<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 1996
-------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission File Number 1-9684
______
CHART HOUSE ENTERPRISES, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0147725
- ------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
115 South Acacia Avenue, Solana Beach, California 92075-1803
- -----------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(619)755-8281
- -------------------------------------------------------------------------------
(registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of April 1, 1996:
Common Stock ($.01 par value) - 8,238,293
-----------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
1
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
April 1, December 31,
1996 1995
----------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 238 $ 245
Accounts Receivable 3,581 3,973
Inventories 3,650 3,900
Prepaid Expenses and Other Current 1,360 1,592
----------- ------------
Total Current Assets 8,829 9,710
----------- ------------
Property and Equipment, at Cost:
Land 7,655 7,655
Buildings 28,031 27,871
Equipment 46,919 46,376
Leasehold Interests & Improvements 85,673 85,225
Construction in Progress 5,839 3,813
----------- ------------
174,117 170,940
Less: Accumulated Depreciation and
Amortization 54,860 52,924
----------- ------------
Net Property & Equipment 119,267 118,016
----------- ------------
Leased Property under Capital Leases,
Less Accumulated Amortization of $4,179
in 1996 and $4,051 in 1995 4,328 4,456
----------- ------------
Other Assets and Goodwill, Net 21,031 21,264
----------- ------------
$153,455 $153,446
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
April 1, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
----------- -----------
(Unaudited)
Current Liabilities:
<S> <C> <C>
Current Portion of Long-Term Debt $ 6,000 $ 3,000
Current Portion of Lease Obligations 389 401
Accounts Payable 3,444 4,240
Accrued Liabilities 13,323 12,941
-------- --------
Total Current Liabilities 23,156 20,582
-------- --------
Long-Term Debt 44,400 46,274
-------- --------
Long-Term Obligations under Capital 5,321 5,420
Leases -------- --------
Deferred Income Taxes 4,518 4,518
-------- --------
Stockholders' Equity:
Preferred Stock, $1.00 par value,
authorized 10,000,000 shares;
none outstanding --- ---
Common Stock, $.01 par value,
authorized 30,000,000 shares;
8,238,293 shares outstanding
in 1996 and 8,216,123 in 1995 82 82
Additional Paid-In Capital 42,105 42,067
Retained Earnings 33,873 34,503
-------- --------
Total Stockholders' Equity 76,060 76,652
-------- --------
$153,455 $153,446
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Three Months
Ended April 1, Ended March 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Revenues $43,246 $42,772
------- -------
Operating Expenses:
Cost of Sales 12,552 12,406
Payroll and Related Taxes 12,432 11,414
Other Operating Costs 10,696 10,034
Depreciation and Amortization 2,705 2,593
------- -------
Total Operating Expenses 38,385 36,447
------- -------
Income from Restaurant Operations 4,861 6,325
Selling, General and Administrative 4,593 3,820
Expenses
Interest Expense, Net 1,142 1,217
------- -------
Income (Loss) Before Income Taxes (874) 1,288
Provision (Benefit) for Income Taxes (244) 400
------- -------
Net Income (Loss) $ (630) $ 888
======= =======
Net Income (Loss) Per Common Share $(.08) $.11
======= =======
Weighted Average Shares Outstanding 8,264 8,283
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Three Months
Ended April 1, Ended March 31,
1996 1995
--------------- ----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ (630) $ 888
Adjustments to Reconcile Net Income (Loss) to
Cash Flows from Operating Activities:
Depreciation and Amortization 2,705 2,593
Deferred Income Taxes - 20
Loss on Disposition of Assets 29 86
Change in Net Current Liabilities 460 268
------- -------
Cash Provided by Operating Activities 2,564 3,855
------- -------
Cash Flows from Investing Activities:
Expenditures for Property and Equipment (3,734) (3,539)
Reductions of Other Assets and Goodwill 99 16
Proceeds from Disposition of Assets 11 1
Payments Received on Notes - 33
------- -------
Cash Used in Investing Activities (3,624) (3,489)
------- -------
Cash Flows from Financing Activities:
Principal Payments of Long-Term Obligations under
Capital Leases (111) (192)
Net Borrowings (Payments) under Revolving Credit
Agreement 1,126 (200)
Proceeds from Common Stock Issuance 38 18
------- -------
Cash Provided by (Used in) Financing Activities 1,053 (374)
------- -------
Decrease in Cash (7) (8)
Cash, Beginning of Period 245 245
------- -------
Cash, End of Period $ 238 $ 237
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Three Months
Ended April 1, Ended March 31,
1996 1995
--------------- ----------------
<S> <C> <C>
The Change in Net Current Liabilities is Comprised of
the Following:
Decrease in Accounts Receivable $ 392 $ 1,899
Decrease in Inventories 250 4
Decrease in Prepaid Expenses and Other
Current Assets 232 65
Decrease in Accounts Payable (796) (1,356)
Increase (Decrease) in Accrued Liabilities 382 (344)
--------------- ----------------
Change in Net Current Liabilities $ 460 $ 268
================ ================
Supplemental Cash Flow Disclosures:
Cash Paid During the Period for:
Interest (Net of Amount Capitalized) $1,694 $ 1,673
Income Taxes (Net of Refunds) $ (289) $ 116
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements of Chart House
Enterprises, Inc. and subsidiaries (the "Company") for the first quarter periods
ended April 1, 1996 and March 31, 1995 have been prepared in accordance with
generally accepted accounting principles, and with the instructions to Form 10-
Q. These financial statements have not been audited by independent public
accountants, but include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial condition, results of operations and cash flows
for such periods. However, these results are not necessarily indicative of
results for any other interim period or for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In 1996, the Company switched from a calendar-based fiscal year to a 52/53-
week fiscal year. This reporting method is favored by many companies in the
restaurant and retail industries and will improve future year-to-year
comparisons of operating results. The new fiscal year consists of four equal
13-week quarterly periods ending on the Monday nearest to the calendar quarter
end. In 1996, the fiscal quarter end dates are April 1, July 1, September 30
and December 30. The Company does not anticipate that this change will have a
material effect on reported results for the year. However, the fourth fiscal
quarter of 1996 may be slightly impacted, as the day of December 31, which
historically is the highest sales day for the Chart House restaurants, will fall
into the first fiscal quarter of 1997.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on Form 10-
K for the year ended December 31, 1995.
Certain balances and amounts for 1995 have been reclassified to conform to
the 1996 presentation.
7
<PAGE>
(2) NET INCOME PER COMMON SHARE
Per share calculations are based on the weighted average number of common
shares and dilutive common stock equivalents (stock options) outstanding during
the period. Fully diluted earnings per share equals primary earnings per share
for all periods presented.
(3) STOCKHOLDERS' EQUITY
In the first quarter of 1996, employees of the Company exercised stock
options to purchase an aggregate of 17,170 shares of common stock under the
Company's 1985 Incentive Stock Option Plan at a purchase price of $1.54 per
share and 5,000 shares of common stock under a separate option grant at a price
of $2.31 per share.
(4) SALE OF SUBSIDIARY
On March 18, 1996, the Company signed definitive agreements for the sale of
a 75% interest in its Islands restaurant operations to two affiliates of Islands
Restaurants, L.P., the owner/licensor of the Islands concept, for a total sale
price of $23.0 million in notes. The notes bear interest at a rate of 9% and
are payable in equal monthly amounts of principal and interest over a 20-year
amortization period, with the remaining principal balances due at the end of 15
years. The Company will retain a 25% interest as a limited partner in both of
the new entities.
The consummation of the transaction is subject to obtaining consents and
satisfying certain closing conditions. The anticipated date of closing is in
May 1996. The Company does not expect to recognize any material gain or loss as
a result of the transaction.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
- ---------------------
The following is a comparative discussion of the results of operations for
the first quarter periods ended April 1, 1996 and March 31, 1995. The results
of operations for the first quarter of 1996 are not necessarily indicative of
the results to be expected for the fiscal year ending December 30, 1996. The
dollar amounts in the table below are in thousands.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Three Months Ended
April 1, 1996 March 31, 1995
-------------------- --------------------
Dollars Percent Dollars Percent
------- -------- -------- -------
<S> <C> <C> <C> <C>
(Unaudited)
Revenues 43,246 100.0 42,772 100.0
------ ------ ------ -----
Operating Expenses:
Cost of Sales 12,552 29.0 12,406 29.0
Payroll and Related Taxes 12,432 28.7 11,414 26.7
Other Operating Costs 10,696 24.8 10,034 23.4
Depreciation and
Amortization 2,705 6.3 2,593 6.1
------ ------ ------ -----
Total Operating
Expenses 38,385 88.8 36,447 85.2
------ ------ ------ -----
Income from Restaurant
Operations 4,861 11.2 6,325 14.8
Selling, General and
Administrative
Expenses 4,593 10.6 3,820 8.9
Interest Expense 1,142 2.6 1,217 2.9
------ ------ ------ -----
Income (Loss) Before Income
Taxes (874) (2.0) 1,288 3.0
Provision (Benefit) for
Income Taxes (244) (.5) 400 .9
------ ------ ------ -----
Net Income (Loss) (630) (1.5) 888 2.1
====== ====== ====== =====
</TABLE>
Management believes that the most meaningful approach to analyzing results
of operations is through margin analysis, which requires critically reviewing
the relationships that certain costs and expenses bear to Revenues.
Accordingly, the discussion below follows this approach.
Revenues for the first quarter increased by $474,000 from $42,772,000 in
1995 to $43,246,000 in 1996. Newly-opened Islands restaurants accounted for an
increase in Revenues of $2,748,000. Also, 1996 first quarter Revenues increased
by approximately $800,000 because the quarter had two additional days - one for
leap year and one resulting from the quarter-end cutoff under the Company's new
52/53-week fiscal year reporting change. The sale of Paradise Bakery in
December 1995 and the closure of certain restaurants in the Chart House division
accounted for decreases in Revenues of $1,091,000 and $923,000, respectively.
In addition, comparable sales (sales at restaurants open the entire quarter of
both years), decreased by approximately $1,200,000, or 3%, due primarily to
decreases in customer counts at
9
<PAGE>
Chart House and Islands restaurants. Winter weather conditions in the Northeast
and Northwest during the first quarter had a significant negative effect on
sales. In addition, management believes that the effects of competition in the
restaurant sector and general sluggish retail conditions have negatively
impacted sales over the last two fiscal quarters.
Restaurant operating margins (Income from Restaurant Operations as a
percentage of Revenues) decreased to 11.2% for the first quarter of 1996 from
14.8% for the first quarter of 1995. Generally, weaker restaurant sales in the
first quarter of 1996 placed pressure on restaurant operating margins. Cost of
Sales as a percentage of Revenues remained constant in 1996 as the favorable
impact at Chart House restaurants of lower commodity prices offset product mix
changes to menu items with slightly higher percentage foods costs. Payroll and
Related Taxes increased as a percentage of Revenues partly due to the overall
weakness in sales. In addition, the introduction of new menu items at Chart
House restaurants has resulted in higher hourly labor costs. Other Operating
Costs increased as a percentage of Revenues due largely to the weakness in sales
combined with the relatively fixed nature of many of the expenses, especially at
Islands restaurants, which have had higher occupancy and other operating costs
as a percentage of Revenues. Also, the Company increased the allocation of
advertising and promotional-related expenses to the Chart House restaurants
equivalent to approximately .7% of sales over the prior year first quarter.
Depreciation and Amortization did not change significantly over the prior year
period.
Selling, General and Administrative Expenses increased by $773,000 over the
1995 first quarter, and as a percentage of Revenues increased from 8.9% in 1995
to 10.6% in 1996. The increase is primarily the result of special charges
recorded in the first quarter of 1996 totalling $710,000. These charges
consisted of a two-year severance and consulting arrangement with the Company's
former chief executive officer in the amount of $600,000 and an employment bonus
of $110,000 paid to the new chief executive officer of the Company. In
addition, the Company increased expenditures for product development and
marketing in connection with the implementation of the Chart House
revitalization plan. These increases were partially offset by the effect of
reduced administrative payroll and other costs.
Interest Expense decreased by $75,000 from the prior year first quarter.
The decrease is due to reduced revolving credit borrowings (the result of cash
proceeds received from the sale of Paradise Bakery, Inc. in December 1995) and
from lower prevailing interest rates under the revolving credit agreement in
1996.
The Provision, or Benefit, for Income Taxes reflects an effective rate of
28% and 31% for the first quarter of 1996 and 1995, respectively.
As a result of the foregoing, Net Income decreased by $1,518,000 from
$888,000 for the first quarter of 1995, to a net loss of $630,000 for the first
quarter of 1996.
Liquidity and Capital Resources
- -------------------------------
The Company requires capital principally for the acquisition and
construction of new restaurants and the remodeling and refurbishing of existing
restaurants. The Company's primary sources of working capital are cash flows
from operations and borrowings under a revolving credit agreement which provides
a $40,000,000 line of credit with interest at the agent bank's base rate. Any
excess cash flows from operating and investing activities are used primarily to
reduce those borrowings. In the first quarter of 1996, the Company increased its
revolving credit debt by $1,126,000. At April 1, 1996, the Company had
outstanding borrowings of $16,400,000 under the revolving credit agreement.
10
<PAGE>
Capital expenditures for the first quarter of 1996, which totalled $3.7
million, include, among other things, expenditures for remodels of certain Chart
House restaurants and one Chart House (in Newport, Kentucky) and one Islands (in
Phoenix, Arizona) under construction at the end of the quarter. The two
restaurants under construction opened in April 1996.
The Company does not anticipate opening any new restaurants in the
remainder of 1996. The new strategic plan initially allocates capital resources
to revitalizing the existing base of Chart House restaurants. The Company plans
to invest a significant amount of capital over the next three or four years
under the Chart House restaurant revitalization program. The Malibu Chart House
was the first restaurant remodel completed under the program, in April 1996, at
a cost of approximately $1.2 million. An additional six restaurants are
scheduled to be remodeled in 1996 at costs ranging from $150,000 to $750,000.
Projected total capital expenditures for 1996 are approximately $8.0 million to
$10.0 million.
The first principal installment of $3,000,000 under the Company's 10.4%
Senior Secured Note will become due in July 1996, and the first principal
installment of $3,000,000 under the 6.69% Senior Secured Note will become due in
January 1997.
Management believes that cash flows from operations will be adequate to
fund capital expenditure activities for 1996 and the first principal installment
of $3,000,000 under the 10.4% Senior Secured Note. Borrowings under the
revolving credit agreement are expected to meet any funding requirements not met
by cash flows from operations.
New Accounting Pronouncements
- -----------------------------
On January 1, 1996, the Company adopted the Financial Accounting Standards
Board Statement No. 121 ("Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of"). The adoption of this standard did
not affect the Company's financial statements for the 1996 first quarter. On an
ongoing basis, management will continue to evaluate and assess assets and
properties for impairment under the guidelines of this standard.
The Company also was required to adopt Statement No. 123 ("Accounting for
Stock-Based Compensation"), effective for the 1996 fiscal year. This standard
establishes a fair value based method of accounting for stock options and other
equity instruments. However, as permitted under the standard, the Company will
continue to use the intrinsic value method included in APB Opinion No. 25
("Accounting for Stock Issued to Employees) to account for compensation cost
associated with employee stock option plans. Statement No. 123 does require
significantly expanded disclosures in the footnotes to the fiscal year end 1996
financial statements, including disclosure of the pro forma amount of net income
and earnings per share as if the fair value based method were used to account
for stock-based compensation.
11
<PAGE>
Other Information
- -----------------
The Company's strategic plan calls for the introduction of new menu items
and increased marketing activities at the restaurants, which will result
initially in higher labor and marketing costs.
The Clinton Administration has introduced a proposal that would increase
the minimum hourly wage required to be paid to employees. Although management
cannot predict the outcome of this proposal, if ultimately enacted, this measure
could significantly increase the Company's labor costs.
This report contains forward-looking statements that were made within the
safe harbor provisions of the Securities Litigation Reform Act of 1995. Actual
results could differ materially from those projected in the forward-looking
statements.
Seasonality
- -----------
Historically, the Company's business is seasonal in nature with Revenues
and Net Income for the second and third quarters being greater than in the first
and fourth quarters.
12
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. 10.9(5)(a) Chart House Enterprises, Inc. Corporate
Employees 401(k) Plan, Amended and Restated as
of January 1, 1996.
(b) Chart House Enterprises, Inc. Restaurant
Employees 401(k) Plan dated as of January 1,
1996.
Exhibit No. 10.9(8) Form of Chart House Enterprises, Inc. Executive
Severance Agreement.
Exhibit No. 10.18(1) Asset Purchase Agreement dated as of March 18,
1996 by and between Islands Restaurants, Inc.
and Islands Florida LP.
(2) Partnership Interest Purchase Agreement dated as
of March 18, 1996 by and between Islands
Restaurants, Inc. and Islands CA/AZ Holdings LP.
Exhibit No. 27 Financial Data Schedule (required for electronic
filing only).
(b) Reports on Form 8-K. The Company filed with the SEC a report on Form 8-K
dated January 12, 1996, for the event reported as of December 31, 1995.
The event reported was the sale of all of the outstanding common stock
of the Company's wholly-owned subsidiary, Paradise Bakery, Inc.
13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHART HOUSE ENTERPRISES, INC. (Registrant)
Date: May 13, 1996 By: /s/ HARRY F. ROBERTS
-------------------------------------
Harry F. Roberts
President and Chief Executive Officer
By: /s/ HAROLD E. GAUBERT, JR.
--------------------------------------
Harold E. Gaubert, Jr.
Vice President, Treasurer and Chief
Financial Officer
By: /s/ JAMES C. WENDLER
---------------------------------------
James C. Wendler
Vice President and Chief Accounting
Officer
14
<PAGE>
EXHIBIT 10.9(5)(a)
CHART HOUSE ENTERPRISES, INC.
CORPORATE EMPLOYEES 401(k) PLAN
Amended and Restated
as of January 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
ARTICLE I. PURPOSE....................................................... 1
1.1 Exclusive Benefit............................................. 1
1.2 No Rights of Employment Granted............................... 1
1.3 Effective Date................................................ 1
ARTICLE II. DEFINITIONS................................................... 2
2.1 Accrued Benefit............................................... 2
2.2 Affiliate..................................................... 2
2.3 Balanced Fund................................................. 2
2.4 Beneficiary................................................... 2
2.5 Committee..................................................... 2
2.6 Company Stock Fund............................................ 2
2.7 Compensation.................................................. 3
2.8 Continuous Service for Vesting................................ 3
2.9 Discretionary Contribution.................................... 3
2.10 Eligible Employee............................................. 4
2.11 Employee...................................................... 4
2.12 Employer...................................................... 4
2.13 Employer Account.............................................. 4
2.14 Employer Stock................................................ 4
2.15 Entry Date.................................................... 4
2.16 ERISA......................................................... 4
2.17 Equity Fund................................................... 4
2.18 Forfeiture.................................................... 4
2.19 Fund.......................................................... 4
2.20 Highly Compensated Employee................................... 5
2.21 Hour of Service............................................... 6
2.22 Income Fund................................................... 7
2.23 IRC or Code................................................... 7
2.24 Leave of Absence.............................................. 7
2.25 Matching Contribution......................................... 7
2.26 Maternity or Paternity Leave.................................. 7
2.27 Money Market Fund............................................. 7
2.28 Non-Highly Compensated Employee............................... 8
2.29 Normal Retirement Date........................................ 8
2.30 One-Year Break in Service for Eligibility..................... 8
2.31 Participant................................................... 8
2.32 Participant Account........................................... 8
2.33 Participant Contributions..................................... 8
2.34 Period of Severance for Vesting............................... 8
2.35 Pillsury Rollover Account..................................... 8
2.36 Pillsbury Thrift Plan......................................... 8
2.37 Plan.......................................................... 8
2.38 Plan Administrator............................................ 8
2.39 Plan Quarter.................................................. 9
2.40 Plan Year..................................................... 9
2.41 Prior Thrift Account.......................................... 9
</TABLE>
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
<C> <S> <C>
2.42 Prior Thrift Plan............................................. 9
2.43 Prior Thrift Plan Employee Contributions...................... 9
2.44 Prior Thrift Plan Employer Contributions...................... 9
2.45 Retirement.................................................... 9
2.46 Rollover Account.............................................. 9
2.47 Termination Date.............................................. 9
2.48 Total and Permanent Disability................................ 9
2.49 Trust Agreement............................................... 9
2.50 Trust Fund.................................................... 10
2.51 Trustee....................................................... 10
2.52 Valuation Date................................................ 10
2.53 Year of Service for Eligibility............................... 10
2.54 Adjusted Consolidated Pre-Tax Income.......................... 10
ARTICLE III. DUTIES AND RESPONSIBILITIES OF THE PLAN ADMINISTRATOR......... 11
3.1 Administrator................................................. 11
3.2 No Discrimination............................................. 11
3.3 Powers........................................................ 11
3.4 Plan Summary and Information.................................. 12
3.5 Qualified Domestic Relations Orders........................... 12
3.6 Record of Proceedings......................................... 12
3.7 Information to Participants................................... 12
3.8 Compensation of Plan Administrator............................ 12
3.9 Review of Participant Claims.................................. 12
3.10 Expenses of Plan.............................................. 13
ARTICLE IV. PARTICIPATION................................................. 14
4.1 Eligibility................................................... 14
4.2 Participant Contributions..................................... 14
4.3 Participation after Rehire.................................... 14
4.4 Limitations on Participant Contributions...................... 15
4.5 Other Participant Contributions............................... 17
4.6 Maximum Participant Contributions............................. 17
4.7 Distribution of Excess Participant Contributions.............. 17
4.8 Rollover Contributions and Plan to Plan Transfers............. 17
ARTICLE V. EMPLOYER CONTRIBUTIONS........................................ 19
5.1 Matching Contribution......................................... 19
5.2 Discretionary Contribution.................................... 19
5.3 Limitations on Employer Matching Contributions................ 19
5.4 Permissible Types of Employer Contributions................... 22
5.5 Time of Payment of Contributions.............................. 22
5.6 Distribution of Excess Aggregate Matching Contributions....... 22
ARTICLE VI. ADMINISTRATION OF ACCOUNTS.................................... 23
6.1 Allocation of Contributions to Accounts....................... 23
6.2 Allocation of Forfeitures..................................... 23
6.3 Investment of Participant Accounts............................ 24
6.4 Investment of Employer Accounts............................... 24
6.5 Investment of Rollover Accounts............................... 24
6.6 Investment by Trustee and Reasonable Rules.................... 24
</TABLE>
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
<C> <S> <C>
6.7 Evaluation of Assets and Allocation of Changes.................. 25
6.8 Limitation on Allocations to Each Participant................... 25
6.9 IRC Section 415 Definition of Compensation...................... 26
6.10 Combination Defined Benefit and Defined Contribution Plan
Limitations..................................................... 27
6.11 Designation of Beneficiary...................................... 27
ARTICLE VII. VESTING......................................................... 28
7.1 Participant Account 100% Vested................................. 28
7.2 Employer Account Vesting on Death, Retirement or Total and
Permanent Disability............................................ 28
7.3 Employer Account Vesting on Termination......................... 28
7.4 Vesting on Rehire............................................... 28
ARTICLE VIII. DISTRIBUTION OF BENEFITS........................................ 30
8.1 Distribution of Accounts........................................ 30
8.2 Distribution Upon Retirement or Total and Permanent
Disability...................................................... 30
8.3 Distribution Upon Death Prior to Retirement..................... 30
8.4 Distribution Upon Death After Retirement or Total and
Permanent Disability............................................ 30
8.5 Distribution Upon Other Events.................................. 30
8.6 Partial Distribution............................................ 31
8.7 Time for Distribution of Accounts............................... 31
8.8 Loans and Withdrawals........................................... 31
8.9 Direct Rollover................................................. 32
8.10 Buyback......................................................... 33
8.11 Inability to Locate Participant or Beneficiary.................. 34
8.12 Distribution to Minor or Incompetent............................ 34
8.13 Deferred Payment of Accrued Benefit............................. 34
ARTICLE IX. TOP-HEAVY PLAN RESTRICTIONS..................................... 35
9.1 Definitions..................................................... 35
9.2 Top-Heavy Plan.................................................. 35
9.3 Restrictions.................................................... 36
9.4 Plan Aggregations............................................... 37
ARTICLE X. AMENDMENT AND TERMINATION....................................... 39
10.1 Right to Suspend or Terminate Plan.............................. 39
10.2 Successor Corporation........................................... 39
10.3 Amendment....................................................... 39
10.4 Full Vesting on Termination of Plan............................. 39
10.5 Plan Merger or Consolidation.................................... 39
ARTICLE XI. MISCELLANEOUS................................................... 40
11.1 Laws of California to Apply..................................... 40
11.2 Nonalienation of Benefits....................................... 40
11.3 Right to Perform Alternative Acts............................... 40
11.4 Nonqualification of Plan........................................ 40
11.5 Agent for Service of Process.................................... 40
11.6 Filing Tax Returns and Reports.................................. 41
11.7 Indemnification................................................. 41
</TABLE>
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
<C> <S> <C>
11.8 Number and Gender............................................... 41
APPENDIX A PRIOR THRIFT PLAN TERMS EFFECTIVE BEFORE JANUARY 1, 1988........ 42
Definitions..................................................... 42
Employee Contribution........................................... 42
Employer Contribution........................................... 42
Statutory Limitations on Additions.............................. 42
Safe Harbor Rule................................................ 44
Investment of Prior Thrift Account.............................. 44
Vesting of Employee Contributions............................... 44
Vesting of Employer Contributions............................... 44
Total Withdrawals from Prior Thrift Plan Contributions.......... 45
Partial Withdrawals from Prior Thrift Plan Contributions........ 45
</TABLE>
<PAGE>
TABLE OF CONTENTS
(Continued)
CHART HOUSE ENTERPRISES, INC.
CORPORATE EMPLOYEES 401(k) PLAN
The Chart House Enterprises, Inc. Corporate Employees 401(k) Plan is amended
and restated by Chart House Enterprises, Inc., a Delaware corporation having its
corporate headquarters located at Solana Beach, California, herein called
"Employer."
The 401(k) Plan was formerly known as The Chart House Thrift Plan
(adopted January 1, 1986), the Pacific Ocean Enterprises Inc. Thrift Plan, and
the Chart House Enterprises, Inc. Thrift Plan (effective January 1, 1987).
Effective January 1, 1988, the Plan became known as the Chart House
Enterprises, Inc. 401(k) Plan.
Effective January 1, 1989, the Plan was amended and restated
to comply with the requirements of the Tax Reform Act of 1986 and subsequent
legislation, except as otherwise specifically noted.
Effective January 1, 1992, the matching contribution provisions of the Plan
were amended to provide for a Basic Matching Contribution and a Supplemental
Matching Contribution.
Effective July 1, 1992, the plan was amended to change the provisions
governing investment of participant accounts and evaluation of assets and
allocating changes to the accounts.
WHEREAS, the Employer desires to maintain a "qualified cash or
deferred arrangement" pursuant to Internal Revenue Code Section 401(k), both to
permit its eligible Employees to accumulate funds toward their retirement on a
favorable tax basis and to provide incentives to encourage Employee savings;
THEREFORE, effective January 1, 1996, the Plan is amended, restated and shall
be known as the Chart House Enterprises, Inc. Corporate Employees 401(k) Plan.
<PAGE>
ARTICLE I. PURPOSE
1.1 Exclusive Benefit. This Plan has been executed for the exclusive
-----------------
benefit of the Participants hereunder and their Beneficiaries. This Plan shall
be interpreted in a manner consistent with this intent and with the intention of
the Employer that this Plan satisfy Internal Revenue Code Section 401(a) and
Section 501(a). Under no circumstances shall the Trust Fund ever revert to or
be used or enjoyed by the Employer, until all obligations to the Participants
and Beneficiaries under the Plan have been met.
1.2 No Rights of Employment Granted. The establishment of this Plan shall
-------------------------------
not be considered as giving any Employee the right to be retained in the service
of the Employer.
1.3 Effective Date. This Plan is amended and restated to be generally
--------------
effective as of January 1, 1989, except where otherwise specifically noted.
1
<PAGE>
ARTICLE II. DEFINITIONS
2.1 Accrued Benefit. The "Accrued Benefit" is the aggregate amount credited
---------------
to the Employer Account, the Participant Account and the Rollover Account of a
Participant. Accrued Benefit also includes a Participant's Prior Thrift Account
(if any) as determined in Appendix A.
2.2 Affiliate. "Affiliate" means any corporation which is included within a
---------
"controlled group of corporations" (within which the Employer is also included)
as defined in IRC Section 1563(a), determined without regard to IRC Section
1563(a)(4) and (e)(3)(c), except that with respect to the limitation on
benefits set forth in Article VI, the phrase "more than 50%" shall be
substituted for the phrase "at least 80%" wherever it appears in IRC Section
1563(a)(1). For purposes of this Section, an unincorporated trade or business
shall be deemed a corporation. Chart House, Inc. and Paradise Bakery, Inc. are
specifically recognized as Affiliates for purposes of this Plan.
2.3 Balanced Fund. The "Balanced Fund" means the investment fund designated
-------------
by the Plan Administrator for the investment of amounts held in the Trust Fund,
which a Participant directs to be so invested, which fund seeks to achieve its
investment objectives through investment in both common stock and higher quality
fixed-income securities (preferred stock and debt securities), as well as
convertible securities and high quality money market securities, with a
relatively equal emphasis on current income and capital appreciation.
2.4 Beneficiary. A "Beneficiary" is any person, estate or trust who by
-----------
operation of law, or under the terms of the Plan, or otherwise, is entitled to
receive any Accrued Benefit vested for a Participant under the Plan. A
Participant has the right to designate a Beneficiary to whom any death benefits
pursuant to Sections 8.3 or 8.4 are to be paid. A married Participant's
Beneficiary must be his spouse unless the spouse's written consent is obtained.
Any such consent must be either witnessed by a plan representative or notarized.
If no spouse or designated Beneficiary exists at the time of a Participant's
death, benefits will be paid pursuant to Sections 6.9 and 8.11.
A Participant may revoke a Beneficiary designation and designate another
Beneficiary at any time upon completion of a proper form and delivering the same
to the Plan Administrator. Such a substitute may require a witnessed spousal
consent if the Participant is married.
2.5 Committee. "Committee" is the administrative committee designated or
---------
appointed by the Plan Administrator to administer and interpret the Plan
pursuant to Article III herein.
2.6 Company Stock Fund. The "Company Stock Fund" means the investment fund
------------------
designated by the Plan Administrator for the investment of amounts held in the
Trust Fund which the Employer contributes as a Matching Contribution or which a
Participant directs to be so invested which fund is invested in Employer Stock.
Investments in the
2
<PAGE>
Company Stock Fund other than Matching Contributions shall
not be permitted until the date upon which a registration statement on Form S-8
(or other form designated by the Securities and Exchange Commission) relating to
the Employer Stock offered to Participants pursuant to this Plan has been
declared effective.
2.7 Compensation. "Compensation" is the regular basic cash remuneration
------------
paid by the Employer to an Employee for personal services actually rendered in
the course of employment with the Employer maintaining the Plan and actually
paid or includible in gross income for income tax purposes during the Plan Year
(including a Participant's contributions to this Plan and any cafeteria plan
maintained pursuant to IRC Section 125 made by salary reduction, except for
purposes of IRC Sections 404 and 415), but excluding the following:
a. Allowances for moving expenses, automobile expenses or other similar
expenses;
b. Employer contributions to a plan of deferred compensation (other than
a Participant's salary reduction contribution to this Plan) which are
not included in the Employee's gross income for the taxable year in
which contributed, Employer contributions under a simplified
employees' pension plan to the extent such contributions are
deductible by the Employee, or any distribution from a plan of
deferred compensation;
c. Amounts received from the exercise of a non-qualified stock option,
or amounts includible in income when restricted stock (or property)
held by the Employee either becomes freely transferable or is no
longer subject to a substantial risk of forfeiture; and
d. Amounts realized from the sale or exchange, or other disposition of
stock acquired under a qualified or incentive stock option.
Prior to July 1, 1990, Compensation excludes overtime pay, bonuses,
special pay, or commissions.
Beginning on and after January 1, 1989, Compensation for any Plan Year
taken into account under the Plan shall not exceed $200,000, adjusted for
increases in the cost-of-living as provided in IRC Section 415(d).
Beginning on and after January 1, 1994, Compensation for any Plan Year
taken into account under the Plan shall not exceed $150,000, adjusted for
increases in the cost-of-living as provided in IRC Section 415(d).
2.8 Continuous Service for Vesting. "Continuous Service for Vesting" means
------------------------------
the completed full years of service (twelve month periods measured from the
Employee's date of hire) and fractional years in excess of full years calculated
to the nearest 1/12. Service with the Employer or an Affiliate prior to the
effective date of this Plan restatement shall be counted.
2.9 Discretionary Contribution. "Discretionary Contribution" means the
--------------------------
contribution made by the Employer as set forth in Section 5.2. Discretionary
Contributions
3
<PAGE>
will be credited to the Employer Account of an eligible Participant; however, if
the Plan Administrator deems the contribution to be a "qualified matching
contribution" or a "qualified non-elective contribution" as permitted under
Section 5.2, it will be credited to the Participant Account.
2.10 Eligible Employee. An "Eligible Employee" is an Employee who has
-----------------
satisfied the requirements for eligibility of Section 4.1, who is not an
Employee within the meaning of IRC Section 414(n)(2) and who has reached his
Entry Date.
2.11 Employee. An "Employee" is an individual who is employed by the
--------
Employer or who is on a Leave of Absence and shall include leased employees
within the meaning of IRC Section 414(n)(2). Notwithstanding the foregoing, if
such leased employees constitute less than twenty percent (20%) of the
Employer's non-highly compensated workforce within the meaning of IRC Section
414(n)(1)(c)(ii), the term "Employee" shall not include those leased employees
---
covered by a plan described in IRC Section 414(n)(5) unless otherwise provided
by the terms of this Plan.
2.12 Employer. "Employer" means Chart House Enterprises, Inc. and any
--------
successor thereto. "Employer" also includes those companies defined as an
Affiliate in Section 2.2 that are participating in the Plan.
2.13 Employer Account. The "Employer Account" is the separate account
----------------
maintained for each Participant to which all Employer contributions shall be
allocated together with all earnings and losses on those contributions. The
Employer Account includes Matching Contributions and Prior Thrift Plan Employer
Contributions.
2.14 Employer Stock. "Employer Stock" means Chart House Enterprises, Inc.
--------------
Common Stock.
2.15 Entry Date. "Entry Date" means any January 1 or July 1.
----------
2.16 ERISA. "ERISA" refers to the Employee Retirement Income Security Act of
-----
1974, as amended.
2.17 Equity Fund. The "Equity Fund" means the investment fund designated by
-----------
the Plan Administrator for the investment of amounts held in the Trust Fund
which a Participant directs to be so invested, which fund seeks to achieve its
investment objectives through investment primarily in equity securities,
including but not limited to common stock, preferred stock and convertible
securities, with a primary emphasis on capital appreciation.
2.18 Forfeiture. "Forfeiture" refers to the amount of non-vested Accrued
----------
Benefits in a terminated Participant's Employer Account. Forfeiture shall also
include any "unjustified" Matching Contributions attributable to the return of
excess Participant Contributions on which the match was based, nonvested excess
aggregate contributions and nonvested Matching Contributions reduced to satisfy
the multiple use limitation as described in Sections 4.7 and 5.6.
4
<PAGE>
2.19 Fund. "Fund" means any of the investment funds designated by the Plan
----
Administrator and offered by this Plan to the Participants for the investment of
amounts in the Trust Fund, including the Balanced Fund, the Company Stock Fund,
the Equity Fund, the Income Fund, the Money Market Fund and any other investment
fund designated by the Plan Administrator.
2.20 Highly Compensated Employee. "Highly Compensated Employee" means an
---------------------------
Employee who performs service during the determination year and is described in
one or more of the following groups:
a. An Employee who is a 5% owner, as defined in IRC Section
416(i)(1)(A)(iii), at any time during the determination year or the
look-back year.
b. An Employee who receives Compensation in excess of $75,000 (indexed
in accordance with IRC Section 415(d)) during the look-back year.
c. An Employee who receives Compensation in excess of $50,000 (indexed
in accordance with IRC Section 415(d)) during the look-back year and
is a member of the top-paid group for the look-back year.
d. An Employee who is an officer, within the meaning of IRC Section
416(i) during the look-back year and who receives Compensation in the
look-back year greater than 50% of the dollar limitation in effect
under IRC Section 415(b)(1)(A) for the calendar year in which the
look-back year begins.
e. An Employee who is both (i) described in paragraph b, c, or d above
when these paragraphs are modified to substitute the determination
year for the look-back year and one of the 100 Employees who receive
the most Compensation from the Employer during the determination
year.
For purposes of this section the following also apply:
f. The determination year is the Plan Year for which the determination
of who is a Highly Compensated Employee is being made.
g. The look-back year is the 12-month period immediately preceding the
determination year, or if the Employer elects, the calendar year
ending within the determination year.
h. The top-paid group consists of the top 20% of Employees ranked on the
basis of Compensation received during the year. For purposes of
determining the number of Employees in the top-paid group, Employees
described in IRC Section 414(q)(8) and Q&A 9(b) of Treasury
Regulation Section 1.414(q)-1T are excluded.
i. The number of officers is limited to 50 (or if lesser, the greater of
3 Employees or 10% of Employees) excluding those Employees who may be
excluded in determining the top-paid group.
5
<PAGE>
j. When no officer has Compensation in excess of 50% of the IRC Section
415(b)(1)(A) limit, the highest paid officer is treated as highly
compensated.
k. Compensation is compensation within the meaning of IRC Section
415(c)(3) including elective or salary reduction contributions to a
cafeteria plan, cash or deferred arrangement, or tax sheltered
annuity.
l. Employers aggregated under IRC Section 414(b), (c), (m), or (o) are
treated as a single Employer.
2.21 Hour of Service. "Hour of Service" is each hour for which:
---------------
a. an Employee is paid, directly or indirectly, or entitled to payment,
for the performance of duties for his Employer during the applicable
computation period;
b. an Employee is paid, directly or indirectly, or entitled to payment,
by his Employer on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity
(including Total and Permanent Disability), layoff, jury duty,
military duty, or Leave of Absence, except that:
(i) no more than 501 hours shall be credited to an Employee on
account of any single continuous period during which the
Employee performs no duties (whether or not such period occurs
in a single computation period); and
(ii) no credit shall be given for any hour attributable, directly
or indirectly, to a payment made or due under a plan maintained
solely for the purpose of complying with applicable worker's
compensation, unemployment compensation, or disability insurance
laws, or to reimburse an Employee for medical or medically-
related expenses incurred by the Employee; and
c. an Employee receives back pay, irrespective of mitigation of damages,
under an award or an agreement with his Employer. No hour shall be
credited under both this subsection (c) and under subsection (a) or
subsection (b), as the case may be. In addition, hours credited
under subsection (b) shall be subject to the limitation set forth in
that subsection.
The special rules provided in United States Department of Labor
Regulations Section 2530.200b-2(b) and (c) shall be used to determine the number
of hours to be credited for periods during which no duties are performed and for
back pay awards, and the computation periods to which they are to be credited
under subsection (b) and (c). For the purpose of this section, "computation
period" shall be the periods beginning on an Employee's date of employment and
annual anniversaries thereof.
6
<PAGE>
A salaried Employee exempt under the Fair Labor Standards Act shall be
credited with Hours of Service based upon a customary period of work of 95 hours
for each bi-weekly pay period or portion thereof.
7
<PAGE>
2.22 Income Fund. The "Income Fund" means the investment fund designated by
-----------
the Plan Administrator for the investment of amounts held in the Trust Fund,
which a Participant directs to be so invested, which fund seeks to achieve its
investment objectives through investment primarily higher quality debt
securities, including but not limited to securities issued or guaranteed by the
United States, its agencies and instrumentalities, corporate debt obligations,
bank certificates of deposit, mortgage securities and other evidences of
indebtedness, with a primary emphasis on current income.
2.23 IRC or Code. "IRC" or "Code" refers to the Internal Revenue Code of
-----------
1986, as amended.
2.24 Leave of Absence. A "Leave of Absence" is a period approved in
----------------
accordance with current Employer policies and procedures during which the
Participant is absent without Compensation and for which the Plan Administrator
in its sole discretion, has determined him to be on a "Leave of Absence" instead
of having terminated his employment. (However, such discretion of the Plan
Administrator shall be exercised in a non-discriminatory manner.) In all
events, a Leave of Absence by reason of service in the armed forces of the
United States shall end no later than the time at which a Participant's re-
employment rights as a member of the armed forces are protected by law and a
Leave of Absence for any other reason shall end after twelve months, except that
if the Participant resumes employment with the Employer prior thereto, the Leave
of Absence shall end on such date of resumption of employment. The date on
which the Leave of Absence began shall be deemed the Termination Date if the
Participant does not resume employment with the Employer.
2.25 Matching Contribution. "Matching Contribution" means the contribution
---------------------
made by the Employer as set forth in Section 5.1. "Basic Matching Contribution"
and "Supplemental Matching Contribution" have the meanings as set forth in
Section 5.1.
2.26 Maternity or Paternity Leave. "Maternity or Paternity Leave" means for
----------------------------
the purpose of determining a One Year Break in Service for Eligibility and
whether a Period of Severance for Vesting has occurred, and not withstanding
any provisions of the Plan to the contrary, that an Employee on a maternity or
paternity leave of absence (as defined below), commencing on or after January 1,
1985, shall be credited with sufficient service for the first computation period
in which a One Year Break in Service for Eligibility or a Period of Severance
for Vesting would have occurred, but for the provisions of this section 2.25, so
that a One Year Break in Service for Eligibility or a Period of Severance for
Vesting shall not occur during such computation period. A "maternity or
paternity leave" means an Employee's absence from work because of the pregnancy
of the Employee or birth of a child of the Employee, the placement of a child
with the Employee in connection with the adoption of a child by the Employee, or
for purposes of caring for the child immediately following a birth or placement.
The Committee may require the Employee to furnish such information as the
Committee considers necessary to establish that the Employee's absence was for
one of the reasons specified above.
2.27 Money Market Fund. The "Money Market Fund" means the investment fund
-----------------
designated by the Plan Administrator for the investment of amounts held in the
Trust Fund which a Participant directs to be so invested, which fund seeks to
achieve its investment objectives primarily through investment in short-term
debt securities, including United
8
<PAGE>
States government and agency obligations, corporate obligations, and bank
certificates of deposit.
2.28 Non-Highly Compensated Employee. "Non-Highly Compensated Employee"
-------------------------------
shall mean an Employee who is neither a Highly Compensated Employee or a Family
Member [as defined in Section 4.4(b)(iv)].
2.29 Normal Retirement Date. The "Normal Retirement Date" is the date a
----------------------
Participant attains age 55.
2.30 One-Year Break in Service for Eligibility. A "One Year Break in Service
-----------------------------------------
for Eligibility" means a twelve month period based on an Employee's date of
employment and annual anniversaries thereof, in which the Employee has not
completed more than 500 Hours of Service. A computation period during which an
Employee is absent due to a Leave of Absence or temporary layoff or military
service and for which he has not been credited with more than 500 Hours of
Service, will not constitute a One Year Break in Service for Eligibility.
2.31 Participant. A "Participant" means every Employee or former Employee
-----------
who has met the applicable participation requirements of Article IV and who
maintains a balance in any account under the Plan or the Prior Thrift Plan.
2.32 Participant Account. The "Participant Account" of a Participant is the
-------------------
account to which all contributions by the Participant shall be allocated,
together with all earnings and losses on those contributions. The Participant
Account includes Participant contributions and Prior Thrift Plan Employee
Contributions.
2.33 Participant Contributions. "Participant Contributions" are the
-------------------------
contributions made by a Participant on a pre-tax basis pursuant to Section
4.2(a), which are directed to his Participant Account.
2.34 Period of Severance for Vesting. A "Period of Severance for Vesting"
-------------------------------
means the period which shall occur if an Employee does not complete one (1) Hour
of Service in the twelve consecutive month period commencing with the
Termination Date.
2.35 Pillsbury Rollover Account. "Pillsbury Rollover Account" refers to the
--------------------------
Rollover Account established on behalf of a Participant on January 1, 1986 to
hold the proceeds of his account from the Pillsbury Thrift Plan.
2.36 Pillsbury Thrift Plan. "Pillsbury Thrift Plan" means the plan in
---------------------
existence prior to January 1, 1986 with the predecessor of the Employer.
2.37 Plan. Beginning January 1, 1996, "Plan" refers to the Chart House
----
Enterprises, Inc. Corporate Employees 401(k) Plan. Between January 1, 1988, and
December 31, 1995, "Plan" refers to the Chart House Enterprises, Inc. 401(k)
Plan.
2.38 Plan Administrator. The "Plan Administrator" is Chart House
------------------
Enterprises, Inc.
2.39 Plan Quarter. A "Plan Quarter" is any three month period in a Plan Year
------------
that commences on January 1, April 1, July 1 or October 1.
9
<PAGE>
2.40 Plan Year. A "Plan Year" is the period from January 1 to December 31,
---------
annually.
2.41 Prior Thrift Account. "Prior Thrift Account" means the Participant's
--------------------
account balances (if any) from all contributions made to the Prior Thrift Plan.
2.42 Prior Thrift Plan. "Prior Thrift Plan" means the Employer's thrift plan
-----------------
in existence from January 1, 1986 to December 31, 1987, the relevant terms of
which are set forth in Appendix A to this Plan.
2.43 Prior Thrift Plan Employee Contributions. "Prior Thrift Plan Employee
----------------------------------------
Contributions" means the Contributions made by a Participant on or before
December 31, 1987 to the Prior Thrift Plan together with all earnings and losses
on such contributions as described in Appendix A to this Plan.
2.44 Prior Thrift Plan Employer Contributions. "Prior Thrift Plan Employer
----------------------------------------
Contributions" means the Employer's contributions to the Prior Thrift Plan
together with all earnings and losses on such contributions allocable to a
Participant and made on account of a Participant's Prior Thrift Plan Employee
Contributions as described in Appendix A to this Plan.
2.45 Retirement. "Retirement" refers to the termination of employment of an
----------
Employee who has attained his Normal Retirement Date. The Employee may work
beyond Normal Retirement Date, and continue to contribute to the Plan, in which
case Employer contributions shall continue to be allocated to the Employer
Account of the Employee.
2.46 Rollover Account. The "Rollover Account" of a Participant is the
----------------
account to which the Participant's rollover contributions to the Plan made
pursuant to Section 4.8 shall be allocated, together with all earnings and
losses on those contributions. The Rollover Account also includes the
Participant's Pillsbury Rollover Account.
2.47 Termination Date. The "Termination Date" is the date on which the
----------------
earliest of the following events occurs: (a) a Participant's Retirement, (b) a
Participant's termination of employment as a result of Total and Permanent
Disability, (c) a Participant's death, or (d) a Participant's termination of
employment for any other reason.
2.48 Total and Permanent Disability. "Total and Permanent Disability" refers
------------------------------
to a Participant suffering from a physical or mental condition which in the sole
discretion of the Plan Administrator, based upon appropriate medical reports and
examinations, may be expected to result in death or be of long and indefinite
duration and which renders the Participant incapable of performing the duties as
defined in the Chart House Enterprises Inc. Long-Term Disability Benefits Plan.
2.49 Trust Agreement. The "Trust Agreement" means the agreement reached
---------------
between the Employer and the Trustee for the administration of the Trust Fund.
2.50 Trust Fund. The "Trust Fund" consists of the aggregate amount of all
----------
Participants' Employer Accounts, Participant Accounts and Rollover Accounts,
including the Prior Thrift Accounts held by the Plan and any earnings or losses
thereon.
10
<PAGE>
2.51 Trustee. The "Trustee" means the Trustee as defined in the Trust
-------
Agreement.
2.52 Valuation Date. Prior to April 1, 1989, "Valuation Date" means the last
--------------
date of each month on which the New York Stock Exchange is open for trading.
Effective April 1, 1989, "Valuation Date" means the last date of each calendar
quarter on which the New York Stock Exchange is open for trading.
2.53 Year of Service for Eligibility. A "Year of Service for Eligibility" is
-------------------------------
a twelve-month period during which the Employee had not less than 1,000 Hours of
Service. The computation period begins with the Employee's date of hire and
continues with each anniversary thereof. Hours of Service with the Employer
prior to the effective date of this Plan restatement shall be counted if the
Employee was employed on such effective date.
2.54 Adjusted Consolidated Pre-Tax Income. The "Adjusted Consolidated Pre-
------------------------------------
Tax Income" of Employer for any Plan Year or period means the consolidated net
income of Chart House Enterprises, Inc. and subsidiaries for that period as
determined in accordance with generally accepted accounting principles, adjusted
by adding back the following expense items: (a) federal and state income taxes;
(b) interest expense; (c) depreciation and amortization related to the step-up
in asset values made in connection with the purchase of Chart House, Inc. from
Pillsbury Company; and (d) the amounts required by Statement of Financial
Accounting Standards No. 13 to be reflected as interest expense, depreciation
and rent expense related to long-term capital leases. The determination of
Adjusted Consolidated Pre-Tax Income shall be made by Employer within 45 days
following the end of each calendar quarter.
11
<PAGE>
ARTICLE III. DUTIES AND RESPONSIBILITIES
OF THE PLAN ADMINISTRATOR
3.1 Administrator. This Plan shall be administered by the Plan
-------------
Administrator subject to the right of the Plan Administrator to delegate
administration of the Plan to the Committee.
3.2 No Discrimination. The Plan Administrator shall not take any action or
-----------------
direct the Trustee to take any action that would result in benefiting one
Participant or group of Participants at the expense of another, or
discriminating between Participants similarly situated, or applying different
rules to substantially similar sets of facts.
3.3 Powers. Except as otherwise provided in the Plan, the Plan
------
Administrator shall have control of the administration of the Plan, with all
powers necessary to enable it to carry out its duties in that respect. Not in
limitation, but in amplification of the foregoing, the Plan Administrator shall
have power to interpret or construe the Plan and to determine all questions that
may arise hereunder as to the status and rights of Participants and others
hereunder. The Plan Administrator shall have the right, exercisable at any time
by delivery to the Trustee of an instrument in writing, to instruct or direct
the Trustee with respect to the investment of the Trust Fund. The Plan
Administrator may inspect the records of the Employer whenever such inspection
may be reasonably necessary in order to determine any fact pertinent to the
performance of the duties of the Plan Administrator. The Plan Administrator,
however, shall not be required to make such inspection, but may, in good faith,
rely on any statement of the Employer or any of its officers or employees. The
Plan Administrator shall have the power to retain agents and assistants, legal
counsel (including legal counsel to the Employer) and clerical, medical,
accounting, actuarial and investment services as required to carry out its
duties.
The Plan Administrator may appoint a Committee of not less than three
persons to act on its behalf as the administrator and as the named fiduciary
under ERISA. Any member of the Committee may resign upon giving written notice
to the Secretary of the Employer. Each appointee shall hold office at the
pleasure of the Board of Directors. Members of the Board of Directors of the
Employer may be appointed members of the Committee. Vacancies arising in the
Committee from death, resignation, removal or otherwise, shall be filled by the
Plan Administrator, but the Committee may act notwithstanding the existence of
vacancies so long as there is at least one member of the Committee.
In the event that the Plan Administrator shall appoint a Committee,
voting rights with respect to shares of Employer Stock may be exercised by the
Committee. The Committee shall have the power and authority to vote or direct
the Trustee on voting the shares of Employer Stock held in the Trust Fund.
At any time the Board of Directors of the Employer may adopt a
resolution removing any member of the Committee or abolishing the Committee with
or without cause and assigning all of the duties of the Committee to the
Trustee; such resolution shall be effective as soon as it is communicated in
writing to both the Committee and Trustee, or at any such subsequent effective
date as is provided in the resolution. Whenever such
12
<PAGE>
a resolution is effective as to the Plan, the term "Trustee" shall be deemed to
replace the term "Committee". Such a resolution may be rescinded by the Board of
Directors and shall be effective as soon as it is communicated in writing to the
Trustee, or shall be effective as such later date as is provided in the
resolution .
3.4 Plan Summary and Information. The Plan Administrator shall furnish, or
----------------------------
shall see that the Employer furnishes, a summary of this Plan to all Employees,
as required by applicable Federal law. The Plan Administrator shall notify each
Employee who becomes eligible to participate.
3.5 Qualified Domestic Relations Orders. The Plan Administrator shall
-----------------------------------
establish reasonable written procedures to determine the qualified status of
domestic relations orders and to administer distributions under such orders.
The Plan Administrator shall follow the procedures and requirements set forth in
IRC Section 414(p) and regulations thereunder in determining the qualified
status of a domestic relations order, and in administering the Plan with respect
to any such order.
3.6 Record of Proceedings. The Plan Administrator shall keep a complete
---------------------
record of all its proceedings and all data necessary for the administration of
the Plan.
3.7 Information to Participants. The Plan Administrator shall direct the
---------------------------
maintenance of the separate accounts of the Participants. It shall give each
Participant, at least once every year, information as to the balance of his
Employer Account, Participant Account, and Rollover Account (if any).
3.8 Compensation of Plan Administrator. The Plan Administrator shall serve
----------------------------------
without compensation from the Plan for services rendered so long as the Plan
Administrator is the Employer or Employees of the Employer. In the event the
Employer designates an independent Plan Administrator, the Plan Administrator
may be compensated for such services. The Plan Administrator shall be
reimbursed by the Employer for all necessary expenses incurred in the discharge
of duties so long as the Plan Administrator is the Employer or Employees of the
Employer. In the event the Employer designates an independent Plan
Administrator, the Plan Administrator may be reimbursed for such expenses. If
the Employer advises the Plan Administrator in writing of its determination to
make no further contributions to the Plan, the expenses of the Plan
Administrator may thereafter be charged against and paid out of the Trust Fund.
3.9 Review of Participant Claims. In case the claim of any Participant or
----------------------------
Beneficiary for benefits under the Plan is denied, the Plan Administrator shall
provide adequate notice in writing to such claimant, setting forth the specific
reasons for such denial and shall state the provisions of the Plan upon which
the denial is based. If more information is necessary to determine the nature or
amount of benefits which may be due, the Plan Administrator shall notify the
claimant of the additional information which is necessary to perfect the claim
and shall further inform the claimant why this information is necessary. The
notice shall be written in a manner calculated to be understood by the claimant
and shall include a description of the Plan's claims procedure.
13
<PAGE>
The Plan Administrator shall afford a Participant or Beneficiary whose
claim for benefit has been denied 60 days from the date notice of such denial is
delivered or mailed in which to appeal the decision in writing to the Plan
Administrator. The claimant may review pertinent documents or submit comments
in writing to the Plan Administrator. If the Participant or Beneficiary appeals
the decision in writing within 60 days, the Plan Administrator shall review the
written comments and submissions of the Participant or Beneficiary and render
its decision regarding the appeal, all within 60 days of such appeal unless
special circumstances require an extension of time for processing the claim. If
such an extension is required for processing the claim, written notice of the
extension shall be furnished to the Participant or Beneficiary prior to the
termination of the 60 day period. In no event shall such extension exceed a
period of 120 days from the end of such initial period. The extension notice
shall indicate the special circumstances requiring an extension of time and the
date by which the Plan expects to render a final decision.
3.10 Expenses of Plan. All fees of the Trustee, expenses of the Trust Fund,
----------------
and any other expenses incurred in the administration of the Plan and
distribution of benefits under the Plan shall be borne by the Plan to the extent
not paid by the Employer. As a specific exception to the above, a Participant,
pursuant to Section 8.8, shall be charged a $50 administrative fee for each
withdrawal from his Prior Thrift Account approved by the Plan Administrator or
the Committee.
14
<PAGE>
ARTICLE IV. PARTICIPATION
4.1 Eligibility. Each Employee who is in a job title classification from
-----------
A01 through E60, attains age 21 and completes One Year of Service for
Eligibility and who is not a "leased employee" within the meaning of IRC Section
414(n)(2), will be eligible to participate in the Plan on the Entry Date which
first occurs on or after such completion, provided that he is an Employee at
such date. An Eligible Employee shall join the Plan and become a Participant on
the first Entry Date on which he is eligible and has submitted to the Committee
with 30 days prior written notice an agreement to make Participant Contributions
on the form supplied by the Committee.
Notwithstanding the preceding paragraph of this Section 4.1, an individual
shall not be eligible to participate in the Plan during any time period for
which he is included in a unit of Employees covered by a collective bargaining
agreement between Employee representatives and one or more Employers, if there
is evidence that retirement benefits were the subject of good faith bargaining
between such Employee representatives and the Employer, unless the collective
bargaining agreement specifically provides for coverage of such individual under
the Plan.
4.2 Participant Contributions
-------------------------
a. Pre-Tax Contributions. In order to join the Plan, an Eligible
---------------------
Employee shall agree to make pre-tax contributions by payroll
deduction. The Participant shall designate, on a form provided by
the Committee, an amount equal to 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9%,
or 10% of his Compensation to be directed to his Participant Account.
The Plan Administrator may limit Participant Contributions as set
forth in Sections 4.4 and 4.6.
b. Change in Percentage. A Participant may change the percentage of his
--------------------
Participant Contributions effective on any January 1 or July 1 by
giving the Committee at least 30 days' prior written notice.
c. Discontinuance of Contributions. A Participant may discontinue his
-------------------------------
Participant Contributions effective for the first payroll period
after giving the Committee at least 30 days' prior written notice.
If contributions are discontinued altogether by the Participant, the
Participant may not resume contributing to the Plan until the
subsequent January 1 or July 1.
d. Investment of Contributions. A Participant shall elect to have his
---------------------------
Participant Contributions invested as set forth in Article VI.
4.3 Participation after Rehire. If a Participant who is partially or fully
--------------------------
vested terminates his employment with the Employer, and is later rehired before
incurring a One Year Break in Service for Eligibility, he is eligible to rejoin
the Plan immediately. If the Participant is rehired after incurring a One Year
Break in Service for Eligibility, he will be eligible to participate again at
the next Entry Date following rehire.
15
<PAGE>
If an Employee terminates employment before becoming eligible to join
the Plan, and is later rehired before a One Year Break in Service for
Eligibility, he will be eligible to join the Plan on the first Entry Date
following the completion of One Year of Service for Eligibility counting service
prior to his rehire date. If rehired after incurring a One Year Break in
Service for Eligibility, he will be treated as a new Employee.
4.4 Limitations on Participant Contributions. The pre-tax contribution
----------------------------------------
percentage of Participants shall meet the requirements of (i) or (ii) of
subsection (a) below:
a. Average Actual Deferral Percentage.
----------------------------------
(i) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for the Plan
Year shall not exceed the Average Actual Deferral Percentage for
Eligible Participants who are Non-Highly Compensated Employees
for the Plan Year multiplied by 1.25; or
(ii) the Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for the Plan
Year shall not exceed the Average Actual Deferral Percentage for
Eligible Participants who are Non-Highly Compensated Employees
for the Plan Year multiplied by 2, provided that the Average
Actual Deferral Percentage for Eligible Participants who are
Highly Compensated Employees does not exceed the Average Actual
Deferral Percentage for Eligible Participants who are Non-Highly
Compensated Employees by more than two (2) percentage points or
such lesser amount as the Secretary of the Treasury shall
prescribe to prevent the multiple use of this alternative
limitation with respect to any Highly Compensated Employee.
b. Definitions
-----------
For purposes of this Section 4.4, the following definitions shall
apply:
(i) "Actual Deferral Percentage" shall mean the ratio (expressed
as a percentage) of pre-tax contributions and any qualified
nonelective or qualified matching contributions made on behalf
of the Eligible Participant for the Plan Year to the Eligible
Participant's Compensation (as defined in subparagraph (v)
below) for the Plan Year. Effective with the 1989 Plan Year,
all percentages will be rounded to two decimal places.
(ii) "Average Actual Deferral Percentage" shall mean the average
(expressed as a percentage) of the Actual Deferral Percentages
of the Eligible Participants in a group.
(iii) "Eligible Participant" shall mean any Employee of the
Employer who is otherwise eligible under the terms of the Plan
to make Participant Contributions to his account for the Plan
Year.
16
<PAGE>
(iv) "Family Member" shall mean an individual described in IRC
Section 414(q)(6).
(v) "Compensation" shall mean the definition set forth in IRC
Sections 414(s)(1) and (2) and IRS Regulations Section 1.414(s)-
1T or such other alternative definitions set forth in the
proposed regulations as long as used on a consistent basis. In
addition, Compensation may be defined to be compensation while
eligible for the Plan to the extent permitted by IRS Regulations
and Notices under Section 401(k).
c. Special Rules
-------------
(i) For purposes of this Article IV the Actual Deferral Percentage
for any Eligible Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to make
Participant Contributions, or receive Elective Deferrals
allocated to his account under two or more plans described in
IRC Section 401(a) or arrangements described in IRC Section
401(k) that are maintained by the Employer or an Affiliated
Employer shall be determined as if all such contributions and
Elective Deferrals were made under a single plan.
