<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
ACT OF 1934
For quarter period ended March 31, 1998,
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________.
Commission file number 0-25886
GARDEN FRESH RESTAURANT CORP.
(Exact name of registrant as specified in its charter)
Delaware 33-0028786
(State or other jurisdiction of incorporation (I.R.S. Employee
or organization) Identification No.)
17180 Bernardo Center Drive, San Diego, CA 92128
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (619) 675-1600
Former name, former address and former fiscal year.
If changed since last report.
Indicate by a 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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock, $.01 par value, outstanding as of April
23, 1998 was 4,318,176. There are no other classes of common stock.
<PAGE> 2
GARDEN FRESH RESTAURANT CORP.
FORM 10-Q
INDEX
PAGE
PART I: FINANCIAL INFORMATION
Item 1: Unaudited Condensed Financial Statements
Condensed Balance Sheet at September 30, 1997 and
March 31, 1998 3
Condensed Statement of Income for the three and the six
months ended March 31, 1997 and March 31, 1998 4
Condensed Statement of Cash Flows for the six months
ended March 31, 1997 and March 31, 1998 5
Notes to Unaudited Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 14
Item 2: Changes in Securities 14
Item 3: Defaults Upon Senior Securities 14
Item 4: Submission of Matters to a Vote of Security Holders 14
Item 5: Other Information 14
Item 6: Exhibits and Reports on Form 8-K 14
<PAGE> 3
GARDEN FRESH RESTAURANT CORP.
CONDENSED BALANCE SHEET
(Dollars in thousands)
September 30, 1997 March 31, 1998
(Unaudited)
ASSETS
Cash $ 2,345 $ 2,588
Inventories 2,886 3,245
Other current assets 550 1,886
Deferred income taxes 322 88
---------- ----------
Total current assets 6,103 7,807
Property and equipment, net 54,257 61,381
Intangible and other assets 1,472 1,811
Deferred income taxes 577 469
---------- ----------
Total assets $ 62,409 $ 71,468
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 5,012 $ 3,723
Current portion of long-term debt 4,456 4,972
Accrued liabilities 4,411 6,761
---------- ----------
Total current liabilities 13,879 15,456
Accrued rent 1,397 1,347
Long term debt, net of current portion 12,965 18,127
Shareholders' equity:
Common stock, $.01 par value; 12,000,000
shares authorized at September 30, 1997
and March 31, 1998; 4,264,579 and
4,318,176 issued and outstanding at
September 30, 1997 and March 31, 1998,
respectively 43 43
Paid in capital 38,794 39,260
Accumulated deficit (4,669) (2,765)
---------- ----------
Total shareholders' equity 34,168 36,538
---------- ----------
Total liabilities and shareholders' equity $ 62,409 $ 71,468
========== ==========
See notes to unaudited condensed financial statements.
<PAGE> 4
GARDEN FRESH RESTAURANT CORP.
CONDENSED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
NET SALES $ 23,459 $ 27,836 $ 42,736 $ 51,739
----------- ----------- ----------- -----------
COST AND EXPENSES:
Cost of sales 6,062 7,125 11,183 13,406
Restaurant operating expenses:
Labor 6,787 8,058 12,523 15,245
Occupancy and other 5,434 6,221 10,146 12,003
General and administrative expenses 1,490 1,901 2,804 3,483
Depreciation and amortization 1,617 1,779 3,061 3,463
----------- ----------- ----------- -----------
Total costs and expenses 21,390 25,084 39,717 47,600
----------- ----------- ----------- -----------
OPERATING INCOME 2,069 2,752 3,019 4,139
Interest expense, net (381) (543) (685) (962)
Other expense, net (7) (39) (23) (55)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,681 2,170 2,311 3,122
Provision for income taxes 664 852 919 1,218
----------- ----------- ----------- -----------
NET INCOME $ 1,017 $ 1,318 $ 1,392 $ 1,904
=========== =========== =========== ===========
Basic net income per share $ .24 $ .31 $ .34 $ .44
=========== =========== =========== ===========
Shares used in computing
basic net income per share 4,160 4,304 4,150 4,298
=========== =========== =========== ===========
Diluted net income per share $ .23 $ .28 $ .32 $ .41
=========== =========== =========== ===========
Shares used in computing
diluted net income per share 4,404 4,673 4,345 4,633
=========== =========== =========== ===========
<FN>
See notes to unaudited condensed financial statements.
</TABLE>
<PAGE> 5
GARDEN FRESH RESTAURANT CORP.
CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
March 31, 1997 March 31, 1998
OPERATING ACTIVITIES:
Net income $ 1,392 $ 1,904
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,061 3,463
Loss on disposal of property 31 55
Deferred income taxes 189 342
Changes in operating assets and liabilities:
Increase in inventories (295) (359)
Increase in other assets (1,109) (1,336)
Decrease in accounts payable (260) (1,289)
Increase in accrued liabilities 683 2,350
Decrease in accrued rent (39) (50)
-------- --------
Net cash provided by operating activities $ 3,653 $ 5,080
-------- --------
INVESTING ACTIVITIES:
Acquisition of property and equipment:
New restaurants (6,597) (9,361)
Existing restaurant additions (1,050) (600)
Increase in intangible and other assets (651) (1,020)
-------- --------
Net cash used in investing activities (8,298) (10,981)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long term debt 8,203 8,339
Repayment of long term debt (2,308) (2,661)
Net proceeds from issuance of common stock 329 466
-------- --------
Net cash provided by financing activities 6,224 6,144
-------- --------
Net increase in cash 1,579 243
Cash at beginning of period 615 2,345
-------- --------
Cash at end of period $ 2,194 $ 2,588
======== ========
See notes to unaudited condensed financial statements.
<PAGE> 6
GARDEN FRESH RESTAURANT CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements have been prepared by the
Company without audit and reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair statement of financial position and the results of operations for the
interim periods. The statements have been prepared in accordance with the
regulations of the Securities and Exchange Commission and do not necessarily
include certain information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting principles. For
further information, refer to the financial statements and notes thereto for
the fiscal year ended September 30, 1997 included in the Company's Form 10-K.
2. NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS
128"), which establishes new standards for computing earnings per share and
which became effective for financial statements for periods after December 15,
1997, including interim periods. Under the new requirements, historically
reported "primary" and "fully diluted" earnings per share have been replaced
with "basic" and "diluted" earnings per share.
Basic net income per share is computed based on the weighted average of
common shares outstanding during the period. Diluted net income per share is
computed based on the weighted average number of common shares and common stock
equivalents, which includes options under the Company's stock option plans
computed using the treasury stock method and common shares expected to be
issued under the Company's Employee Stock Purchase Plan.
Common stock equivalents of 244,000 and 369,000 shares for the three month
periods ended March 31, 1997 and 1998, respectively, and 195,000 and 335,000
shares for the six months ended March 31, 1997 and 1998, respectively, were
used to calculate diluted earnings per share. There were no reconciling items
in calculating the numerator for basic and diluted earnings per share for any
of the periods presented.
3. PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
<PAGE> 7
GARDEN FRESH RESTAURANT CORP. STATEMENT OF OPERATING DATA
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of certain items
included in the Company's statement of income for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
COST AND EXPENSES:
Cost of sales 25.8% 25.6% 26.2% 25.9%
Restaurant operating expenses:
Labor 28.9% 28.9% 29.3% 29.5%
Occupancy and other 23.2% 22.4% 23.7% 23.2%
General and administrative expenses 6.4% 6.8% 6.6% 6.7%
Depreciation and amortization 6.9% 6.4% 7.1% 6.7%
----- ----- ----- -----
Total operating expenses 91.2% 90.1% 92.9% 92.0%
----- ----- ----- -----
OPERATING INCOME 8.8% 9.9% 7.1% 8.0%
Interest expense, net (1.6%) (2.0%) (1.6%) (1.9%)
Other expense, net (.1%) (.1%) (.1%)
----- ----- ----- -----
INCOME BEFORE INCOME TAXES 7.2% 7.8% 5.4% 6.0%
Provision for income taxes 2.8% 3.1% 2.1% 2.3%
----- ----- ----- -----
NET INCOME 4.4% 4.7% 3.3% 3.7%
===== ===== ===== =====
</TABLE>
<PAGE> 8
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
NET SALES. Net sales for the three months ended March 31, 1998 increased
18.3% to $27.8 million from $23.5 million for the comparable 1997 period. This
increase was primarily due to the opening of six restaurants since the
comparable 1997 period and the increase in comparable restaurant sales of 5.8%.
COST OF SALES. Cost of sales for the three months ended March 31, 1998
increased 16.4% to $7.1 million from $6.1 million for the comparable 1997
period. As a percentage of net sales, cost of sales decreased .2% from 25.8%
to 25.6% in the comparable 1997 period due to higher average meal price per
guest.
LABOR EXPENSE. Labor expense for the three months ended March 31, 1998
increased 19.1% to $8.1 million from $6.8 million for the comparable 1997
period. This increase was due to the six restaurants opened since the
comparable 1997 period. As a percentage of net sales, the labor expense
increased .5% from 29.3% in the comparable 1997 period due to increases in the
California minimum wage effective March 1, 1997, and March 1, 1998.
OCCUPANCY AND OTHER OPERATING COSTS. Occupancy and other operating costs
for the three months ended March 31, 1998 increased 14.8% to $6.2 million from
$5.4 million for the comparable 1997 period. This was due to the addition of
six new restaurants. Occupancy and other operating costs as a percentage of
net sales decreased to 22.4% from 23.2% for the comparable 1997 period. This
was due to lower occupancy costs associated with more favorable rents in newer
stores, higher sales volume, and lower marketing costs for the period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the three months ended March 31, 1998 increased 26.7% to $1.9 million from
$1.5 million for the comparable 1997 period. This increase was due to
personnel, training and relocation costs associated with supporting stores in
new regions. As a percentage of net sales, general and administrative expenses
increased to 6.8% from 6.4% for the comparable 1997 period.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses for the three months ended March 31, 1998 increased 12.5% to $1.8
million from $1.6 million for the comparable 1997 period. This increase was
due to depreciation and amortization for the new restaurants opened since the
comparable 1997 period. Depreciation and amortization as a percentage of net
sales was 6.4%, down from 6.9% for the comparable 1997 period.
INTEREST EXPENSE, NET. Interest expense, net for the three months ended
March 31, 1998 increased 25.0% to $.5 million from $.4 million for the
comparable 1997 period. Interest expense increased due to the increased debt
incurred for expansion.
SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
NET SALES. Net sales for the six months ended March 31, 1998 increased
21.1% to $51.7 million from $42.7 million for the comparable 1997 period. This
was due to the opening of six restaurants since the comparable 1997 period and
the increase in comparable restaurant sales of 7.6%.
