10-K405

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended January 2, 2000

or

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                .

Commission File Number: 0-25123

P.F. CHANG’S CHINA BISTRO, INC.

(Exact name of registrant as specified in its charter)

Delaware	86-0815086
State or other jurisdiction of incorporation or organization	(I.R.S. Employer Identification No.)
5090 North 40th Street, Suite #160	85018
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:  (602) 957-8986

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes  [X]  No  [   ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

      Based on the closing sale price of $25.69 on February 15, 2000, the aggregate market value of the voting stock held by non-affiliates of the registrant was $223,262,002.

      On February 15, 2000 there were outstanding 10,265,257 shares of the Registrant’s Common Stock.

Documents Incorporated by Reference

(to the extent indicated herein)

      Registrant’s Proxy Statement (specified portions) with respect to the Annual Meeting of Stockholders to be held April 26, 2000.

TABLE OF CONTENTS

Item		Page
	PART I
1.	Business		2
2.	Properties		13
3.	Legal Proceedings		14
4.	Submission of Matters to a Vote of Security Holders		14
	PART II
5.	Market for the Registrant’s Common Stock and Related Stockholder Matters		15
6.	Selected Financial Data		16
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
7A.	Quantitative and Qualitative Disclosures About Market Risks		25
8.	Financial Statements and Supplementary Data		F-1
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		26
	PART III
10.	Directors and Executive Officers of the Registrant		26
11.	Executive Compensation		26
12.	Security Ownership of Certain Beneficial Owners and Management		26
13.	Certain Relationships and Related Transactions		26
	PART IV
14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		26

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PART I

Item 1.  Business

      The following Business section contains forward-looking statements which involve risks and uncertainties. Such forward-looking statements may be deemed to include anticipated restaurant openings, anticipated costs and sizes of future restaurants and the adequacy of anticipated sources of cash to fund the Company’s future capital requirements. Words such as “believes,” “anticipates,” “expects,” “intends,” “plans” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. The Company’s actual results may differ materially from those discussed in the forward-looking statements. Factors that might cause actual events or results to differ materially from those indicated by such forward-looking statements may include the matters set forth under “Risk Factors” and elsewhere in this Form 10-K, such as development and construction risks, potential labor shortages, fluctuations in operating results, and changes in food costs.

General

      P.F. Chang’s owns and operates 36 full service restaurants (as of January 2, 2000) that feature a blend of high quality, traditional Chinese cuisine and American hospitality in a sophisticated, contemporary bistro setting. The Company’s restaurants offer intensely flavored, highly memorable culinary creations, prepared from fresh ingredients, including premium herbs and spices imported directly from China. The menu is focused on select dishes created to capture the distinct flavors and styles of the five major culinary regions of China: Canton, Hunan, Mongolia, Shanghai and Szechwan. By adhering to the Chinese culinary precepts of fan and t’sai, a balancing of rice, noodles and grains with meat, seafood and vegetables, the P.F. Chang’s menu offers an array of taste, texture, color and aroma. The menu is highlighted by dishes such as Chang’s Spicy Chicken, Orange Peel Beef, Peking Ravioli, Chicken in Soothing Lettuce Wrap, Szechwan-Style Long Beans and Dan Noodles. The traditional cuisine is complemented by a full service bar offering an extensive selection of wines, specialty drinks, Asian beers, cappuccino and espresso. The Company offers superior customer service in a high energy atmosphere featuring a display kitchen, exhibition wok cooking and a decor that includes wood and slate floors, mounted life-size terra cotta replicas of Xi’an warriors and narrative murals depicting 12th century China.

Concept and Strategy

      The Company’s objectives are to (i) develop and operate a nationwide system of restaurants that offer guests a sophisticated dining experience, (ii) create a loyal customer base that generates a high level of repeat business and (iii) provide superior returns to its investors. To achieve its objectives, the Company strives to offer high quality Chinese cuisine in a memorable atmosphere while delivering superior customer service and an excellent dining value. Key to the Company’s expansion strategy and success at the restaurant level is the Company’s management philosophy pursuant to which regional managers (“Market Partners”), certain general managers (“Operating Partners”) and certain executive chefs (“Culinary Partners”) are allowed to participate in the cash flows of the restaurants for which they have responsibility. The Company believes it has demonstrated the viability of the P.F. Chang’s concept in a wide variety of markets across the United States. The Company intends to continue its expansion program and believes the management incentives provided by its Market, Operating and Culinary Partners’ programs should position the Company to continue this expansion without sacrificing the Company’s restaurant level operating performance and return on investment.

Menu

      The P.F. Chang’s menu offers a harmony of taste, texture, color and aroma by balancing the principles of fan and t’sai foods. Fan foods include rice, noodles, grains and dumplings, while vegetables, meat, poultry and seafood are t’sai foods. The Company’s chefs are trained to produce distinctive Chinese cuisine with traditional recipes from the five major culinary regions of China: Canton, Hunan, Mongolia, Shanghai and Szechwan. The intense heat of Mandarin-style wok cooking sears in the clarity and distinct flavor of fresh ingredients. Slow roasted Cantonese-style ducklings, chickens, BBQ spare ribs and BBQ pork are prepared in

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vertical ovens, while handmade shrimp, pork and vegetable dumplings, as well as flavorful fish and vegetables, are prepared in custom-made steamer cabinets. MSG is not used in any P.F. Chang’s menu items.

      In addition to the core menu, P.F. Chang’s also offers special lunch and dinner selections. These menus offer specials developed by the Company’s Culinary Partners around the country and are changed two to three times a year. Individual items that are received well by guests migrate to the core menu. The fresh produce, seafood, meat, poultry and specialty items that are specific to a certain region of the United States or to a specific season are featured on a daily basis. Extensive research and development, including annual trips to China by the P.F. Chang’s corporate executive chef, continually reinforce the Company’s commitment to training the P.F. Chang’s chefs and enhancing the menu offerings.

      The Company’s entrees range in price from $8.00 to $13.00, and its appetizers range in price from $3.00 to $8.00. The Company’s average check per guest, including alcoholic beverages, is approximately $17 to $18. Sales of alcoholic beverages, featuring an extensive selection of wines, all of which are offered by the glass, constitute approximately 20% of revenues. Lunch and dinner contribute roughly 30% and 70% of revenues, respectively.

Operations

      In order to provide incentive to key management personnel, the Company has entered into a series of partnership agreements with its regional managers (“Market Partners”), certain of its general managers (“Operating Partners”) and certain of its executive chefs (“Culinary Partners”). These partnership agreements entitle the Market Partner to a specified percentage of the cash flows from the restaurants that partner has developed and oversees as the regional manager. Similarly, the general manager and the executive chef at most of the Company’s restaurants are offered the opportunity to become Operating Partners and Culinary Partners, respectively, and to receive a percentage of the cash flows from the restaurant in which they work. Each partner is required, as a condition of employment, to sign a five-year employment agreement and is required to purchase a specified interest in the restaurant or region the partner is employed to manage. The ownership interest purchased by each partner generally ranges between two and seven percent of the restaurant or region the partner oversees. During the five-year employment term, each partner is prohibited from selling or transferring his interest to another party. At the termination of the employment agreement, the Company has the right to purchase the minority partners’ interests in the partners’ respective restaurants at fair market value, as calculated according to the partnership agreements. The Company has implemented this partnership structure to facilitate the development and operation of its restaurants. By requiring this level of commitment and by providing the Market, Operating and Culinary Partners with a significant stake in the success of the restaurant, the Company believes that it is able to attract and retain experienced and highly motivated managers.

      Each of the Company’s Market Partners oversees a territory that can support seven to ten restaurants. The Market Partner’s role is to ensure that each restaurant within his or her territory achieves a competitive return on investment through the successful execution of the concept. The typical Market Partner is an individual who has achieved a leadership position (such as Director of Operations) at a multi-unit, full-service restaurant company.

      The Company strives to create a sophisticated dining experience through the careful selection, training and supervision of personnel. The staff of a typical restaurant consists of an Operating Partner, two or three managers, a Culinary Partner, one or two sous chefs and approximately 125 hourly employees, many of whom work part-time. The Operating Partner of each restaurant is responsible for the day-to-day operations of that restaurant, including hiring, training and development of personnel, as well as operating results. The Culinary Partner is responsible for product quality, purchasing, food costs and kitchen labor costs. The Company requires its Operating Partners and Culinary Partners to have significant experience in the full-service restaurant industry.

      The Company has a comprehensive 12 week management development program. This program consists of six weeks of culinary training, including both culinary job functions and culinary management. The remaining six weeks focus on service strategies, guest relations, office management and shift management. All

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management and culinary personnel are required to successfully complete all sections of this program. Upon the completion of each six week section each trainee must successfully complete a comprehensive certification administered by the Market Partner, Director of Culinary Development or the Director of Training.

      The Operating Partners and Culinary Partners are responsible for selecting employees for their restaurants. The Partners are responsible for administering the Company’s staff training programs that are developed by the training and culinary departments. The employee development program lasts between one and two weeks and focuses on both technical and cultural knowledge.

Marketing

      The Company focuses its business strategy on providing high quality, traditional Chinese cuisine served by an attentive staff in a distinctive environment at an affordable price. By focusing on the food, service and ambiance of the restaurant, the Company has created an environment that fosters repeat patronage and encourages word-of-mouth recommendations. The Company believes that word-of-mouth advertising is a key component in driving guest trial and usage.

      To attract new customers, the Company has also implemented a local, regional and national marketing strategy through paid advertising, public relations efforts and community involvement to maintain and build awareness throughout each community in which it operates. In order to increase local awareness of its restaurants, the Company builds relationships with local radio personalities who provide testimonials to their listening audiences. The partnered stations are consistently among the highest rated stations in their markets. Likewise, the radio personalities are very well recognized in their communities, not only on their station, but also in the market as a whole.

      The Company also undertakes specialty programs such as concierge and accommodation programs targeted to build relationships with the local hotel concierges, who offer personal recommendations to the guests of their establishments. Community involvement with local organizations, participation in non-profit benefits and auctions, chef demonstrations and cooking classes also increase consumer awareness.

      A national advertising campaign comprised of advertisements in inflight magazines, which carry a high level of traffic in the Company’s markets, is designed to make frequent travelers aware of P.F. Chang’s locations across the country.

Competition

      The restaurant business is intensely competitive with respect to food quality, price-value relationships, ambiance, service and location, and many existing restaurants compete with the Company at each of its locations. Key competitive factors in the industry include the quality and value of the food, quality of service, price, dining experience, restaurant location and the ambiance of the facilities. The Company’s primary competitors include mid-price, full service casual dining restaurants and locally-owned and operated Chinese restaurants. There are many well-established competitors with substantially greater financial, marketing, personnel and other resources than the Company. In addition, many of the Company’s competitors are well established in the markets where the Company’s operations are, or in which they may be, located. While the Company believes that its restaurants are distinctive in design and operating concept, other companies may develop restaurants that operate with similar concepts.

Management Information Systems

      The Company utilizes an integrated information system to manage the flow of information within each restaurant and between the restaurants and the corporate office. This system includes a point-of-sales (“POS”) local area network that helps facilitate the operations of the restaurant by recording sales transactions and printing orders in the appropriate locations within the restaurant. Additionally, the POS system is utilized to authorize, batch and transmit credit card transactions, to record employee time clock information, to schedule labor and to produce a variety of management reports. Select information that is captured from the POS system is transmitted to the corporate office on a daily basis, which enables senior

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management to continually monitor operating results. The Company believes that its current POS system will be an adequate platform to support its planned expansion.

      The Company uses software and hardware developed by reputable vendors and commonly used in the restaurant industry. These systems are integrated to provide senior management with daily and weekly sales and cost analysis, monthly detailed profit statements and comparisons between actual and budgeted operating results.

Purchasing

      The Company’s purchasing programs provide its restaurants with high quality ingredients at competitive prices from reliable sources. Consistent menu specifications as well as purchasing and receiving guidelines ensure freshness and quality. Because the Company utilizes only fresh ingredients in all of its menu offerings, inventory is maintained at a modest level. The Company negotiates short-term and long-term contracts depending on demand for its products. These contracts range in duration from two to twelve months. With the exception of produce, which is purchased locally, the Company utilizes Distributors Marketing Alliance as the primary distributor of product to all of its restaurants. Distributors Marketing Alliance is a cooperative of multiple food distributors located throughout the nation. The Company has a non-exclusive short term contract with Distributors Marketing Alliance on terms and conditions which the Company believes are consistent with those made available to similarly situated restaurant companies. The Company believes that competitively priced alternative distribution sources are available should such channels be necessary. Chinese-specific ingredients are usually sourced directly from Hong Kong, China and Taiwan. The Company has developed an extensive network of importers in order to maintain an adequate supply of items that conform to the Company’s brand and product specifications.

Employees

      At January 2, 2000, the Company employed approximately 5,000 persons, 47 of whom were executive office personnel, 305 of whom were unit management personnel and the remainder of whom were hourly restaurant personnel. The Company’s employees are not covered by a collective bargaining agreement. The Company considers its employee relations to be good.

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Unit Economics

      The Company believes that, in addition to other important information concerning the Company (i.e., uniqueness of concept, quality of management, rate of unit openings and earnings growth, etc.), investors and restaurant industry analysts focus on three major factors in their evaluation of a restaurant’s unit economics. These three factors are: (1) restaurant sales (average weekly sales and change in comparable restaurant sales); (2) restaurant-level operating margin; and (3) restaurant-level return on invested capital. These unit economics are set forth below.

      PLEASE NOTE THAT THE RESTAURANT-LEVEL RETURN ON INVESTED CAPITAL IS NOT A GENERALLY ACCEPTED ACCOUNTING PRINCIPLE MEASURE OF PERFORMANCE AND DOES NOT REPRESENT A RETURN ON AN INDIVIDUAL STOCKHOLDER’S INVESTMENT IN THE COMPANY. Rather, it measures the return on the capital invested in the restaurants by the Company. The restaurant-level return on invested capital is calculated as the quotient of the restaurant income (loss) before minority interests, interest (income) expense, net, income taxes, rent expense and preopening adjustment divided by the total restaurant invested capital. Interest (income) expense, net, income taxes and rent expense are excluded from this calculation to provide for an evaluation of operational results of individual restaurants without the variability introduced by different forms of financing and ownership (i.e., purchased and financed versus leased).

	Units opened in																		Total
																			Restaurant
	Pre 1996			1996			1997			1998			1999			2000			Operations			Corporate			Total
	(dollars in thousands, except average weekly sales)
Fiscal 1999
Units(1)		4			3			6			10			13						36						36
Sales weeks		212			159			318			530			330						1,549						1,549
Average weekly sales	$	115,119		$	123,509		$	92,685		$	96,119		$	87,378					$	98,964					$	98,964
Change in comparable store sales(2)		9.5	%		11.5	%		15.2	%		13.4	%								12.0	%					12.0	%
Restaurant-level operating margin		23.8	%		23.4	%		20.8	%		19.6	%		11.5	%					19.5	%					19.5	%
Revenues	$	24,405		$	19,638		$	29,474		$	50,943		$	28,835		$	—		$	153,295		$	—		$	153,295
Total restaurant operating costs		18,605			15,044			23,344			40,972			25,512			—			123,477			—			123,477
General and administrative		—			—			—			—			—			—			—			9,648			9,648
Depreciation and amortization		347			369			827			1,852			1,020			—			4,415			560			4,975
Preopening expense		—			—			—			(33	)		3,826			551			4,344			—			4,344
Interest (income) expense, net		7			163			—			—			—			—			170			(602	)		(432	)
Income (loss) before minority interest and income taxes(3)		5,446			4,062			5,303			8,152			(1,523	)		(551	)		20,889		$	9,606		$	11,283
Rent expense(4)		1,404			1,044			1,463			1,986			1,013			—			6,910
Interest expense, net		7			163			—			—			—			—			170
Preopening adjustment(5)		—			—			—			—			(405	)		551			146
Restaurant income (loss), as adjusted	$	6,857		$	5,269		$	6,766		$	10,138		$	(915	)	$	—		$	28,115
Average restaurant assets employed(6)	$	1,507		$	3,342		$	6,981		$	19,729		$	12,797					$	44,356
Present value of remaining lease obligations(7)		4,171			4,156			7,621			13,440			6,600						35,988
Total restaurant invested capital	$	5,678		$	7,498		$	14,602		$	33,169		$	19,397					$	80,344
Restaurant-level return on invested capital		120.8	%		70.3	%		46.3	%		30.6	%		(4.7	)%					35.0	%

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	Units opened in																	Total
																		Restaurant
	Pre 1996			1996			1997			1998			1999			2000		Operations			Corporate			Total
	(dollars in thousands, except average weekly sales)
Fiscal 1998
Units(1)		4			3			6			10								23						23
Sales weeks		208			156			312			149								825						825
Average weekly sales	$	104,637		$	110,374		$	80,171		$	94,207							$	94,586					$	94,586
Change in comparable store sales(2)		10.6	%		17.7	%		7.8	%										12.8	%					12.8	%
Restaurant-level operating margin		24.3	%		22.6	%		16.8	%		10.6	%							19.1	%					19.1	%
Revenues	$	21,765		$	17,218		$	25,013		$	14,037		$	—		$	—	$	78,033		$	—		$	78,033
Total restaurant operating costs		16,479			13,324			20,823			12,552			—			—		63,178			—			63,178
General and administrative		—			—			—			—			—			—		—			6,245			6,245
Depreciation and amortization		301			393			798			383			—			—		1,875			509			2,384
Preopening expense		—			—			82			3,696			405			—		4,183			—			4,183
Interest expense, net		12			207			—			—			—			—		219			958			1,177
Income (loss) before minority interest and income taxes(3)		4,973			3,294			3,310			(2,594	)		(405	)		—		8,578		$	(7,712	)	$	866
Rent expense(4)		1,241			872			1,297			604			—			—		4,014
Interest expense, net		12			207			—			—			—			—		219
Preopening adjustment(5)		—			—			82			(191	)		405			—		296
Restaurant income (loss), as adjusted	$	6,226		$	4,373		$	4,689		$	(2,181	)	$	—		$	—	$	13,107
Average restaurant assets employed(6)	$	1,648		$	3,681		$	7,598		$	5,642							$	18,569
Present value of remaining lease obligations(7)		4,568			4,232			7,876			3,623								20,299
Total restaurant invested capital	$	6,216		$	7,913		$	15,474		$	9,265							$	38,868
Restaurant-level return on invested capital		100.2	%		55.3	%		30.3	%		(23.5	)%							33.7	%
Fiscal 1997
Units(1)		4			3			6											13						13
Sales weeks		208			156			76											440						440
Average weekly sales	$	94,578		$	92,930		$	73,675										$	90,383					$	90,383
Change in comparable store sales(2)		13.8	%																13.8	%					13.8	%
Restaurant-level operating margin		23.7	%		16.9	%		3.2	%										18.4	%					18.4	%
Revenues	$	19,672		$	14,497		$	5,599		$	—		$	—		$	—	$	39,768		$	—		$	39,768
Total restaurant operating costs		15,000			12,051			5,419			—			—			—		32,470			—			32,470
General and administrative		—			—			—			—			—			—		—			4,276			4,276
Depreciation and amortization		308			362			148			—			—			—		818			284			1,102
Preopening expense		—			25			1,706			191			—			—		1,922			—			1,922
Interest expense, net		21			193			—			—			—			—		214			103			317
Income (loss) before minority interest and income taxes(3)		4,343			1,866			(1,674	)		(191	)		—			—		4,344		$	(4,663	)	$	(319	)
Rent expense(4)		1,125			717			282			—			—			—		2,124
Interest expense, net		21			193			—			—			—			—		214
Preopening adjustment(5)		—			—			(53	)		191			—			—		138
Restaurant income (loss), as adjusted	$	5,489		$	2,776		$	(1,445	)	$	—		$	—		$	—	$	6,820
Average restaurant assets employed(6)	$	1,953		$	4,060		$	2,230										$	8,243
Present value of remaining lease obligations(7)		4,910			4,294			2,068											11,272
Total restaurant invested capital	$	6,863		$	8,354		$	4,298										$	19,515
Restaurant-level return on invested capital		80.0	%		33.2	%		(33.6	)%										34.9	%

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(1)	Units include all restaurants opened in the period indicated.
(2)	A unit becomes comparable in the eighteenth month of operation.
(3)	For purposes of this calculation, restaurant income (loss) before minority interest and income taxes represents restaurant revenues less all restaurant-specific operating costs, depreciation and amortization, preopening expenses and interest (income) expense, net. Preopening costs are aggregated in the month in which a restaurant opens. General and administrative expense, interest expense on general corporate debt, depreciation on general corporate assets and amortization of goodwill are excluded from the calculation.
(4)	Rent expense consists of minimum contractual rents plus contingent percentage rents.
(5)	Preopening adjustment represents preopening costs incurred in a fiscal year other than the fiscal year in which a restaurant opened. As noted in footnote (3) above, for purposes of this calculation, preopening costs are aggregated and expensed in the month in which a restaurant opens rather than in the fiscal year in which the costs were incurred and expensed for financial statement purposes.
(6)	Average restaurant assets employed represents the 12 month average of all restaurant-specific long-term assets, net of any accumulated depreciation and amortization, determined on a prorated basis for restaurants opened within the period.
(7)	Present value of remaining lease obligations represents the 12 month average discounted present value of restaurant lease payments to the date of lease expiration, using a 10 percent discount rate, determined on a prorated basis for restaurants opened within the period.

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Risk Factors

  Uncertainties Associated with Expanding Operations

      The Company operates 36 restaurants (as of January 2, 2000), 13 of which have been opened within the last twelve months. The results achieved to date by the Company’s relatively small number of restaurants may not be indicative of longer term performance or the potential market acceptance of restaurants in other locations. Further, there can be no assurance that any new restaurant which the Company opens will obtain similar operating results to those of prior restaurants. The Company anticipates that its new restaurants will commonly take several months to reach planned operating levels due to certain inefficiencies typically associated with new restaurants, including lack of market awareness, inability to hire sufficient staff and other factors.

      A critical factor in the Company’s future success is its ability to successfully expand its operations. The Company expanded from seven restaurants at the end of 1996 to 36 restaurants as of January 2, 2000. The Company expects to open 15 restaurants in 2000 (three of which have been opened since January 2, 2000). The Company’s ability to expand successfully will depend on a number of factors, including the identification and availability of suitable locations, competition for restaurant sites, the negotiation of favorable lease arrangements, timely development in certain cases of commercial, residential, street or highway construction near the Company’s restaurants, management of the costs of construction and development of new restaurants, securing required governmental approvals and permits, recruitment of qualified operating personnel (particularly managers and chefs), the competition in new markets, general economic conditions and other factors, some of which are beyond the control of the Company. The opening of additional restaurants in the future will depend in part upon the Company’s ability to generate sufficient funds from operations or to obtain sufficient equity or debt financing on favorable terms to support such expansion. There can be no assurance that the Company will be successful in addressing these risks, that the Company will be able to open its planned new operations on a timely basis, if at all, or, if opened, that those operations will be operated profitably. The Company has experienced, and expects to continue to experience, delays in restaurant openings from time to time. Delays or failures in opening planned new restaurants could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

      The Company’s growth strategy may strain the Company’s management, financial and other resources. To manage its growth effectively, the Company must maintain a high level of quality and service at its existing and future restaurants, continue to enhance its operational, financial and management capabilities and locate, hire, train and retain experienced and dedicated operating personnel, particularly managers and chefs. There can be no assurance that the Company will be able to effectively manage these and other factors necessary to permit it to achieve its expansion objectives, and any failure to do so could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

  Development and Construction Risks

      Because each P.F. Chang’s restaurant is distinctively designed to accommodate particular characteristics of each location and to blend local or regional design themes with the Company’s principal trade dress and other common design elements, each location presents its own development and construction risks. Many factors may affect the costs associated with the development and construction of the Company’s restaurants, including labor disputes, shortages of materials and skilled labor, weather interference, unforeseen engineering problems, environmental problems, construction or zoning problems, local government regulations, modifications in design to the size and scope of the projects and other unanticipated increases in costs, any of which could give rise to delays or cost overruns. There can be no assurance that the Company will be able to develop additional P.F. Chang’s restaurants within anticipated budgets or time periods, and any such failure could materially adversely affect the Company’s business, financial condition, results of operations or cash flows.

  Potential Labor Shortages

      The success of the Company will continue to be dependent on its ability to attract and retain a sufficient number of qualified employees, including kitchen staff and waitstaff, to keep pace with its expansion schedule.

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Qualified individuals needed to fill these positions are in short supply in certain areas, and the inability to recruit and retain such individuals may delay the planned openings of new restaurants or result in high employee turnover in existing restaurants which could have a material adverse effect on the Company’s business, financial condition, cash flows or results of operations.

  Fluctuations in Operating Results

      The Company’s operating results may fluctuate significantly as a result of a variety of factors, including general economic conditions, consumer confidence in the economy, changes in consumer preferences, competitive factors, weather conditions, the timing of new restaurant openings and related expenses, revenues contributed by new restaurants and increases or decreases in comparable restaurant revenues. Historically, the Company has experienced variability in the amount and percentage of revenues attributable to preopening expenses. The Company typically incurs the most significant portion of preopening expenses associated with a given restaurant within the two months immediately preceding and the month of the opening of the restaurant. In addition, the Company’s experience to date has been that labor and operating costs associated with a newly opened restaurant for the first several months of operation are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Accordingly, the volume and timing of new restaurant openings has had and is expected to have a meaningful impact on preopening expenses and labor and operating costs until such time as a larger base of restaurants in operation mitigates such impact. Due to the foregoing factors, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for a full fiscal year, and, from time to time in the future, the Company’s results of operations may be below the expectations of public market analysts and investors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

  Restaurant Industry and Competition

      The restaurant industry is intensely competitive with respect to food quality, price-value relationships, ambiance, service and location, and many restaurants compete with the Company at each of its locations. The Company’s competitors include mid-price, full-service casual dining restaurants and locally owned and operated Chinese restaurants. There are many well-established competitors with substantially greater financial, marketing, personnel and other resources than the Company, and many of the Company’s competitors are well established in the markets where the Company’s operations are, or in which they may be, located. Additionally, other companies may develop restaurants that operate with similar concepts.

      The restaurant business is often affected by changes in consumer tastes, national, regional or local economic conditions, demographic trends, consumer confidence in the economy, discretionary spending priorities, weather conditions, tourist travel, traffic patterns and the type, number and location of competing restaurants. Changes in these factors could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. In the future, changes in consumer tastes may require the Company to modify or refine elements of its restaurant system to evolve its concept in order to compete with popular new restaurant formats or concepts that develop from time to time, and there can be no assurance that the Company will be successful in implementing such modifications.

  Minimum Wage

      A number of the Company’s employees are subject to various minimum wage requirements. The federal minimum wage increased to $5.15 per hour effective September 1, 1997. In addition, many of the Company’s employees work in restaurants located in California and receive salaries equal to the California minimum wage, which rose from $5.00 per hour effective March 1, 1997 to $5.75 per hour effective March 1, 1998. There can be no assurance that similar increases will not be implemented in other jurisdictions in which the Company operates or seeks to operate. The Company believes that the federal minimum wage will be increased again within the next 12 months. Such minimum wage increases could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

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  Dependence on Key Personnel

      The success of the Company’s business will continue to be highly dependent on its key operating officers and employees, including Richard Federico, the Company’s Chief Executive Officer and President, Robert Vivian, the Company’s Chief Financial Officer, Greg Carey, the Company’s Chief Operating Officer, and Frank Ziska, the Company’s Chief Development Officer. The Company’s success in the future will be dependent on its ability to attract, retain and motivate a sufficient number of qualified management and operating personnel, including Market Partners, Operating Partners and Culinary Partners, to keep pace with an aggressive expansion schedule. Such qualified individuals are historically in short supply and any inability of the Company to attract and retain such key employees may limit its ability to effectively penetrate new market areas. Additionally, the ability of these key personnel to maintain consistency in the quality and atmosphere of the Company’s restaurants in various markets is a critical factor in the Company’s success. Any failure to do so may harm the Company’s reputation and could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

  Changes in Food Costs

      The Company’s profitability is dependent in part on its ability to anticipate and react to changes in food costs. Other than for produce, which is purchased locally by each restaurant, the Company relies on Distributors Marketing Alliance as the primary distributor of its food. Distributors Marketing Alliance is a cooperative of multiple food distributors located throughout the nation. The Company has a non-exclusive short-term contract with Distributors Marketing Alliance on terms and conditions which the Company believes are consistent with those made available to similarly situated restaurant companies. Although the Company believes that alternative distribution sources are available, any increase in distribution prices or failure to perform by the Distributors Marketing Alliance could cause the Company’s food costs to fluctuate. Further, various factors beyond the Company’s control, including adverse weather conditions and governmental regulation, may affect the Company’s food costs. There can be no assurance that the Company will be able to anticipate and react to changing food costs through its purchasing practices and menu price adjustments in the future, and failure to do so could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

  Governmental Regulation

      The Company’s restaurants are subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, building, zoning, safety, fire and other departments relating to the development and operation of restaurants. These regulations include matters relating to environmental, building construction, zoning requirements and the preparation and sale of food and alcoholic beverages. The Company’s facilities are licensed and subject to regulation under state and local fire, health and safety codes.

      The development and construction of additional restaurants will be subject to compliance with applicable zoning, land use and environmental regulations. There can be no assurance that the Company will be able to obtain necessary licenses or other approvals on a cost-effective and timely basis in order to construct and develop restaurants in the future. Various federal and state labor laws govern the Company’s operations and its relationship with its employees, including minimum wage, overtime, working conditions, fringe benefit and citizenship requirements. In particular, the Company is subject to the regulations of the INS. Given the location of many of the Company’s restaurants, even if the Company’s operation of those restaurants is in strict compliance with INS requirements, the Company’s employees may not all meet federal citizenship or residency requirements, which could lead to disruptions in its work force.

      Approximately 20% of the Company’s revenues are attributable to the sale of alcoholic beverages. The Company is required to comply with the alcohol licensing requirements of the federal government, states and municipalities where its restaurants are located. Alcoholic beverage control regulations require applications to state authorities and, in certain locations, county and municipal authorities for a license and permit to sell alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the

11

restaurants, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. Failure to comply with federal, state or local regulations could cause the Company’s licenses to be revoked or force it to terminate the sale of alcoholic beverages at one or more of its restaurants.

      The Company is subject to state “dram shop” laws and regulations, which generally provide that a person injured by an intoxicated person may seek to recover damages from an establishment that wrongfully served alcoholic beverages to such person. While the Company carries liquor liability coverage as part of its existing comprehensive general liability insurance, there can be no assurance that it will not be subject to a judgment in excess of such insurance coverage or that it will be able to obtain or continue to maintain such insurance coverage at reasonable costs, or at all.

      The federal Americans With Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. The Company is required to comply with the Americans With Disabilities Act and regulations relating to accommodating the needs of the disabled in connection with the construction of new facilities and with significant renovations of existing facilities.

  Litigation

      The Company is from time to time the subject of complaints or litigation from guests alleging illness, injury or other food quality, health or operational concerns. Adverse publicity resulting from such allegations may materially adversely affect the Company and its restaurants, regardless of whether such allegations are valid or whether the Company is liable. The Company also is the subject of complaints or allegations from former or prospective employees from time to time. A lawsuit or claim could result in an adverse decision against the Company that could materially adversely affect the Company or its business.

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Item 2.  Properties

      The following table depicts existing restaurants as of the effective date of this 10-K.

		Approximate Square		Interior
Existing Locations	Opening Date	Footage		Seating*
Scottsdale, AZ (Fashion Square)	July 1993		6,050		177
Newport Beach, CA (Fashion Island)	June 1994		5,050		155
La Jolla, CA (UTC)	August 1995		7,400		257
Irvine, CA (Spectrum Center)	November 1995		7,000		208
Las Vegas, NV (Paradise & Flamingo)	October 1996		7,000		220
Houston, TX (Highland Village)	December 1996		6,500		182
Littleton, CO (Park Meadows)	December 1996		7,600		245
Metarie, LA (Lakeside)	April 1997		5,850		201
Miami, FL (The Falls)	September 1997		5,800		206
Charlotte, NC (Phillips Place)	October 1997		6,900		211
N. Miami, FL (Aventura)	October 1997		7,000		244
Tempe, AZ (Centerpoint)	December 1997		6,600		228
McLean, VA (Tysons Corner)	December 1997		6,500		204
Dallas, TX (North Tollway)	March 1998		6,900		192
El Segundo, CA (Manhattan Beach)	June 1998		6,950		220
Austin, TX (Jollyville Road)	July 1998		7,000		196
Dallas, TX (NorthPark)	August 1998		6,100		178
Atlanta, GA (Ashwood & Perimeter)	October 1998		7,000		225
Birmingham, AL (The Summit)	October 1998		7,150		230
Denver, CO (LoDo)	October 1998		7,150		230
Northbrook, IL (Northbrook Court)	November 1998		7,000		210
Troy, MI (Somerset)	November 1998		7,000		217
West Hollywood, CA (Beverly Center)	December 1998		6,600		212
Boston, MA (CityPlace)	January 1999		5,750		182
Winter Park, FL (Winter Park Village)	March 1999		6,900		212
Westbury, NY (The Source)	April 19, 1999		7,600		239
Raleigh, NC (Crabtree Valley)	June 14, 1999		6,700		174
Scottsdale, AZ (Kierland Commons)	June 21, 1999		7,000		211
Salt Lake City, UT (Bandaloops)	June 28, 1999		7,000		242
Santa Monica, CA (Wilshire Blvd.)	July 5, 1999		6,700		200
Las Vegas, NV (Summerlin)	July 19, 1999		7,000		211
Walnut Creek, CA (Broadway Plaza)	August 9, 1999		6,400		197
Columbus, OH (Easton Town Center)	September 6, 1999		7,300		232
Alpharetta, GA (Mauel Road)	September 22, 1999		6,900		224
Kansas City, MO (Country Club Plaza)	November 8, 1999		7,000		287
Bethesda, MD (White Flint)	November 30, 1999		6,300		199
Chicago, IL (Downtown)	January 17, 2000		9,500		220
Buford, GA (Mall of Georgia)	January 31, 2000		5,600		142
Tucson, AZ (Joesler Village)	February 7, 2000		6,600		197

*  Many of the Company’s restaurants have outdoor seating in addition to interior seating.

      In 2000, the Company intends to open 15 new restaurants (three of which have opened since January 2, 2000) in approximately seven new markets.

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Expansion Strategy and Site Selection

      The Company is actively developing restaurants in both new and existing markets and has planned an expansion strategy targeted at major metropolitan areas throughout the United States. Within each targeted metropolitan area, the Company identifies specific trade areas with high traffic patterns and suitable demographic characteristics, including population density, consumer attitudes and affluence. Within an appropriate trade area, the Company evaluates specific sites that provide visibility, accessibility and exposure to traffic volume. The Company’s site criteria are flexible, as is evidenced by the variety of environments and facilities in which the Company currently operates. These facilities include freestanding buildings, regional malls, urban properties and entertainment centers. Each restaurant is designed to convey a unique expression of local styles incorporated into the P.F. Chang’s decor that maximizes the value and visibility of the site.

      The Company intends to continue to develop restaurants that typically range in size from 6,000 square feet to 7,000 square feet, and that require, on average, a total capitalized investment of between $2.8 million and $3.3 million per restaurant. This total investment includes the capitalized lease value of the property, which can vary greatly depending on the specific trade area. The Company expects that its planned future restaurants will require, on average, a total cash investment per restaurant, exclusive of landlord contributions, of approximately $2.0 million. Preopening expenses are expected to average approximately $300,000 per restaurant. The Company currently leases the sites for all of its restaurants and does not intend to purchase real estate for its sites in the future.

      Current restaurant leases have expiration dates ranging from 2004 to 2020, with the majority of the leases providing for five-year options to renew for at least one additional term. Generally, the Company’s leases provide for a minimum annual rent, and most leases require additional percentage rent based on sales volume in excess of minimum levels at the particular location. Most of the leases require the Company to pay the costs of insurance, taxes, and a portion of the lessor’s operating costs. The Company does not anticipate any difficulties renewing existing leases as they expire.

      The Company’s executive offices are currently located in approximately 4,400 square feet of leased space in Phoenix, Arizona. In order to support the growth in operations, the Company will relocate its executive offices to a larger lease space in April, 2000.

Item 3.  Legal Proceedings

      The Company was not involved in any material legal proceedings as of January 2, 2000.

Item 4.  Submission of Matters to a Vote of Security Holders

      The Company’s Annual Meeting of Stockholders was held on May 18, 1999. The election of seven directors was presented for stockholder approval. The results are listed below:

			Total
	Total		Votes
	Votes For		Against
Richard L. Federico		7,811,307		4,205
Paul M. Fleming		7,811,307		4,205
J. Michael Chu		7,811,837		3,675
Gerald R. Gallagher		7,811,687		3,825
R. Michael Welborn		7,811,157		4,355
James G. Shennan, Jr.		7,811,687		3,825
Yves Sisteron		7,811,307		4,205

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PART II

Item 5.  Market for the Registrant’s Common Stock and Related Stockholder Matters

      The Company’s Common Stock is traded on the Nasdaq Stock Market under the symbol “PFCB”. Public trading of the Common Stock commenced on December 4, 1998. Prior to that, there was no public market for the Common Stock. The following table sets forth for the period indicated the high and low price per share of the Common Stock on the Nasdaq Stock Market.

	High	Low
Period from December 4, 1998 to December 27, 1998	$18.50	$12.00
Quarter Ended March 28, 1999	30.12	19.25
Quarter Ended June 27, 1999	31.12	21.50
Quarter Ended September 26, 1999	24.62	20.12
Quarter Ended January 2, 2000	27.62	18.12

      The Company presently intends to retain earnings for use in the operation and expansion of its business and therefore does not anticipate paying any cash dividends in the foreseeable future.

      On February 15, 2000, there were 71 holders of record of the Company’s Common Stock.

Changes in Securities and Use of Proceeds

      The Company registered and sold 3,922,500 shares of Common Stock, par value $0.001 (the “Shares”) on registration statement No. 333-59749 at an aggregate offering price of $47,070,000 (or $12.00 per share), which was declared effective on December 4, 1998 (the “Offering”).

      The co-managing underwriters of the Offering were Donaldson, Lufkin & Jenrette, NationsBanc Montgomery Securities LLC, and Dain Rauscher Wessels.

      The Company incurred the following expenses in connection with the Offering:

Underwriting discounts and commissions		$3,294,900
Other expenses (audit, legal, etc.)		1,100,000
	Total expenses	$4,394,900

      The net offering proceeds to the Company after deducting the total expenses above were $42,675,100.

      The Company’s use of proceeds conformed to the intended use of proceeds described in the Company’s prospectus related to the Offering. The Company’s intended use of proceeds as stated in its prospectus was the repayment of all amounts outstanding under its revolving line of credit as well as the development of new restaurants in 1999 and for general corporate purposes. In December 1998, the Company used $25,000,000 of its net proceeds to repay the entire balance outstanding under its revolving line of credit, which has now expired. Additionally, the Company used the balance of the net proceeds from December 1998 through the end of 1999 for the development of its restaurants opened during 1999 or currently under construction, as well as for general corporate purposes.

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Item 6.  Selected Financial Data

      The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

SELECTED CONSOLIDATED FINANCIAL DATA

(In thousands, except per share data)

				Predecessors(1)						Company
							Period			Period
				Fiscal			From			From			Total			Fiscal			Fiscal			Fiscal
				Year			1/1/96 to			2/29/96 to			Year			Year			Year			Year
				1995			2/28/96			12/29/96			1996(2)			1997			1998			1999
Statements of Operations Data:
Revenues				$	10,465		$	2,815		$	15,630		$	18,445		$	39,768		$	78,033		$	153,295
Costs and expenses:
	Restaurant operating costs:
		Cost of sales			2,957			772			4,454			5,226			11,317			21,709			42,136
		Labor			3,347			918			4,736			5,654			11,683			22,721			45,569
		Operating			1,528			527			2,944			3,471			6,727			13,319			25,907
		Occupancy			1,059			205			1,279			1,484			2,743			5,429			9,865
			Total restaurant operating costs		8,891			2,422			13,413			15,835			32,470			63,178			123,477
		General and administrative			192			17			1,368			1,385			4,276			6,245			9,648
		Depreciation and amortization			322			82			352			434			1,102			2,384			4,975
		Preopening expense			400			17			765			782			1,922			4,183			4,344
Income (loss) from operations					660			277			(268	)		9			(2	)		2,043			10,851
Interest income (expense), net					(13	)		(4	)		(127	)		(131	)		(317	)		(1,177	)		432
Income (loss) before elimination of minority interests and provision for income taxes					647			273			(395	)		(122	)		(319	)		866			11,283
Elimination of minority interests					—			—			(720	)		(993	)		(1,308	)		(669	)		(2,469	)
Income (loss) before provision for income taxes					647			273			(1,115	)		(1,115	)		(1,627	)		197			8,814
Provision for income taxes					—			—			(30	)		(30	)		(69	)		(48	)		(2,778	)
Net income (loss)				$	647		$	273			(1,145	)		(1,145	)		(1,696	)		149			6,036
Convertible Redeemable Preferred Stock accretion											(504	)		(504	)		(876	)		(888	)		—
Net income (loss) available to common stockholders										$	(1,649	)	$	(1,649	)	$	(2,572	)	$	(739	)	$	6,036
Basic net income (loss) per share										$	(0.66	)				$	(1.03	)	$	(0.25	)	$	0.59
Diluted net income (loss) per share										$	(0.66	)				$	(1.03	)	$	(0.25	)	$	0.54
Shares used in calculation of basic net income (loss) per share(3)											2,500						2,500			2,986			10,217
Shares used in calculation of diluted net income (loss) per share(3)											2,500						2,500			2,986			11,155

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			Company
	Predecessors
	As of		As of
	December 31,		December 29,			December 28,			December 27,		January 2,
	1995		1996			1997			1998		2000
Balance Sheet Data:
Cash and cash equivalents	$	480	$	1,877		$	2,739		$	18,857		5,333
Total assets		2,997		13,044			28,489			69,187		81,707
Short- and long-term debt		350		1,763			8,372			2,352		1,829
Deferred Purchase Price Liability		—		—			2,426			—		—
Convertible Redeemable Preferred Stock		—		10,517			17,808			—		—
Common stockholders’ and members’ equity (deficit)		1,295		(1,874	)		(4,446	)		58,229		64,790

				Company
	Predecessors
	Year Ended			Year Ended
	December 31,			December 29,			December 28,			December 27,			January 2,
	1995			1996			1997			1998			2000
Consolidated Financial Ratios:
Return on Total Average Assets		27.60	%		(14.28	)%		(8.17	)%		0.31	%		8.00	%
Return on Average Stockholders’ and Members’ Equity		51.51	%		N/A			N/A			0.55	%		9.81	%

(1)	Information for fiscal 1995 and the period from January 1, 1996 to February  28, 1996 relate to the Predecessors. The Company was formed in January 1996, and in February 1996 purchased majority interests in four corporations operating restaurants (“Predecessors”). The acquisitions of the ownership interests in the various entities were accounted for under the purchase method of accounting for business combinations. Prior to February 1996, the Company’s business was conducted by the Predecessors.
(2)	Total year 1996 information reflects the combined results of the Predecessors for the period from January 1, 1996 to February 28, 1996 and of the Company for the period beginning February 29, 1996 to December 29, 1996.
(3)	See Notes 1, 5 and 8 of Notes to Consolidated Financial Statements.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

      The following section contains forward-looking statements which involve risks and uncertainties. Such forward-looking statements may be deemed to include anticipated restaurant openings, anticipated costs and sizes of future restaurants and the adequacy of anticipated sources of cash to fund the Company’s future capital requirements. Words such as “believes,” “anticipates,” “expects,” “intends,” “plans” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. The Company’s actual results may differ materially from those discussed in the forward-looking statements. Factors that might cause actual events or results to differ materially from those indicated by such forward-looking statements may include the matters set forth under “Risk Factors” and elsewhere in this Form 10-K, such as development and construction risks, potential labor shortages, fluctuations in operating results, and changes in food costs.

OVERVIEW

      P.F. Chang’s owns and operates 36 full service restaurants (as of January 2, 2000) that feature a distinctive blend of high quality, traditional Chinese cuisine and American hospitality in a sophisticated, contemporary bistro setting. The Company was formed in early 1996 with the acquisition of the four original P.F. Chang’s restaurants and the hiring of an experienced management team, led by Richard Federico and Robert Vivian, the Company’s Chief Executive Officer and Chief Financial Officer, respectively, to support the Company’s founder, Paul Fleming. Utilizing a partnership management philosophy, the Company

17

embarked on a strategic expansion of the concept targeted at major metropolitan areas throughout the United States and opened three additional restaurants in 1996, six in 1997, 10 in 1998 and 13 in 1999.

      The Company intends to open 15 new restaurants in 2000 (three of which have opened since January 2, 2000). The 15 units that the Company intends to develop in 2000 will be situated in approximately 7 new cities across the United States. The Company has signed lease agreements for all of the 15 units planned for fiscal 2000. The Company intends to continue to develop restaurants that typically range in size from 6,000 square feet to 7,000 square feet, and that require, on average, a total cash investment of approximately $2.0 million, excluding landlord contributions and total invested capital of between $2.8 million and $3.3 million per restaurant. Preopening expenses are expected to average approximately $300,000 per restaurant. This total capitalized investment includes the capitalized lease value of the property, which can vary greatly depending on the specific trade area. See “Risk Factors — Development and Construction Risks.”

      Elimination of minority interests for all periods subsequent to 1996 includes the effect of the Company’s partnership management structure. The Company has entered into a series of partnership agreements with each of its Market Partners, Operating Partners and Culinary Partners. These partnership agreements typically provide that the Market Partner is entitled to a specified percentage of the cash flows from the restaurants that partner has invested in, developed and oversees as the regional manager. Similarly, the Operating Partners and Culinary Partners receive a percentage of the cash flows from the restaurant in which they work. See “Business — Operations.”

RESULTS OF OPERATIONS

      The operating results of the Company for the fiscal years ended December 28, 1997 (fiscal year 1997), December 27, 1998 (fiscal year 1998) and January 2, 2000 (fiscal year 1999), expressed as a percentage of revenues, were as follows:

				Fiscal Year			Fiscal Year			Fiscal Year
				1997			1998			1999
Statements of Operations Data:
Revenues					100.0	%		100.0	%		100.0	%
Costs and expenses:
	Restaurant operating costs:
		Cost of sales			28.4			27.8			27.5
		Labor			29.4			29.1			29.7
		Operating			16.9			17.1			16.9
		Occupancy			6.9			7.0			6.4
			Total restaurant operating costs		81.6			81.0			80.5
		General and administrative			10.8			8.0			6.3
		Depreciation and amortization			2.8			3.1			3.3
		Preopening expense			4.8			5.4			2.8
Income (loss) from operations					—			2.6			7.1
Interest income (expense), net					(0.8	)		(1.5	)		0.3
Elimination of minority interests					(3.3	)		(0.9	)		(1.6	)
Income (loss) before provision for income taxes					(4.1	)		0.3			5.8
Provision for income taxes					(0.2	)		(0.1	)		(1.8	)
Net income (loss)					(4.3	)%		0.2	%		4.0	%

      The Company operates on a 52/53 week year, with the fiscal year ending on the Sunday closest to December 31. Fiscal years 1997 and 1998 include 52 weeks and fiscal year 1999 includes 53 weeks.

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Year Ended January 2, 2000 Compared to Year Ended December 27, 1998

  Revenues

      The Company’s revenues are derived entirely from food and beverage sales. Revenues increased by $75.3 million, or 96.5%, to $153.3 million in the year ended January 2, 2000 from $78.0 million in the year ended December 27, 1998. The increase was primarily attributable to revenues of $28.8 million generated by new restaurants opened in 1999, a $36.9 million increase in revenues in 1999 for restaurants that opened in 1998 and a $9.6 million increase in revenues for restaurants opened prior to 1998. Additionally, the current fiscal year included one additional week of sales (a 53 week year in 1999 versus a 52 week year in 1998). Increased customer visits produced comparable restaurant sales gains of 12.0% in 1999. The Company did not implement any meaningful price increases in fiscal 1999 or fiscal 1998.

  Costs and Expenses

      Cost of sales. Cost of sales is composed of the cost of food and beverages. Cost of sales decreased as a percentage of revenues to 27.5% in the year ended January 2, 2000 from 27.8% in the year ended December 27, 1998. This decrease was primarily the result of cost efficiencies achieved through the improved management of product purchasing, food preparation and waitstaff performance as the Company’s restaurants mature.

      Labor. Labor expenses consist of restaurant management salaries, hourly staff payroll costs and other payroll-related items. Labor expenses as a percentage of revenues increased to 29.7% in the year ended January 2, 2000 from 29.1% in the year ended December 27, 1998. The increase in labor expenses was primarily due to the fact that the Company opened 13 new restaurants in 1999 compared to 10 new restaurants in 1998. The Company’s experience to date has been that labor costs associated with a newly opened restaurant (for approximately its first four to six months of operation) are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Additionally as a result of tightening labor markets around the country, the Company has experienced an increase in its labor costs across the system. The Company expects that tighter labor markets will continue to exert upward pressure on its labor costs on a year-over-year basis in 2000.

      Operating. Operating expenses consist primarily of various restaurant-level costs, which are generally variable and are expected to fluctuate with revenues. In addition, the Company’s experience to date has been that operating costs associated with a newly opened restaurant (for approximately its first four to six months of operation) are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Operating expenses decreased nominally as a percentage of revenues to 16.9% in the year ended January 2, 2000 from 17.1% in the year ended December 27, 1998.

      Occupancy. Occupancy costs include both fixed and variable portions of rent, common area maintenance charges, property insurance and property taxes. Occupancy costs decreased as a percentage of revenues to 6.4% in the year ended January 2, 2000 from 7.0% in the year ended December 27, 1998. The decrease in occupancy was primarily the result of the increased revenue base and, to a lesser extent, more favorable lease terms associated with new restaurants.

      General and administrative. General and administrative expenses are composed of expenses associated with corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future growth, including management and staff salaries, employee benefits, travel, legal and professional fees, technology and market research. General and administrative expenses increased to $9.6 million (6.3% of revenues) in the year ended January 2, 2000 from $6.2 million (8.0% of revenues) in the year ended December 27, 1998, due primarily to the addition of corporate management personnel, which resulted in approximately $1.7 million of additional compensation and benefits expense, as well as additional costs to support a larger restaurant base, including an additional $564,000 in travel and consulting fees and an additional $623,000 in accounting and legal fees. The decrease as a percentage of revenues was due primarily to the Company’s expanding revenue base and its ability to leverage the duties and responsibilities of its Market Partners.

19

      Depreciation and amortization. Depreciation and amortization expenses include the depreciation of fixed assets and the amortization of goodwill costs associated with the acquisition of the ownership interests in the original restaurants. Depreciation and amortization increased to $5.0 million in the year ended January 2, 2000 from $2.4 million in the year ended December 27, 1998. This increase was primarily due to depreciation and amortization on restaurants opened in 1999 totaling $1.0 million as well as a full year’s depreciation and amortization on restaurants opened in 1998.

      Preopening expense. Preopening costs, which are expensed as incurred, consist of expenses incurred prior to opening a new restaurant and are comprised principally of manager salaries and relocation, employee payroll and related training costs. Preopening expenses in the year ended January 2, 2000 increased to $4.3 million from $4.2 million in the year ended December 27, 1998 due to the greater number of restaurants opened or under development during the 1999 period, offset by better management of costs incurred.

      Interest income (expense), net. Net interest income (expense) was $432,000 in the year ended January 2, 2000 as compared to ($1.2) million in the year ended December 27, 1998. The decrease in the expense was principally due to the payoff of the Company’s revolving line of credit in December of 1998 from the proceeds of the Company’s initial public offering.

  Elimination of Minority Interests

      Elimination of minority interests represents the portion of the Company’s net earnings (losses) which are attributable to the collective ownership interests of its partners. The Company has provided a partnership management structure in which it has entered into a series of partnership agreements with its regional managers (“Market Partners”), certain of its general managers (“Operating Partners”), and certain of its executive chefs (“Culinary Partners”).

      Elimination of minority interests for the year ended January 2, 2000 increased to $2.5 million from $669,000 for the year ended December 27, 1998, due primarily to the addition of new restaurants and an increase in the operating profit of those restaurants.

  Provision for Income Taxes

      The provision for income taxes increased to $2.8 million for the year ended January 2, 2000 from $48,000 for the year ended December 27, 1998 due primarily to the fact that the Company’s taxable income, which was in excess of the Company’s net operating loss carryforward, increased substantially from the prior period. The income tax provision for 1999 differs from the expected provision for income taxes, derived by applying the statutory income tax rate, as a result of the Company’s expected utilization in 1999 of its net operating loss carryforward and the resulting decrease in the related deferred income tax valuation allowance.

      The provision for income taxes for the year ended December 27, 1998 represents certain minimum state taxes based on taxable factors other than earnings. The income tax provision for the year ended December 27, 1998 differs from the expected provision for income taxes, derived by applying the statutory income tax rate, as a result of a reduction in the previously provided deferred income tax valuation allowance.

Year Ended December 27, 1998 Compared to Year Ended December 28, 1997

  Revenues

      The Company’s revenues are derived entirely from food and beverage sales. Revenues increased by $38.3 million, or 96.2%, to $78.0 million in the year ended December 27, 1998 from $39.8 million in the year ended December 28, 1997. The increase was primarily attributable to revenues of $14.0 million generated by new restaurants opened in 1998 and a $19.4 million increase in revenues in 1998 for restaurants that opened in 1997 and a $4.9 million increase in revenues for restaurants opened prior to 1997. Increased customer visits produced comparable restaurant sales gains of 12.8% in 1998. The Company did not implement any meaningful price increases in fiscal 1998 or fiscal 1997.

20

  Costs and expenses

      Cost of sales. Cost of sales is composed of the cost of food and beverages. Cost of sales decreased as a percentage of revenues to 27.8% in the year ended December 27, 1998 from 28.4% in the year ended December 28, 1997. This decrease was primarily the result of cost efficiencies achieved through the improved management of product purchasing, food preparation and waitstaff performance as the Company’s restaurants mature.

      Labor. Labor expenses consist of restaurant management salaries, hourly staff payroll costs and other payroll-related items. Labor expenses as a percentage of revenues decreased to 29.1% in the year ended December 27, 1998 from 29.4% in the year ended December 28, 1997. The decrease in labor expenses was primarily due to improvements in the management of hourly staff levels in the restaurants as the Company’s restaurants mature. These improved efficiencies more than offset the increase in hourly wages mandated by the federal government and the State of California. The Company expects that the increase in minimum wage will continue to exert upward pressure on its labor costs on a year-over-year basis for the first quarter of 1999.

      Operating. Operating expenses consist primarily of various restaurant-level costs, which are generally variable and are expected to fluctuate with revenues. In addition, the Company’s experience to date has been that operating costs associated with a newly opened restaurant (for approximately its first four to six months of operation) are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Operating expenses increased nominally as a percentage of revenues to 17.1% in the year ended December 27, 1998 from 16.9% in the year ended December 28, 1997.

      Occupancy. Occupancy costs include both fixed and variable portions of rent, common area maintenance charges, property insurance and property taxes. Occupancy costs increased nominally as a percentage of revenues to 7.0% in the year ended December 27, 1998 from 6.9% in the year ended December 28, 1997.

      General and administrative. General and administrative expenses are composed of expenses associated with corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future growth, including management and staff salaries, employee benefits, travel, legal and professional fees, technology and market research. General and administrative expenses increased to $6.2 million (8.0% of revenues) in the year ended December 27, 1998 from $4.3 million (10.8% of revenues) in the year ended December 28, 1997, due primarily to the addition of corporate management personnel which resulted in approximately $1.2 million of additional compensation and benefits expense as well as additional costs to support a larger restaurant base, including an additional $400,000 in travel and consulting fees. The decrease as a percentage of revenues was due primarily to the Company’s expanding revenue base and its ability to leverage the duties and responsibilities of its Market Partners.

      Depreciation and amortization. Depreciation and amortization expenses include the depreciation of fixed assets and the amortization of goodwill costs associated with the acquisition of the ownership interests in the original restaurants. Depreciation and amortization increased to $2.4 million in the year ended December 27, 1998 from $1.1 million in the year ended December 28, 1997. This increase was primarily due to depreciation and amortization on new restaurants totaling $670,000, a full year’s depreciation and amortization on restaurants opened in 1997 and an additional $192,000 of amortization of the goodwill associated with the acquisition in October 1997 of the remaining minority interests in three of the four original restaurants.

      Preopening expense. Preopening costs, which are expensed as incurred, consist of expenses incurred prior to opening a new restaurant and are comprised principally of manager salaries and relocation, employee payroll and related training costs. Preopening expenses in the year ended December 27, 1998 increased to $4.2 million from $1.9 million in the year ended December 28, 1997, due to the greater number of restaurants opened or under development during the 1998 period, as well as unexpected delays in the timing of restaurant openings in 1998.

      Interest income (expense), net. Interest income (expense), net increased to $1.2 million in the year ended December 27, 1998 from $317,000 in the year ended December 28, 1997 principally due to borrowings under the Company’s line of credit.

21

  Elimination of minority interests

      Elimination of minority interests for the year ended December 28, 1997 includes approximately $1.2 million attributable to the minority interests in the Scottsdale, Newport Beach and La Jolla restaurants. As a result of the acquisition of substantially all of these minority interests in October 1997, elimination of minority interests for the year ended December 27, 1998 declined to $669,000. Approximately $110,000 and $635,000 was attributable to the collective minority interests of Market Partners, Operating Partners and Culinary Partners in the years ended December 28, 1997 and December 27, 1998, respectively.

  Provision for income taxes

      The provision for income taxes for the years ended December 27, 1998 and December 28, 1997 represents certain minimum state taxes based on taxable factors other than earnings. The Company did not record a tax benefit for the losses generated for the year ended December 28, 1997, as utilization of such losses in future periods was deemed uncertain. The income tax provision for the year ended December 27, 1998 differs from the expected provision for income taxes, derived by applying the statutory income tax rate, as a result of a reduction in the previously provided deferred income tax valuation allowance.

22

Quarterly Results

      The following tables set forth certain unaudited quarterly information for each of the eight fiscal quarters, expressed as a percentage of revenues, except for revenues which are expressed in thousands, in the two year period ended January 2, 2000. This quarterly information has been prepared on a consistent basis with the audited financial statements and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented. The Company’s quarterly operating results may fluctuate significantly as a result of a variety of factors, and operating results for any quarter are not necessarily indicative of results for a full fiscal year.

      The operating results of the Company for such eight fiscal quarters expressed as a percentage of revenues, except for revenues which are expressed in thousands, were as follows:

				Fiscal 1998												Fiscal 1999
				First			Second			Third			Fourth			First			Second			Third			Fourth
				Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter
Revenues				$	15,728		$	17,209		$	20,239		$	24,857		$	30,473		$	32,956		$	40,961		$	48,905
Costs and expenses:
	Restaurant operating costs:
		Cost of sales			27.9	%		27.4	%		27.9	%		28.0	%		27.5	%		27.6	%		27.8	%		27.1	%
		Labor			29.0			28.1			28.8			30.2			29.9			29.8			30.0			29.4
		Operating			16.4			16.6			17.1			17.8			16.8			17.2			17.2			16.5
		Occupancy			7.0			7.3			7.0			6.6			6.9			6.8			6.3			6.0
			Total restaurant operating costs		80.3			79.4			80.8			82.6			81.1			81.4			81.3			79.0
		General and administrative			8.6			8.2			7.7			7.7			7.0			6.1			6.0			6.2
		Depreciation and amortization			3.1			3.0			2.9			3.2			3.2			3.3			3.2			3.2
		Preopening expense			2.7			4.6			5.9			7.1			2.3			4.0			3.2			2.1
Income (loss) from operations					5.3			4.8			2.7			(0.6	)		6.4			5.2			6.3			9.5
Interest income (expense), net					(1.4	)		(1.4	)		(1.5	)		(1.7	)		0.7			0.4			0.1			0.1
Income (loss) before elimination of minority interests and provision for income taxes					3.9			3.4			1.2			(2.3	)		7.1			5.6			6.4			9.6
Elimination of minority interests					(1.0	)		(1.1	)		(1.0	)		(0.5	)		(1.4	)		(1.2	)		(1.6	)		(2.0	)
Income (loss) before provision for income taxes					2.9			2.3			0.2			(2.8	)		5.7			4.4			4.8			7.6
Provision for income taxes					—			—			—			(0.1	)		(1.6	)		(1.3	)		(1.5	)		(2.6	)
Net income (loss)					2.9	%		2.3	%		0.2	%		(2.9	)%		4.1	%		3.1	%		3.3	%		5.0	%

      Historically, the Company has experienced variability in the amount and percentage of revenues attributable to preopening expenses. The Company typically incurs the most significant portion of preopening expenses associated with a given restaurant within the two months immediately preceding and the month of the opening of the restaurant. In addition, the Company’s experience to date has been that labor and operating costs associated with a newly opened restaurant (for approximately its first four to six months of operation) are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Accordingly, the volume and timing of new restaurant openings has had and is expected to have a

23

meaningful impact on preopening expenses, labor and operating costs until such time as a larger base of restaurants in operation mitigates such impact.

Liquidity and Capital Resources

      The Company has funded its capital requirements since its inception through sales of equity securities, debt financing and cash flows from operations. Net cash provided by operating activities was $139,000, $5.8 million and $19.6 million for fiscal years 1997, 1998 and 1999, respectively. Net cash provided by operating activities exceeded the net income and losses for the periods due principally to the effect of minority interests, depreciation and amortization and an increase in income tax payable.

      The Company uses cash primarily to fund the development and construction of new restaurants. Net cash used in investing activities in fiscal years 1997, 1998 and 1999 was $11.5 million, $25.7 million and $31.0 million, respectively, which included payments of $2.5 million and $397,000 in fiscal years 1997 and 1998, respectively, made in connection with the acquisition of minority interests. Capital expenditures were $8.7 million, $24.8 million and $31.1 million in fiscal years 1997, 1998 and 1999, respectively. The Company intends to open 15 restaurants in 2000 (three of which have opened since January 2, 2000). The Company expects that its planned future restaurants will require, on average, a total cash investment per restaurant, exclusive of landlord contributions, of approximately $2.0 million. Preopening expenses are expected to average approximately $300,000 per restaurant.

      Net cash provided by (used in) financing activities in fiscal years 1997, 1998 and 1999 was $12.2 million, $36.0 million and ($2.2 million), respectively. Financing activities in 1997 consisted principally of sales of Preferred Stock of $6.4 million and line of credit borrowings of $5.5 million, while 1998 financing activities consisted primarily of sales of common stock, offset by repayments under the Company’s revolving line of credit. Financing activities in 1999 consisted primarily of distributions to the Company’s partners.

      In December of 1999, the Company entered into a revolving line of credit with a commercial lending institution. The line of credit allows for borrowings up to $15 million at an interest rate ranging from 150 to 225 basis points over the applicable London Interbank Offered Rate (LIBOR). The revolving line of credit matures on November 30, 2002 and contains certain restrictions and conditions which require the Company to: maintain tangible net worth of $45 million, a leverage ratio at a maximum of 2.00: 1.00, a fixed-charge ratio no less than 1.25: 1.00 and limit annual capital expenditures to $35 million. The line of credit has been collaterized by substantially all of the assets of the Company. The Company had no borrowings under the line of credit as of January 2, 2000.

      The Company’s capital requirements, including development costs related to the opening of additional restaurants, have been and will continue to be significant. The Company’s future capital requirements and the adequacy of its available funds will depend on many factors, including the pace of expansion, real estate markets, site locations and the nature of the arrangements negotiated with landlords. Although no assurance can be given, the Company believes that its cash flow from operations together with its current cash reserves and borrowings available under its line of credit will be sufficient to fund its capital requirements through 2000. In the event that additional capital is required, the Company may seek to raise such capital through public or private equity or debt financings. Future capital funding transactions may result in dilution to current shareholders. There can be no assurance that such capital will be available on favorable terms, if at all.

Partnership Agreements

      The Company has implemented a partnership structure to facilitate the development and operation of its restaurants. Each partner is required, as a condition of employment, to sign a five-year employment agreement and is required to purchase a specified interest in the restaurant or region the partner is employed to manage. The ownership interest purchased by each partner generally ranges between two and seven percent of the restaurant or region the partner oversees. During the five-year employment term, each partner is prohibited from selling or transferring his interest to another party. At the termination of the employment agreement, the Company has the right to purchase the minority partners’ interests in the partners’ respective restaurants at fair market value, as calculated according to the partnership agreements.

24

Preferred Stock and Accretion

      In February 1996 and September 1996, the Company sold shares of its Series A Preferred Stock convertible into 2,677,135 shares of Common Stock at $4.00 per common share, and in May 1997, the Company sold shares of its Series B Preferred Stock convertible into 758,565 shares of Common Stock at $8.70 per common share. The Series A Preferred Stock had an annual six percent dividend payable quarterly in shares of Series A Preferred Stock on a cumulative basis beginning January 1, 1998. The Series B Preferred Stock had an annual six percent dividend payable quarterly in shares of Series B Preferred Stock on a cumulative basis beginning April 1, 1999. Dividend accretion on the Series A and Series B Preferred Stock was approximately $876,000 and $888,000 for the fiscal years 1997 and 1998, respectively. At the time of the Company’s public offering, each two shares of Series A Preferred Stock and Series B Preferred Stock were converted into one share of Common Stock.

Year 2000 Compliance

      The Company experienced no significant disruption to business as a result of the rollover to year 2000.

New Accounting Standards

      In June 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 137, “Accounting for Derivatives and Hedging Activities — Deferral of the effective date of FASB Statement No. 133.” This statement defers the effective date of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (SFAS No. 133) to all fiscal quarters beginning after June 15, 2000. SFAS No. 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by recognition of those items as assets or liabilities in the statements of financial position and measurements of fair value. The impact of SFAS No. 133 on the Company’s financial position and results of operations has not yet been determined.

Inflation

      The primary inflationary factors affecting the Company’s operations are food and labor costs. A large number of the Company’s restaurant personnel are paid at rates based on the applicable minimum wage, and increases in the minimum wage directly affect the Company’s labor costs. To date, inflation has not had a material impact on the Company’s results of operations. See “Risk Factors — Changes in Food Costs.”

Item 7A.  Quantitative and Qualitative Disclosures about Market Risks

      Management believes that the market risk associated with the Company’s market risk sensitive instruments as of January 2, 2000 is not material, and therefore, disclosure is not required.

25

Item 8.  Financial Statements and Supplementary Data

P.F. CHANG’S CHINA BISTRO, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Auditors		F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 27, 1998 and January 2, 2000		F-3
Consolidated Statements of Operations for the Years Ended December 28, 1997, December 27, 1998 and January 2, 2000		F-4
Consolidated Statements of Convertible Redeemable Preferred Stock and Common Stockholders’ Equity (Deficit) for the Years Ended December 28, 1997, December 27, 1998 and January 2, 2000		F-5
Consolidated Statements of Cash Flows for the Years Ended December 28, 1997, December 27, 1998 and January 2, 2000		F-6
Notes to Consolidated Financial Statements		F-7

F-1

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

P.F. Chang’s China Bistro, Inc.

      We have audited the accompanying consolidated balance sheets of P.F. Chang’s China Bistro, Inc. (the “Company”) as of December 27, 1998 and January 2, 2000, and the related consolidated statements of operations, convertible redeemable preferred stock and common stockholders’ equity (deficit), and cash flows for the years ended December 28, 1997, December 27, 1998 and January 2, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of P.F. Chang’s China Bistro, Inc. at December 27, 1998 and January 2, 2000 and the results of its operations and its cash flows for the years ended December 28, 1997, December 27, 1998 and January 2, 2000, in conformity with accounting principles generally accepted in the United States.

ERNST & YOUNG LLP

Phoenix, Arizona

February 9, 2000

F-2

P.F. CHANG’S CHINA BISTRO, INC.

CONSOLIDATED BALANCE SHEETS

			December 27,			January 2,
			1998			2000
			(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	18,857		$	5,333
	Receivables			2,792			1,275
	Inventories			673			1,085
	Current portion of notes receivable from related parties			225			386
	Prepaids and other current assets			631			1,204
Total current assets				23,178			9,283
Construction-in-progress				4,627			7,041
Property and equipment, net				32,246			56,395
Goodwill, net of accumulated amortization of $834,000 and $1,270,000 in 1998 and 1999, respectively				7,874			7,438
Notes receivable from related parties, less current portion				545			251
Other assets				717			1,299
Total assets			$	69,187		$	81,707
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	2,938		$	3,789
	Accrued payroll			1,943			2,148
	Sales and use tax payable			619			1,317
	Other accrued expenses			2,179			3,376
	Unearned revenue			744			1,676
	Current portion of long-term debt, including $268,000 and $71,000 due to related parties in 1998 and 1999, respectively			523			281
	Income tax payable			—			1,687
Total current liabilities				8,946			14,274
Long-term debt, including $340,000 due to related parties in 1998				1,829			1,548
Deferred income tax liability				—			601
Interests of minority partners in consolidated partnerships				183			494
Commitments and contingencies
Stockholders’ equity:
	Common stock, $0.001 par value, 20,000,000 shares authorized:
		10,192,769 and 10,254,856 shares issued and outstanding at December 27, 1998 and January 2, 2000, respectively		10			10
	Additional paid-in capital			63,409			63,934
	Retained earnings (deficit)			(5,190	)		846
Total stockholders’ equity				58,229			64,790
Total liabilities and stockholders’ equity			$	69,187		$	81,707

See accompanying notes.

F-3

P.F. CHANG’S CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

				Year Ended			Year Ended			Year Ended
				December 28,			December 27,			January 2,
				1997			1998			2000
				(In thousands, except per share amounts)
Revenues				$	39,768		$	78,033		$	153,295
Costs and expenses:
	Restaurant operating costs:
		Cost of sales			11,317			21,709			42,136
		Labor			11,683			22,721			45,569
		Operating			6,727			13,319			25,907
		Occupancy			2,743			5,429			9,865
			Total restaurant operating costs		32,470			63,178			123,477
	General and administrative				4,276			6,245			9,648
	Depreciation and amortization				1,102			2,384			4,975
	Preopening expense				1,922			4,183			4,344
Income (loss) from operations					(2	)		2,043			10,851
Interest income (expense):
	Interest expense				(380	)		(1,406	)		(228	)
	Interest income				63			229			660
Income (loss) before elimination of minority interests and provision for income taxes					(319	)		866			11,283
Elimination of minority interests					(1,308	)		(669	)		(2,469	)
Income (loss) before provision for income taxes					(1,627	)		197			8,814
Provision for income taxes					(69	)		(48	)		(2,778	)
Net income (loss)					(1,696	)		149			6,036
Redeemable Preferred Stock accretion					(876	)		(888	)		—
Net income (loss) available to common stockholders				$	(2,572	)	$	(739	)	$	6,036
Net income (loss) per share:
	Basic			$	(1.03	)	$	(0.25	)	$	0.59
	Diluted			$	(1.03	)	$	(0.25	)	$	0.54
Weighted average shares used in computation:
	Basic				2,500			2,986			10,217
	Diluted				2,500			2,986			11,155

See accompanying notes.

F-4

P.F. CHANG’S CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK

AND COMMON STOCKHOLDERS’ EQUITY (DEFICIT)

	Convertible Redeemable Preferred Stock
	Series A						Series B
	Shares			Amount			Shares			Amount
	(In thousands)
Balances, December 29, 1996		5,354		$	10,517			—		$	—
Issuance of Series B preferred stock, net of issuance costs of $184,000		—			—			1,517			6,415
Redeemable preferred stock accretion		—			658			—			218
Net loss		—			—			—			—
Balances, December 28, 1997		5,354			11,175			1,517			6,633
Series A preferred stock dividend paid		329			—			—			—
Redeemable preferred stock accretion		—			587			—			301
Conversion of preferred stock to common stock		(5,683	)		(11,762	)		(1,517	)		(6,934	)
Conversion of deferred purchase price liability to common stock		—			—			—			—
Issuance of common stock, net of issuance costs of $4,394,900		—			—			—			—
Net income		—			—			—			—
Balances, December 27, 1998		—			—			—			—
Issuance of common stock under stock option plan		—			—			—			—
Issuance of common stock under employee stock purchase plan		—			—			—			—
Net income		—			—			—			—
Balances, January 2, 2000		—		$	—			—		$	—

[Additional columns below]

[Continued from above table, first column(s) repeated]

	Common Stockholders’ and Members’ Equity (Deficit)
	Common Stock				Additional		Retained
					Paid-In		Earnings
	Shares		Amount		Capital		(Deficit)			Total
	(In thousands)
Balances, December 29, 1996		2,500	$	3	$	2	$	(1,879	)	$	(1,874	)
Issuance of Series B preferred stock, net of issuance costs of $184,000		—		—		—		—			—
Redeemable preferred stock accretion		—		—		—		(876	)		(876	)
Net loss		—		—		—		(1,696	)		(1,696	)
Balances, December 28, 1997		2,500		3		2		(4,451	)		(4,446	)
Series A preferred stock dividend paid		—		—		—		—			—
Redeemable preferred stock accretion		—		—		—		(888	)		(888	)
Conversion of preferred stock to common stock		3,600		3		18,693		—			18,696
Conversion of deferred purchase price liability to common stock		170		—		2,043		—			2,043
Issuance of common stock, net of issuance costs of $4,394,900		3,923		4		42,671		—			42,675
Net income		—		—		—		149			149
Balances, December 27, 1998		10,193		10		63,409		(5,190	)		58,229
Issuance of common stock under stock option plan		37		—		266		—			266
Issuance of common stock under employee stock purchase plan		25		—		259		—			259
Net income		—		—		—		6,036			6,036
Balances, January 2, 2000		10,255	$	10	$	63,934	$	846		$	64,790

See accompanying notes.

F-5

P.F. CHANG’S CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Year Ended			Year Ended			Year Ended
			December 28,			December 27,			January 2
			1997			1998			2000
			(In thousands)
Operating Activities:
Net income (loss)			$	(1,696	)	$	149		$	6,036
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization			858			1,948			4,539
	Amortization of goodwill			244			436			436
	Deferred income taxes			—			—			601
	Minority interests			1,308			669			2,469
	Changes in operating assets and liabilities:
		Receivables		(1,403	)		(730	)		1,517
		Inventories		(169	)		(310	)		(412	)
		Prepaids and other current assets		(338	)		(214	)		(573	)
		Other assets		(207	)		(410	)		(582	)
		Accounts payable		609			1,280			851
		Accrued payroll		590			729			205
		Sales and use tax payable		161			324			698
		Other accrued expenses		10			1,486			1,197
		Unearned revenue		172			439			932
		Income tax payable		—			—			1,687
Net cash provided by operating activities				139			5,796			19,601
Investing Activities:
Capital expenditures				(8,696	)		(24,817	)		(31,102	)
Decrease (increase) in notes receivable from related parties				(292	)		(478	)		133
Purchase of minority interests				(2,520	)		(397	)		—
Net cash used in investing activities				(11,508	)		(25,692	)		(30,969	)
Financing Activities:
Proceeds from revolving line of credit, net of repayments				5,500			(5,500	)		—
Proceeds from issuance of long-term debt				1,600			—			—
Repayments of long-term debt				(491	)		(520	)		(523	)
Proceeds from issuance of common stock				—			42,675			—
Proceeds from issuance of redeemable preferred stock				6,415			—			—
Proceeds from stock options exercised and employee stock purchases				—			—			525
Proceeds from minority interest contributions				441			506			455
Distributions to minority interests				(1,234	)		(1,147	)		(2,613	)
Net cash provided by (used in) financing activities				12,231			36,014			(2,156	)
Net increase (decrease) in cash and cash equivalents				862			16,118			(13,524	)
Cash and cash equivalents at the beginning of the year				1,877			2,739			18,857
Cash and cash equivalents at the end of the year			$	2,739		$	18,857		$	5,333
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest			$	319		$	1,475		$	231
Cash paid for income taxes				69			48			490
Purchase of members’ and partners’ interest through deferred purchase price and conversion to common stock				2,426			2,043			—

See accompanying notes.

F-6

P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000

1.  Summary of Significant Accounting Policies

Organization and Nature of Operations

      P.F. Chang’s China Bistro, Inc. (the “Company”) operates in a single segment consisting of restaurants throughout the United States under the name of “P.F. Chang’s China Bistro.” The Company successfully completed an initial public offering (the “Offering”) on December 4, 1998, in which 3,922,500 new shares of common stock were issued at a price of $12 per share. Proceeds from the offering were $42,675,100, net of issuance costs totaling $4,394,900. From the proceeds, $25,000,000 was used to repay certain indebtedness of the Company outstanding under its revolving line of credit. The Company used the balance of the net proceeds for development of new restaurants in 1999 and for general corporate purposes.

      Upon completion of the Offering, all outstanding shares of preferred stock were converted to shares of common stock at a ratio of one share of common stock for each two shares of preferred stock. Additionally, the deferred purchase price liability, resulting from the Company’s acquisition of substantially all of the remaining minority interests in the three original restaurants in 1997, was converted into common stock. The number of shares issued relating to the deferred purchase price liability was determined by dividing the remaining purchase price liability by the price per share of the common stock sold.

  Fiscal Year

      The Company’s fiscal year ends on the Sunday closest to the end of December and includes 52 weeks in 1997 and 1998 and 53 weeks in 1999.

  Use of Estimates

      The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

  Principles of Consolidation

      The Company’s consolidated financial statements include the accounts and operations of the Company and its subsidiaries and partnerships in which it owns more than a 50 percent interest. All material balances and transactions between the consolidated entities have been eliminated.

  Revenue Recognition

      Revenue from food, beverage and alcohol sales are recognized as products are sold.

  Cash and Cash Equivalents

      The Company considers all highly liquid investments with a maturity date of three months or less when purchased to be cash equivalents.

  Receivables

      Receivables consist primarily of amounts due from landlords or other parties for the reimbursement of leasehold improvements paid by the Company.

F-7

P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000 — (Continued)

  Inventories

      Inventories consist of food and beverages and are stated at the lower of cost or market using the first-in, first-out method.

  Notes Receivable From Related Parties

      Notes receivable from related parties represent amounts due the Company from limited partners of consolidated partnerships. Payments of principal, amortized over five years, with interest at 11.0%, are due monthly, with a balloon payment for the outstanding principal and interest due at the end of two years.

  Property and Equipment

      Property and equipment are stated at cost. Furniture, fixtures and equipment are depreciated on a straight-line basis over the estimated useful service lives of the related assets, which approximates seven years. Leasehold improvements are amortized over the shorter of the useful life of the asset or the length of the related lease term. China and smallwares are depreciated over two years up to 50 percent of their original cost, and subsequent additions are expensed as purchased.

  Goodwill

      Goodwill represents the excess of cost over net assets acquired in the purchase of interests in various restaurants and is being amortized over 20 years on a straight-line basis. The Company assesses the recoverability of goodwill based upon expected future undiscounted cash flows resulting from the acquired interests in the restaurants.

  Unearned Revenue

      Unearned revenue represents gift certificates sold but not yet redeemed. Revenues are recognized upon redemption of the gift certificates.

  Advertising

      The Company expenses advertising as incurred. Advertising expense for the years ended December 28, 1997, December 27, 1998 and January 2, 2000 was approximately $901,000, $1,255,000 and $2,004,000, respectively.

  Preopening Expense

      Preopening expenses, consisting primarily of manager salaries and relocation expense, employee payroll and related training costs incurred prior to the opening of a restaurant, are expensed as incurred.

  Income Taxes

      The Company utilizes the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.” Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not of realization in future periods.

F-8

P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000 — (Continued)

      Minority partners’ interests in income or loss of consolidated partnerships includes no provision for income taxes as any tax liability related thereto is the responsibility of the individual minority partners.

  Stock Based Compensation

      The Company grants stock options for a fixed number of shares to certain employees with an exercise price equal to or greater than the fair value of the shares at the date of grant. The Company accounts for stock option grants to employees in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25), and, accordingly, recognizes no compensation expense for the stock option grants.

  Net Income (Loss) Per Share

      Net income (loss) per share is computed in accordance with SFAS No. 128, “Earnings per Share.”

  Fair Value of Financial Instruments

      The carrying amount of cash and cash equivalents, receivables, accounts payable, and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of long-term debt is determined using current applicable rates for similar instruments and collateral as of the balance sheet date and approximates the carrying value of such debt.

  Concentrations of Credit Risk

      Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash investments and receivables. The Company maintains cash and cash equivalents, restricted funds on deposit and certain other financial instruments with financial institutions that are considered in the Company’s investment strategy. Concentrations of credit risk with respect to receivables are limited as the Company’s receivables are primarily with its landlords for the reimbursement of tenant improvements.

  Reclassifications

      Certain amounts shown in the prior periods consolidated financial statements have been reclassified to conform with the current year consolidated financial statements presentation.

2.  Property and Equipment

      Property and equipment consists of the following:

	December 27,		January 2,
	1998		2000
	(In thousands)
Leasehold improvements	$	25,290	$	47,367
Furniture, fixtures and equipment		9,390		15,197
China and smallwares		1,012		1,782
		35,692		64,346
Less accumulated depreciation and amortization		3,446		7,951
	$	32,246	$	56,395

F-9

P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000 — (Continued)

3.  Revolving Line of Credit

      In December of 1999, the Company entered into a revolving line of credit with a commercial lending institution. The line of credit allows for borrowings up to $15 million at an interest rate ranging from 150 to 225 basis points over the applicable London Interbank Offered Rate (LIBOR). The revolving line of credit matures on November 30, 2002 and contains certain restrictions and conditions which require the Company to: maintain tangible net worth of $45 million, a leverage ratio at a maximum of 2.00: 1.00, a fixed-charge ratio no less than 1.25: 1.00 and limit annual capital expenditures to $35 million. The line of credit has been collaterized by substantially all of the assets of the Company. The Company had no borrowings under the line of credit as of January 2, 2000.

4.  Long-Term Debt

      Long-term debt consists of the following:

		December 27,		January 2,
		1998		2000
		(In thousands)
$1,100,000 promissory note, collateralized by leasehold improvements, payable in monthly installments of $11,354 including interest at 11.0 percent, until March 1, 2017, when all remaining principal and interest is due and payable. Additional payments may be required under the promissory note based on a percentage of gross sales		$	1,071	$	1,051
$500,000 promissory note, collateralized by equipment, payable in monthly installments of $8,561 including interest at 11.0 percent until March 1, 2004 when all remaining principal and interest is due and payable			408		348
$1,266,000 unsecured promissory notes, a portion of which is payable to related parties, in quarterly installments of $96,967 including interest at 10.0 percent, until March 1, 2000, when all remaining principal and interest is due and payable			444		93
$421,000 equipment loan, collateralized by furniture, fixtures and equipment, payable in monthly installments of $7,202 including interest at 11.0 percent, until January  1, 2004, when all remaining principal and interest is due and payable			335		283
$200,000 unsecured promissory note, payable in monthly installments of $3,333 plus interest at prime plus one percent, until April 2001, when all remaining principal and interest is due and payable. The note is guaranteed by a stockholder of the Company			94		54
			2,352		1,829
	Less current portion		523		281
		$	1,829	$	1,548

      The aggregate annual payments of long-term debt outstanding at January 2, 2000, for the next five years and thereafter, are summarized as follows: 2000 — $281,000; 2001 — $178,000; 2002 — $184,000; 2003 — $205,000; 2004 — $66,000 and thereafter — $915,000.

5.  Preferred Stock and Common Stockholders’ Equity

  Preferred Stock

      The board of directors is authorized to issue up to 10,000,000 shares of preferred stock and to determine the powers, preferences, privileges, rights, including voting rights, qualifications, limitations and restrictions of

F-10

P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000 — (Continued)

those shares without any further vote or act by the common stockholders. There is no outstanding preferred stock as of December 27, 1998 and January 2, 2000.

      In connection with the original capitalization of the Company, a warrant to purchase 124,380 shares of preferred stock, convertible into 62,190 shares of common stock, was issued to an investment bank with an exercise price of $4.00 per common share. The warrant expires February 28, 2001.

  Stock Option Plans

      The Company has elected to follow APB No. 25 and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, “Accounting for Stock-Based Compensation,” requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, because the exercise price of the Company’s employee stock options equals or exceeds the fair value of the underlying stock on the date of grant, no compensation expense is recognized.

      In August 1996, the Company adopted the 1996 Stock Option Plan (1996 Plan), and in July 1997, the Company adopted the 1997 Restaurant Management Stock Option Plan (1997 Plan). Options under the 1996 Plan may be granted to employees, consultants and directors to purchase the Company’s common stock at an exercise price that equals or exceeds the fair value of such shares on the date such option is granted. Options under the 1997 Plan may be granted to key employees of the Company who are actively engaged in the management and operation of the Company’s restaurants to purchase the Company’s common stock at an exercise price that equals or exceeds the fair value of such shares on the date such option is granted. Vesting periods are determined at the discretion of the board of directors, and options currently outstanding at January 2, 2000 vest over five years. Options may be exercised immediately upon grant, subject to a right by the Company to repurchase any unvested shares at the exercise price. Any options granted shall not be exercisable after ten years. Upon certain changes in control of the Company, the 1996 and 1997 Plans provide for two additional years of immediate vesting. The Company has reserved a total of 1,086,500 shares of common stock for issuance under the 1996 and 1997 Plans.

      During 1998, the Company’s Board of Directors approved the 1998 Stock Option Plan (1998 Plan) which provides for discretionary grants of incentive stock options and nonqualified stock options to the Company’s employees, including officers, directors, consultants, advisors, and other independent contractors. A total of 206,885 additional shares of common stock have been reserved for issuance under the 1998 Plan. The option price per share for an incentive stock option may not be less than 100 percent of the fair market value of a share of common stock on the grant date. The option price per share for a nonstatutory stock option may not be less than 85 percent of the fair market value of a share of common stock on the grant date. The Company’s Compensation Committee has the authority to, among other things, determine the vesting schedule for each option granted. All options expire within 10 years. The 1998 Plan includes an automatic grant program for outside directors. Pursuant to this program, each outside director will be granted an option to purchase 10,000 shares of common stock at the time he or she is first elected or appointed a director of the Company. In addition, each outside director remaining in office will be granted an option to purchase 2,500 shares on the day following each annual meeting of stockholders.

      During 1999, the Company’s Board of Directors approved the 1999 Nonstatutory Stock Option Plan (1999 Plan) which provides for discretionary grants of nonqualified stock options to the Company’s employees. The 1999 Plan prohibits grants to officers or directors. A total of 100,000 shares of common stock have been reserved for issuance under the 1999 Plan. The option price per share may not be less than 85 percent of the fair market value of a share of common stock on the grant date. The Company’s Compensation Committee has the authority to, among other things, determine the vesting schedule for each option granted. All options expire within 10 years.

F-11

P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000 — (Continued)

      Pro forma information regarding net income (loss) is required by SFAS No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997, 1998 and 1999: risk-free interest rate of 5.5 percent; a dividend yield of -0- percent; volatility factors of the expected market price of the Company’s common stock of .122, .41 and .497, respectively; and a weighted-average expected life of the option of five years.

      The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

      Because SFAS No. 123 is applicable to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until approximately 2002. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows:

		Year ended			Year ended			Year ended
		December 28,			December 27,			January 2,
		1997			1998			2000
		(In thousands, except per share amounts)
Net income (loss), as reported		$	(1,696	)	$	149		$	6,036
	Pro forma compensation expense for stock options		82			185			697
Pro forma net income (loss)		$	(1,778	)	$	(36	)	$	5,339
Net income (loss) per share:
	Basic	$	(1.06	)	$	(0.31	)	$	0.52
	Diluted	$	(1.06	)	$	(0.31	)	$	0.48
Weighted average shares used in computation:
	Basic		2,500			2,986			10,217
	Diluted		2,500			2,986			11,155

F-12

P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000 — (Continued)

      Information regarding activity for stock options outstanding under the Plans is as follows:

					Outstanding Options
		Shares						Weighted-
		Available						Average
		for						Exercise
		Options			Shares			Price
Outstanding at December 29, 1996			98,490			791,510		$	2.98
	Authorized		196,500			—			—
	Granted		(170,000	)		170,000			5.40
	Exercised		—			—			—
	Forfeited (canceled)		—			—			—
Outstanding at December 28, 1997			124,990			961,510			3.40
	Authorized		206,885			—			—
	Granted		(174,125	)		174,125			11.82
	Exercised		—			—			—
	Forfeited (canceled)		—			—			—
Outstanding at December 27, 1998			157,750			1,135,635			4.71
	Authorized		100,000			—			—
	Granted		(257,000	)		257,000			22.31
	Exercised		—			(36,653	)		7.17
	Forfeited (canceled)		18,225			(18,225	)		9.18
Outstanding at January 2, 2000			18,975			1,337,757		$	7.97

      Information regarding options outstanding and exercisable at January 2, 2000 is as follows:

		Options Outstanding
								Options Exercisable
				Weighted-
				Average		Weighted-				Weighted-
Range of		Number		Remaining		Average		Number		Average
Exercise Prices		Outstanding		Contractual Life		Exercise Price		Exercisable		Exercise Price
	$2.40-$10.00		933,257		4.87 years	$	3.42		663,953	$	3.27
	$10.01-$20.00		183,750		8.77 years		13.39		35,380		12.13
	$20.01-$30.00		220,750		9.49 years		22.69		15,000		23.26

      Since options are generally exercisable upon date of grant, options exercisable, included in the above table, represent vested options that are not subject to repurchase by the Company. The weighted-average fair value of options granted for the years ended December 28, 1997, December 27, 1998 and January 2, 2000 was $1.38, $5.27 and $11.16, respectively.