(ii) In the event that this plan satisfies the requirements of IRC
Section 410(b) only if aggregated with one or more other plans,
or if one or more other plans satisfy the requirements of IRC
Section 410(b) only if aggregated with this plan, then this
Section 4.4 shall be applied by determining the Actual Deferral
Percentages of Eligible Participants as if all such plans were a
single plan.
(iii) For purposes of determining the Actual Deferral Percentage
of an Eligible Participant who is a Highly Compensated Employee
and is one of the top ten paid Employees of the Employer, the
Participant Contributions and Compensation of such Participant
shall include the Participant Contributions and Compensation of
Family Members, and such Family Members shall be disregarded in
determining the Actual Deferral Percentage for Eligible
Participants who are Non-Highly Compensated Employees.
(iv) If the requirements of subsection (a) above are expected not
to be met, the Plan Administrator may, on a prospective basis,
uniformly reduce the maximum allowed Participant Contribution,
expressed as a percentage of Compensation of all Participants
who are expected to be Highly Compensated Employees for that
Plan Year. Alternatively, the Plan Administrator may reduce the
maximum allowed Participant Contribution of the Officers of the
Employer.
17
<PAGE>
4.5 Other Participant Contributions. The Plan may accept rollover
-------------------------------
contributions from a Participant or a plan to plan transfer of assets pursuant
to Section 4.8 below.
4.6 Maximum Participant Contributions. No Participant shall be permitted to
---------------------------------
have pre-tax Participant Contributions made under this Plan during any calendar
year in excess of the dollar threshold specified in IRC Section 402(g)(l) as
indexed and adjusted by the Secretary of the Treasury ($9,500 in 1996). If the
Plan Administrator determines that a Participant is in danger of reaching and/or
exceeding the IRS contribution limit the Plan Administrator will cease further
Participant Contributions.
4.7 Distribution of Excess Participant Contributions. If, for any Plan
------------------------------------------------
Year, a Participant who is a Highly Compensated Employee makes Participant
Contributions in an amount which is included in income because it is in excess
of the limitation for pre-tax contributions (as provided in IRC Section
401(k)(8)), the Plan Administrator shall distribute such excess contributions
and any income attributable thereto no later than the last day of the following
Plan Year to the Participant on whose behalf such excess contributions were made
for the Plan Year. Such contributions shall first be returned from the
unmatched portion of Participant Contributions and then from the matched
portion. The Plan may use any reasonable method for calculating and allocating
income to the excess amounts, including the discretion not to calculate such
income for any gap period.
4.8 Rollover Contributions and Plan to Plan Transfers. Rollover
-------------------------------------------------
contributions and plan to plan transfers may be permitted on the following
basis:
a. Rollover Contributions. Each individual employed by the Employer may
----------------------
apply in writing to the Committee on the form provided for that
purpose to make a rollover contribution to the Trust Fund.
b. Requirements. The Committee may approve a rollover contribution only
------------
if it satisfies the requirements for rollover contributions (if any)
contained in the Trust Agreement.
c. Inter-Plan Transfers. Notwithstanding any other provisions hereof,
--------------------
the Employer may cause to be transferred to the Trust Fund all or any
of the assets held (whether by a trustee, custodian, or otherwise) in
respect of any other plan which satisfies the applicable requirements
of Section 401(a) of the Code and which is maintained by the Employer
for the benefit of any of the Participants. The transfer shall be
permitted by the Code and shall not cause this Plan to become
disqualified under Section 401(a) of the Code. Any assets so
transferred shall be accompanied by written instructions from the
Employer naming the persons for whose benefit such assets have been
transferred and showing separately the respective contributions by
the Employer and by the Participants and the current value of the
assets attributed thereto.
18
<PAGE>
d. Allocation of Rollover Contributions. Rollover contributions by
------------------------------------
Participants will be allocated directly to a Rollover Account,
established pursuant to subsection (e), upon the date of receipt of
the rollover contribution.
e. Establishment of Rollover Account. The Plan Administrator will
---------------------------------
establish for each individual employed by the Employer who applies to
the Committee to make a rollover contribution and from whom the
Committee requests the Trustee to accept such rollover contribution,
a Rollover Account and will maintain a Pillsbury Rollover Account for
each participant who had an account in the Pillsbury Thrift Plan.
Earnings and losses on the investments in the account will be
credited solely to that account and reinvested in the manner in which
the account is invested, as provided in Section 6.5.
f. Vesting of Rollover Account. The interest of a Participant in his
---------------------------
Rollover Account is non-forfeitable and fully vested.
g. Withdrawals from the Rollover Account. A Participant may, upon 30
-------------------------------------
days written notice to the Committee, make withdrawals from the
balance of his Rollover Account as to amounts received from another
plan qualified under Section 401(a) of the Code. No forfeitures will
occur in any account solely as a result of a Participant's withdrawal
from such Rollover Account.
h. Certain Direct and Indirect Transfers of Assets. This Plan will not
-----------------------------------------------
accept any transfer of assets from another plan or any assets
contributed on behalf of any Participant if the Committee determines
that this Plan would be a direct or indirect transferee of any other
plan which is required by Section 401(a)(11) of the Code to provide
payments in the form of a qualified joint and survivor annuity or a
qualified pre-retirement annuity.
19
<PAGE>
ARTICLE V. EMPLOYER CONTRIBUTIONS
5.1 Matching Contribution. The Employer will make Matching Contributions as
---------------------
follows:
a. Basic Matching Contribution. The Employer will make a Basic
----------------------------
Matching Contribution to the Employer Account of each Participant who
made Participant Contributions throughout a payroll period in an
amount equal to 25% of the first 5% of the Participant's Compensation
contributed, not to exceed the lesser of $1,250 or 25% of the first
5% of a Participant's Compensation for the entire Plan Year.
b. Supplemental Matching Contribution. The Employer will make a
----------------------------------
quarterly Supplemental Matching Contribution to be made after the end of
each calendar quarter of the Plan Year to the Employer Account of each
Participant who made Participant Contributions throughout that calendar
quarter in an amount equal to 25% of the first 5% of the Participant's
Compensation contributed, not to exceed the lesser of $1,250 or 25% of the
first 5% of a Participant's Compensation for the entire Plan Year, provided,
--------
however, that the Supplemental Matching Contribution will be made only if the
Adjusted Consolidated Pre-Tax Income of Employer for the period from the
beginning of the Plan Year through the end of the calendar quarter equals or
exceeds the budget target established by the Board of Directors.
In the event that the Employer has no current or retained earnings or
profits, no Matching Contribution shall be made. However, if the Employer has
retained earnings or profits sufficient to make a partial contribution but not
sufficient to make a full Basic or Supplemental Matching Contribution, the
Employer may make a partial contribution.
In the event that Matching Contributions are made on excess Participant
Contributions and such excess Participant Contributions are returned, the Plan
Administrator shall then determine what portion of the Matching Contributions
are attributable to the excess Participant Contributions. The portion of the
Matching Contributions attributable to the excess Participant Contributions
shall be considered an "unjustified" Matching Contribution and shall be
forfeited.
5.2 Discretionary Contribution. In addition to the Matching Contribution
--------------------------
the Employer may in its discretion make a contribution each year to the Plan.
The amount of any Discretionary Contribution will be determined by the Board of
Directors at the end of the Plan Year. At the discretion of the Plan
Administrator such contribution may be deemed a "qualified matching
contribution" or a "qualified non-elective contribution" for purposes of the
limitations set forth in Sections 4.4 and 5.3. Only those Non-Highly
Compensated Employees who are actively employed and making Participant
contributions at Plan Year end are eligible to receive a Discretionary
Contribution. Discretionary Contributions shall be allocated pursuant to
Section 6.1c.
20
<PAGE>
5.3 Limitations on Employer Matching Contributions. The Average
----------------------------------------------
Contribution Percentage of Participants shall meet the requirements of (i) or
(ii) of subsection (a) below:
a. Average Contribution Percentage
-------------------------------
(i) The Average Contribution Percentage for Eligible Participants
who are Highly Compensated Employees for the Plan Year shall not
exceed the Average Contribution Percentage for Eligible
Participants who are Non-Highly Compensated Employees for the
Plan Year multiplied by 1.25; or
(ii) the Average Contribution Percentage for Eligible Participants
who are Highly Compensated Employees for the Plan Year shall not
exceed the Average Contribution Percentage for Eligible
Participants who are Non-Highly Compensated Employees for the
Plan Year multiplied by 2, provided that the Average
Contribution Percentage for Eligible Participants who are Highly
Compensated Employees does not exceed the Average Contribution
Percentage for Eligible Participants who are Non-Highly
Compensated Employees by more than two (2) percentage points or
such lesser amount as the Secretary of the Treasury shall
prescribe to prevent the multiple use of this alternative
limitation with respect to any Highly Compensated Employee.
b. Definitions. For purposes of this Section 5.3 the following
-----------
definitions shall apply.
(i) "Average Contribution Percentage" shall mean the average
(expressed as percentage) of the Contribution Percentages for
the Eligible Participants in a group.
(ii) "Contribution Percentage" shall mean the ratio (expressed as
a percentage), of the Matching Contributions under the Plan plus
any "qualified nonelective" or "qualified matching contribution"
made by the Employer on behalf of an Eligible Participant for
the Plan Year to the Eligible Participant's Compensation (as
defined below) for the Plan Year.
(iii) "Eligible Participant" shall mean any employee of the
Employer who is otherwise eligible under the terms of the Plan
to have Matching Contributions allocated to his account for the
Plan Year.
(iv) "Family Member" shall mean an individual described in IRC
Section 414(q)(6).
(v) "Compensation" shall mean the definition set forth in IRC
Section 414(s)(1) and (2) and IRS Regulations Section 1.414(s)-
21
<PAGE>
1T or such other alternative definitions set forth in the
proposed regulations as long as used on a consistent basis. In
addition, "Compensation" may be defined to be compensation while
eligible for the Plan to the extent permitted by IRS Regulations
and Notices under Section 401(k).
c. Special Rules
-------------
(i) For purposes of this Article V, the Contribution Percentage
for any Eligible Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to receive
Matching Contributions, allocated to his account under two or
more plans described in IRC Section 401(a) or arrangements
described in IRC Section 401(m) that are maintained by the
Employer or an Affiliated Employer shall be determined as if all
such contributions were made under a single plan.
(ii) In the event that this plan satisfies the requirements of IRC
Section 410(b) only if aggregated with one or more other plans,
or if one or more other plans satisfy the requirements of IRC
Section 410(b) only if aggregated with this plan, then this
Article V shall be applied by determining the Contribution
Percentages for Eligible Participants as if all such plans were
a single Plan.
(iii) For purposes of determining the Contribution Percentage for
an Eligible Participant who is a Highly Compensated Employee and
is one of the top ten paid Employees of the Employer, the
Matching Contributions, and Compensation, of such Participant
shall include the Matching Contributions, and Compensation, for
Family Members, and such Family Members shall be disregarded in
determining the Contribution Percentages for Eligible
Participants who are Non-Highly Compensated Employees.
(iv) The amount of any excess aggregate contributions
for a Highly Compensated Employee under a plan subject to the
requirements of IRC Section 401(m) will be determined in the
following manner: (1) the actual contribution ratio (ACR) of
the Highly Compensated Employee with the highest ACR is reduced
to the extent necessary to satisfy the actual contribution
percentage test (ACP) or cause such ratio to equal the ACR of
the Highly Compensated Employee with the next highest ratio; (2)
this process is repeated until the ACP test is satisfied. The
amount of excess aggregate contributions for a Highly
Compensated Employee is then equal to the total of Employee,
Matching and other contributions (if applicable) taken into
account for the ACP test minus the product of the Employee's
contributions ratio as determined above and the Employee's
Compensation.
22
<PAGE>
(v) In the case of a Highly Compensated Employee whose
ACR is determined under the family aggregation rules, the
determination of the amount of excess aggregate contributions
shall be made by using the leveling method described in Treasury
Regulation Section 1.401(m)-1(e)(2) and the excess aggregate
contributions are allocated among the family members in
proportion to the contributions of each family member that have
been combined.
5.4 Permissible Types of Employer Contributions. Payments on account of the
-------------------------------------------
contributions due from the Employer for any year may be made in cash or in kind;
except that assets may not be contributed if such contribution violates the
prohibited transaction rules of IRC Section 4975, or the corresponding rules
under ERISA Section 406, if applicable.
The Matching Contributions to be invested in Employer Stock may be paid
in cash, in shares of Employer Stock, a combination of cash and stock, or in
other property acceptable to the Trustee.
5.5 Time of Payment of Contributions. All Participant Contributions made by
--------------------------------
payroll deduction shall be paid to the Trustee no later than 90 days after they
are withheld from pay. All corresponding Matching Contributions or
Discretionary Contributions (if applicable) shall be made within the time period
required for claiming such contributions as a deduction on the Employer's tax
return.
5.6 Distribution of Excess Aggregate Matching Contributions. If for any
-------------------------------------------------------
Plan Year a Participant who is a Highly Compensated Employee has aggregate
Matching Contributions which are in excess of the limitation for such
contributions (as provided in IRC Section 401(m)(6)(B)), the Employer shall
distribute such excess aggregate Matching Contributions (to the extent such
excess aggregate Matching Contributions are vested) and any income attributable
thereto no later than the last day of the following Plan Year to the
Participants on whose behalf such excess aggregate contributions were allocated
for the Plan Year. Nonvested excess aggregate Matching Contributions shall be
forfeited and allocated pursuant to Section 6.2. The Plan may use any
reasonable method for calculating and allocating income to the excess amounts;
including the discretion not to calculate such income for any gap period.
In the event that multiple use of the alternative limitation occurs (the
Average Actual Deferral Percentage and Average Contribution Percentage for
Eligible Participants who are Highly Compensated Employees each exceeds 1.25 of
the Average Actual Deferral Percentage and Average Actual Contribution
Percentage for Eligible Participants who are Non-Highly Compensated Employees),
it shall be corrected by looking at the total contributions of all Highly
Compensated Employees and reducing Matching Contributions as needed. Matching
Contributions reduced for this purpose and any income attributable thereto will
be distributed to Participants to the extent they are vested. Nonvested
Matching Contributions that are reduced for this purpose are forfeited. Such
Forfeitures shall be allocated pursuant to Section 6.1e.
23
<PAGE>
24
<PAGE>
ARTICLE VI. ADMINISTRATION OF ACCOUNTS
6.1 Allocation of Contributions to Accounts. As of the end of each
---------------------------------------
Valuation Date (or more frequently, as the Plan Administrator shall determine),
contributions and gains or losses of the Trust Fund made during the allocation
period shall be allocated as follows:
a. Participant Contributions shall be allocated to the Participant
Account of each Participant in the amount of pre-tax contributions
made by such Participant during the allocation period.
b. Matching Contributions shall be allocated to the Employer Account of
each Participant in an amount based on the amount of Participant
Contributions made during the allocation period as determined in
accordance with Section 5.1.
c. Discretionary Contributions shall be allocated at the end of the Plan
Year in an equal amount to all Non-Highly Compensated Employees who
are actively employed and making Participant Contributions as of that
date.
d. Gains and losses of the Trust Fund shall be allocated as set forth in
Section 6.7.
6.2 Allocation of Forfeitures.
-------------------------
a. Prior to January 1, 1990, all Forfeitures shall be allocated to the
Employer Accounts of Participants actively employed on the
reallocation date on the basis of the ratio of each Participant's
Employer Account to the total value of all Participants' Employer
Accounts.
b. For the 1990 Plan Year, Forfeitures shall be allocated as follows:
(i) Forfeitures resulting from Participants who have terminated
employment shall be allocated to all Participants on the basis
of the ratio of each Participant's Employer Account to the total
value of the Employer Accounts of all Participants.
(ii) Forfeitures resulting from unjustified Matching Contributions,
nonvested excess aggregate contributions and nonvested Matching
Contributions used to satisfy the multiple use test shall be
used to reduce the amount of Matching Contributions to be made
by the Employer.
c. Effective January 1, 1991, all Forfeitures shall be used to reduce
the amount of Matching Contributions to be made by the Employer.
25
<PAGE>
6.3 Investment of Participant Accounts. At the time a Participant
----------------------------------
authorizes a payroll deduction of his Participant Contributions, he shall
designate the investment of his contributions in the Equity Fund, the Balanced
Fund, the Income Fund or the Money Market Fund. Contributions may be invested
all in one of the Funds, or in 1% increments in more than one of the Funds. If
a Participant makes no election, Participant Contributions shall be invested in
the Money Market Fund. The Participant may designate all or a portion of his
Participant Contributions to be invested in the Company Stock Fund effective
with the first Entry Date following the date upon which a registration statement
on Form S-8 (or other form designated by the Securities and Exchange Commission)
relating to Employer Stock offered to Participants under the Plan has been
declared effective.
A Participant may change the investment of his prospective Participant
Contributions effective as of any Valuation Date with at least 30 days written
notice to the Plan Administrator. Future Participant Contributions to a
Participant Account may be invested all in one Fund, or in 1% increments in more
than one Fund.
A Participant may change the investment of the balance in his
Participant Account effective as of any Valuation Date with at least 30 days
written notice to the Plan Administrator. The account balance may be invested
all in one Fund, or in increments of 1% among the available Funds. Effective
with the first Entry Date following the date upon which a registration statement
on Form S-8 (or other form designated by the Securities and Exchange Commission)
relating to Employer Stock offered to Participants under the Plan has been
declared effective, the Participant may direct all or a portion of his
Participant Account to be invested in the Company Stock Fund.
6.4 Investment of Employer Accounts. Employer Matching Contributions and
-------------------------------
Discretionary Contributions made on or after the closing date of the initial
public offering of the Company's common stock (September 6, 1989) shall be
invested in the Company Stock Fund.
A Participant's Employer Account attributable to Matching Contributions
made before September 6, 1989 and Prior Thrift Plan Employer Contributions will
be invested among the available Funds in accordance with the Participant's
election as to the investment of his Participant Account made under Section 6.3.
Beginning January 1, 1996, a Participant's Employer Account attributable
to Matching Contributions made on and after January 1, 1996, will be invested
among the available funds in accordance with the Participant's election as to
the investment of his Participant Account made under Section 6.3.
6.5 Investment of Rollover Accounts. A Participant's Rollover Account,
-------------------------------
including his Pillsbury Rollover Account, will be invested among the available
Funds in accordance with the Participant's election as to the investment of his
Participant Account made under Section 6.3.
6.6 Investment by Trustee and Reasonable Rules. Notwithstanding Sections
------------------------------------------
6.1 and 6.3, the Trustee may cause all contributions paid to it by the Employer
and
26
<PAGE>
Participants, and the income therefrom, without distinction between
principal and income, to be held and administered in the Funds as instructed by
the Employer, and the Trustee shall not be required to invest separately the
accounts of any Participant. The Trustee may adopt reasonable rules for the
administration of such Funds. The Trustee shall also have the authority to
purchase Employer Stock on the open market, through privately negotiated
transactions or through the Employer's issuance of treasury stock.
6.7 Evaluation of Assets and Allocation of Changes. The assets of each Fund
----------------------------------------------
will be evaluated as of each Valuation Date at their fair market value. The
Employer Account, excluding Employer Accounts held in suspense or as
Forfeitures, the Participant Account and the Rollover Account (if any) of each
Participant shall be adjusted for any net appreciation or net depreciation in
the assets of the Fund or Funds in which they are invested, and for any net
income or net loss of the Fund for such year. Each account shall be credited or
charged with the increase or decrease calculated above in proportion to the
average value of each account to the total average value of accounts in that
fund (Effective April 1, 1989 "average value" is defined to be the value of the
account as of the last day of the previous Plan Quarter, less any withdrawals
distributed since the end of the previous Plan Quarter, plus transfers, plus
one-half of the Participant Contributions and Basic Matching contributions made
to the account since the last Valuation Date but no less than zero).
6.8 Limitation on Allocations to Each Participant. Notwithstanding any
---------------------------------------------
other provision of this Plan, the maximum annual addition for any Plan Year
("limitation year") which can be made to any individual Participant's Employer
and Participant Accounts, taken together, is the lesser of $30,000 (or such
other figure as determined in accordance with the cost of living adjustment
procedure of IRC Section 415(d)) or 25% of the Participant's annual compensation
(as defined in Section 6.9). For purposes of this Section 6.8 the "annual
addition" is the sum of the following amounts allocated to the accounts of the
individual Participant for the Plan Year of the Trust:
a. Employer contributions;
b. Employee contributions; and
c. Forfeitures.
Amounts allocated, after March 31, 1984, to an individual medical
account, as defined in IRC Section 415(l)(1), which is part of a defined benefit
plan maintained by the Employer, are treated as annual additions. Also, amounts
derived from contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-retirement medical
benefits allocated to the separate account of a Key Employee, as defined in IRC
Section 419A(d)(3), under a welfare benefit fund, as defined in IRC Section
419(e), maintained by the Employer, are treated as annual additions.
In the event that it is determined that the annual addition to a
Participant's Employer and Participant Accounts, taken together, for any Plan
Year would be in excess of the limitations of this Section 6.8, such annual
additions shall be reduced to
27
<PAGE>
the extent necessary to bring them within such limitations if necessary, in the
following manner:
a. If the excess allocation results fro m allocation of forfeitures, a
reasonable error in estimating a Participant's annual compensation,
or other limited facts and circumstances to which Regulation 1.415-
6(b)(6) applies, then the excess amount to be allocated to the
Participant's accounts shall be placed in a suspense account.
b. If the Participant has not terminated service, then the amount in
such suspense account shall be allocated to the Participant on the
last day of each succeeding Plan Year until the funds in the suspense
account have been completely reallocated, and allocations from such
suspense account shall be used to reduce employer contributions for
that Participant in the Plan Year in which such allocations are made.
c. If the Participant terminates service before the amount in the
suspense account has been reallocated, then the suspense account
shall be allocated in the next Plan Year in accordance with
Regulation Section 1.415-6(b)(6)(i). No investment gains and losses
or other income shall be allocated to the suspense account.
d. If the Participant terminates service before such allocation can be
made, then the amount held in the suspense account shall be treated
as a Forfeiture, and used to reduce Matching Contributions as set
forth in Section 6.2.
e. If the Plan terminates before such allocation can be made, then the
amount held in the suspense account shall be allocated to the
remaining Participants to the extent possible.
6.9 IRC Section 415 Definition of Compensation. For purposes of the
------------------------------------------
limitations of Sections 6.8 and 6.10, and, if applicable, Article IX,
"compensation" shall mean the wages, salaries, and fees for professional
services actually rendered in the course of employment with the Employer
(including, but not limited to, commissions paid to salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses), paid to or accrued by a Participant during a Plan
Year, excluding the following:
a. Employer contributions to a plan of deferred compensation which are
not included in the Employee's gross income for the taxable year in
which contributed or Employer contributions under a simplified
employee pension plan to the extent such contributions are deductible
by the Employee, or any distributions from a plan of deferred
compensation;
b. Amounts realized from the exercise of a non-qualified stock option,
or when restricted stock (or property) held by the employee either
becomes freely transferable or is no longer subject to a substantial
risk of forfeiture;
28
<PAGE>
c. Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
d. Other amounts which received special tax benefits.
6.10 Combination Defined Benefit and Defined Contribution Plan Limitations.
---------------------------------------------------------------------
If the Employer or an Affiliate maintains one or more defined benefit plans in
addition to this Plan (and any other defined contribution plans) then for any
Participant who is covered by another of the plans, the sum of the defined
benefit plan fraction and the defined contribution plan fraction for any year
may not exceed 1.0.
a. The "defined benefit plan fraction" for any year is a fraction:
(i) the numerator of which is the projected annual benefit of the
Participant under the defined benefit plan (determined as of the
close of the year); and
(ii) the denominator of which is the lesser of (1) the maximum dollar
limit for such year under IRC Section 415(b) times 1.25, or (2)
the amount determined under the percentage-of-compensation limit
for such year times 1.4.
b. The "defined contribution plan fraction" for any year is a fraction:
(i) the numerator of which is the sum of the annual additions (as
defined in IRC Section 415(c)(2)) to the Participant's Employer
and Participant Accounts as of the close of the year; and
(ii) the denominator of which is the sum for all years
of the Participant's service with the Employer of the lesser for
each year of (1) the maximum dollar limit under IRC Section
415(c) for such year times 1.25 or (2) the amount determined
under the percentage-of-compensation limit for such year times
1.4.
If the 1.0 limitation above is exceeded, the annual additions to the
Participant's account in the defined benefit plan shall first be reduced to the
extent necessary, as determined by the Plan Administrator, to prevent
disqualification of the Plan. The Plan Administrator shall advise affected
Participants of any additional limitations of their annual additions hereunder.
6.11 Designation of Beneficiary. Each Participant may designate from time to
--------------------------
time in writing one or more Beneficiaries, who will receive the Participant's
vested Accrued Benefit in the event of the Participant's death. If the
Participant dies without having made a Beneficiary designation, the Trustee
shall distribute such benefits in the following order of priority to the
deceased Participant's: (a) spouse, (b) lineal descendants per stirpes and not
-----------
per capita, (c) parents, (d) brothers and sisters, or (e) estate.
- ----------
A married Participant's spouse shall be the Participant's Beneficiary,
unless the spouse consents in writing to the designation of a different
Beneficiary. The consent of such
29
<PAGE>
spouse shall acknowledge the effect of the designation, and shall be witnessed
by a plan representative or a notary public.
30
<PAGE>
ARTICLE VII. VESTING
7.1 Participant Account 100% Vested. The Accrued Benefit in the Participant
-------------------------------
Account, Rollover Account and the Pillsbury Rollover Account of an Employee
shall be 100% vested at all times.
7.2 Employer Account Vesting on Death, Retirement or Total and Permanent
--------------------------------------------------------------------
Disability. If a Participant's employment is terminated for death, Retirement,
- ----------
or for Total and Permanent Disability, 100% of the Accrued Benefit in his
Employer Account shall vest in the Participant (or in his Beneficiary, as the
case may be) and shall be distributed or set aside in accordance with the
provisions of Article VIII.
7.3 Employer Account Vesting on Termination. If a Participant's employment
---------------------------------------
is terminated for any reason other than death, Retirement, or Total and
Permanent Disability, the following percentages of the Accrued Benefit in the
Employer Account of the Participant shall vest in the Participant and shall be
distributed to or set aside for him in accordance with the provisions of Article
VIII:
Years of Percentage
Continuous Service Vested
------------------ ------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
The percentage of the Accrued Benefit of a Participant which is not
vested as above provided shall become a Forfeiture as of the first day of the
Plan Quarter following the Participant's Termination Date, and shall be
allocated as set forth in Section 6.2. If reemployed, the Participant must
repay the full amount of any distribution of their nonforfeitable benefit to
restore the forfeited amount. Any such repayment must occur within a period
equal to 60 consecutive months from his date of rehire.
7.4 Vesting on Rehire. If a Participant who is partially or fully vested in
-----------------
his Employer Account terminates employment and is later rehired before incurring
a Period of Severance for Vesting, the time period while not employed shall be
-----
included in Continuous Service for Vesting. If the Participant is rehired after
incurring a Period of Severance for Vesting, Continuous Service for Vesting
shall include the period of service prior to severance, but not the time period
---
while not employed.
31
<PAGE>
If an Employee terminates either before or after completing twelve (12)
months of Continuous Service for Vesting, but before joining the Plan and is
rehired before a Period of Severance for Vesting, the period while not employed
shall be included in Continuous Service for Vesting. If the Employee is rehired
- -----
after incurring a Period of Severance for Vesting, Continuous Service for
Vesting shall include the period of service prior to severance unless the Period
-----
of Severance for Vesting exceeds sixty (60) consecutive months. In addition,
Continuous Service for Vesting shall not include the time period while not
---
employed.
32
<PAGE>
ARTICLE VIII. DISTRIBUTION OF BENEFITS
8.1 Distribution of Accounts. If a Participant's employment is terminated
------------------------
at any time for any reason, the vested balance in his Participant Account,
Employer Account, and Rollover Account as of the Valuation Date coincident with
or next following the employment termination date shall be distributed pursuant
to the terms of this Article VIII.
8.2 Distribution Upon Retirement or Total and Permanent Disability. Upon
--------------------------------------------------------------
Retirement or upon Total and Permanent Disability, a Participant shall receive
payment in one (1) lump sum amount. Payment of a Participant's account balances
shall be made in the following manner:
a. Amounts invested in the Equity Fund, Balanced Fund, Income Fund or
Money Market Fund shall be paid in cash.
b. Amounts invested in the Company Stock Fund shall be paid in shares of
Employer Stock, provided fractional shares may be paid in cash. A
Participant may also elect to receive payment of his Employer Stock
in cash. Effective May 1, 1990, if a Participant's accounts contain
less than fifty (50) shares of Employer Stock, such shares shall be
paid only in cash.
8.3 Distribution Upon Death Prior to Retirement. If a Participant's
-------------------------------------------
employment is terminated due to death prior to his Retirement, the Participant's
account balances shall be paid to his Beneficiary in one (1) lump sum amount as
provided in Section 8.2 above. If any distribution of benefits commences before
the Participant's death, the remaining interest shall be distributed to his
Beneficiary at least as rapidly as under the method of distribution being used
as of the date of the Participant's death.
8.4 Distribution Upon Death After Retirement or Total and Permanent
---------------------------------------------------------------
Disability. If a Participant entitled to receive or who is receiving a
- ----------
distribution pursuant to Section 8.2 should die prior to receiving the full
distribution of benefits, any unpaid balance remaining at the time of his death
shall be distributed to the Participant's Beneficiary. Distribution to the
Beneficiary shall be paid in one (1) lump sum amount as provided in Section 8.2
as soon as reasonably practicable but in no event later than a period of five
years from the date of the Participant's death.
8.5 Distribution Upon Other Events. If a Participant is entitled to receive
------------------------------
a distribution for any other event not set forth above, then such distribution
shall be paid as provided in Section 8.2 based upon the Valuation Date
coinciding with or next following such event and the vesting provisions set
forth in Article VII. Such distribution shall be made as soon as practicable
following the Valuation Date or as set forth in Section 8.7. If the amount of
the Participant's Accrued Benefit is $3,500 or less, the Plan Administrator
shall make an immediate distribution in one lump sum cash payment. If the
amount of such distribution exceeds $3,500, however, distribution of the
Participant's interest shall not be made without his consent prior to reaching
age 62.
33
<PAGE>
8.6 Partial Distribution. Upon termination of employment or other
--------------------
distributable event and after completing the necessary forms, a Participant
shall be entitled to receive a partial distribution of the vested balance in his
accounts as soon as practicable after termination in accordance with
nondiscriminatory procedures adopted by the Committee.
8.7 Time for Distribution of Accounts. If a Participant's employment is
---------------------------------
terminated for any reason, the vested balance in his accounts shall be
distributed as provided in this Article VIII. However, unless otherwise
provided in this Article VIII or elected by the Participant, distribution shall
begin no later than 60 days after the end of the Plan Year in which occurs the
latest of the following:
a. the date on which the Participant attains age 65;
b. the tenth anniversary of the year in which the Participant commenced
participation in the Plan; or
c. the Termination Date.
Payment of the Participant's Accrued Benefit shall begin no later than
April 1 of the calendar year following the year in which he attains age 70 1/2,
whether or not he is still employed on that date in accordance with regulations
under IRC Code 401(a)(9).
8.8 Loans and Withdrawals. No loans shall be made from the Plan to any
---------------------
Participant. Withdrawals shall be permitted pursuant to subsections a and b
below and shall be distributed in cash. The amount of withdrawals made pursuant
to subsections a and b below shall be based upon the Valuation Date immediately
prior to distribution.
a. In-Service Withdrawals. A Participant may make a total or partial
----------------------
withdrawal from his Prior Thrift Account. Provisions relating to the
withdrawal of the Prior Thrift Plan contributions are set forth in
Appendix A attached to this Plan. Each withdrawal shall be subject
to a $50 withdrawal fee payable by the Participant.
b. Hardship Withdrawal From Participant and Employer Accounts. A
----------------------------------------------------------
Participant may also be entitled to make a hardship withdrawal of an
amount equal to the sum of his Participant Account as of December 31,
1988, Participant Contributions since that date, Rollover
Contributions and vested Employer Contributions as set forth below.
In order to make a hardship withdrawal from his accounts, a
Participant must (1) have an immediate and heavy financial need; and
(2) the withdrawal must be necessary to meet the need and the
Participant cannot meet that need from any other source.
(i) A Participant's financial need will be immediate and heavy and
--------------------------------------------------------------
deemed a hardship if it is for one of the following reasons:
------------------------------------------------------------
A. medical expenses for the Participant, his spouse, or
dependents;
B. purchase of the Participant's principal residence (but not
regular mortgage payments);
34
<PAGE>
C. tuition for the next semester or quarter of post secondary
education for the Participant, spouse, children, or
dependents;
D. preventing foreclosure on or eviction from the Participant's
principal residence;
E. impending bankruptcy upon proof of recommendation by a
professional expert in the field.
Alternatively, the Employer may allow a Participant to
demonstrate to the Employer an immediate and heavy financial
need on a facts and circumstances basis. Such a determination
will be made by the Employer on a case-by-case basis. The
determination shall also be made in accordance with objective
and non-discriminatory standards to be established by the Plan
Administrator. Under the facts and circumstances standard, the
need may be foreseeable or voluntarily incurred.
(ii) A Participant's withdrawal will be deemed necessary to
------------------------------------------------------
satisfy financial need if it meets all of the following
-------------------------------------------------------
criteria:
---------
A. the Participant has already taken all other distributions and
non-taxable loans available from all plans sponsored by the
Employer; and
B. the Participant demonstrates that other resources are not
reasonably available. The Employer may rely on such
representation to establish that the need cannot be met by
reimbursement or compensation by insurance or otherwise;
reasonable liquidation of the Participant's assets (not
causing hardship); cessation of pre-tax Participant
Contributions under the Plan; other distributions or non-
taxable loans from Plans; or by borrowing from commercial
sources on reasonable terms.
C. the distribution is not in excess of the amount of the
financial need. Alternatively, the Employer may follow the
Safe Harbor rules in the regulations under IRC Section 401(k)
for determining that a withdrawal is necessary to satisfy the
financial need.
8.9 Direct Rollover. Notwithstanding any provision of the Plan to the
---------------
contrary, that would otherwise limit a distributee's election under this
section, a distributee may elect, at the time and in the manner prescribed by
the Committee, to have any portion of any eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
35
<PAGE>
a. Eligible rollover distribution is any distribution of all or a
portion of the balance to the credit of the distributee, except that
an eligible rollover distribution does not include any distribution
that is one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy)
of the distributee and the distributee's designated beneficiary, or
for a specified period of ten years or more. An eligible rollover
distribution also does not include any distribution to the extent
such distribution is required under IRC Section 401(a)(9); and the
portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to Employer securities).
b. Eligible retirement plan is an individual retirement account
described in IRC Section 408(b), or an annuity plan described in IRC
Section 401(a), that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is
an individual retirement account or individual retirement annuity.
c. Distributee includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relation order, as defined
in IRC Section 414(p), are distributees with regard to the interest
of the spouse or former spouse.
d. Direct rollover is a payment by the Plan to the eligible retirement
plan specified by the distributee.
8.10 Buyback. If a Participant receives a distribution from the Plan as a
-------
result of ceasing to be an Employee, and is less than 100% vested as to his
Employer Account at such time, he shall have the right when he again becomes an
Employee to repay to the Plan all distributions he had received from it, under
the following conditions:
a. he becomes an Employee again before he has incurred a sixty (60)
consecutive month Period of Severance for Vesting; and
b. he makes such repayment within a sixty (60) consecutive month period
from his date of rehire.
If the Participant makes such repayment, the portion of his Employer
Account which had been forfeited as a result of his ceasing to be an Employee
shall be restored to his Employer Account. His account balance as of the date
of restoration shall be the same as it was on the date of original distribution,
without regard to any gains or losses which may have occurred in the Trust after
the date of Forfeiture. The Participant shall then continue to vest in such
restored account balance.
If the Participant fails to make such repayment, his Continuous Service
for Vesting after the distribution shall not be used to increase his vested
percentage in his account balance accrued before the distribution.
36
<PAGE>
If a Participant returns to employment with the Employer after incurring
a Period of Severance for Vesting, but before incurring a sixty (60) consecutive
month Period of Severance for Vesting, and if the Participant had not received a
distribution of the vested portion of his Employer Account (or if he was not yet
vested in any of his Employer Account), he shall be treated as a Participant who
has made a repayment of a distribution as set forth above.
8.11 Inability to Locate Participant or Beneficiary. If the Participant or
----------------------------------------------
Beneficiary to whom benefits are to be distributed cannot be located, and
reasonable efforts have been made to find him, including the sending of
notification by certified or registered mail to his last known address, the Plan
Administrator may direct the Trustee to distribute the benefits in question to
an interest bearing savings account in the Trust, established on behalf of the
Participant or Beneficiary. Such funds shall be held in the segregated account
for distribution to the Participant when located. If the Participant or
Beneficiary has not been located for a period of one year from the date of
termination of employment, the Plan Administrator shall notify the Social
Security Administration pursuant to Section 1032 of ERISA.
8.12 Distribution to Minor or Incompetent. In case of any distribution to a
------------------------------------
minor or to a legally incompetent person, the Plan Administrator may direct the
Trustee that the same be made for the benefit of such person to his legal
representative or to some near relative of such person or that the Trustee shall
use the same directly for the support, maintenance, or education of such person.
The Trustee shall not be required to see to the application by any third party
of any distributions made pursuant to this Article.
8.13 Deferred Payment of Accrued Benefit. Except as provided in Section 8.5,
-----------------------------------
where the distribution of all or any portion of a Participant's Accrued Benefit
is to be deferred, the deferred portion shall continue to be held and invested
as an unsegregated account of the Trust Fund subject to revaluation as provided
in Section 6.7; provided, however, that at the discretion of the Plan
Administrator or the written request of a Participant or his Beneficiary, it
shall be transferred to the Money Market Fund (as described in Section 2.27).
37
<PAGE>
ARTICLE IX. TOP-HEAVY PLAN RESTRICTIONS
The following restrictions shall apply if the Plan becomes a Top-Heavy Plan.
9.1 Definitions. For purposes of this Article IX, the following definitions
-----------
shall apply:
a. Key Employee - an individual as defined in IRC Section 416(i)(1) and
------------
Internal Revenue Service Regulation Section 1.416-1(T-12).
b. Non-Key Employee - Any Employee who is not a Key Employee, including
----------------
an Employee who was formerly a Key Employee but is not currently one.
c. Determination Date - The last day of the preceding Plan Year, or of
------------------
the current Plan Year, if the Plan was not in existence during the
preceding year.
d. Annual Compensation - an Employee's Compensation (as defined in
-------------------
Section 6.7) received from the Employer during the Plan Year, not to
exceed $200,000. For each Plan Year during which the Plan is top-
heavy, this $200,000 limitation shall apply for all Plan purposes.
e. Valuation Date - the date as of which the Plan's assets and
--------------
liabilities are valued, as set forth in Section 6.5.
9.2 Top-Heavy Plan. The Plan is a Top-Heavy Plan with respect to any Plan
--------------
Year in which it is not part of an aggregation group if, as of the most recent
Valuation Date occurring within a 12-month period ending on the Determination
Date applicable to such Plan Year, the total value of Accrued Benefits of Key
Employees exceeds 60% of the Total Value of Accrued Benefits for all
Participants. In any Plan Year in which the Plan is part of an aggregation
group, the Plan will be a Top-Heavy Plan with respect to such Plan Year if on
the applicable Determination Date(s), the Plan would be top-heavy as determined
under Section 9.4.
The present value of Accrued Benefits of any Participant shall be
increased to reflect any distributions from the Plan with respect to such
Participant during the five-year period ending on the Determination Date, and
reduced to eliminate the value of certain rollover contributions included in
such Accrued Benefit. The rollovers to be excluded are unrelated rollovers
(both initiated by the Participant and made from a plan maintained by an
employer not related to the Employer) which are accepted by the Plan after
December 31, 1983. In addition, the present value of Accrued Benefits of any
Participant shall be reduced to reflect the value of any qualified voluntary
employee contributions made pursuant to IRC Section 219. However, any portion
of the Accrued Benefit attributable to non-deductible Employee contributions
(whether mandatory or voluntary) shall be included for purposes of determining
top-heaviness.
The Accrued Benefit of any Employee who has not received any
Compensation from the Employer at any time during the five year period ending on
Determination Date shall be disregarded for purposes of determining whether the
Plan is Top-Heavy. However, if such Employee receiving no Compensation for such
five year period, and then receives
38
<PAGE>
Compensation from the Employer, such Employee's Accrued Benefit shall be
included in the calculations for top-heaviness.
A Key Employee in prior Plan Years who is not a Key Employee with
respect to a current Plan Year shall be excluded entirely in computing the
percentage in the first paragraph above.
9.3 Restrictions. The following restrictions shall apply if the Plan
------------
becomes a Top-Heavy Plan.
a. Vesting. A Participant of a Top-Heavy Plan shall have a
-------
nonforfeitable interest in his Accrued Benefit derived from Employer
contributions as provided in Section 7.3.
Accrued Benefit, for purposes of this subsection (a), shall include
that portion of Accrued Benefits which the Participant earned during
all prior Plan Years, whether or not the Plan was a Top-Heavy Plan
during such prior Plan Years.
b. Minimum Benefits. With respect to any Plan Year during which the
----------------
Plan is a Top-Heavy Plan, the Employer contribution on behalf of a
Non-Key Employee shall not be less than the lesser of: (i) 3% of such
Employee's Annual Compensation, or (ii) the percentage at which
contributions are made (or required to be made) under the Plan (or
any other defined contribution plan in the aggregation group) for the
Plan Year, for the Key Employee for whom such percentage is highest
for that Year. Subsection (ii) shall not apply if this Plan enables
a defined benefit plan required to be included in the aggregation
group to meet the requirements of IRC Section 401(a)(4) or 410.
For purposes of this Subsection (b), Employer contributions
attributable to a salary reduction or similar arrangement may be
taken into account. The required contribution shall not be reduced
for Employer contributions to Social Security, and shall be made even
though, under other Plan provisions, a Participant would not
otherwise be entitled to receive an allocation of contribution or
would have received a lesser allocation for the Plan Year because of
(i) his failure to earn the requisite number of Hours of Service;
(ii) his failure to make mandatory contributions to the Plan; or
(iii) his Compensation being lower than a stated amount. However, no
contribution shall be made under this Section on behalf of a Non-Key
Employee who has terminated service with the Employer as of the last
day of the Plan Year under consideration. A Participant shall not
forfeit such minimum contribution due to any withdrawal of mandatory
contributions. The required contribution shall be made regardless of
the absence of profits.
c. Maximum Benefit Adjustments
---------------------------
(i) An adjustment is to be made in calculating the maximum benefit
and contribution limitations under IRC Section 415 if a
Participant is a
39
<PAGE>
participant in a Top-Heavy defined benefit and defined
contribution plan maintained by the Employer. Such
adjustment shall be a reduction in the figure used as a
multiplier pursuant to Subsections (e)(2)(B)(i) and (e)(3)(B)(i)
of IRC Section 415 from 1.25 to 1.0.
(ii) Paragraph (i) shall not apply in any Plan Year of a Top-Heavy
Plan if the following conditions are satisfied with respect to
such Plan Year:
1. the sum of (A) the present values of Accrued Benefits for Key
Employees under the defined benefit plan and (B) account
balances of Key Employees under the defined contribution
plan, does not exceed 90% of such sum for all Participants;
2. the minimum contribution percentage pursuant to Section
9.3(b) is increased from 3% to 4% and
3. the minimum benefit accrual percentage of participants who
are not Key Employees of the defined benefit plan is
increased from 2% to 3%, adjusted, if necessary, in
accordance with the IRC Section 416(c)(1). This Subsection
(3) shall not apply in the case of a defined benefit plan
which terminated more than five years before the
Determination Date.
(iii) The adjustment otherwise required under paragraph (i) above
shall not be applicable to any Participant if with respect to
the particular Plan Year there are (1) no Accrued Benefits
credited to such Participant under the defined benefit plan, and
(2) no Employer contributions, forfeitures or voluntary non-
deductible contributions allocated to such Participant under
this Plan.
(iv) In the case of any Top-Heavy Plan to which paragraph (i)
above applies, the transitional rule set forth in IRC Section
415(e)(6)(B)(i) shall be applied by substituting "$41,500" for
"$51,875."
9.4 Plan Aggregations. For purposes of determining top-heaviness, the
-----------------
aggregation group shall include:
a. each plan of the Employer in which a Key Employee is a participant;
and
b. each other plan of the Employer that allows a plan covering a Key
Employee to meet qualification requirements under the coverage and
anti-discrimination rules of IRC Sections 401(a)(4) and 410;
c. each terminated plan described in (a) or (b) above maintained by the
Employer during the five year period preceding the Determination
Date; and
40
<PAGE>
d. at the option of the Employer, any other plan maintained by the
Employer as long as the expanded aggregation group including such
plan or plans continues to satisfy coverage and anti-discrimination
rules of IRC Sections 401(a)(4) and 410.
This Plan shall be a Top-Heavy Plan only if the sum of (i) the present
value of Accrued Benefits for Key Employees, as determined under the provisions
of this Article applicable to defined benefit plans, under all such plans
included within the aggregation group, and (ii) the aggregate of the account
balances of Key Employees, as determined under the provisions of this Article
applicable to defined contribution plans, exceeds 60% of a similar sum
determined for all participants in such plans.
If the Plan becomes a Top-Heavy Plan, for Participants who are covered
by both this Plan and a defined benefit plan of the Employer, the minimum
benefit required shall be provided under the defined benefit plan and shall be
offset by the benefits provided in this Plan. The Plan Administrator shall act
pursuant to Internal Revenue Service Regulations in carrying out these
provisions.
41
<PAGE>
ARTICLE X. AMENDMENT AND TERMINATION
10.1 Right to Suspend or Terminate Plan. It is the present intention of the
----------------------------------
Employer to maintain the Plan throughout its corporate existence. Nevertheless,
the Employer reserves the right, at any time, to discontinue or terminate the
Plan, and to terminate the Employer's liability to make further contributions to
this Plan. No such amendment shall increase the duties or responsibilities of
the Trustee without its consent thereto in writing. In any event, the liability
of the Employer to make contributions to this Plan shall automatically terminate
upon its legal dissolution or termination, upon its adjudication as bankrupt,
upon the making of a general assignment for the benefit of creditors, or upon
its merger or consolidation with any other corporation or corporations if it is
not the surviving corporation.
10.2 Successor Corporation. In the event of the termination of the liability
---------------------
of the Employer to make further contributions to this Plan, the Employer's
liability may be assumed by any other corporation or organization which employs
a substantial number of the Participants of this Plan. Such assumption of
liability shall be expressed in an agreement between such other corporation or
organization and the Trustee under which such other corporation or organization
assumes the liabilities of the Plan with respect to the Participants employed by
it. Such termination and assumption of liability shall not in itself be
considered as a termination of the Plan.
10.3 Amendment. To provide for contingencies which may require the
---------
clarification, modification, or amendment of this Plan, the Employer reserves
the right to amend this Plan at any time. The Employer, however, shall not have
the right to amend this Plan in any way which would decrease a Participant's
Accrued Benefit (as set forth in IRC Section 411(d)(6)). Each Participant
having at least three years of Continuous Service for Vesting at the time of the
adoption of any amendment changing any vesting schedule under the Plan shall
have the right to elect at any time, but no later than 60 days after the earlier
of (i) the end of the Plan Year for which the amendment is effective or (ii) the
Termination Date of such Participant, to have his vested percentage computed
under the Plan without regard to such amendment.
10.4 Full Vesting on Termination of Plan. Upon termination or partial
-----------------------------------
termination of the Plan by formal action of the Employer or for any other
reason, or if the Employer contributions to the Plan are permanently
discontinued for any reason, there shall be vested 100% in each Participant
directly affected by such action the amount allocated to the Employer Account of
such Participant, and payment to such Participant shall be made as soon as
practicable after liquidation of the assets of the Trust Fund. Any Forfeiture
remaining after payment of the required company contribution has been made shall
be reallocated among the Participant's Accounts prorated to the value in each.
10.5 Plan Merger or Consolidation. In the case of any merger or
----------------------------
consolidation with, or transfer of any assets or liabilities to, any other plan,
each Participant in this Plan must be entitled to receive (if the surviving plan
then terminated) a benefit immediately after the merger, consolidation, or
transfer which is equal to or greater than the benefit he would have been
entitled to receive immediately before the merger, consolidation, or transfer
(if this Plan had terminated).
42
<PAGE>
ARTICLE XI. MISCELLANEOUS
11.1 Laws of California to Apply. This Plan shall be construed according to
---------------------------
the laws of the State of California, except to the extent such laws are
preempted by Federal law.
11.2 Nonalienation of Benefits. None of the benefits, payments, proceeds,
-------------------------
claims, or rights of any Participant hereunder shall be subject to any claim of
any creditor of the Participant, nor shall any Participant have any right to
transfer, assign, encumber, or otherwise alienate, any of the benefits or
proceeds which he may expect to receive, contingently or otherwise under this
Plan. The foregoing shall not prevent the Plan from paying benefits in
accordance with the requirements of a qualified domestic relations order, as
defined in IRC Section 414(p).
11.3 Right to Perform Alternative Acts. In the event it becomes impossible
---------------------------------
for the Employer, the Plan Administrator or the Trustee to perform any act
required by this Plan, then the Employer, the Plan Administrator or the Trustee
may perform such alternative act which most nearly carries out the intent and
purpose of this Plan. Such action shall be taken only in conjunction with an
amendment to the Plan intended to correct such impossibility.
11.4 Nonqualification of Plan. If this Plan shall not be approved and
------------------------
qualified by the Internal Revenue Service as meeting the requirements of IRC
Section 401(a) and IRC Section 501(a) or if any amendment to the Plan is not
subsequently approved by the Internal Revenue Service, the Employer may, at its
election, either (a) cause the Trustee to return to the Employer any amounts
previously contributed by the Employer to the Trust (prior to the date of the
amendment, if applicable) and immediately terminate the Plan or (b) effect such
amendments to the Plan as are necessary to obtain the approval and qualification
of the Plan by the Internal Revenue Service.
All contributions made to the Plan by the Employer are conditioned on
deductibility of such contributions under IRC Section 404. To the extent that
the deduction under IRC Section 404 for any year is disallowed, the contribution
shall be returned to the Employer within one year after disallowance of the
deduction.
If a contribution is made by the Employer by a mistake of fact, the
contribution shall be returned to the Employer within one year of the date of
the deposit of such contribution.
Amounts held in suspense pursuant to Section 6.8 shall be returned to
the Employer upon a Plan termination, to the extent they cannot be allocated to
Participants.
Notwithstanding the above, earnings attributable to amounts described in
paragraphs two and three of this Section 11.4 shall not be returned to the
Employer; losses attributable to such amounts shall reduce the amounts returned.
11.5 Agent for Service of Process. The Plan Administrator is designated
----------------------------
agent to receive service of legal process on behalf of the Plan.
43
<PAGE>
11.6 Filing Tax Returns and Reports. If the Trustee is not a corporate
------------------------------
fiduciary, the Plan Administrator shall prepare, or cause to have prepared all
tax returns, reports and related documents, except as otherwise specifically
provided in this Plan or unless the Employer provides to the contrary.
11.7 Indemnification. The Employer agrees to indemnify all Employees who act
---------------
on behalf of the Plan Administrator or who serve as Trustees, against all
liability arising in connection with their duties under the Plan, except that
this indemnification shall not include acts of embezzlement, or diversion of
Trust Funds by the Employee, nor shall it include acts of gross negligence.
11.8 Number and Gender. When appropriate, the singular as used in this Plan
-----------------
shall include the plural and vice versa, and the masculine shall include the
feminine.
IN WITNESS WHEREOF, the parties have executed this Plan on December_____,
1995.
CHART HOUSE ENTERPRISES, INC.
By: /s/ JOHN M. CREED
--------------------------------
John M. Creed
Title: Chairman, President and C.E.O.
CHART HOUSE, INC.
By: /s/ JOHN M. CREED
--------------------------------
John M. Creed
Title: Chairman, President and C.E.O.
ISLANDS RESTAURANTS, INC.
By: /s/ JOHN M. CREED
--------------------------------
John M. Creed
Title: Chairman and C.E.O.
44
<PAGE>
APPENDIX A
PRIOR THRIFT PLAN TERMS
-----------------------
EFFECTIVE BEFORE JANUARY 1, 1988
--------------------------------
Definitions. In addition to the definitions set forth in Article II of
-----------
this document, the definitions below shall have the following meanings with
respect to Appendix A.
a. Basic Contribution. "Basic Contribution" means a contribution made
------------------
by a Participant to the Prior Thrift Plan equal to the first 2%, 3%,
4%, or 5% of a Participant's Compensation.
b. Compensation. "Compensation" shall have the meaning set forth in
------------
Section 2.7 of this document with the exception of excluding
contributions made to the IRC Section 125 plan.
c. Supplemental Contributions. "Supplemental Contributions" means a
--------------------------
contribution made by a Participant to the Prior Thrift Plan equal to
the next 1%, 2%, 3%, 4%, or 5% of a Participant's Contribution in
addition to his Basic Contributions.
Employee Contribution. On or before December 31, 1987, a Participant
---------------------
may elect to contribute by payroll deduction with respect to each payroll period
an amount equal to 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9%, or 10% of his Compensation
with respect to that period.
Employer Contribution. On or before December 31, 1987, each Employer of
---------------------
a Participant who makes an Employee Contribution shall contribute to the Plan an
amount out of current or retained earnings or profits equal to 50% of the first
5% of the Employee's Compensation made by the Participant for that payroll
period, not to exceed the lesser of $2,500 or 50% of the first 5% of the
Participant's Employee Compensation for the Plan Year.
Statutory Limitations on Additions. Notwithstanding any other
----------------------------------
provisions of the Plan, for each Plan Year the "annual addition" to a
Participant's Account shall not exceed the lesser of (a) or (b) below:
a. the maximum permissible dollar amount; or
b. 25% of the Participant's Compensation for the Plan Year.
For purposes of applying the above limits, the following conditions
shall apply:
(i) The term "annual additions" shall mean the sum of the Employee
Contribution, Employer Contribution and Forfeitures allocated to
the Participant's Account. Prior to January 1, 1987, annual
additions exclude Employee Contributions less than 6% of
Compensation.
45
<PAGE>
(ii) The initial maximum permissible dollar amount shall be
$30,000. This limitation shall be adjusted automatically in
accordance with regulations issued or to be issued by the
Secretary of the Treasury as the corresponding limitation in
Section 415(c)(1)(A) of the Code is adjusted for the cost of
living in accordance with Section 415(d) of the Code.
(iii) For purposes of this section only, the term "Compensation"
shall have the definition set forth in Treasury Regulation
Section 1.415-2(d).
(iv) The limitations of this Section with respect to any
Participant who at any time has been a Participant in any other
qualified defined contribution plan maintained by the Employer
shall apply as if the total contributions under all such defined
contribution plans in which a Participant has participated were
under one plan.
If the above limitations would be exceeded in any Plan Year, the
Committee shall take one (1) or more of the following actions prior
to the end of the Plan Year (or within the time period permitted by
regulations) to the extent necessary to prevent the limitations from
being exceeded:
(i) On or before December 31, 1987, discontinue or reduce the
Participant's Supplemental Contribution for the remainder of the
Plan Year;
(ii) On or before December 31, 1987, instruct the Trustee to
return all or a portion of the Participant's Supplemental
Contribution made during the Plan Year;
(iii) On or before December 31, 1987, discontinue or reduce the
Participant's Basic Contribution;
(iv) On or before December 31, 1987, instruct the Trustee to
return all or a portion of the Participant's Basic Contribution
made during the Plan Year;
(v) Instruct the Employer to reduce or eliminate its Employer
Contribution to the Participant's Account for the remainder of
the Plan Year;
(vi) Allocate amounts to other Participant's Accounts to the
extent the limitations would not be exceeded. If this
allocation would cause the limitations to be exceeded for all
Participants, the unallocated excess amounts shall be placed in
a suspense account. The value of the suspense account shall be
allocated to all Participant's Accounts in succeeding Plan Years
before any Employer Contribution, Employee Contribution or
Participant Contribution which would be treated as an annual
addition may be made to the Plan for any Plan Year in which the
suspense account exists.
46
<PAGE>
Safe Harbor Rule. On or before December 31, 1987, if a Participant's
----------------
Compensation for any Plan Year is such that he is among the highly compensated
employees of the Employer (as defined in Section 414(q) of the Code), the
Participant's Employee Contribution shall not exceed the maximum amount
determined by the Employer to be acceptable so that the "average contribution
percentage" (as defined in Section 401(m) of the Code) for the eligible highly
compensated Employees does not exceed the greater of 125% of such percentage for
the non-highly compensated Employees except that the "average contribution
percentage" for the highly compensated Employees may be greater than 125% of the
"average contribution percentage" of the non-highly compensated Employees, to a
maximum of 200% of such "average contribution percentage" for the non-highly
compensated Employees if the "average contribution percentage" of the highly
compensated Employees does not exceed the "average contribution percentage" of
the non-highly compensated Employees by more than two (2) percentage points. If
a reduction is to be made to the Employee Contribution of any Participant among
the highly compensated Employees, the Employer shall calculate the maximum
"average contribution percentage" for such group pursuant to this section. The
Employee Contribution of highly compensated Employees shall be reduced
progressively to the highest uniform percentage of each such Participant's
Compensation which the Employer, in its discretion, shall deem to be permissible
to ensure that the "average contribution percentage" of such group does not
exceed the maximum allowable percentage.
Investment of Prior Thrift Account. A Participant's Prior Thrift
----------------------------------
Account will be invested among the available Funds in accordance with the
Participants election as to the investment of his Participant Account made under
Section 6.3 of this document.
Vesting of Employee Contributions. The amount of a Participant's Prior
---------------------------------
Thrift Account that is attributable to his Employee Contributions shall be fully
vested at all times.
Vesting of Employer Contributions. The amount of a Participant's Prior
---------------------------------
Thrift Account that is attributable to the Employer Contributions shall become
vested in the Participant in accordance with the following schedule:
Years of Percentage
Continuous Service Vested
------------------ ----------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
Vesting shall take place on the anniversary date of the earliest of
the Participant's date of employment with the Employer or the Employer of the
Pillsbury Thrift Plan. Upon termination of employment of a Participant prior to
attaining Normal Retirement Date, Total and Permanent Disability, or death, the
nonvested amounts to the credit of a Participant's Account shall be forfeited.
Suspension of participation shall not interrupt the vesting schedule with
respect to any portion of the amounts to the credit of a Participant's
47
<PAGE>
Account. Participants under the Prior Plan are 100% vested in Employer
Contributions made prior to January 1, 1986 under the Pillsbury Thrift Plan.
Total Withdrawals from Prior Thrift Plan Contributions. Upon written
------------------------------------------------------
notice to the Committee at least 30 days prior to the next succeeding Valuation
Date, and on a form as approved by the Committee, a Participant shall be
entitled to withdraw in cash all Basic Contributions, all Supplemental and the
entire vested interest of the Employer Contributions and all accumulated income,
gains, or losses attributable thereto allocated to those contributions as of
that Valuation Date.
A Participant's participation in the Thrift Plan shall be suspended
upon the effective date of a Total Withdrawal for a period not less than 24
months. Any suspension of participation under the Thrift Plan prior to January
1, 1988 shall not prevent the Participant from making pre-tax participant
contributions under Section 4.2 of the Plan.
Partial Withdrawals from Prior Thrift Plan Contributions. Upon
--------------------------------------------------------
written notice to the Committee at least thirty (30) days prior to the next
succeeding Valuation Date, and on a form as approved by the Committee, a
Participant shall be entitled to withdraw up to a maximum of 75% of the value of
all Basic and Supplemental Contributions to the Participant's account, including
all accumulated income, gains, or losses allocated thereon, provided that as of
the effective date of any partial withdrawal, the Employee shall have been a
Participant in the Plan for at least two (2) complete years. Any partial
withdrawal made pursuant to this subsection (c) shall be in a maximum amount no
less than 25% of the value of the Basic and Supplemental Contributions portion
of his account, including all accumulated income, gains, or losses allocated
thereon.
A Participant's participation in the Prior Thrift Plan shall be
suspended upon the effective date of a partial withdrawal for a period of not
less than 12 months. Any suspension of participation under the Prior Thrift
Plan before January 1, 1988 shall not prevent the Participant from making pre-
tax Participant Contributions under Section 4.2 of the Plan.