COST OF SALES. Cost of sales for the six months ended March 31, 1998 as a
percentage of net sales decreased .3% from the comparable 1997 period due to
higher average meal price per guest, but was higher in total dollars by 19.6%
at $13.4 million.
LABOR EXPENSE. Labor expense for the six months ended March 31, 1998
increased 21.6% to $15.2 million from $12.5 million for the comparable 1997
period. This increase was due to the six restaurants opened since the
comparable 1997 period. As a percentage of net sales, the labor expense
increased .2% from 29.3% in the comparable 1997 period due to increases in the
California minimum wage effective March 1, 1997 and March 1, 1998, and the
addition of six new restaurants which utilized higher than historical labor
hours.
OCCUPANCY AND OTHER OPERATING COSTS. Occupancy and other operating costs
for the six months ended March 31, 1998 increased 18.8% to $12.0 million from
<PAGE> 9
$10.1 million for the comparable 1997 period. This was due mainly to the
addition of six new restaurants, additional advertising to support the increase
in same store sales in existing markets, increases in professional services due
to the change in minimum wage, and maintenance and repair costs to maintain
equipment and facilities in older buildings. Occupancy and other operating
costs as a percentage of net sales decreased to 23.2% from 23.7% for the
comparable 1997 period. This was due primarily to additional sales volume.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the six months ended March 31, 1998 increased 25.0% to $3.5 million from
$2.8 million for the comparable 1997 period. This was due primarily to the
increased personnel and relocation costs associated with opening stores in new
regions. As a percentage of net sales, general and administrative expenses
increased to 6.7% from 6.6% for the comparable 1997 period.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses for the six months ended March 31, 1998 increased 12.9% to $3.5
million from $3.1 million for the comparable 1997 period. This increase was
due to depreciation and amortization for the new restaurants opened since the
comparable 1997 period. Depreciation and amortization as a percentage of net
sales was 6.7%, from 7.1% for the comparable 1997 period due to lower
amortization of preopening costs and high sales volume.
INTEREST EXPENSE, NET. Interest expense, net for the six months ended
March 31, 1998 increased 42.9% to $1.0 million from $.7 million for the
comparable 1997 period. Interest expense increased due to the increase in debt
incurred for expansion.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its cash requirements principally from cash flow from
operating activities, bank debt, and mortgage and capital lease financings.
The Company does not have significant receivables or inventory, and receives
trade credit based upon negotiated terms when purchasing food and supplies.
For the six months ended March 31, 1998, the Company generated $5.1 million in
cash flow from operating activities, received $5.6 million from bank debt and
mortgages (net of repayments), and an additional $.2 million from the sale of
the Company's Common Stock pursuant to stock options and the Company's Employee
Stock Purchase Plan.
The Company's principal capital requirement has been for funding the
development of restaurants. Historically the Company has primarily leased the
land and buildings for its restaurant operations. The Company does purchase
land and/or buildings when favorable conditions are available. The Company
currently owns the land and buildings for 17 restaurants, including the land
for sites the Company expects to open in fiscal 1998 and 1999. During the
first six months of fiscal 1998, the Company opened three restaurants. Capital
expenditures totalled $10.0 million during the first six months of fiscal 1998
and $7.6 million for the comparable period in fiscal 1997. As of March 31,
1998 the Company operated 52 salad buffet restaurants and one small quick
service restaurant.
The cash investment to open the three restaurants during the six month
period ending March 31, 1998 was $7.1 million including land and buildings, and
excluding pre-opening costs. The pre-opening costs for the three restaurants
opened were $.6 million. The Company has signed one lease, purchased five
sites and signed contracts to purchase two sites to be opened in fiscal 1998.
In addition, the Company has signed contracts to purchase four sites to be
opened in fiscal 1999. The cash investment to open a new restaurant typically
includes the purchase or installation of furniture, fixtures, equipment and
leasehold improvements, and in the case of an owned site, the purchase of land
and a building. In addition to budgeted capital expenditures for fiscal 1998
of $20.0 million for new restaurant openings, the Company has budgeted $2.4
million in expenditures for fiscal 1998 for capital improvements at existing
sites. SEE "BUSINESS RISKS - EXPANSION RISKS".
The Company will need to rely on funds generated from operations to
finance a portion of the expansion currently planned for fiscal 1998, as well
as any expansion taking place after fiscal 1998. Should the Company's results
of operations or its rate of growth fail to be adequate to finance expansion or
should costs or capital expenditures rise, the Company may not have the ability
to open new restaurants at its desired pace or at all, and could be required to
seek additional financing in the future. There can be no assurance that the
Company will be able to raise such capital when needed on satisfactory terms or
at all. SEE "BUSINESS RISK - CAPITAL REQUIREMENTS".
<PAGE> 10
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food and beverage and labor costs. The Company does not believe that
inflation has materially affected earnings during the past three years.
Substantial increases in costs and expenses, particularly food, supplies, labor
and operating expenses, could have a significant impact on the Company's
operating results to the extent that such increases cannot be passed along to
guests.
NEW ACCOUNTING STANDARD
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP requires that the costs of start-up activities, which is
inclusive of pre- opening costs, should be expensed as incurred. This new
accounting standard is effective for financial statements for fiscal years
beginning after December 15, 1998. Earlier application is encouraged in fiscal
years for which annual financial statements have not been issued. Restatement
of previously issued financial statements is not permitted.
As is typical in the restaurant industry, the Company defers its
restaurant pre-opening costs and amortizes them over the twelve-month period
following the opening of each respective restaurant. At March 31, 1998, total
deferred pre-opening costs were $1.6 million. For fiscal 1997 and the six
months ended March 31, 1998, pre-opening expense amortization was approximately
1.1 million and $0.7 million, respectively. The Company has not yet determined
when it will adopt SOP 98-5. Upon adoption, the Company will recognize the
cumulative effect of a change in accounting principle, net of any related
income tax effect.
BUSINESS RISKS
The Company's business is subject to a number of risks. A comprehensive
summary of such risks can be found in the Company's Form 10K.
CERTAIN OPERATING RESULTS AND CONSIDERATIONS
In fiscal 1996 and 1997, respectively, the Company experienced an increase
of 2.5% and an increase of 4.7% in comparable restaurant sales. In the first
six months of fiscal 1997 and 1998, respectively, the Company's comparable
restaurant sales increased by 1.9% and 7.6%, respectively. The Company's newer
restaurants have not historically experienced significant increases in guest
volume following their initial opening period. In addition, the Company does
not believe it has significant latitude to achieve comparable restaurant sales
growth through price increases. As a result, the Company does not believe that
recent comparable restaurant sales is indicative of future trends in comparable
restaurant sales. The Company believes that it may from time to time in the
future experience declines in comparable restaurant sales, and that any future
increases in comparable restaurant sales would be modest.
EXPANSION RISKS
The Company opened seven salad buffet restaurants in fiscal 1997 and has
opened three restaurants in fiscal 1998 and currently intends to open eight
additional restaurants in fiscal 1998. The Company's ability to achieve its
expansion plans will depend on a variety of factors, many of which may be
beyond the Company's control, including the Company's ability to locate
suitable restaurant sites, negotiate acceptable lease or purchase terms, obtain
required governmental approvals, construct new restaurants in a timely manner,
attract, train and retain qualified and experienced personnel and management,
operate its restaurants profitably and obtain additional capital, as well as
general economic conditions and the degree of competition in the particular
region of expansion. The Company has experienced, and expects to continue to
experience, delays in restaurant openings from time to time. The Company
incurs substantial costs in opening a new restaurant and, in the Company's
experience, new restaurants experience fluctuating operational levels for some
time after opening. Owned restaurants generally require significantly more
upfront capital than leased restaurants, as a result of which an increase in
the percentage of owned restaurant openings as compared to historical practice
would increase the overall capital requirements, required to meet the Company's
growth plans. There can be no assurance that the Company will successfully
expand or that the Company's existing or new restaurants will be profitable.
The Company has encountered intense competition for restaurant sites, and in
many cases has had difficulty buying or leasing desirable sites on terms that
are acceptable to the Company. In many cases, the Company's competitors are
<PAGE> 11
willing and able to pay more than the Company for sites. The Company expects
these difficulties in obtaining desirable sites to continue for the foreseeable
future.
Since its inception the Company has closed three non-performing
restaurants. Given the number of restaurants in current operation and the
Company's projected expansion rate there can be no assurances that the Company
will not close restaurants in the future. Any closure could result in a
significant write off of assets which could adversely affect the Company's
business financial condition and results of operations.
RESTAURANT INDUSTRY AND COMPETITION
The restaurant industry is highly competitive. Key competitive factors in
the industry include the quality and value of the food products offered,
quality of service, price, dining experience, restaurant location and the
ambiance of the facilities. The Company's primary competitors include
mid-priced, full-service casual dining restaurants, as well as traditional
self-service buffet and other soup and salad restaurants and healthful and
nutrition-oriented restaurants. The Company competes with national and
regional chains, as well as individually owned restaurants. The number of
buffet and casual restaurants with operations generally similar to the
Company's has grown substantially in the last several years and the Company
believes competition among buffet-style and casual restaurants has increased
and will continue to increase as the Company's competitors expand operations in
various geographic areas. Such increased competition could increase the
Company's operating costs or adversely affect its revenues. The Company
believes it competes favorably in the industry, although many of the Company's
competitors have been in existence longer than the Company, have a more
established market presence and have substantially greater financial, marketing
and other resources than the Company, which may give them certain competitive
advantages. In addition, the restaurant industry has few non-economic barriers
to entry. Therefore, there can be no assurance that third parties will not be
able to successfully imitate and implement the Company's concept. The Company
has encountered intense competition for restaurant sites, and in many cases has
had difficulty buying or leasing desirable sites on terms that are acceptable
to the Company. In many cases, the Company's competitors are willing and able
to pay more than the Company for sites. The Company expects these difficulties
in obtaining desirable sites to continue for the foreseeable future.
CAPITAL REQUIREMENTS
In addition to funds generated from operations, the Company will need to
obtain external financing to complete its expansion plans for fiscal year 1998
and beyond. There can be no assurance that such funds will be available when
needed. Additionally, should the Company's results of operations decrease or
should costs or capital expenditures rise, the Company may not have the ability
to open new restaurants at its desired pace or at all, because capital may not
be available.
COST SENSITIVITY
The Company's profitability is highly sensitive to increases in food,
labor and other operating costs. The Company's dependence on frequent
deliveries of fresh produce and groceries subjects it to the risk that
shortages or interruptions in supply caused by adverse weather or other
conditions could materially adversely affect the availability, quality and cost
of ingredients. In addition, unfavorable trends or developments concerning
factors such as inflation, food, labor and employee benefit costs, rent
increases resulting from the rent escalation provisions in the Company's
leases, and the availability of experienced management and hourly employees may
also adversely affect the Company. The Company believes relatively favorable
inflation rates and part-time labor supplies in its principal market area have
contributed to relatively stable food and labor costs in recent years.
