-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DH+8InbCJFuxBtH0z09Nk6ix851a2hWmFVFAKUnOHbqKyjKbF4Ozl3/Vw5fxbriM PKUGt0ZhCoBnemr51AOobA== 0000950144-98-003656.txt : 19980331 0000950144-98-003656.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950144-98-003656 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19971228 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RARE HOSPITALITY INTERNATIONAL INC CENTRAL INDEX KEY: 0000883976 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 581498312 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19924 FILM NUMBER: 98579316 BUSINESS ADDRESS: STREET 1: 8215 ROSWELL RD STREET 2: BLDG 200 CITY: ATLANTA STATE: GA ZIP: 30350 BUSINESS PHONE: 7703999595 MAIL ADDRESS: STREET 1: 8215 ROSWELL ROAD STREET 2: BLDG 200 CITY: ATLANTA STATE: GA ZIP: 30350 FORMER COMPANY: FORMER CONFORMED NAME: LONGHORN STEAKS INC DATE OF NAME CHANGE: 19930328 10-K 1 RARE HOSPITALITY INTERNATIONAL, INC. 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997 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 0-19924 --------------- RARE HOSPITALITY INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) GEORGIA 58-1498312 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 8215 ROSWELL ROAD, BLDG 200; 30350 ATLANTA, GA (Zip Code) (Address of principal executive offices) 770-399-9595 (Registrant's telephone number, including area code) Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 11, 1998, the aggregate market value of the voting stock held by non-affiliates (assuming for these purposes, but not conceding, that all executive officers and directors are "affiliates" of the Registrant) of the Registrant was $109,723,582 based upon the last reported sale price in the Nasdaq National Market on March 11, 1998 of $10.375. As of March 11, 1998, the number of shares outstanding of the Registrant's Common Stock, no par value, was 11,979,308. 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 20, 1998 are incorporated by reference in Part III hereof. FORWARD-LOOKING STATEMENTS Certain of the matters discussed in the following pages, particularly regarding estimates of the number and locations of new restaurants that the Company intends to open during fiscal 1998, constitute "forward-looking statements" within the meaning of the Securities Act of 1933, as amended and the Exchange Act of 1934, as amended. Forward-looking statements involve a number of risks and uncertainties, and in addition to the factors discussed in this Form 10-K, among the other factors that could cause actual results to differ materially are the following: failure of facts to conform to necessary management estimates and assumptions; the Company's ability to identify and secure suitable locations on acceptable terms, open new restaurants in a timely manner, hire and train additional restaurant personnel and integrate new restaurants into its operations; the continued implementation of the Company's business discipline over a large restaurant base; the economic conditions in the new markets into which the Company expands and possible uncertainties in the customer base in these areas; changes in customer dining patterns; competitive pressures from other national and regional restaurant chains; business conditions, such as inflation or a recession, and growth in the restaurant industry and the general economy; changes in monetary and fiscal policies, laws and regulations; and other risks identified from time to time in the Company's SEC reports, registration statements and public announcements. ================================================================================ 2 3 RARE HOSPITALITY INTERNATIONAL, INC. INDEX
PAGE ---- Part I Item 1. Business........................................... 4 Item 2. Properties......................................... 14 Item 3. Legal Proceedings.................................. 14 Item 4. Submission of Matters to a Vote of Security Holders........................................... 15 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................... 16 Item 6. Selected Financial Data............................ 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk....................................... 25 Item 8. Financial Statements and Supplementary Data........ 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... 43 Part III Item 10 Directors and Executive Officers of the Registrant. 43 Item 11 Executive Compensation............................. 43 Item 12 Security Ownership of Certain Beneficial Owners and Management.................................... 43 Item 13 Certain Relationships and Related Transactions..... 44 Part IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 45 Signatures...................................................... 47 Financial Statement Schedules Exhibits
3 4 PART I ITEM 1. BUSINESS GENERAL RARE Hospitality International, Inc. (the "Company"), formerly known as Longhorn Steaks, Inc., operates and franchises 124 restaurants as of March 11, 1998, including 96 LongHorn Steakhouse restaurants, 16 Bugaboo Creek Steak House restaurants, and 10 The Capital Grille restaurants, as well as two additional restaurants (the "specialty restaurants"), Hemenway's Seafood Grille & Oyster Bar ("Hemenway's") and The Old Grist Mill Tavern. The Company was incorporated in Georgia in December 1982. On September 13, 1996, the Company completed the acquisition of Bugaboo Creek Steak House, Inc., along with certain related restaurant and real estate properties. The Company issued 2,939,062 shares of the Company's common stock to the stockholders of Bugaboo Creek Steak House, Inc. and 240,410 shares of the Company's common stock for the purchase of three affiliated entities and certain related real estate. Such acquisition was accounted for using the pooling of interests method. Bugaboo Creek Steak House, Inc. operated 14 Bugaboo Creek Steak Houses, five The Capital Grille restaurants, and the affiliated entities operated three specialty concept restaurants, at the time of the merger. Bugaboo Creek Steak House, Inc., now a wholly-owned subsidiary of the Company, owns and operates the Bugaboo Creek Steak House restaurants and The Capital Grille restaurants. Another wholly-owned subsidiary, Whip Pooling Corporation, which was acquired concurrently with Bugaboo Creek Steak House, Inc., owns and operates Hemenway's and The Old Grist Mill Tavern. On January 13, 1997, the Company changed its name from Longhorn Steaks, Inc. to RARE Hospitality International, Inc., to reflect the organization of its operations into three distinct restaurant operating businesses. The Company believes that the new name and corporate structure more adequately reflect its position as a multi-concept operator. As a result of this change, the Company's common stock, which had traded on the Nasdaq National Market under the symbol "LOHO", began trading under its current symbol "RARE". CONCEPTS LongHorn Steakhouse restaurants, which are located primarily in the southeastern and midwestern United States, are casual dining, full-service restaurants that serve lunch and dinner, offer full liquor service and feature a menu consisting of fresh cut steaks, as well as salmon, shrimp, chicken, ribs, pork chops and prime rib. LongHorn Steakhouses emphasize high quality, moderately-priced food and attentive, friendly service, provided in a casual atmosphere resembling a Texas roadhouse. The 16 Bugaboo Creek Steak House restaurants are currently located in the northeastern and mid-Atlantic regions of the United States. The Bugaboo Creek Steak Houses are casual dining restaurants designed to resemble a Canadian Rocky Mountain lodge. Menu offerings include seasoned steaks, prime rib, spit-roasted half chickens, smoked baby back ribs, grilled salmon and a variety of freshwater fish. The 10 The Capital Grille restaurants are located in major metropolitan areas across the United States. These restaurants are fine-dining restaurants with menu offerings ranging from chilled baby lobster and beluga caviar appetizers to entrees of dry-aged steaks, lamb and veal steaks, lobster, grilled salmon and chicken to a wine list of over 300 selections. 4 5 RESTAURANT LOCATIONS The following tables set forth the location of each existing restaurant by concept at March 11, 1998 and the number of restaurants in each area. LONGHORN STEAKHOUSE RESTAURANTS EXISTING COMPANY-OWNED/JOINT VENTURE RESTAURANTS FLORIDA Destin ........................................................ 1 Cypress Creek ................................................. 1 Miami/Ft. Lauderdale .......................................... 4 Jacksonville .................................................. 4 Largo ......................................................... 1 Tallahassee ................................................... 1 Orlando ....................................................... 7 Ocala ......................................................... 1 West Palm ..................................................... 3 Ft. Myers ..................................................... 1 St. Augustine ................................................. 1 Tampa/ St. Petersburg ......................................... 2 GEORGIA Albany ........................................................ 1 Athens ........................................................ 1 Atlanta ....................................................... 21 Cartersville .................................................. 1 Columbus ...................................................... 1 Macon ......................................................... 1 Rome .......................................................... 1 Savannah ...................................................... 1 Statesboro .................................................... 1 Augusta ....................................................... 1 Valdosta ...................................................... 1 ALABAMA Dothan ........................................................ 1 Montgomery .................................................... 1 Mobile ........................................................ 1 TENNESSEE Chattanooga ................................................... 1 Nashville ..................................................... 4 OHIO Cincinnati .................................................... 4 Cleveland ..................................................... 7 Columbus ...................................................... 3 MISSOURI St. Louis ..................................................... 1 NORTH CAROLINA Greensboro/High Point/Winston-Salem ........................... 2 Burlington .................................................... 1 Concord ....................................................... 1 Charlotte ..................................................... 3 Columbia ...................................................... 2 Lake Norman ................................................... 1 SOUTH CAROLINA Greenville/Spartanburg ........................................ 2 Hilton Head ................................................... 1 Columbia ...................................................... 1 Total Existing Company-Owned/Joint Venture Restaurants ..... 95
5 6 EXISTING FRANCHISE-OWNED RESTAURANTS FLORIDA Tampa ................................................... 1 Total Existing Franchise-Owned Restaurants ........ 1 Total LongHorn Steakhouse Restaurants ............. 96 BUGABOO CREEK STEAK HOUSE RESTAURANTS EXISTING COMPANY-OWNED RESTAURANTS MASSACHUSETTS Boston ................................................... 4 VIRGINIA Springfield .............................................. 1 NEW YORK Albany ................................................... 1 Rochester ................................................ 1 Poughkeepsie ............................................. 1 PENNSYLVANIA Philadelphia ............................................. 1 RHODE ISLAND Providence ............................................... 2 CONNECTICUT Manchester ............................................... 1 MAINE Bangor ................................................... 1 Portland ................................................. 1 MARYLAND Gaithersburg ............................................. 1 NEW HAMPSHIRE Newington ................................................ 1 Total Bugaboo Creek Steak House Restaurants ........ 16 THE CAPITAL GRILLE RESTAURANTS EXISTING COMPANY-OWNED RESTAURANTS MASSACHUSETTS Boston ................................................... 2 DISTRICT OF COLUMBIA Washington ............................................... 1 CALIFORNIA San Francisco ............................................ 1 FLORIDA Miami .................................................... 1 ILLINOIS Chicago .................................................. 1 RHODE ISLAND Providence ............................................... 1 MICHIGAN Troy ..................................................... 1 MINNESOTA Minneapolis .............................................. 1 TEXAS Houston .................................................. 1 Total The Capital Grille Restaurants ............... 10
6 7 SPECIALTY RESTAURANTS EXISTING COMPANY-OWNED RESTAURANTS RHODE ISLAND Hemenway's Seafood Grille & Oyster Bar, Providence ............... 1 MASSACHUSETTS The Old Grist Mill Tavern, Seekonk ............................... 1 Total Specialty Restaurants................................. 2 RESTAURANTS UNDER CONSTRUCTION DELAWARE Bugaboo Creek Steak House, Newark .............................. 1 GEORGIA LongHorn Steakhouse, Atlanta ................................... 1 LongHorn Steakhouse, Cumming ................................... 1 ILLINOIS LongHorn Steakhouse, Fairview Heights .......................... 1 MISSOURI LongHorn Steakhouse, Ballwin ................................... 1 NORTH CAROLINA The Capital Grille, Charlotte .................................. 1 OHIO LongHorn Steakhouse, Beavercreek ............................... 1 Total Restaurants Under Construction...................... 7
UNIT ECONOMICS LongHorn Steakhouse The Company's modified LongHorn Steakhouse restaurant design, which has been developed and refined over the past four years, has increased capacity from an average of 150 seats for LongHorn Steakhouse restaurants open prior to 1994 to an average of 236 seats for LongHorn Steakhouse restaurants opened in 1997. The objective of this modification was to increase the revenues of the Company's new LongHorn Steakhouse restaurants while reducing capital expenditures as a percentage of revenues. The Company intends to continue to emphasize leasing as its preferred arrangement for LongHorn Steakhouse sites and currently leases all but 20 of its LongHorn Steakhouses in operation, owns one site for a restaurant under construction and owns one site held for resale. The Company purchases land only in those circumstances it believes are cost-effective. Four of the 19 LongHorn Steakhouse restaurants opened in 1997 were located on property purchased at an average cost of $683,000 per location. Excluding real estate costs, the average cash investment to open a LongHorn Steakhouse restaurant in 1997 was $1,571,000 including pre-opening expenses of $171,000. The Company amortizes pre-opening expenses over the first 12 months of a restaurant's operation. Bugaboo Creek Steak House The Company developed a modified Bugaboo Creek Steak House restaurant design which served as the new prototype for Bugaboo Creek Steak House restaurants constructed in 1997. The two Bugaboo Creek Steak House restaurants constructed in 1997 utilized this design. The Company is in the process of further refining the prototype, with the objective of reducing the capital expenditure required for new restaurant construction and reducing ongoing operating costs at these new restaurants due to lower square footage and a more efficient layout. The Company intends to continue to emphasize leasing as its preferred arrangement for Bugaboo Creek Steak House sites and currently leases all but two of its Bugaboo Creek Steak House sites. The Company purchases land only in those circumstances it believes are cost-effective. Neither of the two Bugaboo Creek Steak House restaurants opened in 1997 were located on purchased property. Excluding real estate costs, the average cash investment to open 7 8 a Bugaboo Creek Steak House restaurant in 1997 was $1,937,000, including pre-opening expenses of $155,000. The Company amortizes pre-opening expenses over the first 12 months of a restaurant's operation. The Capital Grille Due to the historic nature of many of the sites selected for The Capital Grille restaurants (which is incorporated into the design of the facility), the development of a prototype is not feasible. Instead, the Company is evaluating methods with which to lower construction costs while retaining the unique ambiance of each location. The Company intends to continue to emphasize leasing as its preferred arrangement for The Capital Grille sites and currently leases all of its The Capital Grille sites. The Company intends to purchase land only in those circumstances it believes are cost-effective. The average cash investment to open a The Capital Grille restaurant in 1997 was $3,314,000, including pre-opening expenses of $338,000. The Company amortizes pre-opening expenses over the first 12 months of a restaurant's operation. EXPANSION STRATEGY LongHorn Steakhouse and Bugaboo Creek Steak House: The Company plans to expand through the development of existing joint venture partnerships and additional Company-owned LongHorn Steakhouse restaurants and additional Company-owned Bugaboo Creek Steak House restaurants in existing markets and in other selected metropolitan markets in the southeastern, midwestern, northeastern and mid-Atlantic regions of the United States. Under its joint venture arrangements, the Company intends to continue to expand in those markets by utilizing the joint venture partners who are experienced restaurant operators with knowledge of the market in which the joint venture operates. Currently, the Company has joint venture arrangements covering territories in various areas of Florida, North Carolina, South Carolina and Ohio, and in the St. Louis area. The Company plans to continue to expand its Company-owned restaurant base by clustering its restaurants in existing and new markets, with LongHorn Steakhouse restaurants primarily in the southeastern and midwestern regions of the United States and Bugaboo Creek Steak House restaurants primarily in the northeastern and mid-Atlantic regions of the United States. The Company believes this clustering enhances its ability to supervise operations, market the Company's concept and distribute supplies. The Company also intends to open single restaurants in smaller markets in sufficiently close proximity to the Company's other markets to enable the Company to efficiently supervise operations and distribute supplies. The Capital Grille: The Company plans to expand through the development of additional Company-owned The Capital Grille restaurants in selected metropolitan markets nationwide. Overall: The Company's objective is to increase earnings by expanding market share in existing markets and by developing restaurants in new markets. The Company intends to open approximately 12 Company-owned and joint venture restaurants in 1998: eight LongHorn Steakhouse restaurants; two Bugaboo Creek Steak House restaurants and two The Capital Grille restaurants. Of the restaurants proposed for 1998, the Company has opened one restaurant in North Carolina, has seven restaurants under construction in Delaware, Georgia, Illinois, Missouri, North Carolina and Ohio and has signed letters of intent or leases on sites for five additional restaurants as of March 11, 1998. The Company expects that 4 of the 8 LongHorn Steakhouse restaurants to be opened in 1998 will be developed under joint ventures, and that all of the Bugaboo Creek Steak House and The Capital Grille restaurants will be Company-owned. In January 1997, the Company acquired two previously franchised LongHorn Steakhouse restaurants in Greenville and Spartanburg, South Carolina and the attendant territory franchise development rights for the Greenville-Spartanburg market area and the Raleigh, North Carolina market area. The Company may transfer other Company-owned restaurants to joint ventures in connection with the future development of existing territories. In the fourth quarter of 1997, the Company acquired joint venture partner ownership interests in 10 LongHorn Steakhouse restaurants located in South Georgia, Southern Alabama, and the Panhandle of Florida for an aggregate purchase price of $1,088,000 in cash, notes payable, and the Company's common stock. 8 9 The Company is not currently a party to any agreement, arrangement or understanding in connection with any other potential acquisition of existing restaurants other than in the ordinary course of business, but the Company will continue to evaluate suitable acquisitions in the restaurant industry as they are identified. The Company will consider on a selective basis qualified applicants with substantial restaurant experience and financial resources for franchises of either LongHorn Steakhouse restaurants or Bugaboo Creek Steak House restaurants. The Company does not currently anticipate offering franchises for The Capital Grille restaurants. The Company expects that it will grant franchises to operators who are not joint venture partners with the Company primarily in markets in which the Company would not otherwise expand itself. The preceding discussion of expansion strategy contains certain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, and in addition to the factors discussed in this Form 10-K, among the other factors that could cause actual results to differ materially are the following: the Company's ability to identify and secure suitable locations on acceptable terms, open new restaurants in a timely manner, hire and train additional restaurant personnel and integrate new restaurants into its operations; the continued implementation of the Company's strict business discipline over a large restaurant base; the economic conditions in the new markets into which the Company expands and possible uncertainties in the customer base in these areas; changes in customer dining patterns; competitive pressures from other national and regional restaurant chains; business conditions and growth in the restaurant industry and the general economy; and other risks identified from time to time in the Company's SEC reports and public announcements. See the discussion of forward-looking statements found in "Documents Incorporated by Reference." SITE SELECTION AND RESTAURANT LAYOUT The Company considers the location of a restaurant to be a critical factor to the unit's long-term success and devotes significant effort to the investigation and evaluation of potential sites. The site selection process focuses on trade area demographics, target population density and household income level as well as specific site characteristics, such as visibility, accessibility and traffic volumes. The Company also reviews potential competition and the profitability of national chain restaurants operating in the area. Senior management inspects and approves each restaurant site. It typically takes 100 to 120 days to construct and open a new LongHorn Steakhouse restaurant, 130 to 140 days to construct and open a new Bugaboo Creek Steak House restaurant and 170 to 185 days to construct and open a new The Capital Grille restaurant. While the Company will consider the option of purchasing sites for its new restaurants where it is cost-effective to do so, currently all but 24 of the Company's restaurant sites are leased. Over the past four years, the Company has modified its prototypical LongHorn Steakhouse restaurant, increasing its average seating capacity from approximately 150 seats for LongHorn Steakhouse restaurants open prior to 1994 to an average of 236 seats in approximately 6,000 square feet of space for LongHorn Steakhouse restaurants opened in 1997. An expanded kitchen design incorporating equipment needed for a broader menu is also part of the prototype. The Company believes the kitchen design simplifies training, lowers costs and improves the consistency and quality of the food. The prototype restaurant design also includes cosmetic changes that provide a total restaurant concept intended to be inviting and comfortable while maintaining the ambiance of a Texas roadhouse. Over the past three years, the Company renovated and remodeled those LongHorn Steakhouse restaurants that had been opened prior to the development of its new prototype in late 1994. The remodeling involved the installation of kitchen equipment needed for new menu items, as well as the installation of kitchen printers in conjunction with the new point-of-sale ("POS") system. The remodeling also included cosmetic improvements such as repainting and refinishing, new lighting and various decor adjustments. Exterior improvements encompassed repainting and additional lighting designed to convey a more inviting image, as well as new signage to reflect the change in the name of the restaurant to LongHorn Steakhouse from Longhorn Steaks. 9 10 The Company is in the process of modifying its prototype Bugaboo Creek Steak House restaurant to incorporate a smaller seating capacity than its average restaurant. The Company expects the new prototype will reduce labor, utilities and other operating costs as well as capital required for expansion. RESTAURANT OPERATIONS Management and Employees. The management staff of a typical restaurant consists of one general manager or managing partner, two or three assistant managers and one kitchen manager. In addition, a typical LongHorn Steakhouse restaurant employs approximately 30 to 80 staff members, a typical Bugaboo Creek Steak House restaurant employs approximately 85 staff members, and a typical The Capital Grille restaurant employs approximately 60 staff members. The general manager or managing partner of each restaurant has primary responsibility for the day-to-day operation of the restaurant and is responsible for maintaining Company-established operating standards. The Company employs nine LongHorn Steakhouse regional managers, who each have responsibility for the operating performance of five to nine Company-owned LongHorn Steakhouse restaurants and report directly to either the Director of Operations or Vice President of Operations for the LongHorn Steakhouse concept. There are also five joint venture partners, who each have responsibility for the operating performance of from one to 11 joint-venture LongHorn Steakhouse restaurants and report directly to either the Director of Operations or Vice President of Operations for the LongHorn Steakhouse concept. The Company employs three Bugaboo Creek Steak House regional managers, who each have responsibility for the operating performance of from four to eight Bugaboo Creek Steakhouse restaurants plus one regional manager who has responsibility for the operating performance of the two specialty restaurants. All four of these regional managers report directly to the Executive Vice President for the Bugaboo Creek Steak House concept. The Company also employs two regional managers who each have responsibility for from four to six The Capital Grille restaurants, reporting directly to the Executive Vice President of Operations for The Capital Grille. The Company seeks to recruit managers with substantial restaurant experience. The Company selects its restaurant personnel utilizing a selection process which includes psychological and analytical testing which is designed to identify individuals with those traits the Company believes are important to success in the restaurant industry. The Company requires new managers to complete an intensive training program focused on both on-the-job training as well as a rigorous in-house classroom-based educational course. The program is designed to encompass all phases of restaurant operations, including the Company's philosophy, management strategy, policies, procedures and operating standards. Through its management information systems, senior management receives weekly reports on daily sales, customer counts, payroll and cost of sales. Based upon these various reports, management believes that it is able to closely monitor the Company's operations. The Company maintains a performance measurement and an incentive compensation program for its management-level employees. The performance programs reward restaurant management teams with cash bonuses for meeting profitability targets and for improved restaurant profitability. In addition, if profitability targets are met, the management team is also awarded cash bonuses for improvements in restaurant sales. Incentive compensation is also sometimes provided to management in the form of stock options. During 1997, no stock options were awarded to LongHorn Steakhouse restaurant-level managers. However, stock options were awarded to joint venture-owned LongHorn Steakhouse restaurant-level managing partners upon execution of their employment agreements. Management Information Systems. The Company utilizes a Windows-based accounting software package and a network that enables electronic communication throughout the entire Company. In addition, the LongHorn Steakhouse restaurants utilize a Windows-based POS system. The Company utilizes these management information systems to develop pricing strategies, monitor new product reception and evaluate restaurant-level productivity. The Company expects to continue to develop its management information systems in each concept to assist restaurant management in analyzing their business and to improve efficiency. Purchasing. The Company establishes product quality standards for beef, then negotiates directly with suppliers to obtain the lowest possible prices for the required quality. The Company also utilizes select long-term contracts on certain items to avoid short-term meat cost fluctuations. For the Bugaboo Creek Steak House restaurants, beef is received from suppliers at age specifications. For the LongHorn Steakhouse restaurants, beef is aged at the facility of the Company's largest distributor, who delivers the beef to the LongHorn Steakhouse restaurants when the age reaches specified guidelines; this arrangement is closely 10 11 monitored by Company personnel and management believes it provides for efficient and cost-effective meat processing and distribution, while maintaining the Company's control and supervision of purchasing and aging. The Company's management negotiates directly with suppliers for most other food and beverage products to ensure uniform quality and adequate supplies and to obtain competitive prices. The Company purchases its meat, food and other supplies from a sufficient number of suppliers such that the loss of any one supplier would not have a material effect on the Company. In mid-1996, the Company completed a transition from a distribution system utilizing various regional distributors to a consolidated system under which a single distributor services all LongHorn Steakhouse restaurants. In early 1997, this system was commenced for Bugaboo Creek Steak House restaurants. There are no plans to expand this to The Capital Grille restaurants, which are more geographically diverse and require a wider selection of raw products than the LongHorn Steakhouse restaurants and Bugaboo Creek Steak House restaurants. Seasonality. Although individual restaurants have seasonal patterns of performance that depend on local factors, aggregate sales by the Company's restaurants have not displayed pronounced seasonality, other than lower sales during the "back-to-school" season, which falls in the Company's third fiscal quarter, and higher sales during the Christmas holiday season, which falls in the Company's fourth fiscal quarter. Extreme weather, especially during the winter months, may adversely affect sales. OWNERSHIP STRUCTURES The Company's interests in its restaurants are divided into three categories: (1) Company-owned restaurants, (2) joint venture restaurants and (3) franchised restaurants. Company-owned restaurants. 53 LongHorn Steakhouse restaurants, all Bugaboo Creek Steak House restaurants, all The Capital Grille restaurants, Hemenway's and The Old Grist Mill Tavern are owned and operated by the Company. The general manager of each of these restaurants is employed and compensated by the Company. See "Restaurant Operations -- Management and Employees" above. Joint Venture Restaurants. The Company is a partner in various joint venture partnerships and limited partnerships that in the aggregate operate 42 LongHorn Steakhouse restaurants as of March 11, 1998. In each case, the Company's partner is an experienced restaurant operator who owns from 10% to 50% of the partnership. While the scope and terms of these joint ventures vary, they are generally formed with the goal of developing multiple restaurants in a particular market under the supervision of the Company's joint venture partner. The joint ventures generally contemplate that the general manager of each restaurant developed or operated by the joint venture will purchase a 10% interest in the cash flow of the restaurant managed, thereby ratably diluting the interest of the Company and its joint venture partner. The joint ventures generally pay fees to the managing partner at a rate of $1,000 to $2,500 per restaurant per month and pay fees to the Company at a rate of $1,500 to $4,000 per restaurant per month. Those joint ventures that operate under franchise agreements pay royalties at the rate of 1.5% of gross sales. In addition, under the terms of the Company's 50/50 joint ventures, the Company is generally paid a $15,000 opening supervision fee from the joint venture for services performed in connection with each restaurant opening. The joint ventures either operate their restaurants under the control of the Company or under franchise agreements with the Company. Franchise agreements for joint ventures are modified by an addendum that provides that no franchise fee is payable and reduces the royalty rate. In the event that the Company's partner in the joint venture or any other entity should acquire the joint venture's restaurants, this addendum to the franchise agreement would terminate and the operation of the restaurants would continue under the terms of the franchise agreement. Three of the joint ventures have area development agreements with the Company for the development of additional restaurants. Six other joint ventures do not have specific development rights although the Company has agreed, during a specified time, not to establish restaurants in their market areas except through the joint venture, so long as a specified development schedule is met. The joint ventures are terminable by either joint venture partner upon default by the other partner. Certain of the joint ventures give the Company the option under certain circumstances to acquire the interest of the 10% joint venture partner for cash or shares of the Company's common stock. Five of the joint ventures obligate the Company to purchase the interest of its 10% joint venture partner upon the death of the principal of the joint venture partner and three include a provision permitting either partner 11 12 to set a price at which the other partner must either buy the interest of the terminating partner or sell its interest to the terminating partner. Franchised Restaurants. As of March 11, 1998, 27 of the 42 restaurants operated by the Company's joint ventures are operated under franchise agreements. In addition, the Company has one unaffiliated franchisee that currently operates one LongHorn Steakhouse restaurant in Florida. The Company has also entered into an area development agreement with an unaffiliated entity with the right to operate franchised LongHorn Steakhouse restaurants in Puerto Rico. In 1997, there were no changes in the unaffiliated franchise restaurants, while in 1996, no unaffiliated franchise restaurants were opened and two were closed, one each in Roanoke, Virginia and in Birmingham, Alabama. Original Franchise Agreements. The Company entered into its first generation of franchise agreements during the years 1987 through 1993. These franchise agreements were typically for a ten-year period and were usually renewable for two or three subsequent five year periods. The franchise agreements permitted the operation of multiple restaurants in a specified territory and typically provided for payment of a franchise fee in the aggregate amount of $50,000, generally payable in installments upon execution and the opening of the second and third units. The franchise fee could vary depending on the territorial size and location of the franchise area and the number of restaurants the Company estimates could be developed within the designated franchise area. One LongHorn Steakhouse restaurant currently operates under the original franchise agreement. The Company no longer receives royalties with respect to this restaurant. The franchisee has the right to terminate a franchise agreement at any time upon 30 days written notice to the Company. The Company has the right to terminate a franchise agreement for a variety of reasons, including the franchisee's failure to pay all amounts due when required or the willful failure to adhere to the Company's methods and standards. New Franchise Agreements. In 1994, the Company revised its form of franchise agreement and all franchises granted since 1993 have been on this revised form. 27 LongHorn Steakhouse restaurants operate under the new franchise agreement, all of which are operated by joint ventures. The Company may grant additional franchises to operate LongHorn Steakhouse restaurants and Bugaboo Creek Steak House restaurants under the revised form. The franchise agreements are granted with respect to individual restaurants and are either for a term of ten years with a right of the franchisee to acquire a successor franchise for an additional ten-year period if specified conditions are met or for a period of twenty years. The franchise agreements provide for a franchise fee of $60,000, which amount is reduced for subsequent franchises acquired by the same franchisee. The franchise fee is payable in full upon execution. The franchise agreements provide for royalties with respect to each restaurant of 4% of gross sales and require the franchisee to expend on local advertising during each calendar month an amount equal to at least 1.5% of gross sales and, if the Company establishes an advertising fund, to contribute an additional amount of 0.5% of gross sales to such fund or up to 4.5% of the restaurant's gross sales during the conduct of a market, regional or national advertising campaign. The franchisee has the right to terminate the franchise agreement upon default by the Company. The Company also retains the right to terminate a franchise for a variety of reasons, including the franchisee's failure to pay amounts due under the agreement or to otherwise comply with the terms of the franchise agreement. General. An important element of the Company's franchise program is the training the Company provides for each franchisee. With respect to each new franchisee, the Company provides the same training program provided to the Company's management and employees. In addition to this initial training, the Company provides supervision at the opening of the franchisee's first restaurant, beginning one week prior to opening, and routine supervision thereafter. All franchisees are required to operate their restaurants in compliance with the Company's methods, standards and specifications regarding such matters as menu items, ingredients, materials, supplies, services, fixtures, furnishings, decor and signs. The franchisee has full discretion to determine the prices to be charged to all customers. In addition, all franchisees are required to purchase food, ingredients, supplies and materials that meet standards established by the Company or which are provided by suppliers approved by the Company. Although not required to do so by the franchise agreements, all of the franchisees currently purchase beef from the Company's suppliers. The Company does not receive fees or profits on sales by third-party suppliers to franchisees. Many state franchise laws limit the ability of a franchisor to terminate or refuse to renew a franchise. 12 13 Area Development Agreements. The Company has also entered into area development agreements with developers, including joint ventures in which the Company is a partner. Under these agreements, the developer has exclusive rights to establish and operate LongHorn Steakhouse restaurants in a defined territory generally for a period of five years, conditioned upon meeting a development schedule provided in the area development agreement. The Company may enter into similar agreements with respect to Bugaboo Creek Steak House restaurants. The area development agreements provide the developer with the option to renew the agreement, usually for an additional five-year period, predicated upon the establishment of new performance goals and the Company's determination that the developer has the capability to comply with the new performance goals. Development fees paid upon execution of area development agreements reflect the size of the territory involved and are non-refundable, but are applied to the payment of franchise fees for restaurants opened pursuant to franchises granted to the developer. TRADEMARKS The Company has registered LONGHORN STEAKS and BUGABOO CREEK STEAK HOUSE and design and THE CAPITAL GRILLE as service marks with the United States Patent and Trademark Office and has applied for registration of its LONGHORN STEAKHOUSE and design service mark. The Company regards its service marks as having significant value and as being important factors in the marketing of its restaurants. The Company is aware of names and marks similar to the service marks of the Company used by other persons in certain geographic areas; however, the Company believes such uses will not adversely affect the Company. It is the Company's policy to pursue registration of its mark whenever possible and to oppose vigorously any infringement of its marks. COMPETITION The restaurant industry is intensely competitive with respect to price, service, location and food quality, and there are many well-established competitors, both steakhouses and non-steakhouses, with substantially greater financial and other resources than the Company. Such competitors include a large number of national and regional restaurant chains. Some of the Company's competitors have been in existence for a substantially longer period than the Company and may be better established in the markets where the Company's restaurants are or may be located. The restaurant business is often affected by changes in consumer tastes, national, regional or local economic conditions, demographic trends, traffic patterns, and the type, number and location of competing restaurants. In addition, factors such as inflation, increased food, labor and benefits costs and the lack of experienced management and hourly employees may adversely affect the restaurant industry in general and the Company's restaurants in particular. GOVERNMENT REGULATION The Company is subject to various federal, state and local laws affecting its business. Each of the Company's restaurants is subject to licensing and regulation by a number of governmental authorities, which may include alcoholic beverage control, health, safety, sanitation, building and fire agencies in the state or municipality in which the restaurant is located. In addition, most municipalities in which the Company's restaurants are located require local business licenses. Difficulties in obtaining or failures to obtain the required licenses or approvals could delay or prevent the development of a new restaurant in a particular area. The Company is also subject to federal and state environmental regulations, but they have not had a material effect on the Company's operations. Approximately 17% of the Company's restaurant sales are attributable to the sale of alcoholic beverages. Alcoholic beverage control regulations require each of the Company's restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. The Company has not experienced and does not presently anticipate experiencing any delays or other problems in obtaining or renewing licenses or permits to sell alcoholic beverages; however, the failure of a restaurant to obtain or retain liquor or food service licenses would adversely affect the restaurant's operations. The Company and its franchisees are subject in each state in which they operate restaurants to "dramshop" statutes or case law interpretations, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment which wrongfully served alcoholic beverages to the intoxicated person. The Company carries liquor liability coverage as part of its existing comprehensive general liability insurance. 13 14 The Company is also subject to federal and state laws regulating the offer and sale of franchises administered by the Federal Trade Commission and various similar state agencies. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises. These laws often apply substantive standards to the relationship between franchisor and franchisee and limit the ability of a franchisor to terminate or refuse to renew a franchise. The Federal Americans With Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. The Company designs its restaurants to be accessible to the disabled and believes that it is in substantial compliance with all current applicable regulations relating to restaurant accommodations for the disabled. The Company's restaurant operations are also subject to federal and state laws governing such matters as wages, working conditions, citizenship requirements, overtime and tip credits. Significant numbers of the Company's food service and preparation personnel are paid at rates related to the federal minimum wage and, accordingly, further increases in the minimum wage could increase the Company's labor costs. Various proposals for comprehensive health care reform have been or are expected to be submitted to Congress. To the extent that proposals are enacted which require employers to pay for employees' health insurance or other coverage, such legislation may have a significant effect on the Company. EMPLOYEES As of March 11, 1998, the Company employed approximately 8,100 persons, 113 of whom were corporate personnel, 514 of whom were restaurant management personnel and the remainder of whom were hourly personnel. Of the 113 corporate employees, 50 are in management positions and 63 are administrative or office employees. None of the Company's employees is covered by a collective bargaining agreement. The Company considers its employee relations to be good. ITEM 2. PROPERTIES As of March 11, 1998, all but 24 of the Company's restaurants were located in leased space. The Company's Tucker, Georgia restaurant is leased from a partnership that is 50% owned by the four original shareholders of the Company. Initial lease expirations typically range from five to ten years, with the majority of these leases providing for an option to renew for at least one additional term. All of the Company's leases provide for a minimum annual rent, and approximately half of the leases call for additional rent based on sales volume (generally 2.0% to 8.0%) at the particular location over specified minimum levels. Generally the leases are net leases which require the Company to pay the costs of insurance, taxes and a portion of lessors' operating costs. The leases on the operating Company-owned restaurants will expire (assuming exercise of all renewal options) on the following schedule: two in 1998; two in 1999; four in 2000 and the remainder over the period from 2001 through 2028. The Company owns a 10,000 square feet office building and leases 5,000 square feet of office building in which its corporate offices, LongHorn Steakhouse restaurant operations and The Capital Grille restaurant operations are headquartered in Atlanta, Georgia. In addition, the Company leases approximately 1,500 square feet of space in East Providence, Rhode Island to house staff to support the operation of Bugaboo Creek Steak House restaurants. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various legal actions incidental to the normal conduct of its business. Management does not believe that the ultimate resolution of these incidental actions will have a material adverse effect on the Company's financial position or results of operations. On March 25, 1997, Michael Blocker, a former employee of the Company filed a complaint, styled Michael Blocker v. RARE Hospitality International, Inc. d/b/a Longhorn Steaks, Inc., in the United States District Court, Northern District of Georgia, 14 15 Atlanta Division. Civil Action File No. 1:97-CV-0794-JEC. The individual plaintiff, who purports to represent a class of all male applicants who have sought wait staff positions with the Company, filed this putative class action alleging a pattern and practice of discrimination on the basis of race and gender in the hiring of wait staff employees. The complaint further alleges the individual plaintiff has been discriminated against on the basis of his race and gender, and has been retaliated against upon complaining of the discrimination. The Company has answered this complaint, denies any liability and intends to vigorously defend the case. On August 4, 1997 the plaintiff filed a motion to certify the action as a class action. On December 16, 1997, the court denied the plaintiff's motion for class certification, requiring the action to proceed on an individual basis. Although it is not possible at this time to determine the outcome of the lawsuit or the effect of its resolution on the Company's financial position or operating results, management believes that the Company's defenses have merit and that the resolution of this matter will not have a material adverse effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted for a vote of security holders during the fourth quarter of 1997. 15 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock was traded on the Nasdaq National Market under the symbol "LOHO" from March 31, 1992 to January 10, 1997. The stock now trades under the symbol "RARE". The table below sets forth the high and low sales prices of the Company's Common Stock, as reported on the Nasdaq National Market, during the periods indicated.
FISCAL YEAR ENDED DECEMBER 29, 1996 HIGH LOW -------------------------------------------- -------- ------ First Quarter............................. $24 3/4 $15 1/2 Second Quarter............................ 29 1/2 21 3/4 Third Quarter............................. 25 1/2 14 1/2 Fourth Quarter............................ 21 1/8 14 3/4 FISCAL YEAR ENDED DECEMBER 28, 1997 ------------------------------------------- First Quarter............................. $19 1/2 $12 3/4 Second Quarter............................ 16 3/4 10 3/4 Third Quarter............................. 14 1/8 9 1/2 Fourth Quarter............................ 11 1/8 8 5/8
As of March 11, 1998, there were 385 holders of record of Common Stock. Since the Company's public offering in 1992, the Company has not declared or paid any cash dividends or distributions on its capital stock. The Company does not intend to pay any cash dividends on its Common Stock in the foreseeable future, as the current policy of the Company's Board of Directors is to retain all earnings to support operations and finance expansion. The Company's existing revolving line of credit restricts the payment of cash dividends without prior lender approval. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Future declaration and payment of dividends, if any, will be determined in light of then current conditions, including the Company's earnings, operations, capital requirements, financial condition, restrictions in financing arrangements and other factors deemed relevant by the Board of Directors. While the Company has not declared or paid any cash dividends on its capital stock since its initial public offering, due to the accounting for a subsequent acquisition as a pooling of interests the Company's consolidated financial statements reflect distributions made by certain entities acquired by the Company prior to such acquisition. On December 28, 1997, the registrant issued 36,183 shares of its common stock (the "Shares") and issued a note payable in the amount of $361,832 to Pangulf Ventures, Inc. ("Pangulf") in exchange for Pangulf's interest in Eagle Ventures, a joint venture partnership between Pangulf and the registrant. Exemption from registration of the Shares was claimed under Rules 504, 505 and 506 promulgated under the Securities Act of 1933, as amended. 16 17 ITEM 6. SELECTED FINANCIAL DATA Following is selected consolidated financial data as of and for each of the years in the five-year period ended December 28, 1997. The Consolidated Financial Statements as of December 28, 1997 and December 29, 1996 and for each of the years in the three-year period ended December 28, 1997 and the independent auditors' report thereon are included in this Form 10-K. The data should be read in conjunction with the Consolidated Financial Statements of the Company and related notes in this Form 10-K and "Management's Discussion and Analysis of Financial Condition and Results of Operations," also included in this Form 10-K.
