2
ARTICLE 2
IMPROVEMENT OF PREMISES ........................................... 3
2.1 Landlord's Work ................................... 3
2.2 Tenant's Work ..................................... 3
2.3 Tenant's Obligations Before Commencement Date ..... 3
2.4 Failure of Tenant to Perform ...................... 4
2.5 Condition of Premises ............................. 4
2.6 Refurbishment ..................................... 5
ARTICLE 3
TERM .............................................................. 5
3.1 Lease Term ........................................ 5
3.2 Holding Over ...................................... 5
3.3 Option to Renew ................................... 5
ARTICLE 4
RENT .............................................................. 6
4.1 Base Rent ......................................... 6
4.2 Percentage Rent ................................... 6
4.3 Lease Year ........................................ 6
4.4 Gross Sales ....................................... 6
4.5 Percentage Rent Payments .......................... 7
4.6 Books and Records; Audit .......................... 8
4.7 Place for Payments ................................ 9
4.8 Interest .......................................... 9
4.9 Late Charge ....................................... 9
4.10 Failure to Achieve Minimum Sales .................. 9
ARTICLE 5
GUEST RELATIONS; COMPLIMENTARIES .................................. l0
5.1 Standard of Operations ............................ 10
5.2 Room Charges ...................................... 10
5.3 Room Charge Accountings ........................... 10
5.4 Collections ....................................... 11
5.5 Complimentaries ................................... 11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 6
EMPLOYEES; BONDING ....................................................... 11
6.1 Staffing .................................................... 11
6.2 Licenses .................................................... 11
6.3 Restricted Areas ............................................ 12
6.4 Bonding ..................................................... 12
6.5 Tenant's Employees .......................................... 12
ARTICLE 7
POSSESSION AND SURRENDER OF PREMISES ..................................... 12
7.1 Surrender .................................................. 12
7.2 Fixtures ................................................... 12
7.3 Removal of Trade Fixtures .................................. 12
7.4 Failure to Surrender ....................................... 13
ARTICLE 8
USE OF PREMISES
8.1 Permitted Use
8.2 Tenants' Trade Name......................................... 13
8.3 Liquor License.............................................. 13
8.4 Product Agreements.......................................... 14
8.5 Prohibited Uses............................................. 14
8.6 Approval of Fixtures and Equipment.......................... 15
8.7 Maintenance of Personal Property............................ 15
8.8 Compliance with Law......................................... 15
8.9 Rules and Regulations....................................... 15
8.10 Business Practices and Minimum Hours of Operation .......... 15
8.11 Private Parties............................................. 16
8.12 Photographic Services....................................... 16
8.13 Interference with Other Tenants............................. 16
8.14 Refunds and Settlements by Landlord......................... 16
8.15 Advertising and Signage..................................... 17
8.16 Intellectual Property....................................... 17
8.17 Security.................................................... 17
8.18 Conduct of Tenant........................................... 17
8.19 Emissions and Hazardous Materials........................... 18
8.20 Exclusive Use............................................... 20
ARTICLE 9
ALTERATIONS AND IMPROVEMENTS ............................................. 20
ARTICLE 10
LANDLORD'S REPAIR OBLIGATION ............................................. 20
ARTICLE 11
PARKING AND COMMON AREAS ................................................. 20
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 12
TAXES ...................................................................... 21
12.1 Personal Property Taxes ................................... 21
12.2 Other Taxes ............................................... 21
12.3 Statements Received by Landlord ........................... 21
12.4 Casino Entertainment Tax
ARTICLE 13
SERVICES TO THE PREMISES ................................................... 22
13.1 Utilities ................................................. 22
13.2 Limitation upon Landlord's Obligation ..................... 22
ARTICLE 14
INSURANCE .................................................................. 23
14.1 Liability Insurance ....................................... 23
14.2 Property Insurance ........................................ 23
14.3 Policy Reguirements ....................................... 24
14.4 Hazardous Activities ...................................... 24
14.5 Waiver of Subrogation ..................................... 25
ARTICLE 15
LIENS
15.1 Indemnity for Liens ....................................... 25
15.2 Prevention of Liens ....................................... 25
15.3 Release of Liens .......................................... 25
15.4 Notice of Nonresponsibility ............................... 25
ARTICLE 16
INDEMNIFICATION ............................................................ 26
ARTICLE 17
SUBORDINATION .............................................................. 26
17.1 Subordination of Tenant's Interest ........................ 26
17.2 Priority .................................................. 27
17.3 Attornment ................................................ 27
17.4 Nondisturbance ............................................ 27
ARTICLE 18
ASSIGNMENT AND SUBLETTING .................................................. 27
18.1 Assignment or Sublease without Consent Prohibited ......... 27
18.2 Notice of Proposed Sublease or Assignment ................. 27
18.3 Standards for Consent ..................................... 28
18.4 No Release of Tenant ...................................... 29
18.5 Assumption of Tenant's Obligations ........................ 29
ARTICLE 19
INSOLVENCY AND DEATH ....................................................... 30
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 20
CONDEMNATION ............................................................... 30
20.1 Awards ................................................ 30
20.2 Taking of the Premises ................................ 30
20.3 TAKING of the Hotel ................................... 30
20.4 Deed-in-Lieu .......................................... 30
ARTICLE 21
DESTRUCTION OF PREMISES .................................................... 31
21.1 Landlord's Right of Termination ....................... 31
21.2 Damage Caused by Tenant ............................... 31
21.3 Damage to Hotel ....................................... 31
21.4 Repair Obligations .................................... 31
21.5 Insurance Proceeds .................................... 31
21.6 Rental Abatement ...................................... 32
ARTICLE 22
RIGHT OF ACCESS ............................................................ 32
22.1 Right of Access ....................................... 32
22.2 Inconvenience to Tenant ............................... 32
22.3 Right to Show the Premises ............................ 33
ARTICLE 23
LANDLORD'S RIGHT OF PERFORMANCE ............................................ 33
ARTICLE 24
ESTOPPEL CERTIFICATES ...................................................... 33
ARTICLE 25
TENANT'S DEFAULT ........................................................... 33
25.1 Events of Default ..................................... 33
25.2 Landlord's Remedies ................................... 34
ARTICLE 26
QUIET POSSESSION ........................................................... 35
ARTICLE 27
SALE BY LANDLORD ........................................................... 36
27.1 Landlord's Right to Assign or Transfer ................ 36
27.2 Attornment ............................................ 36
27.3 Release of Landlord ................................... 36
ARTICLE 28
DEFAULT BY LANDLORD ........................................................ 36
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 29
MISCELLANEOUS .............................................................. 36
29.1 Waiver of Jury Trial ................................. 36
29.2 Waiver ............................................... 37
29.3 Force Majeure ........................................ 37
29.4 Delivery of Notices .................................. 37
29.5 Remedies Cumulative .................................. 38
29.6 Successors and Assigns ............................... 38
29.7 Partial Invalidity ................................... 38
29.8 Time of the Essence .................................. 39
29.9 Entire Agreement ..................................... 39
29.10 No Partnership ....................................... 39
29.11 Brokers .............................................. 39
29.12 Captions ............................................. 39
29.13 Usage ................................................ 39
29.14 Governing Law ........................................ 39
29.15 Covenants ............................................ 39
29.16 Joint and Several Obligations ........................ 39
29.17 Submission of Lease .................................. 39
29.18 Liens and Actions Affecting Property ................. 40
29.19 No Memorandum ........................................ 40
29.20 Construction ......................................... 40
29.21 Authority ............................................ 40
ARTICLE 30
DISPUTE RESOLUTION ......................................................... 40
</TABLE>
v
<PAGE> 7
EXHIBITS
<TABLE>
<S> <C>
Exhibit "A" Site Plan Showing Premises
Exhibit "B" Work Letter
Exhibit "C" Memorandum of Commencement Date
</TABLE>
vi
<PAGE> 8
LEASE AGREEMENT
THIS LEASE is made and entered into this 15th day of April 1996, by and
between NEW YORK-NEW YORK HOTEL, LLC, a Nevada limited liability company,
herein referred to as "Landlord", and IL FORNAIO (AMERICA) CORPORATION, a
California corporation, herein referred to as "Tenant".
RECITALS
A. Landlord is the owner of that certain real property located
in Las Vegas, Nevada upon which Landlord is constructing a hotel and casino
which will be known as the New York-New York Hotel (the "Hotel"); and
B. Tenant desires to lease an area within the Hotel for the
operation of a full service Italian restaurant and bakery.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant agree as follows:
ARTICLE 1
DESCRIPTION AND LOCATION OF PREMISES
1.1 PREMISES. Landlord, in reliance upon and in consideration of the
representations, warranties, covenants and conditions herein contained on the
part of Tenant, hereby lets and demises to Tenant, and Tenant hereby rents,
hires and takes of and from Landlord for the term and upon the provisions,
covenants and conditions herein set forth, that certain area (the "PREMISES")
cross-hatched on Exhibit "A" attached hereto and incorporated herein by
reference. The Premises consists of approximately 9400 square feet.
1.2 RELOCATION OF PREMISES. Tenant acknowledges that Landlord shall
have an absolute right from time to time to relocate the Premises within the
Hotel at any time during the term hereof (but not for the purpose of leasing the
Premises originally demised hereunder to another restaurant) provided that the
site to which the Premises is relocated (i) shall be approximately the same size
as the original Premises; (ii) shall be on the casino level and shall be exposed
to reasonably equivalent pedestrian traffic; and (iii) shall have an eighteen
(18) foot separation from the Hotel's casino gaming and gaming machines
(hereinafter, the "REQUIRED BUFFER"). Landlord shall notify Tenant of such
relocation not less than sixty (60) days prior to the date thereof and shall
specify in such notice (i) the location to which the Premises is to be
relocated, and (ii) the approximate date of the relocation. Landlord shall
reconstruct on the relocated Premises improvements substantially similar to
those constructed by Tenant at the time of relocation. Rent shall be abated
during any period that Tenant is required to cease business operations in the
Premises originally demised hereunder prior to moving to the relocated Premises;
provided that in no event shall Tenant be required to cease business operations
for more than thirty (30) days prior to moving to the relocated Premises. As of
the latter of the date specified in Landlord's notice to Tenant or ten (10) days
after Landlord has notified Tenant that
1
<PAGE> 9
it has completed the improvements to be constructed by Landlord on the relocated
Premises, Tenant shall surrender the Premises originally demised to Tenant
hereunder and move to the relocated Premises. All reasonable out-of-pocket costs
incurred by Tenant in moving to the relocated Premises shall be reimbursed to
Tenant by Landlord. In addition, Landlord shall be responsible for moving
Tenant's furniture, fixtures or equipment as necessary to enable Tenant to use
such items in the relocated Premises or replacing, modifying or reconstructing
such items which cannot be moved. The relocated Premises shall thereafter be
deemed to be the Premises for all purposes of this Lease as if originally
demised to Tenant hereunder. Tenant agrees that, promptly on demand, it shall
execute an amendment to Exhibit A designating the location of the relocated
Premises.
Notwithstanding the foregoing if Tenant is not satisfied with the
location to which the Premises is to be relocated hereunder, Tenant may
terminate this Lease by written notice to Landlord not later than ten (10)
business days after Landlord's notice of an intended relocation. Such notice of
termination shall be effective as of the date of Landlord's proposed relocation,
as specified in Landlord's notice, unless Landlord rescinds its notice of
relocation prior to such date. Upon any termination by Tenant hereunder,
Landlord shall reimburse Tenant for the unamortized cost of Tenant's Work,
together with the unamortized cost of refurbishment incurred by Tenant pursuant
to Section 2.6 and the unamortized cost of Tenant's furniture, fixtures and
equipment which are not removed from the Premises by Tenant (all amortized using
the straight-line method over the initial Lease Term, or, in the case of
refurbishment pursuant to Section 2.6 which occurs during a renewal term, over
the applicable renewal term) (collectively, "TENANT'S UNAMORTIZED COSTS").
1.3 MODIFICATION OF PREMISES. In connection with any remodeling of all
or any portion of the Hotel, Landlord shall have the right to change the
dimensions or reduce the size of the Premises. If a proposed reduction in the
size of the Premises would result in the Premises being less than eighty-five
percent (85%) of its original size, or if, as a result thereof, the remaining
portion of the Premises would not be suitable for the conduct of Tenant's
permitted business hereunder, Tenant shall have the right to terminate this
Lease by written notice to Landlord given within thirty (30) days after Landlord
notifies Tenant of Landlord's intention to remodel. A termination by Tenant
hereunder shall be effective thirty (30) days after the notice of termination is
given to Landlord unless, within such thirty (30) day period, Landlord elects to
relocate the Premises pursuant to Section 1.2 hereof or to rescind its decision
to remodel the Premises. In the event of any remodeling pursuant to this Section
1.3, Landlord shall repair any resulting damage to the Premises. In connection
with any such remodeling, Landlord may require Tenant to cease conducting
business from the Premises for up to thirty (30) days. Rent shall be abated
during any period that Landlord requires Tenant to cease conducting business,
and Base Rent shall be reduced in proportion to any reduction in the floor area
of the Premises hereunder.
Upon any termination by Tenant hereunder, Landlord shall reimburse
Tenant for Tenant's Unamortized Costs.
1.4 CASINO BUFFER. Without limiting the provisions of the preceding
Section 1.3, if the Hotel's casino gaming or gaming machines encroach into the
Required Buffer (other than
2
<PAGE> 10
temporary encroachments during remodeling or repair work by Landlord) Tenant may
elect, within six (6) months after the date of such encroachment either (i) to
require Landlord to construct, at Landlord's expense, a demising wall for the
Premises shielding it from such gaming activity; or (ii) to terminate this Lease
as to Tenant's ["outside" eating areas]. In the event of any such partial
termination by Tenant hereunder, the Base Rent shall be reduced in proportion to
the reduction in the floor area of the Premises.
ARTICLE 2
IMPROVEMENT OF PREMISES
2.1 LANDLORD'S WORK. Landlord shall, at its expense, construct the
Premises shell in substantial accordance with plans and specifications prepared
or to be prepared by Landlord's architect, incorporating in such construction
all "LANDLORD'S WORK" set forth in the "WORK LETTER" attached hereto as Exhibit
"B". Landlord represents and warrants to Tenant that Landlord's Work will be
constructed in compliance with all applicable laws, including building codes,
and will conform in all material respects to Landlord's Building Plans which
have been made available to Tenant.
2.2 TENANT'S WORK. All work not provided herein to be done by Landlord
shall be performed by Tenant (hereinafter called "TENANT'S WORK"), including,
but not limited to, all work designated as Tenant's Work in the Work Letter, and
Tenant shall do and perform at its expense all Tenant's Work diligently and
promptly and in accordance with the terms of the Work Letter. Tenant covenants
and agrees that it shall expend not less than One Hundred Seventy-Five Dollars
($175) per square foot of usable area in the Premises, not including Tenant's
"in-house" costs or general and administrative overhead, for the construction of
the Tenant' Work.
2.3 TENANT'S OBLIGATIONS BEFORE-COMMENCEMENT DATE. Landlord has made
available to Tenant and to Tenant's architect and space planning consultants,
Landlord's plans and specifications for Landlord's Work ("LANDLORD'S BUILDING
PLANS"). Not later than April 1, 1996, Tenant will deliver to Landlord Tenant's
proposed plans and specifications for Tenant's Work in such detail as Landlord
may reasonably require (a "PRELIMINARY SUBMITTAL"). Within ten (10) business
days after receipt of the Preliminary Submittal, Landlord shall notify Tenant of
any conflicts with Landlord's Building Plans or the Work Letter or any other
failure to meet with Landlord's approval. Tenant shall, not later than May 1,
1996, submit "FINAL CONSTRUCTION DOCUMENTS" based upon the Preliminary Submittal
and incorporating Landlord's comments thereto. Landlord shall notify Tenant of
its approval or disapproval of the Final Construction Documents within ten (10)
days after receipt. Upon approval, Landlord shall return one ( 1 ) set of
approved Final Construction Documents to Tenant and the same shall become a part
hereof by this reference as Exhibit "B-2". Approval of construction documents
by Landlord shall not constitute the assumption of any responsibility by
Landlord for their accuracy or sufficiency, or compliance with applicable codes,
and Tenant shall be solely responsible for such construction documents and for
obtaining all governmental approvals which are required for Tenant's Work.
Tenant shall not commence any of Tenant's Work until Landlord has approved
Tenant's Final Construction Drawings in writing.
3
<PAGE> 11
Subject to delays in Tenant's Work which are caused by Landlord's
failure to complete the Landlord Work in a timely manner or by Landlord's
failure to allow Tenant's contractors access to the Premises to construct the
Tenant Work or a force majeure event described in Section 29.3 below which
arises from an act or omission of Landlord or Landlord's contractors
(hereinafter, "LANDLORD DELAYS"), Tenant shall complete Tenant's Work by the
later of (i) the date that is one hundred eighty (180) days following the
"DELIVERY DATE," as hereinafter defined, or (ii) December 10, 1996, which
applicable date shall be the "REQUIRED COMPLETION DATE". Landlord shall give
Tenant five (5) days prior written notice of the Delivery Date, such Delivery
Date being the date upon which (i) Landlord's Work in the Premises has been
substantially completed in accordance with the requirements therefor and (ii)
the Premises are available for the commencement of Tenant's Work. Tenant hereby
releases Landlord and its contractors from any claim whatsoever for damages
against Landlord or its contractors for any delay in the date on which the
Premises shall be ready for delivery to Tenant or for any delay in commencing or
completing any of Landlord's Work. If the Delivery Date does not occur on or
before December 31, 1996, Tenant shall have the right to terminate this Lease by
written notice to Landlord at any time prior to the Delivery Date.
2.4 FAILURE OF TENANT TO PERFORM. The parties recognize that it would
be extremely difficult or impossible to determine Landlord's damages resulting
from Tenant's failure to open for business fully fixtured, stocked and staffed
on the Required Completion Date, including, but not limited to, damages from
loss of Percentage Rent (hereinafter defined) from Tenant and other tenants,
diminished leaseability, and/or mortgageability and damage to the economic value
of the Hotel. Accordingly, if Tenant fails to proceed diligently with Tenant's
Work or to open for business fully fixtured, stocked and staffed on or before
the Required Completion Date for any reason other than Landlord Delays, such
failure shall be a Tenant Event of Default and Landlord may, without notice or
demand and in addition to the right to exercise any other remedies and rights
herein or at law provided, proceed with Tenant's Work using any contractor
Landlord desires and making any changes or revisions to Landlord's Work required
because of any delay or failure of Tenant to perform its obligations hereunder,
all at Tenant's expense. In addition, Landlord shall have the right to collect
rent from the Required Completion Date in an amount equal to the Base Rent
(hereinafter defined) and other additional rent and other amounts payable by
Tenant hereunder, and, provided that Tenant's failure is not the result of
Landlord Delays or a force majeure event described in Section 29.3 below,
together with an amount equal to fifty percent (50%) of 1/365ths of the Base
Rent for each day that Tenant has failed to open for business on and after the
Required Completion Date, which latter amount shall be in lieu of Percentage
Rent that might have been earned had Tenant opened in a timely fashion. In the
event that Tenant fails to make a timely Preliminary Submittal or to timely
submit its Final Construction Documents, as provided in this Lease, then
Landlord shall have the right, in addition to its other rights and remedies as
herein provided, to collect from Tenant One Hundred Dollars ($100.00) per
calendar day for each day that such plans are not so submitted. All remedies in
this Lease or at law provided shall be cumulative and not exclusive and shall
survive the expiration of the Lease Term or the earlier termination of this
Lease.
2.5 CONDITION OF PREMISES. Tenant's taking possession of the Premises
for the construction of Tenant's Work shall be conclusive evidence of Tenant's
acceptance thereof in
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good order and satisfactory condition; except for such matters as Tenant shall,
within thirty (30) days after taking possession of the Premises, specify in a
written notice to Landlord (hereinafter, "PUNCH LIST ITEMS"). Landlord shall
diligently correct all Punch List Items which constitute defects in Landlord's
Work. Tenant agrees that no representations respecting the condition of the
Premises or the existence or non-existence of Hazardous Materials (hereinafter
defined) in, on or about the Premises, no warranties or guarantees, expressed or
implied, with respect to workmanship or any defects in material, and no promise
to decorate, alter, repair or improve the Premises either before or after the
execution hereof, have been made by Landlord or its agents to Tenant unless the
same are contained herein.
2.6 REFURBISHMENT. Tenant agrees that it will refurbish the Premises at
least once during the initial Term, as defined in Section 3.1, and at least once
during the renewal terms, if any, according to plans which are approved by
Landlord as provided in Article 9 below. Notwithstanding the above, Tenant shall
maintain the Premises and Tenant's property as required by Section 8.8 below
throughout the Term of this Lease.
ARTICLE 3
TERM
3.1 LEASE TERM. The term (the "TERM") of this Lease shall be for a
period of Ten (10) years, commencing on the earlier of (i) the Required
Completion Date (but in no event earlier than the date upon which the Hotel is
open to the public); or (ii) the first date upon which the Premises is open for
business to the general public (the "OPENING DATE"), unless terminated earlier
as elsewhere herein provided. The date upon which the Term commences shall be
referred to herein as the "COMMENCEMENT DATE". At such time as the Commencement
Date has been determined, Landlord shall insert the Commencement Date and the
expiration date of the Term on Exhibit "C" attached hereto and deliver a copy
thereof to Tenant, which shall thereafter be incorporated in, and form a part
of, this Lease.
3.2 HOLDING OVER. Should Tenant hold possession of the Premises with
the consent of Landlord after the expiration of the stated Term of this Lease,
such holding over shall create a tenancy from month to month only, upon the same
terms and conditions as are herein set forth except that the Percentage Rent and
the Base Rent shall be equal to one hundred twenty-five percent (125%) of the
Percentage Rent and the Base Rent which were payable during the last month of
the Lease Term if Landlord gives Tenant written notice of such increase, which
notice may not be given more than sixty (60) days prior to the expiration of the
Term.
3.3 OPTION TO RENEW. Tenant shall have two (2) five (5) year options to
renew the Term, each such option to be exercised, if at all, by written notice
to Landlord not later than one hundred eighty (180) days prior to the
expiration of the current Term. Base Rent, as well as the Six Million Dollar
($6,000,000) "break point" set forth in Section 4.2 below, shall be adjusted on
the first day of the first renewal term and annually thereafter, based on CPI-U
Index increase, all items, Los Angeles -Anaheim -Long Beach (1982-84=100).
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ARTICLE 4
RENT
4.1 BASE RENT. Tenant shall pay minimum rent to Landlord during the
Term of the Lease at the rate of * per month for years 1 through 10, (the
"BASE RENT"), in advance, beginning on the Commencement Date and continuing on
the first day of each calendar month thereafter. If the month in which the Term
commences or ends not a full calendar month, then the Base Rent for such month
shall be prorated on the basis of the actual number of days in such month.
4.2 PERCENTAGE RENT. Tenant shall pay to Landlord at the time and in
the manner set forth herein the amount by which the following applicable
percentage of Gross Sales during each month of the Lease Year exceeds the Base
Rent for such period (hereinafter called the "PERCENTAGE RENT"):
<TABLE>
<CAPTION>
Lease Year Percentage Rental Payable
---------- -------------------------
<S> <C> <C>
1 Through 10 *
*
</TABLE>
The * ) break point shall be adjusted in accordance with Section 3.3
above.
4.3 LEASE YEAR. "LEASE YEAR," as used herein, means each calendar year
during the Term, together with the "Partial Lease Year" which begins on the
Commencement Date and ends on December 31 of the year in which the Commencement
Date occurs and the Partial Lease Year, if any, which ends on the date upon
which the Term expires or the Lease is otherwise terminated.
4.4 GROSS SALES. As used in this Lease, "GROSS SALES" means the
aggregate selling price of all products, merchandise and services ("PRODUCTS")
sold in, upon or from the Premises by Tenant, its subtenants, licensees and
concessionaires, personally or from any vending or coin operated or token
operated device, whether for check, cash, on credit or otherwise, including
other types of "cashless" transactions, excluding only the following:
a. monies and credit received by Tenant in the
settlement of claims for loss or damage of Tenant's Products;
b. an amount equal to the cash refunded or credit
allowed on Products returned by customers and accepted by Tenant, or the amount
of cash refunded or credit allowed thereon in lieu of Tenant's acceptance
thereof, but only to the extent that the sales relating to such Products were
made in, about or from the Premises; provided, however, that in no event shall
the cost or value of any coupons, trading stamps, premiums, advertising or other
promotional devices be deducted or excluded from Tenant's Gross Sales or be
otherwise construed as a discount, refund, allowance or credit hereunder. Any
credit or refund shall reduce Gross Sales for the accounting period during which
such credit or refund is made but shall not affect Gross Sales, for the period
in which the original sale was made;
* Confidential treatment requested
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c. sales taxes, casino entertainment taxes, if any,
so called luxury taxes now or hereafter imposed upon the sale of Products,
whether such taxes are added separately to the selling price thereof and
collected from customers or paid by Tenant and included in the retail selling
price;
d. any sales of product, merchandise, services or the
like by Landlord;
e. promotional or complimentary meals served without
charge (up to one-half percent (.5%) of Gross Sales per month, noncumulative
(provided that promotional OR complimentary meals served during the first ninety
(90) days after the opening of Tenant's restaurant shall not be subject to such
one-half percent (.5%) cap);
f. goods or food items delivered to another
restaurant of Tenant where such delivery is made solely for the convenient
operation of Tenant's business and not for the purpose of consummating a sale
made in, upon or from the Premises;
g. gratuities received by Tenant;
h. wholesale sales made by Tenant;
i. credit card fees; and
j. meals served to Tenant's employees without charge
or at a discount without profit to Tenant.