However, there can be no assurance that these conditions will continue or that
the Company will have the ability to control costs in the future.
MINIMUM WAGE
The Company has recently experienced increases in the hourly wage rate due
to increases in the federal minimum wage on October 1, 1996 and September 30,
1997 and in the California minimum wage on March 1, 1997 and March 1, 1998.
While the Company has managed to absorb the increases to date without reduction
in profitability there can be no assurance that the Company will be able to do
so in the future.
<PAGE> 12
IMPORTANCE OF KEY EMPLOYEES
The Company is heavily dependent upon the services of its officers and key
management personnel involved in restaurant operations, purchasing, expansion
and administration. In particular, the Company is dependent upon the
management and leadership of its three executive officers, Michael P. Mack,
David W. Qualls and R. Gregory Keller. The loss of any of these three
individuals could have a material adverse effect on the Company's business,
financial condition and results of operations. The success of the Company and
its individual restaurants depends upon the Company's ability to attract and
retain highly motivated, well-qualified restaurant operations and other
management personnel. The Company faces significant competition in the
recruitment of qualified employees.
COMPUTER SYSTEMS AND YEAR 2000
Many installed computer systems and software products are coded to accept
only two digit entries in the date code field. As the year 2000 approaches,
these code fields may need to accept four digit entries to distinguish years
beginning with "19" from those beginning with "20". As a result, in less than
two years, computer systems and/or software products used by many companies may
need to be upgraded to comply with such year 2000 requirements. The Company's
proprietary accounting and management information software is year 2000
compliant; however, certain standard software used by the Company pursuant to
third party software licenses is not. The Company believes that the cost of
modifying the standard, non-proprietary software will be borne by the
licensors, and accordingly, does not believe that it will incur significant
costs with respect to year 2000 compliance. In addition, in the event that the
licensors do not achieve year 2000 compliance in a timely manner, the Company
believes that it can acquire alternative software that is compliant and that
performs substantially the same function as its current software. The Company
does not believe that the cost of acquiring and converting to such alternative
software would be significant or that it would have a material adverse effect
on the Company's business, financial condition or results of operations.
However, if the Company encounters any unanticipated delays in, or costs
associated with, the implementation of such changes, the Company's business,
financial condition and results of operations could be materially adversely
affected. There also can be no assurance that computer systems operated by
third parties, such as vendors and financial institutions, with which the
Company does business will achieve year 2000 compliance in a timely fashion or
that any delays or problems on their part will not have a material adverse
effect on the Company's business.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business experiences seasonal fluctuations, as a
disproportionate amount of the Company's net income is generally realized in
the second, third and fourth fiscal quarters due to higher average sales and
lower average costs. Quarterly results have been and are expected to continue
to fluctuate as a result of a number of factors, including the timing of new
restaurant openings. As a result of these factors, net sales and net income on
a quarterly basis may fluctuate and are not necessarily indicative of the
results that may be achieved for a full fiscal year.
GEOGRAPHIC CONCENTRATION IN CALIFORNIA: RESTAURANT BASE
Twenty-eight of the Company's 52 existing salad buffet restaurants are
located in California. Accordingly, the Company is susceptible to fluctuations
in its business caused by adverse economic or other conditions in this region,
including natural disasters or other acts of God. As a result of the Company's
continued concentration in California, adverse economic or other conditions in
California could have a material adverse effect on the Company's business. The
Company's significant investment in, and long-term commitment to, each of its
restaurant sites limits its ability to respond quickly or effectively to
changes in local competitive conditions or other changes that could affect the
Company's operations. In addition, the Company has a small number of
restaurants relative to some of its competitors. Consequently, a decline in
the profitability of an existing restaurant or the introduction of an
unsuccessful new restaurant could have a more significant effect on the
Company's result of operations than would be the case in a company with a
larger number of restaurants.
<PAGE> 13
VOLATILITY OF STOCK PRICE
The market price of the Company's common stock has fluctuated since the
initial public offering of the common stock in May 1995. Quarterly operating
results of the Company and other restaurant companies, daily transactional
volume, changes in general conditions in the economy, the financial markets or
the restaurant industry, natural disasters or other developments affecting the
Company or its competitors could cause the market price of the common stock to
fluctuate substantially. In addition, in recent years the stock market has in
recent years the stock market has experienced extreme price and volume
fluctuations. This volatility has had a significant effect on the market price
of securities issued by many companies for reasons unrelated to the operating
performance of these companies.
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Default upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The company's Annual Stockholder Meeting was held on March 5, 1998.
The election of two (2) directors, the proposal to approve the
Company's 1998 Stock Option Plan, and the ratification of independent
accountants were presented for shareholder approval. The results are
listed below:
Election of two Class C Directors:
Director Total Votes For Total Votes Against
Michael M. Minchin, Jr. 3,993,595 8,665
Robert A. Gunst 3,994,360 7,900
Approval of the 1998 Stock Option Plan:
For Against Abstain Non-Vote
2,232,482 682,017 14,891 1,072,870
Ratification of Independent Accountants:
<TABLE>
<CAPTION>
Accountants Total Votes For Total Votes Against Total Votes Abstain
<S> <C> <C> <C>
Price Waterhouse LLP 3,991,264 6,676 4,320
</TABLE>
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The Exhibits required by Item 6(a) of this report are listed in the
Exhibit Index on page 14 herewith.
(b) Report on Form 8-K:
No reports on Form 8-K have been filed by the Company during the
fiscal quarter ended March 31, 1998.
<PAGE> 14
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.
GARDEN FRESH RESTAURANT CORP.
(Registrant)
/s/ Michael P. Mack
---------------------------------
Michael P. Mack
Chief Executive Officer/President
(Principal Executive Officer)
/s/ David W. Qualls
-----------------------------------
David W. Qualls
Chief Financial Officer
(Principal Accounting and Financial
Officer)
DATED: April 27, 1998
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NUMBER
3.1* Restated Certificate of Incorporation of Garden Fresh
Restaurant Corp. ___
3.2** Bylaws of Garden Fresh Restaurant Corp., as amended. ___
10.1** Form of Indemnity Agreement for executive officers and
directors. ___
10.2** The Company's Restaurant Management Stock Option Plan, as
amended. ___
10.3** The Company's Key Employee Stock Option Plan, as amended. ___
10.4** The Company's 1995 Outside Director Stock Option Plan. ___
10.5** The Company's 1995 Key Employee Stock Option Plan, as amended. ___
10.6*** Form of Executive Employment Agreement ___
10.7*** Wells Fargo Bank Revolving Line of Credit Note ___
10.8 The Company's 1998 Stock Option Plan ___
10.9 The Company's Variable Deferred Compensation Plan for
Executives ___
10.13** Park Terrace Office Park lease between the Company and Park
Terrace Partners dated November 1, 1991 ___
27.1 Financial Data Schedule ___
* Incorporated by reference from Exhibit 4.1 filed with the Company's
Registration Statement on Form S-8 (No. 33-93568) filed June 16, 1995.
** Incorporated by reference from the Exhibits with corresponding numbers
filed with the Company's Registration Statement on Form S-1 (No.
33-90404), as amended by Amendment No. 1 to Form S-1 filed on April
19, 1995, Amendment No. 2 to Form S-1 filed May 8, 1995, Amendment
No. 3 to Form S-1 filed May 15, 1995, Exhibit 10.2 is incorporated by
reference from Exhibits 10.2 and 10.2A, Exhibit 10.3 is incorporated
by reference from Exhibits 10.3 and 10.3A and Exhibit 10.5 is
incorporated by reference from Exhibit 10.5 and 10.5A.
*** Incorporated by reference from the Exhibits with corresponding numbers
filed with the Company's Form 10Q filed with the SEC on February 13,
1998.
<PAGE>
GARDEN FRESH RESTAURANT CORP.
1998 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 Establishment. The Garden Fresh Restaurant Corp. 1998 Stock Option
Plan (the "Plan") is hereby established effective as of December 11, 1997 (the
"Effective Date").
1.2 Purpose. The purpose of the Plan is to advance the interests of the
Participating Company Group and its stockholders by providing an incentive to
attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3 Term of Plan. The Plan shall continue in effect until the earlier of
its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed. However, all Incentive Stock Options shall
be granted, if at all, within ten (10) years from the earlier of the date the
Plan is adopted by the Board or the date the Plan is duly approved by the
stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 Definitions. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company. If one or
more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as amended, and
any applicable regulations promulgated thereunder.
(c) "Committee" means the Compensation Committee or other committee
of the Board duly appointed to administer the Plan and having such powers as
shall be specified by the Board. Unless the powers of the Committee have been
specifically limited, the Committee shall have all of the powers of the Board
granted herein, including, without limitation, the power to amend or terminate
the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law.
<PAGE>
(d) "Company" means Garden Fresh Restaurant Corp., a Delaware
corporation, or any successor corporation thereto.
(e) "Consultant" means any person, including an advisor, engaged by a
Participating Company to render services other than as an Employee or a
Director.
(f) "Director" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "Disability" means the permanent and total disability of the
Optionee within the meaning of Section 22(e)(3) of the Code.
(h) "Employee" means any person treated as an employee (including an
officer or a Director who is also treated as an employee) in the records of a
Participating Company and, with respect to any Incentive Stock Option granted
to such person, who is an employee for purposes of Section 422 of the Code;
provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan. The Company shall determine in good faith and in the exercise of its
discretion whether an individual has become or has ceased to be an Employee and
the effective date of such individual's employment or termination of
employment, as the case may be. For purposes of an individual's rights, if
any, under the Plan as of the time of the Company's determination, all such
determinations by the Company shall be final, binding and conclusive,
notwithstanding that the Company or any governmental agency subsequently makes
a contrary determination.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means, as of any date, the value of a share
of Stock or other property as determined by the Board, in its sole discretion,
or by the Company, in its sole discretion, if such determination is expressly
allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the Stock, the
Fair Market Value of a share of Stock shall be the closing price of a share of
Stock (or the mean of the closing bid and asked prices of a share of Stock if
the Stock is so quoted instead) as quoted on the Nasdaq National Market, the
Nasdaq Small-Cap Market or such other national or regional securities exchange
or market system constituting the primary market for the Stock, as reported in
the Wall Street Journal or such other source as the Company deems reliable. If
the relevant date does not fall on a day on which the Stock has traded on such
securities exchange or market system, the date on which the Fair Market Value
shall be established shall be the last day on which the Stock was so traded
prior to the relevant date, or such other appropriate day as shall be
determined by the Board, in its sole discretion.
<PAGE>
(ii) If, on such date, there is no public market for the Stock,
the Fair Market Value of a share of Stock shall be as determined by the Board
without regard to any restriction other than a restriction which, by its terms,
will never lapse.
(k) "Incentive Stock Option" means an Option intended to be (as set
forth in the Option Agreement) and which qualifies as an incentive stock option
within the meaning of Section 422(b) of the Code.