  Employee Stock Purchase Plan

      During 1998, the Company’s Board of Directors approved the 1998 Employee Stock Purchase Plan (Purchase Plan) and reserved 400,000 shares for issuance thereunder. The Purchase Plan permits eligible employees to purchase common stock at a discount, but only through payroll deductions, during concurrent 24 month offering periods. Each offering period will be divided into four consecutive 6 month purchase periods. The price at which stock is purchased under the Purchase Plan is equal to 85 percent of the lower of the fair market value of the common stock on the first day of the offering period and the fair market value of the common stock on the last day of the purchase period.

F-13

P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000 — (Continued)

6.  Partnership Agreements

      The Company has entered into a series of partnership agreements with each of its regional managers (Market Partners), certain of its general managers (Operating Partners) and certain of its executive chefs (Culinary Partners). These partnership agreements entitle the Market Partner to a specified percentage of the cash flows from the restaurants that partner has invested in and developed and oversees as the regional manager. Similarly, the general manager and the executive chef at most of the Company’s restaurants are offered the opportunity to become Operating Partners and Culinary Partners, respectively, and to receive a percentage of the cash flows from the restaurant in which they invested in and work. At the time an individual becomes a Market Partner, Operating Partner or Culinary Partner, that person is required to make an equity investment in the partnership and to enter into a five year employment agreement with the Company. The Company has the right, in its sole discretion, to terminate the employment of any Market Partner, Operating Partner or Culinary Partner, and, upon such termination, to repurchase that partner’s interest in the partnership at such partners then-current basis in the partnership. If an individual continues to serve as Market Partner, Operating Partner or Culinary Partner for five years, then the Company has the right to repurchase that person’s interest in the partnership for a value, which is determined by reference to trailing cash flows.

7.  Income Taxes

      Income tax expense consisted of the following:

		Year Ended		Year Ended		Year Ended
		December 28,		December 27,		January 2,
		1997		1998		2000
		(In thousands)
Federal:
	Current	$	—	$	21	$	1,795
	Deferred		—		—		511
			—		21		2,306
State:
	Current		69		27		382
	Deferred		—		—		90
			69		27		472
		$	69	$	48	$	2,778

      The Company’s effective tax rate differs from the federal statutory rate for the following reasons:

	Year Ended			Year Ended			Year Ended
	December 28,			December 27,			January 2,
	1997			1998			2000
	(In thousands)
Income tax expense (benefit) at federal statutory rate	$	(553	)	$	67		$	2,996
State taxes, net of federal expense (benefit)		69			19			311
Increase (decrease) in valuation allowance		425			(288	)		(605	)
Other, net		128			250			76
	$	69		$	48		$	2,778

F-14

P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000 — (Continued)

      The income tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:

		December 28,			December 27,			January 2,
		1997			1998			2000
		(In thousands)
Deferred tax assets:
	Preopening expenses	$	267		$	627		$	745
	Net operating loss carryforwards		760			235			—
	Other		2			21			134
			1,029			883			879
Deferred tax liabilities:
	Depreciation on property and equipment		—			84			1,228
	Goodwill amortization		136			194			252
			893			605			1,480
Valuation allowance			(893	)		(605	)		—
Net deferred tax assets (liabilities)		$	—		$	—		$	(601	)

      For the years ended December 28, 1997, December 27, 1998 and January 2, 2000 the valuation allowance increased (decreased) $425,000, $(288,000) and $(605,000), respectively.

F-15

P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000 — (Continued)

8.  Net Income (Loss) Per Share

      The following table sets forth the computation of basic and diluted net income (loss) per share:

			Year Ended			Year Ended			Year Ended
			December 28,			December 27,			January 2,
			1997			1998			2000
			(In thousands, except per share amounts)
Numerator:
	Net income (loss)		$	(1,696	)	$	149		$	6,036
	Convertible redeemable preferred stock accretion			(876	)		(888	)		—
	Numerator for basic net income (loss) per share — net income (loss) available to common stockholders			(2,572	)		(739	)		6,036
	Effect of dilutive securities:
		Convertible redeemable preferred stock accretion		—			—			—
	Numerator for diluted net income (loss) per share — net income (loss) available to common stockholders after assumed conversions		$	(2,572	)	$	(739	)	$	6,036
Denominator:
	Denominator for basic net income (loss) per share — weighted-average shares			2,500			2,986			10,217
Effect of dilutive securities:
	Employee and director stock options			—			—			887
	Warrants			—			—			51
Denominator for diluted net income (loss) per share — adjusted for weighted average shares and assumed conversions				2,500			2,986			11,155
Net income (loss) per share:
	Basic		$	(1.03	)	$	(0.25	)	$	0.59
	Diluted		$	(1.03	)	$	(0.25	)	$	0.54

      Warrants to purchase 62,190 shares of common stock and options to purchase 1,392,635 shares of common stock ranging from $2.40 to $27.38 per share were outstanding at January 2, 2000. The preferred stock convertible to common stock is not included in the computation of diluted net income (loss) per share for the years ended December 28, 1997 and December 27, 1998, because the conversions would be antidilutive.

9.  Commitments and Contingencies

  Operating Leases

      The Company leases restaurant and office facilities and equipment and certain real property under operating leases having terms expiring between 2000 and 2020. The restaurant facility and real property leases primarily have renewal clauses of five to 15 years exercisable at the option of the Company with rent escalation clauses stipulating specific rent increases, some of which are based on the consumer price index. Certain of these leases require the payment of contingent rentals based on a percentage of gross revenues, as defined. Rent expense for the years ended December 28, 1997, December 27, 1998 and January 2, 2000 was approximately $2,203,000, $4,110,000 and $7,006,000, respectively. Contingent rent included in rent expense

F-16

P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000 — (Continued)

for the years ended December 28, 1997, December 27, 1998 and January 2, 2000 was approximately $605,000, $1,135,000 and $1,959,000, respectively.

      At January 2, 2000, the Company had entered into other lease agreements for restaurant facilities currently under construction or yet to be constructed. In addition, the leases also contain provisions for additional contingent rent based upon gross sales, as defined in the leases. Future minimum lease payments under operating leases (including restaurants to be opened after January 2, 2000) are as follows (in thousands):

2000		$	7,443
2001			8,468
2002			8,250
2003			8,136
2004			8,165
Thereafter			75,489
	Total minimum lease payments	$	115,951

      The Company leases a building and certain furniture and equipment from a partnership in which the Company owns an approximate six percent interest. Annual rent payments are contingent based on a percentage of gross revenues. The respective period rent expense is included in the above disclosed amounts.

10.  Benefit Plan

      Effective July 1, 1997, the Company adopted a 401(k) Defined Contribution Benefit Plan (the Plan), which covers substantially all employees of the Company that have completed one year of service and have attained the age of 21 years old. The Plan permits participants to contribute to the Plan, subject to Internal Revenue Code restrictions, and the plan also permits the Company to make discretionary matching contributions. During the years ended December 28, 1997, December 27, 1998 and January 2, 2000, the Company did not make any contributions to the Plan.

11.  Employment Agreement

      On September 2, 1998, the Company amended the employment agreement with its Founder, Mr. Fleming, to provide for Mr. Fleming’s transition from an employee of the Company to a consultant of the Company. Pursuant to the terms of the employment agreement, as amended, the Company shall retain Mr. Fleming as a consultant and shall nominate him as a director each year during the period beginning January 1, 1999 and ending December 31, 2000. Mr. Fleming will be compensated for services rendered as a consultant and reimbursed for all actual, out-of-pocket expenses incurred in providing such services to the Company. The agreement prohibits Mr. Fleming from competing with the Company in the area of Chinese and Asian food concepts during the term of the agreement and for two years after the termination thereof.

F-17

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None.

PART III

Item 10.  Directors and Executive Officers of the Registrant

      The information required by Item 10 with respect to Directors and Executive Officers is incorporated by reference from the information under the captions “Director Nominees” and “Executive Officers,” respectively, contained in the Company’s definitive proxy statement in connection with the solicitation of proxies for the Company’s 1999 Annual Meeting of Stockholders to be held on April 26, 2000 (the “Proxy Statement”).

Item 11.  Executive Compensation

      The information required by this item is incorporated by reference from the information under the caption “Executive Compensation” contained in the Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

      The information required by this item is incorporated by reference from the information under the caption “Security Ownership of Certain Beneficial Owners and Management” contained in the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

      The information required by this item is incorporated by reference from the information under the caption “Certain Relationships and Related Transactions” contained in the Proxy Statement.

PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

      (a)  Documents filed as part of this report:

      1.  The following Financial Statements of the Company are included in Part II, Item 8 of this Annual Report on Form 10-K:

Report of Independent Auditors;

Consolidated Balance Sheets as of December 27, 1998 and January 2, 2000;

Consolidated Statements of Operations for the years ended December 28, 1997, December 27, 1998, and January 2, 2000;

Consolidated Statements of Convertible Redeemable Preferred Stock and Common Stockholders’ Equity (Deficit) for the years ended December 28, 1997, December 27, 1998 and January 2, 2000.

Consolidated Statements of Cash Flows for the years ended December 28, 1997, December 27, 1998 and January 2, 2000.

Notes to Consolidated Financial Statements.

26

      2.  Schedule to Financial Statements:

      All financial statement schedules have been omitted because they are either inapplicable or the information required is provided in the Company’s Consolidated Financial Statements and Notes thereto, included in Part II, Item 8 of this Annual Report on Form 10-K.

      3.  Index to Exhibits

Exhibit
Number		Description Document
	3.1*	Certificate of Incorporation of the Company.
	3.2*	By-laws.
	4.1*	Specimen Common Stock Certificate.
	4.2*	Amended and Restated Registration Rights Agreement dated May 1, 1997.
	†10.1*	Form of Indemnification Agreement for directors and executive officers.
	†10.2*	1998 Stock Option Plan and forms of agreement thereunder.
	†10.3*	1997 Restaurant Manager Stock Option Plan and forms of Agreement thereunder.
	†10.4*	1996 Stock Option Plan and forms of Agreement thereunder.
	†10.5*	1998 Employee Stock Purchase Plan.
	†10.6*	Employment Agreement between Paul M. Fleming and the Company dated January 1, 1996, as amended September 2, 1998.
	10.8*	Series B Preferred Stock Purchase Agreement dated May, 1, 1997.
	10.9*	Amended and Restated Revolving Line of Credit Loan Agreement between the Company and FFCA dated November 20, 1998.
	10.10*	Office Lease Between the Company and U.S. West Business Resources, Inc., dated February 15, 1997.
	10.11	Office Lease Between the Company and PHXAZ-Kierland Commons, LLC, dated September 17, 1999.
	10.12	Line of Credit Agreement between the Company and Bank of America dated December 6, 1999.
	†10.13	1999 Nonstatutory Stock Option Plan.
	21.1*	List of Subsidiaries.
	23.1	Consent of Independent Auditors.
	27.1	Financial Data Schedule.

*  Incorporated by reference to the Registrant’s Registration Statement on Form  S-1 (File No. 333-59749).

†  Management Contract or Compensatory Plan

      (b)  Reports on Form 8-K:

      None.

27

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 3, 2000.

P.F. CHANG’S CHINA BISTRO, INC.

By:  /s/ RICHARD FEDERICO

Richard Federico

Chief Executive Officer

      Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ RICHARD L. FEDERICO Richard L. Federico	Chief Executive Officer, President and Director (Principal Executive Officer)	March 3, 2000
/s/ ROBERT T. VIVIAN Robert T. Vivian	Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)	March 3, 2000
/s/ PAUL M. FLEMING Paul M. Fleming	Director	March 3, 2000
/s/ J. MICHAEL CHU J. Michael Chu	Director	March 3, 2000
/s/ GERALD R. GALLAGHER Gerald R. Gallagher	Director	March 3, 2000
/s/ R. MICHAEL WELBORN R. Michael Welborn	Director	March 3, 2000
/s/ JAMES G. SHENNAN, JR. James G. Shennan, Jr.	Director	March 3, 2000
/s/ LANE CARDWELL Lane Cardwell	Director	March 3, 2000

28 EX-10.11 2 EX-10.11 1 Exhibit 10.11 OFFICE LEASE THIS LEASE is made as of the ____ day of September, 1999, by and between PHXAZ/Kierland Commons, L.L.C., a Delaware limited liability company ("Landlord") and P.F. Chang's China Bistro, Inc., a Delaware corporation ("Tenant"). ARTICLE 1 SUMMARY OF BASIC TERMS 1.1 The Premises: Approximately 10,000 square feet of rentable area in the Building as illustrated on the attached Exhibit A. Following completion of Landlord's and Tenant's Work as described herein, the parties will have the Premises and the Building measured in accordance with American National Standard Z65.1-1996, as published by BOMA International, to determine the useable and rentable square footage of the Premises (including a load factor not to exceed 10%). If the rentable square footage of the Premises is different from that set forth above, the parties will enter into an Amendment stating the actual rentable square footage of the Premises and adjusting all figures in this Lease calculated from the rentable square footage number, with the Base Rent equaling the actual rentable square footage multiplied by the Annual Base Rent Per Square Foot set forth in Section 1.9 below. 1.2 The Building: The building located at 15210 N. Scottsdale Rd., Scottsdale, Arizona. 1.3 "Project" means the Building identified in Article 1.2, and all lands and facilities used in connection with the Building as reasonably determined from time to time by Landlord. A site plan for the Project in its current configuration is attached as Exhibit B. 1.4 Names of Guarantors: [INTENTIONALLY OMITTED]. 1.5 Security Deposit: [INTENTIONALLY OMITTED]. 1.6 The Term: Five Lease Years, beginning on the Commencement Date and ending on the Expiration Date. As used in this Lease, "Lease Year" shall mean for the first Lease Year the 12 calendar months following the Commencement Date plus any partial months preceding the first full month, and for each Lease Year thereafter, the 12 calendar months following the last month of the preceding Lease Year, with the last Lease Year ending on the Expiration Date. 1.7 Estimated Commencement and Expiration Dates: April 15, 2000, and April 14, 2005, respectively, subject to the provisions of Exhibit C. 1.8 Renewal Rights: One Renewal Period of five years, subject to the provisions of Article 2.2. 1.9 Base Rent:

======================================================================== Period Annual Base Rent Per Annual Base Rent Monthly Payment Rentable Sq. Ft ======================================================================== Lease Year 1 $20.50 $205,000.00 $17,083.33 ------------------------------------------------------------------------ Lease Year 2 $21.50 $215,000.00 $17,916.66 ------------------------------------------------------------------------ Lease Year 3 $22.50 $225,000.00 $18,750.00 ------------------------------------------------------------------------ Lease Year 4 $23.50 $235,000.00 $19,583.33 ------------------------------------------------------------------------ Lease Year 5 $24.50 $245,000.00 $20,416.66 ------------------------------------------------------------------------

2 1.10 Tenant's Proportionate Share: Office Proportionate Share: the proportion that the rentable area of the Premises bears to the total constructed rentable area of the office component of the Project; and Project Proportionate Share: the proportion that the useable area of the Premises bears to the total constructed retail and useable office area of the Project. "Useable area" for purposes of this Section shall be determined according to the BOMA standard referenced in Section 1.1 above. 1.11 Expense Stop: $7.00 per rentable square foot. 1.12 Description of Tenant's Business: Restaurant ownership, design, construction, operation, and management ("Tenant's Permitted Use") 1.13 Normal Business Hours: 7:00 a.m. to 6:00 p.m., Monday through Friday, 8:00 a.m. to 1:00 p.m. on Saturday. Hourly charge for HVAC services provided outside Normal Business Hours will be charged to Tenant at Landlord's actual cost. 1.14 Tenant's Address for Pre-occupancy Notices: 5090 N. 40th Street, #160, Phoenix, AZ 85018, Attn: John Middleton. 1.15 Landlord's Initial Notice and Payment Address: PHXAZ/Kierland Commons, L.L.C., c/o Woodbine Southwest Corporation, 2398 E. Camelback Rd., Suite 300, Phoenix, AZ 85016, Attn: Daniel W. (Buzz) Gosnell. 1.16 Tenant's Broker: Mitch Chilton 1.17 Landlord's Broker: Lee & Associates Arizona. 1.18 Tenant Improvement Allowance: $ 25.00 per useable square foot of area in the Premises, subject to the provisions of Exhibit C --- hereto. 1.19 Parking: Tenant shall be entitled to the non-exclusive use (in common with all other tenants and occupants of the Project) of 4 parking spaces per 1,000 useable square feet of the Premises, and shall be entitled to the use of 15 covered, reserved, parking spaces at a charge of $35.00 per space, per month, all subject to the provisions of Article 3.6 below. ARTICLE 2 DELIVERY, TERM AND CONSTRUCTION 2.1. Term. The Term of this Lease, and the estimated dates of commencement and expiration of the Term, are set forth in Articles 1.6 and 1.7. The Commencement Date will occur when the Premises are delivered to Tenant with the Work outlined in Exhibit C complete. If the Commencement Date has not occurred on or before May 1, 2000, then Tenant shall have the option to terminate this Lease by written notice to Landlord and Landlord shall reimburse Tenant for all Tenant's actual, out of pocket costs and expenses associated with this Lease and thereafter neither party shall have any further rights, liabilities, or obligations hereunder. If the Premises is delivered after the Estimated Commencement Date set forth in Section 1.7 above, this Lease shall remain in full force and effect (unless Tenant terminates it under the foregoing provision), but Tenant shall be entitled to credit against the first Base Rent payments due equal to two days of Base Rent for each day of delay in delivery beyond the Estimated Commencement Date, and the scheduled Commencement Date and the Expiration Date shall be postponed by an amount equal to actual the period of delay. 2.2 Renewals. (a) Provided that Tenant is not in breach or default as of the time of exercise of a Renewal Option or the commencement of the Renewal Period beyond any applicable cure period, Tenant shall have the right and option ("Renewal Option") to extend the Term for the number of Renewal Periods specified in Article 1.8. The Renewal Option may be exercised no earlier than 12 months nor later than 6 months prior to the then applicable Expiration Date. The Renewal Period shall be for the period specified in Article 1.8. Base Rent for the Renewal Term will be determined as set forth in Articles 2.2(b) and (c) and all other terms and provisions of the Lease shall be applicable during any Renewal Period with the same force and effect as the Base Term. (b) The Base Rent payable and the Expense Stop for the Renewal Period shall be the then fair market rental value of the Premises and the then fair market expense stop, determined as follows: within thirty days after Landlord receives the Option Notice, Landlord and Tenant shall agree on the Base Rent and Expense Stop for the Renewal Period based upon the "then fair market rental value of the Premises" and the "then fair market expense stop", which shall mean what a landlord under no compulsion to lease the Premises and a tenant under no compulsion to lease the Premises, would determine as rent and expense stop for the first year of the Renewal Period, as of the commencement of the Renewal Period, taking into consideration, among other relevant matters, the use permitted under the Lease, the quality, size, shape, design and location of the Premises, the rental rates and expense stops for 2 3 renewals of similar premises in the area and that no Tenant Allowance is being provided. Notwithstanding anything to the contrary in this Article 2.2, the Base Rent and Expense Stop for the Renewal Period will not be less than the Base Rent payable during the last year of the initial Term hereof. If the parties agree on the Base Rent and Expense Stop for the Renewal Period within thirty days after delivery of the Option Notice, they shall amend this Lease by stating the Base Rent and Expense Stop for the Renewal Period and each subsequent year. If Landlord and Tenant are unable to agree on the Base Rent and Expenses Stop for the first year of the Renewal Period within the thirty day period, then the Base Rent and Expense Stop shall be determined by binding arbitration as set forth in subsection (c) below. (c) Within ten days after the 30 day period expires, each party shall submit to the other its final and best position as to the then fair market rental value of the Premises and the then fair market Expense Stop for the Renewal Period, which shall remain the position of such party throughout the arbitration process. In the event that the parties fail to agree upon a single arbitrator within 14 days following the submission of the parties' positions to one another, each of Tenant and Landlord shall within seven days thereafter appoint one arbitrator, and the two arbitrators so selected shall, within seven days after both have been selected, appoint a third, who shall act as chairperson of the board of arbitration. All arbitrators shall be natural persons who are independent and neutral and have significant experience owning, managing or leasing office space, including space in multiuse projects. At any time within 14 days after the arbitrator or all of the arbitrators have been appointed, either party may request a hearing, which shall be held no later than 14 days following such request (or if such date is a Saturday, Sunday or legal holiday, on the next regular business day) or on such later date as the arbitrator or board of arbitration may determine in order to allow both parties a reasonable opportunity to prepare. At such hearing, evidence, analyses and briefs shall be presented by all parties pursuant to Uniform Rules of Arbitration established by the American Arbitration Association. If no hearing is requested, the parties may submit to the arbitrator or board of arbitration, by a date not later than 14 days following the appointment thereof, written evidence, memoranda and briefs supporting their respective positions, with a copy to the other party. Each party shall have ten days to respond to the initial submission of the other party. Within 14 days after receipt of the initial submissions, the arbitrator(s) shall make a determination as to the then fair market rental value of the Premises, in favor of the position of one party or the other as submitted within the first ten days following the commencement of the arbitration proceedings without alteration or compromise and shall require the unsuccessful party to pay all reasonable costs and fees, including reasonable attorney's fees, of the prevailing party. In the event that the members of a board of arbitration fail to reach a unanimous decision, the decision of the majority of the board shall be determinative. Such determination shall be final and binding upon the parties and not subject to appeal, in the absence of fraud, and the prevailing party may enforce the same by application for entry of judgment in any court of competent jurisdiction or by other procedures established by law. 2.3 Memorandum. At the request of either party at any time following initial occupancy of the Premises by Tenant, Landlord and Tenant shall execute a written memorandum reflecting the date of initial occupancy and confirming the Commencement Date and Expiration Date. 2.4 Area Measurement. "Rentable Area" means area measured in accordance with American National Standard Z65.1-1996, as published by BOMA International. 2.5 Condition. Landlord shall have no obligation to make any improvements or alterations to the Premises or the Building whatsoever, and Tenant accepts the Premises in an AS IS condition, with all faults. Notwithstanding the foregoing, if an Exhibit C is attached to this Lease, Landlord shall cause improvements to be constructed and alterations to be made in the Premises in accordance with the provisions of Exhibit C in a good and workmanlike manner. If construction of the Project has not commenced by September 30, 1999, Tenant may terminate this Lease by delivery of notice to Landlord no later than October 30, 1999, notifying Landlord of Tenant's election to terminate this Lease. During any period that Tenant shall be permitted or required to enter the Premises prior to the Commencement Date, Tenant shall comply with all terms and provisions of this Lease. 2.6 Certain Representations of Landlord. Landlord hereby represents and warrants to Tenant only that: (i) water, sewer, gas and electricity services will be available to the Premises as set forth in Part One of Exhibit C; (ii) the improvements to be constructed by Landlord pursuant to Part One of Exhibit C will comply with all applicable laws, statutes, ordinances, rules and regulations, including, without limitation, disability laws, rules and regulations, in effect on the date of completion; (iii) to the best of Landlord's actual knowledge, the Premises and Project are not in violation of any applicable environmental law, statute, ordinance, rule or regulation, and no hazardous, dangerous or toxic materials, substances, wastes or pollutants exist on the Premises or Project, except normal retail products which are packaged, labeled, used and sold or otherwise disposed of in compliance with all applicable laws; (iv) the Premises are zoned C-2; and (v) Landlord has no knowledge of any provision in the CC&R's that would prevent Tenant from conducting its Permitted Use at the Premises as provided in this Lease. ARTICLE 3 USE OF PREMISES 3 4 3.1 Permitted Uses. Tenant may use and occupy the Premises for the purposes set forth in Article 1.12 and for no other purpose whatsoever without Landlord's prior written consent. 3.2 Insurance Restrictions. Tenant shall not perform any act which would cause the cancellation of any insurance policies related to the Project. Unless any increase arises as a result of Tenant's use of the Premises for Tenant's Permitted Use, Tenant shall reimburse Landlord for any increases in insurance premiums paid by Landlord directly related to the nature of Tenant's use of the Premises or the nature of Tenant's business. 3.3 Improvements. Unless necessitated by Tenant's use of the Premises for Tenant's Permitted Use, and if solely due to the nature of Tenant's use of the Premises, improvements or alterations are necessary to comply with any requirements imposed by law or with the requirements of insurance carriers, Tenant shall pay the entire cost of the improvements or alterations. 3.4 Prohibitions. Tenant shall not cause or maintain any nuisance in or about the Premises and shall keep the Premises free of debris, rodents, vermin and anything of a dangerous, noxious or offensive nature or which would create a fire hazard (through undue load on electrical circuits or otherwise) or undue vibration, noise or heat. Tenant shall not cause the safe floor loading capacity to be exceeded. Tenant shall not disturb or interfere with the quiet enjoyment of the premises of any other tenant. 3.5 Common Areas. All of the portions of the Project made available by Landlord for use in common by tenants and their employees and invitees ("Common Areas") at all times shall remain subject to Landlord's exclusive control and Landlord shall be entitled to make such changes in the Common Areas as it deems appropriate; provided the changes do not materially and adversely alter the parking for or access to the Premises. At a minimum the Common Areas shall include all corridors, elevators and stairwells providing access to the Premises, restrooms serving the Premises and the sidewalks, driveways and parking areas crosshatched on Exhibit B. Landlord shall maintain the Common Areas in a neat, clean, and orderly condition consistent with other first class mixed office/retail developments in the Phoenix metropolitan area. 3.6 Parking. Landlord shall provide, operate and maintain parking accommodations in the Project, together with necessary access thereto, as generally designated on Exhibit B. No storage of vehicles or parking for more than twenty-four (24) hours shall be allowed without Landlord's prior written consent. Tenant acknowledges and agrees that Landlord shall not be liable for damage, loss or theft of property or injury to persons in, upon or about the parking area from any cause whatsoever. Landlord shall have the right to establish, and from time to time change (including relocating reserved covered parking spaces), alter and amend, and to enforce against all users of the parking area such reasonable requirements and restrictions as Landlord deems necessary and advisable for the proper operation and maintenance of the parking area. Landlord shall have the right from time to time to designate an area or areas within the common facilities for purposes of parking vehicles of Tenant's employees (collectively, "Authorized Parkers"), and its agents, representatives and invitees. Tenant shall, within fifteen days after request in writing from Landlord, deliver to Landlord the license plate numbers of its Authorized Parkers and thereafter, within ten days after there are changes in the list of Authorized Parkers. Each vehicle shall, at Landlord's option to be exercised from time to time, bear a permanently affixed and visible identification sticker or vehicle tag to be provided by Landlord. The parties acknowledge that Landlord, in Landlord's sole discretion, may construct additional on site covered parking for the Project, and, during the period of construction of the additional parking, Tenant's parking field and reserved parking spaces may be temporarily relocated to the location designated on Exhibit B. 3.7. CC&R's, Rules and Regulations. This Lease is subject and subordinate in all respects to the Master Declaration of Covenants, Conditions, Restrictions and Development Standards recorded on August 13, 1996, at 96-0570473 (the "Master Declaration"), and the Declaration of Covenants, Conditions, Restrictions and Easements for Kierland Commons recorded on August 7, 1998, at 98-0691485, records of Maricopa County, Arizona, as amended by First Amendment to Declaration of Covenants, Conditions, Restrictions and Easements for Kierland Commons, recorded on December 4, 1998, at 98-1101237, records of Maricopa County, Arizona (collectively, the "Parcel Declaration"; the Master Declaration and the Parcel Declaration together being referred to as the "CC&R's"). The CC&R's are hereby incorporated into this Lease by this reference and shall prevail over this Lease in the event of any inconsistency. Terms which are defined in the CC&R's shall have the same meanings herein unless otherwise defined or required by context. Tenant hereby acknowledges and agrees that nothing in this Lease is intended to or shall be deemed or construed so as to modify or limit in any way the rights and powers of Landlord as Declarant under the CC&R's, all of which may be exercised in any manner in Landlord's sole discretion, subject to the limitations set forth in the CC&R's. Tenant shall and shall cause its agents, employees and contractors to comply with the CC&R's and any non-discriminatory and reasonable rules and regulations for the Project promulgated by Landlord from time to time (the "Rules"). Landlord's current Rules are attached as Exhibit D. Landlord from time to time by notice to Tenant may amend the rules and regulations and establish other reasonable non-discriminatory rules and regulations for the Project. 3.8 Compliance with Law. Tenant, at Tenant's expense, shall comply with all present and future federal, state and local laws, ordinances, orders, rules and regulations,(collectively, "Laws"), including, without limitation the Americans with Disabilities Act, to the extent it applies to the Premises, and shall procure all permits, certificates, licenses and other authorizations required by applicable 4 5 Law relating to Tenant's business or Tenant's use or occupancy of the Premises or Tenant's activities on the Premises. Tenant shall make all reports and filings required by applicable Laws. Tenant shall defend, indemnify and hold harmless Landlord and Landlord's present and future officers, directors, employees, partners and agents from and against all claims, demands, liabilities, fines, penalties, losses, costs and expenses, including but not limited to costs of compliance, remedial costs, and reasonable attorneys' fees, arising out of or relating to any failure of Tenant to comply with applicable Laws. Landlord shall comply with all Laws (including, without limitation, the Americans With Disabilities Act) applicable to the Common Areas and will defend, indemnify and hold harmless Tenant and Tenant's present and future officers, directors, employees, partners and agents from and against all claims, demands, liabilities, fines, penalties, losses, costs and expenses, including but not limited to costs of compliance, remedial costs, and reasonable attorneys' fees, arising out of or relating to any failure of Landlord to comply with applicable Laws. 3.9 Environmental. Without in any manner limiting any other provision of this Lease, Tenant hereby represents and warrants and agrees for the full term of any obligations under this Lease: (a) to comply fully with all federal, state and local laws, rules, orders, or regulations pertaining to health or the environment ("Environmental Laws"), including, without limitation, the comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA") and the Resource Conservation and Recovery Act of 1987, as amended ("RCRA"). (b) that Tenant will not dispose of nor permit or acquiesce in the disposal of any Regulated Substances, under or around the Premises, except in conformance with Environmental Laws. (c) to defend, indemnity and hold harmless Landlord for any and all costs, claims, demands, damages including attorneys' fees and court costs and investigatory and laboratory fees, related to any breach of this Lease, including, without limitation, any adverse health or environmental condition (including without limitation any violation of Environmental Laws) occurring during the term of this Lease. This indemnification to Landlord shall survive the termination of the Lease. (d) comply with all reporting obligations imposed under the Federal Emergency Planning and Community Right to Know Act of 1986 and any similar state or local laws, rules or regulations. (e) comply with all pretreatment requirements imposed by law with respect to the disposal of waste or effluent into the sanitary sewer system. (f) prevent any dumping, spillage, leakage or runoff of substances regulated by Environmental Laws ("Regulated Substances") into dry wells, storm drains, water retention areas, Common Areas or any areas where such substances could be absorbed into the soil. (g) obtain and maintain all permits required by federal, state or local laws, rules or regulations. (h) prepare, and upon request provide a copy to Landlord of, all response plans required by applicable law. (i) not keep, store, or use within the Premises any Regulated Substances except small quantities that are reasonably necessary for Tenant's business and customarily associated with office usage, such as copier supplies. 3.10 Audit. At any time and from time to time, Landlord may retain an environmental consultant or engineer to conduct an audit or environmental assessment of the Premises and Tenant's compliance with applicable laws, rules and regulations. Tenant shall extend its full cooperation with the audit or investigation. If Tenant is found not to be substantially in compliance with applicable law, all reasonable costs associated with the audit or assessment shall be paid by Tenant to Landlord upon demand; otherwise all costs shall be borne by Landlord. In addition, Tenant, at Landlord's request from time to time, shall complete such questionnaires and provide such information with respect to Tenant's activities and operations on the Premises as Landlord shall reasonably require. ARTICLE 4 SECURITY DEPOSIT AND GUARANTIES [INTENTIONALLY OMITTED] ARTICLE 5 RENT 5.1 Base Rent. Commencing on the Commencement Date, Tenant shall pay to Landlord, in advance, on the first day of each calendar month, the monthly payment of Base Rent in the amount set forth in Article 1.9 above. 5 6 5.2 Late Charges and Interest. Tenant shall pay to Landlord a late charge equal to $50 for each day that Base Rent or any other amount payable under this Lease is due and remains unpaid 10 days after its due date as liquidated damages to compensate Landlord for costs and inconveniences of special handling and disruption of cash flow. The assessment or collection of a late charge shall not constitute the waiver of a default and shall not bar the exercise of other remedies for nonpayment. In addition to the late charge, all amounts not paid within ten days after the date due shall bear interest from the date due (i) until the happening of an Event of Default, at the rate of 12% per annum and (ii) thereafter, at the rate set forth in Article 21.2. 5.3 Excise Taxes. Tenant shall pay to Landlord all sales, use, transaction privilege, or other excise tax levied or imposed upon, or measured by, any amount payable by Tenant under this Lease. 5.4 Obligations Are Rent. All amounts payable to Landlord under this Lease constitute rent and shall be payable without notice, demand, deduction or offset to such person and at such place as Landlord may from time to time designate by written notice to Tenant. 5.5 Proration. Base Rent payable with respect to a period consisting of less than a full calendar month shall be prorated. ARTICLE 6 OPERATING COSTS 6.1 Tenant's Share. Tenant shall pay to Landlord Tenant's Proportionate Share of Operating Costs for each calendar year in excess of the Expense Stop as set forth in Article 1.11. Tenant's Proportionate Share of Operating Costs will be the sum of the Office Proportionate Share and Project Proportionate Share of Operating Costs. The Operating Costs used to determine the Project Proportionate Share shall consist of costs, expenses, and services incurred or employed by Landlord for both the office and any other portions of the Project (the "Project Operating Costs"). The Operating Costs used to determine the Office Proportionate Share shall consist of costs, expenses, and services incurred or employed by Landlord solely for the office portion of the Project (the "Office Operating Costs"). Notwithstanding anything to the contrary in this Lease, items classified as Project Operating Costs shall not be included in the Office Proportionate Share and vice versa, with the intent that Landlord in good faith shall determine which Operating Costs relate solely to the office portion of the Project and which Operating Costs are Project Operating Costs without overlap of the two. 6.2 Estimates. From time to time Landlord shall by written notice specify Landlord's estimate of Tenant's obligation under Article 6.1. Tenant shall pay one-twelfth of the estimated annual obligation on the first day of each calendar month. 6.3 Annual Reconciliation. Within 120 days after the end of each calendar year, Landlord shall provide to Tenant a written summary of the Operating Costs for the calendar year, determined on an accrual basis and broken down by principal categories of expense, including a breakdown of which items are office Operating Costs and which items are attributable to Project Operating Costs. The statement also shall set forth Tenant's Project Proportionate Share and Tenant's Office Proportionate Share and shall show the amounts paid by Tenant on account. Any difference between Tenant's obligation and the amounts paid by Tenant on account shall be paid or refunded, as the case may be, within thirty days after the statement is provided. Late delivery of the annual statement of Operating Costs shall not relieve Tenant of any obligation with respect to payment of Tenant's Proportionate Share of the Operating Costs. 6.4 Partial Year Proration; Variable Cost Adjustment. During the first and last years of the Term, Tenant's responsibility for Operating Costs shall be adjusted in the proportion that the number of days of that calendar year during which the Lease is in effect bears to 365. Tenant's obligations under this Article 6 for the payment of Operating Costs during the Lease Term, including the payment of any deficiency following receipt of the annual statement under Article 6.3, shall survive the expiration or termination of this Lease. For purposes of determining the Office Proportionate Share, if the mean level of occupancy of the office portion of the Project during a calendar year is less than 95% of the rentable area of the office portion of the Project, the Office Operating Costs shall be adjusted to reflect the fact that some costs, such as HVAC and janitorial services, vary with level of occupancy while other costs, such as real estate taxes, may not. In order to allocate those variable costs to occupied space while allocating non-variable costs to occupied and unoccupied space alike, Landlord shall determine what the total Office Operating Costs would have been had the Building been at least 95% occupied during the entire calendar year on the average, and that adjusted total shall be the figure employed in the statement and calculations described in Articles 6.1 and 6.3. If the mean level of occupancy exceeds 95%, no adjustment shall be made. 6.5. "Operating Costs" consist of all costs of operating, maintaining and repairing the Project generally and the office portion of the Project specifically, including, without limitation, the following: 6 7 (a) Premiums for property, casualty, liability, rent interruption or other insurance. (b) Salaries, wages and other amounts paid or payable for personnel including the Project manager, superintendent, operation and maintenance staff, and other employees of Landlord directly involved in the maintenance and operation of the Project, including contributions and premiums towards fringe benefits, unemployment and worker's compensation insurance, pension plan contributions and similar premiums and contributions and the total charges of any independent contractors or managers engaged in the repair, care, maintenance and cleaning of any portion of the Project. (c) Cleaning, including sweeping of parking areas. (d) Landscaping, including irrigating, trimming, mowing, fertilizing, seeding, and replacing plants. (e) Utilities, including fuel, gas, electricity, water, sewer, telephone, and other services. (f) Maintaining, operating, repairing and replacing equipment. (g) Other items of repair or maintenance of the Project. (h) Policing and security. (i) The cost of the rental of any equipment and the cost of supplies used in the maintenance and operation of the Project. (j) Audit fees and the cost of accounting services incurred in the preparation of statements referred to in this Lease and financial statements, and in the computation of the rents and charges payable by tenants of the Project. (k) Costs of capital expenditures incurred for the purpose of reducing Operating Costs and costs of improvements, repairs, or replacements which otherwise constitute Operating Costs under this Article but which are properly charged to capital accounts. The foregoing shall not be included in Operating Costs in a single year but shall instead be amortized over their useful lives, as reasonably determined by the Landlord in accordance with generally accepted accounting principles, and only the annual amortization amount shall be included in Operating Costs. (l) A fee for the administration and management of the Project appropriate to the nature of the Project as reasonably determined by the Landlord from time to time. (m) Costs of alterations or modifications to the Project necessary to comply with requirements of applicable law; and (n) General and special real and personal property taxes and assessments for the Project and reasonable expenses incurred in efforts to reduce taxes or assessments. 6.6 Exclusions. Notwithstanding anything to the contrary in Article 6.5, "Operating Costs" shall not include: (a) Amounts reimbursed by other sources, such as insurance proceeds, equipment warranties, judgments or settlements. (b) Utilities or other expenses paid directly by tenants to suppliers or paid by tenants to Landlord for separately metered or special services such as after-hours air conditioning services. (c) Ground rents. (d) Payments on any mortgage or other encumbrance. (e) Construction of tenant improvements. (f) Replacements (but not repairs) of structural elements. (g) Leasing commissions. 7 8 (h) Correction of defects in material, workmanship or violations of applicable law occurring in or during the initial construction of the Project. (i) General overhead and administrative expenses of Landlord not directly related to the operation of the Project. (j) Costs of negotiating or enforcing leases of other tenants. ARTICLE 7 TAXES 7.1 Landlord shall pay before delinquent all general and special real property taxes assessed or levied on the Project, subject to reimbursement under Article 6. 7.2 Tenant shall pay before delinquent all taxes levied or assessed upon, measured by, or arising from (a) the conduct of Tenant's business; (b) Tenant's leasehold estate; or (c) Tenant's property. ARTICLE 8 INSURANCE AND INDEMNITY 8.1 Insurance Policies. Tenant shall, at its expense, take out and keep in full force and effect the following insurance: (a) Special Form property insurance, including without limitation sprinkler leakage, in an amount equal to the full replacement cost of all property owned by Tenant within the Premises, including, but not limited to, Tenant Improvements, contents, inventory, and all personal property within the Premises. (b) Commercial general liability insurance applying to third party claims for bodily injury or property damage alleged from the use and occupancy of the Premises and the business operated by Tenant, including coverage for "premises/operations", "products and completed operations", and "blanket contractual" liabilities, written on an occurrence basis with limits not less than $1,000,000 per occurrence, or such higher amounts and additional coverages as Landlord may reasonably require from time to time if such higher limits are customary for office tenants similar to Tenant in the Phoenix metropolitan area, naming Landlord, its agents, affiliates, and property manager as additional insureds. (c) At all times during the Lease Term, Tenant shall procure and maintain workers' compensation insurance in accordance with applicable law and employer's liability insurance with a limit not less than $1,000,000 bodily injury each accident; $1,000,000 bodily injury by disease - each person; and $1,000,000 bodily injury by disease - policy limit. 8.2 Policy Requirements. Tenant's insurance policies shall: (a) where applicable, contain the mortgagee's standard mortgage clause and in any event a waiver of any subrogation rights which Tenant's property insurers may have against Landlord and against those for whom the Landlord is in law responsible; (b) be taken out with insurers reasonably acceptable to Landlord and be in a form reasonably satisfactory from time to time to Landlord; (c) be non-contributing and apply as primary and not as excess to, any other insurance available to the Landlord; (d) not be invalidated with respect to the interests of the Landlord and the holder of any encumbrance on the Project by reason of any breach or violation by Tenant of any warranties, representations, declarations or conditions contained in the policies; (e) contain an undertaking by the insurers to notify the Landlord, and the holder of any encumbrance on the Project designated by Landlord, in writing not less than thirty days prior to any material change, cancellation or termination; and (f) be satisfactory in form, substance, limits, deductibles and retentions to Landlord. 8.3 Evidence of Coverage. Tenant shall deliver to Landlord certificates of insurance in form approved by Landlord or, if required by Landlord, certified copies of each such insurance policy: (a) as soon as practicable after the placing of the required insurance and (b) periodically thereafter before expiration, renewal or replacement of the policies then in force. No review or approval of any such 8 9 insurance certificate by Landlord shall derogate or diminish Landlord's rights or Tenant's obligations. Tenant shall not take possession of the Premises without having complied with the requirements of this Article. If at any time Tenant fails to provide satisfactory evidence of all required coverages, Landlord may but shall have no obligation to purchase such insurance for Tenant and at Tenant's sole cost and expense, which shall be immediately due and payable by Tenant upon demand. 8.4 Indemnity and Exculpation. Except to the extent caused by Landlord's gross negligence or intentional wrongful conduct or by any breach by Landlord of its obligations under this Lease, Tenant shall defend, indemnify and hold Landlord harmless for, from and against any and all loss, claims, actions, damages, liability and expense in connection with loss of life, personal injury, damage to property or any other loss or injury whatsoever arising directly or indirectly from or out of this Lease or any occurrence in, upon or at the Premises or the occupancy or use by the Tenant of the Premises or any act or omission of Tenant, its agents, servants, employees or invitees. Except to the extent caused by Landlord's gross negligence or intentional wrongful conduct or by any breach by Landlord of its obligations under this Lease, Landlord shall not be liable and Tenant hereby waives all claims for any damage to any property in or about the Premises or the Project or injury or inconvenience to Tenant's business, by or from any cause whatsoever, including without limiting the foregoing, rain or water leakage of any character from the roof, windows, walls, basement, pipes, plumbing works or appliances. Tenant acknowledges that it is protecting itself against loss by maintaining appropriate insurance coverage. 8.5 Landlord's Policies. No insurable interest is conferred upon Tenant under any policies of insurance carried by Landlord, and Tenant shall not be entitled to share or receive proceeds of any insurance policy carried by Landlord. ARTICLE 9 FIRE AND CASUALTY 9.1 Termination Rights. If all or part of the Premises, Building or Common Area is damaged and the Premises is rendered untenantable by such damage from fire or other casualty which in Landlord's opinion cannot be substantially repaired (employing normal construction methods without overtime or other premium) under applicable laws and governmental regulations within 180 days from the date of the fire or other casualty, then either Landlord or Tenant may elect to terminate this Lease as of the date of such casualty by written notice delivered to the other not later than ten days after notice of such determination is given by Landlord. 9.2 Restoration. If in Landlord's opinion the damage caused by the fire or casualty can be substantially repaired (employing normal construction methods without overtime or other premium) under applicable laws and governmental regulations within 180 days from the date of the fire or other casualty, or if neither party exercises its right to terminate under Article 9.1, Landlord shall, but only to the extent that insurance proceeds are available therefor, repair such damage other than damage to furniture, chattels or trade fixtures which do not belong to the Landlord, which shall be repaired forthwith by Tenant at its own expense. 9.3 Abatement. During any period of restoration, the Base Rent payable by Tenant shall be proportionately reduced to the extent that the Premises are thereby rendered untenantable from the date of casualty until completion by Landlord of the repairs to the Premises (or the part thereof rendered untenantable) or until Tenant again uses the Premises (or the part thereof rendered untenantable) in its business, whichever first occurs. 9.4 Demolition of Project. Notwithstanding anything to the contrary in Article 9.1, if all or a substantial part (whether or not including the Premises) of the Building is rendered untenantable by damage from fire or other casualty to such a material extent that in the commercially reasonable opinion of Landlord the Project must be totally or partially demolished, whether or not to be reconstructed in whole or in part, Landlord may elect to terminate this Lease as of the date of the casualty (or on the date of notice if the Premises are unaffected by such casualty) by written notice delivered to Tenant not more than sixty days after the date of the fire or casualty. Tenant shall have an option to lease space in any reconstructed project similar to the Premises on terms substantially similar to this Lease. 9.5 Agreed Remedies. Except as specifically provided in this Article, there shall be no reduction of rent and Landlord shall have no liability to Tenant by reason of any injury to or interference with Tenant's business or property arising from fire or other casualty, howsoever caused, or from the making of any repairs resulting therefrom in or to any portion of the Project or the Premises. Tenant waives any statutory or other rights of termination by reason of fire or other casualty, it being the intention of the parties to provide specifically and exclusively in this Article for the rights of the parties with respect to termination of this Lease as a result of a casualty. 9 10 ARTICLE 10 CONDEMNATION 10.1 Automatic Termination. If during the Term all of the Premises is permanently taken for any public or quasi-public use under any statute or by right of eminent domain, or purchased under threat of such taking, this Lease shall automatically terminate on the date on which the condemning authority takes possession of the Premises. 10.2 Optional Termination. If during the term any part of the Project affecting the use of the Premises is taken or purchased by right of eminent domain or in lieu of condemnation, and whether or not the Premises are directly affected, then if in the reasonable opinion of Landlord substantial alteration or reconstruction of the Project is necessary or desirable as a result thereof and Landlord elects not to make such alterations or reconstruction, or the amount of parking available for the Premises or to the Project is materially and adversely affected, each of Landlord or Tenant shall have the right to terminate this Lease by giving the other party at least thirty days written notice of such termination. 10.3 Award. Landlord shall be entitled to receive and retain the entire award or consideration for the affected lands and improvements and Tenant shall not have or advance any claims against Landlord for the value of its property or its leasehold estate or the unexpired term of this Lease or for costs of removal or relocation or business interruption expense or any other damages arising out of the taking or purchase. Nothing herein shall give Landlord any interest in or preclude Tenant from seeking and recovering on its own account from the condemning authority any award of compensation attributable to the taking or purchase of Tenant's chattels or trade fixtures or attributable to Tenant's relocation expenses provided that any such separate claim by Tenant shall not reduce or adversely affect the amount of Landlord's award. If any such award made or compensation paid to Tenant specifically includes an award or amount for Landlord, Tenant shall promptly account therefor to Landlord. ARTICLE 11 MAINTENANCE 11.1 By Tenant. Subject to Landlord's repair and maintenance obligations set forth in Article 11.2 below, Tenant shall maintain the Premises and the improvements thereon in good condition and repair. 11.2 By Landlord. Landlord shall provide janitorial services to the Premises five nights per week. Landlord shall maintain the Project and all Common Areas in good condition and repair in accordance with standards then prevailing for comparable properties of like age and character in the Phoenix metropolitan area. Landlord shall repair structural defects in roof or walls and any common utility facilities in the Common Areas. Landlord shall maintain and repair all lighting fixtures (lamps and ballasts), windows, doors, the plumbing system, electrical systems and receptacles, heating, ventilation, and air conditioning systems, and shall provide day to day maintenance and repair. Repairs required due to damage caused by Tenant (other than ordinary wear and tear) will be billed to Tenant; all other maintenance and repair shall be part of the Operating Costs under Article 6. Landlord will not be responsible for repairs or maintenance within the Premises unless Tenant notifies Landlord of the need for the repair or maintenance. Landlord will not be liable or responsible for breakdowns or temporary interruptions in access or utilities nor for interference with Tenant's business or Tenant's access to the Premises during the course of repairs or remedial work, unless caused by Landlord. ARTICLE 12 UTILITIES Landlord shall supply to the Premises electrical power for lighting, for the operation of heating, ventilation and air conditioning equipment, and for the operation of normal office equipment, and shall supply water and sewer services for any plumbing facilities in the Premises. Tenant shall pay Landlord upon demand for any heating, ventilation and air conditioning provided outside of Normal Business Hours at Landlord's standard hourly rates, which shall be subject to adjustment for changes in electrical power rates. The Normal Business Hours for the Building and the current applicable rate for after-hours usage are set forth in Article 1.13. Any other utilities provided to the Premises, including telephone services, shall be arranged directly by Tenant with the utility supplier, including the posting of any required deposits, and paid directly to the utility supplier when due. ARTICLE 13 LANDLORD RIGHT OF ENTRY Upon reasonable notice to Tenant, Landlord shall have access to the Premises for purposes of showing the Premises to current or prospective lenders, to prospective purchasers of the Project, and, during the twelve-month period preceding the expiration of the term of this Lease, to prospective tenants. Landlord, upon reasonable notice, shall at all times have access to the Premises for purposes of inspection and performing Landlord's obligations and exercising its rights under this Lease. 10 11 ARTICLE 14 SIGNS Tenant shall not place or permit to be placed any sign, picture, advertisement, notice, lettering or decoration on any part of the outside of the Premises or anywhere in the interior of the Premises which is visible from the outside of the Premises without Landlord's prior written approval. All Tenant's signs shall be designed, installed, and maintained at Tenant's expense and shall comply with Landlord's sign criteria. ARTICLE 15 TENANT ALTERATIONS 15.1 Tenant Alterations. Tenant may from time to time at its own expense make changes, additions and improvements in the Premises, provided that any such change, addition or improvement shall: (a) comply with the requirements of any governmental or quasi-governmental authority having jurisdiction (including, without limitation, the Americans with Disabilities Act), with the requirements of Landlord's insurance carriers, and with Landlord's safety and access requirements, including restrictions on flammable materials and elevator usage; (b) not be commenced until Landlord has received satisfactory evidence that all required permits have been obtained; (c) be made only with the prior written consent of Landlord (which may be withheld in Landlord's sole discretion, to the extent it relates in Landlord's opinion to the structure or electrical, HVAC, plumbing or sprinkler systems of the Building, but which otherwise shall not be unreasonably withheld or delayed); (d) be constructed in good workmanlike manner and, to the extent the nature of the work warrants working drawings, conform to complete working drawings prepared by a licensed architect and, to the extent Landlord's consent is required, be submitted to and approved by Landlord; (e) be of a quality that equals or exceeds the then current standard for the Project and comply with all building, fire and safety codes; (f) be carried out only during hours approved by Landlord by licensed contractors selected by Tenant and, to the extent Landlord's consent is required approved in writing by Landlord. Tenant or Tenant's contractor shall deliver to Landlord before commencement of the work: (i) proof of workers' compensation and general liability insurance coverage, including coverage for completed operations and contractual liability, with Landlord and its agents and designees named as additional insureds, in amounts, with companies, and in form reasonably satisfactory to Landlord, which shall remain in effect during the entire period in which the work shall be carried out, and (ii) for work requiring building permits, performance and payment bonds if reasonably required by Landlord. Notwithstanding the foregoing, only subcontractors selected or designated by Landlord may be used to make connection with the Project's main electrical, plumbing or HVAC systems, except connections to circuit panels, pipes or ducts within the Premises; and (g) for work requiring building permits (after the initial construction of Tenant Improvements), be shown on accurate, reproducible "as-built" drawings in the form of reverse sepia transparencies or mylars, delivered to Landlord at completion of the alterations or improvements. 15.2 Tenant Installations. Tenant may install in the Premises its usual trade fixtures and personal property in a proper manner, provided that no installation shall interfere with or damage the mechanical or electrical systems or the structure of the Building. Landlord may require that any work that may affect structural elements or mechanical, electrical, heating, air conditioning, plumbing or other systems be performed by Landlord at Tenant's cost or by a contractor designated by Landlord. 15.3 Mechanics Liens. Tenant shall pay before delinquency all costs for work done or caused to be done by Tenant in the Premises which could result in any lien or encumbrance on Landlord's interest in the Project or any part thereof, shall keep the title to the Project and every part thereof free and clear of any lien or encumbrance in respect of such work, and shall indemnify and hold harmless Landlord and Landlord's agents and employees against any claim, loss, cost, demand or legal or other expense, whether in respect of any lien or otherwise, arising out of the supply of material, services or labor for such work. Tenant shall immediately notify Landlord of any such lien, claim of lien or other action of which it has or reasonably should have knowledge and that affects the title to the Project or any part thereof, and shall cause the same to be removed by bonding or otherwise within 30 days, failing which Landlord may take such action as Landlord deems necessary to remove same and the entire cost thereof shall be immediately due and payable by 11 12 Tenant to Landlord. If provided by applicable law, Tenant shall cause such postings to be made and notices given as shall prevent any mechanics' lien for work done for Tenant from attaching to the Project. ARTICLE 16 ASSIGNMENT AND SUBLETTING 16.1 Consent Required. Tenant shall not assign its interest under this Lease or sublet all or any part of the Premises without Landlord's prior written consent, which shall not be unreasonably withheld or delayed. Tenant shall not at any time pledge, hypothecate, mortgage or otherwise encumber its interest under this Lease as security for the payment of a debt or the performance of a contract. Tenant shall not permit its interest under this Lease to be transferred by operation of law. Any purported assignment or sublease made without Landlord's consent shall be void. Landlord's consent shall not be required for the transfer of this Lease in connection with a merger or consolidation of Tenant with another corporation or entity or the sale of substantially all of Tenant's assets to another entity. 16.2 Requests for Approval. Landlord shall be under no obligation to decide whether consent will be given or withheld unless Tenant has first provided to Landlord: (a) the name and legal composition of the proposed assignee or subtenant and the nature of its business; (b) the use to which the proposed assignee or subtenant intends to put the Premises; (c) the terms and conditions of the proposed assignment or sublease and of any related transaction between Tenant and the proposed assignee or subtenant; (d) information related to the experience, integrity and financial resources of the proposed assignee or subtenant; (e) such information as Landlord may reasonably request to supplement, explain or provide details of the matters submitted by Tenant pursuant to subparagraphs (a) through (d); and (f) reimbursement for all reasonable out-of-pocket costs incurred by Landlord, including attorneys' fees, in connection with evaluating the request and preparing any related documentation. 16.3. Continued Responsibility. Tenant shall remain fully liable for performance of this Lease, notwithstanding any assignment or sublease, for the entire Lease Term. 16.4 Excess Proceeds. If consent to an assignment or sublease is given, Tenant shall pay to Landlord, as additional rent, all amounts received from the assignee or subtenant in excess of the amounts otherwise payable by Tenant to Landlord with respect to the space involved, measured on a per square foot basis. 16.5 Limitations. Without limiting appropriate grounds for withholding consent, it shall not be unreasonable for Landlord to withhold consent if the proposed assignee or subtenant is a tenant in another building owned by Landlord or by an affiliate of Landlord in the North Scottsdale, Arizona area or of any of Landlord's constituent partners or principals or if the use by the proposed assignee or subtenant would contravene this Lease or any restrictive use covenant or exclusive rights granted by Landlord or if the proposed assignee or subtenant does not intend to occupy the Premises for its own use or if the nature of the proposed assignee or subtenant is not compatible with the Project. 16.6 No Waiver. No consent shall constitute consent to any further assignment or subletting. 16.7 Transfer by Landlord. Upon a sale or other transfer of the Project (or a portion thereof containing the Premises) by Landlord, Landlord's interest in this Lease shall automatically be transferred to the transferee, the transferee shall automatically assume all of Landlord's obligations under this Lease accruing from and after the date of transfer, and the transferor shall be released of all obligations under this Lease arising after the transfer. Tenant shall upon request attorn in writing to the transferee. ARTICLE 17 SUBORDINATION AND ATTORNMENT 17.1 Subordination. Subject to Landlord obtaining a non-disturbance agreement ("SNDA") with any lender, mortgagor, or deed of trust holder, in the lender's standard form, this Lease is and shall be subject and subordinate in all respects to all existing and future mortgages or deeds of trust now or hereafter encumbering the Project or any part hereof, The holder of any mortgage or deed of trust may elect to be subordinate to this Lease. 17.2 Lender Protection. Upon a transfer in connection with foreclosure or trustee's sale proceedings or in connection with a default under an encumbrance, whether by deed to the holder of the encumbrance in lieu of foreclosure or otherwise, Tenant, if requested, shall in writing attorn to the transferee, but the transferee shall not be: 12 13 (a) subject to any offsets or defenses which Tenant might have against Landlord, except as expressly provided in this Lease; or (b) bound by any prepayment by Tenant of more than one month's installment of rent; or (c) subject to any liability or obligation of Landlord except those arising or continuing after the transfer. 17.3 Documentation. The subordination provisions of this Article shall be self-operating upon Tenant's receipt of the SNDA and no further instrument shall be necessary. Nevertheless Tenant, on request, shall execute and deliver any and all instruments further evidencing such subordination. 17.4 Other Transactions. Landlord may at any time and from time to time grant, receive, dedicate, relocate, modify, surrender or otherwise deal with easements, rights of way, restrictions, covenants, equitable servitudes or other matters affecting the Project without notice to or consent by Tenant, so long as the same do not materially, adversely interfere with or restrict Tenant's access to, parking for,or use of the Premises. ARTICLE 18 ESTOPPEL CERTIFICATES Tenant shall at any time within ten days after written request from Landlord execute, acknowledge and deliver to Landlord a statement in writing: (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any; (b) confirming the commencement and expiration dates of the term; (c) confirming the amount of the security deposit held by Landlord; (d) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed; and (e) confirming such other matters as to which Landlord may reasonably request confirmation. Any such statement may be conclusively relied upon by a prospective purchaser or encumbrancer of the Premises or the Project, but shall not amend any express terms of this Lease. If Landlord desires to finance or refinance the Project, Tenant hereby agrees to deliver to any lender designated by Landlord such financial statements of Tenant as may be reasonably required by such lender. Such statement shall include the past three years' financial statements of Tenant. All such financial statements shall be received by Landlord in confidence and shall be used only for the purposes herein set forth. ARTICLE 19 QUIET ENJOYMENT If Tenant pays the rent and observes and performs the terms, covenants and conditions contained in this Lease, Tenant shall peaceably and quietly hold and enjoy the Premises for the Term without hindrance or interruption by Landlord, or any other person lawfully claiming by, through or under Landlord unless otherwise permitted by the terms of this Lease. Tenant acknowledges that the exercise by the Landlord of any of the rights conferred on Landlord under this Lease and the entry upon the Premises for or in connection with such purposes shall not be deemed to be a constructive or actual eviction of the Tenant and shall not be considered to be a breach of Landlord's covenant of quiet enjoyment. ARTICLE 20 SURRENDER AND HOLDOVER 20.1 Surrender. Upon the expiration or termination of this Lease or of Tenant's right to possession, Tenant shall surrender the Premises in a clean undamaged condition and shall remove all of Tenant's equipment, fixtures and personal property and repair all damage caused by the removal. Tenant shall not remove permanent improvements that were provided by Landlord at the commencement of this Lease and shall not remove permanent improvements later installed by Tenant unless directed to do so by Landlord. If Tenant fails to perform any repairs or restoration or fails to remove any items from the Premises as required hereunder, Landlord may do so, and Tenant shall pay Landlord the cost thereof upon demand. All property removed from the Premises by Landlord hereunder may be handled, discarded or stored by Landlord at Tenant's expense, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. All such property shall at Landlord's option be conclusively deemed to have been conveyed by Tenant to Landlord as if by bill of sale without payment by Landlord. If Landlord arranges for storage of any such property, Landlord shall have a lien against such property for costs incurred in removing and storing the same. 20.2 Holdover. If Tenant holds over without Landlord's consent, Tenant shall, at Landlord's election, be a tenant at will or a tenant from month-to-month. In either case rent shall be payable monthly in advance at a rate equal to twice the rate in effect immediately before the holdover began. A holdover month-to-month tenancy may be terminated by either party as of the first day of a calendar 13 14 month upon at least ten days' prior notice. A holdover tenancy at will is terminable at any time by either party without notice, regardless of whether rent has been paid in advance. Upon a termination under this Article, unearned rent shall be refunded following the surrender of possession provided Tenant is not otherwise in breach of this Lease. ARTICLE 21 BREACH, DEFAULT, AND REMEDIES 21.1 Default. The following shall constitute "Events of Default": (a) Tenant's failure to pay rent or any other amount due under this Lease within five days after receipt of notice of nonpayment; or (b) Tenant's failure to execute, acknowledge and return a subordination agreement under Article 17 or an estoppel certificate under Article 18 within ten days after receipt of written request; or (c) Tenant's failure to perform any other obligation under this Lease within fifteen days after notice of nonperformance; provided, however, that if the breach is of such a nature that it cannot be cured within 30 days, no Event of Default shall be deemed to have occurred by reason of the breach if cure is commenced promptly and diligently pursued to completion within a period not longer than 120 days; and provided further, that in the event of a breach involving an imminent threat to health or safety, Landlord may in its notice of breach reduce the period for cure to such shorter period as may be reasonable under the circumstances. 21.2 Remedies. Upon the occurrence of an Event of Default, Landlord, at any time thereafter without further notice or demand may exercise any one or more of the following remedies concurrently or in succession: (a) Terminate Tenant's right to possession of the Premises by legal process or otherwise, with or without terminating this Lease, and retake exclusive possession of the Premises. (b) From time to time relet all or portions of the Premises, using reasonable efforts to mitigate Landlord's damages. In connection with any reletting, Landlord may relet for a period extending beyond the term of this Lease and may make alterations or improvements to the Premises without releasing Tenant of any liability. Upon a reletting of all or substantially all of the Premises, Landlord shall be entitled to recover all of its then prospective damages for the balance of the Lease Term measured by the difference between amounts payable under this Lease and the anticipated net proceeds of reletting. Tenant's obligations for taxes and Operating Costs shall be projected, based upon the average rate of increase, if any, in such items from the Commencement Date through the termination date. Future payments computed in accordance with this section shall be discounted to present value in accordance with accepted financial practices using a discount rate of 4% per annum. (c) From time to time recover accrued and unpaid rent and damages arising from Tenant's breach of the Lease, regardless of whether the Lease has been terminated, together with applicable late charges and interest at the rate of 18% per annum or the highest lawful rate, whichever is less. (d) Enforce the statutory Landlord's lien on Tenant's property. (e) Recover all costs, expenses and attorneys' fees incurred by Landlord in connection with enforcing this Lease, recovering possession, reletting the Premises or collecting amounts owed, including, without limitation, costs of alterations, brokerage commissions, and other costs incurred in connection with any reletting. (f) Perform the obligation on Tenant's behalf and recover from Tenant, upon demand, the entire amount expended by Landlord plus 10% for special handling, supervision, and overhead. (g) Pursue other remedies available at law or in equity. Whether Landlord terminates this Lease or Tenant's right to possession, Landlord shall mitigate Landlord's damages to the extent required by Arizona law. To mitigate damages: (a) Landlord shall be required only to use reasonable efforts to relet the Premises, which shall not exceed those which Landlord generally uses to lease other space in the Project; (b) Landlord will not be deemed to have failed to mitigate if Landlord leases any other portions of the Building or the Project before reletting all or any portion of the Premises; and (c) in recognition of the fact that the value of the Project depends on the rental rates and terms of leases therein, Landlord's rejection of a prospective replacement tenant based on an offer of rentals below Landlord's then standard rates for new 14 15 leases of comparable space within the Project shall not be deemed a failure to mitigate. 21.3 Subtenancies. Upon a termination of Tenant's right to possession, whether or not this Lease is terminated: (a) subtenancies and other rights of persons claiming under or through Tenant shall be terminated or (b) Tenant's interest in such subleases or other arrangements shall be assigned to Landlord. Landlord may separately elect termination or assignment with respect to each such subtenancy or other matter. ARTICLE 22 LANDLORD LIABILITY Notwithstanding anything to the contrary in this Lease, neither Landlord nor Landlord's directors, officers, shareholders, employees, agents, constituent partners, beneficiaries, trustees, representatives, successors or assigns (collectively, "Landlord's Affiliates") shall be personally responsible or liable for any representation, warranty, covenant, undertaking or agreement contained in the Lease, and the sole right and remedy of the Tenant or any subsequent sublessee or assignee shall be against Landlord's interest in the Project. Neither Tenant nor any subsequent sublessor or assignee shall seek to obtain any judgment imposing personal liability against Landlord, Landlord's Affiliates, or their successors or assigns nor execute upon any judgment or place any lien against any property other than Landlord's interest in the Project. ARTICLE 23 NOTICES Any notice from one party to the other shall be in writing and shall be deemed duly served: (a) if delivered personally to a responsible employee of Tenant or if mailed by registered or certified mail addressed to Tenant at the Premises or such other address as Tenant may designate or (b) if mailed by registered or certified mail to Landlord at the address set forth in Article 1.15 or such other address as Landlord may designate. Any notice to Tenant prior to Tenant's taking possession of the Premises, however, shall instead be sent to the address set forth in Article 1.14. Any notice shall be deemed to have been received when received or rejected, if mailed, and when delivered, if personally delivered. ARTICLE 24 BROKERAGE Landlord and Tenant warrant and represent that no broker or other person is entitled to claim a commission, broker's fee or other compensation in connection with this Lease except: (i) brokers or other persons that Landlord may have retained or employed directly, and (ii) brokers whom Tenant has previously specifically designated in writing to Landlord as Tenant's representative as listed in Article 1.16. Landlord and Tenant shall defend, indemnify and hold each other harmless from all claims or liabilities arising from any breach of the foregoing representation and warranty. ARTICLE 26 RIGHTS RESERVED BY LANDLORD Except as expressly provided in this Lease, Landlord reserves all rights of ownership and control over all portions of the Project, including without limitation the following: 26.1. Access. Landlord reserves the right to enter upon any portion of the Project for inspection or other legitimate purposes. 26.2. Use. Landlord reserves the right to use (or grant others the right to use) any portion of the Project other than the Premises, including without limitation the Common Area, the exterior of all buildings and improvements and air rights, surface rights and subsurface rights and water rights appurtenant to the Project; provided such use or grant of use to another does not materially and adversely affect Tenant's use of the Premises. 26.3. Restriction of Access. Landlord reserves the rights to: (i) prevent or restrict access to any portion of the Project or the Building by such security procedures or devices as Landlord may consider necessary or appropriate; (ii) control or prevent access by and remove, any person who is loitering or whose presence in the judgment of Landlord's security or management personnel is prejudicial to the safety, character, reputation and interests of the Project or who in the judgment of such personnel is intoxicated or under the influence of liquor or drugs; and (iii) limit or prevent access to all or any portion of the Project, activate emergency controls or procedures or otherwise take such action or preventive measures deemed necessary by Landlord for the safety of tenants or other occupants of the Project or the protection of the Project or other property located thereon or therein, in case of fire or other casualty, riot or other civil disorder, strike or labor unrest, public excitement or other dangerous condition or threat thereof. 15 16 26.4. Other Tenants. Landlord reserves the right to lease or sell any portion of the Building and the Project to such other tenants, occupants or other parties and for such uses as Landlord, in Landlord's sole discretion, deems appropriate. Tenant acknowledges that Landlord has made no representations as to Landlord's continued ownership of all or any portion of the Project or the presence of any specific tenant or number or types of tenants at the Project as of or after the Commencement Date. Without limiting the foregoing, Tenant acknowledges that portions of the Project will be used for retail purposes and that Landlord may in the future enlarge or diminish such retail areas. 26.5. Changes. Landlord reserves the right to: (i) change the name of the Project and the address or designation of the Premises, provided that Landlord shall reimburse Tenant for the actual, reasonable costs incurred by Tenant in changing Tenant's business documentation and stationery to reflect the change; (ii) install, maintain, alter and remove signs on or about the Project; (iii) add land or other real property interests to or eliminate the same from the Project and grant interests and rights in the Project to other parties; (iv) add, alter, expand, reduce, eliminate, relocate or change the shape, size, location, character, design, appearance, use, number or height of any permanent or temporary buildings, structures, improvements, parking areas and structures, kiosks, planters, driveways, landscaped areas and other Common Areas, change the striping of parking areas and direction and flow of traffic and convert Common Areas to leasable areas and leasable areas to Common Areas, so long as such changes do not materially and adversely affect Tenant's use or occupancy of the Premises; (v) enclose any area, remove any such enclosure or add one or more additional levels or stories to the Project or any portion thereof other than the Premises and add structural supports that may be required within the Premises or Common Areas, so long as such changes do not materially and adversely affect Tenant's use or occupancy of the Premises; and (vi) in connection with the foregoing matters or with any other inspections, repairs, maintenance, improvements or alterations in or about Project or as a result of any casualty, incident, strike, condemnation, act of God, law or governmental requirement or request or other cause, erect scaffolding, barricades and other structures. 26.6. Limitations. In connection with exercising any rights reserved under this Article 26, Landlord shall: (a) take reasonable steps to minimize interference with access to or the use or occupancy of the Premises except when necessary on a temporary basis; (b) take reasonable steps to avoid materially changing the configuration or reducing the Common Area, unless required by law or other causes beyond Landlord's reasonable control; and (c) if Landlord enters the Premises in connection with any of the foregoing matters, take reasonable steps to minimize any interference with Tenant's business, and following completion of the work, return Tenant's leasehold improvements, fixtures, property and equipment to the original locations and conditions to the fullest extent reasonably possible. ARTICLE 27. GENERAL 27.1 Severability. If any term, covenant or condition of this Lease, or the application thereof, is to any extent held or rendered invalid, it shall be and is hereby deemed to be independent of the remainder of the Lease and to be severable and divisible therefrom, and its invalidity, unenforceability or illegality shall not affect, impair or invalidate the remainder of the Lease or any part thereof. 27.2 No Waiver. The waiver by Landlord or Tenant of any breach of any term, covenant or condition contained in this Lease shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent breach of the same or of any other term, covenant or condition contained in this Lease. The subsequent acceptance of rent by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of rent. No term, covenant or condition of this Lease shall be deemed to have been waived by Landlord or Tenant unless such waiver is in writing. 27.3 Effect of Payment. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly payment of rent herein stipulated is deemed to be other than on account of the earliest stipulated rent, nor is any endorsement or statement on any check or any letter accompanying any check or payment of rent deemed an acknowledgment of full payment or accord and satisfaction, and Landlord may accept and cash any check or payment without prejudice to Landlord's right to recover the balance of the rent due and pursue any other remedy provided in this Lease. 27.4 Delay. If either party is delayed or hindered in or prevented from the performance of any term, covenant or act required hereunder by reasons of strikes, labor troubles, inability to procure materials or services, power failure, restrictive governmental laws or regulations, riots, insurrection, sabotage, rebellion, war, act of God, or other reason whether of a like nature or not that is beyond the control of the party affected, financial inability excepted, then the performance of that term, covenant or act is excused for the period of the delay and the party delayed shall be entitled to perform such term, covenant or act within the appropriate time period after the expiration of the period of such delay. Nothing in this Article, however, shall excuse Tenant from the prompt payment of any amount payable under this Lease nor from the consequences of Tenant Delay as provided in Exhibit C (if attached). 27.5 Lender Notice. In the event of a material default by Landlord of a sufficiently serious nature that Tenant considers the utility of the Premises to Tenant to be significantly impaired, Tenant shall give written notice of the default to Landlord and shall 16 17 simultaneously send a copy of the notice to the holder of any encumbrance, the name and address of whom has previously been furnished in writing to Tenant. If Landlord fails to cure the default within a reasonable time, Tenant shall send a second notice to that effect to the holder of the encumbrance, with a copy to Landlord, and the holder of the encumbrance then shall have a reasonable time, not more than sixty days, to cause the default to be remedied, provided, however, that the default will be considered cured so long as the holder of the encumbrance commences the remedy or cure within the sixty day period allowed and diligently prosecutes it to completion. 27.6 No Offer. The submission of this Lease for examination does not constitute a reservation of an option to lease the Premises, and this Lease becomes effective as a lease only upon its execution and delivery by Landlord and Tenant. 27.7 Successors. All rights and liabilities under this Lease extend to and bind the successors and assigns of Landlord and permitted successors and assigns of Tenant. No rights, however, shall inure to the benefit of any transferee of the Tenant unless the transfer has been consented to by the Landlord in writing as provided in Article 16.1. If there is more than one Tenant, they are all bound jointly and severally by the terms, covenants and conditions of this Lease. 27.8 Integration. This Lease and the Exhibits hereto attached, set forth all the covenants, promises, agreements, conditions and understandings between Landlord and Tenant concerning the Premises and there are no other covenants, promises, agreements, conditions or understandings, either oral or written, between them. No alteration, amendment or addition to this Lease shall be binding upon Landlord or Tenant unless in writing and signed by Tenant and Landlord. 27.9 WAIVER OF JURY TRIAL. IN ANY LITIGATION BETWEEN LANDLORD AND TENANT, THE MATTER SHALL BE DECIDED BY A JUDGE SITTING WITHOUT A JURY, AND LANDLORD AND TENANT ACCORDINGLY WAIVE THEIR RIGHT TO A JURY TRIAL. 27.10 Governing Law. This Lease shall be construed in accordance with and governed by the laws of the State in which the Project is located. 27.11 Deadlines Enforceable. Time is of the essence of this Lease and of every part hereof. 27.12 Counterparts. This Lease may be executed in counterparts, which together shall constitute a single instrument. 27.13 Expansion Option: So long as P.F. Chang's China Bistro, Inc. (a) is not in breach of or in default under the Lease beyond any applicable cure period, (b) remains the Tenant under the Lease, and (c) has not sublet substantially all of the Premises, then Tenant shall have the following expansion option for the addition of up to 5,000 square feet of space on the second floor of the Building (the "Expansion Space") to the Premises. The exact location of the Expansion Space on the second floor shall be within Landlord's discretion. To exercise Tenant's expansion option, Tenant must give notice to Landlord no fewer than 180 days before the end of the third Lease Year of this Lease as to whether Tenant desires to lease the Expansion Space. If Tenant gives notice that Tenant is exercising this expansion option and will take the Expansion Space, within 30 days after the date Landlord receives the notice, Landlord and Tenant will enter into an Amendment of this Lease adding the Expansion Space to the Premises effective as of the fourth anniversary of the Commencement Date. The Expansion Space shall be added to the Premises under all the terms and conditions hereof except that the Base Rent rate for the Expansion Space will be at the greater of (i) fair market rental value of the Expansion Space or (ii) the then current Base Rent rate per square foot hereunder. If the parties cannot agree upon the fair market rental value of the Expansion Space, the procedure set forth in Article 2.2 above shall be used to determine it. The Amendment shall also adjust Tenant's Proportionate Share and any other items or figures calculated on the rentable square footage of the Premises (including, without limitation, the load factor applied to the Premises, and the number of parking spaces allocated to the Premises in the proportion of one additional parking space per 1,000 useable square feet of the Expansion Space) except the Tenant Improvement Allowance, which, if any, shall be at then-current market rates for the Expansion Space. If Landlord and Tenant do not, despite diligent good faith efforts, reach agreement with respect to the Expansion Space pursuant to this Article within 30 days after Tenant's notice, then Tenant shall be deemed not to have exercised Tenant's expansion option. If Tenant does not timely give notice to Landlord that Tenant is exercising the expansion option granted under this Article, Tenant shall be deemed to have waived its right to exercise the option and Landlord may lease the Expansion Space as Landlord deems fit. 17 18 TENANT: LANDLORD: P. F. CHANG'S CHINA BISTRO, PHXAZ/KIERLAND COMMONS, L.L.C., a Delaware corporation a Delaware limited liability company By: Woodbine/Kierland Commons, L.P., a Texas limited partnership, By __________________________ its general partner Name ________________________ Title _______________________ By: Woodbine Investment Corporation, a Texas Date ________________________ corporation, its general partner By ________________________ Name ______________________ Title _____________________ Date: _______________________________ 18 19 EXHIBIT A THE PREMISES 19 20 EXHIBIT B THE PROJECT 20 21 EXHIBIT C CONSTRUCTION PROVISIONS PART ONE - LANDLORD'S WORK (WITHOUT GRID) In every instance where responsibility is not specifically allocated to Landlord under the provisions of this exhibit, the responsibility shall be part of the Tenant Improvements. 1. Landlord's work shall mean: A. Building Shell 1. Foundation Work: All earthwork to construct the building pads, the concrete foundations and concrete slab on grade. 2. Structure: Steel columns and joist girder frames with steel joist supporting a 5" concrete and steel deck floor system. The maximum allowable uniform load upon any elevated slab shall be 100 PSF. 3. Roof: Three ply built-up roofing with batt insulation (R value 30) attached to the underside of deck. All roof and slab penetrations are to be coordinated by Landlord and per standard detail provided by Landlord. Any and all roofing repairs or penetrations are to be completed by the original roofing subcontractor so as not to void roofing warranty. 4. Interior Walls: The interior surfaces of all exterior walls will be unfinished on the interior with batt insulation (R value 19) and gypsum wall-board screwed to studs. A layer of foam will be attached to outside walls, providing additional insulation. 5. Demising Walls: Landlord shall construct the demising walls, 1/2 of the cost of which will be applied to the Tenant Improvement Allowance. The walls shall be constructed with 6" metal studs and track, with sound batt insulation and 5/8X gypsum board screwed to studs; both sides; to underside of structure; minimum fire taped and fire caulked. All penetrations shall be properly sealed and a 1-hour fire rating maintained. 6. Interior Floor: Smooth, hard troweled, concrete floor; floor covering by Tenant. 7. Mechanical: The HVAC system will consist of roof mounted heat pumps placed on roof curbs ducted through the roof with primary distribution only. Linear diffusers or special supply/exhaust requirements are by Tenant. The size and capacity of the heat pumps shall be based on peak heating and peak cooling loads for the premises. Cooling shall be provided at approximately one ton per 250 square feet utilizing one or multiple units at Landlord's election. A thermostat with manual control will be provided for each unit. The thermostat will be located within the Premises. 8. Plumbing: a. Water: A 1" cold water supply line, with shutoff valve, will be provided to the Premises. Connection to the supply line will be Tenant's responsibility. b. Sewer: A sanitary sewer line shall be installed as shown on Owner's plans. Tenant shall be responsible for the tie-in to the existing sewer line. Tenant shall provide clean outs and roof vents and building standard roof penetrations as required. Tenants are also responsible for any grease traps or other similar systems. 21 22 9. Fire Protection: The fire protection system shall be installed throughout the building shell conforming to the NFPA standards and all code requirements. Piping for finished interior space shall be above the finished ceiling with semi-recessed heads using chrome finished escutcheons. Modifications to the fire protection system to accommodate the Tenant improvement shall be the responsibility of the Tenant. 10. Electrical: Electrical service will be provided to the service entry section of each building. The Service Entrance Section will provide for a meter for each Tenant. a. Electrical conduits are provided from the SES to the electrical room. b. All exterior lighting will be circuited to the house panel and controlled by time clocks. 11. Telephone: (1) 2" telephone conduit w/ pull string shall be stubbed-up through the concrete slab-on-grade or sleeved into the electrical room to a telephone mounting board. A plywood mounting board will be located within the electrical room. Dedicated electrical power for telephone equipment transformers will be provided adjacent to the telephone mounting board. Tenant shall provide for installation of telephone wiring to the suite from the MPOP or telephone equipment room and all telephone distribution throughout the suite. B. Other Provisions: 1. Upon completion of Landlord's Work and prior to commencement of the Tenant Improvements Work, Landlord and Tenant shall conduct a "walk-thru" to establish a written punch list and date of turnover of the premises. 2. Nothing contained in Landlord's Work shall render Landlord liable for compliance with the ADA to the extent that Tenant is required to comply with the ADA as provided in this Lease or under applicable laws. 3. The above descriptions are based upon the Plans and Specifications for Kierland Commons produced by Nelsen Architects Inc., dated 11-16-98 and permitted by The City of Phoenix, Department of Building Safety, excluding secondary HVAC distribution, ceiling grid and tiles and lighting. PART TWO - TENANT IMPROVEMENTS 1. Preliminary Space Plan. Within 30 days after execution of this Lease, a preliminary space plan approved by Landlord and Tenant showing the size, nature and location of the improvements to be constructed in the Premises (the "Improvements"), shall be prepared. Promptly following execution of this Lease, Tenant shall meet with Landlord's architect and shall provide such information and make such selections as may be necessary for the expeditious completion of the planning process. 2. Working Drawings. Based upon the preliminary space plan and the information provided and selections made by Tenant, Landlord shall cause working drawings and specifications (collectively, the "Plans") to be prepared for the Improvements. The Plans shall be subject to Tenant's reasonable approval. Tenant shall respond with all of its specific objections or comments to the proposed Plans within ten days after receipt, and the Plans shall be modified to satisfy any reasonable objection of Tenant. Tenant shall promptly give its written approval of the revised Plans or indicate specific changes required to be made. 3. Cooperation. During the entire course of the process described above, both Landlord and Tenant shall review and respond to submissions by the other party with reasonable dispatch. Tenant shall respond with its approval or comments within ten days after receipt of initial drawings, specifications, or other materials requiring Tenant's review and within ten days after receipt of revised versions of such documents or materials. From time to time at the request of either party Landlord and Tenant shall devise, and revise as necessary, working schedules for the preparation of the Plans and the construction of the Improvements. Tenant shall not permit any supplier, installer, contractor, or other person employed by Tenant to interfere in any way with the progress of the work. Access by Tenant's suppliers, contractors and installers shall be subject to (i) scheduling by Landlord upon at least ten days' prior notice by Tenant, and (ii) compliance with all requirements imposed by Landlord with respect to insurance, cooperation, permits, licenses, bonding, hours of work, safety and use of flammable substances. The Improvements will be constructed by Landlord's contractor. 22 23 4. Redesign Option. If after the Plans are completed and Landlord's contractor has submitted a price for the work, the estimated Costs of Construction exceed the Tenant Improvement Allowance, Tenant may elect within three days after receipt of the cost estimate to attempt to reduce the associated cost by reducing the scope of the work to be done. The changes, which shall be subject to Landlord's prior approval, shall be incorporated in revised Plans. Any redesign and rebidding shall be completed within seven days after receipt of the initial cost estimate. 5. Cost. Tenant shall pay to Landlord within 10 days after invoice the amount, if any, by which the estimated Costs of Construction exceed the Tenant Improvement Allowance as set forth in Article 1.18. Landlord shall prepare and deliver the statement within a reasonable time after completion of punchlist items. "Costs of construction" of the Improvements as used in this Article means all costs and expenses incurred to design and build the improvements, including, without limitation, permit and inspection fees, management and supervision fees, taxes, amounts paid to contractors, subcontractors, and suppliers, architects' fees, engineering costs, premiums for bonds and insurance, utilities, equipment rental, labor, materials, and supplies. 6. Punchlist. Within thirty days after taking possession of the Premises, Tenant shall deliver to Landlord a written punchlist specifying all patent defects in materials or workmanship in the Improvements. Any defects not specified in the punchlist, except latent defects not readily discoverable by inspection, are waived. Landlord shall promptly cause all matters appearing on the punchlist to be corrected. 7. Delay. If completion of construction of improvements within the Premises or delivery of possession of the Premises is delayed by Tenant Delay, then the Commencement Date shall be deemed to have occurred and rent shall begin to accrue as of the date when they would have done so but for the Tenant Delay. "Tenant Delay" means delay as a result of: (a) Tenant's failure to meet with the architect and to provide all required information and make necessary selections for the expeditious development of Plans; (b) Tenant's failure to provide comments on proposed Plans in a timely manner; or (c) performance or completion by a party employed by Tenant. Landlord shall not be liable for any direct or consequential damages resulting from delayed delivery of the Premises (by reason of delayed construction, failure or refusal of a prior tenant of the space to vacate the Premises in accordance with its lease, or otherwise) except as set forth in Section 2.1 of the Lease. 23 24 EXHIBIT D RULES AND REGULATIONS 1. The sidewalks, passages, exits, entrances, and, except as otherwise approved by Landlord, the common areas, shall not be obstructed by Tenants or used by them for any purpose other than for ingress and egress from their respective Premises. 2. Tenants shall provide Landlord or Landlord's property manager with copies of keys for any locks or bolts on any doors or windows of the Premises. 3. The toilet rooms, urinals, washbowls and other apparatus within the Premises, the Building and the Project shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage, or damage to common utility facilities resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees, caused it. 4. No animals or birds shall be brought in or kept in or about the Premises or the Building unless the animals or birds pertain to Tenant's business as described in the Lease or are handicap assistance animals. 5. Tenant shall not use or keep in the Premises or the Building any kerosene, gasoline, or flammable or combustible fluid or material or use any method of heating or cooling other than that supplied by the Landlord unless, within reason, the product is available as part of the Tenant's business. 6. In case of invasion, mob, riot, public excitement or other commotion, the Landlord reserves the right to prevent access to the Project or any portion thereof during the continuance of the same by blocking of driveways or by any other reasonable means, for the safety of the Tenants and protection of the property in the Project. 7. Landlord reserves the right to exclude or expel from the Building or the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Project. 8. No vending machine, except those inside the Premises for the exclusive use of Tenant's employees, shall be installed, maintained or operated in the Building or the Project without the written consent of Landlord. 9. Tenants shall not disturb, solicit, or canvass any occupant of the Building or the Project and shall cooperate to prevent such solicitation or canvassing. 10. All garbage and refuse shall be placed in containers placed at the location designated for refuse collection, in the manner specified by Landlord. Refuse containers shall not be moved from the enclosure to any other area. All boxes must be broken down before being placed in the refuse containers. All packing material and food waste shall be placed in plastic bags and secured at the top before being placed in refuse containers. No trash, garbage, or construction debris or materials shall be brought into the Project from other locations or disposed of in refuse containers provided for the Project. 11. Tenants shall not park on Main Street and shall prevent their employees and contractors from parking on Main Street. 24 25 OFFICE LEASE BY AND BETWEEN PHXAZ/KIERLAND COMMONS, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY LANDLORD AND P. F. CHANG'S CHINA BISTRO, INC., A DELAWARE CORPORATION, TENANT DATED: SEPTEMBER _______, 1999 26 TABLE OF CONTENTS

PAGE ARTICLE 1 SUMMARY OF BASIC TERMS .......................................... 1 ARTICLE 2 DELIVERY, TERM AND CONSTRUCTION ................................. 2 2.1. Term ........................................................ 2 2.2 Renewals ..................................................... 2 2.3 Memorandum ................................................... 2 2.4 Area Measurement ............................................. 2 2.5 Condition .................................................... 2 ARTICLE 3 USE OF PREMISES ................................................. 2 3.1 Permitted Uses ............................................... 2 3.2 Insurance Restrictions ....................................... 2 3.3 Improvements ................................................. 2 3.4 Prohibitions ................................................. 2 3.5 Common Areas ................................................. 3 3.6 Parking ...................................................... 3 3.7.CC&R's, Rules and Regulations ................................ 3 3.8 Compliance with Law .......................................... 3 3.9 Environmental ................................................ 3 3.10 Audit ....................................................... 4 ARTICLE 4 SECURITY DEPOSIT AND GUARANTIES ................................. 4 ARTICLE 5 RENT ............................................................ 4 5.1 Base Rent .................................................... 4 5.2 Late Charges and Interest .................................... 4 5.3 Excise Taxes ................................................. 4 5.4 Obligations Are Rent ......................................... 4 5.5 Proration .................................................... 4 ARTICLE 6 OPERATING COSTS ................................................. 5 6.1 Tenant's Share ............................................... 5 6.2 Estimates .................................................... 5 6.3 Annual Reconciliation ........................................ 5 6.4 Partial Year Proration; Variable Cost Adjustment ............. 5 6.5. "Operating Costs" ........................................... 5 6.6 Exclusions ................................................... 6 ARTICLE 7 TAXES ........................................................... 6 ARTICLE 8 INSURANCE AND INDEMNITY ......................................... 6 8.1 Insurance Policies ........................................... 6 8.2 Policy Requirements .......................................... 7 8.3 Evidence of Coverage ......................................... 7 8.4 Indemnity and Exculpation .................................... 7 8.5 Landlord's Policies .......................................... 7 ARTICLE 9 FIRE AND CASUALTY ............................................... 7 9.1 Termination Rights ........................................... 7 9.2 Restoration .................................................. 7 9.3 Abatement .................................................... 8 9.4 Demolition of Project ........................................ 8 9.5 Agreed Remedies .............................................. 8 ARTICLE 10 CONDEMNATION ................................................... 8 10.1 Automatic Termination ....................................... 8 10.2 Optional Termination ........................................ 8

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PAGE 10.3 Award ....................................................... 8 ARTICLE 11 MAINTENANCE .................................................... 8 11.1 By Tenant ................................................... 8 11.2 By Landlord ................................................. 8 ARTICLE 12 UTILITIES ...................................................... 9 ARTICLE 13 LANDLORD RIGHT OF ENTRY ........................................ 9 ARTICLE 14 SIGNS .......................................................... 9 ARTICLE 15 TENANT ALTERATIONS ............................................. 9 15.1 Tenant Alterations .......................................... 9 15.2 Tenant Installations ........................................ 10 15.3 Mechanics Liens ............................................. 10 ARTICLE 16 ASSIGNMENT AND SUBLETTING ...................................... 10 16.1 Consent Required ............................................ 10 16.2 Requests for Approval ....................................... 10 16.3. Continued Responsibility ................................... 10 16.4 Excess Proceeds ............................................. 10 16.5 Limitations ................................................. 10 16.6 No Waiver ................................................... 10 16.7 Transfer by Landlord ........................................ 10 ARTICLE 17 SUBORDINATION AND ATTORNMENT ................................... 11 17.1 Subordination ............................................... 11 17.2 Lender Protection ........................................... 11 17.3 Documentation ............................................... 11 17.4 Other Transactions .......................................... 11 ARTICLE 18 ESTOPPEL CERTIFICATES .......................................... 11 ARTICLE 19 QUIET ENJOYMENT ................................................ 11 ARTICLE 20 SURRENDER AND HOLDOVER ......................................... 11 20.1 Surrender ................................................... 11 20.2 Holdover .................................................... 12 ARTICLE 21 BREACH, DEFAULT, AND REMEDIES .................................. 12 21.1 Default ..................................................... 12 21.2 Remedies .................................................... 12 ARTICLE 22 LANDLORD LIABILITY ............................................. 13 ARTICLE 23 NOTICES ........................................................ 13 ARTICLE 24 BROKERAGE ...................................................... 13 ARTICLE 25 RELOCATION ..................................................... 13 ARTICLE 26 RIGHTS RESERVED BY LANDLORD .................................... 13 26.1. Access ..................................................... 14 26.2. Use ........................................................ 14 26.3. Restriction of Access ...................................... 14 26.4. Other Tenants .............................................. 14 26.5. Changes .................................................... 14 26.6. Limitations ................................................ 14 ARTICLE 27 GENERAL ........................................................ 14