All gross income of Tenant or any other person, firm or corporation
from any operations in, at or upon the Premises which are not specifically
excluded by this Section shall be included in Gross Sales. All sales originating
at, upon or from the Premises shall be considered as made and completed thereon
and shall be included in Tenant's Gross Sales, even though bookkeeping and
payment of the account therefor may be transferred to another place for
collection, and even though actual filling of the sale or order or actual
delivery of the merchandise may be made from a place other than the Premises. In
the event Tenant elects to allow its customers to make credit purchases, no
credit shall be allowed for uncollected or uncollectible credit accounts. Each
sale upon credit shall be treated as a sale for the full price in the month
during which such sale is made, regardless of the time of when or whether Tenant
shall receive payment therefor. Tenant agrees that it will not directly or
indirectly operate a restaurant which includes the name "IL FORNAIO" at any
other Las Vegas Strip hotel and/or casino property during the Term of this
Lease.
4.5. PERCENTAGE RENT PAYMENTS. On or before the 15th day of each
calendar month during the Term of this Lease (including the calendar month next
succeeding the last month of the Term hereof), Tenant shall deliver to Landlord
a written statement signed and certified by Tenant or an officer of Tenant as
being true and correct, setting forth the amount of Tenant's Gross Sales during
the immediately preceding calendar month, and on the same date Tenant shall
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<PAGE> 15
pay Landlord the percentage rental for the immediately preceding calendar month.
Within thirty (30) days after the end of each Lease Year during the Term of this
Lease, Tenant shall deliver to Landlord a written statement, signed and
certified by Tenant or an officer of Tenant to be true and correct, setting
forth the amount of Tenant's Gross Sales made during each month of the
immediately preceding year. If Tenant has paid Landlord for such Lease Year
Percentage Rent that is less than Tenant is obligated to pay for such period,
Tenant shall pay Landlord the amount of such deficiency concurrently with
Tenant's delivery of its annual report of Gross Sales hereunder. If Tenant has
paid more than the Percentage Rent required to be paid for such period, Landlord
shall credit the amount of such excess against the Base Rent and Percentage Rent
next coming due hereunder from Tenant or, if the Term has expired, Landlord
shall pay Tenant directly.
4.6 BOOKS AND RECORDS; AUDIT. Tenant agrees that it will keep complete
books of accounts reflecting Gross Sales and all of the business activities with
respect to the Premises for at least three (3) years after the expiration of the
applicable Lease Year and will comply with generally accepted accounting
principles ("GAAP"). Said books of account shall, at a minimum, include:
1. Dated and time stamped cash register tapes (customer
receipt and detail audit) which provide a non-resettable, non-clearing gross
sales total and/or consecutively numbered duplicate sales tickets which are to
be dated and time stamped. When consecutively numbered sales tickets are
utilized, Tenant shall maintain the vendor invoice for such sales ticket
purchases, which shall accurately reflect the commencing and ending numbers of
all sequences. Documentation of voided sales must be kept with regular sales
tickets and tapes and originals of voided tickets must be retained.
2. Daily sales summaries showing from the Premises.
3. Monthly sales journals showing breakdown of sales by day.
4. Authenticated bank deposit slips showing deposits of daily
sales. If deposits are not made on a daily basis, then the number of days'
receipts deposited should be shown on the deposit slip and in the monthly sales
journal.
5. Monthly state sales tax returns and cancelled checks
showing payment of those taxes;
6. Relevant portions of Federal Income Tax returns for the
same period of time that Tenant is required to maintain its Federal Income Tax
returns by the Internal Revenue Service.
7. All of Tenant's purchase orders and invoices relating to
the purchase, exchange, or replacement of Products sold or to be sold by Tenant
at, upon, or from the Premises.
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<PAGE> 16
Landlord shall have the right to examine such books and records at any
reasonable time and place. Lessor shall have the right at any time during the
Term and within thirty (30) days after the end of the Term to have an audit
conducted of Tenant's books of account by Landlord's employees or auditors of
Landlord's choice. If any audit reveals Gross Sales were understated by more
than five percent (5%), the entire cost and expense of such audit shall be borne
by Tenant. It is further agreed that an understatement by Tenant of five percent
(5%) or more of Gross Sales during any three (3) months being audited shall be
deemed an Event of Default.
4.7 PLACE FOR PAYMENTS. All Base Rent, Percentage Rent and other monies
required to be paid by Tenant hereunder (collectively referred to herein as
"RENT") shall be paid to Landlord without deduction or offset, and, except as
may be specifically set forth in this Lease without prior notice or demand, in
lawful money of the United States of America, at 3790 Las Vegas Blvd. South ,
Las Vegas, Nevada, 89109 or at such other place as Landlord may, from time to
time, designate in writing. If the time for payment of any amount due from
Tenant to Landlord is not set forth in this Lease, such amount shall be due
within five (5) business days after such amount is billed by Landlord.
4.8 INTEREST. Any rent due from Tenant to Landlord which is not paid
when due shall bear interest at two percent (2%) per annum in excess of the
Prime Rate of Interest published from time to time in the "Money Rates" section
of the Wall Street Journal (or a comparable interest rate selected by Landlord
in the event the Wall Street Journal no longer publishes a Prime Rate)
(hereinafter, the "DEFAULT RATE").
4.9 LATE CHARGE. In the event Tenant is more than five (5) days late in
paying any rent due under this Lease more than once during the same Lease Year,
then, beginning with the second such delinquent payment of rent, Tenant shall
pay Landlord a late charge equal to five percent (5%) of the delinquent rent,
and Tenant shall pay an equivalent late charge every ten (10) days thereafter
until the delinquent rent, including all interest and assessed late charges, has
been paid in full. The parties agree that the amount of such late charge
represents a reasonable estimate of the cost and expense that would be incurred
by Landlord in processing each delinquent payment of rent by Tenant and that
such late charge shall be paid to Landlord as liquidated damages for each
delinquent payment, but the payment of such late charge shall not excuse or cure
any default by Tenant under this Lease. The parties further agree that the
payment of late charges and the payment of interest provided for in Section
4.7(a) above are distinct and separate from one another in that the payment of
interest is to compensate Landlord for the use of Landlord's money by Tenant,
while the payment of a late charge is to compensate Landlord for the additional
administrative expense incurred by Landlord in handling and processing
delinquent payments.
4.10 FAILURE TO ACHIEVE MINIMUM SALES. Notwithstanding anything to the
contrary contained herein, Landlord may terminate this Lease, without
compensation to Tenant, in the event that, subsequent to the initial *
period following the Opening Date, Tenant's average monthly Gross Sales is less
than * per month for a period consisting of * consecutive months during
which the occupancy rate for the Hotel's guest rooms is at least * , except to
the extent that Tenant's failure to achieve such minimum
* Confidential Treatment Requested
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<PAGE> 17
monthly Gross Sales is caused by force majeure events described in Section 29.3
below. Termination hereunder shall be upon thirty (30) days written notice.
Tenant acknowledges that Landlord has made no representation to Tenant regarding
anticipated Gross Sales or projected number of visitors and guests in the Hotel.
ARTICLE 5
GUEST RELATIONS; COMPLIMENTARIES
5.1 STANDARD OF OPERATIONS. Tenant and Landlord acknowledge that the
Hotel is a first class hotel (and Landlord hereby agrees to operate it as such)
and that the maintenance of Landlord's reputation and the reputation of the
Hotel, as well as the goodwill of all of Landlord's guests and invitees, is
absolutely essential to Landlord and that any impairment thereof whatsoever will
cause great damage to Landlord. Tenant therefore covenants that it shall operate
the Premises in accordance with the highest standards of honesty, integrity,
quality and courtesy as is customary for a first class restaurant so as to
maintain and enhance the reputation and goodwill of Landlord and the Hotel and
at all times in keeping with and not inconsistent with or detrimental to the
operation by Landlord of an exclusive, first-class resort hotel facility. Tenant
shall continuously monitor the performance of each of Tenant's employees at the
Premises to insure that such standards are consistently maintained. Tenant
therefore further agrees, as a material inducement to Landlord, that repeated
failure to maintain such standards shall be deemed an Event of Default by Tenant
and that repeated complaints from customers or guests which are reasonable and
which are not promptly remedied by Tenant shall be evidence of a failure to
maintain such standards.
5.2 ROOM CHARGES. Tenant may permit Hotel guests to charge
purchases from Tenant to their room account. Tenant shall be solely responsible
for ascertaining that any persons purporting to be Hotel guests are in fact
Hotel guests and shall further be solely responsible for the credit worthiness
of such persons. Landlord shall not be responsible for uncollected or
uncollectible charges; provided that Landlord shall have the duty to use its
reasonable good faith efforts to collect any charges by Tenant's customers to
their hotel rooms. Tenant shall, at Tenant's expense, use Landlord's
point-of-sale system in order to record all guest charges. Tenant agrees to
comply with all rules and regulations which Landlord may, in its reasonable
discretion, from time to time, adopt to facilitate charges to rooms and/or to
minimize uncollected charges.
5.3 ROOM CHARGE ACCOUNTINGS. Landlord shall cause to be
prepared and delivered to Tenant a weekly accounting of all charges to Hotel
guest accounts by Tenant's customers and concurrently therewith shall deliver to
Tenant any sums collected with respect to such charges. If any customer account
was paid by credit card, Landlord shall deduct from the amounts due to Tenant
such charges as the credit card company may assess against or with respect to
the account. Tenant shall have the right to examine Landlords' records with
respect to room charge accountings hereunder and to have an audit performed of
such records not more than once in any Lease Year. If such audit reveals an
understatement of charges to guest room accounts by Tenant's customers of more
than five percent (5%) (and if such error would not have been
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<PAGE> 18
revealed by a review of Landlord's weekly accountings), the reasonable costs of
such audit shall be paid by Landlord.
5.4 COLLECTIONS. In the event that any Hotel guest pays any portion of
his bill but refuses to pay any charges of Tenant, Tenant agrees separately to
bill such guests and to pursue collection independently of Landlord. In the
event Tenant determines that collection efforts are necessary to collect an
unpaid bill by one of its customers, Tenant shall inform Landlord in writing of
the identity of such customer at least five (5) days prior to the commencement
of any collection effort. Any collection efforts by Landlord shall include the
charges of Tenant to the extent that such charges are included in the guest's
hotel bill.
5.5 COMPLIMENTARIES. Landlord may desire to provide designated
Hotel guests with complimentary food and beverages ("COMPLIMENTARIES") at the
Premises. From time to time Landlord and Tenant shall develop procedures for
authorization of Complimentaries and for or reimbursement by Landlord of eighty
percent (80%) of the full retail cost thereof and such amounts shall not be
included in the computation of Gross Sales. In the event Tenat desires provide
complimentary food and/or beverages to any of its guests after the first ninety
(90) days after the opening of Tenant's restaurant, Tenant shall be responsible
for payment of the full retail value thereof in excess of one-half of one
percent (.5%) of Ten Gross Sales in any month and the same shall be included in
computation of Gross
ARTICLE 6
EMPLOYEES; BONDING
6.1 STAFFING. Tenant shall staff the Premises with such number of its
employees as are reasonably required for the proper and efficient operation of
Tenant's business. Tenant agrees to adopt its own rules of conduct and personal
appearance standards which are consistent with the first class standards of the
Hotel. So long as mandatory drug testing is permitted under Nevada law, Tenant
shall, at Tenant's expense, require its prospective and present management
employees to participate in any pre- and post-employment drug testing program
which may be established by Landlord for its own employees from time to time.
Should Landlord bring to Tenant's attention a violation of the above rules,
policies or standards by an employee of Tenant, Tenant shall immediately
undertake appropriate action against such employee.
6.2 LICENSES. Tenant acknowledges that Landlord, its parent,
subsidiaries and affiliates are businesses that are or may be subject to and
exist because of privileged licenses issued by governmental authorities. If
requested to do so by Landlord, Tenant shall obtain any license, qualification,
clearance or the like which shall be requested or required of Tenant by Landlord
or any regulatory authority having jurisdiction over Landlord or any parent
company, subsidiary or affiliate of Landlord. If Tenant fails to satisfy such
requirement or if Landlord or any parent company, subsidiary or affiliate of
Landlord is directed to cease business with Tenant by any such authority, or if
Landlord shall in good faith determine that Tenant, or any of its officers,
directors, employees, agents, designees or representatives (a) is or might be
engaged in, or is about to be engaged in, any activity or activities, or (b) was
or is involved in any relationship, either of which could or does jeopardize
Landlord's business or such licenses, or those of its parent, subsidiaries or
affiliates, or if any such license is threatened to be, or is, denied,
curtailed,
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suspended or revoked by reason of any improper activities of Tenant or any such
related person and if, promptly after receiving notice thereof from Landlord
(which notice must contain sufficient particulars to permit Tenant to take
appropriate action), Tenant does not cease such activities or sever the
relationship of any such person to Tenant so as to satisfy Landlord and/or the
appropriate governmental authority, this Lease may be terminated by Landlord
without liability to either party.
6.3 RESTRICTED AREAS. Tenant shall not cause or permit its employees to
enter upon those areas of the Hotel which are designated "Hotel Employees Only".
Access to such areas is to be restricted to the employees of Landlord.
6.4 BONDING. All employees of Tenant who are reasonably expected by
Tenant to perform a portion of their tasks outside of the Premises (including,
for example, employees who are expected to deliver items to rooms in the Hotel)
shall be bonded in such amounts as may be reasonably required by Landlord from
time to time. In no event shall any employee of Tenant perform work outside of
the Premises until the bond for such employee has been delivered to Landlord and
Landlord has approved the same, in writing.
6.5 TENANT'S EMPLOYEES. Tenant shall be responsible for all salaries,
employee benefits, social security taxes, federal and state unemployment
insurance and any and all similar taxes relating to its employees and for
workers' compensation coverage with respect thereto pursuant to applicable law.
Tenant's employees shall not be entitled to participate in, or to receive, any
of Landlord's employee benefit or welfare plans, nor shall they be deemed agents
of Landlord for purposes of this Lease. Tenant shall be responsible for
verifying its employees' work authorizations under federal law, including any
necessary employment verification process under the Immigration Reform and
Control Act of 1986, as amended, before such employees perform services at the
Premises.
ARTICLE 7
POSSESSION AND SURRENDER OF PREMISES
7.1 SURRENDER. Upon any surrender of the Premises, or termination or
expiration of this Lease, Tenant shall redeliver the Premises to Landlord in the
same condition in which it existed at the Opening Date, reasonable wear and
tear, repairs which are the obligation of Landlord and permitted alterations and
installations excepted, and deliver to Landlord all keys for, and all
combinations for locks, safes and/or vaults in the Premises.
7.2 FIXTURES. All fixtures (except trade fixtures) which may be made or
installed or placed by either Tenant or Landlord upon the Premises, either
before or during the Term of this Lease, shall remain upon the Premises and
shall be surrendered with the Premises at the termination of this Lease.
7.3 REMOVAL OF TRADE Fixtures. Upon the termination of this Lease,
Tenant shall be entitled to remove from the Premises all of its trade fixtures,
furnishings and equipment, including the personal property shown on Tenant's
Plans. If Tenant fails to remove any trade
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fixtures from the Premises prior to the end of the Lease Term or prior to any
earlier termination thereof, such trade fixtures shall become Landlord's
property.
7.4 FAILURE TO SURRENDER. If the Premises is not surrendered at the end
of the Lease Term, Tenant shall indemnify Landlord against loss or liability
resulting from delay by Tenant in so surrendering the Premises including,
without limitation, any claims made by any succeeding tenant founded on such
delay.
ARTICLE 8
USE OF PREMISES
8.1 PERMITTED USE. The Premises is leased to Tenant solely for the
purpose of conducting thereon on a non-exclusive basis an Italian Restaurant and
Bakery specializing in the sale of Italian food, liquor, bakery goods and
related items of the type now offered at Tenant's existing Il Fornaio
restaurants and bakeries. Tenant may also offer souvenir items for sale so long
as such items do not include the words "New York" or "NY" or show or make
reference to landmarks of New York City or otherwise make use of Landlord's
name, theme or intellectual property. Tenant's initial menu and pricing shall be
subject to the prior written approval of Landlord, which approval shall not be
unreasonably withheld. Tenant shall not use or suffer to be used the Premises,
or any portion thereof, for any other purpose or purposes whatsoever, without
Landlord's written consent therefor first had and obtained, and such consent may
be withheld in Landlord's sole and absolute discretion. Without limiting the
generality of the foregoing, Tenant shall not conduct gaming activities at the
Premises.
8.2 TENANTS' TRADE NAME. Tenant shall conduct business under the trade
name of' "IL FORNAIO" and no other without prior written consent of Landlord.
Tenant shall not conduct any business at any time either before or after the
termination of this Lease, either in the Premises or elsewhere, under a name in
which the words "New York-New York" appear: provided, however, that Tenant may
conduct its business in the Premises under such a name (and the trade name set
forth above) and use the logo of Landlord in advertising, but such approval and
use of logo shall be deemed a revocable license or privilege only, terminable at
any time, which confers no property rights on Tenant, and which, in any event,
shall cease upon the expiration or sooner termination of this Lease. Any such
use shall not occur without the consent required under Section 8.16. Neither
such approval of name and use of logo nor anything herein shall be deemed to
abridge the right of Landlord to grant or license the use of the words "New
York-New York" to any other person at any time. During the Term of this Lease,
and subject to Tenant's reasonable prior consent, Tenant hereby grants Landlord
a license to use Tenant's trade name and any marks related to such trade name in
connection with promotion and advertising.
8.3 LIQUOR LICENSE. Immediately after execution of this Lease, Tenant
shall make application for a liquor license in order to be able to provide
liquor service at the Premises. If Tenant is unable to obtain a liquor license
within ninety (90) days after the commencement of the Lease Term, then Landlord
may treat the same as an Event of Default. Should the Premises open for business
prior to Tenant's obtaining the necessary liquor license(s), Tenant shall apply
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<PAGE> 21
for a temporary liquor license and, until a temporary license is obtained,
Landlord shall have the right, but not the obligation, to provide liquor service
to the Premises at Landlord's expense for so long as Tenant does not hold the
necessary liquor license(s). In such event, Landlord shall be entitled to retain
all revenue derived therefrom and Tenant shall have no claim or right to such
revenue.
8.4 PRODUCT AGREEMENTS. Tenant acknowledges that Landlord has entered
into or may in the future enter into product, service, sponsorship or marketing
agreements with third parties which may require that only certain products may
be offered for sale or use within the Hotel, including the Premises. Tenant
agrees that upon reasonable notice from Landlord it will abide by the terms and
conditions of such agreements as they may relate to the use of either soft-
drink products or non-food products within the Premises so long as (i) the terms
of any such agreements require the third party to supply its product at the
lowest national price; (ii) other than product agreements with Coca-Cola or
PepsiCo, the quality of the subject products is reasonably equivalent to the
quality of similar products which would be available to Tenant in the Las Vegas
marketplace.
8.5 PROHIBITED USES. Tenant shall not permit the Premises to be used
for any of the following purposes:
a. VENDING MACHINES. Tenant shall not, without Landlord's
prior written approval, operate or permit to be operated on the Premises any
coin or token operated vending machines or similar device for the sale or
leasing to the public of any goods, wares, merchandise, food, beverages, and/or
service, including, without limitation, pay telephones, pay lockers, pay
toilets, scales and amusement devices.
b. NO RESIDENTIAL USE. Tenant shall refrain from using or
permitting the use of the Premises or any portion thereof as living quarters,
sleeping quarters or lodging rooms.
c. NO NON-RETAIL USE. Tenant shall refrain from using or
permitting the use of the Premises or any portion thereof for office, clerical
or other nonselling purposes, provided, however, that space in the Premises may
be used for such purposes to the extent reasonably required for the conduct of
Tenant's permitted business.
d. NO FIRE SALES. Tenant shall not, without Landlord's prior
written approval, conduct or permit any fire, bankruptcy or auction sale in, on
or about the Premises.
e. NO OBSTRUCTIONS. Tenant shall not, without Landlord's prior
written approval, cover or obstruct any windows, glass doors, lights, skylights,
or other apertures that reflect or admit light into the Premises.
f. NO ANIMALS. Tenant shall not keep or permit the keeping of
any animals of any kind in, about or upon the Premises without Landlord's prior
written approval.
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g. NO WAREHOUSE USE. Tenant shall not use the Premises for
storage or warehouse purposes beyond such use as is reasonably required to keep
Tenant's business adequately stocked for sales of product and merchandise in, at
or from the Premises.
8.6 APPROVAL OF FIXTURES AND EQUIPMENT. All fixtures and other
equipment to be used by Tenant in, about or upon the Premises which deviate from
the original, approved style and theme of the Premises shall be subject to the
prior written approval of Landlord.
8.7 MAINTENANCE OF PERSONAL PROPERTY. Except as provided for elsewhere
herein. Tenant shall keep and maintain in good order, condition and repair
(including any such replacement and restoration as is required for that purpose)
Tenant's personal property and the Premises and every part thereof and any and
all appurtenances thereto wherever located. Tenant shall also keep and maintain
in good order, condition and repair (including any such replacement and
restoration as is required for that purpose) any special equipment, fixtures or
facilities which special facilities shall include but not be limited to
greasetraps, located outside the Premises. Tenant shall store all trash and
garbage in metal or other Health Department approved containers so as not to be
visible or create a nuisance to guests, customers and business invitees in the
Hotel, and so as not to create or permit any health or fire hazard, and arrange
for the prompt and regular removal thereof.
8.8 COMPLIANCE WITH LAW. Tenant shall at all times during the Term of
this Lease comply with and shall cause the Premises to be in compliance with all
governmental rules, regulations, ordinances, statutes and laws, and the orders
and regulations of the National Board of Fire Underwriters, the Insurance
Service Office, or any other body now or hereafter exercising similar functions
(collectively, "REGULATIONS"), now or hereafter in effect pertaining to those
portions of the Premises which Tenant is required to maintain under this Lease
or Tenant's use thereof. Tenant shall not, without the prior written consent of
Landlord and all insurance companies which have issued any insurance of any
kind whatsoever with respect to the Hotel or the Premises, sell, or suffer to be
kept, used or sold in, upon or about the Premises any gasoline, distillate or
other petroleum products or any other substance or material of an explosive,
inflammable or radiological nature. Landlord shall comply with all Regulations
pertaining to those portions of the Hotel which Landlord is required to maintain
under this Lease.
8.9 RULES AND REGULATIONS. Tenant hereby covenants and agrees that it,
its agents, employees, servants, contractors, subtenants and licensees shall
abide by any reasonable rules and regulations as Landlord may, from time to
time, reasonably adopt for all similarly situated retail tenants in the Hotel
relating to the safety, care and cleanliness of the Premises, or the Hotel or
for the preservation of good order thereon or to assure the operation of a
first-class resort hotel facility. In the event of any conflict between this
Lease and such rules and regulations, this Lease shall prevail.
8.10 BUSINESS PRACTICES AND MINIMUM HOURS OF OPERATION. Tenant shall
operate all of the Premises during the entire Lease Term in accordance with
sound business practices, due diligence and efficiency so as to provide the
maximum Gross Sales which may be produced by such manner of operation. Tenant
shall maintain in the Premises Tenant's personal property
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necessary for the conduct of Tenant's business therein, in a businesslike
manner, shall carry at all times in the Premises sufficient quantities of
Products as shall be reasonably designed to produce the maximum return to
Landlord and Tenant, and shall staff the Premises at all times with sufficient
personnel to serve its customers. All Products shall meet the highest standards
of the Hotel. Tenant shall, at a minimum, be open for lunch and dinner, seven
days per week. In the event Tenant shall fail to be open as provided herein
(except for temporary closures, not exceeding five (5) days per Lease Year, for
inventory or refurbishing and except for closures resulting from damage or
destruction to the Premises or the Hotel, from force majeure events described in
Section 29.3, from any remodeling or relocation by Landlord pursuant to Sections
1.2 or 1.3 above, from major refurbishment pursuant to Section 2.6, or from any
other activity of Landlord pursuant to this Lease which prevents Tenant from
being open for business as required herein), Landlord shall have, in addition to
any and all remedies herein provided, the right, at its option, to collect an
amount equal to one-thirtieth (1/30) of the average monthly Percentage Rent for
the same month(s) during the previous three (3) years (or such lesser number of
months during which Tenant was open and operating in compliance with this
Section 8.10) to which Landlord is or was entitled for each and every day, or
any portion thereof, that Tenant is not open for business as herein provided.
Said amount shall be due on demand and shall be deemed to be in lieu of any
Percentage Rent and Base Rent (to the extent included in Percentage Rent) that
might have been earned during such period of Tenant's failure to conduct its
business as herein provided. Tenant may, upon prior written notice to Landlord,
remain open additional hours.
8.11 PRIVATE PARTIES. Tenant shall not materially restrict the use of
Premises to guests or patrons of the Hotel nor conduct any private parties
therein, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld, provided that Landlord is satisfied, in its reasonable
judgement, that the conduct of any such private party will not deprive Hotel
guests of adequate access to Tenant's restaurant.
8.12 PHOTOGRAPHIC SERVICES. Tenant shall permit the photographic
concessionaire with whom Landlord has entered into an agreement to provide
photographic services to patrons of Tenant's restaurant on the Premises,
provided that Landlord exercises reasonable control over such concessionaires so
as to avoid annoyance to or interference with Tenant's customers.
8.13 INTERFERENCE WITH OTHER TENANTS. Tenant shall not do, permit or
suffer anything to be done, or kept upon the Premises which will obstruct or
interfere with the rights of other tenants, Landlord or the patrons and
customers of any of them, or which will annoy any of them or their patrons or
customers by reason of unreasonable noise or otherwise, nor will Tenant commit
or permit any nuisance on the Premises or commit or suffer any immoral or
illegal act to be committed thereon.
