-----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, G2mLZppslZZP5Dtwv4HonzQKwMq8LZrUG3sV9YtQUcMxzgP067xjYBd9aoRjUXrD WBfYZE1qBbed6H2LjaLmJQ== 0000950129-01-001484.txt : 20010319 0000950129-01-001484.hdr.sgml : 20010319 ACCESSION NUMBER: 0000950129-01-001484 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20010316 GROUP MEMBERS: CHRISTOPHER JAMES PAPPAS GROUP MEMBERS: HARRIS JAMES PAPPAS GROUP MEMBERS: PAPPAS CHRISTOPHER JAMES SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: LUBYS INC CENTRAL INDEX KEY: 0000016099 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 741335253 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-10634 FILM NUMBER: 1570434 BUSINESS ADDRESS: STREET 1: 2211 NE LOOP 410 STREET 2: P O BOX 33069 CITY: SAN ANTONIO STATE: TX ZIP: 78265-3069 BUSINESS PHONE: 2106549000 MAIL ADDRESS: STREET 1: P O BOX 33069 CITY: SAN ANTONIO STATE: TX ZIP: 78265-3069 FORMER COMPANY: FORMER CONFORMED NAME: LUBYS CAFETERIAS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CAFETERIAS INC DATE OF NAME CHANGE: 19810126 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PAPPAS CHRISTOPHER JAMES CENTRAL INDEX KEY: 0001130636 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 642 YALE CITY: HOUSTON STATE: TX ZIP: 77007 BUSINESS PHONE: 7138690151 SC 13D/A 1 h85121a1sc13da.txt CHRISTOPHER JAMES PAPPAS FOR LUBYS INC 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)* LUBY'S, INC. - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK, $.32 PAR VALUE PER SHARE - -------------------------------------------------------------------------------- (Title of Class of Securities) 549282101 - -------------------------------------------------------------------------------- (CUSIP Number) FRANK MARKANTONIS 642 YALE ST. HOUSTON, TEXAS 77007 (713) 869-0151 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) MARCH 9, 2001 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rules 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. [ ] NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Page 1 of 7 2 - ------------------- ----------------- CUSIP NO. 549282101 13 D Page 2 of 7 Pages - ------------------- ----------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS HARRIS JAMES PAPPAS - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS PF - -------------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES CITIZEN - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 671,900 OWNED BY EACH ---------------------------------------------------- REPORTING 8 SHARED VOTING POWER PERSON WITH 0 ---------------------------------------------------- 9 SOLE DISPOSITIVE POWER 671,900 ---------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 671,900 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 3.0% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN - -------------------------------------------------------------------------------- Page 2 of 7 3 - ------------------- ----------------- CUSIP NO. 549282101 13 D Page 3 of 7 Pages - ------------------- ----------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS CHRISTOPHER JAMES PAPPAS - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS PF - -------------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES CITIZEN - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 671,900 OWNED BY EACH ---------------------------------------------------- REPORTING 8 SHARED VOTING POWER PERSON WITH 0 ---------------------------------------------------- 9 SOLE DISPOSITIVE POWER 671,900 ---------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 671,900 - -------------------------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 3.0% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN - -------------------------------------------------------------------------------- Page 3 of 7 4 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (FILED BY THE GROUP PURSUANT TO GENERAL INSTRUCTION C) ITEM 1. SECURITY AND ISSUER. No change since the Schedule 13D was filed on December 16, 2000. ITEM 2. IDENTITY AND BACKGROUND. This statement is being filed jointly by Harris James Pappas ("H. Pappas") and Christopher James Pappas ("C. Pappas"). C. Pappas and H. Pappas are each referred to herein, individually, as a "Shareholder" and together as the "Shareholders." As part of the Transaction (defined below), the principal employment of each of the Shareholders is with the Company. C. Pappas is serving as the Company's President and Chief Executive Officer and H. Pappas is serving as the Company's Chief Operating Officer. Their employment arrangements acknowledge that the Shareholders continue to be the principal owners and operators of Pappas Partners, L.P. and Pappas Restaurants, Inc., whose address is 642 Yale Street, Houston, Texas 77007, and that they will continue to be involved in their privately owned restaurant businesses. The addresses of the Shareholders shall continue at such location but shall also be at the Company's principal executive office set forth in Item 1 hereof. Each Shareholder is a United States citizen. During the last five years, neither of the Shareholders has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) nor been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which either was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. No change since the Schedule 13D was filed on December 16, 2000. ITEM 4. PURPOSE OF TRANSACTION. Following the Shareholders' acquisition of approximately 6% of the common stock, $.32 par value per share, of the Company (the "Common Stock"), as disclosed on the Schedule 13D the Shareholders filed with the Securities & Exchange Commission ("SEC") on December 16, 2000, the Shareholders negotiated the terms of a transaction with the Board of Directors of the Company (the "Transaction") pursuant to which the Shareholders have become executive officers and members of the Board of Directors of the Company and setting their compensation and providing for direct investments in the Company. Specifically, on March 9, 2001, the Shareholders entered into a Purchase Agreement (the "Purchase Agreement") with the Company pursuant to which the Shareholders agreed to purchase promissory notes from the Company in the aggregate principal amount of $3 million. The Purchasers will make this initial investment at such time as the Company is able to obtain the agreement of the lenders (the "Lenders") to a credit agreement (the "Credit Agreement") to which the Company is a party and under which the Company is in default to forebear from pursuing any remedy for such default for a period of eight weeks. The Shareholders will purchase promissory notes from the Company for an additional $7 million, for a total cumulative investment of $10 million, at such time as the Lenders and the Company amend the Credit Agreement in a manner satisfactory to the Shareholders. All of the promissory notes purchased by the Shareholders from the Company pursuant to the Purchase Agreement (collectively, the "Notes") will be subordinated to senior debt of the Company (including debt under the Credit Agreement), and will be convertible into shares of Common Stock of the Company at the Shareholder's election (at a conversion price of $5 per share), subject to certain restrictions Page 4 of 7 5 and limitations to be set forth in the Notes. Interest on the Notes may be payable in Common Stock for the first two years after issuance of the Notes under certain circumstances to be set forth in the Notes. The Purchase Agreement also contains the agreement of the Company to take all actions to ensure that the Board's nominee to fill the next vacancy on the Company's Board of Directors is made by the Shareholders. At the same time as, and in conjunction with, the Purchase Agreement, each Shareholder entered into an employment agreement with the Company (together, the "Employment Agreements"). Pursuant to the terms of the Employment Agreements, C. Pappas is to serve as the Company's President and Chief Executive Officer and H. Pappas to serve as its Chief Operating Officer, each for a term of three years. The Shareholders intend to use their positions as executive officers of the Company, along with their positions as directors, to attempt to negotiate the forbearance of and amendment to the Credit Agreement, discussed above, and to otherwise manage the Company's operations, subject to Board supervision. Each Shareholder has agreed not to compete with the Company during the term of his employment by the Company and for an additional period that varies in length depending on the activity to be conducted and the reason for the cessation of the Shareholder's employment with the Company. As compensation for his services, each Shareholder will be paid an annual salary of $100,000, and has been granted an option to purchase 1,120,000 shares of Common Stock (together, the "Options," and each, individually, an "Option") at an exercise price of $5 per share. The Options become exercisable by the Shareholders over three years in accordance with a vesting schedule set forth in the Options, and are otherwise subject to terms, restrictions and limitations set forth in the Options. As part of the Transaction, the Company has also agreed to register certain shares of Common Stock owned by the Shareholders with the SEC under the Securities Act of 1933 upon the Shareholders' request, all pursuant to the terms of a Registration Rights Agreement. In connection with the Transaction, the Company's Rights Agreement, dated as of April 16, 1991, with Ameritrust Company, N.A., has been amended to exempt the Shareholders from the application thereof to the extent provided in such amendment. The Purchase Agreement, Employment Agreements, Options and Registration Rights Agreement are attached as exhibits to this Amendment No. 1 to Schedule 13D. The Purchasers did not acquire their equity interests with the Company to, and do not intend to use their positions as officers and directors of the Company to, liquidate the Company, sell all or substantially all of its assets, merge it with any other person or make any other major changes in its business or corporate structure. Notwithstanding the foregoing, the Purchasers, in their respective offices with the Company, as members of the Board of Directors of the Company and as substantial equity investors in the Company, expect to have significant influence over the management and business of the Company and expect to actively manage all aspects of the Company's business and operations, subject to Board supervision, and make such changes thereto from time to time as may appear to be necessary or advisable. ITEM 5. INTEREST IN SECURITIES OF ISSUER. (a) AGGREGATE NUMBER AND PERCENTAGE OF SHARES OWNED. No change since the Schedule 13D was filed on December 16, 2000. (b) NUMBER OF SHARES BENEFICIALLY OWNED BY THE SHAREHOLDERS. No change since the Schedule 13D was filed on December 16, 2000. Page 5 of 7 6 (c) No change since the Schedule 13D was filed on December 16, 2000. (d) No change since the Schedule 13D was filed on December 16, 2000. (e) No change since the Schedule 13D was filed on December 16, 2000. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF ISSUER. No change since the Schedule 13D was filed on December 16, 2000, except to the extent set forth in Item 4 hereof. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Ex. A Agreement for Joint Filing Pursuant to Rule 13d-1(f)(1) Under the Securities Exchange Act of 1934, dated December 26, 2000, between Harris James Pappas and Christopher James Pappas. Ex. B Purchase Agreement, dated as of March 9, 2001, among the Company, Christopher J. Pappas and Harris J. Pappas.* Ex. C Employment Agreement, dated as of March 9, 2001, between the Company and Christopher J. Pappas.* Ex. D Employment Agreement, dated as of March 9, 2001, between the Company and Harris J. Pappas.* Ex. E Option Agreement, dated as of March 9, 2001, between the Company and Christopher J. Pappas.* Ex. F Option Agreement, dated as of March 9, 2001, between the Company and Harris J. Pappas.* Ex. G Registration Rights Agreement, dated as of March 9, 2001, among the Company, Christopher J. Pappas and Harris J. Pappas.* - ---------- * Filed with this Amendment No. 1 to Schedule 13D. Page 6 of 7 7 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: March 16, 2001 /s/ HARRIS JAMES PAPPAS ---------------------------- Harris James Pappas /s/ CHRISTOPHER JAMES PAPPAS ---------------------------- Christopher James Pappas Page 7 of 7 8 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- A Agreement for Joint Filing Pursuant to Rule 13d-1(f)(1) Under the Securities Exchange Act of 1934, dated December 26, 2000, between Harris James Pappas and Christopher James Pappas. B Purchase Agreement, dated as of March 9, 2001, among the Company, Christopher J. Pappas and Harris J. Pappas.* C Employment Agreement, dated as of March 9, 2001, between the Company and Christopher J. Pappas.* D Employment Agreement, dated as of March 9, 2001, between the Company and Harris J. Pappas.* E Option Agreement, dated as of March 9, 2001, between the Company and Christopher J. Pappas.* F Option Agreement, dated as of March 9, 2001, between the Company and Harris J. Pappas.* G Registration Rights Agreement, dated as of March 9, 2001, among the Company, Christopher J. Pappas and Harris J. Pappas.*
- ---------- * Filed with this Amendment No. 1 to Schedule 13D. EX-99.B 2 h85121a1ex99-b.txt PURCHASE AGREEMENT 1 EXHIBIT B PURCHASE AGREEMENT BY AND AMONG LUBY'S, INC., HARRIS J. PAPPAS AND CHRISTOPHER J. PAPPAS MARCH 9, 2001 2 TABLE OF CONTENTS ARTICLE I. DEFINITIONS............................................................................................-1- SECTION 1.1 DEFINITIONS......................................................................-1- SECTION 1.2 REFERENCES AND TITLES............................................................-8- ARTICLE II. PURCHASE OF THE NOTES..................................................................................-8- SECTION 2.1 PURCHASE OF THE NOTES............................................................-8- ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................................-9- SECTION 3.1 ORGANIZATION, STANDING AND CORPORATE POWER.......................................-9- SECTION 3.2 SUBSIDIARIES.....................................................................-9- SECTION 3.3 CAPITAL STRUCTURE...............................................................-10- SECTION 3.4 AUTHORITY; NO VIOLATIONS; APPROVALS.............................................-10- SECTION 3.5 SEC DOCUMENTS...................................................................-12- SECTION 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS............................................-12- SECTION 3.7 NO DEFAULT......................................................................-12- SECTION 3.8 COMPLIANCE WITH APPLICABLE LAWS.................................................-13- SECTION 3.9 LITIGATION......................................................................-13- SECTION 3.10 STATUS OF NOTES.................................................................-13- SECTION 3.11 TAX RETURNS AND TAX PAYMENTS....................................................-13- SECTION 3.12 EMPLOYEE BENEFIT PLANS..........................................................-14- SECTION 3.13 LABOR MATTERS...................................................................-15- SECTION 3.14 INTANGIBLE PROPERTY.............................................................-15- SECTION 3.15 INSURANCE.......................................................................-16- SECTION 3.16 NO BROKERS OR FINDERS...........................................................-16- SECTION 3.17 AMENDMENT TO RIGHTS AGREEMENT; BOARD APPROVAL...................................-16- ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASERS..........................................................-16- SECTION 4.1 AUTHORITY; APPROVALS............................................................-16- SECTION 4.2 EXEMPT OFFERING.................................................................-17- SECTION 4.3 DISCLOSURE OF INFORMATION.......................................................-17- SECTION 4.4 INVESTMENT INTENT...............................................................-17- SECTION 4.5 TRANSFER RESTRICTIONS...........................................................-17- SECTION 4.6 PURCHASER STATUS................................................................-18- SECTION 4.7 NO BROKERS OR FINDERS...........................................................-18- SECTION 4.8 OWNERSHIP OF SHARES.............................................................-19- SECTION 4.9 FINANCING.......................................................................-19-
-i- 3 ARTICLE V. COVENANTS.............................................................................................-19- SECTION 5.1 CORPORATE OPPORTUNITIES.........................................................-19- SECTION 5.2 APPROVALS.......................................................................-19- SECTION 5.3 BOARD OF DIRECTORS..............................................................-19- SECTION 5.4 STANDSTILL......................................................................-20- SECTION 5.5 USE OF PROCEEDS.................................................................-20- ARTICLE VI. CLOSING...............................................................................................-20- SECTION 6.1 CLOSING.........................................................................-20- SECTION 6.2 ACTIONS TO OCCUR................................................................-20- SECTION 6.3 CONDITION TO CLOSING............................................................-21- ARTICLE VII. MISCELLANEOUS.........................................................................................-22- SECTION 7.1 SURVIVAL OF PROVISIONS..........................................................-22- SECTION 7.2 NO WAIVER; MODIFICATION IN WRITING..............................................-22- SECTION 7.3 SPECIFIC PERFORMANCE............................................................-22- SECTION 7.4 SEVERABILITY....................................................................-23- SECTION 7.5 PARTIES IN INTEREST.............................................................-23- SECTION 7.6 NOTICES.........................................................................-23- SECTION 7.7 COUNTERPARTS....................................................................-24- SECTION 7.8 ENTIRE AGREEMENT................................................................-24- SECTION 7.9 GOVERNING LAW...................................................................-24- SECTION 7.10 PUBLIC ANNOUNCEMENTS............................................................-24- SECTION 7.11 HEADINGS........................................................................-25-
-ii- 4 INDEX 13d Group ......................................................................................................-7- Administrative Lender ..........................................................................................-1- Agreement ......................................................................................................-1- Approval .......................................................................................................-1- Associate ......................................................................................................-1- Beneficial Ownership ...........................................................................................-1- Benefit Plans ............................................................................................-2-, -14- blue sky ......................................................................................................-11- Board ..........................................................................................................-2- Business Combination ...........................................................................................-2- Business Day ...................................................................................................-2- Bylaws .........................................................................................................-2- Capital Stock ..................................................................................................-2- Certificate of Incorporation....................................................................................-2- Closing ..................................................................................................-2-, -20- Closing Date .............................................................................................-2-, -20- Code ...........................................................................................................-2- Common Stock ...................................................................................................-2- Common Stock Equivalents........................................................................................-2- Company ...................................................................................................-1-, -2- Company Disclosure Schedule................................................................................-3-, -9- Company Options ..........................................................................................-3-, -10- Company SEC Documents ....................................................................................-3-, -12- Confidential Information........................................................................................-3- Continuing Directors ..........................................................................................-10- Contracts ......................................................................................................-3- control ........................................................................................................-1- Credit Agreement ...............................................................................................-3- Debt ...........................................................................................................-3- Employment Agreements ..........................................................................................-3- ERISA ....................................................................................................-3-, -14- Exchange Act ...................................................................................................-3- GAAP .....................................................................................................-3-, -12- Governmental Entity ............................................................................................-3- Intangible Property ......................................................................................-3-, -15- Knowledge ......................................................................................................-3- Law ............................................................................................................-4- Lien ...........................................................................................................-4- Litigation ...............................................................................................-4-, -13- Market Price ...................................................................................................-4- Material Adverse Change.........................................................................................-4- Material Adverse Effect.........................................................................................-4-
-iii- 5 Material Subsidiary ............................................................................................-4- Maximum Percentage Ownership....................................................................................-5- New Securities .................................................................................................-5- Notes ..........................................................................................................-5- Options ........................................................................................................-5- Order ..........................................................................................................-5- Permitted Liens ................................................................................................-5- Person .........................................................................................................-6- Purchase Price ............................................................................................-7-, -9- Purchasers ................................................................................................-1-, -7- Registration Rights Agreement...................................................................................-7- Representatives ................................................................................................-7- Rights Agreement .........................................................................................-7-, -16- Rights Agreement Amendment................................................................................-7-, -16- Rule 144 .......................................................................................................-7- SEC ............................................................................................................-7- SECURITIES ....................................................................................................-18- Securities Act ...........................................................................................-7-, -18- Stock Plans ....................................................................................................-7- Subsidiary .....................................................................................................-7- Tax ......................................................................................................-7-, -14- Tax Return .....................................................................................................-7- Tax Returns ...................................................................................................-13- Taxes ..........................................................................................................-7- Transaction Documents ..........................................................................................-7- Transfer ...........................................................................................-7-, -17-, -18- Underlying Shares ..............................................................................................-7- Voting Stock ...................................................................................................-8-