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PAGE 27.1 Severability ................................................ 14 27.2 No Waiver ................................................... 14 27.3 Effect of Payment ........................................... 14 27.4 Delay ....................................................... 15 27.5 Lender Notice ............................................... 15 27.6 No Offer .................................................... 15 27.7 Successors .................................................. 15 27.8 Integration ................................................. 15 27.9 WAIVER OF JURY TRIAL ........................................ 15 27.10 Governing Law .............................................. 15 27.11 Deadlines Enforceable ...................................... 15 27.12 Counterparts ............................................... 15 27.13 Expansion .................................................. 15

- iii - EX-10.12 3 EX-10.12 1 Exhibit 10.12 CREDIT AGREEMENT by and among P.F. CHANG'S CHINA BISTRO, INC., as Borrower, BANK OF AMERICA, N.A., as Agent and as Lender and THE LENDERS PARTY HERETO FROM TIME TO TIME December 3, 1999 BANK OF AMERICA SECURITIES LLC, as Sole Lead Arranger and Sole Book Manager 2 TABLE OF CONTENTS Page ARTICLE I Definitions and Terms 1.1. Definitions................................................... 2 1.2. Rules of Interpretation....................................... 25 ARTICLE II The Credit Facilities 2.1. Loans......................................................... 27 2.2. Use of Proceeds............................................... 29 2.3. Notes......................................................... 30 ARTICLE III Letters of Credit 3.1. Letters of Credit............................................. 31 3.2. Reimbursement and Participations.............................. 31 ARTICLE IV Loan Funding, Fees, and Payment Conventions 4.1 Interest Rate Options......................................... 35 4.2 Conversions and Elections of Subsequent Interest Periods...... 35 4.3 Payment of Interest........................................... 36 4.4 Prepayments of Eurodollar Rate Loans.......................... 36 4.5 Manner of Payment............................................. 36 4.6 Fees.......................................................... 37 4.7 Pro Rata Payments............................................. 37 4.8 Computation of Rates and Fees................................. 38 4.9 Deficiency Advances; Failure to Purchase Participations....... 38 4.10 Intraday Funding.............................................. 38 3 ARTICLE V Security 5.1. Security...................................................... 40 5.2. Further Assurances............................................ 40 5.3. Information Regarding Collateral.............................. 41 ARTICLE VI Change in Circumstances 6.1. Increased Cost and Reduced Return............................. 42 6.2. Limitation on Types of Loans.................................. 43 6.3. Illegality.................................................... 43 6.4. Treatment of Affected Loans................................... 44 6.5. Compensation.................................................. 44 6.6. Taxes......................................................... 45 ARTICLE VII Conditions to Making Loans and Issuing Letters of Credit 7.1. Conditions of Initial Advance................................. 47 7.2. Conditions of Loans and Letter of Credit...................... 49 ARTICLE VIII Representations and Warranties 8.1. Organization and Authority.................................... 51 8.2. Loan Documents................................................ 51 8.3. Solvency...................................................... 52 8.4. Subsidiaries and Stockholders................................. 52 8.5. Ownership Interests........................................... 52 8.6. Financial Condition........................................... 52 8.7. Title to Properties........................................... 53 8.8. Taxes......................................................... 53 8.9. Other Agreements.............................................. 53 8.10. Litigation.................................................... 54 8.11. Margin Stock.................................................. 54 8.12. Investment Company............................................ 54 8.13. Intellectual Property......................................... 54 8.14. No Untrue Statement........................................... 54 8.15. No Consents, Etc. ............................................ 55 ii 4 8.16. Employee Benefit Plans........................................ 55 8.17. No Default.................................................... 56 8.18. Environmental Laws............................................ 56 8.19. Employment Matters............................................ 56 8.20. RICO.......................................................... 57 8.21. Year 2000 Compliance.......................................... 57 8.22. Operating Facilities.......................................... 57 ARTICLE IX Affirmative Covenants 9.1. Financial Reports, Etc. ...................................... 58 9.2. Maintain Properties........................................... 59 9.3. Existence, Qualification, Etc. ............................... 59 9.4. Regulations and Taxes......................................... 59 9.5. Insurance..................................................... 60 9.6. True Books.................................................... 60 9.7. Year 2000 Compliance.......................................... 60 9.8. Right of Inspection........................................... 60 9.9. Observe all Laws.............................................. 60 9.10. Governmental Licenses......................................... 60 9.11. Covenants Extending to Other Persons.......................... 61 9.12. Officer's Knowledge of Default................................ 61 9.13. Suits or Other Proceedings.................................... 61 9.14. Notice of Environmental Complaint or Condition................ 61 9.15. Environmental Compliance...................................... 61 9.16. Indemnification............................................... 61 9.17. Further Assurances............................................ 62 9.18. Employee Benefit Plans........................................ 62 9.19. Continued Operations.......................................... 63 9.20. New Subsidiaries.............................................. 63 9.21. Post-Closing Mortgages........................................ 66 9.22. Certain Notices............................................... 66 9.23. New Restaurants............................................... 67 ARTICLE X Negative Covenants 10.1. Financial Covenants........................................... 68 10.2. Acquisitions.................................................. 68 10.3. Capital Expenditures.......................................... 68 10.4. Liens......................................................... 68 10.5. Indebtedness.................................................. 69 iii 5 10.6. Transfer of Assets............................................ 70 10.7. Investments................................................... 71 10.8. Merger or Consolidation....................................... 71 10.9. Restricted Payments........................................... 71 10.10. Transactions with Affiliates.................................. 71 10.11. Compliance with ERISA, the Code and Foreign Benefit Laws...... 72 10.12. Fiscal Year................................................... 72 10.13. Dissolution, etc.............................................. 73 10.14. Limitations on Sales and Leasebacks........................... 73 10.15. Change in Control............................................. 73 10.16. Rate Hedging Obligations...................................... 73 10.17. Negative Pledge Clauses....................................... 73 10.18. Prepayments, Etc. of Indebtedness............................. 73 10.19. Amendments to Operating Agreements............................ 73 ARTICLE XI Events of Default and Acceleration 11.1. Events of Default............................................. 74 11.2. Agent to Act.................................................. 77 11.3. Cumulative Rights............................................. 77 11.4. No Waiver..................................................... 77 11.5. Allocation of Proceeds........................................ 78 ARTICLE XII The Agent 12.1. Appointment, Powers, and Immunities........................... 79 12.2. Reliance by Agent............................................. 79 12.3. Defaults...................................................... 80 12.4. Rights as Lender.............................................. 80 12.5. Indemnification............................................... 80 12.6. Non-Reliance on Agent and Other Lenders....................... 81 12.7. Resignation of Agent.......................................... 81 12.8. Sole Lender................................................... 81 iv 6 ARTICLE XIII 13.1. Assignments and Participations................................ 82 13.2. Notices....................................................... 83 13.3. Right of Set-off; Adjustments................................. 85 13.4. Survival...................................................... 85 13.5. Expenses...................................................... 85 13.6. Amendments and Waivers........................................ 86 13.7. Counterparts.................................................. 86 13.8. Termination................................................... 86 13.9. Indemnification; Limitation of Liability...................... 87 13.10. Severability.................................................. 87 13.11. Entire Agreement.............................................. 88 13.12. Agreement Controls............................................ 88 13.13. Usury Savings Clause.......................................... 88 13.14. Payments...................................................... 88 13.15. GOVERNING LAW; WAIVER OF JURY TRIAL........................... 89 13.16. CONFIDENTIALITY .............................................. 90 EXHIBIT A Applicable Commitment Percentages...................... A-1 EXHIBIT B Form of Assignment and Acceptance...................... B-1 EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative......................................... C-1 EXHIBIT D Form of Borrowing Notice............................... D-1 EXHIBIT E Form of Interest Rate Selection Notice................. E-1 EXHIBIT F Form of Note........................................... F-1 EXHIBIT G Form of Opinion of Borrower's Counsel.................. G-1 EXHIBIT H Compliance Certificate................................. H-1 EXHIBIT I Form of Facility Guaranty.............................. I-1 EXHIBIT J Form of Security Agreement............................. J-1 EXHIBIT K Form of Pledge Agreement .............................. K-1 EXHIBIT L Form of LC Account Agreement........................... L-1 Schedule 5.3 Information Regarding Collateral....................... S-1 Schedule 5.4(b) Leased Properties to be Mortgaged...................... S-2 Schedule 8.4 Subsidiaries and Investments in Other Persons.......... S-3 Schedule 8.6 Indebtedness........................................... S-4 Schedule 8.7 Liens.................................................. S-5 Schedule 8.8 Tax Matters............................................ S-6 Schedule 8.10 Litigation............................................. S-7 Schedule 8.22 Operating Facilities................................... S-8 v 7 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of December 3, 1999 (the "Agreement"), is made by and among P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation having its principal place of business in Phoenix, Arizona (the "Borrower"), BANK OF AMERICA, N.A., a national banking association organized and existing under the laws of the United States, in its capacity as a Lender ("Bank of America"), and each other financial institution executing and delivering a signature page hereto and each other financial institution which may hereafter execute and deliver an instrument of assignment with respect to this Agreement pursuant to Section 13.1 (hereinafter such financial institutions may be referred to individually as a "Lender" or collectively as the "Lenders"), and BANK OF AMERICA, N.A., a national banking association organized and existing under the laws of the United States, in its capacity as agent for the Lenders (in such capacity, and together with any successor agent appointed in accordance with the terms of Section 12.7, the "Agent"); W I T N E S S E T H: WHEREAS, the Borrower has requested that the Lenders make available to the Borrower a revolving credit facility of up to $15,000,000, the proceeds of which are to be used for general corporate purposes and which shall include a letter of credit facility of up to $2,000,000 for the issuance of standby letters of credit; and WHEREAS, the Lenders are willing to make such revolving credit and letter of credit facilities available to the Borrower upon the terms and conditions set forth herein; NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as follows: 1 8 ARTICLE I Definitions and Terms 1.1. Definitions. For the purposes of this Agreement, in addition to the definitions set forth above, the following terms shall have the respective meanings set forth below: "Acquisition" means the acquisition of (i) a Controlling equity interest in another Person (including the purchase of an option, warrant or convertible or similar type security to acquire such a controlling interest at the time it becomes exercisable by the holder thereof), whether by purchase of such equity interest or upon exercise of an option or warrant for, or conversion of securities into, such equity interest, or (ii) assets of another Person which constitute all or any material part of the assets of such Person or of a line or lines of business conducted by such Person; provided, however, that the repurchase of the Management Securities of chefs, managers and/or regional managers shall not constitute Acquisitions hereunder. "Advance" means a borrowing under the Revolving Credit Facility consisting of a Base Rate Loan or a Eurodollar Rate Loan. "Affiliate" means any Person (i) which directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with the Borrower; or (ii) which beneficially owns or holds 10% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 10% or more of the equity interest) of the Borrower; or 10% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 10% or more of the equity interest) of which is beneficially owned or held by the Borrower. "Allowable Distributions" means (a) distributions to the Borrower or holders of Management Securities issued by partnership or limited liability company Subsidiaries of the Borrower (each, a "Reporting Entity") on or about 15 days prior to the due date for any tax return (including quarterly tax estimates) for each fiscal year in amounts sufficient to enable each such holder to discharge any Federal, state and local income tax liability of such minority investor arising as a result of the operations of the Reporting Entity in which it owns such minority interest, determined by assuming the applicability to each minority investor of the highest combined effective marginal Federal, state and local income tax rates; provided that if any Reporting Entity is not a partnership or a limited liability company classified for taxation purposes as a "partnership" within the meaning of the Code as of the last day of such fiscal year, then Allowable Distributions attributable to the operations of such Reporting Entity during such fiscal year shall be equal to zero and (b) distributions to the Borrower or holders of Management Securities issued by a Reporting Entity representing the distribution of Net Cash Flow (as defined in the Operating Agreement) to the holders of Management Securities in accordance with the Operating Agreement of such Reporting Entity. 2 9 "Applicable Commitment Fee" means that percent per annum set forth below, which shall be based upon the Consolidated Leverage Ratio for the Four-Quarter Period most recently ended as specified below:

Applicable Consolidated Leverage Commitment Tier Ratio Fee I Greater than or equal to 1.00 to 1.00 .50% II Less than 1.00 to 1.00 .375%

The Applicable Commitment Fee shall be established at each Determination Date. Any change in the Applicable Commitment Fee following each Determination Date shall be determined based upon the computations set forth in the certificate furnished to the Agent pursuant to Section 9.1(a)(ii) and Section 9.1(b)(ii), subject to review and approval of such computations by the Agent and shall be effective commencing on the fifth Business Day following the date such certificate is received until the fifth Business Day following the date on which a new certificate is delivered or is required to be delivered, whichever shall first occur; provided however, if the Borrower shall fail to deliver any such certificate within the time period required by Section 9.1, then the Applicable Commitment Fee shall be Tier I from the date such certificate was due until the appropriate certificate is so delivered. From the Closing Date to the first Determination Date, the Applicable Commitment Fee shall be Tier II. "Applicable Commitment Percentage" means, for each Lender at any time, a fraction, with respect to the Revolving Credit Facility and the Letter of Credit Facility, the numerator of which shall be such Lender's Revolving Credit Commitment and the denominator of which shall be the Total Revolving Credit Commitment, which Applicable Commitment Percentage for each Lender as of the Closing Date is as set forth in Exhibit A; provided that the Applicable Commitment Percentage of each Lender shall be increased or decreased to reflect any assignments to or by such Lender effected in accordance with Section 13.1. "Applicable Lending Office" means, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other office of such Lender (or an affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrower by written notice in accordance with the terms hereof as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" means that percent per annum set forth below, which shall be based upon the Consolidated Leverage Ratio for the Four-Quarter Period most recently ended as specified below: 3 10

Applicable Margin ---------- Consolidated Leverage Base Eurodollar Tier Ratio Rate Rate ---- ---------------------------- ----- ---------- I Greater than or equal to 1.50% 2.25% 1.50 to 1.00 II Less than 1.50 to 1.00 but greater than or equal to 1.00 to 1.00 1.00% 1.875% III Less than 1.00 to 1.00 0.50% 1.50%