8.14 REFUNDS AND SETTLEMENTS BY LANDLORD. In the event a dispute shall
arise between Tenant and any of its customers concerning the acceptability of
Tenant's Products which results in a customer demanding a refund from Landlord,
and in the event that an authorized representative of Tenant is not available to
settle such matter, Landlord may in good faith and in the exercise of a
reasonable business judgment make such refund or rebate to avoid
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embarrassment to the Hotel and to retain the goodwill of its customers. In such
case Tenant will forthwith reimburse Landlord in the amount of such refund or
rebate.
8.15 ADVERTISING AND SIGNAGE. All advertising, signs, placards or other
promotional events proposed to be posted, shown or exhibited by Tenant in or
upon the Premises and all additional outside advertising (including, without
limitation, television, radio and print advertising) which mentions Landlord or
the Hotel, shall be subject to the prior written approval of Landlord, which
approval, except as to items located outside the Premises in the Hotel, shall
not be unreasonably withheld. Without limiting the foregoing, Tenant shall not
advertise at the Premises any other premises owned or operated by Tenant without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld. Tenant acknowledges that the Premises may be designated by a
particular suite number. In such event, Tenant agrees to include and use such
suite number on all of its stationary, correspondence, sales receipts and
advertisements as part of its address. Tenant agrees to forthwith remove or
cease any such advertising, sign, placard or exhibit which in the reasonable
judgment of Landlord or its agents or officers is deemed, for any reason, to be
objectionable or inconsistent with the decor or policies of Landlord in the
operation of the Hotel. Tenant shall also refrain from any advertising which is
so objectionable, in Landlord's reasonable judgment, as to result in
embarrassment to Landlord, loss of goodwill or damage to the reputation of the
Hotel. None of Tenant's signs, placards or advertising shall be exhibited
outside of the Premises or in the lobby or any other part of the Hotel without
Landlord's prior written consent, which consent may be withheld in Landlord's
sole discretion. At no time during the Term of this Lease nor for a period of
six (6) months after its termination shall Tenant place or cause to be placed,
whether on or off the Premises, any window card, sign or other advertising,
including newspaper adds, which recites that Tenant has lost its lease, is going
out of business or is vacating the Premises.
8.16 INTELLECTUAL PROPERTY. Tenant represents and warrants to Landlord
that Tenant owns, or has obtained an appropriate license to use, its tradename
"Il Fornaio", as well as any trade or service mark or logo used in Tenant's
business, and that, to the best of Tenant's knowledge, Tenant owns or has
obtained an appropriate license to use all other copyrights, trademarks,
tradenames and other intellectual property rights used in Tenant's business.
8.17 SECURITY. Tenant acknowledges that Landlord's security department
and security officers are not responsible for providing security services in the
Premises and that all such responsibility is the obligation of Tenant. In no
event shall Landlord be liable to Tenant or any third-party for the security
department's failure to respond to a request for aid or assistance by Tenant.
8.18 CONDUCT OF TENANT. Tenant acknowledges that Landlord, its parent,
subsidiaries and affiliates have a reputation for offering high-quality
entertainment and/or services to the public, and that it and its affiliates are
subject to regulation and licensing, and desire to maintain their reputation and
receive positive publicity. Tenant therefore agrees that throughout the Term of
this Lease, it and its officers and management will not conduct themselves in a
manner which is contrary to the best interests of Landlord, nor in any manner
that adversely affects or is detrimental to Landlord or its affiliates, and that
neither Tenant nor any of Tenant's officers or
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management will directly or indirectly make any public statement or comment that
is disparaging, critical, defamatory or otherwise adverse to Landlord's
reputation or licensing. Statements made in depositions, pleadings or hearings
in the course of any litigation or arbitration shall not be subject to the
provisions of this Section 8.18.
8.19 EMISSIONS AND HAZARDOUS MATERIALS. Tenant shall not, without the
prior written consent of Landlord, cause or permit, knowingly or unknowingly,
any Hazardous Material (hereinafter defined), other than cleaning and cooking
materials which are customarily found in a first class restaurant, to be brought
or remain upon, kept, used, discharged, leaked, or emitted in or about, or
treated at the Premises. As used in this Lease, "HAZARDOUS MATERIAL(S)" shall
mean any hazardous, toxic or radioactive substance, material, matter or waste
which is or becomes regulated by any federal, state or local law, ordinance,
order, rule, regulation, code or any other governmental restriction or
requirement, and shall include asbestos, petroleum products and the terms
"Hazardous Substance" and "Hazardous Waste" as defined in the Comprehensive
Environmental Response, Compensation and Liability Act, as amended 42 U.S.C.
Section 9601 el seq. ("CERCLA"), and the Resource Conservation and Liability
Act, as amended 42 U.S.C. Section 9601 et seq. ("RCRA"). To obtain Landlord's
consent, Tenant shall prepare an "Environmental Audit" for Landlord's review.
Such Environmental Audit shall list: (1) the name(s) of each Hazardous Material
and a Material Safety Date Sheet ("MSDS") as required by the Occupational Safety
and Health Act; (2) the volume proposed to be used, stored and/or treated at the
Premises (monthly) (3) the purpose of such Hazardous Material; (4) the proposed
on-premises storage location(s); (5) the name(s) of the proposed off-premises
disposal entity; and (6) an emergency preparedness plan in the event of a
release or spill. Additionally, the Environmental Audit shall include copies of
all required federal, state, and local permits concerning or related to the
proposed use, storage, or treatment of any Hazardous Material(s) at the
Premises. Tenant shall submit a new Environmental Audit whenever it proposes to
use, store, or treat a new Hazardous Material at the Premises or when the volume
of existing Hazardous Materials to be used, stored or treated at the Premises
expands by ten percent (10%) during any thirty (30) day period. If Landlord in
its reasonable judgment finds the Environmental Audit acceptable, then Landlord
shall deliver to Tenant Landlord's written consent. Notwithstanding such
consent, Landlord may revoke its consent upon : (1) Tenant's failure to remain
in full compliance with applicable environmental permits and/or any other
requirements under federal, state or local law, ordinance, order, rule,
regulation, code or any other governmental restriction or requirement (including
but not limited to CERCLA and RCRA related to environmental safety, human
health, or employee safety; (2) the Tenant's business operations pose or
potentially pose a human health risk to other Tenants; or (3) the Tenant expands
its use, storage, or treatment of any Hazardous Material(s) in a manner
inconsistent with the safe operation of a restaurant and hotel. Should Landlord
consent in writing to Tenant bringing, using, storing or treating any Hazardous
Material(s) in or upon the Premises, Tenant shall strictly obey and adhere to
any and all federal, state or local laws, ordinances, orders, rules,
regulations, codes or any other governmental restrictions or requirements
(including but not limited to CERCLA and RCRA which in any way regulate, govern
or impact Tenant's possession, use, storage, treatment or disposal of said
Hazardous Material(s). In addition, Tenant represents and warrants to Landlord
that (1) Tenant shall apply for and remain in compliance with any and all
federal, state or local permits in regard to Hazardous Materials; (2) Tenant
shall report to any and all applicable governmental authorities any release of
reportable quantities
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of any Hazardous Material(s) as required by any and all federal, state or local
laws, ordinances, orders, rules, regulations, codes or any other governmental
restrictions or requirements; (3) Tenant, within five (5) days of receipt,
shall send to Landlord a copy of any notice, order, inspection report, or other
document issued by any governmental authority relevant to the Tenant's
compliance status with environmental or health and safety laws; and, (4) Tenant
shall remove from the Premises all Hazardous Materials at the termination of
this Lease, except for those if any, brought onto the Premises by or at the
direction of Landlord or which Tenant proves were brought onto the Premises by
an unrelated third party without Tenant's consent or acquiescence.
In addition to, and in no way limiting Tenant's duties and obligations
as set forth in Article 16 of this Lease, should Tenant breach any of its duties
and obligations as set forth in this Section 8.20, or if the presence of any
Hazardous Material(s) brought onto or occurring on the Premises after the
Delivery Date (other than Hazardous Materials which Tenant proves were brought
onto the Premises by an unrelated third party without Tenant's consent or
acquiescence) results in contamination of the Premises, the Hotel, any land
other than the Hotel, the atmosphere or any water or waterway (including
groundwater), or if contamination of the Premises or of the Hotel by any
Hazardous Material(s) otherwise occurs for which Tenant is otherwise legally
liable to Landlord for damages resulting therefrom, Tenant shall indemnify, save
harmless, and at Landlord's option and with attorneys approved in writing by
Landlord, defend Landlord, and their contractors, agents, employees, partners,
officers, directors and mortgagees, if any, from any and all claims, demands,
damages, expenses, fees, costs, fines, penalties, suits, proceedings, actions,
causes of action, and losses of any and every kind and nature (including,
without limitation, diminution in value of the Premises or the Hotel, damages
for the loss or restriction on use of the rentable or usable space or of any
amenity of the Premises or the Hotel, damages arising from any adverse impact on
marketing space in the Hotel, and sums paid in settlement of claims and for
attorney's fees, consultant fees and expert fees, which may arise during or
after the Lease Term or any extension thereof as a result of such
contamination). This includes, without limitation, costs and expenses, incurred
in connection with any investigation of site conditions or any cleanup,
remedial, removal or restoration work required by any federal, state or local
governmental agency or political subdivision because of the presence of
Hazardous Material(s) on or about the Premises or the Hotel, or because of the
presence of Hazardous Material(s) anywhere else which came or otherwise emanated
from Tenant or the Premises. Without limiting the foregoing, if the presence of
any Hazardous Material(s) on or about the Premises or the Hotel caused or
permitted by Tenant results in any contamination of the Premises or the Hotel,
Tenant shall, at its sole expense, promptly take all actions and expense
necessary to return the Premises and/or the Hotel to the condition existing
prior to the introduction of any such Hazardous Material(s) to the Premises or
the Hotel; provided, however, that Landlord's approval of such actions shall
first be obtained in writing.
Nothing contained herein shall be deemed to limit Landlord's obligations
under law for the removal of Hazardous Materials which exist in the Premises
prior to the delivery thereof to Tenant.
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8.20 EXCLUSIVE USE. During the Term of this Lease, no portion of the
Hotel (excluding the Premises) shall be used for any restaurant (or other
business) that uses a woodburning pizza oven.
ARTICLE 9
ALTERATIONS AND IMPROVEMENTS
Tenant may make no alteration, repairs, additions or improvements in, to
or about the Premises (collectively, "TENANT ALTERATIONS"), without the prior
written consent of Landlord, and Landlord may impose as a condition to such
consent such requirements as Landlord, in its reasonable discretion, may deem
necessary or desirable, including without limitation, (a) the right to approve
the plans and specifications for any work, (b) the right to require insurance
satisfactory to Landlord, (c) with respect to Tenant Alterations costing more
than $25,000, the right to require security for the full payment for any work,
(d) requirements as to the manner in which or the time or times at which work
may be performed and (e) the right to approve the contractor or contractors to
perform Tenant Alterations and the right to designate such contractor with
respect to work which could affect the fire sprinkler or life safety systems of
the Hotel. All Tenant Alterations shall be compatible with a first class
hotel/casino complex and completed ill accordance with Landlord's requirements
and all applicable rules, regulations and requirements of governmental
authorities and insurance carriers. Tenant shall pay to Landlord Landlord's
reasonable charges (without profit to Landlord) for any engineering review and
inspection of all Tenant Alterations to assure full compliance with all of
Landlord's requirements. Landlord does not expressly or implicitly covenant or
warrant that any plans or specifications submitted by Tenant are safe or that
the same comply with any applicable laws, ordinances, codes, rules or
regulations. Further, Tenant shall indemnify, protect, defend and hold Landlord
harmless from any loss, cost or expense, including attorneys' fees and costs,
incurred by Landlord as a result of any defects in design, materials or
workmanship resulting from Tenant Alterations. If requested by Landlord, Tenant
shall provide Landlord with copies of all contracts, receipts, paid vouchers,
and any other documentation in connection with the construction of such Tenant
Alterations. Tenant shall promptly pay all costs incurred in connection with all
Tenant Alterations.
ARTICLE 10
LANDLORD'S REPAIR OBLIGATION
Landlord agrees to keep in good structural order, condition and repair
the exterior walls, structural elements, HVAC and utility lines (up to the
Premises), and roof of the Premises except for reasonable wear and tear. It is
an express condition precedent to all obligations of Landlord to repair and
maintain that Tenant shall have notified Landlord in writing of the need for
such repairs or maintenance.
ARTICLE 11
PARKING AND COMMON AREAS
Tenant, its agents, employees, servants, contractors, subtenants,
licensees, customers and business invitees shall have the nonexclusive right, in
common with Landlord and all others to
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whom Landlord has or may hereafter grant rights, to use such common areas of the
Hotel (including, but not limited to, the parking lot, walkways, sidewalks,
hallways, lobby and public restrooms) as may be designated from time to time by
Landlord, subject to such rules and regulations as Landlord may from time to
time impose. Landlord shall maintain the common areas of the Hotel in the
vicinity of the Premises in good condition, clean and neat in appearance. Tenant
agrees that it, its agents, employees, servants, contractors, subtenants and
licensees shall abide by such rules and regulations and that Landlord shall have
the exclusive management and control of all common areas. Landlord may at any
time close any common area or other portions of the Hotel to make repairs or
changes, to prevent the acquisition of public rights in such areas, or to
discourage noncustomer parking. Landlord may do such other acts in and to the
common areas and the other portions of the Hotel as in its judgment may be
desirable. All parking areas and other common areas which Tenant may be
permitted to use are to be used under a revocable license, and if any such
license is revoked, or if the amount of such area is diminished, Landlord shall
not be subject to any liability, nor shall Tenant be entitled to any
compensation or diminution or abatement of rent, nor shall such revocation or
diminution of such areas be deemed constructive or actual eviction. Tenant
shall direct its employees to park only in those areas (which may include
off-site parking areas) designated by Landlord from time to time for such
purposes.
ARTICLE 12
TAXES
12.1 PERSONAL PROPERTY TAXES. Tenant shall be liable for and shall pay
before delinquency (and, upon demand by Landlord, Tenant shall furnish Landlord
with satisfactory evidence of the payment thereof) all taxes, fees and
assessments of whatsoever kind or nature, and penalties and interest thereon, if
any, levied against Tenant's property or any other personal property of
whatsoever kind and to whomsoever belonging situate or installed in or upon the
Premises, whether or not affixed to the realty. If at any time during the Term
of this Lease any such taxes on personal property are assessed as part of the
tax on the real property of which the Premises is a part, then in such event
Tenant shall pay to Landlord the amount of such additional taxes as may be
levied against the real property by reason thereof, as determined by Landlord.
12.2 OTHER TAXES. Tenant shall pay when due all taxes, assessments or
fees for which Tenant is liable and which arise directly or indirectly from
Tenant's operations at the Premises. Within ten (10) days of written demand from
Landlord, Tenant shall furnish Landlord evidence satisfactory to Landlord of the
timely payment of any such tax, assessment or fee.
12.3 STATEMENTS RECEIVED BY LANDLORD. Whenever Landlord shall receive
any statement or bill for any tax, payable in whole or in part by Tenant as
additional rent, or shall otherwise be required to make any payment on account
thereof, Tenant shall pay the amount due hereunder within ten (10) days after
demand therefor accompanied by delivery to Tenant of a copy of such tax
statement, if any.
12.4 CASINO ENTERTAINMENT TAX. Tenant agrees that it will collect any
applicable Casino Entertainment Tax ("CET") associated with the sale of food,
beverage or merchandise
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from the Premises and will pay the same to the taxing authority on a timely
basis, or if not permitted to pay the same directly, shall remit the CET due to
Landlord no later than the 10th day of the month following the month in which
the taxable sales occurred. If Tenant is required to and does remit the CET to
Landlord in a timely manner, Landlord shall indemnify and hold Tenant harmless
from any interest, penalties or expenses which may be incurred by Tenant because
Landlord does not pay such CET to the taxing authority in a timely manner.
Tenant shall make all documents containing information relative to the
computation of the CET available for inspection upon notice by representatives
of Landlord and the Gaming Authorities. This obligation shall continue beyond
the Term of this Lease. Tenant shall be liable for any and all CET, interest and
penalties found to be payable in connection with the sale of food, beverage or
merchandise from the Premises as a result of understated taxable revenues,
insufficiency, of records or, if Tenant is permitted to pay the CET directly to
the taxing authority, untimely payment of the CET. If Tenant is not permitted to
pay the CET directly to tile taxing authority, then, if Tenant has timely
remitted the payment to Landlord as required in this Section 12.5. Tenant shall
not be liable for the untimely payment of the CET to the taxing authority.
ARTICLE 13
SERVICES TO THE PREMISES
13.1 UTILITIES. Landlord shall provide customary utility lines stubbed
to the Premises, including supply and return lines for air conditioning, in the
manner and to the extent set forth in the Work Letter. Except as otherwise
provided in the Work Letter, the distribution of utility lines within the
Premises shall be the responsibility of Tenant, at Tenant's cost. Tenant shall
pay all sewer "hook-up fees" and annual sewer charges and other similar charges
which may be levied by utility as a fee for connecting the Premises to the
utility supply. Tenant shall pay for all separately metered gas, power and
electric current, sewer and all other utilities used by Tenant in the Premises;
provided that, so long as Tenant's water usage does not exceed the amount which
is reasonably expected for an average retail tenant, as reasonably determined by
Landlord, Tenant shall not be charged for its water usage. Landlord shall have
the right, at Landlord's expense, to install separate utility meters to measure
utility usage in the Premises. Tenant acknowledges that, because of the nature
of the Premises, Tenant might not have access to the controls for heating, air
conditioning or lighting at the Premises and shall not attempt to make any
changes to such controls located outside the Premises. Landlord, at Landlord's
cost, shall provide Tenant with one telephone line and a house phone. Tenant
shall be responsible for local and long distance service. Landlord, at Tenant's
cost, shall provide garbage service for the Premises. Landlord may, from time to
time, prescribe reasonable rules and regulations and billing procedures for the
implementation of this Section. Tenant shall not install any equipment
which can exceed the capacity of any utility facilities serving the Premises
and if any equipment installed by Tenant requires additional utility
facilities, the same shall be installed at Tenant's expense in compliance with
all code requirements and plans and specifications which must first be approved
in writing by Landlord.
13.2 LIMITATION UPON LANDLORD'S OBLIGATION. Landlord shall not be
obligated to perform any service or to repair or maintain any structure or
facility except as provided in this Lease. Landlord shall not be obligated to
provide any service or maintenance or to make any
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repairs within the Premises pursuant to this Lease when such service,
maintenance or repair is made necessary because of the negligence or misuse of
Tenant, Tenant's agents, employees, servants, contractors, subtenants,
licensees, customers or business invitees. Landlord reserves the right to stop
any service when Landlord deems such stoppage necessary, whether by reason of
accident or emergency, or for repairs or improvements or otherwise. Landlord
shall not be liable under any circumstances for loss or injury however
occurring, through or in connection with or incident to any stoppage of such
services. Landlord shall have no responsibility or liability for failure to
supply any services or maintenance or to make any repairs when prevented from
doing so by any cause beyond Landlord's control. Landlord shall not be obligated
to inspect the Premises and shall not be obligated to make any repairs or
perform any maintenance hereunder unless first notified of the need thereof in
writing by Tenant. In the event that Landlord shall fail to commence such
repairs or maintenance within twenty (20) days after said notice (or five (5)
days after said notice if the failure in the item to be repaired materially
interferes with the conduct of Tenant's business), Tenant's sole right and
remedy for such failure shall be, after further notice to Landlord, to make such
repairs or perform such maintenance and to deduct the cost and expenses thereof
from the rent payable hereunder; provided, however, that the amount of such
deduction shall not exceed the reasonable value of such repairs or maintenance,
and provided, further, if such repairs or maintenance are needed because of act
or omission of Tenant, its agents, servants, employees or licensees, the cost
thereof shall be paid by Tenant. Notwithstanding the foregoing provisions of
this Section 13.2, the parties agree that Base Rent shall be abated during any
period that Tenant is denied access to or the use of the Premises as the result
of Landlord's breach of its obligations under this Lease.
ARTICLE 14
INSURANCE
14.1 LIABILITY INSURANCE. Tenant shall, at all times during the term
hereof, at its sole cost and expense, procure and maintain in full force and
effect a policy or policies of commercial general liability insurance including
coverage for both owned and non-owned automobiles and contractual indemnity
coverage issued by an insurance carrier acceptable to Landlord assuring against
loss, damage or liability for injury or death to persons and loss or damage to
property occurring from any cause whatsoever in connection with the Premises or
Tenant's use thereof. Such liability insurance shall be a single limits policy
in an amount of not less than Ten Million ($10,000,000.00) Dollars. Landlord,
Primadonna Resorts and MGM Grand Hotel, Inc. shall be named as an additional
insured (and at Landlord's option, any other persons, firms or corporations
designated by Landlord shall be additionally named insured) under each such
policy of insurance.
14.2 PROPERTY INSURANCE. Tenant shall, at all times during the term
hereof, at its sole cost and expense, procure and maintain in full force and
effect standard form of fire and casualty with standard "ALL-RISK" coverage
protecting against all risks of physical loss or damage, including, without
limitation, sprinkler leakage coverage and plate glass insurance covering all
plate glass in the Premises, if any, and all of Landlord's and Tenant's property
(including, without limitation, Tenant's furniture, fixtures and equipment) and
its products and merchandise, and the personal property of others in Tenant's
possession in, upon or about the Premises. Such
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insurance shall be in an amount equal to the current replacement value of the
property required to be insured. Tenant and Landlord, as their interests may
appear, shall be the named loss payee (and at Landlord's option, any other
persons, firms or corporations designated by Landlord shall be named as
additional loss payee) under each such policy of insurance. Tenant shall also
carry business interruption insurance.
14.3 POLICY REQUIREMENTS. All policies required hereunder shall be with
companies licensed to do business in Nevada and with a "General Policyholder's
Rating" of A- or better and a "financial rating" of VII or better in the most
recent edition of Best's Insurance Guide (or similar rating service if such
guide is no longer published). A certificate issued by the insurance carrier for
each policy of insurance required to be maintained by Tenant hereunder, and,
upon request of Landlord, a copy of each such policy, shall be delivered to
Landlord and all other additional insureds no later than ten (10) days after
execution of this Lease and thereafter, as to policy renewals, within thirty
(30) days prior to the expiration of the terms of each such policy. Each of said
certificates of insurance and each such policy of insurance required to be
maintained by Tenant hereunder shall be from an insurer and in form and
substance satisfactory to Landlord and shall expressly evidence insurance
coverage as required by this Lease and shall contain an endorsement or provision
requiring not less than thirty (30) days written notice to Landlord and all
other additional insured prior to the cancellation, diminution in the perils
insured against, or reduction of the amount of coverage of the particular policy
in question. In addition to the foregoing certificates, Tenant shall at all
times during the Term hereof furnish Landlord with a current certificate of
worker's compensation coverage evidencing coverage at Nevada statutory limits.
Each policy of insurance provided for in Section 14.2, shall contain an express
waiver of any and all rights of subrogation thereunder whatsoever against
Landlord, its officers, agents and employees. All policies to be maintained in
this Article 14, shall be written as primary policies and not contributing with
or in excess of the coverage, if any, which Landlord may carry. Any other
provision contained in this Article 14 or elsewhere in this Lease
notwithstanding, the amounts of all insurance required hereunder to be paid by
Tenant shall be not less than an amount sufficient to prevent Landlord from
becoming a coinsurer. The limits of the public liability insurance required to
be maintained by Tenant under this Lease shall in no way limit or diminish
Tenant's liability under Article 16 hereof and such limits shall be subject to
increase at any time and from time to time during the Term if Landlord, in the
exercise of reasonable discretion, deems such an increase to be consistent with
the insurance required of other similarly situated tenants in Las Vegas, Nevada
and necessary for its adequate protection; provided, however, Landlord may not
exercise its right under this sentence more frequently than one time in any
calendar year.
14.4 HAZARDOUS ACTIVITIES. Tenant shall not use or occupy, or permit
the Premises to be used or occupied, in a manner not otherwise permitted
hereunder which will increase the rates of fire or any other insurance for the
Premises or the Hotel. Tenant shall also not use or occupy, or permit the
Premises to be used or occupied in a manner not otherwise permitted hereunder
which will make void or voidable any insurance then in force with respect
thereto or the Hotel, or which will make it impossible to obtain fire or other
insurance with respect thereto or the Hotel. If by reason of the failure of
Tenant to comply with the provisions of this Section, the fire or any other
insurance rates for the Premises or the Hotel be higher than they otherwise
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would be, Tenant shall reimburse Landlord, as additional rent, on the first day
of the calendar month next succeeding notice by Landlord to Tenant of said
increase, for that part or all insurance premiums thereafter paid by Landlord
which shall have been charged because of such failure of Tenant.
14.5 WAIVER OF SUBROGATION. Each Party hereby waives subrogation and
any and all rights of recovery from the other, its officers, agents and
employees for any loss or damage, including consequential loss or damage, caused
by any peril or perils (including negligent acts) enumerated in their insurance
actually carried or required to be carried pursuant to this Lease and to the
extent of such insurance coverage or required coverage, and waive any right of
subrogation which might otherwise exist in or accrue to any person on account
thereof to the extent of such insurance coverage or required coverage.
ARTICLE 15
LIENS
15.1 INDEMNITY FOR LIENS. Tenant, at all times, shall indemnify and
hold harmless Landlord, the Hotel, the Premises, the leasehold estate created by
this Lease, any trade fixtures, equipment or personal property within the
Premises, and each of them, from any claim, lien, tax lien or levy, attachment,
garnishment, encumbrance, litigation or judgment, arising directly or indirectly
from any obligation, action or inaction of Tenant whatsoever.