(l) "Insider" means an officer or a Director of the Company or any
other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(m) "Nonemployee Director" means a Director of the Company who is not
an Employee.
(n) "Nonemployee Director Option" means a right to purchase Stock
(subject to adjustment as provided in Section 4.2) granted to a Nonemployee
Director pursuant to the terms and conditions of the Plan. Nonemployee
Director Options shall be Nonstatutory Stock Options.
(o) "Nonstatutory Stock Option" means an Option not intended to be
(as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
(p) "Option" means a right to purchase Stock (subject to adjustment
as provided in Section 4.2) pursuant to the terms and conditions of the Plan,
including a Nonemployee Director Option. An Option may be either an Incentive
Stock Option or a Nonstatutory Stock Option.
(q) "Option Agreement" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(r) "Optionee" means a person who has been granted one or more
Options.
(s) "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(t) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.
(u) "Participating Company Group" means, at any point in time, all
corporations collectively which are then Participating Companies.
<PAGE>
(v) "Prior Plans" means the Company's Restaurant Management Stock
Option Plan, 1995 Key Employee Stock Option Plan, and 1995 Outside Directors
Stock Option Plan.
(w) "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(x) "Section 162(m)" means Section 162(m) of the Code.
(y) "Securities Act" means the Securities Act of 1933, as amended.
(z) "Service" means an Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. An Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders
Service to the Participating Company Group or a change in the Participating
Company for which the Optionee renders such Service, provided that there is no
interruption or termination of the Optionee's Service. Furthermore, an
Optionee's Service with the Participating Company Group shall not be deemed to
have terminated if the Optionee takes any military leave, sick leave, or other
bona fide leave of absence approved by the Company; provided, however, that if
any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such
leave any Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and instead shall be treated thereafter as a
Nonstatutory Stock Option unless the Optionee's right to return to Service with
the Participating Company Group is guaranteed by statute or contract.
Notwithstanding the foregoing, unless otherwise designated by the Company or
required by law, a leave of absence shall not be treated as Service for
purposes of determining vesting under the Optionee's Option Agreement. An
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company. Subject to the foregoing, the
Company, in its sole discretion, shall determine whether an Optionee's Service
has terminated and the effective date of such termination.
(aa) "Stock" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
(bb) "Subsidiary Corporation" means any present or future "subsidiary
corporation" of the Company, as defined in Section 424(f) of the Code.
(cc) "Ten Percent Owner Optionee" means an Optionee who, at the
time an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
<PAGE>
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular.
Use of the term "or" is not intended to be exclusive, unless the context
clearly requires otherwise.
3. ADMINISTRATION.
3.1 Administration by the Board. The Plan shall be administered by the
Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding
upon all persons having an interest in the Plan or such Option. Any officer of
a Participating Company shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, determination or
election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such
matter, right, obligation, determination or election.
3.2 Administration with Respect to Insiders. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if
any, of Rule 16b-3.
3.3 Committee Complying with Section 162(m). If a Participating Company
is a "publicly held corporation" within the meaning of Section 162(m), the
Board may establish a Committee of "outside directors" within the meaning of
Section 162(m) to approve the grant of any Option which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m).
3.4 Powers of the Board. In addition to any other powers set forth in
the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times at which,
Options shall be granted and the number of shares of Stock to be subject to
each Option;
(b) to designate Options as Incentive Stock Options or Nonstatutory
Stock Options;
(c) to determine the Fair Market Value of shares of Stock or other
property;
(d) to determine the terms, conditions and restrictions applicable to
each Option (which need not be identical) and any shares acquired upon the
exercise thereof, including, without limitation, (i) the exercise price of the
Option, (ii) the method of payment for shares purchased upon the exercise of
the Option, (iii) the method for satisfaction of any tax withholding obligation
arising in connection with the Option or such shares, including by the
withholding or delivery of shares of stock, (iv) the timing, terms and
<PAGE>
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, or grant a new Option in
substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the exercisability of
any Option or the vesting of any shares acquired upon the exercise thereof,
including with respect to the period following an Optionee's termination of
Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and policies
relating to the Plan, or to adopt supplements to, or alternative versions of,
the Plan, including, without limitation, as the Board deems necessary or
desirable to comply with the laws of, or to accommodate the tax policy or
custom of, foreign jurisdictions whose citizens may be granted Options; and
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
4. SHARES SUBJECT TO PLAN.
4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in
Section 4.2, the maximum aggregate number of shares of Stock that may be issued
under the Plan shall be the sum of (a) Two Hundred Fifty Thousand (250,000)
shares, (b) the number of shares of Stock, as of the Effective Date, subject to
outstanding options granted pursuant to the Prior Plans (the "Prior Plan
Options"), and (c) the number of shares of Stock available for future grant
under the Prior Plans as of the Effective Date (the "Prior Plan Available
Shares"), resulting in an aggregate total of One Million Eighty Thousand Three
Hundred Eighteen (1,080,318) shares (the "Share Reserve") and shall consist of
authorized but unissued or reacquired shares of Stock or any combination
thereof. Notwithstanding the foregoing, the Share Reserve, determined at any
time, shall be reduced by (a) the number of shares remaining subject to
outstanding Prior Plan Options, (b) the number of shares issued upon the
exercise of Prior Plan Options, and (c) the number of shares, if any, of the
Prior Plan Available Shares which are issued upon the exercise of options
granted under the Prior Plans subsequent to the Effective Date. If an
outstanding Option for any reason expires or is terminated or canceled, or if
shares of Stock acquired, subject to repurchase, upon the exercise of an Option
are repurchased by the Company, the shares of Stock allocable to the
<PAGE>
unexercised portion of such Option or such repurchased shares of Stock shall
again be available for issuance under the Plan.
4.2 Adjustments for Changes in Capital Structure. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan and to any outstanding Options, in the share limit set forth in
Section 3.4(h), in the Section 162(m) Grant Limit set forth in Section 5.4, to
the automatic Nonemployee Director Option grant provisions set forth in Section
7.1 and in the exercise price per share of any outstanding Options. If a
majority of the shares which are of the same class as the shares that are
subject to outstanding Options are exchanged for, converted into, or otherwise
become (whether or not pursuant to an Ownership Change Event, as defined in
Section 9.1) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares. In the event of any such amendment, the number of
shares subject to, and the exercise price per share of, the outstanding Options
shall be adjusted in a fair and equitable manner as determined by the Board, in
its sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 4.2 shall be rounded up
or down to the nearest whole number, as determined by the Board, and in no
event may the exercise price of any Option be decreased to an amount less than
the par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 4.2 shall be final, binding
and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 Persons Eligible for Options. Options may be granted only to Employees,
Consultants and Directors. For purposes of the foregoing sentence,
"Employees", "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted
in connection with written offers of employment or other service relationship
with the Participating Company Group. Eligible persons may be granted more
than one (1) Option.
5.2 Option Grant Restrictions. Any person who is not an Employee on the
effective date of the grant of an Option to such person may be granted only a
Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences Service as an Employee with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1. A Nonemployee Director Option may be granted only
to a person who at the time of grant is a Nonemployee Director.
5.3 Fair Market Value Limitation. To the extent that options designated as
Incentive Stock Options (granted under all stock option plans of the
Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having an
aggregate Fair Market Value greater than One Hundred Thousand Dollars
($100,000), the portion of such options which exceeds such amount shall be
treated as Nonstatutory Stock Options. For purposes of this Section 5.3,
options designated as Incentive Stock Options shall be taken into account in
the order in which they were granted, and the Fair Market Value of stock shall
be determined as of the time the option with respect to such stock is granted.
If the Code is amended to provide for a different limitation from that set
forth in this Section 5.3, such different limitation shall be deemed
incorporated herein effective as of the date and with respect to such Options
as required or permitted by such amendment to the Code. If an Option is
treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option
in part by reason of the limitation set forth in this Section 5.3, the Optionee
may designate which portion of such Option the Optionee is exercising. In the
absence of such designation, the Optionee shall be deemed to have exercised the
Incentive Stock Option portion of the Option first. Separate certificates
representing each such portion shall be issued upon the exercise of the Option.
5.4 Section 162(m) Grant Limit. Subject to adjustment as provided in
Section 4.2, at any such time as a Participating Company is a "publicly held
corporation" within the meaning of Section 162(m), no Employee shall be granted
one or more Options within any fiscal year of the Company which in the
aggregate are for the purchase of more than one hundred thousand (100,000)
shares of Stock (the "Section 162(m) Grant Limit"). An Option which is
canceled in the same fiscal year of the Company in which it was granted shall
continue to be counted against the Section 162(m) Grant Limit for such period.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the number of
shares of Stock covered thereby, in such form as the Board shall from time to
time establish. No Option or purported Option shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Option
Agreement. Option Agreements may incorporate all or any of the terms of the
Plan by reference and, except as otherwise set forth in Section 7 with respect
to Nonemployee Director Options, shall comply with and be subject to the
following terms and conditions:
6.1 Exercise Price. The exercise price for each Option shall be established
in the sole discretion of the Board; provided, however, that (a) the exercise
price per share for an Incentive Stock Option shall be not less than the Fair
Market Value of a share of Stock on the effective date of grant of the Option,
(b) the exercise price per share for a Nonstatutory Stock Option shall be not
less than eighty-five percent (85%) of the Fair Market Value of a share of
Stock on the effective date of grant of the Option, and (c) no Incentive Stock
Option granted to a Ten Percent Owner Optionee shall have an exercise price per
share less than one hundred ten percent (110%) of the Fair Market Value of a
share of Stock on the effective date of grant of the Option. Notwithstanding
the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory
Stock Option) may be granted with an exercise price lower than the minimum
exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.
<PAGE>
6.2 Exercise Period. Options shall be exercisable at such time or times, or
upon such event or events, and subject to such terms, conditions, performance
criteria, and restrictions as shall be determined by the Board and set forth in
the Option Agreement evidencing such Option; provided, however, that (a) no
Incentive Stock Option shall be exercisable after the expiration of ten (10)
years after the effective date of grant of such Option, (b) no Incentive Stock
Option granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the effective date of grant of such Option,
and (c) no Option granted to a prospective Employee, prospective Consultant or
prospective Director may become exercisable prior to the date on which such
person commences Service with a Participating Company. Subject to the
foregoing, unless otherwise specified by the Board in the grant of an Option,
any Option granted hereunder shall have a term of ten (10) years from the
effective date of the grant of the Option.