FISCAL YEARS ENDED ----------------------------------------------------------------- DEC. 28, DEC. 29, DEC. 31, DEC. 31, DEC. 31, 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues: Restaurant sales ......................................... $ 264,727 $ 212,894 $ 149,279 $ 111,025 $ 85,710 Wholesale meat sales ..................................... -- 2,547 6,495 3,389 3,504 Franchise revenues ....................................... 27 308 606 615 478 --------- --------- --------- --------- -------- Total revenues ...................................... 264,754 215,749 156,380 115,029 89,692 --------- --------- --------- --------- -------- Costs and expenses: Cost of restaurant sales ................................. 97,568 78,637 54,074 39,956 30,143 Cost of wholesale meat sales ............................. -- 2,491 6,159 3,137 3,174 Operating expenses-- restaurants ......................... 119,480 94,587 67,629 50,924 37,622 Operating expenses-- meat division ....................... -- 234 766 702 734 Provision for asset impairments, restaurant closings, and other charges ................. 23,666 1,436 155 1,120 -- Merger and conversion expenses ........................... -- 2,900 -- -- -- Depreciation and amortization-- restaurants .............. 15,218 12,191 7,171 5,025 3,946 General and administrative expenses ...................... 23,590 13,732 11,082 10,131 6,896 --------- --------- --------- --------- --------- Total costs and expenses ............................ 279,522 206,208 147,036 110,995 82,515 --------- --------- --------- --------- --------- Operating (loss) income ............................. (14,768) 9,541 9,344 4,034 7,177 Interest expense (income), net ............................. 1,245 (79) (291) (794) (372) Provision for litigation settlement ........................ -- 605 -- -- -- Minority interest .......................................... 1,219 602 5 -- -- --------- --------- --------- --------- --------- (Loss) earnings before income taxes ................. (17,232) 8,413 9,630 4,828 7,549 Income tax (benefit) expense ............................... (5,000) 3,170 3,047 1,286 1,855 --------- --------- --------- --------- --------- Net (loss) earnings ................................ $ (12,232) $ 5,243 $ 6,583 $ 3,542 $ 5,694 ========= ========= ========= ========= ========= Basic (loss) earnings per common share ..................... $ (1.04) $ 0.46 $ 0.67 $ 0.37 $ 0.69 ========= ========= ========= ========= ========= Weighted average common shares outstanding (basic) ......... 11,751 11,302 9,753 9,517 8,227 ========= ========= ========= ========= ========= Diluted (loss) earnings per common share ................... $ (1.04) $ 0.45 $ 0.66 $ 0.37 $ 0.69 ========= ========= ========= ========= ========= Weighted average common shares outstanding (diluted) ....... 11,751 11,631 9,955 9,526 8,227 ========= ========= ========= ========= =========
FISCAL YEARS ENDED ----------------------------------------------------------------- DEC. 28, DEC. 29, DEC. 31, DEC. 31, DEC. 31, 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital (deficit) .................................. $ (2,905) $ 2,065 $ 561 $ 22,488 $ 19,076 Total assets ............................................... 193,051 151,594 107,735 81,951 62,319 Debt, net of current installments .......................... 43,000 7,100 13,858 1,808 5,108 Obligations under capital leases, net of current installments ..................................... 5,051 -- -- -- -- Minority interest .......................................... 4,890 3,301 615 -- -- Total shareholders' equity ................................. 111,980 121,384 78,133 70,289 49,446
17 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL On September 13, 1996, the Company completed the acquisition of Bugaboo Creek Steak House, Inc., along with related restaurant and real estate properties. The acquisition provided for the issuance of 2,939,062 shares of the Company's common stock to the stockholders of Bugaboo Creek Steak House, Inc. and 240,410 shares of the Company's common stock for the purchase of three other related restaurants and certain related real estate. The exchange of shares was accounted for as a pooling of interests, and accordingly, the accompanying consolidated financial statements have been restated to include the accounts and operations of Bugaboo Creek Steak House, Inc. and the related restaurant and real estate properties that were acquired for all periods presented. Effective July 1, 1996, the Company changed its fiscal year-end from December 31 to a 52- or 53-week year ending on the last Sunday in December. Interim reporting periods within 1996 contained three months for the first two quarters. The third and fourth quarters of 1996 each contained 13 weeks. Each quarter within 1997 contained 13 weeks. Fiscal 1996, which ended on December 29, 1996, and fiscal 1997, which ended on December 28, 1997, each contained 52 weeks. All general references to years relate to fiscal years, unless otherwise noted. The Company's revenues are derived primarily from restaurant sales from Company-owned and joint venture restaurants. The Company also derives a small percentage of its total revenue from franchise revenues from unaffiliated franchised restaurants. Cost of restaurant sales consists of food and beverage costs for Company-owned and joint venture restaurants. Restaurant operating expenses consist of all other restaurant-level costs. These expenses include the cost of labor, advertising, operating supplies, rent, and utilities. Depreciation and amortization includes only the depreciation attributable to restaurant-level capital expenditures and amortization primarily associated with pre-opening expenditures. General and administrative expenses include finance, accounting, management information systems, and other administrative overhead related to support functions for Company-owned, joint venture, and franchise restaurant operations. Minority interest consists of partners' share of earnings in joint venture restaurants. In April 1996, the Company discontinued the meat cutting and distribution operations of its meat division, but retained the purchasing and quality control functions. As a result, the Company no longer generates wholesale meat sales to franchises or unaffiliated businesses. Prior to April 1996, the LongHorn Steakhouse restaurants were not charged distribution costs, which were absorbed by the Company's meat division. Subsequent to April 1996 the LongHorn Steakhouse restaurants absorb the full cost of purchased beef. The Company defines the comparable restaurant base for 1997 to include those restaurants open prior to October 1, 1995. The Company defines the comparable restaurant base for 1996 to include those restaurants open prior to October 1, 1994. Average weekly sales are defined as total restaurant sales divided by restaurant weeks. A "restaurant week" is one week during which a single restaurant is open, so that two restaurants open during the same week constitutes two restaurant weeks. The Company's revenues and expenses can be significantly affected by the number and timing of the opening of additional restaurants. The timing of restaurant openings also can affect the average sales and other period-to-period comparisons. 18 19 The following table sets forth the percentage relationship to total revenues of the listed items included in the Company's statement of earnings, except as indicated:
FISCAL YEARS ENDED ---------------------------------------- DECEMBER 28, DECEMBER 29, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ Revenues: Restaurant Sales: LongHorn Steakhouse ............................ 64.3% 63.3% 62.7% Bugaboo Creek Steak House ...................... 16.9 20.4 16.6 The Capital Grille ............................. 14.9 9.4 9.1 Other restaurants .............................. 3.9 5.6 7.1 ----- ----- ----- Total restaurant sales ..................... 100.0 98.7 95.5 Wholesale meat sales ............................ -- 1.2 4.1 Franchise revenues .............................. -- 0.1 0.4 ----- ----- ----- Total revenues ............................. 100.0 100.0 100.0 ----- ----- ----- Costs and expenses: Cost of restaurant sales(1) ..................... 36.9 36.9 36.2 Cost of wholesale meat sales(1) ................ -- 97.8 94.8 Operating expenses--restaurants(1) .............. 45.1 44.4 45.3 Operating expenses-- meat division .............. -- 0.1 0.5 Provision for asset impairments, restaurant closings, and other charges ........ 8.9 0.7 0.1 Merger and conversion expenses .................. -- 1.3 -- Depreciation and amortization--restaurants(1) ... 5.7 5.7 4.6 General and administrative expenses ............. 8.9 6.4 7.1 Total costs and expenses ................... 105.5 95.6 94.0 ----- ----- ----- Operating (loss) income .................... (5.5) 4.4 6.0 Interest expense (income), net ................... 0.5 (0.1) (0.2) Provision for settlement of shareholder suit ..... -- 0.3 -- Minority interest ................................ 0.5 0.3 -- ----- ----- ----- (Loss) earnings before income taxes ........ (6.5) 3.9 6.2 Income tax (benefit) expense .................... (1.9) 1.5 2.0 ----- ----- ----- Net (loss) earnings ........................ (4.6)% 2.4% 4.2% ===== ===== =====
(1) Cost of restaurant sales, restaurant operating expenses, and depreciation and amortization are expressed as a percentage of restaurant sales, and cost of wholesale meat sales is expressed as a percentage of wholesale meat sales. RESULTS OF OPERATIONS Year Ended December 28, 1997 Compared to Year Ended December 29, 1996 REVENUES Total revenues increased 22.7% to $264.8 million for 1997 compared to $215.7 million for 1996. Restaurant sales increased 24.3% to $264.7 million in 1997 compared to $212.9 million in 1996. LongHorn Steakhouse: Sales in the LongHorn Steakhouse restaurants increased 24.8% to $170.3 million for 1997 compared to $136.5 million for 1996. The increase reflects a 23.7% increase in restaurant operating weeks in 1997 as compared to 1996, resulting from an increase in the number of LongHorn Steakhouse restaurants. Average weekly sales for all LongHorn Steakhouse restaurants in 1997 were $39,035, a 0.5% increase over 1996. Sales for the 54 comparable LongHorn Steakhouse restaurants increased 0.2% in 1997 as compared to 1996. Bugaboo Creek Steak House: Sales in the Bugaboo Creek Steak House restaurants increased 1.3% to $44.6 million for 1997 compared to $44.1 million for 1996. The increase reflects a 6.9% increase in restaurant weeks in 1997 as compared to 1996, resulting from an increase in the number of 19 20 Bugaboo Creek Steak House restaurants. Average weekly sales for all Bugaboo Creek Steak House restaurants in 1997 were $59,114, a 5.2% decrease from 1996. Sales for the ten comparable Bugaboo Creek Steak House restaurants decreased 5.3% in 1997 as compared to 1996. The decrease in comparable restaurants sales at Bugaboo Creek Steak House restaurants is primarily attributable to a decrease in customer counts. The Capital Grille: Sales in The Capital Grille restaurants increased 94.4% to $39.5 million for 1997 compared to $20.3 million for 1996. The increase reflects a 96.4% increase in restaurant operating weeks in 1997 as compared to 1996, resulting from an increase in the number of The Capital Grille Restaurants. Average weekly sales for all The Capital Grille restaurants in 1997 were $98,169, a 1.0% decrease from 1996. Sales for the three comparable The Capital Grille restaurants increased 8.7% in 1997 as compared to 1996. The increase in comparable restaurant sales at The Capital Grille restaurants is primarily attributable to an increase in customer counts. Company-wide: A contracted meat distribution system was implemented for the LongHorn Steakhouse restaurants during the first half of 1996, thereby eliminating the need for an internal meat production and distribution facility. Accordingly, the Company's meat cutting and distribution activities ceased during 1996 and wholesale meat sales were eliminated. Franchise revenues decreased to $27,000 in 1997 compared to $308,000 in 1996 due to i) the termination of the franchise agreement for the Hoover Alabama franchised LongHorn Steakhouse restaurant, ii) the Company's acquisition of two franchised LongHorn Steakhouse restaurants in the first quarter of 1997, iii) the closure of two franchised LongHorn Steakhouse restaurants (one each, in the first and third quarters of 1996), and iv) the formation of a joint venture to operate three previously franchised LongHorn Steakhouse restaurants in the second quarter of 1996. COSTS AND EXPENSES Cost of restaurant sales, as a percentage of restaurant sales, remained flat in 1997 and 1996 at 36.9%. Due to the elimination of wholesale meat sales during 1996, there were no wholesale meat costs in 1997, compared to 97.8% of wholesale meat sales in 1996. Restaurant operating expenses increased as a percentage of restaurant sales in 1997 to 45.1% from 44.4% in 1996. The increase was primarily attributable to i) incremental labor, controllable expenses and start-up expenses associated with increased activity in the Company's new store opening program, as the Company opened 25 restaurants in 1997; and ii) increased labor and controllable expenses as the Company focused on better execution and higher standards in the LongHorn Steakhouse concept. The provision for asset impairments, restaurant closings, and other charges of $23.7 million in 1997 was determined primarily under Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS No. 121") by comparing expected future cash flows to the carrying value of these assets. This determination was the result of a decision by management, in the fourth quarter, to close seven restaurants and certain administrative facilities, as well as the Company's assessment of the impairment of certain assets based upon the Company's current plans. The Company's current plans resulted from significant changes in key management and a strategic review process employed by new management. The provision for asset impairments, restaurant closings, and other charges includes adjustments of $8.3 million to impaired long-lived assets to be disposed of, adjustments of $6.0 million to the carrying values of impaired long-lived assets to be held and used, $4.2 million of goodwill write-offs and approximately $5.2 million in accrued costs primarily associated with closed facilities. The provision for asset impairments, restaurant closings, and other charges of $1.4 million in 1996, represented adjustments to the carrying value of two restaurants that the Company determined would be closed. General and administrative expenses increased to $23.6 million in 1997, or 8.9% of total revenues, from $13.7 million in 1996, or 6.4% of total revenues. The increase as a percentage of total revenues was primarily due to increased costs related to the accelerated pace of restaurant openings in 1997 and costs resulting from a higher level of management turnover plus $5.0 million in nonrecurring expenses. These non-recurring expenses include charges resulting from current asset reconciliation and evaluation processes and severance, hiring and other employment-related charges. Interest expense increased to $1.2 million in 1997 compared to $79,000 in interest income in 1996. The increase in interest expense is due to higher average borrowings outstanding under the Company's revolving credit agreement. 20 21 Minority interest increased to $1.2 million in 1997 from $602,000 in 1996. This reflects an increase in the number of joint-venture restaurants to 43 at December 28, 1997, from 35 at December 29, 1996, partially offset by the purchase of joint venture partners' partnership interests in 10 joint venture restaurants during the fourth quarter of 1997. Income tax benefit for 1997 was $5.0 million due to the pre-tax loss reported by the Company, resulting primarily from the aggregate $28.7 million in SFAS No. 121 charges and non-recurring general and administrative expenses recorded during 1997. Income tax expense in 1996 was 37.7% of earnings before income taxes, reflecting $2.5 million of nondeductible merger and conversion expenses, offset primarily by the benefits of FICA tip credits. The net loss of $12.2 million in 1997, as compared to net earnings of $5.2 million in 1996, reflected the net effect of the items discussed above. Year Ended December 29, 1996 Compared to Year Ended December 31, 1995 REVENUES Total revenues increased 37.9% to $215.7 million for 1996 compared to $156.4 million for 1995. Restaurant sales increased 42.5% to $212.8 million in 1996 compared to $149.3 million in 1995. LongHorn Steakhouse: Sales in the LongHorn Steakhouse restaurants increased 39.3% to $136.5 million for 1996 compared to $98.0 million for 1995. The increase reflects a 28.8% increase in restaurant weeks in 1996 as compared to 1995, resulting primarily from the opening of 14 new LongHorn Steakhouse restaurants and the acquisition of 3 additional LongHorn Steakhouse restaurants. Average weekly sales for all LongHorn Steakhouse restaurants in 1996 were $38,858, a 8.1% increase over 1995. Sales for the 45 comparable LongHorn Steakhouse restaurants increased 3.0% in fiscal 1996 as compared to fiscal 1995. The increase in comparable restaurant sales at the LongHorn Steakhouse restaurants is primarily attributable to an increase in customer counts. Bugaboo Creek Steak House: Sales in the Bugaboo Creek Steak House restaurants increased 70.0% to $44.1 million for 1996 compared to $25.9 million for 1995. The increase reflects a 77.6% increase in restaurant weeks in 1996 as compared to 1995, resulting primarily from the opening of 3 new Bugaboo Creek Steak House restaurants. Average weekly sales for all Bugaboo Creek Steak House restaurants in 1996 were $62,370, a 4.3% decrease from 1995. Sales for the 5 comparable Bugaboo Creek Steak House restaurants decreased 9.4% in fiscal 1996 as compared to fiscal 1995. The decrease in comparable restaurants sales at the Bugaboo Creek Steak House restaurants is primarily attributable to a decrease in customer counts. Bugaboo Creek Steak House restaurant customer counts and sales in 1996 were severely impacted by record-setting winter storms in the northeastern and mid-Atlantic regions of the United States. The Capital Grille: Sales in The Capital Grille restaurants increased 43.0% to $20.3 million for 1996 compared to $14.2 million for 1995. The increase reflects a 32.1% increase in restaurant weeks in 1996 as compared to 1995, resulting primarily from the opening of 3 new The Capital Grille restaurants. Average weekly sales for all The Capital Grille restaurants in 1996 were $99,166, a 8.3% increase over 1995. Sales for the 2 comparable The Capital Grille restaurants increased 15.2% in fiscal 1996 as compared to fiscal 1995. The increase in comparable restaurants sales at The Capital Grille restaurants is primarily attributable to an increase in customer counts. Company-wide: Wholesale meat sales decreased $4.0 million to $2.5 million in 1996 from $6.5 million in 1995. This decrease resulted from the cessation of meat cutting and distribution at the Company's meat division, Superior Meats, Ltd. As a result, the Company discontinued selling meat to its LongHorn Steakhouse franchisees and other unaffiliated parties. 21 22 Franchise revenues decreased $298,000 to $308,000 in 1996 from $606,000 in 1995. This decrease resulted primarily from the closure of a franchised LongHorn Steakhouse restaurant in Roanoke, Virginia in the first quarter of 1996, the Company's purchase of the two franchised LongHorn Steakhouse restaurants in Greensboro and High Point, North Carolina in the third quarter of 1995, the formation of a joint venture to own and operate these two restaurants along with the three franchised LongHorn Steakhouse restaurants in Charlotte, North Carolina and Columbia, South Carolina in the second quarter of 1996 and the closure of a franchised LongHorn Steakhouse restaurant in Birmingham, Alabama in the third quarter of 1996. COSTS AND EXPENSES Cost of restaurant sales in 1996 as a percentage of restaurant sales increased to 36.9% from 36.2% in 1995. During 1995 and early 1996, the cost of restaurant sales in the LongHorn Steakhouse restaurants was reduced by the distribution costs absorbed by the Company's meat division. If these distribution costs absorbed by the meat division in 1995 and 1996 had been charged directly to the LongHorn Steakhouse restaurants, cost of restaurant sales would have been 37.1% in 1996 compared to 36.9% in 1995. The increase was primarily due to higher contracted beef prices and late-year increases in dairy and baked good costs during 1996. The cost of wholesale meat sales increased to 97.8% of wholesale meat sales in 1996 as compared to 94.8% in 1995, primarily as the result of the resale of certain overstocks of beef at lower than normal margins. Restaurant operating expenses decreased as a percentage of restaurant sales in 1996 to 44.4% from 45.3% in 1995. This decrease was primarily attributable to higher sales levels and relatively stable fixed costs in the LongHorn Steakhouse restaurants and The Capital Grille restaurants. Meat division operating costs decreased to 0.1% of revenues in 1996 as compared to 0.5% in 1995 as the meat cutting and distribution operations were discontinued. In 1996, the Company recorded $1.4 million in before-tax benefits related to the closure of two LongHorn Steakhouse restaurants in Cincinnati, Ohio and Knoxville, Tennessee. The Ohio restaurant was closed in the fourth quarter of 1996. In 1995, the Company recorded $155,000 in before-tax benefits related to the closure of one LongHorn Steakhouse restaurant in Jacksonville, Florida, which was closed in the first quarter of 1996. The provisions included estimated future net lease obligations and other costs of closing the facilities and the writedown of restaurant assets to estimated net realizable value. In 1996, the Company expensed transaction costs of $2.9 million associated with the acquisition of Bugaboo Creek Steak House, Inc. and related restaurant and real estate properties. These transaction costs consisted of investment banking, accounting, legal and regulatory agency fees and other expenses related to completing the acquisition and integrating the management information systems. General and administrative expenses increased to $13.7 million in 1996, or 6.4% of total revenues, from $11.1 million in 1995, or 7.1% of total revenues. The dollar amount increase was primarily due to increased labor and support expenses related to managing a larger number of restaurants; further, in the restated 1995 and 1996 periods, two full support offices were maintained, one of which (Providence, Rhode Island) was reduced to an operations support office during the last quarter of 1996. The decreased percentage is due to restaurant revenues increasing at a faster rate than general and administrative expenses, which have a large fixed component. Operating income increased to $9.5 million for 1996 from $9.3 million for 1995. After adjusting for one-time merger and conversion expenses, operating income increased a total of $3.1 million, or 33.3%. This increase is primarily attributable to higher sales levels resulting from an increase in the Company's restaurant base, relatively stable fixed costs and decrease in general and administrative costs as a percentage of revenues, but is partially offset by the provision for restaurant closings discussed above. Interest income, net decreased to $79,000 for 1996 from $291,000 for 1995. The reduction was due to lower average levels of cash and cash equivalents and higher average levels of long-term debt in 1996 as compared to 1995. In 1996, the Company recorded a $605,000 provision associated with the defense and settlement of a shareholder litigation matter. 22 23 Minority interest increased to $602,000 in 1996 from $5,000 in 1995. This reflects the increase in the number of joint venture restaurants to 35 restaurants at fiscal year end 1996 from 16 at fiscal year end 1995. Income tax expense for 1996 was 37.7% of earnings before income taxes, reflecting $2.5 million of non-deductible merger and conversion expenses, offset primarily by the benefits of FICA tip credits. Net earnings decreased 21.2% to $5.2 million for 1996 from net earnings of $6.6 million for 1995, reflecting the net effect of the items discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company requires capital primarily for the development of new restaurants, selected acquisitions and the refurbishment of existing restaurants. Capital expenditures and asset acquisitions totaled $56.2 million in 1997, $45.5 million in 1996, and $45.8 million in 1995. The Company's primary sources of working capital have been the proceeds of its previous public offerings of Common Stock in 1992, 1993 and 1996, the public offering of Bugaboo Creek Steak House, Inc. in 1994, cash flow from operations and borrowings under its line of credit. As of March 11, 1998, the Company had borrowings of $43.0 million under a $60.0 million line of credit, which bears interest at the rate of either (i) 75 to 150 basis points over LIBOR (depending upon the Company's leverage ratio) with a term that the Company selects, ranging from 30 days to 6 months or (ii) prime. As of March 11, 1998, the weighted average rate on all outstanding borrowings under the Company's line of credit was 7.15%. Borrowings under the line of credit are unsecured. The line of credit contains certain financial covenants including a debt to capitalization ratio, a leverage ratio, an interest coverage ratio, a minimum net worth and a limit on capital expenditures and payment of dividends. The Company is currently in compliance with or has obtained waivers for events of non-compliance with the covenants of its debt agreement. The Company intends to open approximately 12 Company-owned and joint venture restaurants in 1998. The Company estimates that its capital expenditures (without consideration of contributions from joint venture partners) will be approximately $38 million in 1998. The capital expenditure estimate for 1998 includes the estimated cost of developing 12 new restaurants, ongoing refurbishment in the restaurants, a planned expansion of the corporate offices in Atlanta, and continued investment in improved management information systems. The Company expects that available borrowings under the Company's line of credit, together with cash on hand and cash provided by operating activities, will provide sufficient funds to finance its expansion plans through 1998. Since substantially all sales in the Company's restaurants are for cash, and accounts payable are generally due in seven to 30 days, the Company operates with little or negative working capital. The preceding discussion of liquidity and capital resources contains certain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, and in addition to the factors discussed in this Form 10-K, among the other factors that could cause actual results to differ materially are the following: failure of facts to conform to necessary management estimates and assumptions; the Company's ability to identify and secure suitable locations on acceptable terms, open new restaurants in a timely manner, hire and train additional restaurant personnel and integrate new restaurants into its operations; the continued implementation of the Company's business discipline over a large restaurant base; the economic conditions in the new markets into which the Company expands and possible uncertainties in the customer base in these areas; changes in customer dining patterns; competitive pressures from other national and regional restaurant chains; business conditions, such as inflation or a recession, and growth in the restaurant industry and the general economy; and other risks identified from time to time in the Company's SEC reports, registration statements and public announcements. See the description of forward-looking statements found in "Documents Incorporated by Reference." EFFECT OF INFLATION Management believes that inflation has not had a material effect on earnings during the past several years. Inflationary increases in the cost of labor, food and other operating costs could adversely affect the Company's restaurant operating margins. In the past, however, the Company generally has been able to modify its operations to offset increases in its operating costs. 23 24 Federal law, enacted during 1996, increased the hourly minimum wage by $0.50 to $4.75 on October 1, 1996 and by another $0.40 to $5.15 on September 1, 1997. The legislation, however, froze the wages of tipped employees at $2.13 per hour if the difference is earned in tip income. Although the Company experienced a slight increase in hourly labor costs during 1997, the effect of the increase in minimum wage was significantly diluted due to the fact that the majority of the Company's hourly employees are tipped and the Company's non-tipped employees have historically earned wages greater than the federal minimum. As such, the Company's increases in hourly labor cost were not proportionate to the increases in minimum wage rates. The impact of minimum wage increases is expected to slightly increase hourly labor costs in 1998. YEAR 2000 The Company has implemented plans to address its potential exposure to so-called "Year 2000" problems. The Company's key financial, informational and operational systems have been assessed and detailed plans have been developed to address system modifications required by December 31, 1999. The Company expenses all costs associated with these system changes as the costs are incurred. The financial impact of making the required system changes is not expected to be material to the Company's consolidated financial position or results of operations. However, the Company is unable to estimate the costs that it may incur as a result of Year 2000 problems suffered by the parties with which it deals, such as suppliers, and there can be no assurance that the Company will successfully address the Year 2000 problems present in its own systems. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income". SFAS No. 130, which will be effective for the Company's fiscal 1998, establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners. The Company expects that implementation of SFAS No. 130 will not have a material effect on its consolidated financial position or results of operations. Additionally, during 1997, the FASB issued Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131, which is effective for 1998, significantly modifies disclosures associated with segments of an entity. Disclosures of segment information under the requirements of SFAS No. 131 are made pursuant to the "Management Approach." Under this approach, operating segments for disclosure correspond to the organizational units management uses internally to monitor performance and make operating decisions. Segment aggregation would be permitted if it can be determined that the segments have essentially the same business activities in essentially similar economic environments. Management is currently evaluating the disclosure impact of the adoption of SFAS No. 131. 24 25 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA RARE HOSPITALITY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 1995 WITH INDEPENDENT AUDITORS' REPORT THEREON 25 26 RARE HOSPITALITY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 1995
PAGE ---- Independent Auditors' Report.......................................... 27 Consolidated Balance Sheets........................................... 28 Consolidated Statements of Operations................................. 29 Consolidated Statements of Shareholders' Equity....................... 30 Consolidated Statements of Cash Flows................................. 31 Notes to Consolidated Financial Statements............................ 32
26 27 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders RARE Hospitality International, Inc.: We have audited the accompanying consolidated balance sheets of RARE Hospitality International, Inc. and subsidiaries (the "Company") as of December 28, 1997 and December 29, 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 28, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RARE Hospitality International, Inc. and subsidiaries as of December 28, 1997 and December 29, 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 28, 1997 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Atlanta, Georgia February 27, 1998 27 28 RARE HOSPITALITY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 28, 1997 AND DECEMBER 29, 1996 (IN THOUSANDS)
1997 1996 --------- --------- ASSETS Current assets: Cash and cash equivalents................................ $ 1,752 $ 6,478 Marketable debt securities............................... 609 861 Accounts receivable...................................... 2,054 2,522 Inventories.............................................. 9,152 7,883 Prepaid expenses......................................... 1,373 1,465 Preopening costs, net of accumulated amortization........ 3,385 2,665 Refundable income taxes ................................. 6,900 -- --------- --------- Total current assets............................. 25,225 21,874 Property and equipment, less accumulated depreciation and amortization (notes 4 and 9)............................. 155,758 120,431 Goodwill, less accumulated amortization.................... 5,304 6,139 Deferred income taxes (note 7)............................. 4,408 816 Other...................................................... 2,356 2,334 --------- --------- Total assets..................................... $ 193,051 $ 151,594 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable......................................... 12,739 11,385 Accrued expenses (note 5)................................ 14,873 7,652 Current installments of obligations under capital leases (note 9)................................ 518 -- Income taxes payable..................................... -- 500 Deferred income taxes (note 7)........................... -- 272 --------- --------- Total current liabilities................................ 28,130 19,809 Debt, net of current installments (note 6)................. 43,000 7,100 Obligations under capital leases, net of current installments (note 9).................................... 5,051 -- --------- --------- Total liabilities................................ 76,181 26,909 --------- --------- Minority interest.......................................... 4,890 3,301 Shareholders' equity (notes 2, 6, 11, and 12): Preferred stock, no par value. Authorized 10,000 shares, none issued........................................... -- -- Common stock, no par value. Authorized 25,000 shares; issued and outstanding 11,979 shares and 11,653 shares at December 28, 1997 and December 29, 1996, respectively.......................................... 103,981 101,099 Retained earnings........................................ 7,999 20,231 Unrealized gain on marketable debt securities............ -- 54 --------- --------- Total shareholders' equity....................... 111,980 121,384 Commitments and contingencies (notes 8, 9, and 13) --------- --------- Total liabilities and shareholders' equity....... $ 193,051 $ 151,594 ========= =========
See accompanying notes to consolidated financial statements. 28 29 RARE HOSPITALITY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995 --------- --------- --------- Revenues: Restaurant sales: LongHorn Steakhouse .................................... $ 170,343 $ 136,547 $ 98,034 Bugaboo Creek Steak House .............................. 44,631 44,060 25,929 The Capital Grille ..................................... 39,520 20,329 14,201 Other restaurants ...................................... 10,233 11,958 11,115 --------- --------- --------- Total restaurant sales ............................... 264,727 212,894 149,279 Wholesale meat sales ................................... -- 2,547 6,495 Franchise revenues ..................................... 27 308 606 --------- --------- --------- Total revenues ....................................... 264,754 215,749 156,380 --------- --------- --------- Costs and expenses: Cost of restaurant sales .................................. 97,568 78,637 54,074 Cost of wholesale meat sales .............................. -- 2,491 6,159 Operating expenses-- restaurants .......................... 119,480 94,587 67,629 Operating expenses-- meat division ........................ -- 234 766 Provision for asset impairments, restaurant closings, and other charges (note 3) .................... 23,666 1,436 155 Merger and conversion expenses (note 3) ................... -- 2,900 -- Depreciation and amortization-- restaurants ............... 15,218 12,191 7,171 General and administrative expenses ....................... 23,590 13,732 11,082 --------- --------- --------- Total costs and expenses ............................. 279,522 206,208 147,036 --------- --------- --------- Operating (loss) income .............................. (14,768) 9,541 9,344 Interest expense (income), net ............................ 1,245 (79) (291) Provision for settlement of shareholder suit (note 13) .... -- 605 -- Minority interest (note 2) ................................ 1,219 602 5 --------- --------- --------- (Loss) earnings before income taxes .................. (17,232) 8,413 9,630 Income tax (benefit) expense (note 7) ..................... (5,000) 3,170 3,047 --------- --------- --------- Net (loss) earnings .................................. $ (12,232) $ 5,243 $ 6,583 ========= ========= ========= Basic (loss) earnings per common share .................... $ (1.04) $ 0.46 $ 0.67 ========= ========= ========= Weighted average common shares outstanding (basic) ........ 11,751 11,302 9,753 ========= ========= ========= Diluted (loss) earnings per common share .................. $ (1.04) $ 0.45 $ 0.66 ========= ========= ========= Weighted average common shares outstanding (diluted) ...... 11,751 11,631 9,955 ========= ========= =========
See accompanying notes to consolidated financial statements. 29 30 RARE HOSPITALITY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 1995 (IN THOUSANDS)
UNREALIZED GAIN (LOSS) ON COMMON STOCK MARKETABLE TOTAL --------------------- RETAINED DEBT SHAREHOLDERS' SHARES DOLLARS EARNINGS SECURITIES EQUITY --------- --------- --------- ----------- -------------- BALANCE, DECEMBER 31, 1994 ............................ 9,701 $ 61,437 $ 8,766 $ (246) $ 69,957 Net earnings .......................................... -- -- 6,583 -- 6,583 Exercise of stock options ............................. 8 93 -- -- 93 Issuance of shares in connection with acquisition .... 96 1,250 -- -- 1,250 Unrealized gain on marketable debt securities ......... -- -- -- 250 250 --------- --------- --------- --------- --------- BALANCE, DECEMBER 31, 1995 ............................ 9,805 62,780 15,349 4 78,133 Net earnings .......................................... -- -- 5,243 -- 5,243 Issuance of shares pursuant to public offering ........ 1,781 37,638 -- -- 37,638 Exercise of stock options ............................. 67 681 -- -- 681 Distributions made by acquired companies .............. -- -- (361) -- (361) Unrealized gain on marketable debt securities ......... -- -- -- 50 50 --------- --------- --------- --------- --------- BALANCE, DECEMBER 29, 1996 ............................ 11,653 101,099 20,231 54 121,384 Net loss .............................................. -- -- (12,232) -- (12,232) Exercise of stock options ............................. 290 2,543 -- -- 2,543 Issuance of stock in connection with purchase of minority interest ................................ 36 339 -- -- 339 Unrealized loss on marketable debt securities ......... -- -- -- (54) (54) --------- --------- --------- --------- --------- BALANCE, DECEMBER 28, 1997 ............................ 11,979 $ 103,981 $ 7,999 $ -- $ 111,980 ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 30 31 RARE HOSPITALITY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 1995 (IN THOUSANDS)
DECEMBER 28 DECEMBER 29 DECEMBER 31 1997 1996 1995 -------- -------- -------- Cash flows from operating activities: Net (loss) earnings ............................................ $(12,232) $ 5,243 $ 6,583 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization ................................ 16,418 12,856 7,475 Non-cash portion of provision for asset impairments, restaurant closings and other charges....................... 22,367 1,436 155 Provision for litigation settlement .......................... -- 605 -- Minority interest ............................................ 1,219 602 5 Preopening costs ............................................. (5,208) (4,341) (4,293) Deferred tax (benefit) expense ............................... (3,864) (743) 15 Loss on sale of property and equipment ....................... -- -- 68 Changes in assets and liabilities: Accounts receivable .......................................... 468 (230) (263) Inventories .................................................. (1,269) (1,746) (2,961) Prepaid expenses ............................................. 92 2 (572) Other assets ................................................. (22) (97) -- Refundable income taxes ...................................... (6,900) -- 507 Accounts payable ............................................. (126) 1,020 1,628 Accrued expenses ............................................. 1,222 885 2,396 Other liabilities ............................................ -- (133) (347) -------- -------- -------- Net cash provided by operating activities ................ 12,165 15,359 10,396 -------- -------- -------- Cash flows from investing activities: Purchase of marketable debt securities ......................... -- -- (2,288) Proceeds from sale of marketable debt securities ............... 252 6 6,728 Proceeds from maturity of marketable debt securities ........... -- -- 1,200 Purchase of property and equipment ............................. (52,970) (45,524) (41,115) Proceeds from sale of property and equipment ................... -- -- 16 Purchase of joint venture partnership interests ................ (535) -- -- Asset acquisitions ............................................. (3,262) -- (4,716) -------- -------- -------- Net cash used in investing activities .................... (56,515) (45,518) (40,175) -------- -------- -------- Cash flows from financing activities: Proceeds from (repayments of) borrowings on lines of credit, net ......................................... 35,900 (5,950) 13,050 Principal payments on long-term debt ........................... -- (1,833) (13) Principal payments on capital lease obligations ................ (31) -- -- Proceeds from issuance of shares pursuant to public offering ... -- 37,638 -- Proceeds from minority partner contributions ................... 2,660 1,796 833 Distributions to minority partners ............................. (2,928) (1,634) (223) Increase in bank overdraft included in accounts payable ........ 1,480 3,873 647 Distributions made by acquired companies ....................... -- (361) -- Proceeds from exercise of stock options ........................ 2,543 681 93 -------- -------- -------- Net cash provided by financing activities ................ 39,624 34,210 14,387 -------- -------- -------- Net (decrease) increase in cash and cash equivalents ..... (4,726) 4,051 (15,392) Cash and cash equivalents at beginning of year .................. 6,478 2,427 17,819 -------- -------- -------- Cash and cash equivalents at end of year ........................ $ 1,752 $ 6,478 $ 2,427 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid for income taxes .................................... $ 6,265 $ 2,807 $ 983 ======== ======== ======== Cash paid for interest, net of interest capitalized ........... $ 1,039 $ 109 $ 147 ======== ======== ======== Supplemental disclosure of non-cash financing and investing activities: Assets acquired under capital lease ........................... $ 5,600 $ -- $ -- ======== ======== ======== Issuance of common stock in purchase of minority interest ..... $ 339 $ -- $ -- ======== ======== ========
See accompanying notes to consolidated financial statements 31 32 RARE HOSPITALITY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPERATIONS RARE Hospitality International, Inc., including its wholly owned subsidiaries (the "Company"), is a multi-concept restaurant company operating primarily in the Eastern United States. At December 28, 1997, the Company operated the following restaurants:
CONCEPT NUMBER IN OPERATION -------------------------- -------------------- LongHorn Steakhouse.......................... 96 Bugaboo Creek Steak House.................... 16 The Capital Grille........................... 10 Other specialty concepts..................... 3
The Company is a partner in several joint ventures organized for the purpose of operating LongHorn Steakhouse restaurants. As of December 28, 1997, 42 of the Company's restaurants operate in joint ventures. FISCAL YEAR Effective July 1, 1996, the Company changed its fiscal year-end from December 31 to a 52- or 53-week year ending on the last Sunday in December. Fiscal 1996, which ended on December 29, 1996, and fiscal 1997, which ended on December 28, 1997, each contained 52 weeks. All general references to years relate to fiscal years, unless otherwise noted. CASH EQUIVALENTS For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments which have original maturities of three months or less to be cash equivalents. Cash equivalents, comprised of overnight repurchase agreements, totalled $563,000 at December 28, 1997. The carrying amount of these instruments approximates their fair market values. All bank overdraft balances have been reclassified to accounts payable. MARKETABLE DEBT SECURITIES Marketable debt securities are classified as available-for-sale and are reported at fair market value, with any unrealized gains or losses, net of deferred income taxes, reflected as a separate component of shareholders' equity. INVENTORIES Inventories, consisting principally of food and beverages, are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Property under capital leases are stated at the present value of minimum lease payments. Leasehold improvements and property held under capital leases are amortized on the straight-line method over the shorter of the term of the lease, which may include renewals, or the estimated useful life of the assets (generally 15 years for non-ground lease sites and 25 years for ground lease sites). Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the related assets, which approximates 25 years for buildings, seven years for equipment and 25 years for land improvements. 32 33 BASIS OF PRESENTATION The consolidated financial statements include the financial statements of RARE Hospitality International, Inc., its wholly owned subsidiaries, and joint ventures over which the Company exercises control. All significant intercompany balances and transactions have been eliminated in consolidation. PRE-OPENING COSTS Preopening costs are incurred before a restaurant is opened and consist primarily of wages and salaries, meals, lodging, plus costs related to hiring and training the management teams and other direct costs associated with opening new restaurants. These costs are capitalized and amortized over the first 12 months of a new restaurant's operations. UNREDEEMED GIFT CERTIFICATES The Company records a liability for outstanding gift certificates at the time they are issued. Upon redemption, sales are recorded and the liability is reduced by the amount of certificates redeemed. GOODWILL Goodwill, net of accumulated amortization of $466,000 and $499,000 at December 28, 1997 and December 29, 1996, respectively, represents the excess of purchase price over fair value of net assets acquired. Goodwill is amortized using the straight-line method over the expected period to be benefited (from 13 to 25 years). The Company assesses the recoverability of goodwill by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. In 1997, the Company's provision for asset impairments, restaurant closings and other charges included a $4.2 million charge for the write-off of goodwill recorded upon the acquisition of i) the Company's meat company; ii) the assets of Lone Star Steaks, Inc. (see note 2); and iii) the franchise rights obtained from Longhorn Steaks of Alabama (see note 2). OTHER ASSETS Other assets consist of organization costs, debt issuance costs, trademarks, and liquor licenses. Organization costs, trademarks, and liquor licenses are amortized on a straight-line basis over five years. Debt issuance costs are amortized on a straight-line basis over the term of the debt. RESTAURANT CLOSING COSTS Upon the decision to close or relocate a restaurant, estimated unrecoverable costs are charged to expense. Such costs include the write-down of buildings and/or leasehold improvements, equipment, and furniture and fixtures, to the estimated fair market value less costs of disposal, and a provision for future lease obligations, less estimated subrental income. The Company provided for the closure of seven restaurants in 1997, two restaurants in 1996, and one restaurant in 1995. RECOVERABILITY OF LONG-LIVED ASSETS The Company adopted the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", on January 1, 1996. SFAS No. 121 requires the Company to review its long-lived assets related to each restaurant periodically or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Considerable management judgment is required to estimate discounted cash flows and fair value less costs to sell. Accordingly, actual results could vary significantly from such estimates. Adoption of SFAS No. 121 did not have a material impact on the Company's financial position, results of operations, or liquidity. 33 34 INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In connection with the merger of the Company with Bugaboo Creek Steak House, Inc. ("Bugaboo Creek") (see note 2), the Company acquired certain enterprises affiliated with Bugaboo Creek in a transaction accounted for as a pooling of interests. Prior to the merger, these affiliated entities were either S Corporations or partnerships, and as such, their stockholders or partners, and not the enterprises, were responsible for Federal and state income taxes. DEVELOPMENT COSTS Certain direct and indirect costs are capitalized in conjunction with acquiring and developing new restaurant sites. These costs are amortized over the life of the related building. Development costs were capitalized as follows: $737,000 in 1997, $389,000 in 1996, and $411,000 in 1995. STOCK-BASED COMPENSATION Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation", which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB 25 and provide pro forma net earnings (loss) and pro forma earnings (loss) per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB 25 and provide the pro forma disclosure provisions of SFAS No. 123. ADVERTISING AND PROMOTION EXPENSES Advertising and promotion costs are expensed over the period covered by the related promotion. Total advertising expense included in other operating expenses was $5,498,000, $4,929,000, and $3,438,000 for the years ended December 28, 1997, December 29, 1996 and December 31, 1995, respectively. EARNINGS (LOSS) PER SHARE Effective for the year ending December 28, 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share". SFAS No. 128 requires dual disclosure of earnings (loss) per share-basic and diluted. Basic earnings (loss) per share equals net earnings (loss) divided by the weighted average number of common shares outstanding and does not include the dilutive effects of stock options. Diluted earnings (loss) per share is computed by dividing adjusted net earnings (loss) by the weighted average number of common shares outstanding after giving effect to dilutive stock options. For purposes of computing the diluted loss per share, the potentially dilutive impact of stock options is excluded since the effect would be antidilutive. In accordance with SFAS No. 128, disclosure of all prior period earnings per share have been restated. The following table presents a reconciliation of weighted average shares and earnings (loss) per share amounts (amounts in thousands, except per share data): 34 35
1997 1996 1995 -------- -------- ------ Weighted average number of common shares used in basic calculation ................................ 11,751 11,302 9,753 Dilutive effect of net shares issuable pursuant to stock option plans ...................... -- 329 202 -------- -------- ------ Weighted average number of common shares used in diluted calculation .............................. 11,751 11,631 9,955 ======== ======= ====== Net (loss) earnings for computation of basic and diluted earnings per common share ................... $(12,232) $ 5,243 $6,583 Basic earnings per common share ....................... $ (1.04) $ 0.46 $ 0.67 Diluted earnings per common share ..................... $ (1.04) $ 0.45 $ 0.66
Options to purchase 1,473,093 shares of common stock were outstanding at December 28, 1997 but were excluded from the computation of diluted loss per share. Options to purchase 916,392 shares of common stock had exercise prices ranging from $12.94 to $27.25, which were greater than the average market price for 1997 and would have been antidilutive. ACCOUNTS RECEIVABLE Accounts receivable represent amounts due from restaurant customers and suppliers and interest receivable relating to marketable debt securities. FINANCIAL INSTRUMENTS The carrying value of the Company's cash and cash equivalents, marketable debt securities, accounts receivable, accounts payable, accrued expenses, debt, and obligations under capital leases approximates their fair value. The fair value of a financial instrument is the amount which the instrument could be exchanged in a current transaction between willing parties. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: For cash and cash equivalents, marketable debt securities, accounts receivable, accounts payable and accrued expenses the carrying amounts approximate fair value because of the short maturity of these financial instruments. The fair value of the Company's debt and obligations under capital leases is estimated by discounting future cash flows for these instruments at rates currently offered to the Company for similar debt or long-term leases, as appropriate. The fair value of the marketable debt security is obtained from publicly available sources. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATIONS Certain reclassifications have been made to the 1996 consolidated financial statements to conform with the 1997 presentation. BUSINESS COMBINATIONS AND JOINT VENTURES In the fourth quarter of 1997, the Company acquired the ownership interests of its joint venture partner in ten LongHorn Steakhouse restaurants located in South Georgia, Southern Alabama, and the Panhandle of Florida for an aggregate purchase price of $1,088,000 in cash, notes payable, and the Company's common stock. In January, 1997, the Company purchased the assets of two previously franchised locations in Greenville and Spartanburg, South Carolina, in a transaction accounted for under the purchase method, for approximately $2.0 million in cash. The excess of 35 36 cost over fair value of tangible assets acquired was approximately $1.4 million and was recorded as an intangible asset to be amortized over the 13-year period remaining under the acquired franchise agreement. In September, 1996, the Company exchanged 3,179,472 newly issued shares of its common stock for all of the outstanding shares of Bugaboo Creek Steak House, Inc. and certain affiliated entities (2,939,062 shares for Bugaboo Creek Steak House, Inc. and 240,410 shares for other nonpublic affiliated enterprises). Bugaboo Creek Steak House, Inc. operated 14 Bugaboo Creek Steak Houses and five The Capital Grille restaurants and the affiliated entities operated three specialty concept restaurants at the time of the merger. The exchange of shares was accounted for as a pooling of interests, and accordingly, the accompanying consolidated financial statements have been restated to include the accounts and operations of Bugaboo Creek Steak House, Inc. for all periods presented. Separate results for the combining entities for the year ended December 31, 1995, and for the most recent interim period prior to the acquisition (the six-month period ended June 30, 1996) are as follows (in thousands):
JUNE 30, DECEMBER 31, 1996 1995 -------- -------- Revenues: Previously reported .............................. $ 69,139 $102,188 Bugaboo Creek and affiliated enterprises ......... 34,720 54,192 -------- -------- $103,859 $156,380 ======== ======== Net earnings: Previously reported .............................. $ 3,204 $ 4,137 Bugaboo Creek and affiliated enterprises ......... 1,221 2,446 -------- -------- $ 4,425 $ 6,583 ======== ========
There were no adjustments required to conform Bugaboo Creek Steak House, Inc.'s accounting policies to those of the Company. During 1996, the Company entered into a joint venture arrangement whereby the Company contributed two LongHorn Steakhouse restaurants and agreed to contribute funds to construct a third LongHorn Steakhouse restaurant to a joint venture. The other partners in the joint venture contributed three restaurants with a fair market value of approximately $2,340,000 for a 49% minority interest. The Company recorded goodwill of $1,050,000 on this joint venture, based on the fair value of assets the Company contributed for its 51% interest versus joint venture partner contributions. During 1995, the Company purchased certain assets and trademark rights of Lone Star Steaks, Inc. ("Lone Star-Georgia") for a purchase price, including acquisition expenses, of $3,402,000. The purchase price included cash consideration of $2,152,000 and 96,153 newly issued shares of the Company's common stock. These shares had a market value at the time of the transaction of $1,250,000. Goodwill on this acquisition of $3,002,000 was being amortized over 25 years. As discussed in note 3, during 1997, the Company decided to close this acquired restaurant and all associated intangible assets were determined to be impaired and were written off. In 1995, the Company also purchased the assets of two previously franchised locations in Greensboro and High Point, North Carolina for $2,564,000 (the "Bullhead acquisition"). Goodwill on this acquisition of $1,358,000 is being amortized over 25 years. The Company, combined with the assets acquired in the Lone Star-Georgia and Bullhead acquisitions for the year ended December 31, 1995, as if the purchase business combinations had been completed as of January 1, 1995, would have had unaudited proforma net earnings of $6,382,000, or $0.64 per common share: basic and diluted. These unaudited proforma results consider the impact of certain adjustments, such as amortization of intangibles, elimination of franchise revenues, and increased interest expense (or reduced interest income). (3) PROVISION FOR ASSET IMPAIRMENTS, RESTAURANT CLOSINGS, AND OTHER CHARGES The provision for asset impairments, restaurant closings, and other charges of $23,666,000 in 1997 was the result of a decision by management, in the fourth quarter, to close seven restaurants and certain administrative facilities, as well as the Company's assessment of the impairment of certain assets based upon the Company's current plans. The Company's current plans resulted 36 37 from significant changes in key management and a strategic review process employed by new management. The provision for asset impairments, restaurant closings, and other charges consists primarily of adjustments of $8,300,000 to impaired long-lived assets to be disposed of, adjustments of $6,000,000 to the carrying values of impaired long-lived assets to be held and used and $4,200,000 of goodwill write-offs. These adjustments reduced carrying values for long-lived assets to be held and used to estimated fair value and of long-lived assets to be disposed of in connection with the closure of the seven restaurants and the administrative facilities to estimated fair market value less costs to sell. The long-lived assets to be disposed of are primarily included in property and equipment in the accompanying consolidated balance sheet at December 28, 1997, and have an adjusted carrying value of $1,520,000. Additionally, the provision included $5,166,000 in accrued costs primarily associated with closed facilities. The charge in 1996 and 1995 was comprised principally of the write-off of abandoned leasehold improvements and the accrual of the future lease payments on restaurants closed in those periods. Merger and conversion expenses in 1996 were nonrecurring costs related to the merger with Bugaboo Creek Steak House, consisting primarily of investment banking fees, accounting and legal fees, printing costs, and costs to integrate point-of-sale systems. (4) PROPERTY AND EQUIPMENT Major classes of property and equipment at December 28, 1997 and December 29, 1996 are summarized as follows (in thousands):
1997 1996 --------- --------- Land and improvements.................... $ 17,347 $ 13,294 Buildings................................ 23,883 15,032 Leasehold improvements................... 91,935 68,039 Restaurant equipment..................... 36,578 28,220 Furniture and fixtures................... 19,004 16,300 Construction in progress................. 1,177 4,131 --------- --------- 189,924 145,016 Less accumulated depreciation and amortization........................... 34,166 24,585 --------- --------- $ 155,758 $ 120,431 ========= =========
During 1997, 1996 and 1995, the Company capitalized interest during construction of approximately $663,000, $135,000, and $183,000, respectively, as a component of property and equipment. The Company has, in the normal course of business, entered into agreements with vendors for the purchase of restaurant equipment, furniture, fixtures, buildings, and improvements for restaurants that have not yet opened. At December 28, 1997, such commitments totaled approximately $6,000,000. 37 38 (5) ACCRUED EXPENSES Accrued expenses consist of the following at December 28, 1997 and December 29, 1996 (in thousands):
1997 1996 ------- ------- Accrued future lease obligations and other charges ........................................ $ 3,867 -- Accrued rent ..................................... 1,620 $ 1,212 Payroll and related .............................. 1,263 1,456 Other taxes accrued and withheld ................. 649 1,096 Gift certificates ................................ 3,766 3,689 Other ............................................ 3,708 199 ------- ------- $14,873 $ 7,652 ======= =======
(6) DEBT LINE OF CREDIT The Company has a variable interest rate revolving credit agreement which permits the Company to borrow up to $60,000,000 through December 1999 (the "1996 Facility"). The 1996 Facility bears interest at the Company's option of LIBOR plus a margin of .75% to 1.50% (depending on the Company's leverage ratio) or the administrative agent's prime rate of interest. At December 28, 1997 and December 29, 1996, the interest rate on outstanding obligations under the 1996 Facility was 6.898% and 6.375%, respectively, based on LIBOR plus 0.75%. At December 28, 1997 and December 29, 1996, debt outstanding under the 1996 Facility totaled $43,000,000 and $7,100,000, respectively. Amounts available under the 1996 Facility totaled $17,000,000 and $52,900,000 at December 28, 1997 and December 29, 1996, respectively. The 1996 Facility restricts payment of dividends, without prior approval of the lender, and contains certain financial covenants, including debt to capitalization, leverage and interest coverage ratios, as well as minimum net worth and maximum capital expenditure covenants. The agreement is unsecured. At December 28, 1997, the Company was in compliance with or had obtained waivers for non-compliance with, the provisions of the 1996 Facility. (7) INCOME TAXES Income tax (benefit) expense consists of (in thousands):
