<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
115 SOUTH ACACIA AVENUE
SOLANA BEACH, CALIFORNIA 92075
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number including area code: (619) 755-8281
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K ((S) 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN,
AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN
DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART
III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 21, 1997 was $34,566,280.
The number of shares outstanding of common stock as of March 21, 1997 was
9,904,263.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year
ended December 30, 1996 are incorporated herein by reference into Parts I and
II.
Portions of the Registrant's Proxy Statement for the Annual Meeting to be
held May 20, 1997 are incorporated herein by reference into Part III.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS.
As of December 30, 1996, Chart House Enterprises, Inc. (the "Company")
operated 64 restaurants, consisting of 63 Chart Houses and one Peohe's. In
addition, the Company operates a wholesale bakery under the name Solana Beach
Baking Company. The Company sold its Paradise Bakery subsidiary in December
1995, and in May 1996, the Company sold its Islands restaurant operations. The
Company was incorporated in Delaware on July 25, 1985. The Company's principal
executive offices are located at 115 South Acacia Avenue, Solana Beach,
California 92075, and its telephone number is (619) 755-8281.
The following discussion describes the Company's operations.
OPERATIONS
Chart House operations commenced in 1961 with the opening of the first Chart
House in Aspen, Colorado by a predecessor of the Company. Today, there are 63
Chart House restaurants located in 22 states, Puerto Rico and the U.S. Virgin
Islands.
Chart House restaurants are full-service, casual dinner houses with a menu
featuring fresh fish, seafood, steaks, chicken, prime rib, pasta dishes and as
much salad and bread as the customer desires. Many of the Chart House
restaurants feature an elaborate salad bar where the customer prepares his or
her own salad and some Chart Houses have a seafood bar which offers various
appetizers.
The Company places great emphasis upon the location and exterior and
interior design of each Chart House restaurant. Each Chart House is unique and
designed to fit within and complement its surroundings. The restaurant
buildings are environmentally sensitive and functional in design.
Representative exteriors of Chart House restaurants range from the restored
1887 Victorian boathouse on Coronado Island in San Diego Bay to the modern
three-tiered glass restaurant in Philadelphia overlooking the Delaware River.
With a few exceptions, Chart House restaurants are free-standing buildings
with dinner seating capacities ranging from 92 to 350 and an average seating
capacity of 196. The restaurant interiors are casual in design and decor and
are accentuated by nautical-themed and action/adventure oriented artwork.
In 1996 the annual sales for Chart House restaurants currently in operation
ranged from $846,000 to$7.2 million with an average annual sales per Chart
House restaurant of $2.3 million. The average dinner check was approximately
$24 per person, excluding alcoholic beverages. Almost all Chart House
restaurants accept dinner reservations. The operating hours for Chart House
restaurants are typically 5:00 p.m. to 11:00 p.m. on weekdays and 5:00 p.m. to
1:00 a.m. on weekends.
Alcoholic beverages are available at all Chart House locations. The sale of
alcoholic beverages accounted for approximately 22% of the revenues generated
by Chart House restaurants during each of the past three years.
Each Chart House restaurant is managed by one general manager and between
one and six assistant managers, depending on the operating characteristics and
size of the restaurant. On average, general managers possess approximately ten
years experience with Chart House. The assistant managers generally are
required to participate in a comprehensive management development program with
progressive management assignments. In addition, each general manager is
required to comply with an extensive operations manual which contains
procedures to ensure uniform operations, consistently high quality products
and service and proper accounting for restaurant operations. The general
manager and his or her assistants are responsible for training restaurant
employees.
1
<PAGE>
There are seven Chart House regional directors of operations, each of whom
is responsible for eight to ten Chart House restaurants in a given area. The
regional directors of operations report to the Vice President--Operations who
is based in Connecticut, and who reports directly to the Executive Vice
President--Operations of the Company. The duties of the directors of
operations include supervising and assisting the managerial and staff
employees of all Chart House restaurants.
Peohe's
The Company opened its Peohe's restaurant in January 1988 in Coronado,
California overlooking San Diego Bay and the San Diego city skyline. Although
similar to the Company's Chart House restaurants in many respects, Peohe's
opened under a different name in part to minimize confusion and competition
with nearby Chart House restaurants and also to provide Chart House management
a suitable vehicle for experimentation and development of different menu
items, restaurant design and operating concepts. Peohe's has a more extensive
and higher priced menu, higher level of service and greater variety of cooking
techniques than the typical Chart House restaurant.
Solana Beach Baking Company
The Company operates a wholesale bakery in a leased facility located in
Carlsbad, California under the trade name "Solana Beach Baking Company." The
wholesale bakery supplies bread and other baked goods to Chart House
restaurants and also supplies muffins, croissants and other bakery products to
several hotels, food service distributors and other third party accounts. In
late-1994, the wholesale bakery began supplying cookies, cinnamon rolls and
other baked goods to Starbucks retail coffee outlets throughout Southern
California.
Site Development
The cost of opening a Chart House restaurant varies significantly from
restaurant to restaurant, depending upon, among other things, the location of
the site and whether the land, building, furniture, fixtures and equipment are
purchased or leased. For example, the Alexandria, Virginia restaurant, a
building which was constructed in 1990 on leased land, required total capital
expenditures of approximately $4.8 million, while the Longboat Key, Florida
restaurant, which involved construction of leasehold improvements to an
existing structure in 1989, required total capital expenditures of
approximately $955,000. Capital expenditures for the new Chart House in
Newport, Kentucky, which was constructed on leased land and opened in April
1996, totaled about $2.9 million.
While identifying and developing restaurant sites, particular emphasis is
placed on a potential site's physical location, with a preference for
locations near water and within major metropolitan areas. Sales and profit
projections are then prepared to determine whether the proposed restaurant
will provide a targeted return on investment. The Company accords great
importance to the selection of and coordination with the architect to ensure
that the proposed restaurant structure fits the Chart House restaurant image.
Where a new free-standing building is required to be built, up to 2 1/2 years
may elapse from site selection to restaurant opening. However, where the
Company is able to locate a suitable restaurant for conversion to a Chart
House, the development period is generally six to 12 months.
Strategic Plan
Over the past few years, the Company scaled back development of new Chart
House restaurants, in large part due to the redirection of expansion efforts
and capital to the development of Islands restaurants. In the fourth quarter
of 1995, the Company adopted a new strategic plan to improve shareholder value
by refocusing on its core business--Chart House restaurants. The new strategic
plan called for selling the company's Paradise Bakery and Islands operations,
and modernizing, revitalizing and expanding the Chart House concept. Key to
2
<PAGE>
the strategy were the upgrading of facilities, enhancement of menu offerings
and increased marketing efforts at the Chart House restaurants. In addition,
the Company planned, on a long-term basis, for management succession and
reorganization, the selective disposition of restaurants that did not meet
performance criteria, and the building of new Chart House restaurants at a
moderate pace.
The Company sold Paradise Bakery in December 1995, and in May 1996 completed
the disposition of the Islands operations.
The Company implemented major areas of the strategic plan in late 1995 and
1996. The Company remains, however, in the early stages of the program to
revitalize and upgrade the restaurant facilities, pending resolution of
current financing issues and other matters.
ISLANDS
In May, 1996, the Company completed the sale of a 75% interest in its
Islands restaurant operations to two affiliated partnerships of Islands
Restaurants, L.P., the owner/licensor of the Islands concept, for a total
price of $23 million in notes. The notes bear interest at a rate of 9% and are
secured by restaurant assets. The Company has a 25% interest as a limited
partner in each of the partnerships, and is entitled to periodic distributions
based on available cash flows, as provided in the partnership agreements.
As part of the transaction, the existing area development agreement and
license and management agreement between the Company's subsidiary, Islands
Restaurants, Inc. and Islands Restaurants, L.P. terminated, thereby relieving
the Company of its obligation to continue developing Islands restaurants, and
reverting the license and development rights back to Islands Restaurants,
L.P., which also reassumed responsibility for managing its Islands restaurants
in the Los Angeles and Dallas markets as well as the restaurants acquired from
the Company.
PROCUREMENT OF FOOD AND SUPPLIES
The Company's ability to maintain consistent quality throughout its
restaurants depends in part upon the ability to acquire food products and
related items from reliable sources in accordance with Company specifications.
Chart House restaurants have purchased virtually all of the meat and frozen
seafood used in the restaurants on a national basis from one distributor for
the past 27 years. Management believes that adequate alternative sources of
supply are readily available.
EMPLOYEES AND LABOR RELATIONS
As of December 30, 1996, the Company employed approximately 4,550 persons,
of whom approximately 4,250 were hourly restaurant or clerical employees and
approximately 300 were salaried, managerial employees engaged in
administrative and supervisory capacities. A majority of the hourly employees
are employed on a part-time basis to provide services necessary during peak
periods of restaurant operations. None of the Company's employees is covered
by a collective bargaining agreement. The Company has never experienced a work
stoppage and believes its labor relations to be good.
COMPETITION
In general, the restaurant business is highly competitive and can be
affected by competition created by similar restaurants in a geographic area,
changes in the public's eating habits and preferences and local and national
economic conditions affecting consumer spending habits, population trends and
traffic patterns. Key competitive factors in the industry are the quality and
value of the food products offered, quality of service, cleanliness, name
identification, restaurant locations, price and attractiveness of facilities.
The Company's
3
<PAGE>
strategy is to differentiate itself from its competitors by providing
consistently high quality products, and efficient and friendly service in a
unique setting.
MARKETING
The Company has developed an extensive, coordinated marketing communications
program. Prior to 1993, Chart House had not utilized any significant
advertising other than yellow pages and selected local print advertising and
limited test marketing programs in 1991 and 1992. The 1993 program developed
for Chart House consisted of a national print media brand awareness campaign,
and the implementation of the Aloha Club, a frequent diner program, in October
1993. Efforts in the past three years were devoted to various local and
national advertising and promotional campaigns and to supporting the Aloha
Club, which has a current enrollment of approximately 15,000 active members.
GOVERNMENT REGULATION
Each of the Company's restaurants is subject to various federal, state and
local laws, regulations and administrative practices affecting its business
and must comply with provisions regulating health and sanitation standards,
equal employment, public accommodations for disabled patrons, minimum wages,
worker safety and compensation and licensing for the sale of food and
alcoholic beverages. Difficulties or failures in obtaining or maintaining
required liquor licenses, or other required licenses or approvals, could delay
or prevent the opening of new restaurants or adversely affect the operations
of existing restaurants.
Federal and state environmental regulations have not had a material effect
on the Company's operations but more stringent and varied requirements of
local governmental bodies with respect to zoning, land use and environmental
factors could delay construction of new restaurants and add to their cost.
The Company is also subject to the Fair Labor Standards Act, which governs
such matters as minimum wages, overtime and other working conditions. A
significant number of the Company's food service personnel are paid at rates
related to federal and state minimum wage requirements and, accordingly,
increases in the minimum wage or decreases in the allowable tip credit will
increase the Company's labor cost. There can be no assurance that future
legislation covering, among other matters, mandated health insurance, will not
be enacted which could have a significant effect on the Company.
The Company believes it is operating in substantial compliance with
applicable laws and regulations governing its operations.
TRADEMARKS AND SERVICE MARKS
The "Chart House" logo and trademark were registered with the United States
Patent and Trademark Office (the "USPTO") in 1972 and 1977, respectively. The
"Peohe's" logo and trademark were registered with the USPTO in 1988. The
"Aloha Club" trademark and logo were registered with the USPTO in 1996.
Applications to register a new corporate trademark and logo are pending with
the USPTO.
The "Chart House" trademark and logo are licensed by the Company to the
operator of one Chart House restaurant located in Honolulu, Hawaii, and to the
operator of a Chart House restaurant in Queensland, Australia.
4
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information about the executive
officers of the Company. Unless otherwise indicated, all positions are with
Chart House Enterprises, Inc.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ---- --- --------------------------
<S> <C> <C>
William R. Kuntz, Jr. ............... 47 Executive Vice President--Finance and
Administration, General Counsel and
Secretary
Stephen J. McGillin.................. 44 Executive Vice President--Operations
Roy S. Bream......................... 58 Senior Vice President--Real Estate and
Development
Pamela J. Robertson ................. 51 Senior Vice President--Human Resources
Randall P. McNamara.................. 42 Vice President--Operations
</TABLE>
Executive officers of the Company are appointed annually by the Board of
Directors and serve at the Board's discretion.
William R. Kuntz, Jr. has been Executive Vice President--Finance and
Administration, General Counsel and Secretary since July 1996. He became chief
financial officer in July 1996 and assumed, with Mr. McGillin, the duties and
responsibilities of president and chief executive officer in November 1996. He
was Executive Vice President, General Counsel and Secretary from February 1996
to July 1996. He joined the Company as Vice President, General Counsel and
Secretary in June 1988. Mr. Kuntz was previously a partner in the Los Angeles
and San Diego offices of Morgan, Lewis & Bockius, a national law firm.
Stephen J. McGillin was named Executive Vice President--Operations of the
Company in November 1996 and at that time assumed, with Mr. Kuntz, the duties
and responsibilities of president and chief executive officer. From May 1996
to November 1996, he was Senior Vice President--Operations. Mr. McGillin has
been an officer with the Chart House restaurant organization since 1991. Mr.
McGillin has been with the Chart House restaurant organization continuously
for the past 22 years.
Roy S. Bream has been a Vice President of the Company since February 1993,
and was named Senior Vice President--Real Estate and Development in July 1996.
Mr. Bream was Vice President--Real Estate and Development of the Company from
January 1994 to July 1996. From May 1992 to December 1993, he was President
and Chief Operating Officer of the Company's subsidiary, Paradise Bakery, Inc.
He was Director of Real Estate and Development of Paradise Bakery, Inc. from
October 1990 to May 1992. Mr. Bream has been with the Chart House restaurant
organization continuously for the last nine years.
Pamela J. Robertson joined the Company in August 1996 as Senior Vice
President--Human Resources. Ms. Robertson has been a human resources
professional for 16 years and has been the senior human resources officer for
Panda Management Company, Family Restaurants, The Wherehouse and the Federal
Reserve Bank of San Francisco.
Randall P. McNamara was named Vice President--Operations of the Company in
March 1997. Mr. McNamara has been an officer of the Chart House restaurant
organization since 1988. Mr. McNamara has been with the Chart House restaurant
organization continuously for the last 22 years.
ITEM 2. PROPERTIES.
A majority of the restaurant properties used by the Company are leased from
others. The following table sets forth the number of restaurants owned, leased
and operated pursuant to ground leases and the average
5
<PAGE>
remaining lease term (including renewal options) in years as of December 30,
1996. The table does not include owned properties or leases under which the
Company was not engaged in restaurant operations at year end.
<TABLE>
<CAPTION>
AVERAGE
REMAINING
GROUND LEASE
OWNED LEASED(1) LEASES(2) TOTAL TERM(3)
----- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Chart House........................ 12 33 17 62 27
Peohe's............................ -- 1 -- 1 29
--- --- --- ---
Total............................. 12 34 17 63
=== === === ===
</TABLE>
- --------
(1) The Company leases restaurant properties (a) pursuant to standard lease or
sublease arrangements and (b) under "build-to-suit" arrangements pursuant
to which the landowner/landlord builds a restaurant to the Company's
specifications. Each restaurant property is owned by the
landowner/landlord and at the expiration or termination of the lease term,
the Company will have no interest in the restaurant or any other material
improvements constructed on the real property.
(2) Under ground lease arrangements, the Company, as tenant, leases
undeveloped real property and is responsible for constructing all or
substantially all improvements on the real property. In a typical ground
lease, the improvements constructed by the Company are owned by the
Company and the landowner/landlord has no interest in the improvements
constructed by the Company until the expiration or termination of the
lease, at which time the improvements become the property of the
landowner/landlord.
(3) Includes renewal options.
The amount of rent paid to lessors and the methods of computing rent vary
considerably from lease to lease. Most leases contain a provision for a rental
equal to the greater of a fixed minimum amount or a percentage of restaurant
sales at the leased premises.
Substantially all of the owned Chart House restaurants and certain of the
leased Chart House restaurants are subject to mortgages in favor of certain
lenders. See Note 6 of the Notes to Consolidated Financial Statements as of
December 30, 1996 for information with respect to security agreements and
obligations under mortgages.
The Company operates one Chart House restaurant under a management agreement
with the owner of the property. The restaurant, located in Weehawken, New
Jersey, covers approximately 22,000 square feet.
Solana Beach Baking Company leases approximately 17,000 square feet of space
in a building in Carlsbad, California for use as a wholesale bakery. The
extended term of the lease expires in June 1998 and there is an option for an
additional six month term.
The Company's principal executive offices occupy approximately 20,400 square
feet of office space in a building located in Solana Beach, California, which
is owned and used by the Company.
ITEM 3. LEGAL PROCEEDINGS.
Management of the Company believes that there are no material legal
proceedings pending or threatened to which the Company is or may be a party or
to which any of its property is subject. The Company is involved in various
lawsuits incidental to its business. Management does not believe that the
outcome of such litigation will have a material adverse effect upon the
consolidated operations or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
6
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information appearing under the caption "Common Stock Information" on
page 29 of the Company's Annual Report to Stockholders for the year ended
December 30, 1996 (the "Annual Report") is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for the Company and its subsidiaries on page 15
of the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations appears on pages 10 through 14 of the Annual Report and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS.
The consolidated financial statements of the Company and its subsidiaries,
listed under Item 14, appear on pages 16 through 27 of the Annual Report and
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors. The information appearing under the caption "Election of
Directors" on pages 30, 31 and 32 of the Company's Proxy Statement for its
Annual Meeting of Stockholders to be held on May 20, 1997 (the "Proxy
Statement") is incorporated herein by reference.
Executive Officers. The information with respect to executive officers
appearing under the caption "Executive Officers of the Company" is included in
Item 1 of this Annual Report on Form 10-K on page 5 and is incorporated herein
by reference pursuant to general instruction G and instruction 3 to Item
401(b) of Regulation S-K.
Compliance with Section 16(a) of the Exchange Act. The information appearing
under the caption "Security Ownership of Management--Compliance with Section
16(a) of the Exchange Act" on page 40 of the Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing under the caption "Executive Compensation"
commencing on page 33 of the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing under the captions "Principal Stockholders" on
page 29 and "Security Ownership of Management" on page 39 of the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
7
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements:
Included in Part II of this report are the following financial statements
incorporated herein by reference to the following pages of the Annual
Report.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Balance Sheets as of December 30, 1996 and December 31,
1995................................................................. 16
Consolidated Statements of Operations for the fiscal years 1996, 1995
and 1994............................................................. 17
Consolidated Statements of Stockholders' Equity for the fiscal years
1996, 1995 and 1994.................................................. 17
Consolidated Statements of Cash Flows for the fiscal years 1996, 1995
and 1994............................................................. 18
Notes to Consolidated Financial Statements............................ 19-27
Report of Independent Public Accountants.............................. 28
</TABLE>
(2) Financial Statement Schedules:
All schedules have been omitted since the information required to be
submitted has been included in the consolidated financial statements or notes
thereto or have been omitted as not applicable or not required.
(3) Exhibits:
<TABLE>
<C> <S>
3.1(1) Restated Certificate of Incorporation of the Company, as
amended.(1)
(2) Certificate of Amendment of Restated Certificate of Incorporation
of the Company.(2)
3.2 Amended and Restated Bylaws of the Company.(1)
4.1 Specimen Common Stock Certificate.(2)
4.2 Section 203 of the Delaware General Corporation Law.(2)
10.1(1) Amended and Restated Revolving Credit and Term Loan Agreement
dated as of December 17, 1993 by and among Chart House, Inc.
("CHI"), as borrower, the Company, Big Wave, Inc., and Paradise
Bakery, Inc., as guarantors, and The First National Bank of
Boston ("FNBB") and Sanwa Bank California ("Sanwa"), as lenders,
together with Restated Revolving Credit Notes dated December 17,
1993.(7)
(2) First Amendment dated September 30, 1994 to Amended and Restated
Revolving Credit and Term Loan Agreement.(8)
(3) Second Amendment dated April 24, 1995 to Amended and Restated
Revolving Credit and Term Loan Agreement.(10)
(4) Third Amendment dated June 14, 1995 to Amended and Restated
Revolving Credit and Term Loan Agreement.(10)
(5) Fourth Amendment dated August 25, 1995 to Amended and Restated
Revolving Credit and Term Loan Agreement.(10)
(6) Waiver of Specified Defaults; Amendment to Credit Agreement dated
as of August 14, 1996.(13)
(7) Fifth Amendment dated November 8, 1996 to Amended and Restated
Revolving Credit Agreement.
10.2(1) Amended and Restated Security and Inter-Creditor Agreement dated
as of December 17, 1993 by and among CHI, as debtor, and FNBB, as
security agent for itself, Sanwa and Metropolitan Life Insurance
Company ("Metropolitan"), as secured parties.(7)
10.2(2) Amended and Restated Pledge Agreement dated as of December 17,
1993 by and among CHI, as pledgor, and FNBB, as pledgee on behalf
of itself, Sanwa and Metropolitan.(7)
</TABLE>
8
<PAGE>
<TABLE>
<C> <S>
10.2(3) Amended and Restated Notice of Security Interest in Trademarks
dated December 17, 1993 by CHI in favor of FNBB, as security
agent for itself, Sanwa and Metropolitan.(7)
10.2(4) Amended and Restated Pledge Agreement dated as of December 17,
1993 by and among the Company, as pledgor, and FNBB, as
pledgee on behalf of itself, Sanwa and Metropolitan.(7)
10.2(5) Security and Inter-Creditor Agreement dated as of December 17,
1993 by and among Big Wave, Inc., as debtor, and FNBB, as
security agent for itself, Sanwa and Metropolitan, as secured
parties.(7)
10.3(1) Amended and Restated Note Purchase and Guarantee Agreement
dated as of December 30, 1993 by and among CHI, as note
issuer, the Company, Big Wave, Inc., and Paradise Bakery,
Inc., as guarantors, and Metropolitan, as note purchaser, with
respect to CHI's 10.40% Senior Secured Notes Due 2000.(7)
(2) Waiver of Specified Defaults; Amendment of Note Agreements
dated as of August 15, 1996.(13)
(3) Amendment dated as of November 12, 1996 to Note Purchase and
Guarantee Agreements with respect to 10.4% Senior Secured
Notes Due 2000 and 6.69% Senior Secured Notes Due 2001.
10.4 Note Purchase and Guarantee Agreement dated as of December 30,
1993 by and among CHI, as note issuer, the Company, Big Wave,
Inc., and Paradise Bakery, Inc., as guarantors, and
Metropolitan, as note purchaser, with respect to CHI's 6.69%
Senior Secured Notes Due 2001.(7)
10.5(1) Registration Rights Agreement dated November 27, 1985 among the
Company and its stockholders.(1)
(2) First Amendment to Registration Rights Agreement dated as of
April 28, 1986.(1)
(3) Second Amendment to Registration Rights Agreement dated as of
April 21, 1987.(1)
(4) Third Amendment to Registration Rights Agreement dated as of
September 6, 1989.(3)
10.6 [Intentionally Omitted]
10.7 [Intentionally Omitted]
10.8 Marks Licensing Agreement and Settlement Agreement, each dated
as of June 30,
1987 between CHI and Cabell Enterprises, Inc.(1)
10.9 Compensatory Plans, Contracts and Agreements:
(1) 1985 Incentive Stock Option Plan of the Company, as amended.(1)
(2)(a) 1989 Non-Qualified Stock Option Plan of the Company.(2)
(b) Form of 1989 Non-Qualified Stock Option Plan Agreement.(2)
(3)(a) 1992 Stock Option Plan.(5)
(b) Form of 1992 Stock Option Plan Agreement.(5)
(4) Non-Qualified Stock Option Agreement dated as of June 1, 1988
between the Company
and William R. Kuntz, Jr.(2)
(5)(a) Chart House Enterprises, Inc. Corporate Employees 401(k) Plan,
amended and restated as of January 1, 1996.(11)
(b) Chart House Enterprises, Inc. Restaurant Employees 401(k) Plan
dated as of January 1, 1996.(11)
(c) [Intentionally Omitted]
</TABLE>
9
<PAGE>
<TABLE>
<C> <S>
(d) Trust Agreement between Shearson Lehman Trust Company
and the Company,
effective as of June 24, 1993.(7)
(6) Executive Benefit and Wealth Accumulation Plan of the
Company, effective January 27,
1986.(1)
(7) Chart House Enterprises, Inc. Incentive Compensation
Plan, effective January 1,
1993.(6)
(8) Form of Chart House Enterprises, Inc. Executive
Severance Agreement.(11)
(9) (a) 1996 Stock Option Plan.
(b) Form of 1996 Stock Option Plan Agreement.
(10) 1996 Nonemployee Director Stock Compensation Plan.
(11)(a) Restaurant Management Bonus Compensation Plan dated
October 1, 1996.
(b) Corporate Management Bonus Compensation Plan dated
January 1, 1997.
10.10(1) Warrant Agreement dated as of September 6, 1989 between
the Company and FBMIP, together with form of
Warrant.(3)
(2) Registration Rights Agreement dated as of September 6,
1989 between the Companyand FBMIP.(3)
10.11(a) Stock Purchase Agreement dated as of December 30, 1988
by and among Luther'sAcquisition Corporation, CHI and
Luther's Bar-B-Que, Inc.(2)
(b) Registration Rights Agreement dated as of December 30,
1988 between Luther's Acquisition Corporation and
certain shareholders, including CHI.(2)
(c) Shareholders' Agreement dated as of December 30, 1988
by and among Luther's Acquisition Corporation and
certain shareholders, including CHI.(2)
10.12 Amended and Restated Area Development and License
Agreement dated as of December 16, 1993 by and between
Islands Restaurants and Big Wave, Inc.(7)
10.13 Management Agreement dated as of December 16, 1993 by
and between Islands Restaurants and Big Wave, Inc.(7)
10.14 Management Agreement dated as of February 14, 1994 by
and between North Pier Associates and CHI.(8)
10.15(1) Asset Purchase Agreement dated December 20, 1994 among
Cork 'N Cleaver, Inc., Seward's Folly, Inc., and
Walter Seward.(8)
(2) Asset Purchase Agreement dated December 20, 1994 among
Cork 'N Cleaver of
Kalamazoo, Inc., Seward's Folly Michigan, Inc. and
Walter Seward.(8)
(3) Management Agreement dated as of December 20, 1994
between Cork 'N Cleaver of Kalamazoo, Inc., Seward's
Folly Michigan, Inc. and Walter Seward.(8)
10.16(1) Agreement dated as of June 1, 1995 by and between the
Edward Fineman Company, Inc. and CHI.(10)
(2) Agreement dated as of June 1, 1995 by and between the
Edward Fineman Company, Inc. and Islands Restaurants,
Inc.(10)
10.17 Stock Purchase Agreement dated as of December 14, 1995
by and among Java Centrale, Inc., the Company and
Paradise Bakery, Inc.(9)
10.18(1) Asset Purchase Agreement dated as of March 18, 1996 by
and between Islands Restaurants, Inc. and Islands
Florida LP (with attached Form of Promissory
Note).(11)
(2) Partnership Interest Purchase Agreement dated as of
March 18, 1996 by and between Islands Restaurants,
Inc. and Islands CA/AZ Holdings LP (with attached Form
of Promissory Note).(11)
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
(3) Termination of License Agreement.(12)
(4) Termination of Management Agreement.(12)
13. Annual Report to Stockholders for the year ended December 30, 1996.
21. Subsidiaries of the Company.
23. Consent of Arthur Andersen LLP, Independent Public Accountants.
27. Financial Data Schedule (required for electronic filing only).
</TABLE>
- --------
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1
dated August 27, 1987 or amendments thereto dated October 6, 1987 and
October 14, 1987 (Registration No. 33-16795).
