-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UcIEjU5dYPMOs5Lj7s52VQL4ucM7rVL2t8EMEALUj1jUEyLaRHnGKArAuiEhv4mz EQjbbUEHDIyNbnXAm9a62w== 0000950153-98-001492.txt : 19981204 0000950153-98-001492.hdr.sgml : 19981204 ACCESSION NUMBER: 0000950153-98-001492 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19981203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: P F CHANGS CHINA BISTRO INC CENTRAL INDEX KEY: 0001039889 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-59749 FILM NUMBER: 98763211 BUSINESS ADDRESS: STREET 1: 5090 N 40TH ST STE 160 CITY: PHOENIX STATE: AZ ZIP: 85018 MAIL ADDRESS: STREET 1: 5090 N. 40TH ST STREET 2: SUITE 160 CITY: PHOENIX STATE: AZ ZIP: 85018 S-1/A 1 AMENDMENT #3 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1998 REGISTRATION NO. 333-59749 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ PRE-EFFECTIVE AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ P.F. CHANG'S CHINA BISTRO, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 5812 86-0815086 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
5090 NORTH 40TH STREET, SUITE 160 PHOENIX, AZ 85018 (602) 957-8986 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ ROBERT T. VIVIAN CHIEF FINANCIAL OFFICER P.F. CHANG'S CHINA BISTRO, INC. 5090 NORTH 40TH STREET, SUITE 160 PHOENIX, AZ 85018 (602) 957-8986 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: CAMERON JAY RAINS, ESQ. CECIL SCHENKER, P.C. SCOTT M. STANTON, ESQ. J. PATRICK RYAN, ESQ. CHRISTIAN WAAGE, ESQ. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. GRAY CARY WARE & FREIDENRICH LLP 300 CONVENT STREET, SUITE 1500 4365 EXECUTIVE DRIVE, SUITE 1600 SAN ANTONIO, TX 78205 SAN DIEGO, CA 92121 (210) 281-7000 (619) 677-1400
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 The undersigned registrant hereby amends Part II and exhibits to its Registration Statement on Form S-1, Registration number 333-59749 as set forth in the pages attached hereto. 3 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the Common Stock being registered. The Company is paying all of the expenses incurred on behalf of the Selling Stockholders (other than underwriting discounts and commissions). All amounts shown are estimates except for the registration fee and the NASD filing fee. Registration fee............................................ $ 16,963 NASD filing fee............................................. 6,250 Nasdaq National Market fee.................................. 41,250 Blue sky qualification fees and expenses.................... 5,000 Printing and engraving expenses............................. 200,000 Legal fees and expenses..................................... 300,000 Accounting fees and expenses................................ 150,000 Transfer agent and registrar fees........................... 10,000 Fee for Custodian for Selling Stockholders.................. 10,000 Miscellaneous............................................... 60,537 -------- Total............................................. $800,000 ========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Section 145 of the DGCL permits indemnification of officers, directors, and other corporate agents under certain circumstances and subject to certain limitations. The Registrant's Amended and Restated Certificate of Incorporation and By-laws provide that the Registrant shall indemnify its directors, officers, employees and agents to the full extent permitted by the DGCL, including circumstances in which indemnification is otherwise discretionary under Delaware law. In addition, the Registrant has entered into separate indemnification agreements with its directors and executive officers which require the Registrant, among other things, to indemnify them against certain liabilities which may arise by reason of their status or service (other than liabilities arising from acts or omissions not in good faith or willful misconduct). These indemnification provisions and the indemnification agreements entered into between the Registrant and its executive officers and directors may be sufficiently broad to permit indemnification of the Registrant's executive officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). The Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the Underwriters of the Registrant and its officers and directors for certain liabilities arising under the Securities Act, or otherwise. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since July 31, 1995, the Registrant and its Predecessors have sold and issued the following unregistered securities: (a) Issuances of Shares of Common Stock. On January 31, 1996, the Registrant issued a total of 500 shares of Common Stock to Paul Fleming in exchange for an aggregate purchase price of $100.00, or $0.20 per share. On February 28, 1996, the Registrant issued a total of 2,499,500 shares of Common Stock to Paul and Kelly Fleming in exchange for their interests in the Predecessors. (b) Issuances of Shares of Preferred Stock. On February 1, 1996, the Registrant sold shares of Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock") convertible into 2,487,500 shares of Common Stock and Warrants exercisable for shares of Series A Preferred Stock convertible into 621,875 shares of Common Stock to accredited II-1 4 investors for an aggregate purchase price of $9,950,000. In September 1996, the Company issued additional shares of Series A Preferred Stock convertible into 189,635 shares of Common Stock to accredited investors for an aggregate purchase price of $758,540. On March 31, 1998, June 30, 1998 and September 30, 1998, the Company issued shares of Series A Preferred Stock as paid-in-kind dividends to holders of Series A Preferred Stock convertible into an aggregate of 122,284 shares of Common Stock. On May 1, 1997, the Registrant sold shares of Series B Convertible Redeemable Preferred Stock convertible into 758,565 shares of Common Stock to accredited investors for an aggregate offering price of $6,599,519. (c) Option Issuances to, and Exercises by, Employees and Directors. From June 28, 1996 to September 27, 1998, the Registrant issued options to purchase a total of 1,130,885 shares of Common Stock at a weighted-average exercise price of $4.61 per share to 54 employees. No consideration was paid to the Registrant by any recipient of any of the foregoing options for the grant of any such options. As of September 27, 1998, no employees had exercised their options. (d) Warrants In connection with the original capitalization of the Company, warrants to purchase shares of Series A Preferred Stock convertible into 62,190 shares of Common Stock at $4.00 per common share were issued to an investment bank. The warrants expire February 28, 2001. There were no underwriters employed in connection with any of the transactions set forth in Item 15. The issuances described in Items 15(a) and 15(b) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. In addition, the issuances described in Item 15(c) were deemed exempt from registration under the Securities Act in reliance on Rule 701 promulgated thereunder as transactions pursuant to compensatory benefit plans and contracts relating to compensation. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT 1.1* Form of Underwriting Agreement. 3.1 Certificate of Incorporation of the Company, as amended. 3.2* By-laws. 4.1 Specimen Common Stock Certificate. 4.2* Amended and Restated Registration Rights Agreement dated May 1, 1997. 5.1* Opinion of Gray Cary Ware & Freidenrich LLP. 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. 10.7* Series A Preferred Stock Purchase Agreement dated February 1, 1996. 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 10, 1998. 10.10* Office Lease between the Company and U.S. West Business Resources, Inc. dated February 15, 1997. 21.1* List of Subsidiaries.
II-2 5
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT 23.1 Consent of Independent Auditors (see page II-5). 23.2* Consent of Counsel (included in Exhibit 5.1). 24.1* Power of Attorney (see page II-4). 27.1* Financial Data Schedule.
- ------------------------------ * Filed with the Registrant's Registration Statement on Form S-1 (File No. 333-59749). (b) Financial Statement Schedules. None. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, employee or agent of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, employee or agent in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. II-3 6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale, County of Maricopa, State of Arizona, on the 3rd day of December 1998. P.F. Chang's China Bistro, Inc. By: RICHARD L. FEDERICO* ------------------------------------ Richard L. Federico Chief Executive Officer and President (Principal Executive Officer) Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE RICHARD L. FEDERICO* Chief Executive Officer, December 3, 1998 - --------------------------------------------------- President and Director Richard L. Federico (Principal Executive Officer) /s/ ROBERT T. VIVIAN Chief Financial Officer and December 3, 1998 - --------------------------------------------------- Secretary (Principal Robert T. Vivian Financial and Accounting Officer) PAUL M. FLEMING* Director December 3, 1998 - --------------------------------------------------- Paul M. Fleming J. MICHAEL CHU* Director December 3, 1998 - --------------------------------------------------- J. Michael Chu GERALD R. GALLAGHER* Director December 3, 1998 - --------------------------------------------------- Gerald R. Gallagher R. MICHAEL WELBORN* Director December 3, 1998 - --------------------------------------------------- R. Michael Welborn JAMES G. SHENNAN, JR.* Director December 3, 1998 - --------------------------------------------------- James G. Shennan, Jr. YVES SISTERON* Director December 3, 1998 - --------------------------------------------------- Yves Sisteron *By: /s/ ROBERT T. VIVIAN December 3, 1998 --------------------------------------------- Robert T. Vivian, Attorney-in-Fact
II-4 7 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS CONSENT OF ERNST & YOUNG LLP We consent to the reference to our firm under the captions "Selected Consolidated Financial and Operating Data" and "Experts" and to the use of our report dated January 26, 1998, except Note 11 as to which the date is August 27, 1998, in Amendment No. 3 to the Registration Statement (Form S-1 No. 333-59749) and related Prospectus of P.F. Chang's China Bistro, Inc. for the registration of 3,967,500 shares of its common stock. /s/ ERNST & YOUNG LLP Phoenix, Arizona December 2, 1998 II-5 8 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT 1.1* Form of Underwriting Agreement. 3.1 Certificate of Incorporation of the Company, as amended. 3.2* By-laws. 4.1 Specimen Common Stock Certificate. 4.2* Amended and Restated Registration Rights Agreement dated May 1, 1997. 5.1* Opinion of Gray Cary Ware & Freidenrich LLP. 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. 10.7* Series A Preferred Stock Purchase Agreement dated February 1, 1996. 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 10, 1998. 10.10* Office Lease between the Company and U.S. West Business Resources, Inc. dated February 15, 1997. 21.1* List of Subsidiaries. 23.1 Consent of Independent Auditors (see page II-5). 23.2* Consent of Counsel (included in Exhibit 5.1). 24.1* Power of Attorney (see page II-4). 27.1* Financial Data Schedule.
- ------------------------------ * Filed with the Registrant's Registration Statement on Form S-1 (File No. 333-59749). ** To be filed by amendment. (b) Financial Statement Schedules. None. EX-3.1 2 EX-3.1 1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF P.F. CHANG'S CHINA BISTRO, INC. FIRST: The name of the corporation (hereinafter referred to as the "Corporation") is: P.F. CHANG'S CHINA BISTRO, INC. SECOND: The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805-1297. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The aggregate number of all classes of shares which the Corporation shall have authority to issue is Ten Million (10,000,000) shares divided into two classes of which Two Million (2,000,000) shares of par value $.01 per share shall be designated Preferred Stock and Eight Million (8,000,000) shares of par value $.01 per share shall be designated Common Stock. At all times, each holder of common stock of the Corporation shall be entitled to one vote for each share of common stock held by such stockholder standing in the name of such stockholder on the books of the Corporation. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in one or more series, to establish the 1 2 number of shares to be included in each such series, and to fix the designations, powers, preferences, and rights of the shares of each such series, and any qualifications, limitations or restrictions thereof. FIFTH: The name and address of the Incorporator is as follows: Paul M. Fleming 2201 E. Camelback Road Phoenix, Arizona 85016 SIXTH: In furtherance and not in limitation of the power conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the Bylaws of the Corporation. SEVENTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for the breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize corporate actions further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of this Article SEVENTH by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. The Corporation may adopt such provisions with respect to indemnification of 2 3 directors, officers, or employees of the Corporation, consistent with this Article SEVENTH, as may be set forth from time to time in the Bylaws of the Corporation or a resolution adopted by the Board of Directors. EIGHTH: Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the law of the State of Delaware. All rights conferred upon stockholders herein are granted subject to this reservation. I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, herein declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 30th day of January, 1996. /s/ Paul M. Fleming ------------------------- Paul M. Fleming, Sole Incorporator 3 4 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF P.F. CHANG'S CHINA BISTRO, INC. P.F. Chang's China Bistro, Inc., a corporation organized and existing under and by virtue of the General Corporation's Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the corporation, by unanimous written consent, adopted a resolutions proposing and declaring advisable the following amendments to the Certificate of Incorporation of the corporation: RESOLVED, that Article IV of the Certificate of Incorporation of P.F. Chang's China Bistro, Inc., a Delaware corporation (the "Corporation"), is amended in its entirety to read as follows: FOURTH: The aggregate number of all classes of shares which the Corporation shall have authority to issue is Thirty Million (30,000,000) shares divided into two classes of which Ten Million (10,000,000) shares of par value $.001 per share shall be designated Preferred Stock and Twenty Million (20,000,000) shares of par value $.001 per share shall be designated Common Stock. At all times, each holder of Common Stock of the Corporation shall be entitled to one vote for each share of Common Stock held by such stockholder standing in the name of such stockholder on the books of the Corporation. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in one or more series, to establish the number of shares to be included in each such series, and to fix the designations, powers, preferences, and rights of the 5 shares of each such series, and any qualifications, limitations, or restrictions thereof. FURTHER RESOLVED that the resolutions of the Board of Directors as set forth in the Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Series A Convertible Preferred Stock of P.F. Chang's China Bistro, Inc. are amended to increase the number of shares designated as "Series A Convertible Preferred Stock" to 7,500,000 shares and to change the par value of such shares to $.001 per share. FURTHER RESOLVED that in order to effect a 10:1 stock split of the outstanding capital stock of the Corporation, effective upon the date of filing (the "Effective Date") of a Certificate of Amendment with the Secretary of State of the State of Delaware, each issued and outstanding share of the Corporation's capital stock, including without limitation all issued and outstanding shares of Common Stock and Series A Convertible Preferred Stock and options and warrants exercisable for such shares, shall be divided into 10 shares of validly issued, fully paid and non-assessable stock of the same class or series. As soon as practicable after the Effective Date, the Corporation shall request in writing the holders of its capital stock outstanding as of the Effective Date to surrender certificates representing the Corporation's capital stock to the Corporation and each such shareholder shall receive upon such surrender a stock certificate or certificates to evidence and represent the number of shares of post-split capital stock to which such shareholder is entitled. SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given written consent to the amendments in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware and written notice of the adoption of the amendments has been given as provided in Section 228 of the General Corporation Law of the State of Delaware to every stockholder entitled to such notice. 6 THIRD: That the amendments were duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, P.F. Chang's China Bistro, Inc. has caused this certificate to be signed by Richard L. Federico, its President, this 24th day of April, 1997. P.F. Chang's China Bistro, Inc. By /s/ R. L. Federico ------------------------------- Richard L. Federico, President 7 AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF OF SERIES A CONVERTIBLE PREFERRED STOCK OF P.F. CHANG'S CHINA BISTRO, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "Corporation"), certifies that pursuant to the authority contained in Article FOURTH of its Certificate of Incorporation (the "Certificate of Incorporation") and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware (the "DGCL"), the Board of Directors of the Corporation by written consent dated as of April 30, 1997, duly adopted the following resolution, which resolution (i) amended and restated prior resolutions of the Board of Directors of the Corporation adopted by written consent as of February 22, 1996 pursuant to which the Corporation had originally established the Series A Preferred Stock (as defined below), (ii) was approved by written consent of the holders of the Series A Preferred Stock, and (iii) remains in full force and effect on the date hereof: RESOLVED, that, pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of its Certificate of Incorporation, a series of Preferred Stock of the Corporation be and hereby is established, consisting of 7,700,000 shares, $.001 par value per share, to be designated the "Series A Convertible Preferred Stock" (hereinafter, "Series A Preferred Stock"); that the Board of Directors be and hereby is authorized to issue such shares of Series A Preferred Stock from time to time and for such consideration and on such terms as the Board of Directors shall determine; and that, subject to the limitations provided by law and by the Certificate of Incorporation, the voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof shall be as follows: 8 1. Certain Definitions. Unless the context otherwise requires, the terms defined in this paragraph 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Affiliate" shall have the meaning given to such term under Rule 12b-2 of the rules promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934. "Annual Per Share Cash Dividend Amount" shall mean a cash payment equal to ten percent (10%) per annum of the Liquidation Price of one share of the Series A Preferred Stock. "Annual Per Share PIK Dividend Amount" shall mean a fraction of one share of Series A Preferred Stock equal to six percent (6%) per annum of one share of the Series A Preferred Stock. "Business Day" shall mean a day other than a Saturday, a Sunday or any other day on which banking institutions in New York, New York are authorized or obligated by law to close. "Common Equity" shall mean all shares now or hereafter authorized of any class of common stock of the Corporation, however, designated, including the Comon Stock, and any other stock of the Corporation, howsoever designated, authorized after the Initial Issue Date, which has the right (subject always to prior rights of any class or series of preferred stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount. "Common Stock" shall mean the common stock, par value $.001 per share, of the Corporation. "Corporation's Affiliates" shall mean (i) PFCCB Scottsdale, L.L.C., an Arizona limited liability company; (ii) PFCCB Newport Beach, L.L.C., an Arizona limited liability company; (iii) P.F. Chang's III, L.L.C., an Arizona limited liability company; (iv) P.F. Chang's IV, L.L.C., an Arizona limited liability company; (v) PFC Building III Limited Partnership, an Arizona limited partnership; (vi) PFCCB LouTex Joint Venture, an Arizona general partnership; and (vii) PFCCB NUC LLC, an Arizona limited liability company. "Conversion Date" shall have the meaning set forth in subparagraph 4.1(b) below. 2 9 "Debt" shall mean any indebtedness, contingent or otherwise, of any person in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof) or evidenced by bonds, notes, debentures or similar instruments or letters of credit or representing the balance deferred and unpaid of the purchase price of any property or interest therein, except any such balance that constitutes a trade payable, if and to the extent such indebtedness would appear as a liability upon a balance sheet of such person prepared on a consolidated basis in accordance with generally accepted accounting principles. "Debt to Equity Ratio" shall mean the ratio of (i) the total Indebtedness to (ii) Total Stockholders' Equity. "Delinquent Mandatory Redemption Price" shall mean, with respect to each share of Series A Preferred Stock, $2.00 (adjusted for stock splits, subdivisions, combinations and similar transactions), plus all accrued and unpaid dividends payable in respect of such a share of the Series A Preferred Stock, plus an amount thereon accruing from the Mandatory Redemption Date relating thereto at the Increasing Rate. "Final Mandatory Redemption Date" shall mean May 1, 2004 or, if such day is not a Business Day, the next succeeding Business Day. "Increasing Rate" shall mean, with respect to any obligation, an annual rate equal to the Prime Rate, plus (i) two percent, plus (ii) one percent after the first completed six-month period that the obligation subject to the Increasing Rate has been outstanding and has not been paid in full. "Indebtedness" shall mean the Debt of the Corporation or a subsidiary of the Corporation plus, to the extent not otherwise included, (i) the guaranty of any Debt of any other person; and (ii) obligations in respect of borrowed money secured by any Lien to which any property or asset owned or held by the Corporation or a subsidiary is subject, whether or not the obligations secured thereby shall have been assumed by the Corporation or such subsidiary; and (iii) capitalized lease obligations. "Initial Issue Date" shall mean the date that shares of Series A Preferred Stock are first issued by the Corporation. "Initial Mandatory Redemption Date" shall mean May 1, 2003 or, if such day is not a Business Day, the next succeeding Business Day. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or other security interest of any kind or nature whatsoever (excluding preferred stock or equity related preferences) including, without limitation, those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital 3 10 lease obligation, or any financing lease having substantially the same economic effect as any of the foregoing. "Liquidation Price" shall mean $2.00 per share of Series A Preferred Stock (adjusted for stock splits, subdivisions, combinations and similar transactions), plus all accrued and unpaid dividends payable in respect of such share of Series A Preferred Stock pursuant to subparagraph 2(c). "Mandatory Redemption Date" shall mean the Initial Mandatory Redemption Date and the Final Mandatory Redemption Date. "Mandatory Redemption Obligation" shall have the meaning set forth in subparagraph 5(c) below. "Non-Investor Directors" shall mean those directors elected to the Corporation's Board of Directors other than those directors that are elected solely by the holders of Series A Preferred Stock or Parity Stock pursuant to the Shareholders Agreement. "Parity Stock" shall mean any class or series of capital stock of the Corporation ranking on a parity with the Series A Preferred Stock as to (i) priority of payment of cash and stock dividends and other distributions, (ii) priority of payment upon liquidation, dissolution or winding up of the Corporation, and (iii) the time of, and priority of payment upon, any mandatory redemption. For purposes of this definition, differences between any class or series of capital stock and the Series A Preferred Stock as to the amount of the liquidation price (or other fixed amount) to which any cash dividend rate is applied, the amount of the liquidation price payable upon liquidation, dissolution or winding up of the Corporation, the amount of the redemption price payable upon any mandatory redemption, or the time when cash or stock dividends or other distributions shall begin to accrue, shall not be considered in determining whether such class or series of capital stock is on a parity with the Series A Preferred Stock. "PIK Dividends" shall mean the "paid-in-kind" dividends as set forth in subparagraph 2(a) below. "PIK Dividend Payment Date" shall mean March 31, June 30, September 30, and December 31, of each year during the PIK Dividend Payment Period. "PIK Dividend Payment Period" shall mean the period from, and including, January 1, 1998, to and including the Final Mandatory Redemption Date. "PIK Dividend Period" shall mean the period from, and including, January 1, 1998, to, but not including, the first PIK Dividend Payment Date and thereafter, each quarterly period, including any PIK Dividend Payment Date to, but not including, the next PIK Dividend Payment Date. 4 11 "PIK Record Date" shall mean the date that is ten Business Days prior to any PIK Dividend Payment Date. "Preferred Cash Dividends" shall mean the cash dividends as set forth in subparagraph 2(f) below. "Prime Rate" shall mean the rate announced as the "prime rate" by NationsBank, N.A. whether or not such rate is actually charged. "Pro Rata" shall mean, in the case of stock dividends, stock dividends of the same class or series as the stock upon which the dividends are being paid and that are proportionate to the number of outstanding shares of such stock, and, in the case of cash dividends or dividends in property, cash dividends or dividends in property that are proportionate to the liquidation price of the class or series of stock upon which the dividends are being paid. "Qualified Initial Public Offering" shall mean an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 of shares of the Common Stock, (i) the aggregate gross proceeds of which equal or exceed $15,000,000 and (ii) the per share offering price of which equals or exceeds $10.00; provided, however, that the per share offering price referred to in clause (ii) shall be adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination or like event of or with respect to outstanding shares of Common Stock occurring after May 1, 1997. "Quoted Price" shall mean with respect to any security the arithmetic mean of the last bid and ask price for one (1) share of the applicable security as reported by the National Association of Securities Dealers, Inc., Automatic Quotations System, National Market System ("NASDAQ"), or, if the applicable security is listed or admitted for trading on a securities exchange, the arithmetic mean of the high and low trading prices during the relevant trading day for one (1) share of the applicable security on the principal exchange on which the applicable security is listed or admitted for trading (which shall be for consolidated trading if applicable to such exchange), in each case, on the Trading Day in question. "Redemption Price" shall mean, with respect to each share of Series A Preferred Stock, $2.00 (adjusted for stock splits, subdivisions, combinations and similar transactions) plus all accrued and unpaid dividends payable in respect of such share of the Series A Preferred Stock. "Series A Directors" shall mean those members of the Board of Directors of the Corporation elected solely by the holders of the Series A Preferred Stock pursuant to the Shareholders Agreement. 