CURRENT DEFERRED TOTAL ------- -------- ----- Year ended December 28, 1997: U.S. Federal............... $ (923) $(3,215) $(4,138) State and local............ (213) (649) (862) ------- ------- ------- $(1,136) $(3,864) $(5,000) ======= ======= ======= Year ended December 29, 1996: U.S. Federal............... $ 2,884 $ (534) $ 2,350 State and local............ 1,029 (209) 820 ------- ------ ------- $ 3,913 $ (743) $ 3,170 ======= ====== ======= Year ended December 31, 1995: U.S. Federal............... $2,403 $ 12 $ 2,415 State and local............ 629 3 632 ------ ------ ------- $3,032 $ 15 $ 3,047 ====== ====== =======
The differences between income taxes at the statutory Federal income tax rate of 34% and income tax (benefit) expense reported in the consolidated statements of operations are as follows:
1997 1996 1995 ------ ------ ------ Federal statutory income tax rate ................ 34.0% 34.0% 34.0% State income taxes, net of federal benefit ....... 5.0 5.0 4.2 Nondeductible merger and conversion expenses ..... -- 11.1 -- Meals and entertainment .......................... 1.5 .6 .3 FICA tip credit .................................. (7.3) (11.2) (5.2) Other ............................................ (4.2) (1.8) (1.7) ---- ---- ---- Effective tax rates .................... 29.0% 37.7% 31.6% ==== ==== ====
38 39 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 28, 1997 and December 29, 1996 are presented below:
1997 1996 ------- ------- Deferred tax assets: Provisions for restaurant closings, and other charges...... $ 4,558 $ 599 Deferred rent ............................................. 556 490 Alternative minimum taxes and general business credit carryforwards ............................ 2,704 785 Conversion costs not currently deductible ................. 122 129 Net operating loss carryforwards .......................... 681 -- Accrued health insurance not currently deductible ......... 132 122 Accrued workers' compensation not currently deductible .... 212 36 Other ..................................................... 217 47 ------- ------- Total gross deferred tax assets ...................... 9,182 2,208 Less valuation allowance .................................. (1,700) -- ------- ------- Net deferred tax assets .............................. 7,482 2,208 ------- ------- Deferred tax liabilities: Property and equipment due to differences in depreciation and amortization ............................ (2,347) (1,187) Preopening costs expensed for tax purposes when incurred .. (720) (430) Other ..................................................... (7) (47) ------- ------- Total gross deferred liabilities ..................... (3,074) (1,664) ------- ------- Net deferred tax assets............................... $4,408 $ 544 ======= =======
The valuation allowance for deferred tax assets as of December 28, 1997 was $1,700,000. No valuation allowance was established at December 29, 1996. The net change in the valuation allowance for the years ended December 28, 1997, December 29, 1996 and December 31, 1995 was an increase of $1,700,000, a decrease of $45,000 and an increase of $45,000, respectively. In assessing the realizability of deferred tax assets, the Company's management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company's management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, the Company's management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance, at December 28, 1997. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. At December 28, 1997, the Company had net operating loss carryforwards for federal income tax purposes of $2,350,000 which are available to offset future taxable income, if any, through 2012. In addition, the Company had alternative minimum tax and other general business credit carryforwards of approximately $2,700,000 which are available to reduce federal regular income taxes, if any, over an indefinite period. (8) EMPLOYEE BENEFIT PLANS The Company provides employees who meet minimum service requirements with retirement benefits under a 401(k) salary reduction and profit sharing plan (the "RARE Plan"). Under the plan, employees may make contributions of between 1% and 20% of their annual compensation. The Company is required to make an annual matching contribution up to a maximum of 2.5% of employee compensation. Additional contributions are made at the discretion of the Board of Directors. The Company's expense under the plan was $260,000, $220,000, and $200,000 for 1997, 1996 and 1995, respectively. Commencing April 1, 1996, the Company provided a 401(k) salary reduction plan to Bugaboo Creek Steak House employees (the "Bugaboo Creek Plan"). Under the Bugaboo Creek Plan, employees made contributions of between 1% and 15% of their annual compensation. The Company made a matching contribution of 10% of the first 6% contributed by each employee. All employees of Bugaboo Creek Steak House prior to the merger with one year and 1,000 hours of service are eligible for the Bugaboo Creek Plan. The Company's expense under the Bugaboo Creek Plan was $20,000 for 1996. Effective in 1997, the Company merged the Bugaboo Creek Plan into the RARE Plan. (9) LEASES AND RELATED COMMITMENTS The Company is obligated under various capital leases for certain restaurant facilities that expire at various dates during the next 25 years. At December 28, 1997, the gross amount of restaurant facilities and related accumulated amortization recorded under capital leases were as follows: 39 40
DECEMBER 28, 1997 ----------- Buildings................................ $5,600 Less accumulated amortization............ 142 ------ Net book value of assets held under capital leases......................... $5,458 ======
Amortization of assets held under capital leases is included with depreciation and amortization - restaurants. The Company has noncancelable operating leases for restaurant facilities. Rental payments include minimum rentals, plus contingent rentals based on restaurant sales at the individual stores. These leases generally contain renewal options for periods ranging from five to 15 years and require the Company to pay all executory costs such as insurance and maintenance. Under the provisions of certain leases, there are certain rent holidays and/or escalations in payments over the base lease term, as well as renewal periods. The effects of the holidays and escalations have been reflected in rent expense on a straight-line basis over the life of the anticipated lease terms. The Company also leases vehicles and equipment under operating leases. Future minimum lease payments under capital lease obligations and noncancelable operating leases at December 28, 1997 are as follows (in thousands):
YEARS ENDING AT OR ABOUT DECEMBER 31: CAPITAL OPERATING -------------------- ------- --------- 1998......... $ 518 $ 9,684 1999......... 518 9,959 2000......... 518 9,756 2001......... 518 9,453 2002......... 549 9,178 Thereafter... 10,062 44,369 ------- ------- Total minimum lease payments 12,683 $92,399 ======= Less imputed interest (at 9%) 7,114 ------- Present value of minimum lease payments 5,569 Less current maturities 518 ------- Obligations under capital leases, excluding current maturities $ 5,051 =======
Rental expense consisted of the following amounts (in thousands):
1997 1996 1995 ------ ------ ------ Minimum lease payments ............ $8,252 $6,218 $5,207 Contingent rentals ................ 686 640 536 ------ ------ ------ Total rental expense ........ $8,938 $6,858 $5,743 ====== ====== ======
Future minimum lease payments to related parties aggregated $197,000 at December 28, 1997. Rental expense includes approximately $106,000, $120,000, and $163,000 for 1997, 1996, and 1995, respectively, for rents paid to entities in which certain of the Company's directors have a financial interest. The Company has guaranteed a restaurant lease of a franchisee that expires in 1999. Future minimum lease payments under this lease aggregated approximately $267,000 at December 28, 1997. The stockholders of the franchisee have agreed to indemnify the Company for any loss under this lease guarantee. In addition, the Company has guaranteed lease 40 41 payments of a lease assignee in a former Company-leased location. Future minimum lease payments under this lease aggregate approximately $323,000 at December 28, 1997. The Company does not believe that these guarantees subject it to a material risk of loss. A standby letter of credit in the amount of $750,000 has been issued to secure the Company's obligations under a lease of real estate. Drafts may be presented against this letter of credit in the event that the Company is in default of the terms of the lease, all applicable grace periods have expired and the Company has failed to cure all such defaults. The amount of such drafts may be for the amount presently due and owing by the Company to the landlord or the full amount of the letter of credit if the landlord has notified tenant that it has terminated the lease or has exercised its right to repossess the leased premises. (10) RELATED PARTY TRANSACTIONS During 1997, 1996, and 1995, RDM Design, a company owned by a relative of two Company directors, provided architectural design services to the Company. Fees paid for these services (including payments for subcontracted engineering services) amounted to $11,000, $114,000, and $961,000 for the years 1997, 1996, and 1995, respectively. (11) SHAREHOLDERS' EQUITY On April 1, 1996, the Company closed a public offering for 1,875,000 shares of common stock. Net proceeds to the Company from this offering were approximately $38,000,000, including the underwriters' overallotment. In 1997, the Company entered into a Shareholder Protection Rights Agreement (the "Rights Agreement") and declared a dividend distribution of one "Right" for each outstanding share of common stock. The Rights initially have an exercise price of $48.00 per share, and will become exercisable only under certain conditions relating to an actual or threatened change in control of the Company. Under certain conditions the rights will entitle the holder thereof to purchase from the Company that number of shares of the Company's Common Stock (or, under certain conditions, an acquiring company's equity securities) having a value equal to twice the exercise price for an amount equal to the exercise price. The Company will be entitled to redeem the Rights at $0.01 at any time prior to the "Flip-in Date" (as that term is defined in the Rights Agreement). Until such time as they become exercisable, the Rights have no dilutive effect on the earnings per share of the Company. (12) STOCK OPTIONS The Company's 1997 Long-Term Incentive Plan (the "1997 Stock Option Plan") provides for the granting of incentive stock options (subject to shareholder approval), nonqualified stock options, stock appreciation rights, performance units, restricted stock, dividend equivalents and other stock based awards to employees, officers, directors, consultants, and advisors. The Company's 1992 Incentive Plan (the "1992 Stock Option Plan") provides for the granting of incentive stock options, nonqualified stock options, and stock appreciation rights to key employees and directors, based upon selection by the Stock Option Committee. All stock options issued under the 1997 Stock Option Plan and the 1992 Stock Option Plan were granted at prices which equate to or were higher than current market value on the date of the grant and must be exercised within ten years from the date of grant. The 1997 Stock Option Plan and the 1992 Stock Option Plan authorized the granting of options to purchase 750,000 shares of common stock and 1,500,000 shares of common stock, respectively. The 1994 Bugaboo Creek Stock Option Plan (the "1994 Stock Option Plan") provides for the granting of options to acquire approximately 306,550 shares of the Company's common stock to directors, officers, and key employees. Through December 28, 1997, approximately 214,050 options have been awarded pursuant to the terms of the 1994 Stock Option Plan. Options awarded under the 1994 Stock Option Plan prior to the merger were adjusted based on the exchange ratio of 1.78 shares of common stock of Bugaboo Creek Steak House, Inc. for each share of the Company's common stock. Options awarded under the 1994 Stock Option Plan are generally granted at prices which equate to current market value on the date of the grant, are generally exercisable after two to three years, and expire ten years subsequent to award. During 1995, the Company granted 2,500 nonqualifying options to a director of the Company at the closing price of $9.50 on the date of grant. The Company applies APB 25 in accounting for its stock option plans. Accordingly, no compensation expense has been recognized for the Company's stock-based compensation plans. Had compensation cost for the Company's stock option plans been determined based upon the fair value methodology prescribed under SFAS No. 123 the Company's 1997, 1996 and 1995 net (loss) earnings and net (loss) earnings per 41 42 share would have been reduced by approximately $1,002,000, $705,000, and $84,000 or approximately $0.09, $0.06 and $0.01 per share, respectively. The effects of disclosing compensation cost under SFAS No. 123 may not be representative of the effects on reported earnings for future years. The fair value of the options granted during 1997, 1996 and 1995 is estimated at $3,384,000, $1,593,000 and $2,998,000, respectively, on the date of grant, using the Black-Scholes option-pricing model with the following assumptions: dividend yield of zero, volatility of 20%, risk-free interest rate of 6%, and an average expected life of eight years. As of December 28, 1997 and December 29, 1996 options to purchase 367,281 and 436,898 shares, respectively, were exercisable at a weighted-average exercise price of $16.37 and $14.10 per share, respectively. Option activity under the Company's stock option plans is as follows:
WEIGHTED SHARES AVERAGE PRICE ----------- ------------- Outstanding at December 31, 1994 1,126,818 $14.10 Granted in 1995........................ 512,586 18.68 Exercised in 1995...................... (8,300) 11.20 Canceled in 1995....................... (61,127) 19.45 ----------- Outstanding at December 31, 1995....... 1,569,977 15.40 Granted in 1996........................ 162,115 21.56 Exercised in 1996...................... (67,367) 10.10 Canceled in 1996....................... (253,959) 21.39 Outstanding at December 29, 1996....... 1,410,766 15.28 ----------- Granted in 1997........................ 995,150 14.47 Exercised in 1997...................... (289,980) 8.81 Canceled in 1997....................... (642,843) 17.72 ------------ Outstanding at December 28, 1997....... 1,473,093 14.79 ===========
The following table summarizes information concerning currently outstanding and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ ------------------------ WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE NUMBER REMAINING EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES (IN DOLLARS) OUTSTANDING LIFE PRICE EXERCISABLE PRICE - -------------------------------------------------------------------------- ----------------------- $8.75 to $10...................... 301,400 9.0 $ 9.39 54,840 $ 9.39 $10.01 to $15..................... 627,850 9.2 13.44 95,980 13.04 $15.01 to $20..................... 330,263 8.2 17.60 116,265 17.60 $20.01 to $25..................... 208,580 7.5 21.88 98,696 22.00 $25.01 to $27.25.................. 5,000 8.3 27.25 1,500 27.25
(13) COMMITMENTS AND CONTINGENCIES JOINT VENTURES Several of the Company's joint venture agreements and employment agreements with joint venture partners and restaurant managers require or provide the Company with the option to purchase the managers' interests upon termination of the joint venture. The purchase prices are based upon certain multiples of the relevant restaurant's cash flow. SHAREHOLDER SUIT In February 1994, the Company, several directors, and the two managing underwriters of its previous public offering were named as defendants in a lawsuit filed as a class action in the United States District Court in Atlanta, Georgia. The suit was filed by a shareholder of the Company who claimed to represent a class of all persons who purchased the Company's common stock between July 27, 1992 and June 17, 1993. The plaintiff alleged that the defendants made material misrepresentations and omissions in connection with the financial condition of the Company and sought compensatory damages and other relief. A total consideration of $1.4 million was paid in settlement of the case in 1997, the major portion of which was funded by an officers and directors liability insurance policy. The cost to the Company, including related attorneys' fees, was approximately $605,000. 42 43 PURCHASE COMMITMENTS The Company has entered into certain purchasing agreements with certain meat suppliers requiring the Company to purchase contracted quantities of meat at established prices through their expiration on varying dates in 1998. The quantities contracted for are based on usage projections management believes to be conservative estimates of actual requirements during the contract terms. The Company does not anticipate any material adverse effect on its results of operations or financial position from these contracts. OTHER Under the Company's insurance programs, coverage is obtained for significant exposures as well as those risks required to be insured by law or contract. It is the Company's preference to retain a significant portion of certain expected losses related primarily to workers' compensation and employee medical costs. Provisions for losses expected under these programs are recorded based upon the Company's estimates of the aggregate liability for claims incurred. Letters of credit for $1,352,000 at December 28, 1997 are being maintained as security under the Company's workers' compensation policies. The Company is involved in various legal actions incidental to the normal conduct of its business. Management does not believe that the ultimate resolution of these incidental actions will have a material adverse effect on the Company's financial position or results of operations. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information about directors and nominees for director and executive officers of the Registrant is incorporated herein by reference from the sections of the Registrant's definitive Proxy Statement to be delivered to shareholders of the Registrant in connection with the annual meeting of shareholders to be held May 20, 1998 (the "Proxy Statement") entitled "Election of Directors -- Certain Information Concerning Nominees and Directors," and "-- Meetings of the Board of Directors and Committees" and "Executive Officers of the Company." ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated herein by reference from the section of the Proxy Statement entitled "Executive Compensation." In no event shall the information contained in the Proxy Statement under the sections entitled "Shareholder Return Analysis," or "Compensation and Stock Option Committees' Report on Executive Compensation" be incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is incorporated herein by reference from the section of the Proxy Statement entitled "Beneficial Owners of More Than Five Percent of the Company's Common Stock; Shares Held by Directors and Executive Officers." 43 44 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding Certain Relationships and Related Transactions is incorporated herein by reference from the section of the Proxy Statement entitled "Certain Transactions." 44 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)(1) LISTING OF FINANCIAL STATEMENTS The following financial statements of the Registrant are set forth herein in Part II, Item 8: Consolidated Balance Sheets as of December 28, 1997 and December 29, 1996 Consolidated Statements of Operations - For Each of the Years in the Three-Year Period Ended December 28, 1997 Consolidated Statements of Shareholders' Equity - For Each of the Years in the Three-Year Period Ended December 28, 1997 Consolidated Statements of Cash Flows - For Each of the Years in the Three-Year Period Ended December 28, 1997 Notes to Consolidated Financial Statements Independent Auditors' Report (A)(2) LISTING OF FINANCIAL STATEMENT SCHEDULES Not applicable. 45 46 (A)(3) LISTING OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ---------- ----------------------------------------------------- 3(a) --Articles of Incorporation of the Registrant 3(b) --Bylaws of the Registrant 4(a) -- See Exhibits 3(a) and 3(b) for provisions of the Amended and Restated Articles of Incorporation and Bylaws of the Registrant defining rights of holders of Common Stock of the Registrant 4(b) -- Specimen Stock Certificate for the Common Stock of the Registrant 4(c) -- Shareholder Protection Rights Agreement, dated as of November 4, 1997, between RARE Hospitality International, Inc. and SunTrust Bank, Atlanta, as Rights Agent (which includes as Exhibit B thereto the Form of Right Certificate) (incorporated herein by reference from Exhibit 99.1 of the Registrant's Form 8-K dated November 4, 1997). 10(a) -- Line of Credit Agreement dated as of December 18, 1996 by and among Longhorn Steaks, Inc. and First Union National Bank of Georgia (incorporated herein by reference from Exhibit 10(a) of the Registrant's annual report on Form 10-K for the fiscal year ended December 29, 1996). 10(b) -- First Amendment to Line of Credit Agreement dated as of November 6, 1997, by and among RARE Hospitality International, Inc. and First Union National Bank (incorporated herein by reference from Exhibit 10.1 of the registrant's quarterly report on Form 10-Q for the quarter ended September 28, 1997). 10(c) -- Second Amendment to Line of Credit Agreement dated as of March 27, 1998, by and among RARE Hospitality International, Inc. and First Union National Bank. 10(d) -- Credit Agreement dated as of December 18, 1996 by and among Longhorn Steaks, Inc. and several lenders with First Union National Bank of Georgia as Agent and Fleet National Bank as Co-Agent (incorporated herein by reference from Exhibit 10(b) of the Registrant's annual report on Form 10-K for the fiscal year ended December 29, 1996). 10(e) -- First Amendment to Credit Agreement dated as of November 6, 1997, by and among RARE Hospitality International, Inc. and several lenders with First Union National Bank as Agent and Fleet National Bank as Co-Agent (incorporated herein by reference from Exhibit 10.1 of the registrant's quarterly report on Form 10-Q for the quarter ended September 28, 1997). 10(f) -- Second Amendment to Credit Agreement dated as of March 27, 1998, by and among RARE Hospitality International, Inc. and several lenders with First Union National Bank as Agent and Fleet National Bank as co-Agent. Executive Compensation Plans and Arrangements. 10(g) -- Longhorn Steaks, Inc. Amended and Restated 1992 Incentive Plan (incorporated by reference from Exhibit 10(n) to Registration Statement on Form S-1, Registration Statement No. 33-45695). 10(h) -- Longhorn Steaks, Inc. 1996 Stock Plan for Outside Directors (incorporated by reference from Exhibit 4(c) to Registration Statement on Form S-8, Registration No. 333-11963). 10(i) -- RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan. 10(j) -- Amendment No. 1 to RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan. 10(k) -- Employment Agreement dated February 13, 1992 between the Registrant and George W. McKerrow, Sr. (incorporated by reference from Exhibit 10(o) to Registration Statement on Form S-1, Registration Statement No. 33-45695). 10(l) -- Employment Agreement dated February 13, 1992 between the Registrant and George W. McKerrow, Jr. (incorporated by reference from Exhibit 10(p) to Registration Statement on Form S-1, Registration Statement No. 33-45695). 10(m) -- Employment Agreement dated September 30, 1997 between the Registrant and Philip J. Hickey, Jr. 10(n) -- Employment Agreement dated October 16, 1997 between the Registrant and Eugene I. Lee. 10(o) -- Employment Agreement dated November 3, 1997 between the Registrant and William A. Burnett. 21 -- Subsidiaries of the Company. 23(a) -- Consent of KPMG Peat Marwick LLP. 27(a) -- 1997 Financial Data Schedule. 27(b) -- 1996 Restated Financial Data Schedule.
(B) REPORTS ON FORM 8-K One report on Form 8-K was filed during the last quarter of the period covered by this report, a report dated November 4, 1997. (C) EXHIBITS The exhibits in response to this Report are listed under Item 14(a)(3) above. (D) FINANCIAL STATEMENT SCHEDULES See Item 14(a)(2) above. 46 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RARE Hospitality International, Inc. By: /s/ Philip J. Hickey, Jr. -------------------------------- Philip J. Hickey, Jr. President and COO Date: March 30, 1998 47 48 Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ George W. McKerrow, Jr. ------------------------------------------------- Date March 30, 1998 George W. McKerrow, Jr. Chairman and Chief Executive Officer (Principal Executive Officer) By /s/ Philip J. Hickey, Jr. ------------------------------------------------- Date March 30, 1998 Philip J. Hickey, Jr. President, Chief Operating Officer and Director By /s/ Benjamin A. Waites ------------------------------------------------- Date March 30, 1998 Benjamin A. Waites Controller and Assistant Secretary (Principal Financial and Accounting Officer) By /s/ George W. McKerrow, Sr. ------------------------------------------------- Date March 30, 1998 George W. McKerrow, Sr. Director By ------------------------------------------------- Date March , 1998 Edward P. Grace, III Director By /s/ Ronald W. San Martin ------------------------------------------------- Date March 30, 1998 Ronald W. San Martin Director By /s/ John G. Pawly ------------------------------------------------- Date March 30, 1998 John G. Pawly Director By /s/ Don L. Chapman ------------------------------------------------- Date March 30, 1998 Don L. Chapman Director 48 EX-3.A 2 ARTICLES OF INCORPORATION OF THE REGISTRANT 1 EXHIBIT 3(a) ARTICLES OF AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF RARE HOSPITALITY INTERNATIONAL, INC. 1. The name of the corporation is "Rare Hospitality International, Inc." 2. The articles of incorporation of Rare Hospitality International, Inc. are amended by adding the attached Exhibit A as Exhibit A to the Company's Amended and Restated Articles of Incorporation and by adding the following sentence at the end of Article Four of the Company's Amended and Restated Articles of Incorporation: A designation of the preferences, limitations and relative rights of the corporation's Series A Junior Participating Preferred Stock is attached as Exhibit A to these Amended and Restated Articles of Incorporation. 3. The amendment was adopted on November 4, 1997. 4. The amendment was duly adopted by the board of directors of Rare Hospitality International, Inc. IN WITNESS WHEREOF, Rare Hospitality International, Inc. has caused these Articles of Amendment to be executed as of November 17, 1997. RARE HOSPITALITY INTERNATIONAL, INC. By: /s/ G.W. McKerrow, Jr. ------------------------------- Name: George W. McKerrow, Jr. ------------------------------- Title: Chairman/CEO ------------------------------- 2 EXHIBIT A TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF RARE HOSPITALITY INTERNATIONAL, INC. DESIGNATING THE PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK There is hereby designated, of the authorized but unissued shares of Preferred Stock of the corporation, a series thereof, and the number of shares, voting powers, designation, preferences, and relative, participating, optional, and other special rights, and the qualifications, limitations, and restrictions thereof, of the shares of such series (in addition to those set forth in the Amended and Restated Articles of Incorporation, which are applicable to the Preferred Stock of all series), shall be as follows: (1) Designation and Number of Shares. The designation of this series of Preferred Stock shall be "Series A Junior Participating Preferred Stock" (hereinafter called "this Series"), to initially consist of 500,000 shares, which number may from time to time be increased or decreased (but not below the number then outstanding) by the Board of Directors by filing additional articles of amendment to the corporation's amended and restated articles of incorporation. The shares of this Series are sometimes hereinafter referred to as the "Shares." Shares of this Series may be issued in fractional shares, which fractional shares shall entitle the holder, in proportion to such holder's fractional share, to all rights of a holder of a whole share of this Series. (2) Distributions. (a) Distribution Rights. The holders of whole or fractional Shares shall be entitled to receive, when, as, and if declared by the Board of Directors, subject to restrictions imposed by the Georgia Business Corporation Code or the Amended and Restated Articles of Incorporation on distributions to shareholders, and subject to the rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to this series with respect to dividends, (i) on each date that dividends or other distributions (other than dividends or distributions payable in Common Stock of the corporation) are payable on or in respect of Common Stock comprising part of the Reference Package (as defined below), in an amount per whole share of this Series equal to the aggregate amount of dividends or other distributions (other than dividends or distributions payable in Common Stock of the corporation) that would be payable on such date to a holder of the Reference Package and (ii) on the last day of March, June, September and December in each year, in an amount per whole share of this Series equal to the excess (if any) of $1.00 3 over the aggregate dividends paid per whole share of this Series during the three-month period ending on such last day. Each such dividend shall be paid to the holders of record of shares of this Series on the date, not exceeding sixty days preceding such dividend or distribution payment date, fixed for that purpose by the Board of Directors in advance of payment of each particular dividend or distribution. Dividends on each full and each fractional share of this Series shall be cumulative from the date such full or fractional share is originally issued; provided that any such full or fractional share originally issued after a dividend record date and on or prior to the dividend payment date to which such record date relates shall not be entitled to receive the dividend payable on such dividend payment date or any amount in respect of the period from such original issuance to such dividend payment date. The term "Reference Package" shall initially mean 100 shares of Common Stock, no par value ("Common Stock"), of the corporation. In the event the corporation shall at any time (i) declare or pay a dividend on any Common Stock payable in Common Stock, (ii) subdivide any Common Stock or (iii) combine any Common Stock into a smaller number of shares, then and in each such case the Reference Package after such event shall be the Common Stock that a holder of the Reference Package immediately prior to such event would hold thereafter as a result thereof. Holders of shares of this Series shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein provided on this Series. So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to this Series as to dividends or upon liquidation, nor shall any Common Stock nor any other stock of the corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys to be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the corporation (except by conversion into or exchange for stock of the corporation ranking junior to this Series as to dividends and upon liquidation), unless, in each case, the full cumulative dividends (including the dividend to be due upon payment of such dividend, distribution, redemption, purchase or other acquisition) on all outstanding shares of this Series shall have been, or shall contemporaneously be, paid. (b) Shares Purchased by Corporation. Shares of this Series purchased by the corporation shall be canceled and shall revert to authorized but unissued shares of Preferred Stock undesignated as to series, which shares may thereafter be provided for and designated by the -2- 4 Board of Directors pursuant to Article Four of the Amended and Restated Articles of Incorporation as part of a series of Preferred Stock to the same extent as if such shares had not previously been provided for and designated as part of a series of Preferred Stock; but such shares shall not be reissued as shares of this Series. (3) Rights of Redemption. The shares of this Series shall not be redeemable. (4) Rights on Liquidation, Dissolution, or Winding Up. (a) In the event of any liquidation, dissolution or winding up of the affairs of the corporation, whether voluntary or involuntary, the holders of full and fractional shares of this Series shall be entitled, before any distribution or payment is made on any date to the holders of the Common Stock or any other stock of the corporation ranking junior to this Series upon liquidation, to be paid in full an amount per whole share of this Series equal to the greater of (A) $1.00 or (B) the aggregate amount distributed or to be distributed prior to such date in connection with such liquidation, dissolution or winding up to a holder of the Reference Package (such greater amount being hereinafter referred to as the "Liquidation Preference"), together with accrued dividends to such distribution or payment date, whether or not earned or declared. If such payment shall have been made in full to all holders of shares of this Series, the holders of shares of this Series as such shall have no right or claim to any of the remaining assets of the corporation. (b) In the event the assets of the corporation available for distribution to the holders of shares of this Series upon any liquidation, dissolution or winding up of the corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to paragraph (a) above, no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such liquidation, dissolution or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such liquidation, dissolution or winding up. (c) Upon the liquidation, dissolution or winding up of the corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of assets of the corporation available for distribution to its shareholders all amounts to which such holders are entitled pursuant to paragraph (a) above before any payment shall be made to the holders of -3- 5 Common Stock or any other stock of the corporation ranking junior upon liquidation to this Series. (d) For purposes of this Section (4), the consolidation or merger of, or binding share exchange by, the corporation with any other corporation shall not be deemed to constitute a liquidation, dissolution or winding up of the corporation. (5) Merger, Consolidation, Share Exchange. In the event of any merger, consolidation, reclassification or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of this Series shall at the same time be similarly exchanged or changed in an amount per whole share equal to the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, that a holder of the Reference Package would be entitled to receive as a result of such transaction. (6) Voting Rights. In addition to any other vote or consent of shareholders required by law or by the Amended and Restated Articles of Incorporation, as amended, of the corporation, each whole share of this Series shall, on any matter, vote as a class with any other capital stock comprising part of the Reference Package and voting on such matter and shall have the number of votes thereon that a holder of the Reference Package would have. -4- 6 CERTIFICATE OF RESTATEMENT Pursuant to Section 14-2-1007 of the Georgia Business Corporation Code, Contemporary Restaurant Concepts, Ltd., a Georgia corporation (the "Corporation") hereby certifies that: ONE The name of the corporation is Contemporary Restaurant Concepts, Ltd. TWO On February 13, 1992, Amended and Restated Articles of Incorporation of the Corporation (the "Restatement") were duly adopted by the Board of Directors of the Corporation. THREE The Restatement contains an amendment to the Articles of Incorporation requiring shareholder approval (the "Amendment"). FOUR On February 13, 1992, the shareholders of the Corporation duly approved the entirety of the Restatement including the Amendment pursuant to Section 14-2-1003 of the Georgia Business Corporation Code. FIVE The Restatement supersedes the original Articles of Incorporation and all amendments to them. IN WITNESS WHEREOF, Contemporary Restaurant Concepts, Ltd. has caused this Certificate of Restatement to be executed by its duly authorized officer on this 13th day of February, 1992. CONTEMPORARY RESTAURANT CONCEPTS, LTD. By: /s/ G.W. McKerrow, Jr. ------------------------------ George W. McKerrow, Jr. President 7 ARTICLES OF RESTATEMENT OF CONTEMPORARY RESTAURANT CONCEPTS, LTD. ONE The name of the corporation is Contemporary Restaurant Concepts, Ltd. TWO The original Articles of Incorporation and all amendments thereto are hereby amended and restated in their entirety. THREE The Amended and Restated Articles of Incorporation attached hereto as Exhibit "A" are hereby inserted as the new Articles of Incorporation. FOUR The Amended and Restated Articles of Incorporation supersede the original Articles of Incorporation and all amendments to them. IN WITNESS WHEREOF, Contemporary Restaurant Concepts, Ltd. has caused these Articles of Restatement to be executed by its duly authorized officer, on this 13th day of February, 1992. CONTEMPORARY RESTAURANT CONCEPTS, LTD. By: /s/ G.W. McKerrow, Jr. -------------------------------------------- George W. McKerrow, Jr. President 8 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF LONGHORN STEAKS, INC. ARTICLE ONE Name The name of the corporation is Longhorn Steaks, Inc. ARTICLE TWO Perpetual Duration The corporation shall have perpetual duration. ARTICLE THREE Purpose The corporation is organized for the purpose of engaging in any lawful business. ARTICLE FOUR Authorized Shares The corporation shall have authority to be exercised by the Board of Directors to issue not more than 25,000,000 shares of common stock, no par value, and not more than 10,000,000 shares of preferred stock, no par value. The shares of common stock shall have unlimited voting rights and shall be entitled to receive the net assets of the corporation upon dissolution. Subject to the provisions of these Amended and Restated Articles of Incorporation and to the provisions of the Georgia Business Corporation Code, the Board of Directors may determine (a) the preferences, limitations, and relative rights of any class of shares prior to the issuance of any shares of that class and (b) the preferences, limitations, and relative rights of one or more series within a class and may designate the number of shares within that series prior to the issuance of any shares of that series. 9 ARTICLE FIVE Preemptive Right The holders of the corporation's shares do not have a preemptive right to acquire the corporation's unissued or treasury shares. ARTICLE SIX Limitation of Director Liability 6.1. A director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of duty of care or other duty as a director, except for liability (i) for any appropriation, in violation of his duties, of any business opportunity of the corporation, (ii) for acts or omissions which involve intentional misconduct or a knowing violation of law, (iii) of the types set forth in Section 14-2-832 of the Georgia Business Corporation Code, or (iv) for any transaction from which the director derived an improper personal benefit. 6.2. Any repeal or modification of the provisions of this Article by the shareholders of the corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the corporation with respect to any act or omission occurring prior to the effective date of such repeal or modification. 6.3. If the Georgia Business Corporation Code is hereafter amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended Georgia Business Corporation Code. 6.4. In the event that any of the provisions of this Article (including any provision within a single sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the fullest extent permitted by law. -2- 10 ARTICLE SEVEN Constituency Considerations In discharging the duties of their respective positions and in determining what is believed to be in the best interests of the corporation, the Board of Directors, committees of the Board of Directors, and individual directors, in addition to considering the effects of any action on the corporation or its shareholders, may consider the interests of the employees, customers, suppliers, and creditors of the corporation and its subsidiaries, the communities in which offices or other establishments of the corporation and its subsidiaries are located, and all other factors such directors consider pertinent; provided, however, that this Article shall be deemed solely to grant discretionary authority to the directors and shall not be deemed to provide to any constituency any right to be considered. ARTICLE EIGHT Directors 8.1. The number of directors of the corporation shall not be less than three (3) nor more than eleven (11), the precise number to be fixed by resolution of the Board of Directors from time to time. The directors shall be divided into three classes, each consisting, as nearly equal in number as possible, of one-third of the total number of directors constituting the entire Board of Directors. At the first election of directors occurring following the date of approval of these Amended and Restated Articles of Incorporation by the shareholders of the corporation, the first class of directors (Class 1) shall be elected for a term expiring upon the next following annual meeting of shareholders and upon the election and qualification of their respective successors, the second class of directors (Class 2) shall be elected for a term expiring upon the second next annual meeting of shareholders and upon the election and qualification of their respective successors, and the third class of directors (Class 3) shall be elected for a term expiring upon the third next annual meeting of shareholders and upon the election and qualification -3- 11 of their respective successors. At each succeeding annual meeting of shareholders, successors to the class of directors whose term expires at the annual meeting of shareholders shall be elected for a three-year term. Except as provided in paragraph 8.4 of this Article Eight, a director shall be elected by the affirmative vote of a majority of the shares represented at the meeting of shareholders at which the director stands for election and entitled to elect such director. 8.2. The number of directors may be increased or decreased from time to time as provided by the bylaws of the corporation and in the Amended and Restated Articles of Incorporation; provided, however, that the total number of directors at any time shall not be less than three (3); and provided further, that no decrease in the number of directors shall have the effect of shortening the term of an incumbent director. In the event that preferred stock of the corporation is issued and authorizes the election of one or more directors by the holders of such preferred stock, the number of directors may be increased in accordance with the terms of the preferred stock. In the event of any increase or decrease in the authorized number of directors, each director then serving shall continue as a director of the class of which he is a member until the expiration of his current term, or his earlier resignation, removal from office or death, and the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to maintain such classes as nearly equal as possible; provided, however, that there shall be no classification of additional directors elected by the Board until the next meeting of the shareholders called for the purpose of electing directors. Each director shall serve until his successor is elected and qualified or until his earlier resignation, retirement, disqualification, removal from office, or death. 8.3. The entire Board of Directors or any individual director may be removed from the office but only for cause and only by the affirmative vote of at least 75% of all classes of stock of the corporation entitled to vote in the election of such director or -4- 12 directors, considered for purposes of this Section as one class. Notwithstanding the foregoing, in the event that preferred stock of the corporation is issued and authorizes the election of one or more directors by the holders of such preferred stock, any individual director elected by the preferred shareholders may be removed only by the holders of the outstanding shares of the preferred stock in accordance with the terms of the preferred stock as provided therein. Removal action may be taken at any shareholders' meeting with respect to which notice of such purpose has been given, and a removed director's successor may be elected at the same meeting to serve the unexpired term. 8.4. A vacancy occurring on the Board of Directors, other than by reason of removal of a director by the shareholders but including vacancies arising from resignation, death or through an increase in the number of directors, may be filled, until the next election of directors by the shareholders, by the affirmative vote of at least two thirds (2/3) of the total number of directors then remaining in office, though they constitute less than a quorum of the Board of Directors. ARTICLE NINE Special Meetings and Actions Without a Meeting 9.1. The shareholders of the corporation shall not have the right to call a special meeting of shareholders, including but not limited to, a special meeting in lieu of the annual meeting of shareholders. 9.2. Action required or permitted to be taken at a meeting of shareholders may be taken without a meeting if the action is taken by all shareholders entitled to vote on the action. The action must be evidenced by one or more written consents describing the action taken, signed by all shareholders and delivered to the corporation for inclusion in the minutes or filing with the corporate records. -5- 13 ARTICLE TEN Certain ByLaw Amendments 10.1. Subject to the other provisions of this Article, the Board of Directors of the corporation shall have the power to alter, amend or repeal the bylaws of the corporation or to adopt new bylaws, but any bylaws adopted by the Board of Directors may be altered, amended or repealed or new bylaws may be adopted by the shareholders of the corporation. The shareholders may prescribe, by so expressing in the action that they take in adopting or amending, that any bylaws so adopted or amended by them shall not be altered, amended or repealed by the Board of Directors. 10.2. Notwithstanding the foregoing and anything contained in these Amended and Restated Articles of Incorporation or the bylaws of the corporation to the contrary, any alteration, amendment or repeal of any provision of the bylaws of the corporation, or adoption of new bylaws, as applicable, containing any provision inconsistent in any manner with the provisions contained in Articles SIX, SEVEN, EIGHT, NINE AND TEN of these Amended and Restated Articles of Incorporation or Sections 2.3, 2.12, 3.2, 3.3, 3.4, 9.1 through 9.18 and 12.1 of the bylaws of the corporation, shall be effected only by that procedure required under Georgia law for amendment of articles of incorporation. IN WITNESS WHEREOF, Longhorn Steaks, Inc. executes these Amended and Restated Articles of Incorporation by its duly authorized officer on this 13th day of February, 1992. /s/ G.W. McKerrow, Jr. ------------------------------------------- George W. McKerrow, Jr. President -6- EX-3.B 3 BYLAWS OF THE REGISTRANT 1 EXHIBIT 3(b) ------------------------------------------ RARE HOSPITALITY INTERNATIONAL, INC. BYLAWS AS AMENDED THROUGH OCTOBER 13, 1997 ------------------------------------------ 2 RARE HOSPITALITY INTERNATIONAL, INC. BYLAWS TABLE OF CONTENTS
Page ---- ARTICLE ONE - OFFICES AND AGENT Section 1.1 Registered Office and Agent 1 Section 1.2 Other Offices 1 ARTICLE TWO - SHAREHOLDERS' MEETINGS Section 2.1 Place of Meetings 1 Section 2.2 Annual Meetings 1 Section 2.3 Special Meetings 1 Section 2.4 Notice of Meetings 1 Section 2.5 Voting Group 2 Section 2.6 Quorum 2 Section 2.7 Vote Required for Action 2 Section 2.8 Voting of Shares 2 Section 2.9 Proxies 2 Section 2.10 Presiding Officer 3 Section 2.11 Adjournments 3 Section 2.12 Action of Shareholders Without a Meeting 3 ARTICLE THREE - THE BOARD OF DIRECTORS Section 3.1 General Powers 3 Section 3.2 Number of Directors and Term of Office 4 Section 3.3 Removal 4 Section 3.4 Vacancies 5 Section 3.5 Compensation 5 ARTICLE FOUR - MEETINGS OF THE BOARD OF DIRECTORS Section 4.1 Regular Meetings 5 Section 4.2 Special Meetings 5 Section 4.3 Place of Meetings 5 Section 4.4 Notice of Meetings 5 Section 4.5 Quorum 6
3 Section 4.6 Vote Required for Action 6 Section 4.7 Participation by Conference Telephone 6 Section 4.8 Action by Directors Without a Meeting 6 Section 4.9 Adjournments 6 Section 4.10 Committees of the Board of Directors 7 ARTICLE FIVE - MANNER OF NOTICE AND WAIVER AS TO SHAREHOLDERS AND DIRECTORS Section 5.1 Procedure 7 Section 5.2 Waiver 8 ARTICLE SIX - OFFICERS Section 6.1 Number 8 Section 6.2 Election and Term 8 Section 6.3 Compensation 9 Section 6.4 Chairman; Vice Chairman 9 Section 6.5 Chief Executive Officer 9 Section 6.6 President 9 Section 6.7 Vice Presidents 9 Section 6.8 Secretary 9 Section 6.9 Treasurer 10 Section 6.10 Bonds 10 ARTICLE SEVEN - DISTRIBUTIONS AND SHARE DIVIDENDS Section 7.1 Authorization or Declaration 10 Section 7.2 Record Date with Regard to Distributions and Share Dividends 10 ARTICLE EIGHT - SHARES Section 8.1 Authorization and Issuance of Shares 10 Section 8.2 Share Certificates 10 Section 8.3 Rights of Corporation with Respect to Registered Owners 11 Section 8.4 Transfers of Shares 11 Section 8.5 Duty of Corporation to Register Transfer 11 Section 8.6 Lost, Stolen or Destroyed Certificates 11 Section 8.7 Fixing of Record Date with regard to Shareholder Action 12
-ii- 4 ARTICLE NINE - INDEMNIFICATION Section 9.1 Certain Definitions 12 Section 9.2 Basic Indemnification Arrangement 13 Section 9.3 Advances for Expenses 14 Section 9.4 Authorization of and Determination of Entitlement to Indemnification 15 Section 9.5 Court-Ordered Indemnification and Advances for Expenses 16 Section 9.6 Indemnification of Employees and Agents 17 Section 9.7 Limitations on Indemnification 17 Section 9.8 Liability Insurance 18 Section 9.9 Witness Fees 18 Section 9.10 Report to Shareholders 18 Section 9.11 Security for Indemnification Obligations 18 Section 9.12 No Duplication of Payments 18 Section 9.13 Subrogation 18 Section 9.14 Contract Rights 19 Section 9.15 Specific Performance 19 Section 9.16 Non-exclusivity, Etc. 19 Section 9.17 Amendments 19 Section 9.18 Severability 19 ARTICLE TEN - MISCELLANEOUS Section 10.1 Inspection of Books and Records 20 Section 10.2 Fiscal Year 20 Section 10.3 Corporate Seal 20 Section 10.4 Annual Financial Statements 20 Section 10.5 Conflict with Articles of Incorporation 20 ARTICLE ELEVEN - AMENDMENTS Section 11.1 Power to Amend Bylaws 20 ARTICLE TWELVE - RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS Section 12.1 Business Combinations 21
-iii- 5 ARTICLE ONE Offices and Agent Section 1.1. Registered Office and Agent. The corporation shall maintain a registered office in the State of Georgia and shall have a registered agent whose business office is identical to the registered office. Section 1.2. Other Offices. In addition to its registered office, the corporation may have offices at any other place or places, within or without the State of Georgia, as the Board of Directors may from time to time select or as the business of the corporation may require or make desirable. ARTICLE TWO Shareholders' Meetings Section 2.1. Place of Meetings. Meetings of shareholders may be held at any place within or without the State of Georgia as set forth in the notice thereof or in the event of a meeting held pursuant to waiver of notice, as set forth in the waiver, or if no place is so specified, at the principal office of the corporation. Section 2.2. Annual Meetings. The annual meeting of shareholders shall be held during the month of April or May on a date determined by the Board of Directors, for the purpose of electing directors and transacting any and all business that may properly come before the meeting. If the annual meeting of shareholders is not held on the day designated as provided in this Section 2.2, any business, including the election of directors, that might properly have been acted upon at that meeting may be acted upon at a special meeting in lieu of the annual meeting held pursuant to these bylaws or held pursuant to a court order. Section 2.3. Special Meetings. Special meetings of shareholders or a special meeting in lieu of the annual meeting of shareholders may be called at any time by the Board of Directors, the Chairman, or the President. The shareholders of the Corporation shall not have the right to call a special meeting of shareholders, including but not limited to, a special meeting in lieu of the annual meeting of shareholders. Section 2.4. Notice of Meetings. Unless waived as contemplated in Section 5.2, a notice of each meeting of shareholders stating the date, time and place of the meeting shall be given not less than ten (10) days nor more than sixty (60) days before the date thereof, by or at the direction of the President, the Secretary, or the officer or persons calling the meeting, to each shareholder entitled to vote at that meeting. In the case of an annual meeting, the notice need not state the purpose or purposes of the 6 meeting unless the articles of incorporation or the Georgia Business Corporation Code (the "Code") requires the purpose or purposes to be stated in the notice of the meeting. In the case of a special meeting, including a special meeting in lieu of an annual meeting, the notice of meeting shall state the purpose or purposes for which the meeting is called. Section 2.5 Voting Group. Voting group means all shares of one or more classes or series that are entitled to vote and be counted together collectively on a matter at a meeting of shareholders. All shares entitled to vote generally on the matter are for that purpose a single voting group. Section 2.6 Quorum. With respect to shares entitled to vote as a separate voting group on a matter at a meeting of shareholders, the presence, in person or by proxy, of a majority of the votes entitled to be cast on the matter by the voting group shall constitute a quorum of that voting group for action on that matter unless the articles of incorporation or the Code provides otherwise. Once a share is represented for any purpose at a meeting, other than solely to object to holding the meeting or to transacting business at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of the meeting unless a new record date is or must be set for the adjourned meeting pursuant to Section 8.7 of these bylaws. Section 2.7 Vote Required for Action. If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the articles of incorporation, provisions of these bylaws validly adopted by the shareholders, or the Code requires a greater number of affirmative votes. If the articles of incorporation or the Code provide for voting by two or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one voting group on a matter even though no action is taken by another voting group entitled to vote on the matter. With regard to the election of directors, unless otherwise provided in the articles of incorporation, if a quorum exists, action on the election of directors is taken by a plurality of the votes cast by the shares entitled to vote in the election. Section 2.8 Voting of Shares. Unless the articles of incorporation or the Code provides otherwise, each outstanding share having voting rights shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Voting on all matters shall be by voice vote or by show of hands unless any qualified voter, prior to the voting on any matter, demands vote by ballot, in which case each ballot shall state the name of the shareholder voting and the number of shares voted by him, and if the ballot be cast by proxy, it shall also state the name of the proxy. Section 2.9 Proxies. A shareholder entitled to vote pursuant to Section 2.8 may vote in person or by proxy pursuant to an appointment of proxy executed in writing by the shareholder or by his attorney in fact. An appointment of proxy shall be valid for only one meeting to be specified therein, and any adjournments of such meeting, -2- 7 but shall not be valid for more than eleven months unless expressly provided therein. Appointments of proxy shall be dated and filed with the records of the meeting to which they relate. If the validity of any appointment of proxy is questioned, it must be submitted to the secretary of the meeting of shareholders for examination or to a proxy officer or committee appointed by the person presiding at the meeting. The secretary of the meeting or, if appointed, the proxy officer or committee, shall determine the validity or invalidity of any appointment of proxy submitted and reference by the secretary in the minutes of the meeting to the regularity of an appointment of proxy shall be received as prima facie evidence of the facts stated for the purpose of establishing the presence of a quorum at the meeting and for all other purposes. Section 2.10 Presiding Officer. The Chairman shall serve as the chairman of every meeting of shareholders unless another person is elected by shareholders to serve as chairman at the meeting. The chairman shall appoint any persons he deems required to assist with the meeting. Section 2.11 Adjournments. Whether or not a quorum is present to organize a meeting, any meeting of shareholders (including an adjourned meeting) may be adjourned by the holders of a majority of the voting shares represented at the meeting to reconvene at a specific time and place, but no later than 120 days after the date fixed for the original meeting unless the requirements of the Code concerning the selection of a new record date have been met. At any reconvened meeting within that time period, any business may be transacted that could have been transacted at the meeting that was adjourned. If notice of the adjourned meeting was properly given, it shall not be necessary to give any notice of the reconvened meeting or of the business to be transacted, if the date, time and place of the reconvened meeting are announced at the meeting that was adjourned and before adjournment; provided, however, that if a new record date is or must be fixed, notice of the reconvened meeting must be given to persons who are shareholders as of the new record date. Section 2.12 Action of Shareholders Without a Meeting. Action required or permitted to be taken at a meeting of shareholders may be taken without a meeting if the action is taken by all shareholders entitled to vote on the action. The action must be evidenced by one or more written consents describing the action taken, signed by all shareholders and delivered to the corporation for inclusion in the minutes or filing with the corporate records. ARTICLE THREE The Board of Directors Section 3.1 General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon it by these bylaws, the Board of Directions may exercise all such -3- 8 lawful acts and things as are not by law, by the articles of incorporation or by these bylaws directed or required to be exercised or done by the shareholders. Section 3.2 Number of Directors and Term of Office. The number of directors of the corporation shall not be less than three (3) nor more than eleven (11), the precise number to be fixed by resolution of the Board of Directors from time to time. The directors shall be divided into three classes, each consisting, as nearly equal in number as possible, of one-third of the total number of directors constituting the entire Board of Directors. At the first election of directors occurring following the date of approval of amended and restated articles of incorporation of the corporation containing a provision comparable to this Section 3.2 by the shareholders of the corporation, the first class of directors (Class I) shall be elected for a term expiring upon the next following annual meeting of shareholders and upon the election and qualification of their respective successors, the second class of directors (Class II) shall be elected for a term expiring upon the second next annual meeting of shareholders and upon the election and qualification of their respective successors, and the third class of directors (Class III) shall be elected for a term expiring upon the third next annual meeting of shareholders and upon the election and qualification of their respective successors. At each succeeding annual meeting of shareholders, successors to the class of directors whose term expires at the annual meeting of shareholders shall be elected for a three-year term. Except as provided in Section 3.4, a director shall be elected by the affirmative vote of a majority of the shares represented at the meeting of shareholders at which the director stands for election and entitled to elect such director. The number of directors may be increased or decreased from time to time as provided herein or by amendment to these bylaws and the articles of incorporation; provided, however, that the total number of directors at any time shall not be less than three (3); and provided further, that no decrease in the number of directors shall have the effect of shortening the term of an incumbent director. In the event that preferred stock of the corporation is issued and authorizes the election of one or more directors by the holders of such preferred stock, the number of directors may be increased in accordance with the terms of the preferred stock. In the event of any increase or decrease in the authorized number of directors, each director then serving shall continue as a director of the class of which he is a member until the expiration of his current term, or his earlier resignation, removal from office or death, and the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to maintain such classes as nearly equal as possible; provided, however, that there shall be no classification of additional directors elected by the Board until the next meeting of the shareholders called for the purpose of electing directors. Each director shall serve until his successor is elected and qualified or until his earlier resignation, retirement, disqualification, removal from office, or death. Section 3.3 Removal. The entire Board of Directors or any individual director may be removed from the office but only for cause and only by the affirmative -4- 9 vote of at least 75% of all classes of stock of the corporation entitled to vote in the election of such director or directors, considered for purposes of this Section as one class. Notwithstanding the foregoing, in the event that preferred stock of the corporation is issued and authorizes the election of one or more directors by the holders of such preferred stock, any individual director elected by the preferred shareholders may be removed only by the holders of the outstanding shares of the preferred stock in accordance with the terms of the preferred stock as provided therein. Removal action may be taken at any shareholders' meeting with respect to which notice of such purpose has been given, and a removed director's successor may be elected at the same meeting to serve the unexpired term. Section 3.4 Vacancies. A vacancy occurring on the Board of Directors, other than by reason of removal of a director by the shareholders but including vacancies arising from resignation, death or through an increase in the number of directors, may be filled, until the next election of directors by the shareholders, by the affirmative vote of at least two thirds (2/3) of the total number of directors then remaining in office, though they constitute less than a quorum of the Board of Directors. Section 3.5 Compensation. Unless the articles of incorporation provide otherwise, the Board of Directors may determine from time to time the compensation, if any, directors may receive for their services as directors. A director may also serve the corporation in a capacity other than that of director and receive compensation, as determined by the Board of Directors, for services rendered in any other capacity. ARTICLE