15.2 PREVENTION OF LIENS. Tenant, at all times, shall keep the
Landlord, the Hotel, the Premises, the leasehold estate created by this Lease,
any trade fixtures, equipment or personal property within the Premises, free and
clear from any claim, liens, tax lien or levy, attachment, garnishment or
encumbrance arising directly or indirectly from any obligation, action or
inaction of Tenant whatsoever. However, this Section 15.2 shall not apply to the
granting of a security interest in Tenant's personal property in connection with
a financing by Tenant.
15.3 RELEASE OF LIENS. If a mechanics' lien, tax lien or other lien is
filed against the Hotel arising directly or indirectly from any obligation,
action or inaction of Tenant whatsoever, Tenant shall discharge or cause to be
discharged (by bond or otherwise) such lien within ten (10) days after Tenant
receives notice of the filing thereof and shall not allow any such lien to be
foreclosed upon. If a mechanic's lien or other lien is filed against the Hotel,
and Tenant falls to timely discharge such lien, Landlord may, without waiving
its rights and remedies based on such breach of Tenant and without releasing
Tenant from any of its obligations, cause such liens to be released by any means
it shall deem proper, including payment in satisfaction of the claim giving rise
to such lien. Tenant shall pay to Landlord within thirty (30) days following
notice by Landlord, any sum paid by Landlord to remove such liens, together with
interest at Landlord's cost of money from the date of such payment by Landlord.
Tenant's obligation under the Section shall survive the expiration of the Term
of this Lease or the earlier termination of this Lease.
15.4 NOTICE OF NONRESPONSIBILITY. Tenant shall give Landlord at least
ten (10) business days prior written notice before the commencement of any work,
construction, alteration or repair
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on the Premises to afford Landlord the opportunity to record appropriate notices
of nonresponsibility.
ARTICLE 16
INDEMNIFICATION
Tenant hereby covenants and agrees to indemnify, save, and hold
Landlord, the Premises and the leasehold estate created by this Lease free,
clear and harmless from any and all liability, loss, costs, expenses, including
attorneys' fees, judgments, claims, liens, and demands of any kind whatsoever
(collectively, "CLAIMS") in connection with, arising out of, or by reason of any
breach of this Lease by Tenant or any act, omission, or negligence of Tenant,
its agents, employees, servants, contractors, subtenants or licensees while in,
upon, about, or in any way connected with the Premises, or arising from any
accident, injury, or damage, howsoever and by whomsoever caused, to any person
or property whatsoever occurring, in, upon, about, or in any way connected with
Tenant's activities or use of the Premises or any portion thereof, including,
without limitation, any infringement by Tenant or by any person engaged by
Tenant or acting on Tenant's behalf of any copyright, patent, trademark or
similar intellectual property rights of any other person or entity, except to
the extent that any of the foregoing is caused by the negligence or wilful
misconduct of Landlord or its agents, employees, servants, contractors or
licensees. Landlord shall not be liable to Tenant or to any other person
whatsoever for any damage occasioned by fire, smoke, falling plaster,
electricity, plumbing, gas, water, steam, sprinkler, or other pipe and sewage
system or by the bursting, running, or leaking of any tank, washstand, closet or
waste of other pipes, nor for any damages occasioned by water being upon or
coming through the roof, skylight, vent, trapdoor, or otherwise or for any
damage arising from any acts or neglect of co-lessees or other occupants of the
Hotel or of adjacent property, or of Landlord, or of the public, nor shall
Landlord be liable in damages or otherwise for any failure to furnish, or
interruption of, service of any utility.
Similarly, Landlord hereby covenants and agrees to indemnify, save and
hold Tenant harmless from and against all Claims in connection with, arising out
of, or by reason of any breach of this Lease by Landlord or any negligence or
wrongful act of Landlord, its agents, employees and contractors, including,
without limitation, any negligence or wrongful act of Landlord in connection
with the construction of Landlord's Work.
ARTICLE 17
SUBORDINATION
17.1 SUBORDINATION OF TENANT'S INTEREST. Tenant agrees that this Lease
and Tenant's interest in the Premises is secondary, junior and inferior to the
lien of any mortgage, deed of trust or other encumbrance, together with any
renewals, extensions or replacements thereof, now or hereafter placed, charged
or enforced against the Premises, or any portion thereof, or any property of
which the Premises is a part (hereinafter, a "MORTGAGE"). Notwithstanding the
foregoing, upon request by Landlord, Tenant shall execute and deliver at any
time, and from time to time, such documents as may be required to effectuate
such subordination.
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17.2 PRIORITY. In the event that the mortgagee or beneficiary of any
Mortgage elects to have this Lease a prior lien to its mortgage or deed of
trust, then and in such event, upon such mortgagee's or beneficiary's giving
written notice to Tenant to that effect, this Lease shall be deemed prior in
lien to such mortgage or deed of trust, whether this Lease is dated prior to or
subsequent to the date of recordation of such mortgage or deed of trust.
17.3 ATTORNMENT. Tenant shall, in the event any proceedings are brought
for the foreclosure of the Premises in the event of exercise of the power of
sale under any Mortgage covering the Premises, or in the event of a sale of
Landlord's interest in the Premises attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as Landlord under this Lease.
17.4 NONDISTURBANCE. Landlord, Tenant and Landlord's current lender
shall enter into a nondisturbance and attornment agreement on the lender's form
providing that, so long as no Tenant Event of Default occurs under this Lease,
such lender will recognize this Lease and Tenant's rights hereunder. Tenant's
obligation to subordinate its leasehold interest to any future Mortgage shall be
subject to Tenant's receipt of a commercially reasonable nondisturbance and
attornment agreement from the holder of such Mortgage.
ARTICLE 18
ASSIGNMENT AND SUBLETTING
18.1 ASSIGNMENT OR SUBLEASE WITHOUT CONSENT PROHIBITED. The economic
provisions and rental rates set forth in this Lease were negotiated by Landlord
in consideration of, and would not have been granted by Landlord but for, the
specific nature of the leasehold interest granted to Tenant hereunder, as such
interest is limited and defined by various provisions throughout this Lease,
including, but not limited to, the provisions of this Article 18 which define
and limit the transferability of such leasehold interest. The leasehold estate
granted to Tenant hereunder is not a transferable interest in property, and
Landlord hereby reserves the right to receive any increased rental value of the
Premises during the Term hereof as the same may be realized by any transfer of
said estate, except to the extent Tenant is specifically granted the right to
transfer all or part of its leasehold and to retain all or part of the increased
rental value thereof pursuant to the provisions of this Article 18. Tenant shall
not directly or indirectly, voluntarily or by operation of law sell, assign,
encumber, pledge or otherwise transfer or hypothecate all or any part of the
Premises or Tenant's leasehold estate hereunder (collectively "ASSIGNMENT"), or
permit the Premises to be occupied or used by anyone other than Tenant or sublet
the Premises (collectively "SUBLEASE") or any portion thereof without Landlord's
prior written consent in each instance. Unless Tenant is a publicly traded
company or owns and operates restaurants other than the restaurant which is to
be operated in the Premises, any transfer of ownership interests in Tenant in
the aggregate in excess of twenty-five percent (25%) shall be deemed an
Assignment hereunder.
18.2 NOTICE OF PROPOSED SUBLEASE OR ASSIGNMENT. If Tenant desires at
any time to enter into an Assignment of this Lease or a Sublease of the Premises
or any portion thereof, it shall first give written notice to Landlord of its
desire to do so, which notice shall contain (a) the
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name of the proposed assignee, subtenant or occupant, (b) the nature of the
proposed assignee's, subtenant's or occupant's business to be carried on in the
Premises, (c) the terms and provisions of the proposed Assignment or Sublease,
as reasonably requested by Landlord and (d) such financial information as
Landlord may reasonably request concerning the proposed assignee, subtenant
or occupant.
18.3 STANDARDS FOR CONSENT. If Landlord shall not unreasonably withhold
its consent to any Assignment, Sublease or Subleases to a third party or parties
("TRANSFEREES"); provided, however, that Landlord's refusal to consent to any
Assignment or Sublease shall be deemed reasonable if:
(i) The transferee, in Landlord's reasonable opinion, is not
of reputable and good character;
(ii) The proposed transferee, in Landlord's reasonable
judgment, is not an experienced, proven and successful operator of businesses
comparable to the type contemplated by this Lease;
(iii) The purposes for which the transferee intends to use the
Premises are, in Landlord's reasonable judgment, incompatible with the Hotel or
the business operations of other Tenants in the Hotel;
(iv) In the reasonable judgment of the Landlord the purpose
for which the subtenant or assignee intends to use the Premises is not in
keeping with the standards of Landlord for the Hotel as a first class resort
hotel facility, or is in violation of the terms of any other lease in the
Hotel, it being understood that the purpose for which any subtenant or assignee
intends to use the Premises may not be in violation of this Lease;
(v) The proposed transferee has been involved in bona fide
negotiations with Landlord for space in the Hotel within the preceding twelve
(12) months and Landlord has available other comparable space in the Hotel to
offer to the prospective subtenant or assignee;
(vi) The proposed subtenant or assignee is either an occupant
of the Hotel (but only if Landlord can offer comparable space in the Hotel to
such proposed assignee or sublessee) or a government (or subdivision or agency
thereof);
(vii) The proposed assignee or sublessee is, in the reasonable
judgment of Landlord, insolvent or financially unable to meet the projected
costs of the obligations to be assumed for the unexpired Term of this Lease; or
the proposed assignee or sublessee has a net worth which is, in the reasonable
opinion of Landlord, insufficient to enable it to operate a successful first
class business of the type contemplated herein and to meet the projected costs
of obligations to be assumed for the unexpired Term of this Lease;
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(viii) The transferee operates another similar business at
another Las Vegas Strip hotel and/or casino property under the same tradename
which such transferee proposes to use for its business in the Premises; or
(ix) Tenant is in default under this Lease (provided that
Tenant shall have the right to resubmit any proposal for Assignment or Sublease
after Tenant cures such default).
If Landlord consents to any Sublease or Assignment under this Section
18.4, Tenant may thereafter within ninety (90) days after Landlord's consent,
but not later than the expiration of said ninety (90) days, enter into such
Sublease of the Premises or portion thereof, or Assignment upon the same
material terms and conditions set forth in the notice furnished by Tenant to
Landlord pursuant to Section 18.2 above.
18.4 NO RELEASE OF TENANT. Subject to Section 18.6 below, no consent by
Landlord to any Assignment or Sublease by Tenant shall relieve Tenant of any
obligation to be performed by Tenant under this Lease, whether arising before or
after the Assignment or Sublease. The consent by Landlord to any Assignment or
Sublease shall not relieve Tenant from the obligation to obtain Landlord's
express written consent to any other Assignment or Sublease. Any Assignment or
Sublease which is not in compliance with this Article 18 shall be void and, at
the option of Landlord, shall constitute a material default by Tenant under this
Lease. The acceptance of rent by Landlord from a proposed assignee or sublessee
shall not constitute the consent to such Assignment or Sublease by Landlord.
18.5 ASSUMPTION OF TENANT'S OBLIGATIONS. Each assignee, sublessee,
mortgagee, pledgee, or other transferee, other than Landlord, shall assume, as
provided in this Section 18.6, all obligations of Tenant under this Lease and
shall be and remain liable jointly and severally with Tenant for the payment of
the rent, and for the performance of all the terms, covenants, conditions and
agreements herein contained on Tenant's part to be performed for the Term of
this Lease; provided, however, that the assignee, sublessee, mortgagees, pledgee
or other transferee shall be liable to Landlord for rent only in the amount set
forth in the Assignment or Sublease. No Assignment shall be binding on Landlord
unless the assignee or Tenant shall deliver to Landlord a counterpart of the
Assignment and an instrument in recordable form which contains a covenant of
assumption by the assignee reasonably satisfactory in substance and form to
Landlord, consistent with the requirements of this Section 18.6, but the failure
or refusal of the assignee to execute such instrument of assumption shall not
release or discharge the assignee from its liability as set forth above.
18.6 SALE OF TENANT'S BUSINESS. In the event that Tenant sells its
business in the Premises to a transferee which is approved by Landlord pursuant
to the foregoing provisions of this Article 18, then, notwithstanding the
provisions of Section 18.1 above, Landlord shall be entitled only to one-half of
any "Profits," as defined below, realized from such sale, and, upon payment of
such Profits to Landlord and the assumption of Tenant's obligations by such
permitted transferee pursuant to Section 18.5 above, Tenant shall be relieved of
all further obligations accruing under this Lease. For purposes of this Section
18.6, "PROFITS" shall mean
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all amounts realized by Tenant from the sale of its business in the Premises and
the assignment of this Lease, less the unamortized cost (computed using the
straight-line method over the initial Lease Term) of Tenant's Work (and capital
improvements or replacements thereto), furniture, fixtures and equipment which
are to be sold to Tenant's transferee.
ARTICLE 19
INSOLVENCY AND DEATH
It is understood and agreed that neither this Lease nor any interest
therein or hereunder, nor any estate hereby created in favor of Tenant, shall
pass by operation of law under any state or federal insolvency, bankruptcy, or
inheritance act, or any similar law now or hereafter in effect, to any trustee,
receiver, assignee for the benefit of creditors, heirs, legatees, devisees or
any other person whomsoever without the express written consent of Landlord
first had and obtained therefor as provided in Article 18 above.
ARTICLE 20
CONDEMNATION
20.1 AWARDS. Should the whole or any part of the Premises be condemned
or taken by a competent authority for any public or quasi-public purpose, all
awards payable on account of such condemnation and taking shall be payable to
Landlord, and Tenant hereby waives any and all interest therein, provided that
Tenant may make a separate claim for the value of Tenant's improvements,
fixtures and equipment.
20.2 TAKING OF THE PREMISES. If the whole of the Premises shall be so
condemned and taken, then this Lease shall terminate upon such taking. If by
reason of any condemnation or taking the remainder of the Premises will not be
reasonably adequate for the operation of Tenant's business after Landlord
completes such repairs or alterations as Landlord elects to make (subject to the
limitations which are set forth in Section 1.3), either Landlord or Tenant shall
have the option to terminate this Lease by notifying the other party hereto of
such election in writing within forty-five (45) days after such taking. If a
part only of the Premises is taken and the remaining part thereof is suitable
for the purposes for which Tenant has leased said Premises, this Lease shall
continue in full force and effect. In the event a partial taking does not
terminate this Lease, Tenant shall make repairs and restorations to the
remaining premises of the nature of Tenant's Work required by Exhibit B and if
Tenant has closed Tenant shall promptly reopen for business.
20.3 TAKING OF THE HOTEL. If any material part of the Hotel other than
the Premises shall be so taken or appropriated, Landlord shall have the right,
at its option, to terminate this Lease by notifying Tenant within six (6) months
of such taking.
20.4 DEED-IN-LIEU. For the purposes hereof, a deed in lieu of
condemnation shall be deemed a taking.
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ARTICLE 21
DESTRUCTION OF PREMISES
21.1 LANDLORD'S RIGHT OF TERMINATION. In the case of the total
destruction of the Premises, or any portion thereof substantially interfering
with Tenant's use of the Premises. whether by fire or other casualty, not caused
by the fault or negligence of Tenant, its agents. employees, servants,
contractors, subtenants, licensees, customers or business invitees, this Lease
shall terminate except as herein provided. If Landlord notifies Tenant in
writing within one hundred twenty (120) days of such destruction of Landlord's
election to repair said damage, and if Landlord proceeds to and does repair such
damage with reasonable dispatch. but in no event longer than twelve (12) months
from the date of the casualty, this Lease shall not terminate. but shall
continue in full force and effect. In determining what constitutes reasonable
dispatch. consideration shall be given to delays caused by Force Majeure events.
If this Lease is terminated pursuant to this Article 21 and if Tenant is not in
default hereunder. all RIGHTS AND obligations hereunder shall cease and
terminate as of the date of termination.
21.2 DAMAGE CAUSED BY TENANT. Notwithstanding Section 21.1, in the
event the Premises, or any portion thereof, shall be damaged by fire or other
casualty due to the fault or negligence of Tenant, its agents, employees,
servants, contractors, subtenants, licensees, then, without prejudice to any
other rights and remedies of Landlord, this Lease shall not terminate, the
damage shall be repaired by Tenant, and Percentage Rent payable by Tenant shall
be determined by the method set forth in Section 8.11 of this Lease.
21.3 DAMAGE TO HOTEL. In the event of any damage not limited to, or not
including, the Premises, such that the building of which the Premises is a part
is damaged to the extent of twenty-five percent (25%) or more of the cost of
replacement, or the buildings and improvements (taken in the aggregate) of the
Hotel owned by Landlord shall be damaged to the extent of more than twenty-five
percent (25%) of the aggregate cost of replacement, Landlord may elect or
terminate this Lease upon giving notice of such election in writing to Tenant
within one hundred twenty (120) days after the occurrence of the event causing
the damage. If Landlord elects to terminate this Lease pursuant to this Section
21.3 upon the occurrence of damage to the Hotel which does not affect the
Premises, Landlord shall reimburse Tenant for its Unamortized Costs.
21.4 REPAIR OBLIGATIONS. The provisions of this Article 21 with respect
to repair by Landlord shall be limited to such repair as is necessary to place
the Premises in the condition specified for Tenant's Work and when placed in
such condition the Premises shall be deemed restored and rendered tenantable,
and, upon completion of Tenant's Work, Tenant shall replace its stock in trade,
and if Tenant has closed, Tenant shall promptly reopen for business. In no
event shall Landlord be obligated to incur costs to restore the Premises which
exceed the amount of insurance proceeds which are paid to Landlord with respect
to the damage to the Premises.
21.5 INSURANCE PROCEEDS. All insurance proceeds payable under any fire
and extended coverage risk insurance covering the Hotel and/or the Premises
shall be payable solely to Landlord, and Tenant shall have no interest therein.
Tenant shall in no case be entitled to compensation for damages on account of
any annoyance or inconvenience in making repairs
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under any provision of this Lease. Except to the extent provided for in this
Section 21, neither the rent payable by Tenant nor any of Tenant's other
obligations under any provision of this Lease shall be affected by any damage to
or destruction of the Premises or any portion thereof by any cause whatsoever.
21.6 RENTAL ABATEMENT. In the event any part of the Premises, as a
result of damage by fire or other casualty, is rendered untenantable for the
conduct of Tenant's business, Base Rent shall be reduced and abated in
proportion to the part of the Premises which is so rendered untenantable until
the damaged portion of the Premises have been made tenantable for the conduct of
Tenant's business or until this Lease expires or terminates, whichever occurs
first; provided that there shall be no abatement of Base Rent whatsoever with
respect to any damage caused in whole or in part by the negligence or willful
act of Tenant, its agents, employees, contractors or licensees.
ARTICLE 22
RIGHT OF ACCESS
22.1 RIGHT OF ACCESS. Landlord, and its authorized agents and
representatives shall be entitled to enter the Premises at any reasonable time
with reasonable prior notice (except in the event of an emergency) for the
purpose of observing, posting or keeping posted thereon notices provided for
hereunder, and such other notices as Landlord may deem necessary or appropriate
for protection of Landlord and/or its interest in the Premises; for the purpose
of inspecting the Premises or any portion thereof; and for the purpose of making
repairs to the Premises or any other portion of the Hotel and performing any
work therein or thereon which Landlord may elect or be required to make
hereunder, or which may be necessary to comply with any laws, ordinances, rules,
regulations or requirements of any public authority or any applicable standards
that may, from time to time, be established by the Insurance Services Office or
any similar body, or which Landlord may deem necessary or appropriate to prevent
waste, loss, damage or deterioration to or in connection with the Premises or
any other portion of the Hotel or for the purpose of conducting its legitimate
business purposes therein or for any other lawful purpose. Any entry hereunder
shall be undertaken by Landlord in a manner and at such times as are reasonably
calculated to minimize interference with Tenant's business; provided that
Landlord shall have the right to use any means which Landlord may deem proper to
open all doors in the Premises in an emergency. Entry into the Premises obtained
by Landlord by any such means shall not be deemed to be forcible or unlawful
entry into, or a detainer of, the Premises, or an eviction of Tenant from the
Premises or any portion thereof. Nothing contained herein shall impose or be
deemed to impose any duty on the part of Landlord to do any work or repair.
maintenance, reconstruction or restoration, which under any provision of this
Lease is required to be done by Tenant; and the performance thereof by Landlord
shall not constitute a waiver of Tenant's default in failing to do the same.
22.2 INCONVENIENCE TO TENANT. Landlord may, during the progress of any
work on tile Premises, keep and store upon the Premises all necessary materials,
tools and equipment. Subject to the provisions of Article 13, Landlord shall not
in any event be liable for inconvenience, annoyance, disturbance, loss of
business or quiet enjoyment, or other damage or loss to Tenant
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by reason of making any such repairs or performing any such work upon the
Premises, or on account of bringing materials, supplies and equipment into, upon
or through the Premises during the course thereof, and the obligations of Tenant
under this Lease shall not thereby be affected in any manner whatsoever.
Landlord shall, however, in connection with the performance of such work, cause
as little inconvenience, disturbance or other damage or loss to Tenant as may be
reasonably possible under the circumstances.
22.3 RIGHT TO SHOW THE PREMISES. Subject to Section 22.1, Landlord,
and/or its authorized agents and representatives, shall be entitled to enter the
Premises at all reasonable times for the purpose of exhibiting the same to
prospective purchasers of the Hotel and, during the final year of the Term of
this Lease, Landlord shall be entitled to exhibit the Premises for lease.
Landlord shall not place "for lease" signs in the Premises without Tenant's
prior consent.
ARTICLE 23
LANDLORD'S RIGHT OF PERFORMANCE
Whenever under any provision of this Lease, Tenant shall be obligated
to make any payment or expenditure, or to do any act or thing, or to incur any
liability whatsoever, and Tenant fails, refuses or neglects to perform as herein
required, Landlord shall, upon not less than ten (10) days prior notice, be
entitled, but shall not be obligated, to make any such payment or to do any such
act or thing, or to incur any such liability, all on behalf of and at the cost
and for the account of Tenant. In such event, the amount thereof with interest
thereon at the Default Rate per annum shall constitute and be collectable as
additional rent on demand.
ARTICLE 24
ESTOPPEL CERTIFICATES
Tenant agrees that within ten (10) days of any demand therefor by
Landlord, Tenant will execute and deliver to Landlord or Landlord's designee a
recordable certificate stating that this Lease is in full force and effect, such
defenses or offsets as are claimed by Tenant, if any, the date to which all
rentals have been paid, and such other information concerning the Lease, the
Premises and Tenant as Landlord or said designee may reasonably request.
ARTICLE 25
TENANT'S DEFAULT
25.1 EVENTS OF DEFAULT. Landlord shall have all the rights and remedies
provided in this Section or elsewhere herein, in the event that any of the
following (sometimes referred to herein as an "EVENT OF DEFAULT") shall occur:
a. Tenant shall default in the payment of any sum of money
required to be paid hereunder and such default continues for five (5) business
days after written notice thereof from Landlord to Tenant; or
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b. Tenant shall default in the performance of any other
provision, covenant or condition of this Lease on the part of Tenant to be kept
and performed and such default continues for twenty (20) days after written
notice thereof from Landlord to Tenant; provided, however, that if the default
complained of in such notice is of such a nature that the same can be rectified
or cured, but cannot with reasonable diligence be done within said twenty (20)
day period, then such default shall be deemed to be rectified or cured if Tenant
shall, within said twenty (20) day period, commence to rectify and cure the same
and shall thereafter complete such rectification and cure with all due
diligence; or
c. Tenant should vacate or abandon the Premises during the
Term of this Lease; or
d. Tenant should fail to obtain the discharge or release of
any lien as required by Article 15 hereof; or
e. There is filed any execution, attachment, levy or seizure
against Tenant or the leasehold estate created by this Lease and the same
continues in effect for a period of ten (10) days; or
f. There is filed any petition in bankruptcy or the Tenant is
adjudicated as a bankrupt or insolvent, or there is appointed a receiver or
trustee to take possession of Tenant or of all or substantially all of the
assets of Tenant, or there is a general assignment by Tenant for the benefit of
creditors, or any action is taken by or against Tenant under any state or
federal insolvency or bankruptcy act, or any similar law now or hereafter in
effect. The provisions of this Clause (f) shall also apply to any guarantor of
this Lease or occupant of the Premises; or
g. There shall occur any other event or condition which is
described in this Lease as an "Event of Default."
25.2 LANDLORD'S REMEDIES. Upon the occurrence of any Tenant Event of
Default, Landlord shall have the option to pursue any one or more of the
following remedies without any notice or demand whatsoever:
(1) Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails so to do,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises, or any part thereof, as permitted by applicable law without being
liable to prosecution or for any claim for damages; and Landlord may recover
from Tenant:
(a) The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
(b) The worth at the time of award of any amount by which the
unpaid rent which would have been earned after termination
until the time of award
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exceeds the amount of such rental loss Tenant proves could
have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of
the award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided: plus
(d) Any other reasonable amount necessary to compensate
Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this
Lease; and
(e) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by applicable
law.
All such amounts shall be computed on the basis of the monthly amount
thereof payable on the date of Tenant's default; except that Percentage Rent
shall be computed on the basis of the monthly average of all Percentage Rent
received by or payable to Landlord during the period that Tenant was conducting
Tenant's business in the Premises in the manner and to the extent required by
this Lease, or on the basis of the monthly amount thereof payable on the date of
Tenant's default, if greater. As used in paragraphs (a) and (b) above, the
"worth at the time of award" is computed by allowing interest in the per annum
amount equal to the Default Rate. As used in paragraph (c) 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 (1%)
percent per annum.
(2) Enter upon the Premises, without being liable to prosecution or for
any claim for damages, and do whatever Tenant is obligated to do under the terms
of this Lease; and Tenant agrees to reimburse Landlord on demand for any
reasonable and necessary expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations hereunder.
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies provided by law,
nor shall pursuit of any remedy herein provided constitute a forfeiture or
waiver of any rent due to Landlord hereunder or of any damage accruing to
Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon the occurrence of a Tenant Event of Default
shall not be deemed or construed to constitute a waiver of such default.