6.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided
below, payment of the exercise price for the number of shares of Stock being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without
regard to any restrictions on transferability applicable to such stock by
reason of federal or state securities laws or agreements with an underwriter
for the Company) not less than the exercise price, (iii) by the assignment of
the proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation,
through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System) (a "Cashless Exercise"), (iv) provided that the Optionee is an
Employee, by cash for a portion of the aggregate exercise price not less than
the par value of the shares being acquired and the Optionee's promissory note
in a form approved by the Company for the balance of the aggregate exercise
price, (v) by such other consideration as may be approved by the Board from
time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by
adoption of or by amendment to the standard forms of Option Agreement described
in Section 8, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) Tender of Stock. Notwithstanding the foregoing, an Option may not
be exercised by tender to the Company of shares of Stock to the extent such
tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company of shares of Stock unless such shares either have been
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) Cashless Exercise. The Company reserves, at any and all times, the
right, in the Company's sole and absolute discretion, to establish, decline to
<PAGE>
approve or terminate any program or procedures for the exercise of Options by
means of a Cashless Exercise.
(d) Payment by Promissory Note. No promissory note shall be permitted
if the exercise of an Option using a promissory note would be a violation of
any law. Any permitted promissory note shall be on such terms as the Board
shall determine at the time the Option is granted. The Board shall have the
authority to permit or require the Optionee to secure any promissory note used
to exercise an Option with the shares of Stock acquired upon the exercise of
the Option or with other collateral acceptable to the Company. Unless
otherwise provided by the Board, if the Company at any time is subject to the
regulations promulgated by the Board of Governors of the Federal Reserve System
or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal
and accrued interest, if any, to the extent necessary to comply with such
applicable regulations.
6.4 Tax Withholding. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof. Alternatively or in
addition, in its sole discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in
connection with the Option or the shares acquired upon the exercise thereof.
The Company shall have no obligation to deliver shares of Stock until the
Participating Company Group's tax withholding obligations have been satisfied
by the Optionee.
6.5 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the Option
as otherwise provided herein, an Option shall be exercisable after an
Optionee's termination of Service as follows:
(i) Disability. If the Optionee's Service with the Participating
Company Group is terminated because of the Disability of the Optionee, the
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months (or such longer or shorter period of time as
determined by the Board, in its sole discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the date of
expiration of the Option's term as set forth in the Option Agreement evidencing
such Option (the "Option Expiration Date").
<PAGE>
(ii) Death. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option,
to the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months (or
such longer or shorter period of time as determined by the Board, in its sole
discretion) after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service
shall be deemed to have terminated on account of death if the Optionee dies
within three (3) months after the Optionee's termination of Service.
(iii) Other Termination of Service. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability,
death or Cause, as provided in Section 6.5(d) below, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee's
Service terminated, may be exercised by the Optionee within three (3) months
(or such longer or shorter period of time as determined by the Board, in its
sole discretion) after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of an Option within the applicable time periods set
forth in Section 6.5(a) is prevented by the provisions of Section 12 below, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.
(c) Extension if Optionee Subject to Section 16(b). Notwithstanding the
foregoing, if a sale within the applicable time periods set forth in Section
6.5(a) of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
(d) Termination for Cause. Except as otherwise provided in a contract of
employment or service between a Participating Company and an Optionee, and
notwithstanding any other provision of the Plan to the contrary, if the
Optionee's Service with the Participating Company Group is terminated for Cause
as defined below, the Option shall terminate and cease to be exercisable
immediately upon such termination of Service. For purposes of this Section
6.5(d), "Cause" shall mean any of the following: (1) the Optionee's theft,
dishonesty, or falsification of any Participating Company documents or records;
(2) the Optionee's improper use or disclosure of a Participating Company's
confidential or proprietary information; (3) any action by the Optionee which
has a detrimental effect on a Participating Company's reputation or business;
(4) the Optionee's failure or inability to perform any reasonable assigned
duties after written notice from the Participating Company Group of, and a
reasonable opportunity to cure, such failure or inability; (5) any material
<PAGE>
breach by the Optionee of any agreement of employment or service between the
Optionee and the Participating Company Group, which breach is not cured
pursuant to the terms of such agreement; or (6) the Optionee's conviction
(including any plea of guilty or nolo contendere) of any criminal act which
impairs the Optionee's ability to perform his or her duties with the
Participating Company Group. A determination by the Board that the Optionee
was terminated for Cause shall be final and binding upon the Optionee for all
purposes and shall not be subject to review by any governmental agency or court
of law.
7. TERMS AND CONDITIONS OF NONEMPLOYEE DIRECTOR OPTIONS.
Nonemployee Director Options shall be evidenced by Option Agreements
specifying the number of shares of Stock covered thereby, in such form as the
Board shall from time to time establish. Such Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
7.1 Automatic Grant. Subject to the execution by a Nonemployee Director
of an appropriate Option Agreement, Nonemployee Director Options shall be
granted automatically and without further action of the Board, as follows:
(a) Initial Option. Each person who first becomes a Nonemployee
Director on or after the Effective Date shall be granted on the date such
person first becomes a Nonemployee Director a Nonemployee Director Option to
purchase ten thousand (10,000) shares of Stock (an "Initial Option"); provided,
however, that an Initial Option shall not be granted to a Director who
previously did not qualify as a Nonemployee Director but subsequently becomes a
Nonemployee Director as a result of the termination of his or her status as an
Employee.
(b) Annual Option. Each Nonemployee Director (including any Director
who previously did not qualify as a Nonemployee Director but who subsequently
becomes a Nonemployee Director) shall be granted on the date immediately
following each annual meeting of the stockholders of the Company which occurs
on or after the Effective Date (an "Annual Meeting") a Nonemployee Director
Option to purchase five thousand (5,000) shares of Stock (an "Annual Option");
provided, however, that a Nonemployee Director granted an Initial Option on the
date of an Annual Meeting shall not be granted an Annual Option pursuant to
this Section on the date immediately following the same Annual Meeting.
(c) Right to Decline Nonemployee Director Option. Notwithstanding
the foregoing, any person may elect not to receive a Nonemployee Director
Option by delivering written notice of such election to the Board no later than
the day prior to the date such Nonemployee Director Option would otherwise be
granted. A person so declining a Nonemployee Director Option shall receive no
payment or other consideration in lieu of such declined Nonemployee Director
Option. A person who has declined a Nonemployee Director Option may revoke
such election by delivering written notice of such revocation to the Board no
later than the day prior to the date such Nonemployee Director Option would be
granted pursuant to Section 7.1(a) or (b), as the case may be.
<PAGE>
7.2 Exercise Price. The exercise price per share of Stock subject to a
Nonemployee Director Option shall be the Fair Market Value of a share of Stock
on the date the Nonemployee Director Option is granted.
7.3 Exercise Period. Each Nonemployee Director Option shall terminate and
cease to be exercisable on the date ten (10) years after the date of grant of
the Nonemployee Director Option unless earlier terminated pursuant to the terms
of the Plan or the Option Agreement.
7.4 Right to Exercise Nonemployee Director Options.
(a) Initial Options. Except as otherwise provided in the Option
Agreement, each Initial Option shall become fully vested and exercisable on the
first anniversary of the date of grant, provided that the Optionee's Service
has not terminated prior to such date.
(b) Annual Options. Except as otherwise provided in the Option
Agreement, each Annual Option shall become fully vested and exercisable on the
first anniversary of the date of grant, provided the Optionee's Service has not
terminated prior to such date.
7.5 Effect of Termination of Service on Nonemployee Director Options.
(a) Option Exercisability. Subject to earlier termination of the
Nonemployee Director Option as otherwise provided herein, a Nonemployee
Director Option shall be exercisable after an Optionee's termination of Service
as follows:
(i) Disability. If the Optionee's Service with the Participating
Company Group is terminated because of the Disability of the Optionee, the
Nonemployee Director Option, to the extent unexercised and exercisable on the
date on which the Optionee's Service terminated, may be exercised by the
Optionee (or the Optionee's guardian or legal representative) at any time prior
to the expiration of twelve (12) months after the date on which the Optionee's
Service terminated, but in any event no later than the date of expiration of
the Option Expiration Date.
(ii) Death. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the
Nonemployee Director Option, to the extent unexercised and exercisable on the
date on which the Optionee's Service terminated, may be exercised by the
Optionee's legal representative or other person who acquired the right to
exercise the Nonemployee Director Option by reason of the Optionee's death at
any time prior to the expiration of twelve (12) months after the date on which
the Optionee's Service terminated, but in any event no later than the Option
Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within six (6) months after the
Optionee's termination of Service.
<PAGE>
(iii) Other Termination of Service. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability or
death, the Nonemployee Director Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within six (6) months after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of a Nonemployee Director Option within the
applicable time periods set forth in Section 7.5(a) is prevented by the
provisions of Section 12 below, the Nonemployee Director Option shall remain
exercisable until three (3) months after the date the Optionee is notified by
the Company that the Nonemployee Director Option is exercisable, but in any
event no later than the Option Expiration Date.
(c) Extension if Optionee Subject to Section 16(b). Notwithstanding the
foregoing, if a sale within the applicable time periods set forth in Section
7.5(a) of shares acquired upon the exercise of the Nonemployee Director Option
would subject the Optionee to suit under Section 16(b) of the Exchange Act, the
Nonemployee Director Option shall remain exercisable until the earliest to
occur of (i) the tenth (10th) day following the date on which a sale of such
shares by the Optionee would no longer be subject to such suit, (ii) the one
hundred and ninetieth (190th) day after the Optionee's termination of Service,
or (iii) the Option Expiration Date.
8. STANDARD FORMS OF OPTION AGREEMENT.
8.1 Incentive Stock Options. Unless otherwise provided by the Board at the
time the Option is granted, an Option designated as an "Incentive Stock Option"
shall comply with and be subject to the terms and conditions set forth in the
appropriate form of Incentive Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
8.2 Nonstatutory Stock Options (Other than Nonemployee Director Option).
Unless otherwise provided by the Board at the time the Option is granted, an
Option designated as a "Nonstatutory Stock Option" (other than a Nonemployee
Director Option) shall comply with and be subject to the terms and conditions
set forth in the appropriate form of Nonstatutory Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
8.3 Nonemployee Director Option. Each Nonemployee Director Option shall
comply with and be subject to the terms and conditions set forth in the
appropriate form of Nonstatutory Stock Option Agreement (Nonemployee Director
Option) adopted by the Board concurrently with its adoption of the Plan and as
amended from time to time.
8.4 Authority to Vary Terms. The Board shall have the authority from time
to time to vary the terms of any of the standard forms of Option Agreement
<PAGE>
described in this Section 8 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such
new, revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan.
