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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
COMMISSION FILE NUMBER 0-20574
------------------------
THE CHEESECAKE FACTORY INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 51-0340466
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
26950 AGOURA ROAD
CALABASAS HILLS, CALIFORNIA 91301
(Address of principal executive (Zip Code)
offices)
</TABLE>
Registrant's telephone number, including area code:
(818) 871-3000
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of July 31, 1998, 20,080,074 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
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<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
-----------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets--June 30, 1998 and December 30, 1997................ 1
Consolidated Statements of Operations--
Thirteen weeks and twenty-six weeks ended June 30, 1998 and June 29, 1997..... 2
Consolidated Statements of Cash Flows--
Twenty-six weeks ended June 30, 1998 and June 29, 1997........................ 3
Notes to Consolidated Financial Statements--June 30, 1998....................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................ 14
Signatures...................................................................... 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER
ASSETS 1998 30, 1997
--------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................... $ 35,702 $ 43,543
Investments and marketable securities............................... 18,105 8,508
Accounts receivable................................................. 1,349 2,164
Other receivables................................................... 3,564 8,087
Inventories......................................................... 5,420 5,069
Prepaid expenses.................................................... 1,394 963
Preopening costs.................................................... 9,296 9,690
--------- -----------
Total current assets.............................................. 74,830 78,024
--------- -----------
Property and equipment, net........................................... 98,898 88,064
--------- -----------
Other assets:
Marketable securities............................................... 4,717 1,500
Other receivables................................................... 6,217 6,875
Trademarks.......................................................... 1,519 1,256
Deferred income taxes............................................... 2,338 2,329
Other............................................................... 2,143 1,895
--------- -----------
Total other assets................................................ 16,934 13,855
--------- -----------
Total assets.................................................... $ 190,662 $ 179,943
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 10,268 $ 12,071
Income taxes payable................................................ 3,034 667
Other accrued expenses.............................................. 9,318 8,251
Deferred income taxes............................................... 6,409 6,409
--------- -----------
Total current liabilities......................................... 29,029 27,398
--------- -----------
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; none
issued and outstanding............................................ -- --
Common Stock, $.01 par value, 30,000,000 shares authorized;
20,078,074 and 19,893,312 issued and outstanding for 1998 and
1997, respectively................................................ 201 199
Additional paid-in capital.......................................... 116,427 114,185
Retained earnings................................................... 45,057 38,196
Marketable securities valuation account............................. (52) (35)
--------- -----------
Total stockholders' equity........................................ 161,633 152,545
--------- -----------
Total liabilities and stockholders' equity...................... $ 190,662 $ 179,943
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS TWENTY-SIX TWENTY-SIX
ENDED JUNE 30, ENDED JUNE 29, WEEKS ENDED WEEKS ENDED
1998 1997 JUNE 30, 1998 JUNE 29, 1997
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales............................. $ 59,843 $ 46,294 $ 114,810 $ 87,186
Bakery sales................................. 4,430 4,701 8,964 9,038
------- ------- --------------- -------
Total revenues............................. 64,273 50,995 123,774 96,224
------- ------- --------------- -------
Costs and expenses:
Cost of food, beverages and supplies......... 17,193 13,120 33,248 24,949
Bakery costs................................. 2,081 1,828 4,201 3,588
Operating expenses:
Labor...................................... 20,555 16,572 39,869 31,193
Occupancy and other........................ 9,680 7,944 18,947 15,417
General and administrative expenses.......... 5,762 4,678 10,539 8,970
Depreciation and amortization expenses....... 2,048 1,563 4,062 3,058
Preopening amortization expense.............. 1,939 1,647 4,143 2,918
------- ------- --------------- -------
Total costs and expenses................... 59,258 47,352 115,009 90,093
------- ------- --------------- -------
Income from operations....................... 5,015 3,643 8,765 6,131
Interest income (expense), net............... 761 (60) 1,495 27
Other income, net............................ 106 88 202 144
------- ------- --------------- -------
Income before income taxes................... 5,882 3,671 10,462 6,302
Income tax provision......................... 2,029 1,267 3,601 2,174
------- ------- --------------- -------
Net income................................... $ 3,853 $ 2,404 $ 6,861 $ 4,128
------- ------- --------------- -------
------- ------- --------------- -------
Net income per share:
Basic...................................... $ 0.19 $ 0.15 $ 0.34 $ 0.25
Diluted.................................... $ 0.19 $ 0.14 $ 0.33 $ 0.25
Weighted average shares outstanding:
Basic...................................... 20,065 16,441 19,998 16,430
Diluted.................................... 20,740 16,584 20,627 16,597
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JUNE 30, 1998 JUNE 29, 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 6,861 $ 4,128
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization.............................................. 4,062 3,058
Preopening amortization.................................................... 4,143 2,918
Loss on available-for-sale securities...................................... -- 66
Deferred income taxes...................................................... -- (5)
Changes in assets and liabilities:
Accounts receivable...................................................... 815 243
Other receivables........................................................ 5,181 (442)
Inventories.............................................................. (351) (113)
Prepaid expenses......................................................... (431) (322)
Preopening costs......................................................... (3,749) (2,705)
Trademarks............................................................... (291) (4)
Other.................................................................... (309) (646)
Accounts payable......................................................... (1,803) 59
Income taxes payable..................................................... 2,367 1,767
Other accrued expenses................................................... 1,067 1,603
------- -------
Cash provided by operating activities.................................. 17,562 9,605
------- -------
Cash flows from investing activities:
Additions to property and equipment.......................................... (14,808) (7,617)
Investments in available-for-sale securities................................. (21,395) --
Sales of available-for-sale securities....................................... 8,555 279
------- -------
Cash used by investing activities...................................... (27,648) (7,338)
------- -------
Cash flows from financing activities:
Common stock issued.......................................................... 2 --
Proceeds from exercise of employee stock options............................. 2,243 299
------- -------
Cash provided by financing activities.................................. 2,245 299
------- -------
Net change in cash and cash equivalents........................................ (7,841) 2,566
Cash and cash equivalents at beginning of period............................... 43,543 8,536
------- -------
Cash and cash equivalents at end of period..................................... $ 35,702 $ 11,102
------- -------
------- -------
Supplemental disclosures:
Interest paid................................................................ $ 24 $ 210
------- -------
------- -------
Income taxes paid............................................................ $ 1,234 $ 440
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying consolidated financial statements of The Cheesecake Factory
Incorporated and Subsidiaries (the "Company") for the thirteen weeks and
twenty-six weeks ended June 30, 1998 have been prepared in accordance with
generally accepted accounting principles and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. The financial statements presented herein have
not been audited by independent public accountants, but include all material
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
condition, results of operations and cash flows for such periods. However, these
results are not necessarily indicative of results for any other interim period
or for the full year. The consolidated balance sheet data presented herein for
December 30, 1997 was derived from the Company's audited consolidated financial
statements for the fiscal year then ended. The preparation of financial
statements in accordance with generally accepted accounting principles requires
the Company's management to make certain estimates and assumptions for the
reporting periods covered by the financial statements. These estimates and
assumptions affect the reported amounts of assets, liabilities, revenues and
expenses. Actual amounts could differ from these estimates.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to requirements of the Securities and Exchange Commission.
Management believes the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Form 10-K for the fiscal
year ended December 30, 1997.
NOTE B--INVESTMENTS AND MARKETABLE SECURITIES
Investments and marketable securities, all classified as available for sale,
consisted of the following as of June 30, 1998 (in thousands):
<TABLE>
<CAPTION>
BALANCE
UNREALIZED SHEET
CLASSIFICATION COST FAIR VALUE (LOSS) GAIN AMOUNT MATURITY
- ------------------------------------------------ --------- ----------- ------------- --------- --------------------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Various dates, all
Corporate obligations........................... $ 18,112 $ 18,105 $ (7) $ 18,105 before June 30, 1999
--------- ----------- --- ---------
--------- ----------- --- ---------
OTHER ASSETS:
Corporate obligations........................... $ 3,264 $ 3,264 $ -- $ 3,264 Various dates, all
before May 25, 2002
Preferred stocks................................ 1,508 1,453 (55) 1,453 No maturity dates
--------- ----------- --- ---------
Total......................................... $ 4,772 $ 4,717 $ (55) $ 4,717
--------- ----------- --- ---------
--------- ----------- --- ---------
</TABLE>
4
<PAGE>
THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE C--NET INCOME PER SHARE
Effective December 15, 1997, the Company adopted the provisions of SFAS No.