ARTICLE 26
QUIET POSSESSION
Tenant, upon paying the rentals and other payments herein required from
Tenant, and upon Tenant's performance of all of the terms, covenants and
conditions of this Lease on its part to be kept and performed, may quietly have,
hold and enjoy the Premises during the Term of this
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<PAGE> 43
Lease without any disturbance from Landlord or from any other person claiming
through Landlord.
ARTICLE 27
SALE BY LANDLORD
27.1 LANDLORD'S RIGHT TO ASSIGN OR TRANSFER. It is agreed that Landlord
may at any time assign or transfer its interest as Landlord in and to this
Lease, or any part thereof, and may at any time sell or transfer its interest in
the fee of the Premises, or its interest in and to the whole or any portion of
the Premises, without notice or obtaining any approval from Tenant.
27.2 ATTORNMENT. Tenant hereby agrees to attorn to the assignee,
transferee, or purchaser of Landlord under any provision of this Article 27 from
and after the date of notice to Tenant of such assignment, transfer or sale, in
the same manner and with the same force and effect as though this Lease were
made, in the first instance, by and between Tenant and such assignee, transferee
or purchaser.
27.3 RELEASE OF LANDLORD. In the event of any sale or exchange of the
Premise by Landlord, Landlord shall be and is hereby relieved of all liability
under any and all of its covenants and obligations contained in or derived from
this Lease, arising out of any act, occurrence or omission relating to the
Premises occurring after the consummation of such sale or exchange.
ARTICLE 28
DEFAULT BY LANDLORD
It is agreed that in the event Landlord fails or refuses to perform any
of the provisions, covenants or conditions of this Lease on Landlord's part to
be kept or performed, that Tenant, prior to exercising any right or remedy
Tenant may have against Landlord on account of such default, shall give a twenty
(20) day written notice to Landlord of such default, specifying in said notice
the default with which Landlord is charged. Notwithstanding any provision hereof
other than Section 13.2, Tenant agrees that if the default complained of in the
notice provided for by this Section 28 is of such a nature that the same can be
rectified or cured by Landlord, but cannot with reasonable diligence be
rectified or cured within said twenty (20) day period, then such default shall
be deemed to be rectified or cured if Landlord within said twenty (20) day
period shall commence the rectification and curing thereof and shall continue
thereafter with all due diligence to cause such rectification and curing to
proceed, and so does complete the same, with the use of diligence as aforesaid.
ARTICLE 29
MISCELLANEOUS
29.1 WAIVER OF JURY TRIAL. The parties hereto shall and they hereby do
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any matters whatsoever arising out of
or in any way connected with this Lease, the
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relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
and/or any claim of injury or damage.
29.2 WAIVER. The waiver by Landlord of any default or breach of any of
the terms, covenants or conditions hereof on the part of Tenant to be kept and
performed shall not be a waiver of any preceding or subsequent breach of the
same or any other term, covenant or condition contained herein. The subsequent
acceptance of rent or any other payment hereunder by Tenant to Landlord shall
not be construed to be a waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease other than the failure of Tenant to pay the
particular rental or other payment or portion thereof so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rental or other payment. No payment by Tenant or receipt by Landlord of a lesser
amount than therein provided shall be deemed to be other than on account of the
earliest rent due and payable hereunder, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent be deemed
an accord and satisfaction, and Landlord may accept any such check or payment
without prejudice to Landlord's right to recover the balance of such rent or
pursue any other remedy provided in this Lease. This Section 29.2 may not be
waived.
29.3 FORCE MAJEURE. Whenever a day is appointed herein on which, or a
period of time is appointed in which, either party hereto is required to do or
complete any act, matter or thing, the time for the doing or completion thereof
shall be extended by a period of time equal to the number of days on or during
which such party is prevented from the doing or completion of such act, matter
or thing because of labor disputes not arising from any activity of Tenant or
Tenant's employees, civil commotion, war, warlike operation, sabotage,
governmental regulations or control, fire or other casualty, inability to obtain
any materials, or to obtain fuel or energy, weather or other acts of God, or
other causes beyond such party's reasonable control (financial inability
excepted); provided, however, that nothing contained herein shall excuse Tenant
from the prompt payment of any rent or charge required of Tenant hereunder.
Tenant agrees that a recognitional or informational picket line shall not be
deemed a force majeure event.
29.4 DELIVERY OF NOTICES. Any and all notices and demands by or from
Landlord to Tenant, or by or from Tenant to Landlord, required or desired to be
given hereunder shall be in writing and shall be validly given or made if served
either personally or if deposited in the United States mail, certified, postage
prepaid, return receipt requested or if delivered by a nationally recognized,
next business day delivery courier service, or served by facsimile. If such
notice or demand be served by certified mail or courier service in the manner
provided, service shall be conclusively deemed made upon delivery, if personally
delivered, three (3) business days after deposit in the mail as provided herein,
if by mail, and one (1) business day after delivery by next day delivery courier
service or facsimile. Service by personal service or facsimile transmission
shall be followed by the mailing of the hard copy of the notice on the same or
the next business
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day. Any notice or demand to Landlord shall be addressed to Landlord as follows:
William Sherlock
New York-New York Hotel
3790 Las Vegas Blvd.
Las Vegas, Nevada 89109
Facsimile: (702)740-6510
With copy to: Gary Primm
New York-New York Hotel
3790 Las Vegas Blvd.
Las Vegas, Nevada 89109
Facsimile: (702)679-7222
Any notice or demand to Tenant shall be addressed to Tenant at:
Laurence Mindel
Il Fornaio (America) Corporation
1000 Sansome St.
Suite 206
San Francisco, CA 94111
Facsimile: (415)956-2879
With copy to: Thomas F. Hyde, Esq.
The Hyde Law Corporation
One Maritime Plaza
Suite 1600
San Francisco, CA 94111
Any party hereto may change its address for the purpose of receiving
notices or demands as herein provided by a written notice given in the manner
aforesaid to the other party hereto.
29.5 REMEDIES CUMULATIVE. The various rights, options, elections and
remedies of Landlord contained in this Lease shall be cumulative and no one of
them shall be construed as exclusive of any other, or of any right, priority or
remedy allowed or provided for by law and not expressly waived in this Lease.
29.6 SUCCESSORS AND ASSIGNS. The terms, provisions, covenants and
conditions contained in this Lease shall apply to, bind and inure to the benefit
of the heirs, executors, administrators, legal representatives, successors and
assigns (where assignment is permitted) of Landlord and Tenant, respectively.
29.7 PARTIAL INVALIDITY. If any term, provision, covenant or condition
of this Lease, or any application thereof, should be held by a court of
competent jurisdiction to be invalid, void or unenforceable, all provisions,
covenants and conditions of this Lease, and all applications
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<PAGE> 46
thereof, not held invalid, void or unenforceable, shall continue in full force
and effect and shall in no way be affected, impaired or invalidated thereby.
29.8 TIME OF THE ESSENCE. Time is of the essence of this Lease and all
of the terms, provisions, covenants and conditions hereof.
29.9 ENTIRE AGREEMENT. This Lease contains the entire agreement between
the parties and cannot be changed or terminated orally.
29.10 NO PARTNERSHIP. Nothing contained in this Lease shall be deemed
or construed by the parties hereto or by any third party to create the
relationship of principal and agent or of partnership or of joint venture or of
any association between Landlord and Tenant. Neither the method of computation
of rent nor any other provisions contained in this Lease nor any acts of the
parties hereto shall be deemed to create any relationship between Landlord and
Tenant other than the relationship of landlord and tenant.
29.11 BROKERS. Tenant warrants that it has had no dealings with any
broker or agent in connection with this Lease, and covenants to pay, hold
harmless and indemnify Landlord from and against any and all cost, expense or
liability for any compensation, commissions and charges claimed by any broker or
agent with respect to this Lease or the negotiation thereof.
29.12 CAPTIONS. The captions appearing at the commencement of the
sections hereof are descriptive only and for convenience in reference to this
Lease and in no way whatsoever define, limit or describe the scope or intent of
this Lease, nor in any way affect this Lease.
29.13 USAGE. Masculine or feminine pronouns shall be substituted for
the neuter form and vice versa, and the plural shall be substituted for the
singular form and vice versa, in any place or places herein in which the context
requires such substitution or substitutions.
29.14 GOVERNING LAW. The laws of the State of Nevada shall govern the
validity, construction, performance and effect of this Lease.
29.15 COVENANTS. Whenever in this Lease any words of obligation or duty
are used in connection with either party, such words shall have the same force
and effect as though framed in the form of express covenants on the part of the
party obligated.
29.16 JOINT AND SEVERAL OBLIGATIONS. In the event Tenant now or
hereafter shall consist of more than one person, firm or corporation, then and
in such event, all such persons, firms or corporations shall be jointly and
severally liable as Tenant hereunder.
29.17 SUBMISSION OF LEASE. The submission of this Lease for examination
does not constitute a reservation of or option for the Premises and this Lease
becomes effective as a Lease only upon execution and delivery thereof by
Landlord and Tenant.
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29.18 LIENS AND ACTIONS AFFECTING PROPERTY. Should any claim or lien be
filed against the Premises, or any action or proceeding be instituted affecting
the title to the Premises, Tenant shall give Landlord written notice thereof as
soon as Tenant obtains actual or constructive knowledge thereof.
29.19 NO MEMORANDUM. Neither this Lease nor a memorandum of this Lease
shall be recorded without Landlord's prior written consent, which consent maybe
withheld in Landlord's discretion.
29.20 CONSTRUCTION. This Lease shall not be construed either for or
against Landlord or Tenant, but this Lease shall be interpreted in accordance
with the general tenor of the language.
29.21 AUTHORITY. If Tenant is not a natural person, Tenant hereby
represents that it is qualified and authorized to enter into, and perform its
obligations under, this Lease.
29.22 ATTORNEYS' FEES. If any action or proceeding is brought by
Landlord or Tenant to enforce its respective rights under this Lease, the
unsuccessful party therein shall pay all costs incurred by the prevailing party
therein, including reasonable attorneys' fees to be fixed by the court.
ARTICLE 30
DISPUTE RESOLUTION
If any controversy or claim between the parties hereto, other than
Landlord in unlawful detainer, arises out of this Lease, and the parties are
unable to agree by direct negotiations, the parties shall promptly mediate any
such disagreement or dispute under the Commercial Mediation Rules of the
American Arbitration Association. If the parties are unable to resolve such
disagreement or dispute through mediation, then such disagreement or dispute
(excluding an action by Landlord in unlawful detainer, as provided above) shall
be submitted to binding arbitration under the Commercial Arbitration Rules of
the American Arbitration Association.
The arbitrators shall be appointed under the Commercial Arbitration
Rules of the American Arbitration Association. As soon as the panel has been
convened, a hearing date shall be set within twenty-one (21) days thereafter.
Written submittals shall be presented and exchanged by both parties ten (10)
days before the hearing date, including reports prepared by experts upon whom
either party intends to rely. At such time the parties will also exchange copies
of all documentary evidence upon which they will rely at the arbitration hearing
and a list of the witnesses whom they intend to call to testify at the hearing.
Each party shall also make its respective experts available for deposition by
the other party prior to the hearing date. The hearings shall be concluded no
later than five (5) days after the initial hearing date. The arbitrators shall
make their award within ten (10) business days after the conclusion of the
hearing. In the event of a three-member panel, the decision in which two (2) of
the members of the arbitration panel concur shall be the award of the
arbitrators.
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Except as otherwise specified herein, there shall be no discovery or
dispositive motion practice (such as motions for summary judgment or to dismiss
or the like) except as may be permitted by the arbitrators, who shall authorize
only such discovery as is shown to be absolutely necessary to insure a fair
hearing. The arbitrators shall not be bound by the rules of evidence or civil
procedure, but rather may consider such writings and oral presentations as
reasonable businessmen would use in the conduct of their day-to-day affairs, and
may require the parties to submit some or all of their presentation as the
arbitrators may deem appropriate. It is the intention of the parties to limit
live testimony and cross-examination to the extent absolutely necessary to
insure a fair hearing to the parties on the significant matters submitted to
arbitration. The parties have included the foregoing provisions limiting the
scope and extent of the arbitration with the intention of providing for prompt,
economic and fair resolution of any dispute submitted to arbitration.
The arbitrators shall have the discretion to award the costs of
arbitration, arbitrators' fees and the respective attorneys' fees of each party
between the parties as they see fit.
Judgment upon the award entered by the arbitrator(s) may be entered in
any court having jurisdiction thereof.
Notwithstanding the parties' agreement to mediate or arbitrate their
disputes as provided herein, any party may seek emergency relief in a court of
law without waiving the right to arbitrate.
The arbitrators shall make their award in accordance with applicable
law and based on the evidence presented by the parties, and at the request of
either party at the start of the arbitration, shall include in their award
findings of fact and conclusions of law supporting the award.
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Nothing contained herein is intended to, nor shall, limit Landlord's
right to pursue any action in unlawful detainer in the case of an Event of
Default by Tenant.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day
and year first above written.
LANDLORD
NEW YORK - NEW YORK HOTEL, LLC
a Nevada limited liability company
By: /s/ William Sherlock
Title: President/CEO
------------------------------
TENANT
IL FORNAIO (AMERICA) CORPORATION
a California corporation
By: /s/ Laurence B. Mindel
Title: Chairman
------------------------------
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EXHIBIT "A"
PREMISES
A - 1
Site plan showing premises.
<PAGE> 51
EXHIBIT "B"
WORK LETTER
FOR
IL FORNAIO
1. LANDLORD'S WORK - The following work is to be performed by Landlord and
Tenant where indicated:
A. COMMON AREA
1. Utilities:
a. Sanitary Sewer and Grease Waste Piping - The
Landlord will install sanitary sewer and
grease waste stubs to Tenant kitchen
locations. The Tenant will provide
distribution piping, floor drains and floor
sinks in all other locations. Invert and
line size will be specified by JBA. Tenant
is responsible for payment of the sewer
usage and hookup charges, as well as any
similar fees and charges levied on the Hotel
based upon Tenant usage under the rules of
the Clark County Sanitation District.
b. Grease Interceptors - The Landlord will
provide at its expense one or more grease
interceptors that will be shared by all
grease producers. The cost of maintaining
the interceptor will be shared by all grease
producers. The cost sharing formula should
be based on grease production as determined
by an impartial engineer. The Tenant will
maintain grease lines that are used
exclusively by the Tenant. The Landlord will
maintain all shared grease piping.
c. Domestic Water - The Landlord will stub into
each demised area cold water, 140 degrees
softened hot water and 120 degrees hard hot
water. The size of the supply taps will be
specified by the Landlord's engineer. Tenant
will reimburse Landlord for sub-meters.
d. Rendering Management - The Landlord will
provide space for the Tenants rendering
storage bins in the loading dock area. The
Tenant will maintain the area. If the
rendering bin area is
B -1
<PAGE> 52
shared with other Tenants, the Landlord
will require all Tenants to contribute a
fair share to the maintenance of this
area.
e. Electrical Service - Landlord will install
at Landlord's expense, disconnecting means
in Landlord's switchboard and electrical
conduit or tray (without wiring) to the
Premises at a point determined by Tenant and
Landlord. Electrical service shall be at
least 1200 amp., 120/208 volt, three phase,
four wire, for Tenant's combined power and
lighting requirement. Conduit shall be sized
to accommodate the above service. Final
connection to the Landlord's switchgear
shall be done by Landlord at Tenant's
expense. Tenant will reimburse Landlord for
sub-meters.
f. Gas - Landlord will provide, install and
maintain a main gas feed that is sufficient
to operate Tenant's equipment and business
at a point within the Premises to be
determined by Tenant and Landlord. Tenant
will reimburse Landlord for submeters.
g. Sprinkler System - Landlord will install an
automatic fire sprinkler system to the
Premises in compliance with the requirements
of local and state agencies. Such sprinkler
system will be based on a specific grid and
spacing plan for Tenant, provided that
Tenant delivers such plan to Landlord's
sprinkler contractor prior to the
installation of a standard grid and spacing.
The cost to Tenant of modifying the
sprinkler system will be the cost of
relocation, re-sizing or adding sprinkler
mains or heads to the specific grid and
spacing for Tenant's business. Modification
of the sprinkler system within the Premises
will be subject to the review and approval
of the Landlord and its design professionals
and performed by Landlord's contractor at
Tenant's expense. Modifications required by
Tenant outside its Premises and related to
modifications of the existing system will be
done by Landlord at Tenant's expense. In
conjunction with the sprinkler system,
Tenant will install, at Tenant's expense,
one smoke detector in the Premises at a
point to be determined by Landlord. Where
required by local code, Tenant shall also
install at Tenant's expense, life safety
equipment such as audiovisual horn devices
or additional smoke detector devices.
Landlord
B -2
<PAGE> 53
confirms fire hose cabinets are not
required within any Tenant spaces.
h. HVAC System - The Landlord is responsible
for the installation and maintenance of all
HVAC equipment and all main distribution
ductwork to the demised premise. The Tenant
is responsible for connecting to the taps
provided, all VAV boxes and low velocity
distribution ductwork within the demised
premise. The Tenant will provide all local
controls and interface with the Landlord's
EMS system as needed. The Tenant will return
air to the return taps provided within the
demised premise or to the common plenum
above the demised premise. The Tenant will
provide transfer grills and fans as required
within the demised premise as needed to
insure proper air balance.
i. Smoke Evacuation - Landlord will provide,
install and maintain a smoke evacuation
system for the premises. The Tenant
understands that to the extent that the
smoke evacuations system and the Tenant's
kitchen exhaust system share the same
control sequence the Landlord will use the
Tenant's kitchen exhaust for smoke
evacuation. The Landlord will pay for any
control wiring or relays that may be needed
to interlock these two systems.
j. Fire Dampers - Landlord shall provide and
install fire dampers, in accordance with all
codes. Landlord shall also provide and
install fire dampers where the Landlord's
ductwork passes through service corridor or
other fire separations. Tenant shall provide
all fire dampers within the Tenant spaces
and as required for Tenant's toilet, kitchen
exhaust and dishwasher exhaust floor
penetrations, if any are required.
k. Chilled Water for Refrigeration - The
Landlord agrees to stub chilled water into
each demised premise. Identification of
equipment to use water-cooled and air-cooled
compressors will be the joint effort of
Landlord and Tenant.
B -3
<PAGE> 54
B. BUILDINGS
1. Structure.
a. General Demising Partitions - Partitions
with exposed studs on the interior shall be
provided between the Premises and other
areas. These partitions shall extend from
finished floor to the underside of the
structure, shall be of studs and drywall on
the exterior. All the finishes on the common
area side will be provided by the Landlord
and all of the finishes on the Tenant side
will be provided by the Tenant.
b. Low Rise Building Protrusion - The Tenant
will provide all wall, ceiling and roofing
structures, except the Landlord shall pay
the Tenant an allowance of $45 per linear
foot for the construction of Tenant's
storefronts. See Item 2H.
c. Landlord shall pour the floor slab designed
for a live load of not less than 120 lbs.
PSF for the Premises.
11. TENANT'S WORK - The following work required to complete and place the
Premises in finished condition ready to open for business is to be performed by
the Tenant at the Tenant's own expense. Tenant's Work includes, but is not
limited to, the following:
A. GENERAL PROVISIONS.
All work done by Tenant shall be governed in all respects by,
and be subject to the following:
1. Tenant shall deliver to Landlord within ten (10) days
after the execution of this Lease and prior to the
commencement of any of the Tenant Work the Tenant's
latest financial statement and a written guarantee
that the Project will be completed in a timely manner
per the lease agreement.
2. All Tenant's Work shall conform to applicable
statutes, ordinances, regulations and codes and the
requirements of all rating bureaus and which by this
reference is incorporated into and made a part of
this Lease. Tenant shall obtain and convey to
Landlord all approvals with respect to electrical,
water, sewer, heating, cooling, and telephone work,
all as may be required by any agency or utility
company.
B -4
<PAGE> 55
3. Except for minor and routine matters, no approval by
Landlord shall be deemed valid unless in writing and
signed by Landlord's agent, Brian Baggett.
4. Prior to commencement of Tenant's Work and until
completion thereof, or commencement of the Lease
Term, whichever is the last to occur, Tenant shall
effect and maintain Builder's Risk Insurance covering
Landlord, Tenant, and Tenant's contractors, as their
interests may appear, against loss or damage by fire,
vandalism and malicious mischief and such other risks
as are customarily covered by a standard "All Risk"
policy of insurance protecting against all risk of
physical loss or damage to all Tenant's Work in place
and all materials stored at the site of Tenant's Work
and all materials, equipment, supplies and temporary
structures of all kinds incidental to Tenant's Work,
and equipment, all while forming a part of or
contained in such improvements or temporary
structures, or while on the Premises or within the
Center all to the actual replacement cost thereof at
all times on a completed value basis. In addition,
Tenant agrees to indemnify and hold Landlord harmless
against any and all claims for injury to persons or
damage to property by reason of the use of the
Premises for the performance of Tenant's Work, and
claims, fines, and penalties arising out of any
failure to Tenant or its agents, contractors and
employees to comply with any law, ordinance, code
requirement, regulations or other requirement
applicable to Tenant's Work and Tenant agrees to
require all contractors engaged in the performance of
Tenant's Work to effect and maintain and deliver to
Tenant and Landlord, certificates evidencing the
existence of, and covering Landlord, Tenant and
Tenant's contractors, prior to commencement of
Tenant's Work and until completion thereof, the
following insurance coverages:
a. Workmen's Compensation and Occupational
Disease Insurance in accordance with the
laws of the State of Nevada.
b. Comprehensive General Liability Insurance,
including independent contractors,
contractual and completed operations,
including death resulting therefrom, and
personal injury in the limits of
$10,000,000 for any one occurrence and
property damage in the limits of
$10,000,000 for any one occurrence or a
combined single limit policy of $10,000,000
per occurrence.
B -5
<PAGE> 56
c. Comprehensive Automobile Insurance,
including "non-owned" automobiles, against
bodily injury, including death resulting
therefrom, in the limits of $1,000,000 for
any one occurrence and $1,000,000 property
damage or a combined single limit of
$1,000,000.
d. Subcontractor and other independent
contractors must have limits for above
coverage approved by the General Contractor
and Landlord, which limits shall not exceed
$1,000,000.
5. Tenant agrees that the contract of every contractor,
subcontractor, mechanic, journeyman, laborer,
material supplier or other person or entity
performing labor upon, or furnishing materials or
equipment to, the Premises in connection with
Tenant's Work shall contain the following provision:
"Contractor" acknowledges that this provision is
required under Tenant's lease (hereinafter the
"LEASE") of the Premises to be improved under this
Contract (the "LEASED PREMISES" ) from New
York-New York Hotel, LLC ("LANDLORD"). In
consideration of Tenant's engagement of Contractor
to perform the work hereunder, and as an
inducement to Tenant to enter into this Contract
with Contractor, Contractor acknowledges,
covenants and agrees that any mechanics' lien
which it may hereafter file, claim, hold or assert
with respect to the work hereunder (1) shall
attach only to Tenant's interest in the Premises
under the Lease and (ii) shall be subject,
subordinate and inferior to the lien of any
mortgage(s) now or hereafter held upon and against
the Landlord by any lender(s) now or hereafter
providing funds for the financing for the Premises
or the Hotel in which the Premises is located,
notwithstanding that any such mortgage(s) may be
recorded after the commencement of work hereunder
and that Contractor's mechanics lien otherwise
might be entitled to priority over any such
mortgages(s).
6. If Landlord in its sole and absolute discretion
determines that the Hotel or the business conducted
therein would otherwise be adversely affected, any or
all work shall be done by recognized union labor.
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B. FLOOR SLAB.
All Tenant's with rest room facilities or food preparation
areas shall install a floor slab waterproofing membrane in the
Premises at Tenant's expense. All floor penetrations must be
sleeved and waterproofed.
C. STOREFRONTS AND INTERIORS.
1. Storefronts shall be designed within parameters of
the Landlord's schedule and constructed with the
Landlord's written approval. All storefronts must
have a New York City theme in keeping with the theme,
quality and style of the Hotel and must be approved
by the Landlord before construction commences.
2. All materials employed in the construction of
storefronts shall be as approved by Landlord and as
defined by applicable building codes.
3. Storefront and Interior color schemes must harmonize
with the color scheme of the surrounding
building/storefront types and must be approved by
the Landlord.
4. All swinging entrance doors must be recessed in such
a manner that the door, when open, will not project
beyond the lease line.
D. CEILING.
1. All ceilings and coves shall not exceed 20'0" above
the finished floor (excluding mezzanines) unless
otherwise approved by Landlord.
2. Tenant's ceilings shall be acoustic tile, gypsum
board, plaster, or perforated metallic acoustic
system suspended by adequate suspension systems to
conform to final requirements of governing
authorities and Landlord.
3. The space above the ceiling line, which is not
occupied or allotted to Landlord's Work (structural
members, duct work, piping, etc.) may be used for the
installation of suspended ceiling, recessed lighting
fixtures and duct work. Under no circumstances will
Tenant's Work be hung or suspended from
non-structural construction. Any Tenant Work
involving the hanging or suspension of construction
shall be
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accomplished only by methods, in locations and by use
of assemblies approved by Landlord or Landlord's
engineer.
E. WALLS.
All interior walls shall meet all applicable building codes.
Tenant shall install insulation on the demising walls and
interior walls as made necessary by building code, acoustics,
or design. Tenant shall provide any necessary bracing or
blocking.
F. INTERIOR PAINTING.
All interior painting and decoration shall be Tenant Work.
G. FLOOR COVERING.
The Landlord and Tenant will jointly coordinate floor
transitions at all entrances. The Tenant's floor transition
finishes will be applied directly to the slab provided.