5 12 "Shareholders Agreement" shall mean the Amended and Restated Shareholders Agreement among the Corporation and the holders of the Common Stock, Series A Preferred Stock and Parity Stock dated as of May 1, 1997, as the same may be amended from time to time. "Stock Purchase Agreement" shall mean the Stock Purchase Agreement among the Corporation, Paul Fleming and the Purchasers listed therein dated as of February 1, 1996, as the same may be amended from time to time. "Subordinate Stock" shall mean the Common Equity and any class or series of capital stock of the Corporation, however designated, which is not entitled to receive (i) any dividends unless all dividends required to have been paid or declared and set apart for payment on the Series A Preferred Stock shall have been so paid or declared and set apart for payment or (ii) any assets upon liquidation, dissolution or winding up of the affairs of the Corporation until the Series A Preferred Stock shall have received the entire amount to which such stock is entitled upon such liquidation, dissolution or winding up. "Total Stockholders' Equity" shall mean the stockholders' equity of the Corporation as it appears in the monthly balance sheet of the Corporation. "Trading Days" shall mean any day on which any market in which the applicable security is then traded and in which a Quoted Price may be ascertained is open for business. 2. Dividends. (a) The record holders of Series A Preferred Stock on each PIK Record Date shall receive on each PIK Dividend Payment Date during the PIK Dividend Payment Period per share dividends in additional fully paid and nonassessable shares of Series A Preferred Stock legally available for such purpose (such dividends being herein called "PIK Dividends"). PIK Dividends shall be paid by delivering to the record holders of Series A Preferred Stock a number of shares of Series A Preferred Stock equal to (i) the number of shares of Series A Preferred Stock held by such holder on the applicable PIK Record Date, multiplied by (ii) twenty-five percent (25%) of the Annual Per Share PIK Dividend Amount. Except as set forth in subparagraph 2(b) below, the Corporation shall not issue fractional shares of Series A Preferred Stock to which holders may become entitled pursuant to this subparagraph, but in lieu thereof, the Corporation shall at the option of the holder either (i) deliver its check in an amount equal to the applicable fraction of one (1) share of Series A Preferred Stock multiplied by $2.00 (adjusted for stock splits, subdivisions, combinations or other similar transactions) (the "PIK Cash Dividend Payment") or (ii) defer delivery of the fractional PIK Cash Dividend Payment to the holder and apply such amount to PIK Dividends issued to such holder on the subsequent PIK Dividend Date. Any additional shares of Series A Preferred Stock issued pursuant to this paragraph shall be governed by this 6 13 resolution and shall be subject in all respects, except as to the date of issuance and date from which PIK Dividends accrue and cumulate as set forth below, to the same terms as the shares of Series A Preferred Stock originally issued hereunder; provided, however, in no event shall any PIK Dividends accrue prior to January 1, 1998. (b) Prior to each PIK Record Date immediately preceding each PIK Dividend Payment Date, the Board of Directors of the Corporation shall declare PIK Dividends on the Series A Preferred Stock in accordance with subparagraph 2(a) above, payable on the next PIK Dividend Payment Date. PIK Dividends (which shall include, for purposes of this subparagraph, any PIK Cash Dividend Payment due pursuant to subparagraph 2(a)) on shares of Series A Preferred Stock shall accrue and be cumulative from the later of (i) January 1, 1998 and (ii) the date of issuance of such shares, notwithstanding the failure of the Board of Directors to declare and/or issue PIK Dividends with respect to any PIK Dividend Period. PIK Dividends shall be payable in arrears during the PIK Dividend Payment Period on each PIK Dividend Payment Date, commencing on the first PIK Dividend Payment Date subsequent to January 1, 1998, and for shares issued as PIK Dividends, commencing on the first PIK Dividend Payment Date after such shares are issued. If any PIK Dividend Payment Date occurs on a day that is not a Business Day, any accrued PIK Dividends otherwise payable on such PIK Dividend Payment Date shall be paid on the next succeeding Business Day. PIK Dividends shall be paid on each PIK Dividend Payment Date to the holders of record of the Series A Preferred Stock as their names shall appear on the share register of the Corporation on the PIK Record Date immediately preceding such PIK Dividend Payment Date. If a PIK Cash Dividend Payment on account of PIK Dividends that would otherwise be issued as fractional shares may not legally be paid in the full amount to which shares of Series A Preferred Stock are entitled with respect to any PIK Dividend Period, dividends in the full preferential amount hereby provided shall be, to the extent legally and contractually permissible, declared and paid as PIK Dividends in the form of shares of Series A Preferred Stock (including fractional shares thereof). PIK Dividends on account of arrears for any past PIK Dividend Periods may be declared and paid at any time to the holders of record on the PIK Record Dates applicable to such past PIK Dividend Periods. (c) In addition to the PIK Dividends and the PIK Cash Dividend Payments referred to in subparagraph 2(a) hereof and the Preferred Cash Dividends referred to in subparagraph 2(f), at any time during which any shares of Series A Preferred Stock remain outstanding, the Corporation may declare, pay or set apart for payment cash and/or property to be distributed or paid as a dividend in respect of shares of Series A Preferred Stock. The foregoing notwithstanding, no dividends may be declared or paid on the Series A Preferred Stock pursuant to this subparagraph 2(c) unless Pro Rata dividends are contemporaneously declared or paid on any then outstanding Parity Stock. (d) So long as any shares of Series A Preferred Stock shall be outstanding: 7 14 (i) the Corporation shall not declare, pay or set apart for payment on any Subordinate Stock any dividends or distributions whatsoever, whether in cash, property or otherwise (other than dividends payable in shares of the class or series upon which such dividends are declared or paid, or payable in shares of Common Stock with respect to Subordinate Stock other than Common Stock, together with cash in lieu of fractional shares), nor shall any Subordinate Stock be purchased, redeemed or otherwise acquired by the Corporation or any of its subsidiaries of which it owns not less than a majority of the outstanding voting power, nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Subordinate Stock, without the prior written consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock and unless all dividends to which the holders of Series A Preferred Stock shall have been entitled for all previous PIK Dividend Periods shall have been (A) paid or (B) declared and a sum of money, in the case of dividends payable in cash, sufficient for the payment thereof has been set apart; (ii) the Corporation shall not declare, pay or set apart for payment on any Parity Stock any dividends or distributions whatsoever, whether in cash, property or otherwise, unless Pro Rata dividends are contemporaneously declared, paid or set apart for payment on the Series A Preferred Stock; and (iii) neither the Corporation nor any of its subsidiaries of which it owns not less than a majority of the outstanding voting power shall purchase, redeem or otherwise acquire any Parity Stock, nor pay any monies to or make any monies available for a sinking fund for the purchase or redemption of any Parity Stock, without the prior written consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock and unless all dividends to which the holders of Series A Preferred Stock shall have been entitled for all previous PIK Dividend Periods shall have been (A) paid or (B) declared and a sum of money, in the case of dividends payable in cash, sufficient for the payment thereof has been set apart, except that the Corporation may redeem Parity Stock so long as it contemporaneously redeems a proportionate percentage of the outstanding Series A Preferred Stock, ratably among the holders thereof. (e) In the event that full dividends, in cash or property, if declared, are not paid or made available to the holders of all outstanding shares of Series A Preferred Stock and Parity Stock and funds or property available for payment of dividends shall be insufficient to permit payment in full to holders of all such stock of the full preferential amounts to which they are then entitled, then the entire amount available for payment of dividends shall be distributed ratably among all such holders of Series A Preferred Stock and Parity Stock in proportion to the full amount to which they would otherwise be respectively entitled. 8 15 (f) Notwithstanding anything to the contrary set forth herein, with respect to any PIK Dividend otherwise payable on any PIK Dividend Payment Date pursuant to this paragraph 2, the Corporation may, upon the unanimous approval of the Non-Investor Directors by vote on or prior to the applicable PIK Record Date, declare on such PIK Record Date and pay on such PIK Dividend Payment Date a cash dividend (a "Preferred Cash Dividend") to all record holders of Series A Preferred Stock on such PIK Record Date in an amount per share equal to twenty-five percent (25%) of the Annual Per Share Cash Dividend Amount. Payment of such Preferred Cash Dividend on such PIK Dividend Payment Date shall be in lieu of the payment of the PIK Dividend on such PIK Dividend Payment Date. The foregoing notwithstanding, no Preferred Cash Dividend may be declared and paid on the Series A Preferred Stock unless Pro Rata cash dividends are contemporaneously declared and then paid on any then outstanding Parity Stock. (g) Notwithstanding anything contained herein to the contrary, no dividends on shares of Series A Preferred Stock shall be declared by the Board of Directors of the Corporation or paid or set apart for payment by the Corporation at such time if such declaration or payment shall be restricted or prohibited by law. 3. Distributions Upon Liquidation, Dissolution or Winding Up. (a) In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation, before any payment or distribution shall be made to the holders of Subordinate Stock and contemporaneously with any payment or distribution to the holders of Parity Stock, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Corporation in cash, or, if the Corporation does not have sufficient cash on hand to pay such amounts, property of the Corporation at its fair market value as determined by the Board of Directors of the Corporation, the greater of (i) the Liquidation Price per share of Series A Preferred Stock, or (ii) such amount per share of Series A Preferred Stock as would have been payable had each such share been converted into Common Stock pursuant to paragraph 4 immediately prior to such liquidation, dissolution or other winding up of the affairs of the Corporation. Immediately preceding such liquidation, dissolution or winding up, adjustment shall be made for accrued but unpaid dividends (including, without limitation, PIK Dividends). (b) If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the assets of the Corporation shall be insufficient to permit the payment in full of the Liquidation Price for each share of the Series A Preferred Stock and the applicable liquidation price for each share of any Parity Stock then outstanding, then the assets of the Corporation shall be ratably distributed among the holders of Series A Preferred Stock and Parity Stock in proportion to the full amounts to which they would otherwise be respectively entitled if all amounts thereon were paid in full. Neither the consolidation or merger of the Corporation into or with another corporation or corporations, nor the sale, lease, transfer or conveyance of all or any 9 16 portion of the assets of the Corporation to another corporation or any other entity shall be deemed a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this paragraph 3. 4. Conversion Rights. 4.1 Conversion at the Option of the Holder. (a) At any time before the close of business on the Final Mandatory Redemption Date (unless the Corporation shall default in payment of the Redemption Price or the Delinquent Mandatory Redemption Price, in which case, the conversion rights set forth in this paragraph shall continue until the cure of any such default), each holder of Series A Preferred Stock may, at its option, convert each share of Series A Preferred Stock held by such holder into one (1) share of Common Stock subject to adjustment pursuant to paragraph 4.3. Upon such conversion, the rights of the holders of converted Series A Preferred Stock with respect to the shares of Series A Preferred Stock so converted shall cease. (b) To convert Series A Preferred Stock in accordance with this paragraph 4.1, a holder must (i) surrender the certificate or certificates evidencing the shares of Series A Preferred Stock to be converted (or a duly executed affidavit of lost certificate in accordance with the bylaws of the Corporation), duly endorsed in a form satisfactory to the Corporation, at the office of the Corporation or transfer agent for the Series A Preferred Stock, (ii) notify the Corporation at such office in writing that it elects to convert Series A Preferred Stock, and the number of shares it wishes to convert, (iii) state in writing the name or names in which it wishes the certificate or certificates for shares of Common Stock to be issued, and (iv) pay any transfer or similar tax with respect to the transfer of the shares of Series A Preferred Stock converted, if required. The date on which the holder satisfies the foregoing requirements shall be the "Conversion Date." As soon as practical but in any event within five (5) Business Days of the Conversion Date, the Corporation shall deliver a certificate for the number of shares of Common Stock issuable upon the conversion, a check for the amount payable in respect of any fractional share pursuant to subparagraph 4.1(c) and a new certificate representing the unconverted portion, if any, of the shares of Series A Preferred Stock represented by the certificate or certificates surrendered for conversion. The person in whose name the Common Stock certificate is registered shall be treated as the stockholder of record on and after the Conversion Date. Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid dividends (including, without limitation, PIK Dividends), as of the Conversion Date, on converted shares of Series A Preferred Stock. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to Series A Preferred Stock surrendered for conversion at any time on or after a PIK Record Date for the payment of a PIK Dividend to the registered holder of Series A Preferred Stock on such PIK Record Date. If the last day on which Series A Preferred Stock may be converted is not a Business 10 17 Day, Series A Preferred Stock may be surrendered for conversion on the next succeeding day that is a Business Day. (c) The Corporation will not issue a fractional share of Common Stock upon conversion of Series A Preferred Stock. Instead the Corporation will deliver its check in an amount equal to the applicable fraction multiplied by the fair market value of the Common Stock. (d) If a holder converts shares of Series A Preferred Stock, the Corporation shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion; provided, however, that pursuant to subparagraph 4.1(b) the holder shall pay any such tax which is due because the shares are issued in a name other than the holder's name. 4.2 Mandatory Conversion. Subject to the adjustments set forth in paragraph 4.3, each share of the Series A Preferred Stock shall be automatically converted into one (1) share of Common Stock on the date a Qualified Initial Public Offering is consummated ("Mandatory Conversion Date"). Upon such occurrence resulting in a Mandatory Conversion Date, the Corporation shall (i) notify all holders of the Series A Preferred Stock not later than five (5) Business Days subsequent to approval by the Board of Directors of the Corporation to undertake a Qualified Initial Public Offering, (ii) demand that all shares representing the Series A Preferred Stock be returned to the Corporation's offices or to the designated transfer agent, and (iii) pay any transfer or similar tax with respect to the conversion, if any. As soon as practical but in any event within thirty (30) days of the Mandatory Conversion Date, the Corporation shall deliver a certificate to and in the name of the holder of the Series A Preferred Stock for the number of shares of Common Stock issuable upon the conversion and a check in an amount calculated in accordance with subparagraph 4.1(c) for any fractional shares, if any, for the shares of Series A Preferred Stock represented by the certificate. The name of the person in which the Series A Preferred Stock was issued shall be treated as the stockholder of record of the Common Stock in which the Series A Preferred Stock was converted on and after the Mandatory Conversion Date. Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid dividends (including, without limitation, PIK Dividends), as of the Mandatory Conversion Date, on shares of Series A Preferred Stock converted pursuant to this paragraph 4.2. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to Series A Preferred Stock converted pursuant to this paragraph 4.2 on or after a PIK Record Date to the registered holder of Series A Preferred Stock on such PIK Record Date, and the shares of Series A Preferred Stock received in payment of such PIK Dividend shall be deemed automatically converted to one (1) share of Common Stock, subject to adjustment in accordance with paragraph 4.3, effective as of the Mandatory Conversion Date. Upon such conversion, the rights of the holders of converted Series A Preferred Stock with respect to the shares of Series A Preferred Stock so converted shall cease. 11 18 4.3 Certain Matters With Respect to Conversion. (a) The Corporation has reserved and shall continue to reserve out of its authorized but unissued Common Stock enough shares of Common Stock to permit the conversion of the Series A Preferred Stock in full. All shares of Common Stock which are issued upon conversion of Series A Preferred Stock shall be duly authorized, validly issued, fully paid and nonassessable. The Corporation shall comply with all securities laws regulating the offer and delivery of shares of common stock upon conversion of Series A Preferred Stock and will list such shares on each national securities exchange on which the common stock is listed. (b) If the Corporation: (i) pays a dividend or makes a distribution on its Common Stock or any other class of the Corporation's stock other than the Series A Preferred Stock in shares of its Common Stock; (ii) subdivides its outstanding shares of Common Stock into a greater number of shares; (iii) combines its outstanding shares of Common Stock into a smaller number of shares; (iv) issues by reclassification of its Common Stock any shares of its capital stock; then an appropriate and proportionate adjustment shall be made to the number of shares into which each share of Series A Preferred Stock is convertible so that immediately after the occurrence of such event the holders of Series A Preferred Stock shall be entitled to receive the same percentage of the issued and outstanding Common Stock upon conversion of the Series A Preferred Stock as such holders would have received if converted immediately prior to such dividend, distribution, subdivision, combination or reclassification. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (c) If the Corporation distributes any rights, options or warrants to all holders of its Common Stock entitling them for a period expiring within sixty (60) days after the record date referenced in subparagraph (l) below to purchase additional shares of Common Stock at a price per share less than $2.00 per share (as adjusted to reflect any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on that record date, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be adjusted, in accordance with the following formula: 12 19 N x (O+A) -------- N' = O + AxP --- M where: N' = the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible after such distribution. O = the number of shares of Common Stock outstanding on the record date. N = the number of shares of Common Stock into which each share of Series A Preferred Stock was convertible prior to such distribution. P = the offering price per share of the additional shares of Common Stock. M = the current market price per share of Common Stock on the record date. A = the number of additional shares of Common Stock offered. The adjustment shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants. If at the end of the period during which such warrants, options or rights are exercisable, not all warrants, options or rights shall have been exercised, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be immediately readjusted to what it would have been if "A" in the above formula had been the number of shares actually issued. (d) If the Corporation issues shares of Common Stock for a consideration per share less than $2.00 per share (as adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on the date the Corporation fixes the offering price of such additional shares, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be adjusted in accordance with the following formula: N x A ----- N' = O + P - M 13 20 where: N' = the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible after such issuance. N = the number of shares of Common Stock into which each share of Series A Preferred Stock was convertible prior to such issuance. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares. P = the aggregate consideration received for the issuance of such additional shares. M = the current market price per share of Common Stock on the date of issuance of such additional shares. A = the number of shares outstanding immediately after the issuance of such additional shares. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. This subparagraph 4.3(d) does not apply to (i) any transaction or issuance described in subparagraphs 4.3(b) or 4.3(c) above or subparagraph 4.3(e) below, including issuances of Common Stock pursuant to warrants, options, rights or other convertible securities described in subparagraphs 4.3(c) and 4.3(e), (ii) the conversion of Series A Preferred Stock, or the conversion, exchange or exercise of other securities convertible into or exchangeable or exercisable for Common Stock, (iii) Common Stock issued to the Corporation's employees under bona fide employee benefit plans adopted by the Board of Directors of the Corporation and approved by the holders of Common Stock when required by law, if such Common Stock would otherwise be covered by this subparagraph 4.3(d) (but only to the extent that the aggregate number of shares excluded hereby (together with the aggregate number of shares issuable upon conversion, exchange or exercise of the securities excluded by clause (iii) of subparagraph 4.3(e) below) and issued shall not exceed 15% of the Common Stock of the Corporation on a fully diluted basis at the time of any such issuance excluding options to purchase Common Stock held by directors of the Corporation), or (iv) Common Stock issued in a bona fide public offering pursuant to a firm commitment underwriting. (e) If the Corporation issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than Series A Preferred Stock or securities issued in transactions described in subparagraph 4.3(c) above) for a consideration per share of Common Stock initially deliverable upon 14 21 conversion, exchange or exercise of such securities of less than $2.00 per share of Common Stock (as adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on the date of issuance of such securities, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be adjusted in accordance with the following formula: N x (O+D) --------- N' = O + P - M where: N' = the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible immediately after such issuance. N = the number of shares of Common Stock into which each share of Series A Preferred Stock was convertible immediately prior to such issuance. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such securities. P = the aggregate consideration received for the issuance of such securities. M = the current market price per share of Common Stock on the date of issuance of such securities. D = the maximum number of shares deliverable upon conversion or in exchange for or upon exercise of such securities at the initial conversion, exchange or exercise rate. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. If all of the Common Stock deliverable upon conversion, exchange or exercise of such securities has not been issued when such securities are no longer outstanding, then the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall promptly be readjusted to the basis of the actual number of shares of Common Stock issued upon conversion, exchange or exercise of such securities. This subparagraph 4.3(e) does not apply to (i) the issuance of any such securities in a bona fide public offering pursuant to a firm commitment underwriting, (ii) the issuance of any such securities to the Corporation's employees under bona fide employee benefit plans adopted by the Board of Directors of the Corporation and approved by the holders of Common Stock when required by law, if such securities would otherwise be covered 15 22 by this subparagraph 4.3(e) (but only to the extent that the aggregate number of shares issuable upon the conversion, exchange or exercise of the aggregate number of securities excluded hereby (together with the aggregate number of shares excluded by clause (iii) of subparagraph 4.3(d) above) and issued shall not exceed 15% of the Common Stock of the Corporation on a fully diluted basis at the time of any such issuance excluding options to purchase Common Stock held by directors of the Corporation), or (iii) shares issued as PIK Dividends or as "paid-in-kind" dividends on any Parity Stock provided such dividends are required by the terms of such Parity Stock. (f) If the Corporation (i) distributes any rights, options or warrants to all holders of its Common Stock entitling them for a period expiring within sixty (60) days after the record date referenced in subparagraph (l) herein to purchase additional shares of Common Stock; (ii) issues shares of Common Stock; or (iii) issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than Series A Preferred Stock or securities issued in transactions described in (i) above) at a price reflecting an implied price per share less than $2.00 per share, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be reduced proportionally to reflect the price at which the Corporation issued or sold such shares of Common Stock pursuant to this subparagraph 4.3(f). (g) For the purpose hereof, the current market price per share of any security on any date is the average of the Quoted Prices for thirty (30) consecutive Trading Days commencing forty-five (45) Trading Days before the date in question. If the Quoted Price is not ascertainable, the current market price per share of any security on any date shall be the current market price as determined by the Board of Directors of the Corporation in its reasonable judgment exercised in good faith. Notwithstanding the foregoing, the current market price per share of any security shall be deemed to be the greater of (i) the current market price as determined above and (ii) the Liquidation Price. (h) For purposes of any computation respecting consideration received pursuant to subparagraphs 4.3(d) and 4.3(e) above, the following shall apply: (i) in case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Corporation for any underwriting of the issue or otherwise in connection therewith; (ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the Board of 16 23 Directors of the Corporation in its reasonable judgment exercised in good faith (irrespective of the accounting treatment thereof); and (iii) in the case of the issuance of options, warrants or other securities convertible into or exchangeable or exercisable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Corporation for the issuance of such options, warrants or other securities plus the additional minimum consideration, if any, to be received by the Corporation upon the conversion or exchange or exercise thereof (the consideration in each case to be determined in the same manner as provided in clauses (i) and (ii) of this subparagraph 4.3(h)). (i) No adjustment in the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible need be made unless the adjustment would require an increase or decrease of at least one-half of one percent (.5%) in the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 4.3 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. (j) No adjustment in the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible need be made under this paragraph 4.3 for (i) rights to purchase Common Stock pursuant to a Corporation plan for reinvestment of dividends or interest, or (ii) any change in the par value or change from no par value to par value of the Common Stock. If an adjustment is made to the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible upon a record date established for a distribution subject to this paragraph 4.3 and if such distribution is subsequently cancelled, the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible then in effect shall be readjusted, effective as of the date when the Board of Directors of the Corporation determines to cancel such distribution, to the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible as would have been in effect if such record date had not been fixed. No adjustment need be made under paragraph 4.3 if the Corporation issues or distributes to each holder of Series A Preferred Stock the shares of Common Stock, evidences of indebtedness, assets, rights, options or warrants referred to in such paragraph which each holder would have been entitled to receive had Series A Preferred Stock been converted into Common Stock prior to or simultaneously with the happening of such event or the record date with respect thereto. (k) Whenever the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible is adjusted, the Corporation shall promptly mail to holders of Series A Preferred Stock, first class, postage prepaid, a notice of the adjustment. The Corporation shall file with the transfer agent, if any, for 17 24 Series A Preferred Stock a certificate from the Corporation's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. Subject to subparagraph 4.3(o) below, the certificate shall be conclusive evidence that the adjustment is correct. (l) If: (i) the Corporation takes any action that would require an adjustment pursuant to paragraph 4.3; (ii) the Corporation consolidates or merges with, or transfers all or substantially all of its assets to, another corporation, and stockholders of the Corporation must approve the transaction; or (iii) there is a dissolution or liquidation of the Corporation; a holder of Series A Preferred Stock may want to convert such stock into shares of Common Stock prior to the record date for or the effective date of the transaction so that it may receive the rights, warrants, securities or assets which a holder of shares of Common Stock on that date may receive. Therefore, the Corporation shall mail to such holders, first class, postage prepaid, a notice stating the proposed record or effective date, as the case may be. The Corporation shall mail the notice at least thirty (30) days before such date. (m) If the Corporation is party to a consolidation or merger which reclassifies or changes its Common Stock or to the sale of all or substantially all of the assets of the Corporation, upon consummation of such transaction the Series A Preferred Stock shall automatically become convertible at the option of their respective holders into the kind and amount of securities, cash or other assets which the holder of Series A Preferred Stock would have owned immediately after the sale, consolidation or merger, if such holder had converted Series A Preferred Stock immediately before the effective date of the transaction, and an appropriate adjustment (as determined by the Board of Directors of the Corporation) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Series A Preferred Stock, to the end that the provisions set forth herein (including provisions with respect to liquidation preferences and changes in and other adjustment of the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the conversion of Series A Preferred Stock. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets assumes by written instrument (in a form reasonably satisfactory to the holders of a majority of the Series A Preferred Stock then outstanding), the obligation to deliver to each such holder such 18 25 shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. If this subparagraph 4.3(m) applies, subparagraphs 4.3(b), 4.3(c), 4.3(d) and 4.3(e) do not apply. (n) In any case in which this paragraph 4.3 shall require that an adjustment as a result of any event become effective from and after a record date, the Corporation may elect to defer until after the occurrence of such event (i) the issuance to the holder of any shares of Series A Preferred Stock converted after such record date and before the occurrence of such event of the additional shares of Common Stock issuable upon such conversion over and above the shares issuable immediately prior to adjustment and (ii) the delivery of a check for any remaining fractional shares as provided in subparagraph 4.1(c) above. (o) Whenever the Corporation or its Board of Directors shall be required to make a determination under this paragraph 4.3, such determination shall be made in good faith and may be challenged in good faith by the holders of a majority of the Series A Preferred Stock, and any dispute shall be resolved promptly (and in no event later than ninety (90) days after any challenge), at the Corporation's expense, by an investment banking firm of recognized national standing selected by the Corporation and acceptable to such holders of Series A Preferred Stock. Any such determination shall be deemed approved if the requisite holders have not notified the Corporation of any challenge within thirty (30) days after receiving notice (including a statement in reasonable detail of the bases therefor) of such determination. (p) If any event occurs of the type contemplated by the provisions of this paragraph 4.3 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation's Board of Directors shall make an appropriate adjustment to the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible so as to protect the rights of the holders of Series A Preferred Stock; provided that no such adjustment shall increase the number of shares of Common Stock into which a share of Series A Preferred Stock is convertible if otherwise adjusted pursuant to another provision of this paragraph 4.3 or decrease the number of shares of Common Stock issuable upon conversion of each share of Series A Preferred Stock. 19 26 5. Mandatory Redemption by the Corporation. (a) To the extent the Corporation shall have funds legally available for such payment under the DGCL, the Corporation shall redeem on the Initial Mandatory Redemption Date at least fifty percent (50%) of the then outstanding shares of Series A Preferred Stock at the Redemption Price, ratably among the holders thereof. In addition, to the extent the Corporation shall have funds legally available for such payment under the DGCL, the Corporation shall redeem on the Final Mandatory Redemption Date all of the then outstanding shares of Series A Preferred Stock at the Redemption Price, plus an amount accruing thereon at the Increasing Rate from the Initial Mandatory Redemption Date. (b) Shares of Series A Preferred Stock which have been issued and converted or reacquired in any manner, including as a result of redemption, shall (upon compliance with any applicable provisions of the DGCL) have the status of authorized and unissued shares of the class of preferred stock of the Corporation undesignated as to series, and may be redesignated and reissued as part of any series of preferred stock of the Corporation; provided, however, that no such issued and reacquired shares of Series A Preferred Stock shall be reissued as Series A Preferred Stock. (c) If on any Mandatory Redemption Date the Corporation is unable or shall fail to discharge its obligation to redeem all outstanding shares of Series A Preferred Stock required to be redeemed on such date pursuant to subparagraph 5(a) and all outstanding shares of Parity Stock required to be redeemed on such date (the "Mandatory Redemption Obligation"), the Corporation shall redeem on such Mandatory Redemption Date the number of shares of Series A Preferred Stock and Parity Stock which it is able to redeem, ratably among the holders of Series A Preferred Stock and Parity Stock in proportion to the full amounts to which they would otherwise be respectively entitled if all shares of Series A Preferred Stock and Parity Stock required to be redeemed on such date were redeemed. In such a case, the remainder of the Redemption Price payable but not paid at the Mandatory Redemption Date shall be converted into the Delinquent Mandatory Redemption Price and shall be discharged as soon as the Corporation is able to discharge such Delinquent Mandatory Redemption Price out of funds legally available therefor. If and so long as any Mandatory Redemption Obligation (or any obligation in respect of the Delinquent Mandatory Redemption Price) with respect to the Series A Preferred Stock and any Parity Stock shall not be fully discharged and paid, the Corporation shall not declare or pay any dividend or make any distribution on, or, directly or indirectly, purchase, redeem or satisfy any mandatory redemption, sinking fund or other similar obligation in respect of Subordinate Stock (other than repurchases of shares of Subordinate Stock in accordance with the terms of restricted stock vesting agreements with employees of the Corporation approved by the Board of Directors of the Corporation). (d) Notwithstanding the foregoing provisions of this paragraph 5, unless the full cumulative dividends on all outstanding shares of Series A Preferred Stock and 20 27 Parity Stock have been paid or contemporaneously are declared and paid for all dividend periods to and including the Mandatory Redemption Date, none of the shares of Series A Preferred Stock or Parity Stock shall be redeemed or set aside for redemption, unless such shares of Series A Preferred Stock and Parity Stock are redeemed pro rata based upon the full amounts to which the holders thereof would otherwise be respectively entitled. (e) Notice of any redemption shall be sent by or on behalf of the Corporation not more than sixty (60) days nor less than thirty (30) days prior to any Mandatory Redemption Date, by first class mail, postage prepaid, to all holders of record of the Series A Preferred Stock at their respective last addresses as they shall appear on the books of the Corporation; provided, however, that no failure to give notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to the holder to whom the Corporation has failed to give notice or except as to the holder to whom notice was defective. In addition to any information required by law or by the applicable rules of any exchange upon which Series A Preferred Stock may be listed or admitted to trading, such notice shall state: (i) the Mandatory Redemption Date; (ii) the Redemption Price; (iii) the number of shares of Series A Preferred Stock to be redeemed; (iv) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price; (v) that dividends on the shares to be redeemed will cease to accrue on the Mandatory Redemption Date; (vi) the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible as of the notice date and, if any transactions are contemplated to occur between the notice date and the Mandatory Redemption Date which would cause such number of shares of Common Stock to be adjusted, the number of shares of Common Stock into which each share of Series A Preferred Stock would be convertible after giving effect to such transaction(s); (vii) that Series A Preferred Stock called for redemption may be converted at any time before the close of business on the Mandatory Redemption Date; and (viii) that holders of Series A Preferred Stock must satisfy the requirements of subparagraph 4.1(b) above if such holders desire to convert such shares. Upon the mailing of any such notices of redemption, the Corporation shall become obligated to redeem at the time of redemption specified therein all shares called for redemption other than shares converted into Common Stock prior to the Mandatory Redemption Date. (f) If notice has been mailed in accordance with subparagraph 5(e) above and provided that on or before the Mandatory Redemption Date specified in such notice, all funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds in trust for the pro rata benefit of the holders of the shares so called for redemption, so as to be, and to continue to be available therefor, then, from and after the Mandatory Redemption Date, dividends on the shares of the Series A Preferred Stock so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Series A Preferred Stock, and all rights of the holders thereof as 21 28 shareholders of the Corporation (except the right to receive from the Corporation the Redemption Price) shall cease, irrespective of whether any certificates for shares called for redemption have been surrendered to the Corporation. Upon surrender, in accordance with said notice, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer), such shares shall be redeemed by the Corporation at the Redemption Price and no holder of shares called for redemption shall be entitled to receive payment of the Redemption Price therefor until such surrender to the Corporation has been accomplished or a duly executed affidavit of lost certificate shall have been delivered to the Corporation. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate or certificates shall be issued representing the unredeemed shares without cost to the holder thereof (so long as such certificate is issued to the holder). (g) Any funds deposited with a bank or trust company for the purpose of redeeming Series A Preferred Stock shall be irrevocable except that: (i) the Corporation shall be entitled to receive from such bank or trust company the interest or other earnings, if any, earned on any money so deposited in trust, and the holders of any shares redeemed shall have no claim to such interest or other earnings; and (ii) any balance of monies so deposited by the Corporation and unclaimed by the holders of the Series A Preferred Stock entitled thereto at the expiration of two (2) years from the applicable Mandatory Redemption Date shall be repaid, together with any interest or other earnings earned thereon, to the Corporation, and after any such repayment, the holders of the shares entitled to the funds so repaid to the Corporation shall look only to the Corporation for payment without interest or other earnings. (h) Notwithstanding anything to the contrary herein, no shares of Series A Preferred Stock may be redeemed except with funds legally available for the payment of the Redemption Price. 6. Voting Rights. (a) Except as otherwise set forth in this paragraph 6 and the Shareholders Agreement or as otherwise required by law, each share of Series A Preferred Stock issued and outstanding shall have the right to vote on all matters presented to the holders of the Common Stock for vote in the number of votes equal at any time to the number of shares of Common Stock into which each share of Series A Preferred Stock would then be convertible, and the holders of the Series A Preferred Stock and Parity Stock shall vote with the holders of the Common Stock as a single class. 22 29 (b) In addition to any vote or consent of shareholders required by law or the Certificate of Incorporation of the Corporation, the affirmative consent of the holders of a majority of the issued and outstanding shares of Series A Preferred Stock at the time outstanding, voting as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) (x) Any amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation (including without limitation this Certificate of Designation) of the Corporation or (y) any amendment of the by-laws of the Corporation that materially affects the rights of the holders of the Series A Preferred Stock; (ii) Any action by the Corporation or any of its subsidiaries not approved in advance by all Series A Directors to effect any amendment, alteration or repeal of any of the provisions of the articles of organization, operating agreements, certificates of limited partnership, or partnership agreements of any of the Corporation's Affiliates or subsidiaries (except such amendments, alterations or repeals that are ministerial in nature or required to effect a transfer of ownership interests in the Corporation's Affiliates or subsidiaries (other than any ownership interest beneficially owned by the Corporation)); (iii) Any authorization, issuance or creation of, or increase in the authorized amount of, (x) any shares of any class or any security of any class ranking senior to the shares of Series A Preferred Stock in the distribution of assets on any liquidation, dissolution or winding up of the Corporation or in the payment of dividends or requiring redemption at any time any shares of Series A Preferred Stock are still outstanding, or (y) any shares of Parity Stock (except shares issued as "paid-in-kind" dividends on Parity Stock provided Pro Rata dividends have also been declared and paid on the Series A Preferred Stock); (iv) Any action by the Corporation or any of its subsidiaries not approved in advance by all Series A Directors to effect the authorization, issuance or creation of, or increase in the authorized amount of, any membership interests, limited partnership interests or other equity security interests of any of the Corporation's Affiliates or subsidiaries; (v) Any increase or decrease (other than by redemption or conversion) in the total number of authorized shares of Series A Preferred Stock or any issuance of the currently authorized shares of the Series A Preferred Stock other than the issuance of shares of Series A Preferred Stock pursuant to the Stock Purchase Agreement or as PIK Dividends; (vi) Any transaction or series of related transactions that entails the sale, lease, assignment, transfer or other conveyance of assets having a value 23 30 greater than $10 million (measured by the book value at the date of such transaction) of the Corporation and its subsidiaries (determined on a consolidated basis); any sale or issuance of shares of capital stock of any subsidiary (other than such sales or issuance approved in advance by all Series A Directors), any consolidation or merger involving the Corporation or any of such subsidiaries other than a consolidation or merger in which the Corporation or subsidiary, as the case may be, is the surviving entity and no change in the capital stock or ownership of the Corporation or the subsidiary, as the case may be, occurs, or any reclassification or recapitalization of any capital stock of the Corporation, or any dissolution, liquidation, or winding up of the Corporation, or any agreement to become so obligated; (vii) Any acquisition or series of related acquisitions of a business, businesses or assets involving aggregate consideration of $10 million or more; (viii) The incurrence of, or agreement to incur, any Indebtedness which would result in a Debt to Equity Ratio at the time the Indebtedness is incurred (after giving effect to such incurrence) of greater than 1:1, as measured based upon the balance sheet of the Corporation prepared as of the last day of the immediately preceding month, with a pro forma adjustment for the Indebtedness incurred and any equity invested in the Corporation since such date, other than such incurrences or agreements to incur Indebtedness that have been approved in advance by all Series A Directors; (ix) Any action by the Corporation or any of its subsidiaries not approved in advance by all Series A Directors to effect the incurrence of, or agreement to incur, any Indebtedness by any of the Corporation's Affiliates or subsidiaries; (x) Any loan, advance or guarantee to, or for the benefit of, or any sale, lease, transfer or disposition of any of the properties or assets of the Corporation or its subsidiaries to, or for the benefit of, or any purchase or lease of any property or assets from, or the execution, performance or amendment of any contract, agreement or understanding with, or for the benefit of, any Affiliate of the Corporation or its subsidiaries; (xi) Any declaration or payment of any dividends on or any declaration or making of any other distribution, directly or indirectly, through subsidiaries (excluding dividends and distributions made to all owners of the Corporation's Affiliates in proportion to their respective ownership interests) or otherwise, on account of any Parity Stock (unless Pro Rata dividends have also been declared or paid on the Series A Preferred Stock) or Subordinate Stock or the setting apart of any sum for any such purpose; 24 31 (xii) The appointment or involuntary termination of the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer or other senior officers of the Corporation or its subsidiaries; (c) The rights of the holders of the Series A Preferred Stock may be exercised in writing without a meeting or by proxy or in person at a special meeting of the holders of Series A Preferred Stock, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such annual meetings or by a holder of Series A Preferred Stock designated in writing by the written consent of the holders of Series A Preferred Stock. (d) A special meeting of the holders of Series A Preferred Stock for purposes of voting on matters with respect to which the holders of such shares are entitled to vote as a class may be called by the Secretary of the Corporation or by a holder of Series A Preferred Stock designated in writing by the holders of ten percent (10%) of the shares of Series A Preferred Stock then outstanding. Such meeting may be called at the expense of the Corporation by either such person. At any meeting of the holders of Series A Preferred Stock, the presence in person or by proxy of the holders of a majority of the shares of Series A Preferred Stock then outstanding shall constitute a quorum of the Series A Preferred Stock for the purpose of voting on matters to be acted upon by holders of the Series A Preferred Stock. 7. Exclusion of Other Rights. Except as may otherwise be required by law, the shares of Series A Preferred Stock shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this resolution (as such resolution may be amended from time to time) and in the Certificate of Incorporation of the Corporation. 8. Headings of Subdivisions. The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 25 32 9. Severability of Provisions. If any voting powers, preferences and relative, participating, optional and other special rights of the Series A Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as such resolution may be amended from time to time) are invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional and other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereof unless so expressed herein. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed by an authorized officer and attested by its Secretary, this _________ day of ______________________, 1997. P.F. CHANG'S CHINA BISTRO, INC. By: ------------------------------------ Richard L. Federico, President Attest: - ------------------------------------ Robert T. Vivian, Secretary 26 33 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF OF SERIES B CONVERTIBLE PREFERRED STOCK OF P.F. CHANG'S CHINA BISTRO, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation (the "Corporation"), certifies that pursuant to the authority contained in Article FOURTH of its Certificate of Incorporation (the "Certificate of Incorporation") and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware (the "DGCL"), the Board of Directors of the Corporation by written consent dated as of April 30, 1997, duly adopted the following resolution, which resolution was approved by written consent of the holders of the Series A Convertible Preferred Stock of the Corporation and remains in full force and effect on the date hereof: RESOLVED, that, pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of its Certificate of Incorporation, a series of Preferred Stock of the Corporation be and hereby is established, consisting of 2,300,000 shares, $.001 par value per share, to be designated the "Series B Convertible Preferred Stock" (hereinafter, "Series B Preferred Stock"); that the Board of Directors be and hereby is authorized to issue such shares of Series B Preferred Stock from time to time and for such consideration and on such terms as the Board of Directors shall determine; and that, subject to the limitations provided by law and by the Certificate of Incorporation, the voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof shall be as follows: 1. Certain Definitions. 34 Unless the context otherwise requires, the terms defined in this paragraph 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Affiliate" shall have the meaning given to such term under Rule 12b-2 of the rules promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934. "Annual Per Share Cash Dividend Amount" shall mean a cash payment equal to ten percent (10%) per annum of the Liquidation Price of one share of the Series B Preferred Stock. "Annual Per Share PIK Dividend Amount" shall mean a fraction of one share of Series B Preferred Stock equal to six percent (6%) per annum of one share of the Series B Preferred Stock. "Business Day" shall mean a day other than a Saturday, a Sunday or any other day on which banking institutions in New York, New York are authorized or obligated by law to close. "Common Equity" shall mean all shares now or hereafter authorized of any class of common stock of the Corporation, however, designated, including the Comon Stock, and any other stock of the Corporation, howsoever designated, authorized after the Initial Issue Date, which has the right (subject always to prior rights of any class or series of preferred stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount. "Common Stock" shall mean the common stock, par value $.001 per share, of the Corporation. "Corporation's Affiliates" shall mean (i) PFCCB Scottsdale, L.L.C., an Arizona limited liability company; (ii) PFCCB Newport Beach, L.L.C., an Arizona limited liability company; (iii) P.F. Chang's III, L.L.C., an Arizona limited liability company; (iv) P.F. Chang's IV, L.L.C., an Arizona limited liability company; (v) PFC Building III Limited Partnership, an Arizona limited partnership; (vi) PFCCB LouTex Joint Venture, an Arizona general partnership; and (vii) PFCCB NUC LLC, an Arizona limited liability company. "Conversion Date" shall have the meaning set forth in subparagraph 4.1(b) below. "Debt" shall mean any indebtedness, contingent or otherwise, of any person in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof) or evidenced by bonds, notes, debentures or similar instruments or letters of credit or representing the balance deferred 2 35 and unpaid of the purchase price of any property or interest therein, except any such balance that constitutes a trade payable, if and to the extent such indebtedness would appear as a liability upon a balance sheet of such person prepared on a consolidated basis in accordance with generally accepted accounting principles. "Debt to Equity Ratio" shall mean the ratio of (i) the total Indebtedness to (ii) Total Stockholders' Equity. "Delinquent Mandatory Redemption Price" shall mean, with respect to each share of Series B Preferred Stock, $4.35 (adjusted for stock splits, subdivisions, combinations and similar transactions), plus all accrued and unpaid dividends payable in respect of such a share of the Series B Preferred Stock, plus an amount thereon accruing from the Mandatory Redemption Date relating thereto at the Increasing Rate. "Final Mandatory Redemption Date" shall mean May 1, 2004 or, if such day is not a Business Day, the next succeeding Business Day. "Increasing Rate" shall mean, with respect to any obligation, an annual rate equal to the Prime Rate, plus (i) two percent, plus (ii) one percent after the first completed six-month period that the obligation subject to the Increasing Rate has been outstanding and has not been paid in full. "Indebtedness" shall mean the Debt of the Corporation or a subsidiary of the Corporation plus, to the extent not otherwise included, (i) the guaranty of any Debt of any other person; and (ii) obligations in respect of borrowed money secured by any Lien to which any property or asset owned or held by the Corporation or a subsidiary is subject, whether or not the obligations secured thereby shall have been assumed by the Corporation or such subsidiary; and (iii) capitalized lease obligations. "Initial Issue Date" shall mean the date that shares of Series B Preferred Stock are first issued by the Corporation. "Initial Mandatory Redemption Date" shall mean May 1, 2003 or, if such day is not a Business Day, the next succeeding Business Day. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or other security interest of any kind or nature whatsoever (excluding preferred stock or equity related preferences) including, without limitation, those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease obligation, or any financing lease having substantially the same economic effect as any of the foregoing. "Liquidation Price" shall mean $4.35 per share of Series B Preferred Stock (adjusted for stock splits, subdivisions, combinations and similar transactions), plus all 3 36 accrued and unpaid dividends payable in respect of such share of Series B Preferred Stock pursuant to subparagraph 2(c). "Mandatory Redemption Date" shall mean the Initial Mandatory Redemption Date and the Final Mandatory Redemption Date. "Mandatory Redemption Obligation" shall have the meaning set forth in subparagraph 5(c) below. "Non-Investor Directors" shall mean those directors elected to the Corporation's Board of Directors other than those directors that are elected solely by the holders of Series B Preferred Stock or Parity Stock pursuant to the Shareholders Agreement. "Parity Stock" shall mean any class or series of capital stock of the Corporation ranking on a parity with the Series B Preferred Stock as to (i) priority of payment of cash and stock dividends and other distributions, (ii) priority of payment upon liquidation, dissolution or winding up of the Corporation, and (iii) the time of, and priority of payment upon, any mandatory redemption. For purposes of this definition, differences between any class or series of capital stock and the Series B Preferred Stock as to the amount of the liquidation price (or other fixed amount) to which any cash dividend rate is applied, the amount of the liquidation price payable upon liquidation, dissolution or winding up of the Corporation, the amount of the redemption price payable upon any mandatory redemption, or the time when cash or stock dividends or other distributions shall begin to accrue, shall not be considered in determining whether such class or series of capital stock is on a parity with the Series B Preferred Stock. "PIK Dividends" shall mean the "paid-in-kind" dividends as set forth in subparagraph 2(a) below. "PIK Dividend Payment Date" shall mean March 31, June 30, September 30, and December 31, of each year during the PIK Dividend Payment Period. "PIK Dividend Payment Period" shall mean the period from, and including, April 1, 1999, to and including the Final Mandatory Redemption Date. "PIK Dividend Period" shall mean the period from, and including, April 1, 1999, to, but not including, the first PIK Dividend Payment Date and thereafter, each quarterly period, including any PIK Dividend Payment Date to, but not including, the next PIK Dividend Payment Date. "PIK Record Date" shall mean the date that is ten Business Days prior to any PIK Dividend Payment Date. 4 37 "Preferred Cash Dividends" shall mean the cash dividends as set forth in subparagraph 2(f) below. "Prime Rate" shall mean the rate announced as the "prime rate" by NationsBank, N.A. whether or not such rate is actually charged. "Pro Rata" shall mean, in the case of stock dividends, stock dividends of the same class or series as the stock upon which the dividends are being paid and that are proportionate to the number of outstanding shares of such stock, and, in the case of cash dividends or dividends in property, cash dividends or dividends in property that are proportionate to the liquidation price of the class or series of stock upon which the dividends are being paid. "Qualified Initial Public Offering" shall mean an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 of shares of the Common Stock, (i) the aggregate gross proceeds of which equal or exceed $15,000,000 and (ii) the per share offering price of which equals or exceeds $10.00; provided, however, that the per share offering price referred to in clause (ii) shall be adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination or like event of or with respect to outstanding shares of Common Stock occurring after the Initial Issue Date. "Quoted Price" shall mean with respect to any security the arithmetic mean of the last bid and ask price for one (1) share of the applicable security as reported by the National Association of Securities Dealers, Inc., Automatic Quotations System, National Market System ("NASDAQ"), or, if the applicable security is listed or admitted for trading on a securities exchange, the arithmetic mean of the high and low trading prices during the relevant trading day for one (1) share of the applicable security on the principal exchange on which the applicable security is listed or admitted for trading (which shall be for consolidated trading if applicable to such exchange), in each case, on the Trading Day in question. "Redemption Price" shall mean, with respect to each share of Series B Preferred Stock, $4.35 (adjusted for stock splits, subdivisions, combinations and similar transactions) plus all accrued and unpaid dividends payable in respect of such share of the Series B Preferred Stock. "Series B Director" shall mean that member of the Board of Directors of the Corporation elected solely by the holders of the Series B Preferred Stock pursuant to the Shareholders Agreement. "Shareholders Agreement" shall mean the Amended and Restated Shareholders Agreement among the Corporation and the holders of the Common Stock, Series B Preferred Stock and Parity Stock dated as of May 1, 1997, as the same may be amended from time to time. 5 38 "Stock Purchase Agreement" shall mean the Stock Purchase Agreement among the Corporation and the Purchasers listed therein dated as of April 28, 1997, as the same may be amended from time to time. "Subordinate Stock" shall mean the Common Equity and any class or series of capital stock of the Corporation, however designated, which is not entitled to receive (i) any dividends unless all dividends required to have been paid or declared and set apart for payment on the Series B Preferred Stock shall have been so paid or declared and set apart for payment or (ii) any assets upon liquidation, dissolution or winding up of the affairs of the Corporation until the Series B Preferred Stock shall have received the entire amount to which such stock is entitled upon such liquidation, dissolution or winding up. "Total Stockholders' Equity" shall mean the stockholders' equity of the Corporation as it appears in the monthly balance sheet of the Corporation. "Trading Days" shall mean any day on which any market in which the applicable security is then traded and in which a Quoted Price may be ascertained is open for business. 2. Dividends. (a) The record holders of Series B Preferred Stock on each PIK Record Date shall receive on each PIK Dividend Payment Date during the PIK Dividend Payment Period per share dividends in additional fully paid and nonassessable shares of Series B Preferred Stock legally available for such purpose (such dividends being herein called "PIK Dividends"). PIK Dividends shall be paid by delivering to the record holders of Series B Preferred Stock a number of shares of Series B Preferred Stock equal to (i) the number of shares of Series B Preferred Stock held by such holder on the applicable PIK Record Date, multiplied by (ii) twenty-five percent (25%) of the Annual Per Share PIK Dividend Amount. Except as set forth in subparagraph 2(b) below, the Corporation shall not issue fractional shares of Series B Preferred Stock to which holders may become entitled pursuant to this subparagraph, but in lieu thereof, the Corporation shall at the option of the holder either (i) deliver its check in an amount equal to the applicable fraction of one (1) share of Series B Preferred Stock multiplied by $4.35 (adjusted for stock splits, subdivisions, combinations or other similar transactions) (the "PIK Cash Dividend Payment") or (ii) defer delivery of the fractional PIK Cash Dividend Payment to the holder and apply such amount to PIK Dividends issued to such holder on the subsequent PIK Dividend Date. Any additional shares of Series B Preferred Stock issued pursuant to this paragraph shall be governed by this resolution and shall be subject in all respects, except as to the date of issuance and date from which PIK Dividends accrue and cumulate as set forth below, to the same terms as the shares of Series B Preferred Stock originally issued hereunder; provided, however, in no event shall any PIK Dividends accrue prior to April 1, 1999. 6 39 (b) Prior to each PIK Record Date immediately preceding each PIK Dividend Payment Date, the Board of Directors of the Corporation shall declare PIK Dividends on the Series B Preferred Stock in accordance with subparagraph 2(a) above, payable on the next PIK Dividend Payment Date. PIK Dividends (which shall include, for purposes of this subparagraph, any PIK Cash Dividend Payment due pursuant to subparagraph 2(a)) on shares of Series B Preferred Stock shall accrue and be cumulative from the later of (i) April 1, 1999 and (ii) the date of issuance of such shares, notwithstanding the failure of the Board of Directors to declare and/or issue PIK Dividends with respect to any PIK Dividend Period. PIK Dividends shall be payable in arrears during the PIK Dividend Payment Period on each PIK Dividend Payment Date, commencing on the first PIK Dividend Payment Date subsequent to April 1, 1999, and for shares issued as PIK Dividends, commencing on the first PIK Dividend Payment Date after such shares are issued. If any PIK Dividend Payment Date occurs on a day that is not a Business Day, any accrued PIK Dividends otherwise payable on such PIK Dividend Payment Date shall be paid on the next succeeding Business Day. PIK Dividends shall be paid on each PIK Dividend Payment Date to the holders of record of the Series B Preferred Stock as their names shall appear on the share register of the Corporation on the PIK Record Date immediately preceding such PIK Dividend Payment Date. If a PIK Cash Dividend Payment on account of PIK Dividends that would otherwise be issued as fractional shares may not legally be paid in the full amount to which shares of Series B Preferred Stock are entitled with respect to any PIK Dividend Period, dividends in the full preferential amount hereby provided shall be, to the extent legally and contractually permissible, declared and paid as PIK Dividends in the form of shares of Series B Preferred Stock (including fractional shares thereof). PIK Dividends on account of arrears for any past PIK Dividend Periods may be declared and paid at any time to the holders of record on the PIK Record Dates applicable to such past PIK Dividend Periods. (c) In addition to the PIK Dividends and the PIK Cash Dividend Payments referred to in subparagraph 2(a) hereof and the Preferred Cash Dividends referred to in subparagraph 2(f), at any time during which any shares of Series B Preferred Stock remain outstanding, the Corporation may declare, pay or set apart for payment cash and/or property to be distributed or paid as a dividend in respect of shares of Series B Preferred Stock. The foregoing notwithstanding, no dividends may be declared or paid on the Series B Preferred Stock pursuant to this subparagraph 2(c) unless Pro Rata dividends are contemporaneously declared or paid on any then outstanding Parity Stock. (d) So long as any shares of Series B Preferred Stock shall be outstanding: (i) the Corporation shall not declare, pay or set apart for payment on any Subordinate Stock any dividends or distributions whatsoever, whether in cash, property or otherwise (other than dividends payable in shares of the 7 40 class or series upon which such dividends are declared or paid, or payable in shares of Common Stock with respect to Subordinate Stock other than Common Stock, together with cash in lieu of fractional shares), nor shall any Subordinate Stock be purchased, redeemed or otherwise acquired by the Corporation or any of its subsidiaries of which it owns not less than a majority of the outstanding voting power, nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Subordinate Stock, without the prior written consent of the holders of at least a majority of the outstanding shares of Series B Preferred Stock and unless all dividends to which the holders of Series B Preferred Stock shall have been entitled for all previous PIK Dividend Periods shall have been (A) paid or (B) declared and a sum of money, in the case of dividends payable in cash, sufficient for the payment thereof has been set apart; (ii) the Corporation shall not declare, pay or set apart for payment on any Parity Stock any dividends or distributions whatsoever, whether in cash, property or otherwise, unless Pro Rata dividends are contemporaneously declared, paid or set apart for payment on the Series B Preferred Stock, except that, prior to the commencement of the PIK Dividend Payment Period, the Corporation may declare and pay dividends on the Series A Convertible Preferred Stock of the Corporation as required by the terms thereof as in effect on the Initial Issue Date of the Series B Preferred Stock; and (iii) neither the Corporation nor any of its subsidiaries of which it owns not less than a majority of the outstanding voting power shall purchase, redeem or otherwise acquire any Parity Stock, nor pay any monies to or make any monies available for a sinking fund for the purchase or redemption of any Parity Stock, without the prior written consent of the holders of at least a majority of the outstanding shares of Series B Preferred Stock and unless all dividends to which the holders of Series B Preferred Stock shall have been entitled for all previous PIK Dividend Periods shall have been (A) paid or (B) declared and a sum of money, in the case of dividends payable in cash, sufficient for the payment thereof has been set apart, except that the Corporation may redeem Parity Stock so long as it contemporaneously redeems a proportionate percentage of the outstanding Series B Preferred Stock, ratably among the holders thereof. (e) In the event that full dividends, in cash or property, if declared, are not paid or made available to the holders of all outstanding shares of Series B Preferred Stock and Parity Stock and funds or property available for payment of dividends shall be insufficient to permit payment in full to holders of all such stock of the full preferential amounts to which they are then entitled, then the entire amount available for payment of dividends shall be distributed ratably among all such holders of Series B Preferred Stock and Parity Stock in proportion to the full amount to which they would otherwise be respectively entitled. 8 41 (f) Notwithstanding anything to the contrary set forth herein, with respect to any PIK Dividend otherwise payable on any PIK Dividend Payment Date pursuant to this paragraph 2, the Corporation may, upon the unanimous approval of the Non-Investor Directors by vote on or prior to the applicable PIK Record Date, declare on such PIK Record Date and pay on such PIK Dividend Payment Date a cash dividend (a "Preferred Cash Dividend") to all record holders of Series B Preferred Stock on such PIK Record Date in an amount per share equal to twenty-five percent (25%) of the Annual Per Share Cash Dividend Amount. Payment of such Preferred Cash Dividend on such PIK Dividend Payment Date shall be in lieu of the payment of the PIK Dividend on such PIK Dividend Payment Date. The foregoing notwithstanding, no Preferred Cash Dividend may be declared and paid on the Series B Preferred Stock unless Pro Rata cash dividends are contemporaneously declared and then paid on any then outstanding Parity Stock. (g) Notwithstanding anything contained herein to the contrary, no dividends on shares of Series B Preferred Stock shall be declared by the Board of Directors of the Corporation or paid or set apart for payment by the Corporation at such time if such declaration or payment shall be restricted or prohibited by law. 3. Distributions Upon Liquidation, Dissolution or Winding Up. (a) In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation, before any payment or distribution shall be made to the holders of Subordinate Stock and contemporaneously with any payment or distribution to the holders of Parity Stock, the holders of Series B Preferred Stock shall be entitled to be paid out of the assets of the Corporation in cash, or, if the Corporation does not have sufficient cash on hand to pay such amounts, property of the Corporation at its fair market value as determined by the Board of Directors of the Corporation, the greater of (i) the Liquidation Price per share of Series B Preferred Stock, or (ii) such amount per share of Series B Preferred Stock as would have been payable had each such share been converted into Common Stock pursuant to paragraph 4 immediately prior to such liquidation, dissolution or other winding up of the affairs of the Corporation. Immediately preceding such liquidation, dissolution or winding up, adjustment shall be made for accrued but unpaid dividends (including, without limitation, PIK Dividends). (b) If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the assets of the Corporation shall be insufficient to permit the payment in full of the Liquidation Price for each share of the Series B Preferred Stock and the applicable liquidation price for each share of any Parity Stock then outstanding, then the assets of the Corporation shall be ratably distributed among the holders of Series B Preferred Stock and Parity Stock in proportion to the full amounts to which they would otherwise be respectively entitled if all amounts thereon were paid in full. Neither the consolidation or merger of the Corporation into or with another corporation or corporations, nor the sale, lease, transfer or conveyance of all or any 9 42 portion of the assets of the Corporation to another corporation or any other entity shall be deemed a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this paragraph 3. 4. Conversion Rights. 4.1 Conversion at the Option of the Holder. (a) At any time before the close of business on the Final Mandatory Redemption Date (unless the Corporation shall default in payment of the Redemption Price or the Delinquent Mandatory Redemption Price, in which case, the conversion rights set forth in this paragraph shall continue until the cure of any such default), each holder of Series B Preferred Stock may, at its option, convert each share of Series B Preferred Stock held by such holder into one (1) share of Common Stock subject to adjustment pursuant to paragraph 4.3. Upon such conversion, the rights of the holders of converted Series B Preferred Stock with respect to the shares of Series B Preferred Stock so converted shall cease. (b) To convert Series B Preferred Stock in accordance with this paragraph 4.1, a holder must (i) surrender the certificate or certificates evidencing the shares of Series B Preferred Stock to be converted (or a duly executed affidavit of lost certificate in accordance with the bylaws of the Corporation), duly endorsed in a form satisfactory to the Corporation, at the office of the Corporation or transfer agent for the Series B Preferred Stock, (ii) notify the Corporation at such office in writing that it elects to convert Series B Preferred Stock, and the number of shares it wishes to convert, (iii) state in writing the name or names in which it wishes the certificate or certificates for shares of Common Stock to be issued, and (iv) pay any transfer or similar tax with respect to the transfer of the shares of Series B Preferred Stock converted, if required. The date on which the holder satisfies the foregoing requirements shall be the "Conversion Date." As soon as practical but in any event within five (5) Business Days of the Conversion Date, the Corporation shall deliver a certificate for the number of shares of Common Stock issuable upon the conversion, a check for the amount payable in respect of any fractional share pursuant to subparagraph 4.1(c) and a new certificate representing the unconverted portion, if any, of the shares of Series B Preferred Stock represented by the certificate or certificates surrendered for conversion. The person in whose name the Common Stock certificate is registered shall be treated as the stockholder of record on and after the Conversion Date. Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid dividends (including, without limitation, PIK Dividends), as of the Conversion Date, on converted shares of Series B Preferred Stock. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to Series B Preferred Stock surrendered for conversion at any time on or after a PIK Record Date for the payment of a PIK Dividend to the registered holder of Series B Preferred Stock on such PIK Record Date. If the last day on which Series B Preferred Stock may be converted is not a Business 10 43 Day, Series B Preferred Stock may be surrendered for conversion on the next succeeding day that is a Business Day. (c) The Corporation will not issue a fractional share of Common Stock upon conversion of Series B Preferred Stock. Instead the Corporation will deliver its check in an amount equal to the applicable fraction multiplied by the fair market value of the Common Stock. (d) If a holder converts shares of Series B Preferred Stock, the Corporation shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion; provided, however, that pursuant to subparagraph 4.1(b) the holder shall pay any such tax which is due because the shares are issued in a name other than the holder's name. 4.2 Mandatory Conversion. Subject to the adjustments set forth in paragraph 4.3, each share of the Series B Preferred Stock shall be automatically converted into one (1) share of Common Stock on the date a Qualified Initial Public Offering is consummated ("Mandatory Conversion Date"). Upon such occurrence resulting in a Mandatory Conversion Date, the Corporation shall (i) notify all holders of the Series B Preferred Stock not later than five (5) Business Days subsequent to approval by the Board of Directors of the Corporation to undertake a Qualified Initial Public Offering, (ii) demand that all shares representing the Series B Preferred Stock be returned to the Corporation's offices or to the designated transfer agent, and (iii) pay any transfer or similar tax with respect to the conversion, if any. As soon as practical but in any event within thirty (30) days of the Mandatory Conversion Date, the Corporation shall deliver a certificate to and in the name of the holder of the Series B Preferred Stock for the number of shares of Common Stock issuable upon the conversion and a check in an amount calculated in accordance with subparagraph 4.1(c) for any fractional shares, if any, for the shares of Series B Preferred Stock represented by the certificate. The name of the person in which the Series B Preferred Stock was issued shall be treated as the stockholder of record of the Common Stock in which the Series B Preferred Stock was converted on and after the Mandatory Conversion Date. Adjustment (or cash payment, if applicable) shall be made for accrued and unpaid dividends (including, without limitation, PIK Dividends), as of the Mandatory Conversion Date, on shares of Series B Preferred Stock converted pursuant to this paragraph 4.2. PIK Dividends will be paid on any PIK Dividend Payment Date with respect to Series B Preferred Stock converted pursuant to this paragraph 4.2 on or after a PIK Record Date to the registered holder of Series B Preferred Stock on such PIK Record Date, and the shares of Series B Preferred Stock received in payment of such PIK Dividend shall be deemed automatically converted to one (1) share of Common Stock, subject to adjustment in accordance with paragraph 4.3, effective as of the Mandatory Conversion Date. Upon such conversion, the rights of the holders of converted Series B Preferred Stock with respect to the shares of Series B Preferred Stock so converted shall cease. 11 44 4.3 Certain Matters With Respect to Conversion. (a) The Corporation has reserved and shall continue to reserve out of its authorized but unissued Common Stock enough shares of Common Stock to permit the conversion of the Series B Preferred Stock in full. All shares of Common Stock which are issued upon conversion of Series B Preferred Stock shall be duly authorized, validly issued, fully paid and nonassessable. The Corporation shall comply with all securities laws regulating the offer and delivery of shares of common stock upon conversion of Series B Preferred Stock and will list such shares on each national securities exchange on which the common stock is listed. (b) If the Corporation: (i) pays a dividend or makes a distribution on its Common Stock or any other class of the Corporation's stock other than the Series B Preferred Stock in shares of its Common Stock; (ii) subdivides its outstanding shares of Common Stock into a greater number of shares; (iii)combines its outstanding shares of Common Stock into a smaller number of shares; (iv) issues by reclassification of its Common Stock any shares of its capital stock; then an appropriate and proportionate adjustment shall be made to the number of shares into which each share of Series B Preferred Stock is convertible so that immediately after the occurrence of such event the holders of Series B Preferred Stock shall be entitled to receive the same percentage of the issued and outstanding Common Stock upon conversion of the Series B Preferred Stock as such holders would have received if converted immediately prior to such dividend, distribution, subdivision, combination or reclassification. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (c) If the Corporation distributes any rights, options or warrants to all holders of its Common Stock entitling them for a period expiring within sixty (60) days after the record date referenced in subparagraph (l) below to purchase additional shares of Common Stock at a price per share less than $4.35 per share (as adjusted to reflect any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on that record date, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall be adjusted, in accordance with the following formula: 12 45 N x (O+A) --------- N' = O + AxP --- M where: N' = the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible after such distribution. O = the number of shares of Common Stock outstanding on the record date. N = the number of shares of Common Stock into which each share of Series B Preferred Stock was convertible prior to such distribution. P = the offering price per share of the additional shares of Common Stock. M = the current market price per share of Common Stock on the record date. A = the number of additional shares of Common Stock offered. The adjustment shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants. If at the end of the period during which such warrants, options or rights are exercisable, not all warrants, options or rights shall have been exercised, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall be immediately readjusted to what it would have been if "A" in the above formula had been the number of shares actually issued. 13 46 (d) If the Corporation issues shares of Common Stock for a consideration per share less than $4.35 per share (as adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on the date the Corporation fixes the offering price of such additional shares, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall be adjusted in accordance with the following formula: N x A ----- N' = O + P - M where: N' = the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible after such issuance. N = the number of shares of Common Stock into which each share of Series B Preferred Stock was convertible prior to such issuance. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares. P = the aggregate consideration received for the issuance of such additional shares. M = the current market price per share of Common Stock on the date of issuance of such additional shares. A = the number of shares outstanding immediately after the issuance of such additional shares. The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. This subparagraph 4.3(d) does not apply to (i) any transaction or issuance described in subparagraphs 4.3(b) or 4.3(c) above or subparagraph 4.3(e) below, including issuances of Common Stock pursuant to warrants, options, rights or other convertible securities described in subparagraphs 4.3(c) and 4.3(e), (ii) the conversion of Series B Preferred Stock, or the conversion, exchange or exercise of other securities convertible into or exchangeable or exercisable for Common Stock, (iii) Common Stock issued to the Corporation's employees under bona fide employee benefit plans adopted by the Board of Directors of the Corporation and approved by the holders of Common Stock when required by law, if such Common Stock would otherwise be covered by this subparagraph 4.3(d) (but only to the extent that the aggregate number of shares excluded hereby (together with 14 47 the aggregate number of shares issuable upon conversion, exchange or exercise of the securities excluded by clause (iii) of subparagraph 4.3(e) below) and issued shall not exceed 15% of the Common Stock of the Corporation on a fully diluted basis at the time of any such issuance excluding options to purchase Common Stock held by directors of the Corporation), or (iv) Common Stock issued in a bona fide public offering pursuant to a firm commitment underwriting. (e) If the Corporation issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than Series B Preferred Stock or securities issued in transactions described in subparagraph 4.3(c) above) for a consideration per share of Common Stock initially deliverable upon conversion, exchange or exercise of such securities of less than $4.35 per share of Common Stock (as adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination of or with respect to outstanding shares of Common Stock or any similar transaction) on the date of issuance of such securities, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall be adjusted in accordance with the following formula: N x (O+D) --------- N' = O + P - M where: N' = the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible immediately after such issuance. N = the number of shares of Common Stock into which each share of Series B Preferred Stock was convertible immediately prior to such issuance. O = the number of shares of Common Stock outstanding immediately prior to the issuance of such securities. P = the aggregate consideration received for the issuance of such securities. M = the current market price per share of Common Stock on the date of issuance of such securities. D = the maximum number of shares deliverable upon conversion or in exchange for or upon exercise of such securities at the initial conversion, exchange or exercise rate. 15 48 The adjustment shall be made successively whenever any such issuance is made, and shall become effective immediately after such issuance. If all of the Common Stock deliverable upon conversion, exchange or exercise of such securities has not been issued when such securities are no longer outstanding, then the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall promptly be readjusted to the basis of the actual number of shares of Common Stock issued upon conversion, exchange or exercise of such securities. This subparagraph 4.3(e) does not apply to (i) the issuance of any such securities in a bona fide public offering pursuant to a firm commitment underwriting, (ii) the issuance of any such securities to the Corporation's employees under bona fide employee benefit plans adopted by the Board of Directors of the Corporation and approved by the holders of Common Stock when required by law, if such securities would otherwise be covered by this subparagraph 4.3(e) (but only to the extent that the aggregate number of shares issuable upon the conversion, exchange or exercise of the aggregate number of securities excluded hereby (together with the aggregate number of shares excluded by clause (iii) of subparagraph 4.3(d) above) and issued shall not exceed 15% of the Common Stock of the Corporation on a fully diluted basis at the time of any such issuance excluding options to purchase Common Stock held by directors of the Corporation), or (iii) shares issued as PIK Dividends, shares issued as "paid-in-kind" dividends on the Series A Convertible Preferred Stock of the Corporation as required by the terms thereof as in effect on the Initial Issue Date of the Series B Preferred Stock, or shares issued as "paid-in-kind" dividends on Parity Stock provided such dividends are required by the terms of such Parity Stock. (f) If the Corporation (i) distributes any rights, options or warrants to all holders of its Common Stock entitling them for a period expiring within sixty (60) days after the record date referenced in subparagraph (l) herein to purchase additional shares of Common Stock; (ii) issues shares of Common Stock; or (iii) issues any options, warrants or other securities convertible into or exchangeable or exercisable for Common Stock (other than Series B Preferred Stock or securities issued in transactions described in (i) above) at a price reflecting an implied price per share less than $4.35 per share, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible shall be reduced proportionally to reflect the price at which the Corporation issued or sold such shares of Common Stock pursuant to this subparagraph 4.3(f). (g) For the purpose hereof, the current market price per share of any security on any date is the average of the Quoted Prices for thirty (30) consecutive Trading Days commencing forty-five (45) Trading Days before the date in question. If the Quoted Price is not ascertainable, the current market price per share of any security on any date shall be the current market price as determined by the Board of Directors of the Corporation in its reasonable judgment exercised in good faith. Notwithstanding the foregoing, the current market price per share of any security shall be deemed to be the greater of (i) the current market price as determined above and (ii) the Liquidation Price. 16 49 (h) For purposes of any computation respecting consideration received pursuant to subparagraphs 4.3(d) and 4.3(e) above, the following shall apply: (i) in case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Corporation for any underwriting of the issue or otherwise in connection therewith; (ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the Board of Directors of the Corporation in its reasonable judgment exercised in good faith (irrespective of the accounting treatment thereof); and (iii) in the case of the issuance of options, warrants or other securities convertible into or exchangeable or exercisable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Corporation for the issuance of such options, warrants or other securities plus the additional minimum consideration, if any, to be received by the Corporation upon the conversion or exchange or exercise thereof (the consideration in each case to be determined in the same manner as provided in clauses (i) and (ii) of this subparagraph 4.3(h)). (i) No adjustment in the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible need be made unless the adjustment would require an increase or decrease of at least one-half of one percent (.5%) in the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 4.3 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. (j) No adjustment in the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible need be made under this paragraph 4.3 for (i) rights to purchase Common Stock pursuant to a Corporation plan for reinvestment of dividends or interest, or (ii) any change in the par value or change from no par value to par value of the Common Stock. If an adjustment is made to the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible upon a record date established for a distribution subject to this paragraph 4.3 and if such distribution is subsequently cancelled, the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible then in effect shall be readjusted, effective as of the date when the Board of Directors of the Corporation determines to cancel such distribution, to the number of shares of Common 17 50 Stock into which each share of Series B Preferred Stock is convertible as would have been in effect if such record date had not been fixed. No adjustment need be made under paragraph 4.3 if the Corporation issues or distributes to each holder of Series B Preferred Stock the shares of Common Stock, evidences of indebtedness, assets, rights, options or warrants referred to in such paragraph which each holder would have been entitled to receive had Series B Preferred Stock been converted into Common Stock prior to or simultaneously with the happening of such event or the record date with respect thereto. (k) Whenever the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible is adjusted, the Corporation shall promptly mail to holders of Series B Preferred Stock, first class, postage prepaid, a notice of the adjustment. The Corporation shall file with the transfer agent, if any, for Series B Preferred Stock a certificate from the Corporation's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. Subject to subparagraph 4.3(o) below, the certificate shall be conclusive evidence that the adjustment is correct. (l) If: (i) the Corporation takes any action that would require an adjustment pursuant to paragraph 4.3; (ii) the Corporation consolidates or merges with, or transfers all or substantially all of its assets to, another corporation, and stockholders of the Corporation must approve the transaction; or (iii) there is a dissolution or liquidation of the Corporation; a holder of Series B Preferred Stock may want to convert such stock into shares of Common Stock prior to the record date for or the effective date of the transaction so that it may receive the rights, warrants, securities or assets which a holder of shares of Common Stock on that date may receive. Therefore, the Corporation shall mail to such holders, first class, postage prepaid, a notice stating the proposed record or effective date, as the case may be. The Corporation shall mail the notice at least thirty (30) days before such date. (m) If the Corporation is party to a consolidation or merger which reclassifies or changes its Common Stock or to the sale of all or substantially all of the assets of the Corporation, upon consummation of such transaction the Series B Preferred Stock shall automatically become convertible at the option of their respective holders into the kind and amount of securities, cash or other assets which the holder of Series B Preferred Stock would have owned immediately after the sale, consolidation or merger, if such holder had converted Series B Preferred Stock immediately before the effective date of the transaction, and an appropriate adjustment (as determined by the 18 51 Board of Directors of the Corporation) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Series B Preferred Stock, to the end that the provisions set forth herein (including provisions with respect to liquidation preferences and changes in and other adjustment of the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the conversion of Series B Preferred Stock. The Corporation shall not affect any such consolidation, merge or sale, unless prior to the consummation thereof, the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets assumes by written instrument (in a form reasonably satisfactory to the holders of a majority of the Series B Preferred Stock then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. If this subparagraph 4.3(m) applies, subparagraphs 4.3(b), 4.3(c), 4.3(d) and 4.3(e) do not apply. (n) In any case in which this paragraph 4.3 shall require that an adjustment as a result of any event become effective from and after a record date, the Corporation may elect to defer until after the occurrence of such event (i) the issuance to the holder of any shares of Series B Preferred Stock converted after such record date and before the occurrence of such event of the additional shares of Common Stock issuable upon such conversion over and above the shares issuable immediately prior to adjustment and (ii) the delivery of a check for any remaining fractional shares as provided in subparagraph 4.1(c) above. (o) Whenever the Corporation or its Board of Directors shall be required to make a determination under this paragraph 4.3, such determination shall be made in good faith and may be challenged in good faith by the holders of a majority of the Series B Preferred Stock, and any dispute shall be resolved promptly (and in no event later than ninety (90) days after any challenge), at the Corporation's expense, by an investment banking firm of recognized national standing selected by the Corporation and acceptable to such holders of Series B Preferred Stock. Any such determination shall be deemed approved if the requisite holders have not notified the Corporation of any challenge within thirty (30) days after receiving notice (including a statement in reasonable detail of the bases therefor) of such determination. (p) If any event occurs of the type contemplated by the provisions of this paragraph 4.3 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation's Board of Directors shall make an appropriate adjustment to the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible so as to protect the rights of the holders of Series B Preferred Stock; provided that no such adjustment shall increase the number of shares of Common Stock into which a share of Series B Preferred Stock is 19 52 convertible if otherwise adjusted pursuant to another provision of this paragraph 4.3 or decrease the number of shares of Common Stock issuable upon conversion of each share of Series B Preferred Stock. 5. Mandatory Redemption by the Corporation. (a) To the extent the Corporation shall have funds legally available for such payment under the DGCL, the Corporation shall redeem on the Initial Mandatory Redemption Date at least fifty percent (50%) of the then outstanding shares of Series B Preferred Stock at the Redemption Price, ratably among the holders thereof. In addition, to the extent the Corporation shall have funds legally available for such payment under the DGCL, the Corporation shall redeem on the Final Mandatory Redemption Date all of the then outstanding shares of Series B Preferred Stock at the Redemption Price, plus an amount accruing thereon at the Increasing Rate from the Initial Mandatory Redemption Date. (b) Shares of Series B Preferred Stock which have been issued and converted or reacquired in any manner, including as a result of redemption, shall (upon compliance with any applicable provisions of the DGCL) have the status of authorized and unissued shares of the class of preferred stock of the Corporation undesignated as to series, and may be redesignated and reissued as part of any series of preferred stock of the Corporation; provided, however, that no such issued and reacquired shares of Series B Preferred Stock shall be reissued as Series B Preferred Stock. (c) If on any Mandatory Redemption Date the Corporation is unable or shall fail to discharge its obligation to redeem all outstanding shares of Series B Preferred Stock required to be redeemed on such date pursuant to subparagraph 5(a) and all outstanding shares of Parity Stock required to be redeemed on such date (the "Mandatory Redemption Obligation"), the Corporation shall redeem on such Mandatory Redemption Date the number of shares of Series B Preferred Stock and Parity Stock which it is able to redeem, ratably among the holders of Series B Preferred Stock and Parity Stock in proportion to the full amounts to which they would otherwise be respectively entitled if all shares of Series B Preferred Stock and Parity Stock required to be redeemed on such date were redeemed. In such a case, the remainder of the Redemption Price payable but not paid at the Mandatory Redemption Date shall be converted into the Delinquent Mandatory Redemption Price and shall be discharged as soon as the Corporation is able to discharge such Delinquent Mandatory Redemption Price out of funds legally available therefor. If and so long as any Mandatory Redemption Obligation (or any obligation in respect of the Delinquent Mandatory Redemption Price) with respect to the Series B Preferred Stock and any Parity Stock shall not be fully discharged and paid, the Corporation shall not declare or pay any dividend or make any distribution on, or, directly or indirectly, purchase, redeem or satisfy any mandatory redemption, sinking fund or other similar obligation in respect of Subordinate Stock (other than repurchases of shares of Subordinate Stock in accordance 20 53 with the terms of restricted stock vesting agreements with employees of the Corporation approved by the Board of Directors of the Corporation). (d) Notwithstanding the foregoing provisions of this paragraph 5, unless the full cumulative dividends on all outstanding shares of Series B Preferred Stock and Parity Stock have been paid or contemporaneously are declared and paid for all dividend periods to and including the Mandatory Redemption Date, none of the shares of Series B Preferred Stock or Parity Stock shall be redeemed or set aside for redemption, unless such shares of Series B Preferred Stock and Parity Stock are redeemed pro rata based upon the full amounts to which the holders thereof would otherwise be respectively entitled. (e) Notice of any redemption shall be sent by or on behalf of the Corporation not more than sixty (60) days nor less than thirty (30) days prior to any Mandatory Redemption Date, by first class mail, postage prepaid, to all holders of record of the Series B Preferred Stock at their respective last addresses as they shall appear on the books of the Corporation; provided, however, that no failure to give notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series B Preferred Stock except as to the holder to whom the Corporation has failed to give notice or except as to the holder to whom notice was defective. In addition to any information required by law or by the applicable rules of any exchange upon which Series B Preferred Stock may be listed or admitted to trading, such notice shall state: (i) the Mandatory Redemption Date; (ii) the Redemption Price; (iii) the number of shares of Series B Preferred Stock to be redeemed; (iv) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price; (v) that dividends on the shares to be redeemed will cease to accrue on the Mandatory Redemption Date; (vi) the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible as of the notice date and, if any transactions are contemplated to occur between the notice date and the Mandatory Redemption Date which would cause such number of shares of Common Stock to be adjusted, the number of shares of Common Stock into which each share of Series B Preferred Stock would be convertible after giving effect to such transaction(s); (vii) that Series B Preferred Stock called for redemption may be converted at any time before the close of business on the Mandatory Redemption Date; and (viii) that holders of Series B Preferred Stock must satisfy the requirements of subparagraph 4.1(b) above if such holders desire to convert such shares. Upon the mailing of any such notices of redemption, the Corporation shall become obligated to redeem at the time of redemption specified therein all shares called for redemption other than shares converted into Common Stock prior to the Mandatory Redemption Date. (f) If notice has been mailed in accordance with subparagraph 5(e) above and provided that on or before the Mandatory Redemption Date specified in such notice, all funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds in trust for the pro rata benefit of 21 54 the holders of the shares so called for redemption, so as to be, and to continue to be available therefor, then, from and after the Mandatory Redemption Date, dividends on the shares of the Series B Preferred Stock so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Series B Preferred Stock, and all rights of the holders thereof as shareholders of the Corporation (except the right to receive from the Corporation the Redemption Price) shall cease, irrespective of whether any certificates for shares called for redemption have been surrendered to the Corporation. Upon surrender, in accordance with said notice, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer), such shares shall be redeemed by the Corporation at the Redemption Price and no holder of shares called for redemption shall be entitled to receive payment of the Redemption Price therefor until such surrender to the Corporation has been accomplished or a duly executed affidavit of lost certificate shall have been delivered to the Corporation. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate or certificates shall be issued representing the unredeemed shares without cost to the holder thereof (so long as such certificate is issued to the holder). (g) Any funds deposited with a bank or trust company for the purpose of redeeming Series B Preferred Stock shall be irrevocable except that: (i) the Corporation shall be entitled to receive from such bank or trust company the interest or other earnings, if any, earned on any money so deposited in trust, and the holders of any shares redeemed shall have no claim to such interest or other earnings; and (ii) any balance of monies so deposited by the Corporation and unclaimed by the holders of the Series B Preferred Stock entitled thereto at the expiration of two (2) years from the applicable Mandatory Redemption Date shall be repaid, together with any interest or other earnings earned thereon, to the Corporation, and after any such repayment, the holders of the shares entitled to the funds so repaid to the Corporation shall look only to the Corporation for payment without interest or other earnings. (h) Notwithstanding anything to the contrary herein, no shares of Series B Preferred Stock may be redeemed except with funds legally available for the payment of the Redemption Price. 6. Voting Rights. (a) Except as otherwise set forth in this paragraph 6 and the Shareholders Agreement or as otherwise required by law, each share of Series B Preferred Stock issued and outstanding shall have the right to vote on all matters presented to the holders of the Common Stock for vote in the number of votes equal at any time to the number of shares of Common Stock into which each share of Series B 22 55 Preferred Stock would then be convertible, and the holders of the Series B Preferred Stock and Parity Stock shall vote with the holders of the Common Stock as a single class. (b) In addition to any vote or consent of shareholders required by law or the Certificate of Incorporation of the Corporation, the affirmative consent of the holders of a majority of the issued and outstanding shares of Series B Preferred Stock at the time outstanding, voting as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) (x) Any amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation (including without limitation this Certificate of Designation) of the Corporation or (y) any amendment of the by-laws of the Corporation that materially affects the rights of the holders of the Series B Preferred Stock; (ii) Any action by the Corporation or any of its subsidiaries not approved in advance by the Series B Director to effect any amendment, alteration or repeal of any of the provisions of the articles of organization, operating agreements, certificates of limited partnership, or partnership agreements of any of the Corporation's Affiliates or subsidiaries (except such amendments, alterations or repeals that are ministerial in nature or required to effect a transfer of ownership interests in the Corporation's Affiliates or subsidiaries (other than any ownership interest beneficially owned by the Corporation)); (iii) Any authorization, issuance or creation of, or increase in the authorized amount of, (x) any shares of any class or any security of any class ranking senior to the shares of Series B Preferred Stock in the distribution of assets on any liquidation, dissolution or winding up of the Corporation or in the payment of dividends or requiring redemption at any time any shares of Series B Preferred Stock are still outstanding, or (y) any shares of Parity Stock (except shares issued as "paid-in-kind" dividends on Parity Stock provided Pro Rata dividends have also been declared and paid on the Series B Preferred Stock and except, prior to the commencement of the PIK Dividend Payment Period, shares issued as "paid-in-kind" dividends on the Series A Preferred Stock as required by the terms thereof as in effect on the Initial Issue Date of the Series B Preferred Stock); (iv) Any action by the Corporation or any of its subsidiaries not approved in advance by the Series B Director to effect the authorization, issuance or creation of, or increase in the authorized amount of, any membership interests, limited partnership interests or other equity security interests of any of the Corporation's Affiliates or subsidiaries; 23 56 (v) Any increase or decrease (other than by redemption or conversion) in the total number of authorized shares of Series B Preferred Stock or any issuance of the currently authorized shares of the Series B Preferred Stock other than the issuance of shares of Series B Preferred Stock pursuant to the Stock Purchase Agreement or as PIK Dividends; (vi) Any transaction or series of related transactions that entails the sale, lease, assignment, transfer or other conveyance of assets having a value greater than $10 million (measured by the book value at the date of such transaction) of the Corporation and its subsidiaries (determined on a consolidated basis); any sale or issuance of shares of capital stock of any subsidiary (other than such sales or issuance approved in advance by the Series B Director), any consolidation or merger involving the Corporation or any of such subsidiaries other than a consolidation or merger in which the Corporation or subsidiary, as the case may be, is the surviving entity and no change in the capital stock or ownership of the Corporation or the subsidiary, as the case may be, occurs, or any reclassification or recapitalization of any capital stock of the Corporation, or any dissolution, liquidation, or winding up of the Corporation, or any agreement to become so obligated; (vii) Any acquisition or series of related acquisitions of a business, businesses or assets involving aggregate consideration of $10 million or more; (viii) The incurrence of, or agreement to incur, any Indebtedness which would result in a Debt to Equity Ratio at the time the Indebtedness is incurred (after giving effect to such incurrence) of greater than 1:1, as measured based upon the balance sheet of the Corporation prepared as of the last day of the immediately preceding month, with a pro forma adjustment for the Indebtedness incurred and any equity invested in the Corporation since such date, other than such incurrences or agreements to incur Indebtedness that have been approved in advance by the Series B Director; (ix) Any action by the Corporation or any of its subsidiaries not approved in advance by the Series B Director to effect the incurrence of, or agreement to incur, any Indebtedness by any of the Corporation's Affiliates or subsidiaries; (x) Any loan, advance or guarantee to, or for the benefit of, or any sale, lease, transfer or disposition of any of the properties or assets of the Corporation or its subsidiaries to, or for the benefit of, or any purchase or lease of any property or assets from, or the execution, performance or amendment of any contract, agreement or understanding with, or for the benefit of, any Affiliate of the Corporation or its subsidiaries; 24 57 (xi) Any declaration or payment of any dividends on or any declaration or making of any other distribution, directly or indirectly, through subsidiaries (excluding dividends and distributions made to all owners of the Corporation's Affiliates in proportion to their respective ownership interests) or otherwise, on account of any Parity Stock (unless Pro Rata dividends have also been declared or paid on the Series B Preferred Stock and except that, prior to the commencement of the PIK Dividend Payment Period, "paid-in-kind" dividends on the Series A Convertible Preferred Stock of the Corporation may be paid thereon as required by the terms thereof as in effect on the Initial Issue Date of the Series B Preferred Stock) or Subordinate Stock or the setting apart of any sum for any such purpose; (xii) The appointment or involuntary termination of the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer or other senior officers of the Corporation or its subsidiaries; (c) The rights of the holders of the Series B Preferred Stock may be exercised in writing without a meeting or by proxy or in person at a special meeting of the holders of Series B Preferred Stock, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at such annual meetings or by a holder of Series B Preferred Stock designated in writing by the written consent of the holders of Series B Preferred Stock. (d) A special meeting of the holders of Series B Preferred Stock for purposes of voting on matters with respect to which the holders of such shares are entitled to vote as a class may be called by the Secretary of the Corporation or by a holder of Series B Preferred Stock designated in writing by the holders of ten percent (10%) of the shares of Series B Preferred Stock then outstanding. Such meeting may be called at the expense of the Corporation by either such person. At any meeting of the holders of Series B Preferred Stock, the presence in person or by proxy of the holders of a majority of the shares of Series B Preferred Stock then outstanding shall constitute a quorum of the Series B Preferred Stock for the purpose of voting on matters to be acted upon by holders of the Series B Preferred Stock. 