128, "Accounting for Earnings Per Share." SFAS No. 128 requires companies to
present basic earnings per share (EPS) and diluted EPS, instead of the primary
and fully diluted EPS presentations that were formerly required by Accounting
Principles Board Opinion No. 15, "Earnings Per Share." Basic EPS is computed by
dividing net income available to common stockholders by the weighted average
number of common shares outstanding during the period. For the Company, diluted
EPS includes the dilutive effect of potential stock option exercises, calculated
using the treasury stock method. EPS amounts for all periods presented reflect
the provisions of SFAS No. 128, including amounts presented for prior periods
which have been restated to conform with SFAS No. 128.
NOTE D--STOCK SPLIT
Earnings per share amounts for all periods presented reflect a three-for-two
stock split which was effective April 1, 1998.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS FORM 10-Q WHICH ARE NOT HISTORICAL FACTS
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE CHEESECAKE FACTORY
INCORPORATED AND ITS SUBSIDIARIES TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY FORWARD-LOOKING
STATEMENTS. SUCH RISKS, UNCERTAINTIES, AND OTHER FACTORS INCLUDE, BUT ARE NOT
LIMITED TO, THE FOLLOWING: CHANGES IN GENERAL ECONOMIC CONDITIONS WHICH AFFECT
CONSUMER SPENDING PATTERNS FOR RESTAURANT DINING OCCASIONS; INCREASING
COMPETITION IN THE UPSCALE CASUAL DINING SEGMENT OF THE RESTAURANT INDUSTRY;
ADVERSE WEATHER CONDITIONS WHICH IMPACT CUSTOMER TRAFFIC AT THE COMPANY'S
RESTAURANTS IN GENERAL AND WHICH CAUSE THE TEMPORARY UNDERUTILIZATION OF OUTDOOR
PATIO SEATING AVAILABLE AT SEVERAL OF THE COMPANY'S RESTAURANTS; EVENTS WHICH
INCREASE THE COST TO DEVELOP AND/OR DELAY THE DEVELOPMENT AND OPENING OF THE
COMPANY'S NEW, HIGHLY CUSTOMIZED RESTAURANTS; CHANGES IN THE AVAILABILITY AND/OR
COST OF RAW MATERIALS, MANAGEMENT AND HOURLY LABOR, AND OTHER RESOURCES
NECESSARY TO OPERATE THE COMPANY'S RESTAURANTS AND BAKERY PRODUCTION FACILITY;
THE SUCCESS OF OPERATING INITIATIVES, INCLUDING BRAND EXTENSIONS AND NEW
CONCEPTS; DEPTH OF MANAGEMENT; ADVERSE PUBLICITY; THE COMPANY'S DEPENDENCE ON A
SINGLE BAKERY PRODUCTION FACILITY; THE COMPANY'S ABILITY TO OBTAIN AND RETAIN
LARGE-ACCOUNT CUSTOMERS FOR ITS BAKERY OPERATIONS; CHANGES IN TIMING AND/OR
SCOPE OF THE PURCHASING PLANS OF LARGE-ACCOUNT BAKERY CUSTOMERS WHICH CAUSE
FLUCTUATIONS IN BAKERY SALES AND OPERATING RESULTS; THE RATE OF GROWTH OF
GENERAL AND ADMINISTRATIVE EXPENSES ASSOCIATED WITH BUILDING A STRENGTHENED
CORPORATE INFRASTRUCTURE TO SUPPORT THE COMPANY'S EXPANDED RESTAURANT AND BAKERY
OPERATIONS; THE AVAILABILITY, AMOUNT, TYPE, AND COST OF CAPITAL FOR THE COMPANY
AND THE DEPLOYMENT OF SUCH CAPITAL; CHANGES IN, OR ANY FAILURE TO COMPLY WITH,
GOVERNMENTAL REGULATIONS; THE REVALUATION OF ANY OF THE COMPANY'S ASSETS; THE
AMOUNT OF, AND ANY CHANGES TO, TAX RATES; AND OTHER FACTORS REFERENCED IN THIS
FORM 10-Q AND THE COMPANY'S FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE FISCAL YEAR ENDED DECEMBER 30, 1997.
GENERAL
As of June 30, 1998, the Company operated 24 upscale, high volume casual
dining restaurants and a bakery production facility. The Company's revenues
consist of sales from its restaurant operations and sales from its bakery
operations to other foodservice operators and distributors. Certain costs and
expenses relate only to restaurant sales (cost of food, beverages and supplies)
or only to bakery sales (bakery costs, which include ingredient, packaging and
supply costs). All other operating costs and expenses relate to both restaurant
and bakery sales. Comparable restaurant sales include the sales of restaurants
open for the full period of each period being compared.
At the end of calendar 1992, the Company adopted a 52/53 week fiscal year
ending on the Sunday closest to December 31 for financial reporting purposes.
Commencing with the start of fiscal 1998, the Company changed its fiscal week
and year-end from Sunday to Tuesday to facilitate certain operational
efficiencies. In order to effect the transition, the fourth quarter of fiscal
1997 was extended by two additional days to Tuesday, December 30, 1997. Fiscal
1998 will consist of 52 weeks and will end on Tuesday, December 29, 1998.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Consolidated
Statements of Operations of the Company expressed as percentages of total
revenues. The results of operations for the thirteen weeks
6
<PAGE>
and twenty-six weeks ended June 30, 1998, if annualized, are not necessarily
indicative of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
1998 1997 1998 1997
----------- ----------- ----------- -----------
% % % %
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales................................................... 93.1 90.8 92.8 90.6
Bakery sales....................................................... 6.9 9.2 7.2 9.4
----- ----- ----- -----
Total revenues............................................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Cost of food, beverages, and supplies.............................. 26.7 25.7 26.9 25.9
Bakery costs....................................................... 3.2 3.6 3.4 3.8
Operating expenses:
Labor............................................................ 32.0 32.5 32.2 32.4
Occupancy and other.............................................. 15.1 15.6 15.3 16.0
General and administrative expenses................................ 9.0 9.2 8.5 9.3
Depreciation and amortization expenses............................. 3.2 3.1 3.3 3.2
Preopening amortization expense.................................... 3.0 3.2 3.3 3.0
----- ----- ----- -----
Total costs and expenses..................................... 92.2 92.9 92.9 93.6
----- ----- ----- -----
Income from operations............................................... 7.8 7.1 7.1 6.4
Interest income (expense), net....................................... 1.2 (0.1) 1.2 0.0
Other income, net.................................................... 0.2 0.2 0.2 0.1
----- ----- ----- -----
Income before income taxes........................................... 9.2 7.2 8.5 6.5
Income tax provision................................................. 3.2 2.5 2.9 2.2
----- ----- ----- -----
Net income........................................................... 6.0 4.7 5.6 4.3
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
THIRTEEN WEEKS ENDED JUNE 30, 1998 COMPARED TO THIRTEEN WEEKS ENDED JUNE 29,
1997
REVENUES
For the thirteen weeks ended June 30, 1998, the Company's total revenues
increased 26% to $64.3 million versus $51.0 million for the thirteen weeks ended
June 29, 1997. Restaurant sales increased $13.6 million or 29% to $59.8 million
versus $46.3 million for the same period of the prior year. The $13.6 million
increase in restaurant sales consisted of a $1.6 million (3.5%) increase in
comparable restaurant sales for the period and a $12.0 million increase from the
openings of new restaurants. Sales in comparable restaurants benefited, in part,
from the impact of an effective menu price increase of approximately 1.5% which
was taken during the months of June and July 1997. Excluding the seven rain-
impacted Southern California restaurants from the base of comparable
restaurants, sales for the remaining 11 comparable restaurants increased 4.2%
during the thirteen weeks ended June 30, 1998. The Company implemented an
approximate 1.5% effective menu price increase during June and July 1998 in
connection with its semiannual menu update.
Bakery sales were $4.4 million for the thirteen weeks ended June 30, 1998, a
decrease of 5.8% versus the same period of the prior year. This decrease was
principally attributable to net lower bakery product purchases from chain
restaurant customers, partially offset by net higher product purchase levels
from warehouse club and other customers. The Company continues its efforts to
develop, test and qualify additional products for current and potential
large-account bakery customers.
7
<PAGE>
The Company developed a limited menu, self-service bakery cafe concept
during the first half of 1997 principally to extend The Cheesecake
Factory-Registered Trademark- brand and to provide another source of sales and
operating leverage for its bakery production facility. The first bakery cafe
opened in July 1997 in the Ontario Mills shopping complex near Los Angeles and
is operated by Host Marriott Services Corporation ("Host") under a licensing
agreement with the Company. During August 1997, the Company opened three small
bakery cafe outlets in the new terminal of the Ronald Reagan Washington National
Airport. These bakery cafe outlets are currently operated by the Company under a
subcontract with Host. The Company has signed an agreement to open and operate a
bakery cafe outlet in the Venetian casino and resort in Las Vegas, Nevada which
is currently planned for a 1999 opening. The Company also continues to evaluate
sites in the Los Angeles market for an additional bakery cafe outlet. If
successful, the bakery cafe concept could be more rapidly expanded than the
Company's full-service restaurants. Bakery sales include sales from
Company-operated bakery cafe outlets, which are not expected to be a material
component of the Company's total revenues in the near future.