H. ROOF STRUCTURE.
The Tenant shall frame the roof structure of the front
building adjacent to the open patio. No equipment installed
above the suspended ceiling in this area may protrude above
the roof line. The Landlord will reimburse the Tenant the
reasonable costs of installing a drywall roof on top of this
structure.
I. FURNITURE, FIXTURES, AND SIGNS.
The Tenant will provide identification signage as identified
in the elevation previously submitted for approval. All decor
signage in the common area will be provided by the Landlord.
All furnishings, trade fixtures, and related parts, including
installation shall be Tenant Work.
J. SUBMITTALS.
Preliminary Submittal by the Tenant shall include storefronts
and interiors, plans, elevations, specifications, color and
material boards, and a colored elevation of the storefront
facade.
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K. PLUMBING.
All plumbing and plumbing fixtures within the premises as
required by applicable codes, except utility service to the
area, shall be Tenant Work.
L. TOILET ROOM FIXTURES.
Furnishing and installation of wiring, lighting fixtures,
mechanical toilet exhaust systems, towel cabinets, soap
dishes, hand dryers, deodorizers, mirrors and other similar
items in toilet rooms within the Premises or as additionally
required by code shall be Tenant Work.
M. HEATING, VENTILATION AND AIR CONDITIONING.
1. Tenant's exhaust systems shall provide the required
exhaust air capacities and shall be independent of
the central cooling system. Tenant's exhaust systems
shall be inoperative during other than regular
business hours. Makeup or replacement air shall be
provided by the Tenant.
2. Tenant's HVAC systems shall be complete with air
distributions systems, ventilating systems, control
systems, insulation and all other components required
to make a complete system. Tenant's HVAC system
components shall be installed in locations as
designated by the Tenant.
3. The Tenant will install and maintain toilet exhaust
fans and ductwork for all Tenant installed bathrooms.
The Tenant's ductwork will terminate at a curb or
sleeve provided by the Tenant and installed by the
Landlord. The Landlord will provide a vertical chase
and floor penetration as needed enroute between the
Tenant's bathroom and the roof or wall penetration.
The Landlord will locate the penetration as close as
possible to the Tenant's bathroom. In the event that
a roof mounted fan is used the Tenant will also
provide a pitch pocket. The Tenant will provide
design information prior to the roof pour on May 6,
1996.
4. In first floor spaces that fall below the high rise
structure, the Tenant will connect all vents to the
closest inverted T-Y if this has been provided.
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5. The Tenant will install and maintain dishwasher fans
and ductwork for all Tenant installed kitchens. The
Tenant's ductwork will terminate at a curb or sleeve
provided by the Tenant and installed by the Landlord.
The Tenant will provide vertical ductwork, drywall
enclosures, fire dampers and floor penetrations as
needed enroute between the Tenant's kitchen and the
roof or wall penetration. In the event that a roof
mounted fan is used, the Tenant will also provide a
pitch pocket. The Tenant will provide design
information prior to the roof pour on May 6, 1996.
6. Upon completion of all work, the Tenant will test and
prepare an air balance report for all HVAC, and
exhaust equipment dedicated to the Tenant's demised
premises. A copy of that report will be forwarded to
the Landlord. If it is more practical to have one
contractor balance the Tenant and Landlord equipment
together, then the Tenant agrees to pay a fair share
of that costs.
7. The Tenant will install all kitchen exhaust ductwork
from the collars on the Tenant's hoods to the roof,
including all fireproofing, clean-outs, roof curbs,
and pitch pockets. The Tenant will maintain all
exhaust ductwork in accordance with all codes and
accepted practice. The Tenant will supply and install
all hoods, exhaust fans, and related wiring. The
Tenant will provide all hard wire and low voltage
control interlocks between the exhaust system and the
make-up air system, smoke evacuation system, fire
control system, and energy management system.
8. The Tenant will supply and install the supplemental
make-up air system if required. Tenant will maintain
all supplemental makeup air fans dedicated solely to
Tenant spaces.
N. MECHANICAL EQUIPMENT.
All mechanical equipment including dumb-waiters, elevators,
escalators, freight elevators, conveyors, and their shafts and
doors, located within the Premises, including electrical work
for these items. Locations, size and design of roof vents,
HVAC equipment, units, hoods and caps shall be approved by
Landlord. Landlord reserves the right of disapproval of any
equipment to be placed on the roof, provided Landlord makes a
suitable substitute location available. Tenant shall install
equipment at locations where structural reinforcements are
provided. The roof load is to be determined by Landlord's
structural engineer's load requirements.
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Landlord approved changes in the structure as necessary to
accommodate Tenant's equipment shall be made by Landlord at
Tenant's expense.
Cuts, curbs and openings including any structural support and
steel, shall be provided and performed by a contractor
designated by Landlord at Landlord's expense. In addition, all
cant strips, base furnishings and other work necessary to
complete the permanent weather proofing of Landlord's roof as
a result of roof cuts or openings required by Tenant shall be
performed by a contractor designed by Landlord at Landlord's
expense.
O. ELECTRICAL.
1. All interior distribution Panels, lighting panels,
power panels, conduits, outlet boxes, switches,
outlets and wires within the Premises shall be Tenant
Work. Tenant shall provide electric conduit and boxes
in the concrete floor slab, ceiling and walls,
including all electrical service panels, pull boxes
and equipment. Landlord will provide all work
outlined in Section I.A.1.e of this Work Letter.
2. All electrical fixtures, including lighting fixtures
and equipment, and installation thereof shall be
Tenant Work. Lighting systems (except security and
emergency lighting) must be controlled by lighting
contactors.
3. All conduit necessary for telephone wires within the
Premises shall be Tenant Work.
4. Wiring connections to Tenant's equipment within the
Premises shall be Tenant Work.
P. COMMUNICATIONS SYSTEMS.
1. Telecommunications Service - The Tenant will install
a telephone system that is fully compatible with the
Landlord's system. The Landlord will supply the
Tenant with compatibility criteria. The Landlord will
stub a communications conduit into each demised
premise.
2. POS - The Tenant will install a POS system that is
fully compatible with Infogenesis. The Landlord will
supply the Tenant with
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compatibility criteria. The Landlord will stub a POS
conduit into each demised premise.
Q. TEMPORARY SERVICES.
Any temporary services required by Tenant during its
construction period, including heat, water or electrical
service shall be secured from Landlord or Landlord's
contractor, as the case may be, at Tenant's sole cost and
expense.
R. SUBSEQUENT REPAIRS AND ALTERATIONS.
Landlord reserves the right to require changes in Tenant's
Work when necessary by reason of code requirements.
S. DOORS AND EXITING REQUIREMENTS.
1. Tenant will be responsible for adherence to exiting
codes.
2. Tenant will maintain a clear exiting path through the
stockroom to Tenant's rear door for those Premises
that contain a rear door.
T. CONSTRUCTION ACTIVITIES.
1 If the Tenant requires any roof penetrations in
addition to those already provided for in this lease
then the Landlord will provide such penetrations at
the Tenant's expense.
2. Any additional structural support necessitated by
Tenant's equipment, fixtures or inventory in the
mezzanine shall be provided by Tenant at Tenant's
expense and approved by Landlord.
3. If Tenant will not open by the date the Hotel opens
for business and such date is after the Commencement
Date, Tenant shall be responsible for the
installation and expense of the temporary storefront
or barricade shielding the interior of the Premises
from the Hotel as well as for the removal and cost
thereof after opening for business. If Tenant is
under construction prior to the date the Hotel is
open for business, such temporary storefront shall be
installed at least three (3) days prior to such
opening date.
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4. All construction activities on site must be
coordinated directly with Mr. Randy Keiper,
Superintendent for Marnell Corrao Associates (MCA).
General site rules to be observed are:
a. Normal construction work hours are 6:00 A.M.
to 2:30 P.M.
b. All employees working on site must belong to
local unions, except as permitted in the
lease. All employees on site must receive a
badge from MCA to enter the site.
c. Tenant contractors must schedule major
deliveries after normal work hours and must
provide their own forklifts and cranes.
d. Tenant contractors may use MCA man hoists
free of charge during normal working hours.
e. Tenant contractors may schedule the use of
the material hoist after normal working
hours. Extra cost of operators and mechanics
will be shared by all users in accordance
with their use.
f. All employee parking must be off site.
g. No space is available for offices for Tenant
contractors on site, except within their own
spaces. Temporary phone lines are not
available.
h. Temporary power and water is available to
Tenant spaces. Tenant electrical
subcontractor may have to pull wire to
Tenant space.
i. Cutting of holes through existing walls or
slabs for equipment access will not be
allowed.
j. A common trash container will be located on
site to be used by all Tenant contractors.
Tenants will share the cost of trash removal
based on a fair square footage formula.
k. Tenants will provide their own portable
toilets on site. Contacts should be made
with "Mr. Potty" to simplify maintenance and
reduce costs.
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<PAGE> 1
Exhibit 10.13
FOOD SERVICE OPERATIONS AGREEMENT
This FOOD SERVICE OPERATIONS AGREEMENT ("Agreement") is made and entered
into this 21 day of November, 1991 ("Effective Date") by and between MOBEDSHAHI
HOTEL GROUP, INC., a California corporation ("MHG"), and IL FORNAIO (AMERICA)
CORPORATION, a California corporation ("Restaurant").
RECITALS
A. Pursuant to the terms of that certain Hotel Operating
Agreement, MHG has agreed to assist in the management, operation and promotion
of that certain hotel located in the City of San Jose, California, commonly
known as the Hotel St. Claire ("Hotel") .
B. Pursuant to the terms of that certain Restaurant Lease dated
currently herewith (the "Restaurant Lease"), Il Fornaio has leased certain
space in the Hotel for purposes of operating a first-class restaurant therein.
C. MHG now desires to retain the services of Il Fornaio for
purposes of providing food and beverage services to guests and patrons of the
Hotel, and Il Fornaio desires to provide such services to MHG, all upon the
terms and conditions set forth hereinbelow.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth hereinbelow, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth
hereinbelow:
(a) "Banquet Areas" shall mean the Grand Ballroom,
Meeting Facilities and Spartan Room.
(b) "Consultants" shall collectively refer to two
(2) qualified and experienced restaurant and hotel consultants, one of which
shall be selected by MHG (in its sole discretion) and one of which shall be
selected by Restaurant (in its sole discretion).
(c) "Courtyard Area" shall mean the area of the
ground floor of the Hotel designated as the "Courtyard Area" on the Site Plan.
(d) "Food Service Areas" shall mean the Courtyard
Area, Lounge Area, and Banquet Areas.
(e) "Grand Ballroom" shall mean the area of
ground floor of the Hotel designated as the "Grand Ballroom" on the Site Plan.
(f) "Gross Revenues" shall mean the gross selling
price of all food, beverages, goods and services sold in connection with
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the services to be provided by Il Fornaio under this Agreement, whether for
cash or on credit (whether collected or not), together with all tips and
gratuities received in connection with such services.
(g) "Hotel" shall mean that certain hotel located in the
City of San Jose, California, commonly known as the Hotel St. Claire.
(h) "Lounge Area" shall mean the area of the ground floor
of the Hotel designated as the "Lounge Area" on the Site Plan.
(i) "Major Renovation" shall mean any alteration,
rehabilitation or replacement of any furniture, fixtures, equipment, and
leasehold improvements costing in the aggregate more than Two Hundred Fifty
Thousand Dollars ($250,000) during any 12-month period, which costs are, in
accordance with generally accepted accounting principles, regarded as an
expenditure for a "capital" item. The aforesaid costs shall include
architectural, design and other professional fees incurred in connection with
any such Renovation. A Major Renovation shall not include any of the initial
renovation work of the Hotel carried out by Owner pursuant to the Ground Lease
described in (k) below.
(i) "Meeting Facilities" shall mean the areas of the
second floor of the Hotel designated as the "Meeting Facilities" on the Site
Plan.
(k) "Owner" shall mean Hotel St. Claire Partners L.P., a
California limited partnership, as tenant under that certain Ground Lease for
the Hotel by and between the Redevelopment Agency of the City of San Jose, as
landlord, and Owner, as tenant.
(1) "Required Service Date" shall mean the Commencement
Date of the Restaurant Lease, as defined therein.
(m) "Restaurant Premises" shall mean the premises leased
by Owner to Il Fornaio under the Restaurant Lease.
(n) "Site Plan" shall mean that certain site plan for the
ground, second and top floors of the Hotel, a copy of which Site Plan is
attached hereto as Exhibit "A."
(o) "Spartan Room" shall mean the area of the second
floor of the Hotel designated as the "Spartan Room" on the Site Plan.
2. Food and Beverage Services.
(a) General. Commencing on the Required Service Date and
continuing throughout the term of this Agreement, Il Fornaio shall have the
sole and exclusive right to provide all food and beverage services to all guest
rooms of the Hotel and to the Food
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Service Areas, all upon the terms and conditions set forth hereinbelow.
(b) Room Service. Commencing on the Required Service
Date and continuing throughout the term of this Agreement, Il Fornaio shall
provide all food and beverage services required in connection with room service
to all guest rooms of the Hotel, including, without limitation, the design and
preparation of a menu reasonably acceptable to MHG, receiving and processing
all orders from the guest rooms of the Hotel, purchasing and preparing all food
and beverages ordered by such guests, delivering all food and beverages to the
appropriate guest rooms, and picking-up all trays, plates and utensils from the
guest rooms or hallways. Such food and beverage services shall include
breakfast, lunch and dinner daily, and shall be provided on a twenty-four (24)
hour basis. Services provided between 12:00 a.m. and 6:00 a.m. may be based
upon a limited selection menu reasonably acceptable to MHG. For purposes of
the preceding sentence, "limited selection" shall mean food and beverage items
which (i) are delivered by employees of MHG, (ii) do not require a chef or
cooking during the hours of 12:00 a.m. to 6:00 a.m., and (iii) are prepared
and, if necessary, reheated in facilities located in the second floor food
staging area. Il Fornaio shall also have the right to stock a mini-bar in each
guest room of the Hotel for purposes of selling food and beverage items to
guests of the Hotel, and all such sales shall be considered as "room service"
to be provided by Il Fornaio under this Agreement.
(c) Food Service Areas. Commencing on the Required
Service Date and continuing throughout the term of this Agreement, Il Fornaio
shall provide all food and beverage services required in connection with the
use and operation of the Food Service Areas, which services shall include,
without limitation, the design and preparation of a menu or menus acceptable to
MHG, receiving and processing all orders from the Food Service Areas, preparing
and delivering all food and beverages to the Food Service Areas, and picking-up
all trays, plates and utensils from the Food Service Areas. Food and beverage
services to the Banquet Areas shall also be subject to Section 3 below.
(d) Licenses and Permits. Prior to the Required Service
Date, Il Fornaio shall obtain all licenses and permits required to conduct the
food and beverage services described hereinabove, including, without
limitation, all food and liquor licenses. MHG agrees to reasonably cooperate
with Il Fornaio in obtaining such licenses and permits in connection with the
sale of alcoholic beverages to guests and patrons of the Hotel.
3. Banquet Areas. The following shall apply to the use and
operation of the Banquet Areas:
(a) Scheduling. Commencing on the Required Service Date and
continuing through the term of this Agreement, MHG shall, at six month
intervals, provide a Banquet Area schedule to Il Fornaio,
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which schedule shall set forth dates (during the applicable six (6) month
period) for which MHG has reserved for itself the right to schedule uses of the
Banquet Areas. In determining which dates MHG intends to reserve on any
schedule, MHG shall utilize its reasonable discretion based upon then current
conditions impacting the hotel and banquet business in Downtown San Jose.
During a period covered by any such schedule, if any dates reserved by MHG on
such schedule are not booked with actual events at least forty-five (45) days
prior to such date, then such date shall be available for scheduling by either
Il Fornaio or MHG. Subject to the schedule provided by MHG, Il Fornaio shall
provide services in connection with the scheduling of events in the Banquet
Areas of the Hotel. In scheduling events for the Banquet Areas, Il Fornaio's
staff shall coordinate with the staff of MHG to attempt to maximize the
revenues of the Hotel and of the food and beverage operations conducted
therein.
(b) Duties. As to any and all events in the Banquet
Areas (whether scheduled by Il Fornaio or MHG), Il Fornaio shall, pursuant to
its obligations in Section 2(c) above, provide for the preparation, service,
cleanup and billing for all food and beverage provided in connection with such
events. For all events in the Banquet Areas (whether scheduled by Il Fornaio
or MHG), MHG shall provide for the set up of tables, chairs and other necessary
furnishings and equipment, and shall provide for the break down of all such
items following such events, which break down shall include the cleanup of the
Banquet Areas following removal of Il Fornaio's food and beverage dishes,
utensils, trays, and related services items.
4. Maintenance and Repair Services. Commencing on the Required
Service Date and continuing throughout the term of this Agreement, Il Fornaio
shall maintain and repair the Food Service Areas and the public restrooms
located on the second floor of the Hotel in a first-class condition, reasonable
wear and tear excepted. In the event that Il Fornaio fails to maintain and
repair the Food Service Areas and/or such public restrooms in such condition,
MHG shall have the right to maintain and repair the same and, upon written
demand by MHG, Il Fornaio shall reimburse MHG for ninety percent (90%) all costs
and expenses incurred in connection therewith. The cost of such maintenance and
repair services shall, during the term of this Agreement, be paid for by MHG, as
to ten percent (10%), and by Il Fornaio, as to ninety percent (90%).
5. Refurbishment. If, during the initial term of the Restaurant
Lease, any renovation is required to be made to the Food Service Areas in order
to maintain said areas in a first-class condition, the cost thereof shall be
paid for by MHG, as to ten percent (10%), and by Il Fornaio, as to ninety
percent (90%). The foregoing sentence notwithstanding, the cost of the first
two (2) Major Renovations made during the initial term of the Restaurant Lease
shall be paid for by MHG, as to thirty percent (30%), and by Il Fornaio, as to
seventy percent (70%). If both of the option periods as provided in the
Restaurant Lease are exercised, the cost
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of one Major Renovation made during either of those option periods shall be
paid for by MHG, as to thirty percent (30%) and by Il Fornaio, as to seventy
percent (70%).
All Major Renovations shall be mutually agreed upon and approved by MHG
and Il Fornaio.
6. Conduct of Services. Il Fornaio shall provide the
above-described food and beverage services, at all times, in an efficient,
first-class and reputable manner which manner of services shall also be subject
to any applicable standards set forth in the Ground Lease described in Section
1(k) above. In providing the services in the manner described herein, Il
Fornaio shall maintain an adequate number of qualified employees and sufficient
inventories.
7. Evaluation.
(a) In General. During the first six (6) months
following the Required Service Date, MHG and Il Fornaio shall meet and confer
on a weekly basis regarding the performance of the above-described services and
operations of Il Fornaio for purposes of developing and implementing mutually
acceptable modifications to improve the same. MHG and Il Fornaio shall provide
each other with such reports (including budgets, business plans, interim
financial statements and related reports) as may be reasonably required to
evaluate the performance of such services and the profitability of the same.
In the event that the parties are in disagreement as to any material aspect of
the performance of services by Il Fornaio (which disagreement does not involve
an alleged breach hereunder), the parties shall engage the Consultants to
review the issue underlying the disagreement and to make recommendations
regarding a resolution of such disagreement. The recommendations of the
Consultants shall be non-binding upon the parties.
(b) Room Service. Following the first six (6) months
after the Required Service Date, MHG and Il Fornaio shall meet and confer to
review whether the Gross Revenues allocable to room service have been
sufficient to allow Il Fornaio to recoup its costs in providing such room
service. "Costs" for the purposes of the preceding sentence shall mean Il
Fornaio's actual food and labor costs associated with providing room service,
together with an equitable allocation of Il Fornaio's administrative costs. In
the event it is determined that Gross Revenues with respect to room service are
not sufficient to cover Il Fornaio's costs with respect thereto, then MHG shall
have the right to elect either of the following:
(i) Have Il Fornaio continue to provide room
service in the same manner as during the first six (6) months following the
Required Service Date and MHG shall pay to Il Fornaio, on a monthly basis, the
difference between Il Fornaio's
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actual costs in providing such room service and the Gross Revenues received by
Il Fornaio in connection with such room service;
(ii) Have Il Fornaio modify the room service menu,
or the hours or manner of providing room service, such that the actual costs
incurred by Il Fornaio in providing such room service will be recovered by Il
Fornaio from the Gross Revenues applicable thereto; or,
(iii) Have Il Fornaio modify the room service menu,
or the hours or manner of providing room service, such that the actual costs
incurred by Il Fornaio in providing such room service will be reduced and the
difference between Il Fornaio's reduced actual costs and the Gross Revenues
received by Il Fornaio in connection with such room service will be paid by MHG
to Il Fornaio on a monthly basis.
8. Personnel.
(a) Employment and Supervision. Il Fornaio shall be
responsible for all matters concerning personnel required to perform the
above-described services (excluding personnel required to provide set-up and
break-down for the Banquet Areas, which services are the responsibility of MHG
pursuant to Section 3(b) above), including, without limitation, the hiring,
training and supervision and discharging of all employees in connection
therewith.
(b) Payroll. Il Fornaio shall be responsible for all
obligations, costs and expenses relating to the employment of persons required
to perform the above services, including, without limitation, all compensation,
wages, payroll taxes and other withholdings, social security, fringe benefits,
workmen's compensation and unemployment compensation.
(c) Nondiscrimination. Il Fornaio shall not discriminate
against any employee or applicant for employment due to race, color, creed,
religion, sex, marital status, age, handicap, ancestry or national origin.
9. Operating Expenses. All expenses incurred by Il Fornaio in
performing the above-described services, and in performing all of its duties
under this Agreement, shall be borne exclusively by Il Fornaio (including the
cost of inventories), and in no event shall MHG be required to advance or make
available to Il Fornaio any funds for the performance of any such services,
except as expressly provided herein.
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10. Prices and Payment of Funds.
(a) Prices.
(i) Food and Beverage Prices. The individual
prices for specific food and beverage items shall be established by Il Fornaio,
subject to the reasonable approval of MHG.
(ii) Rental Charge for Banquet Areas. The rental
charge for the use of the Banquet Areas shall be established by MHG, subject to
the reasonable approval of Il Fornaio.
(b) No Operating Fee. There shall be no operating fees
or other concession fees due to either party under the terms of this Agreement.
It is understood by the parties that all Gross Revenues under this Agreement
shall be included in Gross Sales under the Restaurant Lease (as defined
therein), a percentage of which shall be due to MHG under the terms of the
Restaurant Lease.
(c) Receipt and Payment.
(i) Room Service. MHG shall receive all payments
(including credit card charges) in connection with the sale of all food and
beverage items under Section 2(b) above (i.e., room service). Within five (5)
days following the fifteenth (15th) day and the end of each calendar month
during the term of this Agreement, MHG shall provide Il Fornaio with a written
statement of Gross Revenues from the sale of such food and beverage items for
the applicable calendar month, together with a check payable to Il Fornaio in
the amount of such Gross Revenues (less the amount of credit card company
service charges and fees). Il Fornaio shall retain all sales taxes for the
sale of such food and beverage items and shall be responsible for paying the
same to the appropriate governmental authorities.
(ii) Food Service Areas. Il Fornaio shall receive
all payments (including credit card charges) in connection with the sale of all
food and beverage items under Section 2(c) above and in connection with the
rental of the Food Service Areas under Section 3 above; provided, however,
Banquet Area rental charges shall not be part of Gross Revenues and are to be
turned over to MHG on a not less than monthly basis.
(iii) Records. MHG and Il Fornaio shall each keep
and maintain full and accurate books, records, and other pertinent data in
connection with those portions of Gross Revenues (and, in the case of Il
Fornaio, Banquet Area rental charges) which each party collects pursuant to the
terms of this Agreement.
11. Parking.
(a) Staff Parking. Commencing on the Effective Date, MHG
shall provide to Il Fornaio with valet parking for up to 12 cars per day for Il
Fornaio's management and staff working at the Hotel ("Staff
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Parking"). For such period as MHG provides the Staff Parking to Il Fornaio
within the parking structure adjacent to the Hotel, then MHG shall provide such
parking to Il Fornaio and its employees at no cost. At such time as MHG no
longer has rights to the parking structure adjacent to the Hotel and is
providing the Staff Parking to Il Fornaio at the convention center across from
the Hotel, then Il Fornaio shall pay to MHG the monthly service charge charged
to MHG by the Redevelopment Agency of the City of San Jose or the City of San
Jose, as the case may be, for each space within the convention center, which
amount, as of the Effective Date, is contemplated to be Twenty-Four Dollars
($24.00) per month per space. At such time as MHG is providing Staff Parking
to Il Fornaio within the parking structure adjacent to the Hotel, MHG shall use
reasonable efforts to provide additional spaces for the management and staff of
Il Fornaio, provided such additional spaces can be accommodated in light of
MHG's other parking requirements.
(b) Patron Parking. MHG shall, at no cost to Il
Fornaio, provide valet parking for patrons and guests of the Food Service
Areas. After meeting and conferring with Il Fornaio, MHG shall be entitled
to charge the patrons and guests of the Food Service Areas for valet service,
provided such charge is at all times consistent with customary and prevailing
valet parking rates for similar first class restaurants in Downtown San Jose.
In the event that MHG's primary source for parking to accommodate valet service
for Il Fornaio's patrons (i.e., the parking structure adjacent to the Hotel or
the convention center parking) is full, MHG shall make such arrangements as are
necessary to provide an alternative facility to valet park Il Fornaio's
patron's vehicles. Valet charges to patrons of Il Fornaio shall not exceed the
valet charge to guests of the Hotel.