(2) Filed as an exhibit to the Company's Registration Statement on Form S-1
dated July 20, 1989 or amendment thereto dated August 25, 1989
(Registration No. 33-30089).
(3) Filed as an exhibit to Form 10-K for the fiscal year ended December 31,
1989.
(4) Filed as an exhibit to Form 10-K for the fiscal year ended December 31,
1990.
(5) Filed as an exhibit to Form 10-K for the fiscal year ended December 31,
1991.
(6) Filed as an exhibit to Form 10-K for the fiscal year ended December 31,
1992.
(7)Filed as an exhibit to Form 10-K for the fiscal year ended December 31,
1993.
(8) Filed as an exhibit to Form 10-K for the fiscal year ended December 31,
1994.
(9) Filed as an exhibit to Form 8-K dated January 12, 1996, for the event
reported as of December 31, 1995.
(10) Filed as an exhibit to Form 10-K for the fiscal year ended December 31,
1995.
(11) Filed as an exhibit to Form 10-Q for the quarterly period ended April 1,
1996.
(12) Filed as an exhibit to Form 8-K dated May 28, 1996, for the event
reported as of May 14, 1996.
(13) Filed as an exhibit to Form 10-Q for the quarterly period ended September
30, 1996.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed by the
Company during the fourth quarter of the fiscal year covered by this report.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CHART HOUSE ENTERPRISES, INC.
Date: March 28, 1997
By WILLIAM R. KUNTZ, JR.
-------------------------------------
William R. Kuntz, Jr.
Executive Vice President--Finance
and Administration, General
Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<C> <S> <C>
Executive Vice President
--Finance and
Administration, General
Counsel and Secretary
(Co-Principal Executive
Officer and Principal
Financial Officer);
WILLIAM R. KUNTZ, JR. Director March 28, 1997
- -----------------------------------------------------------------
William R. Kuntz, Jr.
Executive Vice
President--Operations
(Co-Principal Executive
STEPHEN J. McGILLIN Officer) March 28, 1997
- -----------------------------------------------------------------
Stephen J. McGillin
Vice President and
Chief Accounting Officer
(Principal Accounting
JAMES C. WENDLER Officer) March 28, 1997
- -----------------------------------------------------------------
James C. Wendler
WILLIAM M. DIEFENDERFER Director March 26, 1997
- -----------------------------------------------------------------
William M. Diefenderfer
F. PHILIP HANDY Director March 28, 1997
- -----------------------------------------------------------------
F. Philip Handy
WILLIAM E. MAYER Director March 28, 1997
- -----------------------------------------------------------------
William E. Mayer
ARTHUR J. NAGLE Director March 28, 1997
- -----------------------------------------------------------------
Arthur J. Nagle
SAMUEL ZELL Director March 28, 1997
- -----------------------------------------------------------------
</TABLE>
Samuel Zell
12
<PAGE>
EXHIBIT 10.1(7)
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (the "Fifth Amendment") is made
and dated as of the 8th day of November, 1996 by and among CHART HOUSE, INC.
(the "Company"), CHART HOUSE ENTERPRISES, INC. (the "Parent"), BIG WAVE, INC.,
formerly known as Islands Restaurants, Inc. ("Big Wave") (the Parent and Big
Wave being sometimes referred to, collectively and severally, as the
"Guarantors"), SANWA BANK CALIFORNIA ("Sanwa"), THE FIRST NATIONAL BANK OF
BOSTON ("Bank of Boston") and THE SUMITOMO BANK OF CALIFORNIA ("Sumitomo")
(Sanwa, Bank of Boston and Sumitomo acting in their capacities as "Banks" under
the Credit Agreement described more particularly below being referred to,
collectively and severally, as the "Banks") and SANWA, acting in its capacity as
the successor Agent under the Credit Agreement and the successor Security Agent
under the Big Wave Security Agreement described more particularly below (in such
capacities, the "Agent" and the "Security Agent," as applicable).
RECITALS
A. Pursuant to that certain Amended and Restated Revolving Credit and
Term Loan Agreement dated as of December 17, 1993 by and among the Company, the
Guarantors, Paradise Bakery, Inc., the Banks party thereto and Bank of Boston as
the original "Agent" thereunder (as amended from time to time, including,
without limitation, pursuant to that certain Consent to Disposition and
Agreement for Substitution of Collateral, dated as of May 30, 1996 (the "Consent
Agreement") and that certain waiver and amendment letter dated August 14, 1996,
as so amended, the "Credit Agreement," and with capitalized terms not otherwise
defined herein used with the meanings given such terms in the Credit Agreement)
the Banks agreed to extend credit to the Company on the terms and subject to the
conditions set forth therein, including, without limitation, that the
obligations of the Company thereunder be guaranteed by Big Wave.
B. The Company, the Agent and the Lenders have agreed to amend the Credit
Agreement in certain respects as set forth more particularly herein.
NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Modification of Credit Structure. To reflect the agreement of the
--------------------------------
parties hereto to eliminate the conversion/term out feature of the credit
facility evidenced by the Credit Agreement, effective as of the Effective Date
(as defined in Paragraph 10 below):
<PAGE>
(a) Section 3 of the Credit Agreement is hereby deleted in its entirety
and any and all references to said Section 3 or to the Term Loans to have been
made thereunder or the Term Notes which were to have evidenced any such Term
Loans, shall automatically be deemed to have been similarly deleted from the
Credit Agreement and the other Loan Documents;
(b) The term "Conversion Date" is hereby deleted from the Credit
Agreement and replaced with the term "Maturity Date," and a new definition of
such term added to Section 1 of the Credit Agreement, in correct alphabetical
order, to read in its entirety as follows:
"Maturity Date. October 1, 1997, as such date may be extended by
-------------
written agreement of the Agent and one hundred percent (100%) of the Banks."
2. Modification of Letter of Credit Availability. To reflect the
---------------------------------------------
agreement of the parties hereto to reduce the commitment of the Banks to issue
Letters of Credit under the Credit Agreement, effective as of the Effective Date
the definition of "Letter of Credit Commitment Amount" set forth in Section 1 of
the Agreement is hereby amended to delete the reference to the dollar amount
"$6,000,000" appearing therein and to replace the same with the dollar amount
"$5,000,000".
3. Modification of Pricing Provisions. To reflect the agreement of the
----------------------------------
parties hereto to modify the pricing provisions applicable to Revolving Credit
Loans, effective as of the Effective Date:
(a) Section 2.5 of the Credit Agreement is hereby amended to read in its
entirety as follow:
"(S)2.5. Interest on Revolving Credit Loans.
----------------------------------
(a) Except as provided in (S)6.1 hereof, Reference Rate Amounts of the
Revolving Credit Loans Outstanding from time to time shall bear interest from
the Drawdown Date thereof until repaid in full at the annual rate equal to:
(1) to and including June 30, 1997, the Reference Rate, and (2) from and after
July 1, 1997, the Reference Rate plus two percent (2.00%). Interest on
Reference Rate Amounts shall be payable quarterly in arrears on the last day of
each March, June, September and December, with a final payment on the Maturity
Date.
(b) Except as provided in (S)6.1 hereof, Euroloan Rate Amounts of the
Revolving Credit Loans shall bear interest during the Interest Period relating
thereto at an annual rate equal to one and one half percent (1-1/2%) above the
Eurodollar Rate for such Interest Period (the "Euroloan Rate"). Interest on
Euroloan Rate Amounts of Revolving Credit Loans shall be payable in accordance
with (S)5.1 hereof."
2
<PAGE>
(b) Section 5.1 of the Credit Agreement is hereby modified: (1) to
insert the phrase "to and including May 28, 1997" immediately following the
phrase "the Company may elect from time to time" in the second line thereof, and
(2) subparagraph (D) thereof is hereby deleted in its entirety and replaced with
a new subparagraph (D) to read in its entirety as follows:
"(D) no Interest Period shall end after June 30, 1997."
4. Modification of Certain Financial and Other Covenants. To reflect the
-----------------------------------------------------
agreement of the parties hereto to modify certain of the financial and other
covenants contained in the Credit Agreement, effective as of the Effective Date
the Credit Agreement is hereby amended as follows:
(a) Section 11.4 is hereby amended to read in its entirety as follows:
"(S)11.4 Minimum Tangible Net Worth. The Parent and its Subsidiaries
--------------------------
will maintain at all times a Consolidated Tangible Net Worth of not less than:
(a) $51,700,000, plus,
----
(b) On a cumulative basis, the sum of: (1) fifty percent
(50%) of Consolidated Net Income for each fiscal quarter ending after
January 1, 1997 with no deductions for losses plus (2) 100% of the net
----
proceeds of the issuance of equity securities of the Parent issued on or
after the January 1, 1997."
(b) Section 11.6 is hereby deleted in its entirety and replaced with a
new Section 11.6 to read in its entirety as follows:
"(S)11.6 Ratio of Consolidated Total Liabilities to Consolidated
-------------------------------------------------------
Tangible Net Worth. The Company will not permit the ratio of Consolidated
------------------
Total Liabilities to Consolidated Tangible Net Worth to exceed 1.65:1 at
any time."
(c) Section 1 is hereby amended to insert, in correct alphabetical order,
a new definition of "Consolidated Tangible Net Worth" to read in its entirety as
follows:
"Consolidated Tangible Net Worth: Consolidated total assets of the
-------------------------------
Parent and its Subsidiaries (exclusive of equity investments in
Subsidiaries and other Persons, notes receivable from affiliates (other
than the CA/AV Note, as that term is defined in that certain Consent to
Disposition and Agreement for Substitution of Collateral dated May 14,
1996), goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and premium, deferred charges and
other intangibles) less Consolidated Total Liabilities."
3
<PAGE>
(d) Section 11.7 is hereby deleted in its entirety and replaced with a
new Section 11.7 to read in its entirety as follows:
"(S)11.7 Minimum EBITDA. The Company will not permit EBITDA of
--------------
the Company and its consolidated Subsidiaries to be less than:
<TABLE>
<CAPTION>
For the Fiscal Quarter Ending: Required EBITDA
----------------------------- ---------------
<S> <C>
December 31, 1996 $2,400,000
March 31, 1997 $2,400,000
June 30, 1997 $3,800,000
September 30, 1997 $4,400,000.
</TABLE>
For purposes of this (S)11.7 the term 'EBITDA' shall mean for each fiscal
quarter the sum of (a) net income (or net loss), including, without limitation,
interest income on the Florida Note and the CA/AZ Note (as those terms are
defined in that certain Consent to Disposition and Agreement for Substitution of
Collateral dated May 14, 1996), plus (b) all amounts treated as expenses for
interest, amortization, depreciation, taxes (to the extent included in the
determination of net income or net loss), and other non-cash charges for such
fiscal quarter."
(e) Section 11.8 is hereby amended to read in its entirety as follows:
"(S)11.8 Capital Expenditures. The Company will not: (a) make
--------------------
capital expenditures for any purpose other than maintenance and repair of
existing properties and assets and for legally mandated improvements, or (b)
permit the aggregate capital expenditures of the Parent and its Subsidiaries,
determined on a consolidated basis, in accordance with generally accepted
accounting principles (but exclusive of expenditures in respect of Capitalized
Leases), to exceed $12,000,000 in the 1996 calendar year or $4,000,000 for the
nine-month period beginning January 1, 1997 and ending September 30, 1997."
(f) Section 11.32 is hereby deleted in its entirety.
5. Consent to Sales of Assets. Subject to the conditions set forth below,
--------------------------
the Agent and the Banks hereby consent to the sale of the assets of Islands
Florida LP (in which Big Wave is a limited partner) located in Florida and to
the additional sale of other personal property assets of the Company and its
Subsidiaries with an aggregate net book value not to exceed $1,000,000, and
agree to execute and deliver (at no cost or expense to the Agent or the Banks)
such documents, instruments and agreements as may be requested by the Company to
release any lien, charge or interest of the Agent and the Banks in the subject
sale assets; provided, however, that such consent and agreement to
4
<PAGE>
release are conditioned upon the following: (a) at the date of consummation of
the proposed sale and both before and after giving effect thereto there will not
exist a Default or an Event of Default under the Credit Agreement, (b) no later
than five (5) Business Days prior to the date of consummation of the proposed
sale the Company will deliver to the Agent and each of the Banks a detailed
description of the terms and conditions of the proposed sale and such other
information relating thereto as the Agent or any of the Banks may reasonably
request, and (c) the sale is to an independent unrelated third party for the
fair market value of the subject personal property assets. The Agent and the
Banks agree that notwithstanding the provisions of Section 11.24(c) the Net
Proceeds of sales permitted hereunder need not be applied to reduce the
principal balance of the Loans as required pursuant to Section 6.4 of the Credit
Agreement.
6. Write-Off of Assets. The Agent and the Banks hereby agree that if
-------------------
following the Effective Date the Company, in its reasonable business judgment
and in accordance with customary accounting practices, elects to write-off
certain of its assets, the financial covenants set forth in the Credit Agreement
shall automatically be deemed modified to accomodate up to $1,000,000 in the
aggregate of such write-offs.
7. Waiver of Defaults. Upon the occurrence of the Effective Date the Agent
------------------
and the Banks hereby waive, effective as of September 30, 1996, the Events of
Default existing under the Credit Agreement by reason of the failure of the
Company to be in compliance with the requirements of Sections 11.7 and 11.32 of
the Credit Agreement as at September 30, 1996. Nothing contained herein shall
constitute a waiver of any other Event of Default, whether or not the same are
known to the Agent or any of the Banks at the date hereof, or constitute any
agreement to waive the same or other Events of Default at any other time in the
future.
8. Reaffirmation of Loan Documents. Each of the Company and each of the
-------------------------------
Guarantors hereby affirms and agrees that (a) the execution and delivery by such
Persons of, and the performance of their respective obligations under, this
Fifth Amendment shall not in any way amend, impair, invalidate or otherwise
affect any of such Person's obligations or the rights, remedies and powers of
the Agent and the Lenders under the Loan Documents, including, without
limitation, the Security Documents, as the same are amended hereby, and (b) all
Loan Documents remain in full force and effect.
9. Representations and Warranties. Each of the Company, the Parent and Big
------------------------------
Wave hereby, severally and independently as to itself only, represents and
warrants that at the date hereof and at and as of the Effective Date:
(a) Except to the extent such were by their terms made solely as of a
prior date, the representations and warranties of such party contained in the
Loan Documents are accurate and complete in all material respects.
(b) The execution and delivery by such party of this Fifth Amendment
and the performance by such party of its obligations hereunder are within the
corporate power
5
<PAGE>
of such party, have been (or as of the Effective Date will be) duly authorized
by all necessary corporate action and do not and will not (1) contravene any
provision of such party's charter, other incorporation papers, by-laws or any
stock provisions, or any amendment thereof, (2) conflict with, or result in a
breach of any material term, condition or provision of, or constitute a default
under or result in the creation of any mortgage, lien, pledge, charge, security
interest or other encumbrance upon any of the property of any of such parties
(except the security interest and lien in favor of the Security Agent for the
benefit of the Secured Parties on the Substitute Collateral) under any
agreement, deed of trust, indenture, mortgage or other instrument to such party
is a party or by which any of its properties are bound, (3) violate or
contravene any provision of any law, regulation, order, ruling or interpretation
thereunder or any decree, order or judgment of any court or governmental or
regulatory authority, bureau, agency or official, (4) require any waiver,
consent or approval of any Person other than such as have been obtained and
copies of which have been provided to the Agent and the Security Agent, or (5)
require any approval, consent, order, authorization or license by, or giving
notice to, or taking any other action with respect to, any governmental or
regulatory authority or agency under any provision of law, except those actions
which have been taken or will be taken prior to the Effective Date.
(c) This Fifth Amendment constitutes the legal, valid and binding
obligations of such party enforceable against such party in accordance with
their respective terms.
(d) No Default or Event of Default has occurred or is continuing
(other than Events of Default which are waived hereunder) or will occur as a
result of (1) the execution and delivery of this Fifth Amendment, or (2) the
consummation of the transactions contemplated hereby.
10. Effective Date. This Fifth Amendment shall be effective upon the date
--------------
(the "Effective Date") upon which there shall have been delivered to the Agent,
in form and substance satisfactory to the Agent, the Security Agent and the
Banks, each of the following:
(a) A copy or counterpart copies of this Fifth Amendment, duly executed
by each of the parties hereto;
(b) Evidence satisfactory to the Agent and the Banks that Metropolitan
Life Insurance Company ("Metropolitan") has entered into an amendment of the
Note Purchase Agreements (as defined in the Consent Agreement) with the Company,
which amendment shall be in form and substance acceptable to the Agent and the
Banks and shall include, without limitation, an unconditional waiver of: (1) any
and all defaults existing under the Note Purchase Agreements, and (2) any and
all payments of principal under the 6.69% Notes and the 10.40% Notes (as defined
in the Consent Agreement) which are currently or may become due prior to October
1, 1997;
6
<PAGE>
(c) Evidence satisfactory to the Agent and the Banks that Metropolitan,
in providing the unconditional waiver referred to above has not received and
will not receive any compensation therefor, by way of amendment or waiver fee or
otherwise, or if in fact Metropolitan has received or will receive such
compensation, an equivalent payment is made to the Agent and the Banks;
(d) Metropolitan has acknowledged and agreed to this Amendment; and
(e) From each of Big Wave, the Company and the Parent, certified copies
of such corporate resolutions and authorizations as the Agent may reasonably
request.
In the event the Effective Date shall not have occurred on or before November
15, 1996, then this Fifth Amendment shall, at the election of the Majority
Banks, as evidenced by written notice of such election delivered by the Agent to
the Company, terminate and be of no further force or effect.
11. Survival. The representations and warranties, covenants and agreements
--------
of the Company, the Parent and Big Wave set forth herein shall survive the
Effective Date.
12. Captions. Paragraph or other headings contained in this Fifth Amendment
--------
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Fifth Amendment.
13. Governing Law. This Fifth Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of California.
14. Expenses. The Company shall pay upon demand all costs and expenses,
--------
including, without limitation, legal fees of Morrison & Foerster, special
counsel to the Agent, in connection with the transactions contemplated hereby as
are required to be paid by the Company pursuant to Section 15 of the Credit
Agreement.
15. Counterparts. This Fifth Amendment may be executed in counterparts and
------------
such counterparts shall, when taken together, constitute one and the same
agreement.
EXECUTED as of the day and year first above written.
The Company:
-----------
CHART HOUSE, INC.
By: /s/ WILLIAM R. KUNTZ, JR.
--------------------------
Name: William R. Kuntz, Jr.
------------------------
Title: Exec. V.P.
-----------------------
7
<PAGE>
The Guarantors:
--------------
CHART HOUSE ENTERPRISES, INC.
By: /s/ WILLIAM R. KUNTZ, JR.
--------------------------
Name: William R. Kuntz, Jr.
------------------------
Title: Exec. V.P.
-----------------------
BIG WAVE, INC.
By: /s/ WILLIAM R. KUNTZ, JR.
--------------------------
Name: William R. Kuntz, Jr.
------------------------
Title: V.P.
-----------------------
The Agent and Security Agent:
----------------------------
SANWA BANK CALIFORNIA
By: /s/ DAVID L. BEALL
--------------------------
Name: David L. Beall
------------------------
Title: Vice President
-----------------------
The Banks:
---------
SANWA BANK CALIFORNIA
By: /s/ DAVID L. BEALL
--------------------------
Name: David L. Beall
------------------------
Title: Vice President
-----------------------
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ THOMAS F. FARLEY, JR.
--------------------------
Name: Thomas F. Farley, Jr.
------------------------
Title: Director
-----------------------
8
<PAGE>
THE SUMITOMO BANK OF CALIFORNIA
By: /s/ MATT VAN STEENHUYSE
--------------------------
Name: Matt Van Steenhuyse
------------------------
Title: Vice President
-----------------------
ACKNOWLEGED AND AGREED TO
this 13th day of November, 1996
METROPOLITAN LIFE INSURANCE
COMPANY
By: /s/ JACQUELINE D. JENKINS
-------------------------
Name: Jacqueline D. Jenkins
---------------------------
Title: Vice President
--------------------------
9
<PAGE>
EXHIBIT 10.3(3)
[LETTERHEAD OF METLIFE]
November 12, 1996
Chart House, Inc.
115 South Acacia Avenue
Solana Beach, CA 92075
Attention: William R. Kuntz, Jr.
Executive Vice President and Chief Financial Officer
Gentlemen:
Reference is hereby made to (x) the Note Purchase and Guarantee Agreement, dated
as of December 30, 1993 (as amended, the "6.69% Note Agreement"), among Chart
House, Inc. (the "Company"), the Guarantors and Metropolitan Life Insurance
Company ("MetLife"), pursuant to which the Company issued its 6.69% Senior
Secured Notes due 2001 (as amended, the "6.69% Notes"), and (y) the Amended and
Restated Note Purchase and Guarantee Agreement, dated as of December 30, 1993
(as amended, the "10.40% Note Agreement" and, collectively with the 6.69% Note
Agreement, the "Note Agreements"), among the Company, the Guarantors and
MetLife, pursuant to which there is outstanding the Company's 10.40% Senior
Secured Notes due 2000 (as amended, the "10.40% Notes" and, collectively with
the 6.69% Notes, the "Notes"). Capitalized terms not otherwise defined herein
shall have the meanings ascribed thereto in the Note Agreements.
As holder of the Notes and party to the Note Agreements, MetLife hereby consents
and agrees that, effective as of the Effective Date (as hereinbelow defined) or,
in the case of paragraphs d) and e) below, as of June 30, 1997 and July 2, 1997,
respectively:
a) the Events of Default existing under the Note Agreements by virtue of
the Company's failure to have been in compliance with (S)(S)7.7 and 7.31 thereof
as of September 30, 1996 are hereby waived;
<PAGE>
b) the due date for (i) the $3,000,000 mandatory principal prepayment with
respect to the 6.69% Notes otherwise payable on January 2, 1997 pursuant to
(S)4.2 of the 6.69% Note Agreement, and (ii) the $3,000,000 mandatory
principal prepayment with respect to the 10.40% Notes otherwise payable on July
24, 1997 pursuant to (S)4.2 of the 10.40% Note Agreement, shall in each case
be extended (and (S)4.2 of the respective Note Agreements shall be deemed
amended mutatis mutandis to reflect such extension) until the date which is the
------- --------
earlier of (x) October 1, 1997 and (y) the date of execution of an agreement by
the Company effecting a refinance of all or a portion of the Company's
indebtedness to the Banks or any thereof under the Bank Agreement, provided that
nothing in this paragraph b) shall affect the Company's obligation with respect
to the payment of interest on the 6.69% Notes on January 2, 1997, and provided
further that the Company's failure to make such mandatory principal prepayments
with respect to the Notes, together with accrued interest thereon, on the
earlier of the dates referred to in subclauses (x) and (y) above shall
constitute an Event of Default under (S)(S)5.1(a) and/or (b) of the respective
Note Agreements (after the applicable grace periods therein have expired);
c) (S)(S)7.7 and 7.31 of the Note Agreements need not be complied with by
the Company for the fiscal quarters ending December 30, 1996, March 31, 1997,
June 30, 1997 and September 29, 1997, but such sections shall be complied with
thereafter;
d) the interest rate applicable to the 6.69% Notes shall be increased to
8.69% per annum, and the interest rate applicable to the 10.40% Notes shall be
increased to 12.40% per annum, in each case from and after June 30, 1997, and
the respective Note Agreements (including, without limitation, the first
sentence of (S)4.1 of each thereof) and the respective Notes shall be deemed
amended mutatis mutandis to reflect such increase;
------- --------
e) the Interest Payment Dates applicable to the Notes shall be amended to
be the second day of each month, commencing with July 2, 1997, and the Notes and
the Note Agreements shall be deemed amended mutatis mutandis;
------- --------
f) (S)7.4 of the Note Agreements shall be amended to read in its
entirety as follows:
"(S)7.4. Minimum Tangible Net Worth. The Parent and its Subsidiaries will
--------------------------
maintain at all times a Consolidated Tangible Net Worth of not less than
(a) $51,700,000, plus (b) on a cumulative basis, the sum of (1) fifty
percent (50%) of Consolidated Net Income for each fiscal quarter ending after
January 1, 1997 with no deductions for losses plus (2) 100% of the net proceeds
of the issuance of equity securities of the Parent issued on or after January 1,
1997.";
2
<PAGE>
g) (S)7.6 of the Note Agreements shall be amended to read in its entirety
as follows:
"(S)7.6. Ratio of Consolidated Total Liabilities to Consolidated
-------------------------------------------------------
Tangible Net Worth. The Company will not permit the ratio of Consolidated
------------------
Total Liabilities to Consolidated Tangible Net Worth to exceed 1.65:1 at
any time.";
h) (S)7.8 of the Note Agreements shall be amended to read in its entirety
as follows:
"(S)7.8. Capital Expenditures. The Company will not (a) make capital
--------------------
expenditures for any purpose other than maintenance and repair of existing
properties and assets and for legally mandated improvements, or (b)permit
the aggregate capital expenditures of the Parent and its Subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles (but exclusive of expenditures in respect of
Capitalized Leases), to exceed (i) $12,000,000 in the 1996 calendar year or
(ii) $4,000,000 in the nine-month period beginning January 1, 997 and
ending September 30, 1997 or (iii) $0 thereafter;
i) a new (S)(S)7.32 shall be added to the Note Agreements to read in its
entirety as follows:
"(S)7.32. Minimum EBITDA. The Company will not permit EBITDA of the
Company and its consolidated Subsidiaries to be less than:
For the Fiscal Quarter Ending Required EBITDA
----------------------------- ---------------
December 30, 1996 $2,400,000
March 31, 1997 $2,400,000
June 30, 1997 $3,800,000
September 29, 1997 $4,400,000
For purposes of this (S)7.32 the term 'EBITDA' shall mean for each fiscal
quarter the sum of (a) net income (or net loss), including, without
limitation, those terms Agreement interest income on the Florida Note and
the CA/AZ Note (as those terms are defined in that certain Consent to
Disposition and Agreement for Substitution of Collateral dated as of May
14, 1996), plus
3
<PAGE>
(b) all amounts treated as expenses for interest, amortization,
depreciation, taxes (to the extent included in the determination of net
loss)) and other non-cash charges for such fiscal quarter.";
(j) (S)10 of the Note Agreements is hereby amended to insert, in correct
alphabetical order, a new definition of "Consolidated Tangible Net Worth" to
read in its entirety as follows:
"Consolidated Tangible Net Worth shall mean the Consolidated total assets
-------------------------------
of the Parent and its Subsidiaries (exclusive of equity investments in
Subsidiaries and other Persons, notes receivable from affiliates (other
than the CA/AZ Note, as defined in that certain Consent to Disposition and
Agreement for Substitution of Collateral dated as of May 14, 1996),
goodwill, patents, trademarks, trade names, organization expense, treasury
stock, unauthorized debt discount and premium, deferred charges and other
intangibles) less Consolidated Total Liabilities.";
(k) the Company may sell the assets of Islands Florida LP (in which Big
Wave is a limited partner) located in Florida and other personal property assets
of the Company and its Subsidiaries with an aggregate net book value not to
exceed $1,000,000 (and MetLife hereby agrees to execute and deliver (at no cost
or expense to MetLife) such documents, instruments and agreements as may be
requested by the Company to release any lien, charge or interest of MetLife in
the subject sale assets), provided that (i) at the date of consummation of the
proposed sale and both before and after giving effect thereto there will not
exist a Default or an Event of Default, (ii) no later than five (5) Business
Days prior to the date of consummation of the proposed sale the Company will
deliver to MetLife a detailed description of the terms and conditions of the
proposed sale and such other information relating thereto as the Company
furnishes to the Agent (as defined in the Bank Agreement) or any of the Banks or
as MetLife may reasonably request, (iii) the sale is to an independent unrelated
third party for the fair market value of the subject personal property assets
and (iv) any Net Proceeds received by the Company or any Subsidiary with respect
to any asset sale (including, without limitation, the assets the sale of which
is permitted by this paragraph k)) which are used to reduce the Banks'
commitment to make Loans (as defined in the Bank Agreement) shall be used to
prepay the Notes and the Loans on a pro rata basis;
--- ----
(l) if the Company, in its reasonable business judgment and in accordance
with customary accounting practices, elects to write-off certain of its assets,
the financial covenants set forth in the Note Agreements shall automatically be
deemed modified to accommodate up to $1,000,000 in the aggregate of such write-
offs, provided that the Company shall deliver to MetLife at reasonable intervals
a description of such write-offs;
4
<PAGE>
(m) (S)7.9 of the Note Agreements shall be deemed amended mutatis mutandis
------- --------
to provide for the simultaneous delivery by the Company to MetLife of all
financial and other reports which the Company shall at any time deliver to the
Agent or the Banks under or in connection with the Bank Agreement; and
(n) (S)7.21 of the Note Agreements shall be amended to read in its entirety
as follows:
"(S)7.21. Distributions. Neither the Company nor any Guarantor will or
-------------
will permit any of its Subsidiaries to make any Distributions, other
than distributions from any Subsidiary of the Parent to any Guarantor,
except that the Parent may make Distributions consisting of non-
dividend paying preferred stock if no Default or Event of Default then
exists or would result therefrom."