COST OF FOOD, BEVERAGES AND SUPPLIES
During the thirteen weeks ended June 30, 1998, the cost of food, beverages
and supplies for the restaurants was $17.2 million versus $13.1 million for the
same period last year. The related increase of $4.1 million was primarily
attributable to new restaurant openings. As a percentage of restaurant sales,
these costs increased slightly to 28.7% versus 28.3% for the same period of the
prior year, principally as a result of higher produce and dairy-related
commodity costs due, in part, to unfavorable weather conditions in certain
crop-producing areas during the first quarter of 1998. The menu at the Company's
restaurants is one of the most diversified in the industry and, accordingly, is
not overly dependent on a single commodity. With respect to newly opened
restaurants, costs in this category will typically be higher than normal during
the first 90-120 days of operations until the restaurant staffs become more
accustomed to optimally managing and servicing the high sales volumes typically
experienced by the Company's restaurants.
BAKERY COSTS
Bakery costs, which include ingredient, packaging and production supply
costs, were $2.1 million for the thirteen weeks ended June 30, 1998 versus $1.8
million for the same period of the prior year. As a percentage of bakery sales,
bakery costs for the thirteen weeks ended June 30, 1998 increased to 47.0%
versus 38.9% for the comparable period last year. This percentage increase was
primarily due to higher costs for dairy-related commodities (principally cream
cheese, whipped cream and butter) and a shift in the mix of sales to products
with slightly higher bakery costs as a percentage of sales. The general level of
dairy-related commodity costs across the country increased significantly during
the first half of fiscal 1998 as a result of unfavorable weather and other
market conditions. Currently, the Company does not expect its costs for these
commodities to begin to abate until the fall of 1998. There can be no assurance
that future costs for these commodities, or any commodities used in the
Company's bakery or restaurant operations, will not begin to rise again due to
unfavorable weather or other market conditions beyond the Company's control.
OPERATING EXPENSES--LABOR
Labor expenses, which include restaurant-level labor and bakery direct labor
costs (including associated fringe benefits), were $20.6 million for the
thirteen weeks ended June 30, 1998 versus $16.6 million for the same period of
the prior year. This 24% increase was principally due to the impact of new
restaurant openings. As a percentage of total revenues, labor expenses decreased
slightly to 32.0% versus 32.5% for the comparable period last year.
8
<PAGE>
OPERATING EXPENSES--OCCUPANCY AND OTHER
Occupancy and other expenses for both the restaurants and the bakery
increased 22% to $9.7 million for the thirteen weeks ended June 30, 1998 versus
$7.9 million for the same period of the prior year. This increase was
principally attributable to new restaurant openings. As a percentage of total
revenues, occupancy and other expenses decreased slightly to 15.1% for the
thirteen weeks ended June 30, 1998 versus 15.6% for the same period of fiscal
1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist of bakery selling and
administrative expenses (including product development and marketing expenses),
certain restaurant administrative expenses (principally credit card discounts
and certain insurance-related expenses), restaurant field supervision expenses
(salaries and expenses of regional vice presidents and area directors of
operations) and corporate support expenses (salaries and related fringe
benefits, travel and other administrative expenses). General and administrative
expenses increased to $5.8 million for the thirteen weeks ended June 30, 1998
versus $4.7 million for the same period of fiscal 1997, an increase of $1.1
million or 23%. As a percentage of total revenues, general and administrative
expenses decreased slightly to 9.0% for the thirteen weeks ended June 30, 1998
versus 9.2% for the same period of fiscal 1997.
The Company expects to continue to strengthen its operational and corporate
support infrastructure during the remainder of fiscal 1998 and fiscal 1999 to
support its planned future growth. This strengthening will likely result in a
higher level of general and administrative expenses during those periods.
Additionally, the Company plans to aggressively pursue new large-account
customers for its bakery operations which will require continuing investments in
product development and marketing programs. One of the Company's principal
objectives is to more effectively leverage its operational and corporate support
infrastructure with higher sales volumes.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses were $2.0 million for the thirteen
weeks ended June 30, 1998 versus $1.6 million for the thirteen weeks ended June
29, 1997. As a percentage of total revenues, depreciation and amortization
expenses were 3.2% for the thirteen weeks ended June 30, 1998 versus 3.1% for
the same period of the prior year. The increase of $0.4 million for the thirteen
weeks ended June 30, 1998 was principally due to the openings of new
restaurants.
PREOPENING AMORTIZATION EXPENSE
Preopening amortization expense was $1.9 million for the thirteen weeks
ended June 30, 1998 versus $1.6 million for the thirteen weeks ended June 29,
1997. As a percentage of total revenues, preopening amortization expense
decreased slightly to 3.0% versus 3.2% for the same period of the prior year.
The increase in the dollar amount of preopening amortization expense was
principally due to six new restaurants amortizing their preopening costs during
the thirteen weeks ended June 30, 1998, versus five restaurants amortizing their
preopening costs during the same period of the prior year.
As a result of the highly customized and operationally complex nature of the
Company's restaurants, the restaurant preopening process is extensive and costly
relative to that of most chain restaurant operations. Preopening costs, which
often exceed $1 million per restaurant, include recruiting, training, relocation
and related costs for developing management and hourly staff for new
restaurants, as well as other costs directly related to the opening of new
restaurants. Preopening costs will vary from location to location depending on a
number of factors including, among others, the proximity of other established
Company restaurants, the size and layout of each location and the relative
difficulty of the restaurant staffing and training process.
9
<PAGE>
Consistent with the practice of many casual dining and upscale,
highly-customized restaurant entities, the Company defers its restaurant
preopening costs and amortizes them over the twelve-month period following the
opening of each respective restaurant. In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities." SOP 98-5 requires entities to expense as
incurred all start-up and preopening costs that are not otherwise capitalizable
as long-lived assets. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998, although earlier adoption is encouraged. Restatement of
previously issued financial statements is not permitted by SOP 98-5, and
entities are not required to report the pro forma effects of the retroactive
application of the new accounting standard. The Company's adoption of the
expense-as-incurred accounting principle required by SOP 98-5 will involve the
recognition of the cumulative effect of the change in accounting principle
required by SOP 98-5 as a one-time charge against earnings, net of any related
income tax effect, retroactive to the beginning of the fiscal year of adoption.
Total deferred preopening costs were $9.3 million at June 30, 1998. The Company
is currently considering its options with respect to the timing of adoption of
SOP 98-5.
As has been the case with the Company's current deferred method for
accounting for preopening costs, preopening expense comparisons under the new
expense-as-incurred standard will continue to vary from period to period
depending on the number and timing of restaurant openings and the specific
preopening expenses incurred for each restaurant during each period being
compared. Based on the Company's current expansion plans, the Company believes
total preopening expenses for fiscal 1998 and 1999 under either accounting
principle (deferred or expense-as-incurred) will likely exceed the respective
amount for each immediate prior year. However, the new expense-as-incurred
accounting principle mandated by SOP 98-5 will, by definition, cause an
acceleration in the timing of recognition of preopening expenses. The impact of
this accelerated recognition on the Company's results of operations for any
given period could be significant, depending on the number of restaurants opened
during that period. During fiscal 1996 and 1997, the Company reevaluated its
restaurant preopening process with the objective of reducing its timeframe,
intensiveness and overall cost. The Company intends to pursue further
refinements to this process during fiscal 1998. However, there can be no
assurance that preopening costs will be reduced for future restaurants or that
preopening expenses will not continue to have a significant impact on the
Company's results of operations.
TWENTY-SIX WEEKS ENDED JUNE 30, 1998 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 29,
1997
REVENUES
For the twenty-six weeks ended June 30, 1998, the Company's total revenues
increased 29% to $123.8 million versus $96.2 million for the twenty-six weeks
ended June 29, 1997. Restaurant sales increased $27.6 million or 32% to $114.8
million versus $87.2 million for the same period of the prior year. The $27.6
million increase in restaurant sales consisted of a $3.0 million (3.7%) increase
in comparable restaurant sales for the period and a $24.6 million increase from
the openings of new restaurants. Bakery sales decreased slightly to $9.0 million
for the twenty-six weeks ended June 30, 1998.