-iv- 6 PURCHASE AGREEMENT PURCHASE AGREEMENT, dated as of March 9, 2001, by and among Luby's, Inc., a Delaware corporation (together with its subsidiaries, the "Company"), and Harris J. Pappas and Christopher J. Pappas, individuals residing in Houston, Texas (together, the "Purchasers"). In consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1 DEFINITIONS. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "ADMINISTRATIVE LENDER" has the meaning ascribed to such term in the Credit Agreement. "AFFILIATE" means, with respect to any Person, any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person. For purposes of this definition and this Agreement, the term "control" (and correlative terms "controlling," "controlled by" and "under common control with") means possession of the power, whether by contract, equity ownership or otherwise, to direct the policies or management of a Person. "AGREEMENT" means this Purchase Agreement, as the same may be amended, supplemented or modified from time to time in accordance with the terms hereof. "APPROVAL" means any approval, authorization, grant of authority, consent, order, qualification, permit, license, variance, exemption, franchise, concession, certificate, filing or registration or any waiver of the foregoing, or any notice, statement or other communication required to be filed with, delivered to or obtained from any Governmental Entity or any other Person. "ASSOCIATE" has the meaning ascribed to such term in Rule 12b-2 under the Exchange Act. "BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" is defined in Rules 13d-3 and 13d-5 of the Exchange Act, but without taking into account any contractual restrictions or limitations on voting or other rights; provided that at all times after the date hereof and prior to the sale, payment, or conversion of the Notes, Purchasers shall be deemed to be the beneficial owner of the Underlying Shares related to the Notes and at all times after the date 7 hereof and prior to the exercise or forfeiture of the Options, Purchasers shall be deemed to be the beneficial owner of the Underlying Shares related to the Options. "BENEFIT PLANS" has the meaning set forth in Section 3.12. "BOARD" means the Board of Directors of the Company. "BUSINESS COMBINATION" means (i) any consolidation, merger, share exchange or similar business combination transaction involving the Company with any Person or (ii) the sale, assignment, conveyance, transfer, lease or other disposition by the Company of all or substantially all of its assets. "BUSINESS DAY" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in San Antonio, Texas or New York City, New York generally are authorized or required by law or other government actions to close. "BYLAWS" mean the Company's bylaws, as amended from time to time. "CAPITAL STOCK" means (i) with respect to any Person that is a corporation or company, any and all shares, interests, participations or other equivalents (however designated) of capital or capital stock of such Person and (ii) with respect to any Person that is not a corporation or company, any and all partnership or other equity interests of such Person. "CERTIFICATE OF INCORPORATION" means the Company's Certificate of Incorporation, as amended from time to time. "CLOSING" has the meaning set forth in Section 6.1. "CLOSING DATE" has the meaning set forth in Section 6.1. "CODE" means the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder as in effect on the date hereof. "COMMON STOCK" means the Company's common stock, par value $.32 per share, and any Capital Stock for or into which such Common Stock hereafter is exchanged, converted, reclassified or recapitalized by the Company or pursuant to an agreement or Business Combination to which the Company is a party. "COMMON STOCK EQUIVALENTS" means (without duplication with any other Common Stock or common stock, as the case may be, or Common Stock Equivalents) rights, warrants, options, convertible securities, or exchangeable securities, exercisable for or convertible or exchangeable into, directly or indirectly, Common Stock or common stock, as the case may -2- 8 be, whether at the time of issuance or upon the passage of time or the occurrence of some future event, including the Notes and the Options. "COMPANY" has the meaning set forth in the introductory paragraph hereof. "COMPANY DISCLOSURE SCHEDULE" has the meaning set forth in Article III. "COMPANY OPTIONS" has the meaning set forth in Section 3.3(b). "COMPANY SEC DOCUMENTS" has the meaning set forth in Section 3.5. "CONFIDENTIAL INFORMATION" means all information about the Company furnished to the Purchasers or any of their Representatives by the Company or any of its Representatives, but shall exclude information that (i) is in the possession of the Purchasers or their Representatives prior to receipt from the Company, (ii) is or becomes available in the public domain, other than as a result of an unauthorized disclosure by Purchasers or its Representatives, or (iii) is not acquired from the Company or any other person known by the Purchasers or its Representatives to be subject to a confidentiality agreement with the Company. "CONTRACTS" means all agreements, contracts, or other binding commitments, arrangements or plans, written or oral (including any amendments and other modifications thereto), to which the Company or any of its Subsidiaries is a party or is otherwise bound. "CREDIT AGREEMENT" means, that certain Credit Agreement, dated as of February 7, 1996 among the Company, as borrower, NationsBank of Texas, N.A., as administrative lender, and the lenders signatory thereto, as the same has been, or may be, from time to time be amended or supplemented. "DEBT" has the meaning set forth in the Credit Agreement. "EMPLOYMENT AGREEMENTS" means the employment agreements between the Company and each of Harris J. Pappas and Christopher J. Pappas dated the date hereof. "ERISA" has the meaning set forth in Section 3.12. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations of the SEC promulgated thereunder. "GAAP" has the meaning set forth in Section 3.5(b). "GOVERNMENTAL ENTITY" means any agency, bureau, commission, court, authority, department, official, political subdivision, tribunal or other instrumentality of any -3- 9 government, whether (i) regulatory, administrative or otherwise, (ii) federal, state or local, or (iii) domestic or foreign. "INTANGIBLE PROPERTY" has the meaning set forth in Section 3.14. "KNOWLEDGE" of any Person means the actual knowledge of such Person's executive and financial officers and directors, in each case after reasonable inquiry of such other officers of such Person with direct responsibility for the Person's business relating to such knowledge. "LAW" means any constitutional provision, statute or other law, ordinance, rule, regulation or interpretation of any thereof and any Order of any Governmental Entity (including environmental laws) now in effect. "LIEN" means any mortgage, lien, pledge, encumbrance, easement, charge or security interest of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof). "LITIGATION" has the meaning set forth in Section 3.9. "MARKET PRICE" means, with respect to a particular security on any given day, the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the last closing bid and asked prices regular way, in either case on the principal national securities exchange on which the applicable securities are listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, (i) the closing sale price for such day reported by the NASDAQ Stock Market, if such security is traded over-the-counter and quoted on the NASDAQ Stock Market, or (ii) if such security is so traded, but not so quoted, the average of the closing reported bid and asked prices of such security as reported by the NASDAQ Stock Market or any comparable system, or (iii) if such security is not listed on the NASDAQ Stock Market or any comparable system, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Company for that purpose. If such security is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of such security shall be deemed to be the fair value per share of such security as reasonably determined in good faith by the Board of Directors of the Company. "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means any effect, change, event or occurrence that is materially adverse to the business, operations, properties, condition (financial or otherwise), results of operations, assets or liabilities of the Company and its Subsidiaries taken as a whole, but excluding any such effect, change, event or occurrence resulting from (i) changes in general economic conditions or (ii) effects, changes, events or occurrences in the Company's industry generally (including without limitation any regulatory changes), in each case which do not have a materially disproportionate effect on -4- 10 the business, operations or properties of the Company or its Subsidiaries as compared to general economic conditions or the Company's industry as a whole, respectively. "MATERIAL SUBSIDIARY" means any Subsidiary that, together with all Subsidiaries of such Subsidiary, (i) for the most recent fiscal year of the Company accounted for more than 10% of the consolidated revenues of the Company and its Subsidiaries or (ii) at the end of such fiscal year, was the owner (beneficial or otherwise) of more than 10% of the consolidated assets of the Company and its Subsidiaries all as shown on the consolidating and consolidated financial statements of the Company and its Subsidiaries. "MAXIMUM PERCENTAGE OWNERSHIP" means (i) prior to March 15, 2002, 25%, and (ii) on or after March 15, 2002, 28%. "NEW SECURITIES" means any shares of Capital Stock or other equity securities (within the meaning of Rule 16a-1(d) promulgated under the Exchange Act), including debt that is convertible or exchangeable for Capital Stock and any warrants or other rights to purchase Capital Stock sold for cash, other than securities marketed to at least 25 investors, sold in an underwritten private offering and available for resale pursuant to Rule 144A or Regulation S promulgated under the Securities Act, and securities sold in an underwritten offering pursuant to a registration statement effective under the Securities Act. "NOTES" means those certain Convertible Subordinated Promissory Notes in substantially the form of EXHIBIT "A" hereto up to an aggregate principal amount of $10,000,000, purchased by Purchasers, issued in accordance with the terms of this Agreement, pursuant to which the Company is the borrower and the Purchasers are the Holders, and each, individually, a "Note". "OPTIONS" means those two (2) certain Stock Options dated March 9, 2001 issued to the Purchasers, each for the purchase of 1,120,000 shares of Common Stock. "ORDER" means any decree, injunction, judgment, settlement, order, ruling, assessment or writ of a court. "PERMITTED LIENS" means: (a) Liens upon any property presently owned or hereafter acquired, created at the time of acquisition to secure a portion of the purchase price thereof, or existing thereon at the date of acquisition, whether or not assumed by the Company or one of its Material Subsidiaries, provided that every such Lien shall apply only to the property so acquired and fixed improvements thereon; (b) any extension, renewal, or refunding of any Lien permitted by the Credit Agreement, if limited to the same property subject to, and securing not more than the amount secured by, the Lien extended, renewed or refunded; -5- 11 (c) the pledge of current assets in the ordinary course of business, to secure current liabilities; (d) mechanics' or materialmen's liens, good faith deposits in connection with tenders, leases of real estate, bids or contracts (other than contracts for the payment of money) deposits to secure public or statutory obligations, deposits to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or similar charges, Liens given in connection with bid or completion bonds; provided that such obligations secured are not yet due or are being contested in good faith by appropriate action and against which an adequate reserve has been established. (e) any Lien arising by reason of deposits with, or the giving of any form of security to, any Governmental Entity created or approved by Law for any purposes at any time as required by Law as a condition to the transaction of any business or the exercise of any privilege or license, or to enable the company or a Subsidiary to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with workmen's compensation, unemployment insurance, old age pensions or other social security, or to share in the privileges or benefits required for companies participating in such arrangements; provided that such obligations secured are not yet due or are being contested in good faith by appropriate action and against which an adequate reserve has been established; (f) the pledge or assignment of accounts receivable, to banks or others made in the ordinary course of business (including to or by a Subsidiary which is principally engaged in the business of financing the business of the Company and its Subsidiaries); (g) the Liens of taxes or assessments for the then current year or not at the time due, or the Liens of Taxes already due but the validity of which is being contested in good faith by appropriate action and against which an adequate reserve has been established; (h) any judgment or Lien against the Company or a Material Subsidiary, so long as the finality of such judgment is being contested in good faith by appropriate action and the execution thereon is stayed; (i) assessments or similar encumbrances, the existence of which does not impair the value or the use of the property subject thereto for the purposes for which it was acquired; (j) landlords' liens on fixtures and movable property located on premises leased by the Company or a Material Subsidiary in the ordinary course of business so long as the rent secured thereby is not in default; -6- 12 (k) Liens on the assets of any limited liability company organized under a limited liability company act of any state in which a limited liability company is treated as a partnership for federal income tax purposes; provided that neither the Company nor any Material Subsidiary is liable for the debt of such limited liability company; and (l) other Liens on any properties of the Company or any Subsidiary with an aggregate value not exceeding 1% of the book value of the total assets of the Company on a consolidated basis. "PERSON" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, limited liability company, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "PURCHASE PRICE" has the meaning set forth in Section 2.1(b). "PURCHASERS" has the meaning set forth in the introductory paragraph hereto. "REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement between the Company and Purchasers dated the date hereof. "REPRESENTATIVES" of any Person means the officers, directors, employees, agents and other representatives of such Person. "RIGHTS AGREEMENT" has the meaning set forth in Section 3.17. "RIGHTS AGREEMENT AMENDMENT" has the meaning set forth in Section 3.17. "RULE 144" means Rule 144 under the Securities Act and any successor rule thereto. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the SEC promulgated thereunder. "STOCK PLANS" means the Company's stock option, stock incentive or other similar plans. "SUBSIDIARY" means (i) a corporation, a majority of whose stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by the Company, by a Subsidiary of the Company or by the Company and another Subsidiary, or (ii) any other Person (other than a corporation) in which the Company, a Subsidiary or the Company and a Subsidiary, directly or indirectly, at the date of determination thereof has at least a majority ownership interest. -7- 13 "TAX" or "TAXES" has the meaning set forth in Section 3.11. "TAX RETURN" has the meaning set forth in Section 3.11. "13D GROUP" means a group within the meaning of Section 13(d)(3) of the Exchange Act. "TRANSACTION DOCUMENTS" means this Agreement, the Notes, the Registration Rights Agreement, and Employment Agreements and the Options. "TRANSFER" has the meaning set forth in Section 4.5. "UNDERLYING SHARES" means the shares of Common Stock (i) issuable upon conversion of the Notes in accordance with the terms thereof, (ii) paid as interest on the Notes in accordance with the terms of the Notes and (iii) issued upon exercise of the Options. "VOTING STOCK" of a Person means Capital Stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to vote in the election of the board of directors, managers or trustees of such Person; provided that if such Person has more than one class or series of Voting Stock, any calculation as to a percentage of such Voting Stock shall be made with respect to the percentage of votes entitled to be cast in respect of such Voting Stock in such circumstances. SECTION 1.2 REFERENCES AND TITLES. All references in this Agreement to Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections, or other subdivisions of this Agreement are for convenience only, do not constitute any part of such Articles, Sections, subsections or other subdivisions, and shall be disregarded in construing the language contained therein. The words "this Agreement," "herein," "hereby," "hereunder," and "hereof," and words of similar import, refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The words "this Section," "this subsection," and words of similar import, refer only to the Sections or subsections hereof in which such words occur. The word "including" (in its various forms) means "including without limitation." Pronouns in masculine, feminine, or neuter genders shall be construed to state and include any other gender and words, terms, and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. Unless the context otherwise requires, all defined terms contained herein shall include the singular and plural forms of such defined terms. -8- 14 ARTICLE II. PURCHASE OF THE NOTES SECTION 2.1 PURCHASE OF THE NOTES. (a) Subject to the terms and conditions herein set forth, the Company will sell to Purchasers, and Purchasers will purchase from the Company, the Notes in the following amounts, and at the following times; (1) Two (2) Notes, each in the original principal amount of $1.5 million (one purchased by each Purchaser) within two (2) business days after receipt by the Company of a written notice signed by the Administrative Lender to the effect that the lenders signatory to the Credit Agreement agree to forebear from pursuing any remedy for breach by the Company of the terms of the Credit Agreement for a period of eight (8) weeks from the date of such notice; and (2) Two (2) Notes, each in the original principal amount of $3.5 million (one purchased by each Purchaser) within two (2) business days after execution and delivery to the Company of an amendment to the Credit Agreement which is satisfactory to the Company and the Purchasers. (b) The purchase price payable for each Note shall be equal to the sum of the original principal amount of such Note (the "Purchase Price"). (c) Delivery of the Notes to Purchasers shall be made at each Closing against payment of the Purchase Price therefor as provided herein. (d) Payment of the Purchase Price for the Notes to be purchased hereunder shall be made by or on behalf of Purchasers by wire transfer of immediately available funds to an account of the Company. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Purchasers as follows (in each case as qualified by matters reflected on the disclosure schedule dated as of the date of this Agreement by reference to the Section of this Agreement so qualified and delivered by the Company to Purchasers prior to the date of this Agreement (the "Company Disclosure Schedule") and made a part hereof by reference): SECTION 3.1 ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Company and each of its Subsidiaries is a corporation or other entity validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or organized and has the requisite corporate or other such entity power and authority to own its properties and carry on its business as now being conducted. Each of the Company and each of its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the -9- 15 ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed or to be in good standing, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. The Company has delivered to Purchasers prior to the execution of this Agreement complete and correct copies of its Certificate of Incorporation and Bylaws and, in the case of the Company's Material Subsidiaries, made available similar organizational documents in each case, as in effect on the date of this Agreement. SECTION 3.2 SUBSIDIARIES. Schedule 3.2 of the Company Disclosure Schedule sets forth a true and complete list, as of the date hereof, of each Material Subsidiary of the Company, together with the jurisdiction of incorporation or organization and the percentage of each Material Subsidiary's outstanding share capital (or other voting or equity securities or interests, as applicable) owned by the Company or another Subsidiary of the Company. All the outstanding shares of share capital (or other voting or equity securities or interests, as applicable) of each Material Subsidiary of the Company have been validly issued and are fully paid and nonassessable (with respect to corporate Subsidiaries) and are owned directly or indirectly by the Company, free and clear of all Liens except for Permitted Liens. SECTION 3.3 CAPITAL STRUCTURE. (a) The authorized Capital Stock of the Company consists of 100,000,000 shares of Common Stock, of which, as of the date of this Agreement, (A) 22,422,943 shares of Common Stock are issued and outstanding, (B) 4,980,124 shares of Common Stock are held by the Company in its treasury and (C) no shares of Common Stock are held by any of the Company's Subsidiaries. (b) There are no outstanding warrants, stock options or stock appreciation rights or other rights to receive or purchase any Capital Stock of the Company or any of its Subsidiaries granted under the Stock Plans or otherwise except as set forth in Schedule 3.3(b) of the Company Disclosure Schedule (such warrants, share or stock options, shares or stock appreciation rights or other rights disclosed thereon, collectively, the "Company Options"). Except as set forth in Schedule 3.3(b) of the Company Disclosure Schedule and except as provided in the Transaction Documents, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, any Capital Stock of the Company or of any of its Subsidiaries or obligating the Company or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. Except as set forth in Schedule 3.3(b) of the Company Disclosure Schedule, there are no outstanding obligations of the Company or any of its Subsidiaries (contingent or otherwise) to repurchase, redeem or otherwise acquire any Capital Stock of the Company or any of its Subsidiaries or any security exchangeable for or convertible into such Capital Stock. All of the Company's Stock Plans are listed on Schedule 3.3(b). (c) All outstanding Capital Stock of the Company and its Subsidiaries are, and all shares which may be issued upon (i) conversion of any of the Notes issued, (ii) payment of interest on any of the Notes issued, or (iii) exercise of the Options will be, when issued and upon delivery of the -10- 16 exercise price, if any, payable with respect thereto, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive or similar rights. (d) Except as contemplated hereby or in the other Transaction Documents or as set forth in Schedule 3.3(d) of the Company Disclosure Schedule, there are not any registration rights agreements, shareholder agreements, voting agreements or trusts, proxies or other agreements or contractual obligations to which the Company is a party or bound with respect to the registration with any Government Entity, or the voting or disposition of any Capital Stock of the Company. SECTION 3.4 AUTHORITY; NO VIOLATIONS; APPROVALS. (a) The Board by a vote of not less than a majority of the "Continuing Directors" (as defined in the Company's Certificate of Incorporation) holding office as of such date expressly approved, in advance of the acquisition of the Notes, the Underlying Shares and such other acquisition of the Company's securities as are contemplated by this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby. The Company has all requisite corporate power and authority to enter into this Agreement and each of the other Transaction Documents and to consummate each of the transactions and perform each of the obligations contemplated hereby and thereby. The execution and delivery of this Agreement and each of the other Transaction Documents and the consummation of each of the transactions and the performance of each of the obligations contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company. This Agreement and the other Transaction Documents have been duly executed and delivered by the Company except the Notes, which will be duly executed and delivered by the Company upon payment of the Purchase Price therefor. Assuming this Agreement and each of the other Transaction Documents to which Purchasers are a party constitute the valid and binding obligations of Purchasers, this Agreement and each of the other Transaction Documents constitutes or in the case of the Notes, when issued and delivered will constitute, a valid and binding obligation of the Company enforceable in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) Except as set forth in Schedule 3.4(b) of the Company Disclosure Schedule, the execution and delivery of this Agreement and each of the other Transaction Documents does not, and the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof will not, require the consent of any other Person to or result in any violation of, or default (with or without notice or lapse of time, or both) under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries under any provision of (A) the Certificate of Incorporation or Bylaws or any provision of the comparable organizational documents of any of the Company's Subsidiaries, (B) any loan or credit agreement, note, bond, mortgage, indenture or other contract or agreement arrangement or understanding to which the Company or any of its Subsidiaries is a party or otherwise is bound or by which any of them or their respective properties are bound or (C) assuming the Approvals referred to in Section 3.4(c) are duly and timely obtained or made, any Law or Order applicable to the -11- 17 Company or any of its Subsidiaries or any of their respective properties or assets, other than, in the case of clause (B) or (C), any such violations, defaults, rights, Liens or detriments, that, individually or in the aggregate, (x) could not reasonably be expected to have a Material Adverse Effect, (y) could not reasonably be expected to impair the ability of the Company to perform its obligations under any of the Transaction Documents in any material respect, and (z) could not reasonably be expected to delay in any material respect or prevent the consummation of any of the transactions, or performance of the obligations, contemplated by any of the Transaction Documents. (c) No Approval from any Governmental Entity is required by or with respect to the Company in connection with the execution and delivery of this Agreement or any other Transaction Document by the Company or the consummation by the Company of the transactions contemplated hereby or thereby, except for: (A) such Approvals as may be required by any applicable state securities or "blue sky" laws; and (B) any such Approvals the failure of which to be made or obtained (1) could not reasonably be expected to have a Material Adverse Effect, (2) could not reasonably be expected to impair the ability of the Company to perform its obligations under any of the Transaction Documents in any material respect and (3) could not reasonably be expected to delay in any material respect or prevent the consummation of any of the transactions contemplated by any of the Transaction Documents. SECTION 3.5 SEC DOCUMENTS. (a) The Company has made available to Purchasers a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed by the Company with the SEC since December 31, 1999 (the "Company SEC Documents"), which are all the documents (other than preliminary materials) that the Company was required to file with the SEC since December 31, 1999. As of their respective dates, the Company SEC Documents complied in all material respects with the requirements of the Securities Act, or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Company SEC Documents, and none of the Company SEC Documents contained as of their respective dates any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The financial statements of the Company included in the Company SEC Documents, including the notes and schedules thereto, complied as to form in all material respects with the rules and regulations of the SEC with respect thereto, were prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present the consolidated financial position of the Company and its consolidated Subsidiaries as of their respective dates and the consolidated results of operations and the consolidated cash flows of the Company and its consolidated Subsidiaries for the periods presented therein in accordance with applicable requirements of GAAP (subject, in the case of the unaudited statements, to normal, recurring adjustments) applied on a consistent basis during the periods presented. -12- 18 SECTION 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Schedule 3.6 of the Company Disclosure Schedule and in correspondence and discussions among representatives of