The Applicable Margin shall be established at the end of each fiscal quarter of the Borrower (each, a "Determination Date"). Any change in the Applicable Margin following each Determination Date shall be determined based upon the computations set forth in the certificate furnished to the Agent pursuant to Section 9.1(a)(ii) and Section 9.1(b)(ii), subject to review and approval of such computations by the Agent, and shall be effective commencing on the fifth Business Day following the date such certificate is received until the fifth Business Day following the date on which a new certificate is delivered or is required to be delivered, whichever shall first occur; provided however, if the Borrower shall fail to deliver any such certificate within the time period required by Section 9.1, then the Applicable Margin shall be Tier I for Base Rate Loans and for Eurodollar Rate Loans from the date such certificate was due until the appropriate certificate is so delivered. From the Closing Date to the first Determination Date, the Applicable Margin shall be Tier III for Base Rate Loans and Tier III for Eurodollar Rate Loans. "Applications and Agreements for Letters of Credit" means, collectively, the Applications and Agreements for Letters of Credit, or similar documentation, executed by the Borrower from time to time and delivered to the Issuing Bank to support the issuance of Letters of Credit. "Asset Disposition" means any voluntary disposition, whether by sale, lease or transfer, of (a) any of the assets, excluding cash and cash equivalents, of the Borrower or its Subsidiaries, and (b) any of the capital stock, or securities or investments exchangeable, exercisable or convertible for or into, or otherwise entitling the holder to receive any of the capital stock, of any Subsidiary (other than a disposition to a Guarantor). "Assignment and Acceptance" shall mean an Assignment and Acceptance in the form of Exhibit B (with blanks appropriately filled in) delivered to the Agent in connection with an assignment of a Lender's interest under this Agreement pursuant to Section 13.1. "Assignment of Trademarks" means, collectively (or individually as the context may indicate) (i) the Assignment of Trademarks dated as of the date hereof by the 4 11 Borrower to the Agent, substantially in the form of Exhibit L, and (ii) any additional Assignment of Trademarks delivered to the Agent pursuant to Section 9.20, as hereafter amended, supplemented or replaced from time to time. "Authorized Representative" means any of the President or any Vice President of the Borrower or, with respect to financial matters, the chief financial officer of the Borrower, or any other Person expressly designated by the Board of Directors of the Borrower (or the appropriate committee thereof) as an Authorized Representative of the Borrower, as set forth from time to time in a certificate in the form of Exhibit C. "Bank of America" means Bank of America, N.A. "BAS" means Banc of America Securities LLC and its successors. "Base Rate" means, for any day, the rate per annum equal to the sum of (a) the higher of (i) the Federal Funds Rate for such day plus one-half of one percent (0.5%) and (ii) the Prime Rate for such day plus (b) the Applicable Margin. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate. "Base Rate Loan" means a Loan for which the rate of interest is determined by reference to the Base Rate. "Base Rate Refunding Loan" means a Base Rate Loan made to satisfy Reimbursement Obligations arising from a drawing under a Letter of Credit. "Board" means the Board of Governors of the Federal Reserve System (or any successor body). "Borrower's Account" means a demand deposit account number 3751410250 or any successor account with the Agent, which may be maintained at one or more offices of the Agent or an agent of the Agent. "Borrowing Notice" means the notice delivered by an Authorized Representative in connection with an Advance under the Revolving Credit Facility in the form of Exhibit D. "Business Day" means, (i) except as expressly provided in clause (ii), any day which is not a Saturday, Sunday or a day on which banks in the States of Arizona, New York and North Carolina are authorized or obligated by law, executive order or governmental decree to be closed and, (ii) with respect to the selection, funding, interest rate, payment, and Interest Period of any Eurodollar Rate Loan, any day which is a Business Day, as described above, and on which the relevant international financial markets are open for the transaction of business contemplated by this Agreement in 5 12 Phoenix, Arizona, London, England, New York, New York and Charlotte, North Carolina. "Capital Expenditures" means, with respect to the Borrower and its Subsidiaries, for any period the sum of (without duplication) (i) all expenditures (whether paid in cash or accrued as liabilities) by the Borrower or any Subsidiary during such period for items that would be classified as "property, plant or equipment" or comparable items on the consolidated balance sheet of the Borrower and its Subsidiaries, including without limitation all transactional costs incurred in connection with such expenditures provided the same have been capitalized, excluding, however, the amount of any Capital Expenditures paid for with proceeds of casualty insurance as evidenced in writing and submitted to the Agent together with any compliance certificate delivered pursuant to Section 9.1(a) or (b), and (ii) with respect to any Capital Lease entered into by the Borrower or its Subsidiaries during such period, the present value of the lease payments due under such Capital Lease over the term of such Capital Lease applying a discount rate equal to the interest rate provided in such lease (or in the absence of a stated interest rate, that rate used in the preparation of the financial statements described in Section 9.1(a)), all the foregoing in accordance with GAAP applied on a Consistent Basis. "Capital Leases" means all leases which have been or should be capitalized in accordance with GAAP as in effect from time to time including Statement No. 13 of the Financial Accounting Standards Board and any successor thereof. "Change of Control" means, at any time: (i) any "person" or "group" (each as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) either (A) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act ), directly or indirectly, of Voting Securities of the Borrower (or securities convertible into or exchangeable for such Voting Securities) representing 33-1/3% or more of the combined voting power of all Voting Securities of the Borrower (on a fully diluted basis) or (B) otherwise has the ability, directly or indirectly, to elect a majority of the board of directors of the Borrower; or (ii) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence on the management or policies of the Borrower. "Closing Date" means the date as of which this Agreement is executed by the Borrower, the Lenders and the Agent and on which the conditions set forth in Section 7.1 have been satisfied. 6 13 "Code" means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. "Collateral" means, collectively, all property of the Borrower, any Subsidiary or any other Person in which the Agent or any Lender is granted a Lien as security for all or any portion of the Obligations under any Security Instrument. "Consistent Basis" in reference to the application of GAAP means the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preparation of the audited financial statements of the Borrower referred to as of the Closing Date in Section 8.6(a). "Consolidated EBITDA" means, with respect to the Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the sum of, without duplication, (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) taxes on income, (iv) amortization, and (v) depreciation, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; provided, however, that with respect to an Acquisition that is accounted for as a "purchase", for the four Four-Quarter Periods ending next following the date of such Acquisition, Consolidated EBITDA shall include the results of operations of the Person or assets so acquired, which amounts shall be determined on a historical pro forma basis as if such Acquisition had been consummated as a "pooling of interests". "Consolidated EBITR" means, with respect to the Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the sum of, without duplication, (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) taxes on income paid during such period, (iv) Consolidated Lease Payments made during such period, and (v) all Allowable Distributions made during such period; provided, however, that with respect to an Acquisition that is accounted for as a "purchase", for the four Four-Quarter Periods ending next following the date of such Acquisition, Consolidated EBITR shall include the results of operations of the Person or assets so acquired, which amounts shall be determined on a historical pro forma basis as if such Acquisition had been consummated as a "pooling of interests". "Consolidated Fixed Charge Ratio" means, with respect to the Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the ratio of (i) Consolidated EBITR for such period less (without duplication) cash taxes paid during such period, to (ii) Consolidated Fixed Charges for such period. "Consolidated Fixed Charges" means, with respect to the Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the sum of, without duplication, (i) Consolidated Interest Expense, (ii) current maturities of the principal amount of Consolidated Indebtedness, (iii) Consolidated Lease Payments for such period, and (iv) all Allowable Distributions for such period all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; provided, 7 14 however, that with respect to an Acquisition that is accounted for as a "purchase", for the four Four-Quarter Periods ending next following the date of such Acquisition, Consolidated Fixed Charges shall include the results of operations of the Person or assets so acquired, which amounts shall be determined on a historical pro forma basis as if such Acquisition had been consummated as a "pooling of interests". "Consolidated Indebtedness" means all Indebtedness for Money Borrowed of the Borrower and its Subsidiaries, all determined on a consolidated basis. "Consolidated Interest Expense" means, with respect to any period of computation thereof, the gross interest expense of the Borrower and its Subsidiaries, including without limitation (i) the current amortized portion of debt discounts to the extent included in gross interest expense, (ii) the current amortized portion of all fees (including fees payable in respect of any Rate Hedging Obligation) payable in connection with the incurrence of Indebtedness to the extent included in gross interest expense and (iii) the portion of any payments made in connection with Capital Leases allocable to interest expense, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Lease Payments" means the gross amount of all lease or rental payments, whether or not characterized as rent, without duplication, of the Borrower and its Subsidiaries, excluding payments in respect of Capital Leases constituting Indebtedness, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Leverage Ratio" means, as of the date of computation thereof, the ratio of (i) Consolidated Indebtedness (determined as at such date) to (ii) Consolidated EBITDA (for the Four-Quarter Period ending on (or most recently ended prior to) such date). "Consolidated Net Income" means, for any period of computation thereof, the gross revenues from operations of the Borrower and its Subsidiaries (including payments received by the Borrower and its Subsidiaries of (i) interest income and (ii) dividends and distributions made in the ordinary course of their businesses by Persons in which investment is permitted pursuant to this Agreement and not related to an extraordinary event), less all operating and non-operating expenses (including all cash amounts added to reserves for charges in respect of closing under-performing restaurants) of the Borrower and its Subsidiaries including taxes on income, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; but excluding (for all purposes other than compliance with Section 10.1(a) hereof) as income: (i) net gains on the sale, conversion or other disposition of capital assets, (ii) net gains on the acquisition, retirement, sale or other disposition of capital stock and other securities of the Borrower or its Subsidiaries, (iii) net gains on the collection of proceeds of life insurance policies, (iv) any write-up of any asset, (v) one time non-cash charges associated with closing under-performing restaurants and (vi) any other net gain or credit 8 15 of an extraordinary nature (other than proceeds of business interruption insurance) all as determined in accordance with GAAP applied on a Consistent Basis; provided, however, that for purposes of determining compliance with the provisions of Section 10.1(a) hereof, there shall be disregarded any increase in Consolidated Net Income upon giving effect to any Acquisition which results from the treatment of such Acquisition as a "pooling of interests". "Consolidated Shareholders' Equity" means, as of any date on which the amount thereof is to be determined, the sum of the following in respect of the Borrower and its Subsidiaries (determined on a consolidated basis and excluding any upward adjustment after the Closing Date due to revaluation of assets): (i) the amount of issued and outstanding share capital, plus (ii) the amount of additional paid-in capital and retained earnings (or, in the case of a deficit, minus the amount of such deficit), plus (iii) the amount of any foreign currency translation adjustment (if positive, or, if negative, minus the amount of such translation adjustment), minus (iv) the amount of any treasury stock, all as determined in accordance with GAAP applied on a Consistent Basis. "Consolidated Tangible Net Worth" means, as of any date on which the amount thereof is to be determined, Consolidated Shareholders' Equity minus (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings) (i) all reserves (other than contingency reserves not allocated to any particular purpose), including without limitation reserves for depreciation, depletion, amortization, obsolescence, deferred income taxes, insurance and inventory valuation , and (ii) the net book value of all assets which would be treated as intangible assets, such as (without limitation) goodwill (whether representing the excess of cost over book value of assets acquired or otherwise), capitalized expenses, unamortized debt discount and expense, consignment inventory rights, patents, trademarks, trade names, copyrights, franchises and licenses, all as determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Contingent Obligation" means, as to any Person, any direct or indirect liability of that Person with respect to any Indebtedness, lease, dividend, guaranty, letter of credit or other obligation (each a "primary obligation") of another Person (the "primary obligor"), whether or not contingent, (a) to purchase, repurchase or otherwise acquire any such primary obligation or any property constituting direct or indirect security therefor, or (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor in respect of any such primary obligation or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of such primary obligor, or (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor thereof to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss or failure or inability to perform in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of 9 16 which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof. "Continue", "Continuation", and "Continued" shall refer to the continuation pursuant to Section 4.2 hereof of a Eurodollar Rate Loan of one Type as a Eurodollar Rate Loan of the same Type from one Interest Period to the next Interest Period. "Control"or "Controlled" or "Controlling" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting stock or by contract. "Convert", "Conversion", and "Converted" shall refer to a conversion pursuant to Section 4.2 of one Type of Loan into another Type of Loan. "Credit Parties" means, collectively, the Borrower, each Guarantor and each other Person providing Collateral pursuant to any Security Instrument. "Default" means any event or condition which, with the giving or receipt of notice or lapse of time or both, would constitute an Event of Default hereunder. "Default Rate" means (i) with respect to each Eurodollar Rate Loan, until the end of the Interest Period applicable thereto, a rate of two percent (2%) above the Eurodollar Rate applicable to such Loan, and thereafter at a rate of interest per annum which shall be two percent (2%) above the Base Rate, (ii) with respect to Base Rate Loans, Reimbursement Obligations, fees, and other amounts payable in respect of Obligations or (except as otherwise expressly provided therein) the obligations of any other Credit Party under any of the other Loan Documents, a rate of interest per annum which shall be two percent (2%) above the Base Rate, and (iii) in any case, the maximum rate permitted by applicable law, if lower. "Determination Date" shall have the meaning given to such term in the definition of "Applicable Margin". "Direct Foreign Subsidiary" means a Subsidiary other than a Domestic Subsidiary a majority of whose Voting Securities, or a majority of whose Subsidiary Securities, are owned by the Borrower or a Domestic Subsidiary. "Dollars" and the symbol "$" means dollars constituting legal tender for the payment of public and private debts in the United States of America. "Domestic Subsidiary" means any Subsidiary of the Borrower organized under the laws of the United States of America, any state or territory thereof or the District of Columbia. 10 17 "Eligible Assignee" means (i) a Lender, (ii) an affiliate of a Lender, and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 13.1, the Borrower, such approval not to be unreasonably withheld or delayed by the Borrower and such approval to be deemed given by the Borrower (in the absence of notice to the contrary, effective upon receipt) within five Business Days after notice of such proposed assignment has been received by the Borrower from the assigning Lender; provided, however, that neither the Borrower nor an affiliate of the Borrower shall qualify as an Eligible Assignee. "Eligible Securities" means the following obligations and any other obligations previously approved in writing by the Agent: (a) Government Securities; (b) obligations of any corporation organized under the laws of any state of the United States of America or under the laws of any other nation, payable in the United States of America, expressed to mature not later than 92 days following the date of issuance thereof and rated in an investment grade rating category by S&P and Moody's; (c) interest bearing demand or time deposits issued by any Lender or certificates of deposit maturing within one year from the date of issuance thereof and issued by a bank or trust company organized under the laws of the United States or of any state thereof having capital surplus and undivided profits aggregating at least $400,000,000 and being rated "A" or better by S&P or "A" or better by Moody's; (d) Repurchase Agreements; (e) Municipal Obligations; (f) Pre-Refunded Municipal Obligations; (g) shares of mutual funds which invest in obligations described in paragraphs (a) through (f) above, the shares of which mutual funds are at all times rated "AAA" by S&P; (h) tax-exempt or taxable adjustable rate preferred stock issued by a Person having a rating of its long term unsecured debt of "A-" or better by S&P or "A-3" or better by Moody's; and (i) asset-backed remarketed certificates of participation representing a fractional undivided interest in the assets of a trust, which certificates are rated at least "A-1" by S&P and "P-1" by Moody's. 11 18 "Employee Benefit Plan" means (i) any employee benefit plan, including any Pension Plan, within the meaning of Section 3(3) of ERISA which (A) is maintained for employees of the Borrower or any of its ERISA Affiliates, or any Subsidiary or is assumed by the Borrower or any of its ERISA Affiliates, or any Subsidiary in connection with any Acquisition or (B) has at any time been maintained for the employees of the Borrower, any current or former ERISA Affiliate, or any Subsidiary and (ii) any plan, arrangement, understanding or scheme maintained by the Borrower or any Subsidiary that provides retirement, deferred compensation, employee or retiree medical or life insurance, severance benefits or any other benefit covering any employee or former employee and which is administered under any Foreign Benefit Law or regulated by any Governmental Authority other than the United States of America. "Environmental Laws" means any federal, state or local statute, law, ordinance, code, rule, regulation, order, decree, permit or license regulating, relating to, or imposing liability or standards of conduct concerning, any environmental matters or conditions, environmental protection or conservation, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; the Superfund Amendments and Reauthorization Act of 1986, as amended; the Resource Conservation and Recovery Act, as amended; the Toxic Substances Control Act, as amended; the Clean Air Act, as amended; the Clean Water Act, as amended; together with all regulations promulgated thereunder, and any other "Superfund" or "Superlien" law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder. "ERISA Affiliate", as applied to the Borrower, means any Person or trade or business which is a member of a group which is under common control with the Borrower, who together with the Borrower, is treated as a single employer within the meaning of Section 414(b) and (c) of the Code. "Eurodollar Rate Loan" means a Loan for which the rate of interest is determined by reference to the Eurodollar Rate. "Eurodollar Rate" means the interest rate per annum calculated according to the following formula: Eurodollar = Interbank Offered Rate + Applicable Rate ------------------------ Margin 1- Reserve Requirement "Event of Default" means any of the occurrences set forth as such in Section 11.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder. 12 19 "Facility Guaranty" means each Guaranty Agreement between one or more Guarantors and the Agent for the benefit of the Agent and the Lenders, delivered as of the Closing Date and otherwise pursuant to Section 9.20, as the same may be amended, supplemented or replaced. "Facility Termination Date" means such date as all of the following shall have occurred: (a) the Borrower shall have permanently terminated the Revolving Credit Facility by payment in full of all Revolving Credit Outstandings and Letter of Credit Outstandings, together with all accrued and unpaid interest thereon, except for the undrawn portion of Letters of Credit as have been fully cash collateralized in a manner consistent with the terms of Section 11.1(B), (b) all Swap Agreements shall have been terminated, expired or cash collateralized, (c) all Revolving Credit Commitments and Letter of Credit Commitments shall have terminated or expired, and (d) the Borrower shall have fully, finally and irrevocably paid and satisfied in full all Obligations (other than Obligations consisting of continuing indemnities and other contingent Obligations of the Borrower or any Guarantor that may be owing to the Lenders pursuant to the Loan Documents and expressly survive termination of this Agreement); "FASB 133 Adjustments" means entries on or adjustments to any balance sheet or statement of income in respect of derivatives or hedging instruments as required or permitted by Statement of Financial Accounting Standards No. 133. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent. "Fiscal Year" means the twelve month fiscal period of the Borrower and its Subsidiaries commencing on January 1 of each calendar year and ending on December 31 of each calendar year. "Foreign Benefit Law" means any applicable statute, law, ordinance, code, rule, regulation, order or decree of any foreign nation or any province, state, territory, protectorate or other political subdivision thereof regulating, relating to, or imposing liability or standards of conduct concerning, any Employee Benefit Plan. "Four-Quarter Period" means a period of four full consecutive fiscal quarters of the Borrower and its Subsidiaries, taken together as one accounting period. 13 20 "GAAP" or "Generally Accepted Accounting Principles" means generally accepted accounting principles, being those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, or which have other substantial authoritative support and are applicable in the circumstances as of the date of a report. "Government Securities" means direct obligations of, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by, the United States of America. "Governmental Authority" shall mean any Federal, state, municipal, national or other governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government. "Guarantors" means, at any date, the Subsidiaries who are required to be parties to a Facility Guaranty at such date. "Hazardous Material" means and includes any pollutant, contaminant, or hazardous, toxic or dangerous waste, substance or material (including without limitation petroleum products, asbestos-containing materials and lead), the generation, handling, storage, transportation, disposal, treatment, release, discharge or emission of which is subject to any Environmental Law. "Indebtedness" means as to any Person, without duplication, (a) all Indebtedness for Money Borrowed of such Person, (b) all Rate Hedging Obligations of such Person, (c) all indebtedness secured by any Lien (other than Liens securing repayment of tenant improvement allowances) on any property or asset owned or held by such Person regardless or whether the indebtedness secured thereby shall have been assumed by such Person or is non-recourse to the credit of such Person, and (d) all Contingent Obligations of such Person. "Indebtedness for Money Borrowed" means with respect to any Person, without duplication, all indebtedness in respect of money borrowed, including without limitation, all obligations under Capital Leases, the deferred purchase price of any property or services, and payment and reimbursement obligations in respect of surety bonds, letters of credit, and bankers' acceptances, whether or not matured, evidenced by a promissory note, bond, debenture or similar written obligation for the payment of money (including reimbursement agreements and conditional sales or similar title retention agreements), other than trade payables, tenant improvement allowances and accrued expenses incurred in the ordinary course of business. 14 21 "Intellectual Property" means for any Person all patents (including all applications, renewals, reissues, extensions, divisions, continuations and extensions thereof), trademarks (including both registered and unregistered trademarks and applications therefor), service marks, trade names, copyrights (including all registrations, renewals, modifications and extensions thereof), know-how and trade secrets of material importance to the conduct of such Person's business. "Interbank Offered Rate" means, with respect to any Eurodollar Rate Loan for the Interest Period applicable thereto, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Interbank Offered Rate" shall mean, with respect to any Eurodollar Rate Loan for the Interest Period applicable thereto, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period, provided, however; if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). "Interest Period" means, for each Eurodollar Rate Loan, a period commencing on the date such Eurodollar Rate Loan is made or Converted or Continued and ending, at the Borrower's option, on the date one, two, three or six months thereafter as notified to the Agent by the Authorized Representative in accordance with the terms hereof; provided that, (i) if an Interest Period for a Eurodollar Rate Loan would end on a day which is not a Business Day, such Interest Period shall be extended to the next Business Day (unless such extension would cause the applicable Interest Period to end in the succeeding calendar month, in which case such Interest Period shall end on the next preceding Business Day); and (ii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "Interest Rate Selection Notice" means the written notice delivered by an Authorized Representative in connection with the election of a subsequent Interest Period for any Eurodollar Rate Loan or the Conversion of any Eurodollar Rate Loan into a Base Rate Loan or the Conversion of any Base Rate Loan into a Eurodollar Rate Loan, in the form of Exhibit E. 15 22 "Issuing Bank" means Bank of America as issuer of Letters of Credit under Article III. "LC Account Agreement" means the LC Account Agreement dated as of the date hereof between the Borrower and the Agent, substantially in the form of Exhibit M, as amended, modified or supplemented from time to time. "Letter of Credit" means a standby letter of credit issued by the Issuing Bank pursuant to Article III hereof for the account of the Borrower in favor of a Person advancing credit or securing an obligation on behalf of the Borrower. "Letter of Credit Commitment" means, with respect to each Lender, the obligation of such Lender to acquire Participations in respect of Letters of Credit and Reimbursement Obligations up to an aggregate amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Letter of Credit Commitment as the same may be increased or decreased from time to time pursuant to this Agreement. "Letter of Credit Facility" means the facility described in Article III hereof providing for the issuance by the Issuing Bank for the account of the Borrower of Letters of Credit in an aggregate stated amount at any time outstanding not exceeding the Total Letter of Credit Commitment minus outstanding Reimbursement Obligations. "Letter of Credit Outstandings" means, as of any date of determination, the aggregate amount available to be drawn under all Letters of Credit plus Reimbursement Obligations then outstanding. "Lien" means any interest in property securing any obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purposes of this Agreement, the Borrower and any Subsidiary shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes. "Loan" means any borrowing pursuant to an Advance under the Revolving Credit Facility in accordance with Section 2.1. "Loan Documents" means this Agreement, the Notes, the Security Instruments, the Facility Guaranties, the LC Account Agreement, the Applications and Agreements for Letter of Credit, and all other instruments and documents heretofore or hereafter executed or delivered to or in favor of any Lender or the Agent in connection with the Loans made 16 23 and transactions contemplated under this Agreement, as the same may be amended, supplemented or replaced from the time to time. "Management Agreements" means each management agreement, whether now existing or hereafter entered into, by and between the Borrower and any Subsidiary pursuant to which the Borrower agrees to manage certain restaurants in which such Subsidiaries have an interest, each as from time to time amended, supplemented or replaced. "Management Securities" means, with respect to any Subsidiary that has an interest in a restaurant facility, up to 20% of the issued and outstanding Subsidiary Securities of such Subsidiary owned beneficially and of record by the individual chefs or managers operating such restaurant facility or by the regional manager of the restaurants owned or operated by such Subsidiary. "Material Adverse Effect" means a material adverse effect on (i) the business, properties, operations, prospects or condition, financial or otherwise, of the Borrower and its Subsidiaries, taken as a whole, (ii) the ability of any Credit Party to pay or perform its respective obligations, liabilities and indebtedness under the Loan Documents as such payment or performance becomes due in accordance with the terms thereof, or (iii) the rights, powers and remedies of the Agent or any Lender under any Loan Document or the validity, legality or enforceability thereof. "Moody's" means Moody's Investors Service, Inc. "Mortgage" means, collectively, all mortgages, deeds of trust, deeds to secure debt and/or similar document or instrument granting a Lien to the Agent (or a trustee for the benefit of the Agent) for the benefit of the Lenders in Collateral constituting fee title real property of the Borrower or any Subsidiary acquired after the Closing Date, as such documents may be amended, modified or supplemented from time to time. "Mortgaged Property" means, collectively, the real property, improvements, fixtures and other items of real property related thereto and the products and proceeds thereof fee title to which is hereafter acquired by the Borrower or any Subsidiary that is or is required to become a Guarantor after the Closing Date pursuant to Section 9.20 and in which the Agent elects pursuant to Section 9.21 to obtain a Lien thereon for the benefit of the Agent and the Lenders pursuant to a Mortgage. "Mortgaged Property Support Documents" means, for each Mortgaged Property, (i) the Title Policy pertaining thereto, (ii) such surveys, flood hazard certifications, appraisals, and environmental assessments thereof as the Agent may require prepared by recognized experts in their respective fields selected by the Borrower and reasonably satisfactory to the Agent, (iii) as to Mortgaged Properties located in a flood hazard area, such flood hazard insurance as the agent may require, (iv) with respect to facilities leased or subleased to third parties, such lessees' estoppel, waiver and consent certificates and 17 24 subordination, nondisturbance and attornment agreements, (v) such owner's or lessee's affidavits as the agent may require, (vi) such opinions of local counsel with respect to the Mortgages as the agent may require, and (vii) such other documentation as the Agent may reasonably require, in each case as shall be in form and substance reasonably acceptable to the Agent. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or is accruing an obligation to make, contributions or has made, or been obligated to make, contributions within the preceding six (6) Fiscal Years. "Municipal Obligations" means general obligations issued by, and supported by the full taxing authority of, any state of the United States of America or of any municipal corporation or other public body organized under the laws of any such state which are rated in the highest investment rating category by both S&P and Moody's. "New Subsidiary" shall have the meaning given to such term in Section 9.20 hereof. "Notes" means, collectively, the promissory notes of the Borrower evidencing Loans executed and delivered to the Lenders as provided in Section 2.3 substantially in the form of Exhibit F, with appropriate insertions as to amounts, dates and names of Lenders. "Obligations" means the obligations, liabilities and Indebtedness of the Borrower with respect to (i) the principal and interest on the Loans as evidenced by the Notes, (ii) the Reimbursement Obligations and otherwise in respect of the Letters of Credit, (iii) all liabilities of Borrower to any Lender (or any affiliate of any Lender) which arise under a Swap Agreement, and (iv) the payment and performance of all other obligations, liabilities and Indebtedness of the Borrower to the Lenders, the Agent or BAS hereunder, under any one or more of the other Loan Documents or with respect to the Loans. "Operating Documents" means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, the bylaws, operating agreement, partnership agreement, limited partnership agreement or other applicable documents relating to the operation, governance or management of such entity. "Organizational Action" means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, any corporate, organizational or partnership action (including any required shareholder, member or partner action), or other similar official action, as applicable, taken by such entity. 18 25 "Organizational Documents" means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, the articles of incorporation, certificate of incorporation, articles of organization, certificate of limited partnership or other applicable organizational or charter documents relating to the creation of such entity. "Outstandings" means, collectively, at any date, the Letter of Credit Outstandings and Revolving Credit Outstandings on such date. "Participation" means, with respect to any Lender (other than the Issuing Bank) and a Letter of Credit, the extension of credit represented by the participation of such Lender hereunder in the liability of the Issuing Bank in respect of a Letter of Credit issued by the Issuing Bank in accordance with the terms hereof. "PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto. "Pension Plan" means any employee pension benefit plan within the meaning of Section 3(2) of ERISA, other than a Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of the Code and which (i) is maintained for employees of the Borrower or any of its ERISA Affiliates or is assumed by the Borrower or any of its ERISA Affiliates in connection with any Acquisition or (ii) has at any time been maintained for the employees of the Borrower or any current or former ERISA Affiliate. "Permitted Liens" has the meaning given to such term in Section 10.4. "Person" means an individual, partnership, corporation, limited liability company, limited liability partnership, trust, unincorporated organization, association, joint venture or a government or agency or political subdivision thereof. "Pledge Agreement" means, collectively (or individually as the context may indicate), (i) that certain Securities Pledge Agreement dated as of the date hereof between the Borrower and the Agent for the benefit of the Agent and the Lenders, (ii) any additional Securities Pledge Agreement delivered to the Agent pursuant to Section 5.1 and 9.20, and (iii) with respect to any Subsidiary Securities issued by a Direct Foreign Subsidiary, any additional or substitute charge, agreement, document, instrument or conveyance, in form and substance acceptable to the Agent, conferring under applicable foreign law upon the Agent for the benefit of the Agent and the Lenders a Lien upon such Subsidiary Securities as are owned by the borrower or any Domestic Subsidiary, in each case as hereafter amended, supplemented (including by Pledge Agreement Supplement) or replaced from time to time. 19 26 "Pledge Agreement Supplement" means, with respect to each Pledge Agreement, the Pledge Agreement Supplement in the form affixed as an Exhibit to such Pledge Agreement. "Pledged Interests" means the Subsidiary Securities required to be pledged as Collateral pursuant to Article V or the terms of any Pledge Agreement, and shall include (i) 65% of the Subsidiary Securities (other than Management Securities) of each Direct Foreign Subsidiary and (ii) 100% of the Subsidiary Securities (other than Management Securities) of each Domestic Subsidiary. "Pre-Refunded Municipal Obligations" means obligations of any state of the United States of America or of any municipal corporation or other public body organized under the laws of any such state which are rated, based on the escrow, in the highest investment rating category by both S&P and Moody's and which have been irrevocably called for redemption and advance refunded through the deposit in escrow of Government Securities or other debt securities which are (i) not callable at the option of the issuer thereof prior to maturity, (ii) irrevocably pledged solely to the payment of all principal and interest on such obligations as the same becomes due and (iii) in a principal amount and bear such rate or rates of interest as shall be sufficient to pay in full all principal of, interest, and premium, if any, on such obligations as the same becomes due as verified by a nationally recognized firm of certified public accountants. "Prime Rate" means the per annum rate of interest established from time to time by Bank of America as its prime rate, which rate may not be the lowest rate of interest charged by Bank of America to its customers. "Principal Office" means the principal office of Bank of America, presently located at 101 North Tryon Street, 15th Floor, NC1 001-15-04, Charlotte, North Carolina 28255, Attention: Agency Services, or such other office and address as the Agent may from time to time designate. "Rate Hedging Obligations" means, without duplication, any and all obligations of the Borrower or any Subsidiary, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, Dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts, warrants and those commonly known as interest rate "swap" agreements; (ii) all other "derivative instruments" as defined in FASB 133 and which are subject to the reporting requirements of FASB 133; and (iii) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing. 20 27 "Registrar" means, with respect to any Subsidiary Securities, any Person authorized or obligated to maintain records of the registration of ownership or transfer of ownership of interests in such Subsidiary Securities, and in the event no such Person shall have been expressly designated by the related Subsidiary, shall mean (i) as to any corporation or limited liability company, its Secretary (or comparable official), and (ii) as to any partnership, its general partner (or managing general partner if one shall have been appointed). "Regulation D" means Regulation D of the Board as the same may be amended or supplemented from time to time. "Reimbursement Obligation" shall mean at any time, the obligation of the Borrower with respect to any Letter of Credit to reimburse the Issuing Bank and the Lenders to the extent of their respective Participations (including by the receipt by the Issuing Bank of proceeds of Loans pursuant to Section 2.1(c)(iii)) for amounts theretofore paid by the Issuing Bank pursuant to a drawing under such Letter of Credit. "Reporting Entity" shall have the meaning given to such term in the definition of "Allowable Distributions". "Repurchase Agreement" means a repurchase agreement entered into with any financial institution whose debt obligations or commercial paper are rated "A" by either of S&P or Moody's or "A-1" by S&P or "P-1" by Moody's. "Required Lenders" means, as of any date, Lenders on such date having Credit Exposures (as defined below) aggregating (i) if there shall be fewer than three (3) Lenders, 100% of the aggregate Credit Exposures of all Lenders on such date, and (ii) if there shall be three (3) or more Lenders, more than 50% of the aggregate Credit Exposures of all the Lenders on such date. For purposes of the preceding sentence, the amount of the "Credit Exposure" of each Lender shall be equal at all times (a) other than following the occurrence and during the continuance of an Event of Default, to its Revolving Credit Commitment, and (b) following the occurrence and during the continuance of an Event of Default, to the sum of (i) the aggregate principal amount of such Lender's Applicable Commitment Percentage of Revolving Credit Outstandings plus (ii) the amount of such Lender's Applicable Commitment Percentage of Letter of Credit Outstandings; provided that, for the purpose of this definition only, (A) if any Lender shall have failed to fund its Applicable Commitment Percentage of any Advance, then the Revolving Credit Commitment of such Lender shall be deemed reduced by the amount it so failed to fund for so long as such failure shall continue and such Lender's Credit Exposure attributable to such failure shall be deemed held by any Lender making more than its Applicable Commitment Percentage of such Advance to the extent it covers such failure, and (B) if any Lender shall have failed to pay to the Issuing Bank upon demand its Applicable Commitment Percentage of any drawing under any Letter of Credit resulting in an outstanding Reimbursement Obligation (whether by funding its Participation therein or otherwise), such Lender's Credit Exposure attributable to all 21 28 Letter of Credit Outstandings shall be deemed to be held by the Issuing Bank until such Lender shall pay such deficiency amount to the Issuing Bank together with interest thereon as provided in Section 4.9. "Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Rate Loans. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. "Restricted Payment" means (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of the Borrower or any Subsidiary Securities of its Subsidiaries (other than those payable or distributable solely to the Borrower) now or hereafter outstanding, except a dividend payable solely in shares of a class of stock or units of a class of Subsidiary Securities to the holders of that class; (b) any redemption, conversion, exchange, retirement or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Borrower or any Subsidiary Securities of its Subsidiaries (other than those payable or distributable solely to the Borrower) now or hereafter outstanding; (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Borrower or any Subsidiary Securities of its Subsidiaries now or hereafter outstanding; and (d) any issuance and sale of Subsidiary Securities of any Subsidiary of the Borrower (or any option, warrant or right to acquire such subsidiary securities) other than to the Borrower; provided, however, that for so long as no Event of Default has occurred and is continuing, Allowable Distributions and the issuance of Management Securities in compliance with Section 10.6(g) shall not constitute Restricted Payments hereunder. "Revolving Credit Commitment" means, with respect to each Lender, the obligation of such Lender to make Loans to the Borrower up to an aggregate principal amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Revolving Credit Commitment. "Revolving Credit Facility" means the facility described in Section 2.1 hereof providing for Loans to the Borrower by the Lenders in the aggregate principal amount of the Total Revolving Credit Commitment. "Revolving Credit Outstandings" means, as of any date of determination, the aggregate principal amount of all Loans then outstanding. 22 29 "Revolving Credit Termination Date" means (i) the Stated Termination Date or (ii) such earlier date of termination of Lenders' obligations pursuant to Section 11.1 upon the occurrence of an Event of Default, or (iii) such date as the Borrower may voluntarily and permanently terminate the Revolving Credit Facility by written notice to the Agent and payment in full of all Revolving Credit Outstandings and Letter of Credit Outstandings and cancellation of all Letters of Credit, together with all accrued and unpaid interest thereon. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill. "Security Agreement" means, collectively (or individually as the context may indicate), (i) the Security Agreement dated as of the Closing Date by the Borrower and the Guarantors to the Agent, and (ii) any additional Security Agreement delivered to the Agent pursuant to Section 9.20, as hereafter amended, supplemented or replaced from time to time. "Security Instruments" means, collectively, the Pledge Agreement, the Security Agreement, the Mortgages, if any, the Assignment of Trademarks, the LC Account Agreement and all other agreements (including control agreements), instruments and other documents, whether now existing or hereafter in effect, pursuant to which the Borrower or any Subsidiary shall grant or convey to the Agent or the Lenders a Lien in, or any other Person shall acknowledge any such Lien in, property as security for all or any portion of the Obligations, as any of them may be amended, supplemented or replaced from time to time. "Solvent" means, when used with respect to any Person, that at the time of determination: (i) the fair value of its assets (both at fair valuation and at present fair saleable value on an orderly basis) is in excess of the total amount of its liabilities, including Contingent Obligations; and (ii) it is then able and expects to be able to pay its debts as they mature; and (iii) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "Stated Termination Date" means November 30, 2002, or such later date as the parties may agree pursuant to Section 2.1(f). "Subsidiary" means any corporation or other entity in which more than 50% of its outstanding Voting Securities or more than 50% of all equity interests is owned directly or indirectly by the Borrower and/or by one or more of the Borrower's Subsidiaries. 23 30 "Subsidiary Securities" means the shares of capital stock or the other equity interests issued by or equity participations in any Subsidiary (including without limitation partnership and membership interests), whether or not constituting a "security" under Article 8 of the Uniform Commercial Code as in effect in any jurisdiction. "Swap Agreement" means one or more agreements between the Borrower and any Person with respect to Indebtedness evidenced by any or all of the Notes, on terms mutually acceptable to Borrower and such Person and approved by the Required Lenders, which agreements create Rate Hedging Obligations; provided, however, that no such approval of the Required Lenders shall be required to the extent such agreements are entered into between the Borrower and any Lender or any affiliate of any Lender. "Termination Event" means: (i) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder (unless the notice requirement has been waived by applicable regulation); or (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4062(e) of ERISA; or (iii) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA; or (iv) the institution of proceedings to terminate a Pension Plan by the PBGC; or (v) any other event or condition which would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; or (vi) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan; or (vii) the imposition of a Lien pursuant to Section 412 of the Code or Section 302 of ERISA; or (viii) any event or condition which results in the reorganization or insolvency of a Multiemployer Plan under Section 4241 or Section 4245 of ERISA, respectively; or (ix) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA; or (x) any event or condition with respect to any Employee Benefit Plan which is regulated by any Foreign Benefit Law that results in the termination of such Employee Benefit Plan or the revocation of such Employee Benefit Plan's authority to operate under the applicable Foreign Benefit Law. "Title Policy" means, with respect to each Mortgaged Property, the mortgagee title insurance policy (together with such endorsements as the Agent may reasonably require) issued to the Agent in respect of such Mortgaged Property by an insurer selected by the Borrower and reasonably acceptable to the Agent, insuring (in an amount satisfactory to the Agent) the Lien of the Agent for the benefit of the Agent and the Lenders on such Mortgaged Property to be duly perfected and of first priority, subject only to such exceptions as shall be acceptable to the Agent. "Total Letter of Credit Commitment" means an amount not to exceed $2,000,000. 24 31 "Total Revolving Credit Commitment" means a principal amount equal to $15,000,000, as reduced from time to time in accordance with Section 2.1(e). "Type" shall mean any type of Loan (i.e., a Base Rate Loan or a Eurodollar Rate Loan). "Voting Securities" means shares of capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "Year 2000 Compliant" means all computer applications (including those affected by information received from its suppliers and vendors) that are material to the Borrower's or any of its Subsidiaries' business and operations will on a timely basis be able to perform properly date-sensitive functions involving all dates on and after January 1, 2000; "Year 2000 Problem" means the risk that computer applications used by the Borrower or any of its Subsidiaries (including those affected by information received from its suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates on and after January 1, 2000. 1.2. Rules of Interpretation. (a) All accounting terms not specifically defined herein shall have the meanings assigned to such terms and shall be interpreted in accordance with GAAP applied on a Consistent Basis. (b) Each term defined in Articles 1, 8 or 9 of the North Carolina Uniform Commercial Code shall have the meaning given therein unless otherwise defined herein, except to the extent that the Uniform Commercial Code of another jurisdiction is controlling, in which case such terms shall have the meaning given in the Uniform Commercial Code of the applicable jurisdiction. (c) The headings, subheadings and table of contents used herein or in any other Loan Document are solely for convenience of reference and shall not constitute a part of any such document or affect the meaning, construction or effect of any provision thereof. (d) Except as otherwise expressly provided, references in any Loan Document to articles, sections, paragraphs, clauses, annexes, appendices, exhibits and schedules are references to articles, sections, paragraphs, clauses, annexes, appendices, exhibits and schedules in or to such Loan Document. 25 32 (e) All definitions set forth herein or in any other Loan Document shall apply to the singular as well as the plural form of such defined term, and all references to the masculine gender shall include reference to the feminine or neuter gender, and vice versa, as the context may require. (f) When used herein or in any other Loan Document, words such as "hereunder", "hereto", "hereof" and "herein" and other words of like import shall, unless the context clearly indicates to the contrary, refer to the whole of the applicable document and not to any particular article, section, subsection, paragraph or clause thereof. (g) References to "including" means including without limiting the generality of any description preceding such term, and for purposes hereof the rule of ejusdem generis shall not be applicable to limit a general statement, followed by or referable to an enumeration of specific matters, to matters similar to those specifically mentioned. (h) Except as otherwise expressly provided, all dates and times of day specified herein shall refer to such dates and times at Charlotte, North Carolina. (i) Whenever interest rates or fees are established in whole or in part by reference to a numerical percentage expressed as "___%", such arithmetic expression shall be interpreted in accordance with the convention that 1% = 100 basis points. (j) Each of the parties to the Loan Documents and their counsel have reviewed and revised, or requested (or had the opportunity to request) revisions to, the Loan Documents, and any rule of construction that ambiguities are to be resolved against the drafting party shall be inapplicable in the construing and interpretation of the Loan Documents and all exhibits, schedules and appendices thereto. (k) Any reference to an officer of the Borrower or any other Person by reference to the title of such officer shall be deemed to refer to each other officer of such Person, however titled, exercising the same or substantially similar functions. (l) All references to any agreement or document as amended, modified or supplemented, or words of similar effect, shall mean such document or agreement, as the case may be, as amended, modified or supplemented from time to time only as and to the extent permitted therein and in the Loan Documents. 26 33 ARTICLE II The Credit Facilities 2.1. Loans. (a) Commitment. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Advances to the Borrower under the Revolving Credit Facility from time to time from the Closing Date until the Revolving Credit Termination Date on a pro rata basis as to the total borrowing requested by the Borrower on any day determined by such Lender's Applicable Commitment Percentage up to but not exceeding the Revolving Credit Commitment of such Lender, provided, however, that the Lenders will not be required and shall have no obligation to make any such Advance (i) so long as a Default or an Event of Default has occurred and is continuing or (ii) if the Agent has accelerated the maturity of any of the Notes as a result of an Event of Default; provided further, however, that immediately after giving effect to each such Advance, the amount of Revolving Credit Outstandings plus Letter of Credit Outstandings shall not exceed the Total Revolving Credit Commitment. Within such limits and subject to the other terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow under the Revolving Credit Facility on a Business Day from the Closing Date until, but (as to borrowings and reborrowings) not including, the Revolving Credit Termination Date. (b) Amounts. Except as otherwise permitted by the Lenders from time to time, the amount of Revolving Credit Outstandings plus Letter of Credit Outstandings shall not exceed at any time the Total Revolving Credit Commitment, and, in the event there shall be outstanding any such excess, the Borrower, within ten (10) Business Days after receipt of notice from the Agent, shall make such payments and prepayments as shall be necessary to comply with this restriction. Each Advance under the Revolving Credit Facility, other than Base Rate Refunding Loans, shall be in an amount of at least $500,000, and, if greater than $500,000, an integral multiple of $100,000. (c) Advances. (i) An Authorized Representative shall give the Agent (1) at least three (3) Business Days' irrevocable telephonic notice of each Eurodollar Rate Loan (whether representing an additional borrowing or the Continuation of a borrowing hereunder or the Conversion of a borrowing hereunder from a Base Rate Loan to a Eurodollar Rate Loan) prior to 10:30 A.M. no later than the third Business Day prior to such Loan and (2) irrevocable telephonic notice of each Base Rate Loan (other than Base Rate Refunding Loans to the extent the same are effected without notice pursuant to Section 2.1(c)(iii) and whether representing an additional borrowing hereunder or the Conversion of borrowing hereunder from Eurodollar Rate Loans to Base Rate Loans) prior to 10:30 A.M. on the day of such proposed Loan. Each such notice shall be effective upon receipt by the Agent, shall specify the amount of the borrowing, the type of Loan (Base Rate or Eurodollar Rate), the date of borrowing and, if a Eurodollar Rate Loan, the Interest Period to be used in the computation of interest. The Authorized Representative shall provide the Agent written confirmation of each such telephonic notice in the form of a Borrowing Notice or Interest Rate Selection Notice (as applicable) with appropriate insertions sent by telefacsimile transmission but failure to provide such confirmation shall not 27 34 affect the validity of such telephonic notice. Notice of receipt of such Borrowing Notice or Interest Rate Selection Notice, as the case may be, together with the amount of each Lender's portion of an Advance requested thereunder, shall be provided by the Agent to each Lender by telefacsimile transmission with reasonable promptness, but (provided the Agent shall have received such notice by 11:30 A.M.) not later than 1:00 P.M. on the same day as the Agent's receipt of such notice. (ii) Not later than 2:00 P.M. on the date specified for each borrowing under this Section 2.1, each Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make the amount of the Advance or Advances to be made by it on such day available by wire transfer to the Agent in the amount of its pro rata share, determined according to such Lender's Applicable Commitment Percentage of the Loan or Loans to be made on such day. Such wire transfer shall be directed to the Agent at the Principal Office and shall be in the form of Dollars constituting immediately available funds. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by delivery of the proceeds thereof to the Borrower's Account or otherwise as shall be directed in the applicable Borrowing Notice by the Authorized Representative and reasonably acceptable to the Agent. (iii) Notwithstanding the foregoing, if a drawing is made under any Letter of Credit, such drawing is honored by the Issuing Bank, and the Borrower shall not immediately fully reimburse the Issuing Bank in respect of such drawing from other funds available to the Borrower, (A) provided that the conditions to making a Loan as herein provided shall then be satisfied, the Reimbursement Obligation arising from such drawing shall be paid to the Issuing Bank by the Agent without the requirement of notice to or from the Borrower from immediately available funds which shall be advanced as a Base Rate Refunding Loan to the Agent at its Principal Office by each Lender under the Revolving Credit Facility in an amount equal to such Lender's Applicable Commitment Percentage of such Reimbursement Obligation, and (B) if the conditions to making a Loan as herein provided shall not then be satisfied, each of the Lenders shall fund by payment to the Agent (for the benefit of the Issuing Bank) at its Principal Office in immediately available funds the purchase from the Issuing Bank of their respective Participations in the related Reimbursement Obligation based on their respective Applicable Commitment Percentages of the Total Letter of Credit Commitment. If a drawing is presented under any Letter of Credit in accordance with the terms thereof and the Borrower shall not immediately reimburse the Issuing Bank in respect thereof, then notice of such drawing or payment shall be provided promptly by the Issuing Bank to the Agent and the Agent shall provide notice to each Lender by telephone or telefacsimile transmission. If notice to the Lenders of a drawing under any Letter of Credit is given by the Agent at or before 12:00 noon on any Business Day, each Lender shall either make a Base Rate Refunding Loan or fund the purchase of its Participation as specified above in the amount of such Lender's Applicable Commitment Percentage of such drawing or payment and shall pay such amount to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 2:30 P.M. on the same Business Day. If such notice to the Lenders is given by the Agent after 12:00 noon on any Business Day, each Lender shall either make such Base Rate Refunding Loan or fund such purchase before 12:00 noon on the next following Business Day. 28 35 (d) Repayment of Loans. The principal amount of each Loan shall be due and payable to the Agent for the benefit of each Lender in full on the Revolving Credit Termination Date, or earlier as specifically provided herein. The principal amount of any Loan may be prepaid in whole or in part on any Business Day, upon (A) at least three (3) Business Days' irrevocable telephonic notice in the case of each Loan that is a Eurodollar Rate Loan from an Authorized Representative (effective upon receipt) to the Agent prior to 12:30 P.M. and (B) irrevocable telephonic notice in the case of each Loan that is a Base Rate Loan from an Authorized Representative (effective upon receipt) to the Agent prior to 12:30 P.M. on the day of such proposed repayment. The Authorized Representative shall provide the Agent written confirmation of each such telephonic notice sent by telefacsimile transmission but failure to provide such confirmation shall not effect the validity of such telephonic notice. All prepayments of Loans made by the Borrower shall be in the amount of $500,000 or such greater amount which is an integral multiple of $100,000, or the amount equal to all Revolving Credit Outstandings, or such other amount as necessary to comply with Section 2.1(b). (e) Reductions. The Borrower shall, by notice from an Authorized Representative, have the right from time to time but not more frequently than once each calendar month, upon not less than three (3) Business Days' written notice to the Agent, effective upon receipt, to reduce the Total Revolving Credit Commitment. The Agent shall give each Lender, within one (1) Business Day of receipt of such notice, telefacsimile notice, or telephonic notice (confirmed in writing), of such reduction. Each such reduction shall be in the aggregate amount of $5,000,000, or such greater amount which is in an integral multiple of $1,000,000, or the entire remaining Total Revolving Credit Commitment, and shall permanently reduce the Total Revolving Credit Commitment. Each reduction of the Total Revolving Credit Commitment shall be accompanied by payment of the Loans to the extent that the principal amount of Revolving Credit Outstandings plus Letter of Credit Outstandings exceeds the Total Revolving Credit Commitment after giving effect to such reduction, together with accrued and unpaid interest on the amounts prepaid. (f) Extension of Stated Termination Date. At the request of the Borrower the Lenders may, in their sole discretion, elect to extend the Stated Termination Date then in effect for two additional periods of one year each. The Borrower shall notify the Lenders of its request for such an extension by delivering to the Agent and the Lenders notice of such request signed by an Authorized Representative not more than ninety (90) days nor less than sixty (60) days prior to the anniversary of the Closing Date next preceding the Stated Termination Date then in effect. If the Lenders shall elect to so extend, the Agent shall notify the Borrower in writing within fifteen (15) days of its receipt of such request for extension of the decision of the Lenders as to whether to extend the Stated Termination Date. Failure by any Lender to respond to a request for an extension shall constitute a refusal of such Lender to give its consent to such extension. Failure by the Agent to give such notice shall constitute refusal by the Lenders to extend the Stated Termination Date. 2.2. Use of Proceeds. The proceeds of the Loans made pursuant to the Revolving Credit Facility hereunder shall be used by the Borrower for general working capital needs and other corporate purposes, including the making of Capital Expenditures permitted hereunder. 29 36 2.3. Notes. Loans made by each Lender shall be evidenced by the Note payable to the order of such Lender in the respective amount of its Applicable Commitment Percentage of the Total Revolving Credit Commitment, which Note shall be dated the Closing Date or a later date pursuant to an Assignment and Acceptance and shall be duly completed, executed and delivered by the Borrower. 30 37 ARTICLE III Letters of Credit 3.1. Letters of Credit. The Issuing Bank agrees, subject to the terms and conditions of this Agreement, upon request of the Borrower to issue from time to time for the account of the Borrower Letters of Credit upon delivery to the Issuing Bank of an Application and Agreement for Letter of Credit relating thereto in form and content reasonably acceptable to the Issuing Bank; provided, that (i) the Issuing Bank shall not be obligated to issue any Letter of Credit if it has been notified by the Agent or has actual knowledge that a Default or Event of Default has occurred and is continuing, (ii) the Letter of Credit Outstandings shall not exceed the Total Letter of Credit Commitment and (iii) no Letter of Credit shall be issued if, after giving effect thereto, Letter of Credit Outstandings plus Revolving Credit Outstandings shall exceed the Total Revolving Credit Commitment. No Letter of Credit shall have an expiry date (including all rights of the Borrower or any beneficiary named in such Letter of Credit to require renewal) or payment date occurring later than the earlier to occur of one year after the date of its issuance or the seventh Business Day prior to the Stated Termination Date. 3.2. Reimbursement and Participations. (a) The Borrower hereby unconditionally agrees to pay to the Issuing Bank immediately on demand at the Principal Office all amounts required to pay all drafts drawn under the Letters of Credit or documents purporting to be Letters of Credit and all reasonable expenses incurred by the Issuing Bank in connection with the Letters of Credit, and in any event to place in possession of the Issuing Bank (which shall include Advances under the Revolving Credit Facility if permitted by Section 2.1) sufficient funds to pay all debts and liabilities arising under any Letter of Credit. The Issuing Bank agrees to give the Borrower prompt notice of any request for a draw under a Letter of Credit. The Issuing Bank may charge any account the Borrower may have with it for any and all amounts the Issuing Bank pays under a Letter of Credit, plus charges and reasonable expenses as from time to time agreed to by the Issuing Bank and the Borrower; provided that to the extent permitted by Section 2.1(c)(iii), amounts shall be paid pursuant to Advances under the Revolving Credit Facility. The Borrower agrees to pay the Issuing Bank interest on any Reimbursement Obligations not paid when due hereunder either directly by the Borrower or through Advances at the Default Rate. (b) In accordance with the provisions of Section 2.1(c), the Issuing Bank shall notify the Agent of any drawing under any Letter of Credit promptly following the receipt by the Issuing Bank of such drawing. (c) Each Lender (other than the Issuing Bank) shall automatically acquire on the date of issuance thereof, a Participation in the liability of the Issuing Bank in respect of each Letter of Credit in an amount equal to such Lender's Applicable Commitment Percentage of such liability, and to the extent that the Borrower is obligated to pay the Issuing Bank under Section 3.2(a), each Lender (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably assume, and shall be unconditionally obligated to pay to the Issuing Bank, its 31 38 Applicable Commitment Percentage of the liability of the Issuing Bank under such Letter of Credit in the manner and with the effect provided in Section 2.1(c)(iii). (d) Simultaneously with the making of each payment by a Lender to the Issuing Bank pursuant to Section 2.1(c)(iii)(B), such Lender shall, automatically and without any further action on the part of the Issuing Bank or such Lender, acquire a Participation in an amount equal to such payment (excluding the portion thereof constituting interest accrued prior to the date the Lender made its payment) in the related Reimbursement Obligation of the Borrower. Each Lender's obligation to make payment to the Agent for the account of the Issuing Bank pursuant to Section 2.1(c)(iii) and Section 3.2(c), and the right of the Issuing Bank to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and shall be made without any offset, abatement, withholding or reduction whatsoever. In the event the Lenders have purchased Participations in any Reimbursement Obligation as set forth above, then at any time payment (in fully collected, immediately available funds) of such Reimbursement Obligation, in whole or in part, is received by the Issuing Bank from the Borrower, the Issuing Bank shall promptly pay to each Lender an amount equal to its Applicable Commitment Percentage of such payment from the Borrower. (e) Promptly following the end of each calendar quarter, the Issuing Bank shall deliver to the Agent a notice describing the aggregate undrawn amount of all Letters of Credit at the end of such quarter. Upon the request of any Lender from time to time, the Issuing Bank shall deliver to the Agent, and the Agent shall deliver to such Lender, any other information reasonably requested by such Lender with respect to each Letter of Credit outstanding. (f) The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Article VII, be subject to the conditions that such Letter of Credit be in such form and contain such terms as shall be reasonably satisfactory to the Issuing Bank consistent with the then current practices and procedures of the Issuing Bank with respect to similar letters of credit, and the Borrower shall have executed and delivered such other instruments and agreements relating to such Letters of Credit as the Issuing Bank shall have reasonably requested consistent with such practices and procedures and shall not be in conflict with any of the express terms herein contained. All Letters of Credit shall be issued pursuant to and subject to the Uniform Customs and Practice for Documentary Credits, 1993 revision, International Chamber of Commerce Publication No. 500 or, if the Issuing Bank shall elect by express reference in an affected Letter of Credit, the International Chamber of Commerce International Standby Practices commonly referred to as "ISP98", or any subsequent amendment or revision of either thereof. (g) The Borrower agrees that the Issuing Bank may, in its sole discretion, accept or pay, as complying with the terms of any Letter of Credit, any drafts or other documents, which on their face otherwise comply with the terms of any Letter of Credit, which may be signed or issued by an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, attorney in fact or other legal 32 39 representative of a party who is authorized under such Letter of Credit to draw or issue any drafts or other documents. (h) Without limiting the generality of the provisions of Section 13.9, the Borrower hereby agrees to indemnify and hold harmless the Issuing Bank, each other Lender and the Agent from and against any and all claims and damages, losses, liabilities, reasonable costs and expenses which the Issuing Bank, such other Lender or the Agent may incur (or which may be claimed against the Issuing Bank, such other Lender or the Agent) by any Person by reason of or in connection with the issuance or transfer of or payment or failure to pay under any Letter of Credit; provided that the Borrower shall not be required to indemnify the Issuing Bank, any other Lender or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, (i) caused by the willful misconduct or gross negligence of the party to be indemnified or (ii) caused by the failure of the Issuing Bank to pay under any Letter of Credit after the presentation to it of a request for payment strictly complying with the terms and conditions of such Letter of Credit, unless such payment is prohibited by any law, regulation, court order or decree. The indemnification and hold harmless provisions of this Section 3.2(h) shall survive repayment of the Obligations, occurrence of the Revolving Credit Termination Date, the Facility Termination Date and expiration or termination of this Agreement. (i) Without limiting Borrower's rights as set forth in Section 3.2(h), the obligation of the Borrower to immediately reimburse the Issuing Bank for drawings made under Letters of Credit and the Issuing Bank's right to receive such payment shall be absolute, unconditional and irrevocable, and such obligations of the Borrower shall be performed strictly in accordance with the terms of this Agreement and such Letters of Credit and the related Application and Agreement for any Letter of Credit, under all circumstances whatsoever, including the following circumstances: (i) any lack of validity or enforceability of the Letter of Credit, the obligation supported by the Letter of Credit or any other agreement or instrument relating thereto (collectively, the "Related LC Documents"); (ii) any amendment or waiver of or any consent to or departure from all or any of the Related LC Documents approved in writing by the Borrower; (iii) the existence of any claim, setoff, defense (other than the defense of payment in accordance with the terms of this Agreement) or other rights which the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom any such beneficiary or any such transferee may be acting), the Agent, the Lenders or any other Person, whether in connection with the Loan Documents, the Related LC Documents or any unrelated transaction; (iv) any breach of contract or other dispute between the Borrower and any beneficiary or any transferee of a Letter of Credit (or any persons or entities 33 40 for whom such beneficiary or any such transferee may be acting), the Agent, the Lenders or any other Person; (v) any draft, statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; or (vi) any delay, extension of time, renewal, compromise or other indulgence or modification granted or agreed to by the Agent, with or without notice to or approval by the Borrower in respect of any of Borrower's Obligations under this Agreement. 34 41 ARTICLE IV Loan Funding, Fees, and Payment Conventions 4.1 Interest Rate Options. Eurodollar Rate Loans and Base Rate Loans may be outstanding at the same time and, so long as no Event of Default shall have occurred and be continuing, the Borrower shall have the option to elect the Type of Loan and the duration of the initial and any subsequent Interest Periods and to Convert Loans in accordance with Sections 2.1(c)(i) and 4.2, as applicable; provided, however, (a) there shall not be outstanding at any one time Eurodollar Rate Loans having more than four (4) different Interest Periods, (b) each Eurodollar Rate Loan (including each Conversion into and each Continuation as a Eurodollar Rate Loan) shall be in an amount of $500,000 or, if greater than $500,000 an integral multiple of $100,000, and (c) no Eurodollar Rate Loan shall have an Interest Period that extends beyond the Stated Termination Date. If the Agent does not receive a Borrowing Notice or an Interest Rate Selection Notice giving notice of election of the duration of an Interest Period or of Conversion of any Loan to or Continuation of a Loan as a Eurodollar Rate Loan by the time prescribed by Sections 2.1(c)(i) and 4.2, as applicable, (i) if there shall be fewer than two Lenders, the Borrower shall be deemed to have elected to Convert such Loan to (or Continue such Loan as) a Loan of the same Type and Interest Period as the Loan to be Converted or Continued and (ii) at such time as there are two or more Lenders, the Borrower shall be deemed to have elected to obtain or Convert such Loan to (or Continue such Loan as) a Base Rate Loan, in each case until the Borrower notifies the Agent in accordance with Section 4.2. The Borrower shall not be entitled to elect to Continue any Loan as or Convert any Loan into a Eurodollar Rate Loan if an Event of Default shall have occurred and be continuing. 4.2 Conversions and Elections of Subsequent Interest Periods. Subject to the limitations set forth in the definition of "Interest Period" and in Section 4.1 and Article VI, the Borrower may: (a) upon delivery of telephonic notice to the Agent (which shall be irrevocable) on or before 10:30 A.M. on any Business Day, Convert any Eurodollar Rate Loan to a Base Rate Loan on the last day of the Interest Period for such Eurodollar Rate Loan; and (b) provided that no Default or Event of Default shall have occurred and be continuing, upon delivery of telephonic notice to the Agent (which shall be irrevocable) on or before 10:30 A.M. three (3) Business Days' prior to the date of such Conversion or Continuation: (i) elect a subsequent Interest Period for any Eurodollar Rate Loan to begin on the last day of the then current Interest Period for such Eurodollar Rate Loan; or (ii) Convert any Base Rate Loan to a Eurodollar Rate Loan on any Business Day. Each such notice shall be effective upon receipt by the Agent, shall specify the amount of the Eurodollar Rate Loan affected, and, if a Continuation as or Conversion into a Eurodollar Rate 35 42 Loan, the Interest Period to be used in the computation of interest. The Authorized Representative shall provide the Agent written confirmation of each such telephonic notice in the form of a Borrowing Notice or Interest Rate Selection Notice (as applicable) with appropriate insertions but failure to provide such confirmation shall not affect the validity of such telephonic notice. Notice of receipt of such Borrowing Notice or Interest Rate Selection Notice, as the case may be, shall be provided by the Agent to each Lender by telefacsimile transmission with reasonable promptness, but (provided the Agent shall have received such notice by 10:30 A.M.) not later than 3:00 P.M. on the same day as the Agent's receipt of such notice. All such Continuations or Conversions of Loans shall be effected pro rata based on the Applicable Commitment Percentages of the Lenders. 4.3 Payment of Interest. The Borrower shall pay interest on the outstanding and unpaid principal amount of each Loan, commencing on the first date of such Loan until such Loan shall be repaid, at the applicable Base Rate or Eurodollar Rate as designated by the Borrower in the related Borrowing Notice or Interest Rate Selection Notice or as otherwise provided hereunder. Interest on each Loan shall be paid on the earlier of (a) in the case of any Base Rate Loan, quarterly in arrears of the last Business Day of each March, June, September and December, commencing on December 31, 1999, until the Revolving Credit Termination Date, at which date the entire principal amount of and all accrued interest on the Loans shall be paid in full, (b) in the case of any Eurodollar Rate Loan, on last day of the applicable Interest Period for such Eurodollar Rate Loan and if such Interest Period extends for more than three (3) months, at intervals of three (3) months after the first day of such Interest Period, and (c) upon payment in full of the related Loan; provided, however, that if any Event of Default shall occur and be continuing, all amounts outstanding hereunder shall bear interest thereafter until paid in full at the Default Rate until paid in full or such Event of Default is waived. 4.4 Prepayments of Eurodollar Rate Loans. Whenever any payment of principal shall be made in respect of any Eurodollar Rate Loan hereunder, whether at maturity, on acceleration, by optional or mandatory prepayment or as otherwise required or permitted hereunder, with the effect that any Eurodollar Rate Loan shall be prepaid in whole or in part prior to the last day of the Interest Period applicable to such Eurodollar Rate Loan, such payment of principal shall be accompanied by the additional payment, if any, required by Section 6.5. 4.5 Manner of Payment. (a) Each payment of principal (including any prepayment) and payment of interest and fees, and any other amount required to be paid by or on behalf of the Borrower to the Lenders, the Issuing Bank, the Agent, or Bank of America with respect to any Loan, Letter of Credit, or Reimbursement Obligation shall be made to the Agent at the Principal Office in Dollars in immediately available funds without condition or deduction or for any setoff, recoupment, deduction or counterclaim on or before 2:30 P.M. on the date such payment is due. The Agent may, but shall not be obligated to, debit the amount of such payment from any one or more ordinary deposit accounts of the Borrower with the Agent. (b) Any payment made by or on behalf of the Borrower that is not made both in Dollars in immediately available funds and prior to 2:30 P.M. on the date such payment is to be made shall constitute a non-conforming payment. Any such non-conforming payment shall not 36 43 be deemed to be received until the later of (i) the time such funds become available funds and (ii) the next Business Day. Interest shall continue to accrue at the applicable interest rate on any principal or fees as to which a non-conforming payment is made from the date such amount was due and payable until the later of (i) the date such funds become available funds or (ii) the next Business Day. (c) In the event that any payment hereunder or under any of the Notes becomes due and payable on a day other than a Business Day, then such due date shall be extended to the next succeeding Business Day unless provided otherwise under the definition of "Interest Period"; provided, however, that interest shall continue to accrue during the period of any such extension; and provided further, however, that in no event shall any such due date be extended beyond the Revolving Credit Termination Date. 4.6 Fees. (a) Commitment Fee. For the period beginning on the Closing Date and ending on the Revolving Credit Termination Date, the Borrower agrees to pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, a commitment fee equal to the Applicable Commitment Fee multiplied by the average daily amount by which the Total Revolving Credit Commitment exceeds the sum of (i) Revolving Credit Outstandings plus (ii) Letter of Credit Outstandings. Such fees shall be due in arrears on the last Business Day of each March, June, September and December commencing December 31, 1999 to and on the Revolving Credit Termination Date. Notwithstanding the foregoing, so long as any Lender fails to make available any portion of its Revolving Credit Commitment when requested, such Lender shall not be entitled to receive payment of its pro rata share of such fee until such Lender shall make available such portion. (b) Letter of Credit Facility Fees. The Borrower shall pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, a fee on the aggregate amount available to be drawn on each outstanding Letter of Credit at a rate equal to the Applicable Margin for Eurodollar Rate Loans on each Determination Date. Such fees shall be due with respect to each Letter of Credit quarterly in arrears on the last day of each March, June, September and December, the first such payment to be made on the first such date occurring after the date of issuance of a Letter of Credit. (c) Letter of Credit Fronting and Administrative Fees. From and after the date on which there is more than one Lender, the Borrower shall pay to the Issuing Bank a fronting fee of one-eighth of one percent per annum (0.125%) on the aggregate amount available to be drawn on each outstanding Letter of Credit, such fee to be payable quarterly in arrears with respect to each Letter of Credit on the dates established in Section 4.6(b) for the payment of Letter of Credit facility fees with respect to such Letter of Credit. 4.7 Pro Rata Payments. Except as otherwise specified herein, (a) each payment on account of the principal of and interest on Loans, the fees described in Section 4.6(a) and (b), and Reimbursement Obligations as to which the Lenders have funded their respective Participations which remain outstanding, shall be made to the Agent for the account of the Lenders pro rata based on their Applicable Commitment Percentages, and (b) the Agent will promptly distribute 37 44 to the Lenders in immediately available funds payments received in fully collected, immediately available funds from the Borrower. 4.8 Computation of Rates and Fees. Except as may be otherwise expressly provided, (i) the Base Rate shall be computed on the basis of a year of 365/6 days and calculated for actual days elapsed, and (ii) all other interest rates (including each Eurodollar Rate and the Default Rate) and fees shall be computed on the basis of a year of 360 days and calculated for actual days elapsed. 4.9 Deficiency Advances; Failure to Purchase Participations. No Lender shall be responsible for any default of any other Lender in respect to such other Lender's obligation to make any Loan or Advance hereunder or to fund its purchase of any Participation hereunder nor shall the Revolving Credit Commitment or Letter of Credit Commitment of any Lender hereunder be increased as a result of such default of any other Lender. Without limiting the generality of the foregoing or the provisions of Section 4.10, in the event any Lender shall fail to advance funds to the Borrower as herein provided, the Agent may in its discretion, but shall not be obligated to, advance under the applicable Note in its favor as a Lender all or any portion of such amount or amounts (each, a "deficiency advance") and shall thereafter be entitled to payments of principal of and interest on such deficiency advance in the same manner and at the same interest rate or rates to which such other Lender would have been entitled had it made such Advance under its Note; provided that, (i) such defaulting Lender shall not be entitled to receive payments of principal, interest or fees with respect to such deficiency advance until such deficiency advance (together with interest thereon as provided in clause (ii)) shall be paid by such Lender and (ii) upon payment to the Agent from such other Lender of the entire outstanding amount of each such deficiency advance, together with accrued and unpaid interest thereon, from the most recent date or dates interest was paid to the Agent by a Borrower on each Loan comprising the deficiency advance at the Federal Funds Rate, then such payment shall be credited against the applicable Note of the Agent in full payment of such deficiency advance and such Borrower shall be deemed to have borrowed the amount of such deficiency advance from such other Lender as of the most recent date or dates, as the case may be, upon which any payments of interest were made by such Borrower thereon. In the event any Lender shall fail to fund its purchase of a Participation after notice from the Issuing Bank, such Lender shall pay to the Issuing Bank, such amount on demand, together with interest on the amount so due from the date of such notice at the Federal Funds Rate on the date such purchase price is received by the Issuing Bank. 4.10 Intraday Funding. Without limiting the provisions of Section 4.9, unless the Borrower or any Lender has notified the Agent not later than 1:00 P.M. of the Business Day before the date any payment (including in the case of Lenders any Advance) to be made by it is due, that it does not intend to remit such payment, the Agent may, in its discretion, assume that Borrower or each Lender, as the case may be, has timely remitted such payment in the manner required hereunder and may, in its discretion and in reliance thereon, make available such payment (or portion thereof) to the Person entitled thereto as otherwise provided herein. If such payment was not in fact remitted to the Agent in the manner required hereunder, then: 38 45 (i) if Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each day from and including the date such amount was made available by the Agent to such Lender to the date such amount is repaid to the Agent at the Federal Funds Rate; and (ii) if any Lender failed to make such payment, the Agent shall be entitled to recover such corresponding amount forthwith upon the Agent's demand therefor, the Agent promptly shall notify the Borrower, and the Borrower shall promptly pay such corresponding amount to the Agent in immediately available funds upon receipt of such demand. The Agent also shall be entitled to recover interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to the Borrower to the date such corresponding amount is recovered by the Agent, (A) from such Lender at a rate per annum equal to the daily Federal Funds Rate or (B) from the Borrower, at a rate per annum equal to the interest rate applicable to the Loan which includes such corresponding amount. Until the Agent shall recover such corresponding amount together with interest thereon, such corresponding amount shall constitute a deficiency advance within the meaning of Section 4.9. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder. 39 46 ARTICLE V Security 5.1. Security. As security for the full and timely payment and performance of all Obligations, the Borrower shall, and shall cause all other Credit Parties to, on or before the Closing Date, do or cause to be done all things necessary in the opinion of the Agent and its counsel to grant to the Agent for the benefit of the Lenders a duly perfected first priority security interest in all Collateral subject to no prior Lien or other encumbrance or restriction on transfer (other than Permitted Liens and restrictions on transfer imposed by applicable securities laws). Without limiting the foregoing, the Borrower and each Domestic Subsidiary having rights in any Subsidiary Securities shall on the Closing Date deliver to the Agent, in form and substance reasonably acceptable to the Agent, (A) a Pledge Agreement which shall pledge to the Agent for the benefit of the Agent and the Lenders (i) 65% of the Subsidiary Securities (other than Management Securities) of each Direct Foreign Subsidiary, and (ii) all of the Subsidiary Securities (other than Management Securities) of each Domestic Subsidiary, (B) if such Subsidiary Securities are in the form of certificated securities, such certificated securities, together with undated stock powers or other appropriate transfer documents endorsed in blank pertaining thereto, (C) if such Subsidiary Securities do not constitute securities and the issuer thereof has not elected to have such interests treated as securities under Article 8 of the Uniform Commercial Code, a control agreement (containing the provisions described in Section 9.20(e)) from the Registrar of such Subsidiary Securities, and (D) Uniform Commercial Code financing statements reflecting the Lien in favor of the Agent on such Subsidiary Securities, each in form and substance reasonably acceptable to the Agent, and shall take such further action and deliver or cause to be delivered such further documents as required by the Security Instruments or otherwise as the Agent may reasonably request to effect the transactions contemplated by this Article V. The Borrower shall, and shall cause each Domestic Subsidiary, to pledge to the Agent for the benefit of the Agent and the Lenders (and as appropriate to reaffirm its prior pledge of) all of the Pledged Interests of any Subsidiary acquired or created after the Closing Date and deliver to the Agent all of the documents and instruments in connection therewith as are required pursuant to the terms of Section 9.20 and of the Security Instruments. 5.2. Further Assurances. At the request of the Agent, the Borrower will or will cause all other Credit Parties, as the case may be, to execute, by its duly authorized officers, alone or with the Agent, any certificate, instrument, financing statement, control agreement, statement or document, or to procure any such certificate, instrument, statement or document, or to take such other action (and pay all connected costs) which the Agent reasonably deems necessary from time to time to create, continue or preserve the liens and security interests in Collateral (and the perfection and priority thereof) of the Agent contemplated hereby and by the other Loan Documents and specifically including all Collateral acquired by the Borrower or other Credit Party after the Closing Date. The Agent is hereby irrevocably authorized to execute and file or cause to be filed, with or if permitted by applicable law without the signature of the Borrower or any Credit Party appearing thereon, all Uniform Commercial Code financing statements reflecting the Borrower or any other Credit Party as "debtor" and the Agent as "secured party", and continuations thereof and amendments thereto, as the Agent reasonably deems necessary or 40 47 advisable to give effect to the transactions contemplated hereby and by the other Loan Documents. 5.3. Information Regarding Collateral. The Borrower represents, warrants and covenants that as of the Closing Date (i) the chief executive office of the Borrower and each other Person providing Collateral pursuant to a Security Instrument (each, a "Grantor") is located at the address or addresses specified on Schedule 5.3, and (ii) Schedule 5.3 contains a true and complete list of (a) the exact legal name, jurisdiction of formation, and address of each Grantor and of each other Person that has effected any merger or consolidation with a Grantor or contributed or transferred to a Grantor any property constituting Collateral at any time since January 1, 1994 (excluding Persons making sales in the ordinary course of their businesses to a Grantor of property constituting inventory in the hands of such seller), (b) the exact legal name, jurisdiction of formation, and each location of the chief executive office of each Grantor at any time since January 1, 1994, (c) each location in which goods constituting Collateral are or have been located since January 1, 1994 (together with the name of each owner of the property located at such address if not the applicable Grantor, and a summary description of the relationship between the applicable Grantor and such Person), and (d) each trade style used by any Grantor since January 1, 1994 and the purposes for which it was used. Borrower shall not change, and shall not permit any other Grantor to change, its name, jurisdiction of formation (whether by reincorporation, merger or otherwise), the location of its chief executive office or any location specified in clause (c) of the immediately preceding sentence, or use or permit any other Grantor to use, any additional trade style, except upon giving not less than thirty (30) days' prior written notice to the Agent and taking or causing to be taken all such action at Borrower's or such other Grantor's expense as may be reasonably requested by the Agent to perfect or maintain the perfection of the Lien of the Agent in Collateral. 41 48 ARTICLE VI Change in Circumstances 6.1. Increased Cost and Reduced Return. (a) If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Eurodollar Rate Loans, its Note, or its obligation to make Eurodollar Rate Loans, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Agreement or its Note in respect of any Eurodollar Rate Loans (other than taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the determination of the Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Revolving Credit Commitment of such Lender hereunder; or (iii) shall impose on such Lender (or its Applicable Lending Office) or on the London interbank market any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making, Converting into, Continuing, or maintaining any Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or its Note with respect to any Eurodollar Rate Loans, then the Borrower shall pay to such Lender on demand such amount or amounts as will compensate such Lender for such increased cost or reduction. If any Lender requests compensation by the Borrower under this Section 6.1(a), the Borrower may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender to make or Continue Eurodollar Rate Loans with respect to which such compensation is requested, or to Convert Loans of any other Type into Eurodollar Rate Loans, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 6.4 shall be applicable); provided that such suspension shall not affect the right of such Lender to receive the compensation so requested. 42 49 (b) If, after the date hereof, any Lender shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time upon demand the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) Each Lender shall promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section 6.1 and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this Section 6.1 shall furnish to the Borrower and the Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. 6.2. Limitation on Types of Loans. If on or prior to the first day of any Interest Period for any Eurodollar Rate Loan: (a) the Agent reasonably determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Required Lenders determine (which determination shall be conclusive) and notify the Agent that the Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of funding Eurodollar Rate Loans for such Interest Period; then the Agent shall give the Borrower prompt notice thereof specifying the relevant amounts or periods, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Rate Loans, Continue Eurodollar Rate Loans, or to Convert Loans of any other Type into Eurodollar Rate Loans using such Interest Period and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Rate Loans, either prepay such Eurodollar Rate Loans or Convert such Eurodollar Rate Loans into another Type of Loan or select an alternate Interest Period available for such Eurodollar Rate Loans all in accordance with the terms of this Agreement. 43 50 6.3. Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund Eurodollar Rate Loans hereunder, then such Lender shall promptly notify the Borrower thereof and such Lender's obligation to make or Continue Eurodollar Rate Loans and to Convert other Types of Loans into Eurodollar Rate Loans shall be suspended until such time as such Lender may again make, maintain, and fund Eurodollar Rate Loans (in which case the provisions of Section 6.4 shall be applicable). 6.4. Treatment of Affected Loans. If the obligation of any Lender to make a Eurodollar Rate Loan or to Continue, or to Convert Loans of any other Type into, Eurodollar Loans shall be suspended pursuant to Section 6.1 or 6.3 hereof (Loans of such Type being herein called "Affected Loans" and such Type being herein called the "Affected Type"), such Lender's Affected Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a Conversion required by Section 6.3 hereof, on such earlier date as such Lender may specify to the Borrower with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 6.1 or 6.3 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Affected Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Loans of the Affected Type shall be made or Continued instead as Base Rate Loans, and all Loans of such Lender that would otherwise be Converted into Loans of the Affected Type shall be Converted instead into (or shall remain as) Base Rate Loans. If such Lender gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 6.1 or 6.3 hereof that gave rise to the Conversion of such Lender's Affected Loans pursuant to this Section 6.4 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Loans of the Affected Type and by such Lender are held pro rata (as to principal amounts, Types, and Interest Periods) in accordance with their respective Revolving Credit Commitments. 6.5. Compensation. Upon the request of any Lender, the Borrower shall pay to such Lender such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any actual loss, cost, or expense (including loss of demonstrable anticipated profits) incurred by it as a result of: 44 51 (a) any payment, prepayment, or Conversion of a Eurodollar Rate Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 11.1) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Article VII to be satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Rate Loan on the date for such borrowing, Conversion, Continuation, or prepayment specified in the relevant notice of borrowing, prepayment, Continuation, or Conversion under this Agreement. 6.6. Taxes. (a) Any and all payments by the Borrower to or for the account of any Lender or the Agent hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender (or its Applicable Lending Office) or the Agent (as the case may be) is organized or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Agreement or any other Loan Document to any Lender or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 6.6) such Lender or the Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 13.2, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Agreement or any other Loan Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Lender and the Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 6.6) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. (d) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if 45 52 requested in writing by the Borrower or the Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Documents. (e) For any period with respect to which a Lender has failed to provide the Borrower and the Agent with the appropriate form pursuant to Section 6.6(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 6.6(a) or 6.6(b) with respect to Taxes imposed by the United States; provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 6.6, then such Lender will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the reasonable judgment of such Lender, is not otherwise disadvantageous to such Lender. (g) Within thirty (30) days after the date of any payment of Taxes, the Borrower shall furnish to the Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 6.6 shall survive the termination of the Revolving Credit Commitments and the payment in full of the Notes and the Facility Termination Date. 46 53 ARTICLE VII Conditions to Making Loans and Issuing Letters of Credit 7.1. Conditions of Initial Advance. The obligation of the Lenders to make the initial Advance under the Revolving Credit Facility, and of the Issuing Bank to issue any Letter of Credit, is subject to the conditions precedent that: (a) the Agent shall have received on the Closing Date, in form and substance satisfactory to the Agent and Lenders, the following: (i) executed originals of each of this Agreement, the Notes, the initial Facility Guaranties, the Security Instruments, the LC Account Agreement, the other Loan Documents, together with all schedules and exhibits thereto; (ii) the favorable written opinion or opinions with respect to the Loan Documents and the transactions contemplated thereby of counsel to the Credit Parties dated the Closing Date, addressed to the Agent and the Lenders and satisfactory to special counsel to the Agent, substantially in the form of Exhibit G; (iii) resolutions of the boards of directors or other appropriate governing body (or of the appropriate committee thereof) of each Credit Party certified by its secretary or assistant secretary as of the Closing Date, approving and adopting the Loan Documents to be executed by such Person, and authorizing the execution and delivery thereof; (iv) specimen signatures of officers or other appropriate representatives executing the Loan Documents on behalf of each of the Credit Parties, certified by the secretary or assistant secretary of such Credit Party; (v) the Organizational Documents of each of the Credit Parties certified as of a recent date by the Secretary of State of its state of organization; (vi) Operating Documents of each of the Credit Parties certified as of the Closing Date as true and correct by its secretary or assistant secretary; (vii) certificates issued as of a recent date by the Secretaries of State of the respective jurisdictions of formation of each of the Credit Parties as to the due existence and good standing of such Person; (viii) appropriate certificates of qualification to do business, good standing and, where appropriate, authority to conduct business under assumed name, issued in respect of each of the Credit Parties as of a recent date by the Secretary of State or comparable official of each jurisdiction in which the failure 47 54 to be qualified to do business or authorized so to conduct business could have a Material Adverse Effect; (ix) notice of appointment of the initial Authorized Representative(s); (x) certificate of an Authorized Representative dated the Closing Date demonstrating compliance with the financial covenants contained in Sections 10.1(a) through 10.1(c), 10.3, 10.5(g) and 10.7(g) as of the end of the fiscal quarter most recently ended prior to the Closing Date, substantially in the form of Exhibit H; (xi) certificate of an executive officer of the Borrower confirming the matters set forth in Section 7.1(b); (xii) evidence of all insurance required by the Loan Documents; (xiii) an initial Borrowing Notice, if any, and, if elected by the Borrower, Interest Rate Selection Notice; (xiv) evidence of the filing of Uniform Commercial Code financing statements reflecting the filing in all places required by applicable law to perfect the Liens of the Agent under the Security Instruments as a first priority Lien as to items of Collateral in which a security interest may be perfected by the filing of financing statements, and such other documents and/or evidence of other actions as may be necessary under applicable law to perfect the Liens of the Agent under the Security Instruments as a first priority Lien in and to such other Collateral as the Agent may require, including without limitation: (i) the delivery by the Borrower of all stock certificates evidencing Pledged Interests accompanied in each case by duly executed stock powers (or other appropriate transfer documents) in blank affixed thereto; and (ii) the delivery by the Borrower of certificates of the Registrar of each partnership Subsidiary evidencing the due registration on the registration books of such partnership of the Lien in favor of the Agent conferred under the Security Instruments; (xv) evidence that all fees payable by the Borrower on the Closing Date pursuant to this Agreement to the Agent, BAS and the Lenders have been paid in full; (xvi) Uniform Commercial Code search results showing only those Liens as are acceptable to the Lenders; and 48 55 (xvii) such other documents, instruments, certificates and opinions as the Agent or any Lender may reasonably request on or prior to the Closing Date in connection with the consummation of the transactions contemplated hereby; and (b) In the good faith judgment of the Agent and the Lenders: (i) there shall not have occurred or become known to the Agent or the Lenders any event, condition, situation or status since the date of the information contained in the financial and business projections, budgets, pro forma data and forecasts concerning the Borrower and its Subsidiaries delivered to the Agent prior to the Closing Date that has had or could reasonably be expected to result in a Material Adverse Effect; (ii) no litigation, action, suit, investigation or other arbitral, administrative or judicial proceeding shall be pending or threatened which could reasonably be likely to result in a Material Adverse Effect; and (iii) the Credit Parties shall have received all approvals, consents and waivers, and shall have made or given all necessary filings and notices as shall be required to consummate the transactions contemplated hereby without the occurrence of any default under, conflict with or violation of (A) any applicable law, rule, regulation, order or decree of any Governmental Authority or arbitral authority or (B) any agreement, document or instrument to which any of the Credit Parties is a party or by which any of them or their properties is bound, except for such approvals, consents, waivers, filings and notices the receipt, making or giving of which will not have a Material Adverse Effect. 7.2. Conditions of Loans and Letter of Credit. The obligations of the Lenders to make any Loans and the Issuing Bank to issue Letters of Credit hereunder on or subsequent to the Closing Date are subject to the satisfaction of the following conditions: (a) the Agent shall have received a Borrowing Notice if required by Article II; (b) the representations and warranties of the Credit Parties set forth in Article VIII and in each of the other Loan Documents shall be true and correct in all material respects on and as of the date of such Advance or Letter of Credit issuance or renewal, with the same effect as though such representations and warranties had been made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date and except that the financial statements referred to in Section 8.6(a) shall be deemed (solely for the purpose of the representation and warranty contained in such Section 8.6(a) but not for the purpose of any cross reference to such Section 8.6(a) or to the financial statements described therein contained in any other provision of Section 8.6 or elsewhere in Article 8) to be those financial statements most recently delivered to the Agent and the Lenders pursuant to Section 9.1 from the date 49 56 financial statements are delivered to the Agent and the Lenders in accordance with such Section; (c) in the case of the issuance of a Letter of Credit, the Borrower shall have executed and delivered to the Issuing Bank an Application and Agreement for Letter of Credit in form and content reasonably acceptable to the Issuing Bank together with such other instruments and documents as it shall request; (d) at the time of (and after giving effect to) each Advance or the issuance of a Letter of Credit, no Default or Event of Default specified in Article XI shall have occurred and be continuing; and (e) immediately after giving effect to: (i) a Loan, the aggregate principal balance of all outstanding Loans for each Lender shall not exceed such Lender's Revolving Credit Commitment; (ii) a Letter of Credit or renewal thereof, the aggregate principal balance of all outstanding Participations in Letters of Credit and Reimbursement Obligations (or in the case of the Issuing Bank, its remaining interest after deduction of all Participations in Letters of Credit and Reimbursement Obligations of other Lenders) for each Lender and in the aggregate shall not exceed, respectively, (X) such Lender's Letter of Credit Commitment or (Y) the Total Letter of Credit Commitment; and (iii) a Loan or a Letter of Credit or renewal thereof, the sum of Letter of Credit Outstandings plus Revolving Credit Outstandings shall not exceed the Total Revolving Credit Commitment. 50 57 ARTICLE VIII Representations and Warranties The Borrower represents and warrants with respect to itself and to its Subsidiaries (which representations and warranties shall survive the delivery of the documents mentioned herein and the making of Loans), that: 8.1. Organization and Authority. (a) The Borrower and each Subsidiary is a corporation, partnership or limited liability company duly organized and validly existing under the laws of the jurisdiction of its formation; (b) The Borrower and each Subsidiary (x) has the requisite power and authority to own its properties and assets and to carry on its business as now being conducted and as contemplated in the Loan Documents, and (y) is qualified to do business in every jurisdiction in which failure so to qualify would have a Material Adverse Effect; (c) The Borrower has the power and authority to execute, deliver and perform this Agreement and the Notes, and to borrow hereunder, and to execute, deliver and perform each of the other Loan Documents to which it is a party; (d) Each Credit Party (other than the Borrower) has the power and authority to execute, deliver and perform the Facility Guaranty, the Security Instruments and each of the other Loan Documents to which it is a party; and (e) When executed and delivered, each of the Loan Documents to which any Credit Party is a party will be the legal, valid and binding obligation or agreement, as the case may be, of such Credit Party, enforceable against such Credit Party in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity (whether considered in a proceeding at law or in equity). 8.2. Loan Documents. The execution, delivery and performance by each Credit Party of each of the Loan Documents to which it is a party: (a) have been duly authorized by all requisite Organizational Action of such Credit Party required for the lawful execution, delivery and performance thereof; (b) do not violate any provisions of (i) any applicable law, rule or regulation, (ii) any judgment, writ, order, determination, decree or arbitral award of any Governmental Authority or arbitral authority binding on such Credit Party or its 51 58 properties, or (iii) the Organizational Documents or Operating Documents of such Credit Party, except, with respect to clause (i) only, where such violation will not have a Material Adverse Effect; (c) does not and will not be in conflict with, result in a breach of or constitute an event of default, or an event which, with notice or lapse of time or both, would constitute an event of default, under any material contract, indenture, agreement or other instrument or document to which such Credit Party is a party, or by which the properties or assets of such Credit Party are bound; and (d) does not and will not result in the creation or imposition of any Lien upon any of the properties or assets of such Credit Party or any Subsidiary except any Liens in favor of the Agent and the Lenders created by the Security Instruments. 8.3. Solvency. Each Credit Party is Solvent after giving effect to the transactions contemplated by the Loan Documents. 8.4. Subsidiaries and Stockholders. The Borrower has no Subsidiaries other than those Persons listed as Subsidiaries in Schedule 8.4 and additional Subsidiaries created or acquired after the Closing Date in compliance with Section 9.20; Schedule 8.4 states as of the date hereof the organizational form of each entity, the authorized and issued capitalization of each Subsidiary listed thereon, the number of shares or other equity interests of each class of capital stock or interest issued and outstanding of each such Subsidiary and the number and/or percentage of outstanding shares or other equity interest (including options, warrants and other rights to acquire any interest) of each such class of capital stock or other equity interest owned by Borrower or by any such Subsidiary; the outstanding shares or other equity interests of each such Subsidiary have been duly authorized and validly issued and are fully paid and non assessable; and Borrower and each such Subsidiary owns beneficially and of record all the shares and other interests it is listed as owning in Schedule 8.4, free and clear of any Lien. 8.5. Ownership Interests. Borrower owns no interest in any Person other than the Persons listed in Schedule 8.4, equity investments in Persons not constituting Subsidiaries permitted under Section 10.7 and additional Subsidiaries created or acquired after the Closing Date in compliance with Section 9.20. 8.6. Financial Condition. (a) The Borrower has heretofore furnished to each Lender an audited consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 1998 and the notes thereto and the related consolidated statements of income, stockholders' equity and cash flows for the Fiscal Year then ended as examined and certified by Ernst & Young L.L.C., and unaudited consolidated interim financial statements of the Borrower and its Subsidiaries consisting of a consolidated balance sheets and related consolidated statements of income, stockholders' equity and cash flows, in each case without notes, for and as of the end of the six-month period ending June 30, 1999. 52 59 Except as set forth therein, such financial statements (including the notes thereto) present fairly the financial condition of the Borrower and its Subsidiaries as of the end of such Fiscal Year and six-month period and results of their operations and the changes in its stockholders' equity for the Fiscal Year and interim period then ended, all in conformity with GAAP applied on a Consistent Basis, subject however, in the case of unaudited interim statements to year end audit adjustments; (b) since the later of (i) the date of the audited financial statements delivered pursuant to Section 8.6(a) hereof or (ii) the date of the audited financial statements most recently delivered pursuant to Section 9.1(a) hereof, there has been no material adverse change in the condition, financial or otherwise, of the Borrower or any of its Subsidiaries or in the businesses, properties, performance, prospects or operations of the Borrower or its Subsidiaries, nor have such businesses or properties been materially adversely affected as a result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo or act of God; and (c) except as set forth in the financial statements referred to in Section 8.6(a) or in Schedule 8.6 or permitted by Section 10.5, neither the Borrower nor any Subsidiary has incurred, other than in the ordinary course of business, any material Indebtedness, Contingent Obligation or other commitment or liability which remains outstanding or unsatisfied. 8.7. Title to Properties. The Borrower and each of its Subsidiaries and each other Credit Party has good and marketable title to all its owned real properties and owns all its personal properties, subject to no transfer restrictions or Liens of any kind, except for the transfer restrictions and Liens described in Schedule 8.7 and Permitted Liens. The Borrower and each of its Subsidiaries has a valid leasehold interest in all its leased real and personal properties. 8.8. Taxes. The Borrower and each of its Subsidiaries has filed or caused to be filed all federal, state and local tax returns which are required to be filed by it and, except for (a) taxes and assessments the nonpayment of which could not reasonably be expected to have a Material Adverse Effect and (b) taxes and assessments being contested in good faith by appropriate proceedings diligently conducted and against which reserves reflected in the financial statements described in Section 8.6(a) or Sections 9.1(a) or (b) and satisfactory to the Borrower's independent certified public accountants have been established, have paid or caused to be paid all taxes as shown on said returns or on any assessment received by it, to the extent that such taxes have become due. 8.9. Other Agreements. No Credit Party nor any Subsidiary is (a) a party to or subject to any judgment, order, decree, agreement, lease or instrument, or subject to other restrictions, which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect; or 53 60 (b) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which such Credit Party or any Subsidiary is a party, which default has, or if not remedied within any applicable grace period could reasonably be likely to have, a Material Adverse Effect. 8.10. Litigation. Except as set forth in Schedule 8.10, there is no action, suit, investigation or proceeding at law or in equity or by or before any governmental instrumentality or agency or arbitral body pending, or, to the knowledge of the Borrower, threatened by or against the Borrower or any Subsidiary or other Credit Party or affecting the Borrower or any Subsidiary or other Credit Party or any properties or rights of the Borrower or any Subsidiary or other Credit Party, which could reasonably be likely to have a Material Adverse Effect. 8.11. Margin Stock. The proceeds of the borrowings made hereunder will be used by the Borrower only for the purposes expressly authorized herein. None of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might constitute any of the Loans under this Agreement a "purpose credit" within the meaning of said Regulation U or Regulation X (12 C.F.R. Part 221) of the Board. Neither the Borrower nor any agent acting in its behalf has taken or will take any action which might cause this Agreement or any of the documents or instruments delivered pursuant hereto to violate any regulation of the Board or to violate the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or any state securities laws, in each case as in effect on the date hereof. 8.12. Investment Company. No Credit Party is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. Section 80a-1, et seq.). The application of the proceeds of the Loans and repayment thereof by the Borrower and the performance by the Borrower and the other Credit Parties of the transactions contemplated by the Loan Documents will not violate any provision of said Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder, in each case as in effect on the date hereof. 8.13. Intellectual Property. The Borrower and each other Credit Party owns or has the right to use, under valid license agreements or otherwise, all its Intellectual Property, without known conflict with any patent, license, franchise, trademark, trade secret, trade name, copyright, other proprietary right of any other Person, and other than the trademark "P.F. Chang's China Bistro, Inc." (which is owned by the Borrower), neither the Borrower nor any subsidiary owns or licenses any other registered Intellectual Property. 8.14. No Untrue Statement. Neither (a) this Agreement nor any other Loan Document or certificate or document executed and delivered by or on behalf of the Borrower or any other Credit Party in accordance with or pursuant to any Loan Document nor (b) any statement, representation, or warranty provided to the Agent in connection with the negotiation or 54 61 preparation of the Loan Documents contains any material misrepresentation or material untrue statement of material fact or omits to state a material fact necessary, in light of the circumstance under which it was made, in order to make any such warranty, representation or statement contained therein not materially misleading. 8.15. No Consents, Etc. Neither the respective businesses or properties of the Credit Parties or any Subsidiary, nor any relationship among the Credit Parties or any Subsidiary and any other Person, nor any circumstance in connection with the execution, delivery and performance of the Loan Documents and the transactions contemplated thereby, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person on the part of any Credit Party, that has not been obtained by such Credit Party, as a condition to the execution, delivery and performance of, or consummation of the transactions contemplated by the Loan Documents, which, if not obtained or effected, would be reasonably likely to have a Material Adverse Effect, or if so, such consent, approval, authorization, filing, registration or qualification has been duly obtained or effected, as the case may be. 8.16. Employee Benefit Plans. (a) The Borrower and each ERISA Affiliate is in compliance with all applicable provisions of ERISA and the regulations and published interpretations thereunder and in compliance with all Foreign Benefit Laws with respect to all Employee Benefit Plans except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been determined or the Borrower or its Subsidiaries is in the process of obtaining a determination by the Internal Revenue Service to be so qualified, each trust related to such plan has been determined to be exempt under Section 501(a) of the Code, and each Employee Benefit Plan subject to any Foreign Benefit Law has received the required approvals by any Governmental Authority regulating such Employee Benefit Plan. No material liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan or any Multiemployer Plan; (b) Neither the Borrower nor any ERISA Affiliate has (i) engaged in a nonexempt prohibited transaction described in Section 4975 of the Code or Section 406 of ERISA affecting any of the Employee Benefit Plans or the trusts created thereunder which could subject any such Employee Benefit Plan or trust to a material tax or penalty on prohibited transactions imposed under Internal Revenue Code Section 4975 or ERISA, (ii) incurred any accumulated funding deficiency with respect to any Employee Benefit Plan, whether or not waived, or any other liability to the PBGC which remains outstanding other than the payment of premiums and there are no premium payments which are due and unpaid, (iii) failed to make a required contribution or payment to a Multiemployer Plan, (iv) failed to make a required installment or other required payment under Section 412 of the Code, Section 302 of ERISA or the terms of such Employee 55 62 Benefit Plan, or (v) failed to make a required contribution or payment, or otherwise failed to operate in compliance with any Foreign Benefit Law regulating any Employee Benefit Plan; (c) No Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan or Multiemployer Plan, and neither the Borrower nor any ERISA Affiliate has incurred any unpaid withdrawal liability with respect to any Multiemployer Plan; (d) The present value of all vested accrued benefits under each Employee Benefit Plan which is subject to Title IV of ERISA, or the funding of which is regulated by any Foreign Benefit Law did not, as of the most recent valuation date for each such plan, exceed the then current value of the assets of such Employee Benefit Plan allocable to such benefits; (e) To the best of the Borrower's knowledge, each Employee Benefit Plan which is subject to Title IV of ERISA or the funding of which is regulated by any Foreign Benefit Law, maintained by the Borrower or any ERISA Affiliate, has been administered in accordance with its terms in all material respects and is in compliance in all material respects with all applicable requirements of ERISA, applicable Foreign Benefit Law and other applicable laws, regulations and rules; (f) The consummation of the Loans and the issuance of the Letters of Credit provided for herein will not involve any prohibited transaction under ERISA which is not subject to a statutory or administrative exemption; and (g) No material proceeding, claim, lawsuit and/or investigation exists or, to the best knowledge of the Borrower after due inquiry, is threatened concerning or involving any Employee Benefit Plan. 8.17. No Default. As of the date hereof, there does not exist any Default or Event of Default hereunder. 8.18. Environmental Laws. Except as listed on Schedule 8.18, the Borrower and each Subsidiary is in compliance with all applicable Environmental Laws and has been issued and currently maintains all required federal, state and local permits, licenses, certificates and approvals except to the extent that any noncompliance or failure to obtain or maintain such permits, licenses, certificates or approvals could not reasonably be expected to have a Material Adverse Effect. Except as listed on Schedule 8.18, neither the Borrower nor any Subsidiary has been notified in writing of any pending or threatened action, suit, proceeding or investigation, and neither the Borrower nor any Subsidiary is aware of any facts, which (a) calls into question, or could reasonably be expected to call into question, compliance by the Borrower or any Subsidiary with any Environmental Laws, (b) seeks, or could reasonably be expected to form the basis of a meritorious proceeding, to suspend, revoke or terminate any license, permit or approval necessary for the operation of the Borrower's or any Subsidiary's business or facilities 56 63 or for the generation, handling, storage, treatment or disposal of any Hazardous Materials, or (c) seeks to cause, or could reasonably be expected to form the basis of a meritorious proceeding to cause, any property of the Borrower or any Subsidiary or other Credit Party to be subject to any restrictions on ownership, use, occupancy or transferability under any Environmental Law. 8.19. Employment Matters. (a) None of the employees of the Borrower or any Subsidiary is subject to any collective bargaining agreement and there are no strikes, work stoppages, election or decertification petitions or proceedings, unfair labor charges, equal opportunity proceedings, or other material labor/employee related controversies or proceedings pending or, to the actual knowledge of the Borrower, threatened against the Borrower or any Subsidiary or between the Borrower or any Subsidiary and any of its employees, other than employee grievances arising in the ordinary course of business which could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and (b) Except to the extent a failure to maintain compliance would not have a Material Adverse Effect, the Borrower and each Subsidiary is in compliance in all respects with all applicable laws, rules and regulations pertaining to labor or employment matters, including without limitation those pertaining to wages, hours, occupational safety and taxation and there is neither pending nor, to the Borrower's actual knowledge, threatened any litigation, administrative proceeding or, to the actual knowledge of the Borrower, any investigation, in respect of such matters which, if decided adversely, could reasonably be likely, individually or in the aggregate, to have a Material Adverse Effect. 8.20. RICO. Neither the Borrower nor any Subsidiary is engaged in or has engaged in any course of conduct that could subject any of their respective properties to any Lien, seizure or other forfeiture under any criminal law, racketeer influenced and corrupt organizations law, civil or criminal, or other similar laws. 8.21. Year 2000 Compliance. The Borrower and its Subsidiaries have (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by information received from suppliers and vendors) that could reasonably be expected to be adversely affected by the Year 2000 Problem, (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan substantially in accordance with that timetable. The Borrower has taken all reasonable steps to insure that all computer applications (including those affected by information received from its suppliers and vendors) that are material to its or any of its Subsidiaries' business and operations will on a timely basis be Year 2000 Compliant, except to the extent that a failure to do so could not reasonably be expected to have Material Adverse Effect. 8.22. Operating Facilities. Schedule 8.22 contains a true and complete list of all owned or leased restaurant, office and other operating facilities of the Borrower and each Subsidiary (other than those acquired since the last date on which financial statements were required to be delivered pursuant to Sections 9.1(a) or (b)) and, as to each such facility, describes (a) the type of facility, (b) whether it is owned or leased by the Borrower or such Subsidiary, (c) the identity 57 64 of such owner or lessee, and (d) as to leased facilities, (i) the name and address of the lessor, (ii) the expiration date of the related lease, and (iii) the rental or other payments (whether fixed or percentage) payable thereunder. Since the Closing Date no leases have expired or been terminated or otherwise have ceased to be in full force and effect other than expirations and terminations in the ordinary course of business, and no default or defaults in the performance, observance or fulfillment of any of the terms or conditions thereof has occurred and is continuing beyond any applicable grace period, in any case which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. ARTICLE IX Affirmative Covenants Until the Facility Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and where applicable will cause each Subsidiary to: 9.1. Financial Reports, Etc. (a) As soon as practical and in any event within 90 days after the end of each Fiscal Year of the Borrower, deliver or cause to be delivered to the Agent and each Lender (i) consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such Fiscal Year, and the notes thereto, and the related consolidated and consolidating statements of income, stockholders' equity and cash flows, and the respective notes thereto, for such Fiscal Year, setting forth (other than for consolidating statements) comparative financial statements for the preceding Fiscal Year, all prepared in accordance with GAAP applied on a Consistent Basis and containing, with respect to the consolidated financial statements, opinions of Ernst & Young LLC, or other such independent certified public accountants selected by the Borrower and approved by the Agent (such approval not to be unreasonably withheld), which are unqualified as to the scope of the audit performed and as to the "going concern" status of the Borrower and without any exception not acceptable to the Lenders, and (ii) a certificate of an Authorized Representative demonstrating compliance with Sections 10.1(a) through 10.1(c), 10.3, 10.5(g) and 10.7(g), which certificate shall be in the form of Exhibit H; (b) as soon as practical and in any event within 45 days after the end of each fiscal quarter (except the last fiscal quarter of the Fiscal Year), deliver to the Agent and each Lender (i) consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated and consolidating statements of income, stockholders' equity and cash flows for such fiscal quarter and for the period from the beginning of the then current Fiscal Year through the end of such reporting period, and accompanied by a certificate of an Authorized Representative to the effect that such financial statements present fairly the financial position of the Borrower and its Subsidiaries as of the end of such fiscal period and the results of their operations and the changes in their financial position for such fiscal period, in conformity with the standards set forth in Section 8.6(a) with respect to interim financial statements, and (ii) a certificate of an Authorized Representative containing computations for such quarter comparable to that required pursuant to Section 9.1(a)(ii); 58 65 (c) promptly upon their becoming available to the Borrower, the Borrower shall deliver or make available to the Agent and each Lender a copy of (i) all regular or special reports or effective registration statements which Borrower or any Subsidiary shall file with the Securities and Exchange Commission (or any successor thereto) or any securities exchange, (ii) any proxy statement distributed by the Borrower or any Subsidiary to its shareholders, bondholders or the financial community in general, and (iii) any management letter or other report submitted to the Borrower or any Subsidiary by independent accountants in connection with any annual, interim or special audit of the Borrower or any Subsidiary; (d) together with each delivery of financial statements required by Section 9.1(a) or (b), deliver to the Agent and each Lender a supplement to Schedule 8.22 reflecting any changes to the information provided therein; (e) not later than the last Business Day of each Fiscal Year, deliver to the Agent and each Lender a capital and operating expense budget and consolidated financial projections for the Borrower and its Subsidiaries for the next three (3) Fiscal Years prepared in good faith in accordance with prior practice of the Borrower; and (f) promptly, from time to time, deliver or cause to be delivered to the Agent and each Lender such other information regarding Borrower's and any Subsidiary's operations, business affairs and financial condition as the Agent or such Lender may reasonably request; The Agent and the Lenders are hereby authorized to deliver a copy of any such financial or other information delivered hereunder to the Lenders (or any affiliate of any Lender) or to the Agent, to any Governmental Authority having jurisdiction over the Agent or any of the Lenders pursuant to any written request therefor or in the ordinary course of examination of loan files, or to any other Person who shall acquire or consider the assignment of, or acquisition of any participation interest in, any Obligation permitted by this Agreement. 9.2. Maintain Properties. Maintain all properties necessary to its operations in good working order and condition, make all needed repairs, replacements and renewals to such properties, and maintain free from Liens all trademarks, trade names, patents, copyrights, trade secrets, know-how, and other intellectual property and proprietary information (or adequate licenses thereto), in each case as are reasonably necessary to conduct its business as currently conducted or as contemplated hereby, all in accordance with customary and prudent business practices. 9.3. Existence, Qualification, Etc. Do or cause to be done all things necessary to preserve and keep in full force and effect its existence and all material rights and franchises, and maintain its license or qualification to do business as a foreign corporation and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary, except (a) where the failure to maintain such good standing or qualification would not result in a Material Adverse Effect or (b) as otherwise expressly permitted under Section 10.8. 59 66 9.4. Regulations and Taxes. Comply in all material respects with or contest in good faith all statutes and governmental regulations and pay all taxes, assessments, governmental charges, claims for labor, supplies, rent and any other obligation which, if unpaid, would become a Lien against any of its properties except liabilities being contested in good faith by appropriate proceedings diligently conducted and against which adequate reserves acceptable to the Borrower's independent certified public accountants have been established unless and until any Lien resulting therefrom attaches to any of its property and becomes enforceable against its creditors. 9.5. Insurance. (a) Keep all of its insurable properties adequately insured at all times with responsible insurance carriers against loss or damage by fire and other hazards to the extent and in the manner as are customarily insured against by similar businesses owning such properties similarly situated and otherwise as required by the Security Instruments, (b) maintain general public liability insurance at all times with responsible insurance carriers against liability on account of damage to persons and property and (c) maintain insurance under all applicable workers' compensation laws (or in the alternative, maintain required reserves if self-insured for workers' compensation purposes) and against loss by reason by business interruption, such policies of insurance to have such limits, deductibles, exclusions, co-insurance and other provisions providing no less coverages than are maintained by similar businesses that are similarly situated, such insurance policies to be in form reasonably satisfactory to the Agent. Each of the policies of insurance described in this Section 9.5 shall provide that the insurer shall give the Agent not less than thirty (30) days' prior written notice before any such policy shall be terminated, lapse or be altered in any manner. 9.6. True Books. Keep true books of record and account in which full, true and correct entries will be made of all of its dealings and transactions, and set up on its books such reserves as may be required by GAAP with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business in general, and include such reserves in interim as well as year-end financial statements. 9.7. Year 2000 Compliance. The Borrower will promptly notify the Agent and the Lenders in the event the Borrower discovers or determines that any computer application (including those affected by information received from its suppliers and vendors) that is material to its or any of its Subsidiaries' business and operations will not be Year 2000 Compliant on a timely basis, except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. 9.8. Right of Inspection. Permit any Person (a) designated by any Lender or the Agent (i) to visit and inspect any of the properties, corporate books and financial reports of the Borrower or any Subsidiary, and (ii) to discuss its affairs, finances and accounts with its principal officers and independent certified public accountants, and (b) designated by the Agent to conduct audits of the accounts receivable, inventory, payables, controls and system of the Borrower and its Subsidiaries, which audits shall be at the expense of the Borrower at any time a Default or Event of Default has occurred and is continuing, and otherwise shall be at the expense of the 60 67 Lenders, all at reasonable times, at reasonable intervals and with reasonable prior notice and subject to the confidentiality provisions of Section 13.16. 9.9. Observe all Laws. Conform to and duly observe in all material respects all laws, rules and regulations and all other valid requirements of any Governmental Authority with respect to the conduct of its business. 9.10. Governmental Licenses. Obtain and maintain all licenses, permits, certifications and approvals of all applicable Governmental Authorities as are required for the conduct of its business as currently conducted and as contemplated by the Loan Documents, except to the extent the failure to obtain or maintain any of the foregoing would not have a Material Adverse Effect. 9.11. Covenants Extending to Other Persons. Cause each of its Subsidiaries to do with respect to itself, its business and its assets, each of the things required of the Borrower in Sections 9.2 through 9.10, and 9.20 inclusive. 9.12. Officer's Knowledge of Default. Upon any executive officer of the Borrower obtaining knowledge of any Default or Event of Default hereunder or under any other obligation of the Borrower or any Subsidiary or other Credit Party to any Lender, or any event, development or occurrence which could reasonably be expected to have a Material Adverse Effect, cause such executive officer or an Authorized Representative to promptly notify the Agent of the nature thereof, the period of existence thereof, and what action the Borrower or such Subsidiary or other Credit Party proposes to take with respect thereto. 9.13. Suits or Other Proceedings. Upon any officer of the Borrower obtaining knowledge of any litigation or other proceedings being instituted against the Borrower or any Subsidiary or other Credit Party, or any attachment, levy, execution or other process being instituted against any assets of the Borrower or any Subsidiary or other Credit Party, making a claim or claims in an aggregate amount greater than $500,000 not otherwise covered by insurance, the Borrower shall promptly deliver to the Agent written notice thereof stating the nature and status of such litigation, dispute, proceeding, levy, execution or other process. 9.14. Notice of Environmental Complaint or Condition. Promptly provide to the Agent true, accurate and complete copies of any and all notices, complaints, orders, directives, claims or citations received by the Borrower or any Subsidiary relating to any (a) violation or alleged violation by the Borrower or any Subsidiary of any applicable Environmental Law; (b) release or threatened release by the Borrower or any Subsidiary, or by any Person handling, transporting or disposing of any Hazardous Material on behalf of the Borrower or any Subsidiary, or at any facility or property owned or leased or operated by the Borrower or any Subsidiary, of any Hazardous Material, except where occurring legally pursuant to a permit or license; or (c) liability or alleged liability of the Borrower or any Subsidiary for the costs of cleaning up, removing, remediating or responding to a release of Hazardous Materials, except to the extent any of the foregoing could not reasonably be expected to have a Material Adverse Effect. 61 68 9.15. Environmental Compliance. If the Borrower or any Subsidiary shall receive any letter, notice, complaint, order, directive, claim or citation alleging that the Borrower or any Subsidiary has violated any Environmental Law, has released any Hazardous Material, or is liable for the costs of cleaning up, removing, remediating or responding to a release of Hazardous Materials, the Borrower and any Subsidiary shall, within the time period permitted and to the extent required by the applicable Environmental Law or the Governmental Authority responsible for enforcing such Environmental Law, remove or remedy, or cause the applicable Subsidiary to remove or remedy, such violation or release or satisfy such liability. 9.16. Indemnification. Without limiting the generality of Section 13.9, the Borrower hereby agrees to indemnify and hold the Agent and the Lenders and any affiliate of any Lender party to a Swap Agreement, and their respective officers, directors, employees and agents, harmless from and against any and all claims, losses, penalties, liabilities, damages and expenses (including assessment and cleanup costs and reasonable attorneys', consultants' or other expert fees, expenses and disbursements) arising directly or indirectly from, out of or by reason of (a) the violation of any Environmental Law by the Borrower or any Subsidiary or with respect to any property owned, operated or leased by the Borrower or any Subsidiary or (b) the handling, storage, transportation, treatment, emission, release, discharge or disposal of any Hazardous Materials by or on behalf of the Borrower or any Subsidiary, or on or with respect to property owned or leased or operated by the Borrower or any Subsidiary. The provisions of this Section 9.16 shall survive repayment of the Obligations, or the Facility Termination Date and expiration or termination of this Agreement. 9.17. Further Assurances. At the Borrower's cost and expense, upon request of the Agent, duly execute and deliver or cause to be duly executed and delivered, to the Agent such further instruments, documents, certificates, financing and continuation statements, and do and cause to be done such further acts that may be reasonably necessary or advisable in the reasonable opinion of the Agent to carry out more effectively the provisions and purposes of this Agreement, the Security Instruments and the other Loan Documents; provided that none of the foregoing shall alter, amend or modify the express rights or liabilities of the Borrower hereunder or under the other Loan Documents; and provided, further, that the Borrower agrees that at such time as there shall be more than one Lender party to this Agreement, an opinion of counsel to the Borrower admitted to practice in the state of North Carolina (or other jurisdiction of governing law), shall be promptly delivered to the Agent after request therefor in the form of Exhibit G hereto. 9.18. Employee Benefit Plans. (a) With reasonable promptness, and in any event within thirty (30) days thereof, give notice to the Agent of (a) the establishment of any new Pension Plan (which notice shall include a copy of such plan), (b) the commencement of contributions to any Employee Benefit Plan to which the Borrower or any of its ERISA Affiliates was not previously contributing, (c) any material increase in the benefits of any existing Employee Benefit Plan, (d) each funding waiver request filed with respect to any Pension Plan and all communications received or sent by the Borrower or any ERISA Affiliate 62 69 with respect to such request and (e) the failure of the Borrower or any ERISA Affiliate to make a required installment or payment under Section 302 of ERISA or Section 412 of the Code (in the case of Employee Benefit Plans regulated by the Code or ERISA) or under any Foreign Benefit Law (in the case of Employee Benefit Plans regulated by any Foreign Benefit Law) by the due date; (b) Promptly and in any event within fifteen (15) days of becoming aware of the occurrence or forthcoming occurrence of any (a) Termination Event or (b) nonexempt "prohibited transaction," as such term is defined in Section 406 of ERISA or Section 4975 of the Code, in connection with any Employee Benefit Plan or any trust created thereunder, deliver to the Agent a notice specifying the nature thereof, what action the Borrower or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and (c) With reasonable promptness but in any event within fifteen (15) days for purposes of clauses (a), (b) and (c), deliver to the Agent copies of (a) any unfavorable determination letter from the Internal Revenue Service regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code, (b) all notices received by the Borrower or any ERISA Affiliate of the PBGC's or any Governmental Authority's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (c) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by the Borrower or any ERISA Affiliate with the Internal Revenue Service with respect to each Employee Benefit Plan and (d) all notices received by the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA. The Borrower will notify the Agent in writing within five (5) Business Days of the Borrower or any ERISA Affiliate obtaining knowledge or reason to know that the Borrower or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Pension Plan under a distress termination within the meaning of Section 4041(c) of ERISA. 9.19. Continued Operations. Continue at all times to conduct its business and engage principally in the same line or lines of business substantially as heretofore conducted. 9.20. New Subsidiaries. Simultaneously with the acquisition or creation of any Subsidiary (each, a "New Subsidiary"), cause to be delivered to the Agent for the benefit of the Lenders each of the following: (a) if the New Subsidiary is a Domestic Subsidiary, a Facility Guaranty executed by the New Subsidiary substantially in the form of Exhibit I; (b) if the New Subsidiary is a Domestic Subsidiary, a Security Agreement of the New Subsidiary substantially in the form of Exhibit J, together with such Uniform Commercial Code financing statements on Form UCC-1 or otherwise duly executed by such Subsidiary as "Debtor" and naming the Agent for the benefit of the Agent and the 63 70 Lenders as "Secured Party", in form, substance and number sufficient in the reasonable opinion of the Agent and its special counsel to be filed in all Uniform Commercial Code filing offices in all jurisdictions in which filing is necessary or advisable to perfect in favor of the Agent for the benefit of the Agent and the Lenders the Lien on Collateral conferred under such Security Instrument to the extent such Lien may be perfected by Uniform Commercial Code filing; (c) if the Subsidiary Securities issued by the New Subsidiary that constitute Pledged Interests shall be owned by a Subsidiary who has not then executed and delivered to the Agent a Pledge Agreement granting a Lien to the Agent, for the benefit of the Agent and the Lenders, in such equity interests, a Pledge Agreement executed by the Subsidiary that directly owns such Pledged Interests substantially in the form attached hereto as Exhibit K (or, as to Pledged Interests issued by any Direct Foreign Subsidiary, in a form acceptable to the Agent), and if such Subsidiary Securities shall be owned by the Borrower or a Subsidiary who has previously executed a Pledge Agreement, a Pledge Agreement Supplement in the form required by such Pledge Agreement pertaining to such Subsidiary Securities; (d) if the New Subsidiary is the owner of Subsidiary Securities that constitute Pledged Interests, a Pledge Agreement by the New Subsidiary granting a Lien to the Agent, for the benefit of the Agent and the Lenders, in such Pledged Interests, substantially in the form attached hereto as Exhibit K (or, as to Pledged Interests issued by any Direct Foreign Subsidiary, in a form acceptable to the Agent); (e) if the Pledged Interests issued by the New Subsidiary, or by a Subsidiary owned by the New Subsidiary, constitute securities under Article 8 of the Uniform Commercial Code (i) the certificates representing 100% of such Pledged Interests and (ii) duly executed, undated stock powers or other appropriate powers of assignment in blank affixed thereto; (f) (i) Uniform Commercial Code financing statements on form UCC-1 or otherwise duly executed by the pledgor as "Debtor" and naming the Agent for the benefit of the Agent and the Lenders as "Secured Party," in form, substance and number sufficient in the reasonable opinion of the Agent and its special counsel to be filed in all Uniform Commercial Code filing offices and in all jurisdictions in which filing is necessary or advisable to perfect in favor of the Agent for the benefit of the Agent and the Lenders the Lien on such Subsidiary Securities, and (ii) if the Pledged Interests issued by the New Subsidiary, or by a Subsidiary owned by the New Subsidiary, do not constitute securities and the issuer thereof has not elected to have such interests treated as securities under Article 8 of the applicable Uniform Commercial Code, a control agreement from the Registrar of the issuer, in form and substance acceptable to the Agent and in which the Registrar (1) acknowledges that the pledgor is at the date of such acknowledgment the sole record, and to its knowledge, beneficial owner of such Subsidiary Securities, (2) acknowledges the Lien in favor of the Agent conferred under the Pledge Agreement and that such Lien will be reflected on the registry for such 64 71 Subsidiary Securities, (3) agrees that it will not register any transfer of such Subsidiary Securities nor acknowledge any Lien in favor of any other Person on such Subsidiary Securities, without the prior written consent of the Agent, in each instance, until it receives notice from the Agent that all Liens on such Collateral in favor of the Agent for the benefit of the Agent and the Lenders have been released or terminated, and (4) agrees that upon receipt of notice from the Agent that an Event of Default has occurred and is continuing and that the Subsidiary Securities identified in such notice have been transferred to a transferee identified in such notice, it will duly record such transfer of Subsidiary Securities on the appropriate registry without requiring further consent from the pledgor and shall thereafter treat the transferee as the sole record and beneficial owner of such Subsidiary Securities pending further transfer, notwithstanding any contrary instruction received from the pledgor; (g) a supplement to the appropriate schedule attached to the appropriate Security Instruments listing the additional Collateral, certified as true, correct and complete by the Authorized Representative (provided that the failure to deliver such supplement shall not impair the rights conferred under the Security Instruments in after acquired Collateral); (h) an opinion of counsel to the New Subsidiary and to any party pledging any Subsidiary Securities of the New Subsidiary, if any, dated as of the date of delivery of the Facility Guaranty and the other Loan Documents provided for in this Section 9.20 and addressed to the Agent and the Lenders, in form and substance reasonably acceptable to the Agent (which opinion may include assumptions and qualifications of similar effect to those contained in the opinions of counsel delivered pursuant to Section 7.1(a)), to the effect (as applicable) that: (i) the New Subsidiary and, if applicable, such pledgor is duly organized, validly existing and in good standing in the jurisdiction of its formation, has the requisite power and authority to own its properties and conduct its business as then owned and then conducted and proposed to be conducted and to execute, deliver and perform the Facility Guaranty and the other Loan Documents described in this Section 9.20 to which the New Subsidiary or pledgor is a signatory, and is duly qualified to transact business and is in good standing as a foreign corporation or partnership in each other jurisdiction in which the character of the properties owned or leased, or the business carried on by it, requires such qualification and the failure to be so qualified would reasonably be likely to result in a Material Adverse Effect; (ii) the execution, delivery and performance of the Facility Guaranty and the other Loan Documents described in this Section 9.20 to which the New Subsidiary or the pledgor is a signatory have been duly authorized by all requisite corporate or partnership action (including any required shareholder or partner approval), each of such agreements has been duly executed and delivered and constitutes the valid and binding agreement of the New Subsidiary or pledgor, 65 72 enforceable against the New Subsidiary or pledgor in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity (whether considered in a proceeding at law or in equity); (iii) the Subsidiary Securities being pledged are duly authorized, validly issued, fully paid and nonassessable, and free of any preemptive rights, and the applicable Security Instrument (including foreign collateral documents) is effective to create a valid security interest in favor of the Agent for the benefit of the Agent and the Lenders in such Subsidiary Securities as constitute Pledged Interests; (iv) the Uniform Commercial Code financing statements on Form UCC-1 delivered to the Agent by the New Subsidiary and/or the pledgor in connection with the delivery of the Security Instruments of the New Subsidiary and/or the pledgor have been duly executed by the New Subsidiary and/or the pledgor and are in form, substance and number sufficient for filing in all Uniform Commercial Code filing offices in all jurisdictions in which filing is necessary to perfect in favor of the Agent for the benefit of the Agent and the Lenders the Lien on Collateral conferred under such Security Instruments to the extent such Lien may be perfected by Uniform Commercial Code filing; (v) if the Pledged Interests of the New Subsidiary, or the Pledged Interests issued by the New Subsidiary, constitute securities under Article 8 of the Uniform Commercial Code, and such Pledged Interests are represented by certificates, possession of such certificated Pledged Interests by the Agent is sufficient to perfect in favor of the Agent and the Lenders a security interest in such Pledged Interests; and (vi) in the event the New Subsidiary is a Direct Foreign Subsidiary, that under the laws of the applicable foreign jurisdiction, all agreements, notices and other documents that are required to be executed, delivered, filed or recorded and all other action required to be taken, within or pursuant to the laws of such jurisdiction to perfect the Lien conferred in favor of the Agent under the applicable Security Instrument as against creditors of and purchasers for value from the holder of the Pledged Interests has been duly executed, delivered, filed, recorded or taken, as the case may be; and (i) current copies of the Organizational Documents and Operating Documents of the New Subsidiary and the pledgor, if any, certified resolutions (or duly effected consent actions) of the Board of Directors, partners, or appropriate committees thereof (and, if required by such Organizational Documents, Operating Documents or applicable law, of the shareholders, members or partners) of the New Subsidiary and the 66 73 pledgor, if any, authorizing the actions and the execution and delivery of documents described in this Section 9.20. 9.21. Post-Closing Mortgages. At any time after the Closing Date, upon the written request of the Agent, the Borrower shall deliver, and shall cause each Subsidiary that is or is required to become a Guarantor to deliver, to the Agent for the benefit of the Agent and the Lenders as promptly as practicable but in any event within sixty (60) days of such request, with respect to any parcel of real property owned by the Borrower or any such Subsidiary, (a) a Mortgage with respect to such property and (b) the Mortgage Property Support Documents relating thereto, with the effect that the Agent shall thereby obtain a duly perfected first priority Lien on such property for the benefit of the Agent and the Lenders, subject only to such encumbrances as are acceptable to the Agent. 9.22. Certain Notices. Furnish written notice to the Agent of each of the following events, conditions or occurrences (together in each instance with a statement of what action, if any, the Borrower proposes to take or cause a Subsidiary to take with respect thereto) as soon as practicable but in any event within the time period specified. (a) the receipt of notice of (i) any default in the performance, observance or fulfillment of any term, covenant or condition contained in any lease or sublease of any restaurant or other operating facility which default may result in the cancellation or termination of such lease or sublease or (ii) any termination or declaration of termination of any such lease or sublease by any party thereto, no later than five (5) Business Days after receipt of such notice; and (b) (i) the expiration or termination of any lease or sublease of any restaurant or other operating facility in accordance with its terms and not as a result of any default or purported default in performance, observance or fulfillment of any term, covenant or condition contained therein, or (ii) any proposed amendment to the terms of any such lease or sublease that accelerates the termination date thereof, increases in any material way rental payments thereunder, imposes in any material way more restrictive economic or operating terms on the Borrower or any Subsidiary thereunder or is in the Borrower's reasonable judgment otherwise adverse to the Lenders' interest therein in any respect, not later than thirty (30) days prior to the proposed effective date thereof (such notice to be accompanied by a copy of or terms of any such proposed amendment). 9.23. New Restaurants. Within thirty (30) days of (i) the opening of any new restaurant, (ii) any change in ownership of any restaurant among the Subsidiaries of the Borrower or (iii) any change in location of a restaurant, the Borrower shall notify the Agent of such change and deliver to the Agent additional UCC-1 financing statements with respect to such new location sufficient in form and number to perfect the interest of the Agent in any Collateral at such location. 67 74 ARTICLE X Negative Covenants Until the Facility Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, nor will it permit any Subsidiary to: 10.1. Financial Covenants. (a) Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth to be less than (i) $45,000,000 from the Closing Date until (but excluding) the last day of the fiscal quarter that includes the Closing Date (the "Closing Date Quarter"), and (ii) as at the last day of each fiscal quarter of the Borrower ending after the Closing Date and until (but excluding) the last day of the next following fiscal quarter of the Borrower, the sum of (A) the amount of Consolidated Tangible Net Worth required to be maintained pursuant to this Section 10.1(a) as at the end of the immediately preceding fiscal quarter (or, in the case of the Closing Date Quarter, required to be maintained as of the Closing Date), plus (B) 75% of Consolidated Net Income (with no reduction for net losses during any period) for the fiscal quarter of the Borrower ending on such day (including within "Consolidated Net Income" certain items otherwise excluded, as provided for in the definition of "Consolidated Net Income"), plus (C) 100% of the aggregate amount of all increases in the stated capital and additional paid-in capital accounts of the Borrower resulting from the issuance of equity securities or other capital investments. (b) Consolidated Leverage Ratio. Permit at any time the Consolidated Leverage Ratio to be greater than 2.00 to 1.00. (c) Consolidated Fixed Charge Ratio. Permit at any time the Consolidated Fixed Charge Ratio to be less than 1.25 to 1.00. 10.2. Acquisitions. Enter into any agreement, contract, binding commitment or other arrangement providing for any Acquisition, or take any action to solicit the tender of securities or proxies in respect thereof in order to effect any Acquisition. 10.3. Capital Expenditures. Make or become committed to make Capital Expenditures which exceed $35,000,000 in the aggregate in any Fiscal Year of the Borrower (on a noncumulative basis, with the effect that amounts not expended in any Fiscal Year may not be carried forward to a subsequent period). 10.4. Liens. Incur, create or permit to exist any Lien, charge or other encumbrance of any nature whatsoever with respect to any property or assets now owned or hereafter acquired by the Borrower or any Subsidiary, other than the following (collectively, "Permitted Liens"): 68 75 (a) Liens created under the Security Instruments in favor of the Agent and the Lenders, Liens reflected on the Title Policies and acceptable to the Agent in its discretion, and Liens otherwise existing as of the date hereof and as set forth in Schedule 8.7; (b) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP and which Liens are not yet enforceable against other creditors; (c) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law or created in the ordinary course of business or for amounts not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP and which Liens are not yet enforceable against other creditors; (d) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; (e) easements (including reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and zoning and other similar restrictions, charges or encumbrances (whether or not recorded), which do not interfere materially with the ordinary conduct of the business of the Borrower or any Subsidiary and which do not materially detract from the value of the property to which they attach or materially impair the use thereof to the Borrower or any Subsidiary; and (f) purchase money Liens to secure Indebtedness permitted under Section 10.5(d) and incurred to purchase fixed assets, provided such Indebtedness represents not less than 75% and not more than 90% of the purchase price of such assets as of the date of purchase thereof and no property other than the assets so purchased secures such Indebtedness. 10.5. Indebtedness. Incur, create, assume or permit to exist any Indebtedness, howsoever evidenced, except: (a) Indebtedness existing as of the Closing Date as set forth in Schedule 8.6; provided, none of the instruments and agreements evidencing or governing such Indebtedness shall be amended, modified or supplemented after the Closing Date to 69 76 change in any material respect any terms of subordination, repayment or rights of enforcement, conversion, put, exchange or other rights from such terms and rights as in effect on the Closing Date; (b) Indebtedness owing to the Agent or any Lender in connection with this Agreement, any Note or other Loan Document; (c) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (d) purchase money Indebtedness described in Section 10.4(f) not to exceed an aggregate outstanding principal amount at any time of $500,000; (e) Indebtedness arising from Rate Hedging Obligations permitted under Section 10.11; (f) unsecured intercompany Indebtedness for loans and advances made by the Borrower or any Guarantor to the Borrower or any Guarantor; (g) additional unsecured Indebtedness for Money Borrowed not otherwise covered by clauses (a) through (f) above, provided that the aggregate outstanding principal amount of all such other Indebtedness permitted under this clause (g) shall in no event exceed $5,000,000 at any time; (h) Indebtedness extending the maturity of, or renewing, refunding or refinancing, in whole or in part, Indebtedness incurred under clauses (a), (d), (e), and (g) of this Section 10.5, provided that the terms of any such extension, renewal, refunding or refinancing Indebtedness (and of any agreement or instrument entered into in connection therewith) are not materially less favorable to the Agent and the Lenders than the terms of the Indebtedness as in effect prior to such action, and provided further that (1) the aggregate principal amount of or interest rate or rates and fees payable on such extended, renewed, refunded or refinanced Indebtedness shall not be increased by such action, (2) the group of direct or contingent obligors on such Indebtedness shall not be expanded as a result of any such action, and (3) immediately before and immediately after giving effect to any such extension, renewal, refunding or refinancing, no Default or Event of Default shall have occurred and be continuing. 10.6. Transfer of Assets. Sell, lease, transfer or otherwise dispose of any assets of Borrower or any Subsidiary other than (a) dispositions of inventory in the ordinary course of business, (b) dispositions of property that is substantially worn, damaged, obsolete and, in the judgment of the Borrower, no longer best used or useful in its business or that of any Subsidiary, (c) dispositions of property that is substantially worn, damaged, obsolete or inefficient that is promptly replaced in the ordinary course of business with assets of equal or greater utility and value, (d) transfers of assets necessary to give effect to merger or consolidation transactions permitted by Section 10.8, (e) the disposition of Eligible Securities in the ordinary course of 70 77 management of the investment portfolio of the Borrower and its Subsidiaries, (f) sales or transfers in connection with a sale leaseback transactions with respect to any of the Borrower's restaurant sites, and (g) the issuance of Management Securities in the ordinary course of the Borrower's and its Subsidiaries' business and on substantially the same economic terms as (or other terms no less favorable to the Borrower and its Subsidiaries than) the terms of such issuance as of the Closing Date. 10.7. Investments. Purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities, or make or permit to exist any interest whatsoever in any other Person or permit to exist any loans or advances to any Person, except that Borrower may maintain investments or invest in: (a) securities of any Person acquired in an Acquisition permitted hereunder; (b) Eligible Securities; (c) investments and loans existing as of the date hereof and as set forth in Schedule 8.4; (d) accounts receivable arising and trade credit granted in the ordinary course of business and any securities received in satisfaction or partial satisfaction thereof in connection with accounts of financially troubled Persons to the extent reasonably necessary in order to prevent or limit loss; and (e) investments in Subsidiaries which are Guarantors; (f) loans between the Borrower and the Guarantors described in Section 10.5(f); (g) loans to market partners, operating partners and chef partners who hold Management Securities in an aggregate principal amount at any time outstanding not to exceed $2,000,000; (h) other loans, advances and investments in an aggregate principal amount at any time outstanding not to exceed $2,000,000. 10.8. Merger or Consolidation. (a) Consolidate with or merge into any other Person, or (b) permit any other Person to merge into it, or (c) liquidate, wind-up or dissolve or sell, transfer or lease or otherwise dispose of all or a substantial part of its assets (other than sales permitted under Section 10.6(a), (b) and (d)); provided, however, any Subsidiary of the Borrower may merge or transfer all or substantially all of its assets into or consolidate with the Borrower or any wholly-owned Subsidiary of the Borrower. 10.9. Restricted Payments. Make any Restricted Payment or apply or set apart any of their assets therefor or agree to do any of the foregoing. 71 78 10.10. Transactions with Affiliates. Other than transactions permitted under Sections 10.6(g), 10.7 and 10.8, enter into any transaction after the Closing Date, including, without limitation, the purchase, sale, lease or exchange of property, real or personal, or the rendering of any service, with any Affiliate of the Borrower, except (a) that such Persons may render services to the Borrower or its Subsidiaries for compensation at the same rates generally paid by Persons engaged in the same or similar businesses for the same or similar services, (b) that the Borrower or any Subsidiary may render services to such Persons for compensation at the same rates generally charged by the Borrower or such Subsidiary and (c) in either case in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's (or any Subsidiary's) business consistent with past practice of the Borrower and its Subsidiaries and upon fair and reasonable terms no less favorable to the Borrower (or any Subsidiary) than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate. 10.11. Compliance with ERISA, the Code and Foreign Benefit Laws. With respect to any Pension Plan, Employee Benefit Plan or Multiemployer Plan: (a) permit the occurrence of any Termination Event which would result in a liability on the part of the Borrower or any ERISA Affiliate to the PBGC or to any Governmental Authority; or (b) permit the present value of all benefit liabilities under all Pension Plans to exceed the current value of the assets of such Pension Plans allocable to such benefit liabilities; or (c) permit any accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code) with respect to any Pension Plan, whether or not waived; or (d) fail to make any contribution or payment to any Multiemployer Plan which the Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; or (e) engage, or permit any Borrower or any ERISA Affiliate to engage, in any prohibited transaction under Section 406 of ERISA or Sections 4975 of the Code for which a civil penalty pursuant to Section 502(I) of ERISA or a tax pursuant to Section 4975 of the Code may be imposed; or (f) permit the establishment of any Employee Benefit Plan providing post-retirement welfare benefits or establish or amend any Employee Benefit Plan which establishment or amendment could result in liability to the Borrower or any ERISA Affiliate or increase the obligation of the Borrower or any ERISA Affiliate to a Multiemployer Plan; or (g) fail, or permit the Borrower or any ERISA Affiliate to fail, to establish, maintain and operate each Employee Benefit Plan in compliance in all material respects 72 79 with the provisions of ERISA, the Code, all applicable Foreign Benefit Laws and all other applicable laws and the regulations and interpretations thereof. 10.12. Fiscal Year. Change its Fiscal Year. 10.13. Dissolution, etc. Wind up, liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any proceedings seeking any such winding up, liquidation or dissolution, except in connection with a merger or consolidation permitted pursuant to Section 10.8. 10.14. Limitations on Sales and Leasebacks. Enter into any arrangement or arrangements with any Person providing for the leasing by the Borrower or any Subsidiary of real or personal property, whether now owned or hereafter acquired in a single transaction or series of related transactions, which has been or is to be sold or transferred by the Borrower or any Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or any Subsidiary; provided, however, the Borrower and its Subsidiaries may enter into such arrangements for leasing of its restaurant sites. 10.15. Change in Control. Cause, suffer or permit to exist or occur any Change of Control. 10.16. Rate Hedging Obligations. Incur any Rate Hedging Obligations or enter into any agreements, arrangements, devices or instruments relating to Rate Hedging Obligations, except pursuant to Swap Agreements in an aggregate notional amount not to exceed at any time the Total Revolving Credit Commitment or as otherwise agreed by the Borrower and the Agent. 10.17. Negative Pledge Clauses. Enter into or cause, suffer or permit to exist any agreement with any Person other than the Agent and the Lenders pursuant to this Agreement or any other Loan Documents which prohibits or limits the ability of any of the Borrower or any Subsidiary to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, provided that the Borrower and any Subsidiary may enter into such an agreement in connection with, and that applies only to, property acquired with the proceeds of purchase money Indebtedness permitted hereunder. 10.18. Prepayments, Etc. of Indebtedness. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Indebtedness. 10.19. Amendments to Operating Agreements. Amend the existing operating agreement of any Subsidiary to include, or permit to exist an operating agreement of any new Subsidiary which includes, any provision which would (a) prohibit or restrict distributions by such Subsidiary to the Borrower under such operating agreement in respect of the ownership interest of the Borrower in such Subsidiary or in any restaurant or (b) decrease below 80% the percentage ownership interest of the Borrower in such Subsidiary or in any restaurant. 73 80 ARTICLE XI Events of Default and Acceleration 11.1. Events of Default. If any one or more of the following events (herein called "Events of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Governmental Authority), that is to say: (a) if default shall be made, and shall continue for one (1) day, in the due and punctual payment of the principal of any Loan, Reimbursement Obligation or other Obligation, when and as the same shall be due and payable whether pursuant to any provision of Article II, Article III or Article IV, at maturity, by acceleration or otherwise; or (b) if default shall be made in the due and punctual payment of any amount of interest on any Loan, Reimbursement Obligation or other Obligation or of any fees or other amounts payable to any of the Lenders or the Agent on the date on which the same shall be due and payable and such default shall continue for a period of three (3) or more days; or (c) if default shall be made in the performance or observance of any covenant set forth in Section 9.8, 9.12, 9.13, 9.20, 9.21 or Article X; (d) if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in this Agreement or the Notes (other than as described in clauses (a), (b) or (c) above) and such default shall continue for thirty (30) or more days after the earlier of receipt of notice of such default by the Authorized Representative from the Agent or an officer of the Borrower becomes aware of such default, or if such default is of a type that cannot be cured within thirty (30) days (but reasonably can be cured within ninety (90) days), and the Borrower is diligently and in good faith attempting to cure such default, such default shall continue unremedied for a period of ninety (90) or more days after such notice or if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in any of the other Loan Documents (beyond any applicable grace period, if any, contained therein) or in any instrument or document evidencing or creating any obligation, guaranty, or Lien in favor of the Agent or any of the Lenders or delivered to the Agent or any of the Lenders in connection with or pursuant to this Agreement or any of the Obligations, or if any Loan Document ceases to be in full force and effect (other than as expressly provided for hereunder or thereunder or with the express written consent of the Agent), or if without the written consent of the Lenders, this Agreement or any other Loan Document shall be disaffirmed or shall terminate, be terminable or be terminated or become void or unenforceable for any reason 74 81 whatsoever (other than as expressly provided for hereunder or thereunder or with the express written consent of the Agent); or (e) if there shall occur (i) a default, which is not waived, in the payment of any principal, interest, premium or other amount with respect to any Indebtedness (other than the Loans and other Obligations) of the Borrower or any Subsidiary in an amount not less than $500,000 in the aggregate outstanding, or (ii) a default, which is not waived, in the performance, observance or fulfillment of any term or covenant contained in any agreement or instrument under or pursuant to which any such Indebtedness (other than the Loans and other Obligations) may have been issued, created, assumed, guaranteed or secured by the Borrower or any Subsidiary, or (iii) any other event of default as specified in any agreement or instrument under or pursuant to which any such Indebtedness (other than the Loans and other Obligations) may have been issued, created, assumed, guaranteed or secured by the Borrower or any Subsidiary, and such default or event of default shall continue for more than the period of grace, if any, therein specified, or such default or event of default shall permit the holder of any such Indebtedness (or any agent or trustee acting on behalf of one or more holders) to accelerate the maturity thereof; or (f) if any representation, warranty or other statement of fact contained in any Loan Document or in any writing, certificate, report or statement at any time furnished to the Agent or any Lender by or on behalf of the Borrower or any other Credit Party pursuant to or in connection with any Loan Document, or otherwise, shall be false or misleading in any material respect when given; or (g) if the Borrower or any Subsidiary or other Credit Party shall be unable to pay its debts generally as they become due; file a petition to take advantage of any insolvency statute; make an assignment for the benefit of its creditors; commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property; file a petition or answer seeking liquidation, reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute; or (h) if a court of competent jurisdiction shall enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of the Borrower or any Subsidiary or other Credit Party or of the whole or any substantial part of its properties and such order, judgment or decree continues unstayed and in effect for a period of ninety (90) days, or approve a petition filed against the Borrower or any Subsidiary seeking liquidation, reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state, which petition is not dismissed within ninety (90) days; or if, under the provisions of any other law for the relief or aid of debtors, a court of competent jurisdiction shall assume custody or control of the Borrower or any Subsidiary or other Credit Party or of the whole or any substantial part of its properties, which control is not relinquished within ninety (90) days; or if there is commenced against the Borrower or any Subsidiary or other Credit Party any proceeding or petition seeking reorganization, 75 82 arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state which proceeding or petition remains undismissed for a period of sixty (60) days; or if the Borrower or any Subsidiary or other Credit Party takes any action to indicate its consent to or approval of any such proceeding or petition; or (i) if (i) one or more judgments or orders where the amount not covered by insurance (or the amount as to which the insurer denies liability) is in excess of $500,000 is rendered against the Borrower or any Subsidiary, or (ii) there is any attachment, injunction or execution against any of the Borrower's or Subsidiaries' properties for any amount in excess of $500,000 in the aggregate; and such judgment, attachment, injunction or execution remains unpaid, unstayed, undischarged, unbonded or undismissed for a period of sixty (60) days; or (j) if the Borrower or any Subsidiary shall, other than in the ordinary course of business (as determined by past practices), suspend all or any part of its operations material to the conduct of the business of the Borrower or such Subsidiary for a period of more than 60 days; or (k) if the Borrower or any Subsidiary shall breach any of the material terms or conditions of any agreement under which any Rate Hedging Obligations permitted hereby is created and such breach shall continue beyond any grace period, if any, relating thereto pursuant to the terms of such agreement, or if the Borrower or any Subsidiary shall disaffirm or seek to disaffirm any such agreement or any of its obligations thereunder; or (l) if (a) the Borrower or any Subsidiary shall default (which default shall continue beyond any applicable grace period and shall not be effectively waived) in the performance, observance or fulfillment or any term, covenant or condition contained in any lease or sublease of restaurant or other operating facilities or any other agreement or commitment the expiration, termination or lapse of one or more of which, individually or collectively, could reasonably be expected to have a Material Adverse Effect (a "Material Agreement"), or there shall occur any other event of default specified in any Material Agreement, and such default or event of default shall continue for more than the period of grace, if any, therein specified or shall permit any other party to such Material Agreement to terminate its obligations under such Material Agreement or otherwise cause such Material Agreement to terminate, expire or lapse or (b) for any other reason any such Material Agreement shall terminate, expire or lapse other than in the ordinary course of business of the Borrower and its Subsidiaries; or (m) if there shall occur and not be waived an Event of Default as defined in any of the other Loan Documents; or 76 83 (n) if the Borrower shall fail to dissolve, or fail to cause to be dissolved, within sixty (60) days of the date hereof each of Fleming PFC III Corp, P.F. Chang's VI, Inc., P.F. Chang's IV, L.L.C. and PFCCB Newport Beach, L.L.C. then, and in any such event and at any time thereafter, if such Event of Default or any other Event of Default shall have not been waived, (A) either or both of the following actions may be taken: (i) the Agent may, and at the direction of the Required Lenders shall, declare any obligation of the Lenders and the Issuing Bank to make further Loans or to issue additional Letters of Credit terminated, whereupon the obligation of each Lender to make further Loans and of the Issuing Bank to issue additional Letters of Credit, hereunder shall terminate immediately, and (ii) the Agent shall at the direction of the Required Lenders, at their option, declare by notice to the Borrower any or all of the Obligations to be immediately due and payable, and the same, including all interest accrued thereon and all other obligations of the Borrower to the Agent and the Lenders, shall forthwith become immediately due and payable without presentment, demand, protest, notice or other formality of any kind, all of which are hereby expressly waived, anything contained herein or in any instrument evidencing the Obligations to the contrary notwithstanding; provided, however, that notwithstanding the above, if there shall occur an Event of Default under clause (g) or (h) above, then the obligation of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall automatically terminate and any and all of the Obligations shall be immediately due and payable without the necessity of any action by the Agent or the Required Lenders or notice to the Agent or the Lenders; (B) The Borrower shall, upon demand of the Agent or the Required Lenders, deposit cash with the Agent in an amount equal to the amount of any Letter of Credit Outstandings, as collateral security for the repayment of any future drawings or payments under such Letters of Credit, and such amounts shall be held by the Agent pursuant to the terms of the LC Account Agreement; and (C) the Agent and each of the Lenders shall have all of the rights and remedies available under the Loan Documents or under any applicable law. 11.2. Agent to Act. In case any one or more Events of Default shall occur and not have been waived, the Agent may, and at the direction of the Required Lenders shall, proceed to protect and enforce their rights or remedies either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provision contained herein or in any other Loan Document, or to enforce the payment of the Obligations or any other legal or equitable right or remedy. 11.3. Cumulative Rights. No right or remedy herein conferred upon the Lenders or the Agent is intended to be exclusive of any other rights or remedies contained herein or in any other 77 84 Loan Document, and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. 11.4. No Waiver. No course of dealing between the Borrower and any Lender or the Agent or any failure or delay on the part of any Lender or the Agent in exercising any rights or remedies under any Loan Document or otherwise available to it shall operate as a waiver of any rights or remedies and no single or partial exercise of any rights or remedies shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or of the same right or remedy on a future occasion. 11.5. Allocation of Proceeds. If an Event of Default has occurred and not been waived, and the maturity of the Notes has been accelerated pursuant to Article XI hereof, all payments received by the Agent hereunder, in respect of any principal of or interest on the Obligations or any other amounts payable by the Borrower hereunder, shall be applied by the Agent in the following order: (a) the reasonable expenses incurred in connection with retaking, holding, preserving, processing, maintaining or preparing for sale, lease or other disposition of, any Collateral, including reasonable attorney's fees and legal expenses pertaining thereto; (b) amounts due to the Lenders and the Issuing Bank pursuant to Sections 4.6(a), 4.6(b), 4.6(c), and 13.5; (c) payments of interest on Loans and Reimbursement Obligations, to be applied for the ratable benefit of the Lenders; (d) payments of principal of Loans and Reimbursement Obligations, to be applied for the ratable benefit of the Lenders; (e) payments of cash amounts to the Agent in respect of outstanding Letters of Credit pursuant to Section 11.1(B); (f) amounts due to the Issuing Bank, the Agent and the Lenders pursuant to Sections 3.2(h), 9.16 and 13.9; (g) payments of all other amounts due under any of the Loan Documents, if any, to be applied for the ratable benefit of the Lenders; (h) amounts due to any of the Lenders or their affiliates in respect of Obligations consisting of liabilities under any Swap Agreement with any of the Lenders or their affiliates on a pro rata basis according to the amounts owed; and (i) any surplus remaining after application as provided for herein, to the Borrower or otherwise as may be required by applicable law. 78 85 ARTICLE XII The Agent 12.1. Appointment, Powers, and Immunities. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 12.5 and the first sentence of Section 12.6 hereof shall include its affiliates and its own and its affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible to the Lenders for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by any Credit Party or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Credit Party or the satisfaction of any condition or to inspect the property (including the books and records) of any Credit Party or any of its Subsidiaries or affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. 12.2. Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telefacsimile) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Credit Party), independent accountants, and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the 79 86 holder thereof for all purposes hereof unless and until the Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 13.1 hereof. As to any matters not expressly provided for by this Agreement, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding on all of the Lenders; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to any Loan Document or applicable law unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. 12.3. Defaults. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received written notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to Section 12.2 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders. 12.4. Rights as Lender. With respect to its Revolving Credit Commitment and the Loans made by it and Letters of Credit issued by it, Bank of America (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. Bank of America (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Credit Party or any of its Subsidiaries or affiliates as if it were not acting as Agent, and Bank of America (and any successor acting as Agent) and its affiliates may accept fees and other consideration from any Credit Party or any of its Subsidiaries or affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 12.5. Indemnification. The Lenders agree to indemnify the Agent (to the extent not reimbursed under Section 13.9 hereof, but without limiting the obligations of the Borrower under such Section) ratably in accordance with their respective Revolving Credit Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Lender) in any way relating to or arising out of any Loan Document or the transactions contemplated thereby or any action taken or omitted by the Agent under any Loan Document; provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or 80 87 willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any costs or expenses payable by the Borrower under Section 13.5, to the extent that the Agent is not promptly reimbursed for such costs and expenses by the Borrower. The agreements contained in this Section 12.5 shall survive payment in full of the Loans and all other amounts payable under this Agreement. 12.6. Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Credit Parties and their Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any Credit Party or any of its Subsidiaries or affiliates that may come into the possession of the Agent or any of its affiliates. 12.7. Resignation of Agent. The Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States of America having combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article XII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 12.8. Sole Lender. Notwithstanding anything to the contrary contained herein, until there shall be two or more Lenders, all references to the Agent herein and in the other Loan Documents shall be deemed to refer to Bank of America as Lender. 81 88 ARTICLE XIII Miscellaneous 13.1. Assignments and Participations. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Revolving Note, and its Revolving Credit Commitment); provided, however, that (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to $3,000,000 or an integral multiple of $1,000,000 in excess thereof; (iii) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and its Revolving Note; and (iv) the parties to such assignment shall execute and deliver to the Agent for its acceptance an Assignment and Acceptance in the form of Exhibit B hereto, together with any Revolving Note subject to such assignment and a processing fee of $3,500. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this Section, the assignor, the Agent and the Borrower shall make appropriate arrangements so that, if required, new Revolving Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 6.6. (b) The Agent shall maintain at its address referred to in Section 13.2 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Revolving Credit Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. 82 89 (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Lender may sell participations to one or more Persons in all or a portion of its rights, obligations or rights and obligations under this Agreement (including all or a portion of its Revolving Credit Commitment or its Loans); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Article VI and the right of set-off contained in Section 13.3, and (iv) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Note, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Note, or extending its Revolving Credit Commitment). (e) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (f) Any Lender may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). (g) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party and all covenants, provisions and agreements by or on behalf of the Borrower which are contained in the Loan Documents shall inure to the benefit of the successors and permitted assigns of the Agent, the Lenders, or any of them. The Borrower may not assign or otherwise transfer to any other Person any right, power, benefit, or privilege (or any interest therein) conferred hereunder or under any of the other Loan Documents, or delegate (by assumption or otherwise) to any other Person any duty, obligation, or liability arising hereunder or under any of the other Loan Documents, and any such purported assignment, delegation or other transfer shall be void. 13.2. Notices. Any notice shall be conclusively deemed to have been received by any party hereto and be effective (i) on the day on which delivered (including hand delivery by commercial courier service) to such party (against receipt therefor), (ii) on the date of transmission to such party, in the case of notice sent on any Business Day by telefacsimile (where 83 90 the proper transmission of such notice is either acknowledged by the recipient or electronically confirmed by the transmitting device) or the next Business Day after transmission if sent on a day other than a Business Day or after 5:00 p.m. on any Business Day, or (iii) on the fifth Business Day after the day on which mailed to such party, if sent prepaid by certified or registered mail, return receipt requested, or (iv) the first Business Day following deposit with a nationally recognized overnight courier and marked for next-day delivery, in each case delivered, transmitted, mailed or sent, as the case may be, to the address or telefacsimile number, as appropriate, set forth below or such other address or number as such party shall specify by notice hereunder: (a) if to the Borrower: P.F. Chang's China Bistro, Inc. 5090 North 40th Street, Suite 160 Phoenix, Arizona 85018 Attention: Chief Financial Officer Telephone: (602) 381-7466 Telefacsimile: (602) 957-8998 (b) if to the Agent: Bank of America, N.A. 101 North Tryon Street, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Agency Services Telephone: (704) 386-8382 Telefacsimile: (704) 409-0064 with a copy to: Bank of America, N.A. 100 North Tryon Street, 8th Floor NC1-007-17-14 Charlotte, North Carolina Attention: Mr. Richard G. Parkhurst, Jr. Telephone: (704) 386-1828 Telefacsimile: (704) 386-3271 (c) if to the Lenders: At the addresses set forth on the signature pages hereof and on the signature page of each Assignment and Acceptance; 84 91 (d) if to any other Credit Party, at the address set forth on the signature page of the Facility Guaranty or Security Instrument executed by such Credit Party, as the case may be. 13.3. Right of Set-off; Adjustments. (a) Upon the occurrence and during the continuance of any Event of Default, each Lender (and each of its affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender (or any of its affiliates) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Lender, irrespective of whether such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower in writing after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 13.3 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. (b) If any Lender (a "benefitted Lender") shall at any time receive any payment of all or part of the Loans owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans owing to it, or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loans owing to it, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that any Lender so purchasing a participation from a Lender pursuant to this Section 13.3 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of the Borrower in the amount of such participation. 13.4. Survival. All covenants, agreements, representations and warranties made herein shall survive the making by the Lenders of the Loans and the issuance of the Letters of Credit and the execution and delivery to the Lenders of this Agreement and the Notes and shall continue in full force and effect so long as any of Obligations remain outstanding or any Lender has any Revolving Credit Commitment hereunder or the Borrower has continuing obligations hereunder unless otherwise provided herein. 13.5. Expenses. The Borrower agrees to pay within ten (10) Business Days of written demand all reasonable out of pocket costs and expenses of the Agent in connection with the syndication, preparation, execution, delivery, administration, modification, and amendment of 85 92 this Agreement, the other Loan Documents, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under the Loan Documents. The Borrower further agrees to pay on demand all costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable attorneys' fees and expenses and the cost of internal counsel), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Loan Documents and the other documents to be delivered hereunder. 13.6. Amendments and Waivers. Any provision of this Agreement or any other Loan Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower or other applicable Credit Party party to such Loan Document and either the Required Lenders or (as to Loan Documents other than the Credit Agreement) the Agent on behalf of the Required Lenders (and, if Article XII or the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Lenders, (i) increase the Revolving Credit Commitments of the Lenders or the Total Revolving Credit Commitment, (ii) reduce the principal of or rate of interest on any Loan or any fees or other amounts payable hereunder, (iii) postpone any date fixed for the payment of any scheduled installment of principal of or interest on any Loan or any fees or other amounts payable hereunder or for termination of any Revolving Credit Commitment, or (iv) change the percentage of the Revolving Credit Commitment or of the unpaid principal amount of the Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Section 13.6 or any other provision of this Agreement or (v) release any Guarantor or all or substantially all of the Collateral except as expressly contemplated in the Loan Documents; and provided, further, that no such amendment or waiver that affects the rights, privileges or obligations of the Issuing Bank as issuer of Letters of Credit, shall be effective unless signed in writing by the Issuing Bank. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances, except as otherwise expressly provided herein. No delay or omission on any Lender's or the Agent's part in exercising any right, remedy or option shall operate as a waiver of such or any other right, remedy or option or of any Default or Event of Default. 13.7. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such fully-executed counterpart. 13.8. Termination. The termination of this Agreement shall not affect any rights of the Borrower, the Lenders or the Agent or any obligation of the Borrower, the Lenders or the Agent, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into or rights created or obligations incurred prior to such termination have been fully disposed of, concluded or liquidated and the Obligations arising prior to or after such termination have been irrevocably paid in full. The 86 93 rights granted to the Agent for the benefit of the Lenders under the Loan Documents shall continue in full force and effect, notwithstanding the termination of this Agreement, until all of the Obligations have been paid in full after the termination hereof (other than Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable, which shall continue) or the Borrower has furnished the Lenders and the Agent with an indemnification satisfactory to the Agent and each Lender with respect thereto. Notwithstanding the foregoing, if after receipt of any payment of all or any part of the Obligations, any Lender is for any reason compelled to surrender such payment to any Person because such payment is determined to be void or voidable as a preference, impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force and the Borrower shall be liable to, and shall indemnify and hold the Agent or such Lender harmless for, the amount of such payment surrendered until the Agent or such Lender shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Agent or the Lenders in reliance upon such payment, and any such contrary action so taken shall be without prejudice to the Agent or the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable. 13.9. Indemnification; Limitation of Liability. (a) The Borrower agrees to indemnify and hold harmless the Agent and each Lender and each of their affiliates and their respective officers, directors, employees, agents, and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, costs, and expenses (including, without limitation, reasonable attorneys' fees) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation, or proceeding or preparation of defense in connection therewith) the Loan Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans, except to the extent such claim, damage, loss, liability, cost, or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 13.9 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to it, any of its Subsidiaries, any Guarantor, or any security holders or creditors thereof arising out of, related to or in connection with the transactions contemplated herein, except to the extent that such liability is found in a final non-appealable judgment by a court of competent jurisdiction to have directly resulted from such Indemnified Party's gross negligence or willful misconduct. The Borrower agrees not to assert any claim against the Agent, any Lender, any of their affiliates, or any of their respective directors, officers, employees, attorneys, agents, and advisers, on any theory of liability, for special, indirect, consequential, or punitive damages arising out of or otherwise relating to the Loan Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans. 87 94 (b) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 13.9 shall survive the payment in full of the Loans and all other amounts payable under this Agreement. 13.10. Severability. If any provision of this Agreement or the other Loan Documents shall be determined to be illegal or invalid as to one or more of the parties hereto, then such provision shall remain in effect with respect to all parties, if any, as to whom such provision is neither illegal nor invalid, and in any event all other provisions hereof shall remain effective and binding on the parties hereto. 13.11. Entire Agreement. This Agreement, together with the other Loan Documents, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all previous proposals, negotiations, representations, commitments and other communications between or among the parties, both oral and written, with respect thereto (except that those provisions (if any) which by the express terms of the commitment letter dated as of July 29, 1999, executed by Bank of America and BAS and accepted by the Borrower, survive the closing of the Revolving Credit Facility and the Letter of Credit Facility shall survive and continue in effect). 13.12. Agreement Controls. In the event that any term of any of the Loan Documents other than this Agreement conflicts with any express term of this Agreement, the terms and provisions of this Agreement shall control to the extent of such conflict. 13.13. Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged under any of the Notes, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate (as such term is defined below). If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate (as defined below), the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower shall pay to the Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to the Borrower. As used in this paragraph, the term "Highest Lawful Rate" means the maximum lawful interest rate, if any, that at any time or from 88 95 time to time may be contracted for, charged, or received under the laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. 13.14. Payments. All principal, interest, and other amounts to be paid by the Borrower under this Agreement and the other Loan Documents shall be paid to the Agent at the Principal Office in Dollars and in immediately available funds, without setoff, deduction or counterclaim. All payments properly made to the Agent by the Borrower hereunder shall satisfy the Borrower's payment obligations to which they relate notwithstanding any failure by the Agent to make further payments to the Lenders required hereunder. Subject to the definition of "Interest Period" herein, whenever any payment under this Agreement or any other Loan Document shall be stated to be due on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time in such case shall be included in the computation of interest and fees, as applicable, and as the case may be. 13.15. GOVERNING LAW; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN THOSE SECURITY INSTRUMENTS WHICH EXPRESSLY PROVIDE THAT THEY SHALL BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE. (b) THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF MECKLENBURG, STATE OF NORTH CAROLINA, UNITED STATES OF AMERICA AND, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN, OR TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY, ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND THE BORROWER HEREBY IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. (c) THE PARTIES HERETO AGREE THAT SERVICE OF PROCESS MAY BE MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL 89 96 (POSTAGE PREPAID) TO THE ADDRESS OF THE PARTY PROVIDED IN SECTION 13.2, OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE STATE OF NORTH CAROLINA. (d) NOTHING CONTAINED IN SUBSECTIONS (B) OR (C) HEREOF SHALL PRECLUDE THE AGENT OR ANY LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT IN THE COURTS OF ANY JURISDICTION WHERE THE BORROWER OR ANY OF THE BORROWER'S PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO THE EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND EXPRESSLY WAIVES, IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING, OBJECTION TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY ANY SUCH OTHER COURT OR COURTS WHICH NOW OR HEREAFTER MAY BE AVAILABLE UNDER APPLICABLE LAW. (e) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO ANY LOAN DOCUMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH, THE BORROWER, THE AGENT AND THE LENDERS HEREBY AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY IRREVOCABLY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE TO TRIAL BY JURY IN ANY SUCH ACTION, SUIT OR PROCEEDING. (f) EACH OF THE PARTIES HERETO HEREBY EXPRESSLY WAIVE ANY OBJECTION IT MAY HAVE THAT ANY COURT TO WHOSE JURISDICTION IT HAS SUBMITTED PURSUANT TO THE TERMS HEREOF IS AN INCONVENIENT FORUM. 13.16. CONFIDENTIALITY The Agent and each Lender (each, a "Lending Party") agrees to keep confidential any information furnished or made available to it by the Borrower pursuant to this Agreement that is marked confidential; provided that nothing herein shall prevent any Lending Party from disclosing such information (a) to any other Lending Party or any affiliate of any Lending Party, or any officer, director, employee, agent, or advisor of any Lending Party or affiliate of any Lending Party, (b) to any other Person if reasonably incidental to the administration of the credit facility provided herein, (c) as required by any law, rule, or regulation, (d) upon the order of any court or administrative agency, (e) upon the request or 90 97 demand of any regulatory agency or authority, (f) that is or becomes available to the public or that is or becomes available to any Lending Party other than as a result of a disclosure by any Lending Party prohibited by this Agreement, (g) in connection with any litigation to which such Lending Party or any of its affiliates may be a party, (h) to the extent necessary in connection with the exercise of any remedy under this Agreement or any other Loan Document, and (i) subject to provisions substantially similar to those contained in this Section, to any actual or proposed participant or assignee. [Signatures on following pages] 91 98 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written. P.F. CHANG'S CHINA BISTRO, INC. By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- [CORPORATE SEAL] BANK OF AMERICA, N.A., as Agent for the Lenders By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- CREDIT AGREEMENT SIGNATURE PAGE 1 OF 2 99 BANK OF AMERICA, N.A. By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- Lending Office for Base Rate Loans: Bank of America, N.A. 101 North Tryon Street, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Sheila Baggarly Telephone: (704) 386-4198 Telefacsimile: (704) 386-9923 Wire Transfer Instructions: Bank of America, N.A. ABA# 053000196 Account No.: 1366212250600 Reference: P.F. Chang's Attention: Sheila Baggarly Lending Office for Eurodollar Rate Loans: Bank of America, N.A. 101 North Tryon Street, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Sheila Baggarly Telephone: (704) 386-4198 Telefacsimile: (704) 386-9923 Wire Transfer Instructions: Bank of America, N.A. ABA# 053000196 Account No.: 1366212250600 Reference: P.F. Chang's Attention: Sheila Baggarly CREDIT AGREEMENT SIGNATURE PAGE 2 OF 2 100 EXHIBIT A Applicable Commitment Percentages

Applicable Revolving Credit Commitment Lender Commitment Percentage Bank of America, N.A. $15,000,000 100% ----------- ---------- $15,000,000 100%