COST OF FOOD, BEVERAGES AND SUPPLIES
During the twenty-six weeks ended June 30, 1998, the cost of food, beverages
and supplies for the restaurants was $33.2 million versus $24.9 million for the
comparable period last year. The related increase of $8.3 million was primarily
attributable to new restaurant openings. As a percentage of restaurant sales,
these costs increased slightly to 29.0% versus 28.6% for the same period of the
prior year.
BAKERY COSTS
Bakery costs were $4.2 million for the twenty-six weeks ended June 30, 1998
versus $3.6 million for the same period of the prior year. As a percentage of
bakery sales, bakery costs for the twenty-six weeks ended
10
<PAGE>
June 30, 1998 increased to 46.9% versus 39.7% for the comparable period last
year. This percentage increase was primarily due to higher costs for
dairy-related commodities and a shift in the mix of sales to products with
slightly higher bakery costs as a percentage of sales.
OPERATING EXPENSES--LABOR
Labor expenses were $40.0 million for the twenty-six weeks ended June 30,
1998 versus $31.2 million for the same period of the prior year. This increase
was principally due to the impact of new restaurant openings. As a percentage of
total revenues, labor expenses decreased slightly to 32.2% versus 32.4% for the
comparable period last year due.
OPERATING EXPENSES--OCCUPANCY AND OTHER
Occupancy and other expenses for both the restaurants and the bakery
increased 23% to $18.9 million for the twenty-six weeks ended June 30, 1998
versus $15.4 million for the same period of the prior year. This increase was
principally attributable to new restaurant openings. As a percentage of total
revenues, occupancy and other expenses decreased to 15.3% for the twenty-six
weeks ended June 30, 1998 versus 16.0% for the same period of fiscal 1997. This
percentage decrease was principally attributable to the leveraging of the fixed
component of such costs by the 29% increase in revenues for the twenty-six weeks
ended June 30, 1998, coupled with lower costs for workers' compensation
insurance and certain other cost reductions.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $10.5 million for the
twenty-six weeks ended June 30, 1998 versus $9.0 million for the same period of
fiscal 1997, an increase of $1.5 million or 17%. As a percentage of total
revenues, general and administrative expenses decreased to 8.5% for the
twenty-six weeks ended June 30, 1998 versus 9.3% for the same period of fiscal
1997. This percentage decrease was principally attributable to the leveraging of
the fixed component of such costs by the 29% increase in revenues for the
twenty-six weeks ended June 30, 1998.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses were $4.1 million for the twenty-six
weeks ended June 30, 1998 versus $3.1 million for the twenty-six weeks ended
June 29, 1997. As a percentage of total revenues, depreciation and amortization
expenses were 3.3% for the twenty-six weeks ended June 30, 1998 versus 3.2% for
the same period of the prior year. The increase of $1.0 million for the
twenty-six weeks ended June 30, 1998 was principally due to the openings of new
restaurants.
PREOPENING AMORTIZATION EXPENSE
Preopening amortization expense was $4.1 million for the twenty-six weeks
ended June 30, 1998 versus $2.9 million for the same period of the prior year.
As a percentage of total revenues, preopening amortization expense was 3.3%
versus 3.0% for the twenty-six weeks ended June 29, 1997. The increase in
preopening amortization expense during the twenty-six weeks ended June 30, 1998
was principally due to a greater number of new restaurants amortizing their
preopening costs versus the same period of the prior year.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's key liquidity
measurements for the twenty-six weeks ended June 30, 1998 and June 29, 1997.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
------------------------
JUNE 30, JUNE 29,
1998 1997
----------- -----------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C>
Cash and marketable securities on hand, end of period.................................... $ 58.5 $ 13.0
Net working capital, end of period....................................................... $ 45.8 $ 7.1
Current ratio, end of period............................................................. 2.6:1 1.3:1
Long-term debt, end of period............................................................ -- $ 6.0
Cash provided by operations.............................................................. $ 17.6 $ 9.6
Capital expenditures..................................................................... $ 14.8 $ 7.6
</TABLE>
The increases in cash and marketable securities on hand and net working
capital as noted in the preceding table principally resulted from the Company's
completion of a follow-on public offering of 3.5 million shares of its common
stock in November 1997 at a price to the public of $18.00 per share. Of the
approximate $58.6 million of net proceeds to the Company from that offering, $14
million was utilized in December 1997 to repay in full all funded debt
outstanding at that time under the Company's $25 million revolving credit and
term loan facility (the "Credit Facility"). The remaining $44.6 million of net
proceeds from that offering was invested in short-term, investment grade,
interest-bearing securities.
Cash provided by operations was $17.6 million for the twenty-six weeks ended
June 30, 1998 compared to $9.6 million for the same period of the prior year.
The related increase of $8.0 million was principally due to the collection of
construction contributions due from landlords.
As of August 4, 1998, there were no borrowings outstanding under the Credit
Facility. The terms of the Credit Facility were amended in March 1998 to provide
for, among other things, borrowings under the Credit Facility to bear interest
at variable rates based, at the Company's option, on either the prime rate of
interest, the lending institution's cost of funds rate plus 0.75%, or the
applicable LIBOR rate plus 0.75%. The Credit Facility expires on May 30, 2000.
On that date, a maximum of $25 million of any borrowings outstanding under the
Credit Facility automatically convert into a four-year term loan, payable in
equal quarterly installments at an interest rate of 0.5% higher than the
applicable revolving credit rates. The Credit Facility is not collateralized and
requires the Company to maintain certain financial ratios and to observe certain
restrictive covenants with respect to the conduct of its operations, with which
the Company is currently in compliance.
During fiscal 1997, the Company's total capital expenditures were $21.7
million, most of which were related to its restaurant operations. For fiscal
1998, the Company currently estimates its total capital expenditure requirement
should range between $28 - $30 million, excluding approximately $7 - $8 million
of expected noncapitalizable restaurant preopening costs and net of anticipated
landlord construction contributions. This estimate contemplates as many as seven
new restaurants to be opened during fiscal 1998 and provides for an anticipated
increase in construction-in-progress disbursements for anticipated fiscal 1999
openings. The Company has historically leased the land and building shells for
its restaurant locations and has expended cash for leasehold improvements and
furnishings, fixtures and equipment for the locations.
The Company's primary expansion objective is to increase its total
restaurant productive square footage and operating weeks by 25% to 30% during
fiscal 1998 and 1999. As of August 4, 1998, there were five restaurants under
construction or in the design and permitting process for potential 1998
openings. These restaurants are located in Irvine, California; Dallas, Texas;
San Diego, California; Sunrise, Florida; and Thousand Oaks, California. Leases
have also been signed for potential 1999 openings in Columbus,
12
<PAGE>
Ohio and Boulder, Colorado. In addition to growing its full-service restaurant
concept, the Company has entered into an agreement to lease and operate
foodservice facilities in the first two DisneyQuest-TM- entertainment
facilities. The first DisneyQuest-TM- facility opened on June 17, 1998 in
Orlando, Florida, and the second opening is currently planned for summer 1999 in
Chicago, Illinois. The Company has also signed a lease to develop and operate a
20,000 square foot restaurant in the new Venetian casino and resort in Las Vegas
(currently planned for a spring 1999 opening) to be called Grand Lux Cafe.
Based on its current expansion objectives and opportunities, the Company
believes its cash and short-term investments on hand, coupled with expected cash
provided by operations, available borrowings under its Credit Facility, and
expected construction contributions from landlords should be sufficient to
finance its planned capital expenditures and other operating activities through
fiscal 1999. The Company anticipates that it may seek additional funds to
finance its future growth. However, there can be no assurance that such funds
will be available when needed or be available on terms acceptable to the
Company.
The Company effected a three-for-two stock split on April 1, 1998. The
Company is also authorized to repurchase up to 450,000 shares of its common
stock for reissuance upon the exercise of stock options under the Company's
current stock option plans. A source of funding for share repurchases will be
the proceeds to the Company from the exercise of stock options. Shares may be
repurchased in the open market or through privately negotiated transactions at
times and prices considered appropriate by the Company. As of August 4, 1998, no
shares had been repurchased by the Company.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.7 David Overton Employment Agreement
10.8 Linda J. Candioty Employment Agreement
(b) Reports on Form 8-K. None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
THE CHEESECAKE FACTORY
INCORPORATED
Date: August 10, 1998
By: /s/ DAVID M. OVERTON
-----------------------------------------
David M. Overton
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
By: /s/ GERALD W. DEITCHLE
-----------------------------------------
Gerald W. Deitchle
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
15
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is entered into this 16th day
of January, 1998, between THE CHEESECAKE FACTORY INCORPORATED (the "Company")
and DAVID M. OVERTON (the "Employee").