the Company and the Purchasers, from November 30, 2000 to the date of this Agreement, there has not been any event, circumstance or fact that (x) could reasonably be expected to have a Material Adverse Effect, (y) could reasonably be expected to impair the ability of the Company to perform its obligations under any of the Transaction Documents in any material respect, or (z) could reasonably be expected to delay in any material respect or prevent the consummation of any of the transactions contemplated by any of the Transaction Documents. SECTION 3.7 NO DEFAULT. Except as disclosed in Schedule 3.7 of the Company Disclosure Schedules, neither the Company nor any of its Subsidiaries is in default or violation (and, to the Knowledge of the Company, no event has occurred which, with notice or the lapse of time or both, would constitute a default or violation) of any term, condition or provision of (i) the Certificate of Incorporation or Bylaws of the Company or the comparable organizational documents of any of its Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage, indenture or any other contract, agreement, arrangement or understanding to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective properties or assets is bound, or (iii) any Order or Law applicable to the Company or any of its Subsidiaries, except in the case of clause (ii) and (iii), for violations or defaults that, individually or in the aggregate, (x) could not reasonably be expected to have a Material Adverse Effect, (y) could not reasonably be expected to impair the ability of the Company to perform its obligations under any of the Transaction Documents in any material respect, and (z) could not reasonably be expected to delay in any material respect or prevent the consummation of any of the transactions contemplated by any of the Transaction Documents. SECTION 3.8 COMPLIANCE WITH APPLICABLE LAWS. (a) The Company and each of its Subsidiaries has in effect all Approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses, and there has occurred no default or violation under any such Approval, except for failures to obtain, or for defaults or violations under, Approvals which failures, defaults or violations, individually or in the aggregate, (i) could not reasonably be expected to have a Material Adverse Effect, (ii) could not reasonably be expected to impair the ability of the Company to perform its obligations under any of the Transaction Documents in any material respect, and (iii) could not reasonably be expected to delay in any material respect or prevent the consummation of any of the transactions contemplated by any of the Transaction Documents. (b) Except as otherwise disclosed in the Company SEC Documents, the Company and its Subsidiaries are in compliance with all applicable Laws and Orders, except for possible noncompliance which, individually or in the aggregate, (i) could not reasonably be expected to have a Material Adverse Effect, (ii) could not reasonably be expected to impair the ability of the Company to perform its obligations under any of the Transaction Documents in any material respect, and (iii) could not reasonably be expected to delay in any material respect or prevent the consummation of any of the transactions contemplated by any of the Transaction Documents. -13- 19 SECTION 3.9 LITIGATION. Except as disclosed in the Company SEC Documents or Schedule 3.9 of the Company Disclosure Schedule, to the knowledge of the Company, there is no suit, action, proceeding or indemnification claim, at law or in equity, pending before any Governmental Entity or arbitrator, or, to the Knowledge of the Company, threatened against the Company or any Subsidiary of the Company ("Litigation") except for litigation that, individually or in the aggregate, (x) could not reasonably be expected to have a Material Adverse Effect, (y) could not reasonably be expected to impair the ability of the Company to perform its obligations under any of the Transaction Documents in any material respect, and (z) could not reasonably be expected to delay in any material respect or prevent the consummation of any of the transactions contemplated by any of the Transaction Documents. SECTION 3.10 STATUS OF NOTES. The issuance and sale of the Notes and the reservation and issuance of the Underlying Shares have been duly authorized by all necessary corporate action on the part of the Company, and the issuance and sale of the Notes and the issuance of the Underlying Shares are not and will not be subject to preemptive rights of any Person. SECTION 3.11 TAX RETURNS AND TAX PAYMENTS. The Company and each of its Subsidiaries has timely filed all returns, reports or statements required to be filed with any Governmental Entity with respect to Taxes ("Tax Returns") required to be filed by it, and all such Tax Returns are true, correct and complete in all material respects and all Taxes shown thereon to be due have been paid, except where the failure to so have timely filed, to be true, correct or complete or to have paid such Taxes has not had and could not reasonably be expected to have a Material Adverse Effect. No claim for unpaid Taxes has been asserted in writing by a tax authority or has become a Lien (except for Permitted Liens) against the property of the Company or any of its Subsidiaries. No audit of any Tax Return of the Company or any of its Subsidiaries is being conducted by a tax authority, which audit reasonably could be expected to have a Material Adverse Effect, and no extension of the statute of limitations on the assessment of any material Taxes has been granted by the Company or any of its Subsidiaries and currently is in effect. Neither the Company nor any of its Subsidiaries is a party to, is bound by, or has any obligation under any tax sharing or allocation agreement or similar agreement or arrangement, other than as among the Company and its Subsidiaries. For purposes of this Agreement, "Tax" means any federal, state, local or foreign income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, premium, withholding, alternative or added minimum, ad valorem, transfer or excise tax, or any other tax or other like assessment or charge of any kind whatsoever, together with any interest or penalty, imposed by any Governmental Entity. SECTION 3.12 EMPLOYEE BENEFIT PLANS. Except as otherwise disclosed in the Company SEC Documents or Schedule 3.12 of the Company Disclosure Schedule: (a) all employee benefit plans and arrangements covering employees of the Company and its Subsidiaries (collectively, the "Benefit Plans") are listed in the Company SEC Documents or Schedule 3.12 of the Company Disclosure Schedule and complete copies of all material Benefit Plans, including all amendments, have been made available to Purchasers; -14- 20 (b) to the extent applicable, the Benefit Plans comply, in all material respects, with the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code, and any Benefit Plan intended to be qualified under Section 401(a) of the Code satisfies the requirements of such Section, has been determined by the Internal Revenue Service to be so qualified and has not, since such determination, been amended or, operated in a way which would adversely affect such qualified status; (c) each Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code to the extent applicable thereto; and (d) all contributions required to be made as of the date hereof to the Benefit Plans have been made, except in each case as, individually or in the aggregate, has not had and could not reasonably be expected to have a Material Adverse Effect. Except as disclosed in Schedule 3.12 of the Company Disclosure Schedule, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) require the Company to make a larger contribution to, or pay greater benefits under, any Benefit Plan than it otherwise would, (ii) create or give rise to additional vested rights or service credits under any Benefit Plan, or (iii) result in all or any part of any payments made, or that may become payable as a result of the transactions contemplated by the Agreement, by the Company not to be deductible by the payor under sections 280G or 162(m) of the Code; SECTION 3.13 LABOR MATTERS. Except as set forth in Schedule 3.13 of the Company Disclosure Schedule or in the Company SEC Documents: (a) there is no unfair labor practice charge or grievance arising out of a collective bargaining agreement or other grievance procedure against the Company or any of its Subsidiaries or any proceeding or investigation relating to the Company's or any Subsidiary's compliance with immigration law pending, or, to the Knowledge of the Company, threatened, that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect; (b) there is no strike, dispute, slowdown, work stoppage or lockout pending, or, to the Knowledge of the Company, threatened, against or involving the Company or any of its Subsidiaries that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect; or (c) there is no proceeding, claim, suit, action or governmental investigation pending or, to the Knowledge of the Company threatened, in respect to which any current or former director, officer, employee or agent of the Company or any of its Subsidiaries is or may be entitled to claim indemnification from the Company or any of its Subsidiaries pursuant to (a) the Certificate of Incorporation or Bylaws of the Company, (b) any provision of the comparable charter or organizational documents of any of its Subsidiaries, (c) any -15- 21 indemnification agreement to which the Company or any Subsidiary of the Company is a party or (d) applicable Law. SECTION 3.14 INTANGIBLE PROPERTY. The Company and its Subsidiaries possess or have adequate rights to use all trademarks, trade names, patents, service marks, brand marks, brand names, computer programs, databases, industrial designs and copyrights necessary for the operation of the businesses of each of the Company and its Subsidiaries (collectively, the "Intangible Property"), except where the failure to possess or have adequate rights to use such properties, individually or in the aggregate, has not had and could not reasonably be expected to have a Material Adverse Effect. All of the Intangible Property is owned or licensed by the Company or its Subsidiaries free and clear of any and all Liens, except those that, individually or in the aggregate, have not had and could not reasonably be expected to have a Material Adverse Effect, and neither the Company nor any such Subsidiary has forfeited or otherwise relinquished any Intangible Property which forfeiture, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 3.14, the use of the Intangible Property by the Company or its Subsidiaries does not conflict with, infringe upon, violate or interfere with or constitute an appropriation of any right, title, interest or goodwill, including any trademark, patent, service mark, copyright or any pending application therefor of any other person and there have been no claims made and neither the Company nor any of its Subsidiaries has received any notice of any claim or otherwise knows that any of the Intangible Property is invalid or conflicts with the asserted rights of any other person or has not been used or enforced or has failed to have been used or enforced in a manner that would result in the abandonment, cancellation or unenforceability of any of the Intangible Property, except for any such conflict, infringement, violation, interference, claim, invalidity, abandonment, cancellation or unenforceability that, individually or in the aggregate, has not had and could not reasonably be expected to have a Material Adverse Effect. SECTION 3.15 INSURANCE. The Company maintains insurance in such amounts, with such deductibles and exclusions, and covering such risks as are in accordance with industry practice for companies engaged in businesses similar to those of the Company and each of its Subsidiaries (taking into account the cost and availability of such insurance). SECTION 3.16 NO BROKERS OR FINDERS. No agent, broker, finder or investment or commercial banker, or other Person or firm engaged by or acting on behalf of the Company in connection with the negotiation, execution or performance of this Agreement is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement, the other Transaction Documents or the transactions contemplated hereby or thereby, other than any such fees or commissions that have been disclosed to Purchasers in the Company Disclosure Schedule and as to which the Company shall have full responsibility. SECTION 3.17 AMENDMENT TO RIGHTS AGREEMENT; BOARD APPROVAL. The Board has taken all necessary action to amend (such amendment referred to herein as the "Rights Agreement Amendment") the Rights Agreement dated April 16, 1991 between the Company and AmeriTrust Company, N.A., as Agent (the "Rights Agreement"), so that none of the execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby (including the conversion of the Notes, the payment of interest -16- 22 thereon in Common Stock, or exercise of the Options) will cause (i) the rights issued pursuant to the Rights Agreement to become exercisable under the Rights Agreement or (ii) the distribution of Rights Certificates (as defined in the Rights Agreement). The Board has, by resolution duly adopted and approved this Agreement and the other Transaction Documents, and such approval constitutes approval for purposes of Section 203 of the General Corporation Law of the State of Delaware, so that consummation of the transactions contemplated hereby and by the other Transaction Documents does not cause Purchasers to become subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware as a result of said transactions. The Board has duly adopted the resolution set forth on EXHIBIT "B" hereto renouncing any interest or expectancy in certain specified business opportunities. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASERS Each Purchaser represents and warrants to the Company as follows: SECTION 4.1 AUTHORITY; APPROVALS. (a) (i) Each of the Purchasers has full power and authority to enter into this Agreement and each of the other Transaction Documents to which he is a party and to consummate each of the transactions and perform each of the obligations hereof and thereof applicable to such Purchaser, (ii) this Agreement and each of the other Transaction Documents to which he is a party have been duly executed and delivered by him or on his behalf and, assuming the accuracy of the representations and warranties of the Company in Section 3.4 hereof, constitutes the valid and legally binding obligations of such Purchaser, enforceable against him in accordance with their respective terms, subject as to enforceability, to bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); (iii) execution and delivery of this Agreement and the other Transaction Documents, including the purchase of the Notes does not, and the consummation of the transactions contemplated hereby and thereby and compliance with the terms hereof and thereof will not, require the consent of any other Person, or conflict with or violate any duties owed by Purchasers to any other Person or Law applicable to him in a manner that could reasonably be expected to impair the ability of the Purchaser to perform his obligations under any of the Transaction Documents in any material respect or could reasonably be expected to delay in any material respect or prevent the consummation of any of the transaction, or performances of the obligations, contemplated by any of the Transaction Documents. (b) No Approval from any Governmental Entity is required by or with respect to such Purchaser in connection with the execution and delivery by such Purchaser of this Agreement or any other Transaction Document to which he is a party or the consummation by such Purchaser of the transactions contemplated hereby or thereby. SECTION 4.2 EXEMPT OFFERING. Each Purchaser acknowledges that the Notes to be acquired by such Purchaser hereunder have not been registered under the Securities Act and are -17- 23 being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon the representations of the Purchasers contained herein. SECTION 4.3 DISCLOSURE OF INFORMATION. Each Purchaser believes that he has received all the information he considers necessary or appropriate for deciding whether to purchase the Notes. Each Purchaser has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering and the Notes and the business, properties, prospects and financial condition of the Company and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Purchaser or to which the Purchaser had access. The foregoing, however, does not in any way limit or modify the representations and warranties made by the Company in Article 3. SECTION 4.4 INVESTMENT INTENT. The Notes to be acquired by each Purchaser hereunder and any Underlying Shares to be acquired upon the exercise, conversion or exchange of such Note are being acquired for his own account, not as a nominee or agent, for investment and with no present intention of distributing or reselling such Notes or Underlying Shares or any part thereof or interest therein. SECTION 4.5 TRANSFER RESTRICTIONS. Subject to any restrictions in the Notes, if such Purchaser should decide to dispose of any portion of the Notes to be purchased by him or any Underlying Shares to be issued to him upon the exercise or exchange of such Note, such Purchaser understands and agrees that he may do so only pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from registration under the Securities Act. In connection with any offer, resale, pledge or other transfer (individually and collectively, a "Transfer") of any Note(s) or Underlying Shares other than pursuant to an effective registration statement, the Company may require that the transferor of such Note(s) or Underlying Shares provide to the Company an opinion of counsel which opinion shall be reasonably satisfactory in form and substance to the Company, to the effect that such Transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any applicable state or foreign securities Laws. Such Purchaser agrees to the imprinting, so long as appropriate, of substantially the following legend on certificates representing the Note to be acquired by such Purchaser hereunder and any Underlying Shares: THE SECURITIES (THE "SECURITIES") EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL NOT OFFER, RESELL, PLEDGE OR OTHERWISE TRANSFER (INDIVIDUALLY AND COLLECTIVELY, A "TRANSFER") THE SECURITIES EVIDENCED HEREBY, EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. IF THE PROPOSED TRANSFER IS TO BE MADE OTHER -18- 24 THAN PURSUANT TO CLAUSE (A) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AND THE TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY STATE OR FOREIGN SECURITIES LAW. The legends set forth above may be removed if and when the Note(s) or Underlying Shares, as the case may be, represented by such certificate are disposed of pursuant to an effective registration statement under the Securities Act or the opinion of counsel referred to above has been provided to the Company. Such Purchaser agrees that, in connection with any Transfer of securities by him pursuant to an effective registration statement under the Securities Act, he will comply with all prospectus delivery requirements of the Securities Act. The Company makes no representation, warranty or agreement as to the availability of any exemption from registration under the Securities Act with respect to any resale of a Note or Underlying Shares. SECTION 4.6 PURCHASER STATUS. Each such Purchaser represents and warrants to, and covenants and agrees with the Company that (i) at the time he was offered the Note(s) to be acquired by such Purchaser hereunder, he was, and (ii) at the date hereof, he is, an accredited investor as defined in Rule 501(a) under the Securities Act, and has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the Company and an investment in such Note, and is able to bear the economic risk of such investment. SECTION 4.7 NO BROKERS OR FINDERS. No agent, broker, finder or investment or commercial banker, or other Person or firm engaged by or acting on behalf of such Purchaser in connection with the negotiation, execution or performance of this Agreement is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement, other than any such fees or commissions that have been disclosed to the Company and as to which such Purchaser shall have full responsibility. SECTION 4.8 OWNERSHIP OF SHARES. Except as set forth in the Schedule 13D filed by Purchaser with the SEC, neither Purchaser nor any of their Affiliates is the beneficial owner of any Capital Stock in the Company. SECTION 4.9 FINANCING. Upon the terms and subject to the conditions of this Agreement, the Purchasers have available to them all funds necessary to satisfy its obligations to purchase the Notes hereunder. -19- 25 ARTICLE V. COVENANTS SECTION 5.1 CORPORATE OPPORTUNITIES. Until the earlier of (a) March 9, 2006, and (b) such date on which neither Harris J. Pappas or Christopher J. Pappas is a director, officer, employee or consultant of the Company, the Board shall not suspend or restrict the resolutions set forth on EXHIBIT "B" hereto relating to the Company's renouncement of any interest in certain specified business opportunities. SECTION 5.2 APPROVALS. The Company and Purchasers each agree to cooperate and use all commercially reasonable efforts to obtain (and will promptly prepare all registrations, filings and applications, requests and notices preliminary to) (a) all Approvals that may be necessary or which may be reasonably requested by the Company or Purchasers to consummate the transactions contemplated by this Agreement and the other Transaction Documents, and (b) the forbearance letter and the amendment to the Credit Agreement contemplated by Section 2 hereof. SECTION 5.3 BOARD OF DIRECTORS. (a) The Company shall take, or cause to be taken, such action as may be necessary or advisable to ensure that immediately following the Closing the Board shall consist of eleven directorships and that Harris J. Pappas and Christopher J. Pappas shall each be appointed as a member of the Board of Directors to fill such newly created vacancy to hold office until the Company's 2002 annual meeting. Upon the occurrence of the first vacancy in the Board of the Company after the date hereof, Purchasers shall be entitled to name a nominee to fill such vacancy and subject to the reasonable objection of the Board of Directors, the nominee of the Purchasers shall be appointed to fill such vacancy. (b) At any meeting of the shareholders of the Company held in 2002 for the purpose of electing directors of the Company, the Purchasers shall be entitled to nominate for election to the Board, and the Company shall use its reasonable best efforts to cause to be nominated for election to the Board that number of individuals such that the aggregate number of directors on the Board that were nominated by the Purchasers after giving effect to the election of such nominees shall equal (i) two directors, prior to the time the first vacancy occurring after the date hereof occurs, and (ii) three directors thereafter. SECTION 5.4 STANDSTILL. The Purchasers agree that they, together with their Affiliates and Associates and any 13d Group of which they are a part, shall not Beneficially Own any Voting Stock or Common Stock of the Company in excess of the Maximum Percentage Ownership until such time as neither of the Purchasers is a director, officer, employee or consultant of the Company, at which time this covenant shall be of no further force or effect whatsoever. SECTION 5.5 USE OF PROCEEDS. The Company shall use the proceeds from the sale of the Notes for working capital and for general corporate purposes, and not for the purpose of purchasing or otherwise acquiring securities. -20- 26 ARTICLE VI. CLOSING SECTION 6.1 CLOSING. Each purchase and sale of the Notes to be purchased by Purchasers hereunder (each a "Closing") will take place at the offices of the Company at 2211 N.E. Loop 410, San Antonio, Texas, at 10:00 a.m., local time, on the dates specified in Section 2.1(b) hereof, or on such other date as mutually agreed to by the parties hereto. The date on which each purchase and sale of Notes occurs is herein referred to as a "Closing Date." SECTION 6.2 ACTIONS TO OCCUR.. (a) On March 9, 2001, Purchasers shall deliver to the Company the following: (i) Employment Agreements. The Employment Agreement of each Purchaser, duly executed by such Purchaser. (ii) Stock Options. The Options to each Purchaser, duly executed by such Purchaser. (iii) Registration Rights Agreement. The Registration Rights Agreement, duly executed by the Purchasers. (b) On March 9, 2001, the Company shall deliver to Purchasers the following: (i) Employment Agreements. The Employment Agreement of each Purchaser, duly executed by the Company. (ii) Stock Options. The Options to each Purchaser, duly executed by the Company. (iii) Registration Rights Agreement. The Registration Rights Agreement, duly executed by the Company. (iv) Rights Agreement Amendment. A true and correct copy of the Rights Agreement Amendment, duly executed by the Company. (v) Board Resolutions. Copies of resolutions referred to in Section 3.17 of this Agreement and adopted by the Board of Directors relating to Section 203 of the General Corporation Law of the State of Delaware and renouncing the Company's interest or expectancy in certain specified business opportunities, in each case certified by the Company's Secretary. (vi) Opinion of Company Counsel. An Opinion of Cauthorn Hale Hornberger Fuller Sheehan Becker & Beiter, outside counsel for the Company, dated March 9, 2001, to the effect set forth in EXHIBIT "C" with respect to all matters therein other than the Notes. -21- 27 (c) At each Closing, Purchasers shall deliver to the Company an amount equal to the Purchase Price for the Notes then being purchased in accordance with Article II, and the Company shall deliver to Purchasers the Notes being purchased. SECTION 6.3 CONDITION TO CLOSING. (a) The obligation of Purchasers under this Agreement to Purchase the Notes will be subject to the following conditions: (i) Purchasers shall have received on each Closing Date a certificate, dated such Closing Date and signed by an executive officer of the Company, to the effect that the representations and warranties of the Company contained in this Agreement are true and correct in all material respects as of such Closing Date and that the Company has complied in all material respects with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied on or before such Closing Date. (ii) Purchasers shall have received on March 9, 2001 an opinion of Cauthorn Hale Hornberger Fuller Sheehan Becker & Beiter, outside counsel for the Company, dated March 9, 2001, to the effect set forth in EXHIBIT "C" hereto with respect to the Notes. (b) The obligation of the Company under the Agreement to issue the Notes will be subject to the following condition: (i) The Company shall have received each Closing Date a certificate, dated such Closing Date and signed by each Purchaser, to the effect that the representations and warranties of the Purchasers contained in this Agreement are true and correct in all material respects as of the Closing Date and that the Purchasers have complied in all material respects with all of the agreements and satisfied all of the conditions on their parts to be performed or satisfied on or before such Closing Date. (c) The obligations of Purchasers and the Company to purchase and issue the Notes, respectively as contemplated hereby are subject to the satisfaction on or prior to each Closing Date of the following conditions: (i) No temporary restraining order, preliminary or permanent injunction, or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the purchase and sale of the Notes contemplated hereby shall be in effect. (ii) No action shall have been taken nor any statute, rule, or regulation shall have been enacted by any governmental entity that makes the purchase and sale of the Notes contemplated hereby illegal. -22- 28 ARTICLE VII. MISCELLANEOUS SECTION 7.1 SURVIVAL OF PROVISIONS. (a) The representations and warranties of the Company and Purchasers made herein or in any other Transaction Document shall remain operative and in full force and effect pursuant to their terms, until March 1, 2002; provided that such representations and warranties shall survive as to any claim or demand made prior to their termination date until such claim or demand is fully paid or otherwise resolved by the parties hereto in writing or otherwise. (b) The covenants and agreements of the Company and Purchasers contained in this Agreement that, by their terms, are to be performed or complied with after the Closing Date will survive until the later of (i) March 1, 2002 and (ii) the period specified herein with respect to such covenant or agreement; and provided, further, that such covenants and agreements shall survive as to any claim or demand made prior to their termination date until such claim or demand is fully paid or otherwise resolved by the parties hereto in writing or otherwise. SECTION 7.2 NO WAIVER; MODIFICATION IN WRITING. No failure or delay on the part of the Company or a Purchaser in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. Without limiting the rights that any party may have for fraud under common law, the remedies provided for herein are cumulative and are the exclusive remedies available to the Company or Purchasers at law or in equity. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the written consent of the Company, on the one hand, and Purchasers or their permitted assigns, on the other hand, provided that notice of any such waiver shall be given to each party hereto as set forth below. Any amendment, supplement or modification of or to any provision of this Agreement, or any waiver of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on any party hereto in any case shall entitle the other party to any other or further notice or demand in similar or other circumstances. SECTION 7.3 SPECIFIC PERFORMANCE. The parties recognize that in the event the Company or Purchasers should refuse to perform under the provisions of this Agreement or any other Transaction Document, monetary damages alone will not be adequate. Purchasers or the Company, as the case may be, shall therefore be entitled, in addition to any other remedies which may be available, including money damages, to obtain specific performance of the terms of this Agreement. In the event of any action to enforce this Agreement or any other Transaction Document specifically, the Company and Purchasers hereby waive the defense that there is an adequate remedy at law. -23- 29 SECTION 7.4 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. SECTION 7.5 PARTIES IN INTEREST. This Agreement shall be binding upon and, except as provided below, inure solely to the benefit of each party hereto and their successors and assigns, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 7.6 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Purchasers: Harris J. Pappas and Christopher J. Pappas 642 Yale Houston, Texas 77007 with a copy to: Frank Markantonis 645 Heights Blvd. Houston, Texas 77007 and Fulbright & Jaworski, L.L.P. 1301 McKinney, Suite 5100 Houston, Texas 77010-3095 Attn: Charles H. Still If to Luby's: Luby's, Inc. 2211 Northeast Loop 410 San Antonio, Texas 78217-4673 Attention: Chairman of the Board -24- 30 with a copy to: Cauthorn Hale Hornberger Fuller Sheehan Becker & Beiter Incorporated 700 N. St. Mary's Street, Suite 600 San Antonio, Texas 78205 Attention: Drew R. Fuller, Jr. Any of the above addresses may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. All notices, requests or instructions given in accordance herewith shall be deemed received on the date of delivery, if hand delivered, on the date of receipt, if telecopied, three Business Days after the date of mailing, if mailed by registered or certified mail, return receipt requested, and one Business Day after the date of sending, if sent by Federal Express or other recognized overnight courier. SECTION 7.7 COUNTERPARTS. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. SECTION 7.8 ENTIRE AGREEMENT. This Agreement (which term shall be deemed to include the Exhibits and Schedules hereto and the other certificates, documents and instruments delivered hereunder) and the other Transaction Documents constitute the entire agreement of the parties hereto and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth in this Agreement and the other Transaction Documents. SECTION 7.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW PROVISIONS. SECTION 7.10 PUBLIC ANNOUNCEMENTS. The Company, on the one hand, and Purchasers, on the other, shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereby, except for statements required by Law or by any listing agreements with or rules of any national securities exchange or the National Association of Securities Dealers, Inc., or made in disclosures reasonably determined as required to be filed pursuant to the Securities Act or the Exchange Act. SECTION 7.11 HEADINGS. The headings of this Agreement are for convenience of reference only and are not part of the substance of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized officer as of the date first written above. -25- 31 LUBY'S, INC. By: --------------------------------- Robert T. Herres Chairman of the Board PURCHASERS: ------------------------------------ Harris J. Pappas ------------------------------------ Christopher J. Pappas -26- EX-99.C 3 h85121a1ex99-c.txt EMPLOYMENT AGREEMENT - CHRISTOPHER J PAPPAS 1 EXHIBIT C EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement"), between Luby's, Inc., a Delaware corporation ("Luby's" or the "Company"), and Christopher J. Pappas, a resident of Houston, Texas, ("Executive") is executed effective as of the 9th day of March 2001 ("Effective Date"). For purposes of this Agreement, "Luby's" or the "Company" shall include the subsidiaries of Luby's. Luby's and Executive are sometimes referred to herein individually as a "Party," and collectively as the "Parties." The Parties hereby agree as follows: 1. EMPLOYMENT. Luby's hereby employs Executive, and Executive hereby accepts employment with Luby's, subject to the terms and conditions set forth in this Agreement. 2. TERM. Subject to the provisions for termination of employment as provided in Section 7(a), Executive's employment under this Agreement shall be for a period beginning on the Effective Date and ending on March 31, 2004 ("Term"). 3. COMPENSATION. Executive's compensation during his employment under the terms of this Agreement shall be as follows: (a) Base Salary. Luby's shall pay to Executive a base salary (the "Base Salary") of One Hundred Thousand Dollars ($100,000) per year. Luby's and Executive have agreed that the majority of Executive's compensation shall be incentive based and, consequently, no adjustments in Base Salary are appropriate during the Term. The Base Salary shall be payable in equal, semi-monthly installments on the 15th day and last day of each month or at such other times and in such installments as may be agreed between Luby's and Executive. All payments shall be subject to the deduction of payroll taxes, income tax withholdings, and similar deductions and withholdings as required by law. (b) Bonus. In addition to the Base Salary, Executive shall be eligible to receive bonus compensation in such amounts and at such times as the Board of Directors of Luby's or an authorized committee thereof shall from time to time determine in its sole discretion. (c) Stock Option Grant. On the Effective Date, Luby's shall grant to Executive a nonqualified stock option ("Option") to purchase 1,120,000 shares of $.32 par value common stock of Luby's ("Common Stock"), with an exercise price per share equal to five dollars ($5.00) per share and otherwise with the terms of the Option Agreement attached hereto as Exhibit A. 4. EXPENSES AND BENEFITS. (a) During his employment hereunder, Executive is authorized to incur reasonable and appropriate expenses related to the business of Luby's, including expenses for entertainment, travel, and similar matters. Luby's will reimburse Executive for such expenses upon presentation by Executive of such accounts and records as Luby's may from time to time reasonably require. (b) Luby's also agrees to provide Executive with the following benefits during his employment hereunder: (i) Employee Benefit Plans. Executive and, to the extent applicable, Executive's spouse, dependents, and beneficiaries, shall be allowed to 2 participate on the same terms in all benefits, plans, and programs, including improvements or modifications of the same, which are now, or may hereafter be, available to other executive employees of Luby's; provided that Executive shall not be permitted without the express consent of the Board of Directors of Luby's to participate in any bonus, incentive, profit-sharing, or similar cash payment plan. Such benefits, plans, and programs may include, without limitation, stock option or thrift plans, health insurance or health care plans, life insurance, disability insurance, supplemental retirement plans, vacation, and sick leave. Luby's shall not, however, by reason of this paragraph be obligated to institute, maintain, or refrain from changing, amending, or discontinuing any such benefit plan or program, so long as such changes are similarly applicable to executive employees generally. (ii) Vacations. Executive shall be entitled (in addition to the usual Luby's holidays) to paid vacation time for periods in each calendar year not exceeding four (4) weeks. (iii) Working Facilities. Executive shall be furnished by Luby's with an office at the Company's principal office in San Antonio, secretarial help and other facilities and services, including but not limited to, full use of Luby's mail and communication facilities and services reasonably suitable to his position and reasonably necessary for the performance of his duties under this Agreement. 5. POSITIONS AND DUTIES. Executive is employed hereunder as Chief Executive Officer of Luby's or in such other positions as the Parties may mutually agree. In addition, if requested to do so, Executive shall serve as the chief executive officer or other officer or as a member of the Board of Directors, or both, of any subsidiary or affiliate of Luby's. Executive agrees to serve in the position referred to above and to perform diligently and to the best of his abilities the duties and services appertaining to such office, as well as such additional duties and services appropriate to such offices which the Parties mutually may agree upon from time to time. Executive's employment shall also be subject to the policies maintained and established by Luby's that are of general applicability to Luby's executive employees, as such policies may be amended from time to time. Executive's duties shall be performed principally at Luby's principal place of business in San Antonio, Texas and at the locations of its operations. Executive acknowledges and agrees that Executive owes a fiduciary duty of loyalty to act at all times in the best interests of Luby's. In keeping with such duty, Executive represents that he owes no duty to any other entity or person regarding, and shall make full disclosure to Luby's of, all business opportunities pertaining to Company's business which have not been previously renounced by the Board of Directors, as contemplated by Section 10 hereof, and shall not appropriate for Executive's own benefit any such business opportunities. 6. EXTENT OF SERVICE. Executive shall, during the term of this Agreement, devote his primary working time, attention, energies and business efforts to his duties as an employee of Luby's and to the business and affairs of Luby's generally, and shall not, during the term of this Agreement, engage, directly or indirectly, in any other business activity whatsoever, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except with the consent of the Board of Directors of Luby's; however, this Section 6 shall not be construed to prevent Executive from, nor require board consent with respect to, (i) continuing executive's senior level management of non-cafeteria style restaurant businesses, (ii) serving as a member of the board of directors or trustees of other companies or not-for-profit entities, or 2 3 (iii) from investing his personal, private assets as a passive investor in such form or manner as will not require any active services on the part of Executive in the management or operation of the affairs of the companies, partnerships, or other business entities in which any such passive investments are made; provided in case of clause (i), (ii), or (iii) such activities do not conflict with the business and affairs of Luby's or interfere with Executive's ability to perform the services and discharge the duties required of him hereunder. 7. TERMINATION. (a) Termination of Employment. Notwithstanding the provisions of Section 2, the employment of the Executive pursuant to this Agreement shall terminate prior to the expiration of the Term, upon the occurrence of any of the following events: (i) the death of the Executive; (ii) the termination of the Executive's employment by Luby's due to the Executive's Disability (as defined in Section 7(b)); (iii) the termination of the Executive's employment by the Executive for "Good Reason" (as defined in Section 7(d)); (iv) the termination of the Executive's employment by Luby's for Cause (as defined in Section 7(c)); or (v) for any reason whatsoever in the discretion of the Executive or Luby's. (b) Disability. For the purposes of this Agreement, the term "Disability" shall mean Executive becoming incapacitated by accident, sickness, or other circumstance that renders him physically or mentally unable to carry out the duties and services required of him hereunder on a full-time basis for more than one hundred twenty (120) days in any one hundred eighty (180) day period. If a dispute arises between the Executive and the Company concerning the Executive's physical or mental ability to continue or return to the performance of his duties as aforesaid, the Executive shall submit to examination by a competent physician mutually agreeable to both parties or, if the parties are unable to agree, by a physician appointed by the president of the Bexar County Medical Association, and such physician's opinion shall be final and binding. (c) Cause. For purposes of this Agreement, the term "Cause" shall mean: (i) Executive's conviction of a crime constituting a felony, or a misdemeanor involving moral turpitude; (ii) The commission by Executive, or participation in, an illegal act or acts that were intended to defraud Luby's; (iii) the willful refusal by Executive to fulfill the duties and responsibilities as Chief Executive Officer; (iv) the breach by Executive of material provisions of this Agreement, a policy of Luby's, or the code of conduct of Luby's in each case 3 4 after written notice from the Board of Directors and, if correctible, the failure to correct such breach within 30 days from the date such notice is given; (v) gross negligence or willful misconduct by Executive in the performance of his duties and obligations to Luby's; (vi) willful engagement by Executive in conduct known (or which should have been known) to be materially injurious to Luby's. (d) Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following circumstances, without the consent of the Executive, unless such circumstances are remedied in all material respects by Luby's 30 days after Luby's receipt of written notice thereof given by the Executive: (i) the material diminution in the nature, scope, or duties of the Executive or assignment of duties inconsistent with those of the Chief Executive Officer or a change in the location of the principal business office of the Company in which his services are to be carried out, to a place outside of Texas; (ii) any breach of a material provision of this Agreement by Luby's after written notice from Employee and, if correctible, the failure to correct such breach within 30 days from the date such notice is given; (iii) within two years after sale by Luby's of all or substantially all of its assets or the merger, share exchange, or other reorganization of Luby's into or with another corporation or entity (with respect to which Luby's does not survive), a diminution in employee benefits (including but not limited to medical, dental, life insurance, and long-term disability plans) and perquisites applicable to Executive from the greater of (A) the employee benefits and perquisites provided by Luby's to executives with comparable duties or (B) the employee benefits and perquisites to which Executive was entitled immediately prior to the date on which a change in control occurs. (e) Notice of Termination. If Luby's or Executive desires to terminate Executive's employment hereunder at any time prior to expiration of the Term, it or he shall do so by giving written notice to the other party that it or he has elected to terminate Executive's employment hereunder and stating the proposed effective date and reason for such termination, provided that no such action shall alter or amend any other provisions hereof or rights arising hereunder. 8. CONSEQUENCES OF TERMINATION. (a) By Expiration. If Executive's employment hereunder shall terminate upon expiration of the Term, then all compensation for periods subsequent to termination and all benefits to Executive hereunder, other than the Option, which is governed by its own terms in such circumstances, shall terminate contemporaneously with termination of his employment. 4 5 (b) Death or Disability. If the Executive's employment is terminated during the Term by reason of the Executive's death or Disability, all Compensation and benefits to Executive under this Agreement, other than the Option, which is governed by its own terms in such circumstances, shall terminate contemporaneously with the termination of employment and without further obligation to the Executive or the Executive's legal representatives under the Agreement (other than payment of the Executive's Base Salary in respect of the period through his date of death or termination for Disability). (c) Termination by the Executive without Good Reason or by the Company For Cause. If the Executive's employment is terminated by the Executive without Good Reason, or by the Company for Cause, all compensation and benefits to Executive under this Agreement, other than the Option, which is governed by its own terms in such circumstances, shall terminate contemporaneously with such termination of employment and without further obligation to Executive or Executive's legal representatives under this Agreement (other than payment of Executive's Base Salary in respect of the period through his date of termination). (d) Termination by the Executive for Good Reason or by the Company without Cause. (i) If the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, the Company shall be obligated to pay to, or make available to, the Executive Executive's monthly Base Salary and benefits in effect on the date of termination for the remainder of the Term. The Executive shall have no obligation to seek other employment during any time period for which he may receive payment pursuant to this subsection (d), and in the event the Executive obtains other employment during such period, the Company's obligations to make payments pursuant to this subsection (d) shall not be reduced. In the event that continued participation in any Luby's plan is for whatever reason impermissible during the remainder of the Term, Company shall arrange upon comparable terms benefits substantially equivalent to those that may not be so provided under the plan maintained by Luby's. The parties agree that the payments provided for herein constitute part of the consideration provided by the Company for the Executive's agreements contained in Section 5 hereof. (ii) Notwithstanding clause (i) of this subsection (d), if, at any time during which the Executive would otherwise be entitled to receive any payment pursuant to clause (i) of subsection (d), the Executive engages in any activity or takes any action which would be prohibited under Sections 9 and 10 hereof, then the Executive shall be deemed to have irrevocably forfeited any right to receive any further payments pursuant to this Agreement, provided such forfeiture shall not limit Luby's rights to seek to enforce such provision or to seek damages; provided, however, that the Option and the benefits thereof shall not be in any way affected by this clause (d)(ii) of this Section 8. 9. DISCLOSURE OF CONFIDENTIAL INFORMATION. Executive acknowledges that Luby's will disclose to Executive, or place Executive in a position to have access to or develop, trade secrets or Confidential Information of Luby's or its affiliates, and shall entrust Executive with business opportunities of Luby's or its affiliates, and shall place Executive in a position to develop business goodwill on behalf of Luby's or its affiliates. Except to the extent required in the performance of his duties and obligations to Luby's as expressly authorized herein, or by prior written consent of a duly authorized officer or director of Luby's, Executive will not, directly or indirectly, at any time during his employment with Luby's, or for 18 months subsequent to the termination thereof, for any reason whatsoever, with or without cause, breach the confidence reposed in him by Luby's by using, disseminating, disclosing, divulging, or in any manner whatsoever disclosing or permitting to be divulged or disclosed in any manner Confidential Information 5 6 to any person, firm, corporation, association, or other business entity. As used herein, the term "Confidential Information" means any and all information concerning ideas, concepts, products, processes, and services related to the business of Luby's, including information relating to research, development, inventions, manufacture, purchasing, accounting, engineering, marketing, merchandising, or the selling of any product or products to any customers of Luby's, disclosed to Executive or known by Executive as a consequence of or through his employment by Luby's (or any parent, subsidiary or affiliated corporations of Luby's) including, but not necessarily limited to, any person, firm, corporation, association, or other business entity with which Luby's has any type of agency agreement, or any shareholders, directors, or officers of any such person, firm, corporation, association, or other business entity; provided, however, that Confidential Information shall not include information generally known in any industry in which Luby's is or may become engaged during the term of this Agreement, information disclosed publicly by Luby's or any information, ideas, products, processes, services, and concepts existing and known to Executive prior to his employment by Luby's. On termination of employment with Luby's, all documents, records, notebooks, e-mails, or similar repositories of or containing Confidential Information, including all copies of any documents, records, notebooks, e-mail, or similar repositories of or containing Confidential Information, then in Executive's possession or in the possession of any third party under the control of Executive or pursuant to any agreement with Executive, whether prepared by Executive or any other person, firm, corporation, association, or other business entity, will be delivered to Luby's by Executive. 10. NONCOMPETITION; STANDSTILL. (a) Executive recognizes and understands that in performing the responsibilities of his employment, he will occupy a position of fiduciary trust and confidence, pursuant to which he will develop and acquire experience and knowledge with respect to Luby's business. It is the expressed intent and agreement of Executive and Luby's that such knowledge and experience shall be used exclusively in the furtherance of the interests of Luby's and not in any manner which would be detrimental to Luby's interests. In consideration of the benefits herein, Executive therefore agrees that so long as he is employed by Luby's and for the Covenant Period (as defined below) after termination of Executive's employment, Executive will not directly or indirectly: (i) engage in any other "cafeteria-style" restaurant business (as defined in the resolution of the Board of Directors of the Company in the form attached hereto as Exhibit B and adopted in connection with this Agreement) or own any interests whether as an owner, shareholder, joint venturer, partner or otherwise, in any other association or entity that engages, directly or indirectly, in any "cafeteria-style" restaurant business in each case in any state where Luby's or any of its affiliates are conducting business on the date of this Agreement or in any contiguous state; provided, however, that nothing herein shall prohibit Executive from holding or making passive investments in limited partnerships or corporations whose securities are traded in a generally recognized market provided that Executive's interest, together with those of his affiliates and family do not exceed 1% of the outstanding shares or interests in such corporation or partnership; or (ii) render advice or services to, or otherwise assist, any other person, association, or entity engaged, directly or indirectly, in any "cafeteria-style" restaurant business in any state where Luby's or its affiliates conduct business on the date of this Agreement or in any contiguous state; or 6 7 (iii) contact or solicit any employee of Luby's or any of its affiliates to induce them to terminate his or her employment with Luby's or such affiliates. (b) Executive agrees that for so long as he is employed by Luby's and for the Covenant Period he will not without the prior written consent of the Company: (i) knowingly, after due inquiry, sell any shares of Common Stock of the Company ("Common Stock"), or right to acquire Common Stock, to any person or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder) that would subsequent to such sale Beneficially Own (as defined in the Purchase Agreement dated March 9, 2001 between the Company, Employee and the other signatories thereto (the "Purchase Agreement") in excess of 10% of the Company's issued and outstanding Common Stock (1% in the case of industry competitors), (ii) solicit, or participate in a solicitation of proxies or votes or consents to vote any voting securities of the Company or grant (except to the Company or its representatives or representatives of the Executive) any proxies to vote such securities or subject their shares in the Company to any voting trust or other voting arrangement or agreement, (iii) form, join, or in any way participate in, any group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder) with respect to voting securities of the Company, or (iv) seek, propose, or make any public statement regarding any merger, tender or exchange offer or other business combination involving the Company or any sale, assignment, transfer, lease or other disposition by the Company of all or substantially all of its assets. (c) "Covenant Period" means: (i) twenty-four (24) months if Employee is terminated by the Company for Cause or if Employee terminates his employment without Good Reason; or (ii) if Employee's employment is terminated for any other reason: (x) twelve (12) months for the activities prohibited by clause (ii) and (iv) of Section 10(b) and (y) twenty-four (24) months for the activities prohibited by any other provision of Section 10. 11. ENFORCEMENT AND REMEDIES. Executive understands that the restrictions set forth here may limit Executive's ability to engage in certain businesses in certain geographic regions during the period provided for above, but acknowledges that Executive will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. Executive acknowledges that money damages would not be sufficient remedy for any breach of Section 9 or 10 by Executive, and Luby's shall be entitled to enforce the provisions thereof by terminating any payments then owing to Executive under this Agreement and/or by specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach, but shall be in addition to all remedies available at law or in equity to Luby's, including without limitation, the recovery of damages from Executive and Executive's agents involved in such breach and remedies available to Luby's pursuant to other agreements with Executive. 