Following the first six (6) month period following
the Required Service Date, MHG and Il Fornaio shall meet and confer to
determine whether MHG's entire parking operation for the Hotel provides
sufficient revenues to MHG to recoup its parking related costs while at the
same time providing valet parking at no direct cost to Il Fornaio. "Cost" for
the purpose of the preceding sentence shall mean MHG's actual labor costs,
parking garage costs and other direct costs incurred in connection with its
parking operations for the Hotel, together with an equitable allocation of
MHG's administrative costs. If it is determined that MHG cannot provide Il
Fornaio's valet parking at no direct cost to Il Fornaio and still recoup MHG's
overall costs for the Hotel parking operations, then Il Fornaio shall have the
right to elect one of the following:
(c) Have MHG modify the level of valet service such that
MHG's revenues (including revenues from Il Fornaio's patrons) from parking
operations will provide for recoupment of MHG's cost therefore, without charge
to Il Fornaio or any increase charges to Il Fornaio's patrons;
(d) Have MHG modify the level of valet service, or
continue to provide the same level of valet service and implement one of the
following: (a) have Il Fornaio pay to MHG on a monthly
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<PAGE> 9
basis the actual cost incurred in connection with valet service (which cost
shall be exclusive of costs equitably allocated to other Hotel operations); (b)
increase the charges to Il Fornaio's patrons such that MHG may recoup its cost
allocable to such valet service, or (c) establish a combination of payment by
Il Fornaio and increases in charges to Il Fornaio's patrons such that the
combined payments and charges will allow MHG to recoup the costs allocable to
such valet service.
Any net income allocable to the valet parking system for Il Fornaio
shall (after payment of all of MHG's costs allocable thereto) be shared equally
between Il Fornaio and MHG. Any net income shared by Il Fornaio and MHG, as
provided in the preceding sentence, shall not be included within Gross
Revenues.
12. Insurance. Commencing on the Required Service Date and
continuing throughout the remaining term of this Agreement, Il Fornaio shall
carry, at its expense, the policies of liability insurance required under the
Restaurant Lease; provided, however, that the policies of comprehensive general
liability insurance shall name both Owner and MHG as additional insured
thereunder.
13. Indemnification.
(a) Il Fornaio. Il Fornaio will defend, indemnify, and
hold MHG, and its representatives harmless from and against any and all costs,
expenses (including attorneys' fees and court costs), losses, liabilities,
damages, claims, and demands of every kind or nature (collectively, "Losses") ,
arising in any way from (i) use or occupancy of the Hotel by Il Fornaio or any
person claiming under Il Fornaio, (ii) the conduct of Il Fornaio's business and
any activity, work, or thing done or permitted by Il Fornaio in or about the
Hotel, (iii) negligence or willful misconduct of Il Fornaio or its
representatives, or (iv) any breach or default in the performance of any
obligation on Il Fornaio's part to be performed under this Agreement. Il
Fornaio will defend any such action or proceeding brought against MHG or its
representatives at Il Fornaio's expense with counsel reasonably satisfactory to
MHG. Il Fornaio's foregoing indemnity obligation will, however, exclude Losses
arising in any way from the negligence or willful misconduct of MHG, Owner, or
their representatives.
(b) MHG. MHG will defend, indemnify, and hold Il Fornaio
and its representatives harmless from and against any and all costs, expenses
(including attorneys' fees and court costs), losses, liabilities, damages,
claims, and demands of every kind or nature (collectively, "Losses"), arising
in any way from (i) use or occupancy of the Hotel by MHG or any person claiming
under MHG, (ii) the conduct of MHG's business and any activity, work, or thing
done or permitted by MHG in or about the Hotel, (iii) negligence or willful
misconduct of MHG or its representatives, or (iv) any breach or default in the
performance of any obligation on MHG's part to be performed under this
Agreement. MHG
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<PAGE> 10
will defend any such action or proceeding brought against Il Fornaio or its
representatives at MHG's expense with counsel reasonably satisfactory to MHG.
MHG's foregoing indemnity obligation will, however, exclude Losses arising in
any way from the negligence or willful misconduct of Il Fornaio, Owner, or
their representatives.
14. Annual Business Plans. Prior to the Required Service Date,
and at least once during each year thereafter during the term of this
Agreement, Il Fornaio shall prepare and deliver to MHG an annual business plan
and projected statement of Gross Revenues in connection with the services to be
performed by Il Fornaio under this Agreement.
15. Term.
(a) Term. The term of this Agreement shall be for a
period commencing on the Effective Date and ending on the termination, for any
reason, of the Restaurant Lease.
(b) Termination. This Agreement may be terminated by
(i) the mutual agreement of the parties, (ii) at the election of MHG if Il
Fornaio fails to cure any breach of this Agreement within thirty (30) days
following written notice from MHG (or within a reasonable time thereafter if
such breach cannot reasonably be cured within such thirty (30) day period,
provided that at the expiration of such thirty (30) day period, Il Fornaio is
diligently proceeding to cure such breach), (iii) at the election of Il Fornaio
if MHG fails to cure any breach of this Agreement within thirty (30) days
following written notice from Il Fornaio (or within a reasonable time
thereafter if such breach cannot reasonably be cured within such thirty (30)
day period, provided that at the expiration of such thirty (30) day period, MHG
is diligently proceeding to cure such breach), or (iv) the termination of the
Restaurant Lease.
(c) Cross Default. A material breach or default by Il
Fornaio under the Restaurant Lease shall constitute a material breach of this
Agreement.
16. Assignment. Il Fornaio shall have no right to assign or
delegate any of its rights or obligations under this Agreement except to a
permitted assignee or subtenant of the Il Fornaio Premises in strict accordance
with the terms and conditions of the Restaurant Lease. Il Fornaio shall have
the right to review and approve any proposed assignee or transferee of Owner's
interest in the Hotel to determine whether such proposed assignee or transferee
intends to operate the Hotel in a manner which is consistent with Il Fornaio's
operational policies. In the event Il Fornaio declines to approve any proposed
assignee or transferee as provided in the preceding sentence, Owner may
nevertheless proceed to transfer the Hotel to such assignee or transferee and
thereafter Il Fornaio shall have the right to terminate this Agreement.
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<PAGE> 11
17. No Partnership. It is expressly understood by the parties
hereto that nothing contained herein shall be deemed or construed as creating a
partnership, joint venture or any association between Il Fornaio and Owner or
MHG, or cause Owner or MHG to be responsible for any debts or obligations of Il
Fornaio.
18. Notices. Any notice, request, or other communication required
or permitted by this Agreement will be in writing and will be deemed given if
personally delivered, mailed by registered or certified mail (return receipt
requested), delivered by national overnight delivery courier, or sent by
facsimile or similar transmission which is confirmed by mail or the recipient,
addressed as follows:
MHG: Mobedshahi Hotel Group
The Sherman House
2160 Green Street
San Francisco, CA 95123
Attn: Manouchehr Mobedshahi
Il Fornaio: Il Fornaio (America) Corporation
1000 Sansome Street, Suite 200
San Francisco, CA 95111
Attn: Laurence B. Mindel
Service by registered or certified mail will be deemed given three
business days after mailing absent proof of sooner delivery. Service by
national overnight delivery courier will be deemed given the next business day.
Either party, by written notice, may change the place or places for future
notices. Each recipient must have a street address for notice purposes.
19. Entire Agreement. This Agreement is the only agreement
between the parties respecting the subject matter hereof and supersedes any and
all prior or contemporaneous written or oral negotiations, correspondence,
understandings and agreements between the parties respecting the same.
20. Severability. If any provision of this Agreement is held to
be invalid or unenforceable, the remaining provisions shall remain in full
force and effect.
21. Modification. No supplement, modification or amendment to
this Agreement shall be binding unless executed in writing by both parties.
22. Attorneys' Fees. In the event either party hereto shall bring
any action or legal proceeding against the other party in connection with the
interpretation or enforcement of this Agreement, the prevailing party shall be
entitled to recover from the other party reasonable attorneys' fees and costs
of suit.
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<PAGE> 12
23. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
MHG:
MOBEDSRAHI HOTEL GROUP,
a California corporation
By: [SIGNATURE]
-------------------------------------
Its: President
------------------------------------
IL FORNAIO:
IL FORNAIO (AMERICA) CORPORATION,
a California corporation
By: [SIGNATURE]
-------------------------------------
Its: Chairman
------------------------------------
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<PAGE> 13
EXHIBIT A
(page 1 of 2)
[Floor plan of food service area on ground floor.]
<PAGE> 14
Exhibit A
(page 2 of 2)
[Floor plan of food service
areas on second floor.]
<PAGE> 1
EXHIBIT 10.14
[LOGO] Bank of America BUSINESS LOAN AGREEMENT
National Trust and Savings Association
- ------------------------------------------------------------------------------
This Agreement dated as of October 30, 1996, is between Bank of America National
Trust and Savings Association (the "Bank") and Il Fornaio (America) Corporation
(the "Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide
a line of credit to the Borrower. The amount of the line of credit
(the "Facility 1 Commitment") is Three Million Dollars ($3,000,000).
(b) This is a revolving line of credit for advances with a within line
facility for letters of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of
the line of credit plus the outstanding amounts of any letters of
credit, including amounts drawn on letters of credit and not yet
reimbursed, to exceed the Facility 1 Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available between the date
of this Agreement and April 1, 1998 (the "Expiration Date") unless the Borrower
is in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from
time to time by the Bank in San Francisco, California, as its
Reference Rate. The Reference Rate is set by the Bank based on
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. The Bank may price loans to its
customers at, above, or below the Reference Rate. Any change in the
Reference Rate shall take effect at the opening of business on the day
specified in the public announcement of a change in the Bank's
Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on November 1, 1996, and then monthly
thereafter until payment in full of any principal outstanding under
this line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest
or other charges outstanding under this line of credit no later than
the Expiration Date.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect to have all or portions of the
line of credit (during the availability period) bear interest at the rate(s)
described below during an interest period agreed to by the Bank and the
Borrower. Each interest rate is a rate per year. Interest will be paid on the
last day of each interest period, and, if the interest period is longer than
one month, then on the first day each month during the interest period. At the
end of any interest period, the interest rate will revert to the rate based on
the Reference Rate, unless the Borrower has designated another optional
interest rate for the portion. Upon the occurrence of an event of default
under this Agreement, the Bank may terminate the availability of optional
interest rates for interest periods commencing after the default occurs. (The
immediately preceding sentence also applies to Facility No. 2.)
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<PAGE> 2
1.6 FIXED RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Fixed Rate,
subject to the following requirements:
(a) The "Fixed Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable
interest period.
(b) The interest period during which the Fixed Rate will be in effect will
be no shorter than 30 days and no longer than 180 days.
(c) Each Fixed Rate portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(d) The Borrower may not elect a Fixed Rate with respect to any portion of
the principal balance of the line of credit which is scheduled to be
repaid before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already
bearing interest at the Fixed Rate will not be converted to a
different rate during its interest period.
(f) Each prepayment of a Fixed Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee equal to
the amount (if any) by which
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the certificate of
deposit market for a period starting on the date on which it
was prepaid and ending on the last day of the interest period
for such portion.
1.7 LETTERS OF CREDIT. This line of credit may be used for financing:
(i) commercial letters of credit with a maximum maturity of 180
days but not to extend more than 90 days beyond the Expiration
Date. Each commercial letter of credit will require drafts
payable at sight.
(ii) standby letters of credit with a maximum maturity of 365 days
but not to extend beyond the Expiration Date.
(iii) The amount of the letters of credit outstanding at any one
time, (including amounts drawn on the letters of credit and
not yet reimbursed), may not exceed Five Hundred Thousand
Dollars ($500,000).
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of the Bank,
be added to the principal amount outstanding under this Agreement.
The amount will bear interest and be due as described elsewhere in
this Agreement
(b) if there is a default under this Agreement, to immediately prepay and
make the Bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form
and content satisfactory to the Bank and in favor of a beneficiary
acceptable to the Bank.
(d) to sign the Bank's form Application and Agreement for Commercial
Letter of Credit or Application and Agreement for Standby Letter of
Credit.
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<PAGE> 3
(e) to pay any issuance and/or other fees that the Bank notifies the
Borrower will be charged for issuing and processing letters of credit
for the Borrower.
(f) to allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.
(g) to pay the Bank a non-refundable fee equal to 1.45% per annum of the
outstanding undrawn amount of each standby letter of credit, payable
annually in advance, calculated on the basis of the face amount
outstanding on the day the fee is calculated.
2. FACILITY NO. 2: TERM LOAN AMOUNT AND TERMS
2.1 Outstanding Term Loan. There is outstanding from the Bank to the
Borrower a term loan in the original principal amount of One Million Eight
Hundred Thousand Dollars ($1,800,000). As of October 16, 1996, the principal
amount outstanding under the term loan was Two Hundred Fifty Thousand Dollars
($250,000). This term loan is currently subject to the terms and conditions of
Facility 2 of the Business Loan Agreement dated April 28, 1995. As of the date
of this Agreement, the term loan shall be deemed to be outstanding as Facility
2 under this Agreement, and shall be subject to all the terms and conditions
stated in this Agreement.
2.2 Interest Rate. Unless the Borrower elects an optional interest rate
as described below, the interest rate is the Bank's Reference Rate plus 1.0
percentage point.
2.3 Repayment Terms.
(a) The Borrower will pay all accrued but unpaid interest on November 1,
1996, and then monthly thereafter and upon payment in full of the
principal of the loan.
(b) The Borrower will repay principal in 5 successive monthly installments
of Fifty Thousand Dollars ($50,000) starting November 1, 1996. On
March 1, 1997, the Borrower will repay the remaining principal balance
plus any interest then due.
(c) The Borrower may prepay the loan in full or in part at any time. The
prepayment will be applied to the most remote installment of principal
due under subparagraph (b) immediately above.
2.4 Optional Interest Rates. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect to have all or portions of the
loan bear interest at the rate(s) described below during an interest period
agreed to by the Bank and the Borrower. Each interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and, if the
interest period is longer than one month, then on the first day each month
during the interest period. At the end of any interest period, the interest
rate will revert to the rate based on the Reference Rate, unless the Borrower
has designated another optional interest rate for the portion.
2.5 Fixed Rate. The Borrower may elect to have all or portions of the
principal balance of the loan bear interest at the Fixed Rate, subject to the
following requirements:
(a) The "Fixed Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable
interest period.
(b) The interest period during which the Fixed Rate will be in effect will
be no shorter than 30 days and no longer than 180 days.
(c) Each Fixed Rate portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(d) The Borrower may not elect a Fixed Rate with respect to any portion of
the principal balance of the loan which is scheduled to be repaid
before the last day of the applicable interest period.
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<PAGE> 4
(e) Any portion of the principal balance of the loan already bearing
interest at the Fixed Rate will not be converted to a different rate
during its interest period.
(f) Each prepayment of a Fixed Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee equal to
the amount (if any) by which
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the certificate of
deposit market for a period starting on the date on which it
was prepaid and ending on the last day of the interest period
for such portion.
3. FEES AND EXPENSES
3.1 Unused Commitment Fee. The Borrower agrees to pay a fee on any
difference between the Facility 1 Commitment and the amount of credit it
actually uses, determined by the weighted average loan balance maintained
during the specified period. The fee will be calculated at .10% per year.
This fee is due on January 1, 1997, and on the first day of each following
quarter until the expiration of the availability period.
3.2 Expenses.
(a) The Borrower agrees to reimburse the Bank for any expenses it incurs
in the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the Bank's
in-house counsel.
(b) The Borrower agrees to reimburse the Bank for the cost of periodic
audits and appraisals of the personal property collateral securing
this Agreement, at such intervals as the Bank may reasonably require.
The audits and appraisals may be performed by employees of the Bank or
by independent appraisers.
4. COLLATERAL
4.1 Personal Property. The Borrower's obligations to the Bank under this
Agreement will be secured by personal property the Borrower now owns or will
own in the future as listed below. The collateral is further defined in
security agreement(s) executed by the Borrower. In addition, all personal
property collateral securing this Agreement shall also secure all other present
and future obligations of the Borrower to the Bank (excluding any consumer
credit covered by the federal Truth in Lending law, unless the Borrower has
otherwise agreed in writing). All personal property collateral securing any
other present or future obligations of the Borrower to the Bank shall also
secure this Agreement.
(a) Machinery and equipment.
(b) Inventory.
(c) Receivables.
5. DISBURSEMENTS, PAYMENTS AND COSTS
5.1 Requests for Credit. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
5.2 Disbursements and Payments. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank
from time to time;
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<PAGE> 5
(b) made for the account of the Bank's branch selected by the Bank from
time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory
notes.
5.3 Telephone Authorization.
(a) The Bank may honor telephone instructions for advances or repayments
or for the designation of optional interest rates given by any one of
the individuals authorized to sign loan agreements on behalf of the
Borrower, or any other individual designated by any one of such
authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from
the Borrower's account number 14995-50830, or such other of the
Borrower's accounts with the Bank as designated in writing by the
Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone instructions it
reasonably believes are made by any individual authorized by the
Borrower to give such instructions. This indemnity and excuse will
survive this Agreement.
5.4 Direct Debit (Pre-Billing).
(a) The Borrower agrees that the Bank will debit the Borrower's deposit
account number 14995-50830 (the "Designated Account") on the date each
payment of principal, interest and any fees from the Borrower becomes
due (the "Due Date"). If the Due Date is not a banking day, the
Designated Account will be debited on the next banking day.
(b) Approximately 10 days prior to each Due Date, the Bank will mail to
the Borrower a statement of the amounts that will be due on that Due
Date (the "Billed Amount"). The calculation will be made on the
assumption that no new extensions of credit or payments will be made
between the date of the billing statement and the Due Date, and that
there will be no changes in the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount due on that date (the "Accrued
Amount").
If the Billed Amount debited to the Designated Account differs from
the Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount the Billed
Amount for the following Due Date will be increased by the amount
of the discrepancy. The Borrower will not be in default by
reason of any such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the
Billed Amount for the following Due Date will be decreased by
the amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without
compounding. The Bank will not pay the Borrower interest on any
overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account
to cover each debit. If there are insufficient funds in the
Designated Account on the date the Bank enters any debit authorized by
this Agreement, the debit will be reversed.
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<PAGE> 6
5.5 Banking Days. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday or a Sunday on which the Bank is open for
business in California. All payments and disbursements which would be due on a
day which is not a banking day will be due on the next banking day. All
payments received on a day which is not a banking day will be applied to the
credit on the next banking day.
5.6 Additional Costs. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request
or requirement of a regulatory agency which is applicable to all national banks
or a class of all national banks. The costs and losses will be allocated to
the loan in a manner determined by the Bank, using any reasonable method. The
costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments
for credit.
5.7 Interest Calculation. Except as otherwise stated in this Agreement,
all interest and fees, if any, will be computed on the basis of a 360-day year
and the actual number of days elapsed. This results in more interest or a
higher fee than if a 365-day year is used.
5.8 Interest on Late Payments. At the Bank's sole option in each
instance, any amount not paid when due under this Agreement (including
interest) shall bear interest from the due date at the Bank's Reference Rate
plus 2.0 percentage points. This may result in compounding of interest.
5.9 Default Rate. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 1.0 percentage point(s)
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any default.
6. CONDITIONS
The Bank must receive the following items, in form and content acceptable to
the Bank, before it is required to extend any credit to the Borrower under this
Agreement.
6.1 Authorizations. Evidence that the execution, delivery and performance
by the Borrower (and any guarantor) of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
6.2 Security Agreements. Signed original security agreements,
assignments, financing statements and fixture filings (together with collateral
in which the Bank requires a possessory security interest), which the Bank
requires.
6.3 Evidence of Priority. Evidence that security interests and liens in
favor of the Bank are valid, enforceable, and prior to all others' rights and
interests except those the Bank consents to in writing.
6.4 Insurance. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
6.5 Other Items. Any other items that the Bank reasonably requires.
7. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.
7.1 Organization of Borrower. The Borrower is a corporation duly formed
and existing under the laws of the state where organized.
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<PAGE> 7
7.2 Authorization. This Agreement, and any instrument or agreement
required hereunder, are within the Borrower's powers, have been duly
authorized, and do not conflict with any of its organizational papers.
7.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed
and delivered, will be similarly legal, valid, binding and enforceable.
7.4 Good Standing. In each state in which the Borrower does business, it
is properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
7.5 No Conflicts. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower is bound.
7.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's (and any guarantor's) financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
7.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
7.8 Collateral. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
7.9 Other Obligations. The Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
7.10 Income Tax Returns. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
7.11 No Event of Default. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
7.12 Location of Borrower. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this
Agreement.
8. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
8.1 Use of Proceeds. To use the proceeds of Facility 1 for working
capital.
8.2 Financial Information. To provide the following financial information
and statements and such additional information as requested by the Bank from
time to time:
(a) Within 120 days of the Borrower's fiscal year end, the Borrower's
annual financial statements. These financial statements must be
audited (with an unqualified opinion) by a Certified Public Accountant
("CPA") acceptable to the Bank. The statements shall be prepared on a
consolidated basis.
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<PAGE> 8
(b) Within 30 days of the period's end, the Borrower's monthly financial
statements. These financial statements may be Borrower prepared. The
statements shall be prepared on a consolidated basis. These financial
statements shall include income statements comparing monthly and
year-to-date results with plan and prior year period, by each
location, and shall include a discussion by the Borrower's management
on results.
(c) Annual projections and planned capital expenditures, prepared in
monthly format, due not later than 15 days before the Borrower's
fiscal year end.
(d) Written confirmation of compliance with all terms and conditions of
this Agreement, signed by the Borrower's Chief Financial Officer or
Controller, within 30 days after the end of each quarter.
8.3 Tangible Net Worth. To maintain quarterly on a consolidated basis
tangible net worth equal to at least the amounts indicated for each period
specified below:
<TABLE>
<CAPTION>
Period Amount
<S> <C>
From the date of this Agreement
through December 31, 1996 $20,000,000
From January 1, 1997
and thereafter $22,000,000
</TABLE>
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles)
less total liabilities, including but not limited to accrued and deferred
income taxes, and any reserves against assets.
8.4 Total Liabilities to Tangible Net Worth Ratio. To maintain quarterly
on a consolidated basis a ratio of total liabilities to tangible net worth not
exceeding 0.75:1.0.
For the purposes of this calculation, "total liabilities" means the sum of
current liabilities plus long term liabilities, excluding deferred lease
incentives.
8.5 Fixed Charge Coverage Ratio. To maintain on a consolidated basis a
fixed charge coverage ratio of at least 1.5:1.0.
"Fixed Charge Coverage Ratio" means the ratio of cash flow to the current
portion of long term debt and capital leases plus interest expense and lease
expense. "Cash flow" is defined as net income from operations and investments,
after taxes, plus depreciation, interest expense, depletion, amortization and
other non-cash charges less amortization of deferred lease incentives and
capitalized interest. This ratio will be calculated at the end of each fiscal
quarter, using the results of that quarter and each of the 3 immediately
preceding quarters. The current portion of long term debt will be measured as
of the last day of the preceding fiscal year, and shall exclude the principal
amount outstanding under Facility No. 1.
8.6 Profitability.
(a) To maintain for each of its restaurants (including the operating
results of its in-store retail bakery, if any) that has been operating
for more than 4 fiscal quarters a positive net income after taxes and
extraordinary items for each quarterly accounting period. It is
provided, however, that this subparagraph will not be breached if one
of such restaurants (including the operating results of its in-store
retail bakery, if any) incurs a loss in one or more quarterly
accounting periods so long as it does not incur a net loss in the
aggregate in excess of One Hundred Thousand Dollars ($100,000) in any
single fiscal year.
(b) For its stores known as Panificios, not to incur an aggregate loss in
excess of One Hundred Fifty Thousand Dollars ($150,000) in any single
fiscal year.
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<PAGE> 9
8.7 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
debts or lease obligations (other than those to the Bank), or become liable for
the debts of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Additional lease obligations for the acquisition of fixed or capital
assets, to the extent permitted elsewhere in this Agreement.
8.8 OTHER LIENS. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing
to the Bank.
(d) Additional liens which secure lease obligations permitted under
subparagraph (d) of Paragraph 8.7.
8.9 CAPITAL EXPENDITURES. Without the Bank's written consent, not to
spend or incur capital lease obligations for more than Seven Million Dollars
($7,000,000) in the Borrower's fiscal years ending December 31, 1996, and
December 31, 1997 to acquire fixed or capital assets.
8.10 DIVIDENDS. Not to declare or pay any dividends on any of its shares
except dividends payable in capital stock of the Borrower, and not to purchase,
redeem or otherwise acquire for value any of its shares, or create any sinking
fund in relation thereto. This does not prohibit the repurchase of up to 10,000
shares per fiscal year, provided that all such repurchases are associated with
the Borrower's stock repurchase program as it relates to terminated employees.
8.11 LOANS TO OFFICERS. Not to make any loans, advances or other
extensions of credit to any of the Borrower's executives, officers, or
directors or shareholders (or any relatives of any of the foregoing) in an
aggregate outstanding amount greater than Thirty Thousand Dollars ($30,000) at
any one time.
8.12 CHANGE OF OWNERSHIP. Not to cause, permit or suffer any change,
direct or indirect, in the Borrower's capital ownership in excess of 25%.
8.13 OUT OF DEBT PERIOD (FACILITY 1). To repay any advances in full, and
not to draw any additional advances on its revolving line of credit for a
period of at least 30 consecutive days between the date of this Agreement and
April 1, 1998. For the purposes of this paragraph, "advances" does not
include undrawn amounts of outstanding letters of credit.
8.14 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over One Hundred Thousand Dollars ($100,000) against the
Borrower (or any guarantor).
(b) any substantial dispute between the Borrower (or any guarantor) and
any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any guarantors)
financial condition or operations.
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<PAGE> 10
(e) any change in the Borrower's name, legal structure, place of business,
or chief executive office if the Borrower has more than one place of
business.
8.15 BOOKS AND RECORDS. To maintain adequate books and records.
8.16 Audits. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
8.17 COMPLIANCE WITH LAWS. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's business.
8.18 PRESERVATION OF RIGHTS. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
8.19 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
8.20 PERFECTION OF LIENS. To help the Bank perfect and protect its
security interests and liens, and reimburse it for related costs it incurs to
protect its security interests and liens.