WHEREAS, the Board of Directors of the Company (the "Board") has approved
and authorized the entry into this Agreement with the Employee; and
WHEREAS, the parties desire to enter into this Agreement setting forth the
terms and conditions for the employment relationship to the Employee with the
Company.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements herein contained and intending to be legally bound hereby, the
Company and the Employee hereby agree as follows:
1. EMPLOYMENT. The Employee is employed as Chief Executive Officer and
Chairman of the Board of the Company. In this capacity, the Employee shall have
such duties and responsibilities as may be designated to him by the Board from
time to time and as are not inconsistent with the Employee's position with
respect to any subsidiaries of the Company, as may be designated by the Board.
Employee shall devote substantially all his time, attention and energies to the
business and affairs of the Company and the subsidiaries. The Company
acknowledges that the Employee is a member of the Board and that such membership
constitutes an integral part of the Employee's duties hereunder.
2. TERM. The "initial term" of this Agreement shall be for the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; PROVIDED, HOWEVER, that on the such anniversary, and on each subsequent
anniversary date thereafter, the term of this Agreement shall automatically be
extended for one additional year unless, not later than 90 days prior to such
applicable anniversary date, the Company or the Employee shall give notice not
to extend this Agreement. The "Term of this Agreement" or "Term" shall mean,
for purposes of this Agreement, both the "initial term" and subsequent
extensions, if any.
3. SALARY. Subject to the further provisions of this Agreement, the
Company shall pay the Employee during the Term of this Agreement a salary at an
annual rate equal to $400,000, with such salary to be increased at such times,
if any, and in such amounts as determined by the Board. Any increase in salary
shall not serve to limit or reduce any other obligation of the Company hereunder
and, after any increase, the Base Salary shall not be reduced. Such salary
shall be payable by the Company to the Employee not less frequently than
monthly. Participation in deferred compensation, discretionary bonus,
retirement, stock option and other employee benefit plans and in fringe benefits
shall not reduce the Base Salary.
<PAGE>
4. PARTICIPATION IN BONUS, RETIREMENT AND EMPLOYEE BENEFIT PLANS. The
Employee shall be entitled to participate equitably with other executive
officers in any plan of the Company relating to bonuses, stock options, stock
purchases, pension, thrift, profit sharing, life insurance, medical coverage,
education, or other retirement or employee benefits that the Company has adopted
or may adopt for the benefit of its executive officers.
5. FRINGE BENEFITS; AUTOMOBILE; HEATH INSURANCE. The Employee shall be
entitled to receive all other fringe benefits which are now or may be provided
to the Company's executive officers. In addition, the Company shall provide the
Employee during the Term of this Agreement (a) with a non-accountable car
allowance of $1,600 per month, and (b) reimbursement to Employee and his family
members for any co-payment or deductible incurred under the Company's health
insurance policies.
6. VACATIONS. The Employee shall be entitled to an annual paid vacation
in accordance with the Company's general administrative policy.
7. BUSINESS EXPENSES. During such time as the Employee is rendering
services hereunder, the Employee shall be entitled to incur and be reimbursed
for all reasonable business expenses. The Company agrees that it will reimburse
the Employee for all such expenses upon the presentation by the Employee, from
time to time, of an itemized account of such expenditures setting forth the
date, the purposes for which incurred, and the amounts thereof, together with
such receipts showing payments in conformity with the Company's established
policies. Reimbursement shall be made within a reasonable period after the
Employee's submission of an itemized account.
8. INSURANCE. The Employee shall be entitled to term insurance on the
life of the Employee with such beneficiary as the Employee may designate in an
amount equal to at least $1,000,000, with all premiums to be paid by the
Company.
9. INDEMNITY. The Company shall indemnify and hold the Employee harmless
from any cost, expense or liability arising out of or relating to any acts or
decisions made by the Employee on behalf of or in the course of performing
services for the Company to the same extent the Company indemnifies and holds
harmless other executive officers and directors of the Company and in accordance
with the Company's established policies. The Company agrees to seek to maintain
Directors and Officers Liability Insurance.
10. CERTAIN TERMS DEFINED. For purposes of this Agreement:
(a) Employee shall be deemed to be "Permanently Disabled" if a
physical or mental condition occurs and persists which, in the written opinion
of a licensed physician selected by the Board of Directors in good faith, has
rendered Employee unable to perform Employee's duties hereunder for a period of
ninety (90) days or more and, in the written opinion of such physician, the
condition will continue for an indefinite period of not less than an additional
ninety (90) day period, rendering the Employee unable to return to Employee's
duties.
2
<PAGE>
(b) "Affiliate" means any corporation affiliated with any Person
whose actions result in a Change of Control (or which, as a result of the
completion of the transactions causing a Change of Control shall become
affiliated) within the meaning of the Code.
(c) "Base Salary" means, as of any date of termination of employment,
the highest annual base salary of Employee in any of the last three fiscal years
preceding such date of termination of employment.
(d) "Beneficial Owner" shall have the meaning given to such term in
the Exchange Act.
(e) "Cause" means termination upon: (1) the willful failure by the
Employee to substantially perform his duties with the Company (other than any
such failure resulting from his incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to him by the
Board, which demand specifically identifies the manner in which the Board
believes that he has not substantially performed his duties; (2) the Employee's
willful misconduct that is demonstrably and materially injurious to the Company,
monetarily or otherwise; or (3) the Employee's commission of such acts of
dishonesty, fraud, misrepresentation or other acts of moral turpitude as would
prevent the effective performance of his duties. No act, or failure to act, on
the Employee's part shall be deemed "willful" unless done, or omitted to be
done, by him not in good faith and without the reasonable belief that his action
or omission was in the best interest of the Company. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of a majority of the members of the Board
at a meeting of such members (after reasonable notice to him and an opportunity
for him, together with his counsel, to be heard before such members of the
Board), finding that he has engaged in the conduct set forth above in this
subsection (e) and specifying the particulars thereof in detail.
(f) A "Change of Control" occurs if:
(i) any Person (other than Employee) or that Person's Affiliate
is or becomes the Beneficial Owner, directly or indirectly, of securities of the
Company representing 20% of more of the combined voting power of the Company's
then outstanding voting securities ("Voting Securities"); or
(ii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation (or other entity), other
than:
I. a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 80% of the combined
voting power of the Voting Securities
3
<PAGE>
of the Company or such surviving entity outstanding immediately after such
merger or consolidation;
II. a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no Person
acquires more than 20% of the combined voting power of the Company's then
outstanding Voting Securities; or
III. a merger or consolidation which would result in the
directors of the Company (who were directors immediately prior thereto)
continuing to constitute at least 50% of all directors of the surviving entity
after such merger or consolidation. In this paragraph (iv), "surviving entity"
shall mean only an entity in which all the Company's stockholders immediately
before such merger or consolidation (determined without taking into account any
stockholders properly exercising appraisal or similar rights) become
stockholders by the terms of such merger or consolidation, and the phrase
"directors of the Company (who were directors immediately prior thereto)" shall
include only individuals who were directors of the Company at the beginning of
the 24 consecutive month period preceding the date of such merger or
consolidation.
(iii) the stockholders of the Company approve a plan of complete
liquidation or an agreement for the sale or disposition of all or substantially
all of the Company's assets; or
(iv) during any period of 24 consecutive months, individuals,
who at the beginning of such period constitute the Board of Directors of the
Company, and any new director whose election by the Board of Directors, or
whose nomination for election by the Company's stockholders, was approved by
a vote of at least one-half (1/2) of the directors then in office (other than
in connection with a contested election), cease for any reason to constitute
at least a majority of the Board of Directors;
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Person" is given the meaning as such term is used in Sections
13(d) and 14(d) of the Exchange Act; provided, however, that unless this
Agreement provides to the contrary, the term shall not include the Company, any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
4
<PAGE>
11. TERMINATION.
(a) DEATH OR DISABILITY. This Agreement shall terminate
automatically upon the Employee's death or Permanent Disability.
(b) CAUSE. The Company may terminate Employee for Cause.
(c) CHANGE OF CONTROL. Employee may terminate this Agreement at any
time within 18 months after a Change of Control.
(d) NOTICE OF TERMINATION. Any termination of the Employee's
employment by the Company for Cause or following a Change of Control shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 16. Any termination by the Company due to Permanent
Disability shall be communicated by giving written notice of its intention to
terminate the Employee's employment, and his employment shall terminate after
receipt of such notice ("Disability Effective Date"). For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon; (ii) except in
the event of a termination following a Change of Control, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated; and
(iii) specifies the Date of Termination (defined below).