12. INSURANCE. Luby's may, in its sole and absolute discretion, at any time after the Effective Date, apply for and procure, as owner and for its own benefit, insurance on the life of Executive, in such amounts and in such forms as Luby's may choose. Unless otherwise agreed 7 8 by Luby's, Executive shall have no interest whatsoever in any such policy or policies, but Executive shall, at Luby's request, submit to such medical examinations, supply such information, and execute and deliver such documents as may be required by the insurance company or companies to which Luby's has applied for such insurance. 13. NOTICE. All notices and communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Executive: Christopher J. Pappas 642 Yale Houston, Texas 77007 with a copy to: Frank Markantonis 645 Heights Blvd. Houston, Texas 77007 and Fulbright & Jaworski, L.L.P. 1301 McKinney Suite 5100 Houston, Texas 77010-3095 Attn: Charles H. Still If to Luby's: Luby's, Inc. 2211 Northeast Loop 410 San Antonio, Texas 78217-4673 Attention: Chairman of the Board With a copy to: Cauthorn Hale Hornberger Fuller Sheehan Becker & Beiter Incorporated 700 N. St. Mary's Street, Suite 600 San Antonio, Texas 78205 Attention: Drew R. Fuller, Jr. Any of the above addresses may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. All notices, requests or instructions given in accordance herewith shall be deemed received on the date of delivery, if hand delivered, on the date of receipt, if telecopied, three Business Days after the date of mailing, if mailed by registered or certified mail, return receipt requested, and one Business Day after the date of sending, if sent by Federal Express or other recognized overnight courier 8 9 14. CONTROLLING LAW. This Agreement shall be determined and governed by and construed in accordance with the laws of the State of Texas, without giving effect to any conflicts of law provisions. 15. ADDITIONAL INSTRUMENTS. This Agreement governs the rights and obligations of Executive and Luby's with respect to Executive's base salary and certain perquisites of employment. Executive's rights and obligations both during the term of his employment and thereafter with respect to stock options, life insurance policies insuring the life of Executive, and other benefits under the plans and programs maintained by Luby's shall be governed by the separate agreements, plans, and other documents and instruments governing such matters. 16. LIQUIDATED DAMAGES. In light of the difficulties in estimating the damages for any early termination of employment, Luby's and Executive hereby agree that the payments, if any, to be received by Executive pursuant to this Agreement shall be received by Executive as liquidated damages. Payment of the amounts set forth in this Agreement, if any, shall be in lieu of any severance benefit Executive may be entitled to under any severance plan or policy of Luby's. 17. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. 18. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged orally, but only by a waiver, modification or discharge in writing signed by the Executive, and such officer of the Company as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. Wherever appropriate to the intention of the parties hereto, the respective rights and obligations of the parties hereto, will survive any termination or expiration of the term of this Agreement as specifically set forth herein; in addition Sections 8, 11, 13, 14, 15, 16, 17, 18, 19 and 20 shall survive such termination or expiration to the extent the context thereof requires. 19. ENTIRE AGREEMENT. This Agreement (which term shall be deemed to include the exhibits hereto and any other certificates, documents or instruments delivered hereunder) the Purchase Agreement and the other Transaction Documents (as defined therein) constitute the entire agreement of the Parties hereto and supercede all prior agreements and understandings, both written and oral, among the parties as to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth herein, in the Purchase Agreement and in the other Transaction Documents. 9 10 20. EFFECT OF AGREEMENT. This Agreement shall be binding upon Executive and his heirs, executors, legal representatives, successors and assigns, and Luby's and its legal representatives, successors and assigns. Except as provided in the preceding sentence, this Agreement, and the rights and obligations of the Parties hereunder, are personal and neither this Agreement, nor any right, benefit, or obligation of either Party hereto, shall be subject to voluntary or involuntary assignment, alienation, or transfer, whether by operation of law or otherwise, without the prior written consent of the other Party. 21. EXECUTION. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 22. DEEMED RESIGNATIONS. Any termination of Executive's employment shall constitute an automatic resignation as an officer and director of Luby's and each subsidiary or affiliate of Luby's. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date. ------------------------------------ Christopher J. Pappas Luby's, Inc. ------------------------------------ Robert T. Herres Chairman of the Board 10 EX-99.D 4 h85121a1ex99-d.txt EMPLOYMENT AGREEMENT - HARRIS J PAPPAS 1 EXHIBIT D EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement"), between Luby's, Inc., a Delaware corporation ("Luby's" or the "Company"), and Harris J. Pappas, a resident of Houston, Texas, ("Executive") is executed effective as of the 9th day of March 2001 ("Effective Date"). For purposes of this Agreement, "Luby's" or the "Company" shall include the subsidiaries of Luby's. Luby's and Executive are sometimes referred to herein individually as a "Party," and collectively as the "Parties." The Parties hereby agree as follows: 1. EMPLOYMENT. Luby's hereby employs Executive, and Executive hereby accepts employment with Luby's, subject to the terms and conditions set forth in this Agreement. 2. TERM. Subject to the provisions for termination of employment as provided in Section 7(a), Executive's employment under this Agreement shall be for a period beginning on the Effective Date and ending on March 31, 2004 ("Term"). 3. COMPENSATION. Executive's compensation during his employment under the terms of this Agreement shall be as follows: (a) Base Salary. Luby's shall pay to Executive a base salary (the "Base Salary") of One Hundred Thousand Dollars ($100,000) per year. Luby's and Executive have agreed that the majority of Executive's compensation shall be incentive based and, consequently, no adjustments in Base Salary are appropriate during the Term. The Base Salary shall be payable in equal, semi-monthly installments on the 15th day and last day of each month or at such other times and in such installments as may be agreed between Luby's and Executive. All payments shall be subject to the deduction of payroll taxes, income tax withholdings, and similar deductions and withholdings as required by law. (b) Bonus. In addition to the Base Salary, Executive shall be eligible to receive bonus compensation in such amounts and at such times as the Board of Directors of Luby's or an authorized committee thereof shall from time to time determine in its sole discretion. (c) Stock Option Grant. On the Effective Date, Luby's shall grant to Executive a nonqualified stock option ("Option") to purchase 1,120,000 shares of $.32 par value common stock of Luby's ("Common Stock"), with an exercise price per share equal to five dollars ($5.00) per share and otherwise with the terms of the Option Agreement attached hereto as Exhibit A. 4. EXPENSES AND BENEFITS. (a) During his employment hereunder, Executive is authorized to incur reasonable and appropriate expenses related to the business of Luby's, including expenses for entertainment, travel, and similar matters. Luby's will reimburse Executive for such expenses upon presentation by Executive of such accounts and records as Luby's may from time to time reasonably require. (b) Luby's also agrees to provide Executive with the following benefits during his employment hereunder: (i) Employee Benefit Plans. Executive and, to the extent applicable, Executive's spouse, dependents, and beneficiaries, shall be allowed to 2 participate on the same terms in all benefits, plans, and programs, including improvements or modifications of the same, which are now, or may hereafter be, available to other executive employees of Luby's; provided that Executive shall not be permitted without the express consent of the Board of Directors of Luby's to participate in any bonus, incentive, profit-sharing, or similar cash payment plan. Such benefits, plans, and programs may include, without limitation, stock option or thrift plans, health insurance or health care plans, life insurance, disability insurance, supplemental retirement plans, vacation, and sick leave. Luby's shall not, however, by reason of this paragraph be obligated to institute, maintain, or refrain from changing, amending, or discontinuing any such benefit plan or program, so long as such changes are similarly applicable to executive employees generally. (ii) Vacations. Executive shall be entitled (in addition to the usual Luby's holidays) to paid vacation time for periods in each calendar year not exceeding four (4) weeks. (iii) Working Facilities. Executive shall be furnished by Luby's with an office at the Company's principal office in San Antonio, secretarial help and other facilities and services, including but not limited to, full use of Luby's mail and communication facilities and services reasonably suitable to his position and reasonably necessary for the performance of his duties under this Agreement. 5. POSITIONS AND DUTIES. Executive is employed hereunder as Chief Operating Officer of Luby's or in such other positions as the Parties may mutually agree. In addition, if requested to do so, Executive shall serve as the chief operating officer or other officer or as a member of the Board of Directors, or both, of any subsidiary or affiliate of Luby's. Executive agrees to serve in the position referred to above and to perform diligently and to the best of his abilities the duties and services appertaining to such office, as well as such additional duties and services appropriate to such offices which the Parties mutually may agree upon from time to time. Executive's employment shall also be subject to the policies maintained and established by Luby's that are of general applicability to Luby's executive employees, as such policies may be amended from time to time. Executive's duties shall be performed principally at Luby's principal place of business in San Antonio, Texas and at the locations of its operations. Executive acknowledges and agrees that Executive owes a fiduciary duty of loyalty to act at all times in the best interests of Luby's. In keeping with such duty, Executive represents that he owes no duty to any other entity or person regarding, and shall make full disclosure to Luby's of, all business opportunities pertaining to Company's business which have not been previously renounced by the Board of Directors, as contemplated by Section 10 hereof, and shall not appropriate for Executive's own benefit any such business opportunities. 6. EXTENT OF SERVICE. Executive shall, during the term of this Agreement, devote his primary working time, attention, energies and business efforts to his duties as an employee of Luby's and to the business and affairs of Luby's generally, and shall not, during the term of this Agreement, engage, directly or indirectly, in any other business activity whatsoever, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except with the consent of the Board of Directors of Luby's; however, this Section 6 shall not be construed to prevent Executive from, nor require board consent with respect to, (i) continuing executive's senior level management of non-cafeteria style restaurant businesses, (ii) serving as a member of the board of directors or trustees of other companies or not-for-profit entities, or 2 3 (iii) from investing his personal, private assets as a passive investor in such form or manner as will not require any active services on the part of Executive in the management or operation of the affairs of the companies, partnerships, or other business entities in which any such passive investments are made; provided in case of clause (i), (ii), or (iii) such activities do not conflict with the business and affairs of Luby's or interfere with Executive's ability to perform the services and discharge the duties required of him hereunder. 7. TERMINATION. (a) Termination of Employment. Notwithstanding the provisions of Section 2, the employment of the Executive pursuant to this Agreement shall terminate prior to the expiration of the Term, upon the occurrence of any of the following events: (i) the death of the Executive; (ii) the termination of the Executive's employment by Luby's due to the Executive's Disability (as defined in Section 7(b)); (iii) the termination of the Executive's employment by the Executive for "Good Reason" (as defined in Section 7(d)); (iv) the termination of the Executive's employment by Luby's for Cause (as defined in Section 7(c)); or (v) for any reason whatsoever in the discretion of the Executive or Luby's. (b) Disability. For the purposes of this Agreement, the term "Disability" shall mean Executive becoming incapacitated by accident, sickness, or other circumstance that renders him physically or mentally unable to carry out the duties and services required of him hereunder on a full-time basis for more than one hundred twenty (120) days in any one hundred eighty (180) day period. If a dispute arises between the Executive and the Company concerning the Executive's physical or mental ability to continue or return to the performance of his duties as aforesaid, the Executive shall submit to examination by a competent physician mutually agreeable to both parties or, if the parties are unable to agree, by a physician appointed by the president of the Bexar County Medical Association, and such physician's opinion shall be final and binding. (c) Cause. For purposes of this Agreement, the term "Cause" shall mean: (i) Executive's conviction of a crime constituting a felony, or a misdemeanor involving moral turpitude; (ii) The commission by Executive, or participation in, an illegal act or acts that were intended to defraud Luby's; (iii) the willful refusal by Executive to fulfill the duties and responsibilities as Chief Operating Officer; (iv) the breach by Executive of material provisions of this Agreement, a policy of Luby's, or the code of conduct of Luby's in each case 3 4 after written notice from the Board of Directors and, if correctible, the failure to correct such breach within 30 days from the date such notice is given; (v) gross negligence or willful misconduct by Executive in the performance of his duties and obligations to Luby's; (vi) willful engagement by Executive in conduct known (or which should have been known) to be materially injurious to Luby's. (d) Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following circumstances, without the consent of the Executive, unless such circumstances are remedied in all material respects by Luby's 30 days after Luby's receipt of written notice thereof given by the Executive: (i) the material diminution in the nature, scope, or duties of the Executive or assignment of duties inconsistent with those of the Chief Operating Officer or a change in the location of the principal business office of the Company in which his services are to be carried out, to a place outside of Texas; (ii) any breach of a material provision of this Agreement by Luby's after written notice from Employee and, if correctible, the failure to correct such breach within 30 days from the date such notice is given; (iii) within two years after sale by Luby's of all or substantially all of its assets or the merger, share exchange, or other reorganization of Luby's into or with another corporation or entity (with respect to which Luby's does not survive), a diminution in employee benefits (including but not limited to medical, dental, life insurance, and long-term disability plans) and perquisites applicable to Executive from the greater of (A) the employee benefits and perquisites provided by Luby's to executives with comparable duties or (B) the employee benefits and perquisites to which Executive was entitled immediately prior to the date on which a change in control occurs. (e) Notice of Termination. If Luby's or Executive desires to terminate Executive's employment hereunder at any time prior to expiration of the Term, it or he shall do so by giving written notice to the other party that it or he has elected to terminate Executive's employment hereunder and stating the proposed effective date and reason for such termination, provided that no such action shall alter or amend any other provisions hereof or rights arising hereunder. 8. CONSEQUENCES OF TERMINATION. (a) By Expiration. If Executive's employment hereunder shall terminate upon expiration of the Term, then all compensation for periods subsequent to termination and all benefits to Executive hereunder, other than the Option, which is governed by its own terms in such circumstances, shall terminate contemporaneously with termination of his employment. 4 5 (b) Death or Disability. If the Executive's employment is terminated during the Term by reason of the Executive's death or Disability, all Compensation and benefits to Executive under this Agreement, other than the Option, which is governed by its own terms in such circumstances, shall terminate contemporaneously with the termination of employment and without further obligation to the Executive or the Executive's legal representatives under the Agreement (other than payment of the Executive's Base Salary in respect of the period through his date of death or termination for Disability). (c) Termination by the Executive without Good Reason or by the Company For Cause. If the Executive's employment is terminated by the Executive without Good Reason, or by the Company for Cause, all compensation and benefits to Executive under this Agreement, other than the Option, which is governed by its own terms in such circumstances, shall terminate contemporaneously with such termination of employment and without further obligation to Executive or Executive's legal representatives under this Agreement (other than payment of Executive's Base Salary in respect of the period through his date of termination). (d) Termination by the Executive for Good Reason or by the Company without Cause. (i) If the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, the Company shall be obligated to pay to, or make available to, the Executive Executive's monthly Base Salary and benefits in effect on the date of termination for the remainder of the Term. The Executive shall have no obligation to seek other employment during any time period for which he may receive payment pursuant to this subsection (d), and in the event the Executive obtains other employment during such period, the Company's obligations to make payments pursuant to this subsection (d) shall not be reduced. In the event that continued participation in any Luby's plan is for whatever reason impermissible during the remainder of the Term, Company shall arrange upon comparable terms benefits substantially equivalent to those that may not be so provided under the plan maintained by Luby's. The parties agree that the payments provided for herein constitute part of the consideration provided by the Company for the Executive's agreements contained in Section 5 hereof. (ii) Notwithstanding clause (i) of this subsection (d), if, at any time during which the Executive would otherwise be entitled to receive any payment pursuant to clause (i) of subsection (d), the Executive engages in any activity or takes any action which would be prohibited under Sections 9 and 10 hereof, then the Executive shall be deemed to have irrevocably forfeited any right to receive any further payments pursuant to this Agreement, provided such forfeiture shall not limit Luby's rights to seek to enforce such provision or to seek damages; provided, however, that the Option and the benefits thereof shall not be in any way affected by this clause (d)(ii) of this Section 8. 9. DISCLOSURE OF CONFIDENTIAL INFORMATION. Executive acknowledges that Luby's will disclose to Executive, or place Executive in a position to have access to or develop, trade secrets or Confidential Information of Luby's or its affiliates, and shall entrust Executive with business opportunities of Luby's or its affiliates, and shall place Executive in a position to develop business goodwill on behalf of Luby's or its affiliates. Except to the extent required in the performance of his duties and obligations to Luby's as expressly authorized herein, or by prior written consent of a duly authorized officer or director of Luby's, Executive will not, directly or indirectly, at any time during his employment with Luby's, or for 18 months subsequent to the termination thereof, for any reason whatsoever, with or without cause, breach the confidence reposed in him by Luby's by using, disseminating, disclosing, divulging, or in any manner whatsoever disclosing or permitting to be divulged or disclosed in any manner Confidential 5 6 Information to any person, firm, corporation, association, or other business entity. As used herein, the term "Confidential Information" means any and all information concerning ideas, concepts, products, processes, and services related to the business of Luby's, including information relating to research, development, inventions, manufacture, purchasing, accounting, engineering, marketing, merchandising, or the selling of any product or products to any customers of Luby's, disclosed to Executive or known by Executive as a consequence of or through his employment by Luby's (or any parent, subsidiary or affiliated corporations of Luby's) including, but not necessarily limited to, any person, firm, corporation, association, or other business entity with which Luby's has any type of agency agreement, or any shareholders, directors, or officers of any such person, firm, corporation, association, or other business entity; provided, however, that Confidential Information shall not include information generally known in any industry in which Luby's is or may become engaged during the term of this Agreement, information disclosed publicly by Luby's or any information, ideas, products, processes, services, and concepts existing and known to Executive prior to his employment by Luby's. On termination of employment with Luby's, all documents, records, notebooks, e-mails, or similar repositories of or containing Confidential Information, including all copies of any documents, records, notebooks, e-mail, or similar repositories of or containing Confidential Information, then in Executive's possession or in the possession of any third party under the control of Executive or pursuant to any agreement with Executive, whether prepared by Executive or any other person, firm, corporation, association, or other business entity, will be delivered to Luby's by Executive. 10. NONCOMPETITION; STANDSTILL. (a) Executive recognizes and understands that in performing the responsibilities of his employment, he will occupy a position of fiduciary trust and confidence, pursuant to which he will develop and acquire experience and knowledge with respect to Luby's business. It is the expressed intent and agreement of Executive and Luby's that such knowledge and experience shall be used exclusively in the furtherance of the interests of Luby's and not in any manner which would be detrimental to Luby's interests. In consideration of the benefits herein, Executive therefore agrees that so long as he is employed by Luby's and for the Covenant Period (as defined below) after termination of Executive's employment, Executive will not directly or indirectly: (i) engage in any other "cafeteria-style" restaurant business (as defined in the resolution of the Board of Directors of the Company in the form attached hereto as Exhibit B and adopted in connection with this Agreement) or own any interests whether as an owner, shareholder, joint venturer, partner or otherwise, in any other association or entity that engages, directly or indirectly, in any "cafeteria-style" restaurant business in each case in any state where Luby's or any of its affiliates are conducting business on the date of this Agreement or in any contiguous state; provided, however, that nothing herein shall prohibit Executive from holding or making passive investments in limited partnerships or corporations whose securities are traded in a generally recognized market provided that Executive's interest, together with those of his affiliates and family do not exceed 1% of the outstanding shares or interests in such corporation or partnership; or (ii) render advice or services to, or otherwise assist, any other person, association, or entity engaged, directly or indirectly, in any "cafeteria-style" restaurant business in any state where Luby's or its affiliates conduct business on the date of this Agreement or in any contiguous state; or 6 7 (iii) contact or solicit any employee of Luby's or any of its affiliates to induce them to terminate his or her employment with Luby's or such affiliates. (b) Executive agrees that for so long as he is employed by Luby's and for the Covenant Period he will not without the prior written consent of the Company: (i) knowingly, after due inquiry, sell any shares of Common Stock of the Company ("Common Stock"), or right to acquire Common Stock, to any person or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder) that would subsequent to such sale Beneficially Own (as defined in the Purchase Agreement dated March 9, 2001 between the Company, Employee and the other signatories thereto (the "Purchase Agreement") in excess of 10% of the Company's issued and outstanding Common Stock (1% in the case of industry competitors), (ii) solicit, or participate in a solicitation of proxies or votes or consents to vote any voting securities of the Company or grant (except to the Company or its representatives or representatives of the Executive) any proxies to vote such securities or subject their shares in the Company to any voting trust or other voting arrangement or agreement, (iii) form, join, or in any way participate in, any group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder) with respect to voting securities of the Company, or (iv) seek, propose, or make any public statement regarding any merger, tender or exchange offer or other business combination involving the Company or any sale, assignment, transfer, lease or other disposition by the Company of all or substantially all of its assets. (c) "Covenant Period" means: (i) twenty-four (24) months if Employee is terminated by the Company for Cause or if Employee terminates his employment without Good Reason; or (ii) if Employee's employment is terminated for any other reason: (x) twelve (12) months for the activities prohibited by clause (ii) and (iv) of Section 10(b) and (y) twenty-four (24) months for the activities prohibited by any other provision of Section 10. 11. ENFORCEMENT AND REMEDIES. Executive understands that the restrictions set forth here may limit Executive's ability to engage in certain businesses in certain geographic regions during the period provided for above, but acknowledges that Executive will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. Executive acknowledges that money damages would not be sufficient remedy for any breach of Section 9 or 10 by Executive, and Luby's shall be entitled to enforce the provisions thereof by terminating any payments then owing to Executive under this Agreement and/or by specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach, but shall be in addition to all remedies available at law or in equity to Luby's, including without limitation, the recovery of damages from Executive and Executive's agents involved in such breach and remedies available to Luby's pursuant to other agreements with Executive. 12. INSURANCE. Luby's may, in its sole and absolute discretion, at any time after the Effective Date, apply for and procure, as owner and for its own benefit, insurance on the life of Executive, in such amounts and in such forms as Luby's may choose. Unless otherwise agreed 7 8 by Luby's, Executive shall have no interest whatsoever in any such policy or policies, but Executive shall, at Luby's request, submit to such medical examinations, supply such information, and execute and deliver such documents as may be required by the insurance company or companies to which Luby's has applied for such insurance. 