48
<PAGE>
EXHIBIT 10.9(5)(b)
CHART HOUSE ENTERPRISES, INC.
RESTAURANT EMPLOYEES 401(k) PLAN
JANUARY 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I. PURPOSE................................................... 1
1.1 Exclusive Benefit......................................... 1
1.2 No Rights of Employment Granted........................... 1
1.3 Effective Date............................................ 1
ARTICLE II. DEFINITIONS............................................... 2
2.1 Accrued Benefit........................................... 2
2.2 Affiliate................................................. 2
2.3 Balanced Fund............................................. 2
2.4 Beneficiary............................................... 2
2.5 Committee................................................. 2
2.6 Company Stock Fund........................................ 2
2.7 Compensation.............................................. 3
2.8 Continuous Service for Vesting............................ 3
2.9 Discretionary Contribution................................ 3
2.10 Eligible Employee......................................... 3
2.11 Employee.................................................. 3
2.12 Employer.................................................. 4
2.13 Employer Account.......................................... 4
2.14 Employer Stock............................................ 4
2.15 Entry Date................................................ 4
2.16 ERISA..................................................... 4
2.17 Equity Fund............................................... 4
2.18 Forfeiture................................................ 4
2.19 Fund...................................................... 4
2.20 Highly Compensated Employee............................... 4
2.21 Hour of Service........................................... 5
2.22 Income Fund............................................... 6
2.23 IRC or Code............................................... 6
2.24 Leave of Absence.......................................... 6
2.25 Matching Contribution..................................... 7
2.26 Maternity or Paternity Leave.............................. 7
2.27 Money Market Fund......................................... 7
2.28 Non-Highly Compensated Employee........................... 7
2.29 Normal Retirement Date.................................... 7
2.30 One-Year Break in Service for Eligibility................. 7
2.31 Participant............................................... 8
2.32 Participant Account....................................... 8
2.33 Participant Contributions................................. 8
2.34 Period of Severance for Vesting........................... 8
2.35 Pillsbury Rollover Account................................ 8
2.36 Pillsbury Thrift Plan..................................... 8
2.37 Plan...................................................... 8
2.38 Plan Administrator........................................ 8
2.39 Plan Quarter.............................................. 8
</TABLE>
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<C> <S> <C>
2.40 Plan Year.......................................... 8
2.41 Prior Thrift Account............................... 8
2.42 Prior Thrift Plan.................................. 8
2.43 Prior Thrift Plan Employee Contributions........... 8
2.44 Prior Thrift Plan Employer Contributions........... 8
2.45 Retirement......................................... 9
2.46 Rollover Account................................... 9
2.47 Termination Date................................... 9
2.48 Total and Permanent Disability..................... 9
2.49 Trust Agreement.................................... 9
2.50 Trust Fund......................................... 9
2.51 Trustee............................................ 9
2.52 Valuation Date..................................... 9
2.53 Year of Service for Eligibility.................... 9
2.54 Adjusted Consolidated Pre-Tax Income............... 9
ARTICLE III. DUTIES AND RESPONSIBILITIES
OF THE PLAN ADMINISTRATOR.......................... 11
3.1 Administrator...................................... 11
3.2 No Discrimination.................................. 11
3.3 Powers............................................. 11
3.4 Plan Summary and Information....................... 12
3.5 Qualified Domestic Relations Orders................ 12
3.6 Record of Proceedings.............................. 12
3.7 Information to Participants........................ 12
3.8 Compensation of Plan Administrator................. 12
3.9 Review of Participant Claims....................... 12
3.10 Expenses of Plan................................... 13
ARTICLE IV. PARTICIPATION...................................... 14
4.1 Eligibility........................................ 14
4.2 Participant Contributions.......................... 14
4.3 Participation after Rehire......................... 14
4.4 Limitations on Participant Contributions........... 15
4.5 Other Participant Contributions.................... 16
4.6 Maximum Participant Contributions.................. 17
4.7 Distribution of Excess Participant Contributions... 17
4.8 Rollover Contributions and Plan to Plan Transfers.. 17
ARTICLE V. EMPLOYER CONTRIBUTIONS............................. 19
5.1 Matching Contribution.............................. 19
5.2 Discretionary Contribution......................... 19
5.3 Limitations on Employer Matching Contributions..... 19
5.4 Permissible Types of Employer Contributions........ 22
5.5 Time of Payment of Contributions................... 22
5.6 Distribution of Excess Aggregate Matching
Contributions...................................... 22
ARTICLE VI. ADMINISTRATION OF ACCOUNTS......................... 23
6.1 Allocation of Contributions to Accounts............ 23
6.2 Allocation of Forfeitures.......................... 23
6.3 Investment of Participant Accounts................. 23
</TABLE>
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<C> <S> <C>
6.4 Investment of Employer Accounts.......................... 24
6.5 Investment of Rollover Accou............................. 24
6.6 Investment by Trustee and Reasonable Rules............... 24
6.7 Evaluation of Assets and Allocation of Changes........... 24
6.8 Limitation on Allocations to Each Participant............ 24
6.9 IRC Section 415 Definition of Compensation............... 25
6.10 Combination Defined Benefit and Defined
Contribution Plan Limitations............................ 26
6.11 Designation of Beneficiary............................... 27
ARTICLE
VII. VESTING.................................................. 28
7.1 Participant Account 100% Vested.......................... 28
7.2 Employer Account Vesting on Death, Retirement or Total
and Permanent Disability................................. 28
7.3 Employer Account Vesting on
Termination.............................................. 28
7.4 Vesting on Rehire........................................ 28
ARTICLE
VIII. DISTRIBUTION OF BENEFITS................................. 30
8.1 Distribution of Accounts................................. 30
8.2 Distribution Upon Retirement or Total and Permanent
Disability............................................... 30
8.3 Distribution Upon Death Prior to Retirement.............. 30
8.4 Distribution Upon Death After Retirement or Total
and Permanent Disability................................. 30
8.5 Distribution Upon Other Events........................... 30
8.6 Partial Distribution..................................... 31
8.7 Time for Distribution of Accounts........................ 31
8.8 Loans and Withdrawals.................................... 31
8.9 Direct Rollover.......................................... 32
8.10 Buyback.................................................. 33
8.11 Inability to Locate Participant or Beneficiary........... 33
8.12 Distribution to Minor or Incompetent..................... 34
8.13 Deferred Payment of Accrued Benefit...................... 34
ARTICLE
IX. TOP-HEAVY PLAN RESTRICTIONS.............................. 35
9.1 Definitions.............................................. 35
9.2 Top-Heavy Plan........................................... 35
9.3 Restrictions............................................. 36
9.4 Plan Aggregations........................................ 37
ARTICLE X. AMENDMENT AND TERMINATION................................ 39
10.1 Right to Suspend or Terminate Plan....................... 39
10.2 Successor Corporation.................................... 39
10.3 Amendment................................................ 39
10.4 Full Vesting on Termination of Plan...................... 39
10.5 Plan Merger or Consolidation............................. 39
ARTICLE
XI. MISCELLANEOUS............................................ 40
11.1 Laws of California to Apply.............................. 40
11.2 Nonalienation of Benefits................................ 40
11.3 Right to Perform Alternative Acts........................ 40
11.4 Nonqualification of Plan................................. 40
11.5 Agent for Service of Process............................. 40
</TABLE>
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<S> <C>
11.6 Filing Tax Returns and Reports.............................. 41
11.7 Indemnification............................................. 41
11.8 Number and Gender........................................... 41
APPENDIX A TRANSFERRED PLAN ASSETS
SUBJECT TO THE PRIOR THRIFT PLAN
TERMS EFFECTIVE BEFORE JANUARY 1, 1988...................... 42
Definitions.............................................................. 42
Employee Contribution.................................................... 42
Employer Contribution.................................................... 42
Statutory Limitations on Additions....................................... 42
Safe Harbor Rule......................................................... 44
Investment of Prior Thrift Account....................................... 44
Vesting of Employee Contributions........................................ 44
Vesting of Employer Contributions........................................ 44
Total Withdrawals from Prior Thrift Plan Contributions................... 45
Partial Withdrawals from Prior Thrift Plan Contributions................. 45
</TABLE>
<PAGE>
CHART HOUSE ENTERPRISES, INC.
RESTAURANT EMPLOYEES 401(k) PLAN
The Chart House Enterprises, Inc. Restaurant Employees 401(k) Plan is
established effective January 1, 1996 by Chart House Enterprises, Inc., a
Delaware corporation having its corporate headquarters located at Solana Beach,
California, herein called "Employer."
WHEREAS, the Employer desires to establish "qualified cash or deferred
arrangement" pursuant to Internal Revenue Code Section 401(k), both to permit
its eligible Restaurant Employees to accumulate funds toward their retirement on
a favorable tax basis and to provide incentives to encourage Employee savings;
THEREFORE, effective January 1, 1996, the Employer hereby adopts and establishes
the Restaurant Employees 401(k) Plan on the following terms:
<PAGE>
ARTICLE I. PURPOSE
1.1 Exclusive Benefit. This Plan has been executed for the exclusive
-----------------
benefit of the Participants hereunder and their Beneficiaries. This Plan shall
be interpreted in a manner consistent with this intent and with the intention of
the Employer that this Plan satisfy Internal Revenue Code Section 401(a) and
Section 501(a). Under no circumstances shall the Trust Fund ever revert to or
be used or enjoyed by the Employer, until all obligations to the Participants
and Beneficiaries under the Plan have been met.
1.2 No Rights of Employment Granted. The establishment of this Plan shall
-------------------------------
not be considered as giving any Employee the right to be retained in the service
of the Employer.
1.3 Effective Date. This Plan is amended and restated to be generally
--------------
effective as of January 1, 1996, except where otherwise specifically noted.
<PAGE>
ARTICLE I. PURPOSE
1.1 Exclusive Benefit. This Plan has been executed for the exclusive
-----------------
benefit of the Participants hereunder and their Beneficiaries. This Plan shall
be interpreted in a manner consistent with this intent and with the intention of
the Employer that this Plan satisfy Internal Revenue Code Section 401(a) and
Section 501(a). Under no circumstances shall the Trust Fund ever revert to or
be used or enjoyed by the Employer, until all obligations to the Participants
and Beneficiaries under the Plan have been met.
1.2 No Rights of Employment Granted. The establishment of this Plan shall
-------------------------------
not be considered as giving any Employee the right to be retained in the service
of the Employer.
1.3 Effective Date. This Plan is amended and restated to be generally
--------------
effective as of January 1, 1996, except where otherwise specifically noted.
1
<PAGE>
ARTICLE II. DEFINITIONS
2.1 Accrued Benefit. The "Accrued Benefit" is the aggregate amount credited
---------------
to the Employer Account, the Participant Account and the Rollover Account of a
Participant. Accrued Benefit also includes a Participant's Prior Thrift Account
(if any) as determined in Appendix A.
2.2 Affiliate. "Affiliate" means any corporation which is included within a
---------
"controlled group of corporations" (within which the Employer is also included)
as defined in IRC Section 1563(a), determined without regard to IRC Section
1563(a)(4) and (e)(3)(c), except that with respect to the limitation on
benefits set forth in Article VI, the phrase "more than 50%" shall be
substituted for the phrase "at least 80%" wherever it appears in IRC Section
1563(a)(1). For purposes of this Section, an unincorporated trade or business
shall be deemed a corporation. Chart House, Inc. and Paradise Bakery, Inc. are
specifically recognized as Affiliates for purposes of this Plan.
2.3 Balanced Fund. The "Balanced Fund" means the investment fund designated
-------------
by the Plan Administrator for the investment of amounts held in the Trust Fund,
which a Participant directs to be so invested, which fund seeks to achieve its
investment objectives through investment in both common stock and higher quality
fixed-income securities (preferred stock and debt securities), as well as
convertible securities and high quality money market securities, with a
relatively equal emphasis on current income and capital appreciation.
2.4 Beneficiary. A "Beneficiary" is any person, estate or trust who by
-----------
operation of law, or under the terms of the Plan, or otherwise, is entitled to
receive any Accrued Benefit vested for a Participant under the Plan. A
Participant has the right to designate a Beneficiary to whom any death benefits
pursuant to Sections 8.3 or 8.4 are to be paid. A married Participant's
Beneficiary must be his spouse unless the spouse's written consent is obtained.
Any such consent must be either witnessed by a plan representative or notarized.
If no spouse or designated Beneficiary exists at the time of a Participant's
death, benefits will be paid pursuant to Sections 6.9 and 8.11.
A Participant may revoke a Beneficiary designation and designate another
Beneficiary at any time upon completion of a proper form and delivering the same
to the Plan Administrator. Such a substitute may require a witnessed spousal
consent if the Participant is married.
2.5 Committee. "Committee" is the administrative committee designated or
---------
appointed by the Plan Administrator to administer and interpret the Plan
pursuant to Article III herein.
2.6 Company Stock Fund. The "Company Stock Fund" means the investment fund
------------------
designated by the Plan Administrator for the investment of amounts held in the
Trust Fund which the Employer contributes as a Matching Contribution or which a
Participant directs to be so invested which fund is invested in Employer Stock.
Investments in the
2
<PAGE>
Company Stock Fund other than Matching Contributions shall not be permitted
until the date upon which a registration statement on Form S-8 (or other form
designated by the Securities and Exchange Commission) relating to the Employer
Stock offered to Participants pursuant to this Plan has been declared effective.
2.7 Compensation. "Compensation" is the regular basic cash remuneration
------------
paid by the Employer to an Employee for personal services actually rendered in
the course of employment with the Employer maintaining the Plan and actually
paid or includible in gross income for income tax purposes during the Plan Year
(including a Participant's contributions to this Plan and any cafeteria plan
maintained pursuant to IRC Section 125 made by salary reduction, except for
purposes of IRC Sections 404 and 415), but excluding the following:
a. Allowances for moving expenses, automobile expenses or other similar
expenses;
b. Employer contributions to a plan of deferred compensation (other than
a Participant's salary reduction contribution to this Plan) which are
not included in the Employee's gross income for the taxable year in
which contributed, Employer contributions under a simplified
employees' pension plan to the extent such contributions are
deductible by the Employee, or any distribution from a plan of
deferred compensation;
c. Amounts received from the exercise of a non-qualified stock option,
or amounts includible in income when restricted stock (or property)
held by the Employee either becomes freely transferable or is no
longer subject to a substantial risk of forfeiture; and
d. Amounts realized from the sale or exchange, or other disposition of
stock acquired under a qualified or incentive stock option.
Compensation for any Plan Year taken into account under the Plan shall
not exceed $150,000, adjusted for increases in the cost-of-living as provided in
IRC Section 415(d).
2.8 Continuous Service for Vesting. "Continuous Service for Vesting" means
------------------------------
the completed full years of service (twelve month periods measured from the
Employee's date of hire) and fractional years in excess of full years calculated
to the nearest 1/12. Service with the Employer or an Affiliate prior to the
effective date of this Plan restatement shall be counted.
2.9 Discretionary Contribution. "Discretionary Contribution" means the
--------------------------
contribution made by the Employer as set forth in Section 5.2. Discretionary
Contributions will be credited to the Employer Account of an eligible
Participant; however, if the Plan Administrator deems the contribution to be a
"qualified matching contribution" or a "qualified non-elective contribution" as
permitted under Section 5.2, it will be credited to the Participant Account.
3
<PAGE>
2.10 Eligible Employee. An "Eligible Employee" is an Employee who has
-----------------
satisfied the requirements for eligibility of Section 4.1, who is not an
Employee within the meaning of IRC Section 414(n)(2) and who has reached his
Entry Date.
2.11 Employee. An "Employee" is an individual who is employed by the
--------
Employer or who is on a Leave of Absence and shall include leased employees
within the meaning of IRC Section 414(n)(2). Notwithstanding the foregoing, if
such leased employees constitute less than twenty percent (20%) of the
Employer's non-highly compensated workforce within the meaning of IRC Section
414(n)(1)(c)(ii), the term "Employee" shall not include those leased employees
---
covered by a plan described in IRC Section 414(n)(5) unless otherwise provided
by the terms of this Plan.
2.12 Employer. "Employer" means Chart House Enterprises, Inc. and any
--------
successor thereto. "Employer" also includes those companies defined as an
Affiliate in Section 2.2 that are participating in the Plan.
2.13 Employer Account. The "Employer Account" is the separate account
----------------
maintained for each Participant to which all Employer contributions shall be
allocated together with all earnings and losses on those contributions. The
Employer Account includes Matching Contributions and Prior Thrift Plan Employer
Contributions.
2.14 Employer Stock. "Employer Stock" means Chart House Enterprises, Inc.
--------------
Common Stock.
2.15 Entry Date. "Entry Date" means any January 1 or July 1.
----------
2.16 ERISA. "ERISA" refers to the Employee Retirement Income Security Act of
-----
1974, as amended.
2.17 Equity Fund. The "Equity Fund" means the investment fund designated by
-----------
the Plan Administrator for the investment of amounts held in the Trust Fund
which a Participant directs to be so invested, which fund seeks to achieve its
investment objectives through investment primarily in equity securities,
including but not limited to common stock, preferred stock and convertible
securities, with a primary emphasis on capital appreciation.
2.18 Forfeiture. "Forfeiture" refers to the amount of non-vested Accrued
----------
Benefits in a terminated Participant's Employer Account. Forfeiture shall also
include any "unjustified" Matching Contributions attributable to the return of
excess Participant Contributions on which the match was based, nonvested excess
aggregate contributions and nonvested Matching Contributions reduced to satisfy
the multiple use limitation as described in Sections 4.7 and 5.6.
2.19 Fund. "Fund" means any of the investment funds designated by the Plan
----
Administrator and offered by this Plan to the Participants for the investment of
amounts in the Trust Fund, including the Balanced Fund, the Company Stock Fund,
the Equity Fund, the Income Fund, the Money Market Fund and any other investment
fund designated by the Plan Administrator.
4
<PAGE>
2.20 Highly Compensated Employee. "Highly Compensated Employee" means an
---------------------------
Employee who performs service during the determination year and is described in
one or more of the following groups:
a. An Employee who is a 5% owner, as defined in IRC Section
416(i)(1)(A)(iii), at any time during the determination year or the
look-back year.
b. An Employee who receives Compensation in excess of $75,000 (indexed
in accordance with IRC Section 415(d)) during the look-back year.
c. An Employee who receives Compensation in excess of $50,000 (indexed
in accordance with IRC Section 415(d)) during the look-back year and
is a member of the top-paid group for the look-back year.
d. An Employee who is an officer, within the meaning of IRC Section
416(i) during the look-back year and who receives Compensation in the
look-back year greater than 50% of the dollar limitation in effect
under IRC Section 415(b)(1)(A) for the calendar year in which the
look-back year begins.
e. An Employee who is both (i) described in paragraph b, c, or d above
when these paragraphs are modified to substitute the determination
year for the look-back year and one of the 100 Employees who receive
the most Compensation from the Employer during the determination
year.
For purposes of this section the following also apply:
f. The determination year is the Plan Year for which the determination
of who is a Highly Compensated Employee is being made.
g. The look-back year is the 12-month period immediately preceding the
determination year, or if the Employer elects, the calendar year
ending within the determination year.
h. The top-paid group consists of the top 20% of Employees ranked on the
basis of Compensation received during the year. For purposes of
determining the number of Employees in the top-paid group, Employees
described in IRC Section 414(q)(8) and Q&A 9(b) of Treasury
Regulation Section 1.414(q)-1T are excluded.
i. The number of officers is limited to 50 (or if lesser, the greater of
3 Employees or 10% of Employees) excluding those Employees who may be
excluded in determining the top-paid group.
j. When no officer has Compensation in excess of 50% of the IRC Section
415(b)(1)(A) limit, the highest paid officer is treated as highly
compensated.
5
<PAGE>
k. Compensation is compensation within the meaning of IRC Section
415(c)(3) including elective or salary reduction contributions to a
cafeteria plan, cash or deferred arrangement, or tax sheltered
annuity.
l. Employers aggregated under IRC Section 414(b), (c), (m), or (o) are
treated as a single Employer.
2.21 Hour of Service. "Hour of Service" is each hour for which:
---------------
a. an Employee is paid, directly or indirectly, or entitled to payment,
for the performance of duties for his Employer during the applicable
computation period;
b. an Employee is paid, directly or indirectly, or entitled to payment,
by his Employer on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity
(including Total and Permanent Disability), layoff, jury duty,
military duty, or Leave of Absence, except that:
(i) no more than 501 hours shall be credited to an Employee on
account of any single continuous period during which the
Employee performs no duties (whether or not such period
occurs in a single computation period); and
(ii) no credit shall be given for any hour attributable, directly
or indirectly, to a payment made or due under a plan
maintained solely for the purpose of complying with
applicable worker's compensation, unemployment compensation,
or disability insurance laws, or to reimburse an Employee for
medical or medically-related expenses incurred by the
Employee; and
c. an Employee receives back pay, irrespective of mitigation of damages,
under an award or an agreement with his Employer. No hour shall be
credited under both this subsection (c) and under subsection (a) or
subsection (b), as the case may be. In addition, hours credited
under subsection (b) shall be subject to the limitation set forth in
that subsection.
The special rules provided in United States Department of Labor
Regulations Section 2530.200b-2(b) and (c) shall be used to determine the number
of hours to be credited for periods during which no duties are performed and for
back pay awards, and the computation periods to which they are to be credited
under subsection (b) and (c). For the purpose of this section, "computation
period" shall be the periods beginning on an Employee's date of employment and
annual anniversaries thereof.
A salaried Employee exempt under the Fair Labor Standards Act shall be
credited with Hours of Service based upon a customary period of work of 95 hours
for each bi-weekly pay period or portion thereof.
6
<PAGE>
2.22 Income Fund. The "Income Fund" means the investment fund designated by
-----------
the Plan Administrator for the investment of amounts held in the Trust Fund,
which a Participant directs to be so invested, which fund seeks to achieve its
investment objectives through investment primarily higher quality debt
securities, including but not limited to securities issued or guaranteed by the
United States, its agencies and instrumentalities, corporate debt obligations,
bank certificates of deposit, mortgage securities and other evidences of
indebtedness, with a primary emphasis on current income.
2.23 IRC or Code. "IRC" or "Code" refers to the Internal Revenue Code of
-----------
1986, as amended.
2.24 Leave of Absence. A "Leave of Absence" is a period approved in
----------------
accordance with current Employer policies and procedures during which the
Participant is absent without Compensation and for which the Plan Administrator
in its sole discretion, has determined him to be on a "Leave of Absence" instead
of having terminated his employment. (However, such discretion of the Plan
Administrator shall be exercised in a non-discriminatory manner.) In all
events, a Leave of Absence by reason of service in the armed forces of the
United States shall end no later than the time at which a Participant's re-
employment rights as a member of the armed forces are protected by law and a
Leave of Absence for any other reason shall end after twelve months, except that
if the Participant resumes employment with the Employer prior thereto, the Leave
of Absence shall end on such date of resumption of employment. The date on
which the Leave of Absence began shall be deemed the Termination Date if the
Participant does not resume employment with the Employer.
2.25 Matching Contribution. "Matching Contribution" means the contribution
---------------------
made by the Employer as set forth in Section 5.1. "Basic Matching Contribution"
and "Supplemental Matching Contribution" have the meanings as set forth in
Section 5.1.
2.26 Maternity or Paternity Leave. "Maternity or Paternity Leave" means for
----------------------------
the purpose of determining a One Year Break in Service for Eligibility and
whether a Period of Severance for Vesting has occurred, and not withstanding
any provisions of the Plan to the contrary, that an Employee on a maternity or
paternity leave of absence (as defined below), commencing on or after January 1,
1985, shall be credited with sufficient service for the first computation period
in which a One Year Break in Service for Eligibility or a Period of Severance
for Vesting would have occurred, but for the provisions of this section 2.25, so
that a One Year Break in Service for Eligibility or a Period of Severance for
Vesting shall not occur during such computation period. A "maternity or
paternity leave" means an Employee's absence from work because of the pregnancy
of the Employee or birth of a child of the Employee, the placement of a child
with the Employee in connection with the adoption of a child by the Employee, or
for purposes of caring for the child immediately following a birth or placement.
The Committee may require the Employee to furnish such information as the
Committee considers necessary to establish that the Employee's absence was for
one of the reasons specified above.
2.27 Money Market Fund. The "Money Market Fund" means the investment fund
-----------------
designated by the Plan Administrator for the investment of amounts held in the
Trust Fund which a Participant directs to be so invested, which fund seeks to
achieve its investment objectives primarily through investment in short-term
debt securities, including United
7
<PAGE>
States government and agency obligations, corporate obligations, and bank
certificates of deposit.
2.28 Non-Highly Compensated Employee. "Non-Highly Compensated Employee"
-------------------------------
shall mean an Employee who is neither a Highly Compensated Employee or a Family
Member [as defined in Section 4.4(b)(iv)].
2.29 Normal Retirement Date. The "Normal Retirement Date" is the date a
----------------------
Participant attains age 55.
2.30 One-Year Break in Service for Eligibility. A "One Year Break in Service
-----------------------------------------
for Eligibility" means a twelve month period based on an Employee's date of
employment and annual anniversaries thereof, in which the Employee has not
completed more than 500 Hours of Service. A computation period during which an
Employee is absent due to a Leave of Absence or temporary layoff or military
service and for which he has not been credited with more than 500 Hours of
Service, will not constitute a One Year Break in Service for Eligibility.
2.31 Participant. A "Participant" means every Employee or former Employee
-----------
who has met the applicable participation requirements of Article IV and who
maintains a balance in any account under the Plan or the Prior Thrift Plan.
2.32 Participant Account. The "Participant Account" of a Participant is the
-------------------
account to which all contributions by the Participant shall be allocated,
together with all earnings and losses on those contributions. The Participant
Account includes Participant contributions and Prior Thrift Plan Employee
Contributions.
2.33 Participant Contributions. "Participant Contributions" are the
-------------------------
contributions made by a Participant on a pre-tax basis pursuant to Section
4.2(a), which are directed to his Participant Account.
2.34 Period of Severance for Vesting. A "Period of Severance for Vesting"
-------------------------------
means the period which shall occur if an Employee does not complete one (1) Hour
of Service in the twelve consecutive month period commencing with the
Termination Date.
2.35 Pillsbury Rollover Account. "Pillsbury Rollover Account" refers to the
--------------------------
Rollover Account established on behalf of a Participant on January 1, 1986 to
hold the proceeds of his account from the Pillsbury Thrift Plan.
2.36 Pillsbury Thrift Plan. "Pillsbury Thrift Plan" means the plan in
---------------------
existence prior to January 1, 1986 with the predecessor of the Employer.
2.37 Plan. "Plan" refers to the Chart House Enterprises, Inc. Restaurant
----
Employees 401(k) Plan.
2.38 Plan Administrator. The "Plan Administrator" is Chart House
------------------
Enterprises, Inc.
2.39 Plan Quarter. A "Plan Quarter" is any three month period in a Plan Year
------------
that commences on January 1, April 1, July 1 or October 1.
8
<PAGE>
2.40 Plan Year. A "Plan Year" is the period from January 1 to December 31,
---------
annually.
2.41 Prior Thrift Account. "Prior Thrift Account" means the Participant's
--------------------
account balances (if any) from all contributions made to the Prior Thrift Plan.
2.42 Prior Thrift Plan. "Prior Thrift Plan" means the Employer's thrift plan
-----------------
in existence from January 1, 1986 to December 31, 1987, the relevant terms of
which are set forth in Appendix A to this Plan.
2.43 Prior Thrift Plan Employee Contributions. "Prior Thrift Plan Employee
----------------------------------------
Contributions" means the Contributions made by a Participant on or before
December 31, 1987 to the Prior Thrift Plan together with all earnings and losses
on such contributions as described in Appendix A to this Plan.
2.44 Prior Thrift Plan Employer Contributions. "Prior Thrift Plan Employer
----------------------------------------
Contributions" means the Employer's contributions to the Prior Thrift Plan
together with all earnings and losses on such contributions allocable to a
Participant and made on account of a Participant's Prior Thrift Plan Employee
Contributions as described in Appendix A to this Plan.
2.45 Retirement. "Retirement" refers to the termination of employment of an
----------
Employee who has attained his Normal Retirement Date. The Employee may work
beyond Normal Retirement Date, and continue to contribute to the Plan, in which
case Employer contributions shall continue to be allocated to the Employer
Account of the Employee.
2.46 Rollover Account. The "Rollover Account" of a Participant is the
----------------
account to which the Participant's rollover contributions to the Plan made
pursuant to Section 4.8 shall be allocated, together with all earnings and
losses on those contributions. The Rollover Account also includes the
Participant's Pillsbury Rollover Account.
2.47 Termination Date. The "Termination Date" is the date on which the
----------------
earliest of the following events occurs: (a) a Participant's Retirement, (b) a
Participant's termination of employment as a result of Total and Permanent
Disability, (c) a Participant's death, or (d) a Participant's termination of
employment for any other reason.
2.48 Total and Permanent Disability. "Total and Permanent Disability" refers
------------------------------
to a Participant suffering from a physical or mental condition which in the sole
discretion of the Plan Administrator, based upon appropriate medical reports and
examinations, may be expected to result in death or be of long and indefinite
duration and which renders the Participant incapable of performing the duties as
defined in the Chart House Enterprises Inc. Long-Term Disability Benefits Plan.
2.49 Trust Agreement. The "Trust Agreement" means the agreement reached
---------------
between the Employer and the Trustee for the administration of the Trust Fund.
9
<PAGE>
2.50 Trust Fund. The "Trust Fund" consists of the aggregate amount of all
----------
Participants' Employer Accounts, Participant Accounts and Rollover Accounts,
including the Prior Thrift Accounts held by the Plan and any earnings or losses
thereon.
2.51 Trustee. The "Trustee" means the Trustee as defined in the Trust
-------
Agreement.
2.52 Valuation Date. "Valuation Date" means the last date of each calendar
--------------
quarter on which the New York Stock Exchange is open for trading.
2.53 Year of Service for Eligibility. A "Year of Service for Eligibility" is
-------------------------------
a twelve-month period during which the Employee had not less than 1,000 Hours of
Service. The computation period begins with the Employee's date of hire and
continues with each anniversary thereof. Hours of Service with the Employer
prior to the effective date of this Plan restatement shall be counted if the
Employee was employed on such effective date.
2.54 Adjusted Consolidated Pre-Tax Income. The "Adjusted Consolidated Pre-
------------------------------------
Tax Income" of Employer for any Plan Year or period means the consolidated net
income of Chart House Enterprises, Inc. and subsidiaries for that period as
determined in accordance with generally accepted accounting principles, adjusted
by adding back the following expense items: (a) federal and state income taxes;
(b) interest expense; (c) depreciation and amortization related to the step-up
in asset values made in connection with the purchase of Chart House, Inc. from
Pillsbury Company; and (d) the amounts required by Statement of Financial
Accounting Standards No. 13 to be reflected as interest expense, depreciation
and rent expense related to long-term capital leases. The determination of
Adjusted Consolidated Pre-Tax Income shall be made by Employer within 45 days
following the end of each calendar quarter.
10
<PAGE>
ARTICLE III. DUTIES AND RESPONSIBILITIES
OF THE PLAN ADMINISTRATOR
3.1 Administrator. This Plan shall be administered by the Plan
-------------
Administrator subject to the right of the Plan Administrator to delegate
administration of the Plan to the Committee.
3.2 No Discrimination. The Plan Administrator shall not take any action or
-----------------
direct the Trustee to take any action that would result in benefiting one
Participant or group of Participants at the expense of another, or
discriminating between Participants similarly situated, or applying different
rules to substantially similar sets of facts.
3.3 Powers. Except as otherwise provided in the Plan, the Plan
------
Administrator shall have control of the administration of the Plan, with all
powers necessary to enable it to carry out its duties in that respect. Not in
limitation, but in amplification of the foregoing, the Plan Administrator shall
have power to interpret or construe the Plan and to determine all questions that
may arise hereunder as to the status and rights of Participants and others
hereunder. The Plan Administrator shall have the right, exercisable at any time
by delivery to the Trustee of an instrument in writing, to instruct or direct
the Trustee with respect to the investment of the Trust Fund. The Plan
Administrator may inspect the records of the Employer whenever such inspection
may be reasonably necessary in order to determine any fact pertinent to the
performance of the duties of the Plan Administrator. The Plan Administrator,
however, shall not be required to make such inspection, but may, in good faith,
rely on any statement of the Employer or any of its officers or employees. The
Plan Administrator shall have the power to retain agents and assistants, legal
counsel (including legal counsel to the Employer) and clerical, medical,
accounting, actuarial and investment services as required to carry out its
duties.
The Plan Administrator may appoint a Committee of not less than three
persons to act on its behalf as the administrator and as the named fiduciary
under ERISA. Any member of the Committee may resign upon giving written notice
to the Secretary of the Employer. Each appointee shall hold office at the
pleasure of the Board of Directors. Members of the Board of Directors of the
Employer may be appointed members of the Committee. Vacancies arising in the
Committee from death, resignation, removal or otherwise, shall be filled by the
Plan Administrator, but the Committee may act notwithstanding the existence of
vacancies so long as there is at least one member of the Committee.
In the event that the Plan Administrator shall appoint a Committee,
voting rights with respect to shares of Employer Stock may be exercised by the
Committee. The Committee shall have the power and authority to vote or direct
the Trustee on voting the shares of Employer Stock held in the Trust Fund.
At any time the Board of Directors of the Employer may adopt a
resolution removing any member of the Committee or abolishing the Committee with
or without cause and assigning all of the duties of the Committee to the
Trustee; such resolution shall be effective as soon as it is communicated in
writing to both the Committee and Trustee, or at any such subsequent effective
date as is provided in the resolution. Whenever such
11
<PAGE>
a resolution is effective as to the Plan, the term "Trustee" shall be deemed to
replace the term "Committee". Such a resolution may be rescinded by the Board of
Directors and shall be effective as soon as it is communicated in writing to the
Trustee, or shall be effective as such later date as is provided in the
resolution.
3.4 Plan Summary and Information. The Plan Administrator shall furnish, or
----------------------------
shall see that the Employer furnishes, a summary of this Plan to all
Employees, as required by applicable Federal law. The Plan Administrator
shall notify each Employee who becomes eligible to participate.
3.5 Qualified Domestic Relations Orders. The Plan Administrator shall
-----------------------------------
establish reasonable written procedures to determine the qualified status of
domestic relations orders and to administer distributions under such orders.
The Plan Administrator shall follow the procedures and requirements set forth in
IRC Section 414(p) and regulations thereunder in determining the qualified
status of a domestic relations order, and in administering the Plan with respect
to any such order.
3.6 Record of Proceedings. The Plan Administrator shall keep a complete
---------------------
record of all its proceedings and all data necessary for the administration of
the Plan.
3.7 Information to Participants. The Plan Administrator shall direct the
---------------------------
maintenance of the separate accounts of the Participants. It shall give each
Participant, at least once every year, information as to the balance of his
Employer Account, Participant Account, and Rollover Account (if any).
3.8 Compensation of Plan Administrator. The Plan Administrator shall serve
----------------------------------
without compensation from the Plan for services rendered so long as the Plan
Administrator is the Employer or Employees of the Employer. In the event the
Employer designates an independent Plan Administrator, the Plan Administrator
may be compensated for such services. The Plan Administrator shall be
reimbursed by the Employer for all necessary expenses incurred in the discharge
of duties so long as the Plan Administrator is the Employer or Employees of the
Employer. In the event the Employer designates an independent Plan
Administrator, the Plan Administrator may be reimbursed for such expenses. If
the Employer advises the Plan Administrator in writing of its determination to
make no further contributions to the Plan, the expenses of the Plan
Administrator may thereafter be charged against and paid out of the Trust Fund.
3.9 Review of Participant Claims. In case the claim of any Participant or
----------------------------
Beneficiary for benefits under the Plan is denied, the Plan Administrator shall
provide adequate notice in writing to such claimant, setting forth the specific
reasons for such denial and shall state the provisions of the Plan upon which
the denial is based. If more information is necessary to determine the nature or
amount of benefits which may be due, the Plan Administrator shall notify the
claimant of the additional information which is necessary to perfect the claim
and shall further inform the claimant why this information is necessary. The
notice shall be written in a manner calculated to be understood by the claimant
and shall include a description of the Plan's claims procedure.
12
<PAGE>
The Plan Administrator shall afford a Participant or Beneficiary whose
claim for benefit has been denied 60 days from the date notice of such denial is
delivered or mailed in which to appeal the decision in writing to the Plan
Administrator. The claimant may review pertinent documents or submit comments
in writing to the Plan Administrator. If the Participant or Beneficiary appeals
the decision in writing within 60 days, the Plan Administrator shall review the
written comments and submissions of the Participant or Beneficiary and render
its decision regarding the appeal, all within 60 days of such appeal unless
special circumstances require an extension of time for processing the claim. If
such an extension is required for processing the claim, written notice of the
extension shall be furnished to the Participant or Beneficiary prior to the
termination of the 60 day period. In no event shall such extension exceed a
period of 120 days from the end of such initial period. The extension notice
shall indicate the special circumstances requiring an extension of time and the
date by which the Plan expects to render a final decision.
3.10 Expenses of Plan. All fees of the Trustee, expenses of the Trust Fund,
----------------
and any other expenses incurred in the administration of the Plan and
distribution of benefits under the Plan shall be borne by the Plan to the extent
not paid by the Employer. As a specific exception to the above, a Participant,
pursuant to Section 8.8, shall be charged a $50 administrative fee for each
withdrawal from his Prior Thrift Account approved by the Plan Administrator or
the Committee.
13
<PAGE>
ARTICLE IV. PARTICIPATION
4.1 Eligibility. Each Employee who is in a job title classification from
-----------
J01 through J99, who attains age 21 and completes One Year of Service for
Eligibility and who is not a "leased employee" within the meaning of IRC Section
414(n)(2), will be eligible to participate in the Plan on the Entry Date which
first occurs on or after such completion, provided that he is an Employee at
such date. An Eligible Employee shall join the Plan and become a Participant on
the first Entry Date on which he is eligible and has submitted to the Committee
with 30 days prior written notice an agreement to make Participant Contributions
on the form supplied by the Committee.
Notwithstanding the preceding paragraph of this Section 4.1, an individual
shall not be eligible to participate in the Plan during any time period for
which he is included in a unit of Employees covered by a collective bargaining
agreement between Employee representatives and one or more Employers, if there
is evidence that retirement benefits were the subject of good faith bargaining
between such Employee representatives and the Employer, unless the collective
bargaining agreement specifically provides for coverage of such individual under
the Plan.
4.2 Participant Contributions
-------------------------
a. Pre-Tax Contributions. In order to join the Plan, an Eligible
---------------------
Employee shall agree to make pre-tax contributions by payroll
deduction. The Participant shall designate, on a form provided by
the Committee, an amount equal to 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9%,
or 10% of his Compensation to be directed to his Participant Account.
The Plan Administrator may limit Participant Contributions as set
forth in Sections 4.4 and 4.6.
b. Change in Percentage. A Participant may change the percentage of his
--------------------
Participant Contributions effective on any January 1 or July 1 by
giving the Committee at least 30 days' prior written notice.
c. Discontinuance of Contributions. A Participant may discontinue his
-------------------------------
Participant Contributions effective for the first payroll period
after giving the Committee at least 30 days' prior written notice.
If contributions are discontinued altogether by the Participant, the
Participant may not resume contributing to the Plan until the
subsequent January 1 or July 1.
d. Investment of Contributions. A Participant shall elect to have his
---------------------------
Participant Contributions invested as set forth in Article VI.
4.3 Participation after Rehire. If a Participant who is partially or fully
--------------------------
vested terminates his employment with the Employer, and is later rehired before
incurring a One Year Break in Service for Eligibility, he is eligible to rejoin
the Plan immediately. If the Participant is rehired after incurring a One Year
Break in Service for Eligibility, he will be eligible to participate again at
the next Entry Date following rehire.
14
<PAGE>
If an Employee terminates employment before becoming eligible to join
the Plan, and is later rehired before a One Year Break in Service for
Eligibility, he will be eligible to join the Plan on the first Entry Date
following the completion of One Year of Service for Eligibility counting service
prior to his rehire date. If rehired after incurring a One Year Break in
Service for Eligibility, he will be treated as a new Employee.
4.4 Limitations on Participant Contributions. The pre-tax contribution
----------------------------------------
percentage of Participants shall meet the requirements of (i) or (ii) of
subsection (a) below:
a. Average Actual Deferral Percentage.
----------------------------------
(i) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for the Plan
Year shall not exceed the Average Actual Deferral Percentage for
Eligible Participants who are Non-Highly Compensated Employees
for the Plan Year multiplied by 1.25; or
(ii) the Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for the Plan
Year shall not exceed the Average Actual Deferral Percentage for
Eligible Participants who are Non-Highly Compensated Employees
for the Plan Year multiplied by 2, provided that the Average
Actual Deferral Percentage for Eligible Participants who are
Highly Compensated Employees does not exceed the Average Actual
Deferral Percentage for Eligible Participants who are Non-Highly
Compensated Employees by more than two (2) percentage points or
such lesser amount as the Secretary of the Treasury shall
prescribe to prevent the multiple use of this alternative
limitation with respect to any Highly Compensated Employee.
b. Definitions
-----------
For purposes of this Section 4.4, the following definitions shall
apply:
(i) "Actual Deferral Percentage" shall mean the ratio (expressed
as a percentage) of pre-tax contributions and any qualified
nonelective or qualified matching contributions made on behalf
of the Eligible Participant for the Plan Year to the Eligible
Participant's Compensation (as defined in subparagraph (v)
below) for the Plan Year. Effective with the 1989 Plan Year,
all percentages will be rounded to two decimal places.
(ii) "Average Actual Deferral Percentage" shall mean the average
(expressed as a percentage) of the Actual Deferral Percentages
of the Eligible Participants in a group.
(iii) "Eligible Participant" shall mean any Employee of the
Employer who is otherwise eligible under the terms of the Plan
to make Participant Contributions to his account for the Plan
Year.
15
<PAGE>
(iv) "Family Member" shall mean an individual described in IRC
Section 414(q)(6).
(v) "Compensation" shall mean the definition set forth in IRC
Sections 414(s)(1) and (2) and IRS Regulations Section 1.414(s)-
1T or such other alternative definitions set forth in the
proposed regulations as long as used on a consistent basis. In
addition, Compensation may be defined to be compensation while
eligible for the Plan to the extent permitted by IRS Regulations
and Notices under Section 401(k).
c. Special Rules
-------------
(i) For purposes of this Article IV the Actual Deferral Percentage
for any Eligible Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to make
Participant Contributions, or receive Elective Deferrals
allocated to his account under two or more plans described in
IRC Section 401(a) or arrangements described in IRC Section
401(k) that are maintained by the Employer or an Affiliated
Employer shall be determined as if all such contributions and
Elective Deferrals were made under a single plan.
(ii) In the event that this plan satisfies the requirements of IRC
Section 410(b) only if aggregated with one or more other plans,
or if one or more other plans satisfy the requirements of IRC
Section 410(b) only if aggregated with this plan, then this
Section 4.4 shall be applied by determining the Actual Deferral
Percentages of Eligible Participants as if all such plans were a
single plan.
(iii) For purposes of determining the Actual Deferral Percentage
of an Eligible Participant who is a Highly Compensated Employee
and is one of the top ten paid Employees of the Employer, the
Participant Contributions and Compensation of such Participant
shall include the Participant Contributions and Compensation of
Family Members, and such Family Members shall be disregarded in
determining the Actual Deferral Percentage for Eligible
Participants who are Non-Highly Compensated Employees.
(iv) If the requirements of subsection (a) above are expected not
to be met, the Plan Administrator may, on a prospective basis,
uniformly reduce the maximum allowed Participant Contribution,
expressed as a percentage of Compensation of all Participants
who are expected to be Highly Compensated Employees for that
Plan Year. Alternatively, the Plan Administrator may reduce the
maximum allowed Participant Contribution of the Officers of the
Employer.
16
<PAGE>
4.5 Other Participant Contributions. The Plan may accept rollover
-------------------------------
contributions from a Participant or a plan to plan transfer of assets pursuant
to Section 4.8 below.
4.6 Maximum Participant Contributions. No Participant shall be permitted to
---------------------------------
have pre-tax Participant Contributions made under this Plan during any calendar
year in excess of the dollar threshold specified in IRC Section 402(g)(l) as
indexed and adjusted by the Secretary of the Treasury ($9,500 in 1996). If the
Plan Administrator determines that a Participant is in danger of reaching and/or
exceeding the IRS contribution limit the Plan Administrator will cease further
Participant Contributions.
4.7 Distribution of Excess Participant Contributions. If, for any Plan
------------------------------------------------
Year, a Participant who is a Highly Compensated Employee makes Participant
Contributions in an amount which is included in income because it is in excess
of the limitation for pre-tax contributions (as provided in IRC Section
401(k)(8)), the Plan Administrator shall distribute such excess contributions
and any income attributable thereto no later than the last day of the following
Plan Year to the Participant on whose behalf such excess contributions were made
for the Plan Year. Such contributions shall first be returned from the
unmatched portion of Participant Contributions and then from the matched
portion. The Plan may use any reasonable method for calculating and allocating
income to the excess amounts, including the discretion not to calculate such
income for any gap period.
4.8 Rollover Contributions and Plan to Plan Transfers. Rollover
-------------------------------------------------
contributions and plan to plan transfers may be permitted on the following
basis:
a. Rollover Contributions. Each individual employed by the Employer may
----------------------
apply in writing to the Committee on the form provided for that
purpose to make a rollover contribution to the Trust Fund.
b. Requirements. The Committee may approve a rollover contribution only
------------
if it satisfies the requirements for rollover contributions (if any)
contained in the Trust Agreement.
c. Inter-Plan Transfers. Notwithstanding any other provisions hereof,
--------------------
the Employer may cause to be transferred to the Trust Fund all or any
of the assets held (whether by a trustee, custodian, or otherwise) in
respect of any other plan which satisfies the applicable requirements
of Section 401(a) of the Code and which is maintained by the Employer
for the benefit of any of the Participants. The transfer shall be
permitted by the Code and shall not cause this Plan to become
disqualified under Section 401(a) of the Code. Any assets so
transferred shall be accompanied by written instructions from the
Employer naming the persons for whose benefit such assets have been
transferred and showing separately the respective contributions by
the Employer and by the Participants and the current value of the
assets attributed thereto.
17
<PAGE>
d. Allocation of Rollover Contributions. Rollover contributions by
------------------------------------
Participants will be allocated directly to a Rollover Account,
established pursuant to subsection (e), upon the date of receipt of
the rollover contribution.
e. Establishment of Rollover Account. The Plan Administrator will
---------------------------------
establish for each individual employed by the Employer who applies to
the Committee to make a rollover contribution and from whom the
Committee requests the Trustee to accept such rollover contribution,
a Rollover Account and will maintain a Pillsbury Rollover Account for
each participant who had an account in the Pillsbury Thrift Plan.
Earnings and losses on the investments in the account will be
credited solely to that account and reinvested in the manner in which
the account is invested, as provided in Section 6.5.
f. Vesting of Rollover Account. The interest of a Participant in his
---------------------------
Rollover Account is non-forfeitable and fully vested.
g. Withdrawals from the Rollover Account. A Participant may, upon 30
-------------------------------------
days written notice to the Committee, make withdrawals from the
balance of his Rollover Account as to amounts received from another
plan qualified under Section 401(a) of the Code. No forfeitures will
occur in any account solely as a result of a Participant's withdrawal
from such Rollover Account.
h. Certain Direct and Indirect Transfers of Assets. This Plan will not
-----------------------------------------------
accept any transfer of assets from another plan or any assets
contributed on behalf of any Participant if the Committee determines
that this Plan would be a direct or indirect transferee of any other
plan which is required by Section 401(a)(11) of the Code to provide
payments in the form of a qualified joint and survivor annuity or a
qualified pre-retirement annuity.
18
<PAGE>
ARTICLE V. EMPLOYER CONTRIBUTIONS
5.1 Matching Contribution. The Employer will make Matching Contributions as
---------------------
follows:
a. Basic Matching Contribution. The Employer will make a Basic Matching
---------------------------
Contribution to the Employer Account of each Participant who made Participant
Contributions throughout a payroll period in an amount equal to 25% of the
first 5% of the Participant's Compensation contributed, not to exceed the
lesser of $1,250 or 25% of the first 5% of a Participant's Compensation for
the entire Plan Year.
b. Supplemental Matching Contribution. The Employer will make a
----------------------------------
quarterly Supplemental Matching Contribution to be made after the end of
each calendar quarter of the Plan Year to the Employer Account of each
Participant who made Participant Contributions throughout that calendar
quarter in an amount equal to 25% of the first 5% of the Participant's
Compensation contributed, not to exceed the lesser of $1,250 or 25% of the
first 5% of a Participant's Compensation for the entire Plan Year, provided,
--------
however, that the Supplemental Matching Contribution will be made only if the
Adjusted Consolidated Pre-Tax Income of Employer for the period from the
beginning of the Plan Year through the end of the calendar quarter equals or
exceeds the budget target established by the Board of Directors.
In the event that the Employer has no current or retained earnings or
profits, no Matching Contribution shall be made. However, if the Employer has
retained earnings or profits sufficient to make a partial contribution but not
sufficient to make a full Basic or Supplemental Matching Contribution, the
Employer may make a partial contribution.
In the event that Matching Contributions are made on excess Participant
Contributions and such excess Participant Contributions are returned, the Plan
Administrator shall then determine what portion of the Matching Contributions
are attributable to the excess Participant Contributions. The portion of the
Matching Contributions attributable to the excess Participant Contributions
shall be considered an "unjustified" Matching Contribution and shall be
forfeited.
5.2 Discretionary Contribution. In addition to the Matching Contribution
--------------------------
the Employer may in its discretion make a contribution each year to the Plan.
The amount of any Discretionary Contribution will be determined by the Board of
Directors at the end of the Plan Year. At the discretion of the Plan
Administrator such contribution may be deemed a "qualified matching
contribution" or a "qualified non-elective contribution" for purposes of the
limitations set forth in Sections 4.4 and 5.3. Only those Non-Highly
Compensated Employees who are actively employed and making Participant
contributions at Plan Year end are eligible to receive a Discretionary
Contribution. Discretionary Contributions shall be allocated pursuant to
Section 6.1c.
19
<PAGE>
5.3 Limitations on Employer Matching Contributions. The Average
----------------------------------------------
Contribution Percentage of Participants shall meet the requirements of (i) or
(ii) of subsection (a) below:
20
<PAGE>
a. Average Contribution Percentage
-------------------------------
(i) The Average Contribution Percentage for Eligible Participants
who are Highly Compensated Employees for the Plan Year shall not
exceed the Average Contribution Percentage for Eligible
Participants who are Non-Highly Compensated Employees for the
Plan Year multiplied by 1.25; or
(ii) the Average Contribution Percentage for Eligible Participants
who are Highly Compensated Employees for the Plan Year shall not
exceed the Average Contribution Percentage for Eligible
Participants who are Non-Highly Compensated Employees for the
Plan Year multiplied by 2, provided that the Average
Contribution Percentage for Eligible Participants who are Highly
Compensated Employees does not exceed the Average Contribution
Percentage for Eligible Participants who are Non-Highly
Compensated Employees by more than two (2) percentage points or
such lesser amount as the Secretary of the Treasury shall
prescribe to prevent the multiple use of this alternative
limitation with respect to any Highly Compensated Employee.
b. Definitions. For purposes of this Section 5.3 the following
-----------
definitions shall apply.
(i) "Average Contribution Percentage" shall mean the average
(expressed as percentage) of the Contribution Percentages for
the Eligible Participants in a group.
(ii) "Contribution Percentage" shall mean the ratio (expressed as
a percentage), of the Matching Contributions under the Plan plus
any "qualified nonelective" or "qualified matching contribution"
made by the Employer on behalf of an Eligible Participant for
the Plan Year to the Eligible Participant's Compensation (as
defined below) for the Plan Year.
(iii) "Eligible Participant" shall mean any employee of the
Employer who is otherwise eligible under the terms of the Plan
to have Matching Contributions allocated to his account for the
Plan Year.
(iv) "Family Member" shall mean an individual described in IRC
Section 414(q)(6).
(v) "Compensation" shall mean the definition set forth in IRC
Section 414(s)(1) and (2) and IRS Regulations Section 1.414(s)-
1T or such other alternative definitions set forth in the
proposed regulations as long as used on a consistent basis. In
addition, "Compensation" may be defined to be compensation while
21
<PAGE>
eligible for the Plan to the extent permitted by IRS Regulations
and Notices under Section 401(k).
22
<PAGE>
c. Special Rules
-------------
(i) For purposes of this Article V, the Contribution Percentage
for any Eligible Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to receive
Matching Contributions, allocated to his account under two or
more plans described in IRC Section 401(a) or arrangements
described in IRC Section 401(m) that are maintained by the
Employer or an Affiliated Employer shall be determined as if all
such contributions were made under a single plan.
(ii) In the event that this plan satisfies the requirements of IRC
Section 410(b) only if aggregated with one or more other plans,
or if one or more other plans satisfy the requirements of IRC
Section 410(b) only if aggregated with this plan, then this
Article V shall be applied by determining the Contribution
Percentages for Eligible Participants as if all such plans were
a single Plan.
(iii) For purposes of determining the Contribution Percentage for
an Eligible Participant who is a Highly Compensated Employee and
is one of the top ten paid Employees of the Employer, the
Matching Contributions, and Compensation, of such Participant
shall include the Matching Contributions, and Compensation, for
Family Members, and such Family Members shall be disregarded in
determining the Contribution Percentages for Eligible
Participants who are Non-Highly Compensated Employees.
(iv) The amount of any excess aggregate contributions
for a Highly Compensated Employee under a plan subject to the
requirements of IRC Section 401(m) will be determined in the
following manner: (1) the actual contribution ratio (ACR) of
the Highly Compensated Employee with the highest ACR is reduced
to the extent necessary to satisfy the actual contribution
percentage test (ACP) or cause such ratio to equal the ACR of
the Highly Compensated Employee with the next highest ratio; (2)
this process is repeated until the ACP test is satisfied. The
amount of excess aggregate contributions for a Highly
Compensated Employee is then equal to the total of Employee,
Matching and other contributions (if applicable) taken into
account for the ACP test minus the product of the Employee's
contributions ratio as determined above and the Employee's
Compensation.
(v) In the case of a Highly Compensated Employee whose
ACR is determined under the family aggregation rules, the
determination of the amount of excess aggregate contributions
shall be made by using the leveling method described in Treasury
Regulation Section 1.401(m)-
23
<PAGE>
1(e)(2) and the excess aggregate contributions are allocated
among the family members in proportion to the contributions of
each family member that have been combined.
5.4 Permissible Types of Employer Contributions. Payments on account of the
-------------------------------------------
contributions due from the Employer for any year may be made in cash or in kind;
except that assets may not be contributed if such contribution violates the
prohibited transaction rules of IRC Section 4975, or the corresponding rules
under ERISA Section 406, if applicable.
The Matching Contributions to be invested in Employer Stock may be paid
in cash, in shares of Employer Stock, a combination of cash and stock, or in
other property acceptable to the Trustee.
5.5 Time of Payment of Contributions. All Participant Contributions made by
--------------------------------
payroll deduction shall be paid to the Trustee no later than 90 days after they
are withheld from pay. All corresponding Matching Contributions or
Discretionary Contributions (if applicable) shall be made within the time period
required for claiming such contributions as a deduction on the Employer's tax
return.
5.6 Distribution of Excess Aggregate Matching Contributions. If for any
-------------------------------------------------------
Plan Year a Participant who is a Highly Compensated Employee has aggregate
Matching Contributions which are in excess of the limitation for such
contributions (as provided in IRC Section 401(m)(6)(B)), the Employer shall
distribute such excess aggregate Matching Contributions (to the extent such
excess aggregate Matching Contributions are vested) and any income attributable
thereto no later than the last day of the following Plan Year to the
Participants on whose behalf such excess aggregate contributions were allocated
for the Plan Year. Nonvested excess aggregate Matching Contributions shall be
forfeited and allocated pursuant to Section 6.2. The Plan may use any
reasonable method for calculating and allocating income to the excess amounts;
including the discretion not to calculate such income for any gap period.
In the event that multiple use of the alternative limitation occurs (the
Average Actual Deferral Percentage and Average Contribution Percentage for
Eligible Participants who are Highly Compensated Employees each exceeds 1.25 of
the Average Actual Deferral Percentage and Average Actual Contribution
Percentage for Eligible Participants who are Non-Highly Compensated Employees),
it shall be corrected by looking at the total contributions of all Highly
Compensated Employees and reducing Matching Contributions as needed. Matching
Contributions reduced for this purpose and any income attributable thereto will
be distributed to Participants to the extent they are vested. Nonvested
Matching Contributions that are reduced for this purpose are forfeited. Such
Forfeitures shall be allocated pursuant to Section 6.1e.
24
<PAGE>
ARTICLE VI. ADMINISTRATION OF ACCOUNTS
6.1 Allocation of Contributions to Accounts. As of the end of each
---------------------------------------
Valuation Date (or more frequently, as the Plan Administrator shall determine),
contributions and gains or losses of the Trust Fund made during the allocation
period shall be allocated as follows:
a. Participant Contributions shall be allocated to the Participant
Account of each Participant in the amount of pre-tax contributions
made by such Participant during the allocation period.
b. Matching Contributions shall be allocated to the Employer Account of
each Participant in an amount based on the amount of Participant
Contributions made during the allocation period as determined in
accordance with Section 5.1.
c. Discretionary Contributions shall be allocated at the end of the Plan
Year in an equal amount to all Non-Highly Compensated Employees who
are actively employed and making Participant Contributions as of that
date.
d. Gains and losses of the Trust Fund shall be allocated as set forth in
Section 6.7.
6.2 Allocation of Forfeitures.
-------------------------
All Forfeitures shall be used to reduce the amount of Matching
Contributions to be made by the Employer.
6.3 Investment of Participant Accounts. At the time a Participant
----------------------------------
authorizes a payroll deduction of his Participant Contributions, he shall
designate the investment of his contributions in the Equity Fund, the Balanced
Fund, the Income Fund or the Money Market Fund. Contributions may be invested
all in one of the Funds, or in 1% increments in more than one of the Funds. If
a Participant makes no election, Participant Contributions shall be invested in
the Money Market Fund. The Participant may designate all or a portion of his
Participant Contributions to be invested in the Company Stock Fund effective
with the first Entry Date following the date upon which a registration statement
on Form S-8 (or other form designated by the Securities and Exchange Commission)
relating to Employer Stock offered to Participants under the Plan has been
declared effective.
A Participant may change the investment of his prospective Participant
Contributions effective as of any Valuation Date with at least 30 days written
notice to the Plan Administrator. Future Participant Contributions to a
Participant Account may be invested all in one Fund, or in 1% increments in more
than one Fund.
A Participant may change the investment of the balance in his
Participant Account effective as of any Valuation Date with at least 30 days
written notice to the
25
<PAGE>
Plan Administrator. The account balance may be invested all in one Fund, or in
increments of 1% among the available Funds. Effective with the first Entry Date
following the date upon which a registration statement on Form S-8 (or other
form designated by the Securities and Exchange Commission) relating to Employer
Stock offered to Participants under the Plan has been declared effective, the
Participant may direct all or a portion of his Participant Account to be
invested in the Company Stock Fund.
6.4 Investment of Employer Accounts. A Participant's Employer Account
-------------------------------
attributable to Matching Contributions made on and after January 1, 1996, will
be invested among the available funds in accordance with the Participant's
election as to the investment of his Participant Account made under Section 6.3.
6.5 Investment of Rollover Accounts. A Participant's Rollover Account,
-------------------------------
including his Pillsbury Rollover Account, will be invested among the available
Funds in accordance with the Participant's election as to the investment of his
Participant Account made under Section 6.3.
6.6 Investment by Trustee and Reasonable Rules. Notwithstanding Sections
------------------------------------------
6.1 and 6.3, the Trustee may cause all contributions paid to it by the Employer
and Participants, and the income therefrom, without distinction between
principal and income, to be held and administered in the Funds as instructed by
the Employer, and the Trustee shall not be required to invest separately the
accounts of any Participant. The Trustee may adopt reasonable rules for the
administration of such Funds. The Trustee shall also have the authority to
purchase Employer Stock on the open market, through privately negotiated
transactions or through the Employer's issuance of treasury stock.