FOUR Meetings of the Board of Directors Section 4.1 Regular Meetings. Regular meetings of the Board of Directors shall be held immediately after the annual meeting of shareholders or a special meeting in lieu of the annual meeting. In addition, the Board of Directors may schedule other meetings to occur at regular intervals throughout the year. Section 4.2 Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman, the President or by any two directors in office at that time. Section 4.3 Place of Meetings. Directors may hold their meetings at any place within or without the State of Georgia as the Board of Directors may from time to time establish for regular meetings or as set forth in the notice of special meetings or, in the event of a meeting held pursuant to waiver of notice, as set forth in the waiver. Section 4.4 Notice of Meetings. No notice shall be required for any regularly scheduled meeting of the directors. Unless waived as contemplated in Section -5- 10 5.2, each director shall be given at least one day's notice (as set forth in Section 5.1) of each special meeting stating the date, time, and place of the meeting. Section 4.5 Quorum. Unless a greater number is required by the articles of incorporation, these bylaws, or the Code, a quorum of the Board of Directors consists of a majority of the total number of directors that has been prescribed by resolution of shareholders or of the Board of Directors pursuant to Section 3.2. Section 4.6 Vote Required for Action. (a) If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board of Directors unless the Code, the articles of incorporation, or these bylaws require the vote of a greater number of directors. (b) A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless: (1) He objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting business at the meeting; (2) His dissent or abstention from the action taken is entered in the minutes of the meeting; or (3) He delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. Section 4.7 Participation by Conference Telephone. Any or all directors may participate in a meeting of the Board of Directors or of a committee of the Board of Directors through the use of any means of communication by which all directors participating may simultaneously hear each other during the meeting. Section 4.8 Action by Directors Without a Meeting. Unless the articles of incorporation or these bylaws provide otherwise, any action required or permitted to be taken at any meeting of the Board of Directors or any action that may be taken at a meeting of a committee of Board of Directors may be taken without a meeting if the action is taken by all the members of the Board of Directors (or of the committee as the case may be). The action must be evidenced by one or more written consents describing the action taken, signed by each director (or each director serving on the committee, as the case may be), and delivered to the corporation for inclusion in the minutes or filing with the corporate records. Section 4.9 Adjournments. Whether or not a quorum is present to organize a meeting, any meeting of directors (including an adjourned meeting) may be -6- 11 adjourned by a majority of the directors present, to reconvene at a specific time and place. At any reconvened meeting any business may be transacted that could have been transacted at the meeting that was adjourned. If notice of the adjourned meeting was properly given, it shall not be necessary to give any notice of the reconvened meeting or of the business to be transacted, if the date, time and place of the reconvened meeting are announced at the meeting that was adjourned. Section 4.10 Committees of the Board of Directors. The Board of Directors by resolution may designate from among its members an executive committee and one or more other committees, each consisting of one or more directors all of whom serve at the pleasure of the Board of Directors. Except as limited by the Code, each committee shall have the authority set forth in the resolution establishing the committee. The provisions of this Article Four as to the Board of Directors and its deliberations shall be applicable to any committee of the Board of Directors. ARTICLE FIVE Manner of Notice and Waiver as to Shareholders and Directors Section 5.1 Procedure. Whenever these bylaws require notice to be given to any shareholder or director, the notice shall be given in accordance with this Section 5.1. Notice under these bylaws shall be in writing unless oral notice is reasonable under the circumstances. Any notice to directors may be written or oral. Notice may be communicated in person; by telephone, telegraph, teletype, or other form of wire or wireless communication; or by mail or private carrier. If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published, or by radio, television, or other form of public broadcast communication. Written notice to the shareholders, if in a comprehensible form, is effective when mailed, if mailed with first-class postage prepaid and correctly addressed to the shareholder's address shown in the corporation's current record of shareholders. Except as provided above, written notice, if in a comprehensible form, is effective at the earliest of the following: (1) When received or when delivered, properly addressed, to the addressee's last known principal place of business or residence; (2) Five days after its deposit in the mail, as evidenced by the postmark, if mailed with first-class postage prepaid and correctly addressed; or (3) On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee. Oral notice is effective when communicated if communicated in a comprehensible manner. -7- 12 In calculating time periods for notice, when a period of time measured in days, weeks, months, years, or other measurement of time is prescribed for the exercise of any privilege or the discharge of any duty, the first day shall not be counted but the last day shall be counted. Section 5.2 Waiver. (a) A shareholder may waive any notice before or after the date and time stated in the notice. Except as provided below in (b), the waiver must be in writing, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records. (b) A shareholder's attendance at a meeting (i) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and (ii) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. (c) Unless required by the Code, neither the business transacted nor the purpose of the meeting need be specified in the waiver. (d) A director may waive any notice before or after the date and time stated in the notice. Except as provided below in (e), the waiver must be in writing, signed by the director entitled to the notice, and delivered to the corporation for inclusion in the minutes or filing with the corporate records. (e) A director's attendance at or participation in a meeting waives any required notice to him of the meeting unless the director at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. ARTICLE SIX Officers Section 6.1 Number. The officers of the corporation shall consist of a Chairman, a President, a Secretary and a Treasurer and any other officers as may be appointed by the Board of Directors or appointed by a duly appointed officer pursuant to this Article Six. The Board of Directors shall from time to time create and establish the duties of the other officers. Any two or more offices may be held by the same person. Section 6.2 Election and Term. All officers shall be appointed by the Board of Directors or by a duly appointed officer pursuant to this Article Six and shall -8- 13 serve at the pleasure of the Board of Directors or the appointing officers as the case may be. All officers, however appointed, may be removed with or without cause by the Board of Directors and any officer appointed by another officer may also be removed by the appointing officer with or without cause. Section 6.3 Compensation. The compensation of all officers of the corporation appointed by the Board of Directors shall be fixed by the Board of Directors. Section 6.4 Chairman; Vice Chairman. The Chairman shall preside at all meetings of the Board of Directors. The Chairman shall perform such other duties and have such other authority and powers as the Board of Directors may from time to time prescribe. If the Board of Directors shall designate one or more of its members as a Vice Chairman, in the absence or disability of the Chairman, or at the direction of the Chairman, the Vice Chairman shall perform the duties and exercise the powers of the Chairman. Section 6.5 Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of the corporation and shall have general supervision of the business of the corporation. He shall see that all orders and resolutions of the Board of Directors are carried into effect. the Chief Executive Officer shall perform such other duties as may from time to time be delegated to him by the Board of Directors. Section 6.6 President. The President shall be the chief operating officer of the corporation and shall have general supervision of the day-to-day operations of the corporation. The President shall perform such other duties as may from time to time be delegated to him by the Board of Directors or the Chief Executive Officer. Section 6.7 Vice Presidents. In the absence or disability of the President, or at the direction of the President, the Vice President, if any, shall perform the duties and exercise the powers of the President. If the corporation has more than one Vice President the one designated by the Board of Directors shall act in lieu of the President. Vice Presidents shall perform whatever duties and have whatever powers the Board of Directors may from time to time assign. Section 6.8 Secretary. The Secretary shall be responsible for preparing minutes of the acts and proceedings of all meetings of shareholders and of the Board of Directors and any committees thereof. He shall have authority to give all notices required by law or these bylaws. He shall be responsible for the custody of the corporate books, records, contracts and other documents. The Secretary may affix the corporate seal to any lawfully executed documents and shall sign any instruments as may require his signature. The Secretary shall authenticate records of the corporation. The Secretary shall perform whatever additional duties and have whatever additional powers the Board of Directors may from time to time assign him. In the absence or disability of the Secretary or at the direction of the President, any assistant secretary may perform the duties and exercise the powers of the Secretary. -9- 14 Section 6.9 Treasurer. The Treasurer shall be responsible for the custody of all funds and securities belonging to the corporation and for the receipt, deposit or disbursement of funds and securities under the direction of the Board of Directors. The Treasurer shall cause to be maintained full and true accounts of all receipts and disbursements and shall make reports of the same to the Board of Directors and the President upon request. The Treasurer shall perform all duties as may be assigned to him from time to time by the Board of Directors. Section 6.10 Bonds. The Board of Directors by resolution may require any or all of the officers, agents or employees of the corporation to give bonds to the corporation, with sufficient surety or sureties, conditioned on the faithful performance of the duties of their respective offices or positions, and to comply with any other conditions as from time to time may be required by the Board of Directors. ARTICLE SEVEN Distributions and Share Dividends Section 7.1 Authorization or Declaration. Unless the articles of incorporation provide otherwise, the Board of Directors from time to time in its discretion may authorize or declare distributions or share dividends in accordance with the Code. Section 7.2 Record Date With Regard to Distributions and Share Dividends. For the purpose of determining shareholders entitled to a distribution (other than one involving a purchase, redemption, or other reacquisition of the corporation's shares) or a share dividend the Board of Directors may fix a date as the record date. If no record date is fixed by the Board of Directors, the record date shall be determined in accordance with the provisions of the Code. ARTICLE EIGHT Shares Section 8.1 Authorization and Issuance of Shares. In accordance with the Code, the Board of Directors may authorize shares of any class or series provided for in the articles of incorporation to be issued for any consideration valid under the provisions of the Code. To the extent provided in the articles of incorporation, the Board of Directors shall determine the preferences, limitations, and relative rights of the shares. Section 8.2 Share Certificates. The interest of each shareholder in the corporation shall be evidenced by a certificate or certificates representing shares of the corporation which shall be in such form as the Board of Directors from time to time may adopt. Share certificates shall be numbered consecutively, shall be in registered form, shall indicate the date of issuance, the name of the corporation and that it is organized under the laws of the State of Georgia, the name of the shareholder, and the number and class of -10- 15 shares and the designation of the series, if any, represented by the certificate. Each certificate shall be signed by any one of the President, a Vice President, the Secretary, or the Treasurer. The corporate seal need not be affixed. Section 8.3 Rights of Corporation with Respect to Registered Owners. Prior to due presentation for transfer of registration of its shares, the corporation may treat the registered owner of the shares as the person exclusively entitled to vote the shares, to receive any share dividend or distribution with respect to the shares, and for all other purposes; and the corporation shall not be bound to recognize any equitable or other claim to or interest in the shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 8.4 Transfers of Shares. Transfers of shares shall be made upon the transfer books of the corporation, kept at the office of the transfer agent designated to transfer the shares, only upon direction of the person named in the certificate, or by an attorney lawfully constituted in writing; and before a new certificate is issued, the old certificate shall be surrendered for cancellation or, in the case of a certificate alleged to have been lost, stolen, or destroyed, the requirements of Section 8.6 of these bylaws shall have been met. Section 8.5 Duty of Corporation to Register Transfer. Notwithstanding any of the provisions of Section 8.4 of these bylaws, the corporation is under a duty to register the transfer of its shares only if: (a) the certificate is endorsed by the appropriate person or persons; and (b) reasonable assurance is given that the endorsement or affidavit is genuine and effective; and (c) the corporation either has no duty to inquire into adverse claims or has discharged that duty; and (d) the requirements of any applicable law relating to the collection of taxes have been met; and (e) the transfer in fact is rightful or is to a bona fide purchaser. Section 8.6 Lost, Stolen or Destroyed Certificates. Any person claiming a share certificate to be lost, stolen or destroyed shall make an affidavit or affirmation of the fact in the manner required by the Board of Directors and, if the Board of Directors requires, shall give the corporation a bond of indemnity in form and amount, and with one or more sureties satisfactory to the Board of Directors, as the Board of Directors may require, whereupon an appropriate new certificate may be issued in lieu of the one alleged to have been lost, stolen or destroyed. -11- 16 Section 8.7 Fixing of Record Date with regard to Shareholder Action. For the purpose of determining shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action, the Board of Directors may fix a future date as the record date, which date shall be not more than seventy (70) days prior to the date on which the particular action, requiring a determination of shareholders, is to be taken. A determination of shareholders entitled to notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. If no record date is fixed by the Board of Directors, the record date shall be determined in accordance with the provisions of the Code. ARTICLE NINE Indemnification Section 9.1 Certain Definitions. As used in this Article, the term: (a) "Corporation" includes any domestic or foreign predecessor entity of this corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction. (b) "Director" means an individual who is or was a director of the corporation or an individual who, while a director of the corporation, is or was serving at the corporation's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A director is considered to be serving an employee benefit plan at the corporation's request if his duties to the corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. "Director" includes, unless the context requires otherwise, the estate or personal representative of a director. (c) "Expenses" includes attorneys' fees. (d) "Liability" means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding. (e) "Officer" means an individual who is or was an officer of the corporation or an individual who, while an officer of the -12- 17 corporation, is or was serving at the corporation's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. An officer is considered to be serving an employee benefit plan at the corporation's request if his duties to the corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. "Officer" includes, unless the context requires otherwise, the estate or personal representative of an officer. (f) "Party" includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding. (g) "Proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal. (h) "Reviewing Party" shall mean the person or persons making the entitlement determination pursuant to Section 9.4 of this Article, and shall not include a court making any determination under this Article or otherwise. Section 9.2 Basic Indemnification Arrangement. (a) Except as provided in Section 9.7 and subsections 9.2(d) and 9.2(e) below, the corporation shall indemnify an individual who is made a party to a proceeding because he is or was a director or officer against liability incurred by him in the proceeding if he acted in a manner he believed in good faith to be in or not opposed to the best interests of the corporation and, in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. (b) A person's conduct with respect to an employee benefit plan for a purpose he believed in good faith to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subsection 9.2(a). (c) The termination of a proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, be determinative that the proposed indemnitee did not meet the standard of conduct set forth in subsection 9.2(a). -13- 18 (d) The corporation shall not indemnify a person under this Article in connection with (i) a proceeding by or in the right of the corporation in which such person was adjudged liable to the corporation, unless, and then only to the extent that, the Reviewing Party, or a court of competent jurisdiction acting pursuant to Section 9.5 of this Article or Section 14-2-854 of the Georgia Business Corporation Code, determines that, in view of the circumstances of the case, the indemnitee is fairly and reasonably entitled to indemnification, or (ii) any proceeding in which such person was adjudged liable on the basis that he improperly received a personal benefit, unless, and then only to the extent that, a court of competent jurisdiction acting pursuant to Section 9.5 of this Article or Section 14-2-854 of the Georgia Business Corporation Code determines that, in view of the circumstances of the case, such person is fairly and reasonably entitled to indemnification. (e) Indemnification permitted under this Article in connection with a proceeding by or in the right of the corporation shall include reasonable expenses, penalties, fines (including an excise tax assessed with respect to an employee benefit plan) and amounts paid in settlement in connection with the proceeding, but, unless ordered by a court, shall not include judgments. Section 9.3 Advances for Expenses. (a) The corporation shall pay for or reimburse the reasonable expenses incurred by a director or officer as a party to a proceeding in advance of final disposition of the proceeding if: (i) Such person furnishes the corporation a written affirmation of his good faith belief that he has met the standard of conduct set forth in subsection 9.2(a) above and that his conduct does not constitute behavior of the kind described in subsections 9.7 (i)-(iv) below; and (ii) Such person furnishes the corporation a written undertaking (meeting the qualifications set forth below in subsection 9.3(b)), executed personally or on his behalf, to repay any advances if it is ultimately determined that he is not entitled to indemnification under this Article or otherwise. (b) The undertaking required by subsection 9.3(a)(ii) above must be an unlimited general obligation of the proposed indemnitee but need -14- 19 not be secured and shall be accepted without reference to financial ability to make repayment. Section 9.4 Authorization of and Determination of Entitlement to Indemnification. (a) The corporation acknowledges that indemnification of a director or officer under Section 9.2 has been pre-authorized by the corporation in the manner described in subsection 9.4(b) below. Nevertheless, except as set forth in subsection 9.4(d) below, the corporation shall not indemnify a director or officer under Section 9.2 unless a separate determination has been made in the specific case that indemnification of such person is permissible in the circumstances because he has met the standard of conduct set forth in subsection 9.2(a); provided, however, that regardless of the result or absence of any such determination, and unless limited by the articles of incorporation of this corporation, to the extent that a director or officer has been successful, on the merits or otherwise, in the defense of any proceeding to which he was a party, or in defense of any claim, issue or matter therein, because he is or was a director or officer, the corporation shall indemnify such person against reasonable expenses incurred by him in connection therewith. (b) The determination referred to in subsection 9.4(a) above shall be made, at the election of the board of directors: (i) by the board of directors of the corporation by majority vote of a quorum consisting of directors not at the time parties to the proceeding; (ii) if a quorum cannot be obtained under subdivision (i), by majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding; (iii) by special legal counsel: (1) selected by the board of directors or its committee in the manner prescribed in subdivision (i) or (ii); or (2) if a quorum of the board of directors cannot be obtained under subdivision (i) and a committee cannot be designated under subdivision (ii), selected by a majority vote of the full board of directors (in -15- 20 which selection directors who are parties may participate); or (iv) by the shareholders; provided that shares owned by or voted under the control of directors or officers who are at the time parties to the proceeding may not be voted on the determination. (c) As acknowledged above, the corporation has pre-authorized the indemnification of directors and officers hereunder, subject to a case-by-case determination that the proposed indemnitee met the applicable standard of conduct under subsection 9.2(a). Consequently, no further decision need or shall be made on a case-by-case basis as to the authorization of the corporation's indemnification of directors and officers hereunder. Nevertheless, except as set forth in subsection 9.4(d) below, evaluation as to reasonableness of expenses of a director or officer in the specific case shall be made in the same manner as the determination that indemnification is permissible, as described in subsection 9.4(b) above, except that if the determination is made by special legal counsel, evaluation as to reasonableness of expenses shall be made by those entitled under subsection 9.4(b)(iii) to select counsel. (d) Notwithstanding the requirement under subsection 9.4(a) that the Reviewing Party make a determination as to the proposed indemnitee's entitlement to indemnification, the proposed indemnitee shall be deemed to have met the standard of conduct set forth in subsection 9.2(a) if the Reviewing Party fails to make such a determination within thirty (30) days following the proposed indemnitee's written request for indemnification. Likewise, notwithstanding the requirement under subsection 9.4(c) that the Reviewing Party evaluate the reasonableness of expenses claimed by the proposed indemnitee, any expenses claimed by the proposed indemnitee shall be deemed reasonable if the Reviewing Party fails to make the evaluation required by subsection 9.4(c) within thirty (30) days following the proposed indemnitee's written request for indemnification for, or advancement of, expenses. Section 9.5 Court-Ordered Indemnification and Advances for Expenses. Unless this corporation's articles of incorporation provide otherwise, a director or officer who is a party to a proceeding may apply for indemnification or advances for expenses to the court conducting the proceeding or to another court of competent jurisdiction. For purposes of this Article, the corporation hereby consents to personal jurisdiction and venue in any court in which is pending a proceeding to which a director or officer is a party. Regardless of any determination by the Reviewing Party that the proposed indemnitee is -16- 21 not entitled to indemnification or advancement of expenses or as to the reasonableness of expenses, and regardless of any failure by the Reviewing Party to make a determination as to such entitlement or the reasonableness of expenses, such court's review shall be a de novo review, and its determination shall be binding, on the questions of whether: (i) The applicant is entitled to mandatory indemnification under the final clause of subsection 9.4(a) above (in which case the corporation shall pay the indemnitee's reasonable expenses incurred to obtain court-ordered indemnification); (ii) The applicant is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not he met the standard of conduct set forth in subsection 9.2(a) above or was adjudged liable as described in subsection 9.2(d) above (in which case any court-ordered indemnification need not be limited to reasonable expenses incurred by the indemnitee but may include expenses, penalties, fines, judgments, amounts paid in settlement and any other amounts ordered by the court to be indemnified, and, whether or not so ordered, the corporation shall pay the applicant's reasonable expenses incurred to obtain court-ordered indemnification); or (iii) In the case of advances for expenses, the applicant is entitled pursuant to the articles of incorporation, bylaws or applicable resolution or agreement to payment for or reimbursement of his reasonable expenses incurred as a party to a proceeding in advance of final disposition of the proceeding (in which case the corporation shall pay the applicant's reasonable expenses incurred to obtain court-ordered advancement of expenses). Section 9.6 Indemnification of Employees and Agents. Unless this corporation's articles of incorporation provide otherwise, the corporation may indemnify and advance expenses under this Article to an employee or agent of the corporation who is not a director or officer to the same extent as to a director or officer, or to any lesser extent (or greater extent if permitted by law) determined by the board of directors. Section 9.7 Limitations on Indemnification. Regardless of whether a proposed indemnitee has met the applicable standard of conduct set forth in subsection 9.2(a), the corporation shall not indemnify a person under this Article for any liability incurred in a proceeding in which the person is adjudged liable to the corporation or is subjected to injunctive relief in favor of the corporation: (i) for any appropriation, in violation of his duties, of any business opportunity of the corporation; -17- 22 (ii) for acts or omissions which involve intentional misconduct or a knowing violation of law; (iii) for the types of liability set forth in Section 14-2-832 of the Georgia Business Corporation Code; or (iv) for any transaction from which he received an improper personal benefit. Section 9.8 Liability Insurance. The corporation may purchase and maintain insurance on behalf of a director or officer or an individual who is or was an employee or agent of the corporation or who, while an employee or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise against liability asserted against or incurred by him in that capacity or arising from his status as a director, officer, employee, or agent, whether or not the corporation would have power to indemnify him against the same liability under Section 9.2, Section 9.3 or Section 9.4 above. Section 9.9 Witness Fees. Nothing in this Article shall limit the corporation's power to pay or reimburse expenses incurred by a person in connection with his appearance as a witness in a proceeding at a time when he has not been made a named defendant or respondent in the proceeding. Section 9.10 Report to Shareholders. If the corporation indemnifies or advances expenses to a director in connection with a proceeding by or in the right of the corporation, the corporation shall report the indemnification or advance, in writing, to the shareholders with or before the notice of the next shareholders' meeting. Section 9.11 Security for Indemnification Obligations. The corporation may at any time and in any manner, at the discretion of the board of directors, secure the corporation's obligations to indemnify or advance expenses to a person pursuant to this Article. Section 9.12 No Duplication of Payments. The corporation shall not be liable under this Article to make any payment to a person hereunder to the extent such person has otherwise actually received payment (under any insurance policy, agreement or otherwise) of the amounts otherwise payable hereunder. Section 9.13 Subrogation. In the event of payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights. -18- 23 Section 9.14 Contract Rights. The right to indemnification and advancement of expenses conferred hereunder to directors and officers shall be a contract right and shall not be affected adversely to any director or officer by any amendment of these bylaws with respect to any action or inaction occurring prior to such amendment; provided, however, that this provision shall not confer upon any indemnitee or potential indemnitee (in his capacity as such) the right to consent or object to any subsequent amendment of these bylaws. Section 9.15 Specific Performance. In any proceeding brought by or on behalf of an officer or director to specifically enforce the provisions of this Article, the corporation hereby waives the claim or defense therein that the plaintiff or claimant has an adequate remedy at law, and the corporation shall not urge in any such proceeding the claim or defense that such remedy at law exists. The provisions of this Section 9.15, however, shall not prevent the officer or director from seeking a remedy at law in connection with any breach of the provisions of this Article. Section 9.16 Non-exclusivity, Etc. The rights of a director or officer hereunder shall be in addition to any other rights with respect to indemnification, advancement of expenses or otherwise that he may have under contract or the Georgia Business Corporation Code or otherwise. Section 9.17 Amendments. It is the intent of the Corporation to indemnify and advance expenses to its directors and officers to the full extent permitted by the Georgia Business Corporation Code, as amended from time to time. To the extent that the Georgia Business Corporation Code is hereafter amended to permit a Georgia business corporation to provide to its directors greater rights to indemnification or advancement of expenses than those specifically set forth hereinabove, this Article shall be deemed amended to require such greater indemnification or more liberal advancement of expenses to its directors and officers, in each case consistent with the Georgia Business Corporation Code as so amended from time to time. No amendment, modification or rescission of this Article, or any provision hereof, the effect of which would diminish the rights to indemnification or advancement of expenses as set forth herein shall be effective as to any person with respect to any action taken or omitted by such person prior to such amendment, modification or rescission. Section 9.18 Severability. To the extent that the provisions of this Article are held to be inconsistent with the provisions of Part 5 of Article 8 of the Georgia Business Corporation Code, such provisions of such Code shall govern. In the event that any of the provisions of this Article (including any provision within a single section, subsection, division or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions of this Article shall remain enforceable to the fullest extent permitted bylaw. -19- 24 ARTICLE TEN Miscellaneous Section 10.1 Inspection of Books and Records. The Board of Directors shall have power to determine which accounts, books and records of the corporation shall be opened to the inspection of shareholders, except those as may by law specifically be made open to inspection, and shall have power to fix reasonable rules and regulations not in conflict with the applicable law for the inspection of accounts, books and records which by law or by determination of the Board of Directors shall be open to inspection. Without the prior approval of the Board of Directors in their discretion, the right of inspection set forth in Section 14-2-1602(c) of the Code shall not be available to any shareholder owning two (2%) percent or less of the shares outstanding. Section 10.2 Fiscal Year. The Board of Directors is authorized to fix the fiscal year of the corporation and to change the same from time to time as it deems appropriate. Section 10.3 Corporate Seal. If the Board of Directors determines that there should be a corporate seal for the corporation, it shall be in the form as the Board of Directors may from time to time determine. Section 10.4 Annual Financial Statements. In accordance with the Code, the corporation shall prepare and provide to shareholders such financial statements as may be required by the Code. Section 10.5 Conflict with Articles of Incorporation. In the event that any provision of these bylaws conflicts with any provision of the articles of incorporation, the articles of incorporation shall govern. ARTICLE ELEVEN Amendments Section 11.1 Power to Amend Bylaws. The Board of Directors shall have power to alter, amend or repeal these bylaws or adopt new bylaws, but any bylaws adopted by the Board of Directors may be altered, amended or repealed, and new bylaws adopted, by the shareholders. The shareholders may prescribe by so expressing in the action they take in adopting or amending any bylaw or bylaws that the bylaw or bylaws so adopted or amended shall not be altered, amended or repealed by the Board of Directors. Notwithstanding the foregoing, the provisions of Sections 2.3, 2.12, 3.2, 3.3, 3.4, Article Nine, this Article Eleven or Article Twelve of these bylaws may be amended only by the procedure provided in the Code for the amendment of articles of incorporation. -20- 25 ARTICLE TWELVE Restrictions on Certain Business Combinations with Interested Shareholders Section 12.1 Business Combinations. All of the requirements of Article 11, Part 3, of the Code, included in Sections 14-2-1131 through 1133 (and any successor provisions thereto), shall be applicable to the corporation in connection with any business combination, as defined therein, with any interested shareholder, as defined therein. -21- EX-4.B 4 SPECIMEN STOCK CERTIFICATE 1 EXHIBIT 4(b) [BUGABOO CREEK [LONGHORN [THE CAPITAL STEAK HOUSE LOGO] STEAKS LOGO] GRILLE LOGO] NUMBER SHARES COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP [__________] LONGHORN STEAKS, INC. (CERTIFICATE IS STAMPED "NAME CHANGED TO RARE HOSPITALITY INTERNATIONAL, INC.") INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA THIS IS TO CERTIFY THAT IS THE REGISTERED HOLDER OF FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF LONGHORN STEAKS, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ Anne D. Huemme [LONGHORN STEAKS, /s/ Richard E. Rivera Chief Financial Officer INC. CORPORATE SEAL] President and Chief Executive Officer 2 LONGHORN STEAKS, INC. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT_______ Custodian _______ TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right under Uniform Gifts to Minors minor survivorship and not as Act ___________________ tenants in common (State) Additional abbreviations may also be used though not in the above list. For value received, _________________________________ hereby sell, assign and transfer unto __________________________ Please insert social security or other identifying number of assignee /___________________/ - -------------------------------------------------------------------------------- Please print or typewrite name and address including postal zip code of assignee ______________________________________________________ shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint - -------------------------------------------------------------------------------- Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated _____________________ Notice: The signature of this assignment must correspond with the name as written upon the face of the certificate in every particular, without alteration or enlargement or any change whatever. Signature(s) Guaranteed: ---------------------------------------------------- The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE. LEGEND: Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement, dated as of November 4, 1997 (as such may be amended from time to time, the "Rights Agreement"), between RARE Hospitality International, Inc. (the "Company") and SunTrust Bank, -2- 3 Atlanta, as Rights Agent, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may become exercisable for securities or assets of the Company or of another entity, may be exchanged for shares of Common Stock or other securities or assets of the Company, may expire, may become void (if they are "Beneficially Owned" by an "Acquiring Person" or an Affiliate or Associate thereof, as such terms are defined in the Rights Agreement, or by any transferee of any of the foregoing) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Company will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge promptly after the receipt of a written request therefor. -3- EX-10.C 5 SECOND AMENDMENT TO LINE OF CREDIT AGREEMENT 1 EXHIBIT 10(c) SECOND AMENDMENT TO LINE OF CREDIT AGREEMENT THIS SECOND AMENDMENT TO LINE OF CREDIT AGREEMENT (this "Second Amendment") is made and entered into as of this 27th day of March, 1998 by and among RARE HOSPITALITY INTERNATIONAL, INC. (formerly known as Longhorn Steaks, Inc.), a corporation organized under the laws of Georgia (the "Borrower"), and FIRST UNION NATIONAL BANK (formerly known as First Union National Bank of Georgia), as Lenders (the "Lender"). Statement of Purpose The Lender agreed to extend certain Loans to the Borrower pursuant to the Line of Credit Agreement dated as of December 18, 1996 by and among the Borrower and the Lender, as amended by the First Amendment to Line of Credit Agreement dated as of November 6, 1997 (as so amended and as further amended or supplemented from time to time, the "Line of Credit Agreement"). The parties now desire to amend the Line of Credit Agreement in certain respects on the terms and conditions set forth below. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Effect of Amendment. Except as expressly amended hereby, the Line of Credit Agreement and Loan Documents shall be and remain in full force and effect. 2. Capitalized Terms. All capitalized undefined terms used in this Second Amendment shall have the meanings assigned thereto in the Line of Credit Agreement. 3. Modification of Line of Credit Agreement. The Line of Credit Agreement is hereby amended as follows: (a) The definition of "Revolving Credit Agreement" in Section 1.1 of the Line of Credit Agreement is hereby deleted in its entirety and the following definition shall be substituted in lieu thereof (such amendment to be effective as of the date hereof): " `Revolving Credit Agreement' means the credit agreement of even date herewith (as amended, restated, supplemented or otherwise modified from time to time), by and among Rare Hospitality International, Inc. (formerly known as Longhorn Steaks, Inc.) and certain Subsidiaries thereof listed on the signature pages thereto, as Borrowers, the lenders referred to therein, and First Union National Bank (formerly known as First Union National Bank of Georgia), as Agent for the lenders." 2 (b) The definition of "Termination Date" in Section 1.1 of the Line of Credit Agreement is hereby deleted in its entirely and the following definition shall be substituted in lieu thereof (such amendment to be effective as of December 1, 1997): " `Termination Date' means September 1, 1998." 4. Representations and Warranties/No Default. By its execution hereof, the Borrower hereby certifies that (giving effect to this Second Amendment): (i) each of the representations and warranties set forth in the Line of Credit Agreement and the other Loan Documents is true and correct in all material respects as of the date hereof as if fully set forth herein, except to the extent that such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date), and (ii) as of the date hereof no Default or Event of Default has occurred and is continuing. 5. Expenses. The Borrower shall pay all reasonable out-of-pocket expenses of the Lender in connection with the preparation, execution and delivery of this Second Amendment, including without limitation, the reasonable fees and disbursements of counsel for the Lender. 6. Governing Law. This Second Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina. 7. Counterparts. This Second Amendment may be executed in separate counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument. 8. Fax Transmission. A facsimile, telecopy or other reproduction of this Second Amendment may be executed by one or more parties hereto, and an executed copy of this Second Amendment may be delivered by one or more parties hereto by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute an original of this Second Amendment as well as any facsimile, telecopy or other reproduction hereof. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed as of the date and year first above written. [CORPORATE SEAL] RARE HOSPITALITY INTERNATIONAL, INC. By: /s/ W. Douglas Benn --------------------------------- Name: W. Douglas Benn ------------------------------- Title: CFO ------------------------------ -2- 3 FIRST UNION NATIONAL BANK, as Agent and Lender By: /s/ James R. Mortimer --------------------------------- Name: James R. Mortimer ------------------------------- Title: Senior Vice President ------------------------------ -3- EX-10.F 6 SECOND AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10(f) SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment") is made and entered into as of this 27th day of March, 1998 by and among RARE HOSPITALITY INTERNATIONAL, INC. (formerly known as Longhorn Steaks, Inc.), a corporation organized under the laws of Georgia ("RHI"), certain Subsidiaries of RHI listed on the signature pages hereto (the "Subsidiary Borrowers" and, together with RHI, the "Borrowers"), the Lenders who are or may become a party to the Credit Agreement referred to below, and FIRST UNION NATIONAL BANK (formerly known as First Union National Bank of Georgia), as Agent for the Lenders (the "Agent"), and FLEET NATIONAL BANK, as Co-Agent for the Lenders. Statement of Purpose The Lenders agreed to extend certain Loans to the Borrowers pursuant to the Credit Agreement dated as of December 18, 1996 by and among the Borrowers, the Lenders, the Agent and the Co-Agent, as amended by the First Amendment to Credit Agreement dated as of November 6, 1997 (as so amended and as further amended or supplemented from time to time, the "Credit Agreement"). The parties now desire to amend the Credit Agreement in certain respects on the terms and conditions set forth below. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Effect of Amendment. Except as expressly amended hereby, the Credit Agreement and Loan Documents shall be and remain in full force and effect. 2. Capitalized Terms. All capitalized undefined terms used in this Second Amendment shall have the meanings assigned thereto in the Credit Agreement. 3. Modification of Credit Agreement. The Credit Agreement is hereby amended as follows: (a) The following definition is hereby added to Section 1.1 of the Credit Agreement (in alphabetical order): " `RHI' means Rare Hospitality International, Inc. (formerly known as Longhorn Steaks, Inc.)." (b) Section 2.6 of the Credit Agreement is hereby deleted in its entirety and the following Section 2.6 shall be substituted in lieu thereof: 2 " Section 2.6. Termination of Credit Facility. The Credit Facility shall terminate on the earliest of (i) December 18, 1999, (ii) the date of permanent reduction of the Aggregate Commitment in whole pursuant to Section 2.5 and (iii) the date of termination by the Agent on behalf of the Lenders pursuant to Section 10.2(a); provided, that not earlier than the one hundred and twentieth (120th) day and not later than the ninetieth (90th) day prior to the then existing Termination Date (the "Extension Date"), RHI, on behalf of the Borrowers, may, by written notice (an "Extension Request") given to the Agent, request that the date set forth in clause (a) above be extended for one (1) year. The Agent shall promptly advise each Lender of its receipt of any Extension Request and furnish each Lender with a copy thereof. Each Lender may, in its sole discretion, consent to the requested extension by giving written notice thereof to the Agent not later than the Business Day (the "Extension Confirmation Date") immediately preceding the date which is thirty (30) days after receipt of the Extension Request. No Lender shall be under any obligation or commitment to extend such date and no such obligation or commitment on the part of any Lender shall be inferred from the provisions of this Section 2.6. Failure on the part of any Lender to respond to an Extension Request by the applicable Extension Confirmation Date shall be deemed to be a denial of such request by such Lender. The requested extension shall not be granted unless one hundred percent (100%) of the Lenders shall have consented in writing to such extension." (c) The grid set forth in Section 3.1(c)(ii) of the Credit Agreement is hereby deleted in its entirety and the following grid shall be substituted in lieu thereof:
" Applicable Margin Per Annum Leverage Ratio Base Rate + LIBOR Rate + -------------- ----------- ------------ greater than or equal to 3.25 0.00% 1.50% greater than or equal to 2.75 but less than 3.25 0.00% 1.25% greater than or equal to 2.25 but less than 2.75 0.00% 1.00% less than 2.25 0.00% 0.75%"
-2- 3 (d) Sections 8.1, 8.2, 8.3 and 8.4 of the Credit Agreement are hereby deleted in their entirety and the following Sections 8.1, 8.2, 8.3 and 8.4 shall be substituted in lieu thereof: " SECTION 8.1. Leverage Ratio. As of the end of any fiscal quarter, permit the ratio of (a) the sum of (i) the Consolidated Debt of RHI and its Subsidiaries as of such date plus (ii) the product of Rental Expense for the period of four (4) consecutive fiscal quarters ending on such date multiplied by eight (8) to (b) EBITDAR for the period of four (4) consecutive fiscal quarters ending on such date, to exceed (i) 3.50 to 1.00 for the fiscal quarters ending March 29, 1998, June 28, 1998 and September 27, 1998 and (ii) 3.25 to 1.00 for each fiscal quarter thereafter. SECTION 8.2. Minimum Net Worth. Permit, at any time, Net Worth to be less than (a) $110,000,000 plus (b) 50% of cumulative quarterly Consolidated Net Income of RHI and its Subsidiaries commencing on March 29, 1998 (without deduction for any quarterly losses) plus (c) 100% of the net proceeds received by RHI or any of its Subsidiaries of any equity issuance by RHI or any of its Subsidiaries subsequent to the Closing Date. SECTION 8.3. Fixed Charge Coverage Ratio. As of the end of any fiscal quarter, permit the ratio of (a) EBITR for the period of four (4) consecutive fiscal quarters ending on such date to (b) the sum of Interest Expense for such period plus Rental Expense for such period, to be less than (i) 1.70 to 1.00 for the fiscal quarters ending March 29, 1998, June 28, 1998 and September 27, 1998 and (ii) 2.00 to 1.00 for each fiscal quarter thereafter. SECTION 8.4. Capital Expenditures; Investments. Permit Capital Expenditures and investments in joint ventures permitted pursuant to Section 9.4(e) to be greater than $40,000,000 in the aggregate during any Fiscal Year; provided, that (a) investments in any single Non-Controlled Joint Venture shall not exceed $3,500,000, (b) investments in Non-Controlled Joint Ventures shall not exceed $20,000,000 in the aggregate on any date of determination and (c) in no event shall more than sixty percent (60%) of aggregate Capital Expenditures and investments permitted in any Fiscal Year be used for Capital Expenditures or investments with respect to restaurants in any one specific restaurant concept (e.g. Longhorn Steakhouse, Bugaboo Creek Steak House or The Capital Grille). For the purposes of this Section 8.4 "Non-Controlled Joint Venture" shall mean a joint venture in which (a) RHI and its Subsidiaries own less than fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such Person or (b) RHI and its Subsidiaries own fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such Person and are not otherwise in control of the management of such Person." -3- 4 4. Amendment Fee. The Borrowers hereby agree to pay to the Agent, to be distributed pro rata among the Lenders, an amendment fee equal to $50,000. 5. Representations and Warranties/No Default. By their execution hereof, the Borrowers hereby certify that (giving effect to this Second Amendment): (i) each of the representations and warranties set forth in the Credit Agreement and the other Loan Documents is true and correct in all material respects as of the date hereof as if fully set forth herein, except to the extent that such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date), and (ii) as of the date hereof no Default or Event of Default has occurred and is continuing. 6. Expenses. The Borrowers shall pay all reasonable out-of-pocket expenses of the Agent in connection with the preparation, execution and delivery of this Second Amendment, including without limitation, the reasonable fees and disbursements of counsel for the Agent. 7. Governing Law. This Second Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina. 8. Counterparts. This Second Amendment may be executed in separate counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument. 9. Fax Transmission. A facsimile, telecopy or other reproduction of this Second Amendment may be executed by one or more parties hereto, and an executed copy of this Second Amendment may be delivered by one or more parties hereto by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute an original of this Second Amendment as well as any facsimile, telecopy or other reproduction hereof. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed as of the date and year first above written. [CORPORATE SEAL] RARE HOSPITALITY INTERNATIONAL, INC. By: /s/ Philip J. Hickey, Jr. --------------------------------- Name: Philip J. Hickey, Jr. ------------------------------- Title: President & COO ------------------------------ -4- 5 [CORPORATE SEAL] BUGABOO CREEK STEAK HOUSE, INC. ATTEST: By: /s/ B. A. Waites By: /s/ Philip J. Hickey, Jr. -------------------------- ------------------------------- Name: Benjamin A. Waites Name: Philip J. Hickey, Jr. ------------------------ ------------------------------- Title: Asst. Corp. Secretary (RARE) Title: President & COO Asst. Corp. Secretary(Bugaboo) ------------------------------ ------------------------------- FIRST UNION NATIONAL BANK, as Agent and Lender By: /s/ Thomas Hackett --------------------------------- Name: Thomas Hackett ------------------------------- Title: AVP ------------------------------ FLEET NATIONAL BANK, as Lender By: /s/ O. Bennett --------------------------------- Name: Oliver Bennett ------------------------------- Title: VP ------------------------------ AMSOUTH BANK OF ALABAMA, as Lender By: /s/ Alan Lott --------------------------------- Name: Alan Lott ------------------------------- Title: Vice President ------------------------------ -5- EX-10.I 7 RHI,INC. 1997 LONG-TERM INCENTIVE PLAN 1 EXHIBIT 10(i) RARE HOSPITALITY INTERNATIONAL, INC. 1997 LONG-TERM INCENTIVE PLAN ARTICLE I PURPOSE 1.1. GENERAL. The purpose of the RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan (the "Plan") is to promote the success, and enhance the value, of RARE Hospitality International, Inc. (the "Corporation"), by linking the personal interests of its employees, officers, directors, consultants and advisors to those of Corporation shareholders and by providing its employees, officers, directors, consultants and advisors with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Corporation in its ability to motivate, attract, and retain the services of employees, officers, directors, consultants and advisors upon whose judgment, interest, and special effort the successful conduct of the Corporation's operation is largely dependent. Accordingly, the Plan permits the grant of incentive awards from time to time to selected employees, officers, directors, consultants and advisors. ARTICLE 2 EFFECTIVE DATE 2.1. EFFECTIVE DATE. The Plan shall be effective as of the date upon which it shall be approved by the Board. However, the Plan shall be submitted to the shareholders of the Corporation for approval within 12 months of the Board's approval thereof. No Incentive Stock Options granted under the Plan may be exercised prior to approval of the Plan by the shareholders and if the shareholders fail to approve the Plan within 12 months of the Board's approval thereof, any Incentive Stock Options previously granted hereunder shall be automatically converted to Non-Qualified Stock Options without any further act. In the discretion of the Committee, Awards may be made to Covered Employees which are intended to constitute qualified performance-based compensation under Code Section 162(m). Any such Awards shall be contingent upon the shareholders having approved the Plan. ARTICLE 3 DEFINITIONS 3.1. DEFINITIONS. When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be given the meaning ascribed to it in this Section or in Section 1.1 unless a clearly different meaning is required by the context. The following words and phrases shall have the following meanings: (a) "Award" means any Option, Stock Appreciation Right, Restricted Stock Award, Performance Share Award, Dividend Equivalent Award, or Other Stock-Based 2 Award, or any other right or interest relating to Stock or cash, granted to a Participant under the Plan. (b) "Award Agreement" means any written agreement, contract, or other instrument or document evidencing an Award. (c) "Board" means the Board of Directors of the Corporation. (d) "Change in Control" means and includes each of the following: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 25% or more of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who is on the Effective Date the beneficial owner of 25% or more of the Outstanding Corporation Voting Securities, (ii) any acquisition by the Corporation, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition; (2) Individuals who, as of the Effective Date, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (3) Consummation of a reorganization, merger, share exchange or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the -2- 3 corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Voting Securities, and (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (4) approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. (e) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (f) "Committee" means the committee of the Board described in Article 4. (g) "Corporation" means RARE Hospitality International, Inc., a Delaware corporation. (h) "Covered Employee" means a covered employee as defined in Code Section 162(m)(3). (i) "Disability" shall mean any illness or other physical or mental condition of a Participant that renders the Participant incapable of performing his customary and usual duties for the Corporation, or any medically determinable illness or other physical or mental condition resulting from a bodily injury, disease or mental disorder which, in the judgment of the Committee, is permanent and continuous in nature. The Committee may require such medical or other evidence as it deems necessary to judge the nature and permanency of the Participant's condition. (j) "Dividend Equivalent" means a right granted to a Participant under Article 11. (k) "Effective Date" has the meaning assigned such term in Section 2.1. (l) "Fair Market Value", on any date, means (i) if the Stock is listed on a securities exchange or is traded over the Nasdaq National Market, the closing sales price -3- 4 on such exchange or over such system on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (ii) if the Stock is not listed on a securities exchange or traded over the Nasdaq National Market, the mean between the bid and offered prices as quoted by Nasdaq for such date, provided that if it is determined that the fair market value is not properly reflected by such Nasdaq quotations, Fair Market Value will be determined by such other method as the Committee determines in good faith to be reasonable. (m) "Incentive Stock Option" means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. (n) "Non-Qualified Stock Option" means an Option that is not an Incentive Stock Option. (o) "Option" means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option. (p) "Other Stock-Based Award" means a right, granted to a Participant under Article 12, that relates to or is valued by reference to Stock or other Awards relating to Stock. (r) "Parent" means a corporation which beneficially owns a majority of the outstanding voting stock or voting power of the Corporation. For Incentive Stock Options, the term shall have the same meaning as set forth in Code Section 424(e). (q) "Participant" means a person who, as an employee, officer, director, consultant or advisor of the Corporation or any Parent or Subsidiary, has been granted an Award under the Plan. (o) "Performance Share" means a right granted to a Participant under Article 9, to receive cash, Stock, or other Awards, the payment of which is contingent upon achieving certain performance goals established by the Committee. (p) "Plan" means the RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan, as amended from time to time. (q) "Restricted Stock Award" means Stock granted to a Participant under Article 10 that is subject to certain restrictions and to risk of forfeiture. (r) "Retirement" means a Participant's termination of employment with the Corporation, Parent or Subsidiary after attaining any normal or early retirement age specified in any pension, profit sharing or other retirement program sponsored by the Corporation, or, in the event of the inapplicability thereof with respect to the person in question, as determined by the Committee in its reasonable judgment. -4- 5 (s) "Stock" means the no par value common stock of the Corporation and such other securities of the Corporation as may be substituted for Stock pursuant to Article 14. (t) "Stock Appreciation Right" or "SAR" means a right granted to a Participant under Article 8 to receive a payment equal to the difference between the Fair Market Value of a share of Stock as of the date of exercise of the SAR over the grant price of the SAR, all as determined pursuant to Article 8. (u) "Subsidiary" means any corporation, limited liability company, partnership or other entity of which 50% or more the outstanding voting stock, voting power, general partnership interest, or membership interest is beneficially owned directly or indirectly by the Corporation. For Incentive Stock Options, the term shall have the meaning set forth in Code Section 424(f). (v) "1933 Act" means the Securities Act of 1933, as amended from time to time. (w) "1934 Act" means the Securities Exchange Act of 1934, as amended from time to time. ARTICLE 4 ADMINISTRATION 4.1. COMMITTEE. The Plan shall be administered by the Compensation Committee of the Board or, at the discretion of the Board from time to time, by the Board. The Committee shall consist of two or more members of the Board who are (i) "outside directors" as that term is used in Section 162(m) of the Code and the regulations promulgated thereunder, and (ii) "non-employee directors" as such term is defined in Rule 16b-3 promulgated under Section 16 of the 1934 Act or any successor provision. During any time that the Board is acting as administrator of the Plan, it shall have all the powers of the Committee hereunder, and any reference herein to the Committee (other than in this Section 4.1) shall include the Board. 4.2. ACTION BY THE COMMITTEE. For purposes of administering the Plan, the following rules of procedure shall govern the Committee. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved unanimously in writing by the members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Corporation or any Parent or Subsidiary, the Corporation's independent certified public accountants, or any executive compensation consultant or other professional retained by the Corporation to assist in the administration of the Plan. -5- 6 4.3. AUTHORITY OF COMMITTEE. The Committee has the exclusive power, authority and discretion to: (a) Designate Participants; (b) Determine the type or types of Awards to be granted to each Participant; (c) Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate; (d) Determine the terms and conditions of any Award granted under the Plan, including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines; (e) Accelerate the vesting or lapse of restrictions of any outstanding Award, based in each case on such considerations as the Committee in its sole discretion determines; (f) Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered; (g) Prescribe the form of each Award Agreement, which need not be identical for each Participant; (h) Decide all other matters that must be determined in connection with an Award; (i) Establish, adopt or revise any rules and regulations as it may deem necessary or advisable to administer the Plan; (j) Make all other decisions and determinations that may be required under the Plan or as the Committee deems necessary or advisable to administer the Plan; and (k) Amend the Plan or any Award Agreement as provided herein. 4.4. DECISIONS BINDING. The Committee's interpretation of the Plan, any Awards granted under the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties. -6- 7 ARTICLE 5 SHARES SUBJECT TO THE PLAN 5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 14.1, the aggregate number of shares of Stock reserved and available for Awards or which may be used to provide a basis of measurement for or to determine the value of an Award (such as with a Stock Appreciation Right or Performance Share Award) shall be 500,000, no more than 20% of which shall be Restricted Stock Awards. 5.2. LAPSED AWARDS. To the extent that an Award is canceled, terminates, expires or lapses for any reason, any shares of Stock subject to the Award will again be available for the grant of an Award under the Plan and shares subject to SARs or other Awards settled in cash will be available for the grant of an Award under the Plan. 5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market. 