13. NOTICE. All notices and communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Executive: Harris J. Pappas 642 Yale Houston, Texas 77007 with a copy to: Frank Markantonis 645 Heights Blvd. Houston, Texas 77007 and Fulbright & Jaworski, L.L.P. 1301 McKinney Suite 5100 Houston, Texas 77010-3095 Attn: Charles H. Still If to Luby's: Luby's, Inc. 2211 Northeast Loop 410 San Antonio, Texas 78217-4673 Attention: Chairman of the Board With a copy to: Cauthorn Hale Hornberger Fuller Sheehan Becker & Beiter Incorporated 700 N. St. Mary's Street, Suite 600 San Antonio, Texas 78205 Attention: Drew R. Fuller, Jr. Any of the above addresses may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. All notices, requests or instructions given in accordance herewith shall be deemed received on the date of delivery, if hand delivered, on the date of receipt, if telecopied, three Business Days after the date of mailing, if mailed by registered or certified mail, return receipt requested, and one Business Day after the date of sending, if sent by Federal Express or other recognized overnight courier 8 9 14. CONTROLLING LAW. This Agreement shall be determined and governed by and construed in accordance with the laws of the State of Texas, without giving effect to any conflicts of law provisions. 15. ADDITIONAL INSTRUMENTS. This Agreement governs the rights and obligations of Executive and Luby's with respect to Executive's base salary and certain perquisites of employment. Executive's rights and obligations both during the term of his employment and thereafter with respect to stock options, life insurance policies insuring the life of Executive, and other benefits under the plans and programs maintained by Luby's shall be governed by the separate agreements, plans, and other documents and instruments governing such matters. 16. LIQUIDATED DAMAGES. In light of the difficulties in estimating the damages for any early termination of employment, Luby's and Executive hereby agree that the payments, if any, to be received by Executive pursuant to this Agreement shall be received by Executive as liquidated damages. Payment of the amounts set forth in this Agreement, if any, shall be in lieu of any severance benefit Executive may be entitled to under any severance plan or policy of Luby's. 17. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. 18. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged orally, but only by a waiver, modification or discharge in writing signed by the Executive, and such officer of the Company as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. Wherever appropriate to the intention of the parties hereto, the respective rights and obligations of the parties hereto, will survive any termination or expiration of the term of this Agreement as specifically set forth herein; in addition Sections 8, 11, 13, 14, 15, 16, 17, 18, 19 and 20 shall survive such termination or expiration to the extent the context thereof requires. 19. ENTIRE AGREEMENT. This Agreement (which term shall be deemed to include the exhibits hereto and any other certificates, documents or instruments delivered hereunder) the Purchase Agreement and the other Transaction Documents (as defined therein) constitute the entire agreement of the Parties hereto and supercede all prior agreements and understandings, both written and oral, among the parties as to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth herein, in the Purchase Agreement and in the other Transaction Documents. 9 10 20. EFFECT OF AGREEMENT. This Agreement shall be binding upon Executive and his heirs, executors, legal representatives, successors and assigns, and Luby's and its legal representatives, successors and assigns. Except as provided in the preceding sentence, this Agreement, and the rights and obligations of the Parties hereunder, are personal and neither this Agreement, nor any right, benefit, or obligation of either Party hereto, shall be subject to voluntary or involuntary assignment, alienation, or transfer, whether by operation of law or otherwise, without the prior written consent of the other Party. 21. EXECUTION. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 22. DEEMED RESIGNATIONS. Any termination of Executive's employment shall constitute an automatic resignation as an officer and director of Luby's and each subsidiary or affiliate of Luby's. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date. ------------------------------------ Harris J. Pappas Luby's, Inc. ------------------------------------ Robert T. Herres Chairman of the Board 10 EX-99.E 5 h85121a1ex99-e.txt OPTION AGREEMENT - CHRISTOPHER J PAPPAS 1 EXHIBIT E LUBY'S, INC. STOCK OPTION ----------------------------- NAME OF EMPLOYEE: Christopher J. Pappas DATE OF GRANT: March 9, 2001 EXPIRATION DATE: March 9, 2011 NUMBER OF OPTION SHARES: 1,120,000 OPTION PRICE PER SHARE: $5.00 THIS OPTION is granted on the above date (the "Date of Grant") by Luby's, Inc. (together with its subsidiaries, the "Company") to the person named above (the "Employee"), upon the following terms and conditions: 1. GRANT OF OPTION. The Company hereby grants to the Employee an option to purchase, on the terms and conditions stated herein, all or any part of the aggregate number of shares specified above (the "Option Shares") of the Company's Common Stock, par value $0.32 per share, ("Common Stock") at the Option Price specified above. 2. EXERCISE OF OPTION. Subject to the earlier expiration of this Option as herein provided, this Option may be exercised, by written notice to the Company at its principal executive office at any time and from time to time after the Date of Grant hereof, but, except as otherwise provided below, this Option shall not be exercisable for more than a cumulative percentage of the aggregate number of Option Shares determined by the number of full years from the date of grant hereof to the date of such exercise, in accordance with the following schedule: Number of Full Years Percentage of Shares From Date of Grant That May Be Purchased ---------------------- ----------------------- Less than 1 year 0% 1 year 50% 2 years 75% 3 years or more 100% Notwithstanding the preceding sentence, this Option shall be exercisable for 25% of the aggregate number of Option Shares at any time and from time to time after the Last Sale Price of the Common Stock (as defined in Section 3) has exceeded $8.475 for twenty consecutive Trading Days (as defined in Section 3). 1 2 This Option is not transferable by Employee otherwise than by will or the laws of descent and distribution, and may, subject to the next sentence of this paragraph as to Permitted Transferees, be exercised only by Employee during Employee's lifetime. Employee may transfer this Option, subject to the terms and conditions hereof, for no consideration to (a) a member of his Immediate Family (as defined below), (b) a trust solely for the benefit of the Employee and/or one or more members of his Immediate Family or (c) a partnership, corporation or limited liability company whose only partners, shareholders or members are the Employee and/or one or more members of his Immediate Family. Any transferee described in the preceding two sentences is referred to herein as a "Permitted Transferee." The term "Immediate Family" means, with respect to the Employee, such Employee's spouse, children and grandchildren (including adopted and step children and grandchildren). Upon any transfer to a Permitted Transferee, the terms and conditions of this Option shall be binding upon the Permitted Transferee who receives a transfer of the Option, except that a Permitted Transferee may not transfer the Option other than by will or by the laws of descent and distribution. No transfer pursuant to the terms hereof shall be effective unless (i) the Company receives prior written notice of the terms and conditions of any intended transfer and (ii) the Company reasonably determines that the intended transfer complies with the requirements set forth herein. Any purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance that does not satisfy the requirements set forth herein shall be void and unenforceable against the Company. This Option may be exercised only while Employee remains an employee or consultant of the Company and will terminate and cease to be exercisable upon Employee's termination of employment with the Company, except that: (a) DISABILITY. If Employee's employment by the Company terminates by reason of disability (as defined in that certain Employment Agreement between the Company and the Employee dated March 7, 2001), this Option may be exercised to the extent the Option was exercisable on the date of termination or would become exercisable within six months of the date of termination by Employee, or Employee's attorney-in-fact, guardian or estate or the person who acquires this Option by will or the laws of descent and distribution, within six months following the date of such termination but in no event later than the Expiration Date. (b) DEATH. If Employee dies while in the employ of the Company, Employee's estate, or the person who acquires this Option by will or the laws of descent and distribution, may exercise this Option to the extent the Option was exercisable on the date of Employee's death or would become exercisable within six months of the date of Employee's death at any time within six months following the date of Employee's death but in no event later than the Expiration Date. (c) CAUSE OR WITHOUT GOOD REASON. If Employee's employment by the Company is terminated for "Cause", or Employee terminates his employment without "Good Reason" (as such terms are defined in that certain Employment Agreement between the Company and the Employee dated March 7, 2001), this Option may be exercised by Employee at any time during the period of 30 days following such 2 3 termination, or by Employee's estate (or the person who acquires this Option by will or the laws of descent and distribution during such period if Employee dies during such 30-day period), but in each case no later than the Expiration Date and only as to the number of shares Employee was entitled to purchase hereunder as of the date Employee's employment so terminates. (d) WITHOUT CAUSE OR WITH GOOD REASON. If Employee's employment by the Company is terminated without Cause or Employee terminates his employment with Good Reason, this Option shall, notwithstanding the provisions of the first paragraph of this Section 2, be fully vested and may be exercised by Employee (or Employee's estate or the person who acquires this Option by will of the laws of descent and distribution), in whole or in part, at any time prior to the Expiration Date. This Option shall not be exercisable in any event after the Expiration Date. No fraction of a share of Common Stock shall be issued by the Company upon exercise of an Option or accepted by the Company in payment of the exercise price thereof; rather, Employee or his Permitted Transferee shall provide a cash payment for such amount as is necessary to effect the issuance and acceptance of only whole shares of Common Stock. Unless and until a certificate or certificates representing such shares shall have been issued by the Company to Employee or his Permitted Transferee, Employee or his Permitted Transferee (or the person permitted to exercise this Option in the event of Employee's death) shall not be or have any of the rights or privileges of a shareholder of the Company with respect to shares acquirable upon an exercise of this Option. 3. PAYMENT FOR SHARES. Payment for shares purchased upon exercise of this Option shall be made in full at the time of exercise of the Option in cash or by delivering Common Stock of the Company having a fair market value on the date of exercise at least equal to the Option Price, or a combination of Common Stock and cash. Such fair market value on any day shall be deemed to be the Last Sale Price on the date on which this Option is exercised. "Last Sale Price" on any Trading Day shall mean (i) the closing price regular way (or, if no closing price is reported the average of the bid and asked prices) as reported on the New York Stock Exchange Composite Tape, or (ii) if on such Trading Day the Common Stock is not listed or admitted to trading on such exchange, the closing price regular way (or, if no closing price is reported the average of the bid and asked prices) on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or (iii) if not listed or admitted to trading on any national securities exchange on such Trading Day, then the average of the closing bid and asked prices as reported through the National Association of Securities Dealers, Inc. on its NASDAQ National Market or other NASDAQ market or through a similar organization if NASDAQ is no longer reporting information, or (iv) if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on such National Market or other NASDAQ market on such Trading Day, then the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose, or (v) if not quoted by any such organization on such Trading Day, the fair value of such Common Stock on such Trading Day, as reasonably determined by the Board of Directors in good faith. "Trading Day" shall 3 4 mean each Monday, Tuesday, Wednesday, Thursday and Friday other than a day on which securities are not traded on the New York Stock Exchange. 4. METHOD OF EXERCISE. This Option may be exercised only by written notice given to the Company, in form satisfactory to the Company, specifying the number of Option Shares which the holder of the Option elects to purchase, the number of Option Shares which the holder is paying for in cash and the number of Option Shares which the holder is paying for with shares of Common Stock. Such written notice shall be accompanied by a check payable to the order of the Company for the cash portion, if any, of the purchase price and, if applicable, by the delivery of certificates representing shares of Common Stock duly endorsed and otherwise in proper form for transfer to the Company of such number of shares of Common Stock as are required to equal the fair market value of the Option Shares being paid for in stock. Upon each exercise of this Option, the Company, as promptly as practicable, will mail or deliver to the person exercising this Option a certificate or certificates representing the shares then purchased. The Company may require any person exercising this Option to make such representations and furnish such information as the Company may reasonably consider appropriate in connection with the issuance of the shares in compliance with applicable law. 5. WITHHOLDING OF TAX. To the extent that the exercise of this Option or the disposition of shares of Common Stock acquired by exercise of this Option results in compensation income to Employee for federal or state income tax purposes, Employee shall deliver to the Company at the time of such exercise or disposition such amount of money or shares of Common Stock as the Company may require to meet its obligation under applicable tax laws or regulations, and, if Employee fails to do so, the Company is authorized to withhold from any cash or Common Stock remuneration then or thereafter payable to Employee any tax required to be withheld by reason of such resulting compensation income. Upon an exercise of this Option, the Company is further authorized in its discretion to satisfy any such withholding requirement out of any cash or shares of Stock distributable to Employee upon such exercise. 6. STATUS OF STOCK. The Company will register for issuance the shares of Common Stock acquirable upon exercise of this Option on Form S-8 within sixty (60) days of the date of grant, and will use its reasonable best efforts to keep such registration effective throughout the period this Option is exercisable. Employee agrees that the shares of Common Stock which Employee may acquire by exercising this Option will not be sold or otherwise disposed of in any manner which would constitute a violation of any applicable securities laws, whether federal or state. Employee also agrees (i) that the certificates representing the shares of Common Stock purchased under this Option may bear such legend or legends as the Company deems appropriate in order to assure compliance with applicable securities laws, (ii) that the Company may refuse to register the transfer of the shares of Common Stock purchased under this Option on the stock transfer records of the Company if such proposed transfer would in the opinion of counsel satisfactory to the Company constitute a violation of any applicable securities law and (iii) that the Company may give related instructions to its transfer agent, if any, to stop registration of the transfer of the shares of Common Stock purchased under this Option. 4 5 7. ADJUSTMENTS. The Exercise Price and the number of Option Shares purchasable hereunder are subject to adjustment from time to time as follows: (a) MERGER, SALE OF ASSETS, ETC. If at any time while this Option, or any portion hereof, is outstanding and unexpired there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a reverse triangular merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, or (iii) a sale or transfer of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Option shall thereafter be entitled to receive upon exercise of this Option, during the period specified herein and upon payment of the Option Price then in effect, the number of Option Shares or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Option would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Option had been exercised immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 7. The foregoing provisions of this section shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Option. If the per-share consideration payable to the holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Option with respect to the rights and interests of the holder after the transaction, to the end that the provisions of this Option shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Option. (b) RECLASSIFICATION, ETC. If the Company, at any time while this Option, or any portion hereof, remains outstanding and unexpired by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Option exist into the same or a different number of securities of any other class or classes, this Option shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Option immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 7. (c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time while this Option, or any portion hereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Option 5 6 exist, into a different number of securities of the same class, the Option Price for such securities shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. (d) ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR PROPERTY. If while this Option, or any portion hereof, remains outstanding and unexpired, the holders of the securities as to which purchase rights under this Option exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Company by way of dividend, then and in each case, this Option shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Option, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Company that such holder would hold on the date of such exercise had it been the holder of record of the security receivable upon exercise of this Option on the date hereof and had thereafter, during the period from the date hereof to and including the date of such event, retained such shares and/or all other additional stock available by it as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 7. (e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment pursuant to this Section 7, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the holder of this Option a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 8. REGISTRATION RIGHTS. Upon exercise of this Option, the holder shall have and be entitled to exercise, together with all other holders of registrable securities possessing registration rights under that certain Purchase Agreement and related Registration Rights Agreement, of even date herewith (together the "Purchase Agreement") , between the Company and the parties who have executed the counterpart signature pages thereto or are otherwise bound thereby, the rights of registration granted under the Purchase Agreement to with respect to the shares of Common Stock issuable upon exercise of this Option. 9. RIGHTS. Whenever the Company shall issue shares of Common Stock upon exercise of this Option, the Company shall issue, together with each such share of Common Stock, one right to purchase one-half of one share of Common Stock of the Company (or other securities in lieu thereof) pursuant to the Rights Agreement dated as of April 16, 1991 between Luby's Cafeterias, Inc. and AmeriTrust Company, N.A., as amended, or any similar rights issued to holders of Common Stock in addition thereto or in the replacement therefor (such rights, together with any additional or replacement rights, being collectively referred to as the "Rights"), whether or not such Rights shall be exercisable at such time, but only if such Rights are issued and outstanding and held by the other holders of Common Stock (or evidenced by outstanding share certificates representing Common Stock) at such time and have not expired or been redeemed. 6 7 10. EMPLOYMENT RELATIONSHIP. Although this Option may be exercised only as provided in Section 2 hereof, it is understood that, subject to the terms of any employment contract, employment of the Employee shall be at the pleasure of the employer, and at such compensation as the employer shall reasonably determine from time to time. Nothing in this Option shall confer on the Employee any right to continue in the employment of the Company or any of its affiliates or to interfere in any way with the right of the Company or its affiliates to terminate his or her employment at any time. For purposes of this Agreement, Employee shall be considered to be in the employment of the Company as long as Employee remains an employee of, or consultant to, either the Company, a parent or subsidiary corporation (as defined in section 424 of the Code) of the Company, or a corporation or a parent or subsidiary of such corporation assuming or substituting a new option for this Option. 11. RESERVATION OF STOCK. The Company covenants that during the term this Option is exercisable, the Company will reserve from its authorized and unissued Common Stock and/or its treasury stock a sufficient number of shares to provide for the issuance of Common Stock upon the exercise of this Option. 12. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Employee: Christopher J. Pappas 642 Yale Houston, Texas 77007 with a copy to: Frank Markantonis 645 Heights Blvd. Houston, Texas 77007 and Fulbright & Jaworski, L.L.P. 1301 McKinney, Suite 5100 Houston, Texas 77010-3095 Attn: Charles H. Still If to Luby's: Luby's, Inc. 2211 Northeast Loop 410 San Antonio, Texas 78217-4673 Attention: Chairman of the Board 7 8 with a copy to: Cauthorn Hale Hornberger Fuller Sheehan Becker & Beiter Incorporated 700 N. St. Mary's Street, Suite 600 San Antonio, Texas 78205 Attention: Drew R. Fuller, Jr. Any of the above addresses may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. All notices, requests or instructions given in accordance herewith shall be deemed received on the date of delivery, if hand delivered, on the date of receipt, if telecopied, three Business Days after the date of mailing, if mailed by registered or certified mail, return receipt requested, and one Business Day after the date of sending, if sent by Federal Express or other recognized overnight courier. 13. SUCCESSORS; GOVERNING LAW. This Option shall be binding upon any successors or assigns of the Company. This Option shall constitute a contract under the laws of Texas and for all purposes shall be construed in accordance with and governed by the laws of Texas without giving effect to the conflict of laws principles. 14. ENTIRE AGREEMENT. This Option Agreement (which term shall be deemed to include the exhibits hereto and any other certificates, documents or instruments delivered hereunder) the Purchase Agreement, and the other transaction documents (as defined therein) constitute the entire agreement of the Parties hereto and supercede all prior agreements and understandings, both written and oral, among the parties as to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth herein, in the Purchase Agreement and in the other Transaction Documents. 15. COUNTERPARTS. This Option may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one ore more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 16. HEADINGS. The headings of this Option are for convenience of reference only and are not part of the substance of this Option. 8 9 17. SEVERABILITY. If any term or other provision of this Option is invalid, illegal or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Option shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Option so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. 18. MODIFICATION. No provisions of this Option may be modified, waived or discharged orally, but only by a waiver, modification or discharge in writing signed by the Employee and such officer of the Company as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Option to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. IN WITNESS WHEREOF, the Company has caused this Option to be executed in duplicate by its proper corporate officers thereunto duly authorized, and Employee has executed this Option, all as of the Date of Grant. ATTEST: LUBY'S, INC. By: - ------------------------------ ------------------------------ Secretary Name: Robert T. Herres Title: Chairman of the Board ACCEPTED: - ------------------------------ Christopher J. Pappas 9 EX-99.F 6 h85121a1ex99-f.txt OPTION AGREEMENT - HARRIS J PAPPAS 1 EXHIBIT F LUBY'S, INC. STOCK OPTION ----------------------------- NAME OF EMPLOYEE: Harris J. Pappas DATE OF GRANT: March 9, 2001 EXPIRATION DATE: March 9, 2011 NUMBER OF OPTION SHARES: 1,120,000 OPTION PRICE PER SHARE: $5.00 THIS OPTION is granted on the above date (the "Date of Grant") by Luby's, Inc. (together with its subsidiaries, the "Company") to the person named above (the "Employee"), upon the following terms and conditions: 1. GRANT OF OPTION. The Company hereby grants to the Employee an option to purchase, on the terms and conditions stated herein, all or any part of the aggregate number of shares specified above (the "Option Shares") of the Company's Common Stock, par value $0.32 per share, ("Common Stock") at the Option Price specified above. 2. EXERCISE OF OPTION. Subject to the earlier expiration of this Option as herein provided, this Option may be exercised, by written notice to the Company at its principal executive office at any time and from time to time after the Date of Grant hereof, but, except as otherwise provided below, this Option shall not be exercisable for more than a cumulative percentage of the aggregate number of Option Shares determined by the number of full years from the date of grant hereof to the date of such exercise, in accordance with the following schedule: Number of Full Years Percentage of Shares From Date of Grant That May Be Purchased -------------------- --------------------- Less than 1 year 0% 1 year 50% 2 years 75% 3 years or more 100% Notwithstanding the preceding sentence, this Option shall be exercisable for 25% of the aggregate number of Option Shares at any time and from time to time after the Last Sale Price of the Common Stock (as defined in Section 3) has exceeded $8.475 for twenty consecutive Trading Days (as defined in Section 3). 