By their execution hereof, the Company and each of the Guarantors affirms and
agrees that (a) the execution and delivery by such Persons of, and the
performance of their respective obligations under, this consent and agreement
shall not in any way amend, impair, invalidate or otherwise affect any of such
Person's obligations or the rights, remedies and powers of MetLife under the
Loan Documents, including, without limitation, the Security Documents, as the
same are amended hereby, and (b) all Loan Documents remain in full force and
effect.
By their execution hereof, each of the Company, the Parent and Big Wave,
severally and independently as to itself only, represents and warrants that at
the date hereof and at and as of the Effective Date:
(a) Except to the extent such were by their terms made solely as of a
prior date, the representations and warranties of such party contained in the
Loan Documents are accurate and complete in all material respects.
(b) The execution and delivery by such party of this consent and agreement
and the performance by such party of its obligations hereunder are within the
corporate power of such party, have been (or as of the Effective Date will be)
duly authorized by all necessary corporate action and do not and will not (1)
contravene any provision of such party's charter, other incorporation papers,
by-laws or any stock provisions, or any amendment thereof, (2) conflict with, or
result in a breach of any material term, condition or provision of, or
constitute a default under or result in the creation of any mortgage, lien,
pledge, charge, security interest or other encumbrance upon any of the property
of any of such parties (except the security interest and lien in favor of Sanwa,
as Security Agent for the benefit of the Secured Parties (as such terms are
defined in the Company
5
<PAGE>
Security Agreement) on the Substitute Collateral (as defined in that certain
Consent to Disposition and Agreement for Substitution of Collateral, dated as of
May 14, 1996)) under any agreement, deed of trust, indenture, mortgage or other
instrument to which such party is a party or by which any of its properties are
bound, (3) violate or contravene any provision of any law, regulation, order,
ruling or interpretation thereunder or any decree, order or judgment of any
court or governmental or regulatory authority, bureau, agency or official, (4)
require any waiver, consent or approval of any Person other than such as have
been obtained and copies of which have been provided to MetLife, or (5) require
any approval, consent, order, authorization or license by, or giving of notice
to, or taking any other action with respect to, any governmental or regulatory
authority or agency under any provision of law, except those actions which have
been taken or will be taken prior to the Effective Date.
(c) This consent and agreement constitutes the legal, valid and binding
obligation of such party enforceable against such party in accordance with its
terms.
(d) No Default or Event of Default has occurred or is continuing (other
than Events of Default which are waived hereunder) or will occur as a result of
(1) the execution and delivery of this consent and agreement, or (2) the
consummation of the transactions contemplated hereby.
This consent and agreement shall become effective upon the date (the "Effective
Date") upon which there shall have been delivered to MetLife each of the
following:
(a) a copy or counterpart copies of this consent and agreement, duly
executed by the Company and the Guarantors;
(b) a duly executed copy of a Fifth Amendment to Credit Agreement from the
Banks, substantially in the form of Annex 1 hereto, which Fifth Amendment to
Credit Agreement shall be in full force and effect;
(c) evidence satisfactory to MetLife that the Banks and the Agent in
providing the Fifth Amendment to Credit Agreement referred to above have not
received and will not receive any compensation therefor, by way of amendment or
waiver fee or otherwise, or if in fact the Banks and the Agent have received or
will receive such compensation, an equivalent payment is made to MetLife;
(d) a counterpart of this consent and agreement, acknowledged and agreed to
by the Agent and the Banks; and
6
<PAGE>
(e) from each of Big Wave, the Company and the Parent, certified copies of
such corporate resolutions and authorizations as are furnished to the Agent or
the Banks or as MetLife may reasonably request.
Notwithstanding anything to the contrary contained herein, this consent and
agreement shall become effective only if no material adverse change in the
Company's financial condition or prospects, as determined in MetLife's
discretion, shall have occurred during the period from September 30, 1996 to the
Effective Date.
In the event the Effective Date shall not have occurred on or before November
15, 1996, then this consent and agreement shall, at the election of MetLife, as
evidenced by written notice of such election delivered by MetLife to the
Company, terminate and be of no further force or effect. By its execution
hereof, the Company agrees to promptly notify MetLife if the Fifth Amendment to
Credit Agreement referred to above is terminated pursuant to paragraph 10
thereof.
The representations, warranties, covenants and agreements of the Company, the
Parent and Big Wave set forth herein shall survive the Effective Date.
This consent and agreement shall be governed by and construed in accordance with
the laws of the State of New York.
This consent and agreement may be executed in counterparts and such counterparts
shall, when taken together, constitute one and the same agreement.
Very truly yours,
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ Jacqueline D. Jenkins
-------------------------------
ACKNOWLEDGED AND AGREED TO
this 13th day of November, 1996.
CHART HOUSE, INC.
By: /s/ WILLIAM R. KUNTZ, JR.
____________________________
Name: William R. Kuntz, Jr.
__________________________
Title: Executive Vice President
_________________________
7
<PAGE>
CHART HOUSE ENTERPRISES, INC.
By: /s/ WILLIAM R. KUNTZ, JR.
_____________________________
Name: William R. Kuntz, Jr.
____________________________
Title: Executive Vice President
___________________________
BIG WAVE, INC.
By: /s/ WILLIAM R. KUNTZ, JR.
_____________________________
Name: William R. Kuntz, Jr.
____________________________
Title: Vice President
___________________________
SANWA BANK CALIFORNIA
as Agent and Security Agent
By: /s/ DAVID L. BEALL
_____________________________
Name: David L. Beall
____________________________
Title: Vice President
___________________________
SANWA BANK CALIFORNIA
By: /s/ DAVID L. BEALL
_____________________________
Name: David L. Beall
____________________________
Title: Vice President
___________________________
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ THOMAS F. FARLEY, JR.
_____________________________
Name: Thomas F. Farley, Jr.
____________________________
Title: Director
____________________________
THE SUMITOMO BANK OF CALIFORNIA
By: /s/ MATTHEW R. VAN STEENHUYSE
_____________________________
Name: Mathew R. Van Steenhuyse
____________________________
Title: Vice President
___________________________
8
<PAGE>
EXHIBIT 10.9(9)(a)
CHART HOUSE ENTERPRISES,INC.
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. Chart House Enterprises, Inc., a Delaware corporation
(the "Company"), has adopted this 1996 Stock Option Plan (the "Plan"),
effective February 12, 1996, for the benefit of its eligible employees.
The purposes of this Plan are as follows:
(a) To encourage Employees of the Company, its divisions, and subsidiaries (as
hereafter defined) to own stock of the Company, so that they may acquire
or increase their proprietary interest in the Company.
(b) To provide an incentive for key Employees to further the growth,
development, and financial success of the Company by personally benefiting
through the ownership of Company stock and/or rights which recognize such
growth, development, and financial success.
(c) To encourage such Employees to remain in the employ of the Company and to
put forth maximum efforts with the intention of ensuring the success of the
business.
2. DEFINITIONS. Where the following terms are used in this Plan they shall
have the meaning specified below, unless the context clearly indicates
otherwise.
(a) "Board" means the Board of Directors of the Company.
(b) "Change of Control" shall be deemed to have occurred if (i) the percentage
of the voting stock of the Company owned by one or more persons ("person"
as that term is defined for purposes of Sections 13(d) and 14(d) of the
Exchange Act) or entities becomes more than fifty percent (50%) of the
outstanding shares of Common Stock (determined on the basis of all
outstanding stock of the Company and not just with regard to a percentage
increase of such persons or entities over their prior interest), whether
such increase occurs by way of a merger, consolidation, redemption, direct
transfer, or sale of stock or otherwise, (ii) as a result of or in
connection with any tender or exchange offer, any contested election of
directors or any combination thereof, the persons who were directors of the
Company immediately before such tender or exchange offer, contested
election or combination thereof cease to constitute a majority of the
Board, (iii) the stockholders of the Company approve a plan of complete
liquidation of the Company, or (iv) the stockholders of the Company approve
an agreement for the sale or disposition of all or substantially all of the
assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities 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.
Notwithstanding anything to the contrary set forth in this definition, if a
transaction that would otherwise create or result in a "Change in Control"
of the Company pursuant to
1
<PAGE>
subsection (ii) above is approved by the affirmative vote of not less than
two thirds of the members of the Board, who are members of the Board
immediately prior to such transaction, then no Change in Control of the
Company shall be deemed to have occurred for the purposes of this Plan.
(c) "Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to any provision of the Code include regulations
thereunder and successor provisions and regulations thereto.
(d) "Committee" means the Compensation Committee of the Board of Directors or
any such other committee designated by the Board to administer the Plan.
(e) "Common Stock" means the Common Stock of the Company, par value $0.01 per
share, and any equity security of the Company issued or authorized to be
issued in the future, but excluding any warrants, options or other rights
to purchase Common Stock.
(f) "Company" means Chart House Enterprises, Inc. or any successor thereto.
(g) "Director" means a member of the Board.
(h) "Employee" means any officer or other regular full-time employee of the
Company or any of its Subsidiaries (as defined in accordance with Section
3401(c) of the Code), including those who are officers or directors of the
Company or a Subsidiary.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
References to any provision of the Exchange Act include rules thereunder
and successor provisions and rules thereto.
(j) "Fair Market Value" of Stock means, as of any given date, (i) the closing
sale price of a share of Stock on the principal exchange on which shares of
Common Stock are then trading, if any, on such date, or if shares were not
traded on such date, then on the closest preceding date on which a trade
occurred, or (ii) if Common Stock is not traded on an exchange, the mean
between the closing representative bid and asked prices for the Common
Stock on such date as reported by NASDAQ or, if NASDAQ is not then in
existence, by its successor quotation system; or (iii) if Common Stock is
not publicly traded, the Fair Market Value of a share of Common Stock as
established by the Committee acting in good faith and considering all
relevant and available information and data.
(k) "Grantee" means an Employee who has been selected as a Participant in the
Plan.
(l) "Incentive Stock Option" or "ISO" means a Stock Option which conforms to
the applicable provisions of Section 422A of the Code and which is
designated as an Incentive Stock Option by the Committee.
(m) "Key Employee" means any Employee deemed to have a direct and significant
impact on the performance of the Company, as determined by the Committee in
its sole and absolute discretion.
(n) "Nonqualified Stock Option" or "NSO" means an option other than an
Incentive Stock Option and which is not designated as an Incentive Stock
Option by the Committee.
(o) "Option" means a Nonqualified Stock Option or Incentive Stock Option
provided to an Employee pursuant to this Plan.
2
<PAGE>
(p) "Option Agreement" means a written agreement setting forth the number of
Options granted, the Option Price, the Option Term, and the Option Vesting
Schedule.
(q) "Option Date" means the date on which the granting of an Option is
authorized by the Committee.
(r) "Option Price" means the price at which a Share may be purchased pursuant
to an Option, as determined by the Committee subject to the provisions of
the Plan.
(s) "Option Term" means the ten (10) year period which commences on the date
the Option is granted and during which time the option may be exercised,
subject to any Option Vesting Schedule specified in the Option Agreement
Option termination provisions specified in Sections 6 and 7.
(t) "Optionee" means an Employee who has been selected as a Participant in the
Plan and has received an Option.
(u) "Participant" means an Employee determined in the Committee's sole and
absolute discretion to be eligible to receive Options under this Plan.
(v) "Plan" means the Chart House Enterprises, Inc. 1996 Stock Option Plan.
(w) "Rule 16b-3" means that certain Rule 16b-3 under the Exchange Act, as such
Rule may be amended from time to time.
(x) "Stock" means the Common Stock of the Company as defined in this Section 2.
(y) "Stock Option" or "Option" means a Nonqualified Stock Option or Incentive
Stock Option.
(z) "Subsidiary" means any corporation, as defined in Section 424(f) of the
Code in an unbroken chain of corporations beginning with the Company if
each of the corporations other than the last corporation in the unbroken
chain then owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain.
(aa) "Ten Percent Stockholder" means a Grantee who, at the time an Incentive
Stock Option is granted, owns Stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company
or any then existing Subsidiary.
(bb) "Termination of Employment" shall mean the time when the employee-employer
relationship between the Grantee and the Company or any Subsidiary is
terminated for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment,
continuing employment of a Grantee by the Company or any Subsidiary, (ii)
at the discretion of the Committee, terminations which result in a
temporary severance of the employee-employer relationship, and (iii) at the
discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Committee, in its absolute
discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of
limitation, the question of whether a Termination of Employment resulted
from a discharge for good cause, and all questions of whether particular
leaves of absence constitute Terminations of Employment; provided, however,
that, with respect to Incentive Stock Options, a leave of absence, change
in status from an employee to an
3
<PAGE>
independent contractor or other change in the employee-employer
relationship shall constitute a Termination of Employment if, and to the
extent that, such leave of absence, change in status or other change
interrupts employment for the purposes of Section 422(a)(2) of the Code and
the then applicable regulations and revenue rulings under said Section.
Notwithstanding any other provision of this Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an
Employee's employment at any time for any reason whatsoever, with or
without cause, except to the extent expressly provided otherwise in
writing.
3. SHARES SUBJECT TO PLAN
(a) The aggregate number of shares of Stock which may be issued upon exercise
of Options granted under the Plan shall not exceed one million (1,000,000),
subject to adjustment under the provisions of Section 9 hereof. The shares
of Common Stock issuable upon exercise or receipt of such Options may be
either previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Options granted under
the Plan to any individual in any calendar year shall not exceed 100,000
(the "Option Limit"). To the extent required by Section 162(m) of the
Code, shares subject to Options which are canceled continue to be counted
against the Option Limit and if, after grant of an Option, the price of
shares subject to such Option is reduced, the transaction is treated as a
cancellation of the Option and a grant of a new Option and both the Option
deemed to be canceled and the Option deemed to be granted are counted
against the Option Limit.
(c) If any shares of Stock that have been optioned cease to be subject to a
Stock Option, or if any such Stock Option otherwise terminates without a
payment being made to the participant in the form of Stock, or if any
shares of Stock previously distributed under the Plan are returned to the
Company in connection with the exercise of an Option, such shares shall
again be available for distribution in connection with future Options under
the Plan, subject to the limitations contained in this Section 3.
4. ADMINISTRATION
(a) The Plan shall be administered by the Committee which shall consist of not
less than two Directors of the Company designated by the Board; provided,
however, that no director shall be designated as or continue to be a member
of the Committee, unless such director shall be (i) a "disinterested
person" within the meaning of Rule 16b-3 under the Act (or any successor
rule or regulations) and (ii) an "outside director" within the meaning of
Section 162(m) of the Code.
(b) The Committee shall have full and final authority to operate, manage,
construe, and administer the Plan on behalf of the Company. This authority
includes, but is not limited to the following:
(i) Determining eligibility for participation in the Plan;
(ii) Granting of Options (conditionally or unconditionally);
(iii) Entering into Stock Option exchanges;
4
<PAGE>
(iv) Directing the Company to make accruals and payments provided for by
the Plan;
(v) Interpreting the Plan;
(vi) Prescribing, amending, or rescinding rules and regulations relating
to the Plan; and
(vii) To make all other determinations and take all other actions deemed
necessary or advisable for the proper administration of the Plan.
(c) With respect to Options the Committee shall have full and final authority
in its sole and absolute discretion to:
(i) Determine whether an Option shall be an ISO or an NSO;
(ii) Determine the number of shares of Stock subject to each Option;
(iii) Determine the time or times at which Options will be granted;
(iv) Determine the exercise price of the shares subject to each Option,
which price shall not be less than the price set forth in Section
6(b) of the Plan; and
(v) Determine the time when each Stock Option shall become exercisable
and the duration of the exercise period which shall not exceed the
maximum period as set forth in Sections 6(c) and 6(e) of the Plan.
(d) No Committee member shall be liable for any action or determination made by
such member in good faith with respect to the Plan or any Option granted
thereunder.
5. ELIGIBILITY
(a) Subject to the Option Limit, officers and other Key Employees of the
Company who are responsible for or contribute to the management, growth,
and/or profitability of the business of the Company and/or its
Subsidiaries are eligible to be selected by the Committee pursuant to
Section 4(b)(i) to be granted an Option. In determining the number of
persons to whom Options shall be granted and the number of shares of Common
Stock to be covered by each Option, the Committee shall take into account
the duties of the respective persons, their present and potential
contributions to the success of the Company and such other factors as the
Committee shall deem relevant in connection with accomplishing the purposes
of the Plan.
The Committee shall from time to time, in its absolute discretion, and
subject to the applicable limitations of this Plan:
(i) Determine which Employees are Key Employees and select from among
the Key Employees (including Employees who have previously received
Options under this Plan) such of them who in its opinion should be
granted Options;
(ii) Subject to the Option Limit, determine the number of shares to be
subject to such Options granted to the selected Key Employees;
(iii) Determine whether such Options are to be Nonqualified Stock Options
or Incentive Stock Options and whether such Options are to qualify
as
5
<PAGE>
performance-based compensation as described in Section 162(m)(4)(C)
of the Code; and
(iv) Determine the terms and conditions of such Options, consistent with
this Plan; provided, however, that the terms and conditions of
Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall include, but not
be limited to, such terms and conditions as may be necessary to meet
the applicable provisions of Section 162(m) of the Code.
(b) Upon the selection of a Key Employee to be granted an Option, the Committee
shall instruct the Secretary of the Company to issue the Option and may
impose such conditions on the grant of the Options as it deems appropriate.
Without limiting the generality of the preceding sentence, the Committee
may, in its discretion and on such terms as it deems appropriate, require
as a condition on the grant of an Option to an Employee that the Employee
surrender for cancellation some or all of the Options which have been
previously granted to him under this Plan or otherwise. An Option, the
grant of which is conditioned upon such surrender, may have an option price
lower (or higher) than the exercise price of such surrendered Option, may
cover the same (or a lesser or greater) number of shares as such
surrendered Option, may contain such other terms as the Committee deems
appropriate, and shall be exercisable in accordance with its terms, without
regard to the number of shares, price, exercise period or any other term or
condition of such surrendered Option.
(c) Any Incentive Stock Option granted under this Plan may be modified by the
Committee to disqualify such option from treatment as an "incentive stock
option" under Section 422 of the Code.
(d) No person may be granted an Incentive Stock Option under this Plan if such
person, at the time the Incentive Stock Option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any then existing Subsidiary
unless such Incentive Stock Option conforms to the applicable provisions of
Section 422 of the Code.
(e) No Incentive Stock Option shall be granted unless such Option, when
granted, qualifies as an "incentive stock option" under Section 422 of the
Code.
6. TERMS OF OPTIONS
(a) OPTION AGREEMENT. Each Option shall be evidenced by a written Stock Option
Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as
the Committee shall determine, consistent with this Plan. Stock Option
Agreements evidencing Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain
such terms and conditions as may be necessary to meet the applicable
provisions of Section 162(m) of the Code. Stock Option Agreements
evidencing Incentive Stock Options shall contain such terms and conditions
as may be necessary to meet the applicable provisions of Section 422 of the
Code.
(b) OPTION PRICE. The price per share of the shares subject to each Option
shall be set by the Committee; provided, however, that such price shall be
no less than the par value of a share of Common Stock, and in the case of
Options intended to qualify as performance-based compensation as described
in Section 162(m)(4)(C) of the Code, such price shall be 100% of the Fair
Market Value of a share of Common Stock on the date the
6
<PAGE>
Option is granted and in the case of Incentive Stock Options such price
shall not be less than the greater of: (i) 100% of the Fair Market Value of
a share of Common Stock on the date the Option is granted, or (ii) 110% of
the Fair Market Value of a share of Common Stock on the date such Option is
granted in the case of an individual then owning (within the meaning of
Section 424(d) of the Code) more than 10% of the total combined voting
power of all classes of stock of the Company or any Subsidiary.
(c) OPTION TERM. The term of an Option shall be set by the Committee in its
discretion; provided, however, that, in the case of Incentive Stock
Options, the term shall not be more than ten (10) years from the date the
Incentive Stock Option is granted, or five (5) years from such date if the
Incentive Stock Option is granted to an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary. In
the case of an Option granted pursuant to a Stock Option Agreement without
reference to the term of the Option, the term of each such Option shall be
ten years without variation or acceleration hereunder, except as provided
in Section 9(f).
(d) OPTION VESTING. The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee and
the Committee may determine that an Option may not be exercised in whole or
in part for a specified period after it is granted; and, without limiting
the generality of the foregoing, the Committee may provide in the terms of
individual Options that the Options expire immediately upon a Termination
of Employment for any reason. Provided, however, that no Option granted to
a person subject to Section 16 of the Exchange Act shall be exercisable
until at least six months have elapsed from (but excluding) the date on
which the Option was granted. At any time after grant of an Option, the
Committee (or the Board) may, in its sole discretion and subject to
whatever terms and conditions it selects, accelerate the period during
which an Option vests.
(e) TERMINATION OF OPTIONS. In the event of Termination of Employment of an
Optionee for any reason, the Optionee may exercise his or her Option (to
the extent that the Option was vested and the Optionee was entitled to
exercise it at the date of termination) in accordance with this Section
6(e) and Section 7 below. No Option shall be exercisable after it expires.
Unless otherwise provided in the Option Agreement, each Option shall expire
upon the earlier of:
(i) the expiration of the term for which the Option was granted; or
(ii) (A) in the case of Termination of Employment of an Optionee due to
permanent and total disability within the meaning of Section
22(e)(3) of the Code or death, the expiration of twelve (12)
months from the date of such Termination of Employment (or such
longer or shorter period specified in the Option Agreement);
(B) in the case of Termination of Employment of an Optionee due to
retirement, the expiration of three (3) months from the date of
such termination of employment;
(C) in the case of Termination of Employment of an Optionee for any
reason other than retirement, permanent and total disability, or
death, on the date of such Termination of Employment, as
conclusively determined by the Committee (or such other date
specified in the Option Agreement).
7
<PAGE>
(f) INCENTIVE STOCK OPTIONS. To the extent that the aggregate Fair Market
Value of stock with respect to which "incentive stock options" (within the
meaning of Section 422 of the Code, but without regard to Section 422(d) of
the Code) are exercisable for the first time by an Optionee during any
calendar year (under the Plan and all other incentive stock option plans of
the Company and any Subsidiary) exceeds $100,000, such Options shall be
treated as Nonqualified Stock Options to the extent required by Section 422
of the Code. The rule set forth in the preceding sentence shall be applied
by taking Options into account in the order in which they were granted.
For purposes of this Section 6(f), the Fair Market Value of stock shall be
determined as of the time the Option with respect to such stock is granted.
(g) CONSIDERATION. In consideration of the granting of an Option, the Optionee
shall agree, in the written Stock Option Agreement, to remain in the employ
of the Company or any Subsidiary for a period of at least one year after
the Option is granted. Nothing in this Plan or in any Stock Option
Agreement hereunder shall confer upon any Optionee any right to continue in
the employ of the Company or any Subsidiary, or shall interfere with or
restrict in any way the rights of the Company and any Subsidiary, which are
hereby expressly reserved, to discharge any Optionee at any time for any
reason whatsoever, with or without cause.
7. EXERCISE OF OPTIONS
(a) PARTIAL EXERCISE. An exercisable Option may be exercised in whole or in
part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
(b) MANNER OF EXERCISE. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of
the Company or his office:
(i) A written notice complying with the applicable rules established by
the Committee or the Board stating that the Option, or a portion
thereof, is exercised. The notice shall be signed by the Optionee or
other person then entitled to exercise the Option or such portion;
(ii) Such representations and documents as the Committee or the Board, in
its absolute discretion, deems necessary or advisable to effect
compliance with all applicable provisions of the Securities Act of
1933, as amended (the "Act"), and any other federal or state
securities laws or regulations. The Committee or Board may, in its
absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer
notices to agents and registrars;
(iii) In the event that the Option shall be exercised pursuant to Section
9(c) by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option;
and
(iv) Full cash payment to the Secretary of the Company for the shares
with respect to which the Option, or portion thereof, is exercised.
However, at the discretion of the Committee the terms of the Options
may (A) allow a delay in payment up to thirty (30) days from the
date the Option, or portion thereof, is exercised; (B)
8
<PAGE>
allow payment, in whole or in part, through the delivery of shares
of Common Stock owned by the Optionee, duly endorsed for transfer to
the Company with a Fair Market Value on the date of delivery equal
to the aggregate exercise price of the Option or exercised portion
thereof; (C) allow payment, in whole or in part, through the
surrender of shares of Common Stock then issuable upon exercise of
the Option having a Fair Market Value on the date of Option exercise
equal to the aggregate exercise price of the Option or exercised
portion thereof; (D) allow payment, in whole or in part, through the
delivery of a full recourse promissory note bearing interest (at no
less than such rate as shall then preclude the imputation of
interest under the Code) and payable upon such terms as may be
prescribed by the Committee or the Board may also prescribe the form
of such note and the security to be given for such note. The Option
may not be exercised, however, by delivery of a promissory note or
by a loan from the Company when or where such loan or other
extension of credit is prohibited by law. The Committee may, in its
discretion, adopt regulations relating to payment of the Option
exercise price with previously acquired shares, including a
requirement that Optionees surrendering shares that were purchased
upon exercise of Incentive Stock Options acknowledge that such
surrender may constitute a disqualifying disposition under Section
422 of the Code.
(c) CERTAIN TIMING REQUIREMENTS. At the discretion of the Committee, shares of
Common Stock issuable to the Optionee upon exercise of the Option may be
used to satisfy the Option exercise price or the tax withholding
consequences of such exercise, in the case of persons subject to Section 16
of the Exchange Act, only (i) during the period beginning on the third
trading day following the date of release of the quarterly or annual
summary statement of sales and earnings of the Company and ending on the
twelfth trading day following such date or (ii) pursuant to an irrevocable
written election by the Optionee to use shares of Common Stock issuable to
the Optionee upon exercise of the Option to pay all or part of the Option
price or the withholding taxes made at least six months prior to the
payment of such Option price or withholding taxes.