9. CHANGE IN CONTROL.
9.1 Definitions. Except as otherwise determined by the Board and set forth
in an Option Agreement, the following terms shall have their respective
meanings set forth below:
(a) An "Ownership Change Event" shall be deemed to have occurred if any
of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or series of
related transactions by the stockholders of the Company of more than fifty
percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of
the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Change in Control" shall mean an Ownership Change Event or a
series of related Ownership Change Events (collectively, the "Transaction")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
9.2 Effect of Change in Control on Options. In the event of a Change in
Control, any unexercisable or unvested portion of the outstanding Options shall
be immediately exercisable and vested in full as of the date ten (10) days
prior to the date of the Change in Control. The exercise or vesting of any
Option that was permissible solely by reason of this Section shall be
conditioned upon the consummation of the Change in Control. In addition, the
<PAGE>
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), may
either assume the Company's rights and obligations under outstanding Options or
substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. For purposes of this Section 9.2, an Option
shall be deemed assumed if, following the Change in Control, the Option confers
the right to purchase in accordance with its terms and conditions, for each
share of Stock subject to the Option immediately prior to the Change in
Control, the consideration (whether stock, cash or other securities or
property) to which a holder of a share of Stock on the effective date of the
Change in Control was entitled. Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Change in
Control nor exercised as of the date of the Change in Control shall terminate
and cease to be outstanding effective as of the date of the Change in Control.
Notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Options immediately prior to an Ownership Change Event
described in Section 9.1(a)(i) constituting a Change in Control is the
surviving or continuing corporation and immediately after such Ownership Change
Event less than fifty percent (50%) of the total combined voting power of its
voting stock is held by another corporation or by other corporations that are
members of an affiliated group within the meaning of Section 1504(a) of the
Code without regard to the provisions of Section 1504(b) of the Code, the
outstanding Options shall not terminate unless the Board otherwise provides in
its sole discretion.
10. PROVISION OF INFORMATION.
Each Optionee shall be given access to information concerning the Company
equivalent to that information generally made available to the Company's common
stockholders.
11. TRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be exercisable only by
the Optionee or the Optionee's guardian or legal representative. No Option
shall be assignable or transferable by the Optionee, except by will or by the
laws of descent and distribution. Notwithstanding the foregoing, a
Nonstatutory Stock Option shall be assignable or transferable to the extent
permitted by the Board and set forth in the Option Agreement evidencing such
Option.
12. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon exercise of
Options shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. Options may not
be exercised if the issuance of shares of Stock upon exercise would constitute
a violation of any applicable federal, state or foreign securities laws or
other law or regulations or the requirements of any stock exchange or market
system upon which the Stock may then be listed. In addition, no Option may be
exercised unless (a) a registration statement under the Securities Act shall at
<PAGE>
the time of exercise of the Option be in effect with respect to the shares
issuable upon exercise of the Option or (b) in the opinion of legal counsel to
the Company, the shares issuable upon exercise of the Option may be issued in
accordance with the terms of an applicable exemption from the registration
requirements of the Securities Act. The inability of the Company to obtain
from any regulatory body having jurisdiction the authority, if any, deemed by
the Company's legal counsel to be necessary to the lawful issuance and sale of
any shares hereunder shall relieve the Company of any liability in respect of
the failure to issue or sell such shares as to which such requisite authority
shall not have been obtained. As a condition to the exercise of any Option,
the Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
13. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as
members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is
delegated shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for
gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
14. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However, subject to
changes in applicable law, regulations or rules that would permit otherwise,
without the approval of the Company's stockholders, there shall be (a) no
increase in the maximum aggregate number of shares of Stock that may be issued
under the Plan (except by operation of the provisions of Section 4.2), (b) no
change in the class of persons eligible to receive Incentive Stock Options, and
(c) no other amendment of the Plan that would require approval of the Company's
stockholders under any applicable law, regulation or rule. In any event, no
termination or amendment of the Plan may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such termination or amendment is required to enable an Option designated
as an Incentive Stock Option to qualify as an Incentive Stock Option or is
necessary to comply with any applicable law, regulation or rule.
<PAGE>
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Garden Fresh Restaurant Corp. 1998 Stock Option Plan was duly
adopted by the Board on December 11, 1997.
/s/ David W Qualls
________________________________
Garden Fresh Restaurant Corporation
Variable Deferred Compensation Plan
for Executives
Plan Document
<PAGE>
ARTICLE 1
PURPOSE
The purpose of the Garden Fresh Restaurant Corporation Variable Deferred
Compensation Plan for Executives (the 'Plan') is to provide a means whereby
Garden Fresh Restaurant Corporation (hereinafter referred to as the 'Company')
may afford increased financial security, on a tax-favored basis, to a select
group of key management employees of the Company who have rendered and continue
to render valuable services to the Company which constitute an important
contribution towards the Company's continued growth and success, by providing
for additional future compensation so that such employees may be retained and
their productive efforts encouraged.
<PAGE>
ARTICLE 2 DEFINITIONS
Affiliate. 'Affiliate' means any firm, partnership, or corporation that
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the Company. 'Affiliate' also
includes any other organization similarly related to the Company that is
designated as such by the Committee.
Base Salary. 'Base Salary' means with respect to a Participant for any
Plan Year such Participant's annual base salary before deferral pursuant to
this Plan or any agreement or any other plan of the Company whereby
compensation is deferred, including, without limitation, a plan whereby
compensation is deferred in accordance with Internal Revenue Code Section
401(k) or reduced in accordance with Code Section 125.
Base Salary Deferral. 'Base Salary Deferral' means that portion of the
Base Salary which an eligible employee has made an annual irrevocable election
to defer receipt of until the date specified under the Retirement Distribution
Option.
Beneficiary. 'Beneficiary' means that person or persons designated as
such in accordance with Section 11.3.
Bonus Compensation. 'Bonus Compensation' means with respect to a
Participant for any Plan Year such Participant's annual bonus compensation
before deferral pursuant to this Plan or any agreement or any other plan of the
Company whereby compensation is deferred, including, without limitation, a plan
whereby compensation is deferred in accordance with Code Section 401(k) or
reduced in accordance with Code Section 125.
Bonus Compensation Deferral. 'Bonus Compensation Deferral' means
that portion of the Bonus Compensation which an eligible employee has made an
annual irrevocable election to defer receipt of until the date specified under
the Retirement Distribution Option.
Code. 'Code' means the Internal Revenue Code of 1986, as amended
from time to time.
Committee. 'Committee' means the persons appointed by the Company
to administer the Plan.
Company. 'Company' means Garden Fresh Restaurant Corporation.
<PAGE>
Disabled. 'Disabled' means a mental or physical condition which
qualifies a Participant for benefits under the Garden Fresh Restaurant
Corporation's Long Term Disability Plan.
Earnings Crediting Options. 'Earnings Crediting Options' means the
options selected by the Participant from time to time pursuant to which
earnings are credited to the Participant's Distribution Option Accounts.
Effective Date. 'Effective Date' means the effective date of the Plan
which is January 1, 1998.
Eligible Employee. 'Eligible Employee' means an Employee who is a
member of the group of selected management and/or highly compensated employees
of the Company designated by the Committee as eligible to participate in the
Plan.
Employee. 'Employee' means any person employed by the company
on a regular full-time salaried basis or who is an officer of the Company.
End Termination Date. 'End Termination Date' means the date of
termination of a Participant's Service with the Company and its Affiliates.
Enrollment Agreement. 'Enrollment Agreement' means the
authorization form which an Eligible Employee files with the Company to
participate in the Plan.
Matching Contributions. 'Matching Contributions' are those credited to
the Account by the Company.
Participant. 'Participant' means an Eligible Employee who has filed a
completed and executed Enrollment Agreement with the Committee or its designee
and is participating in the Plan in accordance with the provisions of Article
4.
Plan. 'Plan' means this plan, called the Garden Fresh Restaurant
Corporation Variable Deferred Compensation Plan for Executives, as amended from
time to time.
Plan Year. 'Plan Year' means the 12 month period beginning on each
January 1 and ending on the following December 31. The first Plan Year begins
January 1, 1998.
Retirement. 'Retirement' means the termination of the Participant's
Service with the Employer (for reasons other than death) at or after age 65, or
if the Participant has 10 or more years of Service, at or after age 55.
<PAGE>
Retirement Distribution Account. 'Retirement Distribution Account'
means the Account maintained for a Participant to which Base Salary and/or
Bonus Compensation and Company Matching Contributions deferred by a Participant
pursuant to the Retirement Distribution Option are credited.
Retirement Distribution Option. 'Retirement Distribution Option' means
the Distribution Option pursuant to which benefits are payable in accordance
with Section 7.1.
Service. 'Service' means the period of time starting with the date of
hire, during which an employment relationship exists between an Employee and
the Company, including any period during which the Employee is on an approved
leave of absence, whether paid or unpaid. 'Service' also includes employment
with an Affiliate if an Employee transfers directly between the Company and the
Affiliate.
Vesting. 'Vesting' refers to the permanent ownership rights to the
Company's Matching Contributions a Participant earns through Years of Service.
After one Year of Service, the Participant will own 25% of Garden Fresh
Restaurant Corporation' Matching Contributions, and an additional 25% for each
additional Year of Service so that the Participant is 100% vested in all
Matching Contributions after four Years of Service. Matching Contributions and
related earnings are forfeited when service terminates, to the extent not
vested.
A Participant is 100% vested automatically if the Participant becomes
Disabled or dies while still employed by the Company. A Participant is always
100% vested in Base Salary Deferrals, Bonus Deferrals, and related earnings.
Participants will become 100% vested on a sale or change of control of the
Company. Change of control shall mean approval by the shareholders of the
Company of a sale, reorganization, merger or consolidation, in each case with
respect to which persons who were shareholders of the Company immediately prior
to such sale, reorganization, merger or consolidation do not, immediately
thereafter, own more than 50% of the combined voting power of the reorganized,
merged or consolidated entity's then outstanding securities, or a liquidation
or dissolution of the Company or a sale of substantially all the assets of the
Company.
Year of Service. A 'Year of Service' for Vesting purposes is a calendar
year during which a Participant is credited with 1000 Hours of Service. An
Eligible Employee will be credited with 45 Hours of Service for each week which
is counted as 'Service', as defined above.
<PAGE>
ARTICLE 3
ADMINISTRATION OF THE PLAN
The Committee is hereby authorized to administer the Plan and establish,
adopt, or revise such rules and regulations as it may deem necessary or
advisable for the administration of the Plan. The Committee shall have
discretionary authority to construe and interpret the Plan and to determine the
rights, if any, of Participants and Beneficiaries under the Plan. The
Committee's resolution of any matter concerning the Plan shall be final and
binding upon any Participant and Beneficiary affected thereby. Members of the
Committee shall be eligible to participate in the Plan while serving as members
of the Committee, but a member of the Committee shall not vote or act upon any
matter which relates solely to such member's interest in the Plan as a
Participant.
<PAGE>
ARTICLE 4
PARTICIPATION
4.1 Election to Participate. Annually, all Eligible Employees will be
offered the opportunity to defer compensation to be earned in the following
Plan Year. Any Eligible Employee may enroll in the Plan effective as of the
first day of a Plan Year by filing a completed and fully executed Enrollment
Agreement with the Committee prior to the beginning of such Plan Year.