6.7 Evaluation of Assets and Allocation of Changes. The assets of each Fund
----------------------------------------------
will be evaluated as of each Valuation Date at their fair market value. The
Employer Account, excluding Employer Accounts held in suspense or as
Forfeitures, the Participant Account and the Rollover Account (if any) of each
Participant shall be adjusted for any net appreciation or net depreciation in
the assets of the Fund or Funds in which they are invested, and for any net
income or net loss of the Fund for such year. Each account shall be credited or
charged with the increase or decrease calculated above in proportion to the
average value of each account to the total average value of accounts in that
fund ("average value" is defined to be the value of the account as of the last
day of the previous Plan Quarter, less any withdrawals distributed since the end
of the previous Plan Quarter, plus transfers, plus one-half of the Participant
Contributions and Basic Matching contributions made to the account since the
last Valuation Date but no less than zero).
6.8 Limitation on Allocations to Each Participant. Notwithstanding any
---------------------------------------------
other provision of this Plan, the maximum annual addition for any Plan Year
("limitation year") which can be made to any individual Participant's Employer
and Participant Accounts, taken together, is the lesser of $30,000 (or such
other figure as determined in accordance with the cost of living adjustment
procedure of IRC Section 415(d)) or 25% of the Participant's annual compensation
(as defined in Section 6.9). For
26
<PAGE>
purposes of this Section 6.8 the "annual addition" is the sum of the following
amounts allocated to the accounts of the individual Participant for the Plan
Year of the Trust:
a. Employer contributions;
b. Employee contributions; and
c. Forfeitures.
Amounts allocated, after March 31, 1984, to an individual medical
account, as defined in IRC Section 415(l)(1), which is part of a defined benefit
plan maintained by the Employer, are treated as annual additions. Also, amounts
derived from contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-retirement medical
benefits allocated to the separate account of a Key Employee, as defined in IRC
Section 419A(d)(3), under a welfare benefit fund, as defined in IRC Section
419(e), maintained by the Employer, are treated as annual additions.
In the event that it is determined that the annual addition to a
Participant's Employer and Participant Accounts, taken together, for any Plan
Year would be in excess of the limitations of this Section 6.8, such annual
additions shall be reduced to the extent necessary to bring them within such
limitations if necessary, in the following manner:
a. If the excess allocation results from allocation of forfeitures, a
reasonable error in estimating a Participant's annual compensation,
or other limited facts and circumstances to which Regulation 1.415-
6(b)(6) applies, then the excess amount to be allocated to the
Participant's accounts shall be placed in a suspense account.
b. If the Participant has not terminated service, then the amount in
such suspense account shall be allocated to the Participant on the
last day of each succeeding Plan Year until the funds in the suspense
account have been completely reallocated, and allocations from such
suspense account shall be used to reduce employer contributions for
that Participant in the Plan Year in which such allocations are made.
c. If the Participant terminates service before the amount in the
suspense account has been reallocated, then the suspense account
shall be allocated in the next Plan Year in accordance with
Regulation Section 1.415-6(b)(6)(i). No investment gains and losses
or other income shall be allocated to the suspense account.
d. If the Participant terminates service before such allocation can be
made, then the amount held in the suspense account shall be treated
as a Forfeiture, and used to reduce Matching Contributions as set
forth in Section 6.2.
e. If the Plan terminates before such allocation can be made, then the
amount held in the suspense account shall be allocated to the
remaining Participants to the extent possible.
27
<PAGE>
6.9 IRC Section 415 Definition of Compensation. For purposes of the
------------------------------------------
limitations of Sections 6.8 and 6.10, and, if applicable, Article IX,
"compensation" shall mean the wages, salaries, and fees for professional
services actually rendered in the course of employment with the Employer
(including, but not limited to, commissions paid to salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses), paid to or accrued by a Participant during a Plan
Year, excluding the following:
a. Employer contributions to a plan of deferred compensation which are
not included in the Employee's gross income for the taxable year in
which contributed or Employer contributions under a simplified
employee pension plan to the extent such contributions are deductible
by the Employee, or any distributions from a plan of deferred
compensation;
b. Amounts realized from the exercise of a non-qualified stock option,
or when restricted stock (or property) held by the employee either
becomes freely transferable or is no longer subject to a substantial
risk of forfeiture;
c. Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
d. Other amounts which received special tax benefits.
6.10 Combination Defined Benefit and Defined Contribution Plan Limitations.
---------------------------------------------------------------------
If the Employer or an Affiliate maintains one or more defined benefit plans in
addition to this Plan (and any other defined contribution plans) then for any
Participant who is covered by another of the plans, the sum of the defined
benefit plan fraction and the defined contribution plan fraction for any year
may not exceed 1.0.
a. The "defined benefit plan fraction" for any year is a fraction:
(i) the numerator of which is the projected annual benefit of the
Participant under the defined benefit plan (determined as of the
close of the year); and
(ii) the denominator of which is the lesser of (1) the maximum dollar
limit for such year under IRC Section 415(b) times 1.25, or (2)
the amount determined under the percentage-of-compensation limit
for such year times 1.4.
b. The "defined contribution plan fraction" for any year is a fraction:
(i) the numerator of which is the sum of the annual additions (as
defined in IRC Section 415(c)(2)) to the Participant's Employer
and Participant Accounts as of the close of the year; and
28
<PAGE>
(ii) the denominator of which is the sum for all years of the
Participant's service with the Employer of the lesser for
each year of (1) the maximum dollar limit under IRC Section
415(c) for such year times 1.25 or (2) the amount determined
under the percentage-of-compensation limit for such year times
1.4.
If the 1.0 limitation above is exceeded, the annual additions to the
Participant's account in the defined benefit plan shall first be reduced to the
extent necessary, as determined by the Plan Administrator, to prevent
disqualification of the Plan. The Plan Administrator shall advise affected
Participants of any additional limitations of their annual additions hereunder.
6.11 Designation of Beneficiary. Each Participant may designate from time to
--------------------------
time in writing one or more Beneficiaries, who will receive the Participant's
vested Accrued Benefit in the event of the Participant's death. If the
Participant dies without having made a Beneficiary designation, the Trustee
shall distribute such benefits in the following order of priority to the
deceased Participant's: (a) spouse, (b) lineal descendants per stirpes and not
-----------
per capita, (c) parents, (d) brothers and sisters, or (e) estate.
- ----------
A married Participant's spouse shall be the Participant's Beneficiary,
unless the spouse consents in writing to the designation of a different
Beneficiary. The consent of such spouse shall acknowledge the effect of the
designation, and shall be witnessed by a plan representative or a notary public.
29
<PAGE>
ARTICLE VII. VESTING
7.1 Participant Account 100% Vested. The Accrued Benefit in the Participant
-------------------------------
Account, Rollover Account and the Pillsbury Rollover Account of an Employee
shall be 100% vested at all times.
7.2 Employer Account Vesting on Death, Retirement or Total and Permanent
--------------------------------------------------------------------
Disability. If a Participant's employment is terminated for death, Retirement,
- ----------
or for Total and Permanent Disability, 100% of the Accrued Benefit in his
Employer Account shall vest in the Participant (or in his Beneficiary, as the
case may be) and shall be distributed or set aside in accordance with the
provisions of Article VIII.
7.3 Employer Account Vesting on Termination. If a Participant's employment
---------------------------------------
is terminated for any reason other than death, Retirement, or Total and
Permanent Disability, the following percentages of the Accrued Benefit in the
Employer Account of the Participant shall vest in the Participant and shall be
distributed to or set aside for him in accordance with the provisions of Article
VIII:
Years of Percentage
Continuous Service Vested
------------------ ----------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
The percentage of the Accrued Benefit of a Participant which is not
vested as above provided shall become a Forfeiture as of the first day of the
Plan Quarter following the Participant's Termination Date, and shall be
allocated as set forth in Section 6.2. If reemployed, the Participant must
repay the full amount of any distribution of their nonforfeitable benefit to
restore the forfeited amount. Any such repayment must occur within a period
equal to 60 consecutive months from his date of rehire.
7.4 Vesting on Rehire. If a Participant who is partially or fully vested in
-----------------
his Employer Account terminates employment and is later rehired before incurring
a Period of Severance for Vesting, the time period while not employed shall be
-----
included in Continuous Service for Vesting. If the Participant is rehired after
incurring a Period of Severance for Vesting, Continuous Service for Vesting
shall include the period of service prior to severance, but not the time period
---
while not employed.
30
<PAGE>
If an Employee terminates either before or after completing twelve (12)
months of Continuous Service for Vesting, but before joining the Plan and is
rehired before a Period of Severance for Vesting, the period while not employed
shall be included in Continuous Service for Vesting. If the Employee is rehired
- -----
after incurring a Period of Severance for Vesting, Continuous Service for
Vesting shall include the period of service prior to severance unless the Period
-----
of Severance for Vesting exceeds sixty (60) consecutive months. In addition,
Continuous Service for Vesting shall not include the time period while not
---
employed.
31
<PAGE>
ARTICLE VIII. DISTRIBUTION OF BENEFITS
8.1 Distribution of Accounts. If a Participant's employment is terminated
------------------------
at any time for any reason, the vested balance in his Participant Account,
Employer Account, and Rollover Account as of the Valuation Date coincident with
or next following the employment termination date shall be distributed pursuant
to the terms of this Article VIII.
8.2 Distribution Upon Retirement or Total and Permanent Disability. Upon
--------------------------------------------------------------
Retirement or upon Total and Permanent Disability, a Participant shall receive
payment in one (1) lump sum amount. Payment of a Participant's account balances
shall be made in the following manner:
a. Amounts invested in the Equity Fund, Balanced Fund, Income Fund or
Money Market Fund shall be paid in cash.
b. Amounts invested in the Company Stock Fund shall be paid in shares of
Employer Stock, provided fractional shares may be paid in cash. A
Participant may also elect to receive payment of his Employer Stock
in cash. If a Participant's accounts contain less than fifty (50)
shares of Employer Stock, such shares shall be paid only in cash.
8.3 Distribution Upon Death Prior to Retirement. If a Participant's
-------------------------------------------
employment is terminated due to death prior to his Retirement, the Participant's
account balances shall be paid to his Beneficiary in one (1) lump sum amount as
provided in Section 8.2 above. If any distribution of benefits commences before
the Participant's death, the remaining interest shall be distributed to his
Beneficiary at least as rapidly as under the method of distribution being used
as of the date of the Participant's death.
8.4 Distribution Upon Death After Retirement or Total and Permanent
---------------------------------------------------------------
Disability. If a Participant entitled to receive or who is receiving a
- ----------
distribution pursuant to Section 8.2 should die prior to receiving the full
distribution of benefits, any unpaid balance remaining at the time of his death
shall be distributed to the Participant's Beneficiary. Distribution to the
Beneficiary shall be paid in one (1) lump sum amount as provided in Section 8.2
as soon as reasonably practicable but in no event later than a period of five
years from the date of the Participant's death.
8.5 Distribution Upon Other Events. If a Participant is entitled to receive
------------------------------
a distribution for any other event not set forth above, then such distribution
shall be paid as provided in Section 8.2 based upon the Valuation Date
coinciding with or next following such event and the vesting provisions set
forth in Article VII. Such distribution shall be made as soon as practicable
following the Valuation Date or as set forth in Section 8.7. If the amount of
the Participant's Accrued Benefit is $3,500 or less, the Plan Administrator
shall make an immediate distribution in one lump sum cash payment. If the
amount of such distribution exceeds $3,500, however, distribution of the
Participant's interest shall not be made without his consent prior to reaching
age 62.
32
<PAGE>
8.6 Partial Distribution. Upon termination of employment or other
--------------------
distributable event and after completing the necessary forms, a Participant
shall be entitled to receive a partial distribution of the vested balance in his
accounts as soon as practicable after termination in accordance with
nondiscriminatory procedures adopted by the Committee.
8.7 Time for Distribution of Accounts. If a Participant's employment is
---------------------------------
terminated for any reason, the vested balance in his accounts shall be
distributed as provided in this Article VIII. However, unless otherwise
provided in this Article VIII or elected by the Participant, distribution shall
begin no later than 60 days after the end of the Plan Year in which occurs the
latest of the following:
a. the date on which the Participant attains age 65;
b. the tenth anniversary of the year in which the Participant commenced
participation in the Plan; or
c. the Termination Date.
Payment of the Participant's Accrued Benefit shall begin no later than
April 1 of the calendar year following the year in which he attains age 70 1/2,
whether or not he is still employed on that date in accordance with regulations
under IRC Code 401(a)(9).
8.8 Loans and Withdrawals. No loans shall be made from the Plan to any
---------------------
Participant. Withdrawals shall be permitted pursuant to subsections a and b
below and shall be distributed in cash. The amount of withdrawals made pursuant
to subsections a and b below shall be based upon the Valuation Date immediately
prior to distribution.
a. In-Service Withdrawals. A Participant may make a total or partial
----------------------
withdrawal from his Prior Thrift Account. Provisions relating to the
withdrawal of the Prior Thrift Plan contributions are set forth in
Appendix A attached to this Plan. Each withdrawal shall be subject
to a $50 withdrawal fee payable by the Participant.
b. Hardship Withdrawal From Participant and Employer Accounts. A
----------------------------------------------------------
Participant may also be entitled to make a hardship withdrawal of an
amount equal to the sum of his Participant Contributions, Rollover
Contributions and vested Employer Contributions as set forth below.
In order to make a hardship withdrawal from his accounts, a
Participant must (1) have an immediate and heavy financial need; and
(2) the withdrawal must be necessary to meet the need and the
Participant cannot meet that need from any other source.
(i) A Participant's financial need will be immediate and heavy and
--------------------------------------------------------------
deemed a hardship if it is for one of the following reasons:
------------------------------------------------------------
A. medical expenses for the Participant, his spouse, or
dependents;
B. purchase of the Participant's principal residence (but not
regular mortgage payments);
33
<PAGE>
C. tuition for the next semester or quarter of post secondary
education for the Participant, spouse, children, or
dependents;
D. preventing foreclosure on or eviction from the
Participant's principal residence;
E. impending bankruptcy upon proof of recommendation by a
professional expert in the field.
Alternatively, the Employer may allow a Participant to
demonstrate to the Employer an immediate and heavy financial
need on a facts and circumstances basis. Such a determination
will be made by the Employer on a case-by-case basis. The
determination shall also be made in accordance with objective
and non-discriminatory standards to be established by the Plan
Administrator. Under the facts and circumstances standard,
the need may be foreseeable or voluntarily incurred.
(ii) A Participant's withdrawal will be deemed necessary to
------------------------------------------------------
satisfy financial need if it meets all of the following
-------------------------------------------------------
criteria:
---------
A. the Participant has already taken all other distributions and
non-taxable loans available from all plans sponsored by the
Employer; and
B. the Participant demonstrates that other resources are not
reasonably available. The Employer may rely on such
representation to establish that the need cannot be met by
reimbursement or compensation by insurance or otherwise;
reasonable liquidation of the Participant's assets (not
causing hardship); cessation of pre-tax Participant
Contributions under the Plan; other distributions or non-
taxable loans from Plans; or by borrowing from commercial
sources on reasonable terms.
C. the distribution is not in excess of the amount of the
financial need. Alternatively, the Employer may follow the
Safe Harbor rules in the regulations under IRC Section 401(k)
for determining that a withdrawal is necessary to satisfy the
financial need.
8.9 Direct Rollover. Notwithstanding any provision of the Plan to the
---------------
contrary, that would otherwise limit a distributee's election under this
section, a distributee may elect, at the time and in the manner prescribed by
the Committee, to have any portion of any eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
a. Eligible rollover distribution is any distribution of all or a
portion of the balance to the credit of the distributee, except that
an eligible rollover
34
<PAGE>
distribution does not include any distribution that is one of a
series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more. An eligible rollover
distribution also does not include any distribution to the extent
such distribution is required under IRC Section 401(a)(9); and the
portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to Employer securities).
b. Eligible retirement plan is an individual retirement account
described in IRC Section 408(b), or an annuity plan described in IRC
Section 401(a), that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is
an individual retirement account or individual retirement annuity.
c. Distributee includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relation order, as defined
in IRC Section 414(p), are distributees with regard to the interest
of the spouse or former spouse.
d. Direct rollover is a payment by the Plan to the eligible retirement
plan specified by the distributee.
8.10 Buyback. If a Participant receives a distribution from the Plan as a
-------
result of ceasing to be an Employee, and is less than 100% vested as to his
Employer Account at such time, he shall have the right when he again becomes an
Employee to repay to the Plan all distributions he had received from it, under
the following conditions:
a. he becomes an Employee again before he has incurred a sixty (60)
consecutive month Period of Severance for Vesting; and
b. he makes such repayment within a sixty (60) consecutive month period
from his date of rehire.
If the Participant makes such repayment, the portion of his Employer
Account which had been forfeited as a result of his ceasing to be an Employee
shall be restored to his Employer Account. His account balance as of the date
of restoration shall be the same as it was on the date of original distribution,
without regard to any gains or losses which may have occurred in the Trust after
the date of Forfeiture. The Participant shall then continue to vest in such
restored account balance.
If the Participant fails to make such repayment, his Continuous Service
for Vesting after the distribution shall not be used to increase his vested
percentage in his account balance accrued before the distribution.
35
<PAGE>
If a Participant returns to employment with the Employer after incurring
a Period of Severance for Vesting, but before incurring a sixty (60) consecutive
month Period of Severance for Vesting, and if the Participant had not received a
distribution of the vested portion of his Employer Account (or if he was not yet
vested in any of his Employer Account), he shall be treated as a Participant who
has made a repayment of a distribution as set forth above.
8.11 Inability to Locate Participant or Beneficiary. If the Participant or
----------------------------------------------
Beneficiary to whom benefits are to be distributed cannot be located, and
reasonable efforts have been made to find him, including the sending of
notification by certified or registered mail to his last known address, the Plan
Administrator may direct the Trustee to distribute the benefits in question to
an interest bearing savings account in the Trust, established on behalf of the
Participant or Beneficiary. Such funds shall be held in the segregated account
for distribution to the Participant when located. If the Participant or
Beneficiary has not been located for a period of one year from the date of
termination of employment, the Plan Administrator shall notify the Social
Security Administration pursuant to Section 1032 of ERISA.
8.12 Distribution to Minor or Incompetent. In case of any distribution to a
------------------------------------
minor or to a legally incompetent person, the Plan Administrator may direct the
Trustee that the same be made for the benefit of such person to his legal
representative or to some near relative of such person or that the Trustee shall
use the same directly for the support, maintenance, or education of such person.
The Trustee shall not be required to see to the application by any third party
of any distributions made pursuant to this Article.
8.13 Deferred Payment of Accrued Benefit. Except as provided in Section 8.5,
-----------------------------------
where the distribution of all or any portion of a Participant's Accrued Benefit
is to be deferred, the deferred portion shall continue to be held and invested
as an unsegregated account of the Trust Fund subject to revaluation as provided
in Section 6.7; provided, however, that at the discretion of the Plan
Administrator or the written request of a Participant or his Beneficiary, it
shall be transferred to the Money Market Fund (as described in Section 2.27).
36
<PAGE>
ARTICLE IX. TOP-HEAVY PLAN RESTRICTIONS
The following restrictions shall apply if the Plan becomes a Top-Heavy Plan.
9.1 Definitions. For purposes of this Article IX, the following definitions
-----------
shall apply:
a. Key Employee - an individual as defined in IRC Section 416(i)(1) and
------------
Internal Revenue Service Regulation Section 1.416-1(T-12).
b. Non-Key Employee - Any Employee who is not a Key Employee, including
----------------
an Employee who was formerly a Key Employee but is not currently one.
c. Determination Date - The last day of the preceding Plan Year, or of
------------------
the current Plan Year, if the Plan was not in existence during the
preceding year.
d. Annual Compensation - an Employee's Compensation (as defined in
-------------------
Section 6.7) received from the Employer during the Plan Year, not to
exceed $200,000. For each Plan Year during which the Plan is top-
heavy, this $200,000 limitation shall apply for all Plan purposes.
e. Valuation Date - the date as of which the Plan's assets and
--------------
liabilities are valued, as set forth in Section 6.5.
9.2 Top-Heavy Plan. The Plan is a Top-Heavy Plan with respect to any Plan
--------------
Year in which it is not part of an aggregation group if, as of the most recent
Valuation Date occurring within a 12-month period ending on the Determination
Date applicable to such Plan Year, the total value of Accrued Benefits of Key
Employees exceeds 60% of the Total Value of Accrued Benefits for all
Participants. In any Plan Year in which the Plan is part of an aggregation
group, the Plan will be a Top-Heavy Plan with respect to such Plan Year if on
the applicable Determination Date(s), the Plan would be top-heavy as determined
under Section 9.4.
The present value of Accrued Benefits of any Participant shall be
increased to reflect any distributions from the Plan with respect to such
Participant during the five-year period ending on the Determination Date, and
reduced to eliminate the value of certain rollover contributions included in
such Accrued Benefit. The rollovers to be excluded are unrelated rollovers
(both initiated by the Participant and made from a plan maintained by an
employer not related to the Employer) which are accepted by the Plan after
December 31, 1983. In addition, the present value of Accrued Benefits of any
Participant shall be reduced to reflect the value of any qualified voluntary
employee contributions made pursuant to IRC Section 219. However, any portion
of the Accrued Benefit attributable to non-deductible Employee contributions
(whether mandatory or voluntary) shall be included for purposes of determining
top-heaviness.
The Accrued Benefit of any Employee who has not received any
Compensation from the Employer at any time during the five year period ending on
Determination Date shall be disregarded for purposes of determining whether the
Plan is Top-Heavy. However, if such Employee receiving no Compensation for such
five year period, and then receives
37
<PAGE>
Compensation from the Employer, such Employee's Accrued Benefit shall be
included in the calculations for top-heaviness.
A Key Employee in prior Plan Years who is not a Key Employee with
respect to a current Plan Year shall be excluded entirely in computing the
percentage in the first paragraph above.
9.3 Restrictions. The following restrictions shall apply if the Plan
------------
becomes a Top-Heavy Plan.
a. Vesting. A Participant of a Top-Heavy Plan shall have a
-------
nonforfeitable interest in his Accrued Benefit derived from Employer
contributions as provided in Section 7.3.
Accrued Benefit, for purposes of this subsection (a), shall include
that portion of Accrued Benefits which the Participant earned during
all prior Plan Years, whether or not the Plan was a Top-Heavy Plan
during such prior Plan Years.
b. Minimum Benefits. With respect to any Plan Year during which the
----------------
Plan is a Top-Heavy Plan, the Employer contribution on behalf of a
Non-Key Employee shall not be less than the lesser of: (i) 3% of such
Employee's Annual Compensation, or (ii) the percentage at which
contributions are made (or required to be made) under the Plan (or
any other defined contribution plan in the aggregation group) for the
Plan Year, for the Key Employee for whom such percentage is highest
for that Year. Subsection (ii) shall not apply if this Plan enables
a defined benefit plan required to be included in the aggregation
group to meet the requirements of IRC Section 401(a)(4) or 410.
For purposes of this Subsection (b), Employer contributions
attributable to a salary reduction or similar arrangement may be
taken into account. The required contribution shall not be reduced
for Employer contributions to Social Security, and shall be made even
though, under other Plan provisions, a Participant would not
otherwise be entitled to receive an allocation of contribution or
would have received a lesser allocation for the Plan Year because of
(i) his failure to earn the requisite number of Hours of Service;
(ii) his failure to make mandatory contributions to the Plan; or
(iii) his Compensation being lower than a stated amount. However, no
contribution shall be made under this Section on behalf of a Non-Key
Employee who has terminated service with the Employer as of the last
day of the Plan Year under consideration. A Participant shall not
forfeit such minimum contribution due to any withdrawal of mandatory
contributions. The required contribution shall be made regardless of
the absence of profits.
c. Maximum Benefit Adjustments
---------------------------
(i) An adjustment is to be made in calculating the maximum benefit
and contribution limitations under IRC Section 415 if a
Participant is a
38
<PAGE>
participant in a Top-Heavy defined benefit and defined
contribution plan maintained by the Employer. Such adjustment
shall be a reduction in the figure used as a multiplier pursuant
to Subsections (e)(2)(B)(i) and (e)(3)(B)(i) of IRC Section 415
from 1.25 to 1.0.
(ii) Paragraph (i) shall not apply in any Plan Year of a Top-Heavy
Plan if the following conditions are satisfied with respect to
such Plan Year:
1. the sum of (A) the present values of Accrued Benefits for Key
Employees under the defined benefit plan and (B) account
balances of Key Employees under the defined contribution
plan, does not exceed 90% of such sum for all Participants;
2. the minimum contribution percentage pursuant to Section
9.3(b) is increased from 3% to 4% and
3. the minimum benefit accrual percentage of participants who
are not Key Employees of the defined benefit plan is
increased from 2% to 3%, adjusted, if necessary, in
accordance with the IRC Section 416(c)(1). This Subsection
(3) shall not apply in the case of a defined benefit plan
which terminated more than five years before the
Determination Date.
(iii) The adjustment otherwise required under paragraph (i) above
shall not be applicable to any Participant if with respect to
the particular Plan Year there are (1) no Accrued Benefits
credited to such Participant under the defined benefit plan, and
(2) no Employer contributions, forfeitures or voluntary non-
deductible contributions allocated to such Participant under
this Plan.
(iv) In the case of any Top-Heavy Plan to which paragraph (i)
above applies, the transitional rule set forth in IRC Section
415(e)(6)(B)(i) shall be applied by substituting "$41,500" for
"$51,875."
9.4 Plan Aggregations. For purposes of determining top-heaviness, the
-----------------
aggregation group shall include:
a. each plan of the Employer in which a Key Employee is a participant;
and
b. each other plan of the Employer that allows a plan covering a Key
Employee to meet qualification requirements under the coverage and
anti-discrimination rules of IRC Sections 401(a)(4) and 410;
c. each terminated plan described in (a) or (b) above maintained by the
Employer during the five year period preceding the Determination
Date; and
39
<PAGE>
d. at the option of the Employer, any other plan maintained by the
Employer as long as the expanded aggregation group including such
plan or plans continues to satisfy coverage and anti-discrimination
rules of IRC Sections 401(a)(4) and 410.
This Plan shall be a Top-Heavy Plan only if the sum of (i) the present
value of Accrued Benefits for Key Employees, as determined under the provisions
of this Article applicable to defined benefit plans, under all such plans
included within the aggregation group, and (ii) the aggregate of the account
balances of Key Employees, as determined under the provisions of this Article
applicable to defined contribution plans, exceeds 60% of a similar sum
determined for all participants in such plans.
If the Plan becomes a Top-Heavy Plan, for Participants who are covered
by both this Plan and a defined benefit plan of the Employer, the minimum
benefit required shall be provided under the defined benefit plan and shall be
offset by the benefits provided in this Plan. The Plan Administrator shall act
pursuant to Internal Revenue Service Regulations in carrying out these
provisions.
40
<PAGE>
ARTICLE X. AMENDMENT AND TERMINATION
10.1 Right to Suspend or Terminate Plan. It is the present intention of the
----------------------------------
Employer to maintain the Plan throughout its corporate existence. Nevertheless,
the Employer reserves the right, at any time, to discontinue or terminate the
Plan, and to terminate the Employer's liability to make further contributions to
this Plan. No such amendment shall increase the duties or responsibilities of
the Trustee without its consent thereto in writing. In any event, the liability
of the Employer to make contributions to this Plan shall automatically terminate
upon its legal dissolution or termination, upon its adjudication as bankrupt,
upon the making of a general assignment for the benefit of creditors, or upon
its merger or consolidation with any other corporation or corporations if it is
not the surviving corporation.
10.2 Successor Corporation. In the event of the termination of the liability
---------------------
of the Employer to make further contributions to this Plan, the Employer's
liability may be assumed by any other corporation or organization which employs
a substantial number of the Participants of this Plan. Such assumption of
liability shall be expressed in an agreement between such other corporation or
organization and the Trustee under which such other corporation or organization
assumes the liabilities of the Plan with respect to the Participants employed by
it. Such termination and assumption of liability shall not in itself be
considered as a termination of the Plan.
10.3 Amendment. To provide for contingencies which may require the
---------
clarification, modification, or amendment of this Plan, the Employer reserves
the right to amend this Plan at any time. The Employer, however, shall not have
the right to amend this Plan in any way which would decrease a Participant's
Accrued Benefit (as set forth in IRC Section 411(d)(6)). Each Participant
having at least three years of Continuous Service for Vesting at the time of the
adoption of any amendment changing any vesting schedule under the Plan shall
have the right to elect at any time, but no later than 60 days after the earlier
of (i) the end of the Plan Year for which the amendment is effective or (ii) the
Termination Date of such Participant, to have his vested percentage computed
under the Plan without regard to such amendment.
10.4 Full Vesting on Termination of Plan. Upon termination or partial
-----------------------------------
termination of the Plan by formal action of the Employer or for any other
reason, or if the Employer contributions to the Plan are permanently
discontinued for any reason, there shall be vested 100% in each Participant
directly affected by such action the amount allocated to the Employer Account of
such Participant, and payment to such Participant shall be made as soon as
practicable after liquidation of the assets of the Trust Fund. Any Forfeiture
remaining after payment of the required company contribution has been made shall
be reallocated among the Participant's Accounts prorated to the value in each.
10.5 Plan Merger or Consolidation. In the case of any merger or
----------------------------
consolidation with, or transfer of any assets or liabilities to, any other plan,
each Participant in this Plan must be entitled to receive (if the surviving plan
then terminated) a benefit immediately after the merger, consolidation, or
transfer which is equal to or greater than the benefit he would have been
entitled to receive immediately before the merger, consolidation, or transfer
(if this Plan had terminated).
41
<PAGE>
ARTICLE XI. MISCELLANEOUS
11.1 Laws of California to Apply. This Plan shall be construed according to
---------------------------
the laws of the State of California, except to the extent such laws are
preempted by Federal law.
11.2 Nonalienation of Benefits. None of the benefits, payments, proceeds,
-------------------------
claims, or rights of any Participant hereunder shall be subject to any claim of
any creditor of the Participant, nor shall any Participant have any right to
transfer, assign, encumber, or otherwise alienate, any of the benefits or
proceeds which he may expect to receive, contingently or otherwise under this
Plan. The foregoing shall not prevent the Plan from paying benefits in
accordance with the requirements of a qualified domestic relations order, as
defined in IRC Section 414(p).
11.3 Right to Perform Alternative Acts. In the event it becomes impossible
---------------------------------
for the Employer, the Plan Administrator or the Trustee to perform any act
required by this Plan, then the Employer, the Plan Administrator or the Trustee
may perform such alternative act which most nearly carries out the intent and
purpose of this Plan. Such action shall be taken only in conjunction with an
amendment to the Plan intended to correct such impossibility.
11.4 Nonqualification of Plan. If this Plan shall not be approved and
------------------------
qualified by the Internal Revenue Service as meeting the requirements of IRC
Section 401(a) and IRC Section 501(a) or if any amendment to the Plan is not
subsequently approved by the Internal Revenue Service, the Employer may, at its
election, either (a) cause the Trustee to return to the Employer any amounts
previously contributed by the Employer to the Trust (prior to the date of the
amendment, if applicable) and immediately terminate the Plan or (b) effect such
amendments to the Plan as are necessary to obtain the approval and qualification
of the Plan by the Internal Revenue Service.
All contributions made to the Plan by the Employer are conditioned on
deductibility of such contributions under IRC Section 404. To the extent that
the deduction under IRC Section 404 for any year is disallowed, the contribution
shall be returned to the Employer within one year after disallowance of the
deduction.
If a contribution is made by the Employer by a mistake of fact, the
contribution shall be returned to the Employer within one year of the date of
the deposit of such contribution.
Amounts held in suspense pursuant to Section 6.8 shall be returned to
the Employer upon a Plan termination, to the extent they cannot be allocated to
Participants.
Notwithstanding the above, earnings attributable to amounts described in
paragraphs two and three of this Section 11.4 shall not be returned to the
Employer; losses attributable to such amounts shall reduce the amounts returned.
11.5 Agent for Service of Process. The Plan Administrator is designated
----------------------------
agent to receive service of legal process on behalf of the Plan.
42
<PAGE>
11.6 Filing Tax Returns and Reports. If the Trustee is not a corporate
------------------------------
fiduciary, the Plan Administrator shall prepare, or cause to have prepared all
tax returns, reports and related documents, except as otherwise specifically
provided in this Plan or unless the Employer provides to the contrary.
11.7 Indemnification. The Employer agrees to indemnify all Employees who act
---------------
on behalf of the Plan Administrator or who serve as Trustees, against all
liability arising in connection with their duties under the Plan, except that
this indemnification shall not include acts of embezzlement, or diversion of
Trust Funds by the Employee, nor shall it include acts of gross negligence.
11.8 Number and Gender. When appropriate, the singular as used in this Plan
-----------------
shall include the plural and vice versa, and the masculine shall include the
feminine.
IN WITNESS WHEREOF, the parties have executed this Plan on December
_________________, 1995.
CHART HOUSE ENTERPRISES, INC.
By: /s/ JOHN M. CREED
---------------------------------
John M. Creed
Title: Chairman, President and C.E.O.
CHART HOUSE, INC.
By: /s/ JOHN M. CREED
---------------------------------
John M. Creed
Title: Chairman, President and C.E.O.
ISLANDS RESTAURANTS, INC.
By: /s/ JOHN M. CREED
---------------------------------
John M. Creed
Title: Chairman and C.E.O.
43
<PAGE>
APPENDIX A
TRANSFERRED PLAN ASSETS
-----------------------
SUBJECT TO THE PRIOR THRIFT PLAN TERMS
--------------------------------------
EFFECTIVE BEFORE JANUARY 1, 1988
--------------------------------
Definitions. In addition to the definitions set forth in Article II of
-----------
this document, the definitions below shall have the following meanings with
respect to Appendix A.
a. Basic Contribution. "Basic Contribution" means a contribution made
------------------
by a Participant to the Prior Thrift Plan equal to the first 2%, 3%,
4%, or 5% of a Participant's Compensation.
b. Compensation. "Compensation" shall have the meaning set forth in
------------
Section 2.7 of this document with the exception of excluding
contributions made to the IRC Section 125 plan.
c. Supplemental Contributions. "Supplemental Contributions" means a
--------------------------
contribution made by a Participant to the Prior Thrift Plan equal to
the next 1%, 2%, 3%, 4%, or 5% of a Participant's Contribution in
addition to his Basic Contributions.
Employee Contribution. On or before December 31, 1987, a Participant
---------------------
may elect to contribute by payroll deduction with respect to each payroll period
an amount equal to 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9%, or 10% of his Compensation
with respect to that period.
Employer Contribution. On or before December 31, 1987, each Employer of
---------------------
a Participant who makes an Employee Contribution shall contribute to the Plan an
amount out of current or retained earnings or profits equal to 50% of the first
5% of the Employee's Compensation made by the Participant for that payroll
period, not to exceed the lesser of $2,500 or 50% of the first 5% of the
Participant's Employee Compensation for the Plan Year.
Statutory Limitations on Additions. Notwithstanding any other
----------------------------------
provisions of the Plan, for each Plan Year the "annual addition" to a
Participant's Account shall not exceed the lesser of (a) or (b) below:
a. the maximum permissible dollar amount; or
b. 25% of the Participant's Compensation for the Plan Year.
For purposes of applying the above limits, the following conditions
shall apply:
(i) The term "annual additions" shall mean the sum of the
Employee Contribution, Employer Contribution and Forfeitures
allocated to the
44
<PAGE>
Participant's Account. Prior to January 1, 1987, annual
additions exclude Employee Contributions less than 6% of
Compensation.
(ii) The initial maximum permissible dollar amount shall be
$30,000. This limitation shall be adjusted automatically in
accordance with regulations issued or to be issued by the
Secretary of the Treasury as the corresponding limitation in
Section 415(c)(1)(A) of the Code is adjusted for the cost of
living in accordance with Section 415(d) of the Code.
(iii) For purposes of this section only, the term "Compensation"
shall have the definition set forth in Treasury Regulation
Section 1.415-2(d).
(iv) The limitations of this Section with respect to any
Participant who at any time has been a Participant in any
other qualified defined contribution plan maintained by the
Employer shall apply as if the total contributions under all
such defined contribution plans in which a Participant has
participated were under one plan.
If the above limitations would be exceeded in any Plan Year, the
Committee shall take one (1) or more of the following actions prior
to the end of the Plan Year (or within the time period permitted by
regulations) to the extent necessary to prevent the limitations from
being exceeded:
(i) On or before December 31, 1987, discontinue or reduce the
Participant's Supplemental Contribution for the remainder of
the Plan Year;
(ii) On or before December 31, 1987, instruct the Trustee to
return all or a portion of the Participant's Supplemental
Contribution made during the Plan Year;
(iii) On or before December 31, 1987, discontinue or reduce the
Participant's Basic Contribution;
(iv) On or before December 31, 1987, instruct the Trustee to
return all or a portion of the Participant's Basic
Contribution made during the Plan Year;
(v) Instruct the Employer to reduce or eliminate its Employer
Contribution to the Participant's Account for the remainder
of the Plan Year;
(vi) Allocate amounts to other Participant's Accounts to the
extent the limitations would not be exceeded. If this
allocation would cause the limitations to be exceeded for
all Participants, the unallocated excess amounts shall be
placed in a suspense account. The value of the suspense
account shall be allocated to all Participant's Accounts in
succeeding Plan Years before any Employer Contribution,
Employee Contribution or Participant Contribution which
would be treated as an
45
<PAGE>
annual addition may be made to the Plan for any Plan Year in
which the suspense account exists.
Safe Harbor Rule. On or before December 31, 1987, if a Participant's
----------------
Compensation for any Plan Year is such that he is among the highly compensated
employees of the Employer (as defined in Section 414(q) of the Code), the
Participant's Employee Contribution shall not exceed the maximum amount
determined by the Employer to be acceptable so that the "average contribution
percentage" (as defined in Section 401(m) of the Code) for the eligible highly
compensated Employees does not exceed the greater of 125% of such percentage for
the non-highly compensated Employees except that the "average contribution
percentage" for the highly compensated Employees may be greater than 125% of the
"average contribution percentage" of the non-highly compensated Employees, to a
maximum of 200% of such "average contribution percentage" for the non-highly
compensated Employees if the "average contribution percentage" of the highly
compensated Employees does not exceed the "average contribution percentage" of
the non-highly compensated Employees by more than two (2) percentage points. If
a reduction is to be made to the Employee Contribution of any Participant among
the highly compensated Employees, the Employer shall calculate the maximum
"average contribution percentage" for such group pursuant to this section. The
Employee Contribution of highly compensated Employees shall be reduced
progressively to the highest uniform percentage of each such Participant's
Compensation which the Employer, in its discretion, shall deem to be permissible
to ensure that the "average contribution percentage" of such group does not
exceed the maximum allowable percentage.
Investment of Prior Thrift Account. A Participant's Prior Thrift
----------------------------------
Account will be invested among the available Funds in accordance with the
Participants election as to the investment of his Participant Account made under
Section 6.3 of this document.
Vesting of Employee Contributions. The amount of a Participant's Prior
---------------------------------
Thrift Account that is attributable to his Employee Contributions shall be fully
vested at all times.
Vesting of Employer Contributions. The amount of a Participant's Prior
---------------------------------
Thrift Account that is attributable to the Employer Contributions shall become
vested in the Participant in accordance with the following schedule:
Years of Percentage
Continuous Service Vested
------------------ ----------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
Vesting shall take place on the anniversary date of the earliest of
the Participant's date of employment with the Employer or the Employer of the
Pillsbury Thrift Plan. Upon termination of employment of a Participant prior to
attaining Normal Retirement Date, Total and Permanent Disability, or death, the
nonvested amounts to the credit of a Participant's Account shall be forfeited.
Suspension of participation shall not interrupt the
46
<PAGE>
vesting schedule with respect to any portion of the amounts to the credit of a
Participant's Account. Participants under the Prior Plan are 100% vested in
Employer Contributions made prior to January 1, 1986 under the Pillsbury Thrift
Plan.
Total Withdrawals from Prior Thrift Plan Contributions. Upon written
------------------------------------------------------
notice to the Committee at least 30 days prior to the next succeeding Valuation
Date, and on a form as approved by the Committee, a Participant shall be
entitled to withdraw in cash all Basic Contributions, all Supplemental and the
entire vested interest of the Employer Contributions and all accumulated income,
gains, or losses attributable thereto allocated to those contributions as of
that Valuation Date.
A Participant's participation in the Thrift Plan shall be suspended
upon the effective date of a Total Withdrawal for a period not less than 24
months. Any suspension of participation under the Thrift Plan prior to January
1, 1988 shall not prevent the Participant from making pre-tax participant
contributions under Section 4.2 of the Plan.
Partial Withdrawals from Prior Thrift Plan Contributions. Upon
--------------------------------------------------------
written notice to the Committee at least thirty (30) days prior to the next
succeeding Valuation Date, and on a form as approved by the Committee, a
Participant shall be entitled to withdraw up to a maximum of 75% of the value of
all Basic and Supplemental Contributions to the Participant's account, including
all accumulated income, gains, or losses allocated thereon, provided that as of
the effective date of any partial withdrawal, the Employee shall have been a
Participant in the Plan for at least two (2) complete years. Any partial
withdrawal made pursuant to this subsection (c) shall be in a maximum amount no
less than 25% of the value of the Basic and Supplemental Contributions portion
of his account, including all accumulated income, gains, or losses allocated
thereon.
A Participant's participation in the Prior Thrift Plan shall be
suspended upon the effective date of a partial withdrawal for a period of not
less than 12 months. Any suspension of participation under the Prior Thrift
Plan before January 1, 1988 shall not prevent the Participant from making pre-
tax Participant Contributions under Section 4.2 of the Plan.
47
<PAGE>
EXHIBIT 10.9(8)
CHART HOUSE ENTERPRISES, INC.
EXECUTIVE SEVERANCE AGREEMENT
This Executive Severance Agreement is made and entered into effective as of
April 2, 1996, between Chart House Enterprises, Inc., a Delaware corporation
(the "Company"), and [Name] (the "Executive"), with reference to the following
facts:
A. The Company desires to employ the Executive as [Title], to perform the
duties customarily performed by the [Title] of a corporation, in order to have
the benefit of the Executive's special knowledge, experience, reputation, and
abilities for the benefit of the Company, its customers and its stockholders.
B. The Executive has advised the Company of his willingness to act as the
[Title] and to utilize his special knowledge, experience, reputation, and
abilities for the benefit of the Company, its customers, and its stockholders
for the terms provided herein.
C. In recognition of the Executive's value to the Company, the Company
wishes to provide certain payments and/or benefits in the event the Executive's
employment with the Company is terminated under certain conditions.
NOW, THEREFORE, in consideration of the foregoing recitals and the terms,
conditions, and covenants contained herein, the parties agree as follows:
1. Employment. The Company hereby employs the Executive, and the
----------
Executive hereby accepts this employment and shall exercise and perform
faithfully, exclusively, and to the best of his ability on behalf of the Company
the powers and duties of its [Title] on the terms and conditions set forth
herein.
2. Executive's Services and Duties. During the Executive's employment,
-------------------------------
the Executive shall:
(a) Observe and conform to the policies and directions promulgated
from time to time by the Company's Board of Directors and its Chief Executive
Officer;
(b) Exercise and perform such powers and duties customarily performed
by the [Title] of a corporation, including general executive duties and other
powers and duties pertaining by law, regulation, or practice to the office of
the [Title], or otherwise imposed by the policies or Bylaws of the Company; and
(c) Devote his full-time ability and attention to the business of the
Company during the term of this Agreement, provided that the Executive may
engage in such activities as do not conflict with the business of the Company or
interfere with the Executive's performance of duties under this Agreement.
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
CHART HOUSE ENTERPRISES, INC.
The services to be performed by the Executive may be extended or curtailed
from time to time at the discretion of the Board of Directors or Chief Executive
Officer of the Company, provided such services shall at all times be of the
nature customarily performed by the [Title] of a corporation.
Unless the parties agree otherwise in writing, while the Executive is
employed by the Company, the Executive shall perform the services contemplated
under this Agreement at the Company's principal office, located in [Location]
provided, however, that the Company may from time to time require the Executive
to travel temporarily to other locations on Company business.
3. Terms and Effective Date. The terms and provisions of this Agreement
------------------------
commence on April 1 1996 and continue so long as Executive is employed by the
Company.
In the event this Agreement becomes inoperative or is otherwise terminated,
all rights and benefits which have become vested prior to such termination shall
remain in full force and effect and such termination shall not be construed as
relieving any party from the performance of any obligation requiring performance
after the date of such termination.
None of the provisions of this Executive Severance Agreement alter or
modify the Company's at will nature of employment for its employees. Employment
is for an unspecified term and is to continue only at the mutual will of both
Executive and the Company. This means that either the Executive or the Company
may terminate the employment relationship at any time, for any reason, with or
without cause or notice. This at-will aspect of your employment cannot be
changed, modified, amended or rescinded except by an individual written
agreement to the contrary signed by the Executive and the Company's Chief
Executive Officer.
4. Terminating Events. Certain compensation will be paid under
------------------
this Agreement to the Executive upon a "Terminating Event". A "Terminating
Event" includes:
(a) The termination of the Executive's employment with the Company for
any reason other than a "Termination for Cause". A "Termination for Cause"
shall mean a termination on the grounds of the Executive's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar minor
offenses) or final cease-and-desist order, or in the event of a material breach
by the Executive of any provision of this Agreement.
(b) A "Qualifying Change in Employment Conditions," which is defined
as:
2
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
CHART HOUSE ENTERPRISES, INC.
(i) The movement of the Executive's primary work location more than
60 miles from its location on the date on which this Agreement is executed,
which is not consented to by Executive; or
(ii) A reduction in base salary and/or annual incentive or bonus
opportunity specific to the Executive that does not affect other executives in
similar positions with similar Agreements; or
(iii) A significant diminution in job title and/or level of
responsibility and job duties from those currently performed by the Executive.
A "Terminating Event" does not include a "Termination for Cause".
5. Change in Control. Certain compensation will be paid under this
-----------------
Agreement to the Executive if a Terminating Event occurs within a certain period
of time before or after a "Change in Control". A "Change in Control" will be
deemed to have occurred upon the occurrence of one or more of the following
events:
(a) The acquisition by any person or entity of fifty percent (50%) or
more of the combined voting power of the Company's then outstanding shares, or
any merger, acquisition, consolidation, or corporate reorganization in which
fifty percent (50%) or more of the combined voting power of the Company's then
outstanding shares changes hands
(b) A change in the majority composition of the Board of Directors
during any two-year period
(c) A merger, consolidation, or other combination in which the Company
is not the surviving entity
(d) A complete liquidation of the Company approved by the
stockholders.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur pursuant to this Section 5 solely because fifty percent (50%) or more of
the combined voting power of the Company's then outstanding shares is acquired
by (A) a trustee or other fiduciary holding securities under one or more
employee benefit plans maintained by the Company or any of its Subsidiaries or
(B) any Company which, immediately prior to such acquisition, is owned directly
or indirectly by the stockholders of the Company in the same proportion as their
ownership of stock in the Company immediately prior to such acquisition.
The preceding definition of a Change in Control does not apply to the
Executive if the Executive:
(a) Is a member of a group which first announces a proposal which
would result in a Change in Control and is ultimately successful, and/or
3
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
CHART HOUSE ENTERPRISES, INC.
(b) Acquires at least a two percent (2%) equity interest in the entity
which ultimately acquired the Company pursuant to that transaction.
6. Compensation Payable By the Company Upon Terminating Events.
-----------------------------------------------------------
Compensation shall be payable by the Company to the Executive upon a Terminating
Event in the following amounts:
(a) In the event of a Terminating Event as defined by Section 4
of this Agreement, unrelated to a Change in Control as defined by Section 5 of
this Agreement, the amount paid to the Executive will be one (1) times the
Executive's current annual base salary in effect at the time of the Terminating
Event plus the amount of any bonus, commission, and incentive compensation paid
during the twelve-month period immediately preceding the date of the Terminating
Event.
(b) In the event of a Terminating Event within the period of time
commencing three (3) months before a Change in Control and ending twelve (12)
months after a Change in Control as defined by Section 5 of this Agreement, the
amount to be paid to the Executive will be two (2) times the Executive's current
annual base salary in effect at the time of the Terminating Event plus two (2)
times the amount of any bonus, commission, and incentive compensation paid
during the twelve-month period immediately preceding the date of the Terminating
Event.
In addition to the compensation payable under Section 6(b), the termination of
the Executive in connection with a Change in Control will result in: (i)
Continuation of all Executive benefits for a period of one year. Continuation
will include health, life, and disability insurance premiums and other benefits
conferred on the Executive during the period immediately preceding the date of
the Terminating Event. These benefits will be paid by the Company so as to
cause the same cost to the Executive as when employed. In the event that any
group benefit plan sponsored by the Company in which the Executive is a
participant during the period immediately prior to the Terminating Event does
not permit continuing coverage of the Executive following the Terminating Event,
then the Company will pay for comparable coverage under a separate arrangement;
and (ii) Reimbursement to the Executive of any legal fees or court costs
incurred by the Executive in the event that the Company or its successor fails
to meet the obligations under this Agreement.
7. Payment of Compensation or Benefits. The Board of Directors has the
------------------------------------
discretion to determine the timing of the payments due under this Agreement,
subject to the following constraints:
(a) If compensation payments are made in a lump sum, the payment must
be made by the earlier of thirty (30) days after the end of the calendar year
or three (3) months after the date of the Terminating Event.
4
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
CHART HOUSE ENTERPRISES, INC.
(b) If compensation payments are made in installments, the payments
must commence within thirty (30) days after the date of the Terminating Event
and the final payment must be made within twelve (12) months after the date of
the Terminating Event.
8. Prior Agreements. The compensation arrangements set forth herein
----------------
shall supersede all prior agreements or understandings relating to compensation
payable to the Executive upon a Terminating Event.
9. Nonassignment.
-------------
(a) The obligations and duties of the Executive under this Agreement
are personal and not assignable. This Agreement may not be assigned by the
Company without the prior written consent of the Executive.
(b) Neither the Executive nor the Executive's spouse nor his estate
shall have any right to alienate, pledge, hypothecate, encumber or dispose of
the right to receive payments under this Agreement, nor shall such payments be
subject to pledge, attachment or claims of creditors. Such payments and the
rights thereto are expressly declared to be nonassignable and nontransferable.
In the event of any attempted assignment or transfer, the Company shall not be
bound thereby and shall be relieved of its liability under this Agreement by
making payments in accordance with this Agreement to the parties designated to
receive payments under this Agreement. The right of any person to receive
payments of distributions from the Company under this Agreement shall be no
greater than the right of any unsecured creditor of the Company.
10. Successors.
-----------
(a) This Agreement shall inure to the benefit of and shall be binding
upon the Company, its successors and its assigns. As used in this Agreement, the
term "successor" shall include any firm, corporation or other business entity
which any time, whether by merger, consolidation, conversion or other corporate
reorganization involving the Company, directly or indirectly acquires all or
substantially all of the assets or business of the Company.
(b) The Company agrees that it will require any successor, by
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place, provided that no such written assumption shall be required in
connection with a transaction that does not constitute a Change in Control as
defined in Section 5 above. As used in this Agreement, the term "Company" shall
include any successor to its business and/or assets which becomes bound by all
the terms and provisions of this Agreement by agreement or by operation of law,
without regard to whether such successor executes and delivers and agreement
provided for in this Section 10.
5
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
CHART HOUSE ENTERPRISES, INC.
(c) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts shall
be paid in accordance with the terms of this Agreement to the Executive's
estate, unless the Executive has provided written notice to the Company
specifying a different beneficiary or beneficiaries, which notice(s) may be
changed from time to time at the option of the Executive, subject to the consent
of the Executive's spouse if his spouse then has an enforceable interest in such
benefits.
11. Waiver and Modification. Any waiver, alteration or modification of
-----------------------
any of the terms of this Agreement shall be valid only if made in writing and
signed by the parties hereto. No waiver by either of the parties hereto of their
rights hereunder shall be deemed to constitute a waiver with respect to any
subsequent occurrences or transactions hereunder unless such waiver specifically
states that it is to be construed as a continuing waiver. Notwithstanding the
foregoing, the Board of Directors of the Company expressly reserves the right,
at any time and from time to time, to modify or amend any or all of the
provisions of this Agreement.
12. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of California. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective only to the
extent of such prohibition of unenforceability without invalidating the
remaining provisions hereof.
13. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
accordance with rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court or competent
jurisdiction.
14. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered or if mailed by United States certified or registered
mail, prepaid, to the parties at, in the case of the Company: Chart House
Enterprises, Inc., 115 South Acacia Avenue, Solana Beach, California, 92075,
and, in the case of the Executive, at the most recent address shown in the
Company's personnel files, or at such other address as shall be given in
writing by either party to the other. The date of such personal delivery or the
date three days after such mailing shall be deemed to be the effective date of
such notice, demand or communication.
15. Headings. Headings herein are for convenience only, are not a part
--------
hereof and shall not be used in construing this Agreement.
6
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
CHART HOUSE ENTERPRISES, INC.
16. Entire Agreement. This Agreement constitutes and embodies the
----------------
entire understanding and agreement of the parties hereto relating to the matters
addressed herein. Except as otherwise provided herein, there are no other
agreements or understanding, written or oral, in effect between the parties
relating to the matters addressed herein.
17. Rules and Regulations. To the extent required by any state or
---------------------
Federal rules and regulations applicable to the Company, the terms and
provisions of such rules and regulations are hereby incorporated by reference,
together with any amendments thereto hereinafter enacted, and notwithstanding
anything contained in this Agreement to the contrary, the rights and obligations
of any party hereunder shall be the subject to all of the terms and limitations
contained in such rules and regulations, including all amendments thereto.
18. Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which shall constitute one
instrument.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
effective as of the day and year first above written.
By:__________________________________________________________________________
[Name] (the "Executive")
CHART HOUSE ENTERPRISES, INC.
BY:__________________________________________________________________________
Arthur J. Nagle, Chairman of the Compensation Committee of the
Board of Directors of CHART HOUSE ENTERPRISES, INC.
7
<PAGE>
EXHIBIT 10.18(1)
ASSET PURCHASE AGREEMENT
------------------------
Dated as of March 18, 1996
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I DEFINITIONS........................................................... 1
1.1 1993 License Agreement................................................ 1
1.2 1993 Management Agreement............................................. 2
1.3 Actions............................................................... 2
1.4 Affiliate............................................................. 2
1.5 Agreement............................................................. 2
1.6 Benefit Arrangement................................................... 2
1.7 Best Knowledge........................................................ 2
1.8 Books and Records..................................................... 2
1.9 Buyer................................................................. 3
1.10 California/Arizona Buyer.............................................. 3
1.11 CHE................................................................... 3
1.12 Cleanup............................................................... 3
1.13 Closing............................................................... 3
1.14 Closing Balance Sheet................................................. 3
1.15 Closing Date.......................................................... 3
1.16 Code.................................................................. 3
1.17 Condition............................................................. 3
1.18 Contract Rights....................................................... 3
1.19 Contracts............................................................. 3
1.20 Damages............................................................... 3
1.21 Disclosure Schedules.................................................. 3
1.22 Employee Plans........................................................ 3
1.23 Encumbrances.......................................................... 3
1.24 Environmental Claim................................................... 4
1.25 Environmental Laws.................................................... 4
1.26 ERISA................................................................. 4
1.27 ERISA Affiliate....................................................... 4
1.28 Excess................................................................ 4
1.29 Excluded Assets....................................................... 4
1.30 Financial Statements.................................................. 5
1.31 First Amendment to IR-L.P. Partnership Agreement...................... 5
1.32 Fixtures and Equipment................................................ 5
1.33 FL Holdings........................................................... 5
1.34 GAAP.................................................................. 5
1.35 Hazardous Materials................................................... 5
1.36 Inventories........................................................... 5
1.37 IR-L.P................................................................ 5
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
1.39 Leasehold Estates..................................................... 5
1.40 Leasehold Improvements................................................ 5
1.41 Leases................................................................ 6
1.42 Liabilities........................................................... 6
1.43 License Agreement..................................................... 6
1.44 Liens................................................................. 6
1.45 Liquor Licenses....................................................... 6
1.46 Management Agreement.................................................. 6
1.47 Multi-Employer Plan................................................... 6
1.48 Note and Loan Agreement............................................... 6
1.49 OSHA.................................................................. 6
1.50 Partnership Agreement................................................. 6
1.51 Partnership Interest Purchase Agreement............................... 6
1.52 Pension Plan.......................................................... 6
1.53 Permits............................................................... 7
1.54 Person................................................................ 7
1.55 Pledge and Security Agreement......................................... 7
1.56 Post-Closing Schedule................................................. 7
1.57 Prorations............................................................ 7
1.58 Purchase Price........................................................ 7
1.59 Purchased Assets...................................................... 7
1.60 Real Property......................................................... 8
1.61 Release............................................................... 8
1.62 Representative........................................................ 8
1.63 Restaurant Operations................................................. 8
1.64 Restaurants........................................................... 8
1.65 Seller................................................................ 8
1.66 Seneca................................................................ 8
1.67 Shortfall............................................................. 8
1.68 Sublease Agreement.................................................... 8
1.69 Taxes................................................................. 8
1.70 Title Documents....................................................... 9
1.71 Welfare Plan.......................................................... 9
ARTICLE II PURCHASE AND SALE OF PURCHASED ASSETS AND ASSUMPTION OF LIABILITIES... 9
2.1 Transfer of Purchased Assets.......................................... 9
2.2 Assumption of Liabilities............................................. 9
2.3 Purchase Price........................................................ 10
ARTICLE III CLOSING............................................................... 10
3.1 Closing 10
3.2 Conveyances at Closing................................................ 11
3.3 Assignment and Assumption Document.................................... 11
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER.............................. 12
4.1 Organization and Qualification of Seller.............................. 12
4.2 Authority of Seller................................................... 12
4.3 Due Execution......................................................... 12
4.4 No Conflict or Violation.............................................. 12
4.5 Consents and Approvals................................................ 13
4.6 Books and Records..................................................... 13
4.7 Financial Statements.................................................. 13
4.8 Litigation............................................................ 13
4.9 Compliance with Law................................................... 14
4.10 Liquor Licenses....................................................... 14
4.11 Changes............................................................... 14
4.12 Purchased Assets...................................................... 16
4.13 Real Property and Leases.............................................. 16
4.14 Contracts and Commitments............................................. 17
4.15 Absence of Breaches or Defaults....................................... 18
4.16 1993 License Agreement................................................ 18
4.17 Employee Benefit Plans................................................ 18
4.18 Taxes and Tax Returns................................................. 19
4.19 Environmental......................................................... 20
4.20 Insurance............................................................. 21
4.21 Brokers and Finders................................................... 21
4.22 Illegal Payments...................................................... 21
4.23 No Other Agreements to Sell........................................... 21
4.24 Labor Matters......................................................... 22
4.25 Suppliers............................................................. 22
4.26 Inventories........................................................... 22
4.27 Material Misstatements Or Omissions................................... 22
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER............................... 23
5.1 Organization.......................................................... 23
5.2 Authority............................................................. 23
5.3 Due Execution......................................................... 23
5.4 No Conflict or Violation.............................................. 23
5.5 Consents and Approvals................................................ 24
5.6 Litigation............................................................ 24
5.7 Brokers and Finders................................................... 24
5.8 Assets and Liabilities................................................ 24
5.9 Material Misstatements Or Omissions................................... 24
ARTICLE VI FURTHER ASSURANCES.................................................... 24
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE VII CONDITIONS TO THE OBLIGATION OF SELLER................................. 25
7.1 Representations, Warranties and Covenants.............................. 25
7.2 Consents............................................................... 25
7.3 No Proceedings or Litigation........................................... 25
7.4 Opinion of Counsel..................................................... 25
7.5 Certificates........................................................... 26
7.6 Authorization Documents................................................ 26
7.7 Loan, Security and Guaranty Documents.................................. 26
7.8 Assignment and Assumption Document..................................... 26
7.9 Sublease Agreement..................................................... 26
7.10 1993 Management Agreement and 1993 License Agreement................... 26
7.11 License Agreement...................................................... 26
7.12 Management Agreement................................................... 26
7.13 Partnership Interest Purchase Agreement................................ 26
ARTICLE VIII CONDITIONS TO THE OBLIGATION OF BUYER.................................. 27
8.1 Limited Partner Approval............................................... 27
8.2 Representations, Warranties and Covenants.............................. 27
8.3 Consents............................................................... 27
8.4 Title.................................................................. 27
8.5 No Proceedings or Litigation........................................... 27
8.6 Opinions of Counsel.................................................... 28
8.7 Certificates........................................................... 28
8.8 Material Changes....................................................... 28
8.9 Corporate Documents.................................................... 28
8.10 Conveyancing Documents................................................. 28
8.11 Due Diligence Review................................................... 28
8.12 Inspection and Studies................................................. 28
8.13 No Guaranty of Leases.................................................. 29
8.14 1993 Management Agreement and 1993 License Agreement................... 29
8.15 Name Change............................................................ 29
8.16 License Agreement...................................................... 29
8.17 Management Agreement................................................... 29
8.18 Partnership Interest Purchase Agreement................................ 29
ARTICLE IX RISK OF LOSS........................................................... 29
ARTICLE X PRE-CLOSING COVENANTS.................................................. 30
10.1 Conduct of Business Prior to Closing................................... 30
10.2 Employees.............................................................. 31
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
10.3 Financial Statements.................................................. 31
10.4 Title Documents; Title Insurance...................................... 31
10.5 Consent of the Limited Partners....................................... 31
10.6 Access to Information; Inspections and Studies........................ 31
10.7 Consents; Non-Disturbance Agreements.................................. 31
10.8 Public Announcements.................................................. 32
10.9 Notice of Development................................................. 32
10.10 Advances.............................................................. 32
ARTICLE XI POST-CLOSING COVENANTS................................................ 33
11.1 Health Insurance Benefits............................................. 33
11.2 Survival of Representations, Etc...................................... 33
11.3 Indemnification....................................................... 33
11.4 Certain Post-Closing Adjustments...................................... 37
11.5 Nonsolicitation of Employees.......................................... 38
11.6 Proprietary Information............................................... 38
11.7 Collection of Receivables............................................. 39
11.8 Further Assurances.................................................... 39
ARTICLE XII TERMINATION........................................................... 39
12.1 Termination........................................................... 39
12.2 Effect of Termination................................................. 40
ARTICLE XIII MISCELLANEOUS......................................................... 40
13.1 Assignment; Parties in Interest....................................... 40
13.2 Notices............................................................... 40
13.3 Confidential Information.............................................. 41
13.4 Attorneys' Fees....................................................... 41
13.5 Choice of Law......................................................... 41
13.6 Entire Agreement; Amendments and Waivers.............................. 42
13.7 Multiple Counterparts................................................. 42
13.8 Expenses.............................................................. 42
13.9 Invalidity............................................................ 42
13.10 Titles................................................................ 42
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
EXHIBITS:
- -----------
EXHIBIT "A" FORM OF LICENSE AGREEMENT
- -----------
EXHIBIT "B" FORM OF MANAGEMENT AGREEMENT
- -----------
EXHIBIT "C" FORM OF LOAN AND SECURITY AGREEMENT
- -----------
EXHIBIT "D" FORM OF PROMISSORY NOTE
- -----------
EXHIBIT "E" FORM OF PLEDGE AND SECURITY AGREEMENT
- -----------
EXHIBIT "F" FORM OF BILL OF SALE
- -----------
EXHIBIT "G" FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
- -----------
EXHIBIT "H" FORM OF TERMINATION AGREEMENT OF 1993 MANAGEMENT AGREEMENT
- -----------
EXHIBIT "I" FORM OF TERMINATION AGREEMENT OF 1993 LICENSE AGREEMENT
- -----------
EXHIBIT "J" FORM OF NON-DISTURBANCE LANGUAGE
- -----------
EXHIBIT "K" FORM OF GUARANTY
- -----------
SCHEDULES:
- -------------
SCHEDULE 1.64 RESTAURANTS
- -------------
SCHEDULE 4.4 NO CONFLICT OR VIOLATION
- -------------
SCHEDULE 4.5 CONSENTS AND APPROVALS
- -------------
SCHEDULE 4.7 LIABILITIES
- -------------
SCHEDULE 4.9 COMPLIANCE WITH LAW
- -------------
SCHEDULE 4.10 PERMITS
- -------------
SCHEDULE 4.11 CHANGES SINCE DECEMBER 31, 1995
- -------------
SCHEDULE 4.12 ASSETS
- -------------
SCHEDULE 4.13 REAL PROPERTY AND LEASES
- -------------
SCHEDULE 4.14 CONTRACTS AND COMMITMENTS
- -------------
SCHEDULE 4.17 EMPLOYEE BENEFIT PLANS
- -------------
SCHEDULE 4.18 TAXES AND TAX RETURNS
- -------------
SCHEDULE 4.19 ENVIRONMENTAL
- -------------
SCHEDULE 4.20 INSURANCE
- -------------
SCHEDULE 4.25 SUPPLIERS
- -------------
</TABLE>
-vi-
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of March 18,
1996, is made and entered into by and between ISLANDS RESTAURANTS, INC., a
Delaware corporation ("Seller") and ISLANDS FLORIDA LP, a Delaware limited
partnership ("Buyer").