(d) CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall not be
required to issue or deliver any certificate or certificates for shares of
stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(ii) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Committee or Board shall, in
its absolute discretion, deem necessary or advisable;
(iii) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee or Board shall, in
its absolute discretion, determine to be necessary or advisable;
(iv) The lapse of such reasonable period of time following the exercise
of the Option as the Committee or Board may establish from time to
time for reasons of administrative convenience; and
9
<PAGE>
(v) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
(e) RIGHTS AS STOCKHOLDERS. The holders of Options shall not be, nor have any
of the rights or privileges of, stockholders of the Company in respect of
any shares purchasable upon the exercise of any part of an Option unless
and until certificates representing such shares have been issued by the
Company to such holders.
(f) OWNERSHIP AND TRANSFER RESTRICTIONS. The Committee, in its absolute
discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as
it deems appropriate. Any such restriction shall be set forth in the
respective Stock Option Agreement and may be referred to on the
certificates evidencing such shares. The Committee may require the
Employee to give the Company prompt notice of any disposition of shares of
Common Stock acquired by exercise of an Incentive Stock Option within (i)
two years from the date of granting such Option to such Employee or (ii)
one year after the transfer of such shares to such Employee. The Committee
may direct that the certificates evidencing shares acquired by exercise of
an Option refer to such requirement to give prompt notice of disposition.
8. COMMITTEE
(a) COMMITTEE. The Committee (or a subcommittee of the Board assuming the
functions of the Committee under this Plan) shall consist of two or more
Directors appointed by and holding office at the pleasure of the Board,
each of whom is both a "disinterested person" as defined by Rule 16b-3 and
an "outside director" for purposes of Section 162(m) of the Code.
Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering
written notice to the Board. Vacancies in the Committee may be filled by
the Board.
(b) DUTIES AND POWERS OF THE COMMITTEE. It shall be the duty of the Committee
to conduct the general administration of this Plan in accordance with its
provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options are granted, and to adopt such
rules for the administration, interpretation, and application of this Plan
as are consistent therewith and to interpret, amend or revoke any such
rules. Any such grant under this Plan need not be the same with respect to
each Optionee. Any such interpretations and rules with respect to
Incentive Stock Options shall be consistent with the provisions of Section
422 of the Code. In its absolute discretion, the Board may at any time and
from time to time exercise any and all rights and duties of the Committee
under this Plan except with respect to matters which under Rule 16b-3 or
Section 162(m) of the Code, or any regulations or rules issued thereunder,
are required to be determined in the sole discretion of the Committee.
(c) MAJORITY RULE. The Committee shall act by a majority of its members in
attendance at a meeting which a quorum is present or by a memorandum or
other written instrument signed by all members of the Committee. The acts
of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by all the members in the absence of a
meeting, shall be the acts of the Committee. All Committee
interpretations, determination, and actions will be final, conclusive and
binding on all parties.
10
<PAGE>
(d) COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS. Members of the
Committee shall receive such compensation for their services as members as
may be determined by the Board. All expenses and liabilities which members
of the Committee incur in connection with the administration of this Plan
shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or
other persons. The Committee, the Company and the Company's officers and
Directors shall be entitled to rely upon the advice, opinions or valuations
of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and
binding upon all Optionees, Grantees, the Company and all other interested
persons.
No members of the Committee or Board shall be personally liable for any
action, determination or interpretation made in good faith with respect to
this Plan or any Option granted hereunder, and all members of the Committee
shall be fully protected by the Company in respect of any such action,
determination or interpretation.
9. MISCELLANEOUS PROVISIONS
(a) EFFECTIVE DATE OF PLAN. The Plan shall be effective February 12, 1996
subject to subsequent approval by the stockholders of the Company. Any
Options granted prior to such stockholder approval shall be contingent on
such approval.
(b) TERM OF PLAN. No Option shall be granted pursuant to the Plan on or after
the tenth anniversary of the effective date of the Plan, but Options
granted prior to such tenth anniversary may extend beyond that date.
(c) NOT TRANSFERABLE. Options under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of
descent and distribution, unless and until such Options have been
exercised, or the shares underlying such Options have been issued, and all
restrictions applicable to such shares have lapsed. No Option shall be
liable for the debts, contracts or engagements of the Grantee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation
of law by judgment, levy, attachment, garnishment or any other legal or
equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect.
During the lifetime of the Grantee, an Option (or any portion thereof)
granted under the Plan may be exercised or otherwise realized only by the
Grantee or by his guardian or legal representative. After the death of the
Grantee, any exercisable portion of an Option or other Option may, prior to
the time when such portion becomes unexercisable under the Plan or the
applicable Stock Option Agreement or other agreement, be exercised by his
personal representative or by any person empowered to do so under the
deceased Optionee's or Grantee's will or under the then applicable laws of
descent and distribution.
(d) AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN. This Plan may be wholly
or partially amended or otherwise modified, suspended or terminated at any
time or from time to time by the Committee. However, without approval of
the Company's stockholders given within twelve months before or after the
action by the Committee, no action of the Committee may, except as provided
in Section 9(e), increase the limits imposed in Section 3(a) on the maximum
number of shares which may be
11
<PAGE>
issued under this Plan or modify the Option Limit, and no action of the
Committee may be taken that would otherwise require stockholder approval as
a matter of applicable law, regulation or rule. No amendment, suspension or
termination of this Plan shall, without the consent of the holder of
Options alter or impair any rights or obligations under any Option
theretofore granted, unless the Option itself otherwise expressly so
provides. No Options may be granted during any period of suspension or
termination of this Plan, and in no event may any Incentive Stock Option be
granted under this Plan after the first to occur of the following events:
(i) The expiration of ten years from the date the Plan is adopted by the
Board; or
(ii) The expiration of ten years from the date the Plan is approved by
the Company's stockholders under Section 9(g).
(e) CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY. In the event that the
outstanding shares of Common Stock are hereafter changed into or exchanged
for cash or a different number or kind of shares or other securities of the
Company, or of another corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend, or combination of shares, appropriate adjustments shall be made
by the Committee in the number and kind of shares for which Options may be
granted, including adjustments of the limitations in Section 3(a) on the
maximum number and kind of shares which may be issued and of the Option
Limit described in Section 3(b).
In the event of such a change or exchange, subject to the other provisions
of this Plan, the Committee shall also make an appropriate and equitable
adjustment in the number and kind of shares as to which all outstanding
Options, or portions thereof then unexercised, shall be exercisable. Such
adjustment shall be made with the intent that after the change or exchange
of shares, each Optionee's proportionate interest shall be maintained as
before the occurrence of such event. Such adjustment in an outstanding
Option may include a necessary or appropriate corresponding adjustment in
Option exercise price, but shall be made without change in the total price
applicable to the Option, or the unexercised portion thereof (except for
any change in the aggregate price resulting from rounding-off of share
quantities or prices).
Where an adjustment of the type described above is made to an Incentive
Stock Option under this Section, the adjustment will be made in a manner
which will not be considered a "modification" under the provisions of
subsection 424(h)(3) of the Code.
Notwithstanding the foregoing, in the event of such a reorganization,
merger, consolidation, recapitalization, reclassification, stock split-up,
stock dividend or combination or other adjustment or event which results in
shares of Common Stock being exchanged for or converted into cash,
securities or other property, the Committee will have the right to
terminate this Plan as of the date of the exchange or conversion, in which
case all Options under this Plan shall become a right to receive such cash,
securities or other property, net of any applicable exercise price.
In the event of a "spin-off" or other substantial distribution of assets of
the Company which has a material diminutive effect upon the Fair Market
Value of the Company's Common Stock, the Committee may in its discretion
make an appropriate and equitable adjustment to the Option exercise price
to reflect such diminution.
(f) CHANGE IN CONTROL OF THE COMPANY. In the event of Change in Control of the
Company, as defined in Section 2(b) of this Plan:
12
<PAGE>
(i) At the discretion of the Committee, the terms of an Option may
provide that it cannot be exercised after such event.
(ii) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide either by the terms of such
Option or by a resolution adopted prior to the occurrence of such
event that, for a specified period of time prior to such event, such
Option shall be exercisable as to all shares covered thereby,
notwithstanding anything to the contrary in this Plan or in the
provisions of such Option.
(iii) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide either by terms of such
Option or by a resolution adopted prior to the occurrence of such
event that upon such event, such Option shall be assumed by the
successor corporation, or a parent or subsidiary thereof, or shall
be substituted for by similar options covering the stock of the
successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and
prices.
(g) APPROVAL OF PLAN BY STOCKHOLDERS. This Plan will be submitted for the
approval of the Company's stockholders within twelve months after the date
of the Board's initial adoption of this Plan. Options may be granted prior
to such stockholder approval, provided that such Options shall not be
exercisable prior to the time when this Plan is approved by the
stockholders, and provided further that if such approval has not been
obtained at the end of said twelve-month period, all Options previously
granted under this Plan shall thereupon be canceled and become null and
void.
(h) TAX WITHHOLDING. The Company shall be entitled to require payment in cash
or deduction from other compensation payable to each Optionee of any sums
required by federal, state or local tax law to be withheld with respect to
the exercise of any Option. The Committee may in its discretion and in
satisfaction of the foregoing requirement allow such Optionee to elect to
have the Company withhold shares of Common Stock (or allow the return of
shares of Common Stock) having a Fair Market Value equal to the sums
required to be withheld.
(i) LOANS. The Committee may, in its discretion, extend one or more loans to
Employees in connection with the exercise of an Option granted under this
Plan. The terms and conditions of any such loan shall be set by the
Committee and shall conform to any and all applicable laws, rules, and
regulations.
(j) LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND PERFORMANCE-BASED
COMPENSATION. Notwithstanding any other provision of this Plan, any Option
granted to an Employee who is then subject to Section 16 of the Exchange
Act shall be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including
any amendment to Rule 16b-3 of the Exchange Act) that are requirements for
the application of such limitations. Furthermore, notwithstanding any
other provision of this Plan, any Option intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code shall be subject to any additional limitations set forth in Section
162(m) of the Code (including any amendment to Section 162(m) of the Code)
or any regulations or rulings issued thereunder that are requirements for
qualification as performance-based compensation as described in Section
162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the
extent necessary to conform to such requirements.
(k) EFFECT OF PLAN UPON COMPENSATION PLANS. The adoption of this Plan shall
not affect any other compensation or incentive plans in effect for the
Company or any
13
<PAGE>
Subsidiary. Nothing in this Plan shall be construed to limit the right of
the Company (i) to establish any other forms of incentives or compensation
for Employees of the Company or any Subsidiary or (ii) to grant or assume
options or other rights otherwise than under this Plan in connection with
any proper corporate purpose including but not by way of limitation, the
grant or assumption of options in connection with the acquisition by
purchase, lease, merger, consolidation or otherwise, of the business, stock
or assets of any corporation, partnership, firm or association.
(l) NO RIGHT TO EMPLOYMENT. Participation in the Plan and the receipt of an
Option under the Plan shall not confer any right to continued employment
with the Company nor shall it interfere in any way with the right of the
Company to terminate the employment of any of its employees at any time.
(m) COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Options under
this Plan, and the issuance and delivery of shares of Common Stock and the
payment of money under this Plan hereunder are subject to compliance with
all applicable federal and state laws, rules and regulations (including but
not limited to state and federal securities law and federal margin
requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company,
be necessary or advisable in connection therewith. Any securities
delivered under this Plan shall be subject to such restrictions, and the
person acquiring such securities shall, if requested by the Company,
provide such assurances and representations to the Company as the Company
may deem necessary or desirable to assure compliance with all applicable
legal requirements. To the extent permitted by applicable law, the Plan
and Options hereunder shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
(n) HEADINGS. The section and subsection headings are contained herein for
convenience only and are not to serve as a basis for interpretation or
construction of this Plan.
(o) GOVERNING LAW. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State
of Delaware without regard to conflicts of laws thereof.
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Chart House Enterprises, Inc. at a meeting duly held on February
12, 1996 and approved by the stockholders of Chart House Enterprises, Inc. at a
meeting duly held on May 7, 1996.
Executed on this 7th day of May, 1996.
/s/ WILLIAM R. KUNTZ, JR.
_____________________________
Secretary
14
<PAGE>
EXHIBIT 10.9(9)(b)
CHART HOUSE ENTERPRISES, INC.
1996 STOCK OPTION PLAN AGREEMENT
AGREEMENT dated as of ______________, 19___ by and between Chart House
Enterprises, Inc., a Delaware corporation (the "Company") and ________________
_______________ (the "Optionee").
W I T N E S S E T H:
-------------------
1. Grant of Option. Pursuant to the provisions of the Chart House
---------------
Enterprises, Inc. 1996 Stock Op Plan (the "Plan"), the Company hereby grants to
the Optionee, subject to the terms and conditions of the Plan (as it presently
exists and as it may hereafter be amended), and subject to the further terms and
conditions hereinafter set forth, the right and option to purchase from the
Company all or any part of an aggregate of _______ shares (the "Shares") of the
Company's common stock ("Common Stock") at the purchase price of $_______ per
share, such option to be exercised as hereinafter provided. This option (the
"Option") is not intended to be and will not be treated as, an incentive stock
option within the meaning of Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code"). The number of Shares with respect to which this Option
is exercisable, and the purchase price with respect to each Share to be acquired
pursuant to the exercise of the Option herein granted, each are subject to
adjustment under certain circumstances, as more fully set forth in the Plan and
in Section 7 hereof entitled "Adjustments." The term "Common Stock" as used
herein shall include any other class of stock or other securities resulting from
such adjustment. Capitalized terms not otherwise defined herein shall have the
meanings given to those terms in the Plan.
2. Duration of Option. The Option herein granted, to the extent not
------------------
earlier exercised, will expire at 11:59 p.m. on _______________, being ________
(___) years from the date of grant of this Option, except that the term of this
Option is subject to earlier termination pursuant to Section 9 of the Plan and
Section 3 of this Agreement.
3. Exercise of Option; Vesting Schedule.
------------------------------------
(a) The Vested Portion (as hereinafter defined) of the Option may be
exercised to the extent not previously exercised in whole or in part at any
time, or from time to time, prior to the expiration of the Option.
(b) The "Vested Portion" of the Option means the percentage (set forth
in the table below) of the total number of Shares specified in Section 1 above,
for which the Option is exercisable:
<PAGE>
<TABLE>
<CAPTION>
Period Ending on Date Vested Portion
--------------------- --------------
<S> <C>
(1) One Year After 20%
Date of Grant
(2) Two Years After 40%
Date of Grant
(3) Three Years After 60%
Date of Grant
(4) Four Years After 80%
Date of Grant
(5) Five Years After 100%
Date of Grant
</TABLE>
(c) This Option shall terminate prior to the expiration of its term
upon the Optionee's Termination of Employment (as defined in the Plan) and in
the event of Termination of Employment of Optionee, the Optionee may exercise
this Option to the extent of the Vested Portion of the Option as of the date of
Termination of Employment as follows:
(1) In the case of Termination of Employment due to permanent and
total disability within the meaning of Section 22(e)(3) of the Code, or death,
the earlier of the scheduled expiration date set forth in Section 2 above or one
(1) year following such Termination of Employment;
(2) In the case of Termination of Employment due to retirement, the
earlier of the scheduled expiration date set forth in Section 2 above or ninety
(90) days from the date of such Termination of Employment;
(3) In the case of Termination of Employment for any reason other
than retirement, permanent and total disability, death or resulting from a
discharge for good cause (as determined by the Committee in its sole
discretion), the earlier of the scheduled expiration date set forth in Section 2
above or ninety (90) days following such Termination of Employment;
(4) In the case of Termination of Employment resulting from a
discharge for good cause (as determined by the Committee in its sole
discretion), the date of such Termination of Employment.
(d) If, during the term of this Option, in the event of a "Change in
Control" of the Company (as defined in the Plan) or in the event of a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination or other adjustment or event which
results in shares of Common Stock being exchanged for or converted into cash,
securities or other property, the Committee may, in its absolute discretion
-2-
<PAGE>
and upon such terms as it deems appropriate, provide by resolution, adopted
prior to such event, that at some time prior to the effective date of such
event, this Option shall be exercisable as to all the Shares covered hereby,
notwithstanding that this Option may not yet have become fully exercisable under
Section 3(b); provided, however, that this acceleration of exercisability shall
not take place if:
(1) This Option becomes unexercisable under Section 3(c) prior
to the effective date of such event; or
(2) In connection with the Change in Control or other event or
transaction, provision is made for an assumption of this Option or a
substitution therefor of a new option by a successor corporation.
The Committee may make such determination and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated Change
in Control or other event or transaction and determinations regarding whether
provisions for assumption or substitution have been made in accordance with
subsection (d)(2) above.
4. Option Exercise Procedure. The Option granted hereunder may be
-------------------------
exercised in whole or in part, and may be exercised in part from time to time,
all subject to the limitations on exercise set forth in the preceding section.
Exercise shall be accomplished by compliance with all applicable rules
established by the Committee and by delivery to the Company of a timely written
notice of election to exercise in the form attached hereto as Exhibit "1," which
shall be irrevocable upon delivery to the principal office of the Company, and
addressed to the attention of the Committee or to the Secretary of the Company,
accompanied by payment of the purchase price for the Shares with respect to
which the Option is exercised. The minimum number of Shares with respect to
which this Option may be exercised at any one time is fifty (50), except with
respect to the final exercise of this Option this minimum shall not apply. In no
event may this Option be exercised for any number of Shares that would require
the issuance of anything other than whole Shares.
5. Payment of Option Price. At the time of exercise, the purchase
-----------------------
price of the Shares as to which the Option is exercised shall be tendered in
full to the Company. The purchase price of the Shares shall be paid:
(a) In cash (including by check) for the Shares with respect to
which the Option or portion thereof is exercised; or
(b) With the consent of the Committee, through the delivery of
shares of Common Stock owned by Optionee, duly endorsed for transfer to the
Company with a Fair Market Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof; or
-3-
<PAGE>
(c) With the consent of the Committee, through the surrender of
shares of Common Stock then issuable upon exercise of the Option having a Fair
Market Value on the date of exercise of the Option equal to the aggregate
exercise price of the Option or exercised portion thereof; or
(d) With the consent of the Committee, through the delivery of a
full recourse promissory note bearing interest (at no less than the rate as
shall then preclude the imputation of interest under the Code) and payable upon
those terms as may be prescribed by the Committee. The Committee may also
prescribe the form of the note and the security to be given for the note. The
Option may not be exercised, however, by delivery of a promissory note or by a
loan from the Company when or where the loan or other extension of credit is
prohibited by law; or
(e) With the consent of the Committee any combination of the
consideration provided in the foregoing subparagraphs (a), (b), (c) and (d).
6. Investment Representations. Optionee hereby represents, warrants
--------------------------
and covenants that none of the Shares purchased upon exercise of the Option will
be distributed in violation of applicable federal and state laws and
regulations. Upon exercise of the Option, the Optionee shall be deemed to have
reaffirmed, as of the date of exercise, the representations made herein. The
Committee may, in its absolute discretion, take whatever additional actions it
deems appropriate to insure the observance and performance of such
representations and agreements of Optionee and to effect compliance with
applicable federal and state securities laws and regulations.
7. Adjustments. In the event that each of the outstanding shares of
-----------
Common Stock of the Company are hereafter changed into or exchanged for cash or
a different number or kind of shares of stock or other securities of the Company
or another corporation by reason of a reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of shares, then for each share of Common Stock of the Company
subject to the Plan (whether or not such shares are at the time subject to
outstanding Options) there shall be substituted and exchanged therefor the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock of the Company shall be so changed or
exchanged to the end that the proportionate interest of the holder of the Option
shall, to the extent practicable, be maintained as before the occurrence of such
event. Such adjustment in the outstanding Option shall be made without change in
the total price applicable to the unexercised portion of the Option but with a
corresponding adjustment in the exercise price per Share.
8. Conditions to Issuance of Stock Certificates. The shares of stock
--------------------------------------------
deliverable upon the exercise of the Option, or any portion thereof, may be
either previously authorized but unissued shares or issued shares which have
then been reacquired by the Company. Such shares shall be fully paid and non-
assessable. The Company shall not be required to issue or deliver any
certificate or certificates for Shares of Common Stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions: (a) the admission of the Shares to listing on all stock
exchanges, if any, on which that class of stock is then listed; (b) the
completion of any registration or other qualification of the Shares under any
-4-
<PAGE>
state or federal law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body, which the
Committee shall, in its absolute discretion, deem necessary or advisable; (c)
the obtaining of any approval or other clearance from any state or federal
governmental agency which the Committee shall, in its absolute discretion,
determine to be necessary or advisable; (d) the payment to the Company of all
amounts which it is required to withhold under federal, state or local law in
connection with the exercise of the Option; and (e) the lapse of such reasonable
period of time following the exercise of the Option as the Committee may from
time to time establish for reasons of administrative convenience.
9. Nontransferability. This Option shall not be transferable other
------------------
than by will or by the laws of descent and distribution. During the lifetime of
the Optionee, this Option shall be exercisable by the Optionee only. This
Option shall not be pledged or hypothecated in any way and shall not be subject
to execution, attachment, or similar process, without the express written
consent of the Committee.
10. Rights of Stockholder. The Optionee shall have no rights as a
---------------------
stockholder with respect to any Shares subject to this Option prior to the date
of issuance to him of a certificate or certificates for those Shares.
11. Consideration to Company. In consideration of the granting of
------------------------
this Option by the Company, the Optionee agrees to render faithful and efficient
services as an employee to the Company, a parent corporation or a subsidiary
corporation for a period of at least one (1) year from the date this Option is
granted. Nothing in this Agreement or in the Plan shall confer upon the Optionee
any right to continue as an employee to the Company, any parent corporation or
any subsidiary corporation, or shall interfere with or restrict in any way the
rights of the Company, its parent corporations and its Subsidiary Corporations,
which are hereby expressly reserved, to discharge the Optionee at any time for
any reason whatsoever, with or without cause.
12. Compliance with Law and Regulations. This Option and the
-----------------------------------
obligation of the Company to sell and deliver shares shall be subject to
applicable federal and state laws, rules and regulations, and to such approvals
by any government or regulatory agency as may be required.
13. Binding Effect. The Optionee hereby acknowledges receipt of a copy
--------------
of the Plan (attached hereto as Exhibit "2") and agrees to be bound by all the
terms and provisions thereof. The terms of the Plan as it presently exists, and
as it may hereafter be amended, are deemed incorporated herein by reference, and
any conflict between the terms of this Agreement and the provisions of the Plan
shall be resolved by the Committee, whose determination shall be final and
binding on all parties. In general, and except as otherwise determined by the
Committee, the provisions of the Plan shall be deemed to supersede the
provisions of this Agreement to the extent of any conflict between the Plan and
this Agreement.
14. Notices. Any notice hereunder to the Company shall be addressed to
-------
Chart House Enterprises, Inc., 115 South Acacia Avenue, Solana Beach, California
92075, Attention: Secretary. Any notice hereunder to the Optionee shall be
addressed to him at the address set
-5-
<PAGE>
forth below, subject to the right of either party to designate at any time
hereafter in writing a different address.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Optionee, in acceptance of the
above-mentioned Option, subject to the terms of the Plan and this Agreement, has
executed this Agreement, all as of the day and year first above written.
<TABLE>
<S> <C>
CHART HOUSE ENTERPRISES, INC. __________________________, Optionee
By: Address of Optionee:
--------------------------
Title:
----------------------- -------------------------
-------------------------
-------------------------
</TABLE>
<PAGE>
EXHIBIT "1"
-----------
To: Chart House Enterprises, Inc.
115 South Acacia Avenue
Solana Beach, California 92075
Attention: Secretary
Subject: Notice of Intention to Exercise Option
--------------------------------------
I am the "Optionee" under the Chart House Enterprises, Inc. 1996 Stock
Option Plan Agreement dated _____________, 19__ (the "Agreement"). Pursuant to
the Agreement, I hereby provide you with official notice that I elect to
exercise my Option to purchase Shares as follows:
<TABLE>
<S> <C>
Number of Shares: ________________
Mode of Payment: ________________
</TABLE>
I understand and agree that the determination of the Fair Market Value
of the Shares issued on this exercise of my option shall be made as of the date
that this Notice of Exercise is received by the Company in accordance with
Sections 2 and 7 of the Chart House Enterprises, Inc. 1996 Stock Option Plan.
Concurrently herewith, I have paid any amounts required to be withheld to
satisfy any applicable tax withholding as a result of the exercise of my option.
I understand that this election is irrevocable once it is effective in
accordance with the terms of this Agreement.
In connection with such exercise, I hereby reaffirm that the
representations and warranties set forth in Section 6 of the Agreement are now
true and correct and in full force and effect with respect to the Shares
purchased.
The certificate for the Shares purchased should be forwarded to me at:
<TABLE>
<S> <C>
Address: _______________________
Signed: _______________________
Print Name: _______________________
Date: _______________________
</TABLE>
<PAGE>
EXHIBIT "2"
-----------
[ATTACH A COPY OF THE 1996 STOCK OPTION PLAN]
EXHIBIT "2"
<PAGE>
EXHIBIT 10.9(10)
CHART HOUSE ENTERPRISES,INC.
1996 NONEMPLOYEE DIRECTOR
STOCK COMPENSATION PLAN
1. PURPOSE. Chart House Enterprises, Inc., a Delaware corporation (the
"Company"), has adopted this 1996 Nonemployee Director Stock Compensation
Plan (the "Plan"), as set forth in this document. The purposes of this
Plan are to:
(a) Advance the interests of the Company and its stockholders by improving the
Company's ability to attract and retain highly qualified persons to serve
as Nonemployee Directors of the Company;
(b) Align Nonemployee Directors' personal interests more closely with those of
stockholders of the Company;
(c) Promote ownership by Nonemployee Directors of a greater proprietary
interest in the Company; and
(d) The Plan provides Nonemployee Directors the opportunity to elect to receive
Chart House Enterprises stock and stock options in lieu of cash
compensation paid for service on the Board of Directors. Directors who
elect to participate in this Plan will receive:
(i) Shares of Chart House Enterprises, Inc. common stock in an amount
equal to the value of cash compensation otherwise paid for attendance
at meetings of the Board and its Committees; and
(ii) An option to purchase shares of Chart House Enterprises, Inc. common
stock.
2. DEFINITIONS. Where the following terms are used in this Plan they shall
have the meaning specified below, unless the context clearly indicates
otherwise.
(a) "Board" means the Board of Directors of the Company.
(b) "Change of Control" shall be deemed to have occurred if (i) the percentage
of the voting stock of the Company owned by one or more persons ("person"
as that term is defined for purposes of Sections 13(d) and 14(d) of the
Exchange Act) or entities becomes more than fifty percent (50%) of the
outstanding shares of Common Stock (determined on the basis of all
outstanding stock of the Company and not just with regard to a percentage
increase of such persons or entities over their prior interest), whether
such increase occurs by way of a merger, consolidation, redemption, direct
transfer, or sale of stock or otherwise, (ii) as a result of or in
connection with any tender or exchange offer, any contested election of
directors or any combination thereof, the persons who were directors of the
Company immediately before such tender or exchange offer, contested
election or combination thereof cease to constitute a majority of the
Board, (iii) the stockholders of the Company approve a plan of complete
liquidation of the Company, or (iv) the stockholders of the Company
approve an agreement for the sale or disposition of all or substantially
all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities 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.