1 2 This Option is not transferable by Employee otherwise than by will or the laws of descent and distribution, and may, subject to the next sentence of this paragraph as to Permitted Transferees, be exercised only by Employee during Employee's lifetime. Employee may transfer this Option, subject to the terms and conditions hereof, for no consideration to (a) a member of his Immediate Family (as defined below), (b) a trust solely for the benefit of the Employee and/or one or more members of his Immediate Family or (c) a partnership, corporation or limited liability company whose only partners, shareholders or members are the Employee and/or one or more members of his Immediate Family. Any transferee described in the preceding two sentences is referred to herein as a "Permitted Transferee." The term "Immediate Family" means, with respect to the Employee, such Employee's spouse, children and grandchildren (including adopted and step children and grandchildren). Upon any transfer to a Permitted Transferee, the terms and conditions of this Option shall be binding upon the Permitted Transferee who receives a transfer of the Option, except that a Permitted Transferee may not transfer the Option other than by will or by the laws of descent and distribution. No transfer pursuant to the terms hereof shall be effective unless (i) the Company receives prior written notice of the terms and conditions of any intended transfer and (ii) the Company reasonably determines that the intended transfer complies with the requirements set forth herein. Any purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance that does not satisfy the requirements set forth herein shall be void and unenforceable against the Company. This Option may be exercised only while Employee remains an employee or consultant of the Company and will terminate and cease to be exercisable upon Employee's termination of employment with the Company, except that: (a) DISABILITY. If Employee's employment by the Company terminates by reason of disability (as defined in that certain Employment Agreement between the Company and the Employee dated March 7, 2001), this Option may be exercised to the extent the Option was exercisable on the date of termination or would become exercisable within six months of the date of termination by Employee, or Employee's attorney-in-fact, guardian or estate or the person who acquires this Option by will or the laws of descent and distribution, within six months following the date of such termination but in no event later than the Expiration Date. (b) DEATH. If Employee dies while in the employ of the Company, Employee's estate, or the person who acquires this Option by will or the laws of descent and distribution, may exercise this Option to the extent the Option was exercisable on the date of Employee's death or would become exercisable within six months of the date of Employee's death at any time within six months following the date of Employee's death but in no event later than the Expiration Date. (c) CAUSE OR WITHOUT GOOD REASON. If Employee's employment by the Company is terminated for "Cause", or Employee terminates his employment without "Good Reason" (as such terms are defined in that certain Employment Agreement between the Company and the Employee dated March 7, 2001), this Option may be exercised by Employee at any time during the period of 30 days following such 2 3 termination, or by Employee's estate (or the person who acquires this Option by will or the laws of descent and distribution during such period if Employee dies during such 30-day period), but in each case no later than the Expiration Date and only as to the number of shares Employee was entitled to purchase hereunder as of the date Employee's employment so terminates. (d) WITHOUT CAUSE OR WITH GOOD REASON. If Employee's employment by the Company is terminated without Cause or Employee terminates his employment with Good Reason, this Option shall, notwithstanding the provisions of the first paragraph of this Section 2, be fully vested and may be exercised by Employee (or Employee's estate or the person who acquires this Option by will of the laws of descent and distribution), in whole or in part, at any time prior to the Expiration Date. This Option shall not be exercisable in any event after the Expiration Date. No fraction of a share of Common Stock shall be issued by the Company upon exercise of an Option or accepted by the Company in payment of the exercise price thereof; rather, Employee or his Permitted Transferee shall provide a cash payment for such amount as is necessary to effect the issuance and acceptance of only whole shares of Common Stock. Unless and until a certificate or certificates representing such shares shall have been issued by the Company to Employee or his Permitted Transferee, Employee or his Permitted Transferee (or the person permitted to exercise this Option in the event of Employee's death) shall not be or have any of the rights or privileges of a shareholder of the Company with respect to shares acquirable upon an exercise of this Option. 3. PAYMENT FOR SHARES. Payment for shares purchased upon exercise of this Option shall be made in full at the time of exercise of the Option in cash or by delivering Common Stock of the Company having a fair market value on the date of exercise at least equal to the Option Price, or a combination of Common Stock and cash. Such fair market value on any day shall be deemed to be the Last Sale Price on the date on which this Option is exercised. "Last Sale Price" on any Trading Day shall mean (i) the closing price regular way (or, if no closing price is reported the average of the bid and asked prices) as reported on the New York Stock Exchange Composite Tape, or (ii) if on such Trading Day the Common Stock is not listed or admitted to trading on such exchange, the closing price regular way (or, if no closing price is reported the average of the bid and asked prices) on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or (iii) if not listed or admitted to trading on any national securities exchange on such Trading Day, then the average of the closing bid and asked prices as reported through the National Association of Securities Dealers, Inc. on its NASDAQ National Market or other NASDAQ market or through a similar organization if NASDAQ is no longer reporting information, or (iv) if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on such National Market or other NASDAQ market on such Trading Day, then the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose, or (v) if not quoted by any such organization on such Trading Day, the fair value of such Common Stock on such Trading Day, as reasonably determined by the Board of Directors in good faith. "Trading Day" shall 3 4 mean each Monday, Tuesday, Wednesday, Thursday and Friday other than a day on which securities are not traded on the New York Stock Exchange. 4. METHOD OF EXERCISE. This Option may be exercised only by written notice given to the Company, in form satisfactory to the Company, specifying the number of Option Shares which the holder of the Option elects to purchase, the number of Option Shares which the holder is paying for in cash and the number of Option Shares which the holder is paying for with shares of Common Stock. Such written notice shall be accompanied by a check payable to the order of the Company for the cash portion, if any, of the purchase price and, if applicable, by the delivery of certificates representing shares of Common Stock duly endorsed and otherwise in proper form for transfer to the Company of such number of shares of Common Stock as are required to equal the fair market value of the Option Shares being paid for in stock. Upon each exercise of this Option, the Company, as promptly as practicable, will mail or deliver to the person exercising this Option a certificate or certificates representing the shares then purchased. The Company may require any person exercising this Option to make such representations and furnish such information as the Company may reasonably consider appropriate in connection with the issuance of the shares in compliance with applicable law. 5. WITHHOLDING OF TAX. To the extent that the exercise of this Option or the disposition of shares of Common Stock acquired by exercise of this Option results in compensation income to Employee for federal or state income tax purposes, Employee shall deliver to the Company at the time of such exercise or disposition such amount of money or shares of Common Stock as the Company may require to meet its obligation under applicable tax laws or regulations, and, if Employee fails to do so, the Company is authorized to withhold from any cash or Common Stock remuneration then or thereafter payable to Employee any tax required to be withheld by reason of such resulting compensation income. Upon an exercise of this Option, the Company is further authorized in its discretion to satisfy any such withholding requirement out of any cash or shares of Stock distributable to Employee upon such exercise. 6. STATUS OF STOCK. The Company will register for issuance the shares of Common Stock acquirable upon exercise of this Option on Form S-8 within sixty (60) days of the date of grant, and will use its reasonable best efforts to keep such registration effective throughout the period this Option is exercisable. Employee agrees that the shares of Common Stock which Employee may acquire by exercising this Option will not be sold or otherwise disposed of in any manner which would constitute a violation of any applicable securities laws, whether federal or state. Employee also agrees (i) that the certificates representing the shares of Common Stock purchased under this Option may bear such legend or legends as the Company deems appropriate in order to assure compliance with applicable securities laws, (ii) that the Company may refuse to register the transfer of the shares of Common Stock purchased under this Option on the stock transfer records of the Company if such proposed transfer would in the opinion of counsel satisfactory to the Company constitute a violation of any applicable securities law and (iii) that the Company may give related instructions to its transfer agent, if any, to stop registration of the transfer of the shares of Common Stock purchased under this Option. 4 5 7. ADJUSTMENTS. The Exercise Price and the number of Option Shares purchasable hereunder are subject to adjustment from time to time as follows: (a) MERGER, SALE OF ASSETS, ETC. If at any time while this Option, or any portion hereof, is outstanding and unexpired there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a reverse triangular merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, or (iii) a sale or transfer of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Option shall thereafter be entitled to receive upon exercise of this Option, during the period specified herein and upon payment of the Option Price then in effect, the number of Option Shares or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Option would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Option had been exercised immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 7. The foregoing provisions of this section shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Option. If the per-share consideration payable to the holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Option with respect to the rights and interests of the holder after the transaction, to the end that the provisions of this Option shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Option. (b) RECLASSIFICATION, ETC. If the Company, at any time while this Option, or any portion hereof, remains outstanding and unexpired by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Option exist into the same or a different number of securities of any other class or classes, this Option shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Option immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 7. (c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time while this Option, or any portion hereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Option 5 6 exist, into a different number of securities of the same class, the Option Price for such securities shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. (d) ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR PROPERTY. If while this Option, or any portion hereof, remains outstanding and unexpired, the holders of the securities as to which purchase rights under this Option exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Company by way of dividend, then and in each case, this Option shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Option, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Company that such holder would hold on the date of such exercise had it been the holder of record of the security receivable upon exercise of this Option on the date hereof and had thereafter, during the period from the date hereof to and including the date of such event, retained such shares and/or all other additional stock available by it as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 7. (e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment pursuant to this Section 7, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the holder of this Option a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 8. REGISTRATION RIGHTS. Upon exercise of this Option, the holder shall have and be entitled to exercise, together with all other holders of registrable securities possessing registration rights under that certain Purchase Agreement and related Registration Rights Agreement, of even date herewith (together the "Purchase Agreement") , between the Company and the parties who have executed the counterpart signature pages thereto or are otherwise bound thereby, the rights of registration granted under the Purchase Agreement to with respect to the shares of Common Stock issuable upon exercise of this Option. 9. RIGHTS. Whenever the Company shall issue shares of Common Stock upon exercise of this Option, the Company shall issue, together with each such share of Common Stock, one right to purchase one-half of one share of Common Stock of the Company (or other securities in lieu thereof) pursuant to the Rights Agreement dated as of April 16, 1991 between Luby's Cafeterias, Inc. and AmeriTrust Company, N.A., as amended, or any similar rights issued to holders of Common Stock in addition thereto or in the replacement therefor (such rights, together with any additional or replacement rights, being collectively referred to as the "Rights"), whether or not such Rights shall be exercisable at such time, but only if such Rights are issued and outstanding and held by the other holders of Common Stock (or evidenced by outstanding share certificates representing Common Stock) at such time and have not expired or been redeemed. 6 7 10. EMPLOYMENT RELATIONSHIP. Although this Option may be exercised only as provided in Section 2 hereof, it is understood that, subject to the terms of any employment contract, employment of the Employee shall be at the pleasure of the employer, and at such compensation as the employer shall reasonably determine from time to time. Nothing in this Option shall confer on the Employee any right to continue in the employment of the Company or any of its affiliates or to interfere in any way with the right of the Company or its affiliates to terminate his or her employment at any time. For purposes of this Agreement, Employee shall be considered to be in the employment of the Company as long as Employee remains an employee of, or consultant to, either the Company, a parent or subsidiary corporation (as defined in section 424 of the Code) of the Company, or a corporation or a parent or subsidiary of such corporation assuming or substituting a new option for this Option. 11. RESERVATION OF STOCK. The Company covenants that during the term this Option is exercisable, the Company will reserve from its authorized and unissued Common Stock and/or its treasury stock a sufficient number of shares to provide for the issuance of Common Stock upon the exercise of this Option. 12. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Employee: Harris J. Pappas 642 Yale Houston, Texas 77007 with a copy to: Frank Markantonis 645 Heights Blvd. Houston, Texas 77007 and Fulbright & Jaworski, L.L.P. 1301 McKinney, Suite 5100 Houston, Texas 77010-3095 Attn: Charles H. Still If to Luby's: Luby's, Inc. 2211 Northeast Loop 410 San Antonio, Texas 78217-4673 Attention: Chairman of the Board 7 8 with a copy to: Cauthorn Hale Hornberger Fuller Sheehan Becker & Beiter Incorporated 700 N. St. Mary's Street, Suite 600 San Antonio, Texas 78205 Attention: Drew R. Fuller, Jr. Any of the above addresses may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. All notices, requests or instructions given in accordance herewith shall be deemed received on the date of delivery, if hand delivered, on the date of receipt, if telecopied, three Business Days after the date of mailing, if mailed by registered or certified mail, return receipt requested, and one Business Day after the date of sending, if sent by Federal Express or other recognized overnight courier. 13. SUCCESSORS; GOVERNING LAW. This Option shall be binding upon any successors or assigns of the Company. This Option shall constitute a contract under the laws of Texas and for all purposes shall be construed in accordance with and governed by the laws of Texas without giving effect to the conflict of laws principles. 14. ENTIRE AGREEMENT. This Option Agreement (which term shall be deemed to include the exhibits hereto and any other certificates, documents or instruments delivered hereunder) the Purchase Agreement, and the other transaction documents (as defined therein) constitute the entire agreement of the Parties hereto and supercede all prior agreements and understandings, both written and oral, among the parties as to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth herein, in the Purchase Agreement and in the other Transaction Documents. 15. COUNTERPARTS. This Option may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one ore more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 16. HEADINGS. The headings of this Option are for convenience of reference only and are not part of the substance of this Option. 8 9 17. SEVERABILITY. If any term or other provision of this Option is invalid, illegal or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Option shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Option so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. 18. MODIFICATION. No provisions of this Option may be modified, waived or discharged orally, but only by a waiver, modification or discharge in writing signed by the Employee and such officer of the Company as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Option to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. IN WITNESS WHEREOF, the Company has caused this Option to be executed in duplicate by its proper corporate officers thereunto duly authorized, and Employee has executed this Option, all as of the Date of Grant. ATTEST: LUBY'S, INC. By: - ------------------------------ ------------------------------- Secretary Name: Robert T. Herres Title: Chairman of the Board ACCEPTED: - ------------------------------ Harris J. Pappas 9 EX-99.G 7 h85121a1ex99-g.txt REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT G REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of March 9, 2001, by and among Luby's, Inc., a Delaware corporation (together with its subsidiaries, the "Company"), Harris J. Pappas and Christopher J. Pappas, each an individual residing in Houston, Texas (together, the "Purchaser"). RECITALS: This Agreement is made pursuant to the Purchase Agreement, dated as of March 9, 2001, between the Company and Purchaser (the "Purchase Agreement"). In order to induce the Purchaser to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. AGREEMENT: The parties hereto hereby agree as follows: 1. DEFINITIONS. (a) As used in this Agreement, the following terms will have the following meanings: "AFFILIATE" means, with respect to any Person, a Person directly or indirectly controlling, controlled by, or under common control with such Person. For purposes hereof "control," (and the correlative terms "controlling", "controlled by" and "under common control with" means the possession, directly or indirectly, through one or more intermediaries, by any Person or group (within the meaning of Section 13(d)(3) under the Exchange Act) of the power or authority, through ownership of voting securities, by contract or otherwise, to control or direct the management and policies of the entity. "AGREEMENT" has the meaning set forth in the recitals hereto. "COMMON STOCK" means shares of the Company's Common Stock par value $.32 per share and any capital stock for or into which such Common Stock is hereafter exchanged, converted, or reclassified into. "COMPANY" has the meaning set forth in the recitals hereto. "DEMAND REGISTRATION" has the meaning set forth in Section 3(a). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time and the rules and regulations of the SEC promulgated thereunder. "MAJORITY" means 51% or more. "NOTES" means the Convertible Subordinated Notes due 2011 of the Company issued pursuant to the Purchase Agreement. 1 2 "OPTIONS" means the employee stock options issued to Purchasers in connection with their employment by the Company pursuant to the Employment Agreements of even date herewith. "PERSON" means any individual, partnership, corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof or any other entity of any kind. "PURCHASE AGREEMENT" has the meaning set forth in the recitals hereto. "PURCHASER" has the meaning set forth in the recitals hereto. "REGISTRATION EXPENSES" has the meaning set forth in Section 7(a). "REGISTRATION NOTICE" has the meaning set forth in Section 3(a). "REGISTRABLE SECURITIES" means (i) the shares of Common Stock issued or issuable upon conversion of the Notes or exercise of the Options; (ii) shares of Common Stock issued or issuable as interest on the Notes; and (iii) any securities issued with respect thereof by way of conversion, dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise; provided, however, a Registrable Security shall cease to be a Registrable Security to the extent so provided in Section 2(a). "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time and the rules and regulations of the SEC promulgated thereunder. "SEC" means the Securities and Exchange Commission. "UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" means any registration in which securities of the Company are sold pursuant to a firm commitment underwriting. 2. SECURITIES SUBJECT TO THIS AGREEMENT. (a) Registrable Securities. The securities entitled to the benefits of this Agreement are the Registrable Securities but, with respect to any particular Registrable Security, only so long as such security continues to be a Registrable Security. A Registrable Security shall cease to be a Registrable Security when (i) it has been disposed of in a transaction registered under the Securities Act, (ii) it has been sold pursuant to Rule 144 (or any similar provisions then in force) under the Securities Act, (iii) it has otherwise been reissued, transferred or exchanged and a new certificate or other evidence of ownership for it that does not bear a legend restricting further transfer has been delivered (not subject to any stop transfer order) by or on behalf of the Company, (iv) an opinion of counsel to the Company, reasonably satisfactory to the holder of such Registrable Security, shall have been delivered to such holder, or an opinion of counsel to the holder of such Registrable Security, reasonably satisfactory to the Company, shall have been delivered to the Company, in either case to the effect that the subsequent disposition of such 2 3 Registrable Security may be made pursuant to Rule 144(k) promulgated under the Securities Act (or any successor provision), or (v) it has been sold or transferred in a private transaction in which the transferor's rights under this Agreement are not assigned. (b) Holders of Registrable Securities. A Person is deemed to be a holder of Registrable Securities whenever such Person owns Registrable Securities or has the right to acquire such Registrable Securities. 3. DEMAND REGISTRATION. (a) Requests for Registration. Subject to the provisions of Section 3(b), at any time after the earlier of (i) October 1, 2002, or (ii) the acquisition of Registrable Securities, any holder or holders of a Majority (by number of shares) of the then outstanding Registrable Securities may request by written notice to the Company ("Registration Notice") a registration by the Company under the Securities Act of all or part of its or their Registrable Securities (a "Demand Registration") be effected provided that the number of Registrable Shares then requested to be registered shall be equal to at least 1% of the Company's then outstanding Common Stock. Within ten days after receipt of such request, the Company will provide written notice of such registration request to all holders of Registrable Securities and will, subject to the provisions of Section 2(a) and Section 3(b), include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after distribution to the applicable holder of the Company's notice. All requests made pursuant to this Section 3(a) will specify the amount of Registrable Securities to be registered and will also specify the intended method of disposition thereof; provided, however, that such method of disposition will be limited to an underwritten offering if so requested by the holders of the Registrable Securities who initiated the request. (b) Number of Registrations. The holders of Registrable Securities will be entitled to request an aggregate of three Demand Registrations. A registration initiated as a Demand Registration will not constitute a Demand Registration (i) unless such registration has been declared effective by the SEC and remains effective for the period set forth in Section 6(a)(iii), and (ii) if after such registration has been declared effective by the SEC it is subject to any stop order, injunction or other adverse order or action of the SEC or other governmental authority which is not removed within 15 days. (c) Registration Expenses. Except as provided in Section 3(d), in any registration initiated as a Demand Registration, the Company will pay all Registration Expenses, whether or not the registration has been declared effective; provided, however, the Company shall not be required to pay for any such Registration Expenses if the request for registration is subsequently withdrawn at any time by a Majority (by number of shares to be registered) of the initiating holder(s) of Registrable Securities (in which case the initiating holders shall bear such expenses). 3 4 (d) No Rights of Company or Other Securityholders to Piggyback on Demand Registrations. Neither the Company nor any of its securityholders (other than the holders of Registrable Securities in such capacity) has any right to include any of the Company's securities in a registration statement initiated as a Demand Registration under this Section 3 if such Demand Registration is for an underwritten offering unless (i) such securities are of the same class as the Registrable Securities being registered, the (ii) managing underwriters agree that some or all of such securities can be included without adversely affecting the offering of the Registrable Securities or the offering price for the Registrable Securities and (iii) the Company, or the selling securityholders, as applicable, agree to sell their securities on the same terms and conditions as apply to the Registrable Securities and the holders of such Registrable Securities. If any securityholders of the Company (other than the holders of Registrable Securities in such capacity) register securities of the Company in a Demand Registration (in accordance with the provisions of this Section 3(d)), such securityholders will pay the fees and expenses of counsel to such securityholders and their pro rata share of the Registration Expenses if such pro rata share of the Registration Expenses for such registration are not paid by the Company for any reason. (e) Priority on Demand Registrations. If a Demand Registration is for an underwritten offering and the managing underwriters advise the Company and the selling holders of the Registrable Securities in writing that in their opinion the number of Registrable Securities requested to be included exceeds the number of securities which can be sold in such offering without adversely affecting the proposed offering or the offering price, the Company will include in such registration the number of Registrable Securities which in the opinion of such underwriters can be sold without adversely affecting the proposed offering or the offering price, and such securities will be allocated pro rata among the holders of Registrable Securities on the basis of the number of the Registrable Securities requested to be included in such registration by their respective holders. If securities (other than Registrable Securities) are proposed to be included by the Company or its other securityholders in a Demand Registration which is for an underwritten offering (subject to and in accordance with the provisions of Section 3(d)) and the managing underwriters advise the Company and the selling holders of Registrable Securities in writing that some but not all of said other securities can be sold without adversely affecting the proposed offering or the offering price in such underwritten offering, in addition to all of the Registrable Securities being registered, those securities which are permitted to be included will be allocated (i) first, to the Company and (ii) second, to the securityholders of such securities, allocated among them in such proportions as such securityholders and the Company may agree or if they cannot so agree as the Company shall determine. The Company and any such securityholders may withdraw their securities from a Demand Registration; provided, however, if the Demand Registration is for an underwritten offering, they may do so only on the reasonable and customary terms agreed upon by the managing underwriters for such offering. (f) Selection of Underwriters. If any Demand Registration is for an underwritten offering, or a best efforts underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the holders of a Majority of the Registrable Securities requested to be included in such offering; provided, however, such investment bankers and managers must be reasonably satisfactory to the Company. 