5.4. LIMITATION ON AWARDS. Notwithstanding any provision in the Plan to the contrary, the maximum number of shares of Stock with respect to one or more Options and/or SARs that may be granted during any one calendar year under the Plan to any one Covered Employee shall be 250,000. The maximum fair market value of any Awards (other than Options and SARs) that may be received by a Covered Employee (less any consideration paid by the Participant for such Award) during any one calendar year under the Plan shall be $1,000,000. ARTICLE 6 ELIGIBILITY 6.1. GENERAL. Awards may be granted only to individuals who are employees, officers, directors, consultants or advisors of the Corporation or a Parent or Subsidiary. ARTICLE 7 STOCK OPTIONS 7.1. GENERAL. The Committee is authorized to grant Options to Participants on the following terms and conditions: (a) EXERCISE PRICE. The exercise price per share of Stock under an Option shall be determined by the Committee. (b) TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part. The Committee also shall determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised. The Committee may waive any exercise provisions at any time in whole or in part based upon factors as the Committee -7- 8 may determine in its sole discretion so that the Option becomes exercisable at an earlier date. (c) PAYMENT. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation, cash, shares of Stock, or other property (including "cashless exercise" arrangements), and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. Without limiting the power and discretion conferred on the Committee pursuant to the preceding sentence, the Committee may, in the exercise of its discretion, but need not, allow a Participant to pay the Option price by directing the Corporation to withhold from the shares of Stock that would otherwise be issued upon exercise of the Option that number of shares having a Fair Market Value on the exercise date equal to the Option price, all as determined pursuant to rules and procedures established by the Committee. (d) EVIDENCE OF GRANT. All Options shall be evidenced by a written Award Agreement between the Corporation and the Participant. The Award Agreement shall include such provisions as may be specified by the Committee. 7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options granted under the Plan must comply with the following additional rules: (a) EXERCISE PRICE. The exercise price per share of Stock shall be set by the Committee, provided that the exercise price for any Incentive Stock Option shall not be less than the Fair Market Value as of the date of the grant. (b) EXERCISE. In no event may any Incentive Stock Option be exercisable for more than ten years from the date of its grant. (c) LAPSE OF OPTION. An Incentive Stock Option shall lapse under the earliest of the following circumstances; provided, however, that the Committee may, prior to the lapse of the Incentive Stock Option under the circumstances described in paragraphs (3), (4) and (5) below, provide in writing that the Option will extend until a later date, but if the Option is exercised after the dates specified in paragraphs (3), (4) and (5) above, it will automatically become a Non-Qualified Stock Option: (1) The Incentive Stock Option shall lapse as of the option expiration date set forth in the Award Agreement. (2) The Incentive Stock Option shall lapse ten years after it is granted, unless an earlier time is set in the Award Agreement. (3) If the Participant terminates employment for any reason other than as provided in paragraph (4) or (5) below, the Incentive Stock Option shall lapse, unless it is previously exercised, three months after the Participant's termination of -8- 9 employment; provided, however, that if the Participant's employment is terminated by the Corporation for cause or by the Participant without the consent of the Corporation, the Incentive Stock Option shall (to the extent not previously exercised) lapse immediately. (4) If the Participant terminates employment by reason of his Disability, the Incentive Stock Option shall lapse, unless it is previously exercised, one year after the Participant's termination of employment. (5) If the Participant dies while employed, or during the three-month period described in paragraph (3) or during the one-year period described in paragraph (4) and before the Option otherwise lapses, the Option shall lapse one year after the Participant's death. Upon the Participant's death, any exercisable Incentive Stock Options may be exercised by the Participant's beneficiary. Unless the exercisability of the Incentive Stock Option is accelerated as provided in Article 13, if a Participant exercises an Option after termination of employment, the Option may be exercised only with respect to the shares that were otherwise vested on the Participant's termination of employment. (d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market Value (determined as of the time an Award is made) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000.00. (e) TEN PERCENT OWNERS. No Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Corporation or any Parent or Subsidiary unless the exercise price per share of such Option is at least 110% of the Fair Market Value per share of Stock at the date of grant and the Option expires no later than five years after the date of grant. (f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an Incentive Stock Option may be made pursuant to the Plan after the day immediately prior to the tenth anniversary of the Effective Date. (g) RIGHT TO EXERCISE. During a Participant's lifetime, an Incentive Stock Option may be exercised only by the Participant or, in the case of the Participant's Disability, by the Participant's guardian or legal representative. (h) DIRECTORS. The Committee may not grant an Incentive Stock Option to a non-employee director. The Committee may grant an Incentive Stock Option to a director who is also an employee of the Corporation or Parent or Subsidiary, but only in that individual's position as an employee and not as a director. -9- 10 ARTICLE 8 STOCK APPRECIATION RIGHTS 8.1. GRANT OF SARs. The Committee is authorized to grant SARs to Participants on the following terms and conditions: (a) RIGHT TO PAYMENT. Upon the exercise of a Stock Appreciation Right, the Participant to whom it is granted has the right to receive the excess, if any, of: (1) The Fair Market Value of one share of Stock on the date of exercise; over (2) The grant price of the Stock Appreciation Right as determined by the Committee, which shall not be less than the Fair Market Value of one share of Stock on the date of grant in the case of any SAR related to an Incentive Stock Option. (b) OTHER TERMS. All awards of Stock Appreciation Rights shall be evidenced by an Award Agreement. The terms, methods of exercise, methods of settlement, form of consideration payable in settlement, and any other terms and conditions of any Stock Appreciation Right shall be determined by the Committee at the time of the grant of the Award and shall be reflected in the Award Agreement. ARTICLE 9 PERFORMANCE SHARES 9.1. GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant Performance Shares to Participants on such terms and conditions as may be selected by the Committee. The Committee shall have the complete discretion to determine the number of Performance Shares granted to each Participant. All Awards of Performance Shares shall be evidenced by an Award Agreement. 9.2. RIGHT TO PAYMENT. A grant of Performance Shares gives the Participant rights, valued as determined by the Committee, and payable to, or exercisable by, the Participant to whom the Performance Shares are granted, in whole or in part, as the Committee shall establish at grant or thereafter. The Committee shall set performance goals and other terms or conditions to payment of the Performance Shares in its discretion which, depending on the extent to which they are met, will determine the number and value of Performance Shares that will be paid to the Participant. 9.3. OTHER TERMS. Performance Shares may be payable in cash, Stock, or other property, and have such other terms and conditions as determined by the Committee and reflected in the Award Agreement. -10- 11 ARTICLE 10 RESTRICTED STOCK AWARDS 10.1. GRANT OF RESTRICTED STOCK. The Committee is authorized to make Awards of Restricted Stock to Participants in such amounts and subject to such terms and conditions as may be selected by the Committee. All Awards of Restricted Stock shall be evidenced by a Restricted Stock Award Agreement. 10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of performance goals or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. 10.3. FORFEITURE. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment during the applicable restriction period or upon failure to satisfy a performance goal during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited and reacquired by the Corporation; provided, however, that the Committee may provide in any Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock. 10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock. ARTICLE 11 DIVIDEND EQUIVALENTS 11.1. GRANT OF DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend Equivalents to Participants subject to such terms and conditions as may be selected by the Committee. Dividend Equivalents shall entitle the Participant to receive payments equal to dividends with respect to all or a portion of the number of shares of Stock subject to an Option Award or SAR Award, as determined by the Committee. The Committee may provide that Dividend Equivalents be paid or distributed when accrued or be deemed to have been reinvested in additional shares of Stock, or otherwise reinvested. -11- 12 ARTICLE 12 OTHER STOCK-BASED AWARDS 12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of Stock, as deemed by the Committee to be consistent with the purposes of the Plan, including without limitation shares of Stock awarded purely as a "bonus" and not subject to any restrictions or conditions, convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of Stock, and Awards valued by reference to book value of shares of Stock or the value of securities of or the performance of specified Parents or Subsidiaries. The Committee shall determine the terms and conditions of such Awards. ARTICLE 13 PROVISIONS APPLICABLE TO AWARDS 13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for, any other Award granted under the Plan. If an Award is granted in substitution for another Award, the Committee may require the surrender of such other Award in consideration of the grant of the new Award. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards. 13.2. EXCHANGE PROVISIONS. The Committee may at any time offer to exchange or buy out any previously granted Award for a payment in cash, Stock, or another Award (subject to Section 14.1), based on the terms and conditions the Committee determines and communicates to the Participant at the time the offer is made. 13.3. TERM OF AWARD. The term of each Award shall be for the period as determined by the Committee, provided that in no event shall the term of any Incentive Stock Option or a Stock Appreciation Right granted in tandem with the Incentive Stock Option exceed a period of ten years from the date of its grant (or, if Section 7.2(e) applies, five years from the date of its grant). 13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any applicable law or Award Agreement, payments or transfers to be made by the Corporation or a Parent or Subsidiary on the grant or exercise of an Award may be made in such form as the Committee determines at or after the time of grant, including without limitation, cash, Stock, other Awards, or other property, or any combination, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case determined in accordance with rules adopted by, and at the discretion of, the Committee. 13.5. LIMITS ON TRANSFER. No right or interest of a Participant in any unexercised or restricted Award may be pledged, encumbered, or hypothecated to or in favor of any party -12- 13 other than the Corporation or a Parent or Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Corporation or a Parent or Subsidiary. No unexercised or restricted Award shall be assignable or transferable by a Participant other than by will or the laws of descent and distribution or, except in the case of an Incentive Stock Option, pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A) of the Code if such Section applied to an Award under the Plan; provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation, (ii) does not cause any Option intended to be an incentive stock option to fail to be described in Code Section 422(b), and (iii) is otherwise appropriate and desirable, taking into account any state or federal tax or securities laws applicable to transferable Awards. 13.6. BENEFICIARIES. Notwithstanding Section 13.5, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant's death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If no beneficiary has been designated or survives the Participant, payment shall be made to the Participant's estate. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee. 13.7. STOCK CERTIFICATES. All Stock certificates delivered under the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal or state securities laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference restrictions applicable to the Stock. 13.8. ACCELERATION UPON CERTAIN EVENTS. Upon the occurrence of a Change in Control or in the event of the occurrence of any circumstance, transaction or event not constituting a Change in Control but which the Board of Directors deems to be, or to be reasonably likely to lead to, an effective change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of the 1934 Act, the Committee may in its sole discretion declare all outstanding Options, Stock Appreciation Rights, and other Awards in the nature of rights that may be exercised to be fully exercisable, and/or all restrictions on all outstanding Awards to have lapsed, in each case as of such date as the Committee may, in its sole discretion, declare, which may be on or before the consummation of such transaction or event. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options. 13.9. ACCELERATION FOR ANY OTHER REASON. Regardless of whether an event has occurred as described in Section 13.8 above, the Committee may in its sole discretion at -13- 14 any time determine that all or a portion of a Participant's Options, Stock Appreciation Rights, and other Awards in the nature of rights that may be exercised shall become fully or partially exercisable, and/or that all or a part of the restrictions on all or a portion of the outstanding Awards shall lapse, in each case as of such date as the Committee may, in its sole discretion, declare. The Committee may discriminate among Participants and among Awards granted to a Participant in exercising its discretion pursuant to this Section 13.9. 13.10. EFFECT OF ACCELERATION. If an Award is accelerated under Section 13.8, the Committee may, in its sole discretion, provide (i) that the Award will expire after a designated period of time after such acceleration to the extent not then exercised, (ii) that the Award will be settled in cash rather than Stock, (iii) that the Award will be assumed by another party to the transaction giving rise to the acceleration or otherwise be equitably converted in connection with such transaction, or (iv) any combination of the foregoing. The Committee's determination need not be uniform and may be different for different Participants whether or not such Participants are similarly situated. 13.11. PERFORMANCE GOALS. The Committee may determine that any Award granted pursuant to this Plan to a Participant (including, but not limited to, Participants who are Covered Employees) shall be determined solely on the basis of (a) the achievement by the Corporation or a Parent or Subsidiary of a specified target return, or target growth in return, on equity or assets, (b) the Corporation's, Parent's or Subsidiary's stock price, (c) the achievement by a business unit of the Corporation, Parent or Subsidiary of a specified target, or target growth in, net income or earnings per share, or (d) any combination of the goals set forth in (a) through (c) above. Furthermore, the Committee reserves the right for any reason to reduce (but not increase) any Award, notwithstanding the achievement of a specified goal. If an Award is made on such basis, the Committee shall establish goals prior to the beginning of the period for which such performance goal relates (or such later date as may be permitted under Code Section 162(m) or the regulations thereunder). Any payment of an Award granted with performance goals shall be conditioned on the written certification of the Committee in each case that the performance goals and any other material conditions were satisfied. 13.12. TERMINATION OF EMPLOYMENT OR SERVICE. Whether military, government or other service or other leave of absence shall constitute a termination of employment or service in any other capacity shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive. A termination of employment or service in any other capacity shall not occur in a circumstance in which a Participant transfers from the Corporation to one of its Parents or Subsidiaries, transfers from a Parent or Subsidiary to the Corporation, or transfers from one Parent or Subsidiary to another Parent or Subsidiary. 13.13. LOAN PROVISIONS. With the consent of the Committee, the Corporation may make, guarantee or arrange for a loan or loans to a Participant with respect to the exercise of any Option granted under this Plan and/or with respect to the payment of the purchase price, if any, of any Award granted hereunder and/or with respect to the payment by the Participant of any or all federal and/or state income taxes due on account of the granting or exercise of any Award -14- 15 hereunder. The Committee shall have full authority to decide whether to make a loan or loans hereunder and to determine the amount, terms and provisions of any such loan or loans, including the interest rate to be charged in respect of any such loan or loans, whether the loan or loans are to be made with or without recourse against the borrower, the terms on which the loan is to be repaid and the conditions, if any, under which the loan or loans may be forgiven. ARTICLE 14 CHANGES IN CAPITAL STRUCTURE 14.1. GENERAL. In the event a share dividend is declared upon the Stock, the shares of Stock then subject to each Award shall be increased proportionately without any change in the aggregate purchase price therefor. In the event the Stock shall be changed into or exchanged for a different number or class of shares of stock or securities of the Corporation or of another corporation or other entity, whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation, there shall be substituted for each such share of Stock then subject to each Award the number and class of shares or other securities into which each outstanding share of Stock shall be so changed or for which it shall be so exchanged, all without any change in the aggregate purchase price for the shares or other securities then subject to each Award. ARTICLE 15 AMENDMENT, MODIFICATION AND TERMINATION 15.1. AMENDMENT, MODIFICATION AND TERMINATION. The Board or the Committee may, at any time and from time to time, amend, modify or terminate the Plan without stockholder approval; provided, however, that the Board or Committee may condition any amendment or modification on the approval of shareholders of the Corporation if such approval is necessary or deemed advisable with respect to tax, securities or other applicable laws, policies or regulations. 15.2. AWARDS PREVIOUSLY GRANTED. At any time and from time to time, the Committee may amend, modify or terminate any outstanding Award without approval of the Participant; provided, however, that such amendment, modification or termination shall not, without the Participant's consent, reduce or diminish the value of such Award determined as if the Award had been exercised, vested, cashed in or otherwise settled on the date of such amendment or termination. No termination, amendment, or modification of the Plan shall adversely affect any Award previously granted under the Plan, without the written consent of the Participant. ARTICLE 16 GENERAL PROVISIONS 16.1. NO RIGHTS TO AWARDS. No Participant or employee, officer, director, consultant or advisor shall have any claim to be granted any Award under the Plan, and neither the Corporation nor the Committee is obligated to treat Participants and employees, officers, directors, consultants or advisors uniformly. -15- 16 16.2. NO STOCKHOLDER RIGHTS. No Award gives the Participant any of the rights of a stockholder of the Corporation unless and until shares of Stock are in fact issued to such person in connection with such Award. 16.3. WITHHOLDING. The Corporation or any Parent or Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Corporation, an amount sufficient to satisfy federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any taxable event arising as a result of the Plan. With respect to withholding required upon any taxable event under the Plan, the Committee may, at the time the Award is granted or thereafter, require that any such withholding requirement be satisfied, in whole or in part, by withholding shares of Stock having a Fair Market Value on the date of withholding equal to the amount to be withheld for tax purposes, all in accordance with such procedures as the Committee establishes. 16.4. NO RIGHT TO EMPLOYMENT, DIRECTORSHIP OR SERVICE IN OTHER CAPACITY. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Corporation or any Parent or Subsidiary to terminate any Participant's employment or status as an officer, director, consultant or advisor at any time, nor confer upon any Participant any right to continue as an employee, officer, director, consultant or advisor of the Corporation or any Parent or Subsidiary. l6.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Corporation or any Parent or Subsidiary. 16.6. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or benefit plan of the Corporation or any Parent or Subsidiary unless provided otherwise in such other plan. 16.7. EXPENSES. The expenses of administering the Plan shall be borne by the Corporation and its Parents or Subsidiaries. 16.8. TITLES AND HEADINGS. The titles and headings of the Sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. 16.9. GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. -16- 17 16.10. FRACTIONAL SHARES. No fractional shares of Stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up. 16.11. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Corporation to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Corporation shall be under no obligation to register under the 1933 Act, any of the shares of Stock paid under the Plan. If the shares paid under the Plan may in certain circumstances be exempt from registration under the 1933 Act, the Corporation may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption. 16.12. GOVERNING LAW. To the extent not governed by federal law, the Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Georgia. 16.13. ADDITIONAL PROVISIONS. Each Award Agreement may contain such other terms and conditions as the Committee may determine; provided that such other terms and conditions are not inconsistent with the provisions of this Plan. The foregoing is hereby acknowledged as being the RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan as adopted by the Board of Directors of the Corporation on October ___, 1997. RARE HOSPITALITY INTERNATIONAL, INC. By: /s/ George W. McKerrow, Jr --------------------------------------- George W. McKerrow, Jr. Chairman and Chief Executive Officer -17- EX-10.J 8 AMEND.NO.1 TO RHI,INC.'97 LONG-TERM INCENTIVE PLAN 1 EXHIBIT 10(j) AMENDMENT NO. 1 TO THE RARE HOSPITALITY INTERNATIONAL, INC. 1997 LONG-TERM INCENTIVE PLAN THIS AMENDMENT NO. 1 (this "Amendment") to the RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan (the "Plan") is made this 20th day of March, 1998. The Board of Directors of RARE Hospitality International, Inc. (the "Company") has determined that it is in the best interests of the Company and its shareholders to increase the number of shares of the Company's common stock subject to the Plan to a total of 750,000 shares. The Board of Directors intends that the amendment to the Plan provided in this Amendment No. 1 shall be submitted to the shareholders of the Company for approval within one year from the date of adoption of this Amendment by the Board of Directors.. 1. Section 5.1 of the Plan is hereby amended by deleting Section 5.1 in its entirety and substituting in lieu thereof a new Section 5.1 to read as follows: "5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 14.1, the aggregate number of shares of Stock reserved and available for Awards or which may be used to provide a basis of measurement for or to determine the value of an Award (such as with a Stock Appreciation Right or Performance Share Award) shall be 750,000, no more than 20% of which shall be Restricted Stock Awards." 2. Except as expressly amended hereby, the terms of the Plan shall be and remain unamended and the Plan as amended shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized representative on the day and year first above written. RARE HOSPITALITY INTERNATIONAL, INC. By: /s/ Philip J. Hickey, Jr. -------------------------------- Its: President and COO ------------------------------- EX-10.M 9 EMPLOYMENT AGREEMENT - PHILIP J. HICKEY, JR. 1 EXHIBIT 10(m) EMPLOYMENT AGREEMENT THIS AGREEMENT, made and entered into as of the 30th day of September, 1997, by and between RARE HOSPITALITY INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as the "Company"), and PHILIP J. HICKEY, Jr. a resident of the State of Georgia (hereinafter referred to as the "Executive"); WITNESSETH: The Company is engaged in the business of owning, operating and franchising the operation of restaurants under the names Longhorn Steakhouse(R), The Capital Grille(R), Bugaboo Creek Steak House(R) and others. The Company desires to employ Executive in an executive capacity and to be assured of his services in such capacity on the terms and conditions set forth in this Agreement. Executive desires to accept such employment on such terms and conditions. The Company acknowledges and agrees that Executive has (i) previously been and is currently engaged in the restaurant industry throughout the United States including in particular and without limit within the State of Georgia, (ii) has extensive background and expertise in the development, opening, operation and management of restaurants, and (iii) has developed professional relationships with clients, customers, suppliers and other individuals within the restaurant industry all of which experience and expertise of Executive (the "Executive's Information Base") has been developed outside the scope of Executive's employment with the Company. In the course of Executive's employment, Executive will gain knowledge of the business, affairs, customers, franchisees, plans and methods of the Company, will be trained at the expense of the Company in the development, opening, operation and management of the Company's restaurants through the use of techniques, systems, practices and methods used and devised by the Company, will have access to information relating to the Company's customers and their preferences and dining habits and will become personally known to and acquainted with the Company's suppliers and managers in the Restricted Area thereby establishing a personal relationship with such suppliers and managers for the benefit of the Company. The Company would suffer irreparable harm if Executive were to use such knowledge, information and personal relationships, other than the Executive's Information Base, related to the Company and its business that are obtained and developed in the course of Executive's employment with the Company other than in the proper performance of his duties for the Company. In consideration of the sum of $1.00 in hand paid by the Company to Executive, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and obligations contained herein, the Company and Executive hereby agree as follows: 2 1. Employment. The Company hereby employs Executive and Executive hereby accepts such employment and agrees to perform his duties and responsibilities hereunder, in accordance with the terms and conditions hereinafter set forth. 1.1. Employment Term. The employment term of this Agreement shall commence on November 1, 1997 or such later date within 30 days thereafter as designated by Executive (the "Commencement Date") and shall continue until and end on December 31, 2000, unless terminated prior thereto in accordance with Section 3 hereof. Notwithstanding the foregoing, as of January 1, 2001 and the same day of each calendar year thereafter, this Agreement shall be automatically renewed for an additional period of one (1) year unless either Executive or the Company provides the other with at least six (6) months prior written notice of such party's intention not to renew this Agreement as of the next ensuing January 1; provided, that this Agreement shall during all such renewal terms remain subject to earlier termination in accordance with Section 3 hereof. All periods during which this Agreement remains in effect are hereinafter referred to as the "Employment Term." 1.2. Duties of Executive. Executive agrees that during the term of this Agreement, he will devote his full professional and business-related time, skills and best efforts to the business of the Company, initially in the capacity of President and Chief Operating Officer; provided, that no material changes in title or Executive's duties or the principal office from which Executive shall perform those duties shall occur without Executive's consent. In addition, Executive shall devote his full time and his best efforts in the performance of any other reasonable duties as may be assigned to him from time to time by the Company; provided, that all such duties assigned to Executive shall be of a nature and type reasonably and customarily assigned by companies to employees holding the office or offices occupied by Executive. Executive shall devote all of his full professional and business-related skills solely to the affairs of the Company, and shall not, during his employment, unless otherwise agreed to in advance in writing by the Company, seek or accept other employment, become self-employed in any other capacity during the term of his employment, or engage in any activities which are detrimental to the business of the Company. Notwithstanding the foregoing, Executive may engage in personal investment activities provided such activities do not interfere with Executive's performance of his full-time employment duties under this Agreement. The Company acknowledges that Executive currently resides in metropolitan Atlanta, Georgia and shall remain entitled to continue to reside at such location throughout the Employment Term. As a result, Executive shall be required to perform his duties from the offices of the Company located in metropolitan Atlanta, Georgia, and Executive may not be required by the Company to move his residence and principal business location outside of metropolitan Atlanta, Georgia without Executive's prior written consent; provided, that Executive acknowledges that the discharge of his duties for the Company will involve travel on a regular basis from the Company's offices in Atlanta, Georgia. No refusal by Executive to move his residence or the principal office of the Company from which he performs his duties from metropolitan Atlanta, Georgia will be deemed a breach of this Agreement by Executive or a failure of Executive to perform his obligations under this Agreement. - 2 - 3 1.3. Service on Board of Directors. During the Employment Term, the Company shall use its best efforts to cause Executive to be nominated and elected as a member of the Board of Directors of the Company. 1.4. Insurance/Bond. For so long as Executive serves as either an officer or director of the Company, the Company shall, at its sole cost and expense, (i) obtain and maintain Directors' and Officers' and Corporate Liability Insurance covering Executive and his acts and omissions and having coverage levels, terms, and conditions not substantially less favorable than those contained in such insurance currently maintained by the Company and (ii) obtain and post any bond or other fiduciary security (including without limitation any such items required under Section 6.9 of the Company's By-Laws) required by the Company to be maintained by, in the name of, or on behalf of the Executive. 2. Compensation and Benefits. 2.1. Base Compensation. For all the services rendered by Executive hereunder, the Company shall pay Executive an annual salary at the rate of $250,000 for each full year of the Employment Term, plus such additional amounts, if any as may be approved by the Company's Board of Directors, ("Base Compensation) payable in installments at such times as the Company customarily pays its other senior officers (but in any event no less often than monthly). The Company agrees that the Executive's salary will be reviewed at least annually by the Compensation Committee of the Company's Board of Directors to determine if an increase is appropriate, which increase shall be in the sole discretion of the Company's Board of Directors. Executive's salary shall be prorated for any partial calendar year during which this Agreement remains in effect. 2.2 Bonus Awards. (a) In addition to the Base Compensation, promptly following the Commencement Date, the Company shall pay Executive as initial, additional compensation, and on a one-time basis only, the sum of $50,000 in consideration for his entering into this Agreement and his services rendered and to be rendered to the Company during the term hereof. (b) In addition to the Base Compensation, during the Employment Term Executive shall be eligible for an annual bonus of up to 100% of the Base Compensation, which bonus shall be determined and paid in accordance with the bonus program for executive officers of the Company as approved by the Company's Board of Directors from time to time. The Company shall seek and receive Executive's input in establishing and implementing the Company's bonus program for its executive officers. The Company shall use its best and good faith efforts to cause such bonus program to be implemented within ninety (90) days after the Commencement Date. From and after the date of such implementation, Executive will be entitled to participate with the Compensation Committee of the Board of Directors of the Company in any alteration, modification or termination of such bonus program. To the extent reasonably calculable under the bonus program, Executive's bonus shall be prorated for any partial calendar year during which this Agreement remains in effect. - 3 - 4 2.3. Stock Options. (a) The Company shall grant to Executive, effective as of the Commencement Date, the following options to acquire shares of the Company's common stock: (i) 90,910 shares with an exercise price equal to the fair market value of the Company's common stock on the date of grant, which option shall become exercisable with respect to one-half of such shares six (6) months following the date of this Agreement and with respect to the remainder of such shares on the first anniversary of the date of this Agreement; and (ii) 91,667 shares with an exercise price of $12.00 per share, which option shall become exercisable on the second anniversary of the date of this Agreement; and (iii) 93,334 shares with an exercise price of $15.00 per share, which option shall become exercisable on the third anniversary of the date of this Agreement. Those options granted to Executive under subclauses (i) and (ii) above are hereinafter referred to as the "Initial Non-qualified Options" and the options granted to Executive under subclause (iii) above are sometimes hereinafter referred to as the "Remaining Non-qualified Options." The Initial Non-Qualified Options shall be granted to Executive pursuant to the Company's Amended and Restated 1992 Incentive Plan (the "Existing Plan") The terms and conditions governing the Initial Non-Qualified Options shall be as set forth in the form of the Stock Option Agreement attached hereto as Exhibit A and made a part hereof. The Remaining Non-Qualified Options shall be granted to Executive pursuant to that certain Rare Hospitality International, Inc. 1997 Long-Term Incentive Plan (the "1997 Plan"). The terms and conditions governing the Remaining Non-Qualified Options shall be as set forth in the form of the Stock Option Agreement attached hereto as Exhibit B and made a part hereof. (b) The Company shall grant to Executive, effective as of the Commencement Date, the following incentive stock options to acquire shares of the company's common stock; (i) 9,090 shares with an exercise price equal to the fair market value of the Company's common stock on the date of grant, which option shall become exercisable with respect to one-half of such shares six (6) months following the date of this Agreement and with respect to the remainder of such shares on the first anniversary of the date of this Agreement; and (ii) 8,333 shares with an exercise price equal to the fair market value of the Company's common stock on the date of grant,, which option shall become exercisable with respect to all of such shares on the second anniversary of the date of this Agreement; and - 4 - 5 (iii) 6,666 shares with an exercise price equal to the fair market value of the Company's common stock on the date of grant, which option shall become exercisable with respect to all of such shares on the third anniversary of the date of this Agreement. The options described in this Section 2.3(d) shall be granted to Executive pursuant to the Existing Plan. The terms and conditions governing such options shall be as set forth in the form of the Stock Option Agreement attached hereto as Exhibit C and made a part hereof. (c) The options described in Sections 2.3(a) and (b) are sometimes hereinafter collectively referred to as the "Options." The Company represents and warrants to Executive that (i) during the Employment Term, Executive shall be within the category of persons for which awards may be granted under the Existing Plan and the 1997 Plan; (ii) the Existing Plan has been approved by the Company's Board of Directors and shareholders and all Options granted to Executive under the Existing Plan are and shall remain in full force and effect as the legally binding obligation of the Company throughout the Employment Term, (iii) the 1997 Plan has been approved by the Company's Board of Directors and all Options granted to Executive under the 1997 Plan are and shall remain in full force and effect as the legally binding obligation of the Company throughout the Employment Term, (iv) the Company shall submit the 1997 Plan to the Company's shareholders and shall use its best efforts to cause the 1997 Plan to be approved by said shareholders, (v) the Company shall cause this Agreement, the grant to Executive of the Options, and Exhibits A, B and C to each be duly and properly approved by all officers and members of the Board of Directors (including all compensation or other committees thereof) of the Company so as to cause the same to be and remain in full force and effect as the legally binding obligation of the Company throughout the Employment Term, and (vi) the Company shall cause all shares of stock in the Company acquired by Executive through the exercise of any one or more of the Options to be registered and freely tradable, whether by means of the Company's filing of all necessary S-8 registrations or otherwise, by Executive from and after the date Executive exercises any one or more of the Options; subject to restriction on sale or transfer of such shares under applicable securities laws by virtue of Executive's position with the Company or ownership of the Company's securities. 2.4. Other Benefits. In addition to all other compensation paid or payable from the Company to Executive hereunder, during the Employment Term, the Company shall provide and Executive shall be entitled to participate in and receive the following employment benefits: (a) The Company shall provide and pay all health, hospitalization and long term care insurance premiums necessary to provide Executive and Executive's dependent family members with coverage under the Company's group health insurance program. (b) The Company shall provide and pay all life insurance premiums necessary to provide Executive with Fifty Thousand ($50,000) Dollars of unencumbered - 5 - 6 death benefit; provided, that Executive shall have the full and unencumbered right to designate the beneficiary of such life insurance coverage. (c) The Company shall provide and pay all short term and long term disability income insurance premiums necessary to provide Executive with coverage not substantially less favorable to Executive than the coverage currently provided by the Company to its executive employees. To the extent practicable under the Company's group coverage, such payment shall be reported as compensation paid by the Company to Executive and as such shall be included in the taxable income of Executive. (d) Executive shall be entitled to participate in all qualified deferred compensation plans maintained by the Company in accordance with the applicable provisions thereof. To the extent the same can be waived, the Company shall cause all entry, waiting, and vesting periods imposed under such plans to be waived with respect to Executive's participation therein. (e) Executive shall be entitled to participate in any and all other employee benefit programs maintained by the Company for the benefit of its executive employees generally, in accordance with and subject to the terms and conditions of such programs. 2.5. Expenses. In addition to the compensation described in this Agreement, the Company shall promptly reimburse Executive for all reasonable expenses incurred by him in the performance of his duties under this Agreement and vouched to the reasonable satisfaction of the Board of Directors or appropriate officers of the Company, pursuant to established procedures. 3. Termination; Effect of Termination. 3.1. Termination. Anything in this Agreement to the contrary notwithstanding, this Agreement, the Employment Term and the employment of Executive pursuant hereto shall terminate upon the first to occur of the following events: (i) The death of Executive. (ii) The lapse of thirty (30) days following the date on which the Company shall give written notice to Executive of termination of his employment hereunder by reason of his physical or mental incapacity. Executive shall be deemed to be physically or mentally incapacitated for purposes of this section if by reason of any physical or mental incapacity he has been unable, or it is reasonably expected that he will be unable, for a period of at least one hundred and eighty (180) substantially continuous days to perform his regular duties and responsibilities hereunder. In the event of any disagreement between Executive and the Company as to whether Executive is physically or mentally incapacitated such as to permit the Company to terminate his employment pursuant to this paragraph (ii), the question of such incapacity shall be submitted to an impartial and reputable - 6 - 7 physician for determination, selected by mutual agreement of Executive and the Company or, failing such agreement, selected by two physicians (one of which shall be selected by the Company and the other by Executive), and such determination of the question of such incapacity by such physician shall be final and binding on Executive and the Company. The Company shall pay the reasonable fees and expenses of such physician. (iii) The lapse of three (3) days following written notice by the Company to Executive of termination for "cause" which notice shall reasonably describe the cause for which Executive's employment is being terminated. For purposes of this Agreement, "cause" shall mean: (A) Commission by Executive of a willful or grossly negligent act which causes material harm to the Company, (B) The commission or perpetration by Executive of any criminal act involving a felony for which Executive is indicted or with respect to which Executive pleads nolo contendere (or any similar response), (C) Habitual and unauthorized absenteeism by reason other than physical or mental illness, chronic alcoholism or other form of substance abuse resulting in material harm or actual or potential physical danger to the Company or its employees, (D) Any material violation by Executive of his obligations under this Agreement, or (E) Any misrepresentation or breach by Executive of warranty contained in Section 13 of this Agreement, provided, however, that if the cause specified in such notice is such that there is a reasonable prospect that it can be cured with diligent effort within a reasonable time, Executive shall have such reasonable time (having regard for the nature of the cause) to cure such cause, which time shall not in any event exceed thirty (30) days from the date of such notice, and Executive's employment shall continue in effect during such reasonable time so long as Executive makes diligent efforts during such time to cure such cause. If such cause shall be cured by Executive during such reasonable time his employment and the obligations of the Company hereunder shall not terminate as a result of the notice which has been given with respect to such cause. Cure of any cause with or without notice from the Company shall not relieve Executive from any obligations to the Company under this Agreement or otherwise and shall not affect the Company's rights upon the reoccurrence of the same, or the occurrence of any other, cause. If such cause shall not be cured within such reasonable time the employment of Executive under this Agreement shall terminate upon the expiration of such reasonable time. - 7 - 8 (iv) The lapse of ten (10) days following written notice by the Company to Executive of termination other than for "cause". (v) The lapse of thirty (30) days following written notice by Executive to the Company of his resignation from the Company; provided, however, that the Company, in its discretion, may cause such termination to be effective at any time during such thirty (30) day period. (vi) The lapse of ten (10) days following written notice by Executive to the Company of termination for "reason," which notice shall reasonably describe the reason for which Executive is terminating his employment hereunder. For purposes of this Agreement, "reason" shall mean (i) any material breach or default by the Company with respect to any payment, undertaking or other obligation owed, made or extended by the Company to Executive hereunder, or (ii) the occurrence of any "Change in Control" (as defined in Exhibit D attached hereto and made a part hereof). Notwithstanding the foregoing, (x) if the reason specified in any notice is the Company's failure to make any payment to Executive, the Company shall have five (5) business days to make such payment (provided that such cure period shall not apply with respect to the Company's third or subsequent failure to make any payment due Executive hereunder in any twelve-month period) and (y) if the reason specified in any notice is not monetary in nature and is such that there is a reasonable prospect that it can be cured with diligent effort within a reasonable time, the Company shall have such reasonable time (having regard for the nature of the reason) to cure such reason, which time shall not in any event exceed thirty (30) days from the date of such notice. In either such event, Executive's employment shall continue in effect during such cure period so long as the Company makes diligent efforts during such time to cure such reason. If the reason shall be cured by the Company during its applicable cure period, Executive's employment shall not terminate as a result of the notice which has been given with respect to such reason. Cure of any reason with or without notice from Executive shall not relieve the Company from any obligations to the Executive under this Agreement or otherwise and shall not affect the Executive's rights upon the recurrence of the same or the occurrence of any other reason. If such reason shall not be cured within the applicable cure period, Executive's employment under this Agreement shall terminate upon expiration of such applicable cure period. - 8 - 9 3.2. Payment upon Termination. (a) Upon termination of this Agreement for any reason described in Section 3.1 above, other than termination pursuant to clauses (i), (ii) (iv) or (vi), Executive shall be entitled to receive the compensation owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and any additional compensation he may be entitled to receive under the terms of any employee benefit plan. (b) Upon termination of this Agreement pursuant to clause (i) of Section 3.1, Executive shall be entitled to receive the compensation consisting of both base salary and bonus under Sections 2.1 and 2.2(b) as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and any additional compensation he may be entitled to receive under the terms of any employee benefit plan plus the Company will pay to the personal representative of Executive, a lump sum amount equal to one-half of Executive's annual Base Compensation under Section 2.1 as in effect on the date of his death. In addition to the foregoing, upon such termination (i) the exercisability of the Options shall accelerate as provided in the agreements governing such Options, and (ii) the Company shall continue to provide and pay for those employment benefits contemplated under Section 2.4(a) hereof for Executive's dependent family members for a period of twelve (12) months from and after the date of Executive's termination of employment (from and after the expiration of such twelve (12) month period, all applicable laws shall continue to apply to any person's or persons' rights to continue such benefits). (c) In the event that the Company terminates Executive's employment pursuant to clause (ii) of Section 3.1, Executive shall be entitled to receive the compensation consisting of both base salary and bonus under Sections 2.1 and 2.2(b) as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and any additional compensation he may be entitled to receive under the terms of any employee benefit plan. In addition, the Company shall pay to Executive, for up to ninety (90) days, an amount equal to the difference between the amount of Executive's then level of Base Compensation payable pursuant to Section 2.1 and 100% of the amount paid to Executive under any short-term disability insurance policy obtained by the Executive and paid by the Company through the Company's group coverage until the Company's long-term disability insurance begins to pay. In addition to the foregoing, upon such termination (i) the exercisability of the Options shall accelerate as provided in the agreements governing such Options and (ii) the Company shall continue to provide and pay for those employment benefits contemplated under Section 2.4(a) hereof for Executive and Executive's dependent family members for a period of twelve (12) months from and after the date of Executive's termination of employment (from and after the expiration of such twelve (12) month period, all applicable laws shall continue to apply to any person's or persons' rights to continue such benefits). (d) In the event that the Company terminates Executive's employment pursuant to clause (iv) of Section 3.1 or Executive terminates his employment pursuant to clause (vi) of Section 3.1, Executive shall be entitled to receive the compensation consisting - 9 - 10 of both base salary and bonus under Sections 2.1 and 2.2(b) as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and the Company will be obligated to pay Executive his annual Base Compensation under Section 2.1 as of the date of termination of such employment from the date of such termination for the greater of (i) eighteen (18) months or (ii) the period of time from the date of such termination (if prior to the second anniversary of the Commencement Date) to the second anniversary of the Commencement Date. In addition to the foregoing, upon such termination (i) the exercisability of the Options shall accelerate as provided in the agreements governing such Options, and (ii) the Company shall continue to provide and pay for those employment benefits contemplated under Section 2.4(a) hereof for Executive and Executive's dependent family members for a period of twelve (12) months from and after the date of Executive's termination of employment (from and after the expiration of such twelve (12) month period, all applicable laws shall continue to apply to any person's or persons' rights to continue such benefits). Such payment shall be made as and when otherwise due under this Agreement. (e) Payments made pursuant to this Section 3.2 are in lieu of any other obligations to Executive pursuant to the terms of this Agreement. 4. Noncompetition. Executive covenants and agrees that during the term of his employment by the Company and for a period of one (1) year immediately following the termination of Executive's employment by the Company for any reason whatsoever, Executive will not, within the area described on Exhibit E hereto (the "Restricted Area") directly or indirectly compete with the Company by carrying on a business any significant portion of which involves the development, opening, operation or franchising of restaurants that offer steak as a principal portion of their menu ( with a principal portion of the menu defined as products from which the restaurant derives more than thirty percent (30%) of its food sales), if the Company is still engaged in such business in such area. The provisions of this Section 4 shall terminate and be of no further force and effect from and after the date on which the Company fails to make any payment owed to Employee under this Agreement following the Employment Term, which payment remains unpaid five (5) business days following the receipt of written notice from Executive that such payment has not been made (provided that such cure period shall not apply with respect to the Company's third or subsequent failure to make any payment due Executive hereunder in any twelve (12) month period); provided, however, that in the event that there is any reasonable and good faith dispute between the Company and Executive as to any amount payable to Executive, for purposes of this Section 4 the disputed amount shall not be considered due and payable until such dispute shall have been finally resolved in an appropriate proceeding and any time for appeal of such resolution shall have run without an appropriate appeal having been taken. 4.1 Definition of "Compete." For the purposes of this Agreement, the term "compete" shall mean the providing of general management or supervisory services for the development or operation or franchising of restaurants that offer steak as a principal portion of their menu ( with a principal portion of the menu defined as products from which the restaurant derives more than thirty percent (30%) of its food sales). - 10 - 11 4.2. Direct or Indirect Competition. For the purposes of this Agreement, the words "directly or indirectly" as they modify the word "compete" shall mean (i) acting as an agent, representative, consultant, officer, director, independent contractor, or employee engaged in a management capacity with any entity or enterprise which is carrying on a business any significant portion of which involves the development, opening, or operation of restaurants offering steak as a principal portion of their menu, (ii) participating in any such competing entity or enterprise as an owner, partner, limited partner, joint venturer, creditor or stockholder (except as a stockholder holding less than two percent (2%) interest in a corporation whose shares are actively traded on a regional or national securities exchange or in the over-the-counter market), and (iii) communicating to any such competing entity or enterprise the names or addresses or any other information concerning any employee or supplier of the Company or any successor to the goodwill of the Company with respect to the business of the Company. 5. Confidentiality. Executive recognizes and acknowledges that by reason of his employment by and service to the Company, he will have access to all trade secrets and other confidential information of the Company including, but not limited to, confidential: pricing information, marketing information, sales techniques of the Company, confidential records, the Company's expansion plans, restaurant development and marketing techniques, operating procedures, training programs and materials, business plans, franchise arrangements, plans and agreements, information regarding suppliers, product quality and control procedures, financial statements and projections and other information regarding the operation of the Company's restaurants (hereinafter referred to as the "Confidential Information"). The Company acknowledges that information in Executive's Information Base is not Confidential Information. Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and covenants that he will not, either during the term of his employment by the Company or for a period of two (2) years thereafter, disclose any such Confidential Information to any person for any reason whatsoever (except as his duties as President may require) without the prior written authorization of the Company's Board of Directors. Executive agrees that he will not copy any Confidential Information except as the performance of his duties for the Company may require and that upon the termination of his employment by the Company, he shall return all Confidential Information and any copies thereof in his possession to the Company. Executive hereby acknowledges and agrees that the prohibitions against disclosure of Confidential Information recited herein are in addition to, and not in lieu of, any rights or remedies which the Company may have available pursuant to the laws of any jurisdiction or at common law to prevent the disclosure of trade secrets or proprietary information, and the enforcement by the Company of its rights and remedies pursuant to this Agreement shall not be construed as a waiver of any other rights or available remedies which it may possess in law or equity absent this Agreement. Notwithstanding the foregoing, the Company acknowledges and agrees that nothing contained herein shall restrict or otherwise prohibit or prevent (i) Executive's use or disclosure of Executive's Information Base or (ii) disclosure of Confidential Information pursuant to legal proceedings, subpoena, civil investigative demand or other similar process. Executive agrees that if disclosure of Confidential Information is requested or required pursuant to any such process, he shall provide the Company with prompt written notice of any such request or requirement so that - 11 - 12 the Company may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. If, in the absence of a protective order or other remedy or the receipt of a waiver by the Company, Executive is nonetheless, legally compelled to disclose Confidential Information to any tribunal or other agency, Executive may, without liability hereunder, disclose to such tribunal or other agency only that portion of the Confidential Information which Executive is legally required to disclose, Executive agrees to cooperate with the Company to obtain an appropriate protective order or other reliable assurance that such tribunal or other agency will accord the Confidential Information confidential treatment. The Company also acknowledges and agrees that Confidential Information shall not include any information (a) known by Executive prior to the date of this Agreement and learned by Executive other than as a result of his employment relationship with the Company, (b) independently developed by the Executive outside of the scope of his employment relationship with the Company or (c) is or becomes publicly available through no breach by the Executive of his obligation to the Company. 6. Non-Solicitation of Employees. Executive covenants that during the term of his employment by the Company, and during the two (2) year period immediately following the termination of such employment, Executive will neither directly nor indirectly induce or attempt to induce any employee of the Company to terminate his or her employment to go to work for any other employer in a business competing with that of the Company. The provisions of this Section 6 shall terminate and be of no further force and effect from and after the date on which the Company fails to make any payment owed to Employee under this Agreement following the Employment Term, which payment remains unpaid five (5) business days following the receipt of written notice from Executive that such payment has not been made (provided that such cure period shall not apply with respect to the Company's third or subsequent failure to make any payment due Executive hereunder in any twelve (12) month period); provided, however, that in the event that there is any reasonable and good faith dispute between the Company and Executive as to any amount payable to Executive, for purposes of this Section 6 the disputed amount shall not be considered due and payable until such dispute shall have been finally resolved in an appropriate proceeding and any time for appeal of such resolution shall have run without an appropriate appeal having been taken. 7. Hiring of Employees. Executive covenants that during the term of his employment by the Company, and during the one (1) year period immediately following the termination of such employment, Executive will neither directly nor indirectly hire any management level employee of the Company. The provisions of this Section 7 shall terminate and be of no further force and effect from and after the date on which the Company fails to make any payment owed to Employee under this Agreement following the Employment Term, which payment remains unpaid five (5) business days following the receipt of written notice from Executive that such payment has not been made (provided that such cure period shall not apply with respect to the Company's third or subsequent failure to make any payment due Executive hereunder in any twelve (12) month period); provided, however, that in the event that there is any reasonable and good faith dispute between the Company and Executive as to any amount payable to Executive, for purposes of this Section 7 the disputed amount shall not be considered due and payable until such - 12 - 13 dispute shall have been finally resolved in an appropriate proceeding and any time for appeal of such resolution shall have run without an appropriate appeal having been taken. 8. Property of Company. Executive acknowledges that from time to time in the course of providing services pursuant to this Agreement he shall have the opportunity to inspect and use certain property, both tangible and intangible, of the Company, and Executive hereby agrees that said property shall remain the exclusive property of the Company and the Executive shall have no right or proprietary interest in such property, whether tangible or intangible, including, without limitation, the Company's franchise and supplier lists, contract forms, books of account, training and operating materials and similar property. 9. Developments. All developments, including inventions, whether patentable or otherwise, trade secrets, discoveries, improvements, ideas and writings which either directly or indirectly relate to or may be useful in the business of the Company or any of its affiliates (the "Developments") which Executive, either by himself or in conjunction with any other person or persons, has conceived, made, developed, acquired or acquired knowledge of during his employment by the Company or which Executive, either by himself or in conjunction with any other person or persons, shall conceive, make, develop, acquire or acquire knowledge of during the Employment Term, shall become and remain the sole and exclusive property of the Company. Executive hereby assigns, transfers and conveys, and agrees to so assign, transfer and convey, all of his right, title and interest in and to any and all such Developments and to disclose fully as soon as practicable, in writing, all such Developments to the Chairman of the Company. At any time and from time to time, upon the request and at the expense of the Company, Executive will execute and deliver any and all instruments, documents and papers, give evidence and do any and all other acts which, in the opinion of counsel for the Company, are or may be necessary or desirable to document such transfer or to enable the Company to file and prosecute applications for and to acquire, maintain and enforce any and all patents, trademark registrations or copyrights under United States or foreign law with respect to any such Developments or to obtain any extension, validation, reissue, continuance or renewal of any such patent, trademark or copyright. The Company will be responsible for the preparation of any such instruments, documents and papers and for the prosecution of any such proceedings and will reimburse Executive for all reasonable expenses incurred by him in compliance with the provisions of this Section. 10. Reasonableness. The restrictions contained in Sections 4,5,6 and 7 are considered by the parties hereto to be fair and reasonable and necessary for the protection of the legitimate business interests of the Company. 11. Equitable Relief. Executive acknowledges that the services to be rendered by him are of a special, unique, unusual, extraordinary, and intellectual character, which gives them a peculiar value, and the loss of which cannot reasonably or adequately be compensated in damages in an action at law; and that a breach by him of any of the provisions contained in Sections 4, 5, 6 and 7 of this Agreement will cause the Company irreparable injury and damage. Executive further acknowledges that he possesses unique - 13 - 14 skills, knowledge and ability and that any material breach of the provisions of Sections 4, 5, 6 and 7 of this Agreement would be extremely detrimental to the Company. By reason thereof, Executive agrees that the Company shall be entitled, in addition to any other remedies it may have under this Agreement or otherwise, to injunctive and other equitable relief to prevent or curtail any breach of the provisions of Sections 4, 5, 6 and 7 of this Agreement by him. 12. Survival of Provisions. The provisions of Sections 4 through 14, inclusive, of this Agreement shall survive the termination of this Agreement to the extent required to give full effect to the covenants and agreements contained in those sections. All provisions of this Agreement which contemplate the making of payments or the provision of consideration or other items of economic value by the Company to the Executive after the termination of this Agreement shall likewise survive the termination of this Agreement to the extent required to give full effect to such undertakings or obligations of the Company to Executive hereunder. 13. Warranties and Representations. In order to induce the Company to enter into this Employment Agreement, Executive hereby warrants and represents to the Company as follows: (a) Executive is not under any obligation, contractual or otherwise, to any party which would prohibit or be contravened by Executive's acceptance of employment by the Company and the performance of Executive's duties as President, Chief Operating Officer and director of the Company or the performance of Executive's obligations under this Agreement; and (b) The answers to the questions contained in the Questionnaire attached hereto as Exhibit F are true and correct as of the date of execution of this agreement. Notwithstanding the foregoing, the Company acknowledges and agrees that (i) Executive has provided the Company with a copy of the provisions contained under Section 10,11 and 12 (the "Subject Provisions") of Executive's employment agreement with Executive's employer, Applebee's International, Inc., and (ii) any actions or claims raised by any person or entity with respect to the Subject Provisions, whether successful or unsuccessful, shall not constitute a breach or violations of the provisions of this Section 13 by Employee. 14. Successors Bound; Assignability. This Agreement shall be binding upon Executive, the Company and their successors in interest, including without limitation, any corporation into which the Company may be merged or by which it may be acquired. This Agreement is nonassignable except that the Company's rights, duties and obligations under this Agreement may be assigned to the Company's acquiror in the event the Company is merged, acquired or sells substantially all of its assets. Nothing contained herein shall be deemed, interpreted or construed to prevent or constitute a waiver by Executive of his right and entitlement to terminate this Agreement for reason as contemplated by clause (vi) of Section 3.1 of this Agreement. - 14 - 15 15. Severability. In the event that any one or more of the provisions of this Agreement or any word, phrase, clause, sentence or other portion thereof shall be deemed to be illegal or unenforceable for any reason, such provision or portion thereof shall be modified or deleted, to the extent permissible under applicable law, in such a manner so as to make this Agreement as modified legal and enforceable to the fullest extent permitted under applicable laws. 16. Withholding. Notwithstanding any of the terms or provisions of this Agreement, all amounts payable by the Company hereunder shall be subject to withholding of such sums related to taxes as the Company may reasonably determine it should withhold pursuant to applicable law or regulation. 17. Headings. The headings and captions used in this Agreement are for convenience of reference only, and shall in no way define, limit, expand or otherwise affect the meaning or construction of any provision of this Agreement. 18. Notices. Any notice required or permitted to be given pursuant to this Agreement shall be deemed sufficiently given when delivered in person or when deposited in the United States mail, registered or certified mail, postage prepaid, addressed as follows: If to the Company, to: RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chairman With a copy to: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attention: William H. Avery If to Executive, to: Philip J. Hickey, Jr. 867 Waterford Green Marietta, Georgia 30068 With a copy to: Altman, Kritzer & Levick, P.C. 6400 Powers Ferry Road, N.W. Suite 224 Atlanta, Georgia 30339 Attn: Craig H. Kritzer or Duane D. Sitar - 15 - 16 Any party may by written notice change the address to which notices to such party are to be delivered or mailed. 19. Entire Agreement. This Agreement, together with Exhibits A, B, C, D, E and F hereto which are incorporated herein by this reference, constitutes the entire Agreement between the parties hereto with regard to the subject matter hereof, and there are no agreements, understandings, specific restrictions, warranties or representations relating to said subject matter between the parties other than those set forth herein or herein provided for. 20. Counterparts. This Agreement may be executed in two or more counterparts, each of which will take effect as an original and all of which shall evidence one and the same Agreement. 21. Amendment, Modification and Waiver. This Agreement may only be amended, modified or terminated prior to the end of its term by the mutual agreement of the parties. The waiver by either party to this Agreement of a breach of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent or simultaneous breach. 22. Mitigation. Executive shall have no duty to attempt to mitigate the compensation or level of benefits payable by the Company to him hereunder and the Company shall not be entitled to set off against the amounts payable by the Company to Executive hereunder any amounts received by the Executive from any other source, including any subsequent employer. 23. Governing Law. All of the terms and provisions of this Agreement shall be construed in accordance with and governed by the applicable laws of the State of Georgia. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RARE HOSPITALITY INTERNATIONAL, INC. By: /s/ George W. McKerrow, Jr. ------------------------------------ Title: President EXECUTIVE /s/ Philip J. Hickey, Jr. --------------------------------------- PHILIP J. HICKEY, JR. - 16 - 17 INDEX TO EXHIBITS -----------------