1
<PAGE>
Notwithstanding anything to the contrary set forth in this definition, if a
transaction that would otherwise create or result in a "Change in Control"
of the Company pursuant to subsection (ii) above is approved by the
affirmative vote of not less than two thirds of the members of the Board,
who are members of the Board immediately prior to such transaction, then no
Change in Control of the Company shall be deemed to have occurred for the
purposes of this Plan.
(c) "Code" means the Internal Revenue Code of 1986, as amended. References to
any provision of the Code include regulations thereunder and successor
provisions and regulations thereto.
(d) "Common Stock" means the Common Stock of the Company, par value $0.01 per
share, and any equity security of the Company issued or authorized to be
issued in the future, but excluding any warrants, options or other rights
to purchase Common Stock.
(e) "Compensation" means any cash remuneration earned by a Nonemployee Director
including but not limited to annual retainer fees for service on the Board
or a Board Committee, fees for attending a meeting of the Board or a Board
Committee, and any other fees paid to Nonemployee Directors as determined
by the Board, but excluding any reimbursement of expenses incurred in
connection with meeting attendance.
(f) "Company" means Chart House Enterprises, Inc. or any successor thereto.
(g) "Director" means a member of the Board.
(h) "Employee" means any officer or other regular full-time employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or
of any corporation which is a Subsidiary.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
References to any provision of the Exchange Act include rules thereunder
and successor provisions and rules thereto.
(j) "Fair Market Value" of Stock means as of any given date, (i) the closing
sale price of a share of Stock on the principal exchange on which shares of
Common Stock are then trading, if any, on such date, or if shares were not
traded on such date, then on the closest preceding date on which a trade
occurred, or (ii) if Common Stock is not traded on an exchange, the mean
between the closing representative bid and asked prices for the Common
Stock on such date as reported by NASDAQ or, if NASDAQ is not then in
existence, by its successor quotation system; or (iii) if Common Stock is
not publicly traded, the Fair Market Value of a share of Common Stock as
established by the Committee acting in good faith and considering all
relevant and available information and data.
(k) "Nonemployee Director" means any member of the Board who is not an Employee
of the Company or a Subsidiary.
(l) "Option" means the right, granted to a Director under Section 7, to
purchase a specified number of shares of Stock at the specified exercise
price for a specified period of time under the Plan. All Options granted
under the Plan will be nonqualified stock options.
(m) "Participant" means each Nonemployee Director who elects to participate in
the Plan in accordance with the terms of the Plan.
(n) "Plan" means the 1996 Nonemployee Director Stock Compensation Plan.
(o) "Rule 16b-3" means that certain Rule 16b-3 under the Exchange Act, as such
Rule may be amended from time to time.
2
<PAGE>
(p) "Stock" means the Common Stock of the Company as defined in this Section 2.
(q) "Subsidiary" means any corporation, as defined in Section 424(f) of the
Code in an unbroken chain of corporations beginning with the Company if
each of the corporations other than the last corporation in the unbroken
chain then owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain.
(r) "Termination of Board Service" means the time when a Director ceases to be
a member of the Board for any reason, including, but not by way of
limitation, a termination by resignation, expiration of term, removal (with
or without cause), retirement or death.
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided in
Section 8, the total number of shares of Stock reserved and available for
issuance under the Plan is fifty thousand (50,000). Such shares may be
authorized but unissued shares, treasury shares, or shares acquired in the
market for the account of the Participant, or a combination thereof.
4. ADMINISTRATION OF THE PLAN. The Plan will be administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
Committee shall have the full power, discretion, and authority to interpret
and administer the Plan consistent with the Plan provisions; provided,
however, in no event shall the Committee have the power to determine the
persons eligible to participate in the Plan or the number, price, or timing
of Options to be granted under the Plan, all such determinations being
automatic pursuant to Plan provisions. Any action taken by the Committee
with respect to the administration of the Plan which would result in any
Nonemployee Director ceasing to be a "disinterested person" for purposes of
any other plan maintained by the Company within the meaning of Rule 16b-3
of the Exchange Act or which would result in a Nonemployee Director ceasing
to be an "outside director" within the meaning of Section 162(m) of the
Code shall be null and void.
5. ELIGIBILITY. Each Director of the Company who, on any date on which
Compensation is to be paid which could be received in the form of Stock
under Section 6 and a Stock Option under Section 7, is not an Employee of
the Company will be eligible, at such date, to be granted shares of Stock
under Section 6 and to receive a Stock Option under Section 7, subject to
the election requirements of Section 7(a).
No person other than those specified in this Section 5 will be eligible to
participate in the Plan.
6. RECEIPT OF STOCK IN LIEU OF COMPENSATION. Each Nonemployee Director of the
Company may, in lieu of receipt of Compensation in his or her capacity as a
Nonemployee Director in cash, receive such Compensation in the form of
Stock in accordance with this Section 6; provided, however, that such
Nonemployee Director is eligible to do so under Section 5 at the date any
such Compensation is otherwise payable.
(a) ELECTION TO RECEIVE STOCK. Each Nonemployee Director who elects to receive
Compensation for a given calendar year in the form of Stock for such year
must file an irrevocable written election with the Secretary of the Company
no later than six months before the due date for the first Compensation
payment during such calendar year, and in no event later than December 31
of the year preceding such calendar year. A Nonemployee Director may
execute an election with the Company to receive the payment of all of the
Compensation payable for services as a Nonemployee Director through
completion of a Stock Payment Form or any substantially similar document to
be delivered to and be subject to acceptance by the Secretary of the
Company.
Certain elections may not result in receipt of Stock for a six-month
period, as provided in Section 10(b).
3
<PAGE>
The election to receive Stock shall remain in effect until terminated or
changed as provided herein. An election by a Director shall be deemed to
be continuing and therefore applicable to subsequent Plan years unless the
Director revokes or changes such election by filing a new election form by
the due date for such form specified in this Section 6(a). Any such
termination or change in the amount to be paid in Stock shall be effective
only with respect to Compensation payable for services as a Nonemployee
Director on or after the first day of the next succeeding calendar year,
subject to Section 10(b) below.
(b) PAYMENT OF COMPENSATION IN THE FORM OF STOCK. At any date on which
Compensation is payable to a Participant who has elected to receive such
Compensation in the form of Stock, the Company will issue to such
Participant, or to an account maintained by a third party and designated by
such Participant, a number of shares of Stock having an aggregate Fair
Market Value at that date equal to the Compensation, or as nearly as
possible equal to the Compensation (but in no event greater than the
Compensation), that would have been payable at such date but for the
Participant's election to receive Stock in lieu thereof. Any fractional
shares resulting from this calculation will be payable in cash to the
Participant.
(c) RESTRICTIONS ON STOCK RECEIVED IN LIEU OF CASH COMPENSATION. Stock
received in lieu of Compensation may not be sold, transferred, encumbered,
or hypothecated for a period of six months following the date of receipt.
(d) NONFORFEITABILITY. The interest of each Participant in any Compensation
paid in the form of Stock at all times will be nonforfeitable.
7. GRANT OF STOCK OPTIONS. Subject to the terms and provisions of the Plan,
each Nonemployee Director who elects to participate in the Plan for a given
year will receive a grant of Options to purchase the Company's Stock.
(a) OPTION GRANT. As of the date of each Annual Meeting of Stockholders of the
Company after the Effective Date, an Option to purchase two thousand five
hundred (2,500) shares will be granted to each Nonemployee Director elected
to such office on such date or continuing in such office who has elected to
participate in this Plan.
(b) OPTION VESTING SCHEDULE. Stock Options granted will become exercisable
based on the following vesting schedule:
(i) On or after the first anniversary date of any Option grant, the
Nonemployee Director may purchase up to fifty percent (50%) of the
shares covered by the Option, subject to and in accordance with the
Plan provisions;
(ii) On or after the second anniversary date of any Option grant, the
Nonemployee Director may purchase up to an additional fifty percent
(50%) of the shares covered by the Option, subject to and in
accordance with the Plan provisions.
(c) TERMINATION OF SERVICE. In the event of the Termination of Board service
of a Nonemployee Director, all outstanding Options granted to such
Nonemployee Director through the annual grant of stock options will expire
at the earliest of:
(i) One year after the Optionee ceases serving as a Director due to death
or disability, or
(ii) Six (6) months after the Optionee ceases serving as a Director for any
other reason except that, if the Optionee dies during the one year or
six month post-termination period, such period shall be extended until
the date one year after the Optionee's death but in no event more than
ten (10) years after the date of grant.
4
<PAGE>
(d) PAYMENT OF EXERCISE PRICE. At the time of exercise, the Optionee shall
make full cash payment to the Secretary of the Company for the shares with
respect to which the Option, or portion thereof, is exercised. However, at
the discretion of the Committee the terms of the Options may (i) allow a
delay in payment up to thirty (30) days from the date the Option, or
portion thereof, is exercised; (ii) allow payment, in whole or in part,
through the delivery of shares of Common Stock owned by the Optionee, duly
endorsed for transfer to the Company with a Fair Market Value on the date
of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof; (iii) allow payment, in whole or in part,
through the surrender of shares of Common Stock then issuable upon exercise
of the Option having a Fair Market Value on the date of Option exercise
equal to the aggregate exercise price of the Option or exercised portion
thereof; (iv) allow payment, in whole or in part, through the delivery of a
full recourse promissory note bearing interest (at no less than such rate
as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Committee or the Board
may also prescribe the form of such note and the security to be given for
such note. The Option may not be exercised, however, by delivery of a
promissory note or by a loan from the Company when or where such loan or
other extension of credit is prohibited by law. The Committee may, in its
discretion, adopt regulations relating to payment of the Option exercise
price with previously acquired shares.
8. ADJUSTMENT PROVISIONS
(a) CORPORATE TRANSACTIONS AND EVENTS. In the event any recapitalization,
reorganization, merger, consolidation, spin-off, combination, repurchase,
exchange of shares or other securities of the Company, stock split or
reverse split, stock dividend, other extraordinary dividend having a value
in excess of 150% of the aggregate quarterly dividends paid during the 12-
month period preceding the record date therefor, liquidation, dissolution,
or other similar corporate transaction or event affects the Stock such that
an adjustment is appropriate in order the prevent dilution or enlargement
of each Participant's rights under the Plan, then an adjustment shall be
made, in a manner that is proportionate to the change to the Stock and
otherwise equitable in the number and kind of shares of Stock remaining
available for issuance under the Plan. The foregoing notwithstanding, no
adjustment may be made hereunder except as will be necessary to maintain
the proportionate interest of the Participant under the Plan.
(b) CHANGE IN CONTROL. Upon the occurrence of a Change in Control, unless
specifically prohibited by the terms of applicable law or regulation, any
and all Options granted hereunder shall become immediately exercisable.
(c) INSUFFICIENT NUMBER OF SHARES. If at any date an insufficient number of
shares of Stock are available under the Plan for the receipt of
Compensation in the form of Stock at that date, Compensation shall be paid
in the form of Stock proportionately among Nonemployee Directors who are
eligible to participate and who have elected to receive Stock in lieu of
cash Compensation to the extent shares are then available under Section 3.
(d) CHANGES TO THE PLAN. The Board of Directors may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of stockholders or
Participants, except that any amendment or alteration will be subject to
the approval of the Company's stockholders at or before the next annual
meeting of stockholders for which the record date is after the date of such
Board action if such stockholder approval is required by federal or state
law or regulation or the rules of any stock exchange or automated quotation
system or any regulatory body having jurisdiction thereto, and the Board
may otherwise determine to submit other such amendments or alterations to
stockholders for approval; provided, however, that without the consent of
an affected Participant, no such action may materially impair the rights of
such Participant with respect to any previous Option; and provided,
however, that the Plan may not be amended more than once every six months
other than to bring it into compliance with changes in the Code, the
Exchange Act, or other relevant laws, regulations, or requirements.
5
<PAGE>
9. GENERAL PROVISIONS
(a) AGREEMENTS. Stock and Stock Options granted under the Plan will be
evidenced by agreements or other documents executed by the Company and the
Participant incorporating the terms and conditions set forth in the Plan,
together with such other terms and conditions not inconsistent with the
Plan as the Board of Directors may from time to time approve.
(b) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company will not be obligated to
issue or deliver shares of Stock in payment of any Nonemployee Directors'
Compensation in Stock or upon the exercise of any Stock Option in a
transaction subject to the registration requirements of the Securities Act
of 1933, as amended, or any other state securities law, any requirement
under any listing agreement between the Company and any stock exchange or
automated quotation system, or any other law, regulation, or contractual
obligation of the Company, until the Company is satisfied that such laws,
regulations, and other obligations of the Company have been complied with
in full. Certificates representing shares of Stock issued under the Plan
will be subject to such stop-transfer orders and other restrictions as may
be applicable under such laws, regulations, and other obligations of the
Company, including any requirement that a legend or legends be placed
thereon.
(c) COMPLIANCE WITH RULE 16B-3. It is the intent of the Company that this Plan
and all transactions under this Plan comply in all respects with applicable
provisions of Rule 16b-3 under the Exchange Act. Accordingly, if any
provision of this Plan, any agreement hereunder, or any transaction
pursuant to an Option under the Plan does not comply with the requirements
of Rule 16b-3 as then applicable to a Participant, or would preclude a
Nonemployee Director of the Company from being deemed a "disinterested
person" within the meaning of Rule 16b-3, such provisions will be construed
or deemed amended to the extent necessary to conform to the applicable
requirements with respect to such Participant and ensure the Nonemployee
Director's status as a "disinterested person" is unaffected. In addition,
the Board of Directors will have no authority to make any amendment,
alteration, suspension, discontinuation, or termination of the Plan under
Section 8 and the Board of Directors will have no authority to make any
adjustment under Section 8, amend any agreement hereunder, or take any
other action if and to the extent such authority would cause a transaction
under the Plan by a Participant not to be exempt, or would preclude a
Nonemployee Director from being deemed a "disinterested person", under Rule
16b-3.
(d) NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in the Plan or any
agreement hereunder will confer upon any Participant any right to continue
to serve as a Nonemployee Director of the Company.
(e) NO STOCKHOLDER RIGHTS CONFERRED. Nothing contained in the Plan or any
agreement hereunder will confer upon any Participant (or any person or
entity claiming rights by or through a Participant) any rights of a
stockholder of the Company unless and until shares of Stock are in fact
issued to such Participant (or person).
(f) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board
of Directors nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other compensatory arrangements for Nonemployee
Directors as it may deem desirable.
(g) GOVERNING LAW. To the extent not preempted by Federal law the Plan and any
agreement pursuant to the Plan shall be construed in accordance with and
governed by the internal laws of the State of Delaware.
(h) SEVERABILITY. In the event any provision of the Plan or any action taken
pursuant to the Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of the Plan,
and the Plan shall be construed and enforced as if the illegal or invalid
6
<PAGE>
provision had not been included, and the illegal or invalid action shall be
deemed null and void.
10. EFFECTIVE DATE. The Plan will be effective if, and at such time as, the
stockholders of the Company have approved it by the affirmative votes of
the holders of a majority of the voting securities of the Company present,
or represented, and entitled to vote on the subject matter at a duly held
meeting of stockholders.
(a) STOCKHOLDER APPROVAL. Stockholder approval of the Plan must be obtained
not later than the final adjournment of the first annual meeting of
stockholders of the Company held after the date the Board of Directors has
adopted the Plan.
(b) DELAYED EFFECTIVENESS OF ELECTIONS IN ORDER TO COMPLY WITH RULE 16B-3.
Other provisions of the Section 7 notwithstanding, if any payment of
Compensation in the form of Stock would occur less than six months after
the Participant filed the irrevocable election which would result in such
payment and at a time when the Company's employee benefits plans are being
operated in conformity with Rule 16b-3 under the Exchange Act as in effect
on and after May 1, 1991, such Compensation shall be paid in cash.
11. PLAN TERMINATION. Unless earlier terminated by action of the Board of
Directors, the Plan will remain in effect until such time as no shares of
Stock remain available for issuance under the Plan and the Company and
Participants have no further rights or obligations under the Plan.
However, in no event may an Option be granted under the Plan on or after
the tenth anniversary of the effective date of the Plan, but Options
granted prior to such tenth anniversary may extend beyond that date.
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Chart House Enterprises, Inc. at a meeting duly held on February
12, 1996 and approved by the stockholders of Chart House Enterprises, Inc. at a
meeting held on May 7, 1996.
Executed on this 7th day of May, 1996.
/s/ WILLIAM R. KUNTZ, JR.
_________________________________________
Secretary
7
<PAGE>
EXHIBIT 10.9(11)(a)
RESTAURANT MANAGEMENT
BONUS COMPENSATION PLAN
CHART HOUSE ENTERPRISES, INC.
PLAN DESCRIPTION
----------------
This material describes provisions and definitions of the Restaurant Management
Bonus Compensation Plan. It is intended for Chart House participants and
individuals responsible for Plan administration. Related questions should be
referred to the participant's manager.
<TABLE>
<S> <C>
PLAN EFFECTIVE DATE October 1, 1996. Revised January 1, 1997
PURPOSE The purpose of the Plan is to provide an
incentive for the achievement of goals that
support Chart House's Business Plan.
<CAPTION>
Terms and Definitions
. PLAN NAME The Restaurant Management Bonus Compensation
Plan.
. PARTICIPANT An eligible Chart House employee in a
participating position identified by Chart House
management.
. GROUP EXECUTIVE The Vice President or higher of Chart House who
has overall management responsibility for the
Participant's operational unit.
. PLAN YEAR The 52 or 53 weeks contained within Chart
House's fiscal year
. PLAN QUARTER Each of the four 13 or 14 week periods contained
within a Plan Year.
. PLAN MONTH Each of the 4 or 5 weeks periods contained
within a Plan Quarter.
. BASE SALARY The monthly pay (annual pay divided by 12)
established for the Participant by Chart House
and in effect on the last day of the Plan
Quarter. Chart House may at any time, in its
sole discretion, prospectively revise the
Participant's base salary.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
. TARGET BONUS The dollar amount calculated according to
the Bonus Payout Worksheet.
</TABLE>
Target Bonuses are shown in
the chart below:
<TABLE>
<CAPTION>
POSITION TARGET BONUS
----------------------------------------------------
<S> <C>
Vice President of Operations 30% of Base Pay
Director of Operations 25% to 30% of Base Pay
General Manager 25% of Base Pay
Assistant General Manager 15% of Base Pay
Manager 10% of Base Pay
----------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
. PERFORMANCE MEASURES Goals with corresponding percentage weights
designed to measure a Participant's
achievements. Each Plan Year Chart House
management will select two or more Performance
Measures to emphasize. Performance Measures are
listed on the Bonus Payout Worksheet.
ELIGIBILITY Currently, the Plan covers employees in the job
classifications of Vice President of Operations,
Director of Operations, General Manager,
Assistant General Manager and Manager who:
1) remain a Chart House employee through the end
of each Plan Quarter.
2) refrain from engaging during the Plan
Quarter, directly or indirectly, in any activity
which is competitive with any Chart House
activity.
Participation will conclude upon termination of
the Participant's employment, transfer to a
position compensated otherwise than is provided
in the Plan, or termination of the Plan by Chart
House.
Chart House may terminate the plan or a
Participant at any time for any reason.
COMPENSATION (A) Chart House will pay to Participant a Base
Salary. The Base Salary is set by Chart House
and will be reviewed and may be adjusted from
time to time.
(B) In addition to Base Salary, Chart House will
pay the Participant a bonus calculated as
outlined in the Bonus Calculation section below.
(C) Chart House will withhold any federal,
state, or local taxes required by law to be
withheld from any payments made under the Plan.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
BONUS CALCULATION (A) At the end of each Plan Quarter, the level
of the Participant's performance for each of the
Performance Measures will be determined and a
bonus will be computed for the Participant based
on the formula specified on Exhibit A and the
Bonus Payout Worksheet.
(B) In computing the bonus for any Participant
who becomes a Participant after the start of a
Plan Quarter, the computation specified on the
Bonus Payout Worksheet will use the
Participant's Base Pay multiplied by the number
of Plan Months during which the Participant
participated in the Plan during the Plan
Quarter. Credit will be given for a Plan Month
if the Participant works for more than half of
the Plan Month.
(C) Payment of bonus will be made as soon as
administratively feasible after the end of each
Plan Quarter and in no event later than 30 days
after the amount payable is determined. No
amount is due and owing before the amount of
bonus payable has been determined.
(D) A bonus under the Plan is earned as of the
end of the Plan Quarter. This means that if a
Participant terminates before the end of the of
the Plan Quarter, no bonus will be paid for the
Plan Quarter.
ADMINISTRATION (A) The Plan is administered by the Group
Executive.
(B) In the event of a dispute regarding the
Plan, the Participant may seek resolution
through his or her immediate supervisor. If the
Participant and the supervisor cannot resolve
the dispute, the matter will be referred to the
Group Executive. Chart House's top executive
officer(s) will be the final authority on any
unresolved dispute of the Plan.
(C) The Group Executive has the authority to
select Participants, determine for each
Participant for each Plan Period appropriate
Performance Measure goals, Calculate amounts of
bonus earned by Participants, and maintain and
adjust Participant records. The Group Executive
may delegate responsibility for performance of
ministerial and discretionary functions
necessary for administration of the Plan to such
persons as he or she, in his or her discretion,
deems appropriate.
TERMINATION OF EMPLOYMENT The Plan is not a contract of employment for one
year or any other time period. The Participant
may resign or be terminated at any time for any
or no reason. Employment and termination of
employment are governed by Chart House policies
and not by the Plan. At termination of
employment, Chart House will pay the Participant
any benefits accrued under Chart House's benefit
plans and any accrued Base Pay through the date
of termination
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
CONFIDENTIALITY The Plan is confidential and the sole property
Chart House. The Participant agrees to maintain
the confidentiality of the Plan both during
employment and after termination of employment.
REVISIONS TO THE PLAN The Plan will be reviewed by Chart House on a
periodic basis for revisions. Chart House
reserves the right at its discretion with or
without notice, to review, prospectively change
or amend, or cancel the Plan, at any time.
</TABLE>
4
<PAGE>
RESTAURANT MANAGEMENT
BONUS COMPENSATION PLAN
EXHIBIT A
---------
At the end of each Calendar Quarter, the Participant's Performance Credit for
each Performance Measure will be determined based on the scales shown below.
For Directors of Operations, the sales and budget numbers will be the total for
all the restaurants in their respective regions. For the Vice President of
Operations, the sales and budget numbers will be the total for all restaurants.
<TABLE>
<CAPTION>
RESTAURANT SALES
- ----------------------------------------------------------------------------
IF SALES $ AS A % OF BUDGET $ ARE PERFORMANCE CREDIT EQUALS
AT LEAST....................BUT LESS THAN
- ----------------------------------------------------------------------------
<S> <C> <C>
110% N/A 120%
105% 110% 110%
100% 105% 100%
97.5%% 100% 75%
95% 97.5% 50%
90% 95% 25%
N/A 90% 0%
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RESTAURANT PROFIT (As shown on your P & L as "profit/loss")
- ----------------------------------------------------------------------------
IF PROFIT $ AS A % OF BUDGET $ IS PERFORMANCE CREDIT EQUALS
AT LEAST..............BUT LESS THAN
- ----------------------------------------------------------------------------
<S> <C> <C>
110% N/A 120%
105% 110% 110%
100% 105% 100%
95% 100% 75%
90% 95% 50%
85% 90% 25%
N/A 85% 0%
- ----------------------------------------------------------------------------
</TABLE>
The Weight Allocation for each Performance Measure is multiplied by the Target
Bonus to determine the Target Bonus for each Performance Measure. The Target
Bonus for each Performance Measure is then multiplied by the Performance Credit
to determine the Bonus Amount for that measure. The Bonus Amount for each
Performance Measure is then added together to determine Total Bonus.
NOTE: THE WEIGHT ALLOCATION FOR VICE PRESIDENT OF OPERATIONS AND DIRECTOR OF
OPERATIONS IS SALES (45%) AND PROFIT (55%). FOR ALL OTHER PARTICIPANTS THE
WEIGHT ALLOCATION IS SALES (55%) AND PROFIT (45%).
THE FOLLOWING IS AN EXAMPLE OF A QUARTERLY BONUS CALCULATION FOR A GENERAL
MANAGER.
Target Bonus = Base Pay x number of months of Plan participation x Target
Bonus %: $3,000 x 3 x 25% = $2,250
<TABLE>
<CAPTION>
SALES: PROFIT:
<S> <C> <C> <C>
Budget: $550,000 Budget: $200,000
Actual: $522,500 Actual: $220,000
Percentage: 95% Percentage: 110%
PERFORMANCE PERFORMANCE
CREDIT: 50% CREDIT: 110%
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE WEIGHT TARGET TARGET BONUS PERFORMANCE ACTUAL BONUS
MEASURE ALLOCATION BONUS BY PERFORMANCE MEASURE CREDIT AMOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 55% $2,250 $1,237.50 50% $ 618.75
Profit 45% $2,250 $1,012.50 110% $1,113.75
----------------
TOTAL BONUS: $1,732.50
- -------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
RESTAURANT MANAGEMENT
BONUS COMPENSATION PLAN
EXHIBIT B: ACCEPTANCE OF PLAN PARTICIPATION
--------------------------------------------
The undersigned has received a copy of the Chart House Restaurant Management
Bonus Compensation Plan and understands its provisions.
Participation in the Plan is in the position of_________with a_____% Target
Bonus.
Participation shall be effective________, 19__, and shall continue until
terminated by Participant or the Company.
Name
---------------------------
(Please Print)
Date
- ------------------------------- ------
(Participant's Signature)
Date
- ------------------------------- ------
(Supervisor's Signature)
THIS FORM MUST BE SIGNED AND RETURNED TO VICE PRESIDENT, OPERATIONS FOR
PERSONNEL FILE. THE VPO SHOULD FORWARD A COPY TO HUMAN RESOURCES.
6
<PAGE>
EXHIBIT 10.9(11)(b)
CORPORATE MANAGEMENT
BONUS COMPENSATION PLAN
CHART HOUSE ENTERPRISES, INC.
PLAN DESCRIPTION
----------------
This material describes provisions and definitions of the Corporate Management
Bonus Compensation Plan. It is intended for Chart House participants and
individuals responsible for Plan administration. Related questions should be
referred to the participant's manager.
<TABLE>
<CAPTION>
<S> <C>
PLAN EFFECTIVE DATE January 1, 1997
PURPOSE The purpose of the Plan is to provide an annual
incentive for the achievement of goals that
support Chart House's Business Plan.
TERMS AND DEFINITIONS
. PLAN NAME The Corporate Management Bonus Compensation Plan.
. PARTICIPANT An eligible Chart House employee in a
participating position identified by Chart House
management.
. GROUP EXECUTIVE The top executive officer(s) of Chart House who
has overall management responsibility for the
company.
. PLAN YEAR The 52 or 53 weeks contained within Chart
House's fiscal year
. BASE SALARY THE monthly pay (annual pay divided by 12)
established for the Participant by Chart House
and in effect on the last day of the Plan Year.
Chart House may at any time, in its sole
discretion, prospectively revise the
Participant's base salary.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
. TARGET BONUS The dollar amount calculated according to
the Bonus Payout Worksheet. Target Bonuses
are shown in the chart below and on Exhibit C.