(e) DATE OF TERMINATION. "Date of Termination" means the date of
actual receipt of the Notice of Termination or any later date specified therein
(but not more than fifteen (15) days after the giving of the Notice of
Termination), as the case may be; provided that (i) if the Employee's employment
is terminated by the Company for any reason other than Cause or because the
Employee becomes Permanently Disabled, the Date of Termination is the date on
which the Company notifies the Employee of such termination; (ii) if the
Employee's employment is terminated due to Permanent Disability, the Date of
Termination is the Disability Effective Date; and (iii) if the Employee's
employment is terminated due to the Employee's death, the Date of Termination
shall be the date of death.
12. CERTAIN BENEFITS UPON TERMINATION.
(a) If Employee's employment by the Company is terminated for any
reason (including by reason of death or Permanent Disability), except for a
termination for Cause or a voluntary resignation by Employee, and Section 12(b)
is inapplicable to such termination, then the Company shall pay Employee a lump
sum severance payment (the "Severance Payment") equal to three times Employee's
Base Salary.
(b) If within 18 months after a Change of Control of the Company,
Employee gives notice of termination of employment for any reason, gives notice
of nonrenewal, or Employee otherwise terminates employment (other than due to
Employee's
5
<PAGE>
death or Permanent Disability) or is terminated by the Company without Cause,
(i) the Company shall pay Employee a Severance Payment in cash equal to $2
million, provided, however, that in the event of a Change of Control and
Employee dies or becomes Permanently Disabled within 18 months after such
Change of Control, then the Severance Payment shall be equal to three times
Employee's Base Salary and, (iii) for 36 months (the "Continuation Period")
the Company shall at its expense continue on behalf of the Employee and his
dependents and beneficiaries, the life insurance, disability, medical, dental
and hospitalization benefits provided (x) to the Employee at any time during
the 90-day period prior to the date of termination or at any time thereafter
or (y) to other similarly situated executives who continue in the employ of
the Company during the continuation period. The coverage and benefits
(including deductibles and costs) provided in this Section 12(b) during the
Continuation Period shall be no less favorable to the Employee and his
dependents and beneficiaries, than the most favorable of such coverages and
benefits during any of the periods referred to in clauses (x) and (y) above.
The Company's obligation hereunder with respect to the foregoing benefits
shall be limited to the extent that the Employee obtains any such benefits
pursuant to a subsequent employer's benefit plans, in which case the Company
may reduce the coverage of any benefits it is required to provide the
Employee hereunder so long as the aggregate coverages and benefits of the
combined benefit plans is no less favorable to the Employee than the
coverages and benefits required to be provided hereunder. This Section 12(b)
shall not be interpreted so as to limit any benefits to which the Employee,
his dependents or beneficiaries may be entitled under any of the Company's
employee benefit plans, programs or practices following the Employee's
termination of employment, including without limitation, retiree medical and
life insurance benefits.
(c) In the event either (a) or (b) above occurs, (i) in addition to
the Severance Payment provided therein, the Company shall pay all accrued but
unpaid salary and amounts due under the Company's Performance Incentive Plan or
any other bonus or incentive plan then in effect, and all accrued but unpaid or
unused vacation, sick pay and expense reimbursement benefit, and (ii) all other
benefits shall vest (unless a plan specifically provides vesting standards in
which event the plan's terms and conditions shall govern vesting).
(d) In the event that Employee's employment terminates by reason of
Employee's death, all benefits provided in this Section 12 shall be paid to
Employee's estate or as Employee's executor shall direct, but payment may be
deferred until Employee's executor or personal representative has been appointed
and qualified pursuant to the laws in effect in Employee's jurisdiction of
residence at the time of Employee's death.
(e) Company shall make all cash payments to which Employee is
entitled hereunder within thirty (30) days following the date of termination of
Employee's employment or earlier, if required by applicable law.
(f) In the event Employee has provided notice to the Company of his
intent to terminate or not renew this Agreement pursuant to Section 2 or Company
has
6
<PAGE>
provided written notice to the Employee of its intent not to renew this
Agreement pursuant to Section 2:
(i) SALARY AND BENEFITS. The salary and other benefits to
which Employee would have otherwise been entitled shall continue through the
remainder of the period of notice specified by Section 2, provided that Employee
is otherwise in compliance with the terms of this Agreement, unless (x) Employee
subsequently terminates his employment or the Company terminates Employee's
employment for Cause, (y) Employee is entitled to the Severance Payment provided
in Section 12(a) pursuant to the provisions of Section 12(f)(ii), or (z)
Employee is entitled to the Severance Payment provided in Section 12(b).
(ii) SECTION 12(a) BENEFIT. Employee shall be entitled to
the extraordinary payment provided in Section 12(a) (unless Employee is
otherwise entitled to the Severance Payment provided by Section 12(b)) in the
event that, subsequent to such notice, (x) Employee is terminated without Cause
by the Company, or (y) Employee's employment terminates due to death or
Permanent Disability.
(iii) SECTION 11(b) BENEFIT. Employee shall have no rights
under Section 12(b); provided, however, that if Company and a third party have
executed a commitment letter or agreement under which a Change of Control is to
occur and such agreement was entered into prior to the Company having provided
notice to Employee of its intent not to renew pursuant to Section 2, then
Employee shall be entitled to the extraordinary payment provided in Section
12(b), if that Change of Control in fact occurs.
(g) In the event Employee is entitled hereunder to any payments or
benefits set forth in Section 12(a) or (b), Employee shall have no obligation to
notify Company of employment subsequent to Employee's termination or to offset
Company's obligation by payments due to such employment and shall have no duty
to mitigate.
(h) The provisions for Severance Payments contained in this Section
12 may be triggered only once during the term of this Agreement, so that, for
example, should Employee be terminated because of a Permanent Disability and
should there thereafter be a Change of Control, then Employee would be entitled
to be paid only under Section 12(a) and not under Section 12(b) as well. In
addition, Employee shall not be entitled to receive severance benefits of any
kind from any wholly owned subsidiary or other affiliated entity of the Company
if in connection with the same event of series of events the Severance Payments
provided for in this Section 12 have been triggered.
(i) Excise Tax Payments:
(i) In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Code, to the Employee or for his benefit
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise in connection with, or arising out of, his employment
with the Company or a change in
7
<PAGE>
ownership or effective control of the Company or of a substantial portion of
its assets (a "Payment" or "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred
by the Employee with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then the Employee will be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Employee of all taxes (including any interest or penalties,
other than interest and penalties imposed by reason of the Employee's failure
to file timely a tax return or pay taxes shown due on his return, imposed
with respect to such taxes and the Excise Tax), including any Excise Tax
imposed upon the Gross-Up Payment, the Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(ii) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and the amount of such
Gross-Up Payment shall be made at the Company's expense by an accounting firm
selected by the Company and reasonably acceptable to the Employee which is
designated as one of the four largest accounting firms in the United States
(the "Accounting Firm"). The Accounting Firm shall provide its determination
(the "Determination"), together with detailed supporting calculations and
documentation to the Company and the Employee within five days of the
Termination Date if applicable, or such other time as requested by the
Company or by the Employee (provided the Employee reasonably believes that
any of the Payments may be subject to the Excise Tax) and if the Accounting
Firm determines that no Excise Tax is payable by the Employee with respect to
a Payment or Payments, it shall furnish the Employee with an opinion
reasonably acceptable to the Employee that no Excise Tax will be imposed with
respect to any such Payment or Payments. Within ten days of the delivery of
the Determination to the Employee, the Employee shall have the rights to
dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as
determined pursuant to this Section 12(i)(ii) shall be paid by the Company to
the Employee within five days of the receipt of the Accounting Firm's
determination. The existence of the Dispute shall not in any way affect the
Employee's right to receive the Gross-Up Payment in accordance with the
Determination. Upon the final resolution of a Dispute, the Company shall
promptly pay to the Employee any additional amount required by such
resolution. If there is no Dispute, the Determination shall be binding, final
and conclusive upon the Company and the Employee.
(j) Company agrees to take reasonable steps to ensure that in the
event Company has an obligation to perform under Section 12(b), Company shall
have the financial ability to do so.
13. FEES AND EXPENSES. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Employee as they become due as a result of (a) the Employee's termination of
employment (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination or employment), or (b) the Employee seeking to
obtain or enforce any right or benefit
8
<PAGE>
provided by this Agreement or by any other plan or arrangement maintained by
the Company under which the Employee is or may be entitled to receive
benefits.