EXHIBIT DESCRIPTION - ------- ----------- A INITIAL NON-QUALIFIED STOCK OPTION AGREEMENT B REMAINING NON-QUALIFIED STOCK OPTION AGREEMENT C INCENTIVE STOCK OPTION AGREEMENT D DEFINITION OF CHANGE IN CONTROL E RESTRICTED AREA F QUESTIONNAIRE
18 EXHIBIT A NON-QUALIFIED STOCK OPTION AGREEMENT under the RARE HOSPITALITY INTERNATIONAL, INC. AMENDED AND RESTATED 1992 INCENTIVE PLAN This Stock Option Agreement is made as of the ___ day of _______ 1997 by and between RARE HOSPITALITY INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as the "Company"), and PHILIP J. HICKEY, JR., a resident of the State of Georgia (hereinafter referred to as the "Optionee"). Simultaneously with the execution and delivery of this Option Agreement, the Company and the Optionee have entered into an agreement pursuant to which the Optionee will become an employee of the Company as of _________, 1997 (the "Employment Agreement"). In order to induce the Optionee to enter into the Employment Agreement and to become an employee of the Company and in consideration of the Optionee's entering into the Employment Agreement, accepting employment with the Company and performing services on behalf of the Company, the Company desires to grant to Optionee options to purchase shares of the Company's common stock on the terms, and subject to the conditions contained in this Agreement. In consideration of Optionee's entering into the Employment Agreement and the services of the Optionee for the Company, the receipt and sufficiency of which are hereby acknowledged, the Company and the Optionee hereby agree as follows: 1. Grant of Option. The Company hereby grants to the Optionee, under the RARE Hospitality International, Inc. Amended and Restated 1992 Plan (the "Plan"), a Non-Qualified Stock Option to purchase, on the terms and conditions set forth in this agreement (this "Option Agreement"), 182,577 shares of the Company's no par value common stock (the "Stock"), at the exercise prices per share set forth below (the "Option"): (a) 90,910 shares at $ ____ per share; and (b) 91,667 shares at $12.00 per share. Capitalized terms used herein and not otherwise defined shall have the meanings assigned such terms in the Plan. 2. Vesting of Option. Unless the exercisability of the Option is accelerated in accordance with Article 13 of the Plan or as provided in Section 5 hereof, the Option shall vest (become exercisable) only in cumulative periodic installments as follows: 19 (a) During the six months following the date of this Agreement, the Option shall be exercisable as to none of the shares subject to the Option; (b) During the period beginning six months after the date of this Agreement and for a period of six months thereafter, the Option shall be exercisable as to one-half of the shares described in paragraph 1(a) above, minus the number of shares, if any, as to which the Option has been previously exercised; (c) During the period beginning one year after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable as to all of the shares described in paragraph 1(a) above, minus the number of shares, if any, as to which the Option has been previously exercised; (d) During the period beginning two years after the date of this Agreement and for the remainder of its term, the Option shall be exercisable with respect to all of the shares described in paragraph 1(a) and 1(b) above, minus the number of shares, if any, as to which the Option has been previously exercised. 3. Period of Option and Limitations on Right to Exercise. The Option will, to the extent not previously exercised, lapse under the earliest of the following circumstances; provided, however, that the Committee may, prior to the lapse of the Option under the circumstances described in paragraphs (b), (c) and (d) below, provide in writing that the Option will extend until a later date: (a) The Option shall lapse as of 5:00 p.m., Eastern Time, on the day immediately prior to the tenth anniversary of the date of grant (the "Expiration Date"). (b) The Option shall lapse three months after the termination of Optionee's employment for any reason other than the Optionee's death or Disability; provided, however, that if the Optionee's employment is terminated by the Company for cause or by the Optionee without reason and without the consent of the Company, the Option shall lapse immediately. (c) If the Optionee's employment terminates by reason of Disability, the Option shall lapse one year after the date of the Optionee's termination of employment. (d) If the Optionee dies while employed, or during the three-month period described in subsection (b) above or during the one-year period described in subsection (c) above and before the Option otherwise lapses, the Option shall lapse one year after the date of the Optionee's death. Upon the Optionee's death, the Option may be exercised by the Optionee's beneficiary. If the Optionee or his beneficiary exercises an Option after termination of employment, the Option may be exercised only with respect to the shares that were otherwise vested on the Optionee's termination of employment including vesting by acceleration in accordance with Article 13 of the Plan and Section 5 hereof. - 2 - 20 4. Exercise of Option. The Option shall be exercised by written notice directed to the Secretary of the Company at the principal executive offices of the Company, in substantially the form attached hereto as Exhibit A, or such other form as the Committee may approve. Such written notice shall be accompanied by full payment in cash, shares of Stock previously acquired by the Optionee, or any combination thereof, for the number of shares specified in such written notice; provided, however, that if shares of Stock are used to pay the exercise price, such shares must have been held by the Optionee for at least six months. The Fair Market Value of the surrendered Stock as of the date of the exercise shall be determined in valuing Stock used in payment of the exercise price. To the extent permitted under Regulation T of the Federal Reserve Board, and subject to applicable securities laws, the Option may be exercised through a broker in a so-called "cashless exercise" whereby the broker sells the Option shares and delivers cash sales proceeds to the Company in payment of the exercise price. The Committee may, in the exercise of its discretion, but need not, allow the Optionee to pay the exercise price by directing the Company to withhold from the shares of Stock that would otherwise be issued upon exercise of the Option that number of shares having a Fair Market Value on the exercise date equal to the exercise price, all as determined pursuant to rules and procedures established by the Committee. Subject to the terms of this Option Agreement, the Option may be exercised at any time and without regard to any other option held by the Optionee to purchase stock of the Company. 5. Acceleration of Exercisability Under Certain Circumstances. (a) In the event that the Optionee's employment by the Company shall terminate pursuant to Section 3.1(i) or (ii) of the Employment Agreement dated as of ___________, 1997 by and between the Company and the Optionee (the "Employment Agreement"), then any portions of the Option which would have become exercisable within twelve (12) months following the date of such termination, shall, for all purposes of this Option Agreement, be deemed exercisable as of the date of termination of the Optionee's employment. (b) In the event that the Optionee's employment by the Company shall terminate pursuant to clause (iv) or clause (vi) of Section 3.1 of the Employment Agreement, the Option shall become fully exercisable with respect to all shares of Stock, other than those with respect to which the Option has previously been exercised. (c) Upon the occurrence of a Change in Control (as defined in Exhibit B attached hereto and incorporated herein), the Option shall become fully exercisable with respect to all shares of Stock, other than those with respect to which the Option has previously been exercised; provided, however, that such acceleration will not occur if, in the opinion of the Company's accountants ( a copy of which opinion shall be delivered to Optionee in verification of the applicability of this proviso), such acceleration would preclude the use of "pooling of interest" accounting treatment for a Change In Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment. - 4 - 21 6. Limitation of Rights. The Option does not confer to the Optionee or the Optionee's personal representative any rights of a shareholder of the Company unless and until shares of Stock are in fact issued to such person in connection with the exercise of the Option. Nothing in this Option Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate the Optionee's employment at any time, nor confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary. 7. Stock Reserve. The Company shall at all times during the term of this Option Agreement reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Option Agreement. 8. Optionee's Covenant. The Optionee hereby agrees to use his best efforts to provide services to the Company in a workmanlike manner and to promote the Company's interests. 9. Restrictions on Transfer and Pledge. The Option may not be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Parent or Subsidiary, or be subject to any lien, obligation, or liability of the Optionee to any other party other than the Company or a Parent or Subsidiary. The Option is not assignable or transferable by the Optionee other than by will or the laws of descent and distribution; provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation and (ii) is otherwise appropriate and desirable, taking into account any state or federal tax or securities laws applicable to transferable options. The Option may be exercised during the lifetime of the Optionee only by the Optionee. 10. Restrictions on Issuance of Shares. If at any time the Board shall determine in its discretion, that listing, registration or qualification of the shares of Stock covered by the Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to the exercise of the Option, the Option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. The Company shall be responsible for (i) reasonably and promptly pursuing, prosecuting and obtaining any listing, registration, qualification, consent or approval required hereunder on a timely basis in accordance with all applicable laws and (ii) all costs or expenses incurred in connection therewith. Notwithstanding the foregoing, the Company shall cause all shares of Stock acquired by Executive through the exercise of the Option to be registered and freely tradeable, whether by means of the Company's filing of all necessary S-8 registrations or otherwise, by Executive from and after the date Executive exercises such Option; subject to restrictions on sale or transfer of such shares under applicable securities laws by virtue of Executive's position with the Company or ownership of the Company's securities. 11. Plan Controls. The terms contained in the Plan are incorporated into and made a part of this Option Agreement and this Option Agreement shall be governed by and construed in accordance with the Plan. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Option Agreement, the provisions of the Plan shall be controlling and determinative Whenever any provision of the Plan permits or requires any action or the exercise of - 4 - 22 discretion by the Company, the Board of Directors of the Company, or any committee of the Company or the Board of Directors of the Company, in order to give effect to the provisions of this Agreement under the terms of the Plan, the Company, the Board of Directors and any such committee in approving this Agreement has authorized and approved such action and discretion and hereby agrees to take any such action or exercise any such discretion in such manner so as to fully give effect to the provisions of this Agreement under the Plan. 12. Successors. This Option Agreement shall be binding upon any successor of the Company, in accordance with the terms of this Option Agreement and the Plan. 13. Severability. If any one or more of the provisions contained in this Option Agreement are invalid, illegal or unenforceable, the other provisions of this Option Agreement will be construed and enforced as if the invalid, illegal or unenforceable provision had never been included. 14. Notice. Notices and communications under this Option Agreement must be in writing and either personally delivered or sent by registered or certified United States mail, return receipt requested, postage prepaid. Notices to the Company must be addressed to: RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer or any other address designated by the Company in a written notice to the Optionee. Notices to the Optionee will be directed to the address of the Optionee then currently on file with the Company, or at any other address given by the Optionee in a written notice to the Company. IN WITNESS WHEREOF, RARE Hospitality International, Inc., acting by and through its duly authorized officers, has caused this Option Agreement to be executed, and the Optionee has executed this Option Agreement, all as of the day and year first above written. RARE HOSPITALITY INTERNATIONAL, INC. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- OPTIONEE: ------------------------------------------- Philip J. Hickey, Jr. -5- 23 EXHIBIT A NOTICE OF EXERCISE OF OPTION TO PURCHASE COMMON STOCK OF RARE HOSPITALITY INTERNATIONAL, INC. Name ------------------------------------ Address: ---------------------------------------- ---------------------------------------- Date ------------------------------------ RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer Re: Exercise of Non-Qualified Stock Option I elect to purchase ______________ shares of Common Stock of RARE Hospitality International, Inc. ("RARE") pursuant to the RARE Hospitality International, Inc. Non-Qualified Stock Option Agreement dated ______________ and the RARE Hospitality International, Inc. Amended and Restated 1992 Incentive Plan. The purchase will take place on the Exercise Date which will be as soon as practicable following the date this notice and all other necessary forms and payments are received by RARE, unless I specify a later date (not to exceed 30 days following the date of this notice). On or before the Exercise Date, I will pay the full exercise price in the form specified below (check one): [ ] Cash Only: by delivering a check to RARE Hospitality International, Inc. for $___________. [ ] Cash and Shares: by delivering a check to RARE Hospitality International, Inc. for $_________ for the part of the exercise price. I will pay the balance of the exercise price by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. 24 [ ] Shares Only: by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. [ ] Cash From Broker: by delivering the purchase price from _______________________, a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System (the "Broker"). I authorize RARE to issue a stock certificate in the number of shares indicated above in the name of the Broker in accordance with instructions received by RARE from the Broker and to deliver such stock certificate directly to the Broker (or to any other party specified in the instructions from the Broker) upon receiving the exercise price from the Broker. Please deliver the stock certificate to me (unless I have chosen to pay the purchase price through a broker). Very truly yours, --------------------------------------- AGREED TO AND ACCEPTED: RARE HOSPITALITY INTERNATIONAL, INC. By: ------------------------------- Title: ---------------------------- Number of Option Shares Exercised: ------------------------ Number of Option Shares Remaining: ------------------------ Date: ----------------------------- - 7 - 25 EXHIBIT B TO RARE HOSPITALITY, INC. STOCK OPTION AGREEMENT "Change in Control" means and includes each of the following: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 25% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who is on the date of this Agreement (the "Effective Date") the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition; or (2) Individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to September 28, 1997 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company; or (3) Consummation of a reorganization, share exchange, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without 26 limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities, and (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors of the Company, providing for such Business Combination; or (4) approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. - 2 - 27 EXHIBIT B NON-QUALIFIED STOCK OPTION AGREEMENT under the RARE HOSPITALITY INTERNATIONAL, INC. 1997 LONG-TERM INCENTIVE PLAN This Stock Option Agreement is made as of the ____ day of _______ 1997 by and between RARE HOSPITALITY INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as the "Corporation"), and PHILIP J. HICKEY, JR., a resident of the State of Georgia (hereinafter referred to as the "Optionee"). Simultaneously with the execution and delivery of this Option Agreement, the Corporation and the Optionee have entered into an agreement pursuant to which the Optionee will become an employee of the Corporation as of __________, 1997 (the "Employment Agreement"). In order to induce the Optionee to enter into the Employment Agreement and to become an employee of the Corporation and in consideration of the Optionee's entering into the Employment Agreement, accepting employment with the Corporation and performing services on behalf of the Corporation, the Corporation desires to grant to Optionee options to purchase shares of the Corporation's common stock on the terms, and subject to the conditions contained in this Agreement. In consideration of Optionee's entering into the Employment Agreement and the services of the Optionee for the Corporation, the receipt and sufficiency of which are hereby acknowledged, the Corporation and the Optionee hereby agree as follows: 1. Grant of Option. The Corporation hereby grants to the Optionee, under the RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan (the "Plan"), a Non-Qualified Stock Option to purchase, on the terms and conditions set forth in this agreement (this "Option Agreement"), 93,334 shares of the Corporation's no par value common stock (the "Stock"), at a price of $15.00 per share. Capitalized terms used herein and not otherwise defined shall have the meanings assigned such terms in the Plan. 2. Vesting of Option. Unless the exercisability of the Option is accelerated in accordance with Article 13 of the Plan or as provided in Section 5 hereof, the Option shall vest (become exercisable) only as follows: (a) During the first three years following the date of this Agreement, the Option shall be exercisable as to none of the shares subject to the Option; (b) During the period beginning three years after the date of this Agreement and for the remainder of its term, the Option shall be exercisable with respect to all of the shares described in Section 1 above minus the number of shares, if any, as to which the Option has been previously exercised. 28 3. Period of Option and Limitations on Right to Exercise. The Option will, to the extent not previously exercised, lapse under the earliest of the following circumstances; provided, however, that the Committee may, prior to the lapse of the Option under the circumstances described in paragraphs (b), (c) and (d) below, provide in writing that the Option will extend until a later date: (a) The Option shall lapse as of 5:00 p.m., Eastern Time, on the day immediately prior to the tenth anniversary of the date of grant (the "Expiration Date"). (b) The Option shall lapse three months after the termination of Optionee's employment for any reason other than the Optionee's death or Disability; provided, however, that if the Optionee's employment is terminated by the Corporation for cause or by the Optionee without reason and without the consent of the Corporation, the Option shall lapse immediately. (c) If the Optionee's employment terminates by reason of Disability, the Option shall lapse one year after the date of the Optionee's termination of employment. (d) If the Optionee dies while employed, or during the three-month period described in subsection (b) above or during the one-year period described in subsection (c) above and before the Option otherwise lapses, the Option shall lapse one year after the date of the Optionee's death. Upon the Optionee's death, the Option may be exercised by the Optionee's beneficiary. If the Optionee or his beneficiary exercises an Option after termination of employment, the Option may be exercised only with respect to the shares that were otherwise vested on the Optionee's termination of employment including vesting by acceleration in accordance with Article 13 of the Plan and Section 5 hereof. 4. Exercise of Option. The Option shall be exercised by written notice directed to the Secretary of the Corporation at the principal executive offices of the Corporation, in substantially the form attached hereto as Exhibit A, or such other form as the Committee may approve. Such written notice shall be accompanied by full payment in cash, shares of Stock previously acquired by the Optionee, or any combination thereof, for the number of shares specified in such written notice; provided, however, that if shares of Stock are used to pay the exercise price, such shares must have been held by the Optionee for at least six months. The Fair Market Value of the surrendered Stock as of the date of the exercise shall be determined in valuing Stock used in payment of the exercise price. To the extent permitted under Regulation T of the Federal Reserve Board, and subject to applicable securities laws, the Option may be exercised through a broker in a so-called "cashless exercise" whereby the broker sells the Option shares and delivers cash sales proceeds to the Corporation in payment of the exercise price. The Committee may, in the exercise of its discretion, but need not, allow the Optionee to pay the exercise price by directing the Corporation to withhold from the shares of Stock that would otherwise be issued upon exercise of the Option that number of shares having a Fair Market Value on the exercise date equal to the exercise price, all as determined pursuant to rules and procedures established by the Committee. - 2 - 29 Subject to the terms of this Option Agreement, the Option may be exercised at any time and without regard to any other option held by the Optionee to purchase stock of the Corporation. 5. Acceleration of Exercisability Under Certain Circumstances. (a) In the event that the Optionee's employment by the Corporation shall terminate pursuant to Section 3.1(i) or (ii) of the Employment Agreement dated as of ____________, 1997 by and between the Corporation and the Optionee (the "Employment Agreement"), then any portions of the Option which would have become exercisable within twelve (12) months following the date of such termination, shall, for all purposes of this Option Agreement, be deemed exercisable as of the date of termination of the Optionee's employment. (b) In the event that the Optionee's employment by the Company shall terminate pursuant to clause (iv) or clause (vi) of Section 3.1 of the Employment Agreement, then the Option shall become fully exercisable with respect to all shares of Stock, other than those with respect to which the Option has previously been exercised. (c) Upon the occurrence of a Change in Control, the Option shall become fully exercisable with respect to all shares of Stock, other than those with respect to which the Option has previously been exercised; provided, however, that such acceleration will not occur if, in the opinion of the Corporation's accountants ( a copy of which opinion shall be delivered to Optionee in verification of the applicability of this proviso), such acceleration would preclude the use of "pooling of interest" accounting treatment for a Change In Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment. 6. Limitation of Rights. The Option does not confer to the Optionee or the Optionee's personal representative any rights of a shareholder of the Corporation unless and until shares of Stock are in fact issued to such person in connection with the exercise of the Option. Nothing in this Option Agreement shall interfere with or limit in any way the right of the Corporation or any Subsidiary to terminate the Optionee's employment at any time, nor confer upon the Optionee any right to continue in the employ of the Corporation or any Subsidiary. 7. Stock Reserve. The Corporation shall at all times during the term of this Option Agreement reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Option Agreement. 8. Optionee's Covenant. The Optionee hereby agrees to use his best efforts to provide services to the Corporation in a workmanlike manner and to promote the Corporation's interests. 9. Restrictions on Transfer and Pledge. The Option may not be pledged, encumbered, or hypothecated to or in favor of any party other than the Corporation or a Parent or Subsidiary, or be subject to any lien, obligation, or liability of the Optionee to any other party other than the Corporation or a Parent or Subsidiary. The Option is not assignable or transferable by the Optionee - 3 - 30 other than by will or the laws of descent and distribution; provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation and (ii) is otherwise appropriate and desirable, taking into account any state or federal tax or securities laws applicable to transferable options. The Option may be exercised during the lifetime of the Optionee only by the Optionee. 10. Restrictions on Issuance of Shares. If at any time the Board shall determine in its discretion, that listing, registration or qualification of the shares of Stock covered by the Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to the exercise of the Option, the Option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. The Company shall be responsible for (i) reasonably and promptly pursuing, prosecuting and obtaining any listing, registration, qualification, consent or approval required hereunder on a timely basis in accordance with all applicable laws and (ii) all costs or expenses incurred in connection therewith. Notwithstanding the foregoing, the Company shall cause all shares of Stock acquired by Executive through the exercise of the Option to be registered and freely tradeable, whether by means of the Company's filing of all necessary S-8 registrations or otherwise, by Executive from and after the date Executive exercises such Option; subject to restrictions on sale or transfer of such shares under applicable securities laws by virtue of Executive's position with the Company or ownership of the Company's securities. 11. Plan Controls. The terms contained in the Plan are incorporated into and made a part of this Option Agreement and this Option Agreement shall be governed by and construed in accordance with the Plan. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Option Agreement, the provisions of the Plan shall be controlling and determinative. Notwithstanding the foregoing, nothing contained in Section 13.10 or 15.2. of the Plan shall be exercised by any person, persons, entity or entities having authority to do the same and contravention of Optionee's rights under this Agreement or so as to cause any diminution in the value or benefit of Optionee's rights or entitlements hereunder. Whenever any provision of the Plan permits or requires any action or the exercise of discretion by the Company, the Board of Directors of the Company, or any committee of the Company or the Board of Directors of the Company, in order to give effect to the provisions of this Agreement under the terms of the Plan, the Company, the Board of Directors and any such committee in approving this Agreement has authorized and approved such action and discretion and hereby agrees to take any such action or exercise any such discretion in such manner so as to fully give effect to the provisions of this Agreement under the Plan. 12. Successors. This Option Agreement shall be binding upon any successor of the Corporation, in accordance with the terms of this Option Agreement and the Plan. 13. Severability. If any one or more of the provisions contained in this Option Agreement are invalid, illegal or unenforceable, the other provisions of this Option Agreement will be construed and enforced as if the invalid, illegal or unenforceable provision had never been included. - 4 - 31 14. Notice. Notices and communications under this Option Agreement must be in writing and either personally delivered or sent by registered or certified United States mail, return receipt requested, postage prepaid. Notices to the Corporation must be addressed to: RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer or any other address designated by the Corporation in a written notice to the Optionee. Notices to the Optionee will be directed to the address of the Optionee then currently on file with the Corporation, or at any other address given by the Optionee in a written notice to the Corporation. IN WITNESS WHEREOF, RARE Hospitality International, Inc., acting by and through its duly authorized officers, has caused this Option Agreement to be executed, and the Optionee has executed this Option Agreement, all as of the day and year first above written. RARE HOSPITALITY INTERNATIONAL, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- OPTIONEE: ---------------------------------------- Philip J. Hickey, Jr. - 5 - 32 EXHIBIT A NOTICE OF EXERCISE OF OPTION TO PURCHASE COMMON STOCK OF RARE HOSPITALITY INTERNATIONAL, INC. Name ------------------------------------ Address: ---------------------------------------- ---------------------------------------- Date ------------------------------------ RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer Re: Exercise of Non-Qualified Stock Option I elect to purchase ______________ shares of Common Stock of RARE Hospitality International, Inc. ("RARE") pursuant to the RARE Hospitality International, Inc. Non-Qualified Stock Option Agreement dated ______________ and the RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan. The purchase will take place on the Exercise Date which will be as soon as practicable following the date this notice and all other necessary forms and payments are received by RARE, unless I specify a later date (not to exceed 30 days following the date of this notice). On or before the Exercise Date, I will pay the full exercise price in the form specified below (check one): [ ] Cash Only: by delivering a check to RARE Hospitality International, Inc. for $___________. [ ] Cash and Shares: by delivering a check to RARE Hospitality International, Inc. for $_________ for the part of the exercise price. I will pay the balance of the exercise price by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. 33 [ ] Shares Only: by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. [ ] Cash From Broker: by delivering the purchase price from _______________________, a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System (the "Broker"). I authorize RARE to issue a stock certificate in the number of shares indicated above in the name of the Broker in accordance with instructions received by RARE from the Broker and to deliver such stock certificate directly to the Broker (or to any other party specified in the instructions from the Broker) upon receiving the exercise price from the Broker. Please deliver the stock certificate to me (unless I have chosen to pay the purchase price through a broker). Very truly yours, --------------------------------------- AGREED TO AND ACCEPTED: RARE HOSPITALITY INTERNATIONAL, INC. By: ------------------------------- Title: ---------------------------- Number of Option Shares Exercised: ------------------------ Number of Option Shares Remaining: ------------------------ Date: ----------------------------- - 2 - 34 EXHIBIT C INCENTIVE STOCK OPTION AGREEMENT under the RARE HOSPITALITY INTERNATIONAL, INC. AMENDED AND RESTATED 1992 INCENTIVE PLAN This Stock Option Agreement is made as of the ____ day of _______, 1997 by and between RARE HOSPITALITY INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as the "Corporation"), and PHILIP J. HICKEY, JR., a resident of the State of Georgia (hereinafter referred to as the "Optionee"). 1. Grant of Option. The Corporation hereby grants to the Optionee under the RARE Hospitality International, Inc. Amended and Restated 1992 Incentive Plan (the "Plan"), an Incentive Stock Option to purchase, on the terms and conditions set forth in this agreement (this "Option Agreement"), 24,089 shares of the Corporation's no par value common stock (the "Stock"), at the exercise prices per share set forth below (the "Option"): (a) 9,090 shares at $____ per share; (b) 8,333 shares at $____ per share; and (c) 6,666 shares at $____ per share. Capitalized terms used herein and not otherwise defined shall have the meanings assigned such terms in the Plan. 2. Vesting of Option. Unless the exercisability of the Option is accelerated in accordance with Article 13 of the Plan or as provided in Section 5 hereof, the Option shall vest (become exercisable) only in cumulative periodic installments as follows: (a) during the first six months following the date of this Agreement, the Option shall be exercisable as to none of the shares subject to the Option; (b) during the period beginning six months after the date of this Agreement and for a period of six months thereafter, the Option shall be exercisable as to one-half of the shares described in paragraph 1(a) above, minus the number of shares, if any, as to which the Option has been previously exercised; (c) during the period beginning one year after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable as to all of the shares described in paragraph 1(a) above, minus the number of shares, if any, as to which the Option has been previously exercised; 35 (d) during the period beginning two years after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable with respect to the shares described in paragraphs 1(a) and (b) above, minus the number of shares, if any, as to which the initial option has been previously exercised; and (e) during the period beginning three years after the date of this Agreement and for the remainder of its term, the Option shall be exercisable with respect to all of the shares described in paragraphs 1(a), 1(b) and 1(c) above, minus the number of shares, if any, as to which the Option has been previously exercised. 3. Period of Option and Limitations on Right to Exercise. The Option will, to the extent not previously exercised, lapse under the earliest of the following circumstances; provided, however, that the Committee may, prior to the lapse of the Option under the circumstances described in paragraphs (b), (c) and (d) below, provide in writing that the Option will extend until a later date, but if Option is exercised after the dates specified in paragraphs (b), (c) and (d) above, it will automatically become a Non-Qualified Stock Option: (a) The Option shall lapse as of 5:00 p.m., Eastern Time, on the day immediately prior to the tenth anniversary of the date of grant (the "Expiration Date"). (b) The Option shall lapse three months after the termination of Optionee's employment for any reason other than the Optionee's death or Disability; provided, however, that if the Optionee's employment is terminated by the Corporation for cause or by the Optionee without reason and without the consent of the Corporation, the Option shall lapse immediately. (c) If the Optionee's employment terminates by reason of Disability, the Option shall lapse one year after the date of the Optionee's termination of employment. (d) If the Optionee dies while employed, or during the three-month period described in subsection (b) above or during the one-year period described in subsection (c) above and before the Option otherwise lapses, the Option shall lapse one year after the date of the Optionee's death. Upon the Optionee's death, the Option may be exercised by the Optionee's beneficiary. If the Optionee or his beneficiary exercises an Option after termination of employment, the Option may be exercised only with respect to the shares that were otherwise vested on the Optionee's termination of employment (including vesting by acceleration in accordance with Article 13 of the Plan and Section 5 hereof ). 4. Exercise of Option. The Option shall be exercised by written notice directed to the Secretary of the Corporation at the principal executive offices of the Corporation, in substantially the form attached hereto as Exhibit A, or such other form as the Committee may approve. Such written notice shall be accompanied by full payment in cash, shares of Stock previously acquired by the Optionee, or any combination thereof, for the number of shares specified in such written notice; provided, however, that if shares of Stock are used to pay the exercise price, such shares - 2 - 36 must have been held by the Optionee for at least six months The Fair Market Value of the surrendered Stock as of the date of the exercise shall be determined in valuing Stock used in payment of the exercise price. To the extent permitted under Regulation T of the Federal Reserve Board, and subject to applicable securities laws, the Option may be exercised through a broker in a so-called "cashless exercise" whereby the broker sells the Option shares and delivers cash sales proceeds to the Corporation in payment of the exercise price. The Committee may, in the exercise of its discretion, but need not, allow the Optionee to pay the exercise price by directing the Corporation to withhold from the shares of Stock that would otherwise be issued upon exercise of the Option that number of shares having a Fair Market Value on the exercise date equal to the exercise price, all as determined pursuant to rules and procedures established by the Committee. Subject to the terms of this Option Agreement, the Option may be exercised at any time and without regard to any other option held by the Optionee to purchase stock of the Corporation. 5. Acceleration of Exercisability Under Certain Circumstances. (a) In the event that the Optionee's employment by the Corporation shall terminate pursuant to Section 3.1(i) or (ii) of the Employment Agreement dated as of ____________, 1997 by and between the Corporation and the Optionee (the "Employment Agreement"), then any portions of the Option which would have become exercisable within twelve (12) months following the date of such termination, shall, for all purposes of this Option Agreement, be deemed exercisable as of the date of termination of the Optionee's employment. (b) In the event that the Optionee's employment by the Company shall terminate pursuant to clause (iv) of Section 3.1 of the Employment Agreement then the Option shall become fully exercisable with respect to all shares of Stock, other than those with respect to which the Option has previously been exercised. (c) Upon the occurrence of a Change in Control (as defined in Exhibit B attached hereto and incorporated herein), the Option shall become fully exercisable with respect to all shares of Stock, other than those with respect to which the Option has previously been exercised; provided, however, that such acceleration will not occur if, in the opinion of the Corporation's accountants ( a copy of which opinion shall be delivered to Optionee in verification of the applicability of this proviso), such acceleration would preclude the use of "pooling of interest" accounting treatment for a Change In Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Section 7.2(d) of the Plan, the excess Options shall be deemed to be Non-Qualified Stock Options. 6. Limitation of Rights. The Option does not confer to the Optionee or the Optionee's personal representative any rights of a shareholder of the Corporation unless and until shares of Stock are in fact issued to such person in connection with the exercise of the Option. Nothing in this Option Agreement shall interfere with or limit in any way the right of the Corporation or any - 3 - 37 Subsidiary to terminate the Optionee's employment at any time, nor confer upon the Optionee any right to continue in the employ of the Corporation or any Subsidiary. 7. Stock Reserve. The Corporation shall at all times during the term of this Option Agreement reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Option Agreement. 8. Optionee's Covenant. The Optionee hereby agrees to use his best efforts to provide services to the Corporation in a workmanlike manner and to promote the Corporation's interests. 9. Restrictions on Transfer and Pledge. The Option may not be pledged, encumbered, or hypothecated to or in favor of any party other than the Corporation or a Parent or Subsidiary, or be subject to any lien, obligation, or liability of the Optionee to any other party other than the Corporation or a Parent or Subsidiary. The Option is not assignable or transferable by the Optionee other than by will or the laws of descent and distribution. The Option may be exercised during the lifetime of the Optionee only by the Optionee. 10. Restrictions on Issuance of Shares. If at any time the Board shall determine in its discretion, that listing, registration or qualification of the shares of Stock covered by the Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to the exercise of the Option, the Option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. The Company shall be responsible for (i) reasonably and promptly pursuing, prosecuting and obtaining any listing, registration, qualification, consent or approval required hereunder on a timely basis in accordance with all applicable laws and (ii) all costs or expenses incurred in connection therewith. Notwithstanding the foregoing, the Company shall cause all shares of Stock acquired by Executive through the exercise of the Option to be registered and freely tradeable, whether by means of the Company's filing of all necessary S-8 registrations or otherwise, by Executive from and after the date Executive exercises such Option; subject to restrictions on sale or transfer of such shares under applicable securities laws by virtue of Executive's position with the Company or ownership of the Company's securities. 11. Plan Controls. The terms contained in the Plan are incorporated into and made a part of this Option Agreement and this Option Agreement shall be governed by and construed in accordance with the Plan. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Option Agreement, the provisions of the Plan shall be controlling and determinative. Whenever any provision of the Plan permits or requires any action or the exercise of discretion by the Company, the Board of Directors of the Company, or any committee of the Company or the Board of Directors of the Company, in order to give effect to the provisions of this Agreement under the terms of the Plan, the Company, the Board of Directors and any such committee in approving this Agreement has authorized and approved such action and discretion and hereby agrees to take any such action or exercise any such discretion in such manner so as to fully give effect to the provisions of this Agreement under the Plan. - 4 - 38 12. Successors. This Option Agreement shall be binding upon any successor of the Corporation, in accordance with the terms of this Option Agreement and the Plan. 13. Severability. If any one or more of the provisions contained in this Option Agreement are invalid, illegal or unenforceable, the other provisions of this Option Agreement will be construed and enforced as if the invalid, illegal or unenforceable provision had never been included. 14. Notice. Notices and communications under this Option Agreement must be in writing and either personally delivered or sent by registered or certified United States mail, return receipt requested, postage prepaid. Notices to the Corporation must be addressed to: RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer or any other address designated by the Corporation in a written notice to the Optionee. Notices to the Optionee will be directed to the address of the Optionee then currently on file with the Corporation, or at any other address given by the Optionee in a written notice to the Corporation. 15. Interpretation. It is the intent of the parties hereto that the Option qualify for incentive stock option treatment pursuant to, and to the extent permitted by, Section 422 of the Code. All provisions hereof are intended to have, and shall be construed to have, such meanings as are set forth in applicable provisions of the Code and Treasury Regulations to allow the Option to so qualify. IN WITNESS WHEREOF, RARE Hospitality International, Inc., acting by and through its duly authorized officers, has caused this Option Agreement to be executed, and the Optionee has executed this Option Agreement, all as of the day and year first above written. RARE HOSPITALITY INTERNATIONAL, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- OPTIONEE: ---------------------------------------- Philip J. Hickey, Jr. - 5 - 39 EXHIBIT A NOTICE OF EXERCISE OF OPTION TO PURCHASE COMMON STOCK OF RARE HOSPITALITY INTERNATIONAL, INC. Name ------------------------------------ Address: ---------------------------------------- ---------------------------------------- Date ------------------------------------ RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer Re: Exercise of Incentive Stock Option I elect to purchase ______________ shares of Common Stock of RARE Hospitality International, Inc. pursuant to the RARE Hospitality International, Inc. Incentive Stock Option Agreement dated ______________ and the RARE Hospitality International, Inc. Amended and Restated 1992 Incentive Plan. The purchase will take place on the Exercise Date which will be as soon as practicable following the date this notice and all other necessary forms and payments are received by RARE, unless I specify a later date (not to exceed 30 days following the date of this notice). On or before the Exercise Date, I will pay the full exercise price in the form specified below (check one): [ ] Cash Only: by delivering a check to RARE Hospitality International, Inc. for $___________. [ ] Cash and Shares: by delivering a check to RARE Hospitality International, Inc. for $_________ for the part of the exercise price. I will pay the balance of the exercise price by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. 40 [ ] Shares Only: by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. [ ] Cash From Broker: by delivering the purchase price from _______________________, a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System (the "Broker"). I authorize RARE to issue a stock certificate in the number of shares indicated above in the name of the Broker in accordance with instructions received by RARE from the Broker and to deliver such stock certificate directly to the Broker (or to any other party specified in the instructions from the Broker) upon receiving the exercise price from the Broker. Please deliver the stock certificate to me (unless I have chosen to pay the purchase price through a broker). Very truly yours, --------------------------------------- AGREED TO AND ACCEPTED: RARE HOSPITALITY INTERNATIONAL, INC. By: --------------------------------- Title: ------------------------------ Number of Option Shares Exercised: -------------------------- Number of Option Shares Remaining: -------------------------- Date: ------------------------------- - 2 - 41 EXHIBIT B TO RARE HOSPITALITY, INC. STOCK OPTION AGREEMENT "Change in Control" means and includes each of the following: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 25% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who is on the date of this Agreement (the "Effective Date") the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition; or (2) Individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to September 28, 1997 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company; or (3) Consummation of a reorganization, share exchange, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without 42 limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities, and (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors of the Company, providing for such Business Combination; or (4) approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. - 2 - 43 EXHIBIT D DEFINITION OF CHANGE IN CONTROL "Change in Control" means and includes each of the following: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 25% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who is on the date of this Agreement (the "Effective Date") the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition; or (2) Individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to September 28, 1997 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company; or (3) Consummation of a reorganization, share exchange, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities, and (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors of the Company, providing for such Business Combination; or (4) approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. - 2 - 44 EXHIBIT E The area within the Metropolitan Statistical Area ("MSA") surrounding each city listed below, as said MSA is determined from time to time by the U. S. Bureau of the Census, or for each city with no MSA within fifty (50) miles of the city limits. Alabama Florida Birmingham Altamonte Springs Dothan Boynton Beach Mobile Brandon Montgomery Coral Springs Davie California Destin San Francisco Ft. Lauderdale Ft. Myers Connecticut Jacksonville Beach Manchester Jacksonville Jensen Beach Delaware Kissimmee Newark Lake Mary Largo District of Columbia Merritt Island Miami Ocala Orlando Sarasota St. Augustine St. Petersburg Tallahassee Tampa 45 Georgia Maine Albany Bangor Athens Seakonk Atlanta South Portland Augusta Austell Maryland Cartersville Gaithersburg Chamblee College Park Massachusetts Columbus Boston Conyers Braintree Douglasville Chestnut Hill Duluth Peabody Gainesville Farmington Jonesboro Watertown Kennesaw Lawrenceville Michigan Macon Troy Marietta Montgomery Minnesota Peachtree City Minneapolis Rome Roswell Missouri Savannah Florissant Snellville Tucker Nevada Valdosta Las Vegas Illinois New Hampshire Chicago Newington Kentucky New York Florence Albany Poughkeepsie Rochester - 2 - 46 North Carolina Pennsylvania Burlington Philadelphia Charlotte Concord Rhode Island Gastonia Providence Greensboro Warwick High Point Huntersville South Carolina Pineville Columbia Ohio Greenville Cincinnati Hilton Head Cleveland Spartanburg Columbus Cuyahoga Falls Tennessee Dublin Antioch Fairview Park Chattanooga Mayfield Heights Hermitage Mentor Knoxville North Canton Nashville Solon Madison Springdale Strongsville Texas Houston Virginia Springfield Executive acknowledges and agrees that the geographical area described above is the area in which Executive will initially perform his services for the Company, and that the area in which such services are performed is intended to expand as the business of the Company grows. Executive and the Company agree that as the geographical area in which the Company conducts its business expands, the list of cities described on this Exhibit E shall be deemed to be amended, from time to time, without any further consent, action or notice on the part of the Company or Executive, to include each additional city in which the Company operates a restaurant or a franchisee of the Company operates a restaurant under the terms of a franchise from the Company. Executive agrees to execute one or more amendments hereto upon the request of the Company from time to time in order to confirm such amended list. - 3 - 47 EXHIBIT F QUESTIONNAIRE Have any of the following events happened to you at any time since December 31, 1987: (NOTE: Answer each question "Yes" or "No." If any answer to parts (a) through (g) is "Yes," give details in part (h). For purposes of this question, the date of the event is the date on which the final order, judgment, or decree was entered, or the date on which any rights of appeal from preliminary orders, judgments, or decrees have lapsed. With respect to bankruptcy petitions, the event date shall be the date of filing for uncontested petitions or the date upon which approval of a contested petition became final.) (a) Has a petition under the federal bankruptcy laws or any state insolvency law been filed by or against, or has a receiver, fiscal agent, or similar officer been appointed by a court for the business or property of (i) you, (ii) any partnership in which you were a general partner at the time of filing or within two years before such filing, or (iii) any corporation or business association of which you were an executive officer at the time of filing or within two years before such filing? Answer: Yes No X ----- ----- (b) Have you been convicted in a criminal proceeding, or are you the named subject of a criminal proceeding which is presently pending (excluding traffic violations and other minor offenses)? Answer: Yes No X ----- ----- (c) Have you been the subject of any court order, judgment, or decree, not subsequently reversed, suspended, or vacated, permanently or temporarily enjoining you from, or otherwise limiting, the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director, or employee of any investment company, bank, savings and loan association, or insurance company, or engaging in or continuing any conduct or practice in connection with such activity? Answer: Yes No X ----- ----- 48 (ii) engaging in any type of business practice? Answer: Yes No X ----- ----- (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or state securities laws or Federal commodities laws? Answer: Yes No X ----- ----- (d) Have you been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any Federal or state authority barring, suspending, or otherwise limiting for more than 60 days your right to engage in any of the activities described in (c) above, or to be associated with persons engaged in any such activity? Answer: Yes No X ----- ----- (e) Have you been found by a court in a civil action or by the Securities and Exchange Commission to have violated any Federal or state securities law, which judgment in such civil action or finding by the Securities and Exchange Commission has not been subsequently reversed, suspended, or vacated, or are you presently the subject of any investigation by the Securities and Exchange Commission which could result in the finding of such a violation? Answer: Yes No X ----- ----- (f) Have you been found by a court in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, which judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated, or are you presently the subject of any investigation by the Commodity Futures Trading Commission which could result in the finding of such a violation? Answer: Yes No X ----- ----- (g) Are you a party to any legal proceeding (other than one to which the Company or any of its present subsidiaries is a party) in which you are charged with any wrongdoing, misfeasance, or nonfeasance, in connection with your service as a director, officer, or manager of any business, incorporated or unincorporated, or your practice of any profession? Answer: Yes No X ----- ----- - 2 - 49 (h) If your answer to any of the parts of this question is "Yes," give details. If you believe such incident is not material to an evaluation of your ability or integrity, or if there are mitigating circumstances, give details: ---------------------------------------- ---------------------------------------- ---------------------------------------- ---------------------------------------- EX-10.N 10 EMPLOYMENT AGREEMENT - EUGENE I. LEE 1 EXHIBIT 10(n) EMPLOYMENT AGREEMENT THIS AGREEMENT, made and entered into as of the 16th day of October, 1997, by and between RARE HOSPITALITY INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as the "Company"), and EUGENE I. LEE, a resident of the Commonwealth of Massachusetts (hereinafter referred to as the "Executive"); WITNESSETH: The Company is engaged in the business of owning, operating and franchising the operation of restaurants under the names LongHorn Steakhouse(R), The Capital Grille(R), Bugaboo Creek Steak House(R) and others. The Company desires to continue to employ Executive in an executive capacity and to be assured of his services in such capacity on the terms and conditions set forth in this Agreement. Executive desires to accept such continued employment on such terms and conditions. Executive is currently employed by the Company as Executive Vice President of its Bugaboo Creek Steak House business on terms described in a letter from the Company to Executive dated December 28, 1996 (the "Offer Letter"). The Company and Executive desire to terminate the Offer Letter and the terms of employment described therein and to continue Executive's employment by the Company on the terms and conditions set forth in this Agreement. In the course of Executive's employment, Executive has gained and will gain knowledge of the business, affairs, customers, franchisees, plans and methods of the Company, has been and will be trained at the expense of the Company in the development, opening, operation and management of the Company's restaurants through the use of techniques, systems, practices and methods used and devised by the Company, has had and will have access to information relating to the Company's customers and their preferences and dining habits and has and will become personally known to and acquainted with the Company's suppliers and managers in the Restricted Area thereby establishing a personal relationship with such suppliers and managers for the benefit of the Company. The Company would suffer irreparable harm if Executive were to use such knowledge, information and personal relationships, other than the Executive's Information Base, related to the Company and its business that are obtained and developed in the course of Executive's employment with the Company other than in the proper performance of his duties for the Company. In consideration of the sum of $1.00 in hand paid by the Company to Executive, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and obligations contained herein, the Company and Executive hereby agree as follows: 1. Employment. The Company hereby employs Executive and Executive hereby accepts such employment and agrees to perform his duties and responsibilities hereunder, in accordance with the terms and conditions hereinafter set forth. 