4 5 (g) Other Registration Rights Agreements. Without the prior written consent of the holders of a Majority of the then outstanding Registrable Securities, the Company will neither enter into any new registration rights agreements that conflict with the terms of this Agreement nor permit the exercise of any other registration rights in a manner that conflicts with the terms of the registration rights granted hereunder. 4. REGISTRATION FOR CONTINUOUS SALES. As to any of their Demand Registration rights provided in Section 3, holders of a Majority of the Registrable Securities shall be entitled to request in the Registration Notice that the Company register for resale, in accordance with Rule 415 under the Securities Act (or any successor rule thereunder) all or a portion of their Registrable Securities on Form S-3 (or any similar short form registration) if the Company and the transaction then qualify for the use of such short form registration. On receipt of the Registration Notice, the Company will notify all of the holders of Registrable Securities entitled to notice of a proposed registration pursuant to Section 3(a) of such request. Upon receipt by the Company of the Registration Notice, the Company will, subject to Section 5 and Section 11(a), use its reasonable best efforts to file a registration statement on Form S-3 (or any similar short form registration) in accordance with the terms of this Section 4 and Section 6 as soon as practicable after receipt of such Registration Notice. The Company will, subject to Sections 5 and 11(a), use its reasonable best efforts to maintain the effectiveness of the registration statement until the first anniversary of the effectiveness of such registration statement or such earlier date when all the Registrable Securities covered by such registration statement are sold. All Registration Expenses shall be borne by the Company. A holder of Registrable Securities that are covered by a registration statement pursuant to this Section 4 will give the Company at least 24 hours written notice prior to any resales by such holder thereunder. 5. DEFERRAL OF FILING; SUSPENSION OF SHELF REGISTRATION STATEMENT. (a) Deferral of Filing. Anything herein to the contrary notwithstanding, the Company may defer the filing of any registration statement otherwise required to be filed by it pursuant to Section 3 or Section 4 if (i) the Company notifies each requesting holder that it is in good faith contemplating filing a registration statement for an underwritten offering of Common Stock or a security convertible into Common Stock within 60 days of its receipt for the demand for registration or (ii) the Company notifies each requesting holder that the Company's Board of Directors has determined that the requested registration and offering would require disclosure of pending matters or information the disclosure of which would likely be materially detrimental to the Company or materially interfere with its business or a financing, acquisition, corporate reorganization or other material transaction involving the Company or that appropriate financial statements will not be available when registration is requested. In the case of clause (i) of this Section 5(a), the Company shall use its reasonable best efforts, as soon as practicable, upon the first to occur of the abandonment of such contemplated registration statement or the expiration of such 60 day period, to register the Registrable Securities which it otherwise would be obligated to register pursuant to Section 3 or Section 4, unless the demand for registration is withdrawn or the Company has filed the contemplated registration statement. In the case of clause (ii) of this Section 5(a), the Company may delay the filing of the registration statement otherwise required 5 6 by Section 3 or Section 4 for a reasonable period of time not to exceed 120 days. If the Company shall so defer the filing of a registration statement, the requesting holders may, within 20 days after its receipt of written notice of the deferral, withdraw its request for registration by giving written notice to the Company (and, in the event of such withdrawal, such request shall not be counted for purposes of determining the number of requests for registration to which the holders of Registrable Securities are entitled hereunder and the provisions of the proviso contained in Section 3(c) hereof will not apply). In addition to the foregoing deferral rights, the Company shall not be required to file any registration statement pursuant to Section 3 or Section 4 (i) within 120 days after the effectiveness of a registration statement relating to a Demand Registration or (ii) within 120 days after the effectiveness of a registration statement filed by the Company. (b) Suspension of Shelf Registration Statement. In addition, if the Company receives notice of a proposed sale under a shelf registration statement filed pursuant to Section 4, the Company may give notice to the holder requesting such sale that such sale under such shelf registration statement must be deferred and not made for a reasonable period of time (not to exceed 120 days) after the date of receipt by the Company of such notice of proposed sale if, at the time the Company receives such notice, the Company is engaged in confidential negotiations or other confidential business activities, disclosure of which would be required to be made in the prospectus included in such shelf registration statement (but would not be required if such sale were not made) in order to prevent such prospectus from containing any untrue statement of a material fact or omitting to state any material fact necessary to make the statements therein not misleading and the Company has determined in its reasonable judgment that such disclosure would be materially detrimental to the Company or would likely materially interfere with its business or a financing, acquisition, corporate reorganization or other material transaction involving the Company. Each holder of Registrable Securities agrees that, upon receipt of any such notice from the Company pursuant to this Section 5(b), such holder shall forthwith discontinue the disposition of Registrable Securities pursuant to such shelf registration statement for the period of time contemplated by this Section 5(b). A deferral of such proposed sale pursuant to this Section 5(b) shall be lifted, and the sale may be forthwith made if the negotiations or other activities are disclosed by the Company or terminated. The running of the period provided for in Sections 4 and 6(a)(iii) hereof during which the Company is required to maintain the effectiveness of a shelf registration shall be tolled for the period for which there is a deferral of sale under this Section 5(b). 6. REGISTRATION PROCEDURES. (a) Subject to the terms hereof, whenever the holders of Registrable Securities have requested that any Registrable Securities be registered in accordance with the terms and conditions of this Agreement, the Company will use its reasonable best efforts to effect the registration and to permit the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as possible: (i) prepare and file with the SEC, subject to the availability of all required consents of independent accountants (which the Company agrees to use its reasonable 6 7 best efforts to obtain), not later than 30 days after receipt of a request to file a registration statement with respect to such Registrable Securities, a registration statement, including required exhibits thereto, with respect to such Registrable Securities, and use its reasonable best efforts to cause such registration statement to become effective; each such registration statement will be on a form for which the Company then qualifies, which is available for the sale of the Registrable Securities in accordance with the intended method of disposition thereof and which is reasonably satisfactory to the holders of a Majority of the Registrable Securities being registered (or the managing underwriters in the case of a firm or best efforts underwriting offering); (ii) notify each seller of Registrable Securities of any stop order issued by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it at the earliest possible time if entered; (iii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 90 days (or not less than one year in the case of registration on Form S-3 pursuant to Section 4 hereof) or such shorter period as may be required if all Registrable Securities covered by such registration statement are sold prior to the expiration of such 90-day period or one year period, as the case may be (except in connection with an underwritten offering, in which case such registration statement shall be kept effective as long as the underwriters reasonably request in the underwriting agreement), and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (iv) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (v) use its reasonable best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions within the United States as any seller requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; provided, however, that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 6(a)(v), (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction; (vi) use its reasonable best efforts to cause the Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities within the United States as may be necessary to 7 8 enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (vii) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company is aware as a result of which the prospectus included in such registration statement or any document incorporated therein by reference contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein not misleading, and prepare and file promptly with the SEC a supplement or amendment to such prospectus or any such document incorporated therein by reference so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (viii) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed; (ix) enter into such customary agreements (including an underwriting agreement in customary form, including customary indemnity and contribution provisions) and take all such other actions in connection therewith as the holders of a Majority of the Registrable Securities being registered or the managing underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; (x) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement, in each case upon receipt of an appropriate confidentiality agreement; (xi) in the case of an underwritten offering, (i) obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters, as the managing underwriters reasonably request and (ii) cause its outside counsel to prepare and deliver to the underwriters and the SEC opinion letters of the type customarily rendered in connection with registered underwritten offerings; and (xii) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month after the effective date of the Registration Statement, which earnings statement will satisfy the provisions of Section 10(a) of the Securities Act. 8 9 (b) The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding the seller and the distribution of such securities as the Company may from time to time reasonably request and to timely complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably requested by the Company. 7. REGISTRATION EXPENSES. (a) All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters, if any, in connection with blue sky qualifications of the Registrable Securities), printing expenses, messenger, telephone and delivery expenses, and fees and disbursements of counsel for the Company and of the Company's independent certified public accountants (including the expenses of any special audit or "cold comfort" letters required by or incident to such performance), fees and expenses of underwriters customarily paid by issuers of securities (including liability insurance if the Company so desires), the reasonable fees and expenses of any special experts retained by the Company or at the request of the managing underwriters in connection with such registration and fees and expenses of other Persons retained by the Company, but excluding underwriting discounts and commissions, fees, discounts and commissions of brokers and dealers, transfer taxes, if any, relating to any sale of Registrable Securities and the fees and disbursements of counsel for the holders of Registrable Securities, will be borne by the Company (all such expenses being herein called "Registration Expenses"). (b) Any fees or expenses incurred by any of the parties other than Registration Expenses, including fees and disbursements of attorneys and accountants other than as included in the definition of Registration Expenses, shall be borne by the party that incurred them. 8. INDEMNIFICATION; CONTRIBUTION. (a) Indemnification by Company. In the event of the registration of any of the Registrable Securities pursuant to this Agreement, the Company agrees to indemnify to the full extent permitted by law, each holder of such Registrable Securities, its officers, directors and constituent partners, if any, and each Person who controls such holder (within the meaning of the Securities Act and the Exchange Act) against all losses, claims, damages, liabilities and expenses (or actions in respect thereof) arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the registration of such Registrable Securities or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are contained in any information furnished in writing to the Company by or on behalf of such holder or other indemnified Person expressly for use therein or caused by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. Subject to the provisions of Section 8(c), the Company will reimburse each holder of Registrable Securities, its officers, directors, constituent partners, if any, and controlling Persons for any reasonable legal and other expenses as incurred in connection with 9 10 investigating or defending any such losses, claims, damages, liabilities, expenses or actions for which such Person is entitled to indemnification hereunder, as such are incurred. In connection with a firm commitment or best efforts underwritten offering, the Company will indemnify the underwriters or agents, their officers, directors, constituent partners and each Person who controls such underwriters (within the meaning of the Securities Act and the Exchange Act) or agents to the same extent as provided above (or such greater extent as may be customarily required by the managing underwriters) with respect to the indemnification of the holders of Registrable Securities. (b) Indemnification by Holder of Registrable Securities. In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and agrees to indemnify, to the full extent permitted by law, the Company, its directors and officers, each Person who controls the Company (within the meaning of the Securities Act and the Exchange Act) and all other prospective sellers and their respective directors, officers and controlling Persons (within the meaning of the Securities Act and the Exchange Act) against any losses, claims, damages, liabilities and expenses (or actions in respect thereof) arising out of or based upon any untrue or alleged untrue statement of a material fact or any omission or alleged omission of a material fact required to be stated in the registration statement or prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any written information or affidavit furnished by or on behalf of such holder specifically for such registration statement or prospectus and then only to the extent of the total proceeds received by such holder of Registrable Securities. Subject to the provisions of Section 8(c), the holders of Registrable Securities will reimburse, to the extent of the total proceeds received by the holders of Registrable Securities, the Company, its officers, directors and controlling Persons and all other prospective sellers and their respective directors, officers and controlling Persons for any reasonable legal and other expenses as incurred in connection with investigation or defending any such losses, claims, damages, liabilities, expenses or actions. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification (but omission of such notice shall not relieve the indemnifying party from liability hereunder except to the extent such indemnifying party is actually prejudiced by such failure to give notice) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest may exist between such indemnified and indemnifying parties with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of an unconditional release from all liability in respect to such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a 10 11 claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim. (d) Contribution. If the indemnification provided for in Section 8(a) or Section 8(b) is unavailable or insufficient to hold harmless each of the indemnified parties against any losses, claims, damages, liabilities and expenses (or actions in respect thereof) to which such persons may become subject under the Securities Act, then the indemnifying party shall, in lieu of indemnifying each party entitled to indemnification hereunder, contribute to the amount paid or payable by such party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and such indemnified persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages, liabilities or expenses. The relative fault of such persons shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact, or omission or alleged omission to state a material fact, relates to information supplied by or concerning the indemnifying party on the one hand, or by such indemnified person on the other, and such person's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other allocation that does not take into account the equitable considerations referred to in this Section 8(d). No person guilty of fraudulent misrepresentation within the meaning of the Securities Act shall be entitled to contribution from any person that is not guilty of such fraudulent misrepresentation. 9. RULE 144 AND FORM S-3. The Company covenants that it will timely file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder, all to the extent required from time to time (i) to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (y) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (z) any similar rule or regulation hereafter adopted by the SEC and (ii) to use its reasonable best efforts to maintain its eligibility to use Form S-3 (or any successor form of similar import) for resales of Registrable Securities as contemplated hereby. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with such requirements. 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS; MARKET STAND-OFF AGREEMENT. (a) Participation in Underwritten Registration. No Person may participate in any underwritten registration hereunder unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all customary questionnaires, powers of attorney, underwriting agreements and other documents required under the terms of such underwriting arrangements. 11 12 (b) Market Stand-Off Agreement. Each holder of Registrable Securities agrees, whether or not it is participating in such registration statement, that it shall not, to the extent requested by the Company or an underwriter of Common Stock (or other securities of the Company), sell or otherwise transfer or dispose of (other than to transferees who agree to be similarly bound) any securities of the Company during the period following the effective date of a registration statement of the Company filed under the Securities Act (not to exceed 90 days) requested by the Company or an underwriter. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the securities of the Company owned by holders of Registrable Securities until the end of such period. 11. MISCELLANEOUS. (a) Right to Suspend. The Company may, by notice in writing to each holder of Registrable Securities, require the holders of Registrable Securities to suspend use of any prospectus included in a registration statement filed hereunder if the Company reasonably determines that it contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein not misleading or that any transaction in which the Company is engaged or proposes to engage, or any event that has occurred or is expected to occur, would require an amendment to such registration statement or a supplement to such prospectus (including any such amendment or supplement made through incorporation by reference to a report filed under Section 13 of the Exchange Act). Each holder of Registrable Securities agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in this Section 11(a), such holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such holder's receipt of the copies of a properly supplemented or amended prospectus, and, if so directed by the Company, such holder will deliver to the Company all copies, other than permanent file copies, then in such holder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event the Company gives any such notice, the time period mentioned in Section 4 and Section 6(a)(iii), if applicable, will be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such registration statement has received the copies of such supplemented or amended prospectus. The Company agrees to use its reasonable best efforts to cause any suspension of use of any prospectus pursuant to this paragraph to be as short a period of time as possible. (b) Transfer of Assignment of Rights. The rights to cause the Company to register Registrable Securities under this Agreement granted to the Purchasers may be assigned or transferred by a Purchaser only to a transferee or assignee of not less than 200,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and similar events), provided that the Company is given written notice at the time of such transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned; and provided further, that the transferee or assignee of such rights assumes in writing the obligation of such Purchaser hereunder with respect thereto. 12 13 (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of the holders of at least a Majority of the outstanding Registrable Securities. Each holder of any Registrable Securities at the time or thereafter shall be bound by any consent authorized by this Section 11(c), whether or not such holder consented or whether or not such Registrable Securities have been marked to indicate such consent. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. (d) Registrable Securities Held by the Company or its Affiliates. Whenever the consent or approval of holders of all or any specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or any of its Affiliates (other than the Purchasers or their assigns or any of Affiliates thereof if such Purchaser or assigns is such an Affiliate) will not be counted in determining whether such consent or approval was given by such holders. (e) Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Purchasers: Harris J. Pappas and Christopher J. Pappas 642 Yale Houston, Texas 77007 with a copy to: Frank Markantonis 645 Heights Blvd. Houston, Texas 77007 and Fulbright & Jaworski, L.L.P. 1301 McKinney, Suite 5100 Houston, Texas 77010-3095 Attn: Charles H. Still If to Luby's: Luby's, Inc. 2211 Northeast Loop 410 San Antonio, Texas 78217-4673 Attention: Chairman of the Board 13 14 with a copy to: Cauthorn Hale Hornberger Fuller Sheehan Becker & Beiter Incorporated 700 N. St. Mary's Street, Suite 600 San Antonio, Texas 78205 Attention: Drew R. Fuller, Jr. Any of the above addresses may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. All notices, requests or instructions given in accordance herewith shall be deemed received on the date of delivery, if hand delivered, on the date of receipt, if telecopied, three Business Days after the date of mailing, if mailed by registered or certified mail, return receipt requested, and one Business Day after the date of sending, if sent by Federal Express or other recognized overnight courier. (f) Successors. Subject to compliance with any conditions to or restrictions on the transfer of any Registrable Securities and to the express assignment provisions of this Agreement, this Agreement will inure to the benefit of and be binding upon the successors and assigns of each of the parties. (g) Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties, it being understood that all parties need not sign the same counterpart. (h) Headings. The headings in this Agreement are for convenience of reference only and are not part of the substance of this Agreement. (i) Governing Law; Jurisdiction. This Agreement SHAll be governed by and construed in accordance with the laws of the State of Texas, without giving effect to ANY conflictS of law prOVISIONS. (j) Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of applicable law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in 14 15 good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated herein are consummated as originally contemplated to the fullest extent possible. (k) Entire Agreement. This Agreement (which term shall be deemed to include the Exhibits and Schedules hereto and the other certificates, documents and instruments delivered hereunder), the Purchase Agreement dated as of March 9, 2001 by and between the Company and Purchaser (the "Purchase Agreement") and the other Transaction Documents (as defined in the Purchase Agreement) constitute the entire agreement of the parties hereto and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. There are no representations or warranties, agreements, or covenants other than those expressly set forth in this Agreement, the Purchase Agreement, and the other Transaction Documents. (l) Consent; Names and Address of Holders of Securities. Each holder of Registrable Securities consents to the dissemination by the Company of its name, address and Registrable Securities holdings to other holders of Registrable Securities. Upon request, the Company will furnish to any holder of Registrable Securities, the names and addresses of all other such holders to the extent reasonably available or known to the Company. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. LUBY'S, INC. Company Address: 2211 Northeast Loop 410 By: San Antonio, Texas 78217-4673 ------------------------------ Robert T. Herres Chairman of the Board ------------------------------ Harris J. Pappas ------------------------------ Christopher J. 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