8.21 COOPERATION. To take any action requested by the Bank to carry out
the intent of this Agreement.
8.22 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount acceptable to
the Bank. The insurance must be issued by an insurance company
acceptable to the Bank and must include a lender's loss payable
endorsement in favor of the Bank in a form acceptable to the Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance as is usual for the
business it is in.
(c) EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to
the Bank a copy of each insurance policy, or, if permitted by the
Bank, a certificate of insurance listing all insurance in force.
8.23 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
Borrowers present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate,
or other combination.
(d) lease, or dispose of all or a substantial part of the Borrower's
business or the Borrower's assets.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for less than fair market
value, or enter into any sale and leaseback agreement covering any of
its fixed or capital assets, except for the sale or disposal of assets
associated with the free-standing bakeries In Bunker Hill, Santa
Monica-Main, Santa Monica-Montana and Los Angeles.
(g) voluntarily suspend its business for more than 5 days in any 30 day
period.
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<PAGE> 11
9. DEFAULT
If any of the following events occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
9.1 FAILURE TO PAY. The Borrower fails to make a payment under this
Agreement within 10 days after the date when due.
9.2 LIEN PRIORITY. The Bank fails to have an enforceable first lien
(except for any prior liens to which the Bank has consented in writing) on or
security interest in any property given as security or this loan.
9.3 FALSE INFORMATION. The Borrower has given the Bank false or
misleading information or representations.
9.4 BANKRUPTCY. The Borrower (or any guarantor) files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower (or any
guarantor), or the Borrower (or any guarantor) makes a general assignment for
the benefit of creditors. The default will be deemed cured if any bankruptcy
petition filed against the Borrower (or any guarantor) is dismissed within a
period of 45 days after the filing; provided, however, that the Bank will not
be obligated to extend any additional credit to the Borrower during that
period.
9.5 RECEIVERS. A receiver or similar official is appointed for the
Borrower's (or any guarantor's) business, or the business is terminated. The
default arising from the appointment of a receiver or similar official will
be deemed cured if such appointment is set aside or withdrawn or ceases to be
in effect within 30 days of the date of such appointment; provided, however,
that the Bank will not be obligated to extend any additional credit to the
Borrower during that period.
9.6 JUDGMENTS. Any judgments or arbitration awards are entered against
the Borrower (or any guarantor), or the Borrower (or any guarantor) enters into
any settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Two Hundred Fifty Thousand Dollars ($250,000) or more in
excess of any insurance coverage. The default arising from a judgment or
arbitration award will be deemed cured if such judgment or award is discharged
within 10 days of entry without the expenditure of funds by the Borrower
except for attorneys' fees; provided, however, that the Bank will not be
obligated to extend any additional credit to the Borrower during that period.
9.7 GOVERNMENT ACTION. Any government authority takes action specifically
directed at the Borrower that the Bank believes materially adversely affects
the Borrower's (or any guarantor's) financial condition or ability to repay.
9.8 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's (or any guarantor's) financial condition, properties or prospects, or
ability to repay the credits. It is provided, however, that the Borrower's
anticipated write-off of a certain note payable to the Borrower in the original
amount of Seven Hundred Thousand Dollars ($700,000) related to its previous
sale of a certain restaurant most recently known as ERIC will not constitute
such a material adverse change.
9.9 CROSS-DEFAULT. Any default occurs under any agreement in connection
with any credit the Borrower (or any guarantor) has obtained from anyone else or
which the Borrower (or any guarantor) has guaranteed and such default continues
beyond the grace or cure period, if any, applicable thereto.
9.10 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination
agreement, security agreement, deed of trust, or other document required by this
Agreement is violated or no longer in effect.
9.11 OTHER BANK AGREEMENTS. The Borrower (or any guarantor) fails to meet
the conditions of, or fails to perform any obligation under any other agreement
the Borrower (or any guarantor) has with the Bank or any
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<PAGE> 12
affiliate of the Bank. If, in the Bank's opinion, the breach is capable of
being remedied, the breach will not be considered an event of default under
this Agreement for a period of 10 days after the date on which the Bank gives
written notice of the breach to the Borrower; provided, however, that the Bank
will not be obligated to extend any additional credit to the Borrower during
that period.
9.12 Other Breach Under Agreement. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article. If, in the Bank's
opinion, the breach is capable of being remedied, the breach will not be
considered an event of default under this Agreement for a period of ten (10)
days after the date on which the Bank gives written notice of the breach to the
Borrower; provided, however, that the Bank will not be obligated to extend any
additional credit to the Borrower during that period.
With respect to any breach or default for which a 10-day cure period is
provided under above Paragraphs 9.6, 9.11, and 9.12, it is further provided
that if such breach or default may not be remedied within such cure period and
if the Borrower has taken all action reasonably possible to remedy such breach
or default within such cure period, the breach or default will not be
considered an event of default under this Agreement unless declared an event of
default by the Bank in its absolute discretion following such cure period.
During any such extended cure period, the Bank will continue to not be
obligated to extend any additional credit to the Borrower.
10. ENFORCING THIS AGREEMENT; MISCELLANEOUS
10.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
10.2 CALIFORNIA LAW. This Agreement is governed by California law.
10.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the
right of set-off against the Borrower.
10.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered
in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury
to persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement provides that it is governed by California
law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent
of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute
of limitations. The arbitrators will
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<PAGE> 13
have the authority to decide whether any such claim or controversy is
barred by the statute of limitations and, if so, to dismiss the
arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration, arises
from or relates to an obligation to the Bank secured by real property
located in California. In this case, both the Borrower and the Bank
must consent to submission of the claim or controversy to arbitration.
If both parties do not consent to arbitration, the controversy or
claim will be settled as follows:
(i) The Borrower and the Bank will designate a referee (or a panel
of referees) selected under the auspices of the American
Arbitration Association in the same manner as arbitrators are
selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be an
active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or
the panel) will be entered as a judgment in the court that
appointed the referee, in accordance with the provisions of
California Code of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the Bank
to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit. However, if the
controversy or claim arises from or relates to an obligation to the
Bank which is secured by real property located in California at the
time of the proposed submission to arbitration, this right is limited
according to the provision above requiring the consent of both the
Borrower and the Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under
the deed of trust or mortgage, or to proceed by judicial foreclosure.
10.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank
retains all rights, even if it makes a loan after default. If the
Bank waives a default it may enforce a later default. Any consent or
waiver under this Agreement must be in writing.
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<PAGE> 14
10.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.
10.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection with
the enforcement or preservation of any rights or remedies under this Agreement
and any other documents executed in connection with this Agreement, and
including any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. As used in this paragraph, "attorneys' fees" includes the
allocated costs of in-house counsel.
10.8 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the
Bank and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
10.9 NOTICES. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses
as the Bank and the Borrower may specify from time to time in writing.
10.10 HEADINGS. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
10.11 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
10.12 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes Facilities 1
and 2 of the Business Loan Agreement entered into as of April 28,1995, between
the Bank and the Borrower, and any credit outstanding thereunder shall be
deemed to be outstanding under this Agreement.
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<PAGE> 15
This Agreement is executed as of the date stated at the top of the first page.
<TABLE>
<S> <C>
Bank of America
National Trust and Savings Association 11 Fornaio (America) Corporation
X /s/ STEPHANIE BARRELL X /s/ LAURENCE B. MINDEL
- ------------------------------ ------------------------------
By: Stephanie Barrell By: Laurence B.Mindel
Title: Vice President Title: Chairman and CEO
Address where notices to the Bank Address where notices to the Borrower
are to be sent: are to be sent:
San Francisco Commercial Banking Office #1499 1000 Sansome Street
345 Montgomery Street San Francisco, CA 94111
San Francisco, CA 94104
</TABLE>
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<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into by and between IL FORNAIO
(AMERICA) CORPORATION, a California corporation (the "Company"), and MICHAEL
HISLOP (the "Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to accept employment with the Company on the terms and conditions set
forth below;
NOW, THEREFORE, in consideration of the foregoing recital and the
respective covenants and agreements of the parties contained in this document,
the Company and the Executive agree as follows:
1. Employment and Duties. The Executive shall serve as
President and Chief Operating Officer of the Company. The duties and
responsibilities of the Executive shall include the duties and responsibilities
for the Executive's corporate offices and positions as set forth in the
Company's bylaws from time to time in effect and such other duties and
responsibilities as the board of directors of the Company (the "Board of
Directors") may from time to time assign to the Executive, in all cases to be
consistent with the Executive's corporate offices and positions. The Executive
shall be responsible for all day-to-day aspects of the Company, including
finance, operations, legal, marketing and real estate and development, and shall
report to the Chairman of the Board. At the first meeting of the Board of
Directors after the commencement of the Executive's employment with the Company,
the Executive shall be nominated to serve as a director of the Company, and, if
elected, the Executive shall serve in such capacity without additional
compensation.
2. Employment Period.
(a) Basic Rule. The Executive's employment under this
Agreement shall commence as of July 10, 1995 (the "Effective Date"), and shall
continue until terminated by either party at any time, with or without notice,
and for any or no reason. The parties agree and acknowledge that this Agreement
is an "at will" agreement and that no implied covenant or standard of practice
will cause this Agreement to have any minimum period of employment.
3. Place of Employment. The Executive's services shall be
performed at the Company's principal executive offices in San Francisco,
California. The parties acknowledge, however, that the Executive may be required
to travel in connection with the performance of his duties hereunder.
1
<PAGE> 2
4. Base Salary. For all services to be rendered by the
Executive pursuant to this Agreement, the Company agrees to pay the Executive
during the Employment Period a base salary (the "Base Salary") at an annual rate
of $300,000. The Base Salary shall be paid in periodic installments in
accordance with the Company's regular payroll practices. The Company agrees to
review the Base Salary at least annually as of the payroll payment date nearest
each anniversary of the Effective Date (beginning in 1996) and to make such
increases therein as the Board of Directors may, in its sole discretion,
approve.
5. Bonus. Beginning with the Company's current fiscal year and
for each fiscal year thereafter during the Employment Period, the Executive
shall be eligible to receive an annual bonus (the "Bonus") of up to 35% of the
Executive's Base Salary for such fiscal year based upon certain financial
criteria to be agreed upon by the Executive and the Board of Directors,
including revenue and profitability targets and other organizational milestones.
The financial criteria for the Company's fiscal year ending December 31, 1995,
has already been established. Any Bonus payable hereunder shall be payable in
accordance with the Company's normal practices and policies and shall be
determined on the basis of the Company's audited financial statements.
6. Stock.
(a) Stock Option. Effective as of the Effective Date,
the Company shall grant the Executive an option or options (the "Option") to
purchase 460,000 shares of the Company's common stock (the "Option Shares") at
$4.50 per share. The Option shall vest as described in paragraph 6(b) below and
shall be subject to such other terms and conditions as are described in
paragraph 6(c) below. It is the intention of the parties, and the Company shall
use its best efforts, to have the Option qualify, to the maximum extent
permitted under the Internal Revenue Code (the "Code"), as an "incentive stock
option" within the meaning of Section 422 of the Code.
(b) Vesting. 92,000 of the Option Shares shall be
vested and exercisable immediately as of the Effective Date. Except as otherwise
provided herein, the remaining 368,000 of the Option Shares shall vest
cumulatively over a period of four (4) years based upon the Executive's
continued employment with the Company, with 92,000 of the Option Shares vesting
on the first, second, third and fourth anniversaries, respectively, of the
Effective Date. In addition, in the event of a Change in Control (as defined in
paragraph 12(b) below), the unvested portion of the Option shall automatically
accelerate and the Executive shall have the right to exercise all or any portion
of
2
<PAGE> 3
such Option, in addition to any portion of the Option exercisable prior to such
event.
(c) Stock/Option Provisions. The Option shall be
governed by the Company's 1992 Stock Option Plan (the "Stock Plan") and, except
as expressly provided otherwise in this paragraph 6, shall be subject to the
terms and conditions of the Stock Plan and applicable form of option agreement;
provided, however, that the Company's Board of Directors may, in its discretion,
award the Option outside of the Stock Plan, and such Option or Stock Purchase
shall include such other terms as the Board of Directors may specify that are
not inconsistent with the terms hereof.
(d) Future Option Grants. The Executive may also
participate in the Company's existing stock option program for its "key"
management team. Under this program key executives are granted options that vest
over a five (5)-year period. These options are designed to generate a value at
the end of the five (5)-period that equals the initial year's base salary. The
program assumes that the Company's earnings grow at a rate of twenty-five
percent (25%) per year during the five (5)-year period. Options awarded under
this program are within the sole discretion of and are subject to the approval
of the Board of Directors.
7. Expenses. The Executive shall be entitled to prompt
reimbursement by the Company for all reasonable ordinary and necessary travel,
entertainment, and other expenses incurred by the Executive during the
Employment Period (in accordance with the policies and procedures established by
the Company for its senior executive officers) in the performance of his duties
and responsibilities under this Agreement; provided, that the Executive shall
properly account for such expenses in accordance with Company policies and
procedures.
8. Other Benefits. The Executive shall be entitled to receive
executive perquisites and to participate in employee benefit plans or programs
of the Company, if any, to the extent that his position, tenure, salary, age,
health and other qualifications make him eligible to participate, subject to the
rules and regulations applicable thereto. In addition, the Executive shall
receive car allowance of $750.00 per month, as well as a car phone.
9. Vacations and Holidays. The Executive shall be entitled to
paid vacation and Company holidays in accordance with the Company's policies in
effect from time to time for its senior executive officers.
3
<PAGE> 4
10. Other Activities. The Executive shall devote substantially
all of his working time and efforts to the business and affairs of the Company
and its subsidiaries and to the diligent and faithful performance of the duties
and responsibilities duly assigned to him pursuant to this Agreement, except for
vacations, holidays and sickness. However, the Executive may devote a reasonable
amount of his time to civic, community, or charitable activities and, with the
prior written approval of the Board of Directors, to serve as a director of
other corporations and to other types of business or public activities not
expressly mentioned in this paragraph.
11. Termination Benefits. In the event the Executive's
employment is involuntarily terminated by the Company for any reason other than
death, Disability or Cause, or in the event the Executive voluntarily terminates
his employment within 30 days of a Change in Control, then the Executive shall
be entitled to receive, in lieu of any severance benefits to which the Executive
may otherwise be entitled under any Company severance plan or program, a cash
severance in an aggregate amount equal to one hundred percent (100%) of the
Executive's Base Salary at the time of such termination. Any severance payment
to which the Executive is entitled pursuant to this paragraph shall be paid in a
lump sum within twenty (20) days of the Executive's termination. In addition,
for a period of twelve (12) months after any termination under this paragraph
11, the Company shall be obligated to continue to make available to the
Executive and his dependents and to pay for all health and medical insurance
benefits existing on the date of the Executive's termination. In the event the
Executive's employment terminates by reason of the Executive's death,
Disability, Cause Employee's voluntary resignation, or for any reason other than
as described in paragraph 11 above, then the Executive shall not be entitled to
any benefits under this Agreement and shall not be entitled to receive severance
and any other benefits except to the extent they may then be expressly required
under the Company's then existing severance and benefit plans and policies at
the time of such termination. The Executive shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner).
12. Definition of Terms. The following terms referred to in
this Agreement shall have the following meanings:
(a) Cause. "Cause" shall mean (i) financial
dishonesty, including without limitation, misappropriation of funds or property
of the Company or any attempt by the Executive to secure any personal profit
related to the business and business opportunities of the Company without the
informed approval of the Company's Board of Directors; (ii) willful
4
<PAGE> 5
neglect of duty, including without limitation, failure of the Executive to
devote all of his working hours to the service of the Company or failure to
follow the directions of the Board of Directors of the Company; and (iii)
willful violation of Section 15 hereof.
(b) Change of Control. A "Change of Control" of the
Company shall be deemed to have occurred if (i) the Company sells or otherwise
disposes of all or substantially all of its assets; (ii) there is a merger or
consolidation of the Company with any other corporation or corporations,
provided that the shareholders of the Company, as a group, do not hold,
immediately after such event, at least fifty percent (50%) of the surviving or
successor corporation, or (iii) any person or entity, including any "person" as
such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), acquires as the "beneficial owner" (as defined in
the Exchange Act) after the date of this Agreement, more than fifty percent
(50%) of the combined voting power of the voting securities of the Company.
(c) Disability. "Disability" shall mean that the
Executive has been unable to perform his duties under this Agreement as a result
of his incapacity due to physical or mental illness for at least 13 weeks after
its commencement.
13. Indemnification. The Company agrees to indemnify the
Executive to the fullest extent permitted by law. The Board of Directors shall
take all actions reasonably requested by the Executive to implement this
paragraph 13, including all actions necessary under state law to effect such
indemnification of the Executive.
14. Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
San Francisco, California, in accordance with the rules of the American
Arbitration Association then in effect by an arbitrator selected by both parties
within ten (10) days after either party has notified the other in writing that
it desires a dispute between them to be settled by arbitration. In the event the
parties cannot agree on such arbitrator within such ten (10)-day period, each
party shall select an arbitrator and inform the other party in writing of such
arbitrator's name and address within five (5) days after the end of such ten
(10)-day period and the two arbitrators so selected shall select a third
arbitrator within fifteen (15) days thereafter; provided, however, that in the
event of a failure by either party to select an arbitrator and notify the other
party of such selection within the time period provided above, the arbitrator
selected by the other party shall be the sole arbitrator of the dispute. Each
party shall pay its own expenses
5
<PAGE> 6
associated with such arbitration, including the expense of any arbitrator
selected by such party and the Company will pay the expenses of the jointly
selected arbitrator. The decision of the arbitrator or a majority of the panel
of arbitrators shall be binding upon the parties and judgment in accordance with
that decision may be entered in any court having jurisdiction thereover.
Punitive damages shall not be awarded.
15. Competitive Practices; Proprietary Information.
(a) For as long as the Executive is an employee of
the Company, or of any corporation which controls, is controlled by or is under
common control with, the Company, he will not (except with the prior written
consent, given in its discretion, of the Company's Board of Directors)
participate or have any interest, directly or indirectly, in any person, firm,
corporation or business (either financially or as a shareholder, creditor,
employee, director, officer, partner, consultant, or in any capacity which calls
for the rendering of personal services, advice or acts of management, operation
or control) which carries on a business similar to or competitive with the
business of the Company as heretofore conducted or as it may be conducted during
the term of employment and shall not otherwise engage, directly or indirectly,
in any activity competitive with or adverse to the business of the Company. It
is understood and agreed that nothing in this Section 15 shall prevent the
Executive from owning 1% or less of the outstanding shares of any corporation
listed on a national securities exchange or registered under the Securities
Exchange Act of 1934.
(b) The Executive acknowledges that during the term
of employment he will have access to and receive full knowledge of the Company's
affairs, trade secrets, customers, potential customers, recipes, formulae,
processes, financial information, marketing strategies and other proprietary
information of the Company. The Executive shall not disclose any of such
proprietary information, either directly or indirectly, or use any of it in any
way, either during the term of employment under this Agreement or at any time
thereafter, except as is necessary in the course of performing and discharging
his services and duties hereunder. The Executive also acknowledges that all
files, records, documents, drawings, specifications, equipment and similar items
relating to the business of the Company, whether prepared by the Executive or
otherwise coming into his possession, are the exclusive property of the Company
and shall be returned to it promptly upon termination of his term of employment
or upon the earlier request of the Company.
(c) The Executive acknowledges that all of his right,
title and interest in any trade secrets, recipes, formulae, processes, concepts,
inventions, discoveries, marketing
6
<PAGE> 7
strategies or other ideas that are discovered, conceived or developed by the
Executive during the term of employment shall belong exclusively to the Company;
and the Executive shall take any and all action requested by the Company to
prove, patent, support and otherwise protect the right, title and interest of
the Company in such trade secrets, recipes, etc.
(d) The Executive acknowledges that compliance with
this Section 15 is necessary for the protection of the goodwill and other
proprietary interests of the Company. The Executive acknowledges that in the
event of a breach of such covenants, neither the Company nor any successor would
have an adequate remedy at law and agrees that the Company and any successor
shall be entitled to injunctive relief in addition to any other remedies which
may be available to it.
(e) If any provision of this Section 15 is held by a
court of competent jurisdiction to be invalid, void or unenforceable as to a
particular application, then such provision shall be deemed modified to exclude
such application, and such provision in all other applications, and all other
provisions of this Section 15, shall continue in full force and effect without
being modified, impaired or invalidated in any way. It is the intent and
agreement of the Company and the Executive that this Section 15 be given the
maximum force, effect and application (not, however, exceeding its express
terms) permissible under applicable law.
16. Assignment. This Agreement and all rights under this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective personal or legal representatives,
executors, administrators, heirs, distributees, devisees, legatees, successors
and assigns. This Agreement is personal in nature, and the Executive shall not
assign or transfer this Agreement or any right or obligation under this
Agreement to any other person or entity; except that the Company may assign this
Agreement, provided, that such assignment will not relieve the Company of its
obligations hereunder. If the Executive should die while any amounts are still
payable to the Executive hereunder, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
17. Notices. For purposes of this Agreement, notices and other
communications provided for in this Agreement shall be in writing and shall be
delivered personally or sent by United States certified mail, return receipt
requested, postage prepaid, addressed as follows:
7
<PAGE> 8
If to the Executive:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
If to the Company: Il Fornaio (America) Corporation
1000 Sansome Street, Suite 200
San Francisco, California 94111
Telephone: (415) 986-1505
Telefax: (415) 956-2879
or to such other address or the attention of such other person as the recipient
party has previously furnished to the other party in writing in accordance with
this paragraph. Such notices or other communications shall be effective upon
delivery or, if earlier, three (3) days after they have been mailed as provided
above.
18. Integration. This Agreement represents the entire
agreement and understanding between the parties as to the subject matter hereof
and supersedes all prior or contemporaneous agreements whether written or oral.
No waiver, alteration, or modification of any of the provisions of this
Agreement shall be binding unless in writing and signed by duly authorized
representatives of the parties hereto.
19. Waiver. Failure or delay on the part of either party
hereto to enforce any right, power, or privilege hereunder shall not be deemed
to constitute a waiver thereof. Additionally, a waiver by either party or a
breach of any promise hereof by the other party shall not operate as or be
construed to constitute a waiver of any subsequent waiver by such other party.
20. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
21. Headings. The headings of the paragraphs contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of any provision of this Agreement.
8
<PAGE> 9
22. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal substantive laws, and not the choice
of law rules, of the State of California.
23. Counterparts. This Agreement may be executed in one or
more counterparts, none of which need contain the signature of more than one
party hereto, and each of which shall be deemed to be an original, and all of
which together shall constitute a single agreement.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
IL FORNAIO (AMERICA) CORPORATION,
a California corporation
By: /s/ Laurence B. Mindel
-----------------------------
Laurence B. Mindel
Chairman of the Board
EXECUTIVE:
/s/ Michael Hislop
---------------------------------
Michael Hislop
9
<PAGE> 1
EXHIBIT 11.1
IL FORNAIO
COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995 1996
------------------- ------------------- -------------------
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income..................................... $ 1,915 $ 1,915 $ 4,504 $ 4,504 $ 1,453 $ 1,453
Adjustments to net income:
Interest expense reduction net of 38% tax
rate....................................... 25 25
Interest income net of 38% tax rate.......... 54 54
------ ------
Net income -- as adjusted:..................... 1,915 1,915 4,504 4,504 1,532 1,532
Weighted average common stock outstanding...... 4,437 4,437 4,452 4,452 4,495 4,495
Common stock equivalents....................... 30 40 8 47 344 344
Weighted average common stock and common stock
equivalents.................................. 4,467 4,477 4,460 4,499 4,839 4,839
Net income per common stock and common stock
equivalent:.................................. $ 0.43 $ 0.43 $ 1.01 $ 1.00 $ 0.32 $ 0.32
Calculation of common stock equivalents:
Options to purchase common stock............. 201 201 709 709 666 666
Common stock assumed purchased with potential
proceeds................................... (171) (161) (701) (662) (322) (322)
------ ------ ------ ------ ------ ------
Common stock equivalents..................... 30 40 8 47 344 344
====== ====== ====== ====== ====== ======
Calculation of common stock assumed purchased
with potential proceeds:
Potential proceeds from exercise of options
to purchase common stock................... $ 641 $ 641 $ 2,978 $ 2,978 $ 1,530 $ 1,610
Common stock price used under the treasury
stock method............................... 3.75 4.00 4.25 4.50 4.75 5.00
Common stock assumed purchased with potential
proceeds................................... $ 171 $ 161 $ 701 $ 662 $ 322 $ 322
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to use in this Registration Statement of Il Fornaio (America)
Corporation on Form S-1 of our report dated March 3, 1997, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
- --------------------------------------
San Francisco, California
March 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
1996 audited financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 2,039,000
<SECURITIES> 0
<RECEIVABLES> 1,631,000
<ALLOWANCES> 52,000
<INVENTORY> 1,351,000
<CURRENT-ASSETS> 6,304,000
<PP&E> 41,982,000
<DEPRECIATION> 15,803,000
<TOTAL-ASSETS> 34,855,000
<CURRENT-LIABILITIES> 6,146,000
<BONDS> 0
0
16,885,000
<COMMON> 7,980,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 34,855,000
<SALES> 60,752,000
<TOTAL-REVENUES> 60,752,000
<CGS> 14,792,000
<TOTAL-COSTS> 53,804,000
<OTHER-EXPENSES> 4,501,000
<LOSS-PROVISION> 56,000
<INTEREST-EXPENSE> 40,000
<INCOME-PRETAX> 2,351,000
<INCOME-TAX> 898,000
<INCOME-CONTINUING> 1,453,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,453,000
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