2 1.1. Employment Term. The employment term of this Agreement shall commence on the date hereof (the "Commencement Date") and shall continue as employment at will until terminated by the Company or Executive. The period from the Commencement Date until the employment term is terminated by the Company or Executive is hereinafter referred to as the "Employment Term." 1.2. Duties of Executive. Executive agrees that during the Employment Term, he will devote his full professional and business-related time, skills and best efforts to the business of the Company, initially in the capacity of Executive Vice President, Operations of the Company's LongHorn Steakhouse business. In addition, Executive shall devote his full time and his best efforts in the performance of any other reasonable duties as may be assigned to him from time to time by the Company. Executive shall devote all of his full professional and business-related skills solely to the affairs of the Company, and shall not, during his employment, unless otherwise agreed to in advance in writing by the Company, seek or accept other employment, become self-employed in any other capacity during the term of his employment, or engage in any activities which are detrimental to the business of the Company. Notwithstanding the foregoing, Executive may engage in personal investment activities provided such activities do not interfere with Executive's performance of his full-time employment duties under this Agreement. Executive acknowledges that he shall be required to perform his duties from the offices of the Company located in metropolitan Atlanta, Georgia, and Executive will therefore be required to move his residence to metropolitan Atlanta, Georgia. Executive acknowledges that the discharge of his duties for the Company will involve travel on a regular basis from the Company's offices in Atlanta, Georgia. 1.3. Termination of Offer Letter. The Offer Letter is hereby terminated, and from and after the Commencement Date the terms and conditions of Executive's employment by the Company shall be solely as provided in this Agreement. 2. Compensation and Benefits. 2.1. Base Compensation. For all the services rendered by Executive hereunder, the Company shall pay Executive an annual salary at the rate of $185,000 for each full year of the Employment Term, plus such additional amounts, if any as may be approved by the Company's Board of Directors, ("Base Compensation) payable in installments at such times as the Company customarily pays its other senior officers (but in any event no less often than monthly). The Company agrees that the Executive's salary will be reviewed at least annually by the Compensation Committee of the Company's Board of Directors to determine if an increase is appropriate, which increase shall be in the sole discretion of the Company's Board of Directors. Executive's salary shall be prorated for any partial calendar year during which this Agreement remains in effect. 2.2. Bonus Awards. In addition to the Base Compensation, during the Employment Term Executive shall be eligible for a bonus determined and paid in accordance with the bonus program for executive officers of the Company as approved by the Company's Board of Directors from time to time. Notwithstanding the foregoing, -2- 3 Executive's bonus for the 1997 calendar year shall be not less than $30,000. Executive must be employed by the Company on December 31 of a year in order to be entitled to a bonus for that year. 2.3. Stock Options. (a) The Company shall grant to Executive, effective as of the Commencement Date, the following options to acquire shares of the Company's common stock: (i) 40,910 shares with an exercise price equal to the fair market value of the Company's common stock on the date of grant, which option shall become exercisable on the first anniversary of the date of this Agreement; and (ii) 41,667 shares with an exercise price of $12.00 per share, which option shall become exercisable on the second anniversary of the date of this Agreement; and (iii) 43,334 shares with an exercise price of $15.00 per share, which option shall become exercisable on the third anniversary of the date of this Agreement; and Those options granted to Executive in this Section 2.3(a) shall be granted to Executive pursuant to the Company's Amended and Restated 1992 Incentive Plan and the terms and conditions governing such options shall be as set forth in the form of the Stock Option Agreement attached hereto as Exhibit A and made a part hereof. (b) The Company shall grant to Executive, effective as of the Commencement Date, the following incentive stock options to acquire shares of the company's common stock; (i) 9090 shares with an exercise price equal to the fair market value of the Company's common stock on the date of grant, which option shall become exercisable on the first anniversary of the date of this Agreement; and (ii) [8,333] shares with an exercise price of $12.00 per share, which option shall become exercisable with respect to all of such shares on the second anniversary of the date of this Agreement; and (iii) [6,666] shares with an exercise price of $15.00 per share, which option shall become exercisable with respect to all of such shares on the third anniversary of the date of this Agreement; The terms and conditions governing the options described in this Section 2.3(b) shall be as set forth in the form of the Stock Option Agreement attached hereto as Exhibit B and made a part hereof. 2.4. Other Benefits. In addition to all other compensation paid or payable from the Company to Executive hereunder, during the Employment Term Executive shall -3- 4 be entitled to participate in any and all other employee benefit programs maintained by the Company for the benefit of its executive employees generally, in accordance with and subject to the terms and conditions of such programs. Executive acknowledges that the Company is discontinuing automobile allowances for its executive employees and that Executive will not be entitled to any automobile allowance from the Company, including but not limited to the automobile allowance previously paid to him by the Company. 2.5. Expenses. (a) In addition to the compensation described in this Agreement, the Company shall promptly reimburse Executive for all reasonable expenses incurred by him in the performance of his duties under this Agreement and vouched to the reasonable satisfaction of the Board of Directors or appropriate officers of the Company, pursuant to established procedures. (b) The Company shall promptly reimburse Executive for the following expenses incurred by Executive in connection with the relocation of his residence from metropolitan Boston, Massachusetts to Atlanta, Georgia, which expenses shall be documented to the reasonable satisfaction of the Company: (i) Real estate sales commission, not to exceed seven percent (7%) of the sales price, incurred by Executive in connection with the sale of Executive's current residence in metropolitan Boston, Massachusetts; (ii) Real estate loan closing costs, not to exceed two and one-half percent (2.5%) of the purchase price (including an origination fee not to exceed one percent (1%)), incurred in connection with the financing of the purchase of a new residence by Executive in metropolitan Atlanta, Georgia on or before January 31, 1998; (iii) Moving expenses incurred in connection with moving Executive's family and household possessions from metropolitan Boston, Massachusetts to metropolitan Atlanta, Georgia; and (iv) In addition to the specific expenses described in clauses (i)through (iii) above, an amount equal to $2,000 to cover other miscellaneous relocation expenses. 3. Payment upon Termination. (a) Upon termination of the Employment Term for any reason other than (i) Executive's death, or (ii) by the Company other than for Cause (as defined in Exhibit C attached hereto) or during Executive's Disability (as defined in Exhibit C attached hereto), Executive shall be entitled to receive the compensation owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and any additional compensation he may be entitled to receive under the terms of any employee benefit plan. (b) Upon termination of the Employment Term by the death of Executive, Executive's estate shall be entitled to receive the compensation under Section 2.1 as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and any additional compensation he may be entitled -4- 5 to receive under the terms of any employee benefit plan plus the Company will pay to the personal representative of Executive, a lump sum amount equal to one-half of Executive's annual Base Compensation under Section 2.1 as in effect on the date of his death. (c) In the event that during the Employment Term Executive becomes Disabled and the Company thereafter terminates Executive's employment during the continuation of such Disability, Executive shall be entitled to receive the compensation under Section 2.1 as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and any additional compensation he may be entitled to receive under the terms of any employee benefit plan. In addition, the Company shall pay to Executive, for up to ninety (90) days, an amount equal to the difference between the amount of Executive's then level of Base Compensation payable pursuant to Section 2.1 and 150% of the amount paid to Executive under any short-term disability insurance policy obtained by the Executive and paid by the Company through the Company's group coverage until the Company's long-term disability insurance begins to pay. (d) In the event that within two (2) years following the Commencement Date the Company terminates Executive's employment other than for Cause, unless the provisions of Section 3.2(f) apply, Executive shall be entitled to receive the compensation under Section 2.1 as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and the Company will be obligated to pay Executive his annual Base Compensation under Section 2.1 as of the date of termination of such employment from the date of such termination for twelve (12) months. Such payment shall be made as and when otherwise due under this Agreement. (e) In the event that at any time that is more than two (2) years following the Commencement Date the Company terminates Executive's employment other than for Cause, unless the provisions of Section 3.2(f) apply, Executive shall be entitled to receive the compensation under Section 2.1 as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and the Company will be obligated to pay Executive at the rate of his annual Base Compensation under Section 2.1 as of the date of termination of such employment from the date of such termination for six (6) months. Such payment shall be made as and when otherwise due under this Agreement. (f) In the event that the Company terminates Executive's employment other than for Cause within eighteen (18) months following the occurrence of a Change in Control (as defined in Exhibit C attached hereto), in lieu of the amounts payable pursuant to Section 3.2(d) or (e) Executive shall be entitled to receive the compensation under Section 2.1 as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination of such employment and the Company will be obligated to pay Executive an additional amount equal to the sum of (x) his annual Base Compensation as of the date of termination of such employment plus (y) an amount equal to the bonus paid to Executive pursuant to Section 2.2 for the calendar year immediately preceding the calendar year in which the termination of employment occurs. Such payment shall be made within thirty (30) days following termination of Executive's employment. -5- 6 (g) Payments made pursuant to this Section 3.2 are in lieu of any other obligations to Executive pursuant to the terms of this Agreement. 4. Noncompetition. Executive covenants and agrees that during the term of his employment by the Company and for a period of one (1) year immediately following the termination of Executive's employment by the Company for any reason whatsoever, Executive will not, within the area described on Exhibit E hereto (the "Restricted Area") directly or indirectly compete with the Company by carrying on a business any significant portion of which involves the development, opening, operation or franchising of restaurants that derive more than thirty percent (30%) of their food sales from steak products, if the Company is still engaged in such business in such area. 4.1. Definition of "Compete." For the purposes of this Agreement, the term "compete" shall mean the providing of general management or supervisory services for the development or operation or franchising of restaurants that derive more than thirty percent (30%) of their food sales from steak products. 4.2. Direct or Indirect Competition. For the purposes of this Agreement, the words "directly or indirectly" as they modify the word "compete" shall mean (i) acting as an agent, representative, consultant, officer, director, independent contractor, or employee engaged in a management capacity with any entity or enterprise which is carrying on a business any significant portion of which involves the development, opening, or operation of restaurants offering steak as a principal portion of their menu, (ii) participating in any such competing entity or enterprise as an owner, partner, limited partner, joint venturer, creditor or stockholder (except as a stockholder holding less than one percent (1%) interest in a corporation whose shares are actively traded on a regional or national securities exchange or in the over-the-counter market), and (iii) communicating to any such competing entity or enterprise the names or addresses or any other information concerning any employee or supplier of the Company or any successor to the goodwill of the Company with respect to the business of the Company. 5. Confidentiality. Executive recognizes and acknowledges that by reason of his employment by and service to the Company, he will have access to all trade secrets and other confidential information of the Company including, but not limited to, confidential: pricing information, marketing information, sales techniques of the Company, confidential records, the Company's expansion plans, restaurant development and marketing techniques, operating procedures, training programs and materials, business plans, franchise arrangements, plans and agreements, information regarding suppliers, product quality and control procedures, financial statements and projections and other information regarding the operation of the Company's restaurants (hereinafter referred to as the "Confidential Information"). The Company acknowledges that information in Executive's Information Base is not Confidential Information. Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and covenants that he will not, either during the term of his employment by the Company or for a period of two (2) years thereafter, disclose any such Confidential Information to any person for any reason whatsoever (except as his duties for the Company may require) without the prior written authorization of the Company's Board of Directors. Executive agrees that he will not copy -6- 7 any Confidential Information except as the performance of his duties for the Company may require and that upon the termination of his employment by the Company, he shall return all Confidential Information and any copies thereof in his possession to the Company. Executive hereby acknowledges and agrees that the prohibitions against disclosure of Confidential Information recited herein are in addition to, and not in lieu of, any rights or remedies which the Company may have available pursuant to the laws of any jurisdiction or at common law to prevent the disclosure of trade secrets or proprietary information, and the enforcement by the Company of its rights and remedies pursuant to this Agreement shall not be construed as a waiver of any other rights or available remedies which it may possess in law or equity absent this Agreement. Notwithstanding the foregoing, the Company acknowledges and agrees that nothing contained herein shall restrict or otherwise prohibit or prevent (i) Executive's use or disclosure of Executive's Information Base or (ii) disclosure of Confidential Information pursuant to legal proceedings, subpoena, civil investigative demand or other similar process. Executive agrees that if disclosure of Confidential Information is requested or required pursuant to any such process, he shall provide the Company with prompt written notice of any such request or requirement so that the Company may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. If, in the absence of a protective order or other remedy or the receipt of a waiver by the Company, Executive is nonetheless, legally compelled to disclose Confidential Information to any tribunal or other agency, Executive may, without liability hereunder, disclose to such tribunal or other agency only that portion of the Confidential Information which Executive is legally required to disclose, Executive agrees to cooperate with the Company to obtain an appropriate protective order or other reliable assurance that such tribunal or other agency will accord the Confidential Information confidential treatment. The Company also acknowledges and agrees that Confidential Information shall not include any information (a) known by Executive prior to the date of his employment by the Company and learned by Executive other than as a result of his employment relationship with the Company, (b) independently developed by the Executive outside of the scope of his employment relationship with the Company or (c) is or becomes publicly available through no breach by the Executive of his obligation to the Company. Executive's Information Base means Executive's experience in the development, opening, operation and management of restaurants, and professional relationships with clients, customers, suppliers and other individuals within the restaurant industry, to the extent that such experience and relationships were developed by Executive prior to his original employment by the Company in January 1997. 6. Non-Solicitation of Employees. Executive covenants that during the term of his employment by the Company, and during the two (2) year period immediately following the termination of such employment, Executive will neither directly nor indirectly induce or attempt to induce any employee of the Company to terminate his or her employment to go to work for any other employer in a business competing with that of the Company. 7. Hiring of Employees. Executive covenants that during the term of his employment by the Company, and during the one (1) year period immediately following the termination of such employment, Executive will neither directly nor indirectly hire any management level employee of the Company. -7- 8 8. Property of Company. Executive acknowledges that from time to time in the course of providing services pursuant to this Agreement he shall have the opportunity to inspect and use certain property, both tangible and intangible, of the Company, and Executive hereby agrees that said property shall remain the exclusive property of the Company and the Executive shall have no right or proprietary interest in such property, whether tangible or intangible, including, without limitation, the Company's franchise and supplier lists, contract forms, books of account, training and operating materials and similar property. 9. Developments. All developments, including inventions, whether patentable or otherwise, trade secrets, discoveries, improvements, ideas and writings which either directly or indirectly relate to or may be useful in the business of the Company or any of its affiliates (the "Developments") which Executive, either by himself or in conjunction with any other person or persons, has conceived, made, developed, acquired or acquired knowledge of during his employment by the Company or which Executive, either by himself or in conjunction with any other person or persons, shall conceive, make, develop, acquire or acquire knowledge of during the Employment Term, shall become and remain the sole and exclusive property of the Company. Executive hereby assigns, transfers and conveys, and agrees to so assign, transfer and convey, all of his right, title and interest in and to any and all such Developments and to disclose fully as soon as practicable, in writing, all such Developments to the Chairman of the Company. At any time and from time to time, upon the request and at the expense of the Company, Executive will execute and deliver any and all instruments, documents and papers, give evidence and do any and all other acts which, in the opinion of counsel for the Company, are or may be necessary or desirable to document such transfer or to enable the Company to file and prosecute applications for and to acquire, maintain and enforce any and all patents, trademark registrations or copyrights under United States or foreign law with respect to any such Developments or to obtain any extension, validation, reissue, continuance or renewal of any such patent, trademark or copyright. The Company will be responsible for the preparation of any such instruments, documents and papers and for the prosecution of any such proceedings and will reimburse Executive for all reasonable expenses incurred by him in compliance with the provisions of this Section. 10. Reasonableness. The restrictions contained in Sections 4,5,6 and 7 are considered by the parties hereto to be fair and reasonable and necessary for the protection of the legitimate business interests of the Company. 11. Equitable Relief. Executive acknowledges that the services to be rendered by him are of a special, unique, unusual, extraordinary, and intellectual character, which gives them a peculiar value, and the loss of which cannot reasonably or adequately be compensated in damages in an action at law; and that a breach by him of any of the provisions contained in Sections 4, 5, 6 and 7 of this Agreement will cause the Company irreparable injury and damage. Executive further acknowledges that he possesses unique skills, knowledge and ability and that any material breach of the provisions of Sections 4, 5, 6 and 7 of this Agreement would be extremely detrimental to the Company. By reason thereof, Executive agrees that the Company shall be entitled, in addition to any other remedies it may have under this Agreement or otherwise, to injunctive and other equitable -8- 9 relief to prevent or curtail any breach of the provisions of Sections 4, 5, 6 and 7 of this Agreement by him. 12. Survival of Provisions. The provisions of Sections 4 through 14 , inclusive, of this Agreement shall survive the termination of this Agreement to the extent required to give full effect to the covenants and agreements contained in those sections. All provisions of this Agreement which contemplate the making of payments or the provision of consideration or other items of economic value by the Company to the Executive after the termination of this Agreement shall likewise survive the termination of this Agreement to the extent required to give full effect to such undertakings or obligations of the Company to Executive hereunder. 13. Warranties and Representations. In order to induce the Company to enter into this Employment Agreement, Executive hereby warrants and represents to the Company that Executive is not under any obligation, contractual or otherwise, to any party which would prohibit or be contravened by Executive's acceptance of employment by the Company and the performance of Executive's duties as Executive Vice President, Operations of the Company's LongHorn Steakhouse business or the performance of Executive's obligations under this Agreement. 14. Successors Bound; Assignability. This Agreement shall be binding upon Executive, the Company and their successors in interest, including without limitation, any corporation into which the Company may be merged or by which it may be acquired. This Agreement is nonassignable except that the Company's rights, duties and obligations under this Agreement may be assigned to the Company's acquiror in the event the Company is merged, acquired or sells substantially all of its assets. 15. Severability. In the event that any one or more of the provisions of this Agreement or any word, phrase, clause, sentence or other portion thereof shall be deemed to be illegal or unenforceable for any reason, such provision or portion thereof shall be modified or deleted, to the extent permissible under applicable law, in such a manner so as to make this Agreement as modified legal and enforceable to the fullest extent permitted under applicable laws. 16. Withholding. Notwithstanding any of the terms or provisions of this Agreement, all amounts payable by the Company hereunder shall be subject to withholding of such sums related to taxes as the Company may reasonably determine it should withhold pursuant to applicable law or regulation. 17. Headings. The headings and captions used in this Agreement are for convenience of reference only, and shall in no way define, limit, expand or otherwise affect the meaning or construction of any provision of this Agreement. 18. Notices. Any notice required or permitted to be given pursuant to this Agreement shall be deemed sufficiently given when delivered in person or when deposited in the United States mail, registered or certified mail, postage prepaid, addressed as follows: -9- 10 If to the Company, to: RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chairman With a copy to: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attention: William H. Avery If to Executive, to: Eugene I. Lee --------------------------------------- --------------------------------------- --------------------------------------- With a copy to: --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- Any party may by written notice change the address to which notices to such party are to be delivered or mailed. 19. Entire Agreement. This Agreement, together with Exhibits A, B, C and D hereto which are incorporated herein by this reference, constitutes the entire Agreement between the parties hereto with regard to the subject matter hereof, and there are no agreements, understandings, specific restrictions, warranties or representations relating to said subject matter between the parties other than those set forth herein or herein provided for. 20. Counterparts. This Agreement may be executed in two or more counterparts, each of which will take effect as an original and all of which shall evidence one and the same Agreement. 21. Amendment, Modification and Waiver. This Agreement may only be amended, modified or terminated prior to the end of its term by the mutual agreement of the parties. The waiver by either party to this Agreement of a breach of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent or simultaneous breach. 22. Mitigation. Executive shall have no duty to attempt to mitigate the compensation or level of benefits payable by the Company to him hereunder and the Company shall not be entitled to set off against the amounts payable by the Company to -10- 11 Executive hereunder any amounts received by the Executive from any other source, including any subsequent employer. 23. Governing Law. All of the terms and provisions of this Agreement shall be construed in accordance with and governed by the applicable laws of the State of Georgia. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RARE HOSPITALITY INTERNATIONAL, INC. By: /s/ George W. McKerrow, Jr. ---------------------------- Title: Chairman / CEO EXECUTIVE /s/ Eugene I. Lee ------------------------------------ EUGENE I. LEE -11- 12 INDEX TO EXHIBITS
EXHIBIT DESCRIPTION - ------- ----------- A NON-QUALIFIED STOCK OPTION AGREEMENT B INCENTIVE STOCK OPTION AGREEMENT C DEFINITION OF CHANGE IN CONTROL D RESTRICTED AREA
13 EXHIBIT A NON-QUALIFIED STOCK OPTION AGREEMENT under the RARE HOSPITALITY INTERNATIONAL, INC. AMENDED AND RESTATED 1992 INCENTIVE PLAN This Stock Option Agreement is made as of the ____ day of _______, 1997 by and between RARE HOSPITALITY INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as the "Company"), and EUGENE I. LEE, a resident of the State of Georgia (hereinafter referred to as the "Optionee"). 1. Grant of Option. The Company hereby grants to the Optionee, under the RARE Hospitality International, Inc. Amended and Restated 1992 Plan (the "Plan"), a Non-Qualified Stock Option to purchase, on the terms and conditions set forth in this agreement (this "Option Agreement"), 125,911 shares of the Company's no par value common stock (the "Stock"), at the exercise prices per share set forth below (the "Option"): (a) 40,910 shares at $____ per share; (b) 41,667 shares at $12.00 per share; and (c) 43,334 shares at $15.00 per share. Capitalized terms used herein and not otherwise defined shall have the meanings assigned such terms in the Plan. 2. Vesting of Option. Unless the exercisability of the Option is accelerated in accordance with Section 1.7 of the Plan or as provided in Section 5 hereof, the Option shall vest (become exercisable) only in cumulative periodic installments as follows: (a) During the year following the date of this Agreement, the Option shall be exercisable as to none of the shares subject to the Option; (b) During the period beginning one year after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable as to the shares described in paragraph 1(a) above, minus the number of shares, if any, as to which the Option has been previously exercised; (c) During the period beginning two years after the date of this Agreement and for a period of one year thereafter the Option shall be exercisable with respect to the shares described in paragraphs 1(a) and 1(b) above, minus the number of shares, if any, as to which the Option has been previously exercised; and 14 (d) During the period beginning three years after the date of this Agreement and for the remainder of its term, the Option shall be exercisable with respect to the shares described in paragraphs 1(a), 1(b) and 1(c) above, minus the number of shares, if any, as to which the Option has been previously exercised. 3. Period of Option and Limitations on Right to Exercise. The Option will, to the extent not previously exercised, lapse under the earliest of the following circumstances; provided, however, that the Committee may, prior to the lapse of the Option under the circumstances described in paragraphs (b), (c) and (d) below, provide in writing that the Option will extend until a later date: (a) The Option shall lapse as of 5:00 p.m., Eastern Time, on the day immediately prior to the tenth anniversary of the date of grant (the "Expiration Date"). (b) The Option shall lapse three months after the termination of Optionee's employment for any reason other than the Optionee's death or Disability; provided, however, that if the Optionee's employment is terminated by the Company for cause or by the Optionee without the consent of the Company, the Option shall lapse immediately. (c) If the Optionee's employment terminates by reason of Disability, the Option shall lapse one year after the date of the Optionee's termination of employment. (d) If the Optionee dies while employed, or during the three-month period described in subsection (b) above or during the one-year period described in subsection (c) above and before the Option otherwise lapses, the Option shall lapse one year after the date of the Optionee's death. Upon the Optionee's death, the Option may be exercised by the Optionee's beneficiary. If the Optionee or his beneficiary exercises an Option after termination of employment, the Option may be exercised only with respect to the shares that were otherwise vested on the Optionee's termination of employment including vesting by acceleration in accordance with Section 1.7 of the Plan and Section 5 hereof. 4. Exercise of Option. The Option shall be exercised by written notice directed to the Secretary of the Company at the principal executive offices of the Company, in substantially the form attached hereto as Exhibit A, or such other form as the Committee may approve. Such written notice shall be accompanied by full payment in cash, shares of Stock previously acquired by the Optionee, or any combination thereof, for the number of shares specified in such written notice; provided, however, that if shares of Stock are used to pay the exercise price, such shares must have been held by the Optionee for at least six months. The Fair Market Value of the surrendered Stock as of the date of the exercise shall be determined in valuing Stock used in payment of the exercise price. To the extent permitted under Regulation T of the Federal Reserve Board, and subject to applicable securities laws, the -2- 15 Option may be exercised through a broker in a so-called "cashless exercise" whereby the broker sells the Option shares and delivers cash sales proceeds to the Company in payment of the exercise price. The Committee may, in the exercise of its discretion, but need not, allow the Optionee to pay the exercise price by directing the Company to withhold from the shares of Stock that would otherwise be issued upon exercise of the Option that number of shares having a Fair Market Value on the exercise date equal to the exercise price, all as determined pursuant to rules and procedures established by the Committee. Subject to the terms of this Option Agreement, the Option may be exercised at any time and without regard to any other option held by the Optionee to purchase stock of the Company. 5. Acceleration of Exercisability Upon Certain Change in Control. In the event that a Change in Control (as defined in Exhibit B attached hereto and incorporated herein) shall occur within two (2) years following the date of this Agreement, upon the occurrence of such Change in Control, the Option shall become fully exercisable with respect to all shares of Stock, other than those with respect to which the Option has previously been exercised; provided, however, that such acceleration will not occur if, in the opinion of the Company's accountants , such acceleration would preclude the use of "pooling of interest" accounting treatment for a Change In Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment. 6. Limitation of Rights. The Option does not confer to the Optionee or the Optionee's personal representative any rights of a shareholder of the Company unless and until shares of Stock are in fact issued to such person in connection with the exercise of the Option. Nothing in this Option Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate the Optionee's employment at any time, nor confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary. 7. Stock Reserve. The Company shall at all times during the term of this Option Agreement reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Option Agreement. 8. Optionee's Covenant. The Optionee hereby agrees to use his best efforts to provide services to the Company in a workmanlike manner and to promote the Company's interests. 9. Restrictions on Transfer and Pledge. The Option may not be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Parent or Subsidiary, or be subject to any lien, obligation, or liability of the Optionee to any other party other than the Company or a Parent or Subsidiary. The Option is not assignable or transferable by the Optionee other than by will or the laws of descent and distribution; -3- 16 provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation and (ii) is otherwise appropriate and desirable, taking into account any state or federal tax or securities laws applicable to transferable options. The Option may be exercised during the lifetime of the Optionee only by the Optionee. 10. Restrictions on Issuance of Shares. If at any time the Board shall determine in its discretion, that listing, registration or qualification of the shares of Stock covered by the Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to the exercise of the Option, the Option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. 11. Plan Controls. The terms contained in the Plan are incorporated into and made a part of this Option Agreement and this Option Agreement shall be governed by and construed in accordance with the Plan. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Option Agreement, the provisions of the Plan shall be controlling and determinative. 12. Successors. This Option Agreement shall be binding upon any successor of the Company, in accordance with the terms of this Option Agreement and the Plan. 13. Severability. If any one or more of the provisions contained in this Option Agreement are invalid, illegal or unenforceable, the other provisions of this Option Agreement will be construed and enforced as if the invalid, illegal or unenforceable provision had never been included. 14. Notice. Notices and communications under this Option Agreement must be in writing and either personally delivered or sent by registered or certified United States mail, return receipt requested, postage prepaid. Notices to the Company must be addressed to: RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer or any other address designated by the Company in a written notice to the Optionee. Notices to the Optionee will be directed to the address of the Optionee then currently on file with the Company, or at any other address given by the Optionee in a written notice to the Company. -4- 17 IN WITNESS WHEREOF, RARE Hospitality International, Inc., acting by and through its duly authorized officers, has caused this Option Agreement to be executed, and the Optionee has executed this Option Agreement, all as of the day and year first above written. RARE HOSPITALITY INTERNATIONAL, INC. By: -------------------------------------- Name: ------------------------------------ Title: ------------------------------------- OPTIONEE: ----------------------------------------- EUGENE I. LEE -5- 18 EXHIBIT A NOTICE OF EXERCISE OF OPTION TO PURCHASE COMMON STOCK OF RARE HOSPITALITY INTERNATIONAL, INC. Name ----------------------------------- Address: --------------------------------------- --------------------------------------- Date ---------------------------------- RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer Re: Exercise of Non-Qualified Stock Option I elect to purchase ______________ shares of Common Stock of RARE Hospitality International, Inc. ("RARE") pursuant to the RARE Hospitality International, Inc. Non-Qualified Stock Option Agreement dated ______________ and the RARE Hospitality International, Inc. Amended and Restated 1992 Incentive Plan. The purchase will take place on the Exercise Date which will be as soon as practicable following the date this notice and all other necessary forms and payments are received by RARE, unless I specify a later date (not to exceed 30 days following the date of this notice). On or before the Exercise Date, I will pay the full exercise price in the form specified below (check one): [ ] Cash Only: by delivering a check to RARE Hospitality International, Inc. for $___________. [ ] Cash and Shares: by delivering a check to RARE Hospitality International, Inc. for $_________ for the part of the exercise price. I will pay the balance of the exercise price by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. -6- 19 [ ] Shares Only: by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. [ ] Cash From Broker: by delivering the purchase price from _______________________, a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System (the "Broker"). I authorize RARE to issue a stock certificate in the number of shares indicated above in the name of the Broker in accordance with instructions received by RARE from the Broker and to deliver such stock certificate directly to the Broker (or to any other party specified in the instructions from the Broker) upon receiving the exercise price from the Broker. Please deliver the stock certificate to me (unless I have chosen to pay the purchase price through a broker). Very truly yours, _______________________________________ AGREED TO AND ACCEPTED: RARE HOSPITALITY INTERNATIONAL, INC. By: _____________________________ Title: _____________________________ Number of Option Shares Exercised: ___________________________ Number of Option Shares Remaining: ___________________________ Date: _________________________________ -7- 20 EXHIBIT B to RARE HOSPITALITY, INC. STOCK OPTION AGREEMENT "Change in Control" means and includes each of the following: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 25% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who is on the date of this Agreement (the "Effective Date") the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition; or (2) Individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to October 1, 1997 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company; or (3) Consummation of a reorganization, share exchange, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without 21 limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities, and (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors of the Company, providing for such Business Combination; or (4) approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. -2- 22 EXHIBIT B INCENTIVE STOCK OPTION AGREEMENT under the RARE HOSPITALITY INTERNATIONAL, INC. AMENDED AND RESTATED 1992 INCENTIVE PLAN This Stock Option Agreement is made as of the ____ day of _______, 1997 by and between RARE HOSPITALITY INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as the "Corporation"), and EUGENE I. LEE, a resident of the State of Georgia (hereinafter referred to as the "Optionee"). 1. Grant of Option. The Corporation hereby grants to the Optionee under the RARE Hospitality International, Inc. Amended and Restated 1992 Incentive Plan (the "Plan"), an Incentive Stock Option to purchase, on the terms and conditions set forth in this agreement (this "Option Agreement"), 24,089 shares of the Corporation's no par value common stock (the "Stock"), at the exercise prices per share set forth below (the "Option"): (a) 9,090 shares at $____ per share; (b) 8,333 shares at $12.00 per share; and (c) 6,666 shares at $15.00 per share. Capitalized terms used herein and not otherwise defined shall have the meanings assigned such terms in the Plan. 2. Vesting of Option. Unless the exercisability of the Option is accelerated in accordance with Section 1.7 of the Plan or as provided in Section 5 hereof, the Option shall vest (become exercisable) only in cumulative periodic installments as follows: (a) during the first year following the date of this Agreement, the Option shall be exercisable as to none of the shares subject to the Option; (b) during the period beginning one year after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable as to the shares described in paragraph 1(a) above, minus the number of shares, if any, as to which the Option has been previously exercised; (c) during the period beginning two years after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable with respect to the shares described in paragraphs 1(a) and (b) above, minus the number of shares, if any, as to which the initial option has been previously exercised; and 23 (d) during the period beginning three years after the date of this Agreement and for the remainder of its term, the Option shall be exercisable with respect to the shares described in paragraphs 1(a), 1(b) and 1(c) above, minus the number of shares, if any, as to which the Option has been previously exercised. 3. Period of Option and Limitations on Right to Exercise. The Option will, to the extent not previously exercised, lapse under the earliest of the following circumstances; provided, however, that the Committee may, prior to the lapse of the Option under the circumstances described in paragraphs (b), (c) and (d) below, provide in writing that the Option will extend until a later date, but if Option is exercised after the dates specified in paragraphs (b), (c) and (d) above, it will automatically become a Non-Qualified Stock Option: (a) The Option shall lapse as of 5:00 p.m., Eastern Time, on the day immediately prior to the tenth anniversary of the date of grant (the "Expiration Date"). (b) The Option shall lapse three months after the termination of Optionee's employment for any reason other than the Optionee's death or Disability; provided, however, that if the Optionee's employment is terminated by the Corporation for cause or by the Optionee without the consent of the Corporation, the Option shall lapse immediately. (c) If the Optionee's employment terminates by reason of Disability, the Option shall lapse one year after the date of the Optionee's termination of employment. (d) If the Optionee dies while employed, or during the three-month period described in subsection (b) above or during the one-year period described in subsection (c) above and before the Option otherwise lapses, the Option shall lapse one year after the date of the Optionee's death. Upon the Optionee's death, the Option may be exercised by the Optionee's beneficiary. If the Optionee or his beneficiary exercises an Option after termination of employment, the Option may be exercised only with respect to the shares that were otherwise vested on the Optionee's termination of employment (including vesting by acceleration in accordance with Section 1.7 of the Plan and Section 5 hereof ). 4. Exercise of Option. The Option shall be exercised by written notice directed to the Secretary of the Corporation at the principal executive offices of the Corporation, in substantially the form attached hereto as Exhibit A, or such other form as the Committee may approve. Such written notice shall be accompanied by full payment in cash, shares of Stock previously acquired by the Optionee, or any combination thereof, for the number of shares specified in such written notice; provided, however, that if shares of Stock are used to pay the exercise price, such shares must have been held by the Optionee for at least six months The Fair Market Value of the surrendered Stock as of the date of the exercise shall be determined in valuing Stock used in payment of the exercise price. To the extent permitted under -2- 24 Regulation T of the Federal Reserve Board, and subject to applicable securities laws, the Option may be exercised through a broker in a so-called "cashless exercise" whereby the broker sells the Option shares and delivers cash sales proceeds to the Corporation in payment of the exercise price. The Committee may, in the exercise of its discretion, but need not, allow the Optionee to pay the exercise price by directing the Corporation to withhold from the shares of Stock that would otherwise be issued upon exercise of the Option that number of shares having a Fair Market Value on the exercise date equal to the exercise price, all as determined pursuant to rules and procedures established by the Committee. Subject to the terms of this Option Agreement, the Option may be exercised at any time and without regard to any other option held by the Optionee to purchase stock of the Corporation. 5. Acceleration of Exercisability Upon Certain Change in Control. In the event that a Change in Control (as defined in Exhibit B attached hereto and incorporated herein) shall occur within two (2) years following the date of this Agreement, upon the occurrence of such Change in Control, the Option shall become fully exercisable with respect to all shares of Stock, other than those with respect to which the Option has previously been exercised; provided, however, that such acceleration will not occur if, in the opinion of the Company's accountants (), such acceleration would preclude the use of "pooling of interest" accounting treatment for a Change In Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Section 2.3 of the Plan, the excess Options shall be deemed to be Non-Qualified Stock Options. 6. Limitation of Rights. The Option does not confer to the Optionee or the Optionee's personal representative any rights of a shareholder of the Corporation unless and until shares of Stock are in fact issued to such person in connection with the exercise of the Option. Nothing in this Option Agreement shall interfere with or limit in any way the right of the Corporation or any Subsidiary to terminate the Optionee's employment at any time, nor confer upon the Optionee any right to continue in the employ of the Corporation or any Subsidiary. 7. Stock Reserve. The Corporation shall at all times during the term of this Option Agreement reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Option Agreement. 8. Optionee's Covenant. The Optionee hereby agrees to use his best efforts to provide services to the Corporation in a workmanlike manner and to promote the Corporation's interests. 9. Restrictions on Transfer and Pledge. The Option may not be pledged, encumbered, or hypothecated to or in favor of any party other than the Corporation or a Parent or Subsidiary, or be subject to any lien, obligation, or liability of the Optionee to any -3- 25 other party other than the Corporation or a Parent or Subsidiary. The Option is not assignable or transferable by the Optionee other than by will or the laws of descent and distribution. The Option may be exercised during the lifetime of the Optionee only by the Optionee. 10. Restrictions on Issuance of Shares. If at any time the Board shall determine in its discretion, that listing, registration or qualification of the shares of Stock covered by the Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to the exercise of the Option, the Option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. 11. Plan Controls. The terms contained in the Plan are incorporated into and made a part of this Option Agreement and this Option Agreement shall be governed by and construed in accordance with the Plan. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Option Agreement, the provisions of the Plan shall be controlling and determinative. 12. Successors. This Option Agreement shall be binding upon any successor of the Corporation, in accordance with the terms of this Option Agreement and the Plan. 13. Severability. If any one or more of the provisions contained in this Option Agreement are invalid, illegal or unenforceable, the other provisions of this Option Agreement will be construed and enforced as if the invalid, illegal or unenforceable provision had never been included. 14. Notice. Notices and communications under this Option Agreement must be in writing and either personally delivered or sent by registered or certified United States mail, return receipt requested, postage prepaid. Notices to the Corporation must be addressed to: RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer or any other address designated by the Corporation in a written notice to the Optionee. Notices to the Optionee will be directed to the address of the Optionee then currently on file with the Corporation, or at any other address given by the Optionee in a written notice to the Corporation. 15. Interpretation. It is the intent of the parties hereto that the Option qualify for incentive stock option treatment pursuant to, and to the extent permitted by, Section 422 of the Code. All provisions hereof are intended to have, and shall be construed to have, such -4- 26 meanings as are set forth in applicable provisions of the Code and Treasury Regulations to allow the Option to so qualify. IN WITNESS WHEREOF, RARE Hospitality International, Inc., acting by and through its duly authorized officers, has caused this Option Agreement to be executed, and the Optionee has executed this Option Agreement, all as of the day and year first above written. RARE HOSPITALITY INTERNATIONAL, INC. By: ----------------------------------------- Name: ----------------------------------------- Title: ----------------------------------------- OPTIONEE: -------------------------------------------- EUGENE I. LEE -5- 27 EXHIBIT A NOTICE OF EXERCISE OF OPTION TO PURCHASE COMMON STOCK OF RARE HOSPITALITY INTERNATIONAL, INC. Name ---------------------------------- Address: -------------------------------------- -------------------------------------- Date ---------------------------------- RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer Re: Exercise of Incentive Stock Option I elect to purchase ______________ shares of Common Stock of RARE Hospitality International, Inc. pursuant to the RARE Hospitality International, Inc. Incentive Stock Option Agreement dated ______________ and the RARE Hospitality International, Inc. Amended and Restated 1992 Incentive Plan. The purchase will take place on the Exercise Date which will be as soon as practicable following the date this notice and all other necessary forms and payments are received by RARE, unless I specify a later date (not to exceed 30 days following the date of this notice). On or before the Exercise Date, I will pay the full exercise price in the form specified below (check one): [ ] Cash Only: by delivering a check to RARE Hospitality International, Inc. for $___________. [ ] Cash and Shares: by delivering a check to RARE Hospitality International, Inc. for $_________ for the part of the exercise price. I will pay the balance of the exercise price by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. -6- 28 [ ] Shares Only: by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. [ ] Cash From Broker: by delivering the purchase price from _______________________, a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System (the "Broker"). I authorize RARE to issue a stock certificate in the number of shares indicated above in the name of the Broker in accordance with instructions received by RARE from the Broker and to deliver such stock certificate directly to the Broker (or to any other party specified in the instructions from the Broker) upon receiving the exercise price from the Broker. Please deliver the stock certificate to me (unless I have chosen to pay the purchase price through a broker). Very truly yours, --------------------------------------- AGREED TO AND ACCEPTED: RARE HOSPITALITY INTERNATIONAL, INC. By: -------------------------------- Title: ------------------------------ Number of Option Shares Exercised: -------------------------- Number of Option Shares Remaining: --------------------------- Date: -------------------------------- -7- 29 EXHIBIT B TO RARE HOSPITALITY, INC. STOCK OPTION AGREEMENT "Change in Control" means and includes each of the following: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 25% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who is on the date of this Agreement (the "Effective Date") the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition; or (2) Individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to October 1, 1997 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company; or (3) Consummation of a reorganization, share exchange, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without -8- 30 limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities, and (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors of the Company, providing for such Business Combination; or (4) approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. -9- 31 EXHIBIT C DEFINITIONS As used in Section 3 of this Agreement, the following terms shall have the meanings ascribed to each below: "Cause" means: (A) Commission by Executive of a willful or grossly negligent act which causes material harm to the Company, (B) The commission or perpetration by Executive of any criminal act involving a felony for which Executive is indicted or with respect to which Executive pleads nolo contendere (or any similar response), any act of moral turpitude, or any fraud upon the Company, (C) Habitual and unauthorized absenteeism by reason other than physical or mental illness, chronic alcoholism or other form of substance abuse resulting in material harm or actual or potential physical danger to the Company or its employees, (D) Any material violation by Executive of his obligations under this Agreement, or (E) Any misrepresentation or breach by Executive of warranty contained in Section 13 of this Agreement; provided, however, that if the cause specified in such notice is such that there is a reasonable prospect that it can be cured with diligent effort within a reasonable time, Executive shall have such reasonable time (having regard for the nature of the cause) to cure such cause, which time shall not in any event exceed thirty (30) days from the date of such notice, and Executive's employment shall continue in effect during such reasonable time so long as Executive makes diligent efforts during such time to cure such cause. If such cause shall be cured by Executive during such reasonable time his employment and the obligations of the Company hereunder shall not terminate as a result of the notice which has been given with respect to such cause. Cure of any cause with or without notice from the Company shall not relieve Executive from any obligations to the Company under this Agreement or otherwise and shall not affect the Company's rights upon the reoccurrence of the same, or the occurrence of any other, cause. If such cause shall not be cured within such reasonable time the employment of Executive under this Agreement shall terminate upon the expiration of such reasonable time. 32 "Change in Control" means and includes each of the following: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 25% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who is on the date of this Agreement (the "Effective Date") the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition; or (2) Individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to October 1, 1997 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company; or (3) Consummation of a reorganization, share exchange, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities, and (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then -2- 33 outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors of the Company, providing for such Business Combination; or (4) approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. "Disability" or "Disabled" means that by reason of any physical or mental incapacity Executive has been unable, or it is reasonably expected that he will be unable, for a period of at least one hundred and eighty (180) substantially continuous days to perform his regular duties and responsibilities hereunder. In the event of any disagreement between Executive and the Company as to whether Executive is physically or mentally incapacitated, the question of such incapacity shall be submitted to an impartial and reputable physician for determination, selected by mutual agreement of Executive and the Company or, failing such agreement, selected by two physicians (one of which shall be selected by the Company and the other by Executive), and such determination of the question of such incapacity by such physician shall be final and binding on Executive and the Company. The Executive shall pay the fees and expenses of such physician. 34 EXHIBIT D The area within the Metropolitan Statistical Area ("MSA") surrounding each city listed below, as said MSA is determined from time to time by the U. S. Bureau of the Census, or for each city with no MSA within fifty (50) miles of the city limits. Alabama Florida Birmingham Altamonte Springs Dothan Boynton Beach Mobile Brandon Montgomery Coral Springs Davie California Destin San Francisco Ft. Lauderdale Ft. Myers Connecticut Jacksonville Beach Manchester Jacksonville Jensen Beach Delaware Kissimmee Newark Lake Mary Largo District of Columbia Merritt Island Miami Ocala Orlando Sarasota St. Augustine St. Petersburg Tallahassee Tampa
F-1 35 Georgia Maine Albany Bangor Athens Seakonk Atlanta South Portland Augusta Austell Maryland Cartersville Gaithersburg Chamblee College Park Massachusetts Columbus Boston Conyers Braintree Douglasville Chestnut Hill Duluth Peabody Gainesville Farmington Jonesboro Watertown Kennesaw Lawrenceville Michigan Macon Troy Marietta Montgomery Minnesota Peachtree City Minneapolis Rome Roswell Missouri Savannah Florissant Snellville Tucker Nevada Valdosta Las Vegas Illinois New Hampshire Chicago Newington Kentucky New York Florence Albany Poughkeepsie Rochester
F-2 36 North Carolina Pennsylvania Burlington Philadelphia Charlotte Concord Rhode Island Gastonia Providence Greensboro Warwick High Point Huntersville South Carolina Pineville Columbia Ohio Greenville Cincinnati Hilton Head Cleveland Spartanburg Columbus Cuyahoga Falls Tennessee Dublin Antioch Fairview Park Chattanooga Mayfield Heights Hermitage Mentor Knoxville North Canton Nashville Solon Madison Springdale Strongsville Texas Houston Virginia Springfield