A-1 101 EXHIBIT B Form of Assignment and Acceptance Reference is made to the Credit Agreement dated as of December __ 1999 (the "Credit Agreement") among P.F. Chang's China Bistro, Inc., an Arizona corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement) and Bank of America, N.A., as agent for the Lenders (the "Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. The "Assignor" and the "Assignee" referred to on Schedule 1 agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, WITHOUT RECOURSE and without representation or warranty except as expressly set forth herein, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement and the other Loan Documents as of the date hereof equal to the percentage interest specified on Schedule 1 of all outstanding rights and obligations under the Credit Agreement and the other Loan Documents.* After giving effect to such sale and assignment, the Assignee's Revolving Credit Commitment and the amount of the Loans owing to the Assignee will be as set forth on Schedule 1. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or the performance or observance by any Credit Party of any of its obligations under the Loan Documents or any other instrument or document furnished pursuant thereto; and (iv) attaches the Revolving Note held by the Assignor and requests that the Agent exchange such Revolving Note for new Revolving Notes payable to the order of the Assignee in an amount equal to the Revolving Credit Commitment assumed by the Assignee pursuant hereto and to the Assignor in an amount equal to the Revolving Credit Commitment retained by the Assignor, if any, as specified on Schedule 1. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 9.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and - --------------- * In the case of Bank of America as Assignor, excluding any rights, benefits, or duties as Issuing Bank. B-1 102 information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service or other forms required under Section 6.6. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date for this Assignment and Acceptance (the "Effective Date") shall be the date of acceptance hereof by the Agent, unless otherwise specified on Schedule 1. 5. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Revolving Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Revolving Notes for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of North Carolina. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telefacsimile shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. B-2 103 Schedule 1 Percentage interest assigned: ________% Assignee's Revolving Credit Commitment: $_______ Aggregate outstanding principal amount of Loans assigned: $_______ Principal amount of Revolving Note payable to Assignee: $_______ Principal amount of Revolving Note payable to Assignor: $_______ Effective Date (if other than date of acceptance by Agent): *_______, ____ [NAME OF ASSIGNOR], as Assignor By: ------------------------------------- Title: Dated: , 19 [NAME OF ASSIGNEE], as Assignee By: ------------------------------------- Title: Domestic Lending Office: Eurodollar Lending Office: * This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Agent. B-3 104 Accepted [and Approved] ** this ___ day of ___________, 19 _ BANK OF AMERICA, N.A., as Agent By: ------------------------------------- Title: [Approved this ____ day of ____________, ____ P.F. CHANG'S CHINA BISTRO, INC. By: ]** ------------------------------------- Title: ** Required if the Assignee is an Eligible Assignee solely by reason of clause (iii) of the definition of "Eligible Assignee". B-4 105 EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative Reference is hereby made to the Credit Agreement dated as of December __, 1999 (the "Agreement") among P.F. China Bistro, Inc., an Arizona corporation (the "Borrower"), the Lenders (as defined in the Agreement), and Bank of America, N.A., as Agent for the Lenders ("Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower hereby nominates, constitutes and appoints each individual named below as an Authorized Representative under the Loan Documents, and hereby represents and warrants that (i) set forth opposite each such individual's name is a true and correct statement of such individual's office (to which such individual has been duly elected or appointed), a genuine specimen signature of such individual and an address for the giving of notice, and (ii) each such individual has been duly authorized by the Borrower to act as Authorized Representative under the Loan Documents:

Name and Address Office Specimen Signature - ---------------------- ---------------------- -------------------------- - ---------------------- - ---------------------- - ---------------------- ---------------------- -------------------------- - ---------------------- ---------------------- -------------------------- - ----------------------

Borrower hereby revokes (effective upon receipt hereof by the Agent) the prior appointment of ________________ as an Authorized Representative. This the ___ day of __________________, ____. P.F. CHANG'S CHINA BISTRO, INC. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- C-1 106 EXHIBIT D Form of Borrowing Notice To: Bank of America, N.A., as Agent 101 North Tryon Street, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Agency Services Telefacsimile: (704)386-9923 Reference is hereby made to the Credit Agreement dated as of December__, 1999 (the "Agreement") among P.F. Chang's China Bistro, Inc. (the "Borrower"), the Lenders (as defined in the Agreement), and Bank of America, N.A., as Agent for the Lenders ("Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower through its Authorized Representative hereby gives notice to the Agent that Loans of the type and amount set forth below be made on the date indicated:

Type of Loan Interest Aggregate (check one) Period(1) Amount(2) Date of Loan(3) Base Rate Loan ______ _________ ____________ Eurodollar Rate Loan ______ _________ ____________

- ----------------------- (1) For any Eurodollar Rate Loan, one, two, three or six months. (2) Must be $500,000 or if greater an integral multiple of $100,000, unless a Base Rate Refunding Loan. (3) At least three (3) Business Days later if a Eurodollar Rate Loan; The Borrower hereby requests that the proceeds of Loans described in this Borrowing Notice be made available to the Borrower as follows: [insert transmittal instructions] . The undersigned hereby certifies that: 1. No Default or Event of Default exists either now or after giving effect to the borrowing described herein; and D-1 107 2. All the representations and warranties set forth in Article VIII of the Agreement and in the Loan Documents (other than those expressly stated to refer to a particular date) are true and correct as of the date hereof except that the reference to the financial statements in Section 8.6(a) of the Agreement (solely for the purpose of the representation and warranty contained in such Section 8.6(a) but not for the purpose of any cross reference to such Section 8.6(a) or to the financial statements described therein contained in any other provision of Section 8.6 or elsewhere in Article 8) to those financial statements most recently delivered to you pursuant to Section 9.1 of the Agreement (it being understood that any financial statements delivered pursuant to Section 9.1(b) have not been certified by independent public accountants). 3. All conditions contained in the Agreement to the making of any Loan requested hereby have been met or satisfied in full . P.F. CHANG'S CHINA BISTRO, INC. BY: -------------------------------------- Authorized Representative DATE: ------------------------------------ D-2 108 EXHIBIT E Form of Interest Rate Selection Notice To: Bank of America, N.A., as Agent 101 North Tryon Street, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Agency Services Telefacsimile: (704) 386-9923 Reference is hereby made to the Credit Agreement dated as of December __, 1999 (the "Agreement") among P.F. Chang's China Bistro, Inc. (the "Borrower"), the Lenders (as defined in the Agreement), and Bank of America, N.A., as Agent for the Lenders ("Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower through its Authorized Representative hereby gives notice to the Agent of the following selection of a type of Loan and Interest Period:

Type of Loan Interest Aggregate (check one) Period(1) Amount(2) Date of Loan(3) Base Rate Loan ______ _________ ____________ Eurodollar Rate Loan ______ _________ ____________

- ----------------------- (1) For any Eurodollar Rate Loan, one, two, three or six months. (2) Must be $500,000 or if greater an integral multiple of $100,000, unless a Base Rate Refunding Loan. (3) At least three (3) Business Days later if a Eurodollar Rate Loan. P.F. CHANG'S CHINA BISTRO, INC. BY: ---------------------------------- Authorized Representative DATE: -------------------------------- E-1 109 EXHIBIT F Form of Note Promissory Note $ -------------- ---------, -------------- ------ --, ---- FOR VALUE RECEIVED, P.F. CHANG'S CHINA BISTRO, INC., an Arizona corporation having its principal place of business located in Phoenix, Arizona (the "Borrower"), hereby promises to pay to the order of _______________________________________________ (the "Lender"), in its individual capacity, at the office of BANK OF AMERICA, N.A., as agent for the Lenders (the "Agent"), located at 101 North Tryon Street, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such other place or places as the Agent may designate in writing) at the times set forth in the Credit Agreement dated as of December __, 1999 among the Borrower, the financial institutions party thereto (collectively, the "Lenders") and the Agent (the "Agreement" -- all capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement), in lawful money of the United States of America, in immediately available funds, the principal amount of ___________ DOLLARS ($__________) or, if less than such principal amount, the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to the Agreement on the Revolving Credit Termination Date or such earlier date as may be required pursuant to the terms of the Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof, in like money, at said office, on the dates and at the rates provided in Articles II and IV of the Agreement. All or any portion of the principal amount of Loans may be prepaid or required to be prepaid as provided in the Agreement. If payment of all sums due hereunder is accelerated under the terms of the Agreement or under the terms of the other Loan Documents executed in connection with the Agreement, the then remaining principal amount and accrued but unpaid interest thereon evidenced by this Revolving Note shall become immediately due and payable, without presentation, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Revolving Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees, and interest due hereunder thereon at the rates set forth above. Interest hereunder shall be computed as provided in the Agreement. This Note is one of the Notes in the aggregate principal amount of $__________ referred to in the Agreement and is issued pursuant to and entitled to the benefits and security of the Agreement to which reference is hereby made for a more complete statement of the terms and conditions upon F-1-1 110 which the Loans evidenced hereby were or are made and are to be repaid. This Revolving Note is subject to certain restrictions on transfer or assignment as provided in the Agreement. All Persons bound on this obligation, whether primarily or secondarily liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive to the full extent permitted by law all defenses based on suretyship or impairment of collateral and the benefits of all provisions of law for stay or delay of execution or sale of property or other satisfaction of judgment against any of them on account of liability hereon until judgment be obtained and execution issued against any other of them and returned satisfied or until it can be shown that the maker or any other party hereto had no property available for the satisfaction of the debt evidenced by this instrument, or until any other proceedings can be had against any of them, also their right, if any, to require the holder hereof to hold as security for this Revolving Note any collateral deposited by any of said Persons as security. Protest, notice of protest, notice of dishonor, diligence or any other formality are hereby waived by all parties bound hereon. [SIGNATURE PAGE FOLLOWS.] F-1-2 111 IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be made, executed and delivered by its duly authorized representative as of the date and year first above written, all pursuant to authority duly granted. P.F. CHANG'S CHINA BISTRO, INC. WITNESS: By: - ------------------------ ------------------------------- Name: - ------------------------ ------------------------------- Title: ------------------------------- F-1-3 112 EXHIBIT G Form of Opinion of Borrower's Counsel See Attached. G-1 113 EXHIBIT H Compliance Certificate Bank of America, N.A., as Agent 101 North Tryon Street, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Agency Services Telefacsimile: (704) 386-9923 Bank of America, N.A., as Agent Bank of America Corporate Center, 8th Floor 100 North Tryon Street NC1-007-08-07 Charlotte, North Carolina 28255 Attention: Richard Parkhurst Telefacsimile: (704) 386-1270 Reference is hereby made to the Credit Agreement dated as of December __, 1999 (the "Agreement") among P.F. Chang's China Bistro, Inc., an Arizona corporation (the "Borrower"), the Lenders (as defined in the Agreement) and Bank of America, N.A., as Agent for the Lenders ("Agent"). Capitalized terms used but not otherwise defined herein shall have the respective meanings therefor set forth in the Agreement. The undersigned, a duly authorized and acting Authorized Representative, hereby certifies to you as of __________ (the "Determination Date") as follows: 1. Calculations: [TO BE PROVIDED] 2. No Default A. Since __________ (the date of the last similar certification), (a) the Borrower has not defaulted in the keeping, observance, performance or fulfillment of its obligations pursuant to any of the Loan Documents; and (b) no Default or Event of Default specified in Article XI of the Agreement has occurred and is continuing. B. If a Default or Event of Default has occurred since __________ (the date of the last similar certification), the Borrower proposes to take the following action with respect to such Default or Event of Default:_________________ H-1 114 ______________________________________________________________ _____________________. (Note, if no Default or Event of Default has occurred, insert "Not Applicable"). The Determination Date is the date of the last required financial statements submitted to the Lenders in accordance with Section 9.1 of the Agreement. IN WITNESS WHEREOF, I have executed this Certificate this _____ day of __________, ____. By: ------------------------------ Authorized Representative Name: ------------------------------ Title: ------------------------------ H-2 115 EXHIBIT I Form of Facility Guaranty See Attached. I-1 116 EXHIBIT J Form of Security Agreement See Attached. J-1 117 EXHIBIT K Form of Pledge Agreement See Attached. K-1 118 EXHIBIT L Form of LC Account Agreement See Attached. L-1 119 Schedule 5.3 Information Regarding Collateral See Attached. S-1 120 Schedule 5.4(b) Leased Properties to be Mortgaged See Attached. S-2 121 Schedule 8.4 Subsidiaries and Investments in Other Persons See Attached. S-3 122 Schedule 8.6 Indebtedness See Attached. S-4 123 Schedule 8.7 Liens See Attached. S-5 124 Schedule 8.8 Tax Matters See Attached. S-6 125 Schedule 8.10 Litigation See Attached. S-7 126 Schedule 8.22 Operating Facilities See Attached. EX-10.13 4 EX-10.13 1 Exhibit 10.13 P.F. CHANG'S CHINA BISTRO, INC. 1999 NONSTATUTORY STOCK OPTION PLAN 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1.1 ESTABLISHMENT. P.F. Chang's China Bistro, Inc. 1999 Nonstatutory Stock Option Plan is hereby established effective as of June 18, 1999. 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. 2. DEFINITIONS AND CONSTRUCTION. 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (d) "COMPANY" means P.F. Chang's Bistro, Inc., a Delaware corporation, or any successor corporation thereto. (e) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. 1 2 (f) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (g) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. (h) "FAIR MARKET VALUE" means, as of any date, the value of a share of stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein. (i) "OPTION" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan. Options are intended to be nonstatutory stock options and shall not be treated as incentive stock options within the meaning of Section 422(b) of the Code. (j) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee and any shares acquired upon the exercise thereof. (k) "OPTIONEE" means a person who has been granted one or more Options. (l) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (m) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (n) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (o) "STOCK" means the common stock, par value $0.001, of the Company, as adjusted from time to time in accordance with Section 4.2. (p) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural, the plural shall include the singular, and the term "or" shall include the conjunctive as well as the disjunctive. 2 3 3. ADMINISTRATION. 3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board, including any duly appointed Committee of the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, determination or election. 3.2 POWERS OF THE BOARD. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its sole discretion: (a) to determine the persons to whom, and the time or times at which, Options shall be granted and the number of shares of Stock to be subject to each Option; (b) to determine the Fair Market Value of shares of Stock or other property; (c) to determine the terms, conditions and restrictions applicable to each Option (which need not be identical) and any shares acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Option, (ii) the method of payment for shares purchased upon the exercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Option or such shares, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability of the Option or the vesting of any shares acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi) the effect of the Optionee's termination of employment or service with the Participating Company Group on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Option or such shares not inconsistent with the terms of the Plan; (d) to approve one or more forms of Option Agreement; (e) to amend, modify, extend, or renew, or grant a new Option in substitution for, any Option or to waive any restrictions or conditions applicable to any Option or any shares acquired upon the exercise thereof; (f) to accelerate, continue, extend or defer the exercisability of any Option or the vesting of any shares acquired upon the exercise thereof, including with respect to the period following an Optionee's termination of employment or service with the Participating Company Group; (g) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of, the Plan, including, 3 4 without limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Options; and (h) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement and to make all other determinations and take such other actions with respect to the Plan or any Option as the Board may deem advisable to the extent consistent with the Plan and applicable law. 4. SHARES SUBJECT TO PLAN. 4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be One Hundred Thousand (100,000) and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof. If an outstanding Option for any reason expires or is terminated or canceled or shares of Stock acquired, subject to repurchase, upon the exercise of an Option are repurchased by the Company, the shares of Stock allocable to the unexercised portion of such Option, or such repurchased shares of Stock, shall again be available for issuance under the Plan. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Options, and in the exercise price per share of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event, as defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 4.2 shall be final, binding and conclusive. 5. ELIGIBILITY AND OPTION LIMITATIONS. Options may be granted only to Employees and Consultants; provided, however, that no Option shall be granted any person whose eligibility to receive an Option under the Plan at the time of grant would require the approval of the Company's stockholders pursuant to any applicable law, regulation or rule, including, without limitation, the rules applicable to the listing of the Company's securities on the Nasdaq National Market System. For purposes of the foregoing sentence, "Employees" shall include prospective Employees to whom Options are granted in connection with written offers of employment with the Participating Company Group, and "Consultants" shall include prospective Consultants to 5 whom Options are granted in connection with written offers of engagement with the Participating Company Group. Eligible persons may be granted more than one (1) Option. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 6.1 EXERCISE PRICE. The exercise price for each Option shall be established in the sole discretion of the Board; provided, however, that the exercise price per share for an Option shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code. 6.2 EXERCISE PERIOD. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria, and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however, that no Option granted to a prospective Employee or prospective Consultant may become exercisable prior to the date on which such person commences service with a Participating Company. 6.3 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved by the Company, (v) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (vi) by any combination thereof. The Board may at any time or from time to time, by adoption of or by amendment to the standard forms of Option Agreement described in Section 7, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration. (b) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the 5 6 redemption of the Company's stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. (d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. Any permitted promissory note shall be on such terms as the Board shall determine at the time the Option is granted. The Board shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the shares of Stock acquired upon the exercise of the Option or with other collateral acceptable to the Company. Unless otherwise provided by the Board, if the Company at any time is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. 6.4 TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon the exercise thereof. Alternatively or in addition, in its sole discretion, the Company shall have the right to require the Optionee, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise, to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon the exercise thereof. The Company shall have no obligation to deliver shares of Stock or to release shares of Stock from an escrow established pursuant to the Option Agreement until the Participating Company Group's tax withholding obligations have been satisfied by the Optionee. 7. STANDARD FORM OF OPTION AGREEMENT. 7.1 GENERAL. Unless otherwise provided by the Board at the time the Option is granted, an Option shall comply with and be subject to the terms and conditions set forth in the form of Nonstatutory Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 7.2 STANDARD TERM OF OPTIONS. Except as otherwise provided by the Board in the grant of an Option, any Option granted hereunder shall have a term of ten (10) years from the effective date of grant of the Option. 6 7 7.3 AUTHORITY TO VARY TERMS. The Board shall have the authority from time to time to vary the terms of any standard form of Option Agreement described in this Section 7 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement are not inconsistent with the terms of the Plan. 8. TRANSFER OF CONTROL. 8.1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 7 8 8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of an eligible Transfer of Control, each of the outstanding Options shall receive an additional two (2) years of accelerated vesting as of the date ten (10) days prior to the date of the Transfer of Control. The exercise or vesting of any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Transfer of Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall be deemed assumed if, following the Transfer of Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Transfer of Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Transfer of Control was entitled. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control. Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate unless the Board otherwise provides in its sole discretion. 8.3 NOTICE. The Company shall send to all holders of outstanding Options at least ten (10) days' written notice prior to the consummation of a Transfer of Control. The Company's notice shall summarize the principal terms of the Transfer of Control including, without limitation, whether the Acquiring Corporation is assuming the outstanding Options or substituting equivalent options therefor. 9. PROVISION OF INFORMATION. Each Optionee shall be given access to information concerning the Company equivalent to that information generally made available to the Company's common stockholders. 10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. 11. INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, 8 9 members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. 12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. However, no termination or amendment of the Plan may adversely affect any then outstanding Option or any unexercised portion thereof, without the consent of the Optionee, unless such termination or amendment is necessary to comply with any applicable law or government regulation. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing P.F. Chang's China Bistro, Inc. 1999 Nonstatutory Stock Option Plan was duly adopted by the Board on June 18, 1999. ------------------------------------------ Robert T. Vivian, Secretary 9 10 PLAN HISTORY June 19, 1999 Board adopts Plan, with an initial reserve of 100,000 shares. 10 EX-23.1 5 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-73035) pertaining to the P.F. Chang's China Bistro, Inc. 1996 Employee Stock Option Plan, 1997 Restaurant Management Stock Option Plan, 1998 Stock Option Plan and 1998 Employee Stock Purchase Plan of P.F. Chang's China Bistro, Inc. of our report dated February 9, 2000, with respect to the consolidated financial statements of P.F. Chang's China Bistro, Inc. included in the Annual Report (Form 10-K) for the year ended January 2, 2000. Phoenix, Arizona /s/ Ernst & Young LLP March 1, 2000 EX-27.1 6 EX-27.1, FDS

<ARTICLE> 5 <MULTIPLIER> 1,000 <PERIOD-TYPE> YEAR <FISCAL-YEAR-END> JAN-02-2000 <PERIOD-START> DEC-28-1998 <PERIOD-END> JAN-02-2000 <CASH> 5,333 <SECURITIES> 0 <RECEIVABLES> 1,275 <ALLOWANCES> 0 <INVENTORY> 1,085 <CURRENT-ASSETS> 9,283 <PP&E> 56,395 <DEPRECIATION> 7,951 <TOTAL-ASSETS> 81,707 <CURRENT-LIABILITIES> 14,274 <BONDS> 0 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 10 <OTHER-SE> 64,780 <TOTAL-LIABILITY-AND-EQUITY> 81,707 <SALES> 0 <TOTAL-REVENUES> 153,295 <CGS> 42,136 <TOTAL-COSTS> 123,477 <OTHER-EXPENSES> 13,992 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 0 <INCOME-PRETAX> 11,283 <INCOME-TAX> 2,778 <INCOME-CONTINUING> 6,036 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 6,036 <EPS-BASIC> 0.59 <EPS-DILUTED> 0.54

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.11

   1
                                                                   Exhibit 10.11


                                  OFFICE LEASE

         THIS LEASE is made as of the ____ day of September, 1999, by and
between PHXAZ/Kierland Commons, L.L.C., a Delaware limited liability company
("Landlord") and P.F. Chang's China Bistro, Inc., a Delaware corporation
("Tenant").

ARTICLE 1 SUMMARY OF BASIC TERMS

1.1      The Premises: Approximately 10,000 square feet of rentable area in the
         Building as illustrated on the attached Exhibit A. Following completion
         of Landlord's and Tenant's Work as described herein, the parties will
         have the Premises and the Building measured in accordance with American
         National Standard Z65.1-1996, as published by BOMA International, to
         determine the useable and rentable square footage of the Premises
         (including a load factor not to exceed 10%). If the rentable square
         footage of the Premises is different from that set forth above, the
         parties will enter into an Amendment stating the actual rentable square
         footage of the Premises and adjusting all figures in this Lease
         calculated from the rentable square footage number, with the Base Rent
         equaling the actual rentable square footage multiplied by the Annual
         Base Rent Per Square Foot set forth in Section 1.9 below.

1.2      The Building: The building located at 15210 N. Scottsdale Rd.,
         Scottsdale, Arizona.

1.3      "Project" means the Building identified in Article 1.2, and all lands
         and facilities used in connection with the Building as reasonably
         determined from time to time by Landlord. A site plan for the Project
         in its current configuration is attached as Exhibit B.

1.4      Names of Guarantors: [INTENTIONALLY OMITTED].

1.5      Security Deposit:  [INTENTIONALLY OMITTED].

1.6      The Term: Five Lease Years, beginning on the Commencement Date and
         ending on the Expiration Date. As used in this Lease, "Lease Year"
         shall mean for the first Lease Year the 12 calendar months following
         the Commencement Date plus any partial months preceding the first full
         month, and for each Lease Year thereafter, the 12 calendar months
         following the last month of the preceding Lease Year, with the last
         Lease Year ending on the Expiration Date.

1.7      Estimated Commencement and Expiration Dates: April 15, 2000, and April
         14, 2005, respectively, subject to the provisions of Exhibit C.

1.8      Renewal Rights: One Renewal Period of five years, subject to the
         provisions of Article 2.2.

1.9      Base Rent:



         ========================================================================
            Period      Annual Base Rent Per   Annual Base Rent   Monthly Payment
                           Rentable Sq. Ft
         ========================================================================
                                                         
         Lease Year 1          $20.50             $205,000.00        $17,083.33
         ------------------------------------------------------------------------
         Lease Year 2          $21.50             $215,000.00        $17,916.66
         ------------------------------------------------------------------------
         Lease Year 3          $22.50             $225,000.00        $18,750.00
         ------------------------------------------------------------------------
         Lease Year 4          $23.50             $235,000.00        $19,583.33
         ------------------------------------------------------------------------
         Lease Year 5          $24.50             $245,000.00        $20,416.66
         ------------------------------------------------------------------------

   2
1.10     Tenant's Proportionate Share: Office Proportionate Share: the
         proportion that the rentable area of the Premises bears to the total
         constructed rentable area of the office component of the Project; and
         Project Proportionate Share: the proportion that the useable area of
         the Premises bears to the total constructed retail and useable office
         area of the Project. "Useable area" for purposes of this Section shall
         be determined according to the BOMA standard referenced in Section 1.1
         above.

1.11     Expense Stop: $7.00 per rentable square foot.

1.12     Description of Tenant's Business: Restaurant ownership, design,
         construction, operation, and management ("Tenant's Permitted Use")

1.13     Normal Business Hours: 7:00 a.m. to 6:00 p.m., Monday through Friday,
         8:00 a.m. to 1:00 p.m. on Saturday. Hourly charge for HVAC services
         provided outside Normal Business Hours will be charged to Tenant at
         Landlord's actual cost.

1.14     Tenant's Address for Pre-occupancy Notices: 5090 N. 40th Street, #160,
         Phoenix, AZ 85018, Attn: John Middleton.

1.15     Landlord's Initial Notice and Payment Address: PHXAZ/Kierland Commons,
         L.L.C., c/o Woodbine Southwest Corporation, 2398 E. Camelback Rd.,
         Suite 300, Phoenix, AZ 85016, Attn: Daniel W. (Buzz) Gosnell.

1.16     Tenant's Broker: Mitch Chilton

1.17     Landlord's Broker: Lee & Associates Arizona.

1.18     Tenant Improvement Allowance: $ 25.00 per useable square foot of area
         in the Premises, subject to the provisions of Exhibit C --- hereto.

1.19     Parking: Tenant shall be entitled to the non-exclusive use (in common
         with all other tenants and occupants of the Project) of 4 parking
         spaces per 1,000 useable square feet of the Premises, and shall be
         entitled to the use of 15 covered, reserved, parking spaces at a charge
         of $35.00 per space, per month, all subject to the provisions of
         Article 3.6 below.

ARTICLE 2 DELIVERY, TERM AND CONSTRUCTION

2.1. Term. The Term of this Lease, and the estimated dates of commencement and
expiration of the Term, are set forth in Articles 1.6 and 1.7. The Commencement
Date will occur when the Premises are delivered to Tenant with the Work outlined
in Exhibit C complete. If the Commencement Date has not occurred on or before
May 1, 2000, then Tenant shall have the option to terminate this Lease by
written notice to Landlord and Landlord shall reimburse Tenant for all Tenant's
actual, out of pocket costs and expenses associated with this Lease and
thereafter neither party shall have any further rights, liabilities, or
obligations hereunder. If the Premises is delivered after the Estimated
Commencement Date set forth in Section 1.7 above, this Lease shall remain in
full force and effect (unless Tenant terminates it under the foregoing
provision), but Tenant shall be entitled to credit against the first Base Rent
payments due equal to two days of Base Rent for each day of delay in delivery
beyond the Estimated Commencement Date, and the scheduled Commencement Date and
the Expiration Date shall be postponed by an amount equal to actual the period
of delay.

2.2 Renewals.

                  (a) Provided that Tenant is not in breach or default as of the
time of exercise of a Renewal Option or the commencement of the Renewal Period
beyond any applicable cure period, Tenant shall have the right and option
("Renewal Option") to extend the Term for the number of Renewal Periods
specified in Article 1.8. The Renewal Option may be exercised no earlier than 12
months nor later than 6 months prior to the then applicable Expiration Date. The
Renewal Period shall be for the period specified in Article 1.8. Base Rent for
the Renewal Term will be determined as set forth in Articles 2.2(b) and (c) and
all other terms and provisions of the Lease shall be applicable during any
Renewal Period with the same force and effect as the Base Term.

                  (b) The Base Rent payable and the Expense Stop for the Renewal
Period shall be the then fair market rental value of the Premises and the then
fair market expense stop, determined as follows: within thirty days after
Landlord receives the Option Notice, Landlord and Tenant shall agree on the Base
Rent and Expense Stop for the Renewal Period based upon the "then fair market
rental value of the Premises" and the "then fair market expense stop", which
shall mean what a landlord under no compulsion to lease the Premises and a
tenant under no compulsion to lease the Premises, would determine as rent and
expense stop for the first year of the Renewal Period, as of the commencement of
the Renewal Period, taking into consideration, among other relevant matters, the
use permitted under the Lease, the quality, size, shape, design and location of
the Premises, the rental rates and expense stops for


                                       2
   3
renewals of similar premises in the area and that no Tenant Allowance is being
provided. Notwithstanding anything to the contrary in this Article 2.2, the Base
Rent and Expense Stop for the Renewal Period will not be less than the Base Rent
payable during the last year of the initial Term hereof. If the parties agree on
the Base Rent and Expense Stop for the Renewal Period within thirty days after
delivery of the Option Notice, they shall amend this Lease by stating the Base
Rent and Expense Stop for the Renewal Period and each subsequent year. If
Landlord and Tenant are unable to agree on the Base Rent and Expenses Stop for
the first year of the Renewal Period within the thirty day period, then the Base
Rent and Expense Stop shall be determined by binding arbitration as set forth in
subsection (c) below.

                  (c) Within ten days after the 30 day period expires, each
party shall submit to the other its final and best position as to the then fair
market rental value of the Premises and the then fair market Expense Stop for
the Renewal Period, which shall remain the position of such party throughout the
arbitration process. In the event that the parties fail to agree upon a single
arbitrator within 14 days following the submission of the parties' positions to
one another, each of Tenant and Landlord shall within seven days thereafter
appoint one arbitrator, and the two arbitrators so selected shall, within seven
days after both have been selected, appoint a third, who shall act as
chairperson of the board of arbitration. All arbitrators shall be natural
persons who are independent and neutral and have significant experience owning,
managing or leasing office space, including space in multiuse projects. At any
time within 14 days after the arbitrator or all of the arbitrators have been
appointed, either party may request a hearing, which shall be held no later than
14 days following such request (or if such date is a Saturday, Sunday or legal
holiday, on the next regular business day) or on such later date as the
arbitrator or board of arbitration may determine in order to allow both parties
a reasonable opportunity to prepare. At such hearing, evidence, analyses and
briefs shall be presented by all parties pursuant to Uniform Rules of
Arbitration established by the American Arbitration Association. If no hearing
is requested, the parties may submit to the arbitrator or board of arbitration,
by a date not later than 14 days following the appointment thereof, written
evidence, memoranda and briefs supporting their respective positions, with a
copy to the other party. Each party shall have ten days to respond to the
initial submission of the other party. Within 14 days after receipt of the
initial submissions, the arbitrator(s) shall make a determination as to the then
fair market rental value of the Premises, in favor of the position of one party
or the other as submitted within the first ten days following the commencement
of the arbitration proceedings without alteration or compromise and shall
require the unsuccessful party to pay all reasonable costs and fees, including
reasonable attorney's fees, of the prevailing party. In the event that the
members of a board of arbitration fail to reach a unanimous decision, the
decision of the majority of the board shall be determinative. Such determination
shall be final and binding upon the parties and not subject to appeal, in the
absence of fraud, and the prevailing party may enforce the same by application
for entry of judgment in any court of competent jurisdiction or by other
procedures established by law.

2.3 Memorandum. At the request of either party at any time following initial
occupancy of the Premises by Tenant, Landlord and Tenant shall execute a written
memorandum reflecting the date of initial occupancy and confirming the
Commencement Date and Expiration Date.

2.4 Area Measurement. "Rentable Area" means area measured in accordance with
American National Standard Z65.1-1996, as published by BOMA International.

2.5 Condition. Landlord shall have no obligation to make any improvements or
alterations to the Premises or the Building whatsoever, and Tenant accepts the
Premises in an AS IS condition, with all faults. Notwithstanding the foregoing,
if an Exhibit C is attached to this Lease, Landlord shall cause improvements to
be constructed and alterations to be made in the Premises in accordance with the
provisions of Exhibit C in a good and workmanlike manner. If construction of the
Project has not commenced by September 30, 1999, Tenant may terminate this Lease
by delivery of notice to Landlord no later than October 30, 1999, notifying
Landlord of Tenant's election to terminate this Lease. During any period that
Tenant shall be permitted or required to enter the Premises prior to the
Commencement Date, Tenant shall comply with all terms and provisions of this
Lease.

2.6 Certain Representations of Landlord. Landlord hereby represents and warrants
to Tenant only that: (i) water, sewer, gas and electricity services will be
available to the Premises as set forth in Part One of Exhibit C; (ii) the
improvements to be constructed by Landlord pursuant to Part One of Exhibit C
will comply with all applicable laws, statutes, ordinances, rules and
regulations, including, without limitation, disability laws, rules and
regulations, in effect on the date of completion; (iii) to the best of
Landlord's actual knowledge, the Premises and Project are not in violation of
any applicable environmental law, statute, ordinance, rule or regulation, and no
hazardous, dangerous or toxic materials, substances, wastes or pollutants exist
on the Premises or Project, except normal retail products which are packaged,
labeled, used and sold or otherwise disposed of in compliance with all
applicable laws; (iv) the Premises are zoned C-2; and (v) Landlord has no
knowledge of any provision in the CC&R's that would prevent Tenant from
conducting its Permitted Use at the Premises as provided in this Lease.

ARTICLE 3 USE OF PREMISES


                                       3
   4
3.1 Permitted Uses. Tenant may use and occupy the Premises for the purposes set
forth in Article 1.12 and for no other purpose whatsoever without Landlord's
prior written consent.

3.2 Insurance Restrictions. Tenant shall not perform any act which would cause
the cancellation of any insurance policies related to the Project. Unless any
increase arises as a result of Tenant's use of the Premises for Tenant's
Permitted Use, Tenant shall reimburse Landlord for any increases in insurance
premiums paid by Landlord directly related to the nature of Tenant's use of the
Premises or the nature of Tenant's business.

3.3 Improvements. Unless necessitated by Tenant's use of the Premises for
Tenant's Permitted Use, and if solely due to the nature of Tenant's use of the
Premises, improvements or alterations are necessary to comply with any
requirements imposed by law or with the requirements of insurance carriers,
Tenant shall pay the entire cost of the improvements or alterations.

3.4 Prohibitions. Tenant shall not cause or maintain any nuisance in or about
the Premises and shall keep the Premises free of debris, rodents, vermin and
anything of a dangerous, noxious or offensive nature or which would create a
fire hazard (through undue load on electrical circuits or otherwise) or undue
vibration, noise or heat. Tenant shall not cause the safe floor loading capacity
to be exceeded. Tenant shall not disturb or interfere with the quiet enjoyment
of the premises of any other tenant.

3.5 Common Areas. All of the portions of the Project made available by Landlord
for use in common by tenants and their employees and invitees ("Common Areas")
at all times shall remain subject to Landlord's exclusive control and Landlord
shall be entitled to make such changes in the Common Areas as it deems
appropriate; provided the changes do not materially and adversely alter the
parking for or access to the Premises. At a minimum the Common Areas shall
include all corridors, elevators and stairwells providing access to the
Premises, restrooms serving the Premises and the sidewalks, driveways and
parking areas crosshatched on Exhibit B. Landlord shall maintain the Common
Areas in a neat, clean, and orderly condition consistent with other first class
mixed office/retail developments in the Phoenix metropolitan area.

3.6 Parking. Landlord shall provide, operate and maintain parking accommodations
in the Project, together with necessary access thereto, as generally designated
on Exhibit B. No storage of vehicles or parking for more than twenty-four (24)
hours shall be allowed without Landlord's prior written consent. Tenant
acknowledges and agrees that Landlord shall not be liable for damage, loss or
theft of property or injury to persons in, upon or about the parking area from
any cause whatsoever. Landlord shall have the right to establish, and from time
to time change (including relocating reserved covered parking spaces), alter and
amend, and to enforce against all users of the parking area such reasonable
requirements and restrictions as Landlord deems necessary and advisable for the
proper operation and maintenance of the parking area. Landlord shall have the
right from time to time to designate an area or areas within the common
facilities for purposes of parking vehicles of Tenant's employees (collectively,
"Authorized Parkers"), and its agents, representatives and invitees. Tenant
shall, within fifteen days after request in writing from Landlord, deliver to
Landlord the license plate numbers of its Authorized Parkers and thereafter,
within ten days after there are changes in the list of Authorized Parkers. Each
vehicle shall, at Landlord's option to be exercised from time to time, bear a
permanently affixed and visible identification sticker or vehicle tag to be
provided by Landlord. The parties acknowledge that Landlord, in Landlord's sole
discretion, may construct additional on site covered parking for the Project,
and, during the period of construction of the additional parking, Tenant's
parking field and reserved parking spaces may be temporarily relocated to the
location designated on Exhibit B.

3.7. CC&R's, Rules and Regulations. This Lease is subject and subordinate in all
respects to the Master Declaration of Covenants, Conditions, Restrictions and
Development Standards recorded on August 13, 1996, at 96-0570473 (the "Master
Declaration"), and the Declaration of Covenants, Conditions, Restrictions and
Easements for Kierland Commons recorded on August 7, 1998, at 98-0691485,
records of Maricopa County, Arizona, as amended by First Amendment to
Declaration of Covenants, Conditions, Restrictions and Easements for Kierland
Commons, recorded on December 4, 1998, at 98-1101237, records of Maricopa
County, Arizona (collectively, the "Parcel Declaration"; the Master Declaration
and the Parcel Declaration together being referred to as the "CC&R's"). The
CC&R's are hereby incorporated into this Lease by this reference and shall
prevail over this Lease in the event of any inconsistency. Terms which are
defined in the CC&R's shall have the same meanings herein unless otherwise
defined or required by context. Tenant hereby acknowledges and agrees that
nothing in this Lease is intended to or shall be deemed or construed so as to
modify or limit in any way the rights and powers of Landlord as Declarant under
the CC&R's, all of which may be exercised in any manner in Landlord's sole
discretion, subject to the limitations set forth in the CC&R's. Tenant shall and
shall cause its agents, employees and contractors to comply with the CC&R's and
any non-discriminatory and reasonable rules and regulations for the Project
promulgated by Landlord from time to time (the "Rules"). Landlord's current
Rules are attached as Exhibit D. Landlord from time to time by notice to Tenant
may amend the rules and regulations and establish other reasonable
non-discriminatory rules and regulations for the Project.

3.8 Compliance with Law. Tenant, at Tenant's expense, shall comply with all
present and future federal, state and local laws, ordinances, orders, rules and
regulations,(collectively, "Laws"), including, without limitation the Americans
with Disabilities Act, to the extent it applies to the Premises, and shall
procure all permits, certificates, licenses and other authorizations required by
applicable


                                       4
   5
Law relating to Tenant's business or Tenant's use or occupancy of the Premises
or Tenant's activities on the Premises. Tenant shall make all reports and
filings required by applicable Laws. Tenant shall defend, indemnify and hold
harmless Landlord and Landlord's present and future officers, directors,
employees, partners and agents from and against all claims, demands,
liabilities, fines, penalties, losses, costs and expenses, including but not
limited to costs of compliance, remedial costs, and reasonable attorneys' fees,
arising out of or relating to any failure of Tenant to comply with applicable
Laws. Landlord shall comply with all Laws (including, without limitation, the
Americans With Disabilities Act) applicable to the Common Areas and will defend,
indemnify and hold harmless Tenant and Tenant's present and future officers,
directors, employees, partners and agents from and against all claims, demands,
liabilities, fines, penalties, losses, costs and expenses, including but not
limited to costs of compliance, remedial costs, and reasonable attorneys' fees,
arising out of or relating to any failure of Landlord to comply with applicable
Laws.

3.9 Environmental. Without in any manner limiting any other provision of this
Lease, Tenant hereby represents and warrants and agrees for the full term of any
obligations under this Lease:

         (a) to comply fully with all federal, state and local laws, rules,
orders, or regulations pertaining to health or the environment ("Environmental
Laws"), including, without limitation, the comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA") and the Resource
Conservation and Recovery Act of 1987, as amended ("RCRA").

         (b) that Tenant will not dispose of nor permit or acquiesce in the
disposal of any Regulated Substances, under or around the Premises, except in
conformance with Environmental Laws.

         (c) to defend, indemnity and hold harmless Landlord for any and all
costs, claims, demands, damages including attorneys' fees and court costs and
investigatory and laboratory fees, related to any breach of this Lease,
including, without limitation, any adverse health or environmental condition
(including without limitation any violation of Environmental Laws) occurring
during the term of this Lease. This indemnification to Landlord shall survive
the termination of the Lease.

         (d) comply with all reporting obligations imposed under the Federal
Emergency Planning and Community Right to Know Act of 1986 and any similar state
or local laws, rules or regulations.

         (e) comply with all pretreatment requirements imposed by law with
respect to the disposal of waste or effluent into the sanitary sewer system.

         (f) prevent any dumping, spillage, leakage or runoff of substances
regulated by Environmental Laws ("Regulated Substances") into dry wells, storm
drains, water retention areas, Common Areas or any areas where such substances
could be absorbed into the soil.

         (g) obtain and maintain all permits required by federal, state or local
laws, rules or regulations.

         (h) prepare, and upon request provide a copy to Landlord of, all
response plans required by applicable law.

         (i) not keep, store, or use within the Premises any Regulated
Substances except small quantities that are reasonably necessary for Tenant's
business and customarily associated with office usage, such as copier supplies.

3.10 Audit. At any time and from time to time, Landlord may retain an
environmental consultant or engineer to conduct an audit or environmental
assessment of the Premises and Tenant's compliance with applicable laws, rules
and regulations. Tenant shall extend its full cooperation with the audit or
investigation. If Tenant is found not to be substantially in compliance with
applicable law, all reasonable costs associated with the audit or assessment
shall be paid by Tenant to Landlord upon demand; otherwise all costs shall be
borne by Landlord. In addition, Tenant, at Landlord's request from time to time,
shall complete such questionnaires and provide such information with respect to
Tenant's activities and operations on the Premises as Landlord shall reasonably
require.

ARTICLE 4 SECURITY DEPOSIT AND GUARANTIES [INTENTIONALLY OMITTED]

ARTICLE 5 RENT

5.1 Base Rent. Commencing on the Commencement Date, Tenant shall pay to
Landlord, in advance, on the first day of each calendar month, the monthly
payment of Base Rent in the amount set forth in Article 1.9 above.


                                       5
   6
5.2 Late Charges and Interest. Tenant shall pay to Landlord a late charge equal
to $50 for each day that Base Rent or any other amount payable under this Lease
is due and remains unpaid 10 days after its due date as liquidated damages to
compensate Landlord for costs and inconveniences of special handling and
disruption of cash flow. The assessment or collection of a late charge shall not
constitute the waiver of a default and shall not bar the exercise of other
remedies for nonpayment. In addition to the late charge, all amounts not paid
within ten days after the date due shall bear interest from the date due (i)
until the happening of an Event of Default, at the rate of 12% per annum and
(ii) thereafter, at the rate set forth in Article 21.2.

5.3 Excise Taxes. Tenant shall pay to Landlord all sales, use, transaction
privilege, or other excise tax levied or imposed upon, or measured by, any
amount payable by Tenant under this Lease.

5.4 Obligations Are Rent. All amounts payable to Landlord under this Lease
constitute rent and shall be payable without notice, demand, deduction or offset
to such person and at such place as Landlord may from time to time designate by
written notice to Tenant.

5.5 Proration. Base Rent payable with respect to a period consisting of less
than a full calendar month shall be prorated.


ARTICLE 6 OPERATING COSTS

6.1 Tenant's Share. Tenant shall pay to Landlord Tenant's Proportionate Share of
Operating Costs for each calendar year in excess of the Expense Stop as set
forth in Article 1.11. Tenant's Proportionate Share of Operating Costs will be
the sum of the Office Proportionate Share and Project Proportionate Share of
Operating Costs. The Operating Costs used to determine the Project Proportionate
Share shall consist of costs, expenses, and services incurred or employed by
Landlord for both the office and any other portions of the Project (the "Project
Operating Costs"). The Operating Costs used to determine the Office
Proportionate Share shall consist of costs, expenses, and services incurred or
employed by Landlord solely for the office portion of the Project (the "Office
Operating Costs"). Notwithstanding anything to the contrary in this Lease, items
classified as Project Operating Costs shall not be included in the Office
Proportionate Share and vice versa, with the intent that Landlord in good faith
shall determine which Operating Costs relate solely to the office portion of the
Project and which Operating Costs are Project Operating Costs without overlap of
the two.

6.2 Estimates. From time to time Landlord shall by written notice specify
Landlord's estimate of Tenant's obligation under Article 6.1. Tenant shall pay
one-twelfth of the estimated annual obligation on the first day of each calendar
month.

6.3 Annual Reconciliation. Within 120 days after the end of each calendar year,
Landlord shall provide to Tenant a written summary of the Operating Costs for
the calendar year, determined on an accrual basis and broken down by principal
categories of expense, including a breakdown of which items are office Operating
Costs and which items are attributable to Project Operating Costs. The statement
also shall set forth Tenant's Project Proportionate Share and Tenant's Office
Proportionate Share and shall show the amounts paid by Tenant on account. Any
difference between Tenant's obligation and the amounts paid by Tenant on account
shall be paid or refunded, as the case may be, within thirty days after the
statement is provided. Late delivery of the annual statement of Operating Costs
shall not relieve Tenant of any obligation with respect to payment of Tenant's
Proportionate Share of the Operating Costs.

6.4 Partial Year Proration; Variable Cost Adjustment. During the first and last
years of the Term, Tenant's responsibility for Operating Costs shall be adjusted
in the proportion that the number of days of that calendar year during which the
Lease is in effect bears to 365. Tenant's obligations under this Article 6 for
the payment of Operating Costs during the Lease Term, including the payment of
any deficiency following receipt of the annual statement under Article 6.3,
shall survive the expiration or termination of this Lease. For purposes of
determining the Office Proportionate Share, if the mean level of occupancy of
the office portion of the Project during a calendar year is less than 95% of the
rentable area of the office portion of the Project, the Office Operating Costs
shall be adjusted to reflect the fact that some costs, such as HVAC and
janitorial services, vary with level of occupancy while other costs, such as
real estate taxes, may not. In order to allocate those variable costs to
occupied space while allocating non-variable costs to occupied and unoccupied
space alike, Landlord shall determine what the total Office Operating Costs
would have been had the Building been at least 95% occupied during the entire
calendar year on the average, and that adjusted total shall be the figure
employed in the statement and calculations described in Articles 6.1 and 6.3. If
the mean level of occupancy exceeds 95%, no adjustment shall be made.

6.5. "Operating Costs" consist of all costs of operating, maintaining and
repairing the Project generally and the office portion of the Project
specifically, including, without limitation, the following:


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         (a) Premiums for property, casualty, liability, rent interruption or
other insurance.

         (b) Salaries, wages and other amounts paid or payable for personnel
including the Project manager, superintendent, operation and maintenance staff,
and other employees of Landlord directly involved in the maintenance and
operation of the Project, including contributions and premiums towards fringe
benefits, unemployment and worker's compensation insurance, pension plan
contributions and similar premiums and contributions and the total charges of
any independent contractors or managers engaged in the repair, care, maintenance
and cleaning of any portion of the Project.

         (c) Cleaning, including sweeping of parking areas.

         (d) Landscaping, including irrigating, trimming, mowing, fertilizing,
seeding, and replacing plants.

         (e) Utilities, including fuel, gas, electricity, water, sewer,
telephone, and other services.

         (f) Maintaining, operating, repairing and replacing equipment.

         (g) Other items of repair or maintenance of the Project.

         (h) Policing and security.

         (i) The cost of the rental of any equipment and the cost of supplies
used in the maintenance and operation of the Project.

         (j) Audit fees and the cost of accounting services incurred in the
preparation of statements referred to in this Lease and financial statements,
and in the computation of the rents and charges payable by tenants of the
Project.

         (k) Costs of capital expenditures incurred for the purpose of reducing
Operating Costs and costs of improvements, repairs, or replacements which
otherwise constitute Operating Costs under this Article but which are properly
charged to capital accounts. The foregoing shall not be included in Operating
Costs in a single year but shall instead be amortized over their useful lives,
as reasonably determined by the Landlord in accordance with generally accepted
accounting principles, and only the annual amortization amount shall be included
in Operating Costs.

         (l) A fee for the administration and management of the Project
appropriate to the nature of the Project as reasonably determined by the
Landlord from time to time.

         (m) Costs of alterations or modifications to the Project necessary to
comply with requirements of applicable law; and

         (n) General and special real and personal property taxes and
assessments for the Project and reasonable expenses incurred in efforts to
reduce taxes or assessments.

6.6 Exclusions. Notwithstanding anything to the contrary in Article 6.5,
"Operating Costs" shall not include:

         (a) Amounts reimbursed by other sources, such as insurance proceeds,
equipment warranties, judgments or settlements.

         (b) Utilities or other expenses paid directly by tenants to suppliers
or paid by tenants to Landlord for separately metered or special services such
as after-hours air conditioning services.

         (c) Ground rents.

         (d) Payments on any mortgage or other encumbrance.

         (e) Construction of tenant improvements.

         (f) Replacements (but not repairs) of structural elements.

         (g) Leasing commissions.


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         (h) Correction of defects in material, workmanship or violations of
applicable law occurring in or during the initial construction of the Project.

         (i) General overhead and administrative expenses of Landlord not
directly related to the operation of the Project.

         (j) Costs of negotiating or enforcing leases of other tenants.


ARTICLE 7 TAXES

7.1 Landlord shall pay before delinquent all general and special real property
taxes assessed or levied on the Project, subject to reimbursement under Article
6.

7.2 Tenant shall pay before delinquent all taxes levied or assessed upon,
measured by, or arising from (a) the conduct of Tenant's business; (b) Tenant's
leasehold estate; or (c) Tenant's property.

ARTICLE 8 INSURANCE AND INDEMNITY

8.1 Insurance Policies. Tenant shall, at its expense, take out and keep in full
force and effect the following insurance:

         (a) Special Form property insurance, including without limitation
sprinkler leakage, in an amount equal to the full replacement cost of all
property owned by Tenant within the Premises, including, but not limited to,
Tenant Improvements, contents, inventory, and all personal property within the
Premises.

         (b) Commercial general liability insurance applying to third party
claims for bodily injury or property damage alleged from the use and occupancy
of the Premises and the business operated by Tenant, including coverage for
"premises/operations", "products and completed operations", and "blanket
contractual" liabilities, written on an occurrence basis with limits not less
than $1,000,000 per occurrence, or such higher amounts and additional coverages
as Landlord may reasonably require from time to time if such higher limits are
customary for office tenants similar to Tenant in the Phoenix metropolitan area,
naming Landlord, its agents, affiliates, and property manager as additional
insureds.

         (c) At all times during the Lease Term, Tenant shall procure and
maintain workers' compensation insurance in accordance with applicable law and
employer's liability insurance with a limit not less than $1,000,000 bodily
injury each accident; $1,000,000 bodily injury by disease - each person; and
$1,000,000 bodily injury by disease - policy limit.

8.2 Policy Requirements. Tenant's insurance policies shall:

         (a) where applicable, contain the mortgagee's standard mortgage clause
and in any event a waiver of any subrogation rights which Tenant's property
insurers may have against Landlord and against those for whom the Landlord is in
law responsible;

         (b) be taken out with insurers reasonably acceptable to Landlord and be
in a form reasonably satisfactory from time to time to Landlord;

         (c) be non-contributing and apply as primary and not as excess to, any
other insurance available to the Landlord;

         (d) not be invalidated with respect to the interests of the Landlord
and the holder of any encumbrance on the Project by reason of any breach or
violation by Tenant of any warranties, representations, declarations or
conditions contained in the policies;

         (e) contain an undertaking by the insurers to notify the Landlord, and
the holder of any encumbrance on the Project designated by Landlord, in writing
not less than thirty days prior to any material change, cancellation or
termination; and

         (f) be satisfactory in form, substance, limits, deductibles and
retentions to Landlord.

8.3 Evidence of Coverage. Tenant shall deliver to Landlord certificates of
insurance in form approved by Landlord or, if required by Landlord, certified
copies of each such insurance policy: (a) as soon as practicable after the
placing of the required insurance and (b) periodically thereafter before
expiration, renewal or replacement of the policies then in force. No review or
approval of any such


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insurance certificate by Landlord shall derogate or diminish Landlord's rights
or Tenant's obligations. Tenant shall not take possession of the Premises
without having complied with the requirements of this Article. If at any time
Tenant fails to provide satisfactory evidence of all required coverages,
Landlord may but shall have no obligation to purchase such insurance for Tenant
and at Tenant's sole cost and expense, which shall be immediately due and
payable by Tenant upon demand.

8.4 Indemnity and Exculpation. Except to the extent caused by Landlord's gross
negligence or intentional wrongful conduct or by any breach by Landlord of its
obligations under this Lease, Tenant shall defend, indemnify and hold Landlord
harmless for, from and against any and all loss, claims, actions, damages,
liability and expense in connection with loss of life, personal injury, damage
to property or any other loss or injury whatsoever arising directly or
indirectly from or out of this Lease or any occurrence in, upon or at the
Premises or the occupancy or use by the Tenant of the Premises or any act or
omission of Tenant, its agents, servants, employees or invitees. Except to the
extent caused by Landlord's gross negligence or intentional wrongful conduct or
by any breach by Landlord of its obligations under this Lease, Landlord shall
not be liable and Tenant hereby waives all claims for any damage to any property
in or about the Premises or the Project or injury or inconvenience to Tenant's
business, by or from any cause whatsoever, including without limiting the
foregoing, rain or water leakage of any character from the roof, windows, walls,
basement, pipes, plumbing works or appliances. Tenant acknowledges that it is
protecting itself against loss by maintaining appropriate insurance coverage.

8.5 Landlord's Policies. No insurable interest is conferred upon Tenant under
any policies of insurance carried by Landlord, and Tenant shall not be entitled
to share or receive proceeds of any insurance policy carried by Landlord.

ARTICLE 9 FIRE AND CASUALTY

9.1 Termination Rights. If all or part of the Premises, Building or Common Area
is damaged and the Premises is rendered untenantable by such damage from fire or
other casualty which in Landlord's opinion cannot be substantially repaired
(employing normal construction methods without overtime or other premium) under
applicable laws and governmental regulations within 180 days from the date of
the fire or other casualty, then either Landlord or Tenant may elect to
terminate this Lease as of the date of such casualty by written notice delivered
to the other not later than ten days after notice of such determination is given
by Landlord.

9.2 Restoration. If in Landlord's opinion the damage caused by the fire or
casualty can be substantially repaired (employing normal construction methods
without overtime or other premium) under applicable laws and governmental
regulations within 180 days from the date of the fire or other casualty, or if
neither party exercises its right to terminate under Article 9.1, Landlord
shall, but only to the extent that insurance proceeds are available therefor,
repair such damage other than damage to furniture, chattels or trade fixtures
which do not belong to the Landlord, which shall be repaired forthwith by Tenant
at its own expense.

9.3 Abatement. During any period of restoration, the Base Rent payable by Tenant
shall be proportionately reduced to the extent that the Premises are thereby
rendered untenantable from the date of casualty until completion by Landlord of
the repairs to the Premises (or the part thereof rendered untenantable) or until
Tenant again uses the Premises (or the part thereof rendered untenantable) in
its business, whichever first occurs.

9.4 Demolition of Project. Notwithstanding anything to the contrary in Article
9.1, if all or a substantial part (whether or not including the Premises) of the
Building is rendered untenantable by damage from fire or other casualty to such
a material extent that in the commercially reasonable opinion of Landlord the
Project must be totally or partially demolished, whether or not to be
reconstructed in whole or in part, Landlord may elect to terminate this Lease as
of the date of the casualty (or on the date of notice if the Premises are
unaffected by such casualty) by written notice delivered to Tenant not more than
sixty days after the date of the fire or casualty. Tenant shall have an option
to lease space in any reconstructed project similar to the Premises on terms
substantially similar to this Lease.

9.5 Agreed Remedies. Except as specifically provided in this Article, there
shall be no reduction of rent and Landlord shall have no liability to Tenant by
reason of any injury to or interference with Tenant's business or property
arising from fire or other casualty, howsoever caused, or from the making of any
repairs resulting therefrom in or to any portion of the Project or the Premises.
Tenant waives any statutory or other rights of termination by reason of fire or
other casualty, it being the intention of the parties to provide specifically
and exclusively in this Article for the rights of the parties with respect to
termination of this Lease as a result of a casualty.


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ARTICLE 10 CONDEMNATION

10.1 Automatic Termination. If during the Term all of the Premises is
permanently taken for any public or quasi-public use under any statute or by
right of eminent domain, or purchased under threat of such taking, this Lease
shall automatically terminate on the date on which the condemning authority
takes possession of the Premises.

10.2 Optional Termination. If during the term any part of the Project affecting
the use of the Premises is taken or purchased by right of eminent domain or in
lieu of condemnation, and whether or not the Premises are directly affected,
then if in the reasonable opinion of Landlord substantial alteration or
reconstruction of the Project is necessary or desirable as a result thereof and
Landlord elects not to make such alterations or reconstruction, or the amount of
parking available for the Premises or to the Project is materially and adversely
affected, each of Landlord or Tenant shall have the right to terminate this
Lease by giving the other party at least thirty days written notice of such
termination.

10.3 Award. Landlord shall be entitled to receive and retain the entire award or
consideration for the affected lands and improvements and Tenant shall not have
or advance any claims against Landlord for the value of its property or its
leasehold estate or the unexpired term of this Lease or for costs of removal or
relocation or business interruption expense or any other damages arising out of
the taking or purchase. Nothing herein shall give Landlord any interest in or
preclude Tenant from seeking and recovering on its own account from the
condemning authority any award of compensation attributable to the taking or
purchase of Tenant's chattels or trade fixtures or attributable to Tenant's
relocation expenses provided that any such separate claim by Tenant shall not
reduce or adversely affect the amount of Landlord's award. If any such award
made or compensation paid to Tenant specifically includes an award or amount for
Landlord, Tenant shall promptly account therefor to Landlord.

ARTICLE 11 MAINTENANCE

11.1 By Tenant. Subject to Landlord's repair and maintenance obligations set
forth in Article 11.2 below, Tenant shall maintain the Premises and the
improvements thereon in good condition and repair.

11.2 By Landlord. Landlord shall provide janitorial services to the Premises
five nights per week. Landlord shall maintain the Project and all Common Areas
in good condition and repair in accordance with standards then prevailing for
comparable properties of like age and character in the Phoenix metropolitan
area. Landlord shall repair structural defects in roof or walls and any common
utility facilities in the Common Areas. Landlord shall maintain and repair all
lighting fixtures (lamps and ballasts), windows, doors, the plumbing system,
electrical systems and receptacles, heating, ventilation, and air conditioning
systems, and shall provide day to day maintenance and repair. Repairs required
due to damage caused by Tenant (other than ordinary wear and tear) will be
billed to Tenant; all other maintenance and repair shall be part of the
Operating Costs under Article 6. Landlord will not be responsible for repairs or
maintenance within the Premises unless Tenant notifies Landlord of the need for
the repair or maintenance. Landlord will not be liable or responsible for
breakdowns or temporary interruptions in access or utilities nor for
interference with Tenant's business or Tenant's access to the Premises during
the course of repairs or remedial work, unless caused by Landlord.

ARTICLE 12 UTILITIES

Landlord shall supply to the Premises electrical power for lighting, for the
operation of heating, ventilation and air conditioning equipment, and for the
operation of normal office equipment, and shall supply water and sewer services
for any plumbing facilities in the Premises. Tenant shall pay Landlord upon
demand for any heating, ventilation and air conditioning provided outside of
Normal Business Hours at Landlord's standard hourly rates, which shall be
subject to adjustment for changes in electrical power rates. The Normal Business
Hours for the Building and the current applicable rate for after-hours usage are
set forth in Article 1.13. Any other utilities provided to the Premises,
including telephone services, shall be arranged directly by Tenant with the
utility supplier, including the posting of any required deposits, and paid
directly to the utility supplier when due.

ARTICLE 13 LANDLORD RIGHT OF ENTRY

Upon reasonable notice to Tenant, Landlord shall have access to the Premises for
purposes of showing the Premises to current or prospective lenders, to
prospective purchasers of the Project, and, during the twelve-month period
preceding the expiration of the term of this Lease, to prospective tenants.
Landlord, upon reasonable notice, shall at all times have access to the Premises
for purposes of inspection and performing Landlord's obligations and exercising
its rights under this Lease.


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ARTICLE 14 SIGNS

Tenant shall not place or permit to be placed any sign, picture, advertisement,
notice, lettering or decoration on any part of the outside of the Premises or
anywhere in the interior of the Premises which is visible from the outside of
the Premises without Landlord's prior written approval. All Tenant's signs shall
be designed, installed, and maintained at Tenant's expense and shall comply with
Landlord's sign criteria.

ARTICLE 15 TENANT ALTERATIONS

15.1 Tenant Alterations. Tenant may from time to time at its own expense make
changes, additions and improvements in the Premises, provided that any such
change, addition or improvement shall:

         (a) comply with the requirements of any governmental or
quasi-governmental authority having jurisdiction (including, without limitation,
the Americans with Disabilities Act), with the requirements of Landlord's
insurance carriers, and with Landlord's safety and access requirements,
including restrictions on flammable materials and elevator usage;

         (b) not be commenced until Landlord has received satisfactory evidence
that all required permits have been obtained;

         (c) be made only with the prior written consent of Landlord (which may
be withheld in Landlord's sole discretion, to the extent it relates in
Landlord's opinion to the structure or electrical, HVAC, plumbing or sprinkler
systems of the Building, but which otherwise shall not be unreasonably withheld
or delayed);

         (d) be constructed in good workmanlike manner and, to the extent the
nature of the work warrants working drawings, conform to complete working
drawings prepared by a licensed architect and, to the extent Landlord's consent
is required, be submitted to and approved by Landlord;

         (e) be of a quality that equals or exceeds the then current standard
for the Project and comply with all building, fire and safety codes;

         (f) be carried out only during hours approved by Landlord by licensed
contractors selected by Tenant and, to the extent Landlord's consent is required
approved in writing by Landlord. Tenant or Tenant's contractor shall deliver to
Landlord before commencement of the work: (i) proof of workers' compensation and
general liability insurance coverage, including coverage for completed
operations and contractual liability, with Landlord and its agents and designees
named as additional insureds, in amounts, with companies, and in form reasonably
satisfactory to Landlord, which shall remain in effect during the entire period
in which the work shall be carried out, and (ii) for work requiring building
permits, performance and payment bonds if reasonably required by Landlord.
Notwithstanding the foregoing, only subcontractors selected or designated by
Landlord may be used to make connection with the Project's main electrical,
plumbing or HVAC systems, except connections to circuit panels, pipes or ducts
within the Premises; and

         (g) for work requiring building permits (after the initial construction
of Tenant Improvements), be shown on accurate, reproducible "as-built" drawings
in the form of reverse sepia transparencies or mylars, delivered to Landlord at
completion of the alterations or improvements.

15.2 Tenant Installations. Tenant may install in the Premises its usual trade
fixtures and personal property in a proper manner, provided that no installation
shall interfere with or damage the mechanical or electrical systems or the
structure of the Building. Landlord may require that any work that may affect
structural elements or mechanical, electrical, heating, air conditioning,
plumbing or other systems be performed by Landlord at Tenant's cost or by a
contractor designated by Landlord.

15.3 Mechanics Liens. Tenant shall pay before delinquency all costs for work
done or caused to be done by Tenant in the Premises which could result in any
lien or encumbrance on Landlord's interest in the Project or any part thereof,
shall keep the title to the Project and every part thereof free and clear of any
lien or encumbrance in respect of such work, and shall indemnify and hold
harmless Landlord and Landlord's agents and employees against any claim, loss,
cost, demand or legal or other expense, whether in respect of any lien or
otherwise, arising out of the supply of material, services or labor for such
work. Tenant shall immediately notify Landlord of any such lien, claim of lien
or other action of which it has or reasonably should have knowledge and that
affects the title to the Project or any part thereof, and shall cause the same
to be removed by bonding or otherwise within 30 days, failing which Landlord may
take such action as Landlord deems necessary to remove same and the entire cost
thereof shall be immediately due and payable by


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Tenant to Landlord. If provided by applicable law, Tenant shall cause such
postings to be made and notices given as shall prevent any mechanics' lien for
work done for Tenant from attaching to the Project.

ARTICLE 16 ASSIGNMENT AND SUBLETTING

16.1 Consent Required. Tenant shall not assign its interest under this Lease or
sublet all or any part of the Premises without Landlord's prior written consent,
which shall not be unreasonably withheld or delayed. Tenant shall not at any
time pledge, hypothecate, mortgage or otherwise encumber its interest under this
Lease as security for the payment of a debt or the performance of a contract.
Tenant shall not permit its interest under this Lease to be transferred by
operation of law. Any purported assignment or sublease made without Landlord's
consent shall be void. Landlord's consent shall not be required for the transfer
of this Lease in connection with a merger or consolidation of Tenant with
another corporation or entity or the sale of substantially all of Tenant's
assets to another entity.

16.2 Requests for Approval. Landlord shall be under no obligation to decide
whether consent will be given or withheld unless Tenant has first provided to
Landlord: (a) the name and legal composition of the proposed assignee or
subtenant and the nature of its business; (b) the use to which the proposed
assignee or subtenant intends to put the Premises; (c) the terms and conditions
of the proposed assignment or sublease and of any related transaction between
Tenant and the proposed assignee or subtenant; (d) information related to the
experience, integrity and financial resources of the proposed assignee or
subtenant; (e) such information as Landlord may reasonably request to
supplement, explain or provide details of the matters submitted by Tenant
pursuant to subparagraphs (a) through (d); and (f) reimbursement for all
reasonable out-of-pocket costs incurred by Landlord, including attorneys' fees,
in connection with evaluating the request and preparing any related
documentation.

16.3. Continued Responsibility. Tenant shall remain fully liable for performance
of this Lease, notwithstanding any assignment or sublease, for the entire Lease
Term.

16.4 Excess Proceeds. If consent to an assignment or sublease is given, Tenant
shall pay to Landlord, as additional rent, all amounts received from the
assignee or subtenant in excess of the amounts otherwise payable by Tenant to
Landlord with respect to the space involved, measured on a per square foot
basis.

16.5 Limitations. Without limiting appropriate grounds for withholding consent,
it shall not be unreasonable for Landlord to withhold consent if the proposed
assignee or subtenant is a tenant in another building owned by Landlord or by an
affiliate of Landlord in the North Scottsdale, Arizona area or of any of
Landlord's constituent partners or principals or if the use by the proposed
assignee or subtenant would contravene this Lease or any restrictive use
covenant or exclusive rights granted by Landlord or if the proposed assignee or
subtenant does not intend to occupy the Premises for its own use or if the
nature of the proposed assignee or subtenant is not compatible with the Project.

16.6 No Waiver. No consent shall constitute consent to any further assignment or
subletting.

16.7 Transfer by Landlord. Upon a sale or other transfer of the Project (or a
portion thereof containing the Premises) by Landlord, Landlord's interest in
this Lease shall automatically be transferred to the transferee, the transferee
shall automatically assume all of Landlord's obligations under this Lease
accruing from and after the date of transfer, and the transferor shall be
released of all obligations under this Lease arising after the transfer. Tenant
shall upon request attorn in writing to the transferee.

ARTICLE 17 SUBORDINATION AND ATTORNMENT

17.1 Subordination. Subject to Landlord obtaining a non-disturbance agreement
("SNDA") with any lender, mortgagor, or deed of trust holder, in the lender's
standard form, this Lease is and shall be subject and subordinate in all
respects to all existing and future mortgages or deeds of trust now or hereafter
encumbering the Project or any part hereof, The holder of any mortgage or deed
of trust may elect to be subordinate to this Lease.

17.2 Lender Protection. Upon a transfer in connection with foreclosure or
trustee's sale proceedings or in connection with a default under an encumbrance,
whether by deed to the holder of the encumbrance in lieu of foreclosure or
otherwise, Tenant, if requested, shall in writing attorn to the transferee, but
the transferee shall not be:


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         (a) subject to any offsets or defenses which Tenant might have against
Landlord, except as expressly provided in this Lease; or

         (b) bound by any prepayment by Tenant of more than one month's
installment of rent; or

         (c) subject to any liability or obligation of Landlord except those
arising or continuing after the transfer.

17.3 Documentation. The subordination provisions of this Article shall be
self-operating upon Tenant's receipt of the SNDA and no further instrument shall
be necessary. Nevertheless Tenant, on request, shall execute and deliver any and
all instruments further evidencing such subordination.

17.4 Other Transactions. Landlord may at any time and from time to time grant,
receive, dedicate, relocate, modify, surrender or otherwise deal with easements,
rights of way, restrictions, covenants, equitable servitudes or other matters
affecting the Project without notice to or consent by Tenant, so long as the
same do not materially, adversely interfere with or restrict Tenant's access to,
parking for,or use of the Premises.

ARTICLE 18 ESTOPPEL CERTIFICATES

Tenant shall at any time within ten days after written request from Landlord
execute, acknowledge and deliver to Landlord a statement in writing: (a)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any; (b) confirming the
commencement and expiration dates of the term; (c) confirming the amount of the
security deposit held by Landlord; (d) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults if any are claimed; and (e) confirming such other
matters as to which Landlord may reasonably request confirmation. Any such
statement may be conclusively relied upon by a prospective purchaser or
encumbrancer of the Premises or the Project, but shall not amend any express
terms of this Lease. If Landlord desires to finance or refinance the Project,
Tenant hereby agrees to deliver to any lender designated by Landlord such
financial statements of Tenant as may be reasonably required by such lender.
Such statement shall include the past three years' financial statements of
Tenant. All such financial statements shall be received by Landlord in
confidence and shall be used only for the purposes herein set forth.

ARTICLE 19 QUIET ENJOYMENT

If Tenant pays the rent and observes and performs the terms, covenants and
conditions contained in this Lease, Tenant shall peaceably and quietly hold and
enjoy the Premises for the Term without hindrance or interruption by Landlord,
or any other person lawfully claiming by, through or under Landlord unless
otherwise permitted by the terms of this Lease. Tenant acknowledges that the
exercise by the Landlord of any of the rights conferred on Landlord under this
Lease and the entry upon the Premises for or in connection with such purposes
shall not be deemed to be a constructive or actual eviction of the Tenant and
shall not be considered to be a breach of Landlord's covenant of quiet
enjoyment.

ARTICLE 20 SURRENDER AND HOLDOVER

20.1 Surrender. Upon the expiration or termination of this Lease or of Tenant's
right to possession, Tenant shall surrender the Premises in a clean undamaged
condition and shall remove all of Tenant's equipment, fixtures and personal
property and repair all damage caused by the removal. Tenant shall not remove
permanent improvements that were provided by Landlord at the commencement of
this Lease and shall not remove permanent improvements later installed by Tenant
unless directed to do so by Landlord. If Tenant fails to perform any repairs or
restoration or fails to remove any items from the Premises as required
hereunder, Landlord may do so, and Tenant shall pay Landlord the cost thereof
upon demand. All property removed from the Premises by Landlord hereunder may be
handled, discarded or stored by Landlord at Tenant's expense, and Landlord shall
in no event be responsible for the value, preservation or safekeeping thereof.
All such property shall at Landlord's option be conclusively deemed to have been
conveyed by Tenant to Landlord as if by bill of sale without payment by
Landlord. If Landlord arranges for storage of any such property, Landlord shall
have a lien against such property for costs incurred in removing and storing the
same.

20.2 Holdover. If Tenant holds over without Landlord's consent, Tenant shall, at
Landlord's election, be a tenant at will or a tenant from month-to-month. In
either case rent shall be payable monthly in advance at a rate equal to twice
the rate in effect immediately before the holdover began. A holdover
month-to-month tenancy may be terminated by either party as of the first day of
a calendar


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month upon at least ten days' prior notice. A holdover tenancy at will is
terminable at any time by either party without notice, regardless of whether
rent has been paid in advance. Upon a termination under this Article, unearned
rent shall be refunded following the surrender of possession provided Tenant is
not otherwise in breach of this Lease.

ARTICLE 21 BREACH, DEFAULT, AND REMEDIES

21.1 Default. The following shall constitute "Events of Default":

         (a) Tenant's failure to pay rent or any other amount due under this
Lease within five days after receipt of notice of nonpayment; or

         (b) Tenant's failure to execute, acknowledge and return a subordination
agreement under Article 17 or an estoppel certificate under Article 18 within
ten days after receipt of written request; or

         (c) Tenant's failure to perform any other obligation under this Lease
within fifteen days after notice of nonperformance; provided, however, that if
the breach is of such a nature that it cannot be cured within 30 days, no Event
of Default shall be deemed to have occurred by reason of the breach if cure is
commenced promptly and diligently pursued to completion within a period not
longer than 120 days; and provided further, that in the event of a breach
involving an imminent threat to health or safety, Landlord may in its notice of
breach reduce the period for cure to such shorter period as may be reasonable
under the circumstances.

21.2 Remedies. Upon the occurrence of an Event of Default, Landlord, at any time
thereafter without further notice or demand may exercise any one or more of the
following remedies concurrently or in succession:

         (a) Terminate Tenant's right to possession of the Premises by legal
process or otherwise, with or without terminating this Lease, and retake
exclusive possession of the Premises.

         (b) From time to time relet all or portions of the Premises, using
reasonable efforts to mitigate Landlord's damages. In connection with any
reletting, Landlord may relet for a period extending beyond the term of this
Lease and may make alterations or improvements to the Premises without releasing
Tenant of any liability. Upon a reletting of all or substantially all of the
Premises, Landlord shall be entitled to recover all of its then prospective
damages for the balance of the Lease Term measured by the difference between
amounts payable under this Lease and the anticipated net proceeds of reletting.
Tenant's obligations for taxes and Operating Costs shall be projected, based
upon the average rate of increase, if any, in such items from the Commencement
Date through the termination date. Future payments computed in accordance with
this section shall be discounted to present value in accordance with accepted
financial practices using a discount rate of 4% per annum.

         (c) From time to time recover accrued and unpaid rent and damages
arising from Tenant's breach of the Lease, regardless of whether the Lease has
been terminated, together with applicable late charges and interest at the rate
of 18% per annum or the highest lawful rate, whichever is less.

         (d) Enforce the statutory Landlord's lien on Tenant's property.

         (e) Recover all costs, expenses and attorneys' fees incurred by
Landlord in connection with enforcing this Lease, recovering possession,
reletting the Premises or collecting amounts owed, including, without
limitation, costs of alterations, brokerage commissions, and other costs
incurred in connection with any reletting.

         (f) Perform the obligation on Tenant's behalf and recover from Tenant,
upon demand, the entire amount expended by Landlord plus 10% for special
handling, supervision, and overhead.

         (g) Pursue other remedies available at law or in equity.

Whether Landlord terminates this Lease or Tenant's right to possession, Landlord
shall mitigate Landlord's damages to the extent required by Arizona law. To
mitigate damages: (a) Landlord shall be required only to use reasonable efforts
to relet the Premises, which shall not exceed those which Landlord generally
uses to lease other space in the Project; (b) Landlord will not be deemed to
have failed to mitigate if Landlord leases any other portions of the Building or
the Project before reletting all or any portion of the Premises; and (c) in
recognition of the fact that the value of the Project depends on the rental
rates and terms of leases therein, Landlord's rejection of a prospective
replacement tenant based on an offer of rentals below Landlord's then standard
rates for new


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leases of comparable space within the Project shall not be deemed a failure to
mitigate.

21.3 Subtenancies. Upon a termination of Tenant's right to possession, whether
or not this Lease is terminated: (a) subtenancies and other rights of persons
claiming under or through Tenant shall be terminated or (b) Tenant's interest in
such subleases or other arrangements shall be assigned to Landlord. Landlord may
separately elect termination or assignment with respect to each such subtenancy
or other matter.

ARTICLE 22 LANDLORD LIABILITY

Notwithstanding anything to the contrary in this Lease, neither Landlord nor
Landlord's directors, officers, shareholders, employees, agents, constituent
partners, beneficiaries, trustees, representatives, successors or assigns
(collectively, "Landlord's Affiliates") shall be personally responsible or
liable for any representation, warranty, covenant, undertaking or agreement
contained in the Lease, and the sole right and remedy of the Tenant or any
subsequent sublessee or assignee shall be against Landlord's interest in the
Project. Neither Tenant nor any subsequent sublessor or assignee shall seek to
obtain any judgment imposing personal liability against Landlord, Landlord's
Affiliates, or their successors or assigns nor execute upon any judgment or
place any lien against any property other than Landlord's interest in the
Project.

ARTICLE 23 NOTICES

Any notice from one party to the other shall be in writing and shall be deemed
duly served: (a) if delivered personally to a responsible employee of Tenant or
if mailed by registered or certified mail addressed to Tenant at the Premises or
such other address as Tenant may designate or (b) if mailed by registered or
certified mail to Landlord at the address set forth in Article 1.15 or such
other address as Landlord may designate. Any notice to Tenant prior to Tenant's
taking possession of the Premises, however, shall instead be sent to the address
set forth in Article 1.14. Any notice shall be deemed to have been received when
received or rejected, if mailed, and when delivered, if personally delivered.

ARTICLE 24 BROKERAGE

Landlord and Tenant warrant and represent that no broker or other person is
entitled to claim a commission, broker's fee or other compensation in connection
with this Lease except: (i) brokers or other persons that Landlord may have
retained or employed directly, and (ii) brokers whom Tenant has previously
specifically designated in writing to Landlord as Tenant's representative as
listed in Article 1.16. Landlord and Tenant shall defend, indemnify and hold
each other harmless from all claims or liabilities arising from any breach of
the foregoing representation and warranty.

ARTICLE 26 RIGHTS RESERVED BY LANDLORD Except as expressly provided in this
Lease, Landlord reserves all rights of ownership and control over all portions
of the Project, including without limitation the following:

26.1. Access. Landlord reserves the right to enter upon any portion of the
Project for inspection or other legitimate purposes.

26.2. Use. Landlord reserves the right to use (or grant others the right to use)
any portion of the Project other than the Premises, including without limitation
the Common Area, the exterior of all buildings and improvements and air rights,
surface rights and subsurface rights and water rights appurtenant to the
Project; provided such use or grant of use to another does not materially and
adversely affect Tenant's use of the Premises.

26.3. Restriction of Access. Landlord reserves the rights to: (i) prevent or
restrict access to any portion of the Project or the Building by such security
procedures or devices as Landlord may consider necessary or appropriate; (ii)
control or prevent access by and remove, any person who is loitering or whose
presence in the judgment of Landlord's security or management personnel is
prejudicial to the safety, character, reputation and interests of the Project or
who in the judgment of such personnel is intoxicated or under the influence of
liquor or drugs; and (iii) limit or prevent access to all or any portion of the
Project, activate emergency controls or procedures or otherwise take such action
or preventive measures deemed necessary by Landlord for the safety of tenants or
other occupants of the Project or the protection of the Project or other
property located thereon or therein, in case of fire or other casualty, riot or
other civil disorder, strike or labor unrest, public excitement or other
dangerous condition or threat thereof.


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26.4. Other Tenants. Landlord reserves the right to lease or sell any portion of
the Building and the Project to such other tenants, occupants or other parties
and for such uses as Landlord, in Landlord's sole discretion, deems appropriate.
Tenant acknowledges that Landlord has made no representations as to Landlord's
continued ownership of all or any portion of the Project or the presence of any
specific tenant or number or types of tenants at the Project as of or after the
Commencement Date. Without limiting the foregoing, Tenant acknowledges that
portions of the Project will be used for retail purposes and that Landlord may
in the future enlarge or diminish such retail areas.

26.5. Changes. Landlord reserves the right to: (i) change the name of the
Project and the address or designation of the Premises, provided that Landlord
shall reimburse Tenant for the actual, reasonable costs incurred by Tenant in
changing Tenant's business documentation and stationery to reflect the change;
(ii) install, maintain, alter and remove signs on or about the Project; (iii)
add land or other real property interests to or eliminate the same from the
Project and grant interests and rights in the Project to other parties; (iv)
add, alter, expand, reduce, eliminate, relocate or change the shape, size,
location, character, design, appearance, use, number or height of any permanent
or temporary buildings, structures, improvements, parking areas and structures,
kiosks, planters, driveways, landscaped areas and other Common Areas, change the
striping of parking areas and direction and flow of traffic and convert Common
Areas to leasable areas and leasable areas to Common Areas, so long as such
changes do not materially and adversely affect Tenant's use or occupancy of the
Premises; (v) enclose any area, remove any such enclosure or add one or more
additional levels or stories to the Project or any portion thereof other than
the Premises and add structural supports that may be required within the
Premises or Common Areas, so long as such changes do not materially and
adversely affect Tenant's use or occupancy of the Premises; and (vi) in
connection with the foregoing matters or with any other inspections, repairs,
maintenance, improvements or alterations in or about Project or as a result of
any casualty, incident, strike, condemnation, act of God, law or governmental
requirement or request or other cause, erect scaffolding, barricades and other
structures.

26.6. Limitations. In connection with exercising any rights reserved under this
Article 26, Landlord shall: (a) take reasonable steps to minimize interference
with access to or the use or occupancy of the Premises except when necessary on
a temporary basis; (b) take reasonable steps to avoid materially changing the
configuration or reducing the Common Area, unless required by law or other
causes beyond Landlord's reasonable control; and (c) if Landlord enters the
Premises in connection with any of the foregoing matters, take reasonable steps
to minimize any interference with Tenant's business, and following completion of
the work, return Tenant's leasehold improvements, fixtures, property and
equipment to the original locations and conditions to the fullest extent
reasonably possible.

ARTICLE 27. GENERAL

27.1 Severability. If any term, covenant or condition of this Lease, or the
application thereof, is to any extent held or rendered invalid, it shall be and
is hereby deemed to be independent of the remainder of the Lease and to be
severable and divisible therefrom, and its invalidity, unenforceability or
illegality shall not affect, impair or invalidate the remainder of the Lease or
any part thereof.

27.2 No Waiver. The waiver by Landlord or Tenant of any breach of any term,
covenant or condition contained in this Lease shall not be deemed to be a waiver
of such term, covenant or condition or of any subsequent breach of the same or
of any other term, covenant or condition contained in this Lease. The subsequent
acceptance of rent by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of rent. No term, covenant or condition of this Lease shall be deemed
to have been waived by Landlord or Tenant unless such waiver is in writing.

27.3 Effect of Payment. No payment by Tenant or receipt by Landlord of a lesser
amount than the monthly payment of rent herein stipulated is deemed to be other
than on account of the earliest stipulated rent, nor is any endorsement or
statement on any check or any letter accompanying any check or payment of rent
deemed an acknowledgment of full payment or accord and satisfaction, and
Landlord may accept and cash any check or payment without prejudice to
Landlord's right to recover the balance of the rent due and pursue any other
remedy provided in this Lease.

27.4 Delay. If either party is delayed or hindered in or prevented from the
performance of any term, covenant or act required hereunder by reasons of
strikes, labor troubles, inability to procure materials or services, power
failure, restrictive governmental laws or regulations, riots, insurrection,
sabotage, rebellion, war, act of God, or other reason whether of a like nature
or not that is beyond the control of the party affected, financial inability
excepted, then the performance of that term, covenant or act is excused for the
period of the delay and the party delayed shall be entitled to perform such
term, covenant or act within the appropriate time period after the expiration of
the period of such delay. Nothing in this Article, however, shall excuse Tenant
from the prompt payment of any amount payable under this Lease nor from the
consequences of Tenant Delay as provided in Exhibit C (if attached).

27.5 Lender Notice. In the event of a material default by Landlord of a
sufficiently serious nature that Tenant considers the utility of the Premises to
Tenant to be significantly impaired, Tenant shall give written notice of the
default to Landlord and shall


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simultaneously send a copy of the notice to the holder of any encumbrance, the
name and address of whom has previously been furnished in writing to Tenant. If
Landlord fails to cure the default within a reasonable time, Tenant shall send a
second notice to that effect to the holder of the encumbrance, with a copy to
Landlord, and the holder of the encumbrance then shall have a reasonable time,
not more than sixty days, to cause the default to be remedied, provided,
however, that the default will be considered cured so long as the holder of the
encumbrance commences the remedy or cure within the sixty day period allowed and
diligently prosecutes it to completion.

27.6 No Offer. The submission of this Lease for examination does not constitute
a reservation of an option to lease the Premises, and this Lease becomes
effective as a lease only upon its execution and delivery by Landlord and
Tenant.

27.7 Successors. All rights and liabilities under this Lease extend to and bind
the successors and assigns of Landlord and permitted successors and assigns of
Tenant. No rights, however, shall inure to the benefit of any transferee of the
Tenant unless the transfer has been consented to by the Landlord in writing as
provided in Article 16.1. If there is more than one Tenant, they are all bound
jointly and severally by the terms, covenants and conditions of this Lease.

27.8 Integration. This Lease and the Exhibits hereto attached, set forth all the
covenants, promises, agreements, conditions and understandings between Landlord
and Tenant concerning the Premises and there are no other covenants, promises,
agreements, conditions or understandings, either oral or written, between them.
No alteration, amendment or addition to this Lease shall be binding upon
Landlord or Tenant unless in writing and signed by Tenant and Landlord.

27.9 WAIVER OF JURY TRIAL. IN ANY LITIGATION BETWEEN LANDLORD AND TENANT, THE
MATTER SHALL BE DECIDED BY A JUDGE SITTING WITHOUT A JURY, AND LANDLORD AND
TENANT ACCORDINGLY WAIVE THEIR RIGHT TO A JURY TRIAL.

27.10 Governing Law. This Lease shall be construed in accordance with and
governed by the laws of the State in which the Project is located.

27.11 Deadlines Enforceable. Time is of the essence of this Lease and of every
part hereof.

27.12 Counterparts. This Lease may be executed in counterparts, which together
shall constitute a single instrument.

27.13 Expansion Option: So long as P.F. Chang's China Bistro, Inc. (a) is not in
breach of or in default under the Lease beyond any applicable cure period, (b)
remains the Tenant under the Lease, and (c) has not sublet substantially all of
the Premises, then Tenant shall have the following expansion option for the
addition of up to 5,000 square feet of space on the second floor of the Building
(the "Expansion Space") to the Premises. The exact location of the Expansion
Space on the second floor shall be within Landlord's discretion. To exercise
Tenant's expansion option, Tenant must give notice to Landlord no fewer than 180
days before the end of the third Lease Year of this Lease as to whether Tenant
desires to lease the Expansion Space. If Tenant gives notice that Tenant is
exercising this expansion option and will take the Expansion Space, within 30
days after the date Landlord receives the notice, Landlord and Tenant will enter
into an Amendment of this Lease adding the Expansion Space to the Premises
effective as of the fourth anniversary of the Commencement Date. The Expansion
Space shall be added to the Premises under all the terms and conditions hereof
except that the Base Rent rate for the Expansion Space will be at the greater of
(i) fair market rental value of the Expansion Space or (ii) the then current
Base Rent rate per square foot hereunder. If the parties cannot agree upon the
fair market rental value of the Expansion Space, the procedure set forth in
Article 2.2 above shall be used to determine it. The Amendment shall also adjust
Tenant's Proportionate Share and any other items or figures calculated on the
rentable square footage of the Premises (including, without limitation, the load
factor applied to the Premises, and the number of parking spaces allocated to
the Premises in the proportion of one additional parking space per 1,000 useable
square feet of the Expansion Space) except the Tenant Improvement Allowance,
which, if any, shall be at then-current market rates for the Expansion Space. If
Landlord and Tenant do not, despite diligent good faith efforts, reach agreement
with respect to the Expansion Space pursuant to this Article within 30 days
after Tenant's notice, then Tenant shall be deemed not to have exercised
Tenant's expansion option. If Tenant does not timely give notice to Landlord
that Tenant is exercising the expansion option granted under this Article,
Tenant shall be deemed to have waived its right to exercise the option and
Landlord may lease the Expansion Space as Landlord deems fit.


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TENANT:                                    LANDLORD:

P. F. CHANG'S CHINA BISTRO,                PHXAZ/KIERLAND COMMONS, L.L.C.,
a Delaware corporation                     a Delaware limited liability company

                                           By: Woodbine/Kierland Commons, L.P.,
                                               a Texas limited partnership,
By __________________________                  its general partner
Name ________________________
Title _______________________                        By:  Woodbine Investment
                                                     Corporation, a Texas
Date ________________________                        corporation,
                                                     its general partner

                                                     By ________________________
                                                     Name ______________________
                                                     Title _____________________

                                           Date: _______________________________


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                                    EXHIBIT A

                                  THE PREMISES


                                       19
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                                    EXHIBIT B

                                   THE PROJECT


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                                    EXHIBIT C

                             CONSTRUCTION PROVISIONS

PART ONE - LANDLORD'S WORK (WITHOUT GRID)

In every instance where responsibility is not specifically allocated to Landlord
under the provisions of this exhibit, the responsibility shall be part of the
Tenant Improvements.

1.       Landlord's work shall mean:

     A.  Building Shell

         1.  Foundation Work:   All earthwork to construct the building pads,
                                the concrete foundations and concrete slab on
                                grade.

         2.  Structure:         Steel columns and joist girder frames with steel
                                joist supporting a 5" concrete and steel deck
                                floor system. The maximum allowable uniform load
                                upon any elevated slab shall be 100 PSF.

         3.  Roof:              Three ply built-up roofing with batt insulation
                                (R value 30) attached to the underside of deck.
                                All roof and slab penetrations are to be
                                coordinated by Landlord and per standard detail
                                provided by Landlord. Any and all roofing
                                repairs or penetrations are to be completed by
                                the original roofing subcontractor so as not to
                                void roofing warranty.

         4.  Interior Walls:    The interior surfaces of all exterior walls will
                                be unfinished on the interior with batt
                                insulation (R value 19) and gypsum wall-board
                                screwed to studs. A layer of foam will be
                                attached to outside walls, providing additional
                                insulation.

         5.  Demising Walls:    Landlord shall construct the demising walls, 1/2
                                of the cost of which will be applied to the
                                Tenant Improvement Allowance. The walls shall be
                                constructed with 6" metal studs and track, with
                                sound batt insulation and 5/8X gypsum board
                                screwed to studs; both sides; to underside of
                                structure; minimum fire taped and fire caulked.
                                All penetrations shall be properly sealed and a
                                1-hour fire rating maintained.

         6.  Interior Floor:    Smooth, hard troweled, concrete floor; floor
                                covering by Tenant.

         7.  Mechanical:        The HVAC system will consist of roof mounted
                                heat pumps placed on roof curbs ducted through
                                the roof with primary distribution only. Linear
                                diffusers or special supply/exhaust requirements
                                are by Tenant. The size and capacity of the heat
                                pumps shall be based on peak heating and peak
                                cooling loads for the premises. Cooling shall be
                                provided at approximately one ton per 250 square
                                feet utilizing one or multiple units at
                                Landlord's election. A thermostat with manual
                                control will be provided for each unit. The
                                thermostat will be located within the Premises.