R E C I T A L S :
----------------
A. WHEREAS, Seller currently owns and operates six (6) restaurants
under the trade name of "Islands" throughout Florida, all as more particularly
described on Schedule 1.64 (the "Restaurants").
-------------
B. WHEREAS, Buyer desires to purchase from Seller, and Seller desires
to sell to Buyer, upon the terms and subject to the conditions set forth in this
Agreement, certain assets, as more particularly described in this Agreement,
necessary for the operation of the Restaurants as a going concern.
C. WHEREAS, the parties now desire to effectuate the foregoing
provisions of these Recitals upon such terms and subject to the conditions as
are hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
A G R E E M E N T :
------------------
ARTICLE I
DEFINITIONS
-----------
For purposes of this Agreement and all Exhibits and Schedules attached
hereto, the following terms shall have the meanings specified below. References
to plural terms shall include the singular and references to the singular shall
include the plural of such terms.
1.1 "1993 License Agreement" shall mean that certain Amended and
----------------------
Restated Area Development and License Agreement entered into on December 16,
1993, which is currently by and between IR-L.P. (the successor to the agreement
by assignment from Seneca Partners, Inc., a California corporation formerly
known as Islands Restaurants), as licensor, and Seller (formerly known as Big
Wave, Inc.), as licensee.
1
<PAGE>
1.2 "1993 Management Agreement" shall mean that certain Management
-------------------------
Agreement entered into on December 16, 1993 (but made effective as of January 3,
1994) which is currently by and between IR-L.P. (the successor to the agreement
by assignment from Seneca Partners, Inc., a California corporation, formerly
known as Islands Restaurants) and Seller (formerly known as Big Wave, Inc.).
1.3 "Actions" shall mean any action, claim, suit, litigation,
-------
proceeding, dispute or arbitration and any outstanding order, writ, injunction,
judgment or decree.
1.4 "Affiliate" means, applied to any Person, any other Person
---------
directly or indirectly controlling, controlled by, or under common control with,
that Person. For purposes of this definition, "control" as applied to any
Person means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities or partnership interests, by
contract, or otherwise.
1.5 "Agreement" shall have the meaning given in the Preamble hereof.
---------
1.6 "Benefit Arrangement" shall mean any written employment,
-------------------
consulting, severance or other similar contract, arrangement or policy and each
written plan, arrangement, program, agreement or commitment providing for
insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, retirement benefits, life, health, disability
or accident benefits (including, without limitation, any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Code providing
for the same or other benefits) or for deferred compensation, profit-sharing
bonuses, stock options, stock appreciation rights, stock purchases or other
forms of incentive compensation or post-retirement insurance, compensation or
benefits which (a) is not a Welfare Plan, Pension Plan or Multi-Employer Plan,
(b) is entered into, maintained, contributed to or required to be contributed
to, as the case may be, by Seller or an ERISA Affiliate in connection with the
Restaurant Operations or under which Seller or any ERISA Affiliate may incur any
liability arising out of the Restaurant Operations, and (c) covers any employee
or former employee of Seller.
1.7 "Best Knowledge" when used with respect to (i) Seller, shall mean
--------------
known to the actual knowledge of Douglas Kollus, Glen Freter or any other
executive officer (no more junior than a Vice President) of Seller, or John M.
Creed, William R. Kuntz, Jr., Esq., Harold E. Gaubert, Jr., or Timothy A.
Halverson, each in their individual capacities and not in their capacities as
officers of CHE, and (ii) Buyer, shall mean known to the actual knowledge of
John P. Wagner or Anthony R. DeGrazier, II. Notwithstanding anything in this
Agreement to the contrary, no individual named in this definition shall have any
personal liability in connection with this Agreement, and the fact that certain
officers and/or employees of CHE and Seneca are included in this definition
shall not result in any liability on the part of CHE or Seneca for any of the
representations and warranties of Seller or Buyer made herein.
1.8 "Books and Records" shall mean (a) all records and lists
-----------------
pertaining to the Purchased Assets and/or the Restaurant Operations, (b) all
records and lists pertaining to the business, customers, suppliers or personnel
of any of the Restaurants, (c) all product, business and marketing plans and
records used by or in connection with any of the Restaurants, and (d) all
2
<PAGE>
books, ledgers, files, reports, plans, and operating records of every kind
related to or used in connection with the Purchased Assets and/or Restaurant
Operations. Books and Records shall include any of the foregoing which were or
are maintained by either of Seller or CHE (or any of their Representatives).
1.9 "Buyer" shall have the meaning given in the Preamble.
-----
1.10 "California/Arizona Buyer" shall have the meaning given in
------------------------
Section 7.13 hereof.
1.11 "CHE" shall mean Chart House Enterprises, Inc., a Delaware
---
corporation and the sole stockholder of Seller.
1.12 "Cleanup" shall mean all actions required to: (1) cleanup,
-------
remove, treat or remediate Hazardous Materials in the indoor or outdoor
environment; (2) prevent the Release of Hazardous Materials so that they do not
migrate, endanger or threaten to endanger public health or welfare of the indoor
or outdoor environment; (3) perform pre-remedial studies and investigations and
post-remedial monitoring and care; or (4) respond to any government requests for
information or documents in any way relating to cleanup, removal, treatment or
remediation or potential cleanup, removal, treatment or remediation or Hazardous
Materials in the indoor or outdoor environment.
1.13 "Closing" shall have the meaning given in Section 3.1 hereof.
-------
1.14 "Closing Balance Sheet" shall mean the balance sheet relating to
---------------------
the Restaurant Operations, dated as of the Closing Date.
1.15 "Closing Date" shall have the meaning given in Section 3.1
------------
hereof.
1.16 "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
1.17 "Condition" shall have the meaning given in Section 4.1 hereof.
---------
1.18 "Contract Rights" shall mean all of Seller's rights and
---------------
obligations under the Contracts listed on Schedule 4.14 of the Disclosure
-------------
Schedules attached hereto.
1.19 "Contracts" shall have the meaning given in Section 4.14 hereof.
---------
1.20 "Damages" shall have the meaning given in Section 11.3(a)
-------
hereof.
1.21 "Disclosure Schedules" shall mean the Disclosure Schedules
--------------------
attached hereto.
1.22 "Employee Plans" shall mean all Benefit Arrangements, Welfare
--------------
Plans, Pension Plans and Multi-Employer Plans.
1.23 "Encumbrances" shall mean any claim, lien, pledge, option,
------------
charge, easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use
3
<PAGE>
restriction, conditional sales agreement, encumbrance or other right of third
parties, whether voluntarily incurred or arising by operation of law, and
includes, without limitation, any agreement to give any of the foregoing in the
future, and any contingent sale or other title retention agreement or lease in
the nature thereof.
1.24 "Environmental Claim" shall mean any claim, action, cause of
-------------------
action, investigation or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, potential liability
for investigatory costs, Cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (A) the presence, or Release into the indoor
or outdoor environment, of any Hazardous Materials at any location, whether or
not owned or operated by Seller or (B) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
1.25 "Environmental Laws" shall mean all federal, state, local and
------------------
foreign laws and regulations relating to pollution or protection of the
environment, including without limitation, laws relating to Releases or
threatened Releases of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to record keeping, notification, disclosure and
reporting requirements respecting Hazardous Materials.
1.26 "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended.
1.27 "ERISA Affiliate" shall mean any entity which is (or at any
---------------
relevant time was) a member of a "controlled group of corporations" with or
under "common control" with Seller as defined in Section 414(b) or (c) of the
Code.
1.28 "Excess" shall have the meaning given in Section 11.4(a) hereof.
------
1.29 "Excluded Assets" shall, notwithstanding any other provision of
---------------
this Agreement, mean the 1993 Management Agreement and any and all fees,
overhead reimbursements and other amounts due and owing in connection with the
1993 Management Agreement, the 1993 License Agreement, all cash items (other
than cash in registers and reserves at the Restaurants but including, without
limitation, cash in depository and liquor bank accounts, all deferred pre-
opening expenses, all accounts receivable (other than customer trade accounts
receivable and employee advances, all of which shall be scheduled and, subject
to Buyer's reasonable approval, be included in Purchased Assets, such schedule
to be delivered in connection with the Closing Balance Sheet, but including,
without limitation, reimbursements due from IR-L.P. and credit card
receivables), any and all amounts accounted for as territorial rights, any and
all supplies held in the commissary, all Employee Plans and all other assets,
properties and rights of Seller not included within the definition of Purchased
Assets set forth herein.
4
<PAGE>
1.30 "Financial Statements" shall mean the unaudited balance sheet of
--------------------
Seller as of December 31, 1995, and the related unaudited profit and loss
statements for the year ended December 31, 1995.
1.31 "First Amendment to IR-L.P. Partnership Agreement" shall mean
------------------------------------------------
that certain First Amendment to First Amended and Completely Restated Agreement
of Limited Partnership of Islands Restaurants, L.P., to be entered into prior to
the Closing upon the written approval of holders of greater than fifty percent
(50%) of the limited partnership interests, and which shall amend, among other
things, the purposes of IR-L.P. to include, among other things, the business of
owning and managing entities that own, manage and operate the Restaurants.
1.32 "Fixtures and Equipment" shall mean all of the furniture,
----------------------
fixtures, furnishings, equipment, machinery, appliances, tools, small wares,
pots, pans, silverware, computers and computer systems, computer software
(except for any and all computer software related to the Sextant System which is
proprietary to CHE) owned by Seller and used in connection with the Restaurant
Operations.
1.33 "FL Holdings" shall mean Islands FL Holdings LP, a Delaware
-----------
limited partnership and the sole general partner and Class B limited partner of
Buyer.
1.34 "GAAP" shall have the meaning given in Section 4.7 hereof.
----
1.35 "Hazardous Materials" shall mean all substances defined as
-------------------
Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. (S) 300.5, or defined
as such by, or regulated as such under, any Environmental Law.
1.36 "Inventories" shall mean (a) all of Seller's inventories held
-----------
for resale in the ordinary course of Seller's business in connection with the
Restaurant Operations, including, without limitation, food and beverage
inventory and supplies and (b) all of Seller's office supplies and similar
materials used in connection with the Restaurant Operations.
1.37 "IR-L.P." shall mean Islands Restaurants, L.P., a Delaware
-------
limited partnership and an Affiliate of Buyer.
1.38 "IR-L.P. Partnership Agreement" shall mean that certain First
-----------------------------
Amended and Completely Restated Agreement of Limited Partnership of Islands
Restaurants, L.P., dated as of February 13, 1995, by and among Seneca, as
general partner, and those certain persons and/or entities identified on Exhibit
-------
"A" attached thereto, as limited partners, which governs IR-L.P.
- ---
1.39 "Leasehold Estates" shall mean all of Seller's rights and
-----------------
obligations as lessee under any and all of the Leases.
1.40 "Leasehold Improvements" shall mean all of Seller's leasehold
----------------------
improvements situated in or on the real property leased under the Leases.
5
<PAGE>
1.41 "Leases" shall mean all of the existing leases with respect to
------
the real and personal property used in connection with or relating to the
Restaurant Operations, which Leases are listed on Schedule 4.13 of the
-------------
Disclosure Schedules attached hereto.
1.42 "Liabilities" shall have the meaning given in Section 4.7
-----------
hereof.
1.43 "License Agreement" shall mean the License Agreement,
-----------------
substantially in the form attached hereto as Exhibit "A", to be entered into by
-----------
and between IR-L.P., as licensor, and Buyer, as licensee, in connection with,
and as a condition to, the Closing pursuant to which IR-L.P. shall grant a non-
exclusive license to use those certain Marks (as defined therein) and the trade
name "Islands" and certain indicia of the "Islands" concept to the Buyer to be
used only in connection with the Restaurant Operations and only at the
Restaurants described on Schedule 1.64.
-------------
1.44 "Liens" shall mean any claim, lien, charge, encumbrance,
-----
security interest, pledge, restriction or other right or interest of any person
or entity.
1.45 "Liquor Licenses" shall mean alcoholic beverage and liquor
---------------
licenses.
1.46 "Management Agreement" shall mean the Management Agreement,
--------------------
substantially in the form attached hereto as Exhibit "B", to be entered into by
-----------
and between IR-L.P. and Buyer in connection with, and as a condition to, the
Closing pursuant to which IR-L.P. shall manage the business and operations of
Buyer.
1.47 "Multi-Employer Plan" shall mean any "multi-employer plan" as
-------------------
defined in Section 4001(a)(3) of ERISA (a) which, in connection with the
Restaurant Operations, Seller or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or maintained, administered,
contributed to or was required to contribute to, or under which Seller or any
ERISA Affiliate may incur any liability and (b) which covers any employee or
former employee of Seller.
1.48 "Note and Loan Agreement" shall have the meaning given in
-----------------------
Section 2.3 hereof.
1.49 "OSHA" shall mean the Occupational Safety and Health
----
Administration.
1.50 "Partnership Agreement" shall mean that certain Agreement of
---------------------
Limited Partnership of Islands Florida LP, a Delaware limited partnership, dated
as of March 18, 1996, by and between Seller and Buyer which shall govern Buyer.
1.51 "Partnership Interest Purchase Agreement" shall have the meaning
---------------------------------------
given in Section 7.13 hereof.
1.52 "Pension Plan" shall mean any "employee pension benefit plan" as
------------
defined in Section 3(2) of ERISA (other than a Multi-Employer Plan) (a) which,
in connection with the Restaurant Operations, Seller or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or,
within the five years prior to the Closing Date, maintained,
6
<PAGE>
administered, contributed to or was required to contribute to, or under which
Seller or any ERISA Affiliate may incur any liability and (b) which covers any
employee or former employee of Seller.
1.53 "Permits" shall mean all licenses, permits, franchises,
-------
approvals, authorizations, consents or orders of, or filings with, any
governmental authority, whether foreign, federal, state or local.
1.54 "Person" means and includes natural persons, limited liability
------
companies, corporations, limited partnerships, general partnerships, joint
ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities.
1.55 "Pledge and Security Agreement" shall have the meaning given in
-----------------------------
Section 2.3.
1.56 "Post-Closing Schedule" shall have the meaning given in Section
---------------------
11.4(c) hereof.
1.57 "Prorations" shall have the meaning set forth in Section
----------
11.4(b)(ii) hereof.
1.58 "Purchase Price" shall have the meaning set forth in Section 2.3
--------------
hereof.
1.59 "Purchased Assets" shall mean all of Seller's right, title and
----------------
interest in and to all tangible and intangible properties, assets and rights
which are used by Seller in connection with or otherwise useful in, or necessary
or desirable for, the operation of the Restaurants in a manner consistent with
the way such Restaurants were operated by Seller prior to the Closing Date,
including, but not limited to, the following (but specifically excluding the
Excluded Assets), all as of the Closing Date:
(a) Subject to Buyer's reasonable approval, all customer trade
accounts receivable and employee advances (whether current or noncurrent),
and prepayments or prepaid expenses of Seller, all of which shall be
scheduled for Buyer's review (such schedule to be delivered in connection
with the Closing Balance Sheet);
(b) All cash in registers and reserves at the Restaurants;
(c) All security deposits held by any lessor on behalf of Seller
pursuant to any Lease;
(d) All Contract Rights;
(e) All Fixtures and Equipment;
(f) All Books and Records;
(g) All Leasehold Estates;
(h) All Leasehold Improvements;
7
<PAGE>
(i) All Permits (to the extent transferable);
(j) All Inventories (except for commissary supplies located at
the commissary maintained by Seller or CHE); and
(k) Any other asset (real, personal or mixed, tangible or
intangible (including, without limitation, goodwill)) not referred to in
clauses (a) through (j) above which is used, useful in, or necessary or
desirable for, the operation of the Restaurants and is reflected in the
Financial Statements (other than Excluded Assets).
1.60 "Real Property" shall mean, collectively, the real property
-------------
leased under each Lease and the Leasehold Improvements related thereto.
1.61 "Release" shall mean any release, spill, emission,
-------
discharge, leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment
(including, without limitation, ambient air, surface water, groundwater and
surface or subsurface strata) or into or out of any property, including the
movement of Hazardous Materials through or in the air, soil, surface water,
groundwater or property.
1.62 "Representative" shall mean any officer, director,
--------------
principal, attorney, agent, employee or other representative.
1.63 "Restaurant Operations" shall mean the business and affairs
---------------------
of all of the Restaurants, and any and all aspects of the operations of the
Restaurants, as if such Restaurants were a separate and distinct business
entity from Seller.
1.64 "Restaurants" shall have the meaning given in Recital A and
-----------
are more particularly described on Schedule 1.64.
-------------
1.65 "Seller" shall have the meaning given in the Preamble.
------
1.66 "Seneca" shall mean Seneca Partners Inc., a Delaware
------
corporation.
1.67 "Shortfall" shall have the meaning given in Section 11.4(a)
---------
hereof.
1.68 "Sublease Agreement" shall mean that sublease agreement to
------------------
be executed and delivered by IR-L.P., as sublessee, and CHE, as sublessor,
in connection with, and as a condition to, the Closing, in a form
reasonably acceptable to CHE and IR-L.P. for that certain office space
located at the Solana Beach Hotel previously agreed to by CHE and IR-L.P.
with rental payments equal to Four Thousand Fifty Dollars ($4,050) per
month (or One Dollar Thirty Five Cents ($1.35) per square foot per month
for three thousand (3,000) square feet) and for a term of one (1) year with
an option by IR-L.P. to renew the sublease for another one (1) year term at
Four Thousand Two Hundred Dollars ($4,200) per month (or One Dollar Forty
Cents ($1.40) per square foot per month for the three thousand (3,000)
square feet).
1.69 "Taxes" shall mean any federal, state, local or foreign
-----
income, sales, use, transfer, payroll, social security, disability, personal
property, occupancy, franchise, premium or
8
<PAGE>
other tax, levy, impost, fee, imposition, assessment or similar charge, together
with any related addition to tax, interest or penalty thereon.
1.70 "Title Documents" shall have the meaning given in Section
---------------
8.4 hereof.
1.71 "Welfare Plan" shall mean any "employee welfare benefit
------------
plan" as defined in Section 3(1) of ERISA (i) which, in connection with the
Restaurant Operations, Seller or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or under which
Seller or any ERISA Affiliate may incur any liability and (ii) which covers
any employee or former employee of Seller.
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS
-------------------------------------
AND ASSUMPTION OF LIABILITIES
-----------------------------
2.1 Transfer of Purchased Assets. Upon the terms and subject to the
----------------------------
conditions contained herein, on the Closing Date, Seller shall sell, convey,
transfer, assign, and deliver to Buyer, and Buyer shall acquire from Seller, the
Purchased Assets.
2.2 Assumption of Liabilities.
-------------------------
(a) Upon the terms and subject to the conditions contained
herein, effective on the Closing Date, Buyer shall assume the following,
and only the following, obligations and liabilities of Seller:
(i) All obligations and liabilities accruing, arising out
of, or relating to events or occurrences happening after the Closing
Date under the Leases and Contracts listed on the Disclosure Schedules
hereto which are not otherwise assumed by the California/Arizona Buyer
or an Affiliate thereof, or under contracts not required to be
included thereon because of the amount or nature of the obligations or
liabilities thereunder which obligations or liabilities, in the
aggregate, do not exceed Twenty-Five Thousand Dollars ($25,000)
(unless such obligations and liabilities are herein expressly retained
by Seller), but not including any obligation or liability for any
breach or any other events or occurrences happening prior to the
Closing Date under any such Leases or Contracts;
(ii) All obligations and liabilities accruing or arising out
of any gift certificates issued by Seller to be used at the
Restaurants which are outstanding on the Closing Date; and
(iii) All obligations and liabilities accruing after the
Closing Date for salary, benefits and other employee expenses for each
of the employees to be offered employment by Buyer or one of its
Affiliates in connection with Section 10.2 of this Agreement.
9
<PAGE>
(b) Buyer shall not assume any obligations or liabilities of
Seller not specifically described in Section 2.2(a) above, including,
without limitation, (i) any obligation or liability of Seller with respect
to any Employee Plans, (ii) any obligation or liability of Seller in
connection with obtaining the necessary transfers of the Liquor Licenses
(temporary or otherwise) for the conduct of the Restaurant Operations
immediately following the Closing, (iii) any obligation or liability of
Seller with respect to any claim made in connection with Seller's worker's
compensation, general liability and/or group insurance which claim arises
out of, or relates to events or occurrences happening prior to the Closing
Date, or (iv) any obligation or liability of Seller with respect to or
arising out of any of Seller's accounts payable.
2.3 Purchase Price. As and in consideration for the sale,
--------------
transfer, assignment, conveyance and delivery of the Purchased Assets to
Buyer, on the Closing Date, Buyer shall execute and deliver to Seller a
loan and security agreement and a secured promissory note (collectively,
the "Note and Loan Agreement"), in the principal amount of Three Million
Dollars ($3,000,000) (the "Purchase Price") substantially in the forms
attached hereto as Exhibits "C" and "D", respectively, which shall be
------------ ---
secured by a security interest in the Purchased Assets, as shall be set
forth more fully in the Note and Loan Agreement. In addition, in
furtherance of, and in consideration for the transactions contemplated
hereby, FL Holdings shall guaranty Buyer's obligations pursuant to the Note
and Loan Agreement, substantially in the form attached hereto as Exhibit
-------
"K", which shall be secured by a security interest in the general
- ---
partnership interest and Class B limited partnership interest of Buyer held
by FL Holdings, as shall be set forth more fully in a pledge and security
agreement (the "Pledge and Security Agreement"), substantially in the form
attached hereto as Exhibit "E", both of which shall be executed and
-----------
delivered by FL Holdings to Seller concurrently with the Note and Loan
Agreement. Buyer and Seller shall agree on a schedule to be delivered at
the Closing which shall set forth the amount of the Purchase Price
allocable to certain of the Purchased Assets. Each of the parties agrees
to report the transactions contemplated hereby in a manner consistent with
the allocation set forth on such schedule in all Tax reports and filings
made by such party after the date hereof.
ARTICLE III
CLOSING
-------
3.1 Closing. The closing for the consummation of the transactions
-------
contemplated by this Agreement (the "Closing") shall, unless another date or
place is agreed to in writing by the parties hereto, take place at 9:00 a.m.,
local time, on April 30, 1996 at the offices of Allen, Matkins, Leck, Gamble &
Mallory LLP, 18400 Von Karman, Fourth Floor, Irvine, California 92715. The date
on which such Closing actually takes place is herein referred to as the "Closing
Date." In the event any of the parties is entitled not to close on the scheduled
date because any condition to its obligation to close as set forth in Article
VII or Article VIII, as applicable, has not been met (or waived by the party or
parties entitled to waive it), such party may, in its sole discretion, elect to
postpone the Closing from time to time, by giving at least five (5) days' prior
notice to the other party, until the condition has been met (which each party
will use its respective best efforts to cause to happen), but in no event to a
date later than June 30, 1996.
10
<PAGE>
3.2 Conveyances at Closing.
----------------------
(a) Documents. To effect the transactions contemplated by
---------
Section 2.1, Seller will, on the Closing Date, execute and/or deliver to
Buyer the following:
(i) A bill of sale, in the form attached hereto as Exhibit
-------
"F", conveying in the aggregate all of Seller's owned personal
---
property included in the Purchased Assets; and
(ii) Such other instruments as shall be reasonably requested
by Buyer to vest in Buyer title in and to the Purchased Assets in
accordance with the provisions hereof.
(b) Form of Instruments. To the extent that a form of any
-------------------
document or agreement to be delivered hereunder is not attached as an
exhibit hereto, the instrument shall be in form and substance, and shall be
executed and delivered in a manner, reasonably satisfactory to each of the
parties hereto.
3.3 Assignment and Assumption Document. Upon the terms and
----------------------------------
subject to the conditions contained herein, on the Closing Date, Buyer and
Seller shall execute and deliver to each other party an assignment and
assumption agreement, substantially in the form attached hereto as Exhibit
-------
"G", evidencing the assignment by Seller to Buyer of all Contract Rights,
- ---
Leases, and Permits (to the extent assignable) included in the Purchased
Assets and assumption by Buyer, pursuant to Section 2.2 hereof, of the
liabilities and obligations of Seller described in Section 2.2 hereof.
3.4 Other Deliveries and Actions at Closing. In addition to the
---------------------------------------
foregoing matters, at the Closing:
(a) Certificates and Opinions. The parties hereto, as
-------------------------
appropriate, shall deliver the certificates, other documents and opinions
of counsel and shall take the other actions described in Articles VII and
VIII hereof;
(b) Consents. Seller shall deliver all governmental or third-
--------
party consents, Permits, waivers and approvals required for the valid
transfer of the Purchased Assets and all of the transactions contemplated
hereby, including, without limitation, any consents required to be received
from landlords and/or lenders and any transfers of Liquor Licenses
(temporary or otherwise and evidence that any and all applicable fees
required in connection with the initial transfer thereof have been paid)
which may be required in order that there shall be no interruption in any
of the Restaurant Operations as a result of the transactions contemplated
by this Agreement; and
(c) Further Assurances. Each party shall deliver such other
------------------
documents, and take such other actions, as shall reasonably be requested by
any other party to this Agreement, for purposes of consummating the
transactions provided for herein.
11
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Buyer, except as set forth in
the Disclosure Schedules, as follows:
4.1 Organization and Qualification of Seller. Seller is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite power and authority to conduct
its business as it is now being conducted. Seller is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of its properties, owned or leased, or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified or in good standing would not have a material adverse effect on the
condition (financial or other), business, prospects, assets, liabilities or
operations (collectively, the "Condition") of the Restaurant Operations.
4.2 Authority of Seller. Seller has the full requisite right, power
-------------------
and authority and has taken all corporate action necessary to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Seller and the consummation by Seller of the transactions contemplated hereby
have been duly authorized by the board of directors of Seller and of CHE and by
CHE, as the sole stockholder of Seller, and no other corporate proceedings on
the part of Seller or CHE are necessary to authorize the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
4.3 Due Execution. This Agreement has been duly executed and
-------------
delivered by Seller and constitutes a legal, valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, except that
such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws, or by equitable principles,
relating to or limiting the rights of creditors generally and (b) limitations
imposed by law or equitable principles upon the availability of specific
performance, injunctive relief or other equitable remedies.
4.4 No Conflict or Violation. Except as set forth on Schedule 4.4 of
------------------------ ------------
the Disclosure Schedules, neither the execution and delivery of this Agreement
by Seller, nor the consummation of the transactions contemplated hereby, nor
compliance by Seller with any of the provisions hereof will (a) violate,
conflict with, or result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any Lien or Encumbrance upon any of the
Purchased Assets under any of the terms, conditions or provisions of (i)
Seller's Certificate of Incorporation or Bylaws, (ii) to the Best Knowledge of
Seller, any note, bond, mortgage, indenture, deed of trust, security or pledge
agreement, license, Lease, franchise, Permit, agreement, authorization or other
instrument or obligation relating in any way to the Purchased Assets or the
Restaurant Operations to which Seller is a party, or to which any of the
Purchased Assets may be subject or (b) to the Best Knowledge of Seller, violate
any
12
<PAGE>
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Seller, or any of the Purchased Assets, except, in the case of
each of clauses (a) and (b) above, for such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of Liens or Encumbrances
which, in the aggregate, would not have a material adverse effect on the
Purchased Assets taken as a whole, the Restaurant Operations or on the ability
of Seller to consummate the transactions contemplated hereby or (c) result in
the payment by, or the creation of any obligation (absolute or contingent) to
pay on behalf of, Seller of any severance, termination, "golden parachute" or
other similar payments pursuant to any employment or other agreements of Seller.
4.5 Consents and Approvals. Except as set forth on Schedule 4.5 of
---------------------- ------------
the Disclosure Schedules, no notice to, declaration, filing or registration
with, or authorization, consent or approval of, or Permit from, any domestic or
foreign governmental or regulatory body or authority, or any other person or
entity, is necessary in connection with the execution and delivery of this
Agreement by Seller and the consummation by Seller of the transactions
contemplated by this Agreement, including, without limitation, the transfer and
assignment of the Purchased Assets to Buyer, except where the failure to give
such notice, make such filings, or obtain such authorizations, consents,
approvals or Permits would not individually or in the aggregate, have a material
adverse effect on the Purchased Assets taken as a whole, the ability of Seller
to consummate the transactions contemplated by this Agreement or on the
Condition of the Restaurant Operations.
4.6 Books and Records. Seller has made and kept (and given Buyer and
-----------------
Buyer's Representatives access to) all of the Books and Records related to or
used in connection with the Purchased Assets or the Restaurant Operations. On
or prior to the Closing Date, Seller shall have delivered all of the Books and
Records relating to the Purchased Assets and the Restaurant Operations to Buyer
or its designee.
4.7 Financial Statements. Seller has delivered to Buyer or its
--------------------
designee copies of the Financial Statements. The Financial Statements (a) have
been prepared in conformity with generally accepted accounting principles
("GAAP") consistently applied throughout the periods covered thereby and (b)
fairly and accurately present the consolidated assets, liabilities and financial
position of Seller as of the date thereof and the consolidated results of
operations and changes in cash flows for the periods then ended. Seller does
not have any liabilities, obligations or commitments of any nature (whether
absolute, accrued, contingent or otherwise and whether known or unknown, matured
or unmatured) (collectively, "Liabilities") which would be required to be
reflected on, or reserved against in, a balance sheet or in the notes thereto,
prepared in accordance with GAAP consistently applied, except (i) Liabilities
which are adequately reflected or reserved against in the Financial Statements,
(ii) Liabilities which have been incurred in the ordinary course of business and
consistent with past practice since December 31, 1995, (iii) Liabilities set
forth on Schedule 4.7 of the Disclosure Schedules and (iv) Liabilities which
------------
have been incurred for legal, accounting, filing fees and out-of-pocket expenses
in connection with this Agreement and the transactions contemplated herein, all
of which Liabilities under this subparagraph (iv) shall be paid by Seller
following the Closing Date.
4.8 Litigation. There are no Actions pending or, to the Best
----------
Knowledge of Seller, threatened (i) against or affecting Seller, the Purchased
Assets or the Restaurant
13
<PAGE>
Operations, at law or in equity, which are reasonably likely to, have,
individually or in the aggregate, a material adverse effect on the Purchased
Assets taken as a whole, the ability of Seller to consummate the transactions
contemplated hereby or on the Condition of the Restaurant Operations, (ii)
against, involving or relating to any officers or directors of Seller, in such
capacity, (iii) against Seller alleging that Seller's uses of the Marks (as
defined in the 1993 License Agreement) infringe the proprietary rights of any
person or entity, (iv) challenging or seeking to enjoin the transactions
contemplated hereby or (iv) in which Seller is a plaintiff. In addition, to the
Best Knowledge of Seller, there is no valid basis for any such Actions.
4.9 Compliance with Law. Except as set forth on Schedule 4.9 of the
------------------- ------------
Disclosure Schedules, to the Best Knowledge of Seller, Seller has not violated
or failed to comply with any statute, law, ordinance, regulation, rule or order
of any foreign, federal, state or local government or any other governmental
department or agency, or any judgment, decree or order of any court, applicable
to its business or operations except where the aggregate of all such violations
or failures to comply would not have a material adverse effect on the Purchased
Assets taken as a whole, the ability of Seller to consummate the transactions
contemplated hereby or on the Condition of the Restaurant Operations; and, to
the Best Knowledge of Seller, the conduct of the Restaurant Operations is in
conformity with all Environmental Laws and all energy, public utility, zoning,
building code, fire code, health and OSHA requirements and all other foreign,
federal, state and local governmental and regulatory requirements except where
the aggregate of all such nonconformities would not have a material adverse
effect on the Purchased Assets taken as a whole, or the Condition of the
Restaurant Operations. Seller has not received any notice to the effect that
the Restaurant Operations are not in compliance with any such statute, law,
ordinance, regulation, rule, judgment, decree or order.
4.10 Liquor Licenses. Seller shall have obtained for the benefit of
---------------
Buyer all Liquor Licenses (temporary or otherwise) from governmental agencies
which shall be required for Buyer to conduct, without interruption, the
Restaurant Operations immediately following the Closing, as such Restaurant
Operations are currently being conducted.
4.11 Changes. Except as described on Schedule 4.11 of the Disclosure
------- -------------
Schedules, since December 31, 1995, none of the following have occurred:
(a) any material adverse change in the working capital, revenues,
income, cash flow, Purchased Assets taken as a whole or Condition of the
Restaurant Operations;
(b) any change by Seller in accounting methods, principles or
practices, or any revaluation of any of the Purchased Assets, including,
without limitation, writing down the value of inventory or writing off
notes or accounts receivable;
(c) any incurrence of any material Liability, except current
liabilities for trade or business obligations incurred in the ordinary
course of business and consistent with prior practice, none of which
current Liabilities, individually or in the aggregate, could have a
material adverse affect on the Purchased Assets taken as a whole, the
14
<PAGE>
Condition of the Restaurant Operations, or any capital expenditures or
capital additions or betterments in excess of Twenty-Five Thousand Dollars
($25,000) in any single case;
(d) any payment, discharge or satisfaction of any Liabilities
other than payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of Liabilities reflected or
reserved against in the Financial Statements or incurred in the ordinary
course of business since December 31, 1995, or any cancellation of any
indebtedness or waiver or release of any right or claim relating to the
Restaurant Operations which had or could have a material adverse effect on
the Purchased Assets taken as a whole or the Condition of the Restaurant
Operations;
(e) any declaration, setting aside, or payment of dividends or
other distributions by Seller;
(f) any increase in the rate of compensation payable or to become
payable to any employee of Seller (in connection with the Restaurant
Operations), except, with respect to Restaurant-level employees only, in
the ordinary course of business consistent with past practice, including,
without limitation, the making of any loan to, or the payment, grant or
accrual of any bonus, incentive compensation, service award or other
similar benefit to, any such employee, or the adoption of, addition to,
modification of, or contribution to any Employee Plan;
(g) any adverse change in employee relations which has or is
reasonably likely to have an adverse effect on the Purchased Assets taken
as a whole or the Condition of the Restaurant Operations or the
relationships between the employees and the management of the Restaurant
Operations;
(h) any amendment, cancellation or termination of (or receipt of
any written or verbal notice of termination or default under) any material
Contract, agreement, Lease or Permit (except where the amendment,
cancellation or termination of any Permit is as a result of a transfer to
Buyer, resulting in an amendment to the Permit to reflect Buyer, as the new
licensee, or the cancellation and termination of such prior existing Permit
in order to provide for the reissuance of the Permit to Buyer) relating to
any of the Purchased Assets or the Restaurant Operations or entry by Seller
into any commitment, contract, lease or transaction relating in any way to
the Restaurant Operations which is not in the ordinary course of business,
including, without limitation, any employment or consulting agreements;
(i) any mortgage, pledge or other encumbrance of any of the
Purchased Assets , or any sale, assignment or transfer of any of such
Purchased Assets, other than in the ordinary course of business involving
assets with a value of less than Twenty-Five Thousand Dollars ($25,000)
individually or in the aggregate;
(j) any failure to pay or satisfy when due any obligation owed in
connection with the Restaurant Operations in excess of Twenty-Five Thousand
Dollars ($25,000) individually or in the aggregate;
15
<PAGE>
(k) any failure to diligently carry on the Restaurant Operations
in the ordinary course so as to preserve the goodwill of any suppliers,
customers and others having business relations with the Restaurant
Operations;
(l) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting any of the Purchased Assets or
the Condition of the Restaurant Operations;
(m) any other event or condition which has or might reasonably be
expected to have a material adverse effect on the Purchased Assets taken as
a whole or the Condition of the Restaurant Operations; or
(n) any agreement by Seller to do any of the things described in
the preceding clauses (a) through (m) other than as expressly provided for
herein.
4.12 Purchased Assets. The Purchased Assets shown on the
----------------
Financial Statements and all of the Purchased Assets acquired after
December 31, 1995, the date of such Financial Statements, are valued at or
below actual cost less an adequate and proper depreciation charge in
accordance with GAAP. In addition, such assets have not been depreciated
for tax purposes in any manner inconsistent with applicable Internal
Revenue Service regulations or guidelines, if any. Seller has good and
marketable title to all of the Purchased Assets free and clear of all
Encumbrances, and all of such Purchased Assets shall be transferred by
Seller to Buyer in accordance with all applicable laws, except as described
on Schedule 4.12 of the Disclosure Schedules. All Fixtures and Equipment,
-------------
Leasehold Improvements and other tangible assets used in connection with
the Restaurant Operations are (a) insured to the extent and in a manner
customary in the restaurant industry, (b) to the Best Knowledge of Seller,
with respect to only the buildings in which the Restaurants are located and
the Leasehold Improvements, structurally sound with no known material
physical or mechanical defects or deficiencies, including, but not limited
to, the roofs, exterior walls or structural components of the Restaurants,
(c) in good operating condition and repair, subject to ordinary wear and
tear, (d) not in need of maintenance or repair except for ordinary, routine
maintenance and repair the cost of which would not be material, (e)
sufficient for the operation of the Restaurant Operations as presently
conducted and (f) to the Best Knowledge of the Seller, in conformity with
all applicable laws, ordinances, orders, regulations and other requirements
(including all applicable Environmental Laws and all applicable zoning,
motor vehicle safety, building code, fire code, occupational safety and
health laws and regulations) relating thereto currently in effect, except
where the failure to conform would not have a material adverse effect on
the Purchased Assets taken as a whole or the Condition of the Restaurant
Operations.
4.13 Real Property and Leases. Seller does not own any real
------------------------
property. Schedule 4.13 of the Disclosure Schedules contains a complete
-------------
and accurate list of all Leases for any real or personal property used in
connection with or relating to the Restaurant Operations. To the Best
Knowledge of Seller, all such Leases are valid, binding and enforceable in
accordance with their terms and are in full force and effect. No event has
occurred which (whether with or without notice, lapse of time or both or
the happening or occurrence of any other event) would constitute a default
under any of such Leases, and all lessors under such Leases have, or will
have
16
<PAGE>
prior to the Closing Date, consented (where such consent is necessary)
to the consummation of the transactions contemplated by this Agreement.
True copies of all of the Leases, including all amendments and supplements
thereto, and, to the extent such items are in Seller's possession or
control, all of the complete "as-built" plans, drawings and specifications
relating to all of the Leasehold Improvements with respect to each Lease,
will be made available to Buyer or its designee prior to the Closing Date,
and shall be delivered to Buyer or its designee on the Closing Date.
4.14 Contracts and Commitments. All material, executory, oral
-------------------------
or written contracts, agreements, plans, undertakings and commitments to
which Seller is a party or by which it is bound that relate to the
Purchased Assets or the Restaurant Operations (collectively, the
"Contracts") are listed and described on Schedule 4.14 of the Disclosure
-------------
Schedules, including, without limitation, all Contracts of the following
types:
(a) Contracts not made in the ordinary course of business;
(b) Employment or management contracts, consulting contracts,
collective bargaining contracts, termination and severance agreements or
any other contract or agreement of any nature whatsoever with any director,
officer, employee, consultant, or stockholder of Seller;
(c) Labor or union contracts;
(d) Options to acquire any property, real or personal, whether
Seller shall be the grantor or grantee thereunder;
(e) Contracts or commitments relating to commission arrangements
with others, or any distribution, franchise, license, sales, agency or
advertising contracts involving amounts in excess of Twenty-Five Thousand
Dollars ($25,000) per year;
(f) Promissory notes, mortgages, deeds of trust, loan agreements,
security agreements, credit agreements, indentures, evidences of
indebtedness, guarantees, or other instruments relating to the lending or
borrowing of money, or the guaranteeing of the obligations of any other
person or entity, individually or in the aggregate, in excess of Twenty-
Five Thousand Dollars ($25,000), whether Seller is the borrower, lender or
guarantor thereunder;
(g) Contracts containing covenants limiting the freedom of
Seller, or any officer, director or employee of Seller, to engage in any
line of business or compete with any person;
(h) Contracts or agreements providing for payments in excess of
Twenty-Five Thousand Dollars ($25,000) or rights that are triggered upon a
sale of the Purchased Assets or a change in control of the Restaurant
Operations; and
17
<PAGE>
(i) Any other contract or agreement involving expenditures or
liabilities, actual or potential, or the receipt of payment, in excess of
Twenty-Five Thousand Dollars ($25,000).
True copies of all of the Contracts, including all amendments and supplements
thereto, will be made available to Buyer or its designee prior to the Closing
Date, and shall be delivered to Buyer or its designee on the Closing Date.
4.15 Absence of Breaches or Defaults. All of the Contracts are valid
-------------------------------
and in full force and effect. All obligations under the Contracts have been duly
performed to the extent those obligations to perform have accrued, and no
material default or breach under any Contracts has occurred or is existing.
4.16 1993 License Agreement. Except as set forth on Schedule 1.64
----------------------
hereto and on Schedule 1.62 to the Partnership Interest Purchase Agreement,
-------------
neither Seller nor any Affiliate thereof has established or operates any
restaurant under the trade name "Islands" or utilizing the Islands concept
pursuant to the 1993 License Agreement or otherwise. Seller has not sold,
assigned or otherwise transferred any rights, duties or obligations under the
1993 License Agreement, except as consented to in writing by IR-L.P. and
further, Seller has not sublicensed or franchised the rights and license granted
to Seller pursuant to the 1993 License Agreement to any other person or entity.
Seller is not aware of any other person's or entity's unauthorized use of or
infringement of the Marks (as defined in the 1993 License Agreement).
4.17 Employee Benefit Plans.
----------------------
(a) Disclosure of Employee Plans. Schedule 4.17 of the
---------------------------- -------------
Disclosure Schedules contains a complete list of all Employee Plans which
cover or have covered employees of Seller (in connection with the
Restaurant Operations), written copies of each of which have been provided
to Buyer or its designee prior to the Closing Date.
(b) Representations. Except as set forth on Schedule 4.17 of the
--------------- -------------
Disclosure Schedules:
(i) Pension Plans and Multi-Employer Plans. Seller does not
--------------------------------------
maintain and none of the employees of Seller (in connection with the
Restaurant Operations), are covered or have been covered by, any
Pension Plan or Multi-Employer Plan.
(ii) Welfare Plans. Seller does not maintain, and none of
-------------
the employees of Seller (in connection with the Restaurant
Operations), are covered or have been covered by, any Welfare Plan.
(iii) Benefit Arrangements. Each Benefit Arrangement which
--------------------
covers or has covered employees or former employees of Seller (in
connection with the Restaurant Operations) has been maintained in
compliance with its terms, and, to the Best Knowledge of Seller, with
the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Benefit
18
<PAGE>
Arrangement, including but not limited to the Code. Except as set
forth on Schedule 4.17 of the Disclosure Schedules, and except as
-------------
provided by law, the employment of all persons presently employed or
retained by Seller (in connection with the Restaurant Operations) or
to be employed or retained by Buyer at the Closing Date, is terminable
at will.
(iv) Litigation. Neither Seller, nor, to the Best Knowledge
----------
of Seller, any ERISA Affiliate, any Employee Plan which covers or has
covered employees or former employees of Seller (in connection with
the Restaurant Operations), or any fiduciary or administrator of an
Employee Plan, is a party to any litigation relating to or seeking
benefits under any Employee Plan or relating to the administration or
operation thereof.
(v) No Amendments. Neither Seller nor any ERISA Affiliate
-------------
has any announced plan or legally binding commitment to create any
additional Employee Plans which are intended to cover employees or
former employees of Seller (in connection with the Restaurant
Operations) or to amend or modify any existing Employee Plan which
covers or has covered employees or former employees of Seller (in
connection with the Restaurant Operations).
4.18 Taxes and Tax Returns.
---------------------
(a) Seller has timely filed with the appropriate taxing
authorities all returns (including without limitation, information returns
and other material information) in respect of Taxes related to Seller and
all of the Purchased Assets and Restaurant Operations required to be filed
for periods ending through the date hereof and will timely file any such
returns required to be filed for periods ending prior to the Closing Date.
Except as set forth on Schedule 4.21, Seller has not requested any
-------------
extension of time within which to file returns (including, without
limitation, information returns in respect of any Taxes). The information
which has been filed is complete and accurate in all material respects.
All Taxes related to the Purchased Assets and Restaurant Operations, in
respect of periods beginning before the Closing Date, have been timely
paid, or will be timely paid, or an adequate reserve has been established
therefor and to the Best Knowledge of Seller, Seller does not have any
material liability for Taxes in excess of the amounts so paid or reserves
so established. True copies of the most recently issued bills for all real
property taxes and all personal property taxes payable with respect to the
Real Property (in connection with each Lease) and the Purchased Assets, or
any portion thereof, will be made available to Buyer or its designee prior
to the Closing Date, and shall be delivered to Buyer or its designee on the
Closing Date.
(b) Seller has not received notice of any material deficiencies
for Taxes from any taxing or other governmental authority relating to the
Purchased Assets or the Restaurant Operations. There are no pending or, to
the Best Knowledge of Seller, threatened audits, investigations or claims
for or relating to any material liability in respect of Taxes, and there
are no matters under discussion with any governmental authorities with
respect to Taxes that in the reasonable judgment of Seller, or their
counsel, is likely
19
<PAGE>
to result in a material additional liability for Taxes. Seller has not been
notified that any taxing authority intends to audit a return for any
period. No extension of a statute of limitations relating to Taxes is in
effect with respect to Seller.
(c) There are no tax-sharing agreements or similar arrangements
with respect to or involving Seller.
4.19 Environmental. Except as set forth on Schedule 4.19 of the
-------------
Disclosure Schedules:
(a) To the Best Knowledge of Seller, Seller and all of the
Restaurant Operations are in compliance with all applicable Environmental
Laws (which compliance includes, but is not limited to, the possession of
all Permits and other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof).
Seller has not received any communication (written or oral) from any
governmental authority that alleges that any of the Restaurant Operations
or Seller (in connection with the Restaurant Operations) are not in such
compliance and, to the Best Knowledge of Seller, there are no past or
present actions, activities, circumstances, conditions, events or incidents
that may prevent or interfere with such compliance in the future.
(b) There is no Environmental Claim pending or, to the Best
Knowledge of Seller, threatened against Seller (in connection with the
Restaurant Operations), or any other person or entity, whose liability for
any Environmental Claim, Seller has or may have retained or assumed either
contractually or by operation of law.
(c) To the Best Knowledge of Seller, there are no past or present
actions, activities, circumstances, conditions, events or incidents
(including, without limitation, the Release, emission, discharge, presence
or disposal of any Hazardous Material) which could form the basis of any
Environmental Claim against Seller (in connection with the Restaurant
Operations), or any other person or entity, whose liability for any
Environmental Claim, Seller has or may have retained or assumed either
contractually or by operation of law.
(d) To the Best Knowledge of Seller, neither Seller (in
connection with the Restaurant Operations) nor any other person has
Released, placed, stored, buried or dumped Hazardous Materials or any other
wastes produced by, or resulting from, any business, commercial or
industrial activities, operations or processes, on, beneath or adjacent to
the real property leased pursuant to the Leases or any property formerly
owned, operated or leased in connection with any of the Restaurant
Operations, other than general office supplies or cleaning solvents used in
the ordinary course of business (which general office supplies, cleaning
solvents and other Hazardous Materials, to the Best Knowledge of Seller,
were and are stored or disposed of in accordance with applicable laws and
regulations and in a manner such that, to the Best Knowledge of Seller,
there has been no Release of any such substances into the indoor or outdoor
environment).
20
<PAGE>
(e) To the Best Knowledge of Seller, no transfers of Permits or
other governmental authorizations under Environmental Laws, and no
additional Permits or other governmental authorizations under Environmental
Laws, will be required to permit Buyer to conduct the Restaurant Operations
in full compliance with all applicable Environmental Laws immediately
following the Closing, as currently conducted. To the extent that such
transfers or additional Permits and other governmental authorizations are
required, Seller agrees to assist and cooperate with Buyer and/or Buyer's
Representatives in all reasonable respects to effect such transfers and use
commercially reasonable efforts to obtain such Permits and other
governmental authorizations prior to the Closing.
(f) True copies of all existing and available soils,
environmental and building reports and engineering data pertaining to the
Real Property (in connection with each Lease), or any portion thereof, if
any, will be made available to Buyer or its designee prior to the Closing
Date and shall be delivered to Buyer or its designee on the Closing Date.
4.20 Insurance. Seller maintains and has maintained
---------
continuously since the inception of the Restaurant Operations, with
responsible insurance carriers, (i) workers' compensation, property damage
and general liability insurance at limits of liability equal to at least
the minimum limits of liability set forth in the 1993 License Agreement and
(ii) such other policies as are customarily carried by similar businesses.
Seller is not in default under any of such policies or binders, and Seller
has not failed to give any notice or to present any claim under any such
policy or binder in a due and timely fashion. Except as set forth on
Schedule 4.20 of the Disclosure Schedules, Seller is not aware of any facts
- -------------
concerning the Restaurant Operations, the Purchased Assets or the
Liabilities of the Restaurant Operations, upon which an insurer might be
justified in reducing coverage or increasing premiums on existing policies
or binders. Except as set forth on Schedule 4.20 of the Disclosure
-------------
Schedules, there are no outstanding unpaid claims under any such policies
or binders. Such policies and binders provide sufficient coverage for the
risk insured against, and are in full force and effect through the Closing
Date. Copies of all such policies have been made available to Buyer or its
designee for its inspection.
4.21 Brokers and Finders. Seller has not employed any broker,
-------------------
finder or similar agent or incurred any liability for any brokerage fees,
commissions, finder's fees or similar payment in connection with the
transactions contemplated by this Agreement.
4.22 Illegal Payments. Neither Seller nor any of Seller's
----------------
officers, directors, stockholders or employees have directly or indirectly,
paid or delivered any fee, commission or other sum of money or item or
property, however characterized, to any finder, agent, government official
or other party, in the United States or any other country, which is in any
manner related to the Restaurant Operations, which Seller knows or has
reason to believe to have been illegal under any federal, state or local
laws of the United States or the laws of any other country having
jurisdiction.
4.23 No Other Agreements to Sell. Seller has no commitment or
---------------------------
legal obligation, absolute or contingent, to any person or firm other than
Buyer to sell, assign or
21
<PAGE>
transfer all or any portion of Seller, the Purchased Assets or the Restaurant
Operations pursuant to an asset sale, stock purchase, merger, reorganization,
joint venture, consolidation or otherwise.
4.24 Labor Matters. Seller is not a party to any labor
-------------
agreement with respect to any of their respective employees with any labor
organization, union, group or association. There is no labor strike or
labor disturbance pending, or, to the Best Knowledge of Seller, threatened
against Seller, or the Restaurant Operations nor is any grievance currently
being asserted and the Restaurant Operations have never experienced a work
stoppage or other labor difficulty. To the Best Knowledge of Seller, all
of the Restaurant Operations are in material compliance with all applicable
laws respecting employment practices, terms and conditions of employment,
wages and hours and are not engaged in any unfair labor practice. There is
no unfair labor practice charge or complaint against Seller pending before
the National Labor Relations Board or any other governmental agency.
4.25 Suppliers. Schedule 4.25 of the Disclosure Schedules
--------- -------------
contains a complete and accurate list of the names and addresses and nature
of the relationship with the five largest suppliers of the Restaurant
Operations in terms of purchases during the last fiscal year, showing the
approximate total purchases in dollars from each of these suppliers during
such fiscal year. Since December 31, 1995, there has been no adverse
change in the business relationship with any supplier named on Schedule
--------
4.25 which would have a material adverse effect on the condition of the
- ----
Restaurant Operations. Seller has not received any communication from any
supplier named on Schedule 4.25 of any intention to terminate or materially
-------------
reduce supplies to the Restaurant Operations.
4.26 Inventories. Schedule 4.26 of the Disclosure Schedules
----------- -------------
contains a complete and accurate list of all of the addresses at which the
Inventories of Seller relating to the Restaurants are located other than at
the Restaurants. The values at which the Inventories are shown on the
Financial Statements have been determined in accordance with the normal
valuation policy of Seller, in conformity with GAAP consistently applied
throughout the periods covered thereby, with adequate provisions or
adjustments for excess inventory, slow-moving inventory and inventory
obsolescence and shrinkage and are valued at the lower of cost or
realizable value. The Inventories consist, and will as of the Closing Date
consist, only of items of quality and quantity commercially usable and
salable in the ordinary course of business, and the present quantities of
all Inventories are reasonable in the present circumstances of the
Restaurant Operations.
4.27 Material Misstatements Or Omissions. No representation or
-----------------------------------
warranty by Seller in this Agreement, or in any document, exhibit,
statement, certificate or schedule heretofore or hereinafter furnished or
made available to Buyer pursuant to this Agreement or in connection with
the transactions contemplated by this Agreement, including, without
limitation, the Disclosure Schedules, contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material
fact necessary to make the statements or facts contained therein not
misleading. Seller has disclosed all events, conditions and facts
materially affecting the Purchased Assets or the Restaurant Operations as
of the Closing Date.
22
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller as follows:
5.1 Organization. Buyer is a limited partnership duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and has the requisite power and authority to conduct its business as it is now
being conducted. FL Holdings, which is the sole general partner of Buyer, is a
limited partnership duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the requisite power and authority to
conduct its business as it is now being conducted.
5.2 Authority. Buyer has the requisite power and authority and has
---------
taken all necessary action to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by Buyer
and the consummation by Buyer of the transactions contemplated hereby have been
duly authorized by all of the partners of the Buyer, and no other proceedings on
the part of Buyer is necessary to authorize the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby, except for the receipt of the written approval of the
holders of greater than fifty percent (50%) of the limited partnership interests
of IR-L.P.
5.3 Due Execution. This Agreement has been duly executed and
-------------
delivered by Buyer and constitutes the legal, valid and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms, except that such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws, or by equitable principals, relating to or
limiting the rights of creditors generally and (b) limitations imposed by law or
equitable principles upon the availability of specific performance, injunctive
relief or other equitable remedies.
5.4 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement by Buyer, nor the consummation of the transactions contemplated
hereby, nor the compliance by Buyer with any of the provisions hereof, will (a)
violate, conflict with, or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, any of the terms, conditions or provisions of (i) the Partnership
Agreement or (ii) to the Best Knowledge of Buyer, any note, bond, mortgage,
indenture, deed of trust, security or pledge agreement, license, lease,
franchise, Permit, agreement, authorization or other instrument or obligation to
which Buyer is a party, or to which any of its properties or assets may be
subject or (b) to the Best Knowledge of Buyer, violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to Buyer
or any of its properties or assets; except, in the case of each of clauses (a)
and (b) above, for such violations, conflicts, breaches, defaults, terminations
or accelerations which, in the aggregate, would not have a material adverse
effect on the Condition of Buyer or the ability of Buyer to consummate the
transactions contemplated hereby.
23
<PAGE>
5.5 Consents and Approvals. No notice to, declaration, filing or
----------------------
registration with, or authorization, consent or approval of, or Permit from, any
domestic or foreign governmental or regulatory body or authority, or any other
person or entity, is necessary in connection with the execution and delivery of
this Agreement by Buyer, or the consummation by Buyer of the transactions
contemplated by this Agreement, except (a) the written approval of the holders
of greater than fifty percent (50%) of the limited partnership interests of IR-
L.P., and (b) where the failure to give such notice, make such filings, or
obtain such authorizations, consents, approvals or Permits would not,
individually or in the aggregate, have a material adverse effect on the ability
of Buyer to consummate the transactions contemplated by this Agreement.
5.6 Litigation. There are no Actions pending or, to the Best
----------
Knowledge of Buyer, threatened (i) against Buyer which could have a material
adverse effect on the ability of Buyer to consummate the transactions
contemplated hereby or on the Condition of Buyer or (ii) challenging or seeking
to enjoin the transactions contemplated hereby.
5.7 Brokers and Finders. Buyer has not employed any broker, finder
-------------------
or similar agent or incurred any liability for any brokerage fees, commissions,
finder's fees or similar payment in connection with the transactions
contemplated by this Agreement.
5.8 Assets and Liabilities. Prior to the consummation of the
----------------------
transactions contemplated by this Agreement, Buyer has no assets (real, personal
or mixed, tangible or intangible) or Liabilities other than cash and the rights,
duties and obligations under this Agreement.
5.9 Material Misstatements Or Omissions. No representation or
-----------------------------------
warranty by Buyer in this Agreement, or in any document, exhibit, statement,
certificate or schedule heretofore or hereinafter furnished or made available to
Seller pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement contains or will contain any untrue statement of
a material fact, or omits or will omit to state any material fact necessary to
make the statements or facts contained therein not misleading.