14. NO SET OFF, INTEREST. Except as provided herein, the Company's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including without limitation any set-off, counterclaim, recoupment, defense or
other right which the Company may have against the Employee or others. All
amounts provided herein shall include, in each case, interest, compounded
quarterly, on the total unpaid amount determined to be payable under this
Agreement, such interest to be calculated on the basis of the prime commercial
lending rate announced by Bank of America National Trust and Savings Association
in effect from time to time during the period of such nonpayment.
15. ASSIGNMENT.
(a) This Agreement is personal to each of the parties hereto. No
party may assign or delegate any rights or obligations hereunder without first
obtaining the written consent of the other party hereto, except that this
Agreement shall be binding upon and inure to the benefit of any successor
corporation to the Company.
(b) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes this Agreement by operation of law, or otherwise.
(c) This Agreement shall inure to the benefit of and be enforceable
by the Employee and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
16. (a) CONFIDENTIAL INFORMATION. During the Term of this Agreement and
thereafter, the Employee shall not, except as may be required to perform his
duties hereunder or as required by applicable law, disclose to others for use,
whether directly or indirectly, any Confidential Information regarding the
Company. "Confidential Information" shall mean information about the Company,
its subsidiaries and affiliates, and their respective clients and customers that
is not available to the general public and that was learned by the Employee in
the course of his employment by the Company, including (without limitation) any
data, formulae, information, proprietary knowledge, trade secrets and client and
customer lists and all papers, resumes, records and the documents containing
such Confidential Information. The Employee acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the Company,
and that such information gives the Company a competitive advantage. Upon the
termination of his
9
<PAGE>
employment, the Employee will promptly deliver to the Company all documents
(and all copies thereof) containing any Confidential Information.
(b) NONCOMPETITION. The Employee agrees that during the Term of this
Agreement, he will not, directly or indirectly, without the prior written
consent of the Company, provide consultative service with or without pay, own,
manage, operate, join, control, participate in, or be connected as a
stockholder, partner, or otherwise with any business, individual, partner, firm,
corporation, or other entity which is then in competition with the Company or
any present affiliate of the Company; PROVIDED, HOWEVER, that the "beneficial
ownership" by the Employee, either individually or as a member of a "group," as
such terms are used in Rule 13d of the Exchange Act, of not more than 1% of the
voting stock of any publicly held corporation shall not be a violation of this
Agreement. It is further expressly agreed that the Company will or would suffer
irreparable injury if the Employee were to compete with the Company or any
subsidiary or affiliate of the Company in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive relief
in a court of appropriate jurisdiction, and the Employee further consents and
stipulates to the entry of such injunctive relief in such a court prohibiting
the Employee from competing with the Company or any subsidiary or affiliate of
the Company in violation of this Agreement.
(c) RIGHT TO COMPANY MATERIALS. The Employee agrees that all styles,
designs, recipes, lists, materials, books, files, reports, correspondence,
records, and other documents ("Company Material") used, prepared, or made
available to the Employee, shall be and shall remain the property of the
Company. Upon the termination of his employment or the expiration of this
Agreement, all Company Materials shall be returned immediately to the Company,
and Employee shall not make or retain any copies thereof.
(d) ANTISOLICITATION. The Employee promises and agrees that during
the Term of this Agreement, and for a period of one year thereafter, he will not
influence or attempt to influence customers, franchisees, landlords, or
suppliers of the Company or any of its present or future subsidiaries or
affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company, or any subsidiary or affiliate of the Company.
17. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other
addresses as either party may have furnished to the other in writing in
accordance herewith, except that notice of a change of address shall be
effective only upon actual receipt:
Company: The Cheesecake Factory Incorporated
26950 Agoura Road
Calabasas, California 91301
10
<PAGE>
with a copy to: the Secretary of the Company;
Employee: David M. Overton
1250 Beverly Estate Dr.
Beverly Hills, Ca 90210
18. AMENDMENTS OR ADDITIONS. No amendment or additions to this Agreement
shall be binding unless in writing and signed by both parties hereto.
19. SECTION HEADINGS. The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
20. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
21. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but both of which together will
constitute one and the same instrument.
22. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Los Angeles, California, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
23. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Employee and such officer as may be
specifically designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly
set forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California without regard to its conflicts of law principles. All references
to sections of the Exchange Act or the Code shall be deemed also to refer to
any successor provisions to such sections.
11
<PAGE>
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. Sections 13, 15 and 21
shall survive the expiration of the Term of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
on the date first indicated above.
COMPANY:
THE CHEESECAKE FACTORY INCORPORATED
By /s/
-----------------------------
Secretary
EMPLOYEE:
/s/
-----------------------------
David Overton
12
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into this 15th
day of January, 1998, between THE CHEESECAKE FACTORY INCORPORATED (the
"Company") and LINDA CANDIOTY (the "Employee").
WHEREAS, the Board of Directors of the Company (the "Board") has
approved and authorized the entry into this Agreement with the Employee; and
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions for the employment of Employee with the Company.
NOW, THEREFORE, in consideration of the promises and mutual covenants
and agreements herein contained and intending to be legally bound hereby, the
Company and the Employee hereby agree as follows:
1. EMPLOYMENT. The Employee is employed as an Executive Vice
President of the Company from the date of this Agreement until such
employment is terminated in accordance with Section 9. The Employee shall
have such duties and responsibilities as may be designated to her by the
Board from time to time. Employee shall report directly to the Chief
Executive Officer of the Company. Employee shall devote substantially all her
time, attention and energies to the business and affairs of the Company and
its subsidiaries.
2. SALARY. The Company shall pay the Employee a salary at an annual
rate of $210,000, with such salary to be increased at such times, if any, and
in such amounts as determined by the Board ("Base Salary"). Such salary
shall be payable by the Company to the Employee in substantially equal
installments not less frequently than bi-weekly. Participation in deferred
compensation, discretionary bonus, retirement, stock option and other
employee benefit plans and in fringe benefits shall not reduce the salary
payable to the Employee under this Section 2.
3. PARTICIPATION IN BONUS, RETIREMENT AND EMPLOYEE BENEFIT PLANS. The
Employee shall be entitled to participate equitably with other officers to
the extent of her position, tenure and salary in any plan of the Company
relating to options, bonuses, stock purchases, pension, thrift, profit
sharing, life insurance, disability insurance, medical coverage, education,
severance or so called "golden parachute" payments, or other retirement or
employee benefits that the Company has adopted or may adopt for the benefit
of its officers.
4. FRINGE BENEFITS. The Employee shall be entitled to receive all
other fringe benefits which now or may be provided to the Company's executive
officers.
<PAGE>
5. AUTOMOBILE. The Company shall provide the Employee, at her option,
a non-accountable car allowance of $1000 per month, or participation in the
Company's car leasing plan.
6. VACATION. The Employee shall be entitled to an annual paid
vacation in accordance with the Company's general administrative policy.
7. BUSINESS EXPENSES. During such time as the Employee is rendering
services hereunder, the Employee shall be entitled to incur and be reimbursed
for all reasonable business expenses, including but not limited to mobile
telephone charges. The Company agrees that it will reimburse the Employee
for all such expenses upon the presentation by the Employee, from time to
time, of an itemized account of such expenditures setting forth the date, the
purposes for which incurred, and the amounts thereof, together with such
receipts showing payments in conformity with the Company's established
policies. Reimbursement shall be made within a reasonable period not to
exceed thirty days after the Employee's submission of an itemized account.
8. INDEMNITY. The Company shall indemnify and hold the Employee
harmless from any cost, expense or liability arising out of or relating to
any acts or decisions made by the Employee on behalf of or in the course of
performing services for the Company to the same extent the Company
indemnifies and holds harmless other officers and directors of the Company
and in accordance with the Company's established policies. The Company
agrees to maintain Directors and Officers Liability Insurance if such
insurance shall be available at rates and on terms reasonably acceptable to
the Board.
9. TERMINATION.
(a) DEATH. This Agreement shall terminate upon the Employee's
death. Employee's estate shall be entitled to any unpaid pro rata salary
earned prior to such death and a lump sum payment of the pro rata portion of
Employee's Incentive Plan award for the fiscal year, if any, when paid to all
other participants.
(b) DISABILITY. If, as a result of the Employee's incapacity due
to physical or mental illness, she shall have been absent from the full-time
performance of substantially all of her material duties with the Company for
90 consecutive days or 180 days within any 12-month period, her employment
may be terminated by the Company for "Disability." Termination shall occur
30 days after a notice of a written termination is delivered to Employee by
the Company. Employee shall be entitled to any unpaid pro rata salary earned
prior to such "Disability" and a lump sum payment of the pro rata portion of
Employee's Incentive Plan award for the fiscal year, if any, when paid to all
other participants, and all benefits and rights provided under any applicable
stock option plan and disability plan. The Company will pay Employee's COBRA
payments for the maximum term for Employee and her dependents.