Executive acknowledges and agrees that the geographical area described above is the area in which Executive will initially perform his services for the Company, and that the area in which such services are performed is intended to expand as the business of the Company grows. Executive and the Company agree that as the geographical area in which the Company conducts its business expands, the list of cities described on this Exhibit D shall be deemed to be amended, from time to time, without any further consent, action or notice on the part of the Company or Executive, to include each additional city in which the Company operates a restaurant or a franchisee of the Company operates a restaurant under the terms of a franchise from the Company. Executive agrees to execute one or more amendments hereto upon the request of the Company from time to time in order to confirm such amended list. F-3 EX-10.O 11 EMPLOYMENT AGREEMENT - WILLIAM A. BURNETT 1 EXHIBIT 10(o) EMPLOYMENT AGREEMENT THIS AGREEMENT, made and entered into as of the 3rd day of November, 1997, by and between RARE HOSPITALITY INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as the "Company"), and WILLLIAM A. BURNETT, a resident of the State of Georgia (hereinafter referred to as the "Executive"); WITNESSETH: The Company is engaged in the business of owning, operating and franchising the operation of restaurants under the names LongHorn Steakhouse(R), The Capital Grille(R), Bugaboo Creek Steak House(R) and others. The Company desires to continue to employ Executive in an executive capacity and to be assured of his services in such capacity on the terms and conditions set forth in this Agreement. Executive desires to accept such continued employment on such terms and conditions. Executive has been employed by the Company since 1994. The Company and Executive desire to continue Executive's employment by the Company which employment shall be on the terms and conditions set forth in this Agreement from and after the date hereof. In the course of Executive's employment, Executive has gained and will gain knowledge of the business, affairs, customers, franchisees, plans and methods of the Company, has been and will be trained at the expense of the Company in the development, opening, operation and management of the Company's restaurants through the use of techniques, systems, practices and methods used and devised by the Company, has had and will have access to information relating to the Company's customers and their preferences and dining habits and has and will become personally known to and acquainted with the Company's suppliers and managers in the Restricted Area thereby establishing a personal relationship with such suppliers and managers for the benefit of the Company. The Company would suffer irreparable harm if Executive were to use such knowledge, information and personal relationships related to the Company and its business other than in the proper performance of his duties for the Company. In consideration of the sum of $1.00 in hand paid by the Company to Executive, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants and obligations contained herein, the Company and Executive hereby agree as follows: 1. Employment. The Company hereby employs Executive and Executive hereby accepts such employment and agrees to perform his duties and responsibilities hereunder, in accordance with the terms and conditions hereinafter set forth. 1.1. Employment Term. The employment term of this Agreement shall commence on the date hereof (the "Commencement Date") and shall continue as employment at will until terminated by the Company or Executive. The period from the 2 Commencement Date until the employment term is terminated by the Company or Executive is hereinafter referred to as the "Employment Term." 1.2. Duties of Executive. Executive agrees that during the Employment Term, he will devote his full professional and business-related time, skills and best efforts to the business of the Company, initially in the capacity of Executive Vice President for The Capital Grille and Bugaboo Creek Steak House. In addition, Executive shall devote his full time and his best efforts in the performance of any other reasonable duties as may be assigned to him from time to time by the Company. Executive shall devote all of his full professional and business-related skills solely to the affairs of the Company, and shall not, during his employment, unless otherwise agreed to in advance in writing by the Company, seek or accept other employment, become self-employed in any other capacity during the term of his employment, or engage in any activities which are detrimental to the business of the Company. Notwithstanding the foregoing, Executive may engage in personal investment activities provided such activities do not interfere with Executive's performance of his full-time employment duties under this Agreement. Executive acknowledges that he shall be required to perform his duties from the offices of the Company located in metropolitan Atlanta, Georgia. Executive acknowledges that the discharge of his duties for the Company will involve travel on a regular basis from the Company's offices in Atlanta, Georgia. 2. Compensation and Benefits. 2.1. Base Compensation. For all the services rendered by Executive hereunder, the Company shall pay Executive an annual salary at the rate of $160,000 for each full year of the Employment Term, plus such additional amounts, if any as may be approved by the Company's Board of Directors ("Base Compensation), payable in installments at such times as the Company customarily pays its other senior officers (but in any event no less often than monthly). The Company agrees that the Executive's salary will be reviewed at least annually by the Compensation Committee of the Company's Board of Directors to determine if an increase is appropriate, which increase shall be in the sole discretion of the Company's Board of Directors. Executive's salary shall be prorated for any partial calendar year during which this Agreement remains in effect. 2.2. Bonus Awards. In addition to the Base Compensation, during the Employment Term Executive shall be eligible for a bonus determined and paid in accordance with the bonus program for executive officers of the Company as approved by the Company's Board of Directors from time to time. Executive must be employed by the Company on December 31 of a year in order to be entitled to a bonus for that year. 2.3. Stock Options. (a) The Company shall grant to Executive, effective as of the Commencement Date, the following options to acquire shares of the Company's common stock: - 2 - 3 (i) 50,000 shares with an exercise price equal to the fair market value of the Company's common stock on the date of grant, which option shall become exercisable on the first anniversary of the date of this Agreement; and (ii) 25,000 shares with an exercise price of $12.00 per share, which option shall become exercisable on the second anniversary of the date of this Agreement; and (iii) 21,032 shares with an exercise price of $15.00 per share, which option shall become exercisable on the third anniversary of the date of this Agreement; and (iv) 19,445 shares with an exercise price of $18.00 per share, which option shall become exercisable on the fourth anniversary of the date of this Agreement; and (v) 20,239 shares with an exercise price of $21.00 per share, which option shall become exercisable on the fifth anniversary of the date of this Agreement. Those options granted to Executive in this Section 2.3(a) shall be granted to Executive pursuant to the Company's 1997 Long-Term Incentive Plan and the terms and conditions governing such options shall be as set forth in the form of the Stock Option Agreement attached hereto as Exhibit A and made a part hereof. (b) The Company shall grant to Executive, effective as of the Commencement Date, the following incentive stock options to acquire shares of the company's common stock; (i) 3,698 shares with an exercise price of $15.00 per share, which option shall become exercisable with respect to all of such shares on the third anniversary of the date of this Agreement; (ii) 5,555 shares with an exercise price of $18.00 per share, which option shall become exercisable with respect to all of such shares on the fourth anniversary of the date of this Agreement; and (iii) 4,761 shares with an exercise price of $21.00 per share, which option shall become exercisable with respect to all of such shares on the fifth anniversary of the date of this Agreement. The terms and conditions governing the options described in this Section 2.3(b) shall be as set forth in the form of the Stock Option Agreement attached hereto as Exhibit B and made a part hereof. 2.4. Other Benefits. In addition to all other compensation paid or payable from the Company to Executive hereunder, during the Employment Term Executive shall be entitled to participate in any and all other employee benefit programs maintained by the - 3 - 4 Company for the benefit of its executive employees generally, in accordance with and subject to the terms and conditions of such programs. Executive acknowledges that the Company is discontinuing automobile allowances for its executive employees and that Executive will not be entitled to any automobile allowance from the Company. 2.5. Expenses. In addition to the compensation described in this Agreement, the Company shall promptly reimburse Executive for all reasonable expenses incurred by him in the performance of his duties under this Agreement and vouched to the reasonable satisfaction of the Board of Directors or appropriate officers of the Company, pursuant to established procedures. 2.6. Additional, One-Time Payment. In addition to the other compensation described in this Agreement, the Company shall pay Executive, on a one-time basis only, the sum of Twenty-Five Thousand Dollars ($25,000) payable within forty-five (45) days following the date of this Agreement. 3. Payment upon Termination. (a) Upon termination of the Employment Term for any reason other than (i) Executive's death, or (ii) by the Company other than for Cause (as defined in Exhibit C attached hereto) or during Executive's Disability (as defined in Exhibit C attached hereto), Executive shall be entitled to receive the compensation owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and any additional compensation he may be entitled to receive under the terms of any employee benefit plan. (b) Upon termination of the Employment Term by the death of Executive, Executive's estate shall be entitled to receive the compensation under Section 2.1 as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and any additional compensation he may be entitled to receive under the terms of any employee benefit plan plus the Company will pay to the personal representative of Executive, a lump sum amount equal to one-half of Executive's annual Base Compensation under Section 2.1 as in effect on the date of his death. (c) In the event that during the Employment Term Executive becomes Disabled and the Company thereafter terminates Executive's employment during the continuation of such Disability, Executive shall be entitled to receive the compensation under Section 2.1 as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and any additional compensation he may be entitled to receive under the terms of any employee benefit plan. In addition, the Company shall pay to Executive, for up to ninety (90) days, an amount equal to the difference between the amount of Executive's then level of Base Compensation payable pursuant to Section 2.1 and 150% of the amount paid to Executive under any short-term disability insurance policy obtained by the Executive and paid by the Company through the Company's group coverage until the Company's long-term disability insurance begins to pay. - 4 - 5 (d) In the event that within two (2) years following the Commencement Date the Company terminates Executive's employment other than for Cause, unless the provisions of Section 3.2(e) apply, Executive shall be entitled to receive the compensation under Section 2.1 as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination and the Company will be obligated to pay Executive his annual Base Compensation under Section 2.1 as of the date of termination of such employment from the date of such termination for six (6) months. Such payment shall be made as and when otherwise due under this Agreement. (e) In the event that (i) within two (2) years following the Commencement Date a Change in Control (as defined in Exhibit C attached hereto) shall occur and (ii) the Company terminates Executive's employment other than for Cause within eighteen (18) months following the occurrence of the Change in Control, in lieu of the amounts payable pursuant to Section 3.2(d) Executive shall be entitled to receive the compensation under Section 2.1 as calculated and owed to Executive but unpaid for performance rendered under this Agreement as of the date of termination of such employment and the Company will be obligated to pay Executive an additional amount equal to the sum of (x) one-half of his annual Base Compensation as of the date of termination of such employment plus (y) an amount equal to one-half of the bonus paid to Executive pursuant to Section 2.2 for the calendar year immediately preceding the calendar year in which the termination of employment occurs. Such payment shall be made within thirty (30) days following termination of Executive's employment. (f) Payments made pursuant to this Section 3.2 are in lieu of any other obligations to Executive pursuant to the terms of this Agreement. 4. Noncompetition. Executive covenants and agrees that during the term of his employment by the Company and for a period of one (1) year immediately following the termination of Executive's employment by the Company for any reason whatsoever, Executive will not, within the area described on Exhibit E hereto (the "Restricted Area") directly or indirectly compete with the Company by carrying on a business any significant portion of which involves the development, opening, operation or franchising of restaurants that derive more than thirty percent (30%) of their food sales from steak products, if the Company is still engaged in such business in such area. 4.1. Definition of "Compete." For the purposes of this Agreement, the term "compete" shall mean the providing of general management or supervisory services for the development or operation or franchising of restaurants that derive more than thirty percent (30%) of their food sales from steak products. 4.2. Direct or Indirect Competition. For the purposes of this Agreement, the words "directly or indirectly" as they modify the word "compete" shall mean (i) acting as an agent, representative, consultant, officer, director, independent contractor, or employee engaged in a management capacity with any entity or enterprise which is carrying on a business any significant portion of which involves the development, opening, or operation of restaurants offering steak as a principal portion of their menu, (ii) participating in any such competing entity or enterprise as an owner, partner, limited partner, joint - 6 - 6 venturer, creditor or stockholder (except as a stockholder holding less than one percent (1%) interest in a corporation whose shares are actively traded on a regional or national securities exchange or in the over-the-counter market), and (iii) communicating to any such competing entity or enterprise the names or addresses or any other information concerning any employee or supplier of the Company or any successor to the goodwill of the Company with respect to the business of the Company. 5. Confidentiality. Executive recognizes and acknowledges that by reason of his employment by and service to the Company, he will have access to all trade secrets and other confidential information of the Company including, but not limited to, confidential: pricing information, marketing information, sales techniques of the Company, confidential records, the Company's expansion plans, restaurant development and marketing techniques, operating procedures, training programs and materials, business plans, franchise arrangements, plans and agreements, information regarding suppliers, product quality and control procedures, financial statements and projections and other information regarding the operation of the Company's restaurants (hereinafter referred to as the "Confidential Information"). Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and covenants that he will not, either during the term of his employment by the Company or for a period of two (2) years thereafter, disclose any such Confidential Information to any person for any reason whatsoever (except as his duties for the Company may require) without the prior written authorization of the Company's Board of Directors. Executive agrees that he will not copy any Confidential Information except as the performance of his duties for the Company may require and that upon the termination of his employment by the Company, he shall return all Confidential Information and any copies thereof in his possession to the Company. Executive hereby acknowledges and agrees that the prohibitions against disclosure of Confidential Information recited herein are in addition to, and not in lieu of, any rights or remedies which the Company may have available pursuant to the laws of any jurisdiction or at common law to prevent the disclosure of trade secrets or proprietary information, and the enforcement by the Company of its rights and remedies pursuant to this Agreement shall not be construed as a waiver of any other rights or available remedies which it may possess in law or equity absent this Agreement. Notwithstanding the foregoing, the Company acknowledges and agrees that nothing contained herein shall restrict or otherwise prohibit or prevent disclosure of Confidential Information pursuant to legal proceedings, subpoena, civil investigative demand or other similar process. Executive agrees that if disclosure of Confidential Information is requested or required pursuant to any such process, he shall provide the Company with prompt written notice of any such request or requirement so that the Company may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. If, in the absence of a protective order or other remedy or the receipt of a waiver by the Company, Executive is nonetheless, legally compelled to disclose Confidential Information to any tribunal or other agency, Executive may, without liability hereunder, disclose to such tribunal or other agency only that portion of the Confidential Information which Executive is legally required to disclose, Executive agrees to cooperate with the Company to obtain an appropriate protective order or other reliable assurance that such tribunal or other agency will accord the Confidential Information confidential treatment. The Company also acknowledges and agrees that - 6 - 7 Confidential Information shall not include any information (a) known by Executive prior to his employment by the Company and learned by Executive other than as a result of his employment relationship with the Company, (b) independently developed by the Executive outside of the scope of his employment relationship with the Company or (c) is or becomes publicly available through no breach by the Executive of his obligation to the Company. 6. Non-Solicitation of Employees. Executive covenants that during the term of his employment by the Company, and during the two (2) year period immediately following the termination of such employment, Executive will neither directly nor indirectly induce or attempt to induce any employee of the Company to terminate his or her employment to go to work for any other employer in a business competing with that of the Company. 7. Hiring of Employees. Executive covenants that during the term of his employment by the Company, and during the one (1) year period immediately following the termination of such employment, Executive will neither directly nor indirectly hire any management level employee of the Company. 8. Property of Company. Executive acknowledges that from time to time in the course of providing services pursuant to this Agreement he shall have the opportunity to inspect and use certain property, both tangible and intangible, of the Company, and Executive hereby agrees that said property shall remain the exclusive property of the Company and the Executive shall have no right or proprietary interest in such property, whether tangible or intangible, including, without limitation, the Company's franchise and supplier lists, contract forms, books of account, training and operating materials and similar property. 9. Developments. All developments, including inventions, whether patentable or otherwise, trade secrets, discoveries, improvements, ideas and writings which either directly or indirectly relate to or may be useful in the business of the Company or any of its affiliates (the "Developments") which Executive, either by himself or in conjunction with any other person or persons, has conceived, made, developed, acquired or acquired knowledge of during his employment by the Company or which Executive, either by himself or in conjunction with any other person or persons, shall conceive, make, develop, acquire or acquire knowledge of during the Employment Term, shall become and remain the sole and exclusive property of the Company. Executive hereby assigns, transfers and conveys, and agrees to so assign, transfer and convey, all of his right, title and interest in and to any and all such Developments and to disclose fully as soon as practicable, in writing, all such Developments to the Chairman of the Company. At any time and from time to time, upon the request and at the expense of the Company, Executive will execute and deliver any and all instruments, documents and papers, give evidence and do any and all other acts which, in the opinion of counsel for the Company, are or may be necessary or desirable to document such transfer or to enable the Company to file and prosecute applications for and to acquire, maintain and enforce any and all patents, trademark registrations or copyrights under United States or foreign law with respect to any such Developments or to obtain any extension, validation, reissue, continuance or renewal of any such patent, trademark or copyright. The Company will be responsible for the preparation of any such instruments, documents and papers and for the prosecution of any such proceedings and will reimburse - 7 - 8 Executive for all reasonable expenses incurred by him in compliance with the provisions of this Section. 10. Reasonableness. The restrictions contained in Sections 4,5,6 and 7 are considered by the parties hereto to be fair and reasonable and necessary for the protection of the legitimate business interests of the Company. 11. Equitable Relief. Executive acknowledges that the services to be rendered by him are of a special, unique, unusual, extraordinary, and intellectual character, which gives them a peculiar value, and the loss of which cannot reasonably or adequately be compensated in damages in an action at law; and that a breach by him of any of the provisions contained in Sections 4, 5, 6 and 7 of this Agreement will cause the Company irreparable injury and damage. Executive further acknowledges that he possesses unique skills, knowledge and ability and that any material breach of the provisions of Sections 4, 5, 6 and 7 of this Agreement would be extremely detrimental to the Company. By reason thereof, Executive agrees that the Company shall be entitled, in addition to any other remedies it may have under this Agreement or otherwise, to injunctive and other equitable relief to prevent or curtail any breach of the provisions of Sections 4, 5, 6 and 7 of this Agreement by him. 12. Survival of Provisions. The provisions of Sections 4 through 14 , inclusive, of this Agreement shall survive the termination of this Agreement to the extent required to give full effect to the covenants and agreements contained in those sections. All provisions of this Agreement which contemplate the making of payments or the provision of consideration or other items of economic value by the Company to the Executive after the termination of this Agreement shall likewise survive the termination of this Agreement to the extent required to give full effect to such undertakings or obligations of the Company to Executive hereunder. 13. Warranties and Representations. In order to induce the Company to enter into this Employment Agreement, Executive hereby warrants and represents to the Company that Executive is not under any obligation, contractual or otherwise, to any party which would prohibit or be contravened by Executive's acceptance of employment by the Company and the performance of Executive's duties as Vice President of Operations for The Capital Grille and Bugaboo Creek Steak House or the performance of Executive's obligations under this Agreement. 14. Successors Bound; Assignability. This Agreement shall be binding upon Executive, the Company and their successors in interest, including without limitation, any corporation into which the Company may be merged or by which it may be acquired. This Agreement is nonassignable except that the Company's rights, duties and obligations under this Agreement may be assigned to the Company's acquiror in the event the Company is merged, acquired or sells substantially all of its assets. 15. Severability. In the event that any one or more of the provisions of this Agreement or any word, phrase, clause, sentence or other portion thereof shall be deemed to be illegal or unenforceable for any reason, such provision or portion thereof shall be - 8 - 9 modified or deleted, to the extent permissible under applicable law, in such a manner so as to make this Agreement as modified legal and enforceable to the fullest extent permitted under applicable laws. 16. Withholding. Notwithstanding any of the terms or provisions of this Agreement, all amounts payable by the Company hereunder shall be subject to withholding of such sums related to taxes as the Company may reasonably determine it should withhold pursuant to applicable law or regulation. 17. Headings. The headings and captions used in this Agreement are for convenience of reference only, and shall in no way define, limit, expand or otherwise affect the meaning or construction of any provision of this Agreement. 18. Notices. Any notice required or permitted to be given pursuant to this Agreement shall be deemed sufficiently given when delivered in person or when deposited in the United States mail, registered or certified mail, postage prepaid, addressed as follows: If to the Company, to: RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chairman With a copy to: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attention: William H. Avery If to Executive, to: William A. Burnett ----------------------------------- ----------------------------------- ----------------------------------- With a copy to: ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- Any party may by written notice change the address to which notices to such party are to be delivered or mailed. 19. Entire Agreement. This Agreement, together with Exhibits A, B, C and D hereto which are incorporated herein by this reference, constitutes the entire Agreement - 9 - 10 between the parties hereto with regard to the subject matter hereof, and there are no agreements, understandings, specific restrictions, warranties or representations relating to said subject matter between the parties other than those set forth herein or herein provided for. 20. Counterparts. This Agreement may be executed in two or more counterparts, each of which will take effect as an original and all of which shall evidence one and the same Agreement. 21. Amendment, Modification and Waiver. This Agreement may only be amended, modified or terminated prior to the end of its term by the mutual agreement of the parties. The waiver by either party to this Agreement of a breach of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent or simultaneous breach. 22. Mitigation. Executive shall have no duty to attempt to mitigate the compensation or level of benefits payable by the Company to him hereunder and the Company shall not be entitled to set off against the amounts payable by the Company to Executive hereunder any amounts received by the Executive from any other source, including any subsequent employer. 23. Governing Law. All of the terms and provisions of this Agreement shall be construed in accordance with and governed by the applicable laws of the State of Georgia. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RARE HOSPITALITY INTERNATIONAL, INC. By: /s/ Philip J. Hickey, Jr. ------------------------------------- Title: President and COO EXECUTIVE /s/ William A. Burnett ---------------------------------------- WILLIAM A. BURNETT - 10 - 11 INDEX TO EXHIBITS -----------------
EXHIBIT DESCRIPTION - ------- ----------- A NON-QUALIFIED STOCK OPTION AGREEMENT B INCENTIVE STOCK OPTION AGREEMENT C DEFINITION OF CHANGE IN CONTROL D RESTRICTED AREA
12 EXHIBIT A NON-QUALIFIED STOCK OPTION AGREEMENT under the RARE HOSPITALITY INTERNATIONAL, INC. 1997 LONG-TERM INCENTIVE PLAN This Stock Option Agreement is made as of the ____ day of _________ 1997 by and between RARE HOSPITALITY INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as the "Corporation"), and WILLIAM A. BURNETT, a resident of the State of Georgia (hereinafter referred to as the "Optionee"). 1. Grant of Option. The Corporation hereby grants to the Optionee, under the RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan (the "Plan"), a Non-Qualified Stock Option to purchase, on the terms and conditions set forth in this agreement (this "Option Agreement"), 135,716 shares of the Corporation's no par value common stock (the "Stock"), at the exercise prices per share set forth below (the "Option"): (a) 50,000 shares at $ ____ per share; (b) 25,000 shares at $12.00 per share; (c) 21,032 shares at $15.00 per share; (d) 19,445 shares at $18.00 per share; and (e) 20,239 shares at $21.00 per share. Capitalized terms used herein and not otherwise defined shall have the meanings assigned such terms in the Plan. 2. Vesting of Option. Unless the exercisability of the Option is accelerated in accordance with Article 13 of the Plan or as provided in Section 5 hereof, the Option shall vest (become exercisable) only in cumulative periodic installments as follows: (a) During the first year following the date of this Agreement, the Option shall be exercisable as to none of the shares subject to the Option; (b) During the period beginning one year after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable as to the shares described in paragraph 1(a) above, minus the number of shares, if any, as to which the Option has been previously exercised; - 2 - 13 (c) During the period beginning two years after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable with respect to the shares described in paragraphs 1(a) and (b) above, minus the number of shares, if any, as to which the Option has been previously exercised; (d) During the period beginning three years after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable as to the shares described in paragraphs 1(a), (b) and (c) above, minus the number of shares, if any, as to which the Option has been previously exercised; (e) During the period beginning four years after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable as to the shares described in paragraphs 1(a), (b), (c), and (d) above, minus the number of shares, if any, as to which the Option has been previously exercised; and (f) During the period beginning five years after the date of this Agreement and for the remainder of its term, the Option shall be exercisable with respect to all of the shares minus the number of shares, if any, as to which the Option has been previously exercised. 3. Period of Option and Limitations on Right to Exercise. The Option will, to the extent not previously exercised, lapse under the earliest of the following circumstances; provided, however, that the Committee may, prior to the lapse of the Option under the circumstances described in paragraphs (b), (c) and (d) below, provide in writing that the Option will extend until a later date: (a) The Option shall lapse as of 5:00 p.m., Eastern Time, on the day immediately prior to the tenth anniversary of the date of grant (the "Expiration Date"). (b) The Option shall lapse three months after the Optionee's termination of employment for any reason other than the Optionee's death or Disability; provided, however, that if the Optionee's employment is terminated by the Corporation for cause or by the Optionee without the consent of the Corporation, the Option shall lapse immediately. (c) If the Optionee's employment terminates by reason of Disability, the Option shall lapse one year after the date of the Optionee's termination of employment. (d) If the Optionee dies while employed, or during the three-month period described in subsection (b) above or during the one-year period described in subsection (c) above and before the Option otherwise lapses, the Option shall lapse one year after the date of the Optionee's death. Upon the Optionee's death, the Option may be exercised by the Optionee's beneficiary. If the Optionee or his beneficiary exercises an Option after termination of employment, the Option may be exercised only with respect to the shares that were otherwise vested on the Optionee's - 2 - 14 termination of employment (including vesting by acceleration in accordance with Article 13 of the Plan or Section 5 hereof). 4. Exercise of Option. The Option shall be exercised by written notice directed to the Secretary of the Corporation at the principal executive offices of the Corporation, in substantially the form attached hereto as Exhibit A, or such other form as the Committee may approve. Such written notice shall be accompanied by full payment in cash, shares of Stock previously acquired by the Optionee, or any combination thereof, for the number of shares specified in such written notice; provided, however, that if shares of Stock are used to pay the exercise price, such shares must have been held by the Optionee for at least six months. The Fair Market Value of the surrendered Stock as of the date of the exercise shall be determined in valuing Stock used in payment of the exercise price. To the extent permitted under Regulation T of the Federal Reserve Board, and subject to applicable securities laws, the Option may be exercised through a broker in a so-called "cashless exercise" whereby the broker sells the Option shares and delivers cash sales proceeds to the Corporation in payment of the exercise price. The Committee may, in the exercise of its discretion, but need not, allow the Optionee to pay the exercise price by directing the Corporation to withhold from the shares of Stock that would otherwise be issued upon exercise of the Option that number of shares having a Fair Market Value on the exercise date equal to the exercise price, all as determined pursuant to rules and procedures established by the Committee. Subject to the terms of this Option Agreement, the Option may be exercised at any time and without regard to any other option held by the Optionee to purchase stock of the Corporation. 5. Acceleration of Exercisability Upon Certain Change in Control. In the event that a Change in Control shall occur within two (2) years following the date of this Agreement, upon the occurrence of such Change in Control, the Option shall become fully exercisable with respect to all shares of Stock, other than those with respect to which the Option has previously been exercised; provided, however, that such acceleration will not occur if, in the opinion of the Corporation's accountants, such acceleration would preclude the use of "pooling of interest" accounting treatment for a Change In Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment. 6. Limitation of Rights. The Option does not confer to the Optionee or the Optionee's personal representative any rights of a shareholder of the Corporation unless and until shares of Stock are in fact issued to such person in connection with the exercise of the Option. Nothing in this Option Agreement shall interfere with or limit in any way the right of the Corporation or any Subsidiary to terminate the Optionee's employment at any time, nor confer upon the Optionee any right to continue in the employ of the Corporation or any Subsidiary. 7. Stock Reserve. The Corporation shall at all times during the term of this Option Agreement reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Option Agreement. 8. Optionee's Covenant. The Optionee hereby agrees to use his best efforts to provide services to the Corporation in a workmanlike manner and to promote the Corporation's interests. - 3 - 15 9. Restrictions on Transfer and Pledge. The Option may not be pledged, encumbered, or hypothecated to or in favor of any party other than the Corporation or a Parent or Subsidiary, or be subject to any lien, obligation, or liability of the Optionee to any other party other than the Corporation or a Parent or Subsidiary. The Option is not assignable or transferable by the Optionee other than by will or the laws of descent and distribution; provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation and (ii) is otherwise appropriate and desirable, taking into account any state or federal tax or securities laws applicable to transferable options. The Option may be exercised during the lifetime of the Optionee only by the Optionee. 10. Restrictions on Issuance of Shares. If at any time the Board shall determine in its discretion, that listing, registration or qualification of the shares of Stock covered by the Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to the exercise of the Option, the Option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. 11. Plan Controls. The terms contained in the Plan are incorporated into and made a part of this Option Agreement and this Option Agreement shall be governed by and construed in accordance with the Plan. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Option Agreement, the provisions of the Plan shall be controlling and determinative. 12. Successors. This Option Agreement shall be binding upon any successor of the Corporation, in accordance with the terms of this Option Agreement and the Plan. 13. Severability. If any one or more of the provisions contained in this Option Agreement are invalid, illegal or unenforceable, the other provisions of this Option Agreement will be construed and enforced as if the invalid, illegal or unenforceable provision had never been included. 14. Notice. Notices and communications under this Option Agreement must be in writing and either personally delivered or sent by registered or certified United States mail, return receipt requested, postage prepaid. Notices to the Corporation must be addressed to: RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer or any other address designated by the Corporation in a written notice to the Optionee. Notices to the Optionee will be directed to the address of the Optionee then currently on file with the Corporation, or at any other address given by the Optionee in a written notice to the Corporation. - 4 - 16 IN WITNESS WHEREOF, RARE Hospitality International, Inc., acting by and through its duly authorized officers, has caused this Option Agreement to be executed, and the Optionee has executed this Option Agreement, all as of the day and year first above written. RARE HOSPITALITY INTERNATIONAL, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- OPTIONEE: ---------------------------------------- William A. Burnett - 5 - 17 EXHIBIT A NOTICE OF EXERCISE OF OPTION TO PURCHASE COMMON STOCK OF RARE HOSPITALITY INTERNATIONAL, INC. Name ------------------------------------ Address: ---------------------------------------- ---------------------------------------- Date ------------------------------------ RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer Re: Exercise of Non-Qualified Stock Option I elect to purchase ______________ shares of Common Stock of RARE Hospitality International, Inc. ("RARE") pursuant to the RARE Hospitality International, Inc. Non-Qualified Stock Option Agreement dated ______________ and the RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan. The purchase will take place on the Exercise Date which will be as soon as practicable following the date this notice and all other necessary forms and payments are received by RARE, unless I specify a later date (not to exceed 30 days following the date of this notice). On or before the Exercise Date, I will pay the full exercise price in the form specified below (check one): [ ] Cash Only: by delivering a check to RARE Hospitality International, Inc. for $___________. [ ] Cash and Shares: by delivering a check to RARE Hospitality International, Inc. for $_________ for the part of the exercise price. I will pay the balance of the exercise price by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. F-1 18 [ ] Shares Only: by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. [ ] Cash From Broker: by delivering the purchase price from _______________________, a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System (the "Broker"). I authorize RARE to issue a stock certificate in the number of shares indicated above in the name of the Broker in accordance with instructions received by RARE from the Broker and to deliver such stock certificate directly to the Broker (or to any other party specified in the instructions from the Broker) upon receiving the exercise price from the Broker. Please deliver the stock certificate to me (unless I have chosen to pay the purchase price through a broker). Very truly yours, --------------------------------------- AGREED TO AND ACCEPTED: RARE HOSPITALITY INTERNATIONAL, INC. By: ------------------------------- Title: ---------------------------- Number of Option Shares Exercised: ------------------------ Number of Option Shares Remaining: ------------------------ Date: ----------------------------- F-2 19 EXHIBIT B INCENTIVE STOCK OPTION AGREEMENT under the RARE HOSPITALITY INTERNATIONAL, INC. 1997 LONG-TERM INCENTIVE PLAN This Stock Option Agreement is made as of the ____ day of October 1997 by and between RARE HOSPITALITY INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as the "Corporation"), and WILLIAM A. BURNETT, a resident of the State of Georgia (hereinafter referred to as the "Optionee"). 1. Grant of Option. The Corporation hereby grants to the Optionee, under the RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan (the "Plan"), an Incentive Stock Option to purchase, on the terms and conditions set forth in this agreement (this "Option Agreement"), 14,284 shares of the Corporation's no par value common stock (the "Stock"), at the exercise prices per share set forth below (the "Option"): (a) 3,968 shares at $15.00 per share; (b) 5,555 shares at $18.00 per share; and (c) 4,761 shares at $21.00 per share. Capitalized terms used herein and not otherwise defined shall have the meanings assigned such terms in the Plan. 2. Vesting of Option. Unless the exercisability of the Option is accelerated in accordance with Article 13 of the Plan or as provided in Section 5 hereof, the Option shall vest (become exercisable) only in cumulative periodic installments as follows: (a) during the first three years following the date of this Agreement, the Option shall be exercisable as to none of the shares subject to the Option; (b) during the period beginning three years after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable as to the shares described in paragraph 1(a) above, minus the number of shares, if any, as to which the Option has been previously exercised; (c) during the period beginning four years after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable with respect to 20 the shares described in paragraphs 1(a) and (b) above, minus the number of shares, if any, as to which the initial option has been previously exercised; (d) during the period beginning five years after the date of this Agreement and for a period of one year thereafter, the Option shall be exercisable as to the shares described in paragraphs 1(a), (b) and (c) above, minus the number of shares, if any, as to which the Option has been previously exercised. 3. Period of Option and Limitations on Right to Exercise. The Option will, to the extent not previously exercised, lapse under the earliest of the following circumstances; provided, however, that the Committee may, prior to the lapse of the Option under the circumstances described in paragraphs (b), (c) and (d) below, provide in writing that the Option will extend until a later date, but if Option is exercised after the dates specified in paragraphs (b), (c) and (d) above, it will automatically become a Non-Qualified Stock Option: (a) The Option shall lapse as of 5:00 p.m., Eastern Time, on the day immediately prior to the tenth anniversary of the date of grant (the "Expiration Date"). (b) The Option shall lapse three months after the termination of Optionee's employment for any reason other than the Optionee's death or Disability; provided, however, that if the Optionee's employment is terminated by the Corporation for cause or by the Optionee without the consent of the Corporation, the Option shall lapse immediately. (c) If the Optionee's employment terminates by reason of Disability, the Option shall lapse one year after the date of the Optionee's termination of employment. (d) If the Optionee dies while employed, or during the three-month period described in subsection (b) above or during the one-year period described in subsection (c) above and before the Option otherwise lapses, the Option shall lapse one year after the date of the Optionee's death. Upon the Optionee's death, the Option may be exercised by the Optionee's beneficiary. If the Optionee or his beneficiary exercises an Option after termination of employment, the Option may be exercised only with respect to the shares that were otherwise vested on the Optionee's termination of employment (including vesting by acceleration in accordance with Article 13 of the Plan or Section 5 hereof). 4. Exercise of Option. The Option shall be exercised by written notice directed to the Secretary of the Corporation at the principal executive offices of the Corporation, in substantially the form attached hereto as Exhibit A, or such other form as the Committee may approve. Such written notice shall be accompanied by full payment in cash, shares of Stock previously acquired by the Optionee, or any combination thereof, for the number of shares specified in such written notice; provided, however, that if shares of Stock are used to pay the - 2 - 21 exercise price, such shares must have been held by the Optionee for at least six months The Fair Market Value of the surrendered Stock as of the date of the exercise shall be determined in valuing Stock used in payment of the exercise price. To the extent permitted under Regulation T of the Federal Reserve Board, and subject to applicable securities laws, the Option may be exercised through a broker in a so-called "cashless exercise" whereby the broker sells the Option shares and delivers cash sales proceeds to the Corporation in payment of the exercise price. The Committee may, in the exercise of its discretion, but need not, allow the Optionee to pay the exercise price by directing the Corporation to withhold from the shares of Stock that would otherwise be issued upon exercise of the Option that number of shares having a Fair Market Value on the exercise date equal to the exercise price, all as determined pursuant to rules and procedures established by the Committee. Subject to the terms of this Option Agreement, the Option may be exercised at any time and without regard to any other option held by the Optionee to purchase stock of the Corporation. 5. Acceleration of Exercisability Upon Certain Change in Control. In the event that a Change in Control shall occur within two (2) years following the date of this Agreement, upon the occurrence of such Change in Control, the Option shall become fully exercisable with respect to all shares of Stock, other than those with respect to which the Option has previously been exercised; provided, however, that such acceleration will not occur if, in the opinion of the Corporation's accountants, such acceleration would preclude the use of "pooling of interest" accounting treatment for a Change In Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment. 6. Limitation of Rights. The Option does not confer to the Optionee or the Optionee's personal representative any rights of a shareholder of the Corporation unless and until shares of Stock are in fact issued to such person in connection with the exercise of the Option. Nothing in this Option Agreement shall interfere with or limit in any way the right of the Corporation or any Subsidiary to terminate the Optionee's employment at any time, nor confer upon the Optionee any right to continue in the employ of the Corporation or any Subsidiary. 7. Stock Reserve. The Corporation shall at all times during the term of this Option Agreement reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Option Agreement. 8. Optionee's Covenant. The Optionee hereby agrees to use his best efforts to provide services to the Corporation in a workmanlike manner and to promote the Corporation's interests. 9. Restrictions on Transfer and Pledge. The Option may not be pledged, encumbered, or hypothecated to or in favor of any party other than the Corporation or a - 3 - 22 Parent or Subsidiary, or be subject to any lien, obligation, or liability of the Optionee to any other party other than the Corporation or a Parent or Subsidiary. The Option is not assignable or transferable by the Optionee other than by will or the laws of descent and distribution. The Option may be exercised during the lifetime of the Optionee only by the Optionee. 10. Restrictions on Issuance of Shares. If at any time the Board shall determine in its discretion, that listing, registration or qualification of the shares of Stock covered by the Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to the exercise of the Option, the Option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. 11. Plan Controls. The terms contained in the Plan are incorporated into and made a part of this Option Agreement and this Option Agreement shall be governed by and construed in accordance with the Plan. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Option Agreement, the provisions of the Plan shall be controlling and determinative. 12. Successors. This Option Agreement shall be binding upon any successor of the Corporation, in accordance with the terms of this Option Agreement and the Plan. 13. Severability. If any one or more of the provisions contained in this Option Agreement are invalid, illegal or unenforceable, the other provisions of this Option Agreement will be construed and enforced as if the invalid, illegal or unenforceable provision had never been included. 14. Notice. Notices and communications under this Option Agreement must be in writing and either personally delivered or sent by registered or certified United States mail, return receipt requested, postage prepaid. Notices to the Corporation must be addressed to: RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer or any other address designated by the Corporation in a written notice to the Optionee. Notices to the Optionee will be directed to the address of the Optionee then currently on file with the Corporation, or at any other address given by the Optionee in a written notice to the Corporation. 15. Interpretation. It is the intent of the parties hereto that the Option qualify for incentive stock option treatment pursuant to, and to the extent permitted by, Section 422 of the Code. All provisions hereof are intended to have, and shall be construed to have, such - 4 - 23 meanings as are set forth in applicable provisions of the Code and Treasury Regulations to allow the Option to so qualify. IN WITNESS WHEREOF, RARE Hospitality International, Inc., acting by and through its duly authorized officers, has caused this Option Agreement to be executed, and the Optionee has executed this Option Agreement, all as of the day and year first above written. RARE HOSPITALITY INTERNATIONAL, INC. By: ------------------------------------- Name: Title: OPTIONEE: ---------------------------------------- WILLIAM A. BURNETT - 5 - 24 EXHIBIT A NOTICE OF EXERCISE OF OPTION TO PURCHASE COMMON STOCK OF RARE HOSPITALITY INTERNATIONAL, INC. Name ------------------------------------ Address: ---------------------------------------- ---------------------------------------- Date ------------------------------------ RARE Hospitality International, Inc. 8215 Roswell Road Building 200 Atlanta, Georgia 30350 Attention: Chief Financial Officer Re: Exercise of Incentive Stock Option I elect to purchase ______________ shares of Common Stock of RARE Hospitality International, Inc. pursuant to the RARE Hospitality International, Inc. Incentive Stock Option Agreement dated ______________ and the RARE Hospitality International, Inc. 1997 Long-Term Incentive Plan. The purchase will take place on the Exercise Date which will be as soon as practicable following the date this notice and all other necessary forms and payments are received by RARE, unless I specify a later date (not to exceed 30 days following the date of this notice). On or before the Exercise Date, I will pay the full exercise price in the form specified below (check one): [ ] Cash Only: by delivering a check to RARE Hospitality International, Inc. for $___________. [ ] Cash and Shares: by delivering a check to RARE Hospitality International, Inc. for $_________ for the part of the exercise price. I will pay the balance of the exercise price by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. 25 [ ] Shares Only: by delivering to RARE a stock certificate with my endorsement for shares of RARE Stock that I have owned for at least six months. If the number of shares of RARE Stock represented by such stock certificate exceeds the number needed to pay the exercise price, RARE will issue me a new stock certificate for the excess. [ ] Cash From Broker: by delivering the purchase price from _______________________, a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System (the "Broker"). I authorize RARE to issue a stock certificate in the number of shares indicated above in the name of the Broker in accordance with instructions received by RARE from the Broker and to deliver such stock certificate directly to the Broker (or to any other party specified in the instructions from the Broker) upon receiving the exercise price from the Broker. Please deliver the stock certificate to me (unless I have chosen to pay the purchase price through a broker). Very truly yours, --------------------------------------- AGREED TO AND ACCEPTED: RARE HOSPITALITY INTERNATIONAL, INC. By: ------------------------------- Title: ---------------------------- Number of Option Shares Exercised: ------------------------ Number of Option Shares Remaining: ------------------------ Date: ----------------------------- - 2 - 26 EXHIBIT C DEFINITIONS As used in Section 3 of this Agreement, the following terms shall have the meanings ascribed to each below: "Cause" means: (A) Commission by Executive of a willful or grossly negligent act which causes material harm to the Company, (B) The commission or perpetration by Executive of any criminal act involving a felony for which Executive is indicted or with respect to which Executive pleads nolo contendere (or any similar response), any act of moral turpitude, or any fraud upon the Company, (C) Habitual and unauthorized absenteeism by reason other than physical or mental illness, chronic alcoholism or other form of substance abuse resulting in material harm or actual or potential physical danger to the Company or its employees, (D) Any material violation by Executive of his obligations under this Agreement, or (E) Any misrepresentation or breach by Executive of warranty contained in Section 13 of this Agreement; provided, however, that if the cause specified in such notice is such that there is a reasonable prospect that it can be cured with diligent effort within a reasonable time, Executive shall have such reasonable time (having regard for the nature of the cause) to cure such cause, which time shall not in any event exceed thirty (30) days from the date of such notice, and Executive's employment shall continue in effect during such reasonable time so long as Executive makes diligent efforts during such time to cure such cause. If such cause shall be cured by Executive during such reasonable time his employment and the obligations of the Company hereunder shall not terminate as a result of the notice which has been given with respect to such cause. Cure of any cause with or without notice from the Company shall not relieve Executive from any obligations to the Company under this Agreement or otherwise and shall not affect the Company's rights upon the reoccurrence of the same, or the occurrence of any other, cause. If such cause shall not be cured within such reasonable time the employment of Executive under this Agreement shall terminate upon the expiration of such reasonable time. 27 "Change in Control" means and includes each of the following: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 25% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who is on the date of this Agreement (the "Effective Date") the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition; or (2) Individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to October 1, 1997 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company; or (3) Consummation of a reorganization, share exchange, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities, and (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then - 2 - 28 outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors of the Company, providing for such Business Combination; or (4) approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. "Disability" or "Disabled" means that by reason of any physical or mental incapacity Executive has been unable, or it is reasonably expected that he will be unable, for a period of at least one hundred and eighty (180) substantially continuous days to perform his regular duties and responsibilities hereunder. In the event of any disagreement between Executive and the Company as to whether Executive is physically or mentally incapacitated, the question of such incapacity shall be submitted to an impartial and reputable physician for determination, selected by mutual agreement of Executive and the Company or, failing such agreement, selected by two physicians (one of which shall be selected by the Company and the other by Executive), and such determination of the question of such incapacity by such physician shall be final and binding on Executive and the Company. The Executive shall pay the fees and expenses of such physician. - 3 - 29 EXHIBIT D The area within the Metropolitan Statistical Area ("MSA") surrounding each city listed below, as said MSA is determined from time to time by the U. S. Bureau of the Census, or for each city with no MSA within fifty (50) miles of the city limits. Alabama Florida Birmingham Altamonte Springs Dothan Boynton Beach Mobile Brandon Montgomery Coral Springs Davie California Destin San Francisco Ft. Lauderdale Ft. Myers Connecticut Jacksonville Beach Manchester Jacksonville Jensen Beach Delaware Kissimmee Newark Lake Mary Largo District of Columbia Merritt Island Miami Ocala Orlando Sarasota St. Augustine St. Petersburg Tallahassee Tampa 30 Georgia Maine Albany Bangor Athens Seakonk Atlanta South Portland Augusta Austell Maryland Cartersville Gaithersburg Chamblee College Park Massachusetts Columbus Boston Conyers Braintree Douglasville Chestnut Hill Duluth Peabody Gainesville Farmington Jonesboro Watertown Kennesaw Lawrenceville Michigan Macon Troy Marietta Montgomery Minnesota Peachtree City Minneapolis Rome Roswell Missouri Savannah Florissant Snellville Tucker Nevada Valdosta Las Vegas Illinois New Hampshire Chicago Newington Kentucky New York Florence Albany Poughkeepsie Rochester - 2 - 31 North Carolina Pennsylvania Burlington Philadelphia Charlotte Concord Rhode Island Gastonia Providence Greensboro Warwick High Point Huntersville South Carolina Pineville Columbia Ohio Greenville Cincinnati Hilton Head Cleveland Spartanburg Columbus Cuyahoga Falls Tennessee Dublin Antioch Fairview Park Chattanooga Mayfield Heights Hermitage Mentor Knoxville North Canton Nashville Solon Madison Springdale Strongsville Texas Houston Virginia Springfield Executive acknowledges and agrees that the geographical area described above is the area in which Executive will initially perform his services for the Company, and that the area in which such services are performed is intended to expand as the business of the Company grows. Executive and the Company agree that as the geographical area in which the Company conducts its business expands, the list of cities described on this Exhibit D shall be deemed to be amended, from time to time, without any further consent, action or notice on the part of the Company or Executive, to include each additional city in which the Company operates a restaurant or a franchisee of the Company operates a restaurant under the terms of a franchise from the Company. Executive agrees to execute one or more amendments hereto upon the request of the Company from time to time in order to confirm such amended list. - 3 - EX-21 12 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21
Name of Subsidiary State of Organization - ------------------ --------------------- Bugaboo Creek Steak House, Inc. Delaware(1) Bugaboo Investments, Inc. Delaware RARE Capital, Inc. Delaware WHIP Pooling Corporation Georgia Longhorn Steaks, Inc. Georgia Buckeye Steak Ventures Georgia Carolina Steakhouse Ventures Georgia Denti Restaurant Group Georgia Gold Coast Restaurant Group Georgia LSI-Elias Partners Florida LSI-Elias Partners II Florida LSI Portrush Joint Venture Georgia LSI Royal Joint Venture II Georgia LSI Royal Joint Venture III Georgia LSI Royal Joint Venture IV Georgia RMA-LSI Joint Venture Georgia 1110 Augustine Road Limited Partnership Georgia 11102 Causeway Blvd. Limited Partnership Georgia 13701 S. Tamiami Trail Limited Partnership Florida 15135 N. Kendall Drive Limited Partnership Florida 153 Huffman Road Limited Partnership Georgia 1630 Beacon Center Limited Partnership Florida 16641 Statesville Road Limited Partnership Georgia 171 Harbison Boulevard Limited Partnership Georgia 17211 S. Park Center Limited Partnership Georgia 20999 Center Ridge Road Limited Partnership Ohio 2176 Tyrone Boulevard Georgia 2260 University Limited Florida 2733 Dawson Road Limited Partnership Florida 2901 Federal Highway Limited Partnership Georgia 3411 Ross Clark Circle Limited Partnership Georgia 32863 Emerald Coast Parkway Limited Partnership Georgia 4095 Eastern Blvd. Limited Partnership Georgia 443 Howe Avenue Limited Partnership Georgia 505 North Congress, Ltd. Florida 5375 East Bay Limited Partnership Georgia 5440 Fruitville Road Limited Partnership Georgia 6035 Blazer Limited Partnership Georgia 6065 Mayfield Road Limited Partnership Georgia 6201 Airport Blvd. Limited Partnership Georgia 6225 North Andrews Avenue Limited Partnership Florida 719 Northside Drive East Limited Partnership Georgia 9557 Mentor Avenue Limited Partnership Georgia
(1) Bugaboo Creek Steak House, Inc. has 36 wholly owned subsidiaries that carry on the business of owning and operating restaurants in the United States, the names of which are not listed in this exhibit. EX-23.A 13 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23(A) INDEPENDENT AUDITORS' CONSENT The Board of Directors RARE Hospitality International, Inc. We consent to incorporation by reference in the registration statements No. 333-11983, No. 333-11963, No. 333-11969, No. 333-11977, No. 333-1028, No. 333-1030, and No. 33-57900 on Form S-8 of Longhorn Steaks, Inc. of our report dated February 28, 1998, relating to the consolidated balance sheets of RARE Hospitality International, Inc. as of December 28, 1997 and December 29, 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 28, 1997, which report appears in the December 28, 1997 annual report on Form 10-K of RARE Hospitality International, Inc. KPMG Peat Marwick LLP Atlanta, Georgia March 29, 1998 EX-27.A 14 1997 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-28-1997 DEC-30-1996 DEC-28-1997 1,752 609 2,054 0 9,152 25,225 155,758 0 193,051 28,130 48,051 0 0 103,981 7,999 193,051 264,727 264,754 97,568 97,568 134,698 0 1,245 (17,232) (5,000) (12,232) 0 0 0 (12,232) (1.04) (1.04) ASSET VALUES REPRESENT NET AMOUNTS.
EX-27.B 15 RESTATED 1996 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-29-1996 JAN-01-1996 DEC-29-1996 6,478 861 2,522 0 7,883 21,874 120,431 0 151,594 19,809 7,100 0 0 101,099 20,285 151,594 215,441 215,749 81,128 81,128 107,012 0 (79) 8,413 3,170 5,243 0 0 0 5,243 .46 .45 ASSET VALUES REPRESENT NET AMOUNTS.
-----END PRIVACY-ENHANCED MESSAGE-----