ARTICLE VI
FURTHER ASSURANCES
------------------
Upon the terms and subject to the conditions contained herein, each of
the parties hereto agrees (a) to use its best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement and (b) to cooperate with each other in connection with the
foregoing, including using their respective best efforts (i) to obtain all
necessary waivers, consents and approvals from other parties to material
agreements, Leases and other Contracts, (ii) to obtain all necessary consents,
approvals, authorizations and Permits as are required to be obtained under any
federal, state, local or foreign laws or regulations, (iii) to defend all
lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby and (iv) to fulfill all
conditions to this Agreement. Notwithstanding the
24
<PAGE>
foregoing, Seller acknowledges that it shall be its sole responsibility and
agrees to use its best efforts to obtain the appropriate consents, approvals and
estoppel certificates (in a form to be provided by Buyer which is reasonably
acceptable to Seller) from all landlords under all Leases relating to the
Restaurants, all Liquor Licenses (temporary or otherwise), all non-disturbance
agreements and/or consents and acknowledgments to currently outstanding non-
disturbance agreements as more fully set forth in Section 10.7(b) and any other
necessary consents, including, without limitation, lender consents, and Permits
for Buyer so that there will be no interruption in the Restaurant Operations
immediately following the Closing, and to pay all related expenses and fees in
connection with obtaining any and all of the foregoing (which in connection with
the Liquor Licenses and any other Permits will include only those amounts
relating to the initial transfer of such items to Buyer).
ARTICLE VII
CONDITIONS TO THE OBLIGATION OF SELLER
--------------------------------------
The obligation of Seller to consummate the transactions provided for
hereby is subject, in the sole discretion of Seller, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions:
7.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of Buyer contained in this Agreement shall be true and correct in
all material respects at and as of the Closing Date, and Buyer shall have
performed all agreements and covenants required hereby to be performed by such
party prior to or at the Closing Date.
7.2 Consents. All Permits, consents, approvals, authorizations and
--------
waivers from governmental authorities and other parties, if any, necessary to
transfer the Purchased Assets to Buyer and/or to consummate any other
transactions contemplated by this Agreement shall have been obtained by Seller,
unless Buyer expressly agrees in writing to indemnify Seller from and against
any claims or liabilities arising out of the failure to obtain any such Permits,
consents, approvals, authorizations or waivers.
7.3 No Proceedings or Litigation. No Action by any governmental
----------------------------
authority or any other person shall have been instituted or threatened which
questions the validity or legality of, or seeks to enjoin the consummation of,
the transactions contemplated hereby and which could reasonably be expected to
materially damage Seller if the transactions contemplated hereunder are
consummated.
7.4 Opinion of Counsel. Seller shall have received, in such form as
------------------
reasonably agreed upon by counsel to Seller, an opinion of Allen, Matkins, Leck,
Gamble & Mallory LLP, counsel to Buyer, dated the date of the Closing, with
respect to those matters set forth in Sections 5.2, 5.3, 5.4, 5.5 and 5.6;
provided, however, that the foregoing shall also include similar opinions with
- -------- -------
respect to the other material documents to be executed in connection with the
transactions contemplated hereby, as applicable. In rendering such opinion,
such counsel may rely as they deem advisable as to factual matters upon
certificates and assurances of public officials
25
<PAGE>
and the general partner of Buyer. In addition, such opinion may be subject to
such additional qualifications and exceptions as are reasonably acceptable to
counsel to Seller.
7.5 Certificates. Buyer shall have furnished Seller with such
------------
certificates of its general partner to evidence compliance with the conditions
set forth in this Article VII as may be reasonably requested by Seller.
7.6 Authorization Documents. Seller shall have received from Buyer a
-----------------------
unanimous written consent of all of the partners of Buyer approving this
Agreement and the transactions contemplated hereby, certified by the general
partner of Buyer.
7.7 Loan, Security and Guaranty Documents. Buyer shall have executed
-------------------------------------
and delivered, the Note and Loan Agreement and any necessary UCC-1 Financing
Statements so as to effect the borrowing of the funds necessary for the
financing of the acquisition of the Purchased Assets. In addition, in
furtherance of, and in consideration for, the transactions contemplated hereby,
FL Holdings shall have executed and delivered a guaranty of Buyer's obligations
pursuant to the Note and Loan Agreement, substantially in the form attached
hereto as Exhibit "K", and the Pledge and Security Agreement.
----------
7.8 Assignment and Assumption Document. Buyer shall have executed
----------------------------------
and delivered to Seller an assignment and assumption agreement, substantially in
the form attached hereto as Exhibit "G".
-----------
7.9 Sublease Agreement. IR-L.P. shall have executed and delivered
------------------
the Sublease Agreement.
7.10 1993 Management Agreement and 1993 License Agreement. The 1993
----------------------------------------------------
Management Agreement and the 1993 License Agreement shall have been terminated
by the appropriate parties thereto pursuant to agreements of termination,
substantially in the forms attached hereto as Exhibits "H" and "I",
------------ ---
respectively.
7.11 License Agreement. IR-L.P. and Buyer shall have executed and
-----------------
delivered the License Agreement.
7.12 Management Agreement. IR-L.P. and Buyer shall have executed and
--------------------
delivered the Management Agreement.
7.13 Partnership Interest Purchase Agreement. Seller and Islands
---------------------------------------
CA/AZ Holdings LP, a Delaware limited partnership (the "California/Arizona
Buyer"), shall have entered into a definitive purchase agreement for the
purchase by the California/Arizona Buyer of certain partnership interests in a
certain partnership which shall be formed to own and operate twelve (12)
restaurants currently owned and operated by Seller throughout California and
Arizona under the trade name of "Islands" (the "Partnership Interest Purchase
Agreement") which shall provide for a closing date of such transaction on or
about the Closing Date, and, all conditions precedent under such Partnership
Interest Purchase Agreement shall have been satisfied or waived and the
transactions contemplated thereby shall be consummated immediately following the
Closing of the transactions contemplated by this Agreement.
26
<PAGE>
ARTICLE VIII
CONDITIONS TO THE OBLIGATION OF BUYER
-------------------------------------
The obligation of Buyer to consummate the transactions provided for
hereby is subject, in the sole discretion of Buyer, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions:
8.1 Limited Partner Approval. This Agreement, the transactions
------------------------
contemplated hereby and the First Amendment to IR-L.P. Partnership Agreement
shall have been duly approved in writing by the holders of greater than fifty
percent (50%) of the limited partnership interests, in accordance with
applicable law and the IR-L.P. Partnership Agreement.
8.2 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of Seller contained in this Agreement shall be true and correct
in all material respects at and as of the Closing Date, and Seller shall have
performed all agreements and covenants required hereby to be performed by Seller
prior to or at the Closing Date.
8.3 Consents. All Permits, consents, notices, approvals,
--------
authorizations and waivers from governmental authorities and other parties
necessary (i) to permit Seller to transfer the Purchased Assets to Buyer, and
(ii) for the conduct of the Restaurant Operations immediately following the
Closing, as such operations are currently being conducted, including, without
limitation, any transfers of Liquor Licenses (temporary or otherwise), shall
have been obtained by Seller and delivered to Buyer and any and all expenses and
fees in connection with obtaining any and all of the foregoing shall have been
paid by Seller; provided, however, that with respect to the Permits and Liquor
-------- -------
Licenses, Seller shall only be responsible for expenses and fees relating to the
initial transfer of such Permits and/or Liquor Licenses to Buyer.
Notwithstanding the foregoing, the failure by Seller to obtain any Permit (other
than Liquor Licenses) relating to the conduct of the Restaurant Operations only
shall not be a condition to Buyer's obligation to close; provided, that a
complete and accurate list of such Permits that have not been obtained is
provided to Buyer at the Closing; and provided, further, that the failure to
-------- -------
obtain such Permits, either individually or in the aggregate, would not result
in the interruption of the business or operations at any of the Restaurants
immediately following the Closing.
8.4 Title. Buyer shall have approved, in Buyer's reasonable
-----
discretion, of all matters of title for each Lease as disclosed by the following
documents (collectively, the "Title Documents") prepared and delivered to Buyer
at Seller's sole cost and expense (a) with respect to each parcel of Real
Property subject to a Lease, a "lot book" report and a "mechanics lien" report
(or such reports which describe all monetary encumbrances of lenders and/or
mechanics' liens) dated on or after the date of this Agreement, issued by
Chicago Title Insurance Company or another title company acceptable to Buyer,
relating to the fee interest in such Real Property , and (b) legible true copies
of all documents referred to in such reports.
8.5 No Proceedings or Litigation. No Action by any governmental
----------------------------
authority or any other person shall have been instituted or threatened which
questions the validity or legality of, or seeks to enjoin the consummation of,
the transactions contemplated hereby and which could
27
<PAGE>
reasonably be expected to (a) affect materially the right or ability of (i)
Buyer to own or possess the Purchased Assets or (ii) Buyer to operate or conduct
the Restaurant Operations after the Closing or (b) otherwise materially damage
Buyer if the transactions contemplated hereunder are consummated.
8.6 Opinions of Counsel. Buyer shall have received, in such forms as
-------------------
reasonably agreed upon by counsel to Buyer, (a) an opinion of Morgan, Lewis &
Bockius LLP, counsel to Seller, dated the date of the Closing, with respect to
those matters set forth in Sections 4.1, 4.2 and 4.3 and (b) an opinion of
William R. Kuntz, Jr., Esq., in-house counsel to Seller, dated the date of the
Closing, with respect to those matters set forth in Sections 4.4, 4.5, 4.8 and
4.10; provided, however, that both of the foregoing opinions shall also include
-------- -------
similar opinions with respect to the other material documents to be executed in
connection with the transactions contemplated hereby, as applicable In
rendering such opinions, such counsels may rely, as they deem advisable as to
factual matters, upon certificates and assurances of public officials and
officers of Seller. In addition, such opinion may be subject to such additional
qualifications and exceptions as are reasonably acceptable to counsel to Buyer.
8.7 Certificates. Seller shall have furnished Buyer with such
------------
certificates of its officers to evidence compliance with the conditions set
forth in this Article VIII as may be reasonably requested by Buyer.
8.8 Material Changes. Except as otherwise disclosed to Buyer in
----------------
writing on the Disclosure Schedules, since December 31, 1995, there shall not
have been any material adverse change in the (a) Condition, properties or
employee or customer relations of the Restaurant Operations or (b) the Purchased
Assets taken as a whole.
8.9 Corporate Documents. Buyer shall have received from Seller
-------------------
resolutions adopted by the board of directors of Seller, and a written consent
of the sole stockholder of Seller, approving this Agreement and the transactions
contemplated hereby, certified by Seller's corporate secretary or assistant
corporate secretary.
8.10 Conveyancing Documents. Seller shall have executed and
----------------------
delivered each of the documents described in Article III hereof so as to effect
the transfer and assignment to Buyer of all right, title and interest in and to
the Purchased Assets including, without limitation, a bill of sale,
substantially in the form attached hereto as Exhibit "F" and an assignment and
-----------
assumption agreement, substantially in the form attached hereto as Exhibit "G".
-----------
8.11 Due Diligence Review. Buyer, to the extent that Buyer or its
--------------------
Representatives, shall have conducted a due diligence review of Seller's Books
and Records, Financial Statements, tax returns and other records and accounts of
the Restaurant Operations prior to the Closing, shall be satisfied on the basis
of such review, in the reasonable discretion of Buyer, that there has been no
breach of the representations and warranties or the pre-closing covenants of
Seller made pursuant to this Agreement.
8.12 Inspections and Studies. Buyer shall have approved, in Buyer's
-----------------------
reasonable discretion, the results of any and all inspections, investigations,
tests and studies, including,
28
<PAGE>
without limitation, investigations with regard to zoning, building codes and
other governmental regulations, architectural inspections, engineering tests,
economic feasibility studies as well as toxic and environmental reports with
respect to the Real Property (in connection with each Lease), inspections of all
or any portion of the Leasehold Improvements (including, without limitation,
structural, mechanical and electrical systems, roofs, pavement, landscaping and
public utilities), and any other physical inspections and/or investigations as
Buyer may elect to make or obtain.
8.13 No Guaranty of Leases. No lessor under any of the Leases shall
---------------------
require Seneca or IR-L.P. to be a guarantor of the obligations under such Lease
nor shall Seneca or IR-L.P. be required to guarantee any other obligation,
liability or commitment of Buyer or any other person or entity in connection
with the transactions contemplated hereby.
8.14 1993 Management Agreement and 1993 License Agreement. The 1993
----------------------------------------------------
Management Agreement and the 1993 License Agreement shall have been terminated
by the appropriate parties thereto, pursuant to agreements of termination,
substantially in the forms attached hereto as Exhibits "H" and "I",
------------ ---
respectively.
8.15 Name Change. Seller shall have delivered at the Closing a duly
-----------
executed and acknowledged certificate of amendment to Seller's certificate of
incorporation or other appropriate document which is required to change Seller's
corporate name to a new name which shall exclude any reference to "Islands" or
any similar name or mark that has such a near resemblance thereto as may be
likely to cause confusion or mistake to the public, or to otherwise deceive the
public. Such certificate or other document shall be filed (at Seller's expense)
with the Secretary of the State of Delaware prior to or concurrently with the
Closing.
8.16 License Agreement. Buyer shall have executed and delivered the
-----------------
License Agreement.
8.17 Management Agreement. Buyer shall have executed and delivered
--------------------
the Management Agreement.
8.18 Partnership Interest Purchase Agreement. All conditions
---------------------------------------
precedent under the Partnership Interest Purchase Agreement shall have been
satisfied or waived, and the transactions contemplated thereby shall be
consummated immediately following the Closing of the transactions contemplated
by this Agreement.
ARTICLE IX
RISK OF LOSS
------------
Until the Closing Date, all risk of loss or damage to all or any
material portion of the properties or Purchased Assets shall be borne by Seller.
29
<PAGE>
ARTICLE X
PRE-CLOSING COVENANTS
---------------------
10.1 Conduct of Business Prior to Closing.
------------------------------------
(a) Prior to the Closing, Seller shall conduct all of the
Restaurant Operations only in the ordinary course and consistent with prior
practice and shall maintain, keep and preserve the Purchased Assets and
properties relating to the Restaurant Operations in good condition and
repair and maintain insurance thereon in accordance with present practices,
and Seller will use its best efforts (i) to preserve all of the Purchased
Assets and Restaurant Operations intact, (ii) to maintain the present
officers, employees, agents and independent contractors providing services
in connection with the Restaurant Operations, (iii) to preserve the
goodwill of all of the suppliers, customers, landlords and others having
business relations with any of the Restaurants, and (iv) to make timely
payments on accounts payable and other obligations of the Restaurant
Operations in accordance with past practice. Without limiting the
generality of the foregoing, prior to the Closing or the earlier
termination of this Agreement in accordance with Section 12.1, Seller will
not, without Buyer's prior written approval, which approval shall not be
unreasonably withheld:
(i) change its certificate of incorporation, by-laws or
other organizational documents, as the case may be, or merge with or
into any other entity, consolidate or agree to sell its assets or
securities to any other person or entity, or obligate itself to do so,
or obligate itself to sell all or a portion of the Purchased Assets or
the Restaurant Operations;
(ii) enter into any contract, agreement, commitment or other
understanding or arrangement except for those of the type which would
not have to be listed and described under Section 4.14 above; or
(iii) perform, take any action or incur or permit to exist
any of the acts, transactions, events or occurrences of the type
described in Section 4.11 of this Agreement which would have been
inconsistent with the representations and warranties set forth therein
had the same occurred after the Balance Sheet Date and prior to the
date hereof.
(b) Seller shall give Buyer prompt written notice of any
material change in any of the information contained in the representations
and warranties made in Article IV or elsewhere in this Agreement or the
Schedules referred to herein which occurs prior to the Closing.
(c) Seller shall consult with and follow the reasonable
recommendations of Buyer or Buyer's Representatives with respect to all
aspects of the Restaurant Operations that are contemplated to be taken out
of the ordinary course of business.
30
<PAGE>
10.2 Employees. Not later than, and effective as of, the
---------
Closing Date, Buyer or one of its Affiliates shall make offers of
employment to (a) each of the employees employed, as of the Closing Date,
at the Restaurant level by Seller at the same salary level at which Seller
employed such Restaurant level employee as of the Closing Date, and (b)
each of the non-Restaurant level employees employed, as of the Closing
Date, by Seller who is listed on that certain list provided to Buyer in
connection with the execution of this Agreement under a separate cover
letter dated March 18, 1996 at the salary set forth on such list.
10.3 Financial Statements. Seller shall furnish to Buyer
--------------------
Seller's unaudited monthly financial statements, which shall include a
balance sheet and a profit and loss statement, for each month from the date
hereof to the Closing Date on or before the fifteenth (15th) day of the
immediately succeeding month.
10.4 Title Documents; Title Insurance.
--------------------------------
(a) Seller shall cause the Title Documents to be delivered to
Buyer or its designee within ten (10) days after the execution of this
Agreement.
(b) Seller shall use its best efforts to cause the existing
policies of Title Insurance related to any of the Real Property to be
assigned to the Partnership.
10.5 Consent of the Limited Partners. Buyer will use its best
-------------------------------
efforts to cause IR-L.P. to use its best efforts to obtain as promptly as
practicable the requisite consent and approval of IR-L.P.'s limited
partners to (i) this Agreement and the transactions contemplated hereby and
(ii) the First Amendment to IR-L.P. Partnership Agreement.
10.6 Access to Information; Inspections and Studies. Seller
----------------------------------------------
will afford to Buyer and Buyer's Representatives reasonable access upon
reasonable notice to its offices and other facilities, and to each of the
Restaurants, and to the Books and Records as well as to any other
information and/or documents which may be requested by Buyer or Buyer's
Representatives in their due diligence efforts. In addition, Buyer, its
Representatives, consultants, contractors and subcontractors shall have the
right to enter upon the Real Property (in connection with any Lease) at
reasonable times upon reasonable notice to conduct or make any and all
inspections and tests (including, without limitation, environmental
assessments of such Real Property) as may be necessary or desirable in
Buyer's sole and absolute discretion. Buyer hereby indemnifies and holds
Seller harmless from and against any and all costs, losses, damages or
expenses arising out of or resulting from such entry by Buyer or its
Representatives, consultants, contractors or subcontractors.
10.7 Consents; Non-Disturbance Agreements.
------------------------------------
(a) Each party hereto will use its best efforts to obtain as
promptly as practicable such consents, approvals or authorizations of third
parties to their respective agreements, which would otherwise be violated
by any provisions hereof or any of the transactions contemplated by this
Agreement, and all consents, approvals or authorizations as are required to
be obtained under any federal, state, local or foreign laws and
31
<PAGE>
regulations necessary to consummate the transactions contemplated by this
Agreement. Seller acknowledges that it shall be its sole responsibility,
and agrees to use its best efforts, to obtain the appropriate consents,
approvals and estoppel certificates (in a form to be provided by Buyer
which is reasonably acceptable to Seller) from all landlords under all
Leases relating to the Restaurants, all Liquor Licenses (temporary or
otherwise), all non-disturbance agreements and/or consents and
acknowledgments to currently outstanding non-disturbance agreements as more
fully set forth below in Section 10.7(b), and any other necessary consents,
including, without limitation, lender consents, and Permits for Buyer so
that there will be no interruption in the Restaurant Operations immediately
following the Closing and to pay all related expenses and fees in
connection with obtaining any and all of the foregoing (which in connection
with the Liquor Licenses and any other Permits will include only those
amounts relating to the initial transfer of such items to Buyer).
(b) Seller will use its best efforts to obtain, at its sole cost
and expense, from any and all ground lessor(s) and lender(s) encumbering
any of the Real Property (in connection with each Lease), (a) a non-
disturbance agreement in recordable form acceptable to Buyer which shall
contain language and concepts substantially in the form set forth on
Exhibit "J" attached hereto and/or (b) a consent and acknowledgment
-----------
executed by a ground lessor or lender, as applicable, to any currently
outstanding non-disturbance agreement which contains language and concepts
substantially in the form set forth on Exhibit "J" attached hereto, which
-----------
consent and acknowledgment shall expressly state that such non-disturbance
agreement shall be for the benefit of Buyer and enforceable against such
consenting party by Buyer.
10.8 Public Announcements. Except as required by law, if any
--------------------
party proposes to make any public announcement relating to the transactions
contemplated herein, such party will submit its proposed announcement in
advance to the other party and will give it a reasonable opportunity under
the circumstances to comment thereon in advance of release.
10.9 Notice of Development. Each party shall give prompt notice
---------------------
to the others in the event it discovers any of its own representations or
warranties to be untrue as of the time made or in the event it determines
that any of its representations or warranties will be untrue as of the
Closing Date. No disclosure by any party pursuant to this section will be
deemed to amend any Disclosure Schedule delivered herewith or cure any
misrepresentation or omission.
10.10 Advances. Seller shall advance (either pre-closing or
--------
post-closing as necessary, notwithstanding that this covenant is in Article
X Pre-Closing Covenants) to Buyer any and all amounts required to be paid
by such party as a result of any sales or transfer taxes of any nature,
which may be imposed in connection with the transactions contemplated
hereby. Any and all amounts advanced by Seller shall be treated as a
capital contribution (which shall not earn a preferred or any other type of
return) to Buyer to be repaid by a priority distribution of cash flow from
Buyer as set forth in the Partnership Agreement.
32
<PAGE>
ARTICLE XI
POST-CLOSING COVENANTS
----------------------
11.1 Health Insurance Benefits. Buyer shall, or shall cause one of
-------------------------
its Affiliates to, for a period of at least six (6) months commencing on the
Closing Date, provide all of the Restaurant level employees and Non-Restaurant
level employees employed by Buyer or one of its Affiliates as of the Closing
Date in accordance with Section 10.2, who continue to be employed in the sole
discretion of Buyer or its Affiliate by Buyer or its Affiliate, as applicable,
during such six (6) month period, with comparable health insurance benefits as
those provided to such employees by Seller as of the Closing Date.
11.2 Survival of Representations, Etc. All statements contained in
--------------------------------
the Disclosure Schedules or any certificate, schedule, exhibit or instrument
delivered by or on behalf of the parties pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by such parties hereunder. The representations
and warranties of Seller and Buyer contained herein shall survive the
consummation of the transactions contemplated hereby and the Closing Date,
without regard to any investigation made by any of the parties hereto, through
April 30, 1998, whereupon all representations and warranties of the parties
hereto shall expire, other than the representations and warranties set forth in
Sections 4.1, 4.2 and 4.3, which survive indefinitely, and Sections 4.18 and
4.19, which shall survive until the expiration of all applicable statutes of
limitation, including any extensions thereto. The agreements of the parties
contained in Sections 10.7 and 10.10, Article XIII and in this Article XI shall
also survive consummation of the transactions contemplated by this Agreement.
11.3 Indemnification.
---------------
(a) By Seller. Seller shall indemnify, defend, protect and hold
---------
wholly harmless Buyer, FL Holdings and each of Buyer's and/or FL Holdings'
respective Affiliates and Representatives from and against any and all
costs, losses, Taxes, liabilities, damages, lawsuits, environmental costs,
claims and expenses (whether or not arising out of third-party claims),
including without limitation, interest, penalties, reasonable attorneys'
fees and costs and all amounts paid in investigation, defense or settlement
of any Action relating to the foregoing (collectively, "Damages"), incurred
in connection with, arising out of, resulting from or incident to (i) any
breach by Seller of any covenant or warranty, or the inaccuracy of any
representation, made by Seller, in or pursuant to this Agreement, or in any
Exhibit, Schedule, certificate or other instrument delivered to Buyer by
Seller or any of Seller's Affiliates hereunder, (ii) the failure to receive
from any governmental or regulatory body or authority, or any other person
or entity, the consents, approvals, Permits and waivers required in order
to validly transfer the Purchased Assets and/or to consummate all of the
transactions contemplated hereby unless Buyer has expressly agreed in
writing to indemnify Seller from and against any and all Damages arising
out of the failure to obtain any such consents, approvals, Permits or
waivers as set forth in Section 7.2, (iii) any liability, obligation or
commitment of any nature (absolute, accrued, contingent or otherwise, and
whether known or unknown as of the Closing Date) of Seller
33
<PAGE>
or relating to the Purchased Assets or the Restaurant Operations and
arising out of transactions entered into or events occurring prior to the
Closing Date, which liability, obligation, or commitment Buyer has not
specifically assumed pursuant to Section 2.2(a) of this Agreement, (iv) any
claim or liability against Buyer or its respective Affiliates or
Representatives based upon or alleging that any of them are successors to
Seller or any of its businesses or operations, which liability arises out
of acts or omissions of Seller, or any event, occurring prior to the
Closing Date and (v) the failure of Seller, CHE, Buyer (to the extent that
the general partnership and Class B limited partnership interests are no
longer held by FL Holdings or any Affiliate thereof) and/or any successor
or assignee to the Note and Loan Agreement and/or the Pledge and Security
Agreement, as the case may be, to make any payment due or owing under any
Lease, Contract or other obligation of the Partnership following any event
of default (or any other reason) under the Note and Loan Agreement or the
Pledge and Security Agreement which results in a foreclosure upon any of
the collateral thereunder but excluding any liabilities incurred by Buyer
prior to such foreclosure.
(b) By Buyer. Buyer shall indemnify, defend, protect and hold
--------
wholly harmless Seller and Seller's Affiliates and Representatives from and
against any and all Damages, incurred by Seller and each of Seller's
Affiliates and Representatives in any capacity other than Seller's capacity
as a limited partner of Buyer, in connection with, arising out of,
resulting from or incident to (i) any breach by Buyer of any covenant or
warranty, or the inaccuracy of any representations made by Buyer in or
pursuant to this Agreement or any Exhibit, Schedule, certificate or other
instrument delivered to Seller by Buyer hereunder or any of Buyer's
Affiliates, (ii) from and after the Closing, any liability, obligation or
commitment of Seller specifically assumed by Buyer pursuant to Section
2.2(a) of this Agreement; (iii) any liability, obligation or commitment of
any nature (absolute, accrued, contingent or otherwise) of Buyer or
relating to the Purchased Assets or the operation of the Restaurants which
arises out of transactions entered into by Buyer, or acts or omissions to
act of Buyer occurring, from and after the Closing Date; and (iv) any
payments made from and after the Closing Date by either Seller or CHE as a
guarantor of any Lease to a lessor; provided, however, that Buyer shall not
be required to indemnify either Seller or CHE for any payments made in
connection with a Lease (a) where the failure of Buyer to make such payment
is due to a bona fide dispute with the lessor or (b) where such Lease, or
the obligation to make payments under such Lease, has been transferred from
Buyer to Seller, CHE or any other party, as a result of any event of
default (or any other reason) under the Note and Loan Agreement or Pledge
and Security Agreement.
(c) Limitation on Indemnification. Except as provided in the
-----------------------------
immediately succeeding sentence, no party shall assert any claim for
indemnification hereunder until such time as the aggregate amount of
Damages incurred by such party or its Affiliates or Representatives shall
exceed One Hundred Thousand Dollars ($100,000), at which time such party
may seek indemnification from the other party hereto for all Damages
incurred. Notwithstanding the foregoing, Buyer shall be entitled to assert
a claim for indemnification hereunder from Seller for any and all Damages
incurred by Buyer, FL Holdings or their respective Affiliates or
Representatives as a result of Seller's
34
<PAGE>
failure to obtain any of the Liquor Licenses (temporary or otherwise), and
any other necessary consents or approvals, including, without limitation,
lender and landlord consents; provided, however, that Buyer shall not be
-------- -------
entitled to assert such indemnification claim until such time as the
aggregate amount of Damages incurred by Buyer and/or its Affiliates or
Representatives as a result of Seller's failure to obtain any of the
foregoing is equal to or greater than Five Thousand Dollars ($5,000).
Nothing contained in this Agreement shall obligate Seneca or IR-L.P. to
indemnify Seller or any other entity or person, nor obligate CHE to
indemnify Buyer or any other entity or person in connection with the
transactions contemplated by this Agreement.
(d) Defense of Claims. If any lawsuit or enforcement action is
-----------------
filed against any party entitled to the benefit of indemnity hereunder,
written notice thereof shall be given to the indemnifying party as promptly
as practicable (and in any event within fifteen (15) days after the service
of the citation or summons); provided that the failure of any indemnified
party to give timely notice shall not affect rights to indemnification
hereunder except to the extent that the indemnifying party demonstrates
that a material substantive right was materially impaired by such failure.
After such notice, if the indemnifying party shall acknowledge in writing
to such indemnified party that such indemnifying party shall be liable
under its indemnity in connection with such lawsuit or action, then the
indemnifying party shall be entitled, if it so elects, to take control of
the defense and investigation of such lawsuit or action and to employ and
engage attorneys of its own choice to handle and defend the same, at the
indemnifying party's cost, risk and expense, and such indemnified party
shall cooperate in all reasonable respects, with the indemnifying party and
such attorneys in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom; provided, however, that the
indemnified party may, at its own cost, participate in such investigation,
trial and defense of such lawsuit or action and any appeal arising
therefrom.
(e) Right of Offset.
---------------
(i) Anything in this Agreement to the contrary
notwithstanding, Seller hereby agrees that any and all amounts which
Seller is entitled to receive as distributions from Buyer under the
Partnership Agreement or otherwise on account of its ownership
interest in Buyer shall be applied to satisfy any amounts as to which
Seller is obligated to indemnify Buyer, FL Holdings or any of their
respective Affiliates or Representatives pursuant to any provision of
this Section 11.3, and further authorizes FL Holdings, as the general
partner of Buyer, to intercept such distributions to satisfy such
indemnification obligations in accordance with, and as set forth in,
the Partnership Agreement. Any amounts so applied to satisfy Seller's
indemnification obligations shall be deemed to have been distributed
to Seller in accordance with the Partnership Agreement, and thereafter
applied by Seller in satisfaction of its indemnification obligations
pursuant to this Article XI. In addition, if the Fixed Payment (as
defined in the Note and Loan Agreement) under the Note and Loan
Agreement has been paid in any given month, the funds which would
otherwise be applied to satisfy the obligations under the Note and
Loan Agreement in excess of such Fixed Payment shall be applied to
35
<PAGE>
satisfy any amounts as to which Seller is obligated to indemnify
Buyer, FL Holdings or any of their respective Affiliates or
Representatives pursuant to any provision of this Section 11.3 in
accordance with the terms of the Note and Loan Agreement. Any amounts
so applied pursuant to the immediately preceding sentence to satisfy
Seller's indemnification obligations shall be deemed to have been
borrowed by Seller from Buyer upon such terms and conditions as more
fully set forth in the Partnership Agreement.
(ii) In connection with the foregoing right of offset,
Seller hereby agrees that, in the event that Seller pledges any
portion of Seller's right, title and interest in and to Seller's Class
A limited partnership interest to any other entity or Person,
including, without limitation, any bank, Seller shall make such third
party aware of (and such third party shall acquire its security
interest subject to) the foregoing right of offset and specifically
provide in any applicable documentation of such pledge that Seller's
Class A limited partnership interest is subject to the foregoing
described right of offset for indemnification obligations pursuant to
this Agreement and the Partnership Agreement.
(iii) Seller hereby agrees to execute and deliver to Buyer,
any and all necessary UCC-1 Financing Statements and any continuation
statements thereof, and such other documents or notices as Buyer may
reasonably request, in order to provide notice of the foregoing right
of offset to third parties.
(f) Post-Closing Tax Audits and Other Tax Proceedings. Seller,
-------------------------------------------------
on the one hand, and Buyer, on the other hand, agree to give prompt notice
to each other of any proposed adjustment to Taxes related to the Restaurant
Operations for periods ending on or prior to the Closing Date or any pre-
Closing Date partial period. Seller and Buyer shall cooperate with each
other in the conduct of any audit or other proceedings involving the
Restaurant Operations for such periods and each may participate at its own
expense, provided that Seller shall have the right to control the conduct
of any such audit or proceeding for which Seller (i) agrees that any
resulting Tax is covered by the indemnity provided in Section 11.3(a), and
(ii) demonstrates to Buyer its ability to make such indemnity payment to
Buyer or permits FL Holdings to set off such indemnity payment against
distributions from Buyer in accordance with Section 11.3(f).
(g) Bulk Sales. It may not be practicable to comply or attempt
----------
to comply with the procedures of the "Bulk Sales Act" or similar laws of
any or all of the states in which the Purchased Assets are situated or any
other state which may be asserted to be applicable to the transactions
contemplated hereby. Accordingly, to induce Buyer to waive requirements
for compliance with any or all of such laws, Seller hereby agrees that the
indemnity provisions of Section 11.3(a) shall apply to any Damages of Buyer
arising out of or resulting from the failure of Buyer or Seller to comply
with any such laws or any similar law which may be asserted to be
applicable to the transactions contemplated hereby.
36
<PAGE>
11.4 Certain Post-Closing Adjustments.
--------------------------------
(a) Closing Balance Sheet Adjustment. Subject to the provisions
--------------------------------
contained in Section 11.4(c), if (i) the sum of the line items for (A) cash
in registers and reserves at the Restaurants, (B) customer trade accounts
receivable which have been reasonably approved by Buyer, (C) employee
advances which have been reasonably approved by Buyer, (D) Inventories (not
including any items held or stored at the commissary maintained by CHE in
Carlsbad, California) and (E) prepaid expenses (other than deferred
preopening costs) on the Closing Balance Sheet, plus any and all amounts
paid by Seller as fees for Permits or Liquor Licenses (other than any fees
related to the initial transfer of any such Permits and Liquor Licenses
which shall be paid by Seller) which shall be scheduled and delivered with
the Closing Balance Sheet for Buyer's reasonable approval, exceeds (ii) the
gift certificates line item for the Restaurant Operations on the Closing
Balance Sheet (the "Excess"), then Buyer shall pay to Seller by certified
check the entire amount of the Excess within fifteen (15) days of the
delivery of the agreed upon Closing Balance Sheet. However, in the event
that the amount of item (i) is less than item (ii) (the "Shortfall"), then
Seller shall pay to Buyer by certified check the entire amount of the
Shortfall within fifteen (15) days of the delivery of the agreed upon
Closing Balance Sheet.
(b) Taxes and Other Prorations.
--------------------------
(i) Taxes. Any Taxes for a period including a pre-Closing
-----
Date partial period (which shall include the Closing Date) and a post-
Closing Date partial period shall be apportioned between such pre-
Closing Date partial period (which shall be the responsibility of
Seller) and such post-Closing Date partial period (which shall be the
responsibility of Buyer), based, in the case of real and personal
property Taxes on a per diem basis and, in the case of other Taxes, on
the actual activities, taxable income or taxable loss of the
Restaurant Operations during such pre-Closing Date partial period and
such post-Closing Date partial period; provided, however, that any
sales or transfer taxes shall be advanced to Buyer by Seller and
recovered by Seller from Buyer in accordance with the provisions of
Section 10.10.
(ii) Other Prorations. Any and all fees, salaries, real or
----------------
personal property rental or lease payments, common area maintenance
charges, water, gas, electricity and other utilities, interest or
other finance charges and other recurring payments other than Taxes
(collectively, the "Prorations") shall be apportioned between Seller
and Buyer such that Seller shall be responsible for, and/or receive
payment of, as applicable, all such Prorations incurred or earned
through and including the Closing Date and Buyer shall be responsible
for, and/or receive payment of, as applicable, all such Prorations
incurred or earned after the Closing Date.
(iii) Rent. Notwithstanding anything contained herein to
----
the contrary, Seller shall prepay minimum or basic rent under the
Leases through the
37
<PAGE>
end of the calendar month in which the Closing Date occurs, but Buyer
shall reimburse Seller for such rent accrued from the Closing Date
through the end of such month as part of the post-Closing proration
procedure described in this Section 11.4.
(c) Preparation of Closing Balance Sheet and Post-Closing
-----------------------------------------------------
Schedule. In order to effect the Closing Balance Sheet adjustments and the
--------
apportionment of Taxes and Prorations required by this Section 11.4, Seller
shall prepare and deliver to Buyer, within thirty (30) days following the
Closing Date, (i) the Closing Balance Sheet prepared in accordance with
GAAP and consistent with the past practices used in preparing balance
sheets for Seller and (ii) a schedule of such Taxes and Prorations
indicating the amount that Seller believes are its responsibility and/or
which it is entitled to receive under this Section 11.4 (the "Post-Closing
Schedule"). Within fifteen (15) days of receipt of the Closing Balance
Sheet and the Post-Closing Schedule, Buyer shall communicate its acceptance
or requested changes to Seller. If the Closing Balance Sheet is accepted
by Buyer, or the required changes of Buyer are acceptable to Seller, then
payment shall be made by the appropriate party as set forth in Section
11.4(a). If the Post-Closing Schedule is accepted by Buyer, or the
requested changes of Buyer are acceptable to Seller, then within fifteen
(15) days of receipt of Buyer's acceptance or request for changes, Seller
shall either (i) remit to Buyer by certified check the net amount of Taxes
and Prorations required to be paid by Seller in accordance with the
accepted schedule or (ii) deliver to Buyer a request for payment of the net
amount of Taxes and Prorations required to be paid by Buyer, which amounts
shall be paid to Seller by certified check within fifteen (15) days of
receipt of such request. If the parties are unable to agree on the Closing
Balance Sheet or on the Post-Closing Schedule, then Arthur Andersen LLP, or
another "Big Six" accounting firm acceptable to Seller and Buyer, shall
prepare the Closing Balance Sheet in accordance with GAAP consistent with
the past practices used in preparing balance sheets for Seller and/or the
Post-Closing Schedule, as the case may be, which Closing Balance Sheet
and/or Post-Closing Schedule shall be binding on both Seller and Buyer, and
the fees for the preparation of the Closing Balance Sheet and/or Post-
Closing Schedule shall be shared equally by Seller and Buyer.
11.5 Nonsolicitation of Employees. Neither Seller nor any
----------------------------
Affiliate of Seller shall take any action following the Closing to induce
any employee of Buyer or any Affiliate of Buyer to leave the employ of
Buyer or any Affiliate of Buyer nor shall Buyer nor any Affiliate of Buyer
take any action following the Closing to induce any employee of Seller or
any Affiliate of Seller to leave the employ of Seller or any Affiliate of
Seller.
11.6 Proprietary Information. Seller hereby acknowledges that
-----------------------
neither Seller nor any of its Affiliates will have, upon termination of the
1993 License Agreement, any right to establish or operate restaurants under
the trademark, service mark or trade name "Islands," or any other
confusingly similar marks, or utilize the Islands concept, and hereby
agrees that neither Seller nor any of its Affiliates will establish or
operate restaurants under the trademark, service mark or trade name
"Islands," or any other confusingly similar marks, or utilize the Islands
concept (including, without limitation, the design, facilities, menus,
recipes, supplies and operating concepts utilized in connection with the
"Islands" operations), nor will either Seller or its
38
<PAGE>
Affiliates employ those certain advertising, promotional and merchandising
methods which are part of the "Islands" operations.
11.7 Collection of Receivables. At the Closing, Buyer will
-------------------------
acquire hereunder, and thereafter Buyer or its designee shall have the
right and authority to collect for Buyer's or its designee's account, all
customer trade accounts receivable which have been reasonably approved by
Buyer, and other items which constitute a part of the Purchased Assets, and
Seller shall within forty-eight hours after receipt thereof, properly
endorse and deliver to Buyer any letters of credit, documents or checks
received on account of or otherwise relating to any such receivables.
Seller will promptly transfer or deliver to Buyer or its designee any cash
or other property that Seller may receive from and after the Closing Date
in respect of any claim, Contract, license, Lease, commitment, sales order,
purchase order, letter of credit or receivable of any character, or any
other item, constituting a part of the Purchased Assets.
11.8 Further Assurances. From and after the Closing Date, each
------------------
party hereto will cooperate in good faith with the other party hereto and
take all appropriate action and execute any documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to
carry out any of the transactions contemplated hereby. Without limiting
the generality of the foregoing, at any time and from time to time after
the Closing, at Buyer's request and without further consideration, Seller
shall execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation and take such action as Buyer may
reasonably deem necessary or desirable in order to more effectively
transfer, convey and assign to Buyer, and to confirm Buyer's title to, all
of Seller's Purchased Assets, to put Buyer in actual possession and
operating control thereof and to assist Buyer in exercising all rights with
respect thereto. Further, Seller warrants, and hereby covenants, at
Seller's sole cost and expense, to defend Buyer's title to the Purchased
Assets against all lawful claims and demands of all persons or entities
whomsoever which now exist or which may have accrued as of the Closing
Date. In addition, Seller agrees to cooperate in good faith with Buyer or
Buyer's Representatives to provide whatever information which may be
necessary in order to prepare Buyer's interim and 1996 year-end financial
statements and Tax returns.
ARTICLE XII
TERMINATION
-----------
12.1 Termination. This Agreement may be terminated, and the
-----------
transactions contemplated by this Agreement abandoned, at any time prior to the
Closing Date, before or after the approval of the Board of Directors of Seller,
the partners of Buyer or the limited partners of IR-L.P.:
(a) by mutual written consent of Seller and Buyer;
(b) by Buyer, if any material representation or warranty by
Seller contained in this Agreement shall be incorrect in any material
respect when made;
39
<PAGE>
(c) by Seller, if any material representation or warranty by
Buyer contained in this Agreement shall be incorrect in any material
respect when made; or
(d) by Seller or Buyer, if without fault of the terminating
party, the Closing Date shall not have occurred on or prior to June 30,
1996.
12.2 Effect of Termination. In the event of the termination of
---------------------
this Agreement by either Seller or Buyer as provided in Section 12.1
hereof, no party (or any of its partners, stockholders, directors or
officers) shall have any liability or further obligation to any other party
hereunder of any nature whatsoever, including any liability for damages,
unless such party is in default under its obligations hereunder, in which
event the party in default shall be liable to the other party for such
default. The agreements of any of the parties contained in this Section
12.2 and Sections 13.3, 13.4, 13.5 and 13.8 shall survive the termination
of this Agreement. In the event that a condition precedent to a party's
obligations is not satisfied, nothing contained herein shall be deemed to
require any party to terminate this Agreement and any party hereto may
waive such condition precedent to its obligations and proceed with the
Closing.
ARTICLE XIII
MISCELLANEOUS
-------------
13.1 Assignment; Parties in Interest. Neither this Agreement nor any
-------------------------------
of the rights or obligations hereunder may be assigned, by operation of law
or otherwise, by any party without the prior written consent of the other
parties. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns, and no other person shall have any right, benefit or
obligation hereunder as a third-party beneficiary or otherwise.
13.2 Notices. Unless otherwise provided herein, any notice, request,
-------
instruction or other document to be given hereunder by any party to any other
party shall be in writing and shall be deemed to be duly given on the date of
delivery if delivered personally and on the date of receipt or refusal
indicated on the return receipt if mailed by first class mail, certified or
registered, postage prepaid, return receipt requested, and in each case
addressed as follows:
If to Seller: Islands Restaurants, Inc.
c/o Chart House Enterprises, Inc.
115 South Acacia Avenue
Solana Beach, California 92075
Attention: William R. Kuntz, Jr., Esq.,
General Counsel
With a courtesy copy to (which Morgan Lewis & Bockius LLP
shall not constitute notice): 801 South Grand Avenue
22nd Floor
Los Angeles, California 90017
Attention: Robert B. Fraser, Esq.
40
<PAGE>
If to Buyer: Islands Florida LP
c/o Seneca Partners, Inc.
8440 Walnut Hill Lane, Suite 800
Dallas, Texas 75231
Attention: John P. Wagner
With a courtesy copy to Allen, Matkins, Leck, Gamble &
(which & shall not Mallory LLP
constitute notice): 18400 Von Karman Avenue, 4th Floor
Irvine, California 92715
Attention: Jeremy D. Glaser, Esq.
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others in accordance with the provisions of
this Section 13.2.
13.3 Confidential Information. The parties acknowledge that the
------------------------
transactions described herein are of a confidential nature and shall not be
disclosed except to consultants, advisors, Affiliates and other Representatives
of the parties hereto, or as required by law, until such time as the parties
make a public announcement regarding the transaction in accordance with the
provisions of Section 10.8. Each party shall treat as confidential all
financial, accounting and other proprietary information of the other that may
come into such party's possession during the course of and pursuant to the
performance of this Agreement, and each party shall take adequate measures
protecting the same to the same extent each party protects against disclosure or
destruction of its own financial, accounting and other proprietary information
and shall not disclose such confidential information except as required by
applicable law, regulation or legal process. The parties shall communicate to
their respective Affiliates, agents and employees the confidentiality
requirements of this Agreement and take whatever measures may be reasonably
necessary to protect and enforce such confidentiality. In the event of the
termination of this Agreement for any reason whatsoever, each party shall return
to the other all documents, work papers, financial and accounting records, and
other material (including all copies thereof) obtained in connection with the
transactions contemplated hereby and shall use all reasonable efforts, including
instructing its employees and others who have had access to such information, to
keep confidential and not to use any such information, unless such information
is now, or is hereafter disclosed, through no act or omission of such party, in
any manner making it available to the general public.
13.4 Attorneys' Fees. The parties agree that if it be determined by
---------------
any court that any party has failed to perform its obligations herein, then the
prevailing party or parties shall be entitled to recover reasonable attorneys'
fees, court costs and other reasonable expenses and costs incurred in the
enforcement of the rights and obligations set forth in this Agreement, or any
claim for damages based on any breach of this Agreement.
13.5 Choice of Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of California.
41
<PAGE>
13.6 Entire Agreement; Amendments and Waivers. This Agreement,
----------------------------------------
together with all recitals, Exhibits and Schedules hereto including the
Disclosure Schedules (which are incorporated herein by reference), constitutes
the entire agreement among the parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. No amendment, supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
13.7 Multiple Counterparts. This 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.
13.8 Expenses. Except as provided in Section 10.10, each party hereto
--------
shall pay its own legal, accounting, out-of-pocket and other expenses incurred
in connection with transactions contemplated by this Agreement.
13.9 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
13.10 Titles. The titles, captions or headings of the Articles and
------
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
"Seller" ISLANDS RESTAURANTS, INC., a Delaware corporation
By: /s/ JOHN M. CREED
-------------------
Name: John M. Creed
Title: Chairman and Chief Executive Officer
"Buyer" ISLANDS FLORIDA LP,
a Delaware limited partnership
By: Islands FL Holdings LP, a Delaware limited
partnership
Its: Sole General Partner
By: Larkspur Partners, Inc., a Delaware
corporation
Its: Sole General Partner
By: /s/ JOHN P. WAGNER
--------------------
Name: John P. Wagner
Title: Vice President,
Secretary and Treasurer
43
<PAGE>
SECURED PROMISSORY NOTE
$3,000,000.00 Solana Beach, California
April ___, 1996
FOR VALUE RECEIVED, the undersigned hereby promises to pay to ISLANDS
RESTAURANTS, INC., a Delaware corporation ("Lender"), or order, at 115 South
Acacia Avenue, Solana Beach, California 92075-1803, or at such other address as
the holder of this Secured Promissory Note ("Note") may specify in writing, the
principal sum of THREE MILLION DOLLARS ($3,000,000.00) plus interest in the
manner and upon the terms and conditions set forth below. This Note is made in
connection with that certain Loan and Security Agreement, dated as of even date
herewith, between the undersigned and Lender (as hereafter amended, restated,
supplemented, or modified from time to time, the "Agreement"), the provisions of
which are incorporated herein by reference. All capitalized terms used herein,
unless otherwise defined herein, shall have the meanings ascribed to them in the
Agreement.
1. Rate of Interest
----------------
The principal balance of this Note shall bear simple interest from the
date hereof at a fixed rate per annum equal to nine percent (9%) based upon a
365 day year and the actual number of days elapsed. Upon the occurrence and
during the continuation of an Event of Default under the Agreement, the rate of
interest on this Note shall, at the option of the holder of this Note, be
increased to thirteen percent (13%) per annum.
In no event shall the interest rate or rates payable under this Note,
plus any other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. The undersigned and Lender intend legally
to agree upon the rate or rates of interest (and the other amounts paid in
connection herewith) and manner of payment stated within this Note; provided,
however, that anything contained herein to the contrary notwithstanding, if said
interest rate or rates of interest (or other amounts paid in connection
herewith) or the manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto as of the date of this Note, the undersigned is
and shall be liable only for the payment of such maximum as allowed by law, and
payment received from the undersigned in excess of such legal maximum, whenever
received, shall be applied to reduce the principal balance of this Note to the
extent of such excess.
1
<PAGE>
2. Schedule of Payments
--------------------
Principal and interest under this Note shall be due and payable in
accordance with the following schedule:
a. Beginning _____________ ___, 1996, and continuing thereafter
for the succeeding 11 months, principal and interest shall be due and payable in
arrears on the fifteenth day of each month in monthly installments equal to the
lesser of (a) $26,991.78 (the "Fixed Payment"), and (b) the undersigned's Net
Income (as defined below) received during the previous calendar month (the "Cash
Flow Payment") (the lesser of the Fixed Payment and the Cash Flow Payment being
hereinafter referred to as the "Minimum Payment"). In the event that the
undersigned pays the Cash Flow Payment in any month, then the Fixed Payment for
the immediately succeeding month shall be increased by the amount of the excess
of $26,991.78 over the Cash Flow Payment actually paid for such month. The
amount of the Fixed Payment for each subsequent month shall continue to be
adjusted based upon the difference between the amount actually paid with respect
to this Note in the immediately preceding month and the then existing amount of
the Fixed Payment. On ________________, 1997, the difference between the Fixed
Payment as of such date and the Minimum Payment made on such date (the "Accrued
Shortfall") shall be added to the principal balance of this Note as of _________
1, 1997, and such Accrued Shortfall shall begin accruing interest thereafter as
of ___________ ___, 1997, at the rates specified herein.
"Net Income" shall mean the undersigned's gross cash proceeds received
by the undersigned from partnership operations (including sales and other
dispositions of Property (as defined in the undersigned's Partnership Agreement)
but excluding any refinancings of Property) less (i) all usual and necessary
----
expenses incurred by the undersigned in the ordinary course of the undersigned's
restaurant operations, (ii) expenditures for capital improvements and
replacements, and (iii) reasonable reserves established by the general partner
of the undersigned pursuant to the undersigned's Partnership Agreement.
b. On __________ ___, 1997, the monthly Fixed Payment shall be
recalculated by Lender taking into consideration any Accrued Shortfall added to
the principal balance of this Note (with such recalculation based on full
amortization of the remaining principal balance of the Note over 19 years and an
interest rate equal to the rate specified in Section 1 of this Note) (such
recalculated Fixed Payment shall be referred to herein as the "Adjusted Fixed
Payment"). Lender shall further provide notice to the undersigned of the amount
of the Adjusted Fixed Payment within five (5) business days of such
recalculation. Beginning on ____________ 1, 1997, and continuing thereafter on
the first (1st) business day of each succeeding
2
<PAGE>
month (until the Maturity Date, as defined below) principal and interest shall
be due and payable in arrears in monthly installments equal to the Adjusted
Fixed Payment.
c. In the event that the undersigned has paid with respect to any
month the full amount of the Fixed Payment (as adjusted from time to time as set
forth above in paragraph ("a") of this Section 2) or the Adjusted Fixed Payment
then, in addition to such Fixed Payment or Adjusted Fixed Payment (as
applicable), the undersigned shall pay to Lender, in arrears on the fifteenth
day of each month, beginning on ________________, 1996, an amount equal to all
of the Adjusted Net Income (as defined below) received by the undersigned during
the previous calendar month. "Adjusted Net Income" shall mean the undersigned's
Net Income less an amount equal to the accrued and unpaid indemnification
obligations of Lender owing to the undersigned, the undersigned's general
partner, or any of their respective Affiliates or representatives pursuant to
Section 11.3(e) of that certain Asset Purchase Agreement between Lender and the
undersigned.
d. All sums remaining unpaid under this Note as of ____________ 1,
2011 (the "Maturity Date") shall be due and payable in full on the Maturity
Date.
Each of the foregoing payments shall be credited first to fees and
costs owing under or in connection with the Loan Documents, then to accrued
interest, and then to principal. All payments shall be made in lawful money of
the United States, without offset, deduction, or counterclaim of any kind.
3. Prepayment
----------
Voluntary prepayments of the principal balance of this Note shall be
permitted at any time; provided that each such prepayment shall be accompanied
by all interest that has accrued and remains unpaid with respect to the amount
of principal being repaid. Amounts repaid or prepaid with respect to this Note
may not be reborrowed. Partial prepayments of principal shall be applied to
scheduled payments of principal in the inverse order of their maturity.
4. Holder's Right of Acceleration
------------------------------
Upon the occurrence and during the continuation of an Event of Default
under the Agreement, including, but not limited to, the failure to pay any
installment of principal or interest hereunder when due and after the expiration
of any applicable grace period, the holder of this Note may, at its election and
without notice to the undersigned, declare the entire balance hereof (including,
but not limited to, all principal and interest) immediately due and payable.
3
<PAGE>
5. Additional Rights of Holder
---------------------------
If any installment of principal or interest hereunder is not paid when
due, the holder shall have the right to (in addition to the other rights set
forth herein, in the Agreement, and under law) compound interest by adding the
unpaid interest to principal, with such amount thereafter bearing interest at
the rates provided in this Note.
6. General Provisions
------------------
a. If this Note is not paid when due, the undersigned further
promises to pay all costs of collection, foreclosure fees, and reasonable
attorneys' fees incurred by the holder, whether or not suit is filed hereon,
together with the fees, costs and expenses as provided in the Agreement
b. The undersigned hereby consents to the acceptance, release, or
substitution of security for this Note.
c. Presentment for payment, demand, notice of dishonor, protest,
and notice of protest are hereby expressly waived.
d. Any waiver of any rights under this Note or the Agreement is
neither valid nor effective unless made in writing and signed by the holder of
this Note.
e. No delay or omission on the part of the holder of this Note in
exercising any right shall operate as a waiver thereof or of any other right.
f. A waiver by the holder of this Note upon any one occasion
shall not be construed as a bar or waiver of any right or remedy on any future
occasion.
g. Should any one or more of the provisions of this Note be
determined illegal or unenforceable, all other provisions shall nevertheless
remain effective.
h. This Note cannot be changed, modified, amended, or terminated
orally.
i. This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without reference to the
principles of conflicts of laws thereof.
4
<PAGE>
7. Security for this Note
----------------------
This Note is secured by the collateral described in the Agreement and
the other Loan Documents, and is subject to all of the terms and conditions
thereof including, but not limited to, the limitation on the remedies specified
therein.
8. Non-Recourse
------------
Notwithstanding anything to the contrary contained herein or in any
other Loan Document, but without in any manner impairing the validity of any
Loan Document or any security interests granted therein, in the event of any
default under the terms of any Loan Document, Lender agrees that (a) Lender will
not hold Islands Restaurants, L.P., the undersigned, Seneca Partners, Inc.,
Larkspur Partners, Inc., John Wagner, Anthony DeGrazier, or any of their
respective Affiliates personally liable for payment of the Obligations or for
any other sums due as a result of any Event of Defaults under any Loan Document,
(b) no judgment based on this Note or any of the other Loan Documents shall be
sought or obtained by Lender against any of the foregoing persons or entities
and the sole recourse of Lender against such persons and entities under this
Note and each of the other Loan Documents shall be limited to the Collateral,
and (c) Islands FL Holdings LP's liability with respect to such a default shall
only be as set forth in the Guaranty.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date first set forth above.