</TABLE>
<TABLE>
<CAPTION>
POSITION TARGET BONUS
----------------------------------------------------
<S> <C>
Chief Executive Officer *
Executive Vice President *30%-40% of Base Pay
Senior Vice President *20%-30% of Base Pay
Vice President 15%-20% of Base Pay
Director 10% of Base Pay
----------------------------------------------------
</TABLE>
* Exact Target Bonus Percentage for each
Participant will be determined by the
Compensation Committee of Chart House's Board of
Directors.
<TABLE>
<CAPTION>
<S> <C>
. PERFORMANCE MEASURES Goals with corresponding percentage weights
designed to measure a Participant's achievements. Each Plan
Year Chart House management will select two or more Performance
Measures to emphasize. Performance Measures are
listed on Exhibit B.
ELIGIBILITY Currently, the Plan covers employees in the job
classifications of Executive Vice President,
Senior Vice President, Vice President and
Director who:
1) remain a Chart House employee through the end
of each Plan Year.
2) refrain from engaging during the Plan Year,
directly or indirectly, in any activity which is
competitive with any Chart House activity.
Participation will conclude upon termination
of the Participant's employment, transfer to a
position compensated otherwise than is provided
in the Plan, or termination of the Plan by
Chart House.
Chart House may terminate the plan or a Participant
at any time for any reason.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMPENSATION (A) Chart House will pay to Participant a Base
Salary. The Base Salary is set by Chart House and
will be reviewed and may be adjusted from time to time.
(B) In addition to Base Salary, Chart House will
pay the Participant a bonus calculated as
outlined in the Bonus Calculation section below.
(C) Chart House will withhold any federal,
state, or local taxes required by law to be
withheld from any payments made under the Plan.
BONUS CALCULATION (A) At the end of each Plan Year, the level of
the Participant's performance for each of
the Performance Measures will be determined and a
bonus will be computed for the Participant based on
the formula specified on Exhibit A and the Bonus
Payout Worksheet.
(B) In computing the bonus for any Participant
who becomes a Participant after the start of a Plan
Year, the computation specified on the Bonus
Payout Worksheet will use the Participant's Base Pay
multiplied by the number of months during which the
Participant participated in the Plan during the
Plan Year. Credit will be given for a month if the
Participant works for more than half of the month.
(C) Payment of bonus will be made as soon as
administratively feasible after the end of each Plan
Year and in no event later than 30 days after the
amount payable is determined. No amount is
due and owing before the amount of bonus payable
has been determined.
(D) A bonus under the Plan is earned as of the
end of the Plan Year. This means that if a
Participant terminates before the end of the of
the Plan Year, no bonus will be paid for the Plan Year.
ADMINISTRATION (A) The Plan is administered by the Group Executive.
(B) In the event of a dispute regarding the Plan, the
Participant may seek resolution through his or her immediate
supervisor. If the Participant and the supervisor cannot resolve
the dispute, the matter will be referred to the
Group Executive. Chart House's top executive
officer(s) will be the final authority on any
unresolved dispute of the Plan.
(C) The Group Executive has the authority to
select Participants, determine for each
Participant for each Plan Period appropriate
Performance Measure goals, Calculate amounts of bonus
earned by Participants, and maintain and adjust
Participant records. The Group Executive may
delegate responsibility for performance of
ministerial and discretionary functions
necessary for administration of the Plan
to such persons as he or she, in his or her
discretion, deems appropriate.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TERMINATION OF EMPLOYMENT The Plan is not a contract of employment for one year
or any other time period. The Participant may resign
or be terminated at any time for any or no reason.
Employment and termination of employment are governed
by Chart House policies and not by the Plan. At
termination of employment, Chart House will pay the
Participant any benefits accrued under Chart
House's benefit plans and any accrued Base Pay
through the date of termination
CONFIDENTIALITY The Plan is confidential and the sole property
Chart House. The Participant agrees to
maintain the confidentiality of the Plan both during
employment and after termination of employment.
REVISIONS TO THE PLAN The Plan will be reviewed by Chart House on a
periodic basis for revisions. Chart House
reserves the right at its discretion with or without
notice, to review, prospectively change or
amend, or cancel the Plan, at any time.
</TABLE>
4
<PAGE>
CORPORATE MANAGEMENT
BONUS COMPENSATION PLAN
EXHIBIT A
---------
For Plan Year 1997, Chart House management has selected two Performance
Measures.
<TABLE>
<CAPTION>
PERFORMANCE MEASURE DEFINITION WEIGHT ALLOCATION
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Income Net Income reported to 55%
shareholders as adjusted
within the discretion of
the Compensation Committee
of Chart House's Board of
Directors to reflect
special charges or other
unusual items
- -------------------------------------------------------------------------------
Budget Attainment Total expense as a percent Minimum of 10%
of budget.
- -------------------------------------------------------------------------------
</TABLE>
In addition to these two Performance Measures, Participants should select and
allocate weight to two or three measurable KRAs to include in the Plan. The
-----------
total Weight Allocation for all PERFORMANCE MEASURES MUST EQUAL 100%
At the end of each Calendar Year, the Participant's Performance Credit for each
Performance Measure will be determined. Performance Credit for Net Income and
Budget Attainment will be based on the scales shown below. Participants and
Participant's supervisors must come to an agreement on how Performance Credit
for additional Performance Measures will be determined.
<TABLE>
<CAPTION>
COMPANY NET INCOME
- ------------------------------------------------------------------------
IF NET INCOME $ AS A % OF BUDGET $ ARE PERFORMANCE CREDIT EQUALS
AT LEAST..........BUT LESS THAN
- ------------------------------------------------------------------------
<S> <C> <C>
100% N/A% 100%
N/A 100% 0%
- ------------------------------------------------------------------------
</TABLE>
BUDGET ATTAINMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
IF TOTAL EXPENSES $ AS A % OF BUDGET $ IS PERFORMANCE CREDIT EQUALS
AT LEAST..........BUT LESS THAN
- ----------------------------------------------------------------------------
<S> <C> <C>
95% 105% 100%
- ----------------------------------------------------------------------------
</TABLE>
5
<PAGE>
CORPORATE MANAGEMENT
BONUS COMPENSATION PLAN
EXHIBIT A (CONT'D)
------------------
The Weight Allocation for each Performance Measure is multiplied by the Target
Bonus to determine the Target Bonus for each Performance Measure. The Target
Bonus for each Performance Measure is then multiplied by the Performance Credit
to determine the Bonus Amount for that measure. The Bonus Amount for each
Performance Measure is then added together to determine Total Bonus.
If the company does not meet its Net Income goal, Participants are still
eligible to earn a bonus based on Individual Performance. However, no bonus
will be earned for an Individual Performance Measure if the Performance Credit
for that Performance Measure is less than 75%. In addition, if the average
Performance Credit for Individual Performance Measures is less than 75%, no
bonus will be earned for Company Performance or Individual Performance.
THE FOLLOWING IS AN EXAMPLE OF AN ANNUAL BONUS CALCULATION FOR A VICE PRESIDENT:
Target Bonus = Base Pay x number of months of Plan participation x Target Bonus
%: $70,000 x 20% = $14,000
<TABLE>
<CAPTION>
NET INCOME: TOTAL EXPENSE
<S> <C> <C> <C>
Budget: $550,000 Budget: $500,000
Actual: $577,500 Actual: $475,000
Percentage: 105% Percentage 95%
Performance Credit: 100% Performance Credit: 100%
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE WEIGHT TARGET TARGET BONUS PERFORMANCE ACTUAL BONUS
MEASURE ALLOCATION BONUS BY PERFORMANCE CREDIT AMOUNT
MEASURE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMPANY
Net Income: 55% $14,000 $7,700 100% $7,700
INDIVIDUAL
Budget 15% $14,000 $2,100 100% $2,100
KRA 2 10% $14,000 $1,400 80% $1,120
KRA 3 10% $14,000 $1,400 90% $1,260
KRA 4 10% $14,000 $1,400 70% $0
------------- -------------
100% TOTAL BONUS: $ 12,180
- -------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
CORPORATE MANAGEMENT
BONUS COMPENSATION PLAN
EXHIBIT B
---------
Participant:
-----------------------
Plan Year:
-------------
Base Salary:
-------------
Target Bonus %
-------------
Target Bonus Amount
-------------
<TABLE>
<CAPTION>
PERFORMANCE WEIGHT TARGET TARGET BONUS PERFORMANCE ACTUAL BONUS
MEASURE ALLOCATION BONUS BY PERFORMANCE CREDIT AMOUNT
AMOUNT MEASURE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMPANY
Net Income 55% $ $ % $
INDIVIDUAL
BUDGET % $ $ % $
% $ $ % $
% $ $ % $
% $ $ % $
------------- -------------
100% TOTAL BONUS: $
- -----------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
CORPORATE MANAGEMENT
BONUS COMPENSATION PLAN
EXHIBIT C: ACCEPTANCE OF PLAN PARTICIPATION
--------------------------------------------
The undersigned has received a copy of the Chart House Corporate Management
Bonus Compensation Plan and understands its provisions.
Participation in the Plan is in the position of ________ with a _____% Target
Bonus.
Participation shall be effective________________ , 19___, and shall continue
until terminated by Participant or the Company.
Name________________________________________
(Please Print)
____________________________________________ Date ______________________
(Participant's Signature)
____________________________________________ Date ______________________
(Supervisor's Signature)
THIS FORM MUST BE SIGNED AND RETURNED TO PARTICIPANT'S SUPERVISOR FOR PERSONNEL
FILE. THE SUPERVISOR SHOULD FORWARD A COPY TO HUMAN RESOURCES.
8
<PAGE>
CHART HOUSE ENTERPRISES, INC.
ANNUAL REPORT 1996
<PAGE>
TO OUR SHAREHOLDERS
We welcome this first opportunity to address the owners of Chart House
Enterprises, Inc. We assumed shared responsibility for leading the management
team in mid-November of last year, under difficult circumstances following the
resignation of the president and chief executive officer. We view this
responsibility as an opportunity to right a listing ship, unfurl the sails and
move forward at full speed with a sense of urgency. We are pleased to report
that over the past four months the company has made significant progress toward
achieving our strategic objectives and has begun to show improved operating
results.
REVIEW OF 1996
We would like to tell you about our plans for improving the company's
performance in 1997, but first a brief review of 1996. Last year was a very
difficult year for Chart House. The Company reported a $5.4 million loss, or
negative 66 cents per share for the year. Almost all of the loss consisted of
restructuring and other special charges, including severance and compensation
charges in connection with management changes, a $4.2 million write-down of the
investment in Islands, and several other asset write-downs. After filtering out
all the special charges, the company still would have reported a slight loss for
the year, reflecting significant erosion of operating margins in our core Chart
House restaurant business.
The special charges are the aftermath of strategic investment decisions made
several years ago and management changes made last year. The decline in
restaurant operating margins resulted from factors specific to 1996, including
the introduction of pastas and other lower priced, high food cost menu items, as
well as dramatic and traumatic changes to the organization, marked by the
departure of our longtime chief executive, John Creed, in April and the coming
and going within eight months of another CEO, Harry Roberts.
In 1996, we disposed of our Islands restaurants operations, opened a
successful new Chart House restaurant in Newport, Kentucky (metropolitan
Cincinnati) and substantially renovated the Cardiff and Malibu restaurants. In
the midst of all the organizational changes, we made progress in developing our
food, purchasing, human resource and information services functions and made
positive changes in operating practices. Despite these bright spots, we were
happy to get 1996 behind us.
1997 OPERATING PLAN
What are we doing to improve our performance? Our plan focuses on the near
term and begins with the following strategic mission: (1) demonstrate
profitability by exceeding restaurant and corporate level profit goals for 1997;
and (2) develop a vision for the long-term viability and growth of Chart House.
The company's business is managing Chart House restaurant operations.
Diversification into other restaurant concepts (Islands, Paradise Bakery,
Mangos) has not been successful. Our attention in 1997 will be concentrated on
Chart House. Chart House has significant competitive advantages and strengths: a
respected, well-known brand name; a solid market niche; spectacular restaurant
locations; a limited menu of quality foods, simply prepared; good restaurant
level cash flow; experienced management and employees; and a strong corporate
culture. These elements provide the foundation on which we have built the 1997
operating plan.
-1-
<PAGE>
The plan for 1997 consists of actions and initiatives to achieve seven major
objectives:
1. Revitalize the restaurant facilities. Restaurant "face-lifts" will proceed on
a prioritized basis, in a cost-effective way. The focus is on elements that
directly impact the customer's dining experience.
2. Fine tune the foods. Menu changes will reemphasize the Chart House "core"
entrees (steaks, prime rib, seafood and fresh fish), surrounded by regional
and seasonal specialties, appetizers and desserts, and beverages. An expanded
food & beverages team will be responsible for ensuring that our restaurants
achieve consistent, high quality food preparation. We will implement central
purchasing programs for food and other products and services in order to
achieve significant cost savings.
3. Effectively market at the local level. The marketing plan focuses on existing
guests to build affinity, dining frequency and word-of-mouth. Rather than
expensive nationwide media campaigns, marketing dollars will go to local
advertising and promotional programs adapted to the unique needs of each
Chart House restaurant market. The Aloha Club will be scaled back to include
15,000 active existing members, further reducing administrative costs.
4. Define the organization structure. We will complete the process of defining
roles and responsibilities for each position in the organization and continue
the process of reducing overhead costs.
5. Enhance operational systems. Key areas will be human resources and
information services. The company has committed to developing its human
resources infrastructure to ensure consistent and effective recruitment,
selection, management development, training, employee relations, compensation
and benefits programs and legal compliance. Information services will provide
systems solutions to meet restaurant operations management needs,
specifically in the areas of labor scheduling, food costing, menu product
mix, reservations and table management.
6. Promote a positive, winning team attitude. Chart House has a strong corporate
culture founded on teamwork, honesty, integrity and treating people with
dignity and respect. Following a difficult year, we believe the positive
aspects of this culture should be managed and reinforced through internal
communications programs emphasizing the importance of a winning attitude.
7. Strengthen the balance sheet. The company's balance sheet became over-
leveraged largely due to capital spending on Islands and other restaurant
projects that did not produce expected returns. An essential component of the
1997 plan is refinancing or restructuring of the company's long-term debt.
RECENT RESULTS
How are we doing so far this year? Same-store-sales are up for the first two
months of 1997.
We beat budgeted sales, pre-tax operating profit and net income in each of
December, January and February. Our cash flow from operations for the year to
date compares favorably to the same period of last year and we are carefully
managing capital spending, allowing us to reduce our outstanding bank borrowings
since the end of the 1996 fiscal year.
We had a successful annual management conference in mid-January, sending our
general managers back to their restaurants stoked with enthusiasm, informed
about the operating plan and
-2-
<PAGE>
["PICTURE"]
-3-
<PAGE>
ready to perform. Most recently, we announced the signing of an agreement to
raise $19.5 million of equity capital from a new investor, discussed below. It's
a good start.
NEW INVESTOR
On March 10, the company signed an agreement to sell 3.4 million shares of
common stock to Chart House Investors, LLC for $19.5 million. Chart House
Investors is a new company formed by Equity Group Investments, an affiliate of
Sam Zell. The first step, the sale of about 1.6 million shares for $9.4 million,
closed on March 11. Sam Zell and Phil Handy have joined the Chart House
Enterprises Board of Directors. The second step, the sale of 1.8 million
additional shares for $10.1 million, depends on shareholder approval at the
annual meeting now scheduled to be held on May 20.
This transaction will achieve the objective of de-leveraging our balance
sheet. It will allow the Company to repay indebtedness, normalize our lender
relations and significantly reduce interest costs. Chart House will have the
benefit of the substantial resources of the Zell organization. While the
transaction has been structured so that no change in control of the company will
occur, there is no doubt that Messrs. Zell and Handy will energetically and
actively participate on the Board with the objective of enhancing shareholder
value.
Selection of a chief executive officer is the first major decision confronting
the reconstituted Board. The company will consider qualified candidates
recruited from the restaurant industry as well as candidates from within the
company. In the meantime, we will aggressively implement our plan to improve the
company's financial performance in 1997.
ANNUAL REPORT
Our wonderful restaurant properties emerged in discussions with prospective
investors as a universally recognized strength. While we would equally emphasize
our quality food and friendly, professional service, we agree that Chart House
restaurant locations are worthy of special attention. The pages of this report
feature photos of some of our beautiful restaurants and their surroundings.
We close by thanking Patrick Rose and Alan McDowell for their contributions
and many years of service as Chart House board members. In his role as Chairman,
Pat provided wisdom and guidance that eased our transition to a leadership role.
Alan's perspective as a successful restaurant industry investor added great
value to the Board.
Finally, thanks to you, our share owners, who have supported Chart House
through difficult and unrewarding times. We are confident that your patience
will be rewarded. We look forward to meeting you at the annual meeting of
shareholders on Tuesday, May 20 in Del Mar, California.
Sincerely,
<TABLE>
<CAPTION>
<S> <C>
William R. Kuntz, Jr. Stephen J. McGillin
Executive Vice President--Finance & Administration Executive Vice President--
Operations
</TABLE>
-4-
<PAGE>
["PICTURE"]
-5-
<PAGE>
["LOCATIONS"]
-6-
<PAGE>
<TABLE>
<CAPTION>
FINANCIALS
<S> <C>
About Our Company................................. 9
Management's Discussion and Analysis.............. 10
Selected Financial Data........................... 15
Consolidated Balance Sheets....................... 16
Consolidated Statements of Operations............. 17
Consolidated Statements of Stockholders' Equity... 17
Consolidated Statements of Cash Flows............. 18
Notes to Consolidated Financial Statements........ 19
Report of Independent Public Accountants.......... 28
</TABLE>
-7-
<PAGE>
["BLANK PAGE"]
-8-
<PAGE>
ABOUT OUR COMPANY
Chart House Enterprises, Inc. is a publicly held, New York Stock Exchange
listed company based in Solana Beach, California.
The Company operates 63 Chart House restaurants in 22 states, Puerto Rico and
the U.S. Virgin Islands. The Company also operates Peohe's restaurant and Solana
Beach Baking Company, both located in California. The Company sold its Islands
restaurants in 1996, but retained a significant investment in the operation.
Chart House restaurants are full-service, casual dinner houses with a menu
featuring fresh fish, steaks, prime rib, seafood, pasta dishes and chicken. Many
of the Chart House restaurants feature an elaborate salad bar and some Chart
Houses have seafood bars which offer various appetizers. The menu is offered in
architecturally or historically unique buildings located in a variety of
settings, including lakeshores, mountains and seacoasts.
One Chart House, which opened in 1994 in Weehawken, New Jersey, is being
operated under a management agreement with the owner of the property.
A new Chart House in the Cincinnati, Ohio/Northern Kentucky area opened in
April 1996, and one Chart House in Long Beach, California closed in May 1996.
Peohe's is an upscale seafood restaurant located in Coronado, California.
Chart House also operates Solana Beach Baking Company, a wholesale bakery
facility in Carlsbad, California, which supplies bread and other bakery goods to
Chart House restaurants. It also supplies muffins, croissants, cookies and other
bakery goods to food service distributors and other retail accounts.
["GRAPHS"]
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table presents the results of operations for each of the fiscal
years in the period ended December 30, 1996. The dollar amounts are in
thousands.
<TABLE>
<CAPTION>
1996 1995 1994
AMOUNT % AMOUNT % AMOUNT %
<S> <C> <C> <C> <C> <C> <C>
Revenues $160,551 100.0 $179,155 100.0 $174,940 100.0
Cost and Expenses:
Cost of Sales.................................. 49,202 30.6 51,891 29.0 52,121 29.8
Restaurant Labor............................... 45,648 28.4 48,583 27.1 47,239 27.0
Other Operating Costs.......................... 38,767 24.1 42,467 23.7 38,511 22.0
Selling, General and Administrative Expenses... 13,911 8.7 15,286 8.5 16,072 9.2
Depreciation and Amortization.................. 9,743 6.1 10,697 6.0 9,872 5.7
Write-Down of Assets and Restructuring and
Unusual Charges.............................. 7,833 4.9 4,853 2.7 - -
Interest Expense............................... 4,903 3.1 4,996 2.8 4,718 2.7
Interest Income................................ (1,240) (.8) (185) (.1) (191) (.1)
Other Income--Gain on Sale of Subsidiary....... - - (1,855) (1.1) - -
Total Costs and Expenses................... 168,767 105.1 176,733 98.6 168,342 96.3
Income (Loss) Before Income Taxes............... (8,216) (5.1) 2,422 1.4 6,598 3.7
Provision (Benefit) for Income Taxes............ (2,793) (1.7) (241) (.1) 2,312 1.3
Net Income (Loss)............................... $ (5,423) (3.4) $ 2,663 1.5 $ 4,286 2.4
</TABLE>
Management believes that the most meaningful approach to analyzing 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.
1996 COMPARED TO 1995
Revenues decreased by $18,604,000 from $179,155,000 in 1995 to $160,551,000 in
1996. The disposition of Paradise Bakery (December 1995) and the Islands
restaurants (May 1996) accounted for a combined decrease in revenues of
$16,853,000 in 1996. The closing of a total of four restaurants in the Chart
House division in 1995 and 1996 accounted for a decrease in revenues of
$2,300,000. One new Chart House, which opened in April 1996, contributed
revenues of $2,666,000. Chart House comparable sales (sales at restaurants open
the entire period of both years) fell by 1.4% due mostly to lower average check
amounts resulting from the introduction in early 1996 of certain lower-priced
menu items. Customer counts between the two years were relatively stable.
Restaurant-level operating margins were lower in 1996 than in 1995. Generally,
increased operating expenses without corresponding revenue increases placed
significant pressure on restaurant-level margins, contributing to unfavorable
operating results. Beginning in the early part of 1996, new menu items were
introduced at Chart House restaurants, most of which were priced lower than
other existing menu items. This changed the menu product mix, resulting in
significantly higher percentage food and hourly restaurant labor costs. Other
operating costs at the restaurants, which include expenses for rent,
maintenance, utilities, supplies, tableware, property taxes, insurance and other
services and costs, increased slightly as a percentage of revenues; however,
this increase was minimized as efforts were focused on reducing controllable
operating expenses.
The disposition of Paradise Bakery and the Islands restaurants impacts
comparisons of operating-related costs and expenses, in particular food costs.
Paradise Bakery and Islands historically had lower percentage food costs than
Chart House restaurants which stand-alone were approximately 29.7% for 1995.
Conversely, the disposed operations had higher percentage other operating costs
than Chart House restaurants.
Selling, general and administrative expenses decreased by $1,375,000, and as a
percentage of revenues increased
-10-
<PAGE>
from 8.5% in 1995 to 8.7% in 1996. There were decreases in costs resulting from
the disposition of Islands and reduction in administrative payroll costs.
Partially offsetting these decreases was a significant increase in marketing-
related expenses and increases in consulting and product development costs as
the Company pursued a revitalization program.
Depreciation and Amortization as percentage of revenues did not change
materially from 1995 to 1996.
In 1996, the Company incurred significant charges for write-down of assets and
restructuring-related activity. Total charges for the year of $7,833,000
included severance and special compensation costs of $1,430,000 related to the
turnover of two chief executive officers and other management employees in a
series of company reorganization moves, a charge of $4,198,000 to write down the
investment in an Islands limited partnership, concurrent with a decision by
Islands Florida LP to dispose of all its properties in Florida, and the
remainder primarily consisting of write-downs of certain assets and properties
to estimated net realizable value. Restructuring charges in 1995 included asset
write-downs and other costs associated with the decision to dispose of selected
restaurant properties, and employee severance costs.
Interest expense in 1996 was $93,000 lower than in 1995 due to reduced average
borrowing levels (the result of cash proceeds received from the sale of Paradise
Bakery in December 1995), and from lower prevailing interest rates in 1996 under
the revolving credit agreement. Partially offsetting the decrease was an
increase in interest costs from capitalized lease additions.
Interest income in 1996 increased by $1,055,000 over 1995 due primarily to
interest earned on a note received in connection with the sale of the Islands
restaurant operations in May 1996.
The effective rate for the benefit for income taxes was 34% for 1996. The
significant loss reported in 1996 generated a tax benefit as a result of the
Company's ability to carry back the loss against previous years' taxable income.
The tax benefit generated in 1995 is primarily the result of the Company's
utilization of significant federal tax credits from employment-related FICA
taxes paid on tip earnings reported by the Company's employees.
As a result of the foregoing, net income decreased by $8,086,000 from
$2,663,000 in 1995 to a loss of $5,423,000 in 1996.
1995 COMPARED TO 1994
Revenues increased by $4,215,000 from $174,940,000 to $179,155,000. Newly-
opened Islands restaurants accounted for an increase in revenues of $9,115,000.
The Company's wholesale bakery increased its sales by $2,030,000 over 1994, due
primarily to the addition of the Starbucks Coffee Company retail account. The
sale of the Cork 'N Cleaver restaurants at the end of 1994 accounted for a
decrease in revenues of $3,123,000. Comparable restaurant sales (sales at
restaurants open the entire period of both years) fell by approximately
$3,500,000, or 2.2% from the previous year. The decrease was primarily the
result of decreases in customer counts at Chart House and Islands restaurants,
offset somewhat by higher check averages at the restaurants. Menu price
increases for 1995 averaged approximately 1% at Chart House restaurants and 2%
at Islands.
Restaurant level operating margins decreased from 1994 to 1995. Generally,
weaker restaurant sales in 1995 placed pressure on restaurant operating margins.
Cost of sales decreased as a percentage of revenues mainly because of lower
costs of beef and chicken products and improved control of food costs at Islands
restaurants. Restaurant labor as a percentage of revenues remained, for the most
part, even with the 1994 level, as management continued its efforts to control
hourly employee labor costs at the restaurants despite the softness in 1995
sales. However, other operating costs, which include expenses for rent,
maintenance, utilities, supplies, tableware, property taxes, insurance and other
services and costs, increased as a percentage of revenues in 1995. The higher
percentage was primarily the result of increased direct promotional costs of
redeeming Aloha Club awards at the Chart House restaurants, an increase in
insurance expenses, and new Islands restaurants, which have had higher occupancy
and other operating costs as a percentage of revenues.
Restructuring charges of $4,853,000 included asset write-downs and other costs
associated with the decision to dispose of three Chart House restaurants and two
former restaurant properties, as well as employee severance costs. The
restructuring charges were an outgrowth of a strategic plan adopted by the
Company to refocus on its core business--Chart House restaurants--through
revitalization of facilities, enhancement of menu offerings and increased
marketing efforts, and selectively disposing of restaurants that do not meet
performance criteria. As part of the plan, the Company sold the Paradise Bakery
division (see below) and initiated steps to sell the Islands restaurant
operations. The Paradise Bakery division in 1995 had revenues of $4,700,000 and
income before income taxes of $700,000. The Islands restaurant division, which
contributed revenues of $23,225,000 in 1995 and $15,100,000 in 1994, had not
provided a significant amount of earnings for the Company for the past two
years. The decision to sell Islands was largely the result of the Company's
dissatisfaction that overall returns on its investment in Islands did not meet
expectations. In May 1996, the Company completed the sale of a 75% interest in
its Islands restaurants to two affiliated partnerships of Islands Restaurants,
L.P.
-11-
<PAGE>
Selling, general and administrative expenses as a percentage of revenues
decreased from 9.2% in 1994 to 8.5% in 1995. Marketing expenditures for the
Chart House Aloha Club were lower in 1995 than in 1994, as there were
significant start-up costs in 1994 for the Aloha Club, and costs for redeeming
award certificates were shifted to restaurant operations in 1995. In addition,
the Company reduced personnel and overhead costs at the Islands organization in
1995. Partially offsetting these decreases was an increase in consulting fees
for purposes of strategic planning and related matters, food development,
concept design and compensation planning. There were unusual credit items in
both years, which reduced selling, general and administrative expenses, as
follows: In 1994, the Company recorded the final settlement of an insurance
claim in the amount of $300,000; and, in 1995, the Company recognized income of
$185,000 from non-refundable deposits (net of legal costs incurred) received
from a party who was unsuccessful in acquiring Paradise Bakery, Inc.