2
<PAGE>
(c) CAUSE. Subject to the notice provisions set forth below, the
Company may terminate the Employee's employment for "Cause" at any time.
"Cause" shall mean termination upon: (1) the willful failure by the Employee
to substantially perform her duties with the Company for a reasonable period
of time (other than any such failure resulting from her incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to her by the Board, which demand specifically
identifies the manner in which the Board believes that she has not
substantially performed her duties; (2) the Employee's willful misconduct
that is demonstrably and materially injurious to the Company, monetarily or
otherwise; or (3) the Employee's commission of such acts of dishonesty,
fraud, misrepresentation or other acts of moral turpitude as would prevent
the effective performance of her duties. For purposes of this subsection
(c), no act, or failure to act, on the Employee's part shall be deemed
"willful" unless done, or omitted to be done, by her not in good faith and
without the reasonable belief that her action or omission was in the best
interest of the Company. Notwithstanding the foregoing, the Employee shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to her a copy of a resolution duly adopted by the
affirmative vote of a majority of the members of the Board at a meeting of
such members finding that she has engaged in the conduct set forth above in
this subsection (c) and specifying the particulars thereof in detail.
Employee shall be entitled to any unpaid pro rata salary earned prior to
termination under this paragraph (c).
(d) WITHOUT CAUSE. This Agreement and the Employee may be
terminated for any reason without cause by the Company at any time. In such
case, the Employee shall be entitled to (i) any unpaid pro rata salary earned
up to the date of termination, (ii) immediate vesting of any options granted
to Employee under its stock option plans, (iii) a lump-sum payment of the pro
rata portion of Employee's Incentive Plan award for the fiscal year, if any,
when awards are paid to all other plan participants, and (iv) any amounts
accrued and unpaid under any plan or benefit of which Employee is a
participant.
(e) BY EMPLOYEE. Employee may terminate this Agreement upon 60
days written notice to the Company and shall be entitled to any unpaid pro
rata salary earned up to the date of termination. In case of a "change in
control" Employee may terminate this Agreement at any time within 180 days by
written notice after such "change in control" and Employee shall be entitled
to any unpaid pro rata salary earned up to the date of termination plus a
lump-sum payment in an amount equal to two year's base salary then in effect.
"Change of Control" shall mean (i) any reorganization, merger or
consolidation of the Company with one or more corporations where the Company
is the surviving corporation and the stockholders of the Company immediately
prior to such transaction do not own at least 80% of the Company's Common
Stock immediately after such transaction, (ii) any reorganization, merger or
consolidation of the Company with one or more corporations where the Company
is not the surviving corporation, (iii) a sale of substantially all of the
Company's assets, or (iv) a sale of 80% or more of the then outstanding
shares of Common Stock of the Company.
3
<PAGE>
(f) NOTICE AND DATE OF TERMINATION. Any termination of the
Employee's employment by the Company or by the Employee shall be communicated
by written Notice of Termination to the other party hereto in accordance with
Section 12. "Notice of Termination" shall mean a notice that indicates the
specific termination provision in this Agreement relied upon and sets forth
in reasonable detail the facts and circumstances claimed to provide a basis
for the termination of the Employee's employment under the provision so
indicated. Unless otherwise provided Employee's employment is terminated upon
the date set forth in the Notice of Termination. For purposes of this
Agreement, the term of this Agreement shall end on the effective date of
Employee's termination as provided in the foregoing notice or, if no
effective date is provided, the date such notice is received by Employee.
10. ASSIGNMENT.
(a) This Agreement is personal to each of the parties hereto. No
party may assign or delegate any rights or obligations hereunder without
first obtaining the written consent of the other party hereto, except that
this Agreement shall be binding upon and inure to the benefit of any
successor corporation to the Company.
(b) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform as if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company
as hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes this Agreement by operation of law, or otherwise.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Employee and her personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
11. CONFIDENTIAL INFORMATION.
(a) During the term of this Agreement and thereafter, the Employee
shall not, except as may be required to perform her duties hereunder or as
required by applicable law, disclose to others for use, whether directly or
indirectly, any Confidential Information regarding the Company.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that
is not available to the general public and that was learned by the Employee
in the course of her employment by the Company, including (without
limitation) any data, formulae, information, proprietary knowledge, trade
secrets and client and customer lists and all papers, resumes, records and
the documents containing such Confidential Information. The Employee
acknowledges that such Confidential Information is specialized, unique in
nature and of great value to the Company, and that such information gives the
Company a competitive advantage. Upon the termination of her employment, the
Employee will
4
<PAGE>
promptly deliver to the Company all documents (and all copies thereof)
containing any Confidential Information.
(b) NONCOMPETITION. Except as otherwise provided herein, the
Employee agrees that during the term of this Agreement she will not, directly
or indirectly, without the prior written consent of the Company, provide
consulting service with or without pay, own, manage, operate, join, control,
participate in, or be connected as a stockholder, partner, or otherwise with
any business, individual, partner, firm, corporation, or other entity which
is then in competition with the Company or any present affiliate of the
Company; provided, however, that the "beneficial ownership" by the Employee,
either individually or as a member of a "group," as such terms are used in
Rule 13d of the General Rules and Regulations under the Securities Exchange
Act of 1934 ("Exchange Act"), of not more than 1% of the voting stock of any
corporation shall not be a violation of this Agreement. It is further
expressly agreed that the Company will or would suffer irreparable injury if
the Employee were to compete with the Company or any subsidiary or affiliate
of the Company in violation of this Agreement and that the Company would by
reason of such competition be entitled to injunctive relief in a court of
appropriate jurisdiction, and the Employee further consents and stipulates to
the entry of such injunctive relief in such a court prohibiting the Employee
from competing with the Company or any subsidiary or affiliate of the Company
in violation of this Agreement.
(c) RIGHT TO COMPANY MATERIALS. The Employee agrees that all
styles, designs, recipes, lists, materials, books, files, reports,
correspondence, records, and other documents ("Company Material") used,
prepared, or made available to the Employee, shall be and shall remain the
property of the Company. Upon the termination of her employment or the
expiration of this Agreement, all Company Materials shall be returned
immediately to the Company, and Employee shall not make or retain any copies
thereof.
(d) ANTISOLICITATION. The Employee promises and agrees that
during the term of this Agreement, and for a period of two years thereafter,
she will not influence or attempt to influence employees, customers,
franchisees, landlords, or suppliers of the Company or any of its present or
future subsidiaries or affiliates, either directly or indirectly, to divert
their employment or business to or with any individual, partnership, firm,
corporation or other entity then in competition with the business of the
Company, or any subsidiary or affiliate of the Company.
12. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other
addresses as either party may have furnished to the other in writing
5
<PAGE>
in accordance herewith, except that notice of a change of address shall be
effective only upon actual receipt:
Company: The Cheesecake Factory Incorporated
26950 Agoura Road
Calabasas Hills, California 91301
with a copy to: the Secretary of the Company;
Employee: Linda J. Candioty
3696 Dixie Canyon Ave.
Sherman Oaks CA 91423
13. AMENDMENTS OR ADDITIONS. No amendment or additions to this
Agreement shall be binding unless in writing and signed by both parties
hereto.
14. SECTION HEADINGS. The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but both of which together will
constitute one and the same instrument.
17. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Los Angeles, California, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided, however, that the Employee shall be entitled
to seek specific performance of her right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under
or in connection with this Agreement.
18. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Employee and such officer as may be
specifically designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by
6
<PAGE>
either party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of California without regard to
its conflicts of law principles. All references to sections of the Exchange
Act shall be deemed also to refer to any successor provisions to such
sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. Sections 11 and 17
shall survive the expiration of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement on the date first indicated above.
THE CHEESECAKE FACTORY INCORPORATED
By: /s/
---------------------------
DAVID OVERTON
Chief Executive Officer
EMPLOYEE:
/s/
---------------------------
Linda J. Candioty
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 35,702
<SECURITIES> 18,105
<RECEIVABLES> 1,349
<ALLOWANCES> 0
<INVENTORY> 5,420
<CURRENT-ASSETS> 74,830
<PP&E> 124,915
<DEPRECIATION> 26,017
<TOTAL-ASSETS> 190,662
<CURRENT-LIABILITIES> 29,029
<BONDS> 0
0
0
<COMMON> 201
<OTHER-SE> 161,432
<TOTAL-LIABILITY-AND-EQUITY> 190,662
<SALES> 123,774
<TOTAL-REVENUES> 123,774
<CGS> 37,449
<TOTAL-COSTS> 37,449
<OTHER-EXPENSES> 77,560
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<INCOME-PRETAX> 10,462
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