ISLANDS FLORIDA LP,
a Delaware limited partnership
By: Islands FL Holdings LP,
a Delaware limited partnership
Its: Sole General Partner
By: Larkspur Partners, Inc.,
a Delaware corporation
Its: Sole General Partner
By:____________________
Print Name:
Title:
5
<PAGE>
EXHIBIT 10.18(2)
PARTNERSHIP INTEREST
PURCHASE AGREEMENT
------------------
Dated as of March 18, 1996
<PAGE>
PARTNERSHIP INTEREST PURCHASE AGREEMENT
---------------------------------------
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I DEFINITIONS............................................ 2
1.1 1993 License Agreement................................. 2
1.2 1993 Management Agreement.............................. 2
1.3 Actions................................................ 2
1.4 Acquired Interest...................................... 2
1.5 Acquisition Proposal................................... 2
1.6 Affiliate.............................................. 2
1.7 Agreement.............................................. 3
1.8 Asset Purchase Agreement............................... 3
1.9 Assets................................................. 3
1.10 Benefit Arrangement.................................... 3
1.11 Best Knowledge......................................... 3
1.12 Books and Records...................................... 3
1.13 Buyer.................................................. 3
1.14 CHE.................................................... 3
1.15 Cleanup................................................ 4
1.16 Closing................................................ 4
1.17 Closing Balance Sheet.................................. 4
1.18 Closing Date........................................... 4
1.19 Code................................................... 4
1.20 Condition.............................................. 4
1.21 Contracts.............................................. 4
1.22 Contribution Agreement................................. 4
1.23 Damages................................................ 4
1.24 Disclosure Schedules................................... 4
1.25 Employee Plans......................................... 4
1.26 Encumbrances........................................... 4
1.27 Environmental Claim.................................... 4
1.28 Environmental Laws..................................... 5
1.29 ERISA.................................................. 5
1.30 ERISA Affiliate........................................ 5
1.31 Excess................................................. 5
1.32 Financial Statements................................... 5
1.33 First Amendment to IR-L.P. Partnership Agreement....... 5
1.34 First Amendment to Partnership Agreement............... 5
1.35 Fixtures and Equipment................................. 5
1.36 Florida Buyer.......................................... 5
1.37 GAAP................................................... 5
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
1.38 Hazardous Materials.................................... 6
1.39 Inventories............................................ 6
1.40 IR-L.P................................................. 6
1.41 IR-L.P. Partnership Agreement.......................... 6
1.42 Leasehold Improvements................................. 6
1.43 Leases................................................. 6
1.44 Liabilities............................................ 6
1.45 License Agreement...................................... 6
1.46 Liens.................................................. 6
1.47 Liquor Licenses........................................ 6
1.48 Management Agreement................................... 6
1.49 Multi-Employer Plan.................................... 7
1.50 Note and Loan Agreement................................ 7
1.51 OSHA................................................... 7
1.52 Partnership............................................ 7
1.53 Partnership Agreement.................................. 7
1.54 Pension Plan........................................... 7
1.55 Permits................................................ 7
1.56 Person................................................. 7
1.57 Pledge and Security Agreement.......................... 7
1.58 Real Property.......................................... 7
1.59 Release................................................ 7
1.60 Representative......................................... 8
1.61 Restaurant Operations.................................. 8
1.62 Restaurants............................................ 8
1.63 Seller................................................. 8
1.64 Seneca................................................. 8
1.65 Shortfall.............................................. 8
1.66 Sublease Agreement..................................... 8
1.67 Taxes.................................................. 8
1.68 Title Documents........................................ 8
1.69 Welfare Plan........................................... 8
ARTICLE II PURCHASE AND SALE OF ACQUIRED INTERESTS................ 9
2.1 Formation of the Partnership........................... 9
2.2 Transfer of Acquired Interest.......................... 9
2.3 Consideration for the Acquired Interest................ 9
ARTICLE III CLOSING................................................ 10
3.1 Closing................................................ 10
3.2 Conveyances at Closing................................. 10
3.3 Other Deliveries and Actions at Closing................ 10
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER............... 11
4.1 Organization and Qualification of Seller............... 11
4.2 Organization of the Partnership........................ 11
4.3 Ownership of Interests................................. 11
4.4 Authority of Seller.................................... 12
4.5 Due Execution.......................................... 12
4.6 Partnership Agreement.................................. 12
4.7 No Conflict or Violation............................... 12
4.8 Consents and Approvals................................. 13
4.9 Books and Records...................................... 13
4.10 Financial Statements................................... 13
4.11 Litigation............................................. 14
4.12 Compliance with Law.................................... 14
4.13 Liquor Licenses........................................ 14
4.14 Changes................................................ 14
4.15 Purchased Assets....................................... 16
4.16 Real Property and Leases............................... 17
4.17 Contracts and Commitments.............................. 17
4.18 Absence of Breaches or Defaults........................ 18
4.19 1993 License Agreement................................. 18
4.20 Employee Benefit Plans................................. 18
4.21 Taxes and Tax Returns.................................. 20
4.22 Environmental.......................................... 20
4.23 Insurance.............................................. 22
4.24 Brokers and Finders.................................... 22
4.25 Illegal Payments....................................... 22
4.26 No Other Agreements to Sell............................ 22
4.27 Labor Matters.......................................... 22
4.28 Suppliers.............................................. 22
4.29 Inventories............................................ 23
4.30 Material Misstatements Or Omissions.................... 23
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER................ 23
5.1 Organization........................................... 23
5.2 Authority.............................................. 23
5.3 Due Execution.......................................... 24
5.4 No Conflict or Violation............................... 24
5.5 Consents and Approvals................................. 24
5.6 Litigation............................................. 24
5.7 Brokers and Finders.................................... 25
5.8 Assets and Liabilities................................. 25
5.9 Material Misstatements Or Omissions.................... 25
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE VI FURTHER ASSURANCES..................................... 25
ARTICLE VII CONDITIONS TO THE OBLIGATION OF SELLER................. 26
7.1 Representations, Warranties and Covenants.............. 26
7.2 Consents............................................... 26
7.3 No Proceedings or Litigation........................... 26
7.4 Opinion of Counsel..................................... 26
7.5 Certificates........................................... 26
7.6 Authorization Documents................................ 26
7.7 Partnership Agreement.................................. 27
7.8 First Amendment to Partnership Agreement............... 27
7.9 Loan, Pledge and Guaranty Documents.................... 27
7.10 Reserve Fund Pledge Agreement.......................... 27
7.11 Sublease Agreement..................................... 27
7.12 1993 Management Agreement and 1993 License Agreement... 27
7.13 License Agreement...................................... 27
7.14 Management Agreement................................... 27
7.15 Asset Purchase Agreement............................... 27
ARTICLE VIII CONDITIONS TO THE OBLIGATION OF BUYER.................. 28
8.1 Limited Partner Approval............................... 28
8.2 Representations, Warranties and Covenants.............. 28
8.3 Consents............................................... 28
8.4 Title.................................................. 28
8.5 No Proceedings or Litigation........................... 29
8.6 Opinion of Counsel..................................... 29
8.7 Certificates........................................... 29
8.8 Material Changes....................................... 29
8.9 Corporate Documents.................................... 29
8.10 Partnership Agreement.................................. 29
8.11 Contribution Agreement and Transfer of Assets.......... 29
8.12 Due Diligence Review................................... 30
8.13 Inspections and Studies................................ 30
8.14 No Guaranty of Leases.................................. 30
8.15 Amendment to Partnership Agreement..................... 30
8.16 1993 Management Agreement and 1993 License Agreement... 30
8.17 Name Change............................................ 30
8.18 License Agreement...................................... 31
8.19 Management Agreement................................... 31
8.20 Asset Purchase Agreement............................... 31
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE IX RISK OF LOSS........................................... 31
ARTICLE X PRE-CLOSING COVENANTS.................................. 31
10.1 Conduct of Business Prior to Closing................... 31
10.2 No Solicitation........................................ 32
10.3 Employees.............................................. 33
10.4 Financial Statements................................... 33
10.5 Title Documents; Title Insurance....................... 33
10.6 Consent of the Limited Partners........................ 33
10.7 Access to Information; Inspections and Studies......... 33
10.8 Consents; Non-Disturbance Agreements................... 34
10.9 Public Announcements................................... 34
10.10 Notice of Development.................................. 35
10.11 Advances............................................... 35
ARTICLE XI POST-CLOSING COVENANTS................................. 35
11.1 Health Insurance Benefits.............................. 35
11.2 Survival of Representations, Etc....................... 35
11.3 Indemnification........................................ 36
11.4 Certain Post-Closing Adjustments....................... 39
11.5 Commissary Inventory................................... 40
11.6 Nonsolicitation of Employees........................... 40
11.7 Proprietary Information................................ 40
11.8 Further Assurances..................................... 40
ARTICLE XII TERMINATION............................................ 41
12.1 Termination............................................ 41
12.2 Effect of Termination.................................. 41
ARTICLE XIII MISCELLANEOUS.......................................... 41
13.1 Assignment; Parties in Interest........................ 41
13.2 Notices................................................ 42
13.3 Confidential Information............................... 42
13.4 Attorneys' Fees........................................ 43
13.5 Choice of Law.......................................... 43
13.6 Entire Agreement; Amendments and Waivers............... 43
13.7 Multiple Counterparts.................................. 43
13.8 Expenses............................................... 43
13.9 Invalidity............................................. 43
13.10 Titles................................................. 43
</TABLE>
-v-
<PAGE>
EXHIBITS:
- --------
EXHIBIT "A" FORM OF LICENSE AGREEMENT
- -----------
EXHIBIT "B" FORM OF MANAGEMENT AGREEMENT
- -----------
EXHIBIT "C" FORM OF AGREEMENT OF LIMITED PARTNERSHIP
- -----------
EXHIBIT "D" FORM OF FIRST AMENDMENT TO PARTNERSHIP AGREEMENT
- -----------
EXHIBIT "E" FORM OF LOAN AGREEMENT
- -----------
EXHIBIT "F" FORM OF PROMISSORY NOTE
- -----------
EXHIBIT "G" FORM OF PLEDGE AND SECURITY AGREEMENT
- -----------
EXHIBIT "H" FORM OF RESERVE FUND PLEDGE AGREEMENT
- -----------
EXHIBIT "I" FORM OF TERMINATION AGREEMENT OF 1993 MANAGEMENT AGREEMENT
- -----------
EXHIBIT "J" FORM OF TERMINATION AGREEMENT OF 1993 LICENSE AGREEMENT
- -----------
EXHIBIT "K" FORM OF NON-DISTURBANCE LANGUAGE
- -----------
EXHIBIT "L" FORM OF GUARANTY
- -----------
SCHEDULES:
- ---------
SCHEDULE 1.62 RESTAURANTS
- -------------
SCHEDULE 4.7 NO CONFLICT OR VIOLATION
- -------------
SCHEDULE 4.8 CONSENTS AND APPROVALS
- -------------
SCHEDULE 4.10 LIABILITIES
- -------------
SCHEDULE 4.12 COMPLIANCE WITH LAW
- -------------
SCHEDULE 4.13 PERMITS
- -------------
SCHEDULE 4.14 CHANGES SINCE DECEMBER 31, 1995
- -------------
SCHEDULE 4.15 ASSETS
- -------------
SCHEDULE 4.16 REAL PROPERTY AND LEASES
- -------------
SCHEDULE 4.17 CONTRACTS AND COMMITMENTS
- -------------
SCHEDULE 4.20 EMPLOYEE BENEFIT PLANS
- -------------
SCHEDULE 4.21 TAXES AND TAX RETURNS
- -------------
SCHEDULE 4.22 ENVIRONMENTAL
- -------------
SCHEDULE 4.23 INSURANCE
- -------------
SCHEDULE 4.28 SUPPLIERS
- -------------
-vi-
<PAGE>
PARTNERSHIP INTEREST
PURCHASE AGREEMENT
------------------
THIS PARTNERSHIP INTEREST PURCHASE AGREEMENT (the "Agreement"), dated
as of March 18, 1996, is made and entered into by and between ISLANDS
RESTAURANTS, INC., a Delaware corporation ("Seller") and ISLANDS CA/AZ HOLDINGS
LP, a Delaware limited partnership ("Buyer").
R E C I T A L S :
----------------
A. WHEREAS, Seller currently owns and operates eighteen (18)
restaurants under the trade name of "Islands," twelve (12) of which are located
throughout California and Arizona. The restaurants located throughout
California and Arizona are more particularly described on Schedule 1.62 (the
-------------
"Restaurants").
B. WHEREAS, Buyer and Seller desire to jointly form on the Closing
Date a Delaware limited partnership (the "Partnership") to own and operate the
Restaurants. Upon the initial formation of the Partnership, in accordance with
the terms of the Contribution Agreement and the Partnership Agreement (as each
term is defined herein) (i) Seller shall contribute (a) Two Hundred Fifty
Dollars ($250) in exchange for a twenty-five percent (25%) Class A limited
partnership interest therein and a credit to Seller's capital account in the
Partnership of Two Hundred Fifty Dollars ($250) and (b) all of the assets
relating to, or necessary for the operation of, the Restaurants and certain
other assets of Seller that are not used at the Restaurant level but are
necessary or desirable for the operation of the Restaurants to the capital of
the Partnership in exchange for a seventy-four percent (74%) Class B limited
partnership interest therein and a credit to Seller's capital account in the
Partnership of Twenty Million Dollars ($20,000,000) and (ii) Buyer shall
contribute Seven Hundred Fifty Dollars ($750) in exchange for a one percent (1%)
general partnership interest therein and a credit to Buyer's capital account in
the Partnership of Seven Hundred Fifty Dollars ($750).
C. WHEREAS, immediately following the initial formation of the
Partnership and the capital contributions by Seller and Buyer to the Partnership
as described above, Buyer desires to purchase from Seller, and Seller desires to
transfer, convey, assign and deliver to Buyer, Seller's entire right, title and
interest in and to Seller's Class B limited partnership interests, including,
without limitation, succeeding to the Twenty Million Dollar ($20,000,000) amount
credited to Seller's capital account in connection with the issuance of the
Class B limited partnership interest to Seller(the "Acquired Interest").
D. WHEREAS, immediately following the Closing and the transactions
contemplated by this Agreement, Seller shall be a limited partner in the
Partnership with a twenty-five percent (25%) Class A limited partnership
interest and a capital account in an amount equal to Two Hundred Fifty Dollars
($250), and Buyer shall be the sole general partner and a limited partner in the
Partnership with a one percent (1%) general partnership interest and a seventy-
four
1
<PAGE>
percent (74%) Class B limited partnership interest, respectively, and a
capital account in an amount equal to Twenty Million Seven Hundred Fifty Dollars
($20,000,750).
E. WHEREAS, the parties now desire to effectuate the foregoing
provisions of these Recitals upon such terms and subject to the conditions as
are hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
A G R E E M E N T :
------------------
ARTICLE I
DEFINITIONS
-----------
For purposes of this Agreement and all Exhibits and Schedules attached
hereto, the following terms shall have the meanings specified below. References
to plural terms shall include the singular and references to the singular shall
include the plural of such terms.
1.1 "1993 License Agreement" shall mean that certain Amended and
----------------------
Restated Area Development and License Agreement entered into on December 16,
1993 which is currently by and between IR-L.P. (the successor to the agreement
by assignment from Seneca Partners, Inc., a California corporation which was
formerly known as Islands Restaurants), as licensor, and Seller (formerly known
as Big Wave, Inc.), as licensee.
1.2 "1993 Management Agreement" shall mean that certain Management
-------------------------
Agreement entered into on December 16, 1993 (but made effective as of January 3,
1994) which is currently by and between IR-L.P. (the successor to the agreement
by assignment from Seneca Partners, Inc., a California corporation which was
formerly known as Islands Restaurants) and Seller (formerly known as Big Wave,
Inc.).
1.3 "Actions" shall mean any action, claim, suit, litigation,
-------
proceeding, dispute or arbitration and any outstanding order, writ, injunction,
judgment or decree.
1.4 "Acquired Interest" shall have the meaning given in Recital C
-----------------
hereof.
1.5 "Acquisition Proposal" shall have the meaning given in Section
--------------------
10.2(a) hereof.
1.6 "Affiliate" means, as applied to any Person, any other Person
---------
directly or indirectly controlling, controlled by, or under common control with,
that Person. For purposes of this definition, "control" as applied to any
Person means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities or partnership interests, by
contract, or otherwise.
2
<PAGE>
1.7 "Agreement" shall have the meaning given in the Preamble hereof.
---------
1.8 "Asset Purchase Agreement" shall have the meaning given in
------------------------
Section 7.15 hereof.
1.9 "Assets" shall have the meaning given in Section 4.15 hereof.
------
1.10 "Benefit Arrangement" shall mean any written employment,
-------------------
consulting, severance or other similar contract, arrangement or policy and each
written plan, arrangement, program, agreement or commitment providing for
insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, retirement benefits, life, health, disability
or accident benefits (including, without limitation, any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Code providing
for the same or other benefits) or for deferred compensation, profit-sharing
bonuses, stock options, stock appreciation rights, stock purchases or other
forms of incentive compensation or post-retirement insurance, compensation or
benefits which (a) is not a Welfare Plan, Pension Plan or Multi-Employer Plan,
(b) is entered into, maintained, contributed to or required to be contributed
to, as the case may be, by Seller or an ERISA Affiliate in connection with the
Restaurant Operations or under which Seller or any ERISA Affiliate may incur any
liability arising out of the Restaurant Operations, and (c) covers any employee
or former employee of Seller or, as of the Closing Date, the Partnership.
1.11 "Best Knowledge" when used with respect to (i) Seller, shall
--------------
mean known to the actual knowledge of Douglas Kollus, Glen Freter or any other
executive officer (no more junior than a Vice President) of Seller, or John M.
Creed, William R. Kuntz, Jr., Esq., Harold E. Gaubert, Jr., or Timothy A.
Halverson, each in their individual capacities and not in their capacities as
officers of CHE and (ii) Buyer, shall mean known to the actual knowledge of John
P. Wagner or Anthony R. DeGrazier, II. Notwithstanding anything in this
Agreement to the contrary, no individual named in this definition shall have any
personal liability in connection with this Agreement, and the fact that certain
officers and/or employees of CHE and Seneca are included in this definition
shall not result in any liability on the part of CHE or Seneca for any of the
representations and warranties of Seller or Buyer made herein.
1.12 "Books and Records" shall mean (a) all records and lists
-----------------
pertaining to the Restaurant Operations, (b) all records and lists pertaining to
the business, customers, suppliers or personnel of any of the Restaurants, (c)
all product, business and marketing plans and records used by or in connection
with any of the Restaurants, and (d) all books, ledgers, files, reports, plans,
and operating records of every kind related to or used in connection with the
Restaurant Operations. Books and Records shall include any of the foregoing
which were or are maintained by either of Seller or CHE (or any of their
Representatives).
1.13 "Buyer" shall have the meaning given in the Preamble.
-----
1.14 "CHE" shall mean Chart House Enterprises, Inc., a Delaware
---
corporation and the sole stockholder of Seller.
3
<PAGE>
1.15 "Cleanup" shall mean all actions required to: (1) cleanup,
-------
remove, treat or remediate Hazardous Materials in the indoor or outdoor
environment; (2) prevent the Release of Hazardous Materials so that they do not
migrate, endanger or threaten to endanger public health or welfare of the indoor
or outdoor environment; (3) perform pre-remedial studies and investigations and
post-remedial monitoring and care; or (4) respond to any government requests for
information or documents in any way relating to cleanup, removal, treatment or
remediation or potential cleanup, removal, treatment or remediation or Hazardous
Materials in the indoor or outdoor environment.
1.16 "Closing" shall have the meaning given in Section 3.1 hereof.
-------
1.17 "Closing Balance Sheet" shall mean the balance sheet relating to
--------------------
the Restaurant Operations, dated as of the Closing Date.
1.18 "Closing Date" shall have the meaning given in Section 3.1
------------
hereof.
1.19 "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
1.20 "Condition" shall have the meaning given in Section 4.1 hereof.
---------
1.21 "Contracts" shall have the meaning given in Section 4.17 hereof.
---------
1.22 "Contribution Agreement" shall have the meaning given in Section
----------------------
8.11 hereof.
1.23 "Damages" shall have the meaning given in Section 11.3(a)
-------
hereof.
1.24 "Disclosure Schedules" shall mean the Disclosure Schedules
--------------------
attached hereto.
1.25 "Employee Plans" shall mean all Benefit Arrangements, Welfare
--------------
Plans, Pension Plans and Multi-Employer Plans.
1.26 "Encumbrances" shall mean any claim, lien, pledge, option,
------------
charge, easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
1.27 "Environmental Claim" shall mean any claim, action, cause of
-------------------
action, investigation or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, potential liability
for investigatory costs, Cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (A) the presence, or Release into the indoor
or outdoor environment, of any Hazardous Materials at any location, whether or
not owned or
4
<PAGE>
operated by Seller or, as of the Closing Date, the Partnership, or
(B) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
1.28 "Environmental Laws" shall mean all federal, state, local and
------------------
foreign laws and regulations relating to pollution or protection of the
environment, including without limitation, laws relating to Releases or
threatened Releases of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to record keeping, notification, disclosure and
reporting requirements respecting Hazardous Materials.
1.29 "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended.
1.30 "ERISA Affiliate" shall mean any entity which is (or at any
---------------
relevant time was) a member of a "controlled group of corporations" with or
under "common control" with Seller as defined in Section 414(b) or (c) of the
Code.
1.31 "Excess" shall have the meaning given in Section 11.4 hereof.
------
1.32 "Financial Statements" shall mean the unaudited balance sheet of
--------------------
Seller as of December 31, 1995, and the related unaudited profit and loss
statements for the year ended December 31, 1995.
1.33 "First Amendment to IR-L.P. Partnership Agreement" shall mean
------------------------------------------------
that certain First Amendment to First Amended and Completely Restated Agreement
of Limited Partnership of Islands Restaurants, L.P., to be entered into prior to
the Closing upon the written approval of holders of greater than fifty percent
(50%) of the limited partnership interests, and which shall amend, among other
things, the purposes of IR-L.P. to include, among other things, the business of
owning and managing entities that own, manage and operate the Restaurants.
1.34 "First Amendment to Partnership Agreement" shall have the
----------------------------------------
meaning given in Section 2.2 hereof.
1.35 "Fixtures and Equipment" shall mean all of the furniture,
----------------------
fixtures, furnishings, equipment, machinery, appliances, tools, small wares,
pots, pans, silverware, computers and computer systems, computer software
(except for any and all computer software related to the Sextant System which is
proprietary to CHE) owned by Seller and used in connection with the Restaurant
Operations and/or necessary or desirable for the operation of the Restaurants
but which are not otherwise used at the Restaurant level, whether reflected on
the financial statements of Seller or CHE, including, without limitation, each
of the foregoing items maintained by Seller or CHE at the property that will be
subject to the Sublease.
1.36 "Florida Buyer" shall have the meaning given in Section 7.15
-------------
hereof.
1.37 "GAAP" shall have the meaning given in Section 4.10 hereof.
----
5
<PAGE>
1.38 "Hazardous Materials" shall mean all substances defined as
-------------------
Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. (S) 300.5, or defined
as such by, or regulated as such under, any Environmental Law.
1.39 "Inventories" shall mean (a) all of Seller's inventories held
-----------
for resale in the ordinary course of Seller's business in connection with the
Restaurant Operations, including, without limitation, food and beverage
inventory and supplies, (b) all of Seller's office supplies and similar
materials used in connection with the Restaurant Operations or at Seller's
corporate level, and (c) all items owned by Seller and stored or held at CHE's
commissary in Carlsbad, California which have been reasonably approved by Buyer.
1.40 "IR-L.P." shall mean Islands Restaurants, L.P., a Delaware
-------
limited partnership and the sole limited partner in Buyer with a ninety-nine
percent (99%) limited partnership interest therein.
1.41 "IR-L.P. Partnership Agreement" shall mean that certain First
-----------------------------
Amended and Completely Restated Agreement of Limited Partnership of Islands
Restaurants, L.P., dated as of February 13, 1995, by and among Seneca, as
general partner, and those certain persons and/or entities identified on Exhibit
-------
"A" attached thereto, as limited partners, which governs IR-L.P.
- ---
1.42 "Leasehold Improvements" shall mean all of Seller's leasehold
----------------------
improvements in or on the real property leased under the Leases.
1.43 "Leases" shall mean all of the existing leases with respect to
------
the real and personal property used in connection with or relating to the
Restaurant Operations, which Leases are listed on Schedule 4.16 of the
-------------
Disclosure Schedules attached hereto.
1.44 "Liabilities" shall have the meaning given in Section 4.10
-----------
hereof.
1.45 "License Agreement" shall mean the License Agreement,
-----------------
substantially in the form attached hereto as Exhibit "A", to be entered into by
-----------
and between IR-L.P., as licensor, and the Partnership, as licensee, in
connection with, and as a condition to, the Closing pursuant to which IR-L.P.
shall grant a non-exclusive license to use those certain Marks (as defined
therein) and the trade name "Islands" and certain indicia of the "Islands"
concept to the Partnership to be used only in connection with the Restaurant
Operations and only at the Restaurants described on Schedule 1.62.
-------------
1.46 "Liens" shall mean any claim, lien, charge, encumbrance,
-----
security interest, pledge, restriction or other right or interest of any person
or entity.
1.47 "Liquor Licenses" shall mean alcoholic beverage and liquor
---------------
licenses.
1.48 "Management Agreement" shall mean the Management Agreement,
--------------------
substantially in the form attached hereto as Exhibit "B", to be entered into by
-----------
and between IR-L.P. and the Partnership in connection with, and as a condition
to, the Closing pursuant to which IR-L.P. shall manage the business and
operations of the Partnership.
6
<PAGE>
1.49 "Multi-Employer Plan" shall mean any "multi-employer plan" as
-------------------
defined in Section 4001(a)(3) of ERISA (a) which, in connection with the
Restaurant Operations, Seller or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or maintained, administered,
contributed to or was required to contribute to, or under which Seller or any
ERISA Affiliate may incur any liability and (b) which covers any employee or
former employee of Seller or, as of the Closing Date, the Partnership.
1.50 "Note and Loan Agreement" shall have the meaning given in
-----------------------
Section 2.3 hereof.
1.51 "OSHA" shall mean the Occupational Safety and Health
----
Administration.
1.52 "Partnership" shall have the meaning given in Recital B hereof.
-----------
1.53 "Partnership Agreement" shall mean that certain Agreement of
---------------------
Limited Partnership of Islands California/Arizona LP, a Delaware limited
partnership, substantially in the form attached hereto as Exhibit "C", to be
-----------
entered into as of the Closing Date, by and between Seller and Buyer which shall
describe the capital contributions to be made by Seller and shall govern the
Partnership, as the same shall be amended in accordance with the transactions
contemplated hereby by the First Amendment to Partnership Agreement.
1.54 "Pension Plan" shall mean any "employee pension benefit plan" as
------------
defined in Section 3(2) of ERISA (other than a Multi-Employer Plan) (a) which,
in connection with the Restaurant Operations, Seller or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or,
within the five years prior to the Closing Date, maintained, administered,
contributed to or was required to contribute to, or under which Seller or any
ERISA Affiliate may incur any liability and (b) which covers any employee or
former employee of Seller or, as of the Closing Date, the Partnership.
1.55 "Permits" shall mean all licenses, permits, franchises,
-------
approvals, authorizations, consents or orders of, or filings with, any
governmental authority, whether foreign, federal, state or local.
1.56 "Person" means and includes natural persons, limited liability
------
companies, corporations, limited partnerships, general partnerships, joint
ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities.
1.57 "Pledge and Security Agreement" shall have the meaning given in
-----------------------------
Section 2.3 hereof.
1.58 "Real Property" shall mean, collectively, the real property
-------------
leased under each Lease and the Leasehold Improvements related thereto.
1.59 "Release" shall mean any release, spill, emission, discharge,
-------
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater and
7
<PAGE>
surface or subsurfacestrata) or into or out of any property, including the
movement of Hazardous Materials through or in the air, soil, surface water,
groundwater or property.
1.60 "Representative" shall mean any officer, director, principal,
--------------
attorney, agent, employee or other representative.
1.61 "Restaurant Operations" shall mean the business and affairs of
---------------------
all of the Restaurants, and any and all aspects of the operations of the
Restaurants, as if such Restaurants were a separate and distinct business entity
from Seller.
1.62 "Restaurants" shall have the meaning given in Recital A and are
-----------
more particularly described on Schedule 1.62.
-------------
1.63 "Seller" shall have the meaning given in the Preamble.
------
1.64 "Seneca" shall mean Seneca Partners Inc., a Delaware
------
corporation.
1.65 "Shortfall" shall have the meaning given in Section 11.4 hereof.
---------
1.66 "Sublease Agreement" shall mean that sublease agreement to be
------------------
executed and delivered by IR-L.P., as sublessee, and CHE, as sublessor, in
connection with, and as a condition to, the Closing, in a form reasonably
acceptable to CHE and IR-L.P. for that certain office space located at the
Solana Beach Hotel previously agreed to by CHE and IR-L.P. with rental payments
equal to Four Thousand Fifty Dollars ($4,050) per month (or One Dollar and
Thirty-Five Cents ($1.35) per square foot per month for three thousand (3,000)
square feet) and for a term of one (1) year with an option by IR-L.P. to renew
the sublease for another one (1) year term at Four Thousand Two Hundred Dollars
($4,200) per month (or One Dollar and Forty Cents ($1.40) per square foot per
month for three thousand (3,000) square feet).
1.67 "Taxes" shall mean any federal, state, local or foreign income,
-----
sales, use, transfer, payroll, social security, disability, personal property,
occupancy, franchise, premium or other tax, levy, impost, fee, imposition,
assessment or similar charge, together with any related addition to tax,
interest or penalty thereon.
1.68 "Title Documents" shall have the meaning given in Section 8.4
-----------------
hereof.
1.69 "Welfare Plan" shall mean any "employee welfare benefit plan" as
------------
defined in Section 3(1) of ERISA (i) which, in connection with the Restaurant
Operations, Seller or any ERISA Affiliate maintains, administers, contributes to
or is required to contribute to, or under which Seller or any ERISA Affiliate
may incur any liability and (ii) which covers any employee or former employee of
Seller or, as of the Closing Date, the Partnership.
8
<PAGE>
ARTICLE II
PURCHASE AND SALE OF ACQUIRED INTERESTS
---------------------------------------
2.1 Formation of the Partnership. Upon the terms and subject to
----------------------------
the conditions contained herein and in the Partnership Agreement, on the
Closing Date, (i) Seller and Buyer shall form the Partnership by executing and
delivering the Partnership Agreement and any and all other documents and/or
agreements required to be executed in connection with the formation of the
Partnership, (ii) Seller shall cause the Partnership to make such filings as
are necessary with (a) the Secretary of State of the State of Delaware to form
the Partnership, (b) the Secretary of State of the State of California and
Arizona, or such other regulatory agency as may be applicable, to qualify to
do business in such state(s) and (c) the Secretary of State of the State of
California and the California Department of Corporations in connection with
the issuance of the limited partnership interests to Seller (such as a 25102
(f) notice filing), (iii) Seller shall contribute to the capital of the
Partnership all as more particularly described in the Contribution Agreement
and the Partnership Agreement, (a) Two Hundred Fifty Dollars ($250) in
exchange for a twenty-five percent (25%) Class A limited partnership interest
and a credit to Seller's capital account of Two Hundred Fifty ($250) and (b)
the Restaurant Operations and all of the assets related thereto and certain
other assets of Seller that are not used at the Restaurant level but are
necessary or desirable for the operation of the Restaurants, which contributed
assets shall have an agreed-upon fair market value equal to Twenty Million
Dollars ($20,000,000) in exchange for a seventy-four percent (74%) Class B
limited partnership interest and a credit to Seller's capital account of
Twenty Million Dollars ($20,000,000) and (iv) Buyer shall contribute to the
capital of the Partnership Seven Hundred Fifty Dollars ($750) in exchange for
a one percent (1%) general partnership interest and a credit to Buyer's
capital account of Seven Hundred Fifty Dollars ($750).
2.2 Transfer of Acquired Interest. Immediately following the
-----------------------------
consummation of the transactions contemplated in Section 2.1 and upon the terms
and subject to the conditions contained herein, on the Closing Date,
Seller shall sell, convey, transfer, assign and deliver to Buyer, and Buyer
shall acquire from Seller, the Acquired Interest free and clear of all Liens.
As a result of such acquisition, Buyer shall succeed to the Twenty Million
Dollar ($20,000,000) amount set forth in the capital account of Seller which is
attributable to the Class B limited partnership interest, all as more
particularly described in the First Amendment to the Agreement of Limited
Partnership of Islands California/Arizona LP, a Delaware Limited Partnership,
which shall be executed and delivered by Buyer and Seller at the Closing and
dated as of the Closing Date (the "First Amendment to Partnership Agreement"),
substantially in the form attached hereto as Exhibit "D", which shall, among
-----------
other things, memorialize the transactions described in this Section 2.2 hereof
and set forth the respective rights, title and interests of Seller and Buyer
in and to the Partnership following the Closing.
2.3 Consideration for the Acquired Interest. As and in consideration
---------------------------------------
of the sale, transfer, assignment, conveyance and delivery of the Acquired
Interest, on the Closing Date, Buyer shall execute and deliver to Seller a loan
agreement and a secured promissory note in the principal amount of Twenty
Million Dollars ($20,000,000) (collectively, the "Note and Loan Agreement"),
substantially in the forms attached hereto as Exhibits "E" and "F",
------------ ---
respectively, which shall be secured by a security interest in Buyer's general
partnership interest and Class B
9
<PAGE>
limited partnership interest in the Partnership, as shall be set forth more
fully in a pledge and security agreement (the "Pledge and Security Agreement"),
substantially in the form attached hereto as Exhibit "G", which shall also be
-----------
executed and delivered to Seller concurrently with the Note and Loan Agreement.
ARTICLE III
CLOSING
-------
3.1 Closing. The closing for the consummation of the transactions
-------
contemplated by this Agreement (the "Closing") shall, unless another date or
place is agreed to in writing by the parties hereto, take place at 9:00 a.m.,
local time, on April 30, 1996 at the offices of Allen, Matkins, Leck, Gamble &
Mallory LLP, 18400 Von Karman, Fourth Floor, Irvine, California 92715. The
date on which such Closing actually takes place is herein referred to as the
"Closing Date." In the event any of the parties is entitled not to close on
the scheduled date because any condition to its obligation to close as set
forth in Article VII or Article VIII, as applicable, has not been met (or
waived by the party or parties entitled to waive it), such party may, in its
sole discretion, elect to postpone the Closing from time to time, by giving at
least five (5) days' prior notice to the other party, until the condition has
been met (which each party will use its respective best efforts to cause to
happen), but in no event to a date later than June 30, 1996.
3.2 Conveyances at Closing
----------------------
(a) Documents. To effect the transactions contemplated by
---------
Article II, the appropriate parties will, on the Closing Date, execute
and/or deliver the following:
(i) the First Amendment to Partnership Agreement,
(ii) the Note and Loan Agreement, and
(iii) the Pledge and Security Agreement and any necessary
UCC-1 Financing Statements in connection therewith.
(b) Form of Instruments. To the extent that a form of any
-------------------
document or agreement to be delivered hereunder is not attached as an
exhibit hereto, the instrument shall be in form and substance, and shall
be executed and delivered in a manner, reasonably satisfactory to each
of the parties hereto.
3.3 Other Deliveries and Actions at Closing. In addition to the
---------------------------------------
foregoing matters, at the Closing:
(a) Certificates and Opinions. The parties hereto, as
-------------------------
appropriate, shall deliver the certificates, other documents and
opinions of counsel and shall take the other actions described in
Articles VII and VIII hereof;
10
<PAGE>
(b) Consents. Seller shall deliver all governmental or third-
--------
party consents, Permits, waivers and approvals required for all of the
transactions contemplated hereby, including, without limitation, any
consents required to be received from landlords and/or lenders as a
result of the formation and change of control of the Partnership and any
transfers of Liquor Licenses (temporary or otherwise and evidence that
any and all applicable fees required in connection with the initial
transfer thereof have been paid) which may be required in order that
there shall be no interruption in any of the Restaurant Operations as a
result of the transactions contemplated by this Agreement; and
(c) Further Assurances. Each party shall deliver such other
------------------
documents, and take such other actions, as shall reasonably be requested
by any other party to this Agreement, for purposes of consummating the
transactions provided for herein.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Buyer, except as set forth in
the Disclosure Schedules, as follows (provided, however, that any representation
or warranty or any portion thereof relating to the Partnership or the Acquired
Interest shall not be deemed to have been made as of the date of execution of
this Agreement but shall be deemed to have been made only as of the Closing
Date):
4.1 Organization and Qualification of Seller. Seller is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite power and authority to conduct
its business as it is now being conducted. Seller is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of its properties, owned or leased, or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified or in good standing would not have a material adverse effect on the
condition (financial or other), business, prospects, assets, liabilities or
operations (collectively, the "Condition") of the Restaurant Operations.
4.2 Organization of the Partnership. As of the Closing Date, the
-------------------------------
Partnership shall be a limited partnership duly organized, validly existing and
in good standing under the laws of the State of Delaware and have the requisite
power and authority to conduct its business as contemplated by the Partnership
Agreement. As of the Closing Date, the Partnership shall be duly qualified to
do business as a foreign limited partnership and shall be in good standing in
each jurisdiction where the character of its properties, owned or leased, or the
nature of its activities make such qualification necessary, except where the
failure to be so qualified or in good standing would not have a material adverse
affect on the Condition of the Partnership or the Restaurant Operations.
4.3 Ownership of Interests. Upon the initial formation of the
----------------------
Partnership, Seller will own a twenty-five percent (25%) Class A limited
partnership interest and a seventy-four percent (74%) Class B limited
partnership interest in the Partnership and will have an aggregate balance of
Twenty Million Two Hundred Fifty Dollars ($20,000,250) standing in
11
<PAGE>
Seller's capital account in the Partnership of which Two Hundred and Fifty
Dollars ($250) are attributable to its Class A limited partnership interest and
Twenty Million Dollars ($20,000,000) are attributable to its Class B limited
partnership interest. Upon consummation of the Closing and all of the
transactions contemplated hereby, Buyer and Seller shall each be a partner of
the Partnership, with a one percent (1%) general partnership interest and a
seventy-four percent (74%) Class B limited partnership interest in and to the
Partnership, with respect to Buyer, and a twenty-five percent (25%) Class A
limited partnership interest in and to the Partnership, with respect to Seller,
and Buyer shall have a balance of Twenty Million Seven Hundred Fifty Dollars
($20,000,750) in Buyer's capital account in the Partnership and Seller shall
have a balance of Two Hundred Fifty Dollars ($250) in Seller's capital account
in the Partnership . There are no security interests, Liens, options, rights of
first refusal, puts, calls, commitments or other agreements of any character
whatsoever affecting the Acquired Interest.
4.4 Authority of Seller. Seller has the full requisite right, power
-------------------
and authority and has taken all corporate action necessary to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Seller and the consummation by Seller of the transactions contemplated hereby
have been duly authorized by the board of directors of Seller and of CHE and by
CHE, as the sole stockholder of Seller, and no other corporate proceedings on
the part of Seller or CHE are necessary to authorize the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
4.5 Due Execution. This Agreement has been duly executed and
-------------
delivered by Seller and constitutes a legal, valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, except that
such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws, or by equitable principles,
relating to or limiting the rights of creditors generally and (b) limitations
imposed by law or equitable principles upon the availability of specific
performance, injunctive relief or other equitable remedies.
4.6 Partnership Agreement. As of the Closing Date, the Partnership
---------------------
Agreement shall be in full force and effect and there shall have been no
modifications or amendments thereto, except as contemplated by this Agreement
and the First Amendment to Partnership Agreement.
4.7 No Conflict or Violation. Except as set forth on Schedule 4.7 of
------------------------ ------------
the Disclosure Schedules, neither the execution and delivery of this Agreement
by Seller, nor the consummation of the transactions contemplated hereby, nor
compliance by Seller with any of the provisions hereof will (a) violate,
conflict with, or result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any Lien or Encumbrance upon the Acquired
Interest (as of the Closing Date) or any of the Assets or Restaurants under any
of the terms, conditions or provisions of (i) Seller's Certificate of
Incorporation or Bylaws, (ii) as of the Closing Date, the Partnership Agreement,
or (iii) to the Best Knowledge of Seller, any note, bond, mortgage, indenture,
deed of trust, security or pledge
12
<PAGE>
agreement, license, Lease, franchise, Permit, agreement, authorization or other
instrument or obligation relating in any way to the Assets or the Restaurant
Operations to which Seller, or, as of the Closing Date, the Partnership is a
party, or to which Seller, or, either the Partnership or the Acquired Interest
(as of the Closing Date), or any of the properties or assets of Seller or, as of
the Closing Date, the Partnership may be subject or (b) to the Best Knowledge of
Seller, violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to Seller, or, either the Partnership or the
Acquired Interest (as of the Closing Date), or any of the properties or assets
of Seller or, as of the Closing Date, the Partnership, except, in the case of
each of clauses (a) and (b) above, for such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of Liens which, in the
aggregate, would not have a material adverse effect on either the Partnership or
the Acquired Interest (as of the Closing Date), the Restaurant Operations or on
the ability of Seller to consummate the transactions contemplated hereby or (c)
result in the payment by, or the creation of any obligation (absolute or
contingent) to pay on behalf of, the Partnership of any severance, termination,
"golden parachute" or other similar payments pursuant to any employment or other
agreements.
4.8 Consents and Approvals. Except as set forth on Schedule 4.8 of
---------------------- ------------
the Disclosure Schedules, no notice to, declaration, filing or registration
with, or authorization, consent or approval of, or Permit from, any domestic or
foreign governmental or regulatory body or authority, or any other person or
entity, is necessary in connection with the execution and delivery of this
Agreement by Seller and the consummation by Seller of the transactions
contemplated by this Agreement, including, without limitation, the formation of
the Partnership, the transfer of the Restaurant Operations to the Partnership,
and the transfer and assignment of the Acquired Interest to Buyer, except where
the failure to give such notice, make such filings, or obtain such
authorizations, consents, approvals or Permits would not individually or in the
aggregate, have a material adverse effect on the ability of Seller to consummate
the transactions contemplated by this Agreement or on the Condition of the
Partnership (as of the Closing Date) or the Restaurant Operations.
4.9 Books and Records. Seller has made and kept (and given Buyer and
-----------------
Buyer's Representatives access to) all of the Books and Records related to or
used in connection with the Restaurant Operations. On or prior to the Closing
Date, Seller shall have delivered all of the Books and Records relating to the
Restaurant Operations to Buyer or its designee.
4.10 Financial Statements. Seller has delivered to Buyer or its
--------------------
designee copies of the Financial Statements. The Financial Statements (a) have
been prepared in conformity with generally accepted accounting principles
("GAAP") consistently applied throughout the periods covered thereby and (b)
fairly and accurately present the consolidated assets, liabilities and financial
position of Seller as of the date thereof and the consolidated results of
operations and changes in cash flows for the periods then ended. Seller does
not have, nor will the Partnership have, as of the Closing Date, as a result of
the transfer of the Restaurant Operations thereto, any liabilities, obligations
or commitments of any nature (whether absolute, accrued, contingent or otherwise
and whether known or unknown, matured or unmatured) (collectively,
"Liabilities") which would be required to be reflected on, or reserved against
in, a balance sheet or in the notes thereto, prepared in accordance with GAAP
consistently applied, except (i) Liabilities which are adequately reflected or
reserved against in the Financial Statements, (ii) Liabilities which have
13
<PAGE>
been incurred in the ordinary course of business and consistent with past
practice since December 31, 1995, (iii) Liabilities set forth on Schedule 4.10
-------------
of the Disclosure Schedules and (iv) Liabilities which have been incurred for
legal, accounting, filing fees and out-of-pocket expenses in connection with
this Agreement and the transactions contemplated herein, all of which
Liabilities under this subparagraph (iv) shall be paid by Seller following
the Closing Date.
4.11 Litigation. There are no Actions pending or, to the Best
----------
Knowledge of Seller, threatened (i) against or affecting Seller, any of Seller's
assets or the Restaurant Operations, at law or in equity, which are reasonably
likely to, have, individually or in the aggregate, a material adverse effect on
the ability of Seller to consummate the transactions contemplated hereby or on
the Condition of the Partnership (as of the Closing Date) or the Restaurant
Operations, (ii) against, involving or relating to any officers or directors of
Seller, in such capacity, (iii) against Seller alleging that Seller's uses of
the Marks (as defined in the 1993 License Agreement) infringe the proprietary
rights of any person or entity, (iv) challenging or seeking to enjoin the
transactions contemplated hereby or (iv) in which Seller is a plaintiff. In
addition, to the Best Knowledge of Seller, there is no valid basis for any such
Actions.
4.12 Compliance with Law. Except as set forth on Schedule 4.12 of
------------------- -------------
the Disclosure Schedules, to the Best Knowledge of Seller, Seller has not, nor,
as of the Closing Date, will the Partnership have, violated or failed to comply
with any statute, law, ordinance, regulation, rule or order of any foreign,
federal, state or local government or any other governmental department or
agency, or any judgment, decree or order of any court, applicable to its
business or operations except where the aggregate of all such violations or
failures to comply would not have a material adverse effect on the ability of
Seller to consummate the transactions contemplated hereby or on the Condition of
the Partnership (as of the Closing Date) or the Restaurant Operations; and, to
the Best Knowledge of Seller, the conduct of the Restaurant Operations is in
conformity with all Environmental Laws and all energy, public utility, zoning,
building code, fire code, health and OSHA requirements and all other foreign,
federal, state and local governmental and regulatory requirements except where
the aggregate of all such nonconformities would not have a material adverse
effect on the Condition of the Partnership (as of the Closing Date) or the
Restaurant Operations. Seller has not received any notice to the effect that
the Restaurant Operations are not in compliance with any such statute, law,
ordinance, regulation, rule, judgment, decree or order.
4.13 Liquor Licenses. The Partnership will have by the Closing Date,
---------------
all Liquor Licenses (temporary or otherwise) from governmental agencies which
shall be required for the Partnership to conduct, without interruption, the
Restaurant Operations, as such Restaurant Operations are currently being
conducted.
4.14 Changes. Except as described on Schedule 4.14 of the Disclosure
------- -------------
Schedules, since December 31, 1995, none of the following have occurred:
(a) any material adverse change in the working capital, revenues,
income, cash flow or Condition of the Restaurant Operations;
14
<PAGE>
(b) any change by Seller in accounting methods, principles or
practices, or any revaluation of any of the Assets relating to the
Restaurant Operations, including, without limitation, writing down the
value of inventory or writing off notes or accounts receivable;
(c) any incurrence of any material Liability, except current
liabilities for trade or business obligations incurred in the ordinary
course of business and consistent with prior practice, none of which
current Liabilities, individually or in the aggregate, could have a
material adverse affect on the Condition of the Partnership (as of the
Closing Date) or the Restaurant Operations, or any capital expenditures or
capital additions or betterments in excess of Twenty-Five Thousand Dollars
($25,000) in any single case;
(d) any payment, discharge or satisfaction of any Liabilities
other than payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of Liabilities reflected or
reserved against in the Financial Statements or incurred in the ordinary
course of business since December 31, 1995, or any cancellation of any
indebtedness or waiver or release of any right or claim relating to the
Partnership (as of the Closing Date) or the Restaurant Operations which had
or could have a material adverse effect on the Condition of the Partnership
(as of the Closing Date) or the Restaurant Operations;
(e) any declaration, setting aside, or payment of dividends or
other distributions by Seller or, as of the Closing Date, the Partnership;
(f) any increase in the rate of compensation payable or to become
payable to any employee of Seller (in connection with the Restaurant
Operations) or as of the Closing Date, the Partnership, except, with
respect to Restaurant-level employees only, in the ordinary course of
business consistent with past practice, including, without limitation, the
making of any loan to, or the payment, grant or accrual of any bonus,
incentive compensation, service award or other similar benefit to, any such
employee, or the adoption of, addition to, modification of, or contribution
to any Employee Plan;
(g) any adverse change in employee relations which has or is
reasonably likely to have an adverse effect on the Condition of the
Partnership (as of the Closing Date) or the Restaurant Operations or the
relationships between the employees and the management of the Restaurant
Operations;
(h) any amendment, cancellation or termination of (or receipt of
any written or verbal notice of termination or default under) any material
Contract, agreement, Lease or Permit (except where the amendment,
cancellation or termination of any Permit is as a result of a transfer to
the Partnership, resulting in an amendment to the Permit to reflect the
Partnership, as the new licensee, or the cancellation and termination of
such prior existing Permit in order to provide for the reissuance of the
Permit to the Partnership) relating to the Partnership (as of the Closing
Date) or the Restaurant Operations or entry by Seller into any commitment,
contract, lease or transaction relating
15
<PAGE>
in any way to the Restaurant Operations which is not in the ordinary course
of business, including, without limitation, any employment or consulting
agreements;
(i) any mortgage, pledge or other encumbrance of any Assets or
properties of Seller (in connection with the Restaurant Operations) or, as
of the Closing Date, the Partnership, or any sale, assignment or transfer
of any of such Assets or properties, other than in the ordinary course of
business involving Assets with a value of less than Twenty-Five Thousand
Dollars ($25,000) individually or in the aggregate;
(j) any failure to pay or satisfy when due any obligation owed in
connection with the Restaurant Operations in excess of Twenty-Five Thousand
Dollars ($25,000) individually or in the aggregate;
(k) any failure to diligently carry on the Restaurant Operations
in the ordinary course so as to preserve the goodwill of any suppliers,
customers and others having business relations with the Restaurant
Operations;
(l) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the Assets used in connection
with or relating to, or Condition of, the Partnership (as of the Closing
Date) or the Restaurant Operations;
(m) any other event or condition which has or might reasonably be
expected to have a material adverse effect on the Condition of the
Partnership (as of the Closing Date) or the Restaurant Operations; or
(n) any agreement by Seller to do any of the things described in
the preceding clauses (a) through (m) other than as expressly provided for
herein.
4.15 Assets. The Fixtures and Equipment shown on the Financial
------
Statements and all of the Fixtures and Equipment acquired after December 31,
1995, the date of such Financial Statements, are valued at or below actual cost
less an adequate and proper depreciation charge in accordance with GAAP. In
addition, such assets have not been depreciated for tax purposes in any manner
inconsistent with applicable Internal Revenue Service regulations or guidelines,
if any. The Partnership will have prior to the Closing good and marketable title
to all of the assets (real, personal or mixed, tangible or intangible)
including, without limitation, the Fixtures and Equipment, used in connection
with or relating to the Restaurant Operations or the business or operations of
Seller which do not necessarily relate to the Restaurants but are necessary or
desirable for the operation of the Restaurants in a manner consistent with the
way such Restaurants were operated by Seller prior to the Closing Date, except
as specifically excluded in the Contribution Agreement (collectively, the
"Assets"), free and clear of all Encumbrances, and all of such Assets shall have
been contributed to the capital of the Partnership by Seller in accordance with
accordance with all applicable laws, except as described on Schedule 4.15 of the
-------------
Disclosure Schedules. All Fixtures and Equipment, Leasehold Improvements and
other tangible Assets are (a) insured to the extent and in a manner
customary in the restaurant industry, (b) to the Best Knowledge of Seller,
with respect to only the buildings in which the Restaurants are located and the
Leasehold Improvements, structurally sound with no known material physical or
16
<PAGE>
mechanical defects or deficiencies, including, but not limited to, the roofs,
exterior walls or structural components of the Restaurants, (c) in good
operating condition and repair, subject to ordinary wear and tear, (d) not
in need of maintenance or repair except for ordinary, routine maintenance
and repair the cost of which would not be material, (e) sufficient for the
operation of the Restaurant Operations as presently conducted and (f) to
the Best Knowledge of the Seller, in conformity with all applicable laws,
ordinances, orders, regulations and other requirements (including all
applicable Environmental Laws and all applicable zoning, motor vehicle
safety, building code, fire code, occupational safety and health laws and
regulations) relating thereto currently in effect, except where the failure
to conform would not have a material adverse effect on the Condition of the
Partnership (as of the Closing Date) or the Restaurant Operations.
4.16 Real Property and Leases. As of the Closing Date, the
------------------------
Partnership shall not own any real property. Schedule 4.16 of the
-------------
Disclosure Schedules contains a complete and accurate list of all Leases for any
real or personal property used in connection with or relating to the
Restaurant Operations. To the Best Knowledge of Seller, all such Leases are
valid, binding and enforceable in accordance with their terms and are in
full force and effect. No event has occurred which (whether with or without
notice, lapse of time or both or the happening or occurrence of any other
event) would constitute a default under any of such Leases, and all lessors
under such Leases have, or will have prior to the Closing Date, consented
(where such consent is necessary) to the consummation of the transactions
contemplated by this Agreement, including, without limitation, the change
of ownership of the Partnership which shall occur as a result of the
transfer and assignment of the Acquired Interest to Buyer. True copies of
all of the Leases, including all amendments and supplements thereto, and,
to the extent such items are in Seller's possession and control, all of the
complete "as-built" plans, drawings and specifications relating to all of
the Leasehold Improvements with respect to each Lease will be made
available to Buyer or its designee prior to the Closing Date, and shall be
delivered to Buyer or its designee on the Closing Date.
4.17 Contracts and Commitments. All material, executory, oral
-------------------------
or written contracts, agreements, plans, undertakings and commitments to
which Seller is a party or by which it is bound relating to the Restaurant
Operations or by which the Partnership shall be bound as of the Closing
Date (collectively, the "Contracts") are listed and described on Schedule 4.17
-------------
of the Disclosure Schedules, including, without limitation, all Contracts of
the following types:
(a) Contracts not made in the ordinary course of business;
(b) Employment or management contracts, consulting
contracts, collective bargaining contracts, termination and severance
agreements or any other contract or agreement of any nature whatsoever
with any director, officer, employee, consultant, or stockholder of
Seller;
(c) Labor or union contracts;
(d) Options to acquire any property, real or personal,
whether Seller or the Partnership shall be the grantor or grantee
thereunder;
17
<PAGE>
(e) Contracts or commitments relating to commission
arrangements with others, or any distribution, franchise, license,
sales, agency or advertising contracts involving amounts in excess of
Twenty-Five Thousand Dollars ($25,000) per year;
(f) Promissory notes, mortgages, deeds of trust, loan
agreements, security agreements, credit agreements, indentures,
evidences of indebtedness, guarantees, or other instruments relating
to the lending or borrowing of money, or the guaranteeing of the
obligations of any other person or entity, individually or in the
aggregate, in excess of Twenty-Five Thousand Dollars ($25,000),
whether the Partnership shall be the borrower, lender or guarantor
thereunder;
(g) Contracts containing covenants limiting the freedom of
Seller or the Partnership, or any officer, director or employee of
Seller or the Partnership, to engage in any line of business or
compete with any person;
(h) Contracts or agreements providing for payments in
excess of Twenty-Five Thousand Dollars ($25,000) or rights that are
triggered upon a change in control of the Restaurant Operations; and
(i) Any other contract or agreement involving expenditures
or liabilities, actual or potential, or the receipt of payment, in
excess of Twenty-Five Thousand Dollars ($25,000).
True copies of all of the Contracts, including all amendments and supplements
thereto, will be made available to Buyer or its designee prior to the Closing
Date, and shall be delivered to Buyer or its designee on the Closing Date.
4.18 Absence of Breaches or Defaults. All of the Contracts are
-------------------------------
valid and in full force and effect. All obligations under the Contracts have
been duly performed to the extent those obligations to perform have accrued, and
no material default or breach under any Contracts has occurred or is existing.
4.19 1993 License Agreement. Except as set forth on
----------------------
Schedule 1.62 hereto and on Schedule 1.64 to the Asset Purchase Agreement,
- ------------- -------------
neither Seller nor any Affiliate thereof has established or operates any
restaurant under the trade name "Islands" or utilizing the Islands concept
pursuant to the 1993 License Agreement or otherwise. Seller has not sold,
assigned or otherwise transferred any rights, duties or obligations under the
1993 License Agreement, except as consented to in writing by IR-L.P. and
further, Seller has not sublicensed or franchised the rights and license granted
to Seller pursuant to the 1993 License Agreement to any other person or entity.
Seller is not aware of any other person's or entity's unauthorized use or
infringement of the Marks (as defined in the 1993 License Agreement).
4.20 Employee Benefit Plans.
----------------------
(a) Disclosure of Employee Plans. Schedule 4.20 of the
---------------------------- -------------
Disclosure Schedules contains a complete list of all Employee Plans which
cover or have covered employees of Seller (in connection with the
Restaurant Operations) or, as of the Closing
18
<PAGE>
Date, the Partnership, written copies of each of which have been provided
to Buyer or its designee prior to the Closing Date.
(b) Representations. Except as set forth on Schedule 4.20
--------------- -------------
of the Disclosure Schedules:
(i) Pension Plans and Multi-Employer Plans. Seller does
--------------------------------------
not nor, as of the Closing Date, will the Partnership, maintain, and
none of the employees of Seller (in connection with the Restaurant
Operations) or, as of the Closing Date, the Partnership, are covered
or have been covered by, any Pension Plan or Multi-Employer Plan.
(ii) Welfare Plans. Seller does not nor, as of the
-------------
Closing Date, will the Partnership maintain, and none of the employees
of Seller (in connection with the Restaurant Operations) or, as of the
Closing Date, the Partnership, are covered or have been covered by,
any Welfare Plan.
(iii) Benefit Arrangements. Each Benefit Arrangement
--------------------
which covers or has covered employees or former employees of Seller
(in connection with the Restaurant Operations) or, as of the Closing
Date, the Partnership, has been maintained in compliance with its
terms, and, to the Best Knowledge of Seller, with the requirements
prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Benefit Arrangement, including but not
limited to the Code. Except as set forth on Schedule 4.20 of the
-------------
Disclosure Schedules, and except as provided by law, the employment of
all persons presently employed or retained by Seller (in connection
with the Restaurant Operations) or to be employed or retained by the
Partnership at the Closing Date, is terminable at will.
(iv) Litigation. None of Seller, the Partnership (as of
----------
the Closing Date) or, to the Best Knowledge of Seller, any ERISA
Affiliate, any Employee Plan which covers or has covered employees or
former employees of Seller (in connection with the Restaurant
Operations) or, as of the Closing Date, the Partnership, or any
fiduciary or administrator of an Employee Plan, is a party to any
litigation relating to or seeking benefits under any Employee Plan or
relating to the administration or operation thereof.
(v) No Amendments. Neither Seller nor any ERISA
-------------
Affiliate has any announced plan or legally binding commitment to
create any additional Employee Plans which are intended to cover
employees or former employees of Seller (in connection with the
Restaurant Operations) or, as of the Closing Date, the Partnership or
to amend or modify any existing Employee Plan which covers or has
covered employees or former employees of Seller (in connection with
the Restaurant Operations) or, as of the Closing Date, the
Partnership.
19
<PAGE>
4.21 Taxes and Tax Returns.
---------------------
(a) Seller has timely filed with the appropriate taxing
authorities all returns (including without limitation, information returns
and other material information) in respect of Taxes related to Seller and
all of the Restaurant Operations required to be filed for periods ending
through the date hereof and will timely file any such returns required to
be filed for periods ending prior to the Closing Date. Except as set forth
on Schedule 4.21 of the Disclosure Schedules, Seller has not requested any
extension of time within which to file returns (including, without
limitation, information returns in respect of any Taxes). The information
which has been filed is complete and accurate in all material respects.
All Taxes related to the Restaurant Operations, in respect of periods
beginning before the Closing Date, have been timely paid, or will be timely
paid, or an adequate reserve has been established therefor and to the Best
Knowledge of Seller, neither Seller nor, as of the Closing Date, the
Partnership has any material liability for Taxes in excess of the amounts
so paid or reserves so established. True copies of the most recently
issued bills for all real property taxes and all personal property taxes
payable with respect to the Real Property (in connection with each Lease)
and the Assets, or any portion thereof, will be made available to Buyer or
its designee prior to the Closing Date, and shall be delivered to Buyer or
its designee on the Closing Date.
(b) Seller has not received notice of any material
deficiencies for Taxes from any taxing or other governmental authority
relating to the Restaurant Operations. There are no pending or, to the Best
Knowledge of Seller, threatened audits, investigations or claims for or
relating to any material liability in respect of Taxes, and there are no
matters under discussion with any governmental authorities with respect to
Taxes that in the reasonable judgment of Seller, or their counsel, is
likely to result in a material additional liability for Taxes. Seller has
not been notified that any taxing authority intends to audit a return for
any period. No extension of a statute of limitations relating to Taxes is
in effect with respect to Seller or, as of the Closing Date, the
Partnership.
(c) There are no tax-sharing agreements or similar
arrangements with respect to or involving Seller or, as of the Closing
Date, the Partnership.
4.22 Environmental. Except as set forth on Schedule 4.22 of the
------------- -------------
Disclosure Schedules:
(a) To the Best Knowledge of Seller, Seller, all of the
Restaurant Operations and, as of the Closing Date, the Partnership are in
compliance with all applicable Environmental Laws (which compliance
includes, but is not limited to, the possession of all Permits and other
governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof). Seller has not
received any communication (written or oral) from any governmental
authority that alleges that any of the Restaurant Operations or Seller (in
connection with the Restaurant Operations) are not in such compliance and,
to the Best Knowledge of Seller, there are no
20
<PAGE>
past or present actions, activities, circumstances, conditions, events or
incidents that may prevent or interfere with such compliance in the future.
(b) There is no Environmental Claim pending or, to the Best
Knowledge of Seller, threatened against Seller (in connection with the
Restaurant Operations) or the Partnership (as of the Closing Date), or any
other person or entity, whose liability for any Environmental Claim, Seller
or, as of the Closing Date, the Partnership, has or may have retained or
assumed either contractually or by operation of law.
(c) To the Best Knowledge of Seller, there are no past or
present actions, activities, circumstances, conditions, events or incidents
(including, without limitation, the Release, emission, discharge, presence
or disposal of any Hazardous Material) which could form the basis of any
Environmental Claim against Seller (in connection with the Restaurant
Operations) or the Partnership (as of the Closing Date), or any other
person or entity, whose liability for any Environmental Claim, Seller or,
as of the Closing Date, the Partnership, has or may have retained or
assumed either contractually or by operation of law.
(d) To the Best Knowledge of Seller, neither Seller (in
connection with the Restaurant Operations) nor any other person has
Released, placed, stored, buried or dumped Hazardous Materials or any other
wastes produced by, or resulting from, any business, commercial or
industrial activities, operations or processes, on, beneath or adjacent to
the real property leased pursuant to the Leases or any property formerly
owned, operated or leased in connection with any of the Restaurant
Operations, other than general office supplies or cleaning solvents used in
the ordinary course of business (which general office supplies, cleaning
solvents and other Hazardous Materials, to the Best Knowledge of Seller,
were and are stored or disposed of in accordance with applicable laws and
regulations and in a manner such that, to the Best Knowledge of Seller,
there has been no Release of any such substances into the indoor or outdoor
environment).
(e) To the Best Knowledge of Seller, no transfers of
Permits or other governmental authorizations under Environmental Laws, and
no additional Permits or other governmental authorizations under
Environmental Laws, will be required to permit the Partnership to conduct
the Restaurant Operations in full compliance with all applicable
Environmental Laws immediately following the Closing, as currently
conducted. To the extent that such transfers or additional Permits and
other governmental authorizations are required, Seller agrees to assist and
cooperate with Buyer and/or Buyer's Representatives in all reasonable
respects to effect such transfers and use commercially reasonable efforts
to obtain such Permits and other governmental authorizations prior to the
Closing.
(f) True copies of all existing and available soils,
environmental and building reports and engineering data pertaining to the
Real Property (in connection with each Lease), or any portion thereof, if
any, will be made available to Buyer or its designee prior to the Closing
Date, and shall be delivered to Buyer or its designee on the Closing Date.
21
<PAGE>
4.23 Insurance. Seller maintains and has maintained
---------
continuously since the inception of the Restaurant Operations, with
responsible insurance carriers, (i) workers' compensation, property damage
and general liability insurance at limits of liability equal to at least
the minimum limits of liability set forth in the 1993 License Agreement and
(ii) such other policies as are customarily carried by similar businesses.
Seller is not in default under any of such policies or binders, and Seller
has not failed to give any notice or to present any claim under any such
policy or binder in a due and timely fashion. Except as disclosed on
Schedule 4.23 of the Disclosure Schedules, Seller is not aware of any facts
- -------------
concerning the Restaurant Operations, the Assets or the Liabilities of the
Restaurant Operations, upon which an insurer might be justified in reducing
coverage or increasing premiums on existing policies or binders. Except as
disclosed on Schedule 4.23 of the Disclosure Schedules, there are no
-------------
outstanding unpaid claims under any such policies or binders. Such
policies and binders provide sufficient coverage for the risk insured
against, and are in full force and effect through the Closing Date. Copies
of all such policies have been made available to Buyer or its designee for
its inspection.
4.24 Brokers and Finders. Seller has not employed any broker,
-------------------
finder or similar agent or incurred any liability for any brokerage fees,
commissions, finder's fees or similar payment in connection with the
transactions contemplated by this Agreement.
4.25 Illegal Payments. Neither Seller nor any of Seller's
----------------
officers, directors, stockholders or employees have directly or indirectly, paid
or delivered any fee, commission or other sum of money or item or property,
however characterized, to any finder, agent, government official or other party,
in the United States or any other country, which is in any manner related to the
Restaurant Operations, which Seller knows or has reason to believe to have been
illegal under any federal, state or local laws of the United States or the laws
of any other country having jurisdiction.
4.26 No Other Agreements to Sell. Seller has no commitment or
---------------------------
legal obligation, absolute or contingent, to any person or firm other than Buyer
to sell, assign or transfer all or any portion of Seller or the Restaurant
Operations pursuant to an asset sale, stock purchase, merger, reorganization,
joint venture, consolidation or otherwise.
4.27 Labor Matters. Neither Seller nor, as of the Closing Date,
-------------
the Partnership is a party to any labor agreement with respect to any of their
respective employees with any labor organization, union, group or association.