Depreciation and Amortization increased slightly as a percentage of Revenues
because of the addition of several new Islands restaurants, which generally have
shorter asset lives and higher relative asset costs than the older base of Chart
House restaurants.
Interest Expense increased by $278,000 in 1995 due primarily to higher
prevailing interest rates under the revolving credit agreement in 1995.
Other Income in 1995 of $1,855,000 represents the gain on the sale of the
Company's wholly-owned subsidiary, Paradise Bakery, Inc.
The Provision for Income Taxes for 1994 reflected an effective rate of 35%.
The effective rate recorded through the first nine months of 1995 was 31%. The
rate decrease resulted primarily from an estimated increase in the amount of
federal tax credit for employment-related FICA taxes paid on tip earnings
reported by the Company's employees. In the fourth quarter of 1995, additional
tax credits in the amount of $1.0 million related to those FICA taxes were
recognized, thereby creating a benefit for income taxes for the year of 1995.
The additional credits were determined based on a year-end analysis and revision
of previous estimates.
As a result of the foregoing, Net Income decreased by $1,623,000 from
$4,286,000 in 1994 to $2,663,000 in 1995.
OPERATING TRENDS AND OUTLOOK
The 1996 fiscal year was a difficult transition year for the Company. The
introduction of new menu items at Chart House restaurants in the early part of
1996, which included pasta entrees at all restaurants and other specialty dishes
and appetizers at the majority of restaurants, represented an initial phase of a
long-term program to revitalize the Chart House restaurants. The program, in
addition to placing a greater emphasis on food, relies on remodeling and
increased marketing efforts to drive restaurant sales. The immediate impact in
1996 of the menu changes was an increase in operating expenses, especially food
and restaurant hourly labor costs, which had a significantly adverse effect on
1996 restaurant operating results. Remodeling efforts in 1996 were largely
focused on two restaurants (see below). Marketing efforts included significant
advertising and promotional activity for the remodeled restaurants as well as
several company-wide promotional campaigns, which resulted in increased selling,
general and administrative costs. In addition, management believes that
organizational changes and senior management turnover disrupted operations
throughout the year.
In mid-1996, management began making further changes to recipes, purchasing
and menu pricing. Management also reviewed labor scheduling and other processes
for cost-saving opportunities and took steps to reduce certain controllable
expenses at both restaurant and corporate levels. Management believes that these
actions contributed to an improvement in fourth quarter 1996 operating results,
and that these and other measures, especially in the food and supply purchasing
area, should have a positive effect on operating results in 1997. Also, the
Company plans to reduce 1997 marketing expenses by scaling back company-wide
promotional efforts and concentrating on more effective, locally-based marketing
programs. There can be no assurances, however, that operating results will
improve in 1997.
On October 1, 1996, the Federal minimum hourly wage increased from $4.25 to
$4.75 per hour, and will increase further to $5.15 on September 1, 1997.
Additionally, in November 1996, California voters passed an initiative to
increase the minimum hourly wage to employees based in California (a state in
which the Company operates 19 restaurants) from the current Federal minimum wage
to $5.00 on March 1, 1997, increasing again to $5.75 on March 1, 1998.
Management believes these measures will increase the Company's 1997 labor costs
and is taking steps to minimize the impact of the increased wage rates.
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 with three banks which at
December 30, 1996 provided a $24,000,000 line of credit (reduced from
$40,000,000 in August 1996, as discussed below) with interest at the agent
bank's base rate (or LIBOR plus 1.50%). Net cash flows from operating, financing
and investing activities are used primarily to reduce or increase those
borrowings. In 1996, the Company increased its revolving credit debt by
$3,926,000. At December 30, 1996, the Company had outstanding borrowings of
$19,200,000 under the revolving credit agreement.
In July 1996, the Company paid the first principal installment of $3,000,000
under the 10.4% senior secured note, reducing the amounts outstanding under the
two
-12-
<PAGE>
senior secured notes from $34,000,000 to $31,000,000. An aggregate of $6,000,000
of principal installments under these notes are due in 1997.
Capital expenditures for the 1996 fiscal year, which totaled $11.5 million,
included, among other things, expenditures for major remodels of two Chart House
restaurants and construction of a newly-opened Chart House restaurant in the
Cincinnati, Ohio/Northern Kentucky metropolitan area. Also included were
expenditures of approximately $1.4 million related to Islands restaurants, which
were sold in May 1996.
The Company's 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 approximately the next three years
under the revitalization program. The Malibu Chart House was the first
restaurant remodel completed under the program, in April 1996. A second
restaurant remodel, in Cardiff, California, was completed in August, 1996. Each
of these two remodels featured an interior redesign, new decor package and
upgraded kitchen and cook line to accommodate an expanded menu. The newly-opened
Chart House in Cincinnati is modeled similarly. Management believes that future
remodels for the majority of restaurants under the revitalization program will
be less extensive and require less capital outlay than the Malibu and Cardiff
remodels, which cost approximately $1.5 million each. For 1997, the Company has
planned upgrading activity for approximately twenty restaurants, which will
devote capital resources, in a cost-effective way, to the components that
management believes will be noticed by its customers: paint, carpeting,
lighting, sound systems, and cook line upgrades, among other things. Projected
total capital expenditures for 1997 are between $6 and $8 million.
Management believes that cash flows from operations will be sufficient to fund
planned capital expenditure activity in 1997. Borrowings under the revolving
credit agreement are expected to be available to meet any other funding
requirements not met by cash flows from operations.
In August 1996, the Company and its lenders amended the existing debt
agreements, including the revolving credit agreement with the banks and the two
senior secured note agreements with an insurance company, and the lenders waived
the Company's non-compliance with two loan covenant ratios as of the end of the
1996 second quarter. The revolving credit agreement was amended to reduce the
amount of the banks' revolving credit commitment from $40 million to $24
million. The loan covenants covered by the waiver were an interest coverage
ratio and a fixed charge coverage ratio which were not in compliance for the
twelve-month period ended July 1, 1996. The Company recorded restructuring
charges and certain special charges in the fourth quarter of 1995 and first half
of 1996, respectively, which contributed to the lower earnings amounts used in
computing the two ratios. Pending the outcome of further discussions with the
lenders, the Company postponed any significant capital expenditures for remodels
of restaurants as part of the Chart House restaurant revitalization program.
In November 1996, the Company and its lenders agreed to further amend certain
terms of the existing debt agreements and establish October 1, 1997 as the due
date for outstanding revolving credit borrowings, while concurrently eliminating
the Company's right to convert the revolving credit borrowings to a five-year
term loan. In addition, the principal payments of $3,000,000 payable in January
1997 and $3,000,000 payable in July 1997 under the two senior secured notes were
deferred until October 1, 1997. In connection with these amendments, the lenders
waived the Company's non-compliance with the same two loan covenant ratios
referred to above for the third quarter of 1996. New loan covenant measures were
set for future quarterly periods beginning with the fourth quarter of 1996. The
Company was in compliance with the loan covenants under its amended debt
agreements at December 30, 1996.
The Company began in late-1996 to seek and obtain alternative financing in
order to reduce the amounts owed to its existing lenders and to provide capital
needed to enable the Company to move forward with its strategic plan.
In March 1997, the Company agreed to sell 3.4 million newly-issued shares of
common stock in a private placement to an investment company at $5.75 per share,
for a total sale price of $19,550,000. The initial sale of 1,641,750 shares for
$9.4 million was completed in March 1997. An additional 1,758,250 shares will be
sold for $10.1 million, subject to approval by the Company's shareholders at the
annual meeting which is expected to be held in May 1997. The Company intends to
use the net proceeds from the sale of stock, less estimated transaction costs of
$1.1 million, to repay existing indebtedness. The Company will use net proceeds
from the initial sale transaction to repay the $6.0 million of 1997 scheduled
principal installments owed under the two senior secured notes. The remainder of
the net proceeds from the initial sale will be applied to reduce borrowings
under the revolving credit agreement. The Company's lenders have agreed to
extend the maturity date on the revolving credit borrowings from October 1, 1997
to April 1, 1998, and to make certain other immediate modifications to the
amended debt agreements, including a reduction in the revolving credit
commitment amount from $24 million to $20.4 million. Giving effect to the sale
of the initial shares and the application thereof to the revolving credit
borrowings, management believes the Company will have sufficient liquidity under
its credit facility. The Company has entered into discussion with its lenders to
modify certain terms of the existing credit facility. Among other modifications,
the Company will seek to establish a longer term revolving credit facility. The
Company's lenders have notified the Company that any such modifications would be
contingent upon, among other conditions, completing the sale of the additional
$10.1 million shares. There can be no assurance that such debt agreements will
be modified on terms satisfactory to the Company.
-13-
<PAGE>
EFFECT OF INFLATION; OTHER COST INCREASES
The Company generally has been able to increase menu prices or make other
adjustments to substantially offset increases in its operating costs resulting
from inflation. For 1996, the Company had a weighted menu price increase of
approximately 1% at the Chart House restaurants. It is anticipated that menu
prices for 1997 will not be raised significantly. Although management does not
anticipate that inflation will have a material effect on income from restaurant
operations in 1996, future increases in labor, food or other operating costs
could adversely affect the Company's operating results.
Management believes that interest rates on its outstanding borrowings could
increase in 1997. In the November 1996 amendment to the Company's debt
agreements, the lenders added a provision which would increase interest rates by
two percentage points effective July 1, 1997. Management believes that the terms
of that amendment, which also included an acceleration of debt maturities, were
set by the lenders to encourage the Company to seek and obtain alternative
financing to reduce outstanding debt levels (which the Company has, in fact,
accomplished). The Company and its lenders are currently in discussions
regarding modification of terms of the existing debt agreements, taking into
account the Company's improved financial position resulting from the sale of
common stock described above. Management believes that the provision to increase
interest rates at mid-year should be eliminated, although there may be some
interest rate adjustment as part of a restructuring of credit facilities.
SEASONALITY AND OTHER INFORMATION
Historically, the Company's business is seasonal in nature with Revenues and
Net Income for the second and third quarters greater than in the first and
fourth quarters.
In 1996, the Company switched from a calendar-based fiscal year to a 52/53-
week fiscal year. This reporting method is used by many companies in the
restaurant and retail industries and is meant to improve future year-to-year
comparisons of operating results. In 1996, the fiscal year consisted of four
equal 13-week quarterly periods ended April 1, July 1, September 30 and December
30. This change did not have a material effect on reported results for the
fiscal year ended December 30, 1996. However, the first fiscal quarter of 1997
will benefit from the inclusion of December 31, which historically is the
highest sales day for the Chart House restaurants.
The Company's wholesale baking subsidiary, Solana Beach Baking Company, has
expanded its business over the past few years, primarily with the addition of
retail and grocery accounts. Sales for the baking company were $5,005,000 in
1996 and $4,772,000 in 1995, and pre-tax earnings for the respective periods
were approximately $830,000 and $1,100,000.
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 from those projected in the forward looking statements.
-14-
<PAGE>
SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenues $160,551 $179,155 $174,940 $157,137 $158,500
Depreciation and Amortization 9,743 10,697 9,872 9,395 9,528
Restructuring and Other Charges (1) 7,833 4,853 - - 4,129
Interest Expense 4,903 4,996 4,718 5,351 5,407
Interest Income (1,240) (185) (191) (177) (105)
Other Income-Gain on Sale of Subsidiary (2) - (1,855) - - -
Income (Loss) Before Income Taxes
and Extraordinary Item (8,216) 2,422 6,598 7,227 741
Income (Loss) Before Extraordinary Item (5,423) 2,663 4,286 4,147 293
Extraordinary Item (3) - - - (172) -
Net Income (Loss) (5,423) 2,663 4,286 3,975 293
Income (Loss)Per Common Share
Before Extraordinary Item (.66) .32 .52 .50 .04
Extraordinary Item - - - (.02) -
Net Income (Loss) Per Common Share $(.66) $.32 $.52 $ .48 $.04
Weighted Average Shares Outstanding 8,254 8,277 8,292 8,285 8,219
Balance Sheet Data (End of Period):
Total Assets $148,925 $153,446 $156,709 $147,008 $137,593
Current Portion of Long-Term Indebtedness 6,772 3,401 646 782 4,733
Long-Term Indebtedness 50,499 51,694 61,982 56,209 48,012
Stockholders' Equity 71,308 76,652 73,958 69,582 65,522
</TABLE>
(1) Restructuring and Other Charges in 1996 and 1995 include amounts to write
down assets to their estimated net realizable value and estimated costs
related to ceasing operations and selling the restaurants, as well as
employee severance costs. Restructuring charges in 1992 were primarily the
result of terminating development of a new restaurant concept.
(2) Other Income in 1995 represents the gain recorded on the sale of the
Company's wholly-owned subsidiary, Paradise Bakery, Inc.
(3) Extraordinary Item in 1993 represents a prepayment penalty on early
retirement of debt in the amount of $300,000, net of the related income tax
benefit of $128,000.
-15-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Data)
DEC. 30, DEC. 31
ASSETS 1996 1995
<S> <C> <C>
Current Assets:
Cash........................................................... $ 204 $ 245
Accounts Receivable............................................ 4,807 3,973
Refundable Income Taxes........................................ 1,852 -
Inventories.................................................... 3,226 3,900
Prepaid Expenses and Other Current Assets...................... 882 1,592
Total Current Assets......................................... 10,971 9,710
Property and Equipment, at Cost:................................
Land........................................................... 7,655 7,655
Buildings...................................................... 27,207 27,871
Equipment...................................................... 39,530 46,376
Leasehold Interests and Improvements........................... 72,011 85,225
Construction in Progress....................................... 787 3,813
147,190 170,940
Less: Accumulated Depreciation and Amortization................. 53,643 52,924
Net Property and Equipment..................................... 93,547 118,016
Leased Property under Capital Leases, Less Accumulated
Amortization of $4,561 in 1996 and $4,051 in 1995............... 5,672 4,456
Assets of Business Transferred Under Contractual Arrangements... 23,416 -
Other Assets and Goodwill, Net.................................. 15,319 21,264
$148,925 $153,446
DEC. 30, DEC. 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
Current Liabilities:
Current Portion of Long-Term Debt.............................. $ 6,000 $ 3,000
Current Portion of Obligations under Capital Leases............ 772 401
Accounts Payable............................................... 3,303 4,240
Accrued Liabilities............................................ 13,466 12,941
Total Current Liabilities.................................... 23,541 20,582
Long-Term Debt.................................................. 44,200 46,274
Long-Term Obligations under Capital Leases...................... 6,299 5,420
Deferred Income Taxes........................................... 3,577 4,518
Commitments and Contingencies
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;
8,262,513 shares outstanding in 1996 and 8,216,123 in 1995..... 83 82
Additional Paid-In Capital..................................... 42,145 42,067
Retained Earnings.............................................. 29,080 34,503
Total Stockholders' Equity................................... 71,308 76,652
$148,925 $153,446
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
-16-
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
DEC. 30, DEC. 31, DEC. 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues.......................................... $160,551 $179,155 $174,940
Costs and Expenses:
Cost of Sales.................................... 49,202 51,891 52,121
Restaurant Labor................................. 45,648 48,583 47,239
Other Operating Costs............................ 38,767 42,467 38,511
Selling, General and Administrative Expenses..... 13,911 15,286 16,072
Depreciation and Amortization.................... 9,743 10,697 9,872
Write-Down of Assets and Restructuring and
Unusual Charges.................................. 7,833 4,853 -
Interest Expense................................. 4,903 4,996 4,718
Interest Income.................................. (1,240) (185) (191)
Other Income -- Gain on Sale of Subsidiary....... - (1,855) -
Total Costs and Expenses....................... 168,767 176,733 168,342
Income (Loss) Before Income Taxes................. (8,216) 2,422 6,598
Provision (Benefit) for Income Taxes.............. (2,793) (241) 2,312
Net Income (Loss)................................. $ (5,423) $ 2,663 $ 4,286
Net Income (Loss) Per Common Share................ $(.66) $.32 $.52
Weighted Average Shares Outstanding............... 8,254 8,277 8,292
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 8,140 $81 $ 41,947 $ 27,554 $ 69,582
Exercise of Stock Options 56 1 89 - 90
Net Income - - - 4,286 4,286
Balance, December 31, 1994 8,196 82 42,036 31,840 73,958
Exercise of Stock Options 20 - 31 - 31
Net Income - - - 2,663 2,663
Balance, December 31, 1995 8,216 82 42,067 34,503 76,652
Exercise of Stock Options 46 1 78 - 79
Net Loss - - - (5,423) (5,423)
Balance, December 30, 1996 8,262 $83 $ 42,145 $ 29,080 $ 71,308
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-17-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
DEC. 30, DEC. 31, DEC. 31,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss)...................................... $ (5,423) $ 2,663 $ 4,286
Adjustments to Reconcile Net Income (Loss)
to Cash Flows Provided by Operating Activities:
Depreciation and Amortization........................ 9,743 10,697 9,872
Deferred Income Taxes................................ (941) (1,957) 117
Loss on Retirement and Write-Down of Assets.......... 6,999 4,912 379
Gain on Sale of Subsidiary........................... - (1,855) -
Change in Net Current Liabilities.................... (2,529) 2,745 (1,194)
Cash Provided by Operating Activities................ 7,849 17,205 13,460
Cash Flows from Investing Activities:
Expenditures for Property and Equipment................ (11,481) (17,351) (18,994)
Reductions (Additions) to Other Assets and Goodwill.... 865 344 (1,498)
Proceeds from Sale of Subsidiary....................... - 5,375 -
Proceeds from Sale/Leaseback of Asset.................. - 905 -
Net Proceeds from Disposition of Assets................ 1,596 441 870
Payments Received on Notes Receivable.................. 659 416 281
Cash Used in Investing Activities.................... (8,361) (9,870) (19,341)
Cash Flows from Financing Activities:
Principal Payments on Long-Term Obligations under
Capital Leases......................................... (534) (640) (782)
Net Borrowings (Payments) under Revolving Credit
Agreement.............................................. 3,926 (6,726) 6,600
Payments of Long-Term Debt............................. (3,000) - -
Proceeds from Issuance of Common Stock on
Exercise of Options.................................... 79 31 90
Cash Provided by (Used in) Financing Activities...... 471 (7,335) 5,908
Increase (Decrease) in Cash............................. (41) - 27
Cash, Beginning of Year................................. 245 245 218
Cash, End of Year....................................... $ 204 $ 245 $ 245
The Change in Net Current Liabilities is Comprised of
the Following:
Decrease (Increase) in Accounts Receivable............. $ (263) $ 980 $ (619)
Increase in Refundable Income Taxes.................... (1,852) - -
Decrease (Increase) in Inventories..................... 53 (103) (515)
Decrease (Increase) in Prepaid Expenses and Other
Current Assets......................................... 280 (292) 365
Increase (Decrease) in Accounts Payable................ (937) 972 (995)
Increase (Decrease) in Accrued Liabilities............. 190 1,188 570
Change in Net Current Liabilities.................... $ (2,529) $ 2,745 $ (1,194)
Supplemental Cash Flow Disclosure:
Cash Paid During the Year For:
Interest (Net of Amount Capitalized).................... $ 5,037 $ 4,923 $ 3,946
Income Taxes............................................ $ 786 $ 1,505 $ 2,303
Non-Cash Investing and Financing Activities:
Notes Received from Sale of 75% of Islands Operations... $ 23,000 $ - $ -
Notes Received from Sale of Subsidiary.................. $ - $ 1,350 $ -
Capitalized Lease Obligations Incurred for Property
Additions and Acquisitions............................. $ 2,532 $ - $ -
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-18-
<PAGE>
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Chart House Enterprises, Inc. and its subsidiaries, all of which are wholly-
owned (hereinafter referred to as the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
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 used by many companies in the
restaurant and retail industries and is meant to 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 were April 1, July 1, September 30 and
December 30. This change did not have a material effect on reported results for
the fiscal year ended December 30, 1996.
Certain balances and amounts for 1994 and 1995 have been reclassified to
conform to the 1996 presentation.
NATURE OF OPERATIONS
The Company is engaged primarily in the restaurant business. At December 30,
1996, the Company operated 63 Chart House restaurants and one Peohe's
restaurant. The Company also operates a wholesale bakery.
The Company operates restaurants in 22 states, Puerto Rico and the U.S. Virgin
Islands, with a concentration of operations on the east and west coasts.
INVENTORIES
Inventories are priced at the lower of cost (first-in, first-out) or market,
and consist of the following (in thousands):
<TABLE>
<CAPTION>
DEC. 30, DEC. 31,
1996 1995
<S> <C> <C>
Food and Non-Alcoholic Beverages...................... $1,370 $1,388
Alcoholic Beverages................................... 1,195 1,223
Operating Supplies.................................... 661 1,289
$3,226 $3,900
</TABLE>
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets include, among other things,
deferred restaurant pre-opening costs which are amortized over a period of
twelve months from the opening dates of the respective restaurants. Pre-opening
costs consist of hiring and training-related expenses and other direct costs
associated with opening a restaurant. Deferred pre-opening costs amounted to
$208,000 and $681,000 at December 30, 1996 and December 31, 1995, respectively.
Amortization of deferred pre-opening costs for the fiscal years 1996, 1995 and
1994 was $767,000, $921,000 and $1,060,000, respectively.
PROPERTY AND EQUIPMENT AND LEASED PROPERTY
Depreciation and amortization are recorded for financial reporting purposes
using the straight-line method over the estimated useful lives of the assets.
Leasehold interests and improvements and leased property are amortized over the
shorter of the lease term or the asset life. The average estimated depreciable
lives for financial reporting purposes are 30 years for buildings, 22 years for
leasehold interests and improvements and leased property, and 9 years for
equipment.
Maintenance, repairs and minor purchases are expensed as incurred. Major
purchases of equipment and facilities, and major replacements and improvements
are capitalized. When assets are sold or otherwise disposed of, the cost and
related accumulated depreciation and amortization are removed from the accounts
and the resulting gains or losses are reflected in the accompanying consolidated
statements of operations.
OTHER ASSETS AND GOODWILL
Other assets and goodwill include costs of liquor licenses of $949,000 and
$1,067,000 at December 30, 1996 and December 31, 1995, respectively, which are
not being amortized because they have undefined lives. Islands territorial
rights were $3,800,000 at December 31, 1995 (see Note 3). Goodwill was
$12,464,000 and $12,895,000 at December 30, 1996 and December 31, 1995,
respectively, net of accumulated amortization of $4,741,000 and $4,310,000,
respectively. The goodwill is being amortized using the straight-line method
over 40 years. The Company evaluates goodwill for impairment on an ongoing
basis.
LONG-LIVED ASSETS
On a regular basis, the Company evaluates and assesses its assets and
properties for impairment under the guidelines of Financial Accounting Standards
Board Statement No. 121 ("Accounting for Long-Lived Assets and for Long-Lived
Assets to be Disposed of"), and makes appropriate adjustments when an asset is
deemed to be impaired.
-19-
<PAGE>
FEES AND ROYALTIES
Since August 1994, the Company has operated a Chart House restaurant in
Weehawken, New Jersey under a management agreement with the owner of the
property that provides the Company with a management fee of 7% of sales of the
restaurant. Management fees related to this operation, which are included in
revenues in the accompanying statements of operations, were $502,000 in 1996,
$480,000 in 1995 and $170,000 in 1994.
The Company earned franchise fees and royalties from its franchised Paradise
Bakery operations, which were sold in December 1995 (see Note 3), and earned
management fees through operating under a management agreement certain Islands
restaurants, which were sold in May 1996 (also see Note 3). Total fees earned
related to these sold operations were $573,000, $2,716,000 and $2,676,000 in the
fiscal years 1996, 1995 and 1994, respectively.
INTEREST COSTS
Interest costs incurred during the construction period for new restaurants are
capitalized. Property additions for the Company include capitalized interest of
$76,000, $256,000, and $169,000 for the fiscal years 1996, 1995 and 1994,
respectively.
NET INCOME (LOSS) PER COMMON SHARE
Earnings per share calculations are based on the weighted average number of
common shares and common stock equivalents (stock options) outstanding during
the period. Anti-Dilutive securities are excluded from calculations of any loss
per share.
(2) RESTRUCTURING
At the end of 1995, the Company adopted a new strategic plan in an attempt to
improve shareholder returns by refocusing on its core business --Chart House
restaurants. The Company's Board of Directors approved management's
recommendation to sell the Islands and Paradise Bakery restaurant operations and
to modernize, revitalize and expand the Chart House restaurant concept. As part
of the strategic plan, the Company also decided to dispose of selected
underperforming Chart House restaurants and implement a plan for reorganizing
the management team and reducing administrative and operational overhead costs.
In December 1995, the Company completed the sale of Paradise Bakery, Inc. and
in May 1996, the Company completed the sale of its Islands restaurants division.
In 1995, the restructuring actions resulted in charges to income in the fourth
quarter of 1995 of $4,853,000 before income taxes. Approximately $4,443,000 of
these charges related to the Company's decision to dispose of three Chart House
restaurants and two former Chart House restaurant properties. The charges
included amounts to write down assets to their estimated net realizable value
and estimated costs to cease operations and sell the restaurants. The remainder
of the restructuring charges consisted of severance and related expenses for
certain management employees.
In 1996, the Company incurred additional charges to operations which were not
contemplated, nor part of, the 1995 restructuring actions. These charges
included, among other things, costs associated with the turnover of two chief
executive officers. In the first three quarters of 1996, the Company had
recorded $5,527,000 of special charges, $4,198,000 of which resulted from the
write-down of its investment in an Islands limited partnership (see Note 3), and
severance and special compensation costs of $1,095,000 resulting from a
significant reorganization of the Company's senior management team. In the
fourth quarter of 1996, the Company recorded additional charges of $2,306,000 to
cover severance costs and write-down to estimated net realizable value of
certain assets and one restaurant property to be disposed of.
The following table summarizes the charges for write-down of assets and other
restructuring activity, as presented in the accompanying statements of
operations:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Severance and Special
Compensation Costs...... $1,430,000 $ 410,000
Write-Down of Assets..... 6,403,000 4,443,000
$7,833,000 $4,853,000
</TABLE>
Of the six restaurant properties written down in 1995 and 1996, three have
been sold or otherwise disposed of. Included in property and equipment in the
accompanying consolidated balance sheets are assets held for disposal of
$696,000 at December 30, 1996 and $2,060,000 at December 31, 1995. The amount of
write-down and resulting carrying value of the respective assets at December 30,
1996 and December 31, 1995 include management's best estimates of the amounts to
be realized on the disposition of the assets. The amounts the Company will
ultimately realize may differ from the amounts assumed in arriving at the
aforementioned write-down.