7. Exclusion of Other Rights. Except as may otherwise be required by law, the shares of Series B Preferred Stock shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this resolution (as such resolution may be amended from time to time) and in the Certificate of Incorporation of the Corporation. 8. Headings of Subdivisions. 25 58 The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 9. Severability of Provisions. If any voting powers, preferences and relative, participating, optional and other special rights of the Series B Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as such resolution may be amended from time to time) are invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series B Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional and other special rights of Series B Preferred Stock and qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of Series B Preferred Stock and qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Series B Preferred Stock and qualifications, limitations and restrictions thereof unless so expressed herein. 26 59 IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed by an authorized officer and attested by its Secretary, this ________ day of _________________, 1997. P.F. CHANG'S CHINA BISTRO, INC. By: ------------------------------------ Richard L. Federico, President Attest: - ------------------------------ Robert T. Vivian, Secretary 27 60 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF P. F. CHANG'S CHINA BISTRO, INC. P. F. Chang's China Bistro, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the corporation, by unanimous written consent, adopted a resolution proposing and declaring advisable the following amendments to the Certificate of Incorporation of the corporation: RESOLVED that the definition of "Qualified Initial Public Offering" set forth in Section 1 of the Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Series A Convertible Preferred Stock of P. F. Chang's China Bistro, Inc. is amended in its entirety to read as follows: "Qualified Initial Public Offering" shall mean an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, of shares of Common Stock, (i) the aggregate proceeds of which equal or exceed $15,000,000 and (ii) the per share offering price of which equals or exceeds (a) $5.25 if completed on or before March 31, 1999 or (b) $10.00 if completed after March 31, 1999; provided, however, that the per share offering prices referred to in clause (ii) shall be adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination or like event of or with respect to outstanding shares of Common Stock occurring after the initial issuance date. RESOLVED FURTHER, that the definition of "Qualified Initial Public Offering" set forth in Section 1 of the Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and 61 Qualifications, Limitations and Restrictions Thereof of Series B Convertible Preferred Stock of P. F. Chang's China Bistro, Inc. is amended in its entirety to read as follows: "Qualified Initial Public Offering" shall mean an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, of shares of Common Stock, (i) the aggregate proceeds of which equal or exceed $15,000,000 and (ii) the per share offering price of which equals or exceeds (a) $5.25 if completed on or before March 31, 1999 or (b) $10.00 if completed after March 31, 1999; provided, however, that the per share offering prices referred to in clause (ii) shall be adjusted to reflect the effect of any stock split or any subdivision, reclassification, combination or like event of or with respect to outstanding shares of Common Stock occurring after the initial issuance date." RESOLVED FURTHER, that a Section 2(h) be added to the Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions thereof of Series A Convertible Preferred Stock of P.F. Chang's China Bistro, Inc. to read in full as follows: "(h) Notwithstanding anything contained herein to the contrary, in the event the Corporation completes a Qualified Initial Public Offering on or before December 31, 1998, each holder of record of Series A Preferred Stock shall be entitled to receive the PIK Dividend it would have received on December 31, 1998 if the Qualified Initial Public Offering was completed after such date." SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given written consent to the amendments in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware and written notice of the adoption of the amendments has been given as provided in Section 228 of the General Corporation Law of the State of Delaware to every stockholder entitled to such notice. THIRD: That the amendments were duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. -2- 62 IN WITNESS WHEREOF, P. F. Chang's China Bistro, Inc. has caused this certificate to be signed by Richard L. Federico, its President, this ____ day of November, 1998. P. F. Chang's China Bistro, Inc. By: /s/ Richard L. Federico --------------------------------- Richard L. Federico, President -3- EX-4.1 3 EX-4.1 1 COMMON STOCK COMMON STOCK NUMBER SHARES INCORPORATED UNDER THE LAWS [P.F. CHANG'S LOGO] SEE REVERSE FOR OF THE STATE OF DELAWARE CERTAIN DEFINITIONS CUSIP THIS CERTIFIES THAT IS THE RECORD HOLDER OF FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF P.F. CHANG'S CHINA BISTRO, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ Robert Vivian [P.F. CHANG'S /s/ illegible signature CHIEF FINANCIAL OFFICER CORPORATE CHIEF EXECUTIVE OFFICER AND SECRETARY SEAL] AND PRESIDENT COUNTERSIGNED AND REGISTERED: FIRST CHICAGO TRUST COMPANY OF NEW YORK TRANSFER AGENT AND REGISTRAR, BY /S/ ILLEGIBLE SIGNATURE AUTHORIZED SIGNATURE EX-10.9 4 EX-10.9 1 EXHIBIT 10.9 SECOND AMENDED AND RESTATED REVOLVING LINE OF CREDIT LOAN AGREEMENT THIS SECOND AMENDED AND RESTATED REVOLVING LINE OF CREDIT LOAN AGREEMENT (this "Agreement") is made as of November 10, 1998 (the "Effective Date"), by and between FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation ("FFCA"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, and P. F. CHANG'S CHINA BISTRO, INC., a Delaware corporation ("Debtor"), whose address is 5090 North 40th Street, Suite 160, Phoenix, Arizona 85018. PRELIMINARY STATEMENT: Unless otherwise expressly provided herein, all defined terms used in this Agreement shall have the meanings set forth in Section 1. Debtor and FFCA entered into that certain Revolving Line of Credit Loan Agreement dated as of October 24, 1997, as amended and restated in that certain Amended and Restated Revolving Line of Credit Loan Agreement dated as of June 29, 1998 (collectively, the "Original Agreement"). Subsequently, FFCA has agreed to increase the amount of the Loan and Debtor has agreed to pledge its interest in the Collateral pursuant to the Security Agreement in order to provide security for the Loan. This Agreement amends and restates the Original Agreement in order to reflect the terms and conditions associated with a further increase of the Loan and a pledge of the Collateral. AGREEMENT: In consideration of the mutual covenants and provisions of this Agreement, the parties agree as follows: 1. DEFINITIONS. The following terms shall have the following meanings for all purposes of this Agreement: "Acceleration Event" means (a) a breach or default, after the passage of all applicable notice and cure or grace periods, under any other agreement, instrument or promissory note other than the Loan Documents between, among or by (i) Debtor or any Affiliate of Debtor, and, or for the benefit of, (ii) FFCA and/or any Affiliate of FFCA, (b) the consummation of a sale of shares of stock or other ownership interests in Debtor by Paul Fleming, Kelly Fleming, Robert Vivian and Richard Federico (collectively, the "Primary Shareholders") other than sales of such stock or ownership interests in Debtor among the Primary Shareholders, members of the immediate family of the Primary Shareholders or family trusts, foundations or other legal entities which are owned by and created for the benefit of the Primary Shareholders, (c) the consummation of a sale of stock or other ownership interests in Debtor pursuant to a public offering or private placement pursuant to the Securities Act of 1933 or (d) at any time that the Primary Shareholders, members of the immediate family of the Primary Shareholders or family trusts, foundations or other legal entities which are owned by and created for the benefit of the Primary Shareholders do not own more than 40% of the stock or other ownership interests in Debtor. "Action" has the meaning set forth in Section 7. 2 "Advance" means any advance of the proceeds of the Loan made by FFCA pursuant to the terms of Section 2. "Affiliate" means any Person which directly or indirectly controls, is under common control with, or is controlled by any other Person. For purposes of this definition, "controls", "under common control with" and "controlled by" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or otherwise. "Business Day" means any day on which banks are open for general banking business in the State of Arizona other than a Saturday, Sunday, a legal holiday or any other day on which banks in the State of Arizona are required or authorized by law to close. "Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended. "Collateral" means Debtor's membership or partnership interest in the Companies as more particularly described in the Security Agreement. "Companies" means the Arizona general partnerships and the Arizona limited liability companies identified on Exhibit G attached hereto. "Counsel" means Lewis and Roca LLP, licensed in the State of Arizona (where Debtor maintains its principal place of business) or such other legal counsel as selected by Debtor and reasonably approved by FFCA. "Debt" means as to such Person at any time (without duplication): (a) all obligations of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments; (c) all obligations of such Person to pay the deferred purchase price of property or services; (d) all capital lease obligations of such Person; (e) all contingent obligations or other obligations of others guaranteed by such Person; (f) all obligations secured by a lien existing on property owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are nonrecourse to the credit of such Person; and (g) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, surety or other bonds and similar instruments. "Effective Date" has the meaning set forth in the introductory paragraph of this Agreement. "Event of Default" has the meaning set forth in Section 7. "Fee" means a draw fee equal to .5% of the amount of each Advance. "Indemnified Parties" has the meaning set forth in Section 9. "Joint Venture Agreements" means those Joint Venture Agreements and Operating Agreements between Debtor and the respective Partners of each Company. 2 3 "Loan" means the revolving line of credit in the Maximum Loan Amount and as described in Section 2. "Loan Documents" means, collectively, this Agreement, the Note, the Security Agreement, the UCC Financing Statements, the Negative Pledges and all other documents, instruments and agreements executed in connection therewith or contemplated thereby. "Management Agreements" means the management agreements between Debtor and a Company with respect to each of the Premises. "Material Adverse Effect" means a material adverse effect on (i) the financial condition of Debtor or the Companies, as applicable or (ii) the ability of Debtor or the Companies, as applicable, to perform its obligations under the Loan Documents. "Maturity Date" shall have the meaning set forth in the Note. "Maximum Loan Amount" means $25,000,000.00. "Negative Pledges" means the amended and restated negative pledge agreements dated as of the Effective Date executed by the Companies in favor of FFCA in the form of Exhibit F attached hereto. A Negative Pledge will be executed for each of the Premises. "Note" means the second amended and restated promissory note dated as of the Effective Date executed by Debtor in favor of FFCA in the form of Exhibit A attached to this Agreement, as such Note may be amended and/or amended and restated and/or substituted from time to time as contemplated by Section 2. The term "Note" shall also include all additional promissory notes executed and delivered by Debtor to FFCA from time to time as contemplated by Section 2. "Partners" means, as applicable, the general partners (other than Debtor) for each of the Companies that are general partnerships and the members (other than Debtor) of the Companies that are limited liability companies. "Person" shall mean any individual, corporation, partnership, limited liability company, trust, unincorporated organization, governmental authority or any other form of entity. "Premises" means the parcels of real estate owned or leased by the Debtor described in Exhibit D attached hereto, all rights, privileges and appurtenances associated therewith, and all buildings, fixtures and other improvements now or hereafter located thereon (whether or not affixed to such real estate). "Security Agreement" means the amended and restated security agreement dated as of the Effective Date executed by Debtor in favor of FFCA in the form of Exhibit E attached to this Agreement, as such Security Agreement may be amended from time to time. "Subsidiary" means any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similar functions) of such corporation (irrespective of whether or not at the time stock of any other class 3 4 or classes of such corporation or entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by Debtor or one or more of the Subsidiaries or by Debtor and one or more of the Subsidiaries. "UCC Financing Statements" means those UCC financing statements required by FFCA to be executed and delivered by Debtor that are necessary to perfect FFCA's security interest in the Collateral. 2. REVOLVING LINE OF CREDIT. A. On the terms and subject to the satisfaction by Debtor of the conditions set forth in this Agreement, FFCA agrees to make the Loan to Debtor, which Loan will be in the form of Advances made from time to time as provided in this Agreement. The outstanding aggregate principal amount of the Loan shall not exceed the Maximum Loan Amount at any time. So long as no event has occurred which is, or with the passage of time or the giving of notice or both under the Loan Documents would constitute, an Event of Default or an Acceleration Event, Debtor may borrow, prepay and reborrow, from the Effective Date until the Maturity Date, an amount up to the Maximum Loan Amount. Debtor shall not request an Advance in an amount less than $500,000.00 and no more than once in a calendar month. B. Simultaneously with the execution and delivery of this Agreement, Debtor shall execute and deliver to FFCA the Note. The obligation of Debtor to pay the outstanding aggregate principal amount of all Advances plus accrued interest thereon shall be evidenced by the Note. Debtor irrevocably authorizes FFCA to make or cause to be made, at or about the time of any Advance or at the time of FFCA's receipt of any payment of the principal amount of the Note, an appropriate notation in FFCA's records reflecting the amount of such Advance or payment, as applicable. The outstanding aggregate principal amount of the Note plus accrued interest thereon set forth in FFCA's records maintained with respect to the Note (which may include computer records) shall, absent manifest error, be prima facie evidence of the outstanding aggregate principal amount plus accrued interest thereon due and owing to FFCA, but the failure to record, or any error in so recording, any such amount on FFCA's records shall not limit or otherwise affect the obligations of Debtor under the Note to make payments when due. Notwithstanding the foregoing, Debtor agrees to execute such amendments to the Note, amendments and restatements of the Note and/or substitute and/or additional promissory notes in the form of the Note as FFCA may reasonably request to evidence Debtor's obligations to FFCA under the Loan Documents. C. Debtor shall notify FFCA at least five Business Days before the Business Day on which Debtor desires to receive an Advance; provided, however, Debtor acknowledges that each Advance shall be made on the first Business Day of the month immediately following the month in which Debtor notifies FFCA of its desire to receive such Advance. Each such notice shall be in the form of Exhibit B attached hereto (each, a "Notice"), and shall set forth the requested amount of each Advance and such other information required by the Notice. Each Notice shall constitute a certification by Debtor that the representations and warranties of Debtor set forth in the Loan Documents, are true, correct and complete in all material respects as of the date of such Notice and as of the date of such requested Advance and that Debtor has satisfied each of the conditions precedent set forth in this Agreement. FFCA's obligation to fund each Advance shall 4 5 be subject to the satisfaction of the following conditions precedent as of the date of the requested Advance: (i) no event shall have occurred which is, or with the passage of time or the giving of notice or both under the Loan Documents would constitute, an Event of Default or an Acceleration Event; (ii) Debtor shall be in compliance with each of the covenants set forth in Section 5; (iii) the outstanding principal balance of the Loan, together with the amount of the requested Advance, must not exceed the Maximum Loan Amount; and (iv) there shall have been no material adverse change in Debtor's business, operations, assets or financial condition since the Effective Date, as determined by FFCA in its reasonable discretion. Upon Debtor's satisfaction of the foregoing conditions, FFCA will disburse the requested Advance in immediately available funds to such account as Debtor shall have specified in the Notice or as otherwise directed by Debtor in the Notice. D. The Loan shall bear interest at a variable rate of interest as set forth in the Note and shall be payable in arrears on the first day of each month based on the then outstanding principal balance of the Note. Debtor shall have the right to prepay (without premium or penalty) the Note in whole or in part at any time provided that any such prepayment shall only be made on a regularly scheduled payment date upon not less than 10 days prior written notice from Debtor to FFCA. Debtor shall pay on the Maturity Date, and there shall become absolutely due and payable on the Maturity Date, the outstanding principal amount of the Loan and all accrued but unpaid interest thereon. E. As security for the Loan, Debtor agrees to pledge its interest in the Collateral pursuant to the Security Agreement. In addition, Debtor will execute and deliver the Negative Pledges. A Negative Pledge will be recorded in the real estate records of each county where each of the Premises is located. E. All costs and expenses of the transaction described in this Agreement shall be paid by Debtor, including, without limitation, the attorneys' fees of Debtor and the reasonable attorneys' fees and expenses of FFCA. F. FFCA's obligation to provide the Loan is further subject to the delivery to FFCA of Counsel's opinion in form and substance reasonably satisfactory to FFCA. G. The Fee shall be paid at the time of each Advance from each Advance and shall be deemed nonrefundable and fully earned with each Advance. 3. REPRESENTATIONS AND WARRANTIES OF FFCA. The representations and warranties of FFCA contained in this Section are being made by FFCA as of the Effective Date to induce Debtor to enter into this Agreement and consummate the transactions contemplated herein, and 5 6 Debtor has relied, and will continue to rely, upon such representations and warranties from and after the execution of this Agreement. FFCA represents and warrants to Debtor as follows: A. Organization of FFCA. FFCA has been duly formed, is validly existing and has taken all necessary action to authorize the execution, delivery and performance by FFCA of this Agreement. B. Authority of FFCA. The person who has executed this Agreement on behalf of FFCA is duly authorized so to do. C. Enforceability. Upon execution by FFCA, this Agreement shall constitute the legal, valid and binding obligation of FFCA, enforceable against FFCA in accordance with its terms. All representations and warranties of FFCA made in this Agreement shall survive the execution of this Agreement. 4. REPRESENTATIONS AND WARRANTIES OF DEBTOR. The representations and warranties of Debtor contained in this Section are being made by Debtor as of the Effective Date and the date of each Advance to induce FFCA to enter into this Agreement and consummate the transactions contemplated herein, and FFCA has relied, and will continue to rely, upon such representations and warranties from and after the Effective Date and the date of each Advance. Debtor represents and warrants to FFCA as follows: A. Information and Financial Statements. Debtor has delivered to FFCA financial statements (either audited financial statements or, if Debtor does not have audited financial statements, certified financial statements) and certain other information concerning itself, which financial statements and other information are true, correct and complete in all material respects; and no material adverse change has occurred with respect to any such financial statements and other information provided to FFCA since the date such financial statements and other information were prepared or delivered to FFCA. Debtor understands that FFCA is relying upon such financial statements and information and Debtor represents that such reliance is reasonable. All such financial statements were prepared in accordance with generally accepted accounting principles consistently applied (except as otherwise noted in such financial statements) and accurately reflect as of the Effective Date the financial condition of each individual or entity to which they pertain. B. Organization and Authority of Debtor. Debtor is duly organized or formed, validly existing and in good standing under the laws of the State of Delaware and qualified as a foreign corporation to do business in any jurisdiction where such qualification is required. All necessary corporate action has been taken to authorize the execution, delivery and performance of the Loan Documents. The person(s) who have executed the Loan Documents on behalf of Debtor are duly authorized so to do. C. Organization and Authority of Companies. The Companies are duly organized or formed, validly existing and in good standing under the laws of the states where they were organized and qualified as foreign partnerships or foreign limited liability companies to do business in any jurisdiction where such qualification is required. 