Pursuant to said Enrollment Agreement, the Eligible Employee shall irrevocably
elect the percentages, in whole percentages, by which up to 100% of Base Salary
and/or up to 100% of Bonus Compensation (in each case after required payroll
tax deductions) of such Eligible Employee for the Plan Year will be deferred.
4.2 New Eligible Employees. The Committee may, in its discretion,
permit Employees who first become Eligible Employees after the beginning of a
Plan Year to enroll in the Plan for that Plan Year by filing a completed and
fully executed Enrollment Agreement, in accordance with Section 4.1, as soon as
practicable following the date the Employee becomes an Eligible Employee.
Notwithstanding the foregoing, however, any election by an Eligible Employee
pursuant to this section, to defer Base Salary and/or Bonus Compensation shall
apply only to such amounts as are earned by the Eligible Employee after the
date on which such Enrollment Agreement is filed.
4.3 Matching Contributions. An Eligible Employee who elects to
participate in the Plan pursuant to Section 4.1 and/or Section 4.2 shall be
eligible to receive Matching Contributions by Garden Fresh Restaurant
Corporation. The amount of such Matching Contributions for a Plan Year shall
be : (I) 50% of deferrals up to $6,000 in deferrals (maximum $3,000 match).
(II) 100% of deferrals up to $20,000 in deferrals (maximum $20,000
match). This enhanced match benefit is only for selected officers listed on
Appendix I.
<PAGE>
ARTICLE 5
DISTRIBUTION ACCOUNT
5.1 Distribution Account. The Committee shall establish and maintain
separate Distribution Account with respect to each Participant. A
Participant's Distribution Account shall consist of the Retirement Distribution
Account. The amount of Base Salary and/or Bonus Compensation deferred pursuant
to Section 4.1 or Section 4.2 shall be credited by the Company to the
Participant's Distribution Account no later than the end of the month in which
such Base Salary and/or Bonus Compensation would otherwise have been paid, in
accordance with the Distribution Option irrevocably elected by the Participant
in the Enrollment Agreement. Any amount once taken into account as Base Salary
and/or Bonus Compensation for purposes of this Plan shall not be taken into
account thereafter. Matching Contributions, when credited, are credited to the
Distribution Account in the same proportion as the Base Salary and/or Bonus
Compensation they match. The Participant's Distribution Accounts shall be
reduced by the amount of payments made by the Company to the Participant or the
participant's Beneficiary pursuant to this Plan. If an Accelerated
Distribution is made under Section 7.1 (c), Participant will incur a 10%
penalty withheld from the distribution.
5.2 Earnings on Distribution Accounts. A Participant's Distribution
Account shall be credited with earnings in accordance with the Earnings
Crediting Options elected by the Participant from time to time. Participants
may allocate each of their Retirement Distribution Accounts among the Earnings
Crediting Options available under the Plan only in whole percentages of not
less than five (5) percent. The rate of return, positive or negative, credited
under each Earnings Crediting Option is based upon the actual investment
performance of the corresponding investment portfolio of the Hudson River
Trust, an open-end management investment Company under the Investment Company
Act of 1940, as amended from time to time, and shall equal the total return of
such investment fund net of asset based charges, including, without limitation,
money management fees, fund expenses and mortality and expense risk insurance
contract charges. The Company reserves the right, on a prospective basis, to
add or delete Earnings Crediting Options.
5.3 Earnings Crediting Options. Except as otherwise provided pursuant
to Section 5.2, the Earnings Crediting Options available under the Plan shall
consist of the options which correspond to certain investment portfolios of the
Hudson River Trust.
<PAGE>
Notwithstanding that the rates of return credited to Participants'
Distribution Option Accounts under the Earnings Crediting Options are based
upon the actual performance of the corresponding portfolios of the Hudson River
Trust, or such other investment funds as the Company may designate, the Company
shall not be obligated to invest any Base Salary and/or Bonus Compensation
deferred by Participants under this Plan, Matching Contributions, or any other
amounts, in such portfolios or in any other investment funds.
5.4 Changes in Earnings Crediting Options. A Participant may change
the Earnings Crediting Options to which his Distribution Accounts are allocated
not more frequently than four (4) times per Plan Year. Each such change may
include (a) reallocation of the Participant's existing Accounts in whole
percentages of not less than five (5) percent, and/or (b) change in investment
allocation of amounts to be credited to the Participant's Accounts in the
future, as the Participant may elect. Notwithstanding the foregoing, however,
in the event the Company deletes an Earnings Crediting Option, a Participant
whose Accounts are allocated to such Earnings Crediting Option, in whole or in
part, shall be entitled to reallocate his Distribution Option Accounts and/or
any amounts to be credited in the future to such Distribution Option Accounts
among the remaining Earnings Crediting Options, at the time of such deletion,
without regard to the annual limit of four (4) such changes.
5.5 Valuation of Accounts. The value of a Participant's Distribution
Accounts as of any date shall equal the amounts therefore credited to such
Accounts, including any earnings (positive or negative) deemed to be earned on
such accounts in accordance with Section 5.2 through the day preceding such
date, less the amounts therefore deducted from such Accounts.
5.6 Statement of Accounts. The Committee shall provide to each
Participant, not less frequently than quarterly, a statement in such form as
the Committee deems desirable setting forth the balance standing to the credit
of each Participant in each of his Distribution Accounts.
5.7 Distributions from Accounts. Any distribution made to or on behalf
of a Participant from one or more of his Distribution Accounts in an amount
which is less than the entire balance of any such Account shall be made pro
rated from each of the Earnings Crediting Options to which such Account is then
allocated.
<PAGE>
ARTICLE 6
DISTRIBUTION OPTION
6.1 Election of Retirement Distribution Option. In the first completed
and fully executed Enrollment Agreement filed with the Committee, an Eligible
Employee shall elect the time and manner of payment pursuant to which his
Distribution Account will be distributed. The Retirement Distribution Option
selection is limited to the Participant's first completed and fully executed
Enrollment Agreement.
6.2 Retirement Distribution Option. Subject to Section 7.1, distribution
of the Participant's Retirement Distribution Account shall commence upon (a)
the Participant's Retirement, or (b) if later, the Participant's attainment of
age 55 and completion of 10 Years of Service, as elected by the Participant in
the Enrollment Agreement pursuant to which such Retirement Distribution Account
was established. The Company retains the authority to defer any distribution
as necessary to comply with IRC #162(m) limits, that states no more than one
million dollars is deductible as compensation paid to certain specified
employees in one year. The Company's Board of Directors also retains the
authority, in its sole and absolute discretion, to terminate the Plan and make
lump sum distributions of all amounts if it determines appropriate.
<PAGE>
ARTICLE 7
BENEFITS TO PARTICIPANTS
7.1 Benefits Under the Retirement Option. Benefits under the
Retirement Distribution Option shall be paid to a Participant as follows:
(a) Benefits Upon Retirement. In the case of a Participant whose
Service with the Employer terminates on account of his Retirement, the
Participant's Retirement Distribution Account, shall be distributed in one of
the following methods, as selected in the Participant's Enrollment Agreement:
(I) in a lump sum; (ii) in five (5), ten (10), or fifteen (15) annual
installments. Any lump-sum benefit payable in accordance with this paragraph
shall be paid not later than thirty (30) days following the retirement date, or
if later, attainment of age sixty-five (65) as elected by the Participant in
accordance with Section 6.2, in an amount equal to the value of the
participant's Retirement Distribution Account as of the day of Retirement.
Annual installment payments, if any, shall commence not later than thirty (30)
days after Participant's retirement date, or if later, attainment of age
sixty-five (65), as elected by the Participant in accordance with Section 6.2,
in an amount equal to (I) the value of such Retirement Distribution Account as
of the last business day of the Plan Year preceding the date of payment,
divided by (ii) the number of annual installment payments elected by the
Participant in the Enrollment Agreement pursuant to which such Retirement
Distribution Account was established. The remaining annual installments shall
be paid not later than February 28 of each succeeding year in an amount equal
to (I) the value of such Retirement Distribution Account as of the last
business day of January divided by (ii) the number of installments remaining.
(b) Benefits Upon Termination of Employment. In the case of a
Participant whose Service with the Employer terminates prior to the earliest
date on which he is eligible for Retirement, other than on account of his
disability or death, the vested portion of a Participant's Retirement
Distribution Account shall be distributed in a lump sum as soon as practicable
following the Participant's End Termination Date or attainment of age 65, as
irrevocably elected by the Participant in the Enrollment Agreement pursuant to
which such Retirement Distribution Account was established.
(c) Acceleration of Benefits: A Participant may choose to accelerate all
or any portion of their vested Retirement Distribution Account prior to
retirement. The accelerated distribution amount will be subject to a 10%
penalty. The Participant deferral for the remainder of the plan year will
terminate and the Participant will not be able to elect additional deferral
until the following plan year. Any and all amount attributable to the penalty
<PAGE>
amount may be allocated at the Company's discretion. This accelerated benefit
will be paid out as soon as practical, not to exceed thirty (30) days.
<PAGE>
ARTICLE 8
DISABILITY
In the event a Participant becomes Disabled, the Participant's right to
make any further deferrals under this Plan shall terminate as of the date for
which the Participant first receives benefits under the Garden Fresh
Corporation Long-Term Disability Benefit Plan, as amended from time to time.
The Participant's Distribution Accounts shall continue to be credited with
earnings in accordance with Section 5.2 until such Accounts are fully
distributed. For purposes of this Plan, a Disabled Participant will not be
treated as having terminated Employment. The Participant's Retirement
Accounts, if any, shall be distributed to the Participant in accordance with
Section 7.1.
<PAGE>
ARTICLE 9
SURVIVOR BENEFITS
9.1 Death of Participant Prior to the Commencement of Benefits. In
the event of a Participant's death prior to the commencement of benefits in
accordance with Article 7, benefits shall be paid to the Participant's
Beneficiary, as determined under Section 11.3, pursuant to Section 9.2 or 9.3,
whichever is applicable, in lieu of any benefits otherwise payable under the
Plan on Retirement or termination of employment to or on behalf of such
Participant. In addition in the event that a Participant dies while still
employed by the Company, the Plan will pay to the Participant's designated
beneficiaries an aggregate death benefit of $100,000.00. This will be
distributed in the form of salary continuance payable in twenty-five (25)
percent increments over four years (less applicable withholdings). For
executives named in Appendix I of this Plan document, the Company offers a
death benefit of $500,000.00. This is payable in the form of salary
continuance in annual twenty-five (25) percent increments over four years (less
applicable withholdings). In its sole and absolute discretion, the Company may
elect to pay this death benefit in a single, lump sum payment.
