ITEM 3: LEGAL PROCEEDINGS

The Attorney General of the State of California (State Attorney General) filed lawsuits on or about April 10, 2003 in the Los Angeles Superior Court against the Company, as well as several other restaurant chains, alleging that the defendants violated the provisions of an initiative statute known as “Proposition 65” and California Business and Professions Code Section 17203 by offering for sale certain types of fish allegedly containing mercury and mercury compounds without providing the warnings required by Proposition 65. The Company is currently in settlement negotiations with the State Attorney General's office. The Company believes that the resolution of this matter would not have a material adverse effect on the Company's financial position, results of operations or liquidity. The Company continues to implement interim notices under Proposition 65 in order to mitigate the possibility of additional liability to the Company while the settlement of all remaining issues is pending.

In December 2002, two former hourly restaurant employees in California filed a lawsuit against the Company alleging violations of California labor laws with respect to providing meal and rest breaks. The lawsuit seeks unspecified amounts of penalties and other monetary payments on behalf of the plaintiffs and other purported class members. Discovery is currently continuing in this matter. The Company intends to vigorously defend its position. Although the outcome cannot be ascertained at this time, the Company does not believe that its disposition would have a material adverse effect on the Company's financial position, results of operations or liquidity.

In October 2003, an hourly restaurant employee in California filed a lawsuit against the Company alleging violations of California labor laws with respect to the providing of meal and rest breaks and improper deductions, among other claims. The lawsuit seeks unspecified amounts of penalties and other monetary payments on behalf of the plaintiff and other purported class members. Discovery is currently continuing in this matter. The Company intends to vigorously defend its position. Although the outcome cannot be ascertained at this time, the Company does not believe that its disposition would have a material adverse effect on the Company's financial position, results of operations or liquidity.

We are also subject to other private lawsuits, administrative proceedings and claims that arise in the ordinary course of our business. Such claims typically involve claims from guests, employees and others related to operational issues common to the foodservice industry. A number of such claims may exist at any given time. We could be affected by adverse publicity resulting from such allegations, regardless of whether or not such allegations are valid or whether we are determined to be liable. From time to time, we are also involved in lawsuits with respect to infringements of, or challenges to, our registered trademarks. We believe that the final disposition of such lawsuits, proceedings and claims will not have a material adverse effect on our finan-cial position, results of operations or liquidity. It is possible, however, that our future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings or claims.