         8.  Plumbing:

             a.  Water:         A 1" cold water supply line, with shutoff valve,
                                will be provided to the Premises. Connection to
                                the supply line will be Tenant's responsibility.

             b.  Sewer:         A sanitary sewer line shall be installed as
                                shown on Owner's plans. Tenant shall be
                                responsible for the tie-in to the existing sewer
                                line. Tenant shall provide clean outs and roof
                                vents and building standard roof penetrations as
                                required. Tenants are also responsible for any
                                grease traps or other similar systems.


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         9.  Fire Protection:   The fire protection system shall be installed
                                throughout the building shell conforming to the
                                NFPA standards and all code requirements.

                                Piping for finished interior space shall be
                                above the finished ceiling with semi-recessed
                                heads using chrome finished escutcheons.
                                Modifications to the fire protection system to
                                accommodate the Tenant improvement shall be the
                                responsibility of the Tenant.

         10. Electrical:        Electrical service will be provided to the
                                service entry section of each building. The
                                Service Entrance Section will provide for a
                                meter for each Tenant.

             a.                 Electrical conduits are provided from the SES to
                                the electrical room.

             b.                 All exterior lighting will be circuited to the
                                house panel and controlled by time clocks.

         11. Telephone:         (1) 2" telephone conduit w/ pull string shall be
                                stubbed-up through the concrete slab-on-grade or
                                sleeved into the electrical room to a telephone
                                mounting board. A plywood mounting board will be
                                located within the electrical room. Dedicated
                                electrical power for telephone equipment
                                transformers will be provided adjacent to the
                                telephone mounting board. Tenant shall provide
                                for installation of telephone wiring to the
                                suite from the MPOP or telephone equipment room
                                and all telephone distribution throughout the
                                suite.

     B.  Other Provisions:

         1.    Upon completion of Landlord's Work and prior to commencement of
               the Tenant Improvements Work, Landlord and Tenant shall conduct a
               "walk-thru" to establish a written punch list and date of
               turnover of the premises.

         2.    Nothing contained in Landlord's Work shall render Landlord liable
               for compliance with the ADA to the extent that Tenant is required
               to comply with the ADA as provided in this Lease or under
               applicable laws.

               3. The above descriptions are based upon the Plans and
               Specifications for Kierland Commons produced by Nelsen Architects
               Inc., dated 11-16-98 and permitted by The City of Phoenix,
               Department of Building Safety, excluding secondary HVAC
               distribution, ceiling grid and tiles and lighting.

PART TWO - TENANT IMPROVEMENTS

1. Preliminary Space Plan. Within 30 days after execution of this Lease, a
preliminary space plan approved by Landlord and Tenant showing the size, nature
and location of the improvements to be constructed in the Premises (the
"Improvements"), shall be prepared. Promptly following execution of this Lease,
Tenant shall meet with Landlord's architect and shall provide such information
and make such selections as may be necessary for the expeditious completion of
the planning process.

2. Working Drawings. Based upon the preliminary space plan and the information
provided and selections made by Tenant, Landlord shall cause working drawings
and specifications (collectively, the "Plans") to be prepared for the
Improvements. The Plans shall be subject to Tenant's reasonable approval. Tenant
shall respond with all of its specific objections or comments to the proposed
Plans within ten days after receipt, and the Plans shall be modified to satisfy
any reasonable objection of Tenant. Tenant shall promptly give its written
approval of the revised Plans or indicate specific changes required to be made.

3. Cooperation. During the entire course of the process described above, both
Landlord and Tenant shall review and respond to submissions by the other party
with reasonable dispatch. Tenant shall respond with its approval or comments
within ten days after receipt of initial drawings, specifications, or other
materials requiring Tenant's review and within ten days after receipt of revised
versions of such documents or materials. From time to time at the request of
either party Landlord and Tenant shall devise, and revise as necessary, working
schedules for the preparation of the Plans and the construction of the
Improvements. Tenant shall not permit any supplier, installer, contractor, or
other person employed by Tenant to interfere in any way with the progress of the
work. Access by Tenant's suppliers, contractors and installers shall be subject
to (i) scheduling by Landlord upon at least ten days' prior notice by Tenant,
and (ii) compliance with all requirements imposed by Landlord with respect to
insurance, cooperation, permits, licenses, bonding, hours of work, safety and
use of flammable substances. The Improvements will be constructed by Landlord's
contractor.


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4. Redesign Option. If after the Plans are completed and Landlord's contractor
has submitted a price for the work, the estimated Costs of Construction exceed
the Tenant Improvement Allowance, Tenant may elect within three days after
receipt of the cost estimate to attempt to reduce the associated cost by
reducing the scope of the work to be done. The changes, which shall be subject
to Landlord's prior approval, shall be incorporated in revised Plans. Any
redesign and rebidding shall be completed within seven days after receipt of the
initial cost estimate.

5. Cost. Tenant shall pay to Landlord within 10 days after invoice the amount,
if any, by which the estimated Costs of Construction exceed the Tenant
Improvement Allowance as set forth in Article 1.18. Landlord shall prepare and
deliver the statement within a reasonable time after completion of punchlist
items. "Costs of construction" of the Improvements as used in this Article means
all costs and expenses incurred to design and build the improvements, including,
without limitation, permit and inspection fees, management and supervision fees,
taxes, amounts paid to contractors, subcontractors, and suppliers, architects'
fees, engineering costs, premiums for bonds and insurance, utilities, equipment
rental, labor, materials, and supplies.

6. Punchlist. Within thirty days after taking possession of the Premises, Tenant
shall deliver to Landlord a written punchlist specifying all patent defects in
materials or workmanship in the Improvements. Any defects not specified in the
punchlist, except latent defects not readily discoverable by inspection, are
waived. Landlord shall promptly cause all matters appearing on the punchlist to
be corrected.

7. Delay. If completion of construction of improvements within the Premises or
delivery of possession of the Premises is delayed by Tenant Delay, then the
Commencement Date shall be deemed to have occurred and rent shall begin to
accrue as of the date when they would have done so but for the Tenant Delay.
"Tenant Delay" means delay as a result of: (a) Tenant's failure to meet with the
architect and to provide all required information and make necessary selections
for the expeditious development of Plans; (b) Tenant's failure to provide
comments on proposed Plans in a timely manner; or (c) performance or completion
by a party employed by Tenant. Landlord shall not be liable for any direct or
consequential damages resulting from delayed delivery of the Premises (by reason
of delayed construction, failure or refusal of a prior tenant of the space to
vacate the Premises in accordance with its lease, or otherwise) except as set
forth in Section 2.1 of the Lease.


                                       23
   24
                                    EXHIBIT D

                              RULES AND REGULATIONS

1.   The sidewalks, passages, exits, entrances, and, except as otherwise
     approved by Landlord, the common areas, shall not be obstructed by Tenants
     or used by them for any purpose other than for ingress and egress from
     their respective Premises.

2.   Tenants shall provide Landlord or Landlord's property manager with copies
     of keys for any locks or bolts on any doors or windows of the Premises.

3.   The toilet rooms, urinals, washbowls and other apparatus within the
     Premises, the Building and the Project shall not be used for any purpose
     other than that for which they were constructed and no foreign substance of
     any kind whatsoever shall be thrown therein. The expense of any breakage,
     stoppage, or damage to common utility facilities resulting from the
     violation of this rule shall be borne by the Tenant who, or whose employees
     or invitees, caused it.

4.   No animals or birds shall be brought in or kept in or about the Premises or
     the Building unless the animals or birds pertain to Tenant's business as
     described in the Lease or are handicap assistance animals.

5.   Tenant shall not use or keep in the Premises or the Building any kerosene,
     gasoline, or flammable or combustible fluid or material or use any method
     of heating or cooling other than that supplied by the Landlord unless,
     within reason, the product is available as part of the Tenant's business.

6.   In case of invasion, mob, riot, public excitement or other commotion, the
     Landlord reserves the right to prevent access to the Project or any portion
     thereof during the continuance of the same by blocking of driveways or by
     any other reasonable means, for the safety of the Tenants and protection of
     the property in the Project.

7.   Landlord reserves the right to exclude or expel from the Building or the
     Project any person who, in the judgment of Landlord, is intoxicated or
     under the influence of liquor or drugs, or who shall in any manner do any
     act in violation of any of the rules and regulations of the Project.

8.   No vending machine, except those inside the Premises for the exclusive use
     of Tenant's employees, shall be installed, maintained or operated in the
     Building or the Project without the written consent of Landlord.

9.   Tenants shall not disturb, solicit, or canvass any occupant of the Building
     or the Project and shall cooperate to prevent such solicitation or
     canvassing.

10.  All garbage and refuse shall be placed in containers placed at the location
     designated for refuse collection, in the manner specified by Landlord.
     Refuse containers shall not be moved from the enclosure to any other area.
     All boxes must be broken down before being placed in the refuse containers.
     All packing material and food waste shall be placed in plastic bags and
     secured at the top before being placed in refuse containers. No trash,
     garbage, or construction debris or materials shall be brought into the
     Project from other locations or disposed of in refuse containers provided
     for the Project.

11.  Tenants shall not park on Main Street and shall prevent their employees and
     contractors from parking on Main Street.


                                       24
   25
                                  OFFICE LEASE

                                 BY AND BETWEEN

                         PHXAZ/KIERLAND COMMONS, L.L.C.,
                      A DELAWARE LIMITED LIABILITY COMPANY

                                    LANDLORD

                                       AND

                        P. F. CHANG'S CHINA BISTRO, INC.,
                             A DELAWARE CORPORATION,

                                     TENANT

                         DATED: SEPTEMBER _______, 1999
   26
                                TABLE OF CONTENTS



                                                                            PAGE
                                                                         
ARTICLE 1 SUMMARY OF BASIC TERMS ..........................................    1
ARTICLE 2 DELIVERY, TERM AND CONSTRUCTION .................................    2

         2.1. Term ........................................................    2
         2.2 Renewals .....................................................    2
         2.3 Memorandum ...................................................    2
         2.4 Area Measurement .............................................    2
         2.5 Condition ....................................................    2

ARTICLE 3 USE OF PREMISES .................................................    2

         3.1 Permitted Uses ...............................................    2
         3.2 Insurance Restrictions .......................................    2
         3.3 Improvements .................................................    2
         3.4 Prohibitions .................................................    2
         3.5 Common Areas .................................................    3
         3.6 Parking ......................................................    3
         3.7.CC&R's, Rules and Regulations ................................    3
         3.8 Compliance with Law ..........................................    3
         3.9 Environmental ................................................    3
         3.10 Audit .......................................................    4

ARTICLE 4 SECURITY DEPOSIT AND GUARANTIES .................................    4
ARTICLE 5 RENT ............................................................    4

         5.1 Base Rent ....................................................    4
         5.2 Late Charges and Interest ....................................    4
         5.3 Excise Taxes .................................................    4
         5.4 Obligations Are Rent .........................................    4
         5.5 Proration ....................................................    4

ARTICLE 6 OPERATING COSTS .................................................    5

         6.1 Tenant's Share ...............................................    5
         6.2 Estimates ....................................................    5
         6.3 Annual Reconciliation ........................................    5
         6.4 Partial Year Proration; Variable Cost Adjustment .............    5
         6.5. "Operating Costs" ...........................................    5
         6.6 Exclusions ...................................................    6

ARTICLE 7 TAXES ...........................................................    6
ARTICLE 8 INSURANCE AND INDEMNITY .........................................    6

         8.1 Insurance Policies ...........................................    6
         8.2 Policy Requirements ..........................................    7
         8.3 Evidence of Coverage .........................................    7
         8.4 Indemnity and Exculpation ....................................    7
         8.5 Landlord's Policies ..........................................    7

ARTICLE 9 FIRE AND CASUALTY ...............................................    7

         9.1 Termination Rights ...........................................    7
         9.2 Restoration ..................................................    7
         9.3 Abatement ....................................................    8
         9.4 Demolition of Project ........................................    8
         9.5 Agreed Remedies ..............................................    8

ARTICLE 10 CONDEMNATION ...................................................    8

         10.1 Automatic Termination .......................................    8
         10.2 Optional Termination ........................................    8



                                     - i -
   27
                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                            PAGE
                                                                         
         10.3 Award .......................................................    8

ARTICLE 11 MAINTENANCE ....................................................    8

         11.1 By Tenant ...................................................    8
         11.2 By Landlord .................................................    8

ARTICLE 12 UTILITIES ......................................................    9
ARTICLE 13 LANDLORD RIGHT OF ENTRY ........................................    9
ARTICLE 14 SIGNS ..........................................................    9
ARTICLE 15 TENANT ALTERATIONS .............................................    9

         15.1 Tenant Alterations ..........................................    9
         15.2 Tenant Installations ........................................   10
         15.3 Mechanics Liens .............................................   10

ARTICLE 16 ASSIGNMENT AND SUBLETTING ......................................   10

         16.1 Consent Required ............................................   10
         16.2 Requests for Approval .......................................   10
         16.3. Continued Responsibility ...................................   10
         16.4 Excess Proceeds .............................................   10
         16.5 Limitations .................................................   10
         16.6 No Waiver ...................................................   10
         16.7 Transfer by Landlord ........................................   10

ARTICLE 17 SUBORDINATION AND ATTORNMENT ...................................   11

         17.1 Subordination ...............................................   11
         17.2 Lender Protection ...........................................   11
         17.3 Documentation ...............................................   11
         17.4 Other Transactions ..........................................   11

ARTICLE 18 ESTOPPEL CERTIFICATES ..........................................   11

ARTICLE 19 QUIET ENJOYMENT ................................................   11

ARTICLE 20 SURRENDER AND HOLDOVER .........................................   11

         20.1 Surrender ...................................................   11
         20.2 Holdover ....................................................   12

ARTICLE 21 BREACH, DEFAULT, AND REMEDIES ..................................   12

         21.1 Default .....................................................   12
         21.2 Remedies ....................................................   12

ARTICLE 22 LANDLORD LIABILITY .............................................   13
ARTICLE 23 NOTICES ........................................................   13
ARTICLE 24 BROKERAGE ......................................................   13
ARTICLE 25 RELOCATION .....................................................   13
ARTICLE 26 RIGHTS RESERVED BY LANDLORD ....................................   13

         26.1. Access .....................................................   14
         26.2. Use ........................................................   14
         26.3. Restriction of Access ......................................   14
         26.4. Other Tenants ..............................................   14
         26.5. Changes ....................................................   14
         26.6. Limitations ................................................   14

ARTICLE 27 GENERAL ........................................................   14



                                     - ii -
   28
                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                            PAGE
                                                                         
         27.1 Severability ................................................   14
         27.2 No Waiver ...................................................   14
         27.3 Effect of Payment ...........................................   14
         27.4 Delay .......................................................   15
         27.5 Lender Notice ...............................................   15
         27.6 No Offer ....................................................   15
         27.7 Successors ..................................................   15
         27.8 Integration .................................................   15
         27.9 WAIVER OF JURY TRIAL ........................................   15
         27.10 Governing Law ..............................................   15
         27.11 Deadlines Enforceable ......................................   15
         27.12 Counterparts ...............................................   15
         27.13 Expansion ..................................................   15



                                    - iii -

EX-10.12

   1
                                                                   Exhibit 10.12


                                CREDIT AGREEMENT



                                  by and among



                        P.F. CHANG'S CHINA BISTRO, INC.,
                                  as Borrower,


                             BANK OF AMERICA, N.A.,
                             as Agent and as Lender

                                       and

                   THE LENDERS PARTY HERETO FROM TIME TO TIME



                                December 3, 1999


                         BANK OF AMERICA SECURITIES LLC,
                   as Sole Lead Arranger and Sole Book Manager
   2
                                TABLE OF CONTENTS

                                                                            Page


                                    ARTICLE I

                              Definitions and Terms

1.1.         Definitions...................................................   2
1.2.         Rules of Interpretation.......................................  25

                                   ARTICLE II

                              The Credit Facilities

2.1.         Loans.........................................................  27
2.2.         Use of Proceeds...............................................  29
2.3.         Notes.........................................................  30

                                   ARTICLE III

                                Letters of Credit

3.1.         Letters of Credit.............................................  31
3.2.         Reimbursement and Participations..............................  31

                                   ARTICLE IV

                   Loan Funding, Fees, and Payment Conventions

4.1          Interest Rate Options.........................................  35
4.2          Conversions and Elections of Subsequent Interest Periods......  35
4.3          Payment of Interest...........................................  36
4.4          Prepayments of Eurodollar Rate Loans..........................  36
4.5          Manner of Payment.............................................  36
4.6          Fees..........................................................  37
4.7          Pro Rata Payments.............................................  37
4.8          Computation of Rates and Fees.................................  38
4.9          Deficiency Advances; Failure to Purchase Participations.......  38
4.10         Intraday Funding..............................................  38
   3
                                    ARTICLE V

                                    Security

5.1.         Security......................................................  40
5.2.         Further Assurances............................................  40
5.3.         Information Regarding Collateral..............................  41

                                   ARTICLE VI

                             Change in Circumstances

6.1.         Increased Cost and Reduced Return.............................  42
6.2.         Limitation on Types of Loans..................................  43
6.3.         Illegality....................................................  43
6.4.         Treatment of Affected Loans...................................  44
6.5.         Compensation..................................................  44
6.6.         Taxes.........................................................  45

                                   ARTICLE VII

            Conditions to Making Loans and Issuing Letters of Credit

7.1.         Conditions of Initial Advance.................................  47
7.2.         Conditions of Loans and Letter of Credit......................  49

                                  ARTICLE VIII

                         Representations and Warranties

8.1.         Organization and Authority....................................  51
8.2.         Loan Documents................................................  51
8.3.         Solvency......................................................  52
8.4.         Subsidiaries and Stockholders.................................  52
8.5.         Ownership Interests...........................................  52
8.6.         Financial Condition...........................................  52
8.7.         Title to Properties...........................................  53
8.8.         Taxes.........................................................  53
8.9.         Other Agreements..............................................  53
8.10.        Litigation....................................................  54
8.11.        Margin Stock..................................................  54
8.12.        Investment Company............................................  54
8.13.        Intellectual Property.........................................  54
8.14.        No Untrue Statement...........................................  54
8.15.        No Consents, Etc. ............................................  55


                                       ii
   4
8.16.        Employee Benefit Plans........................................  55
8.17.        No Default....................................................  56
8.18.        Environmental Laws............................................  56
8.19.        Employment Matters............................................  56
8.20.        RICO..........................................................  57
8.21.        Year 2000 Compliance..........................................  57
8.22.        Operating Facilities..........................................  57

                                   ARTICLE IX

                              Affirmative Covenants

9.1.         Financial Reports, Etc. ......................................  58
9.2.         Maintain Properties...........................................  59
9.3.         Existence, Qualification, Etc. ...............................  59
9.4.         Regulations and Taxes.........................................  59
9.5.         Insurance.....................................................  60
9.6.         True Books....................................................  60
9.7.         Year 2000 Compliance..........................................  60
9.8.         Right of Inspection...........................................  60
9.9.         Observe all Laws..............................................  60
9.10.        Governmental Licenses.........................................  60
9.11.        Covenants Extending to Other Persons..........................  61
9.12.        Officer's Knowledge of Default................................  61
9.13.        Suits or Other Proceedings....................................  61
9.14.        Notice of Environmental Complaint or Condition................  61
9.15.        Environmental Compliance......................................  61
9.16.        Indemnification...............................................  61
9.17.        Further Assurances............................................  62
9.18.        Employee Benefit Plans........................................  62
9.19.        Continued Operations..........................................  63
9.20.        New Subsidiaries..............................................  63
9.21.        Post-Closing Mortgages........................................  66
9.22.        Certain Notices...............................................  66
9.23.        New Restaurants...............................................  67

                                    ARTICLE X

                               Negative Covenants

10.1.        Financial Covenants...........................................  68
10.2.        Acquisitions..................................................  68
10.3.        Capital Expenditures..........................................  68
10.4.        Liens.........................................................  68
10.5.        Indebtedness..................................................  69


                                       iii
   5
10.6.        Transfer of Assets............................................  70
10.7.        Investments...................................................  71
10.8.        Merger or Consolidation.......................................  71
10.9.        Restricted Payments...........................................  71
10.10.       Transactions with Affiliates..................................  71
10.11.       Compliance with ERISA, the Code and Foreign Benefit Laws......  72
10.12.       Fiscal Year...................................................  72
10.13.       Dissolution, etc..............................................  73
10.14.       Limitations on Sales and Leasebacks...........................  73
10.15.       Change in Control.............................................  73
10.16.       Rate Hedging Obligations......................................  73
10.17.       Negative Pledge Clauses.......................................  73
10.18.       Prepayments, Etc. of Indebtedness.............................  73
10.19.       Amendments to Operating Agreements............................  73

                                   ARTICLE XI

                       Events of Default and Acceleration

11.1.        Events of Default.............................................  74
11.2.        Agent to Act..................................................  77
11.3.        Cumulative Rights.............................................  77
11.4.        No Waiver.....................................................  77
11.5.        Allocation of Proceeds........................................  78

                                   ARTICLE XII

                                    The Agent

12.1.        Appointment, Powers, and Immunities...........................  79
12.2.        Reliance by Agent.............................................  79
12.3.        Defaults......................................................  80
12.4.        Rights as Lender..............................................  80
12.5.        Indemnification...............................................  80
12.6.        Non-Reliance on Agent and Other Lenders.......................  81
12.7.        Resignation of Agent..........................................  81
12.8.        Sole Lender...................................................  81


                                       iv
   6

                                  ARTICLE XIII


13.1.        Assignments and Participations................................  82
13.2.        Notices.......................................................  83
13.3.        Right of Set-off; Adjustments.................................  85
13.4.        Survival......................................................  85
13.5.        Expenses......................................................  85
13.6.        Amendments and Waivers........................................  86
13.7.        Counterparts..................................................  86
13.8.        Termination...................................................  86
13.9.        Indemnification; Limitation of Liability......................  87
13.10.       Severability..................................................  87
13.11.       Entire Agreement..............................................  88
13.12.       Agreement Controls............................................  88
13.13.       Usury Savings Clause..........................................  88
13.14.       Payments......................................................  88
13.15.       GOVERNING LAW; WAIVER OF JURY TRIAL...........................  89
13.16.       CONFIDENTIALITY ..............................................  90

EXHIBIT A         Applicable Commitment Percentages......................    A-1
EXHIBIT B         Form of Assignment and Acceptance......................    B-1
EXHIBIT C         Notice of Appointment (or Revocation) of Authorized
                  Representative.........................................    C-1
EXHIBIT D         Form of Borrowing Notice...............................    D-1
EXHIBIT E         Form of Interest Rate Selection Notice.................    E-1
EXHIBIT F         Form of Note...........................................    F-1
EXHIBIT G         Form of Opinion of Borrower's Counsel..................    G-1
EXHIBIT H         Compliance Certificate.................................    H-1
EXHIBIT I         Form of Facility Guaranty..............................    I-1
EXHIBIT J         Form of Security Agreement.............................    J-1
EXHIBIT K         Form of Pledge Agreement ..............................    K-1
EXHIBIT L         Form of LC Account Agreement...........................    L-1

Schedule 5.3      Information Regarding Collateral.......................    S-1
Schedule 5.4(b)   Leased Properties to be Mortgaged......................    S-2
Schedule 8.4      Subsidiaries and Investments in Other Persons..........    S-3
Schedule 8.6      Indebtedness...........................................    S-4
Schedule 8.7      Liens..................................................    S-5
Schedule 8.8      Tax Matters............................................    S-6
Schedule 8.10     Litigation.............................................    S-7
Schedule 8.22     Operating Facilities...................................    S-8


                                        v
   7
                                CREDIT AGREEMENT


         THIS CREDIT AGREEMENT, dated as of December 3, 1999 (the "Agreement"),
is made by and among P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation
having its principal place of business in Phoenix, Arizona (the "Borrower"),
BANK OF AMERICA, N.A., a national banking association organized and existing
under the laws of the United States, in its capacity as a Lender ("Bank of
America"), and each other financial institution executing and delivering a
signature page hereto and each other financial institution which may hereafter
execute and deliver an instrument of assignment with respect to this Agreement
pursuant to Section 13.1 (hereinafter such financial institutions may be
referred to individually as a "Lender" or collectively as the "Lenders"), and
BANK OF AMERICA, N.A., a national banking association organized and existing
under the laws of the United States, in its capacity as agent for the Lenders
(in such capacity, and together with any successor agent appointed in accordance
with the terms of Section 12.7, the "Agent");

                              W I T N E S S E T H:

         WHEREAS, the Borrower has requested that the Lenders make available to
the Borrower a revolving credit facility of up to $15,000,000, the proceeds of
which are to be used for general corporate purposes and which shall include a
letter of credit facility of up to $2,000,000 for the issuance of standby
letters of credit; and

         WHEREAS, the Lenders are willing to make such revolving credit and
letter of credit facilities available to the Borrower upon the terms and
conditions set forth herein;

         NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as
follows:


                                        1
   8
                                    ARTICLE I

                              Definitions and Terms

         1.1. Definitions. For the purposes of this Agreement, in addition to
the definitions set forth above, the following terms shall have the respective
meanings set forth below:

                  "Acquisition" means the acquisition of (i) a Controlling
         equity interest in another Person (including the purchase of an option,
         warrant or convertible or similar type security to acquire such a
         controlling interest at the time it becomes exercisable by the holder
         thereof), whether by purchase of such equity interest or upon exercise
         of an option or warrant for, or conversion of securities into, such
         equity interest, or (ii) assets of another Person which constitute all
         or any material part of the assets of such Person or of a line or lines
         of business conducted by such Person; provided, however, that the
         repurchase of the Management Securities of chefs, managers and/or
         regional managers shall not constitute Acquisitions hereunder.

                  "Advance" means a borrowing under the Revolving Credit
         Facility consisting of a Base Rate Loan or a Eurodollar Rate Loan.

                  "Affiliate" means any Person (i) which directly or indirectly
         through one or more intermediaries Controls, or is Controlled by, or is
         under common Control with the Borrower; or (ii) which beneficially owns
         or holds 10% or more of any class of the outstanding voting stock (or
         in the case of a Person which is not a corporation, 10% or more of the
         equity interest) of the Borrower; or 10% or more of any class of the
         outstanding voting stock (or in the case of a Person which is not a
         corporation, 10% or more of the equity interest) of which is
         beneficially owned or held by the Borrower.

                  "Allowable Distributions" means (a) distributions to the
         Borrower or holders of Management Securities issued by partnership or
         limited liability company Subsidiaries of the Borrower (each, a
         "Reporting Entity") on or about 15 days prior to the due date for any
         tax return (including quarterly tax estimates) for each fiscal year in
         amounts sufficient to enable each such holder to discharge any Federal,
         state and local income tax liability of such minority investor arising
         as a result of the operations of the Reporting Entity in which it owns
         such minority interest, determined by assuming the applicability to
         each minority investor of the highest combined effective marginal
         Federal, state and local income tax rates; provided that if any
         Reporting Entity is not a partnership or a limited liability company
         classified for taxation purposes as a "partnership" within the meaning
         of the Code as of the last day of such fiscal year, then Allowable
         Distributions attributable to the operations of such Reporting Entity
         during such fiscal year shall be equal to zero and (b) distributions to
         the Borrower or holders of Management Securities issued by a Reporting
         Entity representing the distribution of Net Cash Flow (as defined in
         the Operating Agreement) to the holders of Management Securities in
         accordance with the Operating Agreement of such Reporting Entity.


                                        2
   9
                  "Applicable Commitment Fee" means that percent per annum set
         forth below, which shall be based upon the Consolidated Leverage Ratio
         for the Four-Quarter Period most recently ended as specified below:



                                                                      Applicable
                           Consolidated Leverage                      Commitment
                  Tier            Ratio                                  Fee
                                                                
                  I        Greater than or equal to 1.00 to 1.00         .50%

                  II       Less than 1.00 to 1.00                       .375%


         The Applicable Commitment Fee shall be established at each
         Determination Date. Any change in the Applicable Commitment Fee
         following each Determination Date shall be determined based upon the
         computations set forth in the certificate furnished to the Agent
         pursuant to Section 9.1(a)(ii) and Section 9.1(b)(ii), subject to
         review and approval of such computations by the Agent and shall be
         effective commencing on the fifth Business Day following the date such
         certificate is received until the fifth Business Day following the date
         on which a new certificate is delivered or is required to be delivered,
         whichever shall first occur; provided however, if the Borrower shall
         fail to deliver any such certificate within the time period required by
         Section 9.1, then the Applicable Commitment Fee shall be Tier I from
         the date such certificate was due until the appropriate certificate is
         so delivered. From the Closing Date to the first Determination Date,
         the Applicable Commitment Fee shall be Tier II.

                  "Applicable Commitment Percentage" means, for each Lender at
         any time, a fraction, with respect to the Revolving Credit Facility and
         the Letter of Credit Facility, the numerator of which shall be such
         Lender's Revolving Credit Commitment and the denominator of which shall
         be the Total Revolving Credit Commitment, which Applicable Commitment
         Percentage for each Lender as of the Closing Date is as set forth in
         Exhibit A; provided that the Applicable Commitment Percentage of each
         Lender shall be increased or decreased to reflect any assignments to or
         by such Lender effected in accordance with Section 13.1.

                  "Applicable Lending Office" means, for each Lender and for
         each Type of Loan, the "Lending Office" of such Lender (or of an
         affiliate of such Lender) designated for such Type of Loan on the
         signature pages hereof or such other office of such Lender (or an
         affiliate of such Lender) as such Lender may from time to time specify
         to the Agent and the Borrower by written notice in accordance with the
         terms hereof as the office by which its Loans of such Type are to be
         made and maintained.

                  "Applicable Margin" means that percent per annum set forth
         below, which shall be based upon the Consolidated Leverage Ratio for
         the Four-Quarter Period most recently ended as specified below:


                                        3
   10


                                                        Applicable
                                                           Margin
                                                        ----------
                Consolidated Leverage            Base                 Eurodollar
         Tier          Ratio                     Rate                    Rate
         ----   ----------------------------    -----                 ----------
                                                          
         I      Greater than or equal to        1.50%                   2.25%
                1.50 to 1.00

         II     Less than 1.50 to 1.00
                but greater than or equal to
                1.00 to 1.00                    1.00%                   1.875%

         III    Less than 1.00 to 1.00          0.50%                   1.50%


         The Applicable Margin shall be established at the end of each fiscal
         quarter of the Borrower (each, a "Determination Date"). Any change in
         the Applicable Margin following each Determination Date shall be
         determined based upon the computations set forth in the certificate
         furnished to the Agent pursuant to Section 9.1(a)(ii) and Section
         9.1(b)(ii), subject to review and approval of such computations by the
         Agent, and shall be effective commencing on the fifth Business Day
         following the date such certificate is received until the fifth
         Business Day following the date on which a new certificate is delivered
         or is required to be delivered, whichever shall first occur; provided
         however, if the Borrower shall fail to deliver any such certificate
         within the time period required by Section 9.1, then the Applicable
         Margin shall be Tier I for Base Rate Loans and for Eurodollar Rate
         Loans from the date such certificate was due until the appropriate
         certificate is so delivered. From the Closing Date to the first
         Determination Date, the Applicable Margin shall be Tier III for Base
         Rate Loans and Tier III for Eurodollar Rate Loans.

                  "Applications and Agreements for Letters of Credit" means,
         collectively, the Applications and Agreements for Letters of Credit, or
         similar documentation, executed by the Borrower from time to time and
         delivered to the Issuing Bank to support the issuance of Letters of
         Credit.

                  "Asset Disposition" means any voluntary disposition, whether
         by sale, lease or transfer, of (a) any of the assets, excluding cash
         and cash equivalents, of the Borrower or its Subsidiaries, and (b) any
         of the capital stock, or securities or investments exchangeable,
         exercisable or convertible for or into, or otherwise entitling the
         holder to receive any of the capital stock, of any Subsidiary (other
         than a disposition to a Guarantor).

                  "Assignment and Acceptance" shall mean an Assignment and
         Acceptance in the form of Exhibit B (with blanks appropriately filled
         in) delivered to the Agent in connection with an assignment of a
         Lender's interest under this Agreement pursuant to Section 13.1.

                  "Assignment of Trademarks" means, collectively (or
         individually as the context may indicate) (i) the Assignment of
         Trademarks dated as of the date hereof by the

                                       4
   11
         Borrower to the Agent, substantially in the form of Exhibit L, and (ii)
         any additional Assignment of Trademarks delivered to the Agent pursuant
         to Section 9.20, as hereafter amended, supplemented or replaced from
         time to time.

                  "Authorized Representative" means any of the President or any
         Vice President of the Borrower or, with respect to financial matters,
         the chief financial officer of the Borrower, or any other Person
         expressly designated by the Board of Directors of the Borrower (or the
         appropriate committee thereof) as an Authorized Representative of the
         Borrower, as set forth from time to time in a certificate in the form
         of Exhibit C.

                  "Bank of America" means Bank of America, N.A.

                  "BAS" means Banc of America Securities LLC and its successors.

                  "Base Rate" means, for any day, the rate per annum equal to
         the sum of (a) the higher of (i) the Federal Funds Rate for such day
         plus one-half of one percent (0.5%) and (ii) the Prime Rate for such
         day plus (b) the Applicable Margin. Any change in the Base Rate due to
         a change in the Prime Rate or the Federal Funds Rate shall be effective
         on the effective date of such change in the Prime Rate or Federal Funds
         Rate.

                  "Base Rate Loan" means a Loan for which the rate of interest
         is determined by reference to the Base Rate.

                  "Base Rate Refunding Loan" means a Base Rate Loan made to
         satisfy Reimbursement Obligations arising from a drawing under a Letter
         of Credit.

                  "Board" means the Board of Governors of the Federal Reserve
         System (or any successor body).

                  "Borrower's Account" means a demand deposit account number
         3751410250 or any successor account with the Agent, which may be
         maintained at one or more offices of the Agent or an agent of the
         Agent.

                  "Borrowing Notice" means the notice delivered by an Authorized
         Representative in connection with an Advance under the Revolving Credit
         Facility in the form of Exhibit D.

                  "Business Day" means, (i) except as expressly provided in
         clause (ii), any day which is not a Saturday, Sunday or a day on which
         banks in the States of Arizona, New York and North Carolina are
         authorized or obligated by law, executive order or governmental decree
         to be closed and, (ii) with respect to the selection, funding, interest
         rate, payment, and Interest Period of any Eurodollar Rate Loan, any day
         which is a Business Day, as described above, and on which the relevant
         international financial markets are open for the transaction of
         business contemplated by this Agreement in


                                       5
   12
         Phoenix, Arizona, London, England, New York, New York and Charlotte,
         North Carolina.

                  "Capital Expenditures" means, with respect to the Borrower and
         its Subsidiaries, for any period the sum of (without duplication) (i)
         all expenditures (whether paid in cash or accrued as liabilities) by
         the Borrower or any Subsidiary during such period for items that would
         be classified as "property, plant or equipment" or comparable items on
         the consolidated balance sheet of the Borrower and its Subsidiaries,
         including without limitation all transactional costs incurred in
         connection with such expenditures provided the same have been
         capitalized, excluding, however, the amount of any Capital Expenditures
         paid for with proceeds of casualty insurance as evidenced in writing
         and submitted to the Agent together with any compliance certificate
         delivered pursuant to Section 9.1(a) or (b), and (ii) with respect to
         any Capital Lease entered into by the Borrower or its Subsidiaries
         during such period, the present value of the lease payments due under
         such Capital Lease over the term of such Capital Lease applying a
         discount rate equal to the interest rate provided in such lease (or in
         the absence of a stated interest rate, that rate used in the
         preparation of the financial statements described in Section 9.1(a)),
         all the foregoing in accordance with GAAP applied on a Consistent
         Basis.

                  "Capital Leases" means all leases which have been or should be
         capitalized in accordance with GAAP as in effect from time to time
         including Statement No. 13 of the Financial Accounting Standards Board
         and any successor thereof.

                  "Change of Control" means, at any time:

                           (i) any "person" or "group" (each as used in Sections
                  13(d)(3) and 14(d)(2) of the Exchange Act) either (A) becomes
                  the "beneficial owner" (as defined in Rule 13d-3 of the
                  Exchange Act ), directly or indirectly, of Voting Securities
                  of the Borrower (or securities convertible into or
                  exchangeable for such Voting Securities) representing 33-1/3%
                  or more of the combined voting power of all Voting Securities
                  of the Borrower (on a fully diluted basis) or (B) otherwise
                  has the ability, directly or indirectly, to elect a majority
                  of the board of directors of the Borrower; or

                           (ii) any Person or two or more Persons acting in
                  concert shall have acquired by contract or otherwise, or shall
                  have entered into a contract or arrangement that, upon
                  consummation thereof, will result in its or their acquisition
                  of the power to exercise, directly or indirectly, a
                  controlling influence on the management or policies of the
                  Borrower.

                  "Closing Date" means the date as of which this Agreement is
         executed by the Borrower, the Lenders and the Agent and on which the
         conditions set forth in Section 7.1 have been satisfied.



                                       6
   13
                  "Code" means the Internal Revenue Code of 1986, as amended,
         and any regulations promulgated thereunder.

                  "Collateral" means, collectively, all property of the
         Borrower, any Subsidiary or any other Person in which the Agent or any
         Lender is granted a Lien as security for all or any portion of the
         Obligations under any Security Instrument.

                  "Consistent Basis" in reference to the application of GAAP
         means the accounting principles observed in the period referred to are
         comparable in all material respects to those applied in the preparation
         of the audited financial statements of the Borrower referred to as of
         the Closing Date in Section 8.6(a).

                  "Consolidated EBITDA" means, with respect to the Borrower and
         its Subsidiaries for any Four-Quarter Period ending on the date of
         computation thereof, the sum of, without duplication, (i) Consolidated
         Net Income, (ii) Consolidated Interest Expense, (iii) taxes on income,
         (iv) amortization, and (v) depreciation, all determined on a
         consolidated basis in accordance with GAAP applied on a Consistent
         Basis; provided, however, that with respect to an Acquisition that is
         accounted for as a "purchase", for the four Four-Quarter Periods ending
         next following the date of such Acquisition, Consolidated EBITDA shall
         include the results of operations of the Person or assets so acquired,
         which amounts shall be determined on a historical pro forma basis as if
         such Acquisition had been consummated as a "pooling of interests".

                  "Consolidated EBITR" means, with respect to the Borrower and
         its Subsidiaries for any Four-Quarter Period ending on the date of
         computation thereof, the sum of, without duplication, (i) Consolidated
         Net Income, (ii) Consolidated Interest Expense, (iii) taxes on income
         paid during such period, (iv) Consolidated Lease Payments made during
         such period, and (v) all Allowable Distributions made during such
         period; provided, however, that with respect to an Acquisition that is
         accounted for as a "purchase", for the four Four-Quarter Periods ending
         next following the date of such Acquisition, Consolidated EBITR shall
         include the results of operations of the Person or assets so acquired,
         which amounts shall be determined on a historical pro forma basis as if
         such Acquisition had been consummated as a "pooling of interests".

                  "Consolidated Fixed Charge Ratio" means, with respect to the
         Borrower and its Subsidiaries for any Four-Quarter Period ending on the
         date of computation thereof, the ratio of (i) Consolidated EBITR for
         such period less (without duplication) cash taxes paid during such
         period, to (ii) Consolidated Fixed Charges for such period.

                  "Consolidated Fixed Charges" means, with respect to the
         Borrower and its Subsidiaries for any Four-Quarter Period ending on the
         date of computation thereof, the sum of, without duplication, (i)
         Consolidated Interest Expense, (ii) current maturities of the principal
         amount of Consolidated Indebtedness, (iii) Consolidated Lease Payments
         for such period, and (iv) all Allowable Distributions for such period
         all determined on a consolidated basis in accordance with GAAP applied
         on a Consistent Basis; provided,


                                       7
   14
         however, that with respect to an Acquisition that is accounted for as a
         "purchase", for the four Four-Quarter Periods ending next following the
         date of such Acquisition, Consolidated Fixed Charges shall include the
         results of operations of the Person or assets so acquired, which
         amounts shall be determined on a historical pro forma basis as if such
         Acquisition had been consummated as a "pooling of interests".

                  "Consolidated Indebtedness" means all Indebtedness for Money
         Borrowed of the Borrower and its Subsidiaries, all determined on a
         consolidated basis.

                  "Consolidated Interest Expense" means, with respect to any
         period of computation thereof, the gross interest expense of the
         Borrower and its Subsidiaries, including without limitation (i) the
         current amortized portion of debt discounts to the extent included in
         gross interest expense, (ii) the current amortized portion of all fees
         (including fees payable in respect of any Rate Hedging Obligation)
         payable in connection with the incurrence of Indebtedness to the extent
         included in gross interest expense and (iii) the portion of any
         payments made in connection with Capital Leases allocable to interest
         expense, all determined on a consolidated basis in accordance with GAAP
         applied on a Consistent Basis.

                  "Consolidated Lease Payments" means the gross amount of all
         lease or rental payments, whether or not characterized as rent, without
         duplication, of the Borrower and its Subsidiaries, excluding payments
         in respect of Capital Leases constituting Indebtedness, all determined
         on a consolidated basis in accordance with GAAP applied on a Consistent
         Basis.

                  "Consolidated Leverage Ratio" means, as of the date of
         computation thereof, the ratio of (i) Consolidated Indebtedness
         (determined as at such date) to (ii) Consolidated EBITDA (for the
         Four-Quarter Period ending on (or most recently ended prior to) such
         date).

                  "Consolidated Net Income" means, for any period of computation
         thereof, the gross revenues from operations of the Borrower and its
         Subsidiaries (including payments received by the Borrower and its
         Subsidiaries of (i) interest income and (ii) dividends and
         distributions made in the ordinary course of their businesses by
         Persons in which investment is permitted pursuant to this Agreement and
         not related to an extraordinary event), less all operating and
         non-operating expenses (including all cash amounts added to reserves
         for charges in respect of closing under-performing restaurants) of the
         Borrower and its Subsidiaries including taxes on income, all determined
         on a consolidated basis in accordance with GAAP applied on a Consistent
         Basis; but excluding (for all purposes other than compliance with
         Section 10.1(a) hereof) as income: (i) net gains on the sale,
         conversion or other disposition of capital assets, (ii) net gains on
         the acquisition, retirement, sale or other disposition of capital stock
         and other securities of the Borrower or its Subsidiaries, (iii) net
         gains on the collection of proceeds of life insurance policies, (iv)
         any write-up of any asset, (v) one time non-cash charges associated
         with closing under-performing restaurants and (vi) any other net gain
         or credit


                                        8
   15
         of an extraordinary nature (other than proceeds of business
         interruption insurance) all as determined in accordance with GAAP
         applied on a Consistent Basis; provided, however, that for purposes of
         determining compliance with the provisions of Section 10.1(a) hereof,
         there shall be disregarded any increase in Consolidated Net Income upon
         giving effect to any Acquisition which results from the treatment of
         such Acquisition as a "pooling of interests".

                  "Consolidated Shareholders' Equity" means, as of any date on
         which the amount thereof is to be determined, the sum of the following
         in respect of the Borrower and its Subsidiaries (determined on a
         consolidated basis and excluding any upward adjustment after the
         Closing Date due to revaluation of assets): (i) the amount of issued
         and outstanding share capital, plus (ii) the amount of additional
         paid-in capital and retained earnings (or, in the case of a deficit,
         minus the amount of such deficit), plus (iii) the amount of any foreign
         currency translation adjustment (if positive, or, if negative, minus
         the amount of such translation adjustment), minus (iv) the amount of
         any treasury stock, all as determined in accordance with GAAP applied
         on a Consistent Basis.

                  "Consolidated Tangible Net Worth" means, as of any date on
         which the amount thereof is to be determined, Consolidated
         Shareholders' Equity minus (without duplication of deductions in
         respect of items already deducted in arriving at surplus and retained
         earnings) (i) all reserves (other than contingency reserves not
         allocated to any particular purpose), including without limitation
         reserves for depreciation, depletion, amortization, obsolescence,
         deferred income taxes, insurance and inventory valuation , and (ii) the
         net book value of all assets which would be treated as intangible
         assets, such as (without limitation) goodwill (whether representing the
         excess of cost over book value of assets acquired or otherwise),
         capitalized expenses, unamortized debt discount and expense,
         consignment inventory rights, patents, trademarks, trade names,
         copyrights, franchises and licenses, all as determined on a
         consolidated basis in accordance with GAAP applied on a Consistent
         Basis.

                  "Contingent Obligation" means, as to any Person, any direct or
         indirect liability of that Person with respect to any Indebtedness,
         lease, dividend, guaranty, letter of credit or other obligation (each a
         "primary obligation") of another Person (the "primary obligor"),
         whether or not contingent, (a) to purchase, repurchase or otherwise
         acquire any such primary obligation or any property constituting direct
         or indirect security therefor, or (b) to advance or provide funds (i)
         for the payment or discharge of any such primary obligation, or (ii) to
         maintain working capital or equity capital of the primary obligor in
         respect of any such primary obligation or otherwise to maintain the net
         worth or solvency or any balance sheet item, level of income or
         financial condition of such primary obligor, or (c) to purchase
         property, securities or services primarily for the purpose of assuring
         the owner of any such primary obligation of the ability of the primary
         obligor thereof to make payment of such primary obligation, or (d)
         otherwise to assure or hold harmless the owner of any such primary
         obligation against loss or failure or inability to perform in respect
         thereof. The amount of any Contingent Obligation shall be deemed to be
         an amount equal to the stated or determinable amount of the primary
         obligation in respect of


                                       9
   16
         which such Contingent Obligation is made or, if not stated or
         determinable, the maximum reasonably anticipated liability in respect
         thereof.

                  "Continue", "Continuation", and "Continued" shall refer to the
         continuation pursuant to Section 4.2 hereof of a Eurodollar Rate Loan
         of one Type as a Eurodollar Rate Loan of the same Type from one
         Interest Period to the next Interest Period.

                  "Control"or "Controlled" or "Controlling" means the
         possession, directly or indirectly, of the power to direct or cause the
         direction of the management and policies of a Person, whether through
         ownership of voting stock or by contract.

                  "Convert", "Conversion", and "Converted" shall refer to a
         conversion pursuant to Section 4.2 of one Type of Loan into another
         Type of Loan.

                  "Credit Parties" means, collectively, the Borrower, each
         Guarantor and each other Person providing Collateral pursuant to any
         Security Instrument.

                  "Default" means any event or condition which, with the giving
         or receipt of notice or lapse of time or both, would constitute an
         Event of Default hereunder.

                  "Default Rate" means (i) with respect to each Eurodollar Rate
         Loan, until the end of the Interest Period applicable thereto, a rate
         of two percent (2%) above the Eurodollar Rate applicable to such Loan,
         and thereafter at a rate of interest per annum which shall be two
         percent (2%) above the Base Rate, (ii) with respect to Base Rate Loans,
         Reimbursement Obligations, fees, and other amounts payable in respect
         of Obligations or (except as otherwise expressly provided therein) the
         obligations of any other Credit Party under any of the other Loan
         Documents, a rate of interest per annum which shall be two percent (2%)
         above the Base Rate, and (iii) in any case, the maximum rate permitted
         by applicable law, if lower.

                  "Determination Date" shall have the meaning given to such term
         in the definition of "Applicable Margin".

                  "Direct Foreign Subsidiary" means a Subsidiary other than a
         Domestic Subsidiary a majority of whose Voting Securities, or a
         majority of whose Subsidiary Securities, are owned by the Borrower or a
         Domestic Subsidiary.

                  "Dollars" and the symbol "$" means dollars constituting legal
         tender for the payment of public and private debts in the United States
         of America.

                  "Domestic Subsidiary" means any Subsidiary of the Borrower
         organized under the laws of the United States of America, any state or
         territory thereof or the District of Columbia.



                                       10
   17
                  "Eligible Assignee" means (i) a Lender, (ii) an affiliate of a
         Lender, and (iii) any other Person approved by the Agent and, unless an
         Event of Default has occurred and is continuing at the time any
         assignment is effected in accordance with Section 13.1, the Borrower,
         such approval not to be unreasonably withheld or delayed by the
         Borrower and such approval to be deemed given by the Borrower (in the
         absence of notice to the contrary, effective upon receipt) within five
         Business Days after notice of such proposed assignment has been
         received by the Borrower from the assigning Lender; provided, however,
         that neither the Borrower nor an affiliate of the Borrower shall
         qualify as an Eligible Assignee.

                  "Eligible Securities" means the following obligations and any
         other obligations previously approved in writing by the Agent:

                           (a) Government Securities;

                           (b) obligations of any corporation organized under
                  the laws of any state of the United States of America or under
                  the laws of any other nation, payable in the United States of
                  America, expressed to mature not later than 92 days following
                  the date of issuance thereof and rated in an investment grade
                  rating category by S&P and Moody's;

                           (c) interest bearing demand or time deposits issued
                  by any Lender or certificates of deposit maturing within one
                  year from the date of issuance thereof and issued by a bank or
                  trust company organized under the laws of the United States or
                  of any state thereof having capital surplus and undivided
                  profits aggregating at least $400,000,000 and being rated "A"
                  or better by S&P or "A" or better by Moody's;

                           (d) Repurchase Agreements;

                           (e) Municipal Obligations;

                           (f) Pre-Refunded Municipal Obligations;

                           (g) shares of mutual funds which invest in
                  obligations described in paragraphs (a) through (f) above, the
                  shares of which mutual funds are at all times rated "AAA" by
                  S&P;

                           (h) tax-exempt or taxable adjustable rate preferred
                  stock issued by a Person having a rating of its long term
                  unsecured debt of "A-" or better by S&P or "A-3" or better by
                  Moody's; and

                           (i) asset-backed remarketed certificates of
                  participation representing a fractional undivided interest in
                  the assets of a trust, which certificates are rated at least
                  "A-1" by S&P and "P-1" by Moody's.


                                       11
   18
                  "Employee Benefit Plan" means (i) any employee benefit plan,
         including any Pension Plan, within the meaning of Section 3(3) of ERISA
         which (A) is maintained for employees of the Borrower or any of its
         ERISA Affiliates, or any Subsidiary or is assumed by the Borrower or
         any of its ERISA Affiliates, or any Subsidiary in connection with any
         Acquisition or (B) has at any time been maintained for the employees of
         the Borrower, any current or former ERISA Affiliate, or any Subsidiary
         and (ii) any plan, arrangement, understanding or scheme maintained by
         the Borrower or any Subsidiary that provides retirement, deferred
         compensation, employee or retiree medical or life insurance, severance
         benefits or any other benefit covering any employee or former employee
         and which is administered under any Foreign Benefit Law or regulated by
         any Governmental Authority other than the United States of America.

                  "Environmental Laws" means any federal, state or local
         statute, law, ordinance, code, rule, regulation, order, decree, permit
         or license regulating, relating to, or imposing liability or standards
         of conduct concerning, any environmental matters or conditions,
         environmental protection or conservation, including without limitation,
         the Comprehensive Environmental Response, Compensation and Liability
         Act of 1980, as amended; the Superfund Amendments and Reauthorization
         Act of 1986, as amended; the Resource Conservation and Recovery Act, as
         amended; the Toxic Substances Control Act, as amended; the Clean Air
         Act, as amended; the Clean Water Act, as amended; together with all
         regulations promulgated thereunder, and any other "Superfund" or
         "Superlien" law.

                  "ERISA" means the Employee Retirement Income Security Act of
         1974, as amended from time to time, and any successor statute and all
         rules and regulations promulgated thereunder.

                  "ERISA Affiliate", as applied to the Borrower, means any
         Person or trade or business which is a member of a group which is under
         common control with the Borrower, who together with the Borrower, is
         treated as a single employer within the meaning of Section 414(b) and
         (c) of the Code.

                  "Eurodollar Rate Loan" means a Loan for which the rate of
         interest is determined by reference to the Eurodollar Rate.

                  "Eurodollar Rate" means the interest rate per annum calculated
         according to the following formula:

                  Eurodollar  =  Interbank Offered Rate     +    Applicable
                  Rate          ------------------------         Margin
                                 1- Reserve Requirement

                  "Event of Default" means any of the occurrences set forth as
         such in Section 11.1.

                  "Exchange Act" means the Securities Exchange Act of 1934, as
         amended, and the regulations promulgated thereunder.


                                       12
   19
                  "Facility Guaranty" means each Guaranty Agreement between one
         or more Guarantors and the Agent for the benefit of the Agent and the
         Lenders, delivered as of the Closing Date and otherwise pursuant to
         Section 9.20, as the same may be amended, supplemented or replaced.

                  "Facility Termination Date" means such date as all of the
         following shall have occurred: (a) the Borrower shall have permanently
         terminated the Revolving Credit Facility by payment in full of all
         Revolving Credit Outstandings and Letter of Credit Outstandings,
         together with all accrued and unpaid interest thereon, except for the
         undrawn portion of Letters of Credit as have been fully cash
         collateralized in a manner consistent with the terms of Section
         11.1(B), (b) all Swap Agreements shall have been terminated, expired or
         cash collateralized, (c) all Revolving Credit Commitments and Letter of
         Credit Commitments shall have terminated or expired, and (d) the
         Borrower shall have fully, finally and irrevocably paid and satisfied
         in full all Obligations (other than Obligations consisting of
         continuing indemnities and other contingent Obligations of the Borrower
         or any Guarantor that may be owing to the Lenders pursuant to the Loan
         Documents and expressly survive termination of this Agreement);

                  "FASB 133 Adjustments" means entries on or adjustments to any
         balance sheet or statement of income in respect of derivatives or
         hedging instruments as required or permitted by Statement of Financial
         Accounting Standards No. 133.

                  "Federal Funds Rate" means, for any day, the rate per annum
         (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to
         the weighted average of the rates on overnight Federal funds
         transactions with members of the Federal Reserve System arranged by
         Federal funds brokers on such day, as published by the Federal Reserve
         Bank of New York on the Business Day next succeeding such day; provided
         that (a) if such day is not a Business Day, the Federal Funds Rate for
         such day shall be such rate on such transactions on the next preceding
         Business Day as so published on the next succeeding Business Day, and
         (b) if no such rate is so published on such next succeeding Business
         Day, the Federal Funds Rate for such day shall be the average rate
         charged to the Agent (in its individual capacity) on such day on such
         transactions as determined by the Agent.

                  "Fiscal Year" means the twelve month fiscal period of the
         Borrower and its Subsidiaries commencing on January 1 of each calendar
         year and ending on December 31 of each calendar year.

                  "Foreign Benefit Law" means any applicable statute, law,
         ordinance, code, rule, regulation, order or decree of any foreign
         nation or any province, state, territory, protectorate or other
         political subdivision thereof regulating, relating to, or imposing
         liability or standards of conduct concerning, any Employee Benefit
         Plan.

                  "Four-Quarter Period" means a period of four full consecutive
         fiscal quarters of the Borrower and its Subsidiaries, taken together as
         one accounting period.



                                       13
   20
                  "GAAP" or "Generally Accepted Accounting Principles" means
         generally accepted accounting principles, being those principles of
         accounting set forth in pronouncements of the Financial Accounting
         Standards Board, the American Institute of Certified Public
         Accountants, or which have other substantial authoritative support and
         are applicable in the circumstances as of the date of a report.

                  "Government Securities" means direct obligations of, or
         obligations the timely payment of principal and interest on which are
         fully and unconditionally guaranteed by, the United States of America.

                  "Governmental Authority" shall mean any Federal, state,
         municipal, national or other governmental department, commission,
         board, bureau, court, agency or instrumentality or political
         subdivision thereof or any entity or officer exercising executive,
         legislative, judicial, regulatory or administrative functions of or
         pertaining to any government or any court, in each case whether
         associated with a state of the United States, the United States, or a
         foreign entity or government.

                  "Guarantors" means, at any date, the Subsidiaries who are
         required to be parties to a Facility Guaranty at such date.

                  "Hazardous Material" means and includes any pollutant,
         contaminant, or hazardous, toxic or dangerous waste, substance or
         material (including without limitation petroleum products,
         asbestos-containing materials and lead), the generation, handling,
         storage, transportation, disposal, treatment, release, discharge or
         emission of which is subject to any Environmental Law.

                  "Indebtedness" means as to any Person, without duplication,
         (a) all Indebtedness for Money Borrowed of such Person, (b) all Rate
         Hedging Obligations of such Person, (c) all indebtedness secured by any
         Lien (other than Liens securing repayment of tenant improvement
         allowances) on any property or asset owned or held by such Person
         regardless or whether the indebtedness secured thereby shall have been
         assumed by such Person or is non-recourse to the credit of such Person,
         and (d) all Contingent Obligations of such Person.

                  "Indebtedness for Money Borrowed" means with respect to any
         Person, without duplication, all indebtedness in respect of money
         borrowed, including without limitation, all obligations under Capital
         Leases, the deferred purchase price of any property or services, and
         payment and reimbursement obligations in respect of surety bonds,
         letters of credit, and bankers' acceptances, whether or not matured,
         evidenced by a promissory note, bond, debenture or similar written
         obligation for the payment of money (including reimbursement agreements
         and conditional sales or similar title retention agreements), other
         than trade payables, tenant improvement allowances and accrued expenses
         incurred in the ordinary course of business.



                                       14
   21
                  "Intellectual Property" means for any Person all patents
         (including all applications, renewals, reissues, extensions, divisions,
         continuations and extensions thereof), trademarks (including both
         registered and unregistered trademarks and applications therefor),
         service marks, trade names, copyrights (including all registrations,
         renewals, modifications and extensions thereof), know-how and trade
         secrets of material importance to the conduct of such Person's
         business.

                  "Interbank Offered Rate" means, with respect to any Eurodollar
         Rate Loan for the Interest Period applicable thereto, the rate per
         annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
         appearing on Telerate Page 3750 (or any successor page) as the London
         interbank offered rate for deposits in Dollars at approximately 11:00
         A.M. (London time) two Business Days prior to the first day of such
         Interest Period for a term comparable to such Interest Period. If for
         any reason such rate is not available, the term "Interbank Offered
         Rate" shall mean, with respect to any Eurodollar Rate Loan for the
         Interest Period applicable thereto, the rate per annum (rounded
         upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters
         Screen LIBO Page as the London interbank offered rate for deposits in
         Dollars at approximately 11:00 A.M. (London time) two Business Days
         prior to the first day of such Interest Period for a term comparable to
         such Interest Period, provided, however; if more than one rate is
         specified on Reuters Screen LIBO Page, the applicable rate shall be the
         arithmetic mean of all such rates (rounded upwards, if necessary, to
         the nearest 1/100 of 1%).

                  "Interest Period" means, for each Eurodollar Rate Loan, a
         period commencing on the date such Eurodollar Rate Loan is made or
         Converted or Continued and ending, at the Borrower's option, on the
         date one, two, three or six months thereafter as notified to the Agent
         by the Authorized Representative in accordance with the terms hereof;
         provided that,

                            (i) if an Interest Period for a Eurodollar Rate Loan
                  would end on a day which is not a Business Day, such Interest
                  Period shall be extended to the next Business Day (unless such
                  extension would cause the applicable Interest Period to end in
                  the succeeding calendar month, in which case such Interest
                  Period shall end on the next preceding Business Day); and

                           (ii) any Interest Period which begins on the last
                  Business Day of a calendar month (or on a day for which there
                  is no numerically corresponding day in the calendar month at
                  the end of such Interest Period) shall end on the last
                  Business Day of a calendar month.

                  "Interest Rate Selection Notice" means the written notice
         delivered by an Authorized Representative in connection with the
         election of a subsequent Interest Period for any Eurodollar Rate Loan
         or the Conversion of any Eurodollar Rate Loan into a Base Rate Loan or
         the Conversion of any Base Rate Loan into a Eurodollar Rate Loan, in
         the form of Exhibit E.



                                       15
   22
                  "Issuing Bank" means Bank of America as issuer of Letters of
         Credit under Article III.

                  "LC Account Agreement" means the LC Account Agreement dated as
         of the date hereof between the Borrower and the Agent, substantially in
         the form of Exhibit M, as amended, modified or supplemented from time
         to time.

                  "Letter of Credit" means a standby letter of credit issued by
         the Issuing Bank pursuant to Article III hereof for the account of the
         Borrower in favor of a Person advancing credit or securing an
         obligation on behalf of the Borrower.

                  "Letter of Credit Commitment" means, with respect to each
         Lender, the obligation of such Lender to acquire Participations in
         respect of Letters of Credit and Reimbursement Obligations up to an
         aggregate amount at any one time outstanding equal to such Lender's
         Applicable Commitment Percentage of the Total Letter of Credit
         Commitment as the same may be increased or decreased from time to time
         pursuant to this Agreement.

                  "Letter of Credit Facility" means the facility described in
         Article III hereof providing for the issuance by the Issuing Bank for
         the account of the Borrower of Letters of Credit in an aggregate stated
         amount at any time outstanding not exceeding the Total Letter of Credit
         Commitment minus outstanding Reimbursement Obligations.

                  "Letter of Credit Outstandings" means, as of any date of
         determination, the aggregate amount available to be drawn under all
         Letters of Credit plus Reimbursement Obligations then outstanding.

                  "Lien" means any interest in property securing any obligation
         owed to, or a claim by, a Person other than the owner of the property,
         whether such interest is based on the common law, statute or contract,
         and including but not limited to the lien or security interest arising
         from a mortgage, encumbrance, pledge, security agreement, conditional
         sale or trust receipt or a lease, consignment or bailment for security
         purposes. For the purposes of this Agreement, the Borrower and any
         Subsidiary shall be deemed to be the owner of any property which it has
         acquired or holds subject to a conditional sale agreement, financing
         lease, or other arrangement pursuant to which title to the property has
         been retained by or vested in some other Person for security purposes.

                  "Loan" means any borrowing pursuant to an Advance under the
         Revolving Credit Facility in accordance with Section 2.1.

                  "Loan Documents" means this Agreement, the Notes, the Security
         Instruments, the Facility Guaranties, the LC Account Agreement, the
         Applications and Agreements for Letter of Credit, and all other
         instruments and documents heretofore or hereafter executed or delivered
         to or in favor of any Lender or the Agent in connection with the Loans
         made



                                       16
   23
         and transactions contemplated under this Agreement, as the same may be
         amended, supplemented or replaced from the time to time.

                  "Management Agreements" means each management agreement,
         whether now existing or hereafter entered into, by and between the
         Borrower and any Subsidiary pursuant to which the Borrower agrees to
         manage certain restaurants in which such Subsidiaries have an interest,
         each as from time to time amended, supplemented or replaced.

                  "Management Securities" means, with respect to any Subsidiary
         that has an interest in a restaurant facility, up to 20% of the issued
         and outstanding Subsidiary Securities of such Subsidiary owned
         beneficially and of record by the individual chefs or managers
         operating such restaurant facility or by the regional manager of the
         restaurants owned or operated by such Subsidiary.

                  "Material Adverse Effect" means a material adverse effect on
         (i) the business, properties, operations, prospects or condition,
         financial or otherwise, of the Borrower and its Subsidiaries, taken as
         a whole, (ii) the ability of any Credit Party to pay or perform its
         respective obligations, liabilities and indebtedness under the Loan
         Documents as such payment or performance becomes due in accordance with
         the terms thereof, or (iii) the rights, powers and remedies of the
         Agent or any Lender under any Loan Document or the validity, legality
         or enforceability thereof.

                  "Moody's" means Moody's Investors Service, Inc.

                  "Mortgage" means, collectively, all mortgages, deeds of trust,
         deeds to secure debt and/or similar document or instrument granting a
         Lien to the Agent (or a trustee for the benefit of the Agent) for the
         benefit of the Lenders in Collateral constituting fee title real
         property of the Borrower or any Subsidiary acquired after the Closing
         Date, as such documents may be amended, modified or supplemented from
         time to time.

                  "Mortgaged Property" means, collectively, the real property,
         improvements, fixtures and other items of real property related thereto
         and the products and proceeds thereof fee title to which is hereafter
         acquired by the Borrower or any Subsidiary that is or is required to
         become a Guarantor after the Closing Date pursuant to Section 9.20 and
         in which the Agent elects pursuant to Section 9.21 to obtain a Lien
         thereon for the benefit of the Agent and the Lenders pursuant to a
         Mortgage.

                  "Mortgaged Property Support Documents" means, for each
         Mortgaged Property, (i) the Title Policy pertaining thereto, (ii) such
         surveys, flood hazard certifications, appraisals, and environmental
         assessments thereof as the Agent may require prepared by recognized
         experts in their respective fields selected by the Borrower and
         reasonably satisfactory to the Agent, (iii) as to Mortgaged Properties
         located in a flood hazard area, such flood hazard insurance as the
         agent may require, (iv) with respect to facilities leased or subleased
         to third parties, such lessees' estoppel, waiver and consent
         certificates and

                                       17
   24
         subordination, nondisturbance and attornment agreements, (v) such
         owner's or lessee's affidavits as the agent may require, (vi) such
         opinions of local counsel with respect to the Mortgages as the agent
         may require, and (vii) such other documentation as the Agent may
         reasonably require, in each case as shall be in form and substance
         reasonably acceptable to the Agent.

                  "Multiemployer Plan" means a "multiemployer plan" as defined
         in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
         Affiliate is making, or is accruing an obligation to make,
         contributions or has made, or been obligated to make, contributions
         within the preceding six (6) Fiscal Years.

                  "Municipal Obligations" means general obligations issued by,
         and supported by the full taxing authority of, any state of the United
         States of America or of any municipal corporation or other public body
         organized under the laws of any such state which are rated in the
         highest investment rating category by both S&P and Moody's.

                  "New Subsidiary" shall have the meaning given to such term in
         Section 9.20 hereof.

                  "Notes" means, collectively, the promissory notes of the
         Borrower evidencing Loans executed and delivered to the Lenders as
         provided in Section 2.3 substantially in the form of Exhibit F, with
         appropriate insertions as to amounts, dates and names of Lenders.

                  "Obligations" means the obligations, liabilities and
         Indebtedness of the Borrower with respect to (i) the principal and
         interest on the Loans as evidenced by the Notes, (ii) the Reimbursement
         Obligations and otherwise in respect of the Letters of Credit, (iii)
         all liabilities of Borrower to any Lender (or any affiliate of any
         Lender) which arise under a Swap Agreement, and (iv) the payment and
         performance of all other obligations, liabilities and Indebtedness of
         the Borrower to the Lenders, the Agent or BAS hereunder, under any one
         or more of the other Loan Documents or with respect to the Loans.

                  "Operating Documents" means with respect to any corporation,
         limited liability company, partnership, limited partnership, limited
         liability partnership or other legally authorized incorporated or
         unincorporated entity, the bylaws, operating agreement, partnership
         agreement, limited partnership agreement or other applicable documents
         relating to the operation, governance or management of such entity.

                  "Organizational Action" means with respect to any corporation,
         limited liability company, partnership, limited partnership, limited
         liability partnership or other legally authorized incorporated or
         unincorporated entity, any corporate, organizational or partnership
         action (including any required shareholder, member or partner action),
         or other similar official action, as applicable, taken by such entity.



                                       18
   25
                  "Organizational Documents" means with respect to any
         corporation, limited liability company, partnership, limited
         partnership, limited liability partnership or other legally authorized
         incorporated or unincorporated entity, the articles of incorporation,
         certificate of incorporation, articles of organization, certificate of
         limited partnership or other applicable organizational or charter
         documents relating to the creation of such entity.

                  "Outstandings" means, collectively, at any date, the Letter of
         Credit Outstandings and Revolving Credit Outstandings on such date.

                  "Participation" means, with respect to any Lender (other than
         the Issuing Bank) and a Letter of Credit, the extension of credit
         represented by the participation of such Lender hereunder in the
         liability of the Issuing Bank in respect of a Letter of Credit issued
         by the Issuing Bank in accordance with the terms hereof.

                  "PBGC" means the Pension Benefit Guaranty Corporation and any
         successor thereto.

                  "Pension Plan" means any employee pension benefit plan within
         the meaning of Section 3(2) of ERISA, other than a Multiemployer Plan,
         which is subject to the provisions of Title IV of ERISA or Section 412
         of the Code and which (i) is maintained for employees of the Borrower
         or any of its ERISA Affiliates or is assumed by the Borrower or any of
         its ERISA Affiliates in connection with any Acquisition or (ii) has at
         any time been maintained for the employees of the Borrower or any
         current or former ERISA Affiliate.

                  "Permitted Liens" has the meaning given to such term in
         Section 10.4.

                  "Person" means an individual, partnership, corporation,
         limited liability company, limited liability partnership, trust,
         unincorporated organization, association, joint venture or a government
         or agency or political subdivision thereof.

                  "Pledge Agreement" means, collectively (or individually as the
         context may indicate), (i) that certain Securities Pledge Agreement
         dated as of the date hereof between the Borrower and the Agent for the
         benefit of the Agent and the Lenders, (ii) any additional Securities
         Pledge Agreement delivered to the Agent pursuant to Section 5.1 and
         9.20, and (iii) with respect to any Subsidiary Securities issued by a
         Direct Foreign Subsidiary, any additional or substitute charge,
         agreement, document, instrument or conveyance, in form and substance
         acceptable to the Agent, conferring under applicable foreign law upon
         the Agent for the benefit of the Agent and the Lenders a Lien upon such
         Subsidiary Securities as are owned by the borrower or any Domestic
         Subsidiary, in each case as hereafter amended, supplemented (including
         by Pledge Agreement Supplement) or replaced from time to time.



                                       19
   26
                  "Pledge Agreement Supplement" means, with respect to each
         Pledge Agreement, the Pledge Agreement Supplement in the form affixed
         as an Exhibit to such Pledge Agreement.

                  "Pledged Interests" means the Subsidiary Securities required
         to be pledged as Collateral pursuant to Article V or the terms of any
         Pledge Agreement, and shall include (i) 65% of the Subsidiary
         Securities (other than Management Securities) of each Direct Foreign
         Subsidiary and (ii) 100% of the Subsidiary Securities (other than
         Management Securities) of each Domestic Subsidiary.

                  "Pre-Refunded Municipal Obligations" means obligations of any
         state of the United States of America or of any municipal corporation
         or other public body organized under the laws of any such state which
         are rated, based on the escrow, in the highest investment rating
         category by both S&P and Moody's and which have been irrevocably
         called for redemption and advance refunded through the deposit in
         escrow of Government Securities or other debt securities which are (i)
         not callable at the option of the issuer thereof prior to maturity,
         (ii) irrevocably pledged solely to the payment of all principal and
         interest on such obligations as the same becomes due and (iii) in a
         principal amount and bear such rate or rates of interest as shall be
         sufficient to pay in full all principal of, interest, and premium, if
         any, on such obligations as the same becomes due as verified by a
         nationally recognized firm of certified public accountants.

                  "Prime Rate" means the per annum rate of interest established
         from time to time by Bank of America as its prime rate, which rate may
         not be the lowest rate of interest charged by Bank of America to its
         customers.

                  "Principal Office" means the principal office of Bank of
         America, presently located at 101 North Tryon Street, 15th Floor, NC1
         001-15-04, Charlotte, North Carolina 28255, Attention: Agency Services,
         or such other office and address as the Agent may from time to time
         designate.

                  "Rate Hedging Obligations" means, without duplication, any and
         all obligations of the Borrower or any Subsidiary, whether absolute or
         contingent and howsoever and whensoever created, arising, evidenced or
         acquired (including all renewals, extensions and modifications thereof
         and substitutions therefor), under (i) any and all agreements, devices
         or arrangements designed to protect at least one of the parties thereto
         from the fluctuations of interest rates, exchange rates or forward
         rates applicable to such party's assets, liabilities or exchange
         transactions, including, but not limited to, Dollar-denominated or
         cross-currency interest rate exchange agreements, forward currency
         exchange agreements, interest rate cap or collar protection agreements,
         forward rate currency or interest rate options, puts, warrants and
         those commonly known as interest rate "swap" agreements; (ii) all other
         "derivative instruments" as defined in FASB 133 and which are subject
         to the reporting requirements of FASB 133; and (iii) any and all
         cancellations, buybacks, reversals, terminations or assignments of any
         of the foregoing.



                                       20
   27
                  "Registrar" means, with respect to any Subsidiary Securities,
         any Person authorized or obligated to maintain records of the
         registration of ownership or transfer of ownership of interests in such
         Subsidiary Securities, and in the event no such Person shall have been
         expressly designated by the related Subsidiary, shall mean (i) as to
         any corporation or limited liability company, its Secretary (or
         comparable official), and (ii) as to any partnership, its general
         partner (or managing general partner if one shall have been appointed).

                  "Regulation D" means Regulation D of the Board as the same may
         be amended or supplemented from time to time.

                  "Reimbursement Obligation" shall mean at any time, the
         obligation of the Borrower with respect to any Letter of Credit to
         reimburse the Issuing Bank and the Lenders to the extent of their
         respective Participations (including by the receipt by the Issuing Bank
         of proceeds of Loans pursuant to Section 2.1(c)(iii)) for amounts
         theretofore paid by the Issuing Bank pursuant to a drawing under such
         Letter of Credit.

                  "Reporting Entity" shall have the meaning given to such term
         in the definition of "Allowable Distributions".

                  "Repurchase Agreement" means a repurchase agreement entered
         into with any financial institution whose debt obligations or
         commercial paper are rated "A" by either of S&P or Moody's or "A-1" by
         S&P or "P-1" by Moody's.

                  "Required Lenders" means, as of any date, Lenders on such date
         having Credit Exposures (as defined below) aggregating (i) if there
         shall be fewer than three (3) Lenders, 100% of the aggregate Credit
         Exposures of all Lenders on such date, and (ii) if there shall be three
         (3) or more Lenders, more than 50% of the aggregate Credit Exposures of
         all the Lenders on such date. For purposes of the preceding sentence,
         the amount of the "Credit Exposure" of each Lender shall be equal at
         all times (a) other than following the occurrence and during the
         continuance of an Event of Default, to its Revolving Credit Commitment,
         and (b) following the occurrence and during the continuance of an Event
         of Default, to the sum of (i) the aggregate principal amount of such
         Lender's Applicable Commitment Percentage of Revolving Credit
         Outstandings plus (ii) the amount of such Lender's Applicable
         Commitment Percentage of Letter of Credit Outstandings; provided that,
         for the purpose of this definition only, (A) if any Lender shall have
         failed to fund its Applicable Commitment Percentage of any Advance,
         then the Revolving Credit Commitment of such Lender shall be deemed
         reduced by the amount it so failed to fund for so long as such failure
         shall continue and such Lender's Credit Exposure attributable to such
         failure shall be deemed held by any Lender making more than its
         Applicable Commitment Percentage of such Advance to the extent it
         covers such failure, and (B) if any Lender shall have failed to pay to
         the Issuing Bank upon demand its Applicable Commitment Percentage of
         any drawing under any Letter of Credit resulting in an outstanding
         Reimbursement Obligation (whether by funding its Participation therein
         or otherwise), such Lender's Credit Exposure attributable to all

                                       21
   28
         Letter of Credit Outstandings shall be deemed to be held by the Issuing
         Bank until such Lender shall pay such deficiency amount to the Issuing
         Bank together with interest thereon as provided in Section 4.9.

                  "Reserve Requirement" means, at any time, the maximum rate at
         which reserves (including, without limitation, any marginal, special,
         supplemental, or emergency reserves) are required to be maintained
         under regulations issued from time to time by the Board of Governors of
         the Federal Reserve System (or any successor) by member banks of the
         Federal Reserve System against "Eurocurrency liabilities" (as such term
         is used in Regulation D). Without limiting the effect of the foregoing,
         the Reserve Requirement shall reflect any other reserves required to be
         maintained by such member banks with respect to (i) any category of
         liabilities which includes deposits by reference to which the
         Eurodollar Rate is to be determined, or (ii) any category of extensions
         of credit or other assets which include Eurodollar Rate Loans. The
         Eurodollar Rate shall be adjusted automatically on and as of the
         effective date of any change in the Reserve Requirement.

                  "Restricted Payment" means (a) any dividend or other
         distribution, direct or indirect, on account of any shares of any class
         of stock of the Borrower or any Subsidiary Securities of its
         Subsidiaries (other than those payable or distributable solely to the
         Borrower) now or hereafter outstanding, except a dividend payable
         solely in shares of a class of stock or units of a class of Subsidiary
         Securities to the holders of that class; (b) any redemption,
         conversion, exchange, retirement or similar payment, purchase or other
         acquisition for value, direct or indirect, of any shares of any class
         of stock of Borrower or any Subsidiary Securities of its Subsidiaries
         (other than those payable or distributable solely to the Borrower) now
         or hereafter outstanding; (c) any payment made to retire, or to obtain
         the surrender of, any outstanding warrants, options or other rights to
         acquire shares of any class of stock of Borrower or any Subsidiary
         Securities of its Subsidiaries now or hereafter outstanding; and (d)
         any issuance and sale of Subsidiary Securities of any Subsidiary of the
         Borrower (or any option, warrant or right to acquire such subsidiary
         securities) other than to the Borrower; provided, however, that for so
         long as no Event of Default has occurred and is continuing, Allowable
         Distributions and the issuance of Management Securities in compliance
         with Section 10.6(g) shall not constitute Restricted Payments
         hereunder.

                  "Revolving Credit Commitment" means, with respect to each
         Lender, the obligation of such Lender to make Loans to the Borrower up
         to an aggregate principal amount at any one time outstanding equal to
         such Lender's Applicable Commitment Percentage of the Total Revolving
         Credit Commitment.

                  "Revolving Credit Facility" means the facility described in
         Section 2.1 hereof providing for Loans to the Borrower by the Lenders
         in the aggregate principal amount of the Total Revolving Credit
         Commitment.

                  "Revolving Credit Outstandings" means, as of any date of
         determination, the aggregate principal amount of all Loans then
         outstanding.



                                       22
   29
                  "Revolving Credit Termination Date" means (i) the Stated
         Termination Date or (ii) such earlier date of termination of Lenders'
         obligations pursuant to Section 11.1 upon the occurrence of an Event of
         Default, or (iii) such date as the Borrower may voluntarily and
         permanently terminate the Revolving Credit Facility by written notice
         to the Agent and payment in full of all Revolving Credit Outstandings
         and Letter of Credit Outstandings and cancellation of all Letters of
         Credit, together with all accrued and unpaid interest thereon.

                  "S&P" means Standard & Poor's Ratings Group, a division of
         McGraw-Hill.

                  "Security Agreement" means, collectively (or individually as
         the context may indicate), (i) the Security Agreement dated as of the
         Closing Date by the Borrower and the Guarantors to the Agent, and (ii)
         any additional Security Agreement delivered to the Agent pursuant to
         Section 9.20, as hereafter amended, supplemented or replaced from time
         to time.

                  "Security Instruments" means, collectively, the Pledge
         Agreement, the Security Agreement, the Mortgages, if any, the
         Assignment of Trademarks, the LC Account Agreement and all other
         agreements (including control agreements), instruments and other
         documents, whether now existing or hereafter in effect, pursuant to
         which the Borrower or any Subsidiary shall grant or convey to the Agent
         or the Lenders a Lien in, or any other Person shall acknowledge any
         such Lien in, property as security for all or any portion of the
         Obligations, as any of them may be amended, supplemented or replaced
         from time to time.

                  "Solvent" means, when used with respect to any Person, that at
         the time of determination:

                            (i) the fair value of its assets (both at fair
                  valuation and at present fair saleable value on an orderly
                  basis) is in excess of the total amount of its liabilities,
                  including Contingent Obligations; and

                           (ii) it is then able and expects to be able to pay
                  its debts as they mature; and

                           (iii) it has capital sufficient to carry on its
                  business as conducted and as proposed to be conducted.

                  "Stated Termination Date" means November 30, 2002, or such
         later date as the parties may agree pursuant to Section 2.1(f).

                  "Subsidiary" means any corporation or other entity in which
         more than 50% of its outstanding Voting Securities or more than 50% of
         all equity interests is owned directly or indirectly by the Borrower
         and/or by one or more of the Borrower's Subsidiaries.



                                       23
   30
                  "Subsidiary Securities" means the shares of capital stock or
         the other equity interests issued by or equity participations in any
         Subsidiary (including without limitation partnership and membership
         interests), whether or not constituting a "security" under Article 8 of
         the Uniform Commercial Code as in effect in any jurisdiction.

                  "Swap Agreement" means one or more agreements between the
         Borrower and any Person with respect to Indebtedness evidenced by any
         or all of the Notes, on terms mutually acceptable to Borrower and such
         Person and approved by the Required Lenders, which agreements create
         Rate Hedging Obligations; provided, however, that no such approval of
         the Required Lenders shall be required to the extent such agreements
         are entered into between the Borrower and any Lender or any affiliate
         of any Lender.

                  "Termination Event" means: (i) a "Reportable Event" described
         in Section 4043 of ERISA and the regulations issued thereunder (unless
         the notice requirement has been waived by applicable regulation); or
         (ii) the withdrawal of the Borrower or any ERISA Affiliate from a
         Pension Plan during a plan year in which it was a "substantial
         employer" as defined in Section 4001(a)(2) of ERISA or was deemed such
         under Section 4062(e) of ERISA; or (iii) the termination of a Pension
         Plan, the filing of a notice of intent to terminate a Pension Plan or
         the treatment of a Pension Plan amendment as a termination under
         Section 4041 of ERISA; or (iv) the institution of proceedings to
         terminate a Pension Plan by the PBGC; or (v) any other event or
         condition which would constitute grounds under Section 4042(a) of ERISA
         for the termination of, or the appointment of a trustee to administer,
         any Pension Plan; or (vi) the partial or complete withdrawal of the
         Borrower or any ERISA Affiliate from a Multiemployer Plan; or (vii) the
         imposition of a Lien pursuant to Section 412 of the Code or Section 302
         of ERISA; or (viii) any event or condition which results in the
         reorganization or insolvency of a Multiemployer Plan under Section 4241
         or Section 4245 of ERISA, respectively; or (ix) any event or condition
         which results in the termination of a Multiemployer Plan under Section
         4041A of ERISA or the institution by the PBGC of proceedings to
         terminate a Multiemployer Plan under Section 4042 of ERISA; or (x) any
         event or condition with respect to any Employee Benefit Plan which is
         regulated by any Foreign Benefit Law that results in the termination of
         such Employee Benefit Plan or the revocation of such Employee Benefit
         Plan's authority to operate under the applicable Foreign Benefit Law.

                  "Title Policy" means, with respect to each Mortgaged Property,
         the mortgagee title insurance policy (together with such endorsements
         as the Agent may reasonably require) issued to the Agent in respect of
         such Mortgaged Property by an insurer selected by the Borrower and
         reasonably acceptable to the Agent, insuring (in an amount satisfactory
         to the Agent) the Lien of the Agent for the benefit of the Agent and
         the Lenders on such Mortgaged Property to be duly perfected and of
         first priority, subject only to such exceptions as shall be acceptable
         to the Agent.

                  "Total Letter of Credit Commitment" means an amount not to
         exceed $2,000,000.


                                       24
   31
                  "Total Revolving Credit Commitment" means a principal amount
         equal to $15,000,000, as reduced from time to time in accordance with
         Section 2.1(e).

                  "Type" shall mean any type of Loan (i.e., a Base Rate Loan or
         a Eurodollar Rate Loan).

                  "Voting Securities" means shares of capital stock issued by a
         corporation, or equivalent interests in any other Person, the holders
         of which are ordinarily, in the absence of contingencies, entitled to
         vote for the election of directors (or persons performing similar
         functions) of such Person, even if the right so to vote has been
         suspended by the happening of such a contingency.

                  "Year 2000 Compliant" means all computer applications
         (including those affected by information received from its suppliers
         and vendors) that are material to the Borrower's or any of its
         Subsidiaries' business and operations will on a timely basis be able to
         perform properly date-sensitive functions involving all dates on and
         after January 1, 2000;

                  "Year 2000 Problem" means the risk that computer applications
         used by the Borrower or any of its Subsidiaries (including those
         affected by information received from its suppliers and vendors) may be
         unable to recognize and perform properly date-sensitive functions
         involving certain dates on and after January 1, 2000.

         1.2.     Rules of Interpretation.

                  (a) All accounting terms not specifically defined herein shall
         have the meanings assigned to such terms and shall be interpreted in
         accordance with GAAP applied on a Consistent Basis.

                  (b) Each term defined in Articles 1, 8 or 9 of the North
         Carolina Uniform Commercial Code shall have the meaning given therein
         unless otherwise defined herein, except to the extent that the Uniform
         Commercial Code of another jurisdiction is controlling, in which case
         such terms shall have the meaning given in the Uniform Commercial Code
         of the applicable jurisdiction.

                  (c) The headings, subheadings and table of contents used
         herein or in any other Loan Document are solely for convenience of
         reference and shall not constitute a part of any such document or
         affect the meaning, construction or effect of any provision thereof.

                  (d) Except as otherwise expressly provided, references in any
         Loan Document to articles, sections, paragraphs, clauses, annexes,
         appendices, exhibits and schedules are references to articles,
         sections, paragraphs, clauses, annexes, appendices, exhibits and
         schedules in or to such Loan Document.



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                  (e) All definitions set forth herein or in any other Loan
         Document shall apply to the singular as well as the plural form of such
         defined term, and all references to the masculine gender shall include
         reference to the feminine or neuter gender, and vice versa, as the
         context may require.

                  (f) When used herein or in any other Loan Document, words such
         as "hereunder", "hereto", "hereof" and "herein" and other words of like
         import shall, unless the context clearly indicates to the contrary,
         refer to the whole of the applicable document and not to any particular
         article, section, subsection, paragraph or clause thereof.

                  (g) References to "including" means including without limiting
         the generality of any description preceding such term, and for purposes
         hereof the rule of ejusdem generis shall not be applicable to limit a
         general statement, followed by or referable to an enumeration of
         specific matters, to matters similar to those specifically mentioned.

                  (h) Except as otherwise expressly provided, all dates and
         times of day specified herein shall refer to such dates and times at
         Charlotte, North Carolina.

                  (i) Whenever interest rates or fees are established in whole
         or in part by reference to a numerical percentage expressed as "___%",
         such arithmetic expression shall be interpreted in accordance with the
         convention that 1% = 100 basis points.

                  (j) Each of the parties to the Loan Documents and their
         counsel have reviewed and revised, or requested (or had the opportunity
         to request) revisions to, the Loan Documents, and any rule of
         construction that ambiguities are to be resolved against the drafting
         party shall be inapplicable in the construing and interpretation of the
         Loan Documents and all exhibits, schedules and appendices thereto.

                  (k) Any reference to an officer of the Borrower or any other
         Person by reference to the title of such officer shall be deemed to
         refer to each other officer of such Person, however titled, exercising
         the same or substantially similar functions.

                  (l) All references to any agreement or document as amended,
         modified or supplemented, or words of similar effect, shall mean such
         document or agreement, as the case may be, as amended, modified or
         supplemented from time to time only as and to the extent permitted
         therein and in the Loan Documents.


                                       26
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                                   ARTICLE II

                              The Credit Facilities

         2.1.     Loans.

                  (a) Commitment. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Advances to the Borrower under
the Revolving Credit Facility from time to time from the Closing Date until the
Revolving Credit Termination Date on a pro rata basis as to the total borrowing
requested by the Borrower on any day determined by such Lender's Applicable
Commitment Percentage up to but not exceeding the Revolving Credit Commitment of
such Lender, provided, however, that the Lenders will not be required and shall
have no obligation to make any such Advance (i) so long as a Default or an Event
of Default has occurred and is continuing or (ii) if the Agent has accelerated
the maturity of any of the Notes as a result of an Event of Default; provided
further, however, that immediately after giving effect to each such Advance, the
amount of Revolving Credit Outstandings plus Letter of Credit Outstandings shall
not exceed the Total Revolving Credit Commitment. Within such limits and subject
to the other terms and conditions of this Agreement, the Borrower may borrow,
repay and reborrow under the Revolving Credit Facility on a Business Day from
the Closing Date until, but (as to borrowings and reborrowings) not including,
the Revolving Credit Termination Date.

                  (b) Amounts. Except as otherwise permitted by the Lenders from
time to time, the amount of Revolving Credit Outstandings plus Letter of Credit
Outstandings shall not exceed at any time the Total Revolving Credit Commitment,
and, in the event there shall be outstanding any such excess, the Borrower,
within ten (10) Business Days after receipt of notice from the Agent, shall make
such payments and prepayments as shall be necessary to comply with this
restriction. Each Advance under the Revolving Credit Facility, other than Base
Rate Refunding Loans, shall be in an amount of at least $500,000, and, if
greater than $500,000, an integral multiple of $100,000.

                  (c) Advances. (i) An Authorized Representative shall give the
Agent (1) at least three (3) Business Days' irrevocable telephonic notice of
each Eurodollar Rate Loan (whether representing an additional borrowing or the
Continuation of a borrowing hereunder or the Conversion of a borrowing hereunder
from a Base Rate Loan to a Eurodollar Rate Loan) prior to 10:30 A.M. no later
than the third Business Day prior to such Loan and (2) irrevocable telephonic
notice of each Base Rate Loan (other than Base Rate Refunding Loans to the
extent the same are effected without notice pursuant to Section 2.1(c)(iii) and
whether representing an additional borrowing hereunder or the Conversion of
borrowing hereunder from Eurodollar Rate Loans to Base Rate Loans) prior to
10:30 A.M. on the day of such proposed Loan. Each such notice shall be effective
upon receipt by the Agent, shall specify the amount of the borrowing, the type
of Loan (Base Rate or Eurodollar Rate), the date of borrowing and, if a
Eurodollar Rate Loan, the Interest Period to be used in the computation of
interest. The Authorized Representative shall provide the Agent written
confirmation of each such telephonic notice in the form of a Borrowing Notice or
Interest Rate Selection Notice (as applicable) with appropriate insertions sent
by telefacsimile transmission but failure to provide such confirmation shall not


                                       27
   34
affect the validity of such telephonic notice. Notice of receipt of such
Borrowing Notice or Interest Rate Selection Notice, as the case may be, together
with the amount of each Lender's portion of an Advance requested thereunder,
shall be provided by the Agent to each Lender by telefacsimile transmission with
reasonable promptness, but (provided the Agent shall have received such notice
by 11:30 A.M.) not later than 1:00 P.M. on the same day as the Agent's receipt
of such notice.