(3) ACQUISITIONS AND DISPOSITIONS
In May 1996, the Company completed the sale of a 75% interest in its Islands
restaurants operations to two affiliated partnerships of Islands Restaurants,
L.P., the owner/licensor of the Islands concept, for a total sale price of $23
million in secured notes ($20 million from Islands CA/AZ Holdings, L.P., and $3
million from Islands Florida LP), with interest at 9% annually. The notes are
payable over a 20-year amortization period, with the remaining principal
balances due at the end of 15 years. The company has a 25% interest as a limited
partner in each of the partnerships, and is entitled to periodic distributions
based on available cash flows, as provided in the partnership agreements. As
part of the transaction, the existing area development and license agreement and
management agreement between the Company's subsidiary, Islands Restaurants, Inc.
and Islands Restaurants, L.P. terminated, thereby relieving the Company of its
-20-
<PAGE>
obligation to continue developing Islands restaurants, and reverting the license
and development rights back to Islands Restaurants, L.P., which also reassumed
responsibility for managing its 15 Islands restaurants in the Los Angeles and
Dallas markets as well as the 18 restaurants acquired from the Company. The
combined notes and 25% limited partner's interest are presented in the
consolidated balance sheet under the caption Assets of Business Transferred
under Contractual Arrangements. The Islands restaurants division had total
assets prior to the sale of approximately $29 million and its revenues for 1995
were approximately $23 million and income before income taxes was approximately
$67,000.
In November 1996, one of the partnerships, Islands Florida LP, consummated the
sale of six Islands restaurant properties to an unrelated third party. The sale
price consisted of $500,000 cash, plus an ongoing quarterly royalty payment
equal to 1% of the gross sales of the restaurants after being converted to a
different concept. In connection with this transaction, the Company recorded a
special charge of $4,198,000 to write down to net realizable value its note
receivable from and investment in Islands Florida LP.
The carrying value of the Company's remaining investment in Islands as of
December 30, 1996 has been reviewed for potential impairment in accordance with
SFAS No. 121 based on the estimated underlying future cash flows of the
partnerships. Any change in such estimate in the future could result in an
adjustment to the carrying amount of this asset.
In December 1995, the Company sold to an unrelated third party all of the
outstanding common stock of its wholly-owned subsidiary, Paradise Bakery, Inc.
The total sale price was $6,725,000, consisting of $5,375,000 cash proceeds and
a $1,350,000 note (see Note 4). The Company recognized a gain on sale of
$1,855,000 before income taxes, which is included in the accompanying 1995
consolidated statement of income. Paradise Bakery, Inc. had total assets prior
to the sale of approximately $4.7 million and its revenues for 1995 were
approximately $4.7 million and income before income taxes was approximately
$700,000.
In December 1994, the Company sold the assets of its Cork 'N Cleaver
subsidiary to a former management employee for a total cash sale price of
$1,133,000. The transaction was consummated in two stages in December 1994 and
April 1995. There was no material gain or loss recognized on the transaction.
The Company has guaranteed certain debt obligations of the buyer that relate to
this transaction (see Note 12).
(4) NOTES RECEIVABLE
At December 30, 1996 and December 31, 1995, the Company held $874,000 and
$1,350,000, respectively, in notes receivable from the buyer of Paradise Bakery,
Inc. (see Note 3). The amounts are included in other assets and goodwill in the
accompanying consolidated balance sheets net of deferred gain on sale of
$331,000 at December 30, 1996 and $450,000 at December 31, 1995. The note bears
interest at 10% and has scheduled quarterly principal payments beginning in
February 1997, with a maturity in November 1998.
(5) INCOME TAXES
The provision (benefit) for income taxes consists of the following components
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current.................................................................................... $(1,852) $ 1,716 $ 2,195
Deferred................................................................................... (941) (1,957) 117
Provision (Benefit)
for Income Taxes.......................................................................... $(2,793) $ (241) $ 2,312
</TABLE>
The components of deferred income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
DEC. 30, DEC. 31,
1996 1995
<S> <C> <C>
Excess of Tax Depreciation Over Book Depreciation........................................................ $ 6,660 $ 7,168
Compensation and Other Benefits Not Deducted Until Paid.................................................. (334) (311)
State Income Taxes....................................................................................... 50 76
Excess of Book Expense over Tax Expense Related to Restructuring Charges................................. (1,668) (1,869)
Excess of Book Expense over Tax Expense Related to Capitalized Leases.................................... (401) (361)
Deferred Tax Credits, including Targeted Jobs and FICA Credit Carry Forwards............................. (718) -
Other Deferred Costs..................................................................................... (12) (185)
Deferred Income Taxes.................................................................................... $ 3,577 $ 4,518
</TABLE>
The provision (benefit) for income taxes reconciles to the amounts computed by
applying the Federal statutory rate to income before tax as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory Federal Income Tax Provision................................. $(2,793) $ 824 $2,243
Amortization of Goodwill............................................... 103 117 134
State Income Taxes, Net of Federal Benefit............................. (156) 286 539
Other, Net, Including Targeted Jobs and FICA Tax Credits............... 53 (1,468) (604)
Provision (Benefit) for Income Taxes................................... $(2,793) $ (241) $2,312
</TABLE>
-21-
<PAGE>
(6) LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt of the Company is as follows (in thousands):
DEC. 30, DEC. 31,
1996 1995
<S> <C> <C>
Notes payable to banks under Revolving Credit Agreement, interest payable quarterly at
the banks' base rate (8.25% at December 30, 1996).............................................. $19,200 15,274
10.4% Senior Secured Notes, interest payable quarterly, principal due in installments
from 1996 through 2000 (a)...................................................................... 12,000 15,000
6.69% Senior Secured Notes, interest payable semi-annually, principal due in installments
from 1997 through 2001 (a)...................................................................... 19,000 19,000
50,200 49,274
Less: Current Portion........................................................................... 6,000 3,000
$44,200 $46,274
</TABLE>
(a) Amount is payable to an insurance company that is a principal stockholder of
the Company.
The amount of current portion of long-term debt at December 31, 1995
represented an installment under the 6.69% senior secured note, which was paid
in July 1996.
The Company and its lenders have entered into a security and inter-creditor
agreement with respect to the notes payable under the revolving credit agreement
and the senior secured notes, whereby all of the Company's assets have been
pledged as security to the lenders on a pro-rata basis in accordance with the
terms of the agreement.
In August 1996, the Company and its lenders amended the existing debt
agreements and the lenders waived the Company's non-compliance with two loan
covenant ratios as of the end of the 1996 second quarter. The revolving credit
agreement was amended to reduce the amount of the banks' revolving credit
commitment from $40 million to $24 million. The loan covenants covered by the
waiver were an interest coverage ratio and a fixed charge coverage ratio which
were not in compliance for the twelve-month period ended July 1, 1996. The
Company recorded restructuring charges and certain special charges in the fourth
quarter of 1995 and first half of 1996, respectively, which contributed to the
lower earnings amounts used in computing the two ratios.
In November 1996, the Company and its lenders agreed to further amend certain
terms of the existing debt agreements and establish October 1, 1997 as the due
date for outstanding revolving credit borrowings. In addition, the principal
payments of $3,000,000 payable in January 1997 and $3,000,000 payable in July
1997 under the two senior secured notes would be deferred until October 1, 1997.
In connection with these amendments, the lenders waived the Company's non-
compliance with the same two loan covenant ratios referred to above for the
third quarter of 1996. New loan covenant measures were set for future quarterly
periods beginning with the fourth quarter of 1996. The Company is in compliance
with the loan covenants under its debt agreements as of December 30, 1996.
As explained in Note 14, the lenders agreed to extend the maturity date on the
revolving credit borrowings from October 1, 1997 to April 1, 1998.
The revolving credit agreement provides for a commitment of $24,000,000. At
December 30, 1996, the unused portion of this credit line was $4,800,000. The
Company is required to pay a commitment fee of 3/8% on the unused amount of the
commitment. The Company must also maintain certain specified financial ratios.
The aggregate scheduled principal payments of long-term debt (not including
any amounts related to borrowings under the revolving credit agreement) for each
of the years 1998 through 2001 are as follows (in thousands):
<TABLE>
<S> <C>
1998 $7,000
1999 $8,000
2000 $7,000
2001 $3,000
</TABLE>
(7) LEASES
The Company is committed under long-term lease agreements primarily
involving land and restaurant buildings, improvements and equipment which expire
on various dates through 2031. Also, a substantial number of leases contain
renewal options ranging from five to fifty years. Certain of the leases require
the payment of an additional amount by which a percentage of annual sales
exceeds annual minimum rentals. The total amount of such contingent rentals for
the fiscal years 1996, 1995 and 1994 amounted to $2,254,000, $2,392,000 and
$2,542,000, respectively.
-22-
<PAGE>
CAPITAL LEASES
At December 30, 1996, minimum lease payments under long-term capital leases
were as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDING
<S> <C>
1997 $ 1,404
1998 1,356
1999 1,192
2000 1,111
2001 892
Thereafter 6,597
Total Minimum Lease Payments 12,552
Less: Amount Representing Interest 5,481
Total Obligations under Capital Leases 7,071
Less: Current Portion 772
Long-Term Obligations under Capital
Leases, with an Average Interest Rate of 9% $ 6,299
</TABLE>
Amortization of leased property under capital leases and interest expense on
the outstanding obligations under such leases were as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
1996 1995 1994
<S> <C> <C> <C>
Amortization $ 630 $ 688 $ 862
Interest Expense $ 572 $ 588 $ 685
</TABLE>
OPERATING LEASES
The Company is committed under long-term operating leases (primarily for
restaurant land) to make minimum rental payments as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDING
<S> <C>
1997 $ 3,398
1998 3,156
1999 3,035
2000 2,988
2001 2,719
Thereafter 20,368
$35,664
</TABLE>
The Company, as sublessor, subleased certain Paradise Bakery locations in
connection with the 1992 and 1993 franchise sales. Rentals received under these
subleases amounted to $293,000 and $286,000 for the fiscal years 1995 and 1994,
respectively.
Minimum rental expense for all operating leases, excluding contingent rent,
for the fiscal years 1996, 1995 and 1994 was $4,571,000, $5,560,000 and
$5,059,000, respectively.
(8) EMPLOYEE BENEFITS PLANS
The Company's 401(k) Plan allows qualified employees to contribute through
payroll deductions from 1% to 5% of gross pay. The Company makes basic matching
contributions to the plan equal to 25% of the employee's contribution, not to
exceed $1,250 per employee per year, plus a supplemental 25% matching
contribution on a quarterly basis if targeted financial results are achieved.
Company matching contributions and administrative costs associated with the plan
were $295,000, $282,000 and $269,000 for the fiscal years 1996, 1995 and 1994,
respectively.
The Company's Executive Benefit and Wealth Accumulation Plan allows qualified
key executives to defer compensation of at least $5,000 per year and to obtain
supplemental survivor and disability benefits.
(9) STOCK OPTION PLANS
In November 1985, the Board of Directors of the Company adopted an incentive
stock option plan (the "ISO Plan") for its key employees and reserved 455,000
shares of common stock for issuance at fair value as determined by the Board of
Directors. Options to purchase 455,000 shares of common stock were granted
between 1986 and 1988. The options are exercisable no later than ten years from
the date of grant. All options under this plan have been exercised as of
December 30, 1996.
In July 1989, the Board of Directors adopted and the stockholders of the
Company approved the 1989 Non-Qualified Stock Option Plan (the "1989 Plan")
which authorizes the grant of non-qualified stock options to purchase up to
250,000 shares of the Company's common stock. Under the 1989 Plan, options to
purchase 250,000 shares were granted in 1989 to certain senior management and
other employees at a fair market value exercise price of $13.50 per share. The
options vest at a rate of 25% per year over four years and expire ten years from
the date of grant. In December 1991, the Board of Directors approved an exchange
program giving option holders under the 1989 Plan an opportunity to surrender
their existing options in exchange for the reissuance of a new option with an
exercise price of $8.50 that covers one-half the number of shares covered by the
existing option. The exchange also required the four-year vesting schedule to
start over. Options covering a total of 7,250 shares were reissued in connection
with this program. In September 1995, the Board of Directors approved an
additional exchange program giving all option holders, excluding executive
officers, the opportunity to surrender their existing $13.50 options and $8.50
options for the reissuance of new options with an exercise price of $6.25 that
cover one-half the number of shares covered by the existing $13.50 options and
four-fifths the number of shares covered by the existing $8.50 options. The
exchange required a new two-year vesting period to start.
In February 1992, the Board of Directors adopted, and stockholders later
approved, the 1992 Stock Option Plan (the "1992 Plan"), which authorizes the
grant of options
-23-
<PAGE>
to purchase up to 310,000 shares of the Company's common stock. The options
under the 1992 Plan have been awarded as non-qualified stock options at an
exercise price no less than the fair market value of the common stock at the
date of grant. Through September 1995, management and other employees were
granted non-qualified stock options to purchase an aggregate of 377,000 shares
of common stock (which include option grants for shares totalling 70,500 related
to previously granted and forfeited options). The options vest at a rate of 20%
per year over five years and expire ten years from the date of grant. The
Company does not anticipate granting any additional options under this plan.
In May 1996, the Board of Directors adopted and the stockholders of the
Company approved the 1996 Stock Option Plan, which authorizes the grant of non-
qualified stock options or incentive stock options to employees to purchase up
to 1,000,000 shares of the Company's common stock. In 1996, options for 434,000
shares were granted to employees at exercise prices ranging from $4.88 to $6.50
per share, the fair market value at the date of grant. One option for 100,000
shares was granted to the Company's former chief executive officer, 50% of which
vested immediately. The remainder of the options granted vest at a rate of 20%
per year over five years. The options expire ten years from the date of
grant.
In addition to options granted under the plans described above, an option
to purchase 20,000 shares of common stock was granted to an officer in April
1988 at a price of $2.31 per share. The option vested over a five-year period
and will expire ten years from the date of grant. In 1996, this officer
exercised the option with respect to 5,000 shares. At December 30, 1996, the
option was outstanding and exercisable with respect to 10,000 shares.
There are 676,500 options available for future grant under the 1996 Plan.
There have been no charges to income with respect to any options granted.
The following table summarizes stock option transactions for the fiscal years
1994, 1995 and 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
ISO PLAN/ TOTAL OPTION PRICE
OTHER 1989 PLAN 1992 PLAN 1996 PLAN SHARES PER SHARE
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
December 31, 1993... 132,089 236,500 127,000 - 495,589 $ 11.64
Granted............ - - 163,000 - 163,000 $ 10.55
Exercised.......... (55,789) - - - (55,789) $ 1.61
Forfeited.......... - (28,750) (43,600) - (72,350) $ 11.02
Outstanding,
December 31, 1994... 76,300 207,750 246,400 - 530,450 $ 11.15
Granted............ - - 80,000 - 80,000 $ 6.25
Exercised.......... (19,910) - - - (19,910) $ 1.56
Forfeited.......... - (35,500) (38,900) - (74,400) $ 12.34
Surrendered........ - (72,750) - - (72,750) $ 8.50
Reissued........... - 37,800 - - 37,800 $ 6.25
Outstanding,
December 31, 1995... 56,390 137,300 287,500 - 481,190 $ 9.43
Granted............ - - - 434,000 434,000 $ 6.40
Exercised.......... (46,390) - - - (46,390) $ 1.70
Forfeited.......... - (34,250) (91,500) (110,500) (236,250) $ 8.00
Outstanding,
December 30, 1996... 10,000 103,050 196,000 323,500 632,550 $ 7.84
Exercisable at
December 30, 1996... 10,000 88,775 96,400 50,000 245,175 $ 9.38
</TABLE>
-24-
<PAGE>
Exercise prices for options outstanding at December 30, 1996 range from a
minimum of $2.31 per share to a maximum of $13.50 per share. The weighted
average remaining contractual life of options outstanding at December 30, 1996
is 7.85 years.
The Company applies Accounting Principles Board Opinion No. 25, ("Accounting
for Stock Issued to Employees"), and related interpretations in accounting for
its employee stock option plans and, accordingly, does not recognize
compensation expense. Had the Company elected to recognize compensation expense
based on the fair value at the grant date for options granted under the plans
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, ("Accounting for Stock-Based Compensation"), the
Company's net income (loss) and per share amounts would reflect the following
pro forma amounts (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net Income (Loss)
As Reported........ $(5,423) $2,663
Pro Forma.......... $(5,570) $2,632
Net Income (Loss)
Per Common Share:
As Reported........ $ (.66) $ .32
Pro Forma.......... $ (.67) $ .32
</TABLE>
The Company has options outstanding from the 1989 and 1992 Plans that have not
been included in the above pro forma amounts. Therefore, these amounts may be
understated.
The weighted average fair values of the options granted in 1996 and 1995 are
estimated as $2.82 and $2.17, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: expected stock price volatility of 46%, risk-free interest rates of
6.7% for the 1996 grants, and 5.8% for the 1995 grants, expected lives of 4.3
years for the 1996 grants and 2.7 years for the 1995 grants.
(10) STOCKHOLDERS' EQUITY
The Company's preferred stock may be issued in one or more series and the
Board of Directors may fix the designation, powers, preferences, rights,
qualifications, limitations and restrictions of each class or series so
authorized.
In connection with the Company's initial public offering in 1989, warrants to
purchase a total of 435,000 shares of the Company's common stock were issued to
two stockholders. The warrants, which have a price per share of $18.00, became
exercisable in September 1993 and expire in September 1997.
In May 1996, the Board of Directors' adopted and stockholders of the Company
approved the 1996 Nonemployee Director Stock Compensation Plan. The plan
provides the right for each nonemployee director, at his or her election, to
receive the Company's common stock in lieu of receipt of compensation in the
form of cash and the automatic grant to each participating director of an option
to purchase 2,500 shares of common stock as of the date of each annual meeting
of shareholders. There are a total of 50,000 shares reserved and available for
issuance under the plan. No shares were issued nor were there options granted
under this plan in the fiscal year ended December 30, 1996.
(11) SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
Accounts receivable at December 30, 1996 include reimbursable amounts of
$175,000 related to pre-opening construction, fixturizations, inventories and
operating costs for the Weehawken Chart House. The balance at December 31, 1995
was $896,000 and was included in other assets and goodwill. The reimbursable
amounts are being paid back to the Company from operating cash flows of the
restaurant, as defined in the management agreement with the owner of the
property. Also included in accounts receivable at December 31, 1996 is
$1,106,000 of insurance proceeds receivable in connection with Hurricane Marilyn
property damage and business interruption coverage.
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DEC. 30, DEC. 31,
1996 1995
<S> <C> <C>
Rent $ 708 $ 863
Sales Tax 737 889
Payroll and Payroll Taxes 2,139 2,730
Insurance 1,761 1,273
Interest 1,013 1,252
Unredeemed Gift Certificates 2,812 2,658
Other 4,296 3,276
$13,466 $12,941
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES
COMMITMENTS
At December 30, 1996, the Company had no material purchase commitments
relating to buildings and equipment.
LITIGATION AND OTHER CONTINGENCIES
The Company periodically is a defendant in cases incidental to its business
activities. While any litigation or investigation has an element of uncertainty,
the Company believes that the outcome of any of these matters will not have a
materially adverse effect on its financial condition or operations.
The Company maintains letters of credit to cover insurance reserves and other
contingencies. At December 30, 1996, outstanding letters of credit amounted to
$4,920,000.
The Company has guaranteed certain bank debt obligations of third parties with
an outstanding balance totalling $960,000 as of December 30, 1996.
-25-
<PAGE>
The Company is contingently liable, in certain circumstances, for certain
lease obligations of the Islands restaurants sold in 1996 (see Note 3).
(13) SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of the unaudited quarterly results of operations
for 1996 and 1995 (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
1996 APRIL 1 JULY 1 SEPT. 30 DEC. 30
<S> <C> <C> <C> <C>
Revenues $43,246 $43,897 $38,812 $34,596
Restaurant Operating Expenses 38,385 39,360 34,313 31,302
Selling, General and Administrative Expenses 3,883 3,582 3,104 3,342
Restructuring Charges 710 619 4,198 2,306
Interest Expense 1,178 1,181 1,306 1,238
Interest Income (36) (272) (480) (452)
Total Costs and Expenses 44,120 44,470 42,441 37,736
Income (Loss) Before Income Taxes (874) (573) (3,629) (3,140)
Provision (Benefit) for Income Taxes (244) (161) (1,320) (1,068)
Net Income (Loss) $ (630) $ (412) $(2,309) $(2,072)
Net Income (Loss) Per Common Share $(.08) $(.05) $(.28) $(.25)
Weighted Average Shares Outstanding 8,264 8,281 8,263 8,263
QUARTER ENDED
1995 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
Revenues $42,772 $46,563 $47,332 $42,488
Restaurant Operating Expenses 36,447 39,112 40,014 38,065
Selling, General and Administrative Expenses 3,820 4,008 3,597 3,861
Restructuring Charges - - - 4,853
Interest Expense 1,253 1,263 1,238 1,242
Interest Income (36) (56) (44) (49)
Other Income - - - (1,855)
Total Costs and Expenses 41,484 44,327 44,805 46,117
Income (Loss) Before Income Taxes 1,288 2,236 2,527 (3,629)
Provision (Benefit) for Income Taxes 400 695 784 (2,120)
Net Income (Loss) $ 888 $ 1,541 $ 1,743 $(1,509)
Net Income (Loss) Per Common Share $.11 $.19 $.21 $(.18)
Weighted Average Shares Outstanding 8,283 8,279 8,276 8,273
</TABLE>
The tax benefit for the fourth quarter of 1995 reflects additional tax credits
related to FICA taxes on tips of $1.0 million. These credits were determined
based on a year-end analysis and revision of previous estimates.
Historically, the Company's business is seasonal in nature with Revenues
and Net Income in the second and third quarters being greater than in the first
and fourth quarters.
-26-
<PAGE>
(14) SUBSEQUENT EVENT
On March 10, 1997, the Company agreed to sell 3,400,000 newly-issued shares of
common stock in a private placement to an investment company at $5.75 per share
for a total sale price of $19.5 million.
The initial sale of 1,641,750 shares for $9.4 million was completed in March
1997. An additional 1,758,250 shares will be sold for $10.1 million, subject to
approval of the Company's shareholders at the annual meeting which is expected
to be held in May 1997. The Company intends to use the net proceeds, after
transaction costs, to repay existing indebtedness.
The Company will use the net proceeds from the initial sale transaction to
repay $6.0 million of scheduled principal installments due in 1997 under the two
senior secured notes, with the remainder of the net proceeds from the initial
sale applied to reduce outstanding borrowings under the revolving credit
agreement. The Company's lenders have agreed to extend the maturity date of the
revolving credit borrowings from October 1, 1997 to April 1, 1998, reduce the
revolving credit commitment amount from $24 million to $20.4 million, and enter
into further discussions regarding modification of other terms under the
existing debt agreements.
-27-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Chart House Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Chart House
Enterprises, Inc. (a Delaware corporation) and subsidiaries as of December 30,
1996 and December 31, 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three fiscal
years in the period ended December 30, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Chart House
Enterprises, Inc. and subsidiaries as of December 30, 1996 and December 31,
1995, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended December 30, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
January 28, 1997
(except with respect to the matter
discussed in Note 14, as to which
the date is March 28, 1997)
-28-
<PAGE>
BOARD OF DIRECTORS
WILLIAM M. DIEFENDERFER III
Partner,
Wunder, Diefenderfer, Cannon &Thelen,
law firm
F. PHILIP HANDY
Partner, Winter Park Capital Company,
investment firm
WILLIAM R. KUNTZ, JR.
Executive Vice President -- Finance and Administration, General Counsel
and Secretary,
Chart House Enterprises, Inc.
WILLIAM E. MAYER
Partner, Development Capital LLC,
investment firm
ARTHUR J. NAGLE
Managing Director, Vestar Capital Partners, Inc.,
investment banking firm
SAMUEL ZELL
Chairman of the Board,Equity Group Investments, Inc.,
investment firm
CORPORATE OFFICES
115 S. Acacia Avenue
Solana Beach, CA 92075-1803
(619) 755-8281
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
San Diego, California
TRANSFER AGENT & REGISTRAR
The First National Bank of Boston
c/o Boston EquiServe
P.O.Box 644
Boston, MA 02102-0644
ANNUAL MEETING
The Company's annual meeting of stockholders will be held Tuesday, May
20, 1997 at 8:30 a.m. at:
Del Mar Hilton
15575 Jimmy Durante Blvd.
Del Mar, CA 92014
COMPANY OFFICERS
WILLIAM R. KUNTZ, JR.
Executive Vice President -- Finance and Administration,
General Counsel and Secretary
STEPHEN J. McGILLIN
Executive Vice President -- Operations
ROY S. BREAM
Senior Vice President -- Real Estate and Development
NYDIA I. CASAS
Vice President -- Purchasing
TIMOTHY A. HALVERSON
Vice President -- Taxation
LEWIS M. JACKSON
Vice President -- Development
RANDALL P. McNAMARA
Vice President -- Operations
MICHAEL J. PLANT
Vice President -- Marketing
PAMELA J. ROBERTSON
Senior Vice President -- Human Resources
RICHARD D. TIPTON
Vice President and Assistant General Counsel
JAMES C. WENDLER
Vice President and Chief Accounting Officer
COMMON STOCK INFORMATION
The Company's Common Stock is listed on the New York Stock Exchange under the
trading symbol CHT. On March 21, 1997, there were 639 holders of record of the
Company's Common Stock. The Company has not paid any cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. The following table sets forth the quarterly high and low sales prices
for a share of the Company's Common Stock for the two most recent fiscal years.
<TABLE>
<CAPTION>
1996 HIGH LOW
<S> <C> <C>
First Quarter 6 7/8 5 1/8
Second Quarter 8 1/4 5 7/8
Third Quarter 6 7/8 5 3/8
Fourth Quarter 5 3/4 4 1/8
1995 High Low
<S> <C> <C>
First Quarter 9 3/8 6 3/4
Second Quarter 9 6 3/4
Third Quarter 7 5/8 5 7/8
Fourth Quarter 8 5 5/8
</TABLE>
SECFORM 10-K REPORT
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-K is available without charge to stockholders and may be
obtained by writing to:
William R. Kuntz, Jr.
Secretary
Chart House Enterprises, Inc.
115 S. Acacia Avenue
Solana Beach, CA 92075-1803
STOCKHOLDER MAILING LIST
The Company maintains a direct mailing list to ensure that stockholders
whose shares are held in the name of a brokerage firm, bank or other person may
receive corporate reports on a timely basis. If you would like your name added
to this list, please send us your request in writing.
-29-
<PAGE>
EXHIBIT 21
CHART HOUSE ENTERPRISES, INC.
SIGNIFICANT SUBSIDIARIES AS OF DECEMBER 30, 1996
<TABLE>
<CAPTION>
Name State of Incorporation Trade Name
- ---- ---------------------- ----------
<S> <C> <C>
Chart House, Inc. Delaware Chart House, Peohe's
Big Wave, Inc. Delaware
(formerly known as
Islands Restaurants, Inc.)
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements File Numbers 33-32501 and 33-34947.
ARTHUR ANDERSEN LLP
San Diego, California
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-30-1996
<CASH> 204
<SECURITIES> 0
<RECEIVABLES> 4,807
<ALLOWANCES> 0
<INVENTORY> 3,226
<CURRENT-ASSETS> 10,971
<PP&E> 147,190
<DEPRECIATION> 53,643
<TOTAL-ASSETS> 148,925
<CURRENT-LIABILITIES> 23,541
<BONDS> 50,499
0
0
<COMMON> 83
<OTHER-SE> 71,225
<TOTAL-LIABILITY-AND-EQUITY> 148,925
<SALES> 160,551
<TOTAL-REVENUES> 160,551
<CGS> 49,202
<TOTAL-COSTS> 49,202
<OTHER-EXPENSES> 101,991
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,903
<INCOME-PRETAX> (8,216)
<INCOME-TAX> (2,793)
<INCOME-CONTINUING> (5,423)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,423)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> (.66)
</TABLE>