There is no labor strike or labor disturbance pending, or, to the Best Knowledge
of Seller, threatened against Seller, the Partnership (as of the Closing Date)
or the Restaurant Operations nor is any grievance currently being asserted and
the Restaurant Operations have never experienced a work stoppage or other labor
difficulty. To the Best Knowledge of Seller, all of the Restaurant Operations
are in material compliance with all applicable laws respecting employment
practices, terms and conditions of employment, wages and hours and are not
engaged in any unfair labor practice. There is no unfair labor practice charge
or complaint against Seller or, as of the Closing Date, the Partnership, pending
before the National Labor Relations Board or any other governmental agency.
4.28 Suppliers. Schedule 4.28 of the Disclosure Schedules
--------- -------------
contains a complete and accurate list of the names and addresses and nature
of the relationship with the five largest
22
<PAGE>
suppliers of the Restaurant Operations in terms of purchases during the last
fiscal year, showing the approximate total purchases in dollars from each
of these suppliers during such fiscal year. Since December 31, 1995, there
has been no adverse change in the business relationship with any supplier
named on Schedule 4,28 which would have a material adverse effect on the
-------------
condition of the Restaurant Operations. Seller has not received any
communication from any supplier named on Schedule 4.28 of any intention
-------------
to terminate or materially reduce supplies to the Restaurant Operations.
4.29 Inventories. Schedule 4.29 of the Disclosure Schedules
----------- -------------
contains a complete and accurate list of all of the addresses at which the
Inventories of Seller relating to the Restaurants are located other than at the
Restaurants. The values at which the Inventories are shown on the Financial
Statements have been determined in accordance with the normal valuation policy
of Seller, in conformity with GAAP consistently applied throughout the periods
covered thereby, with adequate provisions or adjustments for excess inventory,
slow-moving inventory and inventory obsolescence and shrinkage and are valued at
the lower of cost or realizable value. The Inventories consist, and will as of
the Closing Date consist, only of items of quality and quantity commercially
usable and salable in the ordinary course of business, and the present
quantities of all Inventories are reasonable in the present circumstances of the
Restaurant Operations.
4.30 Material Misstatements Or Omissions. No representation or
-----------------------------------
warranty by Seller in this Agreement, or in any document, exhibit, statement,
certificate or schedule heretofore or hereinafter furnished or made available to
Buyer pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement, including, without limitation, the Disclosure
Schedules, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to make the statements
or facts contained therein not misleading. Seller has disclosed all events,
conditions and facts materially affecting the Restaurant Operations as of the
Closing Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller as follows:
5.1 Organization. Buyer is a limited partnership duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and has the requisite power and authority to conduct its business as it is now
being conducted. Larkspur Partners, Inc., a Delaware corporation, which is the
sole general partner of Buyer, is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
requisite power and authority to conduct its business as it is now being
conducted.
5.2 Authority. Buyer has the requisite power and authority and has
---------
taken all necessary action to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by Buyer
and the consummation by Buyer of the transactions contemplated hereby have been
duly authorized by all of the partners of the Buyer,
23
<PAGE>
and no other proceedings on the part of Buyer is necessary to authorize the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, except for the receipt of the written approval
of the holders of greater than fifty percent (50%) of the limited partnership
interests of IR-L.P.
5.3 Due Execution. This Agreement has been duly executed and
-------------
delivered by Buyer and constitutes the legal, valid and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms, except that such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws, or by equitable principals, relating to or
limiting the rights of creditors generally and (b) limitations imposed by law or
equitable principles upon the availability of specific performance, injunctive
relief or other equitable remedies.
5.4 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement by Buyer, nor the consummation of the transactions contemplated
hereby, nor the compliance by Buyer with any of the provisions hereof, will (a)
violate, conflict with, or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, any of the terms, conditions or provisions of (i) the Partnership
Agreement or (ii) to the Best Knowledge of Buyer, any note, bond, mortgage,
indenture, deed of trust, security or pledge agreement, license, lease,
franchise, Permit, agreement, authorization or other instrument or obligation to
which Buyer is a party, or to which any of its properties or assets may be
subject or (b) to the Best Knowledge of Buyer, violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to Buyer
or any of its properties or assets; except, in the case of each of clauses (a)
and (b) above, for such violations, conflicts, breaches, defaults, terminations
or accelerations which, in the aggregate, would not have a material adverse
effect on the Condition of Buyer or the ability of Buyer to consummate the
transactions contemplated hereby.
5.5 Consents and Approvals. No notice to, declaration, filing or
----------------------
registration with, or authorization, consent or approval of, or Permit from, any
domestic or foreign governmental or regulatory body or authority, or any other
person or entity, is necessary in connection with the execution and delivery of
this Agreement by Buyer, or the consummation by Buyer of the transactions
contemplated by this Agreement, except (a) the written approval of the holders
of greater than fifty percent (50%) of the limited partnership interests of IR-
L.P., and (b) where the failure to give such notice, make such filings, or
obtain such authorizations, consents, approvals or Permits would not,
individually or in the aggregate, have a material adverse effect on the ability
of Buyer to consummate the transactions contemplated by this Agreement.
5.6 Litigation. There are no Actions pending or, to the Best
----------
Knowledge of Buyer, threatened (i) against Buyer which could have a material
adverse effect on the ability of Buyer to consummate the transactions
contemplated hereby or on the Condition of Buyer or (ii) challenging or seeking
to enjoin the transactions contemplated hereby.
24
<PAGE>
5.7 Brokers and Finders. Buyer has not employed any broker, finder
-------------------
or similar agent or incurred any liability for any brokerage fees, commissions,
finder's fees or similar payment in connection with the transactions
contemplated by this Agreement.
5.8 Assets and Liabilities. Prior to the consummation of the
----------------------
transactions contemplated by this Agreement, Buyer has no assets (real, personal
or mixed, tangible or intangible) or Liabilities other than cash and the rights,
duties and obligations under this Agreement.
5.9 Material Misstatements Or Omissions. No representation or
-----------------------------------
warranty by Buyer in this Agreement, or in any document, exhibit, statement,
certificate or schedule heretofore or hereinafter furnished or made available to
Seller pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement contains or will contain any untrue statement of
a material fact, or omits or will omit to state any material fact necessary to
make the statements or facts contained therein not misleading.
ARTICLE VI
----------
FURTHER ASSURANCES
------------------
Upon the terms and subject to the conditions contained herein, each of
the parties hereto agrees (a) to use its best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement and (b) to cooperate with each other in connection with the
foregoing, including using their respective best efforts (i) to obtain all
necessary waivers, consents and approvals from other parties to material
agreements, Leases and other Contracts, (ii) to obtain all necessary consents,
approvals, authorizations and Permits as are required to be obtained under any
federal, state, local or foreign laws or regulations, (iii) to defend all
lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby and (iv) to fulfill all
conditions to this Agreement. Notwithstanding the foregoing, Seller
acknowledges that it shall be its sole responsibility and agrees to use its best
efforts to obtain the appropriate consents, approvals and estoppel certificates
(in a form to be provided by Buyer which is reasonably acceptable to Seller)
from all landlords under all Leases relating to the Restaurants, all Liquor
Licenses (temporary or otherwise), all non-disturbance agreements and/or consent
and acknowledgments to currently outstanding non-disturbance agreements as more
fully set forth in Section 10.8(b) and any other necessary consents, including,
without limitation, lender consents, and Permits for the Partnership so that
there will be no interruption in the Restaurant Operations immediately following
the Closing and to pay all related expenses and fees in connection with
obtaining any and all of the foregoing (which in connection with the Liquor
Licenses and any other Permits will include only those amounts relating to the
initial transfer of such items to the Partnership).
25
<PAGE>
ARTICLE VII
CONDITIONS TO THE OBLIGATION OF SELLER
--------------------------------------
The obligation of Seller to consummate the transactions provided for
hereby is subject, in the sole discretion of Seller, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions:
7.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of Buyer contained in this Agreement shall be true and correct in
all material respects at and as of the Closing Date, and Buyer shall have
performed all agreements and covenants required hereby to be performed by such
party prior to or at the Closing Date.
7.2 Consents. All Permits, consents, approvals, authorizations and
--------
waivers from governmental authorities and other parties, if any, necessary to
transfer the Restaurant Operations to the Partnership, to transfer and assign
the Acquired Interest to Buyer and/or to consummate any other transactions
contemplated by this Agreement shall have been obtained by Seller, unless Buyer
expressly agrees to indemnify Seller in writing from and against any claims or
liabilities arising out of the failure to obtain any such Permits, consents,
approvals, authorizations or waivers.
7.3 No Proceedings or Litigation. No Action by any governmental
----------------------------
authority or any other person shall have been instituted or threatened which
questions the validity or legality of, or seeks to enjoin the consummation of,
the transactions contemplated hereby and which could reasonably be expected to
materially damage Seller if the transactions contemplated hereunder are
consummated.
7.4 Opinion of Counsel. Seller shall have received, in such form as
------------------
reasonably agreed upon by counsel to Seller, an opinion of Allen, Matkins, Leck,
Gamble & Mallory LLP, counsel to Buyer, dated the date of the Closing, with
respect to those matters set forth in Sections 5.1, 5.2, 5.3, 5.4, 5.5 and 5.6;
provided, however, that the foregoing shall also include similar opinions with
- -------- -------
respect to the other material documents to be executed in connection with the
transactions contemplated hereby, as applicable. In rendering such opinion,
such counsel may rely as they deem advisable as to factual matters upon
certificates and assurances of public officials and the general partner of
Buyer. In addition, such opinion may be subject to such additional
qualifications and exceptions as are reasonably acceptable to counsel to Seller.
7.5 Certificates. Buyer shall have furnished Seller with such
------------
certificates of its general partner to evidence compliance with the conditions
set forth in this Article VII as may be reasonably requested by Seller.
7.6 Authorization Documents. Seller shall have received from Buyer a
-----------------------
unanimous written consent of all of the partners of Buyer approving this
Agreement and the transactions contemplated hereby, certified by the general
partner of Buyer.
26
<PAGE>
7.7 Partnership Agreement. Buyer shall have executed and delivered
---------------------
the Partnership Agreement.
7.8 First Amendment to Partnership Agreement. Buyer shall have
----------------------------------------
executed and delivered the First Amendment to Partnership Agreement.
7.9 Loan, Pledge and Guaranty Documents. Buyer shall have executed
-----------------------------------
and delivered, the Note and Loan Agreement, the Pledge and Security Agreement,
and any necessary UCC-1 Financing Statements so as to effect the borrowing of
the funds necessary for the financing of the acquisition of the Acquired
Interest and all conditions precedent to Seller's obligations as set forth in
the Note and Loan Agreement shall have been satisfied or waived. In addition,
in furtherance of, and in consideration for, the transactions contemplated
hereby, Seneca shall have executed and delivered a guaranty of Buyer's
obligations pursuant to the Note and Loan Agreement, substantially in the form
attached hereto as Exhibit "L", which guaranty shall only be effective upon the
----------
occurrence of certain events as further described in the guaranty.
7.10 Reserve Fund Pledge Agreement. Buyer, and the Partnership,
-----------------------------
shall have executed and delivered to Seller a reserve fund pledge agreement,
substantially in the form attached hereto as Exhibit "H".
-----------
7.11 Sublease Agreement. IR-L.P. shall have executed and delivered
------------------
the Sublease Agreement.
7.12 1993 Management Agreement and 1993 License Agreement. The 1993
----------------------------------------------------
Management Agreement and the 1993 License Agreement shall have been terminated
by the appropriate parties thereto pursuant to agreements of termination,
substantially in the forms attached hereto as Exhibits "I" and "J",
------------ ---
respectively.
7.13 License Agreement. IR-L.P. shall have executed and delivered
-----------------
the License Agreement.
7.14 Management Agreement. IR-L.P. shall have executed and delivered
--------------------
the Management Agreement.
7.15 Asset Purchase Agreement. Seller and Islands Florida LP, a
------------------------
Delaware limited partnership (the "Florida Buyer"), shall have entered into a
definitive asset purchase agreement for the purchase by the Florida Buyer of
certain assets relating to the six (6) restaurants owned and operated by Seller
throughout Florida under the trade name of "Islands" (the "Asset Purchase
Agreement") which shall provide for a closing date of such transaction on or
about the Closing Date, and, all conditions precedent under such Asset Purchase
Agreement shall have been satisfied or waived and the transactions contemplated
thereby shall be consummated immediately prior to the Closing of the
transactions contemplated by this Agreement.
27
<PAGE>
ARTICLE VIII
CONDITIONS TO THE OBLIGATION OF BUYER
-------------------------------------
The obligation of Buyer to consummate the transactions provided for
hereby is subject, in the sole discretion of Buyer, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions:
8.1 Limited Partner Approval. This Agreement, the transactions
------------------------
contemplated hereby and the First Amendment to IR-L.P. Partnership Agreement
shall have been duly approved in writing by the holders of greater than fifty
percent (50%) of the limited partnership interests, in accordance with
applicable law and the IR-L.P. Partnership Agreement.
8.2 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of Seller contained in this Agreement shall be true and correct
in all material respects at and as of the Closing Date, and Seller shall have
performed all agreements and covenants required hereby to be performed by Seller
prior to or at the Closing Date.
8.3 Consents. All Permits, consents, notices, approvals,
--------
authorizations and waivers from governmental authorities and other parties
necessary (i) to permit Seller to transfer and assign the Acquired Interest to
Buyer, (ii) as may be required as a result of the change of ownership effected
by the transfer and assignment of the Acquired Interest, (iii) for any of the
transactions contemplated hereby, including, without limitation, the formation
of the Partnership and Seller's contribution of the Assets pursuant to the
Contribution Agreement to the Partnership, and (iv) for the conduct of the
Restaurant Operations immediately following the Closing, as such operations are
currently being conducted, including, without limitation, any transfers of
Liquor Licenses (temporary or otherwise), shall have been obtained by Seller and
delivered to Buyer and/or the Partnership, as applicable, and any and all
expenses and fees in connection with obtaining any and all of the foregoing
shall have been paid by Seller; provided, however, that with respect to the
-------- -------
Permits and Liquor Licenses, Seller shall only be responsible for expenses and
fees relating to the initial transfer of such Permits and Liquor Licenses to the
Partnership. Notwithstanding the foregoing, the failure by Seller to obtain any
Permit (other than Liquor Licenses) relating to the conduct of the Restaurant
Operations only shall not be a condition to Buyer's obligation to close;
provided, that a complete and accurate list of such Permits that have not been
- --------
obtained is provided to Buyer at the Closing; and provided, further, that the
-------- -------
failure to obtain such Permits, either individually or in the aggregate, would
not result in the interruption of the business or operations at any of the
Restaurants immediately following the Closing.
8.4 Title. Buyer shall have approved, in Buyer's reasonable
-----
discretion, of all matters of title for each Lease as disclosed by the following
documents (collectively, the "Title Documents") prepared and delivered to Buyer
at Seller's sole cost and expense (a) with respect to each parcel of Real
Property subject to a Lease, a "lot book" report and "mechanics lien" report (or
such reports which describe all monetary encumbrances of lenders and/or
mechanics liens dated on or after the date of this Agreement, issued by Chicago
Title Insurance Company or another title company acceptable to Buyer, relating
to the fee interest in such Real Property, and (b) legible true copies of all
documents referred to in such reports.
28
<PAGE>
8.5 No Proceedings or Litigation. No Action by any governmental
----------------------------
authority or any other person shall have been instituted or threatened which
questions the validity or legality of, or seeks to enjoin the consummation of,
the transactions contemplated hereby and which could reasonably be expected to
(a) affect materially the right or ability of (i) Buyer to own or possess the
Acquired Interest or (ii) the Partnership to operate or conduct the Restaurant
Operations after the Closing or (b) otherwise materially damage the Partnership
or Buyer if the transactions contemplated hereunder are consummated.
8.6 Opinions of Counsel. Buyer shall have received, in such forms as
-------------------
reasonably agreed upon by counsel to Buyer, (a) an opinion of Morgan, Lewis &
Bockius LLP, counsel to Seller dated the date of the Closing, with respect to
those matters set forth in Sections 4.1, 4.4 and 4.5, and (b) an opinion of
William R. Kuntz, Jr., Esq., in-house counsel to Seller, dated the date of the
Closing, with respect to those matters set forth in Sections 4.7, 4.8, 4.11 and
4.13; provided, however, that both of the foregoing opinions shall also include
-------- -------
similar opinions with respect to the other material documents to be executed in
connection with the transactions contemplated hereby, as applicable. In
rendering such opinions, such counsels may rely, as they deem advisable as to
factual matters, upon certificates and assurances of public officials and
officers of Seller. In addition, such opinion may be subject to such additional
qualifications and exceptions as are reasonably acceptable to counsel to Buyer.
8.7 Certificates. Seller shall have furnished Buyer with such
------------
certificates of its officers to evidence compliance with the conditions set
forth in this Article VIII as may be reasonably requested by Buyer.
8.8 Material Changes. Except as otherwise disclosed to Buyer in
----------------
writing on the Disclosure Schedules, since December 31, 1995, there shall not
have been any material adverse change in the Condition, properties or employee
or customer relations of the Restaurant Operations.
8.9 Corporate Documents. Buyer shall have received from Seller
-------------------
resolutions adopted by the board of directors of Seller, and a written consent
of the sole stockholder of Seller, approving this Agreement and the transactions
contemplated hereby, certified by Seller's corporate secretary or assistant
corporate secretary.
8.10 Partnership Agreement. Seller shall have executed and delivered
---------------------
the Partnership Agreement and made such filings as are required to be made by
Seller pursuant to Section 2.1.
8.11 Contribution Agreement and Transfer of Assets. As more fully
---------------------------------------------
set forth in, and in accordance with, the terms of the Partnership Agreement and
the Contribution Agreement to be attached as an exhibit to the Partnership
Agreement (the "Contribution Agreement"), which Seller shall have executed and
delivered to the Partnership in connection with the formation thereof, Seller
shall have contributed to the capital of the Partnership, except as otherwise
expressly excluded in the Contribution Agreement, all of the assets, tangible or
intangible necessary for the operation of the Restaurants, including, without
limitation, all Leases, Real Property, Assets, Book and Records, security
deposits under all Leases, Inventories and
29
<PAGE>
Contracts relating to, or used currently in connection with, or necessary or
desirable for the Restaurant Operations in compliance with all applicable laws,
and Seller shall have provided to Buyer, in Buyer's sole discretion,
satisfactory evidence that the foregoing contribution has been made. Further, a
schedule reasonably agreed to by Buyer and Seller of all of the corporate level
Fixtures and Equipment to be contributed to the Partnership by Seller shall be
attached to the Contribution Agreement.
8.12 Due Diligence Review. Buyer, to the extent that Buyer or its
--------------------
Representatives shall have conducted a due diligence review of Seller's Books
and Records, Financial Statements, tax returns, and other records and accounts
of the Restaurant Operations prior to the Closing, shall be satisfied on the
basis of such review, in the reasonable discretion of Buyer, that there has been
no breach of the representations and warranties or the pre-closing covenants of
Seller made pursuant to this Agreement.
8.13 Inspections and Studies. Buyer shall have approved, in Buyer's
-----------------------
reasonable discretion, results of any and all inspections, investigations, tests
and studies, including, without limitation, investigations with regard to
zoning, building codes and other governmental regulations, architectural
inspections, engineering tests, economic feasibility studies as well as toxic
and environmental reports with respect to the Real Property, inspections of all
or any portion of the Improvements (including, without limitation, structural,
mechanical and electrical systems, roofs, pavement, landscaping and public
utilities), and any other physical inspections and/or investigations as Buyer
may elect to make or obtain.
8.14 No Guaranty of Leases. No lessor under any of the Leases shall
---------------------
require Seneca or IR-L.P. to be a guarantor of the obligations under such Lease
nor shall Seneca or IR-L.P. be required to guarantee any other obligation,
liability or commitment of the Partnership or any other person or entity in
connection with the transactions contemplated hereby, except as contemplated by
the Note and Loan Agreement with respect to the guaranty by Seneca.
8.15 First Amendment to Partnership Agreement. Seller shall have
----------------------------------------
executed and delivered the First Amendment to Partnership Agreement.
8.16 1993 Management Agreement and 1993 License Agreement. The 1993
----------------------------------------------------
Management Agreement and the 1993 License Agreement shall have been terminated
by the appropriate parties thereto, pursuant to agreements of termination,
substantially in the forms attached hereto as Exhibits "I" and "J",
------------ ---
respectively.
8.17 Name Change. Seller shall have delivered at the Closing a duly
-----------
executed and acknowledged certificate of amendment to Seller's certificate of
incorporation or other appropriate document which is required to change Seller's
corporate name to a new name which shall exclude any reference to "Islands" or
any similar name or mark that has such a near resemblance thereto as may be
likely to cause confusion or mistake to the public, or to otherwise deceive the
public. Such certificate or other document shall be filed (at Seller's expense)
with the Secretary of the State of Delaware prior to or concurrently with the
Closing.
30
<PAGE>
8.18 License Agreement. The Partnership shall have executed and
-----------------
delivered the License Agreement.
8.19 Management Agreement. The Partnership shall have executed and
--------------------
delivered the Management Agreement.
8.20 Asset Purchase Agreement. All conditions precedent under the
------------------------
Asset Purchase Agreement shall have been satisfied or waived, and the
transactions contemplated thereby shall be consummated immediately prior to the
Closing of the transactions contemplated by this Agreement.
ARTICLE IX
RISK OF LOSS
------------
Until the Closing Date, all risk of loss or damage to all or any
material portion of the properties or Assets used in connection with the
Restaurant Operations shall be borne by Seller.
ARTICLE X
PRE-CLOSING COVENANTS
---------------------
10.1 Conduct of Business Prior to Closing.
------------------------------------
(a) Prior to the Closing, Seller shall conduct all of the
Restaurant Operations only in the ordinary course and consistent with prior
practice and shall maintain, keep and preserve the Assets and properties
relating to the Restaurant Operations in good condition and repair and
maintain insurance thereon in accordance with present practices, and Seller
will use its best efforts (i) to preserve all of the Assets and Restaurant
Operations intact, (ii) to maintain the present officers, employees, agents
and independent contractors providing services in connection with the
Restaurant Operations, (iii) to preserve the goodwill of all of the
suppliers, customers, landlords and others having business relations with
any of the Restaurants, and (iv) to make timely payments on accounts
payable and other obligations of the Restaurant Operations in accordance
with past practice. Without limiting the generality of the foregoing,
prior to the Closing or the earlier termination of this Agreement in
accordance with Section 12.1, Seller will not, without Buyer's prior
written approval, which approval shall not be unreasonably withheld:
(i) change its certificate of incorporation, by-laws or
other organizational documents, as the case may be, or merge with or
into any other entity, consolidate or agree to sell its assets or
securities to any other person or entity, or obligate itself to do so,
or obligate itself to sell all or any portion of the Assets of the
Restaurant Operations;
31
<PAGE>
(ii) enter into any contract, agreement, commitment or other
understanding or arrangement except for those of the type which would
not have to be listed and described under Section 4.17 above; or
(iii) perform, take any action or incur or permit to exist
any of the acts, transactions, events or occurrences of the type
described in Section 4.14 of this Agreement which would have been
inconsistent with the representations and warranties set forth therein
had the same occurred after the Balance Sheet Date and prior to the
date hereof.
(b) Seller shall give Buyer prompt written notice of any material
change in any of the information contained in the representations and
warranties made in Article IV or elsewhere in this Agreement or the
Schedules referred to herein which occurs prior to the Closing.
(c) Seller shall consult with and follow the reasonable
recommendations of Buyer or Buyer's Representatives with respect to all
aspects of the Restaurant Operations that are contemplated to be taken out
of the ordinary course of business.
10.2 No Solicitation.
---------------
(a) Except as hereinafter provided to the contrary, neither
Seller nor any of Seller's Affiliates shall, directly or indirectly,
through any director, officer, employee, agent, attorney, financial advisor
or otherwise, solicit, initiate or encourage the submission of, or respond
to, an offer or proposal from any person or entity, or engage in
negotiations, furnish confidential information or have discussions,
relating to the acquisition of all or any portion of the Restaurant
Operations (whether through an acquisition of assets of, or an equity
interest in, or a merger, joint venture, exchange offer, tender offer or
other business combination) (any of the foregoing being herein referred to
as an "Acquisition Proposal") and it will immediately cease and cause to be
terminated any existing negotiations with any parties conducted heretofore
with respect to any of the foregoing.
(b) In the event Seller or any of Seller's Affiliates receives
any Acquisition Proposal for the Restaurant Operations after the date
hereof from a party other than Buyer or Buyer's Affiliates, Seller shall
promptly notify Buyer of the terms of such Acquisition Proposal and if such
Acquisition Proposal is in writing, then Seller will also promptly deliver
to Buyer or its designee a copy of such written Acquisition Proposal.
(c) In the event that Seller or any of Seller's Affiliates
receives an Acquisition Proposal for the Restaurant Operations, or a
communication from a third party with respect to a potential Acquisition
Proposal, and such party requests access to nonpublic information regarding
the Restaurant Operations, then, if the Board of Directors of Seller
determines in good faith that the failure to provide such access would
involve a
32
<PAGE>
violation of its fiduciary duty to CHE's stockholders, and is so
advised to that effect by its outside legal counsel, then Seller may
provide access to such nonpublic information regarding such Restaurant
Operations to such third party; provided that such third party has executed
--------
a confidentiality agreement in a form reasonably satisfactory to Buyer.
(d) Prior to any consummation of a disposition of all or any
portion of the Restaurant Operations pursuant to an Acquisition Proposal,
this Agreement or otherwise, Seller shall have obtained any and all
necessary consents and/or approvals required to be obtained from IR-L.P.
pursuant to the 1993 License Agreement and nothing contained in this
Agreement shall be deemed to be a consent to and/or approval of any such
transaction by IR-L.P.
10.3 Employees.
---------
(a) Seller agrees not to transfer the employment of, or any
employment-related obligations or liabilities related to, any of its
employees, other than the Restaurant-level employees, to the Partnership.
(b) Not later than, and effective as of, the Closing Date, (i)
the Partnership or one of its Affiliates shall make offers of employment to
each of the employees employed, as of the Closing Date, at the Restaurant
level by Seller at the same salary level at which Seller employed such
Restaurant level employee on the Closing Date and (ii) Buyer or one of its
Affiliates shall make offers of employment to each of the non-Restaurant
level employees employed, as of the Closing Date, by Seller who is listed
on that certain list provided to Buyer in connection with the execution of
this Agreement under a separate cover letter dated March 18, 1996 at the
salary set forth on such list.
10.4 Financial Statements. Seller shall furnish to Buyer
--------------------
Seller's unaudited monthly financial statements, which shall include a
balance sheet and a profit and loss statement, for each month from the date
hereof to the Closing Date on or before the fifteenth (15th) day of the
immediately succeeding month.
10.5 Title Documents; Title Insurance.
--------------------------------
(a) Seller shall cause the Title Documents to be delivered to
Buyer or its designee within ten (10) days after the execution of this
Agreement.
(b) Seller shall use its best efforts to cause the existing
policies of Title Insurance related to any of the Real Property to be
assigned to the Partnership.
10.6 Consent of the Limited Partners. Buyer will use its best
-------------------------------
efforts to cause IR-L.P. to use its best efforts to obtain as promptly as
practicable the requisite consent and approval of IR-L.P.'s limited
partners to (a) this Agreement and the transactions contemplated hereby and
(b) the First Amendment to IR-L.P. Partnership Agreement.
10.7 Access to Information; Inspections and Studies. Seller
----------------------------------------------
will afford to Buyer and Buyer's Representatives reasonable access upon
reasonable notice to its offices and other
33
<PAGE>
facilities and to each of the Restaurants and to the Books and Records as well
as to any other information and/or documents which may be requested by Buyer or
Buyer's Representatives in their due diligence efforts. In addition, Buyer, its
Representatives, consultants, contractors and subcontractors shall have the
right to enter upon the Real Property (in connection with any Lease) at
reasonable times upon reasonable notice to conduct or make any and all
inspections and tests (including, without limitation, environmental assessments
of such Real Property) as may be necessary or desirable in Buyer's sole and
absolute discretion. Buyer hereby indemnifies and holds Seller harmless from and
against any and all costs, losses, damages or expenses arising out of or
resulting from such entry by Buyer or its Representatives, consultants,
contractors or subcontractors.
10.8 Consents; Non-Disturbance Agreements.
------------------------------------
(a) Each party hereto will use its best efforts to obtain as
promptly as practicable such consents, approvals or authorizations of third
parties to their respective agreements, which would otherwise be violated
by any provisions hereof or any of the transactions contemplated by this
Agreement, and all consents, approvals or authorizations as are required to
be obtained under any federal, state, local or foreign laws and regulations
necessary to consummate the transactions contemplated by this Agreement.
Seller acknowledges that it shall be its sole responsibility, and agrees to
use its best efforts, to obtain the appropriate consents, approvals and
estoppel certificates (in a form to be provided by Buyer which is
reasonably acceptable to Seller) from all landlords under all Leases
relating to the Restaurants, all Liquor Licenses (temporary or otherwise),
all non-disturbance agreements and/or consents and acknowledgments to
currently outstanding non-disturbance agreements as more fully set forth
below in Section 10.8(b) and any other necessary consents, including,
without limitation, lender consents, and Permits for the Partnership so
that there will be no interruption in the Restaurant Operations immediately
following the Closing and to pay all related expenses and fees in
connection with obtaining any and all of the foregoing (which in connection
with the Liquor Licenses and any other Permits will include only those
amounts relating to the initial transfer of such items to the Partnership).
(b) Seller will use its best efforts to obtain, at its sole cost
and expense, from any and all ground lessor(s) and lender(s) encumbering
any of the Real Property (in connection with each Lease) (a) a non-
disturbance agreement in recordable form acceptable to Buyer which shall
contain language and concepts substantially in the form set forth on
Exhibit "K" attached hereto and/or (b) a consent and acknowledgment
-----------
executed by a ground lessor or lender, as applicable, to any currently
outstanding non-disturbance agreement which contains language and concepts
substantially in the form set forth on Exhibit "K" attached hereto, which
-----------
consent and acknowledgment shall expressly state that such non-disturbance
agreement shall be for the benefit of the Partnership and enforceable
against such consenting party by the Partnership.
10.9 Public Announcements. Except as required by law, if any
--------------------
party proposes to make any public announcement relating to the transactions
contemplated herein, such party will
34
<PAGE>
submit its proposed announcement in advance to the other party and will give it
a reasonable opportunity under the circumstances to comment thereon in
advance of release.
10.10 Notice of Development. Each party shall give prompt
---------------------
notice to the others in the event it discovers any of its own representations or
warranties to be untrue as of the time made or in the event it determines that
any of its representations or warranties will be untrue as of the Closing Date.
No disclosure by any party pursuant to this section will be deemed to amend any
Disclosure Schedule delivered herewith or cure any misrepresentation or
omission.
10.11 Advances. Seller shall advance (either pre-closing or
--------
post-closing as necessary, notwithstanding that this covenant is in Article X
Pre-Closing Covenants) to Buyer or the Partnership, as applicable, any and all
amounts required to be paid by such party as a result of any sales or transfer
taxes of any nature, which may be imposed in connection with the transactions
contemplated hereby. Any and all amounts advanced by Seller shall be treated as
a capital contribution (which shall earn a cumulative preferred return to the
extent not repaid computed like simple interest (noncompounded) at the rate of
nine percent (9%) per annum from the date of advance) to the Partnership to be
repaid by a priority distribution of cash flow from the Partnership as set forth
in the Partnership Agreement.
ARTICLE XI
POST-CLOSING COVENANTS
----------------------
11.1 Health Insurance Benefits. Buyer shall, or shall cause
-------------------------
the Partnership or one of Buyer's other Affiliates, to, for a period of at least
six (6) months commencing on the Closing Date, provide the Restaurant level
employees employed by the Partnership and the Non-Restaurant level employees
employed by Buyer or one of its Affiliates as of the Closing Date, who continue
to be employed in the sole discretion of Buyer, the Partnership or Buyer's
Affiliate by Buyer, the Partnership or Buyer's Affiliate, as applicable, during
such six (6) month period, with comparable health insurance benefits as those
provided to such employees by Seller as of the Closing Date.
11.2 Survival of Representations, Etc. All statements contained in
---------------------------------
the Disclosure Schedules or any certificate, schedule, exhibit or instrument
delivered by or on behalf of the parties pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by such parties hereunder. The representations
and warranties of Seller and Buyer contained herein shall survive the
consummation of the transactions contemplated hereby and the Closing Date,
without regard to any investigation made by any of the parties hereto, through
April 30, 1998, whereupon all representations and warranties of the parties
hereto shall expire, other than the representations and warranties set forth in
Sections 4.1, 4.2, 4.3, 4.4 and 4.5, which survive indefinitely, and Sections
4.21 and 4.22, which shall survive until the expiration of all applicable
statutes of limitation, including any extensions thereto. The agreements of the
parties contained in Section 10.8 and 10.11, Article XIII and in this Article XI
shall also survive consummation of the transactions contemplated by this
Agreement.
35
<PAGE>
11.3 Indemnification.
---------------
(a) By Seller. Seller shall indemnify, defend, protect and hold
---------
wholly harmless Buyer, the Partnership and each of Buyer's and/or the
Partnership's Affiliates (except for Seller in connection with the
Partnership) and Representatives from and against any and all costs,
losses, Taxes, liabilities, damages, lawsuits, environmental costs, claims
and expenses (whether or not arising out of third-party claims), including
without limitation, interest, penalties, reasonable attorneys' fees and
costs and all amounts paid in investigation, defense or settlement of any
Action relating to the foregoing (collectively, "Damages"), incurred in
connection with, arising out of, resulting from or incident to (i) any
breach by Seller of any covenant or warranty, or the inaccuracy of any
representation, made by Seller, in or pursuant to this Agreement, or in any
Exhibit, Schedule, certificate or other instrument delivered to Buyer by
Seller or any of Seller's Affiliates hereunder, (ii) the failure to receive
from any governmental or regulatory body or authority, or any other person
or entity, the consents, approvals, Permits and waivers required to
transfer and assign the Acquired Interest to Buyer and/or to consummate all
of the transactions contemplated hereby, unless Buyer has expressly agreed
in writing to indemnify Seller from and against any and all Damages arising
out of the failure to obtain any such consents, approvals, Permits or
waivers as set forth in Section 7.2, (iii) any liability, obligation or
commitment of any nature (absolute, accrued, contingent or otherwise, and
whether known or unknown as of the Closing Date) of Seller or relating to
the Acquired Interests or the Restaurant Operations and arising out of
transactions entered into or events occurring prior to the Closing Date,
(iv) any claim or liability against Buyer or its respective Affiliates or
Representatives based upon or alleging that any of them are successors to
Seller or any of its businesses or operations, which liability arises out
of acts or omissions of Seller, or any event, occurring prior to the
Closing Date, and (v) the failure of Seller, CHE, the Partnership and/or
any successor or assignee to the Note and Loan Agreement and/or the Pledge
and Security Agreement, as the case may be, to make any payment due or
owing under any Lease, Contract or other obligation of the Partnership
following any event of default (or any other reason) under the Note and
Loan Agreement or the Pledge and Security Agreement which results in a
foreclosure upon any of the collateral thereunder, but excluding any
liabilities incurred by Buyer prior to such foreclosure.
(b) By Buyer. Buyer shall indemnify, defend, protect and hold
--------
wholly harmless Seller and Seller's Affiliates and Representatives from and
against any and all Damages, incurred by Seller and each of Seller's
Affiliates and Representatives in any capacity other than Seller's capacity
as a limited partner of the Partnership, in connection with, arising out
of, resulting from or incident to any breach by Buyer of any covenant or
warranty, or the inaccuracy of any representations made by Buyer in or
pursuant to this Agreement or any Exhibit, Schedule, certificate or other
instrument delivered to Seller by Buyer hereunder or any of Buyer's
Affiliates.
(c) By the Partnership. Buyer, as the general partner of the
------------------
Partnership, shall cause the Partnership to indemnify, defend, protect and
hold wholly harmless Seller and Seller's Affiliates and Representatives
from and against any and all
36
<PAGE>
damages incurred by Seller and each of Seller's Affiliates and
Representatives in connection with, arising out of, resulting from or
incident to any payments made from and after the Closing Date by either
Seller or CHE as a guarantor of any Lease to a lessor; provided, however,
that the Partnership shall not be required to indemnify either Seller or
CHE for any payments made in connection with a Lease (a) where the failure
of the Partnership to make such payment is due to a bona fide dispute with
the lessor or (b) where such Lease, or the obligation to make payments
under such Lease, has been transferred from the Partnership to Seller, CHE
or any other party, as a result of any event of default (or any other
reason) under the Note and Loan Agreement or Pledge and Security Agreement.
(d) Limitation on Indemnification. Except as provided in the
-----------------------------
immediately succeeding sentence, no party shall assert any claim for
indemnification hereunder until such time as the aggregate amount of
Damages incurred by such party and/or its Affiliates or Representatives
(or, additionally, in the case of Buyer, the Partnership or the
Partnership's Affiliates or Representatives) shall exceed One Hundred
Thousand Dollars ($100,000), at which time such party may seek
indemnification from the other party hereto for all Damages incurred.
Notwithstanding the foregoing, Buyer, on its own behalf or the
Partnership's behalf or any of their respective Affiliates' or
Representatives' behalf, shall be entitled to assert a claim for
indemnification hereunder from Seller for any and all Damages incurred by
Buyer, the Partnership or any of their respective Affiliates or
Representatives as a result of Seller's failure to obtain any of the Liquor
Licenses (temporary or otherwise), and any other necessary consents or
approvals, including, without limitation, lender and landlord consents;
provided, however, that Buyer shall not be entitled to assert such
-------- -------
indemnification claim until such time as the aggregate amount of Damages
incurred by Buyer, the Partnership and/or any of their respective
Affiliates or Representatives as a result of Seller's failure to obtain any
of the foregoing is equal to or greater than Five Thousand Dollars
($5,000). Nothing contained in this Agreement shall obligate Seneca or IR-
L.P. to indemnify Seller or any other entity or person, nor obligate CHE to
indemnify Buyer or any other entity or person in connection with the
transactions contemplated by this Agreement.
(e) Defense of Claims. If any lawsuit or enforcement action is
-----------------
filed against any party entitled to the benefit of indemnity hereunder,
written notice thereof shall be given to the indemnifying party as promptly
as practicable (and in any event within fifteen (15) days after the service
of the citation or summons); provided that the failure of any indemnified
party to give timely notice shall not affect rights to indemnification
hereunder except to the extent that the indemnifying party demonstrates
that a material substantive right was materially impaired by such failure.
After such notice, if the indemnifying party shall acknowledge in writing
to such indemnified party that such indemnifying party shall be liable
under its indemnity in connection with such lawsuit or action, then the
indemnifying party shall be entitled, if it so elects, to take control of
the defense and investigation of such lawsuit or action and to employ and
engage attorneys of its own choice to handle and defend the same, at the
indemnifying party's cost, risk and expense, and such indemnified party
shall cooperate in all reasonable respects, with the indemnifying party and
such attorneys in the investigation, trial and defense of such
37
<PAGE>
lawsuit or action and any appeal arising therefrom; provided, however, that
the indemnified party may, at its own cost, participate in such
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom.
(f) Right of Offset.
---------------
(i) Anything in this Agreement to the contrary
notwithstanding, Seller hereby agrees that any and all amounts which
Seller is entitled to receive as distributions from the Partnership
under the Partnership Agreement or otherwise on account of its
ownership interest in the Partnership, shall be applied to satisfy any
amounts as to which Seller is obligated to indemnify Buyer, the
Partnership or any of their respective Affiliates or Representatives
pursuant to any provision of this Section 11.3 and further authorizes
Buyer, as the general partner of the Partnership, to intercept such
distributions to satisfy such indemnification obligations in
accordance with, and as set forth in, the Partnership Agreement. Any
amounts so applied to satisfy Seller's indemnification obligations
shall be deemed to have been distributed to Seller under the
Partnership Agreement and thereafter applied by Seller in satisfaction
of its indemnification obligations pursuant to this Article XI.
(ii) In connection with the foregoing right of offset,
Seller hereby agrees that, in the event that Seller pledges any
portion of Seller's right, title and interest in and to Seller's Class
A limited partnership interest to any other entity or Person,
including, without limitation, any bank, Seller shall make such third
party aware of (any such third party shall acquire its security
interest subject to) the foregoing right of offset and specifically
provide in any applicable documentation of such pledge that Seller's
Class A limited partnership interest is subject to the foregoing
described right of offset for indemnification obligations pursuant to
this Agreement and the Partnership Agreement.
(iii) Seller hereby agrees to execute and deliver to Buyer
any and all necessary UCC-1 Financing Statements and any continuation
statements thereof, and such other documents or notices as Buyer may
reasonably request, in order to provide notice of the foregoing right
of offset to third parties.
(g) Post-Closing Tax Audits and Other Tax Proceedings. Seller,
-------------------------------------------------
on the one hand, and Buyer, on the other hand, agree to give prompt notice
to each other of any proposed adjustment to Taxes related to the Restaurant
Operations for periods ending on or prior to the Closing Date or any pre-
Closing Date partial period. Seller and Buyer shall cooperate with each
other in the conduct of any audit or other proceedings involving the
Restaurant Operations for such periods and each may participate at its own
expense, provided that Seller shall have the right to control the conduct
of any such audit or proceeding for which Seller (i) agrees that any
resulting Tax is covered by the indemnity provided in this Section 11.3,
and (ii) demonstrates to Buyer its ability to make such indemnity payment
to Buyer or permits Buyer to set off such indemnity payment against
distributions from the Partnership otherwise due Seller in accordance with
Section 11.3(f).
38
<PAGE>
(h) Bulk Sales. It may not be practicable to comply or attempt
----------
to comply with the procedures of the "Bulk Sales Act" or similar laws of
any or all of the states in which the Assets are situated or any other
state which may be asserted to be applicable to the transactions
contemplated hereby. Accordingly, to induce Buyer to waive requirements
for compliance with any or all of such laws, Seller hereby agrees that the
indemnity provisions of Section 11.3(a) shall apply to any Damages of Buyer
arising out of or resulting from the failure of Buyer or Seller to comply
with any such laws or any similar law which may be asserted to be
applicable to the transactions contemplated hereby.
11.4 Certain Post-Closing Adjustments.
--------------------------------
(a) Closing Balance Sheet Adjustments. Subject to the provisions
---------------------------------
contained in Section 11.4(b), if (i) the sum of the line items for (A) cash
in registers and reserves at the Restaurants, (B) customer trade accounts
receivable which have been reasonably approved by Buyer, (C) employee
advances which have been reasonably approved by Buyer, (D) Inventories
(including items stored or held at CHE's commissary which have been
reasonably approved by Buyer), and (E) prepaid expenses (other than
deferred preopening costs) on the Closing Balance Sheet, plus any and all
amounts paid by Seller as fees for Permits or Liquor Licenses (other than
any fees related to the transfer of any such Permits and Liquor Licenses
which shall be paid by Seller), which fees shall be scheduled and delivered
with the Closing Balance Sheet for Buyer's reasonable approval, exceeds
(ii) the gift certificates line item for the Restaurant Operations on the
Closing Balance Sheet (the "Excess"), then Buyer shall cause the
Partnership to pay to Seller by certified check the entire amount of the
Excess within fifteen (15) days of the delivery of the agreed upon Closing
Balance Sheet. However, in the event that the amount of item (i) is less
than item (ii) (the "Shortfall"), then Seller shall pay to the Partnership
by certified check the entire amount of the Shortfall within fifteen (15)
days of the delivery of the agreed upon Closing Balance Sheet.
(b) Preparation of Closing Balance Sheet. In order to effect the
------------------------------------
Closing Balance Sheet adjustments required by this Section 11.4, Seller
shall prepare and deliver to Buyer, within thirty (30) days following the
Closing Date, the Closing Balance Sheet in accordance with GAAP and
consistent with the past practices used in preparing balance sheets for
Seller. Within fifteen (15) days of receipt of the Closing Balance Sheet,
Buyer shall communicate its acceptance or requested changes to Seller. If
the Closing Balance Sheet is accepted by Buyer, or the required changes of
Buyer are acceptable to Seller, then payment shall be made by the
appropriate party as set forth in Section 11.4(a). If the parties are
unable to agree on the Closing Balance Sheet, then Arthur Andersen LLP, or
another "Big Six" accounting firm acceptable to Seller and Buyer, shall
prepare the Closing Balance Sheet in accordance with GAAP consistent with
the past practices used in preparing balance sheets for Seller, which
Closing Balance Sheet shall be binding on both Seller and Buyer, and the
fees for the preparation of the Closing Balance Sheet shall be shared
equally by Seller and Buyer.
39
<PAGE>
11.5 Commissary Inventory. Buyer and Seller have agreed that
--------------------
inventory owned by Seller and located at CHE's commissary in Carlsbad,
California shall be contributed by Seller to the Partnership as part of
Inventories in connection with the transactions contemplated by this Agreement.
Buyer and Seller shall reasonably agree on a schedule to be delivered at the
Closing which shall set forth the price and the quantity of such commissary
inventory to be contributed by Seller to the Partnership, and the aggregate
purchase price of such commissary inventory shall be included as part of the
post-closing adjustments described in Section 11.4 hereof and in accordance
with the terms of such section. Notwithstanding the fact that the Partnership
shall become the owner of the commissary inventory as of the Closing Date,
Seller has agreed, until December 31, 1996, to store such items in the manner
and at the location where Seller has conducted its commissary operations prior
to the Closing, and further, to perform such commissary services as Seller or
one of its Affiliates has provided to all of the "Islands" restaurants (not
just the Restaurants as defined herein) prior to the Closing, including,
without limitation, taking orders for commissary items and shipping them to the
appropriate "Islands" restaurant in a timely manner. For its services as a
commissary, Seller shall be entitled to receive an amount equal to seven
percent (7%) of the price for such commissary items, which was originally paid
by the Partnership in connection with the post-closing adjustments (as set
forth on the agreed to commissary supplies schedule), based upon the commissary
items ordered by and actually shipped to any "Islands" restaurant, plus any
applicable freight and/or shipping charges, which amount shall be payable
within thirty (30) days of receipt of the invoice by the Partnership for such
amount.
11.6 Nonsolicitation of Employees. Neither Seller nor any
----------------------------
Affiliate of Seller shall take any action following the Closing to induce any
employee of the Partnership, Buyer or any of their Affiliates, to leave the
employ of the Partnership, Buyer or any of their Affiliates, nor shall Buyer
nor any Affiliate of Buyer take any action following the Closing to induce any
employee of Seller or any Affiliate of Seller to leave the employ of Seller or
any Affiliate of Seller.
11.7 Proprietary Information. Seller hereby acknowledges that
-----------------------
neither Seller nor any of its Affiliates will have, upon the termination of the
1993 License Agreement, any right to establish or operate restaurants under the
trademark, service mark or trade name "Islands" or any other confusingly similar
marks or utilize the Islands concept and hereby agrees that neither Seller nor
any of its Affiliates will establish or operate restaurants under the trademark,
service mark or trade name "Islands" or any other confusingly similar marks or
utilize the Islands concept (including, without limitation, the design,
facilities, menus, recipes, supplies and operating concepts utilized in
connection with the "Islands" operations) nor will Seller or its Affiliates
employ those certain advertising, promotional and merchandising methods which
are part of the "Islands" operations.
11.8 Further Assurances. From and after the Closing Date, each
------------------
party hereto will cooperate in good faith with the other party hereto and take
all appropriate action and execute any documents, instruments or conveyances of
any kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereby. Further, Seller warrants, and hereby
covenants, at Seller's sole cost and expense, to defend Partnership's title to
the Assets against all lawful claims and demands of all persons or entities
whomsoever which now exist or which may have accrued as of the Closing Date. In
addition, Seller agrees to cooperate in
40
<PAGE>
good faith with Buyer or Buyer's Representatives and the Partnership to
provide whatever information which may be necessary in order to prepare the
Partnership's interim and 1996 year-end financial statements and Tax returns.
ARTICLE XII
TERMINATION
-----------
12.1 Termination. This Agreement may be terminated, and the
-----------
transactions contemplated by this Agreement abandoned, at any time prior to the
Closing Date, before or after the approval of the Board of Directors of Seller,
the partners of Buyer or the limited partners of IR-L.P.:
(a) by mutual written consent of Seller and Buyer;
(b) by Buyer, if any material representation or warranty by
Seller contained in this Agreement shall be incorrect in any material
respect when made;
(c) by Seller, if any material representation or warranty by
Buyer contained in this Agreement shall be incorrect in any material
respect when made; or
(d) by Seller or Buyer, if without fault of the terminating
party, the Closing Date shall not have occurred on or prior to June 30,
1996.
12.2 Effect of Termination. In the event of the termination of
---------------------
this Agreement by either Seller or Buyer as provided in Section 12.1 hereof, no
party (or any of its partners, stockholders, directors or officers) shall have
any liability or further obligation to any other party hereunder of any nature
whatsoever, including any liability for damages, unless such party is in default
under its obligations hereunder, in which event the party in default shall be
liable to the other party for such default. The agreements of any of the parties
contained in this Section 12.2 and Sections 13.3, 13.4, 13.5 and 13.8 shall
survive the termination of this Agreement. In the event that a condition
precedent to a party's obligations is not satisfied, nothing contained herein
shall be deemed to require any party to terminate this Agreement and any party
hereto may waive such condition precedent to its obligations and proceed with
the Closing.
ARTICLE XIII
MISCELLANEOUS
-------------
13.1 Assignment; Parties in Interest. Neither this Agreement
-------------------------------
nor any of the rights or obligations hereunder may be assigned, by operation of
law or otherwise, by any party without the prior written consent of the other
parties. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns, and no other person shall have any right, benefit or
obligation hereunder as a third-party beneficiary or otherwise.
41
<PAGE>
13.2 Notices. Unless otherwise provided herein, any notice,
-------
request, instruction or other document to be given hereunder by any party to any
other party shall be in writing and shall be deemed to be duly given on the date
of delivery if delivered personally and on the date of receipt or refusal
indicated on the return receipt if mailed by first class mail, certified or
registered, postage prepaid, return receipt requested, and in each case
addressed as follows:
If to Seller: Islands Restaurants, Inc.
c/o Chart House Enterprises, Inc.
115 South Acacia Avenue
Solana Beach, California 92075
Attention: William R. Kuntz, Jr., Esq.,
General Counsel
With a courtesy copy to (which Morgan Lewis & Bockius LLP
shall not constitute notice): 801 South Grand Avenue
22nd Floor
Los Angeles, California 90017
Attention: Robert B. Fraser, Esq.
If to Buyer: Islands CA/AZ Holdings LP
c/o Seneca Partners, Inc.
8440 Walnut Hill Lane, Suite 800
Dallas, Texas 75231
Attention: John P. Wagner
With a courtesy copy to (which Allen, Matkins, Leck, Gamble &
shall not constitute notice): Mallory LLP
18400 Von Karman Avenue, 4th Floor
Irvine, California 92715
Attention: Jeremy D. Glaser, Esq.
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others in accordance with the provisions of
this Section 13.2.
13.3 Confidential Information. The parties acknowledge that the
-------------------------
transactions described herein are of a confidential nature and shall not be
disclosed except to consultants, advisors, Affiliates and other Representatives
of the parties hereto, or as required by law, until such time as the parties
make a public announcement regarding the transaction in accordance with the
provisions of Section 10.9. Each party shall treat as confidential all
financial, accounting and other proprietary information of the other that may
come into such party's possession during the course of and pursuant to the
performance of this Agreement, and each party shall take adequate measures
protecting the same to the same extent each party protects against disclosure or
destruction of its own financial, accounting and other proprietary information
and shall not disclose such confidential information except as required by
applicable law, regulation or legal process. The parties shall communicate to
their respective Affiliates, agents and employees the confidentiality
requirements of this Agreement and take whatever measures may be reasonably
42
<PAGE>
necessary to protect and enforce such confidentiality. In the event of the
termination of this Agreement for any reason whatsoever, each party shall return
to the other all documents, work papers, financial and accounting records, and
other material (including all copies thereof) obtained in connection with the
transactions contemplated hereby and shall use all reasonable efforts, including
instructing its employees and others who have had access to such information, to
keep confidential and not to use any such information, unless such information
is now, or is hereafter disclosed, through no act or omission of such party, in
any manner making it available to the general public.
13.4 Attorneys' Fees. The parties agree that if it be
---------------
determined by any court that any party has failed to perform its obligations
herein, then the prevailing party or parties shall be entitled to recover
reasonable attorneys' fees, court costs and other reasonable expenses and costs
incurred in the enforcement of the rights and obligations set forth in this
Agreement, or any claim for damages based on any breach of this Agreement.
13.5 Choice of Law. This Agreement shall be governed by,
-------------
and construed in accordance with, the laws of the State of California.
13.6 Entire Agreement; Amendments and Waivers. This Agreement,
----------------------------------------
together with all recitals, Exhibits and Schedules hereto including the
Disclosure Schedules (which are incorporated herein by reference), constitutes
the entire agreement among the parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. No amendment, supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
13.7 Multiple Counterparts. This 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.
13.8 Expenses. Except as provided in Section 10.11, each party
--------
hereto shall pay its own legal, accounting, out-of-pocket and other expenses
incurred in connection with transactions contemplated by this Agreement.
13.9 Invalidity. In the event that any one or more of the
----------
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
13.10 Titles. The titles, captions or headings of the Articles
------
and Section herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
"Seller" ISLANDS RESTAURANTS, INC., a Delaware corporation
By: /s/ JOHN M. CREED
------------------------
Name: John M. Creed
Title: Chairman and Chief Executive Officer
"Buyer" ISLANDS CA/AZ HOLDINGS LP,
a Delaware limited partnership
By: Larkspur Partners, Inc., a Delaware
corporation
Its: Sole General Partner
By: /s/ JOHN P. WAGNER
------------------------
Name: John P. Wagner
Title: Vice President, Secretary and
Treasurer
44
<PAGE>
SECURED PROMISSORY NOTE
$20,000,000.00 Solana Beach, California
April ___, 1996
FOR VALUE RECEIVED, the undersigned hereby promises to pay to ISLANDS
RESTAURANTS, INC., a Delaware corporation ("Lender"), or order, at 115 South
Acacia Avenue, Solana Beach, California 92075-1803, or at such other address as
the holder of this Secured Promissory Note ("Note") may specify in writing, the
principal sum of TWENTY MILLION DOLLARS ($20,000,000.00) plus interest in the
manner and upon the terms and conditions set forth below. This Note is made in
connection with that certain Loan Agreement, dated as of even date herewith,
between the undersigned and Lender (as hereafter amended, restated,
supplemented, or modified from time to time, the "Agreement"), the provisions of
which are incorporated herein by reference. All capitalized terms used herein,
unless otherwise defined herein, shall have the meanings ascribed to them in the
Agreement.
1. Rate of Interest
----------------
The principal balance of this Note shall bear simple interest from the
date hereof at a fixed rate per annum equal to nine percent (9%) based upon a
365 day year and the actual number of days elapsed. Upon the occurrence and
during the continuation of an Event of Default under the Agreement, the rate of
interest on this Note shall, at the option of the holder of this Note, be
increased to thirteen percent (13%) per annum.
In no event shall the interest rate or rates payable under this Note,
plus any other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. The undersigned and Lender intend legally
to agree upon the rate or rates of interest (and the other amounts paid in
connection herewith) and manner of payment stated within this Note; provided,
however, that anything contained herein to the contrary notwithstanding, if said
interest rate or rates of interest (or other amounts paid in connection
herewith) or the manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto as of the date of this Note, the undersigned is
and shall be liable only for the payment of such maximum as allowed by law, and
payment received from the undersigned in excess of such legal maximum, whenever
received, shall be applied to reduce the principal balance of this Note to the
extent of such excess.
1
<PAGE>
2. Schedule of Payments
--------------------
Principal and interest under this Note shall be due and payable in
arrears in monthly installments of $179,945.19, beginning on ____________ 1,
1996 and continuing thereafter on the first (1st) day of each succeeding month,
together with a final payment on __________ 1, 2011, in an amount equal to all
sums remaining unpaid under this Note. Each payment shall be credited first to
fees and costs owing under or in connection with the Loan Documents, then to
accrued interest, and then to principal. All payments shall be made in lawful
money of the United States, without offset, deduction, or counterclaim of any
kind.
3. Prepayment
----------
Voluntary prepayments of the principal balance of this Note shall be
permitted at any time; provided that each such prepayment shall be accompanied
by all interest that has accrued and remains unpaid with respect to the amount
of principal being repaid. Amounts repaid or prepaid with respect to this Note
may not be reborrowed. Partial prepayments of principal shall be applied to
scheduled payments of principal in the inverse order of their maturity.
4. Holder's Right of Acceleration
------------------------------
Upon the occurrence and during the continuation of an Event of Default
under the Agreement, including, but not limited to, the failure to pay any
installment of principal or interest hereunder when due and after the expiration
of any applicable grace period, the holder of this Note may, at its election and
without notice to the undersigned, declare the entire balance hereof (including,
but not limited to, all principal and interest) immediately due and payable.
5. Additional Rights of Holder
---------------------------
If any installment of principal or interest hereunder is not paid when
due, the holder shall have the right to (in addition to the other rights set
forth herein, in the Agreement, and under law) compound interest by adding the
unpaid interest to principal, with such amount thereafter bearing interest at
the rates provided in this Note.
6. General Provisions
------------------
a. If this Note is not paid when due, the undersigned further
promises to pay all costs of collection, foreclosure fees, and reasonable
attorneys' fees incurred by the holder, whether or not suit is filed hereon,
together with the fees, costs and expenses as provided in the Agreement.
2
<PAGE>
b. The undersigned hereby consents to the acceptance, release, or
substitution of security for this Note.
c. Presentment for payment, demand, notice of dishonor, protest,
and notice of pro test are hereby expressly waived.
d. Any waiver of any rights under this Note or the Agreement is
neither valid nor effective unless made in writing and signed by the holder of
this Note.
e. No delay or omission on the part of the holder of this Note in
exercising any right shall operate as a waiver thereof or of any other right.
f. A waiver by the holder of this Note upon any one occasion shall
not be construed as a bar or waiver of any right or remedy on any future
occasion.
g. Should any one or more of the provisions of this Note be
determined illegal or unenforceable, all other provisions shall nevertheless
remain effective.
h. This Note cannot be changed, modified, amended, or terminated
orally.
i. This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without reference to the
principles of conflicts of laws thereof.
7. Security for this Note
----------------------
This Note is secured by the collateral described in the Pledge and
Security Agreement and the other Loan Documents and is subject to all of the
terms and conditions thereof including, but not limited to, the limitation on
the remedies specified therein.
8. Non-Recourse
------------
Notwithstanding anything to the contrary contained herein or in any
other Loan Document, but without in any manner impairing the validity of any
Loan Document or any security interests granted therein, in the event of any
default under the terms of any Loan Document, Lender agrees that (a) Lender will
not hold Islands Restaurants, L.P., the undersigned, Islands California/Arizona
LP, Larkspur Partners, Inc., John Wagner, Anthony DeGrazier, or any of their
respective Affiliates personally liable for payment of the Obligations or for
any other sums due as a result of any Event of Defaults under any Loan Document,
and (b) no judgment based on this Note or any of the other Loan Documents shall
be sought or obtained by Lender
3
<PAGE>
against any of the foregoing persons or entities and the sole recourse of Lender
against such persons and entities under this Note and each of the other Loan
Documents shall be limited to the Collateral, and (c) Seneca Partners, Inc.'s
liability with respect to such a default shall only be as set forth in the
Guaranty.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date first set forth above.
ISLANDS CA/AZ HOLDINGS LP,
a Delaware limited partnership
By: Larkspur Partners, Inc.,
a Delaware corporation
Its: Sole General Partner
By:_______________________
Print Name:
Title:
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> APR-01-1996
<CASH> 238
<SECURITIES> 0
<RECEIVABLES> 3,581
<ALLOWANCES> 0
<INVENTORY> 3,650
<CURRENT-ASSETS> 8,829
<PP&E> 174,117
<DEPRECIATION> 54,850
<TOTAL-ASSETS> 153,455
<CURRENT-LIABILITIES> 23,156
<BONDS> 49,721
<COMMON> 82
0
0
<OTHER-SE> 75,978
<TOTAL-LIABILITY-AND-EQUITY> 153,455
<SALES> 43,246
<TOTAL-REVENUES> 43,246
<CGS> 12,552
<TOTAL-COSTS> 12,552
<OTHER-EXPENSES> 25,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,142
<INCOME-PRETAX> (874)
<INCOME-TAX> (244)
<INCOME-CONTINUING> (630)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (630)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