         (ii) Not later than 2:00 P.M. on the date specified for each borrowing
under this Section 2.1, each Lender shall, pursuant to the terms and subject to
the conditions of this Agreement, make the amount of the Advance or Advances to
be made by it on such day available by wire transfer to the Agent in the amount
of its pro rata share, determined according to such Lender's Applicable
Commitment Percentage of the Loan or Loans to be made on such day. Such wire
transfer shall be directed to the Agent at the Principal Office and shall be in
the form of Dollars constituting immediately available funds. The amount so
received by the Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Borrower by delivery of the proceeds thereof
to the Borrower's Account or otherwise as shall be directed in the applicable
Borrowing Notice by the Authorized Representative and reasonably acceptable to
the Agent.

         (iii) Notwithstanding the foregoing, if a drawing is made under any
Letter of Credit, such drawing is honored by the Issuing Bank, and the Borrower
shall not immediately fully reimburse the Issuing Bank in respect of such
drawing from other funds available to the Borrower, (A) provided that the
conditions to making a Loan as herein provided shall then be satisfied, the
Reimbursement Obligation arising from such drawing shall be paid to the Issuing
Bank by the Agent without the requirement of notice to or from the Borrower from
immediately available funds which shall be advanced as a Base Rate Refunding
Loan to the Agent at its Principal Office by each Lender under the Revolving
Credit Facility in an amount equal to such Lender's Applicable Commitment
Percentage of such Reimbursement Obligation, and (B) if the conditions to making
a Loan as herein provided shall not then be satisfied, each of the Lenders shall
fund by payment to the Agent (for the benefit of the Issuing Bank) at its
Principal Office in immediately available funds the purchase from the Issuing
Bank of their respective Participations in the related Reimbursement Obligation
based on their respective Applicable Commitment Percentages of the Total Letter
of Credit Commitment. If a drawing is presented under any Letter of Credit in
accordance with the terms thereof and the Borrower shall not immediately
reimburse the Issuing Bank in respect thereof, then notice of such drawing or
payment shall be provided promptly by the Issuing Bank to the Agent and the
Agent shall provide notice to each Lender by telephone or telefacsimile
transmission. If notice to the Lenders of a drawing under any Letter of Credit
is given by the Agent at or before 12:00 noon on any Business Day, each Lender
shall either make a Base Rate Refunding Loan or fund the purchase of its
Participation as specified above in the amount of such Lender's Applicable
Commitment Percentage of such drawing or payment and shall pay such amount to
the Agent for the account of the Issuing Bank at the Principal Office in Dollars
and in immediately available funds before 2:30 P.M. on the same Business Day. If
such notice to the Lenders is given by the Agent after 12:00 noon on any
Business Day, each Lender shall either make such Base Rate Refunding Loan or
fund such purchase before 12:00 noon on the next following Business Day.


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   35
                  (d) Repayment of Loans. The principal amount of each Loan
shall be due and payable to the Agent for the benefit of each Lender in full on
the Revolving Credit Termination Date, or earlier as specifically provided
herein. The principal amount of any Loan may be prepaid in whole or in part on
any Business Day, upon (A) at least three (3) Business Days' irrevocable
telephonic notice in the case of each Loan that is a Eurodollar Rate Loan from
an Authorized Representative (effective upon receipt) to the Agent prior to
12:30 P.M. and (B) irrevocable telephonic notice in the case of each Loan that
is a Base Rate Loan from an Authorized Representative (effective upon receipt)
to the Agent prior to 12:30 P.M. on the day of such proposed repayment. The
Authorized Representative shall provide the Agent written confirmation of each
such telephonic notice sent by telefacsimile transmission but failure to provide
such confirmation shall not effect the validity of such telephonic notice. All
prepayments of Loans made by the Borrower shall be in the amount of $500,000 or
such greater amount which is an integral multiple of $100,000, or the amount
equal to all Revolving Credit Outstandings, or such other amount as necessary to
comply with Section 2.1(b).

                  (e) Reductions. The Borrower shall, by notice from an
Authorized Representative, have the right from time to time but not more
frequently than once each calendar month, upon not less than three (3) Business
Days' written notice to the Agent, effective upon receipt, to reduce the Total
Revolving Credit Commitment. The Agent shall give each Lender, within one (1)
Business Day of receipt of such notice, telefacsimile notice, or telephonic
notice (confirmed in writing), of such reduction. Each such reduction shall be
in the aggregate amount of $5,000,000, or such greater amount which is in an
integral multiple of $1,000,000, or the entire remaining Total Revolving Credit
Commitment, and shall permanently reduce the Total Revolving Credit Commitment.
Each reduction of the Total Revolving Credit Commitment shall be accompanied by
payment of the Loans to the extent that the principal amount of Revolving Credit
Outstandings plus Letter of Credit Outstandings exceeds the Total Revolving
Credit Commitment after giving effect to such reduction, together with accrued
and unpaid interest on the amounts prepaid.

                  (f) Extension of Stated Termination Date. At the request of
the Borrower the Lenders may, in their sole discretion, elect to extend the
Stated Termination Date then in effect for two additional periods of one year
each. The Borrower shall notify the Lenders of its request for such an extension
by delivering to the Agent and the Lenders notice of such request signed by an
Authorized Representative not more than ninety (90) days nor less than sixty
(60) days prior to the anniversary of the Closing Date next preceding the Stated
Termination Date then in effect. If the Lenders shall elect to so extend, the
Agent shall notify the Borrower in writing within fifteen (15) days of its
receipt of such request for extension of the decision of the Lenders as to
whether to extend the Stated Termination Date. Failure by any Lender to respond
to a request for an extension shall constitute a refusal of such Lender to give
its consent to such extension. Failure by the Agent to give such notice shall
constitute refusal by the Lenders to extend the Stated Termination Date.

         2.2. Use of Proceeds. The proceeds of the Loans made pursuant to the
Revolving Credit Facility hereunder shall be used by the Borrower for general
working capital needs and other corporate purposes, including the making of
Capital Expenditures permitted hereunder.


                                       29
   36
         2.3. Notes. Loans made by each Lender shall be evidenced by the Note
payable to the order of such Lender in the respective amount of its Applicable
Commitment Percentage of the Total Revolving Credit Commitment, which Note shall
be dated the Closing Date or a later date pursuant to an Assignment and
Acceptance and shall be duly completed, executed and delivered by the Borrower.


                                       30
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                                   ARTICLE III

                                Letters of Credit

         3.1. Letters of Credit. The Issuing Bank agrees, subject to the terms
and conditions of this Agreement, upon request of the Borrower to issue from
time to time for the account of the Borrower Letters of Credit upon delivery to
the Issuing Bank of an Application and Agreement for Letter of Credit relating
thereto in form and content reasonably acceptable to the Issuing Bank; provided,
that (i) the Issuing Bank shall not be obligated to issue any Letter of Credit
if it has been notified by the Agent or has actual knowledge that a Default or
Event of Default has occurred and is continuing, (ii) the Letter of Credit
Outstandings shall not exceed the Total Letter of Credit Commitment and (iii) no
Letter of Credit shall be issued if, after giving effect thereto, Letter of
Credit Outstandings plus Revolving Credit Outstandings shall exceed the Total
Revolving Credit Commitment. No Letter of Credit shall have an expiry date
(including all rights of the Borrower or any beneficiary named in such Letter of
Credit to require renewal) or payment date occurring later than the earlier to
occur of one year after the date of its issuance or the seventh Business Day
prior to the Stated Termination Date.

         3.2. Reimbursement and Participations.

                  (a) The Borrower hereby unconditionally agrees to pay to the
Issuing Bank immediately on demand at the Principal Office all amounts required
to pay all drafts drawn under the Letters of Credit or documents purporting to
be Letters of Credit and all reasonable expenses incurred by the Issuing Bank in
connection with the Letters of Credit, and in any event to place in possession
of the Issuing Bank (which shall include Advances under the Revolving Credit
Facility if permitted by Section 2.1) sufficient funds to pay all debts and
liabilities arising under any Letter of Credit. The Issuing Bank agrees to give
the Borrower prompt notice of any request for a draw under a Letter of Credit.
The Issuing Bank may charge any account the Borrower may have with it for any
and all amounts the Issuing Bank pays under a Letter of Credit, plus charges and
reasonable expenses as from time to time agreed to by the Issuing Bank and the
Borrower; provided that to the extent permitted by Section 2.1(c)(iii), amounts
shall be paid pursuant to Advances under the Revolving Credit Facility. The
Borrower agrees to pay the Issuing Bank interest on any Reimbursement
Obligations not paid when due hereunder either directly by the Borrower or
through Advances at the Default Rate.

                  (b) In accordance with the provisions of Section 2.1(c), the
Issuing Bank shall notify the Agent of any drawing under any Letter of Credit
promptly following the receipt by the Issuing Bank of such drawing.

                  (c) Each Lender (other than the Issuing Bank) shall
automatically acquire on the date of issuance thereof, a Participation in the
liability of the Issuing Bank in respect of each Letter of Credit in an amount
equal to such Lender's Applicable Commitment Percentage of such liability, and
to the extent that the Borrower is obligated to pay the Issuing Bank under
Section 3.2(a), each Lender (other than the Issuing Bank) thereby shall
absolutely, unconditionally and irrevocably assume, and shall be unconditionally
obligated to pay to the Issuing Bank, its


                                       31
   38
Applicable Commitment Percentage of the liability of the Issuing Bank under such
Letter of Credit in the manner and with the effect provided in Section
2.1(c)(iii).

                  (d) Simultaneously with the making of each payment by a Lender
to the Issuing Bank pursuant to Section 2.1(c)(iii)(B), such Lender shall,
automatically and without any further action on the part of the Issuing Bank or
such Lender, acquire a Participation in an amount equal to such payment
(excluding the portion thereof constituting interest accrued prior to the date
the Lender made its payment) in the related Reimbursement Obligation of the
Borrower. Each Lender's obligation to make payment to the Agent for the account
of the Issuing Bank pursuant to Section 2.1(c)(iii) and Section 3.2(c), and the
right of the Issuing Bank to receive the same, shall be absolute and
unconditional, shall not be affected by any circumstance whatsoever and shall be
made without any offset, abatement, withholding or reduction whatsoever. In the
event the Lenders have purchased Participations in any Reimbursement Obligation
as set forth above, then at any time payment (in fully collected, immediately
available funds) of such Reimbursement Obligation, in whole or in part, is
received by the Issuing Bank from the Borrower, the Issuing Bank shall promptly
pay to each Lender an amount equal to its Applicable Commitment Percentage of
such payment from the Borrower.

                  (e) Promptly following the end of each calendar quarter, the
Issuing Bank shall deliver to the Agent a notice describing the aggregate
undrawn amount of all Letters of Credit at the end of such quarter. Upon the
request of any Lender from time to time, the Issuing Bank shall deliver to the
Agent, and the Agent shall deliver to such Lender, any other information
reasonably requested by such Lender with respect to each Letter of Credit
outstanding.

                  (f) The issuance by the Issuing Bank of each Letter of Credit
shall, in addition to the conditions precedent set forth in Article VII, be
subject to the conditions that such Letter of Credit be in such form and contain
such terms as shall be reasonably satisfactory to the Issuing Bank consistent
with the then current practices and procedures of the Issuing Bank with respect
to similar letters of credit, and the Borrower shall have executed and delivered
such other instruments and agreements relating to such Letters of Credit as the
Issuing Bank shall have reasonably requested consistent with such practices and
procedures and shall not be in conflict with any of the express terms herein
contained. All Letters of Credit shall be issued pursuant to and subject to the
Uniform Customs and Practice for Documentary Credits, 1993 revision,
International Chamber of Commerce Publication No. 500 or, if the Issuing Bank
shall elect by express reference in an affected Letter of Credit, the
International Chamber of Commerce International Standby Practices commonly
referred to as "ISP98", or any subsequent amendment or revision of either
thereof.

                  (g) The Borrower agrees that the Issuing Bank may, in its sole
discretion, accept or pay, as complying with the terms of any Letter of Credit,
any drafts or other documents, which on their face otherwise comply with the
terms of any Letter of Credit, which may be signed or issued by an
administrator, executor, trustee in bankruptcy, debtor in possession, assignee
for the benefit of creditors, liquidator, receiver, attorney in fact or other
legal


                                       32
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representative of a party who is authorized under such Letter of Credit to
draw or issue any drafts or other documents.

                  (h) Without limiting the generality of the provisions of
Section 13.9, the Borrower hereby agrees to indemnify and hold harmless the
Issuing Bank, each other Lender and the Agent from and against any and all
claims and damages, losses, liabilities, reasonable costs and expenses which the
Issuing Bank, such other Lender or the Agent may incur (or which may be claimed
against the Issuing Bank, such other Lender or the Agent) by any Person by
reason of or in connection with the issuance or transfer of or payment or
failure to pay under any Letter of Credit; provided that the Borrower shall not
be required to indemnify the Issuing Bank, any other Lender or the Agent for any
claims, damages, losses, liabilities, costs or expenses to the extent, but only
to the extent, (i) caused by the willful misconduct or gross negligence of the
party to be indemnified or (ii) caused by the failure of the Issuing Bank to pay
under any Letter of Credit after the presentation to it of a request for payment
strictly complying with the terms and conditions of such Letter of Credit,
unless such payment is prohibited by any law, regulation, court order or decree.
The indemnification and hold harmless provisions of this Section 3.2(h) shall
survive repayment of the Obligations, occurrence of the Revolving Credit
Termination Date, the Facility Termination Date and expiration or termination of
this Agreement.

                  (i) Without limiting Borrower's rights as set forth in Section
3.2(h), the obligation of the Borrower to immediately reimburse the Issuing Bank
for drawings made under Letters of Credit and the Issuing Bank's right to
receive such payment shall be absolute, unconditional and irrevocable, and such
obligations of the Borrower shall be performed strictly in accordance with the
terms of this Agreement and such Letters of Credit and the related Application
and Agreement for any Letter of Credit, under all circumstances whatsoever,
including the following circumstances:

                           (i) any lack of validity or enforceability of the
                  Letter of Credit, the obligation supported by the Letter of
                  Credit or any other agreement or instrument relating thereto
                  (collectively, the "Related LC Documents");

                           (ii) any amendment or waiver of or any consent to or
                  departure from all or any of the Related LC Documents approved
                  in writing by the Borrower;

                           (iii) the existence of any claim, setoff, defense
                  (other than the defense of payment in accordance with the
                  terms of this Agreement) or other rights which the Borrower
                  may have at any time against any beneficiary or any transferee
                  of a Letter of Credit (or any persons or entities for whom any
                  such beneficiary or any such transferee may be acting), the
                  Agent, the Lenders or any other Person, whether in connection
                  with the Loan Documents, the Related LC Documents or any
                  unrelated transaction;

                           (iv) any breach of contract or other dispute between
                  the Borrower and any beneficiary or any transferee of a Letter
                  of Credit (or any persons or entities


                                       33
   40
                  for whom such beneficiary or any such transferee may be
                  acting), the Agent, the Lenders or any other Person;

                           (v) any draft, statement or any other document
                  presented under the Letter of Credit proving to be forged,
                  fraudulent, invalid or insufficient in any respect or any
                  statement therein being untrue or inaccurate in any respect
                  whatsoever; or

                           (vi) any delay, extension of time, renewal,
                  compromise or other indulgence or modification granted or
                  agreed to by the Agent, with or without notice to or approval
                  by the Borrower in respect of any of Borrower's Obligations
                  under this Agreement.


                                       34
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                                   ARTICLE IV

                   Loan Funding, Fees, and Payment Conventions

         4.1 Interest Rate Options. Eurodollar Rate Loans and Base Rate Loans
may be outstanding at the same time and, so long as no Event of Default shall
have occurred and be continuing, the Borrower shall have the option to elect the
Type of Loan and the duration of the initial and any subsequent Interest Periods
and to Convert Loans in accordance with Sections 2.1(c)(i) and 4.2, as
applicable; provided, however, (a) there shall not be outstanding at any one
time Eurodollar Rate Loans having more than four (4) different Interest Periods,
(b) each Eurodollar Rate Loan (including each Conversion into and each
Continuation as a Eurodollar Rate Loan) shall be in an amount of $500,000 or, if
greater than $500,000 an integral multiple of $100,000, and (c) no Eurodollar
Rate Loan shall have an Interest Period that extends beyond the Stated
Termination Date. If the Agent does not receive a Borrowing Notice or an
Interest Rate Selection Notice giving notice of election of the duration of an
Interest Period or of Conversion of any Loan to or Continuation of a Loan as a
Eurodollar Rate Loan by the time prescribed by Sections 2.1(c)(i) and 4.2, as
applicable, (i) if there shall be fewer than two Lenders, the Borrower shall be
deemed to have elected to Convert such Loan to (or Continue such Loan as) a Loan
of the same Type and Interest Period as the Loan to be Converted or Continued
and (ii) at such time as there are two or more Lenders, the Borrower shall be
deemed to have elected to obtain or Convert such Loan to (or Continue such Loan
as) a Base Rate Loan, in each case until the Borrower notifies the Agent in
accordance with Section 4.2. The Borrower shall not be entitled to elect to
Continue any Loan as or Convert any Loan into a Eurodollar Rate Loan if an Event
of Default shall have occurred and be continuing.

         4.2 Conversions and Elections of Subsequent Interest Periods. Subject
to the limitations set forth in the definition of "Interest Period" and in
Section 4.1 and Article VI, the Borrower may:

         (a) upon delivery of telephonic notice to the Agent (which shall be
irrevocable) on or before 10:30 A.M. on any Business Day, Convert any Eurodollar
Rate Loan to a Base Rate Loan on the last day of the Interest Period for such
Eurodollar Rate Loan; and

         (b) provided that no Default or Event of Default shall have occurred
and be continuing, upon delivery of telephonic notice to the Agent (which shall
be irrevocable) on or before 10:30 A.M. three (3) Business Days' prior to the
date of such Conversion or Continuation:

                  (i) elect a subsequent Interest Period for any Eurodollar Rate
         Loan to begin on the last day of the then current Interest Period for
         such Eurodollar Rate Loan; or

                  (ii) Convert any Base Rate Loan to a Eurodollar Rate Loan on
         any Business Day.

Each such notice shall be effective upon receipt by the Agent, shall specify the
amount of the Eurodollar Rate Loan affected, and, if a Continuation as or
Conversion into a Eurodollar Rate


                                       35
   42
Loan, the Interest Period to be used in the computation of interest. The
Authorized Representative shall provide the Agent written confirmation of each
such telephonic notice in the form of a Borrowing Notice or Interest Rate
Selection Notice (as applicable) with appropriate insertions but failure to
provide such confirmation shall not affect the validity of such telephonic
notice. Notice of receipt of such Borrowing Notice or Interest Rate Selection
Notice, as the case may be, shall be provided by the Agent to each Lender by
telefacsimile transmission with reasonable promptness, but (provided the Agent
shall have received such notice by 10:30 A.M.) not later than 3:00 P.M. on the
same day as the Agent's receipt of such notice. All such Continuations or
Conversions of Loans shall be effected pro rata based on the Applicable
Commitment Percentages of the Lenders.

         4.3 Payment of Interest. The Borrower shall pay interest on the
outstanding and unpaid principal amount of each Loan, commencing on the first
date of such Loan until such Loan shall be repaid, at the applicable Base Rate
or Eurodollar Rate as designated by the Borrower in the related Borrowing Notice
or Interest Rate Selection Notice or as otherwise provided hereunder. Interest
on each Loan shall be paid on the earlier of (a) in the case of any Base Rate
Loan, quarterly in arrears of the last Business Day of each March, June,
September and December, commencing on December 31, 1999, until the Revolving
Credit Termination Date, at which date the entire principal amount of and all
accrued interest on the Loans shall be paid in full, (b) in the case of any
Eurodollar Rate Loan, on last day of the applicable Interest Period for such
Eurodollar Rate Loan and if such Interest Period extends for more than three (3)
months, at intervals of three (3) months after the first day of such Interest
Period, and (c) upon payment in full of the related Loan; provided, however,
that if any Event of Default shall occur and be continuing, all amounts
outstanding hereunder shall bear interest thereafter until paid in full at the
Default Rate until paid in full or such Event of Default is waived.

         4.4 Prepayments of Eurodollar Rate Loans. Whenever any payment of
principal shall be made in respect of any Eurodollar Rate Loan hereunder,
whether at maturity, on acceleration, by optional or mandatory prepayment or as
otherwise required or permitted hereunder, with the effect that any Eurodollar
Rate Loan shall be prepaid in whole or in part prior to the last day of the
Interest Period applicable to such Eurodollar Rate Loan, such payment of
principal shall be accompanied by the additional payment, if any, required by
Section 6.5.

         4.5 Manner of Payment. (a) Each payment of principal (including any
prepayment) and payment of interest and fees, and any other amount required to
be paid by or on behalf of the Borrower to the Lenders, the Issuing Bank, the
Agent, or Bank of America with respect to any Loan, Letter of Credit, or
Reimbursement Obligation shall be made to the Agent at the Principal Office in
Dollars in immediately available funds without condition or deduction or for any
setoff, recoupment, deduction or counterclaim on or before 2:30 P.M. on the date
such payment is due. The Agent may, but shall not be obligated to, debit the
amount of such payment from any one or more ordinary deposit accounts of the
Borrower with the Agent.

         (b) Any payment made by or on behalf of the Borrower that is not made
both in Dollars in immediately available funds and prior to 2:30 P.M. on the
date such payment is to be made shall constitute a non-conforming payment. Any
such non-conforming payment shall not


                                       36
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be deemed to be received until the later of (i) the time such funds become
available funds and (ii) the next Business Day. Interest shall continue to
accrue at the applicable interest rate on any principal or fees as to which a
non-conforming payment is made from the date such amount was due and payable
until the later of (i) the date such funds become available funds or (ii) the
next Business Day.

         (c) In the event that any payment hereunder or under any of the Notes
becomes due and payable on a day other than a Business Day, then such due date
shall be extended to the next succeeding Business Day unless provided otherwise
under the definition of "Interest Period"; provided, however, that interest
shall continue to accrue during the period of any such extension; and provided
further, however, that in no event shall any such due date be extended beyond
the Revolving Credit Termination Date.

         4.6 Fees. (a) Commitment Fee. For the period beginning on the Closing
Date and ending on the Revolving Credit Termination Date, the Borrower agrees to
pay to the Agent, for the pro rata benefit of the Lenders based on their
Applicable Commitment Percentages, a commitment fee equal to the Applicable
Commitment Fee multiplied by the average daily amount by which the Total
Revolving Credit Commitment exceeds the sum of (i) Revolving Credit Outstandings
plus (ii) Letter of Credit Outstandings. Such fees shall be due in arrears on
the last Business Day of each March, June, September and December commencing
December 31, 1999 to and on the Revolving Credit Termination Date.
Notwithstanding the foregoing, so long as any Lender fails to make available any
portion of its Revolving Credit Commitment when requested, such Lender shall not
be entitled to receive payment of its pro rata share of such fee until such
Lender shall make available such portion.

         (b) Letter of Credit Facility Fees. The Borrower shall pay to the
Agent, for the pro rata benefit of the Lenders based on their Applicable
Commitment Percentages, a fee on the aggregate amount available to be drawn on
each outstanding Letter of Credit at a rate equal to the Applicable Margin for
Eurodollar Rate Loans on each Determination Date. Such fees shall be due with
respect to each Letter of Credit quarterly in arrears on the last day of each
March, June, September and December, the first such payment to be made on the
first such date occurring after the date of issuance of a Letter of Credit.

         (c) Letter of Credit Fronting and Administrative Fees. From and after
the date on which there is more than one Lender, the Borrower shall pay to the
Issuing Bank a fronting fee of one-eighth of one percent per annum (0.125%) on
the aggregate amount available to be drawn on each outstanding Letter of Credit,
such fee to be payable quarterly in arrears with respect to each Letter of
Credit on the dates established in Section 4.6(b) for the payment of Letter of
Credit facility fees with respect to such Letter of Credit.

         4.7 Pro Rata Payments. Except as otherwise specified herein, (a) each
payment on account of the principal of and interest on Loans, the fees described
in Section 4.6(a) and (b), and Reimbursement Obligations as to which the Lenders
have funded their respective Participations which remain outstanding, shall be
made to the Agent for the account of the Lenders pro rata based on their
Applicable Commitment Percentages, and (b) the Agent will promptly distribute


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to the Lenders in immediately available funds payments received in fully
collected, immediately available funds from the Borrower.

         4.8 Computation of Rates and Fees. Except as may be otherwise expressly
provided, (i) the Base Rate shall be computed on the basis of a year of 365/6
days and calculated for actual days elapsed, and (ii) all other interest rates
(including each Eurodollar Rate and the Default Rate) and fees shall be computed
on the basis of a year of 360 days and calculated for actual days elapsed.

         4.9 Deficiency Advances; Failure to Purchase Participations. No Lender
shall be responsible for any default of any other Lender in respect to such
other Lender's obligation to make any Loan or Advance hereunder or to fund its
purchase of any Participation hereunder nor shall the Revolving Credit
Commitment or Letter of Credit Commitment of any Lender hereunder be increased
as a result of such default of any other Lender. Without limiting the generality
of the foregoing or the provisions of Section 4.10, in the event any Lender
shall fail to advance funds to the Borrower as herein provided, the Agent may in
its discretion, but shall not be obligated to, advance under the applicable Note
in its favor as a Lender all or any portion of such amount or amounts (each, a
"deficiency advance") and shall thereafter be entitled to payments of principal
of and interest on such deficiency advance in the same manner and at the same
interest rate or rates to which such other Lender would have been entitled had
it made such Advance under its Note; provided that, (i) such defaulting Lender
shall not be entitled to receive payments of principal, interest or fees with
respect to such deficiency advance until such deficiency advance (together with
interest thereon as provided in clause (ii)) shall be paid by such Lender and
(ii) upon payment to the Agent from such other Lender of the entire outstanding
amount of each such deficiency advance, together with accrued and unpaid
interest thereon, from the most recent date or dates interest was paid to the
Agent by a Borrower on each Loan comprising the deficiency advance at the
Federal Funds Rate, then such payment shall be credited against the applicable
Note of the Agent in full payment of such deficiency advance and such Borrower
shall be deemed to have borrowed the amount of such deficiency advance from such
other Lender as of the most recent date or dates, as the case may be, upon which
any payments of interest were made by such Borrower thereon. In the event any
Lender shall fail to fund its purchase of a Participation after notice from the
Issuing Bank, such Lender shall pay to the Issuing Bank, such amount on demand,
together with interest on the amount so due from the date of such notice at the
Federal Funds Rate on the date such purchase price is received by the Issuing
Bank.

         4.10 Intraday Funding. Without limiting the provisions of Section 4.9,
unless the Borrower or any Lender has notified the Agent not later than 1:00
P.M. of the Business Day before the date any payment (including in the case of
Lenders any Advance) to be made by it is due, that it does not intend to remit
such payment, the Agent may, in its discretion, assume that Borrower or each
Lender, as the case may be, has timely remitted such payment in the manner
required hereunder and may, in its discretion and in reliance thereon, make
available such payment (or portion thereof) to the Person entitled thereto as
otherwise provided herein. If such payment was not in fact remitted to the Agent
in the manner required hereunder, then:


                                       38
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                  (i) if Borrower failed to make such payment, each Lender shall
         forthwith on demand repay to the Agent the amount of such assumed
         payment made available to such Lender, together with interest thereon
         in respect of each day from and including the date such amount was made
         available by the Agent to such Lender to the date such amount is repaid
         to the Agent at the Federal Funds Rate; and

                  (ii) if any Lender failed to make such payment, the Agent
         shall be entitled to recover such corresponding amount forthwith upon
         the Agent's demand therefor, the Agent promptly shall notify the
         Borrower, and the Borrower shall promptly pay such corresponding amount
         to the Agent in immediately available funds upon receipt of such
         demand. The Agent also shall be entitled to recover interest on such
         corresponding amount in respect of each day from the date such
         corresponding amount was made available by the Agent to the Borrower to
         the date such corresponding amount is recovered by the Agent, (A) from
         such Lender at a rate per annum equal to the daily Federal Funds Rate
         or (B) from the Borrower, at a rate per annum equal to the interest
         rate applicable to the Loan which includes such corresponding amount.
         Until the Agent shall recover such corresponding amount together with
         interest thereon, such corresponding amount shall constitute a
         deficiency advance within the meaning of Section 4.9. Nothing herein
         shall be deemed to relieve any Lender from its obligation to fulfill
         its commitments hereunder or to prejudice any rights which the Agent or
         the Borrower may have against any Lender as a result of any default by
         such Lender hereunder.


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                                    ARTICLE V

                                    Security

         5.1. Security. As security for the full and timely payment and
performance of all Obligations, the Borrower shall, and shall cause all other
Credit Parties to, on or before the Closing Date, do or cause to be done all
things necessary in the opinion of the Agent and its counsel to grant to the
Agent for the benefit of the Lenders a duly perfected first priority security
interest in all Collateral subject to no prior Lien or other encumbrance or
restriction on transfer (other than Permitted Liens and restrictions on transfer
imposed by applicable securities laws). Without limiting the foregoing, the
Borrower and each Domestic Subsidiary having rights in any Subsidiary Securities
shall on the Closing Date deliver to the Agent, in form and substance reasonably
acceptable to the Agent, (A) a Pledge Agreement which shall pledge to the Agent
for the benefit of the Agent and the Lenders (i) 65% of the Subsidiary
Securities (other than Management Securities) of each Direct Foreign Subsidiary,
and (ii) all of the Subsidiary Securities (other than Management Securities) of
each Domestic Subsidiary, (B) if such Subsidiary Securities are in the form of
certificated securities, such certificated securities, together with undated
stock powers or other appropriate transfer documents endorsed in blank
pertaining thereto, (C) if such Subsidiary Securities do not constitute
securities and the issuer thereof has not elected to have such interests treated
as securities under Article 8 of the Uniform Commercial Code, a control
agreement (containing the provisions described in Section 9.20(e)) from the
Registrar of such Subsidiary Securities, and (D) Uniform Commercial Code
financing statements reflecting the Lien in favor of the Agent on such
Subsidiary Securities, each in form and substance reasonably acceptable to the
Agent, and shall take such further action and deliver or cause to be delivered
such further documents as required by the Security Instruments or otherwise as
the Agent may reasonably request to effect the transactions contemplated by this
Article V. The Borrower shall, and shall cause each Domestic Subsidiary, to
pledge to the Agent for the benefit of the Agent and the Lenders (and as
appropriate to reaffirm its prior pledge of) all of the Pledged Interests of any
Subsidiary acquired or created after the Closing Date and deliver to the Agent
all of the documents and instruments in connection therewith as are required
pursuant to the terms of Section 9.20 and of the Security Instruments.

         5.2. Further Assurances. At the request of the Agent, the Borrower will
or will cause all other Credit Parties, as the case may be, to execute, by its
duly authorized officers, alone or with the Agent, any certificate, instrument,
financing statement, control agreement, statement or document, or to procure any
such certificate, instrument, statement or document, or to take such other
action (and pay all connected costs) which the Agent reasonably deems necessary
from time to time to create, continue or preserve the liens and security
interests in Collateral (and the perfection and priority thereof) of the Agent
contemplated hereby and by the other Loan Documents and specifically including
all Collateral acquired by the Borrower or other Credit Party after the Closing
Date. The Agent is hereby irrevocably authorized to execute and file or cause to
be filed, with or if permitted by applicable law without the signature of the
Borrower or any Credit Party appearing thereon, all Uniform Commercial Code
financing statements reflecting the Borrower or any other Credit Party as
"debtor" and the Agent as "secured party", and continuations thereof and
amendments thereto, as the Agent reasonably deems necessary or


                                       40
   47
advisable to give effect to the transactions contemplated hereby and by the
other Loan Documents.

         5.3. Information Regarding Collateral. The Borrower represents,
warrants and covenants that as of the Closing Date (i) the chief executive
office of the Borrower and each other Person providing Collateral pursuant to a
Security Instrument (each, a "Grantor") is located at the address or addresses
specified on Schedule 5.3, and (ii) Schedule 5.3 contains a true and complete
list of (a) the exact legal name, jurisdiction of formation, and address of each
Grantor and of each other Person that has effected any merger or consolidation
with a Grantor or contributed or transferred to a Grantor any property
constituting Collateral at any time since January 1, 1994 (excluding Persons
making sales in the ordinary course of their businesses to a Grantor of property
constituting inventory in the hands of such seller), (b) the exact legal name,
jurisdiction of formation, and each location of the chief executive office of
each Grantor at any time since January 1, 1994, (c) each location in which goods
constituting Collateral are or have been located since January 1, 1994 (together
with the name of each owner of the property located at such address if not the
applicable Grantor, and a summary description of the relationship between the
applicable Grantor and such Person), and (d) each trade style used by any
Grantor since January 1, 1994 and the purposes for which it was used. Borrower
shall not change, and shall not permit any other Grantor to change, its name,
jurisdiction of formation (whether by reincorporation, merger or otherwise), the
location of its chief executive office or any location specified in clause (c)
of the immediately preceding sentence, or use or permit any other Grantor to
use, any additional trade style, except upon giving not less than thirty (30)
days' prior written notice to the Agent and taking or causing to be taken all
such action at Borrower's or such other Grantor's expense as may be reasonably
requested by the Agent to perfect or maintain the perfection of the Lien of the
Agent in Collateral.


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                                   ARTICLE VI

                             Change in Circumstances

         6.1. Increased Cost and Reduced Return.

         (a) If, after the date hereof, the adoption of any applicable law,
rule, or regulation, or any change in any applicable law, rule, or regulation,
or any change in the interpretation or administration thereof by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any such governmental authority, central bank, or
comparable agency:

                         (i) shall subject such Lender (or its Applicable
         Lending Office) to any tax, duty, or other charge with respect to any
         Eurodollar Rate Loans, its Note, or its obligation to make Eurodollar
         Rate Loans, or change the basis of taxation of any amounts payable to
         such Lender (or its Applicable Lending Office) under this Agreement or
         its Note in respect of any Eurodollar Rate Loans (other than taxes
         imposed on the overall net income of such Lender by the jurisdiction in
         which such Lender has its principal office or such Applicable Lending
         Office);

                        (ii) shall impose, modify, or deem applicable any
         reserve, special deposit, assessment, or similar requirement (other
         than the Reserve Requirement utilized in the determination of the
         Eurodollar Rate) relating to any extensions of credit or other assets
         of, or any deposits with or other liabilities or commitments of, such
         Lender (or its Applicable Lending Office), including the Revolving
         Credit Commitment of such Lender hereunder; or

                       (iii) shall impose on such Lender (or its Applicable
         Lending Office) or on the London interbank market any other condition
         affecting this Agreement or its Note or any of such extensions of
         credit or liabilities or commitments;

and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Loans or to reduce any sum received or receivable by such Lender
(or its Applicable Lending Office) under this Agreement or its Note with respect
to any Eurodollar Rate Loans, then the Borrower shall pay to such Lender on
demand such amount or amounts as will compensate such Lender for such increased
cost or reduction. If any Lender requests compensation by the Borrower under
this Section 6.1(a), the Borrower may, by notice to such Lender (with a copy to
the Agent), suspend the obligation of such Lender to make or Continue Eurodollar
Rate Loans with respect to which such compensation is requested, or to Convert
Loans of any other Type into Eurodollar Rate Loans, until the event or condition
giving rise to such request ceases to be in effect (in which case the provisions
of Section 6.4 shall be applicable); provided that such suspension shall not
affect the right of such Lender to receive the compensation so requested.


                                       42
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         (b) If, after the date hereof, any Lender shall have determined that
the adoption of any applicable law, rule, or regulation regarding capital
adequacy or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank, or comparable agency, has or
would have the effect of reducing the rate of return on the capital of such
Lender or any corporation controlling such Lender as a consequence of such
Lender's obligations hereunder to a level below that which such Lender or such
corporation could have achieved but for such adoption, change, request, or
directive (taking into consideration its policies with respect to capital
adequacy), then from time to time upon demand the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender for such
reduction.

         (c) Each Lender shall promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this Section 6.1 and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation under this Section 6.1 shall furnish to the Borrower and the Agent
a statement setting forth the additional amount or amounts to be paid to it
hereunder which shall be conclusive in the absence of manifest error. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods.

         6.2. Limitation on Types of Loans. If on or prior to the first day of
any Interest Period for any Eurodollar Rate Loan:

                  (a) the Agent reasonably determines (which determination shall
         be conclusive) that by reason of circumstances affecting the relevant
         market, adequate and reasonable means do not exist for ascertaining the
         Eurodollar Rate for such Interest Period; or

                  (b) the Required Lenders determine (which determination shall
         be conclusive) and notify the Agent that the Eurodollar Rate will not
         adequately and fairly reflect the cost to the Lenders of funding
         Eurodollar Rate Loans for such Interest Period;

then the Agent shall give the Borrower prompt notice thereof specifying the
relevant amounts or periods, and so long as such condition remains in effect,
the Lenders shall be under no obligation to make additional Eurodollar Rate
Loans, Continue Eurodollar Rate Loans, or to Convert Loans of any other Type
into Eurodollar Rate Loans using such Interest Period and the Borrower shall, on
the last day(s) of the then current Interest Period(s) for the outstanding
Eurodollar Rate Loans, either prepay such Eurodollar Rate Loans or Convert such
Eurodollar Rate Loans into another Type of Loan or select an alternate Interest
Period available for such Eurodollar Rate Loans all in accordance with the terms
of this Agreement.


                                       43
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         6.3. Illegality. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender or its Applicable Lending
Office to make, maintain, or fund Eurodollar Rate Loans hereunder, then such
Lender shall promptly notify the Borrower thereof and such Lender's obligation
to make or Continue Eurodollar Rate Loans and to Convert other Types of Loans
into Eurodollar Rate Loans shall be suspended until such time as such Lender may
again make, maintain, and fund Eurodollar Rate Loans (in which case the
provisions of Section 6.4 shall be applicable).

         6.4. Treatment of Affected Loans. If the obligation of any Lender to
make a Eurodollar Rate Loan or to Continue, or to Convert Loans of any other
Type into, Eurodollar Loans shall be suspended pursuant to Section 6.1 or 6.3
hereof (Loans of such Type being herein called "Affected Loans" and such Type
being herein called the "Affected Type"), such Lender's Affected Loans shall be
automatically Converted into Base Rate Loans on the last day(s) of the then
current Interest Period(s) for Affected Loans (or, in the case of a Conversion
required by Section 6.3 hereof, on such earlier date as such Lender may specify
to the Borrower with a copy to the Agent) and, unless and until such Lender
gives notice as provided below that the circumstances specified in Section 6.1
or 6.3 hereof that gave rise to such Conversion no longer exist:

                  (a) to the extent that such Lender's Affected Loans have been
         so Converted, all payments and prepayments of principal that would
         otherwise be applied to such Lender's Affected Loans shall be applied
         instead to its Base Rate Loans; and

                  (b) all Loans that would otherwise be made or Continued by
         such Lender as Loans of the Affected Type shall be made or Continued
         instead as Base Rate Loans, and all Loans of such Lender that would
         otherwise be Converted into Loans of the Affected Type shall be
         Converted instead into (or shall remain as) Base Rate Loans.

If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 6.1 or 6.3 hereof that gave rise to the
Conversion of such Lender's Affected Loans pursuant to this Section 6.4 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Loans of the Affected Type made by other
Lenders are outstanding, such Lender's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Loans of the Affected Type, to the extent necessary so that,
after giving effect thereto, all Loans held by the Lenders holding Loans of the
Affected Type and by such Lender are held pro rata (as to principal amounts,
Types, and Interest Periods) in accordance with their respective Revolving
Credit Commitments.

         6.5. Compensation. Upon the request of any Lender, the Borrower shall
pay to such Lender such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any actual loss, cost,
or expense (including loss of demonstrable anticipated profits) incurred by it
as a result of:


                                       44
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                  (a) any payment, prepayment, or Conversion of a Eurodollar
         Rate Loan for any reason (including, without limitation, the
         acceleration of the Loans pursuant to Section 11.1) on a date other
         than the last day of the Interest Period for such Loan; or

                  (b) any failure by the Borrower for any reason (including,
         without limitation, the failure of any condition precedent specified in
         Article VII to be satisfied) to borrow, Convert, Continue, or prepay a
         Eurodollar Rate Loan on the date for such borrowing, Conversion,
         Continuation, or prepayment specified in the relevant notice of
         borrowing, prepayment, Continuation, or Conversion under this
         Agreement.

         6.6. Taxes. (a) Any and all payments by the Borrower to or for the
account of any Lender or the Agent hereunder or under any other Loan Document
shall be made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding, in the case of each Lender and
the Agent, taxes imposed on its income, and franchise taxes imposed on it, by
the jurisdiction under the laws of which such Lender (or its Applicable Lending
Office) or the Agent (as the case may be) is organized or any political
subdivision thereof (all such non-excluded taxes, duties, levies, imposts,
deductions, charges, withholdings, and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable under this Agreement or any other Loan Document
to any Lender or the Agent, (i) the sum payable shall be increased as necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 6.6) such Lender or the Agent
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law, and (iv) the Borrower
shall furnish to the Agent, at its address referred to in Section 13.2, the
original or a certified copy of a receipt evidencing payment thereof.

         (b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under this Agreement
or any other Loan Document or from the execution or delivery of, or otherwise
with respect to, this Agreement or any other Loan Document (hereinafter referred
to as "Other Taxes").

         (c) The Borrower agrees to indemnify each Lender and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 6.6) paid by such Lender or the Agent (as the case may be) and any
liability (including penalties, interest, and expenses) arising therefrom or
with respect thereto.

         (d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if


                                       45
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requested in writing by the Borrower or the Agent (but only so long as such
Lender remains lawfully able to do so), shall provide the Borrower and the Agent
with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Lender is entitled to benefits under an income tax treaty to which the United
States is a party which reduces the rate of withholding tax on payments of
interest or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any
successor form prescribed by the Internal Revenue Service, and (iii) any other
form or certificate required by any taxing authority (including any certificate
required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying
that such Lender is entitled to an exemption from or a reduced rate of tax on
payments pursuant to this Agreement or any of the other Loan Documents.

         (e) For any period with respect to which a Lender has failed to provide
the Borrower and the Agent with the appropriate form pursuant to Section 6.6(d)
(unless such failure is due to a change in treaty, law, or regulation occurring
subsequent to the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnification under Section 6.6(a) or
6.6(b) with respect to Taxes imposed by the United States; provided, however,
that should a Lender, which is otherwise exempt from or subject to a reduced
rate of withholding tax, become subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as such
Lender shall reasonably request to assist such Lender to recover such Taxes.

         (f) If the Borrower is required to pay additional amounts to or for the
account of any Lender pursuant to this Section 6.6, then such Lender will agree
to use reasonable efforts to change the jurisdiction of its Applicable Lending
Office so as to eliminate or reduce any such additional payment which may
thereafter accrue if such change, in the reasonable judgment of such Lender, is
not otherwise disadvantageous to such Lender.

         (g) Within thirty (30) days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent the original or a certified copy of a
receipt evidencing such payment.

         (h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 6.6 shall survive the termination of the Revolving Credit
Commitments and the payment in full of the Notes and the Facility Termination
Date.


                                       46
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                                   ARTICLE VII

            Conditions to Making Loans and Issuing Letters of Credit

         7.1. Conditions of Initial Advance. The obligation of the Lenders to
make the initial Advance under the Revolving Credit Facility, and of the Issuing
Bank to issue any Letter of Credit, is subject to the conditions precedent that:

                  (a) the Agent shall have received on the Closing Date, in form
         and substance satisfactory to the Agent and Lenders, the following:

                           (i) executed originals of each of this Agreement, the
                  Notes, the initial Facility Guaranties, the Security
                  Instruments, the LC Account Agreement, the other Loan
                  Documents, together with all schedules and exhibits thereto;

                           (ii) the favorable written opinion or opinions with
                  respect to the Loan Documents and the transactions
                  contemplated thereby of counsel to the Credit Parties dated
                  the Closing Date, addressed to the Agent and the Lenders and
                  satisfactory to special counsel to the Agent, substantially in
                  the form of Exhibit G;

                           (iii) resolutions of the boards of directors or other
                  appropriate governing body (or of the appropriate committee
                  thereof) of each Credit Party certified by its secretary or
                  assistant secretary as of the Closing Date, approving and
                  adopting the Loan Documents to be executed by such Person, and
                  authorizing the execution and delivery thereof;

                           (iv) specimen signatures of officers or other
                  appropriate representatives executing the Loan Documents on
                  behalf of each of the Credit Parties, certified by the
                  secretary or assistant secretary of such Credit Party;

                           (v) the Organizational Documents of each of the
                  Credit Parties certified as of a recent date by the Secretary
                  of State of its state of organization;

                           (vi) Operating Documents of each of the Credit
                  Parties certified as of the Closing Date as true and correct
                  by its secretary or assistant secretary;

                           (vii) certificates issued as of a recent date by the
                  Secretaries of State of the respective jurisdictions of
                  formation of each of the Credit Parties as to the due
                  existence and good standing of such Person;

                           (viii) appropriate certificates of qualification to
                  do business, good standing and, where appropriate, authority
                  to conduct business under assumed name, issued in respect of
                  each of the Credit Parties as of a recent date by the
                  Secretary of State or comparable official of each jurisdiction
                  in which the failure


                                       47
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                  to be qualified to do business or authorized so to conduct
                  business could have a Material Adverse Effect;

                           (ix) notice of appointment of the initial Authorized
                  Representative(s);

                           (x) certificate of an Authorized Representative dated
                  the Closing Date demonstrating compliance with the financial
                  covenants contained in Sections 10.1(a) through 10.1(c), 10.3,
                  10.5(g) and 10.7(g) as of the end of the fiscal quarter most
                  recently ended prior to the Closing Date, substantially in the
                  form of Exhibit H;

                           (xi) certificate of an executive officer of the
                  Borrower confirming the matters set forth in Section 7.1(b);

                           (xii) evidence of all insurance required by the Loan
                  Documents;

                           (xiii) an initial Borrowing Notice, if any, and, if
                  elected by the Borrower, Interest Rate Selection Notice;

                           (xiv) evidence of the filing of Uniform Commercial
                  Code financing statements reflecting the filing in all places
                  required by applicable law to perfect the Liens of the Agent
                  under the Security Instruments as a first priority Lien as to
                  items of Collateral in which a security interest may be
                  perfected by the filing of financing statements, and such
                  other documents and/or evidence of other actions as may be
                  necessary under applicable law to perfect the Liens of the
                  Agent under the Security Instruments as a first priority Lien
                  in and to such other Collateral as the Agent may require,
                  including without limitation:

                                    (i) the delivery by the Borrower of all
                           stock certificates evidencing Pledged Interests
                           accompanied in each case by duly executed stock
                           powers (or other appropriate transfer documents) in
                           blank affixed thereto; and

                                    (ii) the delivery by the Borrower of
                           certificates of the Registrar of each partnership
                           Subsidiary evidencing the due registration on the
                           registration books of such partnership of the Lien in
                           favor of the Agent conferred under the Security
                           Instruments;

                           (xv) evidence that all fees payable by the Borrower
                  on the Closing Date pursuant to this Agreement to the Agent,
                  BAS and the Lenders have been paid in full;

                           (xvi) Uniform Commercial Code search results showing
                  only those Liens as are acceptable to the Lenders; and


                                       48
   55
                           (xvii) such other documents, instruments,
                  certificates and opinions as the Agent or any Lender may
                  reasonably request on or prior to the Closing Date in
                  connection with the consummation of the transactions
                  contemplated hereby; and

                  (b) In the good faith judgment of the Agent and the Lenders:

                           (i) there shall not have occurred or become known to
                  the Agent or the Lenders any event, condition, situation or
                  status since the date of the information contained in the
                  financial and business projections, budgets, pro forma data
                  and forecasts concerning the Borrower and its Subsidiaries
                  delivered to the Agent prior to the Closing Date that has had
                  or could reasonably be expected to result in a Material
                  Adverse Effect;

                           (ii) no litigation, action, suit, investigation or
                  other arbitral, administrative or judicial proceeding shall be
                  pending or threatened which could reasonably be likely to
                  result in a Material Adverse Effect; and

                           (iii) the Credit Parties shall have received all
                  approvals, consents and waivers, and shall have made or given
                  all necessary filings and notices as shall be required to
                  consummate the transactions contemplated hereby without the
                  occurrence of any default under, conflict with or violation of
                  (A) any applicable law, rule, regulation, order or decree of
                  any Governmental Authority or arbitral authority or (B) any
                  agreement, document or instrument to which any of the Credit
                  Parties is a party or by which any of them or their properties
                  is bound, except for such approvals, consents, waivers,
                  filings and notices the receipt, making or giving of which
                  will not have a Material Adverse Effect.

         7.2. Conditions of Loans and Letter of Credit. The obligations of the
Lenders to make any Loans and the Issuing Bank to issue Letters of Credit
hereunder on or subsequent to the Closing Date are subject to the satisfaction
of the following conditions:

                  (a) the Agent shall have received a Borrowing Notice if
         required by Article II;

                  (b) the representations and warranties of the Credit Parties
         set forth in Article VIII and in each of the other Loan Documents shall
         be true and correct in all material respects on and as of the date of
         such Advance or Letter of Credit issuance or renewal, with the same
         effect as though such representations and warranties had been made on
         and as of such date, except to the extent that such representations and
         warranties expressly relate to an earlier date and except that the
         financial statements referred to in Section 8.6(a) shall be deemed
         (solely for the purpose of the representation and warranty contained in
         such Section 8.6(a) but not for the purpose of any cross reference to
         such Section 8.6(a) or to the financial statements described therein
         contained in any other provision of Section 8.6 or elsewhere in Article
         8) to be those financial statements most recently delivered to the
         Agent and the Lenders pursuant to Section 9.1 from the date


                                       49
   56
         financial statements are delivered to the Agent and the Lenders in
         accordance with such Section;

                  (c) in the case of the issuance of a Letter of Credit, the
         Borrower shall have executed and delivered to the Issuing Bank an
         Application and Agreement for Letter of Credit in form and content
         reasonably acceptable to the Issuing Bank together with such other
         instruments and documents as it shall request;

                  (d) at the time of (and after giving effect to) each Advance
         or the issuance of a Letter of Credit, no Default or Event of Default
         specified in Article XI shall have occurred and be continuing; and

                  (e) immediately after giving effect to:

                           (i) a Loan, the aggregate principal balance of all
                  outstanding Loans for each Lender shall not exceed such
                  Lender's Revolving Credit Commitment;

                           (ii) a Letter of Credit or renewal thereof, the
                  aggregate principal balance of all outstanding Participations
                  in Letters of Credit and Reimbursement Obligations (or in the
                  case of the Issuing Bank, its remaining interest after
                  deduction of all Participations in Letters of Credit and
                  Reimbursement Obligations of other Lenders) for each Lender
                  and in the aggregate shall not exceed, respectively, (X) such
                  Lender's Letter of Credit Commitment or (Y) the Total Letter
                  of Credit Commitment; and

                           (iii) a Loan or a Letter of Credit or renewal
                  thereof, the sum of Letter of Credit Outstandings plus
                  Revolving Credit Outstandings shall not exceed the Total
                  Revolving Credit Commitment.


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                                  ARTICLE VIII

                         Representations and Warranties

         The Borrower represents and warrants with respect to itself and to its
Subsidiaries (which representations and warranties shall survive the delivery of
the documents mentioned herein and the making of Loans), that:

         8.1. Organization and Authority.

                  (a) The Borrower and each Subsidiary is a corporation,
         partnership or limited liability company duly organized and validly
         existing under the laws of the jurisdiction of its formation;

                  (b) The Borrower and each Subsidiary (x) has the requisite
         power and authority to own its properties and assets and to carry on
         its business as now being conducted and as contemplated in the Loan
         Documents, and (y) is qualified to do business in every jurisdiction in
         which failure so to qualify would have a Material Adverse Effect;

                  (c) The Borrower has the power and authority to execute,
         deliver and perform this Agreement and the Notes, and to borrow
         hereunder, and to execute, deliver and perform each of the other Loan
         Documents to which it is a party;

                  (d) Each Credit Party (other than the Borrower) has the power
         and authority to execute, deliver and perform the Facility Guaranty,
         the Security Instruments and each of the other Loan Documents to which
         it is a party; and

                  (e) When executed and delivered, each of the Loan Documents to
         which any Credit Party is a party will be the legal, valid and binding
         obligation or agreement, as the case may be, of such Credit Party,
         enforceable against such Credit Party in accordance with its terms,
         subject to the effect of any applicable bankruptcy, moratorium,
         insolvency, reorganization or other similar law affecting the
         enforceability of creditors' rights generally and to the effect of
         general principles of equity (whether considered in a proceeding at law
         or in equity).

         8.2. Loan Documents. The execution, delivery and performance by each
Credit Party of each of the Loan Documents to which it is a party:

                  (a) have been duly authorized by all requisite Organizational
         Action of such Credit Party required for the lawful execution, delivery
         and performance thereof;

                  (b) do not violate any provisions of (i) any applicable law,
         rule or regulation, (ii) any judgment, writ, order, determination,
         decree or arbitral award of any Governmental Authority or arbitral
         authority binding on such Credit Party or its


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         properties, or (iii) the Organizational Documents or Operating
         Documents of such Credit Party, except, with respect to clause (i)
         only, where such violation will not have a Material Adverse Effect;

                  (c) does not and will not be in conflict with, result in a
         breach of or constitute an event of default, or an event which, with
         notice or lapse of time or both, would constitute an event of default,
         under any material contract, indenture, agreement or other instrument
         or document to which such Credit Party is a party, or by which the
         properties or assets of such Credit Party are bound; and

                  (d) does not and will not result in the creation or imposition
         of any Lien upon any of the properties or assets of such Credit Party
         or any Subsidiary except any Liens in favor of the Agent and the
         Lenders created by the Security Instruments.

         8.3. Solvency. Each Credit Party is Solvent after giving effect to the
transactions contemplated by the Loan Documents.

         8.4. Subsidiaries and Stockholders. The Borrower has no Subsidiaries
other than those Persons listed as Subsidiaries in Schedule 8.4 and additional
Subsidiaries created or acquired after the Closing Date in compliance with
Section 9.20; Schedule 8.4 states as of the date hereof the organizational form
of each entity, the authorized and issued capitalization of each Subsidiary
listed thereon, the number of shares or other equity interests of each class of
capital stock or interest issued and outstanding of each such Subsidiary and the
number and/or percentage of outstanding shares or other equity interest
(including options, warrants and other rights to acquire any interest) of each
such class of capital stock or other equity interest owned by Borrower or by any
such Subsidiary; the outstanding shares or other equity interests of each such
Subsidiary have been duly authorized and validly issued and are fully paid and
non assessable; and Borrower and each such Subsidiary owns beneficially and of
record all the shares and other interests it is listed as owning in Schedule
8.4, free and clear of any Lien.

         8.5. Ownership Interests. Borrower owns no interest in any Person other
than the Persons listed in Schedule 8.4, equity investments in Persons not
constituting Subsidiaries permitted under Section 10.7 and additional
Subsidiaries created or acquired after the Closing Date in compliance with
Section 9.20.

         8.6. Financial Condition.

                  (a) The Borrower has heretofore furnished to each Lender an
         audited consolidated balance sheet of the Borrower and its Subsidiaries
         as at December 31, 1998 and the notes thereto and the related
         consolidated statements of income, stockholders' equity and cash flows
         for the Fiscal Year then ended as examined and certified by Ernst &
         Young L.L.C., and unaudited consolidated interim financial statements
         of the Borrower and its Subsidiaries consisting of a consolidated
         balance sheets and related consolidated statements of income,
         stockholders' equity and cash flows, in each case without notes, for
         and as of the end of the six-month period ending June 30, 1999.


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   59
         Except as set forth therein, such financial statements (including the
         notes thereto) present fairly the financial condition of the Borrower
         and its Subsidiaries as of the end of such Fiscal Year and six-month
         period and results of their operations and the changes in its
         stockholders' equity for the Fiscal Year and interim period then ended,
         all in conformity with GAAP applied on a Consistent Basis, subject
         however, in the case of unaudited interim statements to year end audit
         adjustments;

                  (b) since the later of (i) the date of the audited financial
         statements delivered pursuant to Section 8.6(a) hereof or (ii) the date
         of the audited financial statements most recently delivered pursuant to
         Section 9.1(a) hereof, there has been no material adverse change in the
         condition, financial or otherwise, of the Borrower or any of its
         Subsidiaries or in the businesses, properties, performance, prospects
         or operations of the Borrower or its Subsidiaries, nor have such
         businesses or properties been materially adversely affected as a result
         of any fire, explosion, earthquake, accident, strike, lockout,
         combination of workers, flood, embargo or act of God; and

                  (c) except as set forth in the financial statements referred
         to in Section 8.6(a) or in Schedule 8.6 or permitted by Section 10.5,
         neither the Borrower nor any Subsidiary has incurred, other than in the
         ordinary course of business, any material Indebtedness, Contingent
         Obligation or other commitment or liability which remains outstanding
         or unsatisfied.

         8.7. Title to Properties. The Borrower and each of its Subsidiaries and
each other Credit Party has good and marketable title to all its owned real
properties and owns all its personal properties, subject to no transfer
restrictions or Liens of any kind, except for the transfer restrictions and
Liens described in Schedule 8.7 and Permitted Liens. The Borrower and each of
its Subsidiaries has a valid leasehold interest in all its leased real and
personal properties.

         8.8. Taxes. The Borrower and each of its Subsidiaries has filed or
caused to be filed all federal, state and local tax returns which are required
to be filed by it and, except for (a) taxes and assessments the nonpayment of
which could not reasonably be expected to have a Material Adverse Effect and (b)
taxes and assessments being contested in good faith by appropriate proceedings
diligently conducted and against which reserves reflected in the financial
statements described in Section 8.6(a) or Sections 9.1(a) or (b) and
satisfactory to the Borrower's independent certified public accountants have
been established, have paid or caused to be paid all taxes as shown on said
returns or on any assessment received by it, to the extent that such taxes have
become due.

         8.9. Other Agreements. No Credit Party nor any Subsidiary is

                  (a) a party to or subject to any judgment, order, decree,
         agreement, lease or instrument, or subject to other restrictions, which
         individually or in the aggregate could reasonably be expected to have a
         Material Adverse Effect; or


                                       53
   60
                  (b) in default in the performance, observance or fulfillment
         of any of the obligations, covenants or conditions contained in any
         agreement or instrument to which such Credit Party or any Subsidiary is
         a party, which default has, or if not remedied within any applicable
         grace period could reasonably be likely to have, a Material Adverse
         Effect.

         8.10. Litigation. Except as set forth in Schedule 8.10, there is no
action, suit, investigation or proceeding at law or in equity or by or before
any governmental instrumentality or agency or arbitral body pending, or, to the
knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary or other Credit Party or affecting the Borrower or any Subsidiary or
other Credit Party or any properties or rights of the Borrower or any Subsidiary
or other Credit Party, which could reasonably be likely to have a Material
Adverse Effect.

         8.11. Margin Stock. The proceeds of the borrowings made hereunder will
be used by the Borrower only for the purposes expressly authorized herein. None
of such proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin stock or for the purpose of reducing or
retiring any Indebtedness which was originally incurred to purchase or carry
margin stock or for any other purpose which might constitute any of the Loans
under this Agreement a "purpose credit" within the meaning of said Regulation U
or Regulation X (12 C.F.R. Part 221) of the Board. Neither the Borrower nor any
agent acting in its behalf has taken or will take any action which might cause
this Agreement or any of the documents or instruments delivered pursuant hereto
to violate any regulation of the Board or to violate the Securities Exchange Act
of 1934, as amended, or the Securities Act of 1933, as amended, or any state
securities laws, in each case as in effect on the date hereof.

         8.12. Investment Company. No Credit Party is an "investment company,"
or an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company", as such terms are defined in the Investment Company Act of
1940, as amended (15 U.S.C. Section 80a-1, et seq.). The application of the
proceeds of the Loans and repayment thereof by the Borrower and the performance
by the Borrower and the other Credit Parties of the transactions contemplated by
the Loan Documents will not violate any provision of said Act, or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder,
in each case as in effect on the date hereof.

         8.13. Intellectual Property. The Borrower and each other Credit Party
owns or has the right to use, under valid license agreements or otherwise, all
its Intellectual Property, without known conflict with any patent, license,
franchise, trademark, trade secret, trade name, copyright, other proprietary
right of any other Person, and other than the trademark "P.F. Chang's China
Bistro, Inc." (which is owned by the Borrower), neither the Borrower nor any
subsidiary owns or licenses any other registered Intellectual Property.

         8.14. No Untrue Statement. Neither (a) this Agreement nor any other
Loan Document or certificate or document executed and delivered by or on behalf
of the Borrower or any other Credit Party in accordance with or pursuant to any
Loan Document nor (b) any statement, representation, or warranty provided to the
Agent in connection with the negotiation or

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preparation of the Loan Documents contains any material misrepresentation or
material untrue statement of material fact or omits to state a material fact
necessary, in light of the circumstance under which it was made, in order to
make any such warranty, representation or statement contained therein not
materially misleading.

         8.15. No Consents, Etc. Neither the respective businesses or properties
of the Credit Parties or any Subsidiary, nor any relationship among the Credit
Parties or any Subsidiary and any other Person, nor any circumstance in
connection with the execution, delivery and performance of the Loan Documents
and the transactions contemplated thereby, is such as to require a consent,
approval or authorization of, or filing, registration or qualification with, any
Governmental Authority or any other Person on the part of any Credit Party, that
has not been obtained by such Credit Party, as a condition to the execution,
delivery and performance of, or consummation of the transactions contemplated by
the Loan Documents, which, if not obtained or effected, would be reasonably
likely to have a Material Adverse Effect, or if so, such consent, approval,
authorization, filing, registration or qualification has been duly obtained or
effected, as the case may be.

         8.16. Employee Benefit Plans.

                  (a) The Borrower and each ERISA Affiliate is in compliance
         with all applicable provisions of ERISA and the regulations and
         published interpretations thereunder and in compliance with all Foreign
         Benefit Laws with respect to all Employee Benefit Plans except for any
         required amendments for which the remedial amendment period as defined
         in Section 401(b) of the Code has not yet expired. Each Employee
         Benefit Plan that is intended to be qualified under Section 401(a) of
         the Code has been determined or the Borrower or its Subsidiaries is in
         the process of obtaining a determination by the Internal Revenue
         Service to be so qualified, each trust related to such plan has been
         determined to be exempt under Section 501(a) of the Code, and each
         Employee Benefit Plan subject to any Foreign Benefit Law has received
         the required approvals by any Governmental Authority regulating such
         Employee Benefit Plan. No material liability has been incurred by the
         Borrower or any ERISA Affiliate which remains unsatisfied for any taxes
         or penalties with respect to any Employee Benefit Plan or any
         Multiemployer Plan;

                  (b) Neither the Borrower nor any ERISA Affiliate has (i)
         engaged in a nonexempt prohibited transaction described in Section 4975
         of the Code or Section 406 of ERISA affecting any of the Employee
         Benefit Plans or the trusts created thereunder which could subject any
         such Employee Benefit Plan or trust to a material tax or penalty on
         prohibited transactions imposed under Internal Revenue Code Section
         4975 or ERISA, (ii) incurred any accumulated funding deficiency with
         respect to any Employee Benefit Plan, whether or not waived, or any
         other liability to the PBGC which remains outstanding other than the
         payment of premiums and there are no premium payments which are due and
         unpaid, (iii) failed to make a required contribution or payment to a
         Multiemployer Plan, (iv) failed to make a required installment or other
         required payment under Section 412 of the Code, Section 302 of ERISA or
         the terms of such Employee

                                       55
   62
         Benefit Plan, or (v) failed to make a required contribution or payment,
         or otherwise failed to operate in compliance with any Foreign Benefit
         Law regulating any Employee Benefit Plan;

                  (c) No Termination Event has occurred or is reasonably
         expected to occur with respect to any Pension Plan or Multiemployer
         Plan, and neither the Borrower nor any ERISA Affiliate has incurred any
         unpaid withdrawal liability with respect to any Multiemployer Plan;

                  (d) The present value of all vested accrued benefits under
         each Employee Benefit Plan which is subject to Title IV of ERISA, or
         the funding of which is regulated by any Foreign Benefit Law did not,
         as of the most recent valuation date for each such plan, exceed the
         then current value of the assets of such Employee Benefit Plan
         allocable to such benefits;

                  (e) To the best of the Borrower's knowledge, each Employee
         Benefit Plan which is subject to Title IV of ERISA or the funding of
         which is regulated by any Foreign Benefit Law, maintained by the
         Borrower or any ERISA Affiliate, has been administered in accordance
         with its terms in all material respects and is in compliance in all
         material respects with all applicable requirements of ERISA, applicable
         Foreign Benefit Law and other applicable laws, regulations and rules;

                  (f) The consummation of the Loans and the issuance of the
         Letters of Credit provided for herein will not involve any prohibited
         transaction under ERISA which is not subject to a statutory or
         administrative exemption; and

                  (g) No material proceeding, claim, lawsuit and/or
         investigation exists or, to the best knowledge of the Borrower after
         due inquiry, is threatened concerning or involving any Employee Benefit
         Plan.

         8.17. No Default. As of the date hereof, there does not exist any
Default or Event of Default hereunder.

         8.18. Environmental Laws. Except as listed on Schedule 8.18, the
Borrower and each Subsidiary is in compliance with all applicable Environmental
Laws and has been issued and currently maintains all required federal, state and
local permits, licenses, certificates and approvals except to the extent that
any noncompliance or failure to obtain or maintain such permits, licenses,
certificates or approvals could not reasonably be expected to have a Material
Adverse Effect. Except as listed on Schedule 8.18, neither the Borrower nor any
Subsidiary has been notified in writing of any pending or threatened action,
suit, proceeding or investigation, and neither the Borrower nor any Subsidiary
is aware of any facts, which (a) calls into question, or could reasonably be
expected to call into question, compliance by the Borrower or any Subsidiary
with any Environmental Laws, (b) seeks, or could reasonably be expected to form
the basis of a meritorious proceeding, to suspend, revoke or terminate any
license, permit or approval necessary for the operation of the Borrower's or any
Subsidiary's business or facilities

                                       56
   63
or for the generation, handling, storage, treatment or disposal of any Hazardous
Materials, or (c) seeks to cause, or could reasonably be expected to form the
basis of a meritorious proceeding to cause, any property of the Borrower or any
Subsidiary or other Credit Party to be subject to any restrictions on ownership,
use, occupancy or transferability under any Environmental Law.

         8.19. Employment Matters. (a) None of the employees of the Borrower or
any Subsidiary is subject to any collective bargaining agreement and there are
no strikes, work stoppages, election or decertification petitions or
proceedings, unfair labor charges, equal opportunity proceedings, or other
material labor/employee related controversies or proceedings pending or, to the
actual knowledge of the Borrower, threatened against the Borrower or any
Subsidiary or between the Borrower or any Subsidiary and any of its employees,
other than employee grievances arising in the ordinary course of business which
could not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect; and

         (b) Except to the extent a failure to maintain compliance would not
have a Material Adverse Effect, the Borrower and each Subsidiary is in
compliance in all respects with all applicable laws, rules and regulations
pertaining to labor or employment matters, including without limitation those
pertaining to wages, hours, occupational safety and taxation and there is
neither pending nor, to the Borrower's actual knowledge, threatened any
litigation, administrative proceeding or, to the actual knowledge of the
Borrower, any investigation, in respect of such matters which, if decided
adversely, could reasonably be likely, individually or in the aggregate, to have
a Material Adverse Effect.

         8.20. RICO. Neither the Borrower nor any Subsidiary is engaged in or
has engaged in any course of conduct that could subject any of their respective
properties to any Lien, seizure or other forfeiture under any criminal law,
racketeer influenced and corrupt organizations law, civil or criminal, or other
similar laws.

         8.21. Year 2000 Compliance. The Borrower and its Subsidiaries have (i)
initiated a review and assessment of all areas within its and each of its
Subsidiaries' business and operations (including those affected by information
received from suppliers and vendors) that could reasonably be expected to be
adversely affected by the Year 2000 Problem, (ii) developed a plan and timeline
for addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan substantially in accordance with that timetable. The
Borrower has taken all reasonable steps to insure that all computer applications
(including those affected by information received from its suppliers and
vendors) that are material to its or any of its Subsidiaries' business and
operations will on a timely basis be Year 2000 Compliant, except to the extent
that a failure to do so could not reasonably be expected to have Material
Adverse Effect.

         8.22. Operating Facilities. Schedule 8.22 contains a true and complete
list of all owned or leased restaurant, office and other operating facilities of
the Borrower and each Subsidiary (other than those acquired since the last date
on which financial statements were required to be delivered pursuant to Sections
9.1(a) or (b)) and, as to each such facility, describes (a) the type of
facility, (b) whether it is owned or leased by the Borrower or such Subsidiary,
(c) the identity


                                       57
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of such owner or lessee, and (d) as to leased facilities, (i) the name and
address of the lessor, (ii) the expiration date of the related lease, and (iii)
the rental or other payments (whether fixed or percentage) payable thereunder.
Since the Closing Date no leases have expired or been terminated or otherwise
have ceased to be in full force and effect other than expirations and
terminations in the ordinary course of business, and no default or defaults in
the performance, observance or fulfillment of any of the terms or conditions
thereof has occurred and is continuing beyond any applicable grace period, in
any case which individually or in the aggregate could reasonably be expected to
have a Material Adverse Effect.

                                   ARTICLE IX

                              Affirmative Covenants

         Until the Facility Termination Date, unless the Required Lenders shall
otherwise consent in writing, the Borrower will, and where applicable will cause
each Subsidiary to:

         9.1. Financial Reports, Etc. (a) As soon as practical and in any event
within 90 days after the end of each Fiscal Year of the Borrower, deliver or
cause to be delivered to the Agent and each Lender (i) consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as at the end
of such Fiscal Year, and the notes thereto, and the related consolidated and
consolidating statements of income, stockholders' equity and cash flows, and the
respective notes thereto, for such Fiscal Year, setting forth (other than for
consolidating statements) comparative financial statements for the preceding
Fiscal Year, all prepared in accordance with GAAP applied on a Consistent Basis
and containing, with respect to the consolidated financial statements, opinions
of Ernst & Young LLC, or other such independent certified public accountants
selected by the Borrower and approved by the Agent (such approval not to be
unreasonably withheld), which are unqualified as to the scope of the audit
performed and as to the "going concern" status of the Borrower and without any
exception not acceptable to the Lenders, and (ii) a certificate of an Authorized
Representative demonstrating compliance with Sections 10.1(a) through 10.1(c),
10.3, 10.5(g) and 10.7(g), which certificate shall be in the form of Exhibit H;

         (b) as soon as practical and in any event within 45 days after the end
of each fiscal quarter (except the last fiscal quarter of the Fiscal Year),
deliver to the Agent and each Lender (i) consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as at the end of such fiscal
quarter, and the related consolidated and consolidating statements of income,
stockholders' equity and cash flows for such fiscal quarter and for the period
from the beginning of the then current Fiscal Year through the end of such
reporting period, and accompanied by a certificate of an Authorized
Representative to the effect that such financial statements present fairly the
financial position of the Borrower and its Subsidiaries as of the end of such
fiscal period and the results of their operations and the changes in their
financial position for such fiscal period, in conformity with the standards set
forth in Section 8.6(a) with respect to interim financial statements, and (ii) a
certificate of an Authorized Representative containing computations for such
quarter comparable to that required pursuant to Section 9.1(a)(ii);



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         (c) promptly upon their becoming available to the Borrower, the
Borrower shall deliver or make available to the Agent and each Lender a copy of
(i) all regular or special reports or effective registration statements which
Borrower or any Subsidiary shall file with the Securities and Exchange
Commission (or any successor thereto) or any securities exchange, (ii) any proxy
statement distributed by the Borrower or any Subsidiary to its shareholders,
bondholders or the financial community in general, and (iii) any management
letter or other report submitted to the Borrower or any Subsidiary by
independent accountants in connection with any annual, interim or special audit
of the Borrower or any Subsidiary;

         (d) together with each delivery of financial statements required by
Section 9.1(a) or (b), deliver to the Agent and each Lender a supplement to
Schedule 8.22 reflecting any changes to the information provided therein;

         (e) not later than the last Business Day of each Fiscal Year, deliver
to the Agent and each Lender a capital and operating expense budget and
consolidated financial projections for the Borrower and its Subsidiaries for the
next three (3) Fiscal Years prepared in good faith in accordance with prior
practice of the Borrower; and

         (f) promptly, from time to time, deliver or cause to be delivered to
the Agent and each Lender such other information regarding Borrower's and any
Subsidiary's operations, business affairs and financial condition as the Agent
or such Lender may reasonably request;

         The Agent and the Lenders are hereby authorized to deliver a copy of
any such financial or other information delivered hereunder to the Lenders (or
any affiliate of any Lender) or to the Agent, to any Governmental Authority
having jurisdiction over the Agent or any of the Lenders pursuant to any written
request therefor or in the ordinary course of examination of loan files, or to
any other Person who shall acquire or consider the assignment of, or acquisition
of any participation interest in, any Obligation permitted by this Agreement.

         9.2. Maintain Properties. Maintain all properties necessary to its
operations in good working order and condition, make all needed repairs,
replacements and renewals to such properties, and maintain free from Liens all
trademarks, trade names, patents, copyrights, trade secrets, know-how, and other
intellectual property and proprietary information (or adequate licenses
thereto), in each case as are reasonably necessary to conduct its business as
currently conducted or as contemplated hereby, all in accordance with customary
and prudent business practices.

         9.3. Existence, Qualification, Etc. Do or cause to be done all things
necessary to preserve and keep in full force and effect its existence and all
material rights and franchises, and maintain its license or qualification to do
business as a foreign corporation and good standing in each jurisdiction in
which its ownership or lease of property or the nature of its business makes
such license or qualification necessary, except (a) where the failure to
maintain such good standing or qualification would not result in a Material
Adverse Effect or (b) as otherwise expressly permitted under Section 10.8.



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         9.4. Regulations and Taxes. Comply in all material respects with or
contest in good faith all statutes and governmental regulations and pay all
taxes, assessments, governmental charges, claims for labor, supplies, rent and
any other obligation which, if unpaid, would become a Lien against any of its
properties except liabilities being contested in good faith by appropriate
proceedings diligently conducted and against which adequate reserves acceptable
to the Borrower's independent certified public accountants have been established
unless and until any Lien resulting therefrom attaches to any of its property
and becomes enforceable against its creditors.

         9.5. Insurance. (a) Keep all of its insurable properties adequately
insured at all times with responsible insurance carriers against loss or damage
by fire and other hazards to the extent and in the manner as are customarily
insured against by similar businesses owning such properties similarly situated
and otherwise as required by the Security Instruments, (b) maintain general
public liability insurance at all times with responsible insurance carriers
against liability on account of damage to persons and property and (c) maintain
insurance under all applicable workers' compensation laws (or in the
alternative, maintain required reserves if self-insured for workers'
compensation purposes) and against loss by reason by business interruption, such
policies of insurance to have such limits, deductibles, exclusions, co-insurance
and other provisions providing no less coverages than are maintained by similar
businesses that are similarly situated, such insurance policies to be in form
reasonably satisfactory to the Agent. Each of the policies of insurance
described in this Section 9.5 shall provide that the insurer shall give the
Agent not less than thirty (30) days' prior written notice before any such
policy shall be terminated, lapse or be altered in any manner.

         9.6. True Books. Keep true books of record and account in which full,
true and correct entries will be made of all of its dealings and transactions,
and set up on its books such reserves as may be required by GAAP with respect to
doubtful accounts and all taxes, assessments, charges, levies and claims and
with respect to its business in general, and include such reserves in interim as
well as year-end financial statements.

         9.7. Year 2000 Compliance. The Borrower will promptly notify the Agent
and the Lenders in the event the Borrower discovers or determines that any
computer application (including those affected by information received from its
suppliers and vendors) that is material to its or any of its Subsidiaries'
business and operations will not be Year 2000 Compliant on a timely basis,
except to the extent that such failure could not reasonably be expected to have
a Material Adverse Effect.

         9.8. Right of Inspection. Permit any Person (a) designated by any
Lender or the Agent (i) to visit and inspect any of the properties, corporate
books and financial reports of the Borrower or any Subsidiary, and (ii) to
discuss its affairs, finances and accounts with its principal officers and
independent certified public accountants, and (b) designated by the Agent to
conduct audits of the accounts receivable, inventory, payables, controls and
system of the Borrower and its Subsidiaries, which audits shall be at the
expense of the Borrower at any time a Default or Event of Default has occurred
and is continuing, and otherwise shall be at the expense of the

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Lenders, all at reasonable times, at reasonable intervals and with reasonable
prior notice and subject to the confidentiality provisions of Section 13.16.

         9.9. Observe all Laws. Conform to and duly observe in all material
respects all laws, rules and regulations and all other valid requirements of any
Governmental Authority with respect to the conduct of its business.

         9.10. Governmental Licenses. Obtain and maintain all licenses, permits,
certifications and approvals of all applicable Governmental Authorities as are
required for the conduct of its business as currently conducted and as
contemplated by the Loan Documents, except to the extent the failure to obtain
or maintain any of the foregoing would not have a Material Adverse Effect.

         9.11. Covenants Extending to Other Persons. Cause each of its
Subsidiaries to do with respect to itself, its business and its assets, each of
the things required of the Borrower in Sections 9.2 through 9.10, and 9.20
inclusive.

         9.12. Officer's Knowledge of Default. Upon any executive officer of the
Borrower obtaining knowledge of any Default or Event of Default hereunder or
under any other obligation of the Borrower or any Subsidiary or other Credit
Party to any Lender, or any event, development or occurrence which could
reasonably be expected to have a Material Adverse Effect, cause such executive
officer or an Authorized Representative to promptly notify the Agent of the
nature thereof, the period of existence thereof, and what action the Borrower or
such Subsidiary or other Credit Party proposes to take with respect thereto.

         9.13. Suits or Other Proceedings. Upon any officer of the Borrower
obtaining knowledge of any litigation or other proceedings being instituted
against the Borrower or any Subsidiary or other Credit Party, or any attachment,
levy, execution or other process being instituted against any assets of the
Borrower or any Subsidiary or other Credit Party, making a claim or claims in an
aggregate amount greater than $500,000 not otherwise covered by insurance, the
Borrower shall promptly deliver to the Agent written notice thereof stating the
nature and status of such litigation, dispute, proceeding, levy, execution or
other process.

         9.14. Notice of Environmental Complaint or Condition. Promptly provide
to the Agent true, accurate and complete copies of any and all notices,
complaints, orders, directives, claims or citations received by the Borrower or
any Subsidiary relating to any (a) violation or alleged violation by the
Borrower or any Subsidiary of any applicable Environmental Law; (b) release or
threatened release by the Borrower or any Subsidiary, or by any Person handling,
transporting or disposing of any Hazardous Material on behalf of the Borrower or
any Subsidiary, or at any facility or property owned or leased or operated by
the Borrower or any Subsidiary, of any Hazardous Material, except where
occurring legally pursuant to a permit or license; or (c) liability or alleged
liability of the Borrower or any Subsidiary for the costs of cleaning up,
removing, remediating or responding to a release of Hazardous Materials, except
to the extent any of the foregoing could not reasonably be expected to have a
Material Adverse Effect.



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         9.15. Environmental Compliance. If the Borrower or any Subsidiary shall
receive any letter, notice, complaint, order, directive, claim or citation
alleging that the Borrower or any Subsidiary has violated any Environmental Law,
has released any Hazardous Material, or is liable for the costs of cleaning up,
removing, remediating or responding to a release of Hazardous Materials, the
Borrower and any Subsidiary shall, within the time period permitted and to the
extent required by the applicable Environmental Law or the Governmental
Authority responsible for enforcing such Environmental Law, remove or remedy, or
cause the applicable Subsidiary to remove or remedy, such violation or release
or satisfy such liability.

         9.16. Indemnification. Without limiting the generality of Section 13.9,
the Borrower hereby agrees to indemnify and hold the Agent and the Lenders and
any affiliate of any Lender party to a Swap Agreement, and their respective
officers, directors, employees and agents, harmless from and against any and all
claims, losses, penalties, liabilities, damages and expenses (including
assessment and cleanup costs and reasonable attorneys', consultants' or other
expert fees, expenses and disbursements) arising directly or indirectly from,
out of or by reason of (a) the violation of any Environmental Law by the
Borrower or any Subsidiary or with respect to any property owned, operated or
leased by the Borrower or any Subsidiary or (b) the handling, storage,
transportation, treatment, emission, release, discharge or disposal of any
Hazardous Materials by or on behalf of the Borrower or any Subsidiary, or on or
with respect to property owned or leased or operated by the Borrower or any
Subsidiary. The provisions of this Section 9.16 shall survive repayment of the
Obligations, or the Facility Termination Date and expiration or termination of
this Agreement.

         9.17. Further Assurances. At the Borrower's cost and expense, upon
request of the Agent, duly execute and deliver or cause to be duly executed and
delivered, to the Agent such further instruments, documents, certificates,
financing and continuation statements, and do and cause to be done such further
acts that may be reasonably necessary or advisable in the reasonable opinion of
the Agent to carry out more effectively the provisions and purposes of this
Agreement, the Security Instruments and the other Loan Documents; provided that
none of the foregoing shall alter, amend or modify the express rights or
liabilities of the Borrower hereunder or under the other Loan Documents; and
provided, further, that the Borrower agrees that at such time as there shall be
more than one Lender party to this Agreement, an opinion of counsel to the
Borrower admitted to practice in the state of North Carolina (or other
jurisdiction of governing law), shall be promptly delivered to the Agent after
request therefor in the form of Exhibit G hereto.

         9.18. Employee Benefit Plans.

                  (a) With reasonable promptness, and in any event within thirty
         (30) days thereof, give notice to the Agent of (a) the establishment of
         any new Pension Plan (which notice shall include a copy of such plan),
         (b) the commencement of contributions to any Employee Benefit Plan to
         which the Borrower or any of its ERISA Affiliates was not previously
         contributing, (c) any material increase in the benefits of any existing
         Employee Benefit Plan, (d) each funding waiver request filed with
         respect to any Pension Plan and all communications received or sent by
         the Borrower or any ERISA Affiliate


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         with respect to such request and (e) the failure of the Borrower or any
         ERISA Affiliate to make a required installment or payment under Section
         302 of ERISA or Section 412 of the Code (in the case of Employee
         Benefit Plans regulated by the Code or ERISA) or under any Foreign
         Benefit Law (in the case of Employee Benefit Plans regulated by any
         Foreign Benefit Law) by the due date;

                  (b) Promptly and in any event within fifteen (15) days of
         becoming aware of the occurrence or forthcoming occurrence of any (a)
         Termination Event or (b) nonexempt "prohibited transaction," as such
         term is defined in Section 406 of ERISA or Section 4975 of the Code, in
         connection with any Employee Benefit Plan or any trust created
         thereunder, deliver to the Agent a notice specifying the nature
         thereof, what action the Borrower or any ERISA Affiliate has taken, is
         taking or proposes to take with respect thereto and, when known, any
         action taken or threatened by the Internal Revenue Service, the
         Department of Labor or the PBGC with respect thereto; and

                  (c) With reasonable promptness but in any event within fifteen
         (15) days for purposes of clauses (a), (b) and (c), deliver to the
         Agent copies of (a) any unfavorable determination letter from the
         Internal Revenue Service regarding the qualification of an Employee
         Benefit Plan under Section 401(a) of the Code, (b) all notices received
         by the Borrower or any ERISA Affiliate of the PBGC's or any
         Governmental Authority's intent to terminate any Pension Plan or to
         have a trustee appointed to administer any Pension Plan, (c) each
         Schedule B (Actuarial Information) to the annual report (Form 5500
         Series) filed by the Borrower or any ERISA Affiliate with the Internal
         Revenue Service with respect to each Employee Benefit Plan and (d) all
         notices received by the Borrower or any ERISA Affiliate from a
         Multiemployer Plan sponsor concerning the imposition or amount of
         withdrawal liability pursuant to Section 4202 of ERISA. The Borrower
         will notify the Agent in writing within five (5) Business Days of the
         Borrower or any ERISA Affiliate obtaining knowledge or reason to know
         that the Borrower or any ERISA Affiliate has filed or intends to file a
         notice of intent to terminate any Pension Plan under a distress
         termination within the meaning of Section 4041(c) of ERISA.

         9.19. Continued Operations. Continue at all times to conduct its
business and engage principally in the same line or lines of business
substantially as heretofore conducted.

         9.20. New Subsidiaries. Simultaneously with the acquisition or creation
of any Subsidiary (each, a "New Subsidiary"), cause to be delivered to the Agent
for the benefit of the Lenders each of the following:

                  (a) if the New Subsidiary is a Domestic Subsidiary, a Facility
         Guaranty executed by the New Subsidiary substantially in the form of
         Exhibit I;

                  (b) if the New Subsidiary is a Domestic Subsidiary, a Security
         Agreement of the New Subsidiary substantially in the form of Exhibit J,
         together with such Uniform Commercial Code financing statements on Form
         UCC-1 or otherwise duly executed by such Subsidiary as "Debtor" and
         naming the Agent for the benefit of the Agent and the

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         Lenders as "Secured Party", in form, substance and number sufficient in
         the reasonable opinion of the Agent and its special counsel to be filed
         in all Uniform Commercial Code filing offices in all jurisdictions in
         which filing is necessary or advisable to perfect in favor of the Agent
         for the benefit of the Agent and the Lenders the Lien on Collateral
         conferred under such Security Instrument to the extent such Lien may be
         perfected by Uniform Commercial Code filing;

                  (c) if the Subsidiary Securities issued by the New Subsidiary
         that constitute Pledged Interests shall be owned by a Subsidiary who
         has not then executed and delivered to the Agent a Pledge Agreement
         granting a Lien to the Agent, for the benefit of the Agent and the
         Lenders, in such equity interests, a Pledge Agreement executed by the
         Subsidiary that directly owns such Pledged Interests substantially in
         the form attached hereto as Exhibit K (or, as to Pledged Interests
         issued by any Direct Foreign Subsidiary, in a form acceptable to the
         Agent), and if such Subsidiary Securities shall be owned by the
         Borrower or a Subsidiary who has previously executed a Pledge
         Agreement, a Pledge Agreement Supplement in the form required by such
         Pledge Agreement pertaining to such Subsidiary Securities;

                  (d) if the New Subsidiary is the owner of Subsidiary
         Securities that constitute Pledged Interests, a Pledge Agreement by the
         New Subsidiary granting a Lien to the Agent, for the benefit of the
         Agent and the Lenders, in such Pledged Interests, substantially in the
         form attached hereto as Exhibit K (or, as to Pledged Interests issued
         by any Direct Foreign Subsidiary, in a form acceptable to the Agent);

                  (e) if the Pledged Interests issued by the New Subsidiary, or
         by a Subsidiary owned by the New Subsidiary, constitute securities
         under Article 8 of the Uniform Commercial Code (i) the certificates
         representing 100% of such Pledged Interests and (ii) duly executed,
         undated stock powers or other appropriate powers of assignment in blank
         affixed thereto;

                  (f) (i) Uniform Commercial Code financing statements on form
         UCC-1 or otherwise duly executed by the pledgor as "Debtor" and naming
         the Agent for the benefit of the Agent and the Lenders as "Secured
         Party," in form, substance and number sufficient in the reasonable
         opinion of the Agent and its special counsel to be filed in all Uniform
         Commercial Code filing offices and in all jurisdictions in which filing
         is necessary or advisable to perfect in favor of the Agent for the
         benefit of the Agent and the Lenders the Lien on such Subsidiary
         Securities, and (ii) if the Pledged Interests issued by the New
         Subsidiary, or by a Subsidiary owned by the New Subsidiary, do not
         constitute securities and the issuer thereof has not elected to have
         such interests treated as securities under Article 8 of the applicable
         Uniform Commercial Code, a control agreement from the Registrar of the
         issuer, in form and substance acceptable to the Agent and in which the
         Registrar (1) acknowledges that the pledgor is at the date of such
         acknowledgment the sole record, and to its knowledge, beneficial owner
         of such Subsidiary Securities, (2) acknowledges the Lien in favor of
         the Agent conferred under the Pledge Agreement and that such Lien will
         be reflected on the registry for such


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         Subsidiary Securities, (3) agrees that it will not register any
         transfer of such Subsidiary Securities nor acknowledge any Lien in
         favor of any other Person on such Subsidiary Securities, without the
         prior written consent of the Agent, in each instance, until it receives
         notice from the Agent that all Liens on such Collateral in favor of the
         Agent for the benefit of the Agent and the Lenders have been released
         or terminated, and (4) agrees that upon receipt of notice from the
         Agent that an Event of Default has occurred and is continuing and that
         the Subsidiary Securities identified in such notice have been
         transferred to a transferee identified in such notice, it will duly
         record such transfer of Subsidiary Securities on the appropriate
         registry without requiring further consent from the pledgor and shall
         thereafter treat the transferee as the sole record and beneficial owner
         of such Subsidiary Securities pending further transfer, notwithstanding
         any contrary instruction received from the pledgor;

                  (g) a supplement to the appropriate schedule attached to the
         appropriate Security Instruments listing the additional Collateral,
         certified as true, correct and complete by the Authorized
         Representative (provided that the failure to deliver such supplement
         shall not impair the rights conferred under the Security Instruments in
         after acquired Collateral);

                  (h) an opinion of counsel to the New Subsidiary and to any
         party pledging any Subsidiary Securities of the New Subsidiary, if any,
         dated as of the date of delivery of the Facility Guaranty and the other
         Loan Documents provided for in this Section 9.20 and addressed to the
         Agent and the Lenders, in form and substance reasonably acceptable to
         the Agent (which opinion may include assumptions and qualifications of
         similar effect to those contained in the opinions of counsel delivered
         pursuant to Section 7.1(a)), to the effect (as applicable) that:

                           (i) the New Subsidiary and, if applicable, such
                  pledgor is duly organized, validly existing and in good
                  standing in the jurisdiction of its formation, has the
                  requisite power and authority to own its properties and
                  conduct its business as then owned and then conducted and
                  proposed to be conducted and to execute, deliver and perform
                  the Facility Guaranty and the other Loan Documents described
                  in this Section 9.20 to which the New Subsidiary or pledgor is
                  a signatory, and is duly qualified to transact business and is
                  in good standing as a foreign corporation or partnership in
                  each other jurisdiction in which the character of the
                  properties owned or leased, or the business carried on by it,
                  requires such qualification and the failure to be so qualified
                  would reasonably be likely to result in a Material Adverse
                  Effect;

                           (ii) the execution, delivery and performance of the
                  Facility Guaranty and the other Loan Documents described in
                  this Section 9.20 to which the New Subsidiary or the pledgor
                  is a signatory have been duly authorized by all requisite
                  corporate or partnership action (including any required
                  shareholder or partner approval), each of such agreements has
                  been duly executed and delivered and constitutes the valid and
                  binding agreement of the New Subsidiary or pledgor,

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                  enforceable against the New Subsidiary or pledgor in
                  accordance with its terms, subject to the effect of any
                  applicable bankruptcy, moratorium, insolvency, reorganization
                  or other similar law affecting the enforceability of
                  creditors' rights generally and to the effect of general
                  principles of equity (whether considered in a proceeding at
                  law or in equity);

                           (iii) the Subsidiary Securities being pledged are
                  duly authorized, validly issued, fully paid and nonassessable,
                  and free of any preemptive rights, and the applicable Security
                  Instrument (including foreign collateral documents) is
                  effective to create a valid security interest in favor of the
                  Agent for the benefit of the Agent and the Lenders in such
                  Subsidiary Securities as constitute Pledged Interests;

                           (iv) the Uniform Commercial Code financing statements
                  on Form UCC-1 delivered to the Agent by the New Subsidiary
                  and/or the pledgor in connection with the delivery of the
                  Security Instruments of the New Subsidiary and/or the pledgor
                  have been duly executed by the New Subsidiary and/or the
                  pledgor and are in form, substance and number sufficient for
                  filing in all Uniform Commercial Code filing offices in all
                  jurisdictions in which filing is necessary to perfect in favor
                  of the Agent for the benefit of the Agent and the Lenders the
                  Lien on Collateral conferred under such Security Instruments
                  to the extent such Lien may be perfected by Uniform Commercial
                  Code filing;

                           (v) if the Pledged Interests of the New Subsidiary,
                  or the Pledged Interests issued by the New Subsidiary,
                  constitute securities under Article 8 of the Uniform
                  Commercial Code, and such Pledged Interests are represented by
                  certificates, possession of such certificated Pledged
                  Interests by the Agent is sufficient to perfect in favor of
                  the Agent and the Lenders a security interest in such Pledged
                  Interests; and

                           (vi) in the event the New Subsidiary is a Direct
                  Foreign Subsidiary, that under the laws of the applicable
                  foreign jurisdiction, all agreements, notices and other
                  documents that are required to be executed, delivered, filed
                  or recorded and all other action required to be taken, within
                  or pursuant to the laws of such jurisdiction to perfect the
                  Lien conferred in favor of the Agent under the applicable
                  Security Instrument as against creditors of and purchasers for
                  value from the holder of the Pledged Interests has been duly
                  executed, delivered, filed, recorded or taken, as the case may
                  be; and

                  (i) current copies of the Organizational Documents and
         Operating Documents of the New Subsidiary and the pledgor, if any,
         certified resolutions (or duly effected consent actions) of the Board
         of Directors, partners, or appropriate committees thereof (and, if
         required by such Organizational Documents, Operating Documents or
         applicable law, of the shareholders, members or partners) of the New
         Subsidiary and the

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         pledgor, if any, authorizing the actions and the execution and delivery
         of documents described in this Section 9.20.