6 7 D. Enforceability of Documents. Upon execution by Debtor, the Loan Documents shall constitute the legal, valid and binding obligations of Debtor, enforceable against Debtor in accordance with their respective terms. E. Litigation. There are no suits, actions, proceedings or investigations pending or, to the actual knowledge of Debtor, threatened against or involving Debtor, the Companies, the Collateral, the Premises or any of Debtor's or any of the Companies' assets before any court, arbitrator, or administrative or governmental body which might reasonably result in a Material Adverse Effect. F. Absence of Breaches or Defaults. Neither Debtor nor any of the Companies are in default beyond any applicable grace period under any other document, instrument or agreement to which Debtor or any of the Companies is a party (including, without limitation, the Partnership Agreements and the Management Agreements) or by which the Debtor, the Companies, the Collateral, the Premises or any of the property of Debtor or any of the Companies is subject or bound which would have a Material Adverse Effect or would materially interfere with or prevent Debtor's or the Companies performance under the Loan Documents. The authorization, execution, delivery and performance of the Loan Documents will not result in a Material Adverse Effect or result in any breach or default under any other document, instrument or agreement to which Debtor or any of the Companies is a party (including, without limitation, the Partnership Agreements and the Management Agreements) or by which Debtor, the Companies, the Collateral, the Premises or any of the property of Debtor is subject or bound which would materially interfere with or prevent Debtor's or the Companies' performance under the Loan Documents. The authorization, execution, delivery and performance of the Loan Documents will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order. G. Licenses, Permits, Consents and Approvals. Debtor or the Companies has all required licenses, permits, consents and approvals, both governmental and private, to use and operate the Collateral, the Premises and the rest of their assets and conduct their business in the intended manner. H. Insolvency; Net Worth. Debtor is not insolvent within the meaning of the Code. Debtor has a net worth of at least $10,000,000.00, as determined in accordance with generally accepted accounting principles consistently applied, except that for purposes of calculating Debtor's net worth hereunder, convertible preferred stock issued by Debtor shall be treated as equity. I. Taxes. Debtor and the Companies have paid, in the ordinary course of business, all taxes, assessments, levies and other governmental charges which have been levied or imposed upon Debtor, the Companies, the Collateral, the Premises and/or Debtor's and properties and would be due and payable. J. Title to Collateral; First Priority Security Interest. Debtor owns, and with respect to Collateral acquired after the date hereof, Debtor will own, legally and beneficially, the Collateral, free and clear of any lien, security interest, pledge, hypothecation, claim or other encumbrance, or any right or option on the part of any third 7 8 person to purchase or otherwise acquire or obtain any lien or security interest in the Collateral or any part thereof, except for the lien and security interest granted in the Security Agreement in favor of FFCA. Upon the execution of the Loan Documents by the applicable parties, Secured Party shall have a valid first priority lien upon and security interest in the Collateral. K. Title to Premises. Debtor holds either (i) fee title to the Premises, (ii) a leasehold interest in the land relating to the Premises and fee title to the buildings and improvements located thereon or (iii) a leasehold interest in the Premises, free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, except as otherwise disclosed in writing to FFCA. L. Collateral Genuine. The Collateral is genuine, free from any restriction on transfer, duly and validly authorized and issued, constitutes the valid and legally binding obligation of the Companies, enforceable in accordance with its terms, is fully paid and non-assessable, and is hereby duly and validly pledged and hypothecated to FFCA in accordance with law. The interests listed on Schedule II represent one hundred (100%) percent of the issued and outstanding interests of the Companies. There are no other interests issued and outstanding and there are no other interests in the Companies. M. No Actions. No action has been brought or is threatened which would in any way prohibit or restrict the execution and delivery of any of the Loan Documents by Debtor or the performance in all respects of Debtor thereunder. All representations and warranties of Debtor made in this Agreement shall survive the execution of this Agreement and each Advance. 5. COVENANTS. Debtor covenants to FFCA from and after the Effective Date as follows: A. Books, Records and Inspections. Debtor shall, at all reasonable times upon prior written notice from FFCA and during normal business hours, (i) provide FFCA and FFCA's officers, employees, agents, advisors, attorneys and accountants with access to Debtor's personal and real properties and books and records, and (ii) allow such persons to make such inquires of Debtor's officers and employees and to make copies and perform such verifications as FFCA considers reasonably necessary; provided, however, all such inspections, copies and verifications shall be at FFCA's sole cost and expense and FFCA shall reasonably attempt to minimize, during any such activity, interference with the operation of Debtor's business and FFCA shall keep any information obtained confidential; provided, however, FFCA shall not be required to keep confidential (1) any information which had previously been made public, (2) information that FFCA is required to disclose by court order, supoena or under federal or state law, or (3) information received by FFCA from a third party. B. Net Worth. At all times while the obligations of Debtor to FFCA pursuant to the Loan Documents are outstanding, Debtor shall maintain a net worth of at least $10,000,000.00, as determined in accordance with generally accepted accounting principles 8 9 consistently applied, except that for purposes of calculating Debtor's net worth hereunder convertible preferred stock issued by Debtor shall be treated as equity. C. Reporting Obligations. Debtor will provide FFCA with each of the following: (i) Financial Statements. Within 45 days after the end of each fiscal quarter and within 120 days after the end of each fiscal year of Debtor, Debtor shall deliver to FFCA complete financial statements of Debtor including a balance sheet, profit and loss statement, cash flow statement and all other related schedules for the fiscal period then ended. All such financial statements shall be prepared in accordance with generally accepted accounting principles, consistently applied from period to period, and shall be certified to be accurate and complete by Debtor (or the Treasurer or other appropriate officer of Debtor). Debtor understands that FFCA is relying upon such financial statements and Debtor represents that such reliance is reasonable. The financial statements delivered to FFCA need not be audited, but Debtor shall deliver to FFCA copies of any audited financial statements of Debtor which may be prepared, as soon as they are available. (ii) Event of Default or Acceleration Event. Promptly, but in any event within five days, after Debtor becomes aware of an Event of Default or an Acceleration Event, written notification to an officer of FFCA specifying the nature and period of existence thereof and what action Debtor is taking or proposes to take with respect thereto. (iii) Litigation. Within ten days after Debtor becomes aware of any action, suit or proceeding pending or threatened in writing against or involving Debtor and/or Debtor's properties, except for those actions, suits or proceedings (1) for which damages of less than $250,000 have been sought, threatened or are likely to be incurred and (2) which Debtor in good faith determines will be covered by its insurance (including worker's compensation claims), Debtor shall notify FFCA of such action, suit or proceeding and in such notice specify the nature thereof, whether the alleged liability therein is covered by insurance then in effect and, if so covered, the monetary coverage thereof, and what action Debtor is taking or proposes to take with respect thereto. (iv) Certificates. At the time of each Advance, a certificate of an officer of Debtor, substantially in the form attached hereto as Exhibit B. (v) Auditors' Reports. Promptly upon receipt thereof, a copy of each report submitted to Debtor by its independent accountants in connection with any annual, interim or special audit made by it of the books of Debtor. (vi) Other Information. Debtor shall deliver to FFCA promptly after the receipt of written request therefor information concerning Debtor requested by FFCA that is required to satisfy all requirements applicable to FFCA pursuant to 9 10 the Securities Exchange Act of 1934 and all other regulatory laws applicable to FFCA or to which FFCA is subject or bound. D. Payment of Taxes, Etc. Unless Debtor shall contest the amount or validity thereof in the manner described below, Debtor shall pay all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a lien upon any of its properties. Debtor may, at its own expense, contest or cause to be contested such taxes, assessments, governmental charges or levies or other claims (i) in good faith, (ii) by proper proceedings, and (iii) against which adequate reserves in accordance with generally accepted accounting principles are being maintained. E. Organization of Debtor. Debtor will continue to be a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction and qualified to do business in any jurisdiction where such qualification is required. F. Licenses, Permits, Consents and Approvals. Debtor shall maintain in full force and effect all required licenses, permits, consents and approvals, both governmental and private, to use and operate its assets and conduct its business in the intended manner. G. Use of Proceeds. Debtor shall use the proceeds of the Loan for (i) the purchase of interests of minority owners of Debtor, (ii) working capital and (iii) construction or renovation of P.F. Chang's China Bistro restaurants. H. Debt. Debtor shall not, and shall not permit any Subsidiary to, incur, create, assume or permit to exist any Debt, except (a) Debt to FFCA or Affiliates of FFCA; (b) Debt incurred pursuant to trade accounts arising in the ordinary course of business that are not past due by more than 30 days; (c) letters of credit for deposits not to exceed $15,000.00 each and (d) existing Debt described on the attached Exhibit C and any extensions, substitutions or renewals thereof. I. Fundamental Changes. Debtor shall not consolidate with or merge into any Person or permit any Person to merge into it; provided that the Companies may enter into a consolidation or merger with any person if (i) the survivor formed by or resulting from such consolidation or merger is the Companies and (ii) at the time of such consolidation or merger and immediately after giving effect thereto no Event of Default or Acceleration Event shall have occurred and be continuing. J. Disposition of Assets. Without the prior written consent of FFCA, Debtor shall not, directly or indirectly, sell, assign, lease, transfer or otherwise dispose of all or substantially all of its assets (other than in the ordinary course of business for full and fair consideration). K. No New Subsidiaries. Without the prior written consent of FFCA, Debtor shall not, and shall not permit any of its Subsidiaries to, acquire, incorporate or otherwise organize any Subsidiary, which was not in existence as of the Effective Date. 10 11 L. Transactions With Affiliates. Without the prior written consent of FFCA, Debtor will not enter into, and will not permit any Subsidiary to enter into, any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate of Debtor or such Subsidiary, except transactions for fair value in accordance with reasonable commercial standards. M. Maintenance of Assets. Debtor shall maintain, keep and preserve, and will cause each Subsidiary to maintain, keep and preserve, all of its tangible and intangible property and other assets that are necessary and useful in proper conduct of its business. N. Amendment of Joint Venture Agreements. Without the prior written approval of FFCA in its sole and absolute discretion, Debtor shall not amend or terminate any of the Joint Venture Agreements or the Management Agreements nor shall it permit any of the Joint Venture Agreements or the Management Agreements to be amended or terminated. O. Title; First Priority Lien. Debtor shall maintain good and marketable fee simple title to the Collateral, free and clear of all liens, encumbrances, charges and other exceptions to title. Debtor shall maintain good and marketable title to or valid and binding leasehold interests in, as applicable, the Premises, free and clear of all liens, encumbrances, charges and other exceptions to title. 6. TRANSACTION CHARACTERIZATION. This Agreement is a contract to extend a financial accommodation (as such term is used in the Code) for the benefit of Debtor. It is the intent of the parties hereto that the business relationship created by this Agreement, the Note and the other Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents is intended, nor shall the same be deemed or construed, to create a partnership between Debtor and FFCA, to make them joint venturers, to make Debtor an agent, legal representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any way responsible for the debts, obligations or losses of Debtor. 7. DEFAULT AND REMEDIES. A. Each of the following shall be deemed an event of default by Debtor, after notice, to the extent required hereunder, and after the expiration of any applicable grace or cure period without the cure thereof (each, an "Event of Default"): (1) If any representation or warranty of Debtor set forth in any of the Loan Documents is false in any material respect when made or becomes false in any material respect, or if Debtor renders any materially false statement or account; (2) If any principal, interest or other monetary sum due under the Note or any other Loan Document is not paid within five days from the date when due and FFCA shall have given notice of such failure to Debtor and such failure shall not have been cured by Debtor within five days from the delivery of such notice; (3) If Debtor fails to observe or perform any of the other covenants (except as otherwise provided below), conditions, or obligations of this Agreement other than the covenants in Sections 5.B, 5.H, 5.I, 5.J, 5.N and 5.O of this Agreement or there is a breach 11 12 or default under any other Loan Document beyond any applicable notice or cure period; provided, however, if any such event does not involve the payment of any monetary sum, is not the result of a willful or intentional act or omission of Debtor, does not place any rights or property of FFCA in immediate jeopardy, and is within the reasonable power of Debtor to promptly cure after receipt of notice thereof, all as determined by FFCA in its reasonable discretion, then such event shall not constitute an Event of Default hereunder, unless otherwise expressly provided herein, unless and until FFCA shall have given Debtor notice thereof and a period of 30 days shall have elapsed, during which period Debtor may correct or cure such event, upon failure of which an Event of Default shall be deemed to have occurred hereunder (except as otherwise provided in the following sentence) without further notice or demand of any kind being required. If such nonmonetary event cannot reasonably be cured within such 30-day period, as determined by FFCA in its reasonable discretion, and Debtor is diligently pursuing a cure of such event, then an Event of Default shall not be deemed to have occurred hereunder upon the expiration of such 30-day period and Debtor shall have a reasonable period to cure such event beyond such 30-day period, which shall not exceed 90 days after receiving notice of the event from FFCA. If Debtor shall fail to correct or cure such event within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind being required; (4) If Debtor fails to observe or perform any of the covenants in Sections 5.B, 5.H, 5.I, 5.J, 5.N or 5.O of this Agreement; or (5) If Debtor becomes insolvent within the meaning of the Code, files or notifies FFCA that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, an "Action"), becomes the subject of either an involuntary Action or petition under the Code without such involuntary Action or petition being dismissed within 30 days of filing or, if Debtor is diligently proceeding to dismiss such petition, such longer period of time as if required, but in no event shall such longer period of time be greater than 90 days, or is not generally paying its debts as the same become due. B. Upon and during the continuance of an Event of Default, subject to the limitations, notices and cure periods set forth in subsection A, or an Acceleration Event, FFCA shall have no obligation to fund any Advance to Debtor and FFCA may declare all obligations of Debtor under the Note, this Agreement and any other Loan Document to be due and payable, and the same shall thereupon become due and payable without any presentment, demand, protest or notice of any kind except as expressly provided herein. Thereafter, FFCA may exercise, at its option, concurrently, successively or in any combination, all remedies available at law or in equity, including without limitation any one or more of the remedies available under the Note or any other Loan Document. Neither the acceptance of this Agreement nor its enforcement shall prejudice or in any manner affect FFCA's right to realize upon or enforce any other security now or hereafter held by FFCA, it being agreed that FFCA shall be entitled to enforce this Agreement and any other security now or hereafter held by FFCA in such order and manner as it may in its absolute discretion determine. No remedy herein conferred upon or reserved to FFCA is intended to be exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Loan Documents to FFCA, 12 13 or to which FFCA may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by FFCA. 8. ASSIGNMENTS BY FFCA. FFCA may assign in whole or in part its rights under this Agreement. Upon any unconditional assignment of FFCA's entire right and interest hereunder, FFCA shall automatically be relieved, from and after the date of such assignment, of liability for the performance of any obligation of FFCA contained herein arising after the date of the assignment provided that any assignee shall be bound by all of FFCA's obligations hereunder accruing from and after the date of such assignment. 9. INDEMNITY. Debtor agrees to indemnify, hold harmless and defend FFCA and each of its directors, officers, shareholders, employees, successors, assigns, agents, experts, licensees, affiliates, lenders, mortgagees and trustees, as applicable (collectively, the "Indemnified Parties"), from and against any and all losses, costs, claims, liabilities, damages and expenses, including, without limitation, reasonable attorneys' fees (collectively, "Losses"), arising as the result of a breach of any of the representations, warranties, covenants, agreements or obligations of Debtor set forth in this Agreement, but excluding Losses suffered by an Indemnified Party directly arising out of such Indemnified Party's gross negligence or willful misconduct. 10. MISCELLANEOUS PROVISIONS. A. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Agreement shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile (and if a copy of such notice is also mailed by certified or registered mail, return receipt requested, and deposited with the U.S. Postal Service no later than the first business day after the notice was transmitted by facsimile), (c) the next business day following the date of deposit with the delivery service, if delivered by express overnight delivery service, or (d) the third business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: If to Debtor: P. F. Chang's China Bistro, Inc. 5090 North 40th Street, Suite 160 Phoenix, AZ 85018 Attention: Mr. Robert T. Vivian Telephone: (602) 957-8986 Telecopy: (602) 957-8998 13 14 With a copy to: Kenneth Van Winkle, Jr., Esq. Lewis and Roca LLP 40 North Central Avenue Phoenix, AZ 85004-4429 Telephone: (602) 262-5311 Telecopy: (602) 262-5747 If to FFCA: Dennis L. Ruben, Esq. Executive Vice President and General Counsel Franchise Finance Corporation of America 17207 North Perimeter Drive Scottsdale, AZ 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226 B. Waiver and Amendment. No provisions of this Agreement shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion. C. Captions. Captions are used throughout this Agreement for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. D. FFCA's Liability. Notwithstanding anything to the contrary provided in this Agreement, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Agreement by FFCA, that (i) there shall be absolutely no personal liability on the part of any shareholder, director, officer or employee of FFCA, with respect to any of the terms, covenants and conditions of this Agreement or the other Loan Documents, (ii) Debtor waives all claims, demands and causes of action against FFCA's officers, directors, employees and agents in the event of any breach by FFCA of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by FFCA and (iii) Debtor shall look solely to the assets of FFCA for the satisfaction of each and every remedy of Debtor in the event of any breach by FFCA of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by FFCA, such exculpation of liability to be absolute and without any exception whatsoever. E. Severability. The provisions of this Agreement shall be deemed severable. If any part of this Agreement shall be held unenforceable, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed therein. F. Construction Generally. This is an agreement between parties who are experienced in sophisticated and complex matters similar to the transaction contemplated by 14 15 this Agreement and is entered into by both parties in reliance upon the economic and legal bargains contained herein and shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Debtor and FFCA were each represented by legal counsel competent in advising them of their obligations and liabilities hereunder. G. Other Documents. Each of the parties agrees to sign such other and further documents as may be reasonably necessary to carry out the intentions expressed in this Agreement. H. Attorneys' Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and other costs in addition to any other relief to which it may be entitled. References in this Agreement to the attorneys' fees and/or costs of a party shall mean both the reasonable fees and costs of independent outside counsel retained by such party with respect to this transaction and the reasonable fees and costs of the party's in-house counsel incurred in connection with this transaction. I. Entire Agreement. This Agreement and the other Loan Documents, together with any other certificates, instruments or agreements to be delivered in connection therewith, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements, written or oral, between Debtor and FFCA with respect to the subject matter of this Agreement. J. Forum Selection; Jurisdiction; Venue; Choice of Law. Debtor acknowledges that this Agreement was substantially negotiated in the State of Arizona, the Agreement was signed and delivered by FFCA and Debtor in the State of Arizona, all payments under the Note will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Agreement or any of the other Loan Documents, the parties hereto hereby expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona and Debtor consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Debtor waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of the parties hereto that all provisions of this Agreement shall be governed by and construed under the laws of the State of Arizona. Nothing in this Section shall limit or restrict the right of FFCA to commence any proceeding in the federal or state courts located in a state other than Arizona to the extent FFCA deems such proceeding necessary or advisable to exercise remedies available under this Agreement or the other Loan Documents. K. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original. 15 16 L. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Debtor and FFCA and their respective successors and permitted assigns, including, without limitation, any United States trustee, any debtor in possession or any trustee appointed from a private panel. M. Survival. All representations, warranties, agreements, obligations and indemnities of Debtor and FFCA set forth in this Agreement shall survive the execution of this Agreement and each Advance. N. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. 16 17 IN WITNESS WHEREOF, Debtor and FFCA have entered into this Agreement as of the date first above written. FFCA: FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation By /s/STEPHEN Y. SCHWANZ Printed Name STEPHEN Y. SCHWANZ Its VICE PRESIDENT DEBTOR: P. F. CHANG'S CHINA BISTRO, INC., a Delaware corporation By /s/ROBERT VIVIAN Printed Name ROBERT VIVIAN Its CFO/SECRETARY 17 18 STATE OF ARIZONA ] ] SS. COUNTY OF MARICOPA ] The foregoing instrument was acknowledged before me on November 10, 1998 by Stephen Y. Schwanz, Vice President of Franchise Finance Corporation of America, a Delaware corporation, on behalf of the corporation. /s/ Kelly A. Hallford Notary Public [STAMP] My Commission Expires: 7/9/2002 STATE OF ARIZONA ] ] SS. COUNTY OF MARICOPA ] The foregoing instrument was acknowledged before me on November 10, 1998 by Robert Vivian, CFO of P. F. Chang's China Bistro, Inc., a Delaware corporation, on behalf of the corporation. /s/ Elizabeth L. Lehman Notary Public [STAMP] My Commission Expires: June 23, 2001 18 19 EXHIBIT A FORM OF NOTE 20 SECOND AMENDED AND RESTATED PROMISSORY NOTE Dated as of November 10, 1998 $25,000,000.00 Scottsdale, Arizona THIS SECOND AMENDED AND RESTATED PROMISSORY NOTE (this "Note") executed by P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation ("Debtor"), amends and restates that certain Promissory Note dated as of October 24, 1997 in the principal amount of $10,000,000.00 and that certain Amended and Restated Promissory Note dated as of June 29, 1998 in the principal amount of $20,000,000.00, both payable to FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation ("FFCA"). Debtor, for value received, hereby promises to pay to FFCA, whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, or order, on or before the Maturity Date (as defined below), the principal sum of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), or such much thereof as may be outstanding from time to time, in accordance with that certain Second Amended and Restated Revolving Line of Credit Loan Agreement dated as of the date of this Note between Debtor and FFCA, as such agreement may be amended from time to time (the "Loan Agreement"). Initially capitalized terms which are not otherwise defined in this Note shall have the meanings set forth in the Loan Agreement. The following terms shall have the following meanings for all purposes of this Note: "Applicable Margin" means an annual percentage equal to 6.00%. "Adjustable Rate" means an annual interest rate equal to the sum of the Adjustable Rate Basis plus the Applicable Margin. "Adjustable Rate Basis" means, for any Interest Period, the annual interest rate (rounded upwards, if necessary, to the nearest 1/100th of one percent) 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) on the Adjustable Rate Reset Date for a term comparable to such Interest Period. If for any reasons such rate is not available, the term "Adjustable Rate Basis" shall mean, for any Interest Period, the annual interest rate (rounded upwards, if necessary, to the nearest 1/100th of one percent) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in dollars at approximately 11:00 a.m. (London time) on the Adjustable Rate Reset Date for a term comparable to such Interest Period provided, however, if more than one rate is specified on the Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. Notwithstanding the provisions of the foregoing two sentences, if, the annual interest rate charge to FFCA under its then existing LIBOR based credit facility (the "FFCA Credit Facility") is determined by a methodology other than as described in such sentences, the 21 Adjustable Rate Basis shall be determined in accordance with the methodology for determining the annual interest rate under the FFCA Credit Facility. "Adjustable Rate Reset Date" means the fifteenth day of each calendar month, or the next succeeding Business Day if such day is not a Business Day, prior to the next Interest Period. "Business Day" means any day on which FFCA is open for business in the State of Arizona, other than a Saturday, Sunday or a legal holiday. "Interest Period" means (i) initially, the period beginning on the date of this Note and ending on the last day of the calendar month in which such date occurs, and (ii) thereafter, the period beginning on the first day of the calendar month and ending on the last day of such calendar month. "Maturity Date" means December 31, 1998. Debtor shall pay FFCA interest on the outstanding principal amount of this Note at the Adjustable Rate, on the basis of a 360-day year for the actual number of days elapsed, in arrears. Commencing on December 1, 1998, and on the first day of each calendar month thereafter until the Maturity Date, Debtor shall pay FFCA interest which has accrued at the Adjustable Rate on the outstanding principal balance of this Note during the preceding Interest Period. FFCA shall notify Debtor in writing on or before the twenty-fifth day of each calendar month during the term of this Note of FFCA's determination of the interest payable on the first day of the next succeeding calendar month. All outstanding principal and unpaid accrued interest shall be paid on the Maturity Date. Each payment hereunder shall be applied first to any past due payments under this Note (including payment of all Costs (as herein defined)), then to accrued interest at the Adjustable Rate, and the balance, after the payment of such accrued interest, if any, shall be applied to the unpaid principal balance of this Note; provided, however, each payment hereunder while an Event of Default under this Note has occurred and is continuing shall be applied as FFCA in its sole discretion may determine. Upon execution of this Note, Debtor shall establish arrangements whereby all payments hereunder are transferred by wire or other means directly from Debtor's bank account to such account as FFCA may designate or as FFCA may otherwise designate. Debtor may prepay this Note as provided in the Loan Agreement. An "Event of Default" shall be deemed to have occurred under this Note if any principal, interest or other monetary sum due under this Note is not paid within five days from the date when due and FFCA shall have given notice of such failure to Debtor and such failure shall not have been cured by Debtor within five days from the delivery of such notice. Upon the occurrence of (i) an Event of Default under this Note or (ii) an Event of Default or an Acceleration Event under any of the other Loan Documents, then, in any of such events, time being of the essence hereof, FFCA may declare the entire unpaid principal balance of this Note, accrued interest, if any, and all other sums due under this Note, the other Loan Documents and 2 22 any other document further securing this Note, due and payable at once without written notice to Debtor. All past-due principal and/or interest shall bear interest at the lesser of the highest rate for which the undersigned may legally contract or the rate of 18% per annum (the "Default Rate"), and such Default Rate shall continue to apply following a judgment in favor of FFCA under this Note. If Debtor fails to make any payment or installment due under this Note within five days of its due date, Debtor shall pay to FFCA in addition to any other sum due FFCA under this Note or any other Loan Document a late charge equal to 10% of such past-due payment or installment. All payments of principal and interest due hereunder shall be made (i) without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Debtor, and (ii) without any other right of abatement, reduction, setoff, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever. Debtor will pay the amounts necessary such that the gross amount of the principal and interest received by FFCA is not less than that required by this Note. No delay or omission on the part of FFCA in exercising any remedy, right or option under this Note shall operate as a waiver of such remedy, right or option. In any event, a waiver on any one occasion shall not be construed as a waiver or bar to any such remedy, right or option on a future occasion. Debtor hereby waives presentment, demand for payment, notice of dishonor, notice of protest, and protest, and except as otherwise provided in the Loan Documents, all other notices or demands in connection with delivery, acceptance, performance, default or endorsement of this Note. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Note shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile (and if a copy of such notice is also mailed by certified or registered mail, return receipt requested, and deposited with the U.S. Postal Service no later than the first business day after the notice was transmitted by facsimile), (c) the next business day, following the date of deposit with the delivery service, if delivered by express overnight delivery service, or (d) the third business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: If to Debtor: P.F. Chang's China Bistro, Inc. 5090 North 40th Street, Suite 160 2201 East Camelback Road Phoenix, AZ 85018 Attention: Mr. Robert T. Vivian Telephone: (602) 957-8986 Telecopy: (602) 957-8998 3 23 With a copy to: Kenneth Van Winkle, Jr., Esq. Lewis and Roca LLP 40 North Central Avenue Phoenix, AZ 85004-4429 Telephone: (602) 262-5311 Telecopy: (602) 262-5747 If to FFCA: Dennis L. Ruben, Esq. Executive Vice President and General Counsel Franchise Finance Corporation of America 17207 North Perimeter Drive Scottsdale, AZ 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226 or to such other address or such other person as either party may from time to time hereafter specify to the other party in a notice delivered in the manner provided above. Should any indebtedness represented by this Note be collected at law or in equity, or in bankruptcy or other proceedings, or should this Note be placed in the hands of attorneys for collection after default, Debtor shall pay, in addition to the principal and interest due and payable hereon, all costs of collecting or attempting to collect this Note (the "Costs"), including reasonable attorneys' fees and expenses of FFCA (including those fees and expenses incurred in connection with any appeal and those of FFCA's in-house counsel) whether or not a judicial action is commenced by FFCA. This Note may not be amended or modified except by a written agreement duly executed be Debtor and FFCA. In case any one or more of the provisions contained in this Note shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Note, and this Note shall be construed as if such provision had never been contained herein or therein. Notwithstanding anything to the contrary in any of the Loan Documents, the obligations of Debtor to FFCA under this Note and any other Loan Documents are subject to the limitation that payments of interest and late charges to FFCA shall not be required to the extent that receipt of any such payment by FFCA would be contrary to provisions of applicable law limiting the maximum rate of interest that may be charged or collected by FFCA. The portion of any such payment received by FFCA that is in excess of the maximum interest permitted by such provisions of law shall be credited to the principal balance of this Note or if such excess portion exceeds the outstanding principal balance of this Note, then such excess portion shall be refunded to Debtor. All interest paid or agreed to be paid to FFCA shall, to the extent permitted by applicable law, be amortized, prorated, allocated and/or spread throughout the full term of this Note (including, without limitation, the period of any renewal or extension thereof) so that interest for such full term shall not exceed the maximum amount permitted by applicable law. 24 It is the intent of the parties hereto that the business relationship created by this Note and the other Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents, is intended, nor shall the same be deemed or construed, to create a partnership between FFCA and Debtor, to make them joint venturers, to make Debtor an agent, legal representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any way responsible for the debts, obligations or losses of Debtor. FFCA, by accepting this Note, and Debtor acknowledge and warrant to each other that each has been represented by independent counsel and Debtor has executed this Note after being fully advised by said counsel as to its effect and significance. This Note shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Debtor acknowledges that this Note was substantially negotiated in the State of Arizona, the Note was executed and delivered in the State of Arizona, all payments under this Note will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Note, the parties hereto expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona. Debtor consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Debtor waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of Debtor and FFCA that all provisions of this Note shall be governed by and construed under the laws of the State of Arizona. Nothing contained in this paragraph shall limit or restrict the right of FFCA to commence any proceeding in the federal or state courts located in any state in which FFCA deems such proceeding necessary or advisable to exercise remedies available under the Loan Documents. FFCA, BY ACCEPTING THIS NOTE, AND DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE, THE RELATIONSHIP OF FFCA AND DEBTOR AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS 5 25 NOTE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. This obligation shall bind Debtor and its successors and assigns, and the benefits hereof shall inure to FFCA and its successors and assigns. FFCA may assign its rights under this Note as set forth in the Loan Agreement. 6 26 IN WITNESS WHEREOF, Debtor has executed and delivered this Note effective as of the date set forth above. P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation By________________________________ Printed Name______________________ Title_____________________________ 7 27 AMENDED AND RESTATED SECURITY AGREEMENT THIS AMENDED AND RESTATED SECURITY AGREEMENT (this "Agreement") is made and entered into as of November 10, 1998 by and between P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation ("Debtor"), whose principal place of business is located at 5090 North 40th Street, Suite 160, Phoenix, Arizona 85015, and FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation ("FFCA"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255. PRELIMINARY STATEMENT: Debtor and FFCA entered into that certain Security Agreement dated as of June 29, 1998 (the "Original Agreement") in connection with that certain Amended and Restated Revolving Line of Credit Loan Agreement dated as of June 29, 1998 (the "Amended Credit Agreement"). Subsequently, FFCA has agreed to increase the amount of the Loan and Debtor has agreed to pledge its interest in the Collateral pursuant to this Agreement in order to provide security for the Loan. This Agreement amends and restates the Original Agreement in order to reflect the terms and conditions associated with an increase of the Loan and a pledge of the Collateral. Capitalized terms not defined herein shall have the respective meanings set forth in the Amended Credit Agreement dated as of the date hereof between Debtor and FFCA. NOW, THEREFORE, for and in consideration of the mutual covenants and promises hereinafter set forth, FFCA and Debtor agree as follows: 1. Debtor's Obligation; Security Interest Created. FFCA has agreed to advance to Debtor the Loan, as evidenced by the execution and delivery of the Note to FFCA, and Debtor shall pay other sums advanced or expended by FFCA pursuant to the terms of the Loan Documents, and perform all other terms and conditions of Debtor set forth in the Loan Documents (collectively, the "Obligations"). To secure the payment of the Obligations, Debtor hereby grants to FFCA a security interest in its general partnership or membership interests in the Companies identified on Exhibit A attached hereto (the "Collateral"). 2. Default. Any action or event which would constitute an Event of Default (a "Default") and shall permit FFCA to exercise and pursue the remedies specified in Section 3 below. 3. Remedies for Default. In the event that Debtor is, or is deemed to be, in Default hereunder, FFCA shall have all rights and remedies of a secured party in, to and against the Collateral granted by the Uniform Commercial Code in the State of Arizona and otherwise available at law or in equity, including, without limitation: (i) the right to declare all payments due under the Loan Documents immediately due and payable and the right to recover all fees and expenses (including reasonable attorney fees) in connection with the collection or enforcement thereof, which fees and expenses shall constitute additional Obligations of Debtor hereunder; 28 (ii) the right to act as, and Debtor hereby constitutes and appoints FFCA, Debtor's true, lawful and irrevocable attorney-in-fact (which appointment shall be deemed coupled with an interest) to demand, receive and enforce payments and to give receipts, releases, satisfaction for and to sue for moneys payable to Debtor under or with respect to any of the Collateral under this Agreement, and actions taken pursuant to this appointment may be taken either in the name of Debtor or in the name of FFCA with the same force and effect as if this appointment had not been made; (iii) the right to take immediate and exclusive possession of the Collateral, or any part thereof; (iv) the right to hold, maintain, preserve and prepare the Collateral for sale, until disposed of; (v) the right to dispose of the Collateral; (vi) the right to require Debtor to assemble and package the Collateral and make it available to FFCA for its possession at a place to be designated by FFCA which is reasonably convenient to the FFCA; (vii) the right to sell, hold or otherwise dispose of all or any part of the Collateral; (viii) the right to sue for specific performance of any obligation under the Loan Documents or to recover damages for breach thereof; (ix) the right at any time to amend or terminate the Management Agreements and/or the Joint Venture Agreements; (x) the right to receive all cash distributions or payments payable in respect of the Collateral; and (xi) the right to exercise or cause to be exercised all voting rights and partnership or limited liability company, as applicable, powers in respect of the Collateral. The remedies of FFCA hereunder are cumulative and the exercise of any one or more of the remedies provided for herein or under the Uniform Commercial Code or other applicable law shall not be construed as a waiver or any of the other remedies of FFCA so long as any part of the Obligations secured hereby remains unsatisfied. FFCA shall be entitled to receive on demand, as additional Obligations hereunder, interest at the lower of 18% per annum or the highest rate permitted by applicable law on all amounts not paid when due under the Note or this Agreement, for the period such amounts are overdue. FFCA shall have no duty to mitigate any loss to the Debtor occasioned by enforcement of any remedy hereunder and shall have no duty of any kind to any subordinated creditor of Debtor. 4. APPLICATION OF PROCEEDS. Should FFCA exercise the rights and remedies specified in Section 3 hereof, any proceeds received thereby shall be first applied to pay the costs and expenses, including reasonable attorneys' fees, incurred by FFCA as a result of Debtor's Default. The remainder of any proceeds, net of FFCA's costs and expenses, shall be applied to the satisfaction of the Obligations and, so long as Debtor is not in Default hereunder, any excess shall be paid over to Debtor. If Debtor is in Default hereunder, any excess may be held by FFCA for a reasonable time and either applied to the Obligations or paid over to Debtor. 5. APPLICABLE LAW. Debtor acknowledges that this Agreement was substantially negotiated in the State of Arizona, the executed Agreement was delivered in the State of Arizona, all payments under the Loan Documents will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Agreement, the parties hereto expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona. Debtor consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Debtor waives and agrees not to assert in any such action, suit or proceeding 2 29 that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of the parties hereto that all provisions of this Agreement shall be governed by and construed in accordance with the laws of the State of Arizona. To the extent that a court of competent jurisdiction finds Arizona law inapplicable with respect to any provisions hereof, then, as to those provisions only, the laws of the state where the Collateral is located shall be deemed to apply. Nothing contained in this paragraph shall limit or restrict the right of FFCA to commence any proceeding in the federal or state courts located in the state in which the Collateral is located to the extent FFCA deems such proceeding necessary or advisable to exercise remedies available under the Loan Documents. 6. Nonassignability. This Agreement may not by assigned by Debtor without the consent of FFCA. However, FFCA may assign its rights under this Agreement to any third party without the prior consent of Debtor. 7. Possession. Until a Default occurs, Debtor may retain possession of the Collateral, shall be entitled to all distributions as a result of its interests in the Companies and may use it in any lawful manner not inconsistent with this Agreement, with the provisions of any policies of insurance thereon or the other Loan Documents. 8. Waiver. No Default hereunder by Debtor shall be deemed to have been waived by FFCA except by a writing to that effect signed by FFCA and no waiver of any Default shall operate as a waiver of any other Default on a future occasion. No modification, rescission, waiver, release or amendment of any provision of this Agreement shall be made except by a written agreement signed by Debtor and FFCA. 9. Severability. In case any one or more of the provisions contained herein or in the Note shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such provision had never been contained herein or therein. 10. Notices; Amendments; Waivers. All notices, demands, designations, certificates, requests, offers, consents, approvals, appointments and other instruments given pursuant to this Agreement (collectively called "Notices") shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next business day, if delivered by express overnight delivery service, or (d) the third business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: 3 30 If to Debtor: P.F. Chang's China Bistro, Inc. 5090 North 40th Street, Suite 160 2201 East Camelback Road Phoenix, AZ 85018 Attention: Mr. Robert T. Vivian Telephone: (602) 957-8986 Telecopy: (602) 957-8998 With a copy to: Kenneth Van Winkle, Jr., Esq. Lewis and Roca LLP 40 North Central Avenue Phoenix, AZ 85004-4429 Telephone: (602) 262-5357 Telecopy: (602) 262-5747 If to FFCA: Dennis L. Ruben, Esq. Senior Vice President and General Counsel Franchise Finance Corporation of America 17207 North Perimeter Drive Scottsdale, AZ 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226 or to such other address or such other person as either party may from time to time hereafter specify to the other party in a notice delivered in the manner provided above. Whenever in this Agreement the giving of Notice is required, the giving thereof may be waived in writing at any time by the person or persons entitled to receive such Notice. 11. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each thereof shall be deemed to be an original, and all such counterparts shall constitute but one and the same instrument. 12. HEADINGS. The headings appearing in this Agreement have been inserted for convenient reference only and shall not modify, define, limit or expand the express provisions of this Agreement. 13. CHARACTERIZATION; INTERPRETATION. It is the intent of the parties hereto that the business relationship created by the Note, this Agreement and the other Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents is intended, nor shall the same be deemed or construed, to create a partnership between FFCA and Debtor, to make them joint venturers, to make Debtor an agent, legal representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any way responsible for the debts, obligations or losses of Debtor. 4 31 FFCA and Debtor acknowledge and warrant to each other that each has been represented by independent counsel and has executed this Agreement after being fully advised by said counsel as to its effect and significance. This Agreement shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party, which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. 14. TIME OF THE ESSENCE. Time is of the essence in the performance of each and every obligation under this Agreement. 15. WAIVER OF JURY TRIAL AND PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES. FFCA AND DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, THE RELATIONSHIP OF FFCA AND DEBTOR, DEBTOR'S USE OR OCCUPANCY OF THE COLLATERAL, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENTS CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY DEBTOR AND FFCA AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. 5 32 IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first above written. DEBTOR: P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation By ---------------------------------- Printed Name ------------------------ Its --------------------------------- SECURED PARTY: FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation By ---------------------------------- Printed Name ------------------------ Title ------------------------------- 6 33 EXHIBIT A COMPANIES PFCCB NUC LLC, an Arizona limited liability company PFCCB Southeastern LLC, an Arizona limited liability company PFCCB Mid-Atlantic LLC, an Arizona limited liability company PFCCB LouTex Joint Venture, an Arizona general partnership PFCCB Florida Joint Venture, an Arizona general partnership 34 EXHIBIT F NEGATIVE PLEDGE 35 AMENDED AND RESTATED NEGATIVE PLEDGE AGREEMENT THIS AMENDED AND RESTATED NEGATIVE PLEDGE AGREEMENT (this "Agreement") is made as of November 10, 1998 by P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation ("Debtor") whose principal place of business is located at 5090 North 40th Street, Suite 160, Phoenix, Arizona 85015 for the benefit of FRANCHISE FINANCE CORPORATION OF AMERICA, a Delaware corporation ("FFCA"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255. PRELIMINARY STATEMENTS This Agreement amends and restates that certain Negative Pledge Agreement date as of June 29, 1998 executed by Debtor in favor of FFCA. Capitalized terms not defined herein shall have the respective meanings set forth in that certain Second Amended and Restated Revolving Line of Credit Loan Agreement (the "Loan Agreement") dated as of the date hereof between FFCA and Debtor. Debtor either holds (i) fee title to the property legally described on the attached Exhibit A, and fee title to the buildings and improvements located thereon or (iii) a leasehold interest in the real property legally described on the attached Exhibit A (in any case, the "Premises"). FFCA has agreed to make the Loan to Debtor. In consideration of the Loan and as a security for the Loan, Debtor has agreed to execute and deliver this Agreement. AGREEMENT 1. NEGATIVE PLEDGE. Debtor agrees that it shall not sell, assign, mortgage, grant, bargain, convey, pledge or encumber by deed of trust, security agreement or other consensual monetary lien in or on Debtor's interest in the Premises or any portion thereof or permit Debtor's interest in the Premises or any part thereof to be sold, assigned, mortgaged, granted, bargained, conveyed, pledged or encumbered by deed of trust, security agreement or other consensual monetary lien without the prior written consent of FFCA, which consent may be withheld in FFCA's sole discretion. Any sale, assignment, mortgage, grant, bargain, conveyance, pledge or consensual encumbrance in breach of the preceding sentence shall be null and void and of no force and effect, and shall constitute an "Event of Default" under the Loan Agreement. Debtor acknowledges that a material inducement to FFCA's willingness to advance the Loan is the execution and delivery by Debtor of this Agreement. 2. RECORDATION. Debtor agrees that, at FFCA's election, this Agreement will be recorded in the real property records of the country where the Premises is located to provide constructive notice of the terms and conditions of this Agreement; provided, however, that this Agreement does not encumber or affect any landlord's or lessor's interest in the Premises. 3. RELEASE. FFCA agrees that at such time as the obligations of Debtor under the Loan Documents are paid and satisfied in full, FFCA shall execute a release of this Agreement. 36 4. MISCELLANEOUS PROVISIONS. A. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Agreement shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) electronic confirmation of transmission, if delivered by facsimile, (c) the next business day, if delivered by express overnight delivery service, or (d) the third business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: If to Debtor: P.F. Chang's China Bistro, Inc. 5090 North 40th Street, Suite 160 Phoenix, AZ 85018 Attention: Mr. Robert T. Vivian Telephone: (602) 957-8986 Telecopy: (602) 957-8998 With a copy to: Kenneth Van Winkle, Jr., Esq. Lewis and Roca LLP 40 North Central Avenue Phoenix, AZ 85004-4429 Telephone: (602) 262-5311 Telecopy: (602) 262-5747 If to FFCA: Dennis L. Ruben, Esq. Executive Vice President and General Counsel Franchise Finance Corporation of America 17207 North Perimeter Drive Scottsdale, AZ 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226 B. Waiver and Amendment. No provisions of this Agreement shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion. C. Captions. Captions are used throughout this Agreement for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. 2 37 D. Severability. The provisions of this Agreement shall be deemed severable. If any part of this Agreement shall be held unenforceable, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed therein. E. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Debtor and FFCA and their respective successors and permitted assigns, including, without limitation, any United States trustee, any debtor in possession or any trustee appointed from a private panel. F. Forum Selection; Jurisdiction; Venue; Choice of Law. Debtor and FFCA acknowledge that this Agreement was substantially negotiated in the State of Arizona, the Agreement was signed and delivered by Debtor in the State of Arizona, and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Agreement, the parties hereto hereby expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona and Debtor consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Debtor waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of the parties hereto that all provisions of this Agreement shall be governed by and construed under the laws of the State of Arizona. To the extent that a court of competent jurisdiction finds Arizona law inapplicable with respect to any provisions hereof, then, as to those provisions only, the laws of the state where the Premises is located shall be deemed to apply. Nothing in this Section shall limit or restrict the right of FFCA to commence any proceeding in the federal or state courts located in the state in which the Premises are located to the extent FFCA deems such proceeding necessary or advisable to exercise remedies available under this Agreement. H. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY 3 38 MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. I. Costs. Debtor shall be responsible for the payment of all out-of-pocket costs and expenses incurred by Debtor and FFCA in connection with this Agreement, including, without limitation, reasonable attorneys' fees and recording and filing fees and charges. 4 39 IN WITNESS WHEREOF, Debtor has caused this Agreement to be executed and delivered as of the day and year first above written. P.F. CHANG'S CHINA BISTRO, INC., a Delaware corporation By_____________________________ Printed Name___________________ Its____________________________ 5 40 STATE OF ARIZONA ] ] SS. COUNTY OF MARICOPA ] The foregoing instrument was acknowledged before me on November , 1998 by , of P.F. Chang's China Bistro, Inc., a Delaware corporation, on behalf of the corporation. --------------------------------- Notary Public My Commission Expires: - ----------------------------------- 6 41 EXHIBIT G COMPANIES PFCCB NUC LLC, an Arizona limited liability company PFCCB Southeastern LLC, an Arizona limited liability company PFCCB Mid-Atlantic LLC, an Arizona limited liability company PFCCB LouTex Joint Venture, an Arizona general partnership PFCCB Florida Joint Venture, an Arizona general partnership -----END PRIVACY-ENHANCED MESSAGE-----