9.2 Survivor Benefits Under the Retirement Distribution Option. In
the case of a Participant with respect to whom the Company has established one
or more Retirement Distribution Accounts, and who dies prior to the
commencement of benefits under such Retirement Accounts pursuant to Section
7.1, distribution of such Retirement Accounts shall be made (a) in a lump sum
as soon as practicable following the Participant's death, or (b) in the manner
and at such time as such Retirement Accounts would otherwise have been
distributed in accordance with Section 7.1 had the Participant lived, as
irrevocably elected by the Participant in the Enrollment Agreement pursuant to
which such Retirement Accounts were established. The amount of any lump sum
benefit payable in accordance with this Section shall equal the value of such
Retirement Accounts as of the last business day of the calendar month
immediately preceding the date on which such benefit is paid. The amount of
any annual installment benefit payable in accordance with this Section shall
equal (a) the value of such Retirement Accounts as of the last business day of
the calendar month immediately preceding the date on which such installment is
paid, divided by (b) the number of annual installments remaining to be paid
pursuant to the irrevocable election of the Participant in the Enrollment
Agreement pursuant to which such Retirement Accounts were established.
9.4 Death of Participant After Benefits Have Commenced. In the
event a Participant who elected the Retirement Distribution Option for any
Distribution Option Period dies after annual installment benefits payable under
Section 7.1 from one or more of the Participant's Retirement Accounts have
commenced, but before the entire balance of such Retirement Distribution
<PAGE>
Accounts has been paid, any remaining installments shall continue to be paid to
the Participant's Beneficiary, as determined under Section 11.3, at such times
and in such amounts as they would have been paid to the Participant had he
survived.
<PAGE>
ARTICLE 10
EMERGENCY BENEFIT
In the event that the Committee, upon written request of a Participant,
determines, in its sole discretion, that the Participant has suffered an
unforeseeable financial emergency, the Company shall pay to the Participant
from the vested portion of his Distribution Account, as soon as practicable
following such determination, an amount necessary to meet the emergency, after
deduction of any and all taxes as may be required pursuant to Section 11.9 (the
'Emergency Benefit'). For purposes of the Plan, an unforeseeable financial
emergency is an unexpected need for cash arising from an illness, casualty
loss, sudden financial reversal, or other such unforeseeable occurrence. Cash
needs arising from foreseeable events such as the purchase of a house or
education expenses for children shall not be considered to be the result of an
unforeseeable financial emergency. Emergency Benefits shall be paid from the
vested Retirement Accounts. With respect to that portion of any Distribution
Option Account which is distributed to a Participant as an Emergency Benefit,
in accordance with this Article, no further benefit shall be payable to the
Participant under this Plan. Notwithstanding anything in this Plan to the
contrary, a Participant who receives an Emergency Benefit in any Plan Year
shall not be entitled to make any further deferrals for the remainder of such
Plan Year.
<PAGE>
ARTICLE 11
MISCELLANEOUS
11.1 Amendment and Termination. The Plan may be amended, suspended,
discontinued or terminated at any time by the Company, or by any other entity
authorized by the Company, provided, however, that no such amendment,
suspension, discontinuance or termination shall reduce or in any manner
adversely affect the rights of any Participant with respect to benefits that
are payable or may become payable under the Plan based upon the balance of the
Participant's Accounts as of the effective date of such amendment, suspension,
discontinuance or termination. The Company retains the ability, in its sole
and absolute discretion, to terminate the Plan and make immediate
distributions.
11.2 Claims Procedure.
a. Claim
A person who believes that he is being denied a benefit to which
he is entitled under the Plan (hereinafter referred to as a 'Claimant') may
file a written request for such benefit with the Benefits Department of the
Company, setting forth his claim.
b. Claim Decision
Upon receipt of a claim, the Benefits Department of the Company
shall advise the Claimant that a reply will be forthcoming within ninety (90)
days and shall, in fact, deliver such reply within such period. The Benefits
Department of the Company may, however, extend the reply period for an
additional ninety (90) days for reasonable cause.
If the claim is denied in whole or in part, the Claimant shall be
provided a written opinion, using language calculated to be understood by the
Claimant, setting forth:
(a) The specific reason or reasons for such denial;
(b) The specific reference to pertinent provisions of this
Agreement on which such denial is bases;
(c) A description of any additional material or information
necessary for the Claimant to perfect his claim and an explanation why such
material or such information is necessary;
(d) Appropriate information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) The time limits for requesting a review under subsection (c)
<PAGE>
and for review under subsection (d) hereof.
c. Request for Review
Within sixty (60) days after the receipt by the Claimant of the
written opinion described above, the Claimant may request in writing that the
Committee review the determination of the Benefits Department of the Company.
The Claimant or his duly authorized representative may, but need not review the
pertinent documents and submit issues and comment in writing for consideration
by the Committee. If the Claimant does not request a review of the initial
determination within such sixty (60) day period, he shall be barred and
estopped from challenging the determination.
d. Review of Decision
Within sixty (60) days after the Committee's receipt of a request
for review, it will review the initial determination. After considering all
materials presented by the Claimant, the Committee will render a written
opinion, written in a manner calculated to by understood by the Claimant,
setting forth the specific reasons for the decision and containing specific
references to the pertinent provisions of this Agreement on which the decision
is bases. If special circumstances require that the sixty (60) day time period
be extended, the Committee will so notify the Claimant and will render the
decision as soon as possible, but no later than one hundred twenty (120) days
after receipt of the request for review.
11.3 Designation of Beneficiary. Each Participant may designate a
Beneficiary or Beneficiaries (which Beneficiary may be an entity other than a
natural person) to receive any payments which may be made following the
Participant's death. Such designation may be changed or canceled at any time
without the consent of any such Beneficiary. Any such designation, change or
cancellation must be made in a form approved by the Committee and shall not be
effective until received by the Committee, or its designee. If no Beneficiary
has been named, or the designated Beneficiary or Beneficiaries shall have
predeceased the Participant, the Beneficiary shall be the Participant's estate.
If a Participant designates more than one Beneficiary, the interests of such
Beneficiaries shall be paid in equal shares, unless the Participant has
specifically designated otherwise.
11.4 Limitation of Participant's Right. Nothing in this Plan shall be
construed as conferring upon any Participant any right to continue in the
employment of the Employer, nor shall it interfere with the rights of the
Employer to terminate the employment of any Participant and/or to take any
personnel action affecting any Participant without regard to the effect which
such action may have upon such Participant as a recipient or prospective
recipient of benefits under the Plan
<PAGE>
11.5 No Limitation on Employer Actions. Nothing contained in the Plan
shall be construed to prevent the Employer from taking any action which is
deemed by it to be appropriate or in its best interest. No Participant,
Beneficiary, or other person shall have any claim against the Employer as a
result of such action.
11.6 Obligations to Employer. If a Participant becomes entitled to a
distribution of benefits under the Plan, and if at such time the Participant
has outstanding any debt, obligation, or other liability representing an amount
owing to the Employer, then the Employer may offset such amount owed to it
against the amount of benefits otherwise distributable. Such determination
shall be made by the Committee.
11.7 Nonalienation of Benefits. Except as expressly provided herein, no
Participant or Beneficiary shall have the power or right to transfer (otherwise
than by will or the laws of descent and distribution), alienate, or otherwise
encumber the Participant's interest under the Plan. The Company's obligations
under this Plan are not assignable or transferable except to (a) any
corporation or partnership which acquires all or substantially all of the
Company's assets or (b) any corporation or partnership into which the Company
may be merged or consolidated. The provisions of the Plan shall inure to the
benefit of each Participant and the Participant's Beneficiaries, heirs,
executors, administrators or successors in interest.
11.8 Protective Provisions. Each Participant shall cooperate with the
Employer by furnishing any and all information requested by the Employer in
order to facilitate the payment of benefits hereunder, taking such physical
examinations as the Employer may deem necessary and taking such other relevant
action as may be requested by the Employer. If a Participant refuses to
cooperate, the Employer shall have no further obligation to the Participant
under the Plan, other than payment to such Participant of the then current
balance of the Participant's Distribution Option Accounts in accordance with
his prior election.
11.9 Withholding Taxes. The Company may make such provisions and take
such action as it may deem necessary or appropriate for the withholding of any
taxes which the Company is required by any law or regulation of any
governmental authority, whether Federal state or local, to withhold in
connection with any benefits under the Plan, including, but not limited to, the
withholding of appropriate sums from any amount otherwise payable to the
Participant (or his Beneficiary). Each Participant, however, shall be
responsible for the payment of all individual tax liabilities relating to any
such benefits.
11.10 Unfunded Status of Plan. The Plan is intended to constitute an
'unfunded' plan of deferred compensation for Participants. Benefits payable
<PAGE>
hereunder shall be payable out of the general assets of the Company, and no
segregation of any assets whatsoever for such benefits shall be made. Not
withstanding any segregation of assets or transfer to a grantor trust, with
respect to any payments not yet made to a Participant, nothing contained herein
shall give any such Participant any rights to assets that are greater than
those of a general creditor of the Company.
11.11 Severability. If any provision of this Plan is held unenforceable,
the remainder of the Plan shall continue full force and effect without regard to
such unenforceable provision and shall be applied as thought the
unenforceable provision were not contained in the Plan.
11.12 Governing Law. The Plan shall be construed in accordance
with and governed by the laws of the State of California without reference to
the principles of conflict of laws.
11.13 Headings. Headings are inserted in this Plan for convenience of
reference only and are to be ignored in the construction of the provisions of
the Plan.
11.14 Gender, Singular and Plural. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, or neutral, as the
identity of the person or persons may require. As the context may require, the
singular may read as the plural and the plural as the singular.
11.15 Notice. Any notice or filing required or permitted to be given to
the Committee under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to the Benefits Department,
or to such other entity as the Committee may designate from time to time. Such
notice shall be deemed given as to the date of delivery, or, if delivery is made
by mail, as of the date shown on the postmark on the receipt for registration or
certification.
<PAGE>
ARTICLE 12
SIGNATURE
This Plan is hereby adopted and approved, to be effective as of this
7th day of January, 1998.
Garden Fresh Restaurant Corporation
By: /s/ D W Qualls
Its: CFO/Secretary
<PAGE>
Appendix I
Participation 4.3 (II) selected officers:
Michael Mack
Dave Qualls
Greg Keller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF THE
ANNUAL REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH ANNUAL REPORT ON FORM 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,588
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,245
<CURRENT-ASSETS> 7,807
<PP&E> 89,130
<DEPRECIATION> 27,749
<TOTAL-ASSETS> 71,468
<CURRENT-LIABILITIES> 16,803
<BONDS> 0
0
0
<COMMON> 43
<OTHER-SE> 39,260
<TOTAL-LIABILITY-AND-EQUITY> 71,468
<SALES> 51,739
<TOTAL-REVENUES> 51,739
<CGS> 13,406
<TOTAL-COSTS> 47,600
<OTHER-EXPENSES> 55
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 962
<INCOME-PRETAX> 3,122
<INCOME-TAX> 1,218
<INCOME-CONTINUING> 1,904
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,904
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.41
</TABLE>