         9.21. Post-Closing Mortgages. At any time after the Closing Date, upon
the written request of the Agent, the Borrower shall deliver, and shall cause
each Subsidiary that is or is required to become a Guarantor to deliver, to the
Agent for the benefit of the Agent and the Lenders as promptly as practicable
but in any event within sixty (60) days of such request, with respect to any
parcel of real property owned by the Borrower or any such Subsidiary, (a) a
Mortgage with respect to such property and (b) the Mortgage Property Support
Documents relating thereto, with the effect that the Agent shall thereby obtain
a duly perfected first priority Lien on such property for the benefit of the
Agent and the Lenders, subject only to such encumbrances as are acceptable to
the Agent.

         9.22. Certain Notices. Furnish written notice to the Agent of each of
the following events, conditions or occurrences (together in each instance with
a statement of what action, if any, the Borrower proposes to take or cause a
Subsidiary to take with respect thereto) as soon as practicable but in any event
within the time period specified.

                  (a) the receipt of notice of (i) any default in the
         performance, observance or fulfillment of any term, covenant or
         condition contained in any lease or sublease of any restaurant or other
         operating facility which default may result in the cancellation or
         termination of such lease or sublease or (ii) any termination or
         declaration of termination of any such lease or sublease by any party
         thereto, no later than five (5) Business Days after receipt of such
         notice; and

                  (b) (i) the expiration or termination of any lease or sublease
         of any restaurant or other operating facility in accordance with its
         terms and not as a result of any default or purported default in
         performance, observance or fulfillment of any term, covenant or
         condition contained therein, or (ii) any proposed amendment to the
         terms of any such lease or sublease that accelerates the termination
         date thereof, increases in any material way rental payments thereunder,
         imposes in any material way more restrictive economic or operating
         terms on the Borrower or any Subsidiary thereunder or is in the
         Borrower's reasonable judgment otherwise adverse to the Lenders'
         interest therein in any respect, not later than thirty (30) days prior
         to the proposed effective date thereof (such notice to be accompanied
         by a copy of or terms of any such proposed amendment).

         9.23. New Restaurants. Within thirty (30) days of (i) the opening of
any new restaurant, (ii) any change in ownership of any restaurant among the
Subsidiaries of the Borrower or (iii) any change in location of a restaurant,
the Borrower shall notify the Agent of such change and deliver to the Agent
additional UCC-1 financing statements with respect to such new location
sufficient in form and number to perfect the interest of the Agent in any
Collateral at such location.


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                                    ARTICLE X

                               Negative Covenants

         Until the Facility Termination Date, unless the Required Lenders shall
otherwise consent in writing, the Borrower will not, nor will it permit any
Subsidiary to:

         10.1. Financial Covenants.

                  (a) Consolidated Tangible Net Worth. Permit Consolidated
         Tangible Net Worth to be less than (i) $45,000,000 from the Closing
         Date until (but excluding) the last day of the fiscal quarter that
         includes the Closing Date (the "Closing Date Quarter"), and (ii) as at
         the last day of each fiscal quarter of the Borrower ending after the
         Closing Date and until (but excluding) the last day of the next
         following fiscal quarter of the Borrower, the sum of (A) the amount of
         Consolidated Tangible Net Worth required to be maintained pursuant to
         this Section 10.1(a) as at the end of the immediately preceding fiscal
         quarter (or, in the case of the Closing Date Quarter, required to be
         maintained as of the Closing Date), plus (B) 75% of Consolidated Net
         Income (with no reduction for net losses during any period) for the
         fiscal quarter of the Borrower ending on such day (including within
         "Consolidated Net Income" certain items otherwise excluded, as provided
         for in the definition of "Consolidated Net Income"), plus (C) 100% of
         the aggregate amount of all increases in the stated capital and
         additional paid-in capital accounts of the Borrower resulting from the
         issuance of equity securities or other capital investments.

                  (b) Consolidated Leverage Ratio. Permit at any time the
         Consolidated Leverage Ratio to be greater than 2.00 to 1.00.

                  (c) Consolidated Fixed Charge Ratio. Permit at any time the
         Consolidated Fixed Charge Ratio to be less than 1.25 to 1.00.

         10.2. Acquisitions. Enter into any agreement, contract, binding
commitment or other arrangement providing for any Acquisition, or take any
action to solicit the tender of securities or proxies in respect thereof in
order to effect any Acquisition.

         10.3. Capital Expenditures. Make or become committed to make Capital
Expenditures which exceed $35,000,000 in the aggregate in any Fiscal Year of the
Borrower (on a noncumulative basis, with the effect that amounts not expended in
any Fiscal Year may not be carried forward to a subsequent period).

         10.4. Liens. Incur, create or permit to exist any Lien, charge or other
encumbrance of any nature whatsoever with respect to any property or assets now
owned or hereafter acquired by the Borrower or any Subsidiary, other than the
following (collectively, "Permitted Liens"):



                                       68
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                  (a) Liens created under the Security Instruments in favor of
         the Agent and the Lenders, Liens reflected on the Title Policies and
         acceptable to the Agent in its discretion, and Liens otherwise existing
         as of the date hereof and as set forth in Schedule 8.7;

                  (b) Liens imposed by law for taxes, assessments or charges of
         any Governmental Authority for claims not yet due or which are being
         contested in good faith by appropriate proceedings diligently conducted
         and with respect to which adequate reserves or other appropriate
         provisions are being maintained in accordance with GAAP and which Liens
         are not yet enforceable against other creditors;

                  (c) statutory Liens of landlords and Liens of carriers,
         warehousemen, mechanics, materialmen and other Liens imposed by law or
         created in the ordinary course of business or for amounts not yet due
         or which are being contested in good faith by appropriate proceedings
         diligently conducted and with respect to which adequate reserves or
         other appropriate provisions are being maintained in accordance with
         GAAP and which Liens are not yet enforceable against other creditors;

                  (d) Liens incurred or deposits made in the ordinary course of
         business (including, without limitation, surety bonds and appeal bonds)
         in connection with workers' compensation, unemployment insurance and
         other types of social security benefits or to secure the performance of
         tenders, bids, leases, contracts (other than for the repayment of
         Indebtedness), statutory obligations and other similar obligations or
         arising as a result of progress payments under government contracts;

                  (e) easements (including reciprocal easement agreements and
         utility agreements), rights-of-way, covenants, consents, reservations,
         encroachments, variations and zoning and other similar restrictions,
         charges or encumbrances (whether or not recorded), which do not
         interfere materially with the ordinary conduct of the business of the
         Borrower or any Subsidiary and which do not materially detract from the
         value of the property to which they attach or materially impair the use
         thereof to the Borrower or any Subsidiary; and

                  (f) purchase money Liens to secure Indebtedness permitted
         under Section 10.5(d) and incurred to purchase fixed assets, provided
         such Indebtedness represents not less than 75% and not more than 90% of
         the purchase price of such assets as of the date of purchase thereof
         and no property other than the assets so purchased secures such
         Indebtedness.

         10.5. Indebtedness. Incur, create, assume or permit to exist any
Indebtedness, howsoever evidenced, except:

                  (a) Indebtedness existing as of the Closing Date as set forth
         in Schedule 8.6; provided, none of the instruments and agreements
         evidencing or governing such Indebtedness shall be amended, modified or
         supplemented after the Closing Date to

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         change in any material respect any terms of subordination, repayment or
         rights of enforcement, conversion, put, exchange or other rights from
         such terms and rights as in effect on the Closing Date;

                  (b) Indebtedness owing to the Agent or any Lender in
         connection with this Agreement, any Note or other Loan Document;

                  (c) the endorsement of negotiable instruments for deposit or
         collection or similar transactions in the ordinary course of business;

                  (d) purchase money Indebtedness described in Section 10.4(f)
         not to exceed an aggregate outstanding principal amount at any time of
         $500,000;

                  (e) Indebtedness arising from Rate Hedging Obligations
         permitted under Section 10.11;

                  (f) unsecured intercompany Indebtedness for loans and advances
         made by the Borrower or any Guarantor to the Borrower or any Guarantor;

                  (g) additional unsecured Indebtedness for Money Borrowed not
         otherwise covered by clauses (a) through (f) above, provided that the
         aggregate outstanding principal amount of all such other Indebtedness
         permitted under this clause (g) shall in no event exceed $5,000,000 at
         any time;

                  (h) Indebtedness extending the maturity of, or renewing,
         refunding or refinancing, in whole or in part, Indebtedness incurred
         under clauses (a), (d), (e), and (g) of this Section 10.5, provided
         that the terms of any such extension, renewal, refunding or refinancing
         Indebtedness (and of any agreement or instrument entered into in
         connection therewith) are not materially less favorable to the Agent
         and the Lenders than the terms of the Indebtedness as in effect prior
         to such action, and provided further that (1) the aggregate principal
         amount of or interest rate or rates and fees payable on such extended,
         renewed, refunded or refinanced Indebtedness shall not be increased by
         such action, (2) the group of direct or contingent obligors on such
         Indebtedness shall not be expanded as a result of any such action, and
         (3) immediately before and immediately after giving effect to any such
         extension, renewal, refunding or refinancing, no Default or Event of
         Default shall have occurred and be continuing.

         10.6. Transfer of Assets. Sell, lease, transfer or otherwise dispose of
any assets of Borrower or any Subsidiary other than (a) dispositions of
inventory in the ordinary course of business, (b) dispositions of property that
is substantially worn, damaged, obsolete and, in the judgment of the Borrower,
no longer best used or useful in its business or that of any Subsidiary, (c)
dispositions of property that is substantially worn, damaged, obsolete or
inefficient that is promptly replaced in the ordinary course of business with
assets of equal or greater utility and value, (d) transfers of assets necessary
to give effect to merger or consolidation transactions permitted by Section
10.8, (e) the disposition of Eligible Securities in the ordinary course of

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management of the investment portfolio of the Borrower and its Subsidiaries, (f)
sales or transfers in connection with a sale leaseback transactions with respect
to any of the Borrower's restaurant sites, and (g) the issuance of Management
Securities in the ordinary course of the Borrower's and its Subsidiaries'
business and on substantially the same economic terms as (or other terms no less
favorable to the Borrower and its Subsidiaries than) the terms of such issuance
as of the Closing Date.

         10.7. Investments. Purchase, own, invest in or otherwise acquire,
directly or indirectly, any stock or other securities, or make or permit to
exist any interest whatsoever in any other Person or permit to exist any loans
or advances to any Person, except that Borrower may maintain investments or
invest in:

                  (a) securities of any Person acquired in an Acquisition
         permitted hereunder;

                  (b) Eligible Securities;

                  (c) investments and loans existing as of the date hereof and
         as set forth in Schedule 8.4;

                  (d) accounts receivable arising and trade credit granted in
         the ordinary course of business and any securities received in
         satisfaction or partial satisfaction thereof in connection with
         accounts of financially troubled Persons to the extent reasonably
         necessary in order to prevent or limit loss; and

                  (e) investments in Subsidiaries which are Guarantors;

                  (f) loans between the Borrower and the Guarantors described in
         Section 10.5(f);

                  (g) loans to market partners, operating partners and chef
         partners who hold Management Securities in an aggregate principal
         amount at any time outstanding not to exceed $2,000,000;

                  (h) other loans, advances and investments in an aggregate
         principal amount at any time outstanding not to exceed $2,000,000.

         10.8. Merger or Consolidation. (a) Consolidate with or merge into any
other Person, or (b) permit any other Person to merge into it, or (c) liquidate,
wind-up or dissolve or sell, transfer or lease or otherwise dispose of all or a
substantial part of its assets (other than sales permitted under Section
10.6(a), (b) and (d)); provided, however, any Subsidiary of the Borrower may
merge or transfer all or substantially all of its assets into or consolidate
with the Borrower or any wholly-owned Subsidiary of the Borrower.

         10.9. Restricted Payments. Make any Restricted Payment or apply or set
apart any of their assets therefor or agree to do any of the foregoing.


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         10.10. Transactions with Affiliates. Other than transactions permitted
under Sections 10.6(g), 10.7 and 10.8, enter into any transaction after the
Closing Date, including, without limitation, the purchase, sale, lease or
exchange of property, real or personal, or the rendering of any service, with
any Affiliate of the Borrower, except (a) that such Persons may render services
to the Borrower or its Subsidiaries for compensation at the same rates generally
paid by Persons engaged in the same or similar businesses for the same or
similar services, (b) that the Borrower or any Subsidiary may render services to
such Persons for compensation at the same rates generally charged by the
Borrower or such Subsidiary and (c) in either case in the ordinary course of
business and pursuant to the reasonable requirements of the Borrower's (or any
Subsidiary's) business consistent with past practice of the Borrower and its
Subsidiaries and upon fair and reasonable terms no less favorable to the
Borrower (or any Subsidiary) than would be obtained in a comparable arm's-length
transaction with a Person not an Affiliate.

         10.11. Compliance with ERISA, the Code and Foreign Benefit Laws. With
respect to any Pension Plan, Employee Benefit Plan or Multiemployer Plan:

                  (a) permit the occurrence of any Termination Event which would
         result in a liability on the part of the Borrower or any ERISA
         Affiliate to the PBGC or to any Governmental Authority; or

                  (b) permit the present value of all benefit liabilities under
         all Pension Plans to exceed the current value of the assets of such
         Pension Plans allocable to such benefit liabilities; or

                  (c) permit any accumulated funding deficiency (as defined in
         Section 302 of ERISA and Section 412 of the Code) with respect to any
         Pension Plan, whether or not waived; or

                  (d) fail to make any contribution or payment to any
         Multiemployer Plan which the Borrower or any ERISA Affiliate may be
         required to make under any agreement relating to such Multiemployer
         Plan, or any law pertaining thereto; or

                  (e) engage, or permit any Borrower or any ERISA Affiliate to
         engage, in any prohibited transaction under Section 406 of ERISA or
         Sections 4975 of the Code for which a civil penalty pursuant to Section
         502(I) of ERISA or a tax pursuant to Section 4975 of the Code may be
         imposed; or

                  (f) permit the establishment of any Employee Benefit Plan
         providing post-retirement welfare benefits or establish or amend any
         Employee Benefit Plan which establishment or amendment could result in
         liability to the Borrower or any ERISA Affiliate or increase the
         obligation of the Borrower or any ERISA Affiliate to a Multiemployer
         Plan; or

                  (g) fail, or permit the Borrower or any ERISA Affiliate to
         fail, to establish, maintain and operate each Employee Benefit Plan in
         compliance in all material respects

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         with the provisions of ERISA, the Code, all applicable Foreign Benefit
         Laws and all other applicable laws and the regulations and
         interpretations thereof.

         10.12. Fiscal Year. Change its Fiscal Year.

         10.13. Dissolution, etc. Wind up, liquidate or dissolve (voluntarily or
involuntarily) or commence or suffer any proceedings seeking any such winding
up, liquidation or dissolution, except in connection with a merger or
consolidation permitted pursuant to Section 10.8.

         10.14. Limitations on Sales and Leasebacks. Enter into any arrangement
or arrangements with any Person providing for the leasing by the Borrower or any
Subsidiary of real or personal property, whether now owned or hereafter acquired
in a single transaction or series of related transactions, which has been or is
to be sold or transferred by the Borrower or any Subsidiary to such Person or to
any other Person to whom funds have been or are to be advanced by such Person on
the security of such property or rental obligations of the Borrower or any
Subsidiary; provided, however, the Borrower and its Subsidiaries may enter into
such arrangements for leasing of its restaurant sites.

         10.15. Change in Control. Cause, suffer or permit to exist or occur any
Change of Control.

         10.16. Rate Hedging Obligations. Incur any Rate Hedging Obligations or
enter into any agreements, arrangements, devices or instruments relating to Rate
Hedging Obligations, except pursuant to Swap Agreements in an aggregate notional
amount not to exceed at any time the Total Revolving Credit Commitment or as
otherwise agreed by the Borrower and the Agent.

         10.17. Negative Pledge Clauses. Enter into or cause, suffer or permit
to exist any agreement with any Person other than the Agent and the Lenders
pursuant to this Agreement or any other Loan Documents which prohibits or limits
the ability of any of the Borrower or any Subsidiary to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired, provided that the Borrower and any Subsidiary
may enter into such an agreement in connection with, and that applies only to,
property acquired with the proceeds of purchase money Indebtedness permitted
hereunder.

         10.18. Prepayments, Etc. of Indebtedness. Prepay, redeem, purchase,
defease or otherwise satisfy prior to the scheduled maturity thereof in any
manner, or make any payment in violation of any subordination terms of, any
Indebtedness.

         10.19. Amendments to Operating Agreements. Amend the existing operating
agreement of any Subsidiary to include, or permit to exist an operating
agreement of any new Subsidiary which includes, any provision which would (a)
prohibit or restrict distributions by such Subsidiary to the Borrower under such
operating agreement in respect of the ownership interest of the Borrower in such
Subsidiary or in any restaurant or (b) decrease below 80% the percentage
ownership interest of the Borrower in such Subsidiary or in any restaurant.


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                                   ARTICLE XI

                       Events of Default and Acceleration

         11.1. Events of Default. If any one or more of the following events
(herein called "Events of Default") shall occur for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
Governmental Authority), that is to say:

                  (a) if default shall be made, and shall continue for one (1)
         day, in the due and punctual payment of the principal of any Loan,
         Reimbursement Obligation or other Obligation, when and as the same
         shall be due and payable whether pursuant to any provision of Article
         II, Article III or Article IV, at maturity, by acceleration or
         otherwise; or

                  (b) if default shall be made in the due and punctual payment
         of any amount of interest on any Loan, Reimbursement Obligation or
         other Obligation or of any fees or other amounts payable to any of the
         Lenders or the Agent on the date on which the same shall be due and
         payable and such default shall continue for a period of three (3) or
         more days; or

                  (c) if default shall be made in the performance or observance
         of any covenant set forth in Section 9.8, 9.12, 9.13, 9.20, 9.21 or
         Article X;

                  (d) if a default shall be made in the performance or
         observance of, or shall occur under, any covenant, agreement or
         provision contained in this Agreement or the Notes (other than as
         described in clauses (a), (b) or (c) above) and such default shall
         continue for thirty (30) or more days after the earlier of receipt of
         notice of such default by the Authorized Representative from the Agent
         or an officer of the Borrower becomes aware of such default, or if such
         default is of a type that cannot be cured within thirty (30) days (but
         reasonably can be cured within ninety (90) days), and the Borrower is
         diligently and in good faith attempting to cure such default, such
         default shall continue unremedied for a period of ninety (90) or more
         days after such notice or if a default shall be made in the performance
         or observance of, or shall occur under, any covenant, agreement or
         provision contained in any of the other Loan Documents (beyond any
         applicable grace period, if any, contained therein) or in any
         instrument or document evidencing or creating any obligation, guaranty,
         or Lien in favor of the Agent or any of the Lenders or delivered to the
         Agent or any of the Lenders in connection with or pursuant to this
         Agreement or any of the Obligations, or if any Loan Document ceases to
         be in full force and effect (other than as expressly provided for
         hereunder or thereunder or with the express written consent of the
         Agent), or if without the written consent of the Lenders, this
         Agreement or any other Loan Document shall be disaffirmed or shall
         terminate, be terminable or be terminated or become void or
         unenforceable for any reason

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         whatsoever (other than as expressly provided for hereunder or
         thereunder or with the express written consent of the Agent); or

                  (e) if there shall occur (i) a default, which is not waived,
         in the payment of any principal, interest, premium or other amount with
         respect to any Indebtedness (other than the Loans and other
         Obligations) of the Borrower or any Subsidiary in an amount not less
         than $500,000 in the aggregate outstanding, or (ii) a default, which is
         not waived, in the performance, observance or fulfillment of any term
         or covenant contained in any agreement or instrument under or pursuant
         to which any such Indebtedness (other than the Loans and other
         Obligations) may have been issued, created, assumed, guaranteed or
         secured by the Borrower or any Subsidiary, or (iii) any other event of
         default as specified in any agreement or instrument under or pursuant
         to which any such Indebtedness (other than the Loans and other
         Obligations) may have been issued, created, assumed, guaranteed or
         secured by the Borrower or any Subsidiary, and such default or event of
         default shall continue for more than the period of grace, if any,
         therein specified, or such default or event of default shall permit the
         holder of any such Indebtedness (or any agent or trustee acting on
         behalf of one or more holders) to accelerate the maturity thereof; or

                  (f) if any representation, warranty or other statement of fact
         contained in any Loan Document or in any writing, certificate, report
         or statement at any time furnished to the Agent or any Lender by or on
         behalf of the Borrower or any other Credit Party pursuant to or in
         connection with any Loan Document, or otherwise, shall be false or
         misleading in any material respect when given; or

                  (g) if the Borrower or any Subsidiary or other Credit Party
         shall be unable to pay its debts generally as they become due; file a
         petition to take advantage of any insolvency statute; make an
         assignment for the benefit of its creditors; commence a proceeding for
         the appointment of a receiver, trustee, liquidator or conservator of
         itself or of the whole or any substantial part of its property; file a
         petition or answer seeking liquidation, reorganization or arrangement
         or similar relief under the federal bankruptcy laws or any other
         applicable law or statute; or

                  (h) if a court of competent jurisdiction shall enter an order,
         judgment or decree appointing a custodian, receiver, trustee,
         liquidator or conservator of the Borrower or any Subsidiary or other
         Credit Party or of the whole or any substantial part of its properties
         and such order, judgment or decree continues unstayed and in effect for
         a period of ninety (90) days, or approve a petition filed against the
         Borrower or any Subsidiary seeking liquidation, reorganization or
         arrangement or similar relief under the federal bankruptcy laws or any
         other applicable law or statute of the United States of America or any
         state, which petition is not dismissed within ninety (90) days; or if,
         under the provisions of any other law for the relief or aid of debtors,
         a court of competent jurisdiction shall assume custody or control of
         the Borrower or any Subsidiary or other Credit Party or of the whole or
         any substantial part of its properties, which control is not
         relinquished within ninety (90) days; or if there is commenced against
         the Borrower or any Subsidiary or other Credit Party any proceeding or
         petition seeking reorganization,

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         arrangement or similar relief under the federal bankruptcy laws or any
         other applicable law or statute of the United States of America or any
         state which proceeding or petition remains undismissed for a period of
         sixty (60) days; or if the Borrower or any Subsidiary or other Credit
         Party takes any action to indicate its consent to or approval of any
         such proceeding or petition; or

                  (i) if (i) one or more judgments or orders where the amount
         not covered by insurance (or the amount as to which the insurer denies
         liability) is in excess of $500,000 is rendered against the Borrower or
         any Subsidiary, or (ii) there is any attachment, injunction or
         execution against any of the Borrower's or Subsidiaries' properties for
         any amount in excess of $500,000 in the aggregate; and such judgment,
         attachment, injunction or execution remains unpaid, unstayed,
         undischarged, unbonded or undismissed for a period of sixty (60) days;
         or

                  (j) if the Borrower or any Subsidiary shall, other than in the
         ordinary course of business (as determined by past practices), suspend
         all or any part of its operations material to the conduct of the
         business of the Borrower or such Subsidiary for a period of more than
         60 days; or

                  (k) if the Borrower or any Subsidiary shall breach any of the
         material terms or conditions of any agreement under which any Rate
         Hedging Obligations permitted hereby is created and such breach shall
         continue beyond any grace period, if any, relating thereto pursuant to
         the terms of such agreement, or if the Borrower or any Subsidiary shall
         disaffirm or seek to disaffirm any such agreement or any of its
         obligations thereunder; or

                  (l) if (a) the Borrower or any Subsidiary shall default (which
         default shall continue beyond any applicable grace period and shall not
         be effectively waived) in the performance, observance or fulfillment or
         any term, covenant or condition contained in any lease or sublease of
         restaurant or other operating facilities or any other agreement or
         commitment the expiration, termination or lapse of one or more of
         which, individually or collectively, could reasonably be expected to
         have a Material Adverse Effect (a "Material Agreement"), or there shall
         occur any other event of default specified in any Material Agreement,
         and such default or event of default shall continue for more than the
         period of grace, if any, therein specified or shall permit any other
         party to such Material Agreement to terminate its obligations under
         such Material Agreement or otherwise cause such Material Agreement to
         terminate, expire or lapse or (b) for any other reason any such
         Material Agreement shall terminate, expire or lapse other than in the
         ordinary course of business of the Borrower and its Subsidiaries; or

                  (m) if there shall occur and not be waived an Event of Default
         as defined in any of the other Loan Documents; or


                                       76
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                  (n) if the Borrower shall fail to dissolve, or fail to cause
         to be dissolved, within sixty (60) days of the date hereof each of
         Fleming PFC III Corp, P.F. Chang's VI, Inc., P.F. Chang's IV, L.L.C.
         and PFCCB Newport Beach, L.L.C.

then, and in any such event and at any time thereafter, if such Event of Default
or any other Event of Default shall have not been waived,

                           (A) either or both of the following actions may be
                  taken: (i) the Agent may, and at the direction of the Required
                  Lenders shall, declare any obligation of the Lenders and the
                  Issuing Bank to make further Loans or to issue additional
                  Letters of Credit terminated, whereupon the obligation of each
                  Lender to make further Loans and of the Issuing Bank to issue
                  additional Letters of Credit, hereunder shall terminate
                  immediately, and (ii) the Agent shall at the direction of the
                  Required Lenders, at their option, declare by notice to the
                  Borrower any or all of the Obligations to be immediately due
                  and payable, and the same, including all interest accrued
                  thereon and all other obligations of the Borrower to the Agent
                  and the Lenders, shall forthwith become immediately due and
                  payable without presentment, demand, protest, notice or other
                  formality of any kind, all of which are hereby expressly
                  waived, anything contained herein or in any instrument
                  evidencing the Obligations to the contrary notwithstanding;
                  provided, however, that notwithstanding the above, if there
                  shall occur an Event of Default under clause (g) or (h) above,
                  then the obligation of the Lenders to make Loans and of the
                  Issuing Bank to issue Letters of Credit hereunder shall
                  automatically terminate and any and all of the Obligations
                  shall be immediately due and payable without the necessity of
                  any action by the Agent or the Required Lenders or notice to
                  the Agent or the Lenders;

                           (B) The Borrower shall, upon demand of the Agent or
                  the Required Lenders, deposit cash with the Agent in an amount
                  equal to the amount of any Letter of Credit Outstandings, as
                  collateral security for the repayment of any future drawings
                  or payments under such Letters of Credit, and such amounts
                  shall be held by the Agent pursuant to the terms of the LC
                  Account Agreement; and

                           (C) the Agent and each of the Lenders shall have all
                  of the rights and remedies available under the Loan Documents
                  or under any applicable law.

         11.2. Agent to Act. In case any one or more Events of Default shall
occur and not have been waived, the Agent may, and at the direction of the
Required Lenders shall, proceed to protect and enforce their rights or remedies
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenant, agreement or other provision contained herein or in
any other Loan Document, or to enforce the payment of the Obligations or any
other legal or equitable right or remedy.

         11.3. Cumulative Rights. No right or remedy herein conferred upon the
Lenders or the Agent is intended to be exclusive of any other rights or remedies
contained herein or in any other

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Loan Document, and every such right or remedy shall be cumulative and shall be
in addition to every other such right or remedy contained herein and therein or
now or hereafter existing at law or in equity or by statute, or otherwise.

         11.4. No Waiver. No course of dealing between the Borrower and any
Lender or the Agent or any failure or delay on the part of any Lender or the
Agent in exercising any rights or remedies under any Loan Document or otherwise
available to it shall operate as a waiver of any rights or remedies and no
single or partial exercise of any rights or remedies shall operate as a waiver
or preclude the exercise of any other rights or remedies hereunder or of the
same right or remedy on a future occasion.

         11.5. Allocation of Proceeds. If an Event of Default has occurred and
not been waived, and the maturity of the Notes has been accelerated pursuant to
Article XI hereof, all payments received by the Agent hereunder, in respect of
any principal of or interest on the Obligations or any other amounts payable by
the Borrower hereunder, shall be applied by the Agent in the following order:

                  (a) the reasonable expenses incurred in connection with
         retaking, holding, preserving, processing, maintaining or preparing for
         sale, lease or other disposition of, any Collateral, including
         reasonable attorney's fees and legal expenses pertaining thereto;

                  (b) amounts due to the Lenders and the Issuing Bank pursuant
         to Sections 4.6(a), 4.6(b), 4.6(c), and 13.5;

                  (c) payments of interest on Loans and Reimbursement
         Obligations, to be applied for the ratable benefit of the Lenders;

                  (d) payments of principal of Loans and Reimbursement
         Obligations, to be applied for the ratable benefit of the Lenders;

                  (e) payments of cash amounts to the Agent in respect of
         outstanding Letters of Credit pursuant to Section 11.1(B);

                  (f) amounts due to the Issuing Bank, the Agent and the Lenders
         pursuant to Sections 3.2(h), 9.16 and 13.9;

                  (g) payments of all other amounts due under any of the Loan
         Documents, if any, to be applied for the ratable benefit of the
         Lenders;

                  (h) amounts due to any of the Lenders or their affiliates in
         respect of Obligations consisting of liabilities under any Swap
         Agreement with any of the Lenders or their affiliates on a pro rata
         basis according to the amounts owed; and

                  (i) any surplus remaining after application as provided for
         herein, to the Borrower or otherwise as may be required by applicable
         law.


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                                   ARTICLE XII

                                    The Agent

         12.1. Appointment, Powers, and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Agent to act as its agent under this
Agreement and the other Loan Documents with such powers and discretion as are
specifically delegated to the Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. The Agent (which term as used in this sentence and in Section 12.5 and
the first sentence of Section 12.6 hereof shall include its affiliates and its
own and its affiliates' officers, directors, employees, and agents):

                  (a) shall not have any duties or responsibilities except those
         expressly set forth in this Agreement and shall not be a trustee or
         fiduciary for any Lender;

                  (b) shall not be responsible to the Lenders for any recital,
         statement, representation, or warranty (whether written or oral) made
         in or in connection with any Loan Document or any certificate or other
         document referred to or provided for in, or received by any of them
         under, any Loan Document, or for the value, validity, effectiveness,
         genuineness, enforceability, or sufficiency of any Loan Document, or
         any other document referred to or provided for therein or for any
         failure by any Credit Party or any other Person to perform any of its
         obligations thereunder;

                  (c) shall not be responsible for or have any duty to
         ascertain, inquire into, or verify the performance or observance of any
         covenants or agreements by any Credit Party or the satisfaction of any
         condition or to inspect the property (including the books and records)
         of any Credit Party or any of its Subsidiaries or affiliates;

                  (d) shall not be required to initiate or conduct any
         litigation or collection proceedings under any Loan Document; and

                  (e) shall not be responsible for any action taken or omitted
         to be taken by it under or in connection with any Loan Document, except
         for its own gross negligence or willful misconduct.

The Agent may employ agents and attorneys-in-fact and shall not be responsible
for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care.

         12.2. Reliance by Agent. The Agent shall be entitled to rely upon any
certification, notice, instrument, writing, or other communication (including,
without limitation, any thereof by telephone or telefacsimile) believed by it to
be genuine and correct and to have been signed, sent or made by or on behalf of
the proper Person or Persons, and upon advice and statements of legal counsel
(including counsel for any Credit Party), independent accountants, and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the


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holder thereof for all purposes hereof unless and until the Agent receives and
accepts an Assignment and Acceptance executed in accordance with Section 13.1
hereof. As to any matters not expressly provided for by this Agreement, the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding on all of the Lenders; provided,
however, that the Agent shall not be required to take any action that exposes
the Agent to personal liability or that is contrary to any Loan Document or
applicable law unless it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking any such action.

         12.3. Defaults. The Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default or Event of Default unless the Agent has
received written notice from a Lender or the Borrower specifying such Default or
Event of Default and stating that such notice is a "Notice of Default". In the
event that the Agent receives such a notice of the occurrence of a Default or
Event of Default, the Agent shall give prompt notice thereof to the Lenders. The
Agent shall (subject to Section 12.2 hereof) take such action with respect to
such Default or Event of Default as shall reasonably be directed by the Required
Lenders, provided that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Lenders.

         12.4. Rights as Lender. With respect to its Revolving Credit Commitment
and the Loans made by it and Letters of Credit issued by it, Bank of America
(and any successor acting as Agent) in its capacity as a Lender hereunder shall
have the same rights and powers hereunder as any other Lender and may exercise
the same as though it were not acting as the Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include the Agent in
its individual capacity. Bank of America (and any successor acting as Agent) and
its affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in, provide services to, and
generally engage in any kind of lending, trust, or other business with any
Credit Party or any of its Subsidiaries or affiliates as if it were not acting
as Agent, and Bank of America (and any successor acting as Agent) and its
affiliates may accept fees and other consideration from any Credit Party or any
of its Subsidiaries or affiliates for services in connection with this Agreement
or otherwise without having to account for the same to the Lenders.

         12.5. Indemnification. The Lenders agree to indemnify the Agent (to the
extent not reimbursed under Section 13.9 hereof, but without limiting the
obligations of the Borrower under such Section) ratably in accordance with their
respective Revolving Credit Commitments, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including attorneys' fees), or disbursements of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against the Agent
(including by any Lender) in any way relating to or arising out of any Loan
Document or the transactions contemplated thereby or any action taken or omitted
by the Agent under any Loan Document; provided that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or


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willful misconduct of the Person to be indemnified. Without limitation of the
foregoing, each Lender agrees to reimburse the Agent promptly upon demand for
its ratable share of any costs or expenses payable by the Borrower under Section
13.5, to the extent that the Agent is not promptly reimbursed for such costs and
expenses by the Borrower. The agreements contained in this Section 12.5 shall
survive payment in full of the Loans and all other amounts payable under this
Agreement.

         12.6. Non-Reliance on Agent and Other Lenders. Each Lender agrees that
it has, independently and without reliance on the Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Credit Parties and their Subsidiaries and decision to
enter into this Agreement and that it will, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under the Loan Documents. Except for
notices, reports, and other documents and information expressly required to be
furnished to the Lenders by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition, or business of any
Credit Party or any of its Subsidiaries or affiliates that may come into the
possession of the Agent or any of its affiliates.

         12.7. Resignation of Agent. The Agent may resign at any time by giving
notice thereof to the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders and shall
have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent which shall be a commercial bank
organized under the laws of the United States of America having combined capital
and surplus of at least $500,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor, such successor shall thereupon succeed to and
become vested with all the rights, powers, discretion, privileges, and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article XII shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.

         12.8. Sole Lender. Notwithstanding anything to the contrary contained
herein, until there shall be two or more Lenders, all references to the Agent
herein and in the other Loan Documents shall be deemed to refer to Bank of
America as Lender.


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                                  ARTICLE XIII

                                  Miscellaneous

         13.1. Assignments and Participations. (a) Each Lender may assign to one
or more Eligible Assignees all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its Loans,
its Revolving Note, and its Revolving Credit Commitment); provided, however,
that

                  (i) each such assignment shall be to an Eligible Assignee;

                  (ii) except in the case of an assignment to another Lender or
an assignment of all of a Lender's rights and obligations under this Agreement,
any such partial assignment shall be in an amount at least equal to $3,000,000
or an integral multiple of $1,000,000 in excess thereof;

                  (iii) each such assignment by a Lender shall be of a constant,
and not varying, percentage of all of its rights and obligations under this
Agreement and its Revolving Note; and

                  (iv) the parties to such assignment shall execute and deliver
to the Agent for its acceptance an Assignment and Acceptance in the form of
Exhibit B hereto, together with any Revolving Note subject to such assignment
and a processing fee of $3,500.

Upon execution, delivery, and acceptance of such Assignment and Acceptance, the
assignee thereunder shall be a party hereto and, to the extent of such
assignment, have the obligations, rights, and benefits of a Lender hereunder and
the assigning Lender shall, to the extent of such assignment, relinquish its
rights and be released from its obligations under this Agreement. Upon the
consummation of any assignment pursuant to this Section, the assignor, the Agent
and the Borrower shall make appropriate arrangements so that, if required, new
Revolving Notes are issued to the assignor and the assignee. If the assignee is
not incorporated under the laws of the United States of America or a state
thereof, it shall deliver to the Borrower and the Agent certification as to
exemption from deduction or withholding of Taxes in accordance with Section 6.6.

         (b) The Agent shall maintain at its address referred to in Section 13.2
a copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Revolving Credit Commitment of, and principal amount of the Loans owing to, each
Lender from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.


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         (c) Upon its receipt of an Assignment and Acceptance executed by the
parties thereto, together with any Note subject to such assignment and payment
of the processing fee, the Agent shall, if such Assignment and Acceptance has
been completed and is in substantially the form of Exhibit B hereto, (i) accept
such Assignment and Acceptance, (ii) record the information contained therein in
the Register and (iii) give prompt notice thereof to the parties thereto.

         (d) Each Lender may sell participations to one or more Persons in all
or a portion of its rights, obligations or rights and obligations under this
Agreement (including all or a portion of its Revolving Credit Commitment or its
Loans); provided, however, that (i) such Lender's obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the participant shall be entitled to the benefit of the yield protection
provisions contained in Article VI and the right of set-off contained in Section
13.3, and (iv) the Borrower shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrower relating to its Loans and its Note and to approve
any amendment, modification, or waiver of any provision of this Agreement (other
than amendments, modifications, or waivers decreasing the amount of principal of
or the rate at which interest is payable on such Loans or Note, extending any
scheduled principal payment date or date fixed for the payment of interest on
such Loans or Note, or extending its Revolving Credit Commitment).

         (e) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time assign and pledge all or any portion of its Loans and
its Note to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any Operating Circular issued by such Federal Reserve Bank. No
such assignment shall release the assigning Lender from its obligations
hereunder.

         (f) Any Lender may furnish any information concerning the Borrower or
any of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants).

         (g) Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and permitted
assigns of such party and all covenants, provisions and agreements by or on
behalf of the Borrower which are contained in the Loan Documents shall inure to
the benefit of the successors and permitted assigns of the Agent, the Lenders,
or any of them. The Borrower may not assign or otherwise transfer to any other
Person any right, power, benefit, or privilege (or any interest therein)
conferred hereunder or under any of the other Loan Documents, or delegate (by
assumption or otherwise) to any other Person any duty, obligation, or liability
arising hereunder or under any of the other Loan Documents, and any such
purported assignment, delegation or other transfer shall be void.

         13.2. Notices. Any notice shall be conclusively deemed to have been
received by any party hereto and be effective (i) on the day on which delivered
(including hand delivery by commercial courier service) to such party (against
receipt therefor), (ii) on the date of transmission to such party, in the case
of notice sent on any Business Day by telefacsimile (where


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the proper transmission of such notice is either acknowledged by the recipient
or electronically confirmed by the transmitting device) or the next Business Day
after transmission if sent on a day other than a Business Day or after 5:00 p.m.
on any Business Day, or (iii) on the fifth Business Day after the day on which
mailed to such party, if sent prepaid by certified or registered mail, return
receipt requested, or (iv) the first Business Day following deposit with a
nationally recognized overnight courier and marked for next-day delivery, in
each case delivered, transmitted, mailed or sent, as the case may be, to the
address or telefacsimile number, as appropriate, set forth below or such other
address or number as such party shall specify by notice hereunder:

                  (a)      if to the Borrower:

                           P.F. Chang's China Bistro, Inc.
                           5090 North 40th Street, Suite 160
                           Phoenix, Arizona 85018
                           Attention:       Chief Financial Officer
                           Telephone:       (602) 381-7466
                           Telefacsimile: (602) 957-8998

                  (b)      if to the Agent:

                           Bank of America, N.A.
                           101 North Tryon Street, 15th Floor
                           NC1-001-15-04
                           Charlotte, North Carolina  28255
                           Attention: Agency Services
                           Telephone:       (704) 386-8382
                           Telefacsimile:   (704) 409-0064

                           with a copy to:

                           Bank of America, N.A.
                           100 North Tryon Street, 8th Floor
                           NC1-007-17-14
                           Charlotte, North Carolina
                           Attention: Mr. Richard G. Parkhurst, Jr.
                           Telephone:       (704) 386-1828
                           Telefacsimile:   (704) 386-3271

                  (c)      if to the Lenders:

                           At the addresses set forth on the signature pages
                           hereof and on the signature page of each Assignment
                           and Acceptance;


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                  (d)      if to any other Credit Party, at the address set
                           forth on the signature page of the Facility Guaranty
                           or Security Instrument executed by such Credit Party,
                           as the case may be.

         13.3. Right of Set-off; Adjustments. (a) Upon the occurrence and during
the continuance of any Event of Default, each Lender (and each of its
affiliates) is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender (or any of its affiliates)
to or for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement and
the Note held by such Lender, irrespective of whether such Lender shall have
made any demand under this Agreement or such Note and although such obligations
may be unmatured. Each Lender agrees promptly to notify the Borrower in writing
after any such set-off and application made by such Lender; provided, however,
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of each Lender under this Section 13.3 are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender may have.

         (b) If any Lender (a "benefitted Lender") shall at any time receive any
payment of all or part of the Loans owing to it, or interest thereon, or receive
any collateral in respect thereof (whether voluntarily or involuntarily, by
set-off, or otherwise), in a greater proportion than any such payment to or
collateral received by any other Lender, if any, in respect of such other
Lender's Loans owing to it, or interest thereon, such benefitted Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of each such other Lender's Loans owing to it, or shall provide such
other Lenders with the benefits of any such collateral, or the proceeds thereof,
as shall be necessary to cause such benefitted Lender to share the excess
payment or benefits of such collateral or proceeds ratably with each of the
Lenders; provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest. The Borrower agrees that any Lender so
purchasing a participation from a Lender pursuant to this Section 13.3 may, to
the fullest extent permitted by law, exercise all of its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Person were the direct creditor of the Borrower in the amount of such
participation.

         13.4. Survival. All covenants, agreements, representations and
warranties made herein shall survive the making by the Lenders of the Loans and
the issuance of the Letters of Credit and the execution and delivery to the
Lenders of this Agreement and the Notes and shall continue in full force and
effect so long as any of Obligations remain outstanding or any Lender has any
Revolving Credit Commitment hereunder or the Borrower has continuing obligations
hereunder unless otherwise provided herein.

         13.5. Expenses. The Borrower agrees to pay within ten (10) Business
Days of written demand all reasonable out of pocket costs and expenses of the
Agent in connection with the syndication, preparation, execution, delivery,
administration, modification, and amendment of


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this Agreement, the other Loan Documents, and the other documents to be
delivered hereunder, including, without limitation, the reasonable fees and
expenses of counsel for the Agent with respect thereto and with respect to
advising the Agent as to its rights and responsibilities under the Loan
Documents. The Borrower further agrees to pay on demand all costs and expenses
of the Agent and the Lenders, if any (including, without limitation, reasonable
attorneys' fees and expenses and the cost of internal counsel), in connection
with the enforcement (whether through negotiations, legal proceedings, or
otherwise) of the Loan Documents and the other documents to be delivered
hereunder.

         13.6. Amendments and Waivers. Any provision of this Agreement or any
other Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Borrower or other applicable Credit
Party party to such Loan Document and either the Required Lenders or (as to Loan
Documents other than the Credit Agreement) the Agent on behalf of the Required
Lenders (and, if Article XII or the rights or duties of the Agent are affected
thereby, by the Agent); provided that no such amendment or waiver shall, unless
signed by all the Lenders, (i) increase the Revolving Credit Commitments of the
Lenders or the Total Revolving Credit Commitment, (ii) reduce the principal of
or rate of interest on any Loan or any fees or other amounts payable hereunder,
(iii) postpone any date fixed for the payment of any scheduled installment of
principal of or interest on any Loan or any fees or other amounts payable
hereunder or for termination of any Revolving Credit Commitment, or (iv) change
the percentage of the Revolving Credit Commitment or of the unpaid principal
amount of the Notes, or the number of Lenders, which shall be required for the
Lenders or any of them to take any action under this Section 13.6 or any other
provision of this Agreement or (v) release any Guarantor or all or substantially
all of the Collateral except as expressly contemplated in the Loan Documents;
and provided, further, that no such amendment or waiver that affects the rights,
privileges or obligations of the Issuing Bank as issuer of Letters of Credit,
shall be effective unless signed in writing by the Issuing Bank.

         No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances, except as otherwise expressly provided herein. No delay or
omission on any Lender's or the Agent's part in exercising any right, remedy or
option shall operate as a waiver of such or any other right, remedy or option or
of any Default or Event of Default.

         13.7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such fully-executed counterpart.

         13.8. Termination. The termination of this Agreement shall not affect
any rights of the Borrower, the Lenders or the Agent or any obligation of the
Borrower, the Lenders or the Agent, arising prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into or rights created or obligations incurred
prior to such termination have been fully disposed of, concluded or liquidated
and the Obligations arising prior to or after such termination have been
irrevocably paid in full. The

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rights granted to the Agent for the benefit of the Lenders under the Loan
Documents shall continue in full force and effect, notwithstanding the
termination of this Agreement, until all of the Obligations have been paid in
full after the termination hereof (other than Obligations in the nature of
continuing indemnities or expense reimbursement obligations not yet due and
payable, which shall continue) or the Borrower has furnished the Lenders and the
Agent with an indemnification satisfactory to the Agent and each Lender with
respect thereto. Notwithstanding the foregoing, if after receipt of any payment
of all or any part of the Obligations, any Lender is for any reason compelled to
surrender such payment to any Person because such payment is determined to be
void or voidable as a preference, impermissible setoff, a diversion of trust
funds or for any other reason, this Agreement shall continue in full force and
the Borrower shall be liable to, and shall indemnify and hold the Agent or such
Lender harmless for, the amount of such payment surrendered until the Agent or
such Lender shall have been finally and irrevocably paid in full. The provisions
of the foregoing sentence shall be and remain effective notwithstanding any
contrary action which may have been taken by the Agent or the Lenders in
reliance upon such payment, and any such contrary action so taken shall be
without prejudice to the Agent or the Lenders' rights under this Agreement and
shall be deemed to have been conditioned upon such payment having become final
and irrevocable.

         13.9. Indemnification; Limitation of Liability. (a) The Borrower agrees
to indemnify and hold harmless the Agent and each Lender and each of their
affiliates and their respective officers, directors, employees, agents, and
advisors (each, an "Indemnified Party") from and against any and all claims,
damages, losses, liabilities, costs, and expenses (including, without
limitation, reasonable attorneys' fees) that may be incurred by or asserted or
awarded against any Indemnified Party, in each case arising out of or in
connection with or by reason of (including, without limitation, in connection
with any investigation, litigation, or proceeding or preparation of defense in
connection therewith) the Loan Documents, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Loans, except to the
extent such claim, damage, loss, liability, cost, or expense is found in a
final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.
In the case of an investigation, litigation or other proceeding to which the
indemnity in this Section 13.9 applies, such indemnity shall be effective
whether or not such investigation, litigation or proceeding is brought by the
Borrower, its directors, shareholders or creditors or an Indemnified Party or
any other Person or any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are consummated. The
Borrower agrees that no Indemnified Party shall have any liability (whether
direct or indirect, in contract or tort or otherwise) to it, any of its
Subsidiaries, any Guarantor, or any security holders or creditors thereof
arising out of, related to or in connection with the transactions contemplated
herein, except to the extent that such liability is found in a final
non-appealable judgment by a court of competent jurisdiction to have directly
resulted from such Indemnified Party's gross negligence or willful misconduct.
The Borrower agrees not to assert any claim against the Agent, any Lender, any
of their affiliates, or any of their respective directors, officers, employees,
attorneys, agents, and advisers, on any theory of liability, for special,
indirect, consequential, or punitive damages arising out of or otherwise
relating to the Loan Documents, any of the transactions contemplated herein or
the actual or proposed use of the proceeds of the Loans.


                                       87
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         (b) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 13.9 shall survive the payment in full of the Loans and all other
amounts payable under this Agreement.

         13.10. Severability. If any provision of this Agreement or the other
Loan Documents shall be determined to be illegal or invalid as to one or more of
the parties hereto, then such provision shall remain in effect with respect to
all parties, if any, as to whom such provision is neither illegal nor invalid,
and in any event all other provisions hereof shall remain effective and binding
on the parties hereto.

         13.11. Entire Agreement. This Agreement, together with the other Loan
Documents, constitutes the entire agreement among the parties with respect to
the subject matter hereof and supersedes all previous proposals, negotiations,
representations, commitments and other communications between or among the
parties, both oral and written, with respect thereto (except that those
provisions (if any) which by the express terms of the commitment letter dated as
of July 29, 1999, executed by Bank of America and BAS and accepted by the
Borrower, survive the closing of the Revolving Credit Facility and the Letter of
Credit Facility shall survive and continue in effect).

         13.12. Agreement Controls. In the event that any term of any of the
Loan Documents other than this Agreement conflicts with any express term of this
Agreement, the terms and provisions of this Agreement shall control to the
extent of such conflict.

         13.13. Usury Savings Clause. Notwithstanding any other provision
herein, the aggregate interest rate charged under any of the Notes, including
all charges or fees in connection therewith deemed in the nature of interest
under applicable law shall not exceed the Highest Lawful Rate (as such term is
defined below). If the rate of interest (determined without regard to the
preceding sentence) under this Agreement at any time exceeds the Highest Lawful
Rate (as defined below), the outstanding amount of the Loans made hereunder
shall bear interest at the Highest Lawful Rate until the total amount of
interest due hereunder equals the amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at all
times been in effect. In addition, if when the Loans made hereunder are repaid
in full the total interest due hereunder (taking into account the increase
provided for above) is less than the total amount of interest which would have
been due hereunder if the stated rates of interest set forth in this Agreement
had at all times been in effect, then to the extent permitted by law, the
Borrower shall pay to the Agent an amount equal to the difference between the
amount of interest paid and the amount of interest which would have been paid if
the Highest Lawful Rate had at all times been in effect. Notwithstanding the
foregoing, it is the intention of the Lenders and the Borrower to conform
strictly to any applicable usury laws. Accordingly, if any Lender contracts for,
charges, or receives any consideration which constitutes interest in excess of
the Highest Lawful Rate, then any such excess shall be cancelled automatically
and, if previously paid, shall at such Lender's option be applied to the
outstanding amount of the Loans made hereunder or be refunded to the Borrower.
As used in this paragraph, the term "Highest Lawful Rate" means the maximum
lawful interest rate, if any, that at any time or from

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time to time may be contracted for, charged, or received under the laws
applicable to such Lender which are presently in effect or, to the extent
allowed by law, under such applicable laws which may hereafter be in effect and
which allow a higher maximum nonusurious interest rate than applicable laws now
allow.

         13.14. Payments. All principal, interest, and other amounts to be paid
by the Borrower under this Agreement and the other Loan Documents shall be paid
to the Agent at the Principal Office in Dollars and in immediately available
funds, without setoff, deduction or counterclaim.

All payments properly made to the Agent by the Borrower hereunder shall satisfy
the Borrower's payment obligations to which they relate notwithstanding any
failure by the Agent to make further payments to the Lenders required hereunder.
Subject to the definition of "Interest Period" herein, whenever any payment
under this Agreement or any other Loan Document shall be stated to be due on a
day that is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time in such case shall be included in the
computation of interest and fees, as applicable, and as the case may be.

         13.15. GOVERNING LAW; WAIVER OF JURY TRIAL.

                  (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN
         THOSE SECURITY INSTRUMENTS WHICH EXPRESSLY PROVIDE THAT THEY SHALL BE
         GOVERNED BY THE LAWS OF ANOTHER JURISDICTION) SHALL BE GOVERNED BY, AND
         CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA
         APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH
         STATE.

                  (b) THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND
         CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING
         TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN MAY BE
         INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF
         MECKLENBURG, STATE OF NORTH CAROLINA, UNITED STATES OF AMERICA AND, BY
         THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER EXPRESSLY
         WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
         VENUE IN, OR TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY
         BY, ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND THE
         BORROWER HEREBY IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO
         THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR
         PROCEEDING.

                  (c) THE PARTIES HERETO AGREE THAT SERVICE OF PROCESS MAY BE
         MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR
         OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY
         REGISTERED OR CERTIFIED MAIL

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         (POSTAGE PREPAID) TO THE ADDRESS OF THE PARTY PROVIDED IN SECTION 13.2,
         OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE
         LAWS IN EFFECT IN THE STATE OF NORTH CAROLINA.

                  (d) NOTHING CONTAINED IN SUBSECTIONS (B) OR (C) HEREOF SHALL
         PRECLUDE THE AGENT OR ANY LENDER FROM BRINGING ANY SUIT, ACTION OR
         PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT IN THE
         COURTS OF ANY JURISDICTION WHERE THE BORROWER OR ANY OF THE BORROWER'S
         PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO THE EXTENT PERMITTED BY
         THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, THE BORROWER HEREBY
         IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND EXPRESSLY
         WAIVES, IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING, OBJECTION TO
         THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY ANY SUCH OTHER
         COURT OR COURTS WHICH NOW OR HEREAFTER MAY BE AVAILABLE UNDER
         APPLICABLE LAW.

                  (e) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
         RIGHTS OR REMEDIES UNDER OR RELATED TO ANY LOAN DOCUMENT OR ANY
         AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN
         THE FUTURE BE DELIVERED IN CONNECTION THEREWITH, THE BORROWER, THE
         AGENT AND THE LENDERS HEREBY AGREE, TO THE EXTENT PERMITTED BY
         APPLICABLE LAW, THAT ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE TRIED
         BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY IRREVOCABLY WAIVE, TO
         THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE
         TO TRIAL BY JURY IN ANY SUCH ACTION, SUIT OR PROCEEDING.

                  (f) EACH OF THE PARTIES HERETO HEREBY EXPRESSLY WAIVE ANY
         OBJECTION IT MAY HAVE THAT ANY COURT TO WHOSE JURISDICTION IT HAS
         SUBMITTED PURSUANT TO THE TERMS HEREOF IS AN INCONVENIENT FORUM.


         13.16. CONFIDENTIALITY The Agent and each Lender (each, a "Lending
Party") agrees to keep confidential any information furnished or made available
to it by the Borrower pursuant to this Agreement that is marked confidential;
provided that nothing herein shall prevent any Lending Party from disclosing
such information (a) to any other Lending Party or any affiliate of any Lending
Party, or any officer, director, employee, agent, or advisor of any Lending
Party or affiliate of any Lending Party, (b) to any other Person if reasonably
incidental to the administration of the credit facility provided herein, (c) as
required by any law, rule, or regulation, (d) upon the order of any court or
administrative agency, (e) upon the request or

                                       90
   97
demand of any regulatory agency or authority, (f) that is or becomes available
to the public or that is or becomes available to any Lending Party other than as
a result of a disclosure by any Lending Party prohibited by this Agreement, (g)
in connection with any litigation to which such Lending Party or any of its
affiliates may be a party, (h) to the extent necessary in connection with the
exercise of any remedy under this Agreement or any other Loan Document, and (i)
subject to provisions substantially similar to those contained in this Section,
to any actual or proposed participant or assignee.


                         [Signatures on following pages]


                                       91
   98
         IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be made, executed and delivered by their duly authorized officers as of the day
and year first above written.


                                  P.F. CHANG'S CHINA BISTRO, INC.


                                  By:
                                        ---------------------------------------
                                  Name:
                                        ---------------------------------------
                                  Title:
                                        ---------------------------------------



                                  [CORPORATE SEAL]



                                  BANK OF AMERICA, N.A.,
                                  as Agent for the Lenders


                                  By:
                                        ---------------------------------------
                                  Name:
                                        ---------------------------------------
                                  Title:
                                        ---------------------------------------



                                CREDIT AGREEMENT
                              SIGNATURE PAGE 1 OF 2
   99
                                 BANK OF AMERICA, N.A.


                                 By:
                                        ---------------------------------------
                                 Name:
                                        ---------------------------------------
                                 Title:
                                        ---------------------------------------


                                 Lending Office for Base Rate Loans:
                                          Bank of America, N.A.
                                          101 North Tryon Street, 15th Floor
                                          NC1-001-15-04
                                          Charlotte, North Carolina  28255
                                          Attention: Sheila Baggarly
                                          Telephone:        (704) 386-4198
                                          Telefacsimile:    (704) 386-9923

                                 Wire Transfer Instructions:
                                          Bank of America, N.A.
                                          ABA# 053000196
                                          Account No.: 1366212250600
                                          Reference: P.F. Chang's
                                          Attention: Sheila Baggarly


                                 Lending Office for Eurodollar Rate Loans:
                                          Bank of America, N.A.
                                          101 North Tryon Street, 15th Floor
                                          NC1-001-15-04
                                          Charlotte, North Carolina  28255
                                          Attention: Sheila Baggarly
                                          Telephone:        (704) 386-4198
                                          Telefacsimile:    (704) 386-9923

                                 Wire Transfer Instructions:
                                          Bank of America, N.A.
                                          ABA# 053000196
                                          Account No.: 1366212250600
                                          Reference: P.F. Chang's
                                          Attention: Sheila Baggarly



                                CREDIT AGREEMENT
                              SIGNATURE PAGE 2 OF 2
   100
                                    EXHIBIT A


                        Applicable Commitment Percentages



                                                        Applicable
                             Revolving Credit           Commitment
Lender                         Commitment               Percentage
                                                  
Bank of America, N.A.        $15,000,000                   100%

                             -----------                ----------
                             $15,000,000                   100%



                                       A-1
   101
                                    EXHIBIT B

                        Form of Assignment and Acceptance

         Reference is made to the Credit Agreement dated as of December __ 1999
(the "Credit Agreement") among P.F. Chang's China Bistro, Inc., an Arizona
corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement)
and Bank of America, N.A., as agent for the Lenders (the "Agent"). Terms defined
in the Credit Agreement are used herein with the same meaning.

         The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:

         1. The Assignor hereby sells and assigns to the Assignee, WITHOUT
RECOURSE and without representation or warranty except as expressly set forth
herein, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement and the other Loan Documents as of the date hereof equal to the
percentage interest specified on Schedule 1 of all outstanding rights and
obligations under the Credit Agreement and the other Loan Documents.* After
giving effect to such sale and assignment, the Assignee's Revolving Credit
Commitment and the amount of the Loans owing to the Assignee will be as set
forth on Schedule 1.

         2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Loan Documents or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Credit Party or
the performance or observance by any Credit Party of any of its obligations
under the Loan Documents or any other instrument or document furnished pursuant
thereto; and (iv) attaches the Revolving Note held by the Assignor and requests
that the Agent exchange such Revolving Note for new Revolving Notes payable to
the order of the Assignee in an amount equal to the Revolving Credit Commitment
assumed by the Assignee pursuant hereto and to the Assignor in an amount equal
to the Revolving Credit Commitment retained by the Assignor, if any, as
specified on Schedule 1.

         3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 9.1 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Lender and based on such
documents and

- ---------------
*        In the case of Bank of America as Assignor, excluding any rights,
         benefits, or duties as Issuing Bank.


                                       B-1
   102
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement;
(iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers and
discretion under the Credit Agreement as are delegated to the Agent by the terms
thereof, together with such powers and discretion as are reasonably incidental
thereto; (v) agrees that it will perform in accordance with their terms all of
the obligations that by the terms of the Credit Agreement are required to be
performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service
or other forms required under Section 6.6.

         4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "Effective Date") shall
be the date of acceptance hereof by the Agent, unless otherwise specified on
Schedule 1.

         5. Upon such acceptance and recording by the Agent, as of the Effective
Date, (i) the Assignee shall be a party to the Credit Agreement and, to the
extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.

         6. Upon such acceptance and recording by the Agent, from and after the
Effective Date, the Agent shall make all payments under the Credit Agreement and
the Revolving Notes in respect of the interest assigned hereby (including,
without limitation, all payments of principal, interest and commitment fees with
respect thereto) to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments under the Credit Agreement and the Revolving
Notes for periods prior to the Effective Date directly between themselves.

         7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of North Carolina.

         8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Assignment and Acceptance.

         IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule
1 to this Assignment and Acceptance to be executed by their officers thereunto
duly authorized as of the date specified thereon.


                                       B-2
   103
                                   Schedule 1



                                                           
         Percentage interest assigned:                        ________%

         Assignee's Revolving Credit Commitment:              $_______

         Aggregate outstanding principal amount
           of Loans assigned:                                 $_______

         Principal amount of Revolving Note
           payable to Assignee:                               $_______

         Principal amount of Revolving Note
           payable to Assignor:                               $_______

         Effective Date (if other than date
            of acceptance by Agent):                          *_______, ____



                                       [NAME OF ASSIGNOR], as Assignor


                                       By:
                                          -------------------------------------
                                            Title:

                                       Dated:                     , 19




                                       [NAME OF ASSIGNEE], as Assignee


                                       By:
                                          -------------------------------------
                                            Title:

                                       Domestic Lending Office:

                                       Eurodollar Lending Office:


*        This date should be no earlier than five Business Days after the
         delivery of this Assignment and Acceptance to the Agent.


                                       B-3
   104
Accepted [and Approved] **
this ___ day of ___________, 19 _

BANK OF AMERICA, N.A., as Agent


By:
      -------------------------------------
Title:


[Approved this ____ day
of ____________, ____


P.F. CHANG'S CHINA BISTRO, INC.


By:                                         ]**
      -------------------------------------
Title:


** Required if the Assignee is an Eligible Assignee solely by reason of clause
(iii) of the definition of "Eligible Assignee".


                                       B-4
   105
                                    EXHIBIT C

       Notice of Appointment (or Revocation) of Authorized Representative

             Reference is hereby made to the Credit Agreement dated as of
December __, 1999 (the "Agreement") among P.F. China Bistro, Inc., an Arizona
corporation (the "Borrower"), the Lenders (as defined in the Agreement), and
Bank of America, N.A., as Agent for the Lenders ("Agent"). Capitalized terms
used but not defined herein shall have the respective meanings therefor set
forth in the Agreement.

             The Borrower hereby nominates, constitutes and appoints each
individual named below as an Authorized Representative under the Loan Documents,
and hereby represents and warrants that (i) set forth opposite each such
individual's name is a true and correct statement of such individual's office
(to which such individual has been duly elected or appointed), a genuine
specimen signature of such individual and an address for the giving of notice,
and (ii) each such individual has been duly authorized by the Borrower to act as
Authorized Representative under the Loan Documents:



Name and Address                   Office                Specimen Signature
                                               
- ----------------------     ----------------------    --------------------------
- ----------------------
- ----------------------

- ----------------------     ----------------------    --------------------------
- ----------------------     ----------------------    --------------------------
- ----------------------





Borrower hereby revokes (effective upon receipt hereof by the Agent) the prior
appointment of ________________ as an Authorized Representative.

             This the ___ day of __________________, ____.


                                         P.F. CHANG'S CHINA BISTRO, INC.

                                         By:
                                                -------------------------------
                                         Name:
                                                -------------------------------
                                         Title:
                                                -------------------------------


                                       C-1
   106
                                    EXHIBIT D

                            Form of Borrowing Notice

To:          Bank of America, N.A.,
             as Agent
             101 North Tryon Street, 15th Floor
             NC1-001-15-04
             Charlotte, North Carolina  28255
             Attention: Agency Services
             Telefacsimile:  (704)386-9923

             Reference is hereby made to the Credit Agreement dated as of
December__, 1999 (the "Agreement") among P.F. Chang's China Bistro, Inc. (the
"Borrower"), the Lenders (as defined in the Agreement), and Bank of America,
N.A., as Agent for the Lenders ("Agent"). Capitalized terms used but not defined
herein shall have the respective meanings therefor set forth in the Agreement.

             The Borrower through its Authorized Representative hereby gives
notice to the Agent that Loans of the type and amount set forth below be made on
the date indicated:



Type of Loan              Interest           Aggregate
(check one)               Period(1)          Amount(2)         Date of Loan(3)
                                                      
Base Rate Loan            ______             _________         ____________

Eurodollar Rate Loan      ______             _________         ____________


- -----------------------
(1)      For any Eurodollar Rate Loan, one, two, three or six months.

(2)      Must be $500,000 or if greater an integral multiple of $100,000, unless
         a Base Rate Refunding Loan.

(3)      At least three (3) Business Days later if a Eurodollar Rate Loan;

         The Borrower hereby requests that the proceeds of Loans described in
this Borrowing Notice be made available to the Borrower as follows: [insert
transmittal instructions] .

         The undersigned hereby certifies that:

         1. No Default or Event of Default exists either now or after giving
effect to the borrowing described herein; and



                                       D-1
   107
         2. All the representations and warranties set forth in Article VIII of
the Agreement and in the Loan Documents (other than those expressly stated to
refer to a particular date) are true and correct as of the date hereof except
that the reference to the financial statements in Section 8.6(a) of the
Agreement (solely for the purpose of the representation and warranty contained
in such Section 8.6(a) but not for the purpose of any cross reference to such
Section 8.6(a) or to the financial statements described therein contained in any
other provision of Section 8.6 or elsewhere in Article 8) to those financial
statements most recently delivered to you pursuant to Section 9.1 of the
Agreement (it being understood that any financial statements delivered pursuant
to Section 9.1(b) have not been certified by independent public accountants).

         3. All conditions contained in the Agreement to the making of any Loan
requested hereby have been met or satisfied in full .

                                      P.F. CHANG'S CHINA BISTRO, INC.

                                      BY:
                                         --------------------------------------
                                               Authorized Representative

                                      DATE:
                                           ------------------------------------


                                       D-2
   108
                                    EXHIBIT E

                     Form of Interest Rate Selection Notice

To:          Bank of America, N.A., as Agent
             101 North Tryon Street, 15th Floor
             NC1-001-15-04
             Charlotte, North Carolina  28255
             Attention:  Agency Services
             Telefacsimile:  (704) 386-9923

             Reference is hereby made to the Credit Agreement dated as of
December __, 1999 (the "Agreement") among P.F. Chang's China Bistro, Inc. (the
"Borrower"), the Lenders (as defined in the Agreement), and Bank of America,
N.A., as Agent for the Lenders ("Agent"). Capitalized terms used but not defined
herein shall have the respective meanings therefor set forth in the Agreement.

             The Borrower through its Authorized Representative hereby gives
notice to the Agent of the following selection of a type of Loan and Interest
Period:



Type of Loan                    Interest         Aggregate
(check one)                     Period(1)        Amount(2)       Date of Loan(3)
                                                        
Base Rate Loan                  ______           _________       ____________

Eurodollar Rate Loan            ______           _________       ____________


- -----------------------
(1)      For any Eurodollar Rate Loan, one, two, three or six months.

(2)      Must be $500,000 or if greater an integral multiple of $100,000, unless
         a Base Rate Refunding Loan.

(3)      At least three (3) Business Days later if a Eurodollar Rate Loan.

                                          P.F. CHANG'S CHINA BISTRO, INC.

                                          BY:
                                             ----------------------------------
                                                   Authorized Representative

                                          DATE:
                                               --------------------------------


                                       E-1
   109
                                    EXHIBIT F

                                  Form of Note

                                 Promissory Note




$
 --------------
                                                      ---------, --------------

                                                                ------ --, ----


         FOR VALUE RECEIVED, P.F. CHANG'S CHINA BISTRO, INC., an Arizona
corporation having its principal place of business located in Phoenix, Arizona
(the "Borrower"), hereby promises to pay to the order of
_______________________________________________ (the "Lender"), in its
individual capacity, at the office of BANK OF AMERICA, N.A., as agent for the
Lenders (the "Agent"), located at 101 North Tryon Street, NC1-001-15-04,
Charlotte, North Carolina 28255 (or at such other place or places as the Agent
may designate in writing) at the times set forth in the Credit Agreement dated
as of December __, 1999 among the Borrower, the financial institutions party
thereto (collectively, the "Lenders") and the Agent (the "Agreement" -- all
capitalized terms not otherwise defined herein shall have the respective
meanings set forth in the Agreement), in lawful money of the United States of
America, in immediately available funds, the principal amount of ___________
DOLLARS ($__________) or, if less than such principal amount, the aggregate
unpaid principal amount of all Loans made by the Lender to the Borrower pursuant
to the Agreement on the Revolving Credit Termination Date or such earlier date
as may be required pursuant to the terms of the Agreement, and to pay interest
from the date hereof on the unpaid principal amount hereof, in like money, at
said office, on the dates and at the rates provided in Articles II and IV of the
Agreement. All or any portion of the principal amount of Loans may be prepaid or
required to be prepaid as provided in the Agreement.

         If payment of all sums due hereunder is accelerated under the terms of
the Agreement or under the terms of the other Loan Documents executed in
connection with the Agreement, the then remaining principal amount and accrued
but unpaid interest thereon evidenced by this Revolving Note shall become
immediately due and payable, without presentation, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.

         In the event this Revolving Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees, and
interest due hereunder thereon at the rates set forth above.

         Interest hereunder shall be computed as provided in the Agreement.

         This Note is one of the Notes in the aggregate principal amount of
$__________ referred to in the Agreement and is issued pursuant to and entitled
to the benefits and security of the Agreement to which reference is hereby made
for a more complete statement of the terms and conditions upon

                                      F-1-1
   110
which the Loans evidenced hereby were or are made and are to be repaid. This
Revolving Note is subject to certain restrictions on transfer or assignment as
provided in the Agreement.

         All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive
to the full extent permitted by law all defenses based on suretyship or
impairment of collateral and the benefits of all provisions of law for stay or
delay of execution or sale of property or other satisfaction of judgment against
any of them on account of liability hereon until judgment be obtained and
execution issued against any other of them and returned satisfied or until it
can be shown that the maker or any other party hereto had no property available
for the satisfaction of the debt evidenced by this instrument, or until any
other proceedings can be had against any of them, also their right, if any, to
require the holder hereof to hold as security for this Revolving Note any
collateral deposited by any of said Persons as security. Protest, notice of
protest, notice of dishonor, diligence or any other formality are hereby waived
by all parties bound hereon.


                            [SIGNATURE PAGE FOLLOWS.]


                                      F-1-2
   111
         IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be
made, executed and delivered by its duly authorized representative as of the
date and year first above written, all pursuant to authority duly granted.


                                            P.F. CHANG'S CHINA BISTRO, INC.
WITNESS:

                                            By:
- ------------------------                         -------------------------------
                                            Name:
- ------------------------                         -------------------------------
                                            Title:
                                                 -------------------------------


                                      F-1-3
   112
                                    EXHIBIT G

                      Form of Opinion of Borrower's Counsel


                                  See Attached.




                                       G-1
   113
                                    EXHIBIT H

                             Compliance Certificate

Bank of America, N.A.,
as Agent
101 North Tryon Street, 15th Floor
NC1-001-15-04
Charlotte, North Carolina  28255
Attention: Agency Services
Telefacsimile:  (704) 386-9923

Bank of America, N.A.,
as Agent
Bank of America Corporate Center, 8th Floor
100 North Tryon Street
NC1-007-08-07
Charlotte, North Carolina 28255
Attention:   Richard Parkhurst
Telefacsimile:    (704) 386-1270


         Reference is hereby made to the Credit Agreement dated as of December
__, 1999 (the "Agreement") among P.F. Chang's China Bistro, Inc., an Arizona
corporation (the "Borrower"), the Lenders (as defined in the Agreement) and Bank
of America, N.A., as Agent for the Lenders ("Agent"). Capitalized terms used but
not otherwise defined herein shall have the respective meanings therefor set
forth in the Agreement. The undersigned, a duly authorized and acting Authorized
Representative, hereby certifies to you as of __________ (the "Determination
Date") as follows:

1.       Calculations:

                                [TO BE PROVIDED]

2.       No Default

                           A. Since __________ (the date of the last similar
                  certification), (a) the Borrower has not defaulted in the
                  keeping, observance, performance or fulfillment of its
                  obligations pursuant to any of the Loan Documents; and (b) no
                  Default or Event of Default specified in Article XI of the
                  Agreement has occurred and is continuing.

                           B. If a Default or Event of Default has occurred
                  since __________ (the date of the last similar certification),
                  the Borrower proposes to take the following action with
                  respect to such Default or Event of Default:_________________


                                       H-1
   114
                  ______________________________________________________________
                  _____________________.
                           (Note, if no Default or Event of Default has
                           occurred, insert "Not Applicable").

         The Determination Date is the date of the last required financial
statements submitted to the Lenders in accordance with Section 9.1 of the
Agreement.


IN WITNESS WHEREOF, I have executed this Certificate this _____ day of
__________, ____.


                                            By:
                                                  ------------------------------
                                                     Authorized Representative

                                            Name:
                                                  ------------------------------

                                            Title:
                                                  ------------------------------


                                       H-2
   115
                                    EXHIBIT I

                            Form of Facility Guaranty


                                  See Attached.



                                       I-1
   116
                                    EXHIBIT J

                           Form of Security Agreement


                                  See Attached.



                                       J-1
   117
                                    EXHIBIT K

                            Form of Pledge Agreement


                                  See Attached.



                                       K-1
   118
                                    EXHIBIT L

                          Form of LC Account Agreement


                                  See Attached.



                                       L-1
   119
                                  Schedule 5.3

                        Information Regarding Collateral


                                  See Attached.




                                       S-1
   120
                                 Schedule 5.4(b)

                        Leased Properties to be Mortgaged


                                  See Attached.






                                       S-2
   121
                                  Schedule 8.4

                  Subsidiaries and Investments in Other Persons


                                  See Attached.





                                       S-3
   122
                                  Schedule 8.6

                                  Indebtedness


                                  See Attached.



                                       S-4
   123
                                  Schedule 8.7

                                      Liens


                                  See Attached.



                                       S-5
   124
                                  Schedule 8.8

                                   Tax Matters


                                  See Attached.





                                       S-6
   125
                                  Schedule 8.10

                                   Litigation


                                  See Attached.



                                       S-7
   126
                                  Schedule 8.22

                              Operating Facilities


                                  See Attached.

EX-10.13

   1
                                                                   Exhibit 10.13

                         P.F. CHANG'S CHINA BISTRO, INC.

                       1999 NONSTATUTORY STOCK OPTION PLAN



         1.       ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

                  1.1 ESTABLISHMENT. P.F. Chang's China Bistro, Inc. 1999
Nonstatutory Stock Option Plan is hereby established effective as of June 18,
1999.

                  1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by providing
an incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.

                  1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed.

         2.       DEFINITIONS AND CONSTRUCTION.

                  2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:

                           (a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).

                           (b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.

                           (c) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.

                           (d) "COMPANY" means P.F. Chang's Bistro, Inc., a
Delaware corporation, or any successor corporation thereto.

                           (e) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.


                                       1
   2
                           (f) "DIRECTOR" means a member of the Board or of the
board of directors of any other Participating Company.

                           (g) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.

                           (h) "FAIR MARKET VALUE" means, as of any date, the
value of a share of stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.

                           (i) "OPTION" means a right to purchase Stock (subject
to adjustment as provided in Section 4.2) pursuant to the terms and conditions
of the Plan. Options are intended to be nonstatutory stock options and shall not
be treated as incentive stock options within the meaning of Section 422(b) of
the Code.

                           (j) "OPTION AGREEMENT" means a written agreement
between the Company and an Optionee setting forth the terms, conditions and
restrictions of the Option granted to the Optionee and any shares acquired upon
the exercise thereof.

                           (k) "OPTIONEE" means a person who has been granted
one or more Options.

                           (l) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.

                           (m) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.

                           (n) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively which are then Participating Companies.

                           (o) "STOCK" means the common stock, par value $0.001,
of the Company, as adjusted from time to time in accordance with Section 4.2.

                           (p) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.

                  2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
the term "or" shall include the conjunctive as well as the disjunctive.


                                        2
   3
         3.       ADMINISTRATION.

                  3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board, including any duly appointed Committee of the Board.
All questions of interpretation of the Plan or of any Option shall be determined
by the Board, and such determinations shall be final and binding upon all
persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.

                  3.2 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:

                           (a) to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of shares of Stock to be
subject to each Option;

                           (b) to determine the Fair Market Value of shares of
Stock or other property;

                           (c) to determine the terms, conditions and
restrictions applicable to each Option (which need not be identical) and any
shares acquired upon the exercise thereof, including, without limitation, (i)
the exercise price of the Option, (ii) the method of payment for shares
purchased upon the exercise of the Option, (iii) the method for satisfaction of
any tax withholding obligation arising in connection with the Option or such
shares, including by the withholding or delivery of shares of stock, (iv) the
timing, terms and conditions of the exercisability of the Option or the vesting
of any shares acquired upon the exercise thereof, (v) the time of the expiration
of the Option, (vi) the effect of the Optionee's termination of employment or
service with the Participating Company Group on any of the foregoing, and (vii)
all other terms, conditions and restrictions applicable to the Option or such
shares not inconsistent with the terms of the Plan;

                           (d) to approve one or more forms of Option Agreement;

                           (e) to amend, modify, extend, or renew, or grant a
new Option in substitution for, any Option or to waive any restrictions or
conditions applicable to any Option or any shares acquired upon the exercise
thereof;

                           (f) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of employment or service with the Participating Company Group;

                           (g) to prescribe, amend or rescind rules, guidelines
and policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including,


                                       3
   4
without limitation, as the Board deems necessary or desirable to comply with the
laws of, or to accommodate the tax policy or custom of, foreign jurisdictions
whose citizens may be granted Options; and

                           (h) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.

         4.       SHARES SUBJECT TO PLAN.

                  4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be One Hundred Thousand (100,000) and shall
consist of authorized but unissued or reacquired shares of Stock or any
combination thereof. If an outstanding Option for any reason expires or is
terminated or canceled or shares of Stock acquired, subject to repurchase, upon
the exercise of an Option are repurchased by the Company, the shares of Stock
allocable to the unexercised portion of such Option, or such repurchased shares
of Stock, shall again be available for issuance under the Plan.

                  4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event
of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options, and in the exercise price
per share of any outstanding Options. If a majority of the shares which are of
the same class as the shares that are subject to outstanding Options are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event, as defined in Section 8.1) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding
Options to provide that such Options are exercisable for New Shares. In the
event of any such amendment, the number of shares subject to, and the exercise
price per share of, the outstanding Options shall be adjusted in a fair and
equitable manner as determined by the Board, in its sole discretion.
Notwithstanding the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 4.2 shall be rounded up or down to the nearest whole
number, as determined by the Board, and in no event may the exercise price of
any Option be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 4.2 shall be final, binding and conclusive.

         5.       ELIGIBILITY AND OPTION LIMITATIONS. Options may be granted
only to Employees and Consultants; provided, however, that no Option shall be
granted any person whose eligibility to receive an Option under the Plan at the
time of grant would require the approval of the Company's stockholders pursuant
to any applicable law, regulation or rule, including, without limitation, the
rules applicable to the listing of the Company's securities on the Nasdaq
National Market System. For purposes of the foregoing sentence, "Employees"
shall include prospective Employees to whom Options are granted in connection
with written offers of employment with the Participating Company Group, and
"Consultants" shall include prospective Consultants to
   5
whom Options are granted in connection with written offers of engagement with
the Participating Company Group. Eligible persons may be granted more than one
(1) Option.

         6.       TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
Option Agreements specifying the number of shares of Stock covered thereby, in
such form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:

                  6.1 EXERCISE PRICE. The exercise price for each Option shall
be established in the sole discretion of the Board; provided, however, that the
exercise price per share for an Option shall be not less than the Fair Market
Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option may be granted with an exercise price
lower than the minimum exercise price set forth above if such Option is granted
pursuant to an assumption or substitution for another option in a manner
qualifying under the provisions of Section 424(a) of the Code.

                  6.2 EXERCISE PERIOD. Options shall be exercisable at such time
or times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that no Option granted to a prospective Employee or prospective Consultant may
become exercisable prior to the date on which such person commences service with
a Participating Company.

                  6.3 PAYMENT OF EXERCISE PRICE.

                           (a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of shares of Stock
owned by the Optionee having a Fair Market Value (as determined by the Company
without regard to any restrictions on transferability applicable to such stock
by reason of federal or state securities laws or agreements with an underwriter
for the Company) not less than the exercise price, (iii) by the assignment of
the proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.

                           (b) TENDER OF STOCK. Notwithstanding the foregoing,
an Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the


                                       5
   6
redemption of the Company's stock. Unless otherwise provided by the Board, an
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.

                           (c) CASHLESS EXERCISE. The Company reserves, at any
and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.

                           (d) PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if the exercise of an Option using a promissory note would be
a violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.

                  6.4 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market Value, as determined by the Company, equal
to all or any part of the federal, state, local and foreign taxes, if any,
required by law to be withheld by the Participating Company Group with respect
to such Option or the shares acquired upon the exercise thereof. Alternatively
or in addition, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding, cash payment or otherwise,
including by means of a Cashless Exercise, to make adequate provision for any
such tax withholding obligations of the Participating Company Group arising in
connection with the Option or the shares acquired upon the exercise thereof. The
Company shall have no obligation to deliver shares of Stock or to release shares
of Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.

         7.       STANDARD FORM OF OPTION AGREEMENT.

                  7.1 GENERAL. Unless otherwise provided by the Board at the
time the Option is granted, an Option shall comply with and be subject to the
terms and conditions set forth in the form of Nonstatutory Stock Option
Agreement adopted by the Board concurrently with its adoption of the Plan and as
amended from time to time.

                  7.2 STANDARD TERM OF OPTIONS. Except as otherwise provided by
the Board in the grant of an Option, any Option granted hereunder shall have a
term of ten (10) years from the effective date of grant of the Option.


                                       6
   7
                  7.3 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any standard form of Option
Agreement described in this Section 7 either in connection with the grant or
amendment of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
any such new, revised or amended standard form or forms of Option Agreement are
not inconsistent with the terms of the Plan.

         8.       TRANSFER OF CONTROL.

                  8.1 DEFINITIONS.

                           (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:

                                    (i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;

                                    (ii) a merger or consolidation in which the
Company is a party;

                                    (iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or

                                    (iv) a liquidation or dissolution of the
Company.

                           (b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.


                                       7
   8
                  8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of
an eligible Transfer of Control, each of the outstanding Options shall receive
an additional two (2) years of accelerated vesting as of the date ten (10) days
prior to the date of the Transfer of Control. The exercise or vesting of any
Option that was permissible solely by reason of this Section 8.2 shall be
conditioned upon the consummation of the Transfer of Control. In addition, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may
either assume the Company's rights and obligations under outstanding Options or
substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall
be deemed assumed if, following the Transfer of Control, the Option confers the
right to purchase in accordance with its terms and conditions, for each share of
Stock subject to the Option immediately prior to the Transfer of Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Transfer of Control was
entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control. Notwithstanding
the foregoing, shares acquired upon exercise of an Option prior to the Transfer
of Control and any consideration received pursuant to the Transfer of Control
with respect to such shares shall continue to be subject to all applicable
provisions of the Option Agreement evidencing such Option except as otherwise
provided in such Option Agreement. Furthermore, notwithstanding the foregoing,
if the corporation the stock of which is subject to the outstanding Options
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the outstanding Options shall not
terminate unless the Board otherwise provides in its sole discretion.

                  8.3 NOTICE. The Company shall send to all holders of
outstanding Options at least ten (10) days' written notice prior to the
consummation of a Transfer of Control. The Company's notice shall summarize the
principal terms of the Transfer of Control including, without limitation,
whether the Acquiring Corporation is assuming the outstanding Options or
substituting equivalent options therefor.

         9. PROVISION OF INFORMATION. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.

         10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.

         11. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group,


                                       8
   9
members of the Board and any officers or employees of the Participating Company
Group to whom authority to act for the Board is delegated shall be indemnified
by the Company against all reasonable expenses, including attorneys' fees,
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60) days
after the institution of such action, suit or proceeding, such person shall
offer to the Company, in writing, the opportunity at its own expense to handle
and defend the same.

         12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Optionee, unless such termination or amendment is
necessary to comply with any applicable law or government regulation.

         IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing P.F. Chang's China Bistro, Inc. 1999 Nonstatutory Stock
Option Plan was duly adopted by the Board on June 18, 1999.


                                     ------------------------------------------
                                      Robert T. Vivian, Secretary


                                       9
   10
                                  PLAN HISTORY


June 19, 1999      Board adopts Plan, with an initial reserve of 100,000 shares.


                                       10

EX-23.1

   1
                                                                    EXHIBIT 23.1

                        CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-73035) pertaining to the P.F. Chang's China Bistro, Inc. 1996
Employee Stock Option Plan, 1997 Restaurant Management Stock Option Plan, 1998
Stock Option Plan and 1998 Employee Stock Purchase Plan of P.F. Chang's China
Bistro, Inc. of our report dated February 9, 2000, with respect to the
consolidated financial statements of P.F. Chang's China Bistro, Inc. included
in the Annual Report (Form 10-K) for the year ended January 2, 2000.



Phoenix, Arizona                                       /s/ Ernst & Young LLP
March 1, 2000

EX-27.1

 

<ARTICLE> 5
<MULTIPLIER> 1,000

                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JAN-02-2000
<PERIOD-START>                             DEC-28-1998
<PERIOD-END>                               JAN-02-2000
<CASH>                                           5,333
<SECURITIES>                                         0
<RECEIVABLES>                                    1,275
<ALLOWANCES>                                         0
<INVENTORY>                                      1,085
<CURRENT-ASSETS>                                 9,283
<PP&E>                                          56,395
<DEPRECIATION>                                   7,951
<TOTAL-ASSETS>                                  81,707
<CURRENT-LIABILITIES>                           14,274
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                            10
<OTHER-SE>                                      64,780
<TOTAL-LIABILITY-AND-EQUITY>                    81,707
<SALES>                                              0
<TOTAL-REVENUES>                               153,295
<CGS>                                           42,136
<TOTAL-COSTS>                                  123,477
<OTHER-EXPENSES>                                13,992
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                 11,283
<INCOME-TAX>                                     2,778
<INCOME-CONTINUING>                              6,036
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     6,036
<EPS-BASIC>                                       0.59
<